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BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA


[ADJUDICATION ORDER NO. EAD-2/DSR/RG/PU/341/2015]
___________________________________________________________________________
UNDER SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF INDIA
ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING
INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER)
RULES, 1995
In respect of
Techno Shares and Stock Brokers Ltd.
[PAN: AAACT4464G]
In the matter of
Valecha Engineering Ltd.
___________________________________________________________________________
1.

Securities and Exchange Board of India (hereinafter referred to as SEBI) had


conducted an investigation into the alleged irregularity in the scrip of Valecha
Engineering Ltd. (hereinafter referred to as VEL), a company listed on the
National Stock Exchange of India Ltd. (NSE) and the Bombay Stock Exchange
Ltd. (BSE) and into possible violation of the provisions of the Securities and
Exchange Board of India Act, 1992 (hereinafter referred to as 'SEBI Act') and
various rules and regulations made there under during the period from January
01, 2009 to December 31, 2009. During the period under investigation, the scrip
had opened at ` 35.70 on BSE and ` 37.50 on NSE on January 01, 2009. The price
of the scrip increased to ` 127.00 on BSE and `126.00 on NSE on November 18,
2009 (i.e. in 214 trading days) and closed at `107.70 on both the exchanges on
December 31, 2009. The scrip was traded on 243 days with total volume of
79,52,145 shares on BSE and 1,04,94,156 shares on NSE. The price of the scrip as
on March 10, 2011 was ` 99.65.

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2.

The investigation, inter alia, revealed that VEL had made certain major
corporate announcements and during and after the said announcements it was
observed that five brokers, including Techno Shares and Stock Brokers Ltd.
(herein after referred to as the Noticee), a member broker at the BSE and NSE,
along with their major clients had traded in the scrip of VEL on BSE and NSE. It
was observed that the Noticee was having the highest concentration of trading
in the scrip of VEL and had mainly traded on behalf of the company (VEL)
related entities (being promoters and directors of VEL) namely, Valecha
Investment Pvt. Ltd (VIPL), Reena Valecha, Padma Valecha and other corporate
entities namely Occasion Impex Pvt. Ltd (Occasion), Worth Buying Trading
Pvt. Ltd (Worth), Admire Consultants Pvt. Ltd. (Admire), and Wind Mill
Exports Pvt. Ltd (Windmill), through its sub-broker Shri Rajesh Pradhan. The
Noticee was observed to have 9.31% and 9.24% concentration in the buy and
sell side, respectively, at BSE and 6.13% (buy) and 2.89% (sell) concentration at
NSE.

3.

It was observed that while trading in the scrip of VEL on BSE, the Noticee had
executed 26 cross deals on 17 trading days for 6,40,855 shares in which 17 cross
deals were executed through synchronized orders and the time difference in
placing the said orders ranged between 0-16 seconds and the rate and
quantities were identical. Similarly, on NSE, the Noticee had executed 43 cross
deals on 13 trading days for 2,60,982 shares out of which 19 cross deals for
2,57,046 shares were executed through synchronized orders and the time
difference in placing orders ranged between 0-38 seconds only. The volumes
generated on account of such trades were in the range of 21.74% to 96.41% of
the total market volumes. Further, Shri Rajesh Pradhan, besides being the subbroker of the Noticee was also one of the employees of VEL and had mostly
traded in the scrip of VEL for the company related entities during the period
under investigation.

4.

SEBI has, therefore, initiated adjudication proceedings under the SEBI Act to
inquire into and adjudge the alleged violation of Regulations 3 (a), (b), (c), (d)
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and 4 (1) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices)


Regulations, 2003 (hereinafter referred to as PFUTP Regulations) read with
Section 12A (a), (b) and (c) of the SEBI Act and Clauses A (1), (3) and (4) of the
Code of Conduct specified under Schedule II of SEBI (Stock Brokers & SubBrokers) Regulations,1992 (hereinafter referred to as the Broker Regulations)
read with Regulation 7 of the Broker Regulations.
Appointment of Adjudicating Officer
5.

I have been appointed as the Adjudicating Officer (AO), in place of the


previous Adjudicating Officers, vide order dated August 29, 2013 under Section
15-I of the SEBI Act read with Rule 3 of the SEBI (Procedure for Holding
Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995
(hereinafter referred to as the Adjudication Rules) to inquire into and adjudge
under Sections 15 HA and 15 HB of the SEBI Act, the alleged violation of the
provisions of law by the Noticee.

Show Cause Notice, Reply and Personal Hearing


6. A Show Cause Notice dated June 06, 2011 ('SCN') was issued to the Noticee
under Rule 4 of the Adjudication Rules to show cause as to why an inquiry
should not be held against it and penalty be not imposed under Sections 15 HA
and 15 HB of the SEBI Act for the alleged violations of the provisions of law by
the Noticee. The Noticee vide letter dated June 17, 2011 requested for all the
documents relied upon by SEBI and sought 4 weeks time to file its reply in the
matter. However, the Noticee did not file any reply in the matter.
7.

Thereafter, in the interest of Natural Justice and in order to conduct an inquiry


as per Rule 4(3) of the Adjudication Rules, an opportunity of personal hearing
was granted to the Noticee by the then AO on August 03, 2011. The said notice
of hearing also stated that as all the relevant documents relied upon had
already been provided along with the SCN, no further documents can be
provided in the matter. The Noticee, vide its letter dated July 30, 2011, again
requested for the documents relied upon and further requested for an
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adjournment of the scheduled hearing and sought additional four weeks time
to file its reply in the matter. The said request was not acceded to and vide
notice dated August 03, 2011, another opportunity of personal hearing was
granted to the Noticee on August 24, 2011. Vide letter dated August 22, 2011,
the Noticee submitted its reply to the SCN. Further, the Authorized
Representatives (ARs) appeared on behalf of the Noticee on the scheduled date
and sought time to file additional reply in the matter. Accordingly, vide letter
dated August 29, 2011, the Noticee filed its additional submissions.
Meanwhile, the Noticee filed consent application which was later rejected and
the same was communicated to the Noticee vide letter dated January 03, 2013.

8.

In view of the same, another opportunity of personal hearing was granted to


the Noticee on January 22, 2013 by the then AO. One Shri Jaydeep Mehta,
Director of the Noticee along with the AR appeared on the scheduled date and
reiterated the written submissions. Upon the appointment of the subsequent
AO, another opportunity of personal hearing was granted to the Noticee on
August 08, 2013. The ARs appeared on behalf of the Noticee on the scheduled
date and reiterated the written submissions. Additionally, the Noticee was
advised to file the trading details of all its clients who had traded through its
sub-broker, Shri Rajesh Pradhan during the relevant period along with their
KYCs and the KYC of the Sub-Broker & his wife and the sub-broker's
application form. Accordingly, vide letter dated August 12, 2013, the Noticee
submitted the KYC documents and the trading details.

Pursuant to my

appointment as the AO in the matter, another opportunity of personal hearing


was granted to the Noticee on August 05, 2014. The Director of the Noticee
Company appeared on the scheduled date and reiterated the written
submissions. Also, vide letter dated August 05, 2014, the Noticee resubmitted
all the documents submitted by it earlier vide letter dated August 12, 2013.

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Issues, Evidence and Findings


9. I have carefully perused the charges leveled against the Noticee as mentioned
in the SCN, written submissions made by the Noticee and all the relevant
documents as available on record. In the instant matter, the following issues
arise for consideration and determination:
a)

Whether the Noticee has violated Regulation 3 (a), (b), (c), (d) and 4 (1)
of the PFUTP Regulations read with Section 12A (a), (b) and (c) of the
SEBI Act and Clauses A (1), (3) and (4) of the Code of Conduct specified
under Schedule II read with Regulation 7 of the Broker Regulations?

b)

Whether the Noticee is liable for monetary penalty under Sections 15


HA and 15 HB of the SEBI Act?

c)

If so, what should be the quantum of monetary penalty?

10. Before proceeding forward, I would like to refer to the relevant provisions of
law which read as under:
Provisions of the SEBI Act
Prohibition of manipulative and deceptive devices, insider trading and
substantial acquisition of securities or control.
12A. No person shall directly or indirectly
(a) use or employ, in connection with the issue, purchase or sale of any securities
listed or proposed to be listed on a recognised stock exchange, any manipulative or
deceptive device or contrivance in contravention of the provisions of this Act or
the rules or the regulations made thereunder;
(b) employ any device, scheme or artifice to defraud in connection with issue or
dealing in securities which are listed or proposed to be listed on a recognised stock
exchange;
(c) engage in any act, practice, course of business which operates or would operate
as fraud or deceit upon any person, in connection with the issue, dealing in
securities which are listed or proposed to be listed on a recognised stock exchange,

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in contravention of the provisions of this Act or the rules or the regulations made
thereunder;
Provisions of the PFUTP Regulations
3. Prohibition of certain dealings in securities
No person shall directly or indirectly
(a) buy, sell or otherwise deal in securities in a fraudulent manner;
(b) use or employ, in connection with issue, purchase or sale of any security listed
or proposed to be listed in a recognized stock exchange, any manipulative or
deceptive device or contrivance in contravention of the provisions of the Act or the
rules or the regulations made thereunder;
(c) employ any device, scheme or artifice to defraud in connection with dealing in
or issue of securities which are listed or proposed to be listed on a recognized stock
exchange;
(d) engage in any act, practice, course of business which operates or would operate
as fraud or deceit upon any person in connection with any dealing in or issue of
securities which are listed or proposed to be listed on a recognized stock exchange
in contravention of the provisions of the Act or the rules and the regulations made
thereunder.
4. Prohibition of manipulative, fraudulent and unfair trade practices
(1) Without prejudice to the provisions of regulation 3, no person shall indulge in
a fraudulent or an unfair trade practice in securities.
Provisions of the Broker Regulations
Schedule IIA. General.
(1) Integrity: A stock-broker, shall maintain high standards of integrity,
promptitude and fairness in the conduct of all his business

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(3) Manipulation : A stock-broker shall not indulge in manipulative, fraudulent


or deceptive transactions or schemes or spread rumours with a view to distorting
market equilibrium or making personal gains.
(4) Malpractices: A stock-broker shall not create false market either singly or in
concert with others or indulge in any act detrimental to the investors interest or
which leads to interference with the fair and smooth functioning of the market. A
stockbroker shall not involve himself in excessive speculative business in the
market beyond reasonable levels not commensurate with his financial soundness.
11. I find from the SCN that the Noticee is the member broker at BSE and NSE and
had the highest concentration of trading in the shares of VEL during the
investigation period and most of the trades were executed by it from the
account of Noticee's sub-broker Shri Rajesh Pradhan for his clients. I further
find that the said sub-broker was also one of the employees of VEL and had
mostly traded in the scrip of VEL during the relevant period. VEL had made
certain major corporate announcements and during and after the said
announcements I find that five brokers, including the Noticee, had traded in the
scrip of VEL significantly. The Noticee was having the highest concentration of
trading in the scrip of VEL and had mainly traded on behalf of the company
(VEL) related entities (being promoters and directors of VEL ) namely, Valecha
Investment Pvt. Ltd (VIPL), Reena Valecha, Padma Valecha and other corporate
entities namely Occasion Impex Pvt. Ltd (Occasion), Worth Buying Trading
Pvt. Ltd (Worth), Admire Consultants Pvt. Ltd. (Admire), and Wind Mill
Exports Pvt. Ltd (Windmill), through its sub-broker Shri Rajesh Pradhan. The
Noticee was observed to have generated 9.31% and 9.24% concentration in the
buy and sell side, respectively, at BSE and 6.13% (buy) and 2.89% (sell)
concentration at NSE. The relationship between the above mentioned entities
with the company is detailed as under:
Name
Valecha
Investment Pvt.
Ltd. (VIPL)

Key person/Director
Umesh Valecha

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Relation/connection
Promoter of the Company

Reena Valecha

--

Wife of
(Managing
Company)

Padma Valecha

--

Mother of Jagdish Valecha

Nirjari Desai

--

Windmill Exports
Pvt. Ltd.
(Windmill)

Sujita Pradhan
Gopaldas M Gwalani
Ajay Deole

Worth Buying
Trading Pvt. Ltd
(Worth)

Anil Lulla
Uday S Sane

Admire
Consultants Pvt.
Ltd. (Admire)

Occasion Impex
Pvt. Ltd
(Occasion)

Sujita Pradhan
(w/o Rajesh Pradhan, SubBroker and employee of the
Company)
Gopaldas M Gwalani (father-inlaw of Jagdish Valecha)
Sujita Pradhan
Ajay Deole

Jagdish
Director

Valecha
of the

NRI friend of Valechas and


gave power of Attorney to
Jagdish Valecha
Common
phone
number
(26733625)
as
Valecha
Engineering Ltd.
Common
Directors as Admire and
Brightword.
Same address as DM Harish &
Co. (a partnership firm of Anil
Harish, Chairman of VEL), Ajay
Deole is employee of F2Fun &
Fitness (I) Ltd. Promoters of
Worth Buying viz. Anil Lulla
and Uday Sane are employees
in DM Harish & Co.
Phone
number
(26607476)
belongs to B L Pradhan (father
of Rajesh Pradhan who is
employee of VEL).
Ajay Deole is common director
in Worth Buying and Occasion.
Brightword and Windmill are
major shareholders in Occasion.

12. I find that, on BSE, the Noticee was alleged to have executed 26 cross deals on
17 trading days for 6,40,855 shares out of which 17 cross deals were executed
through synchronized orders where the time difference in placing the orders
ranged between 0 to 16 seconds and the rate and quantities were identical.
Similarly, on NSE, the Noticee was alleged to have executed 43 cross deals on
13 trading days for 2,60,982 shares out of which 19 cross deals for 2,57,046
shares were executed through synchronized orders, where the time difference
in placing the orders ranged between 0 to 38 seconds only.

13. The volume generated on account of the trading of the abovementioned clients
was in the range of 21.74% to 96. 41% of the total market volume. A summary
of the trading by the abovementioned entities is detailed as under:

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Client Name
VIPL

BSE
Buy

NSE
Sell

Buy

Sell

239555

3.01

0.00

113433

1.08

0.00

45504

0.57

388507

4.89

262218

2.50

223074

2.13

0.00

209708

2.64

0.00

0.00

Windmill

64450

0.81

55405

0.70

68276

0.65

26000

0.25

Worth

26000

0.33

38514

0.48

26000

0.25

38486

0.37

Reena

108395

1.36

0.00

0.00

0.00

49525

0.62

0.00

50475

0.48

0.00

38790

0.37

0.00

Occasion
Admire

Padma
Nirjari

35785 0.45
0
0.00
*Total Volume at BSE-79,52,145 & NSE- 1,04,94,156)

14. Upon analysis of the trading, I find that VIPL bought 2,35,860 shares (96.41% of
market volume) on February 27, 2009 on BSE and counterparties for 2,35,858
shares were Admire (2,09,704) and Windmill (26,154). The time difference in
placing these orders ranged between 1 to 7 seconds. Further, the rate and
quantity of these orders were also identical. On NSE, VIPL bought 26,020 shares
on April 22, 2009 and the counterparty for 25,960 shares was Occasion. The time
difference in placing these orders was 0 second (no time difference between
placing of orders).

15. Further, Reena Valecha, who is Wife of Jagdish Valecha (Managing Director of
the Company), had bought 1,00,100 shares (93.77% of market volume recorded
on BSE) on March 20, 2009 and 8,295 shares (41.89% of volume) on March 24,
2009 and the major counterparty for the said trades was Occasion for 1,08,295
shares and the time difference ranged between 0 to 7 seconds. Further, the rate
and quantity were also identical for these orders.

16. On May 7, 2009, Padma Valecha, who is the mother of Jagdish Valecha, had
bought 1,00,000 shares (49,525 shares on BSE and 50,475 shares on NSE) which
constituted for 67.25% of total volume recorded at exchanges (combined) and
Occasion was the counterparty for 98,900 shares (49,000 shares on BSE and
49,900 shares on NSE). The time difference in placing these orders ranged

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between 0 second on NSE and 1 second on BSE. Further, the rate and quantity
in respect of these orders were also identical.
17. Nirjari Desai had bought 25,000 shares on April 15, 2009, 24,850 shares on May
5, 2009, 5,000 shares on August 7, 2009 and 5,600 shares on August 12, 2009 for
which the major counterparty was Occasion for 24,950 shares, 24,850 shares,
5,000 shares and 5496 shares, respectively. Her contribution (exchange wise)
was ranging from 21.74% to 76.41% of the volume on the day. Time difference
in placing the orders was 0 seconds in all days except one day, wherein, it was
16 seconds.
18. Further, I find that between November 30, 2009 and December 16, 2009,
Windmill and Worth altogether had bought 64,450 shares on BSE and 63,400
shares on NSE and were the counterparties for each other for 62,325 shares and
63,400 shares, respectively. The time difference in the orders placed on BSE
ranged between 1 to 6 seconds while on NSE it was 'nil'. Further, the rate and
quantity were also identical for these orders.

19. Therefore, the Noticee being the broker, who had executed the alleged sham
transactions through its sub-broker, was alleged to have aided and abetted the
company related entities for creating artificial volume in the scrip of VEL
thereby, violating Regulations 3 (a), (b), (c), (d) and 4 (1) of the PFUTP
Regulations read with Section 12A (a), (b) and (c) of the SEBI Act and Clauses A
(1), (3) and (4) of the Code of Conduct specified under Schedule II, read with
Regulation 7 of the Broker Regulations.

20. The Noticee vide its replies dated August 22, 2011 and August 29, 2011, inter
alia, submitted that there is no legal embargo on clients related to a particular
company to trade in the scrip of that company and on sub broker registered
with a broker to work somewhere else and to bring clients to a broker for
trading in the scrip of a company where he himself is working. The trades
executed by the Noticee on behalf of its clients during the investigation period
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were only executed in the due course of its business and not with any malafide
intent. It denied being aware of fact that some of the clients who traded during
the relevant period were related to VEL. The Noticee further denied the
allegation of aiding and abetting clients for executing sham transactions and
also failing to exercise the required due diligence. The Noticee submitted that it
has not indulged in fraudulent and unfair trade practices relating to the
securities and was not connected to VEL. Further the Noticee stated that it was
not aware of the corporate announcements made by the said company. It was
neither aware of any of the company related entities nor that the said company
related entities had benefitted by trading in the shares of VEL prior to the
dissemination of price sensitive information to the public.
21. As regards Shri Rajesh Pradhan, the Noticee submits that he was the subbroker of the Noticee since the financial year 2007-2008. Further, the Noticee
stated that it was not aware that its sub-broker i.e. Shri Rajesh Pradhan was an
employee of VEL. With respect to the allegation of executing cross deals, the
Noticee submitted that they were all executed in the nature of negotiated deals
by the Noticees sub brokers in accordance with the Boards circular dated
September 14, 1999. The fact that trades in question were in the nature of
negotiated deals is also borne out by the admitted identical quantities and rates
of the trades and also the same place of the trades viz. from the Noticees
corporate office at Fort Mumbai. For the negotiated deals executed by the
Noticee the parties also agree on the time when the orders will be placed in the
system. Almost all the trades executed by the Noticee on behalf of its clients
were delivery based, involving change in beneficial ownership and as a result
of such trades there was no effect on the price.

22. The Noticee stated that it had not executed any trades in its proprietary trading
account in the scrip of VEL. The Noticee did not share any other relationship
with the clients other than that of the broker client relationship. The Noticee
denied employing any device, scheme or artifice to defraud in connection with

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the issue or dealing in securities which are listed or proposed to be listed on a


recognized stock exchange.
23. The Noticee contended that merely because the Noticee traded on behalf of the
said clients it cannot be assumed that it was aware of the nature of transactions
executed by its clients. There was nothing that could have alerted the Noticee
that the said clients were in possession of unpublished price sensitive
information. The Noticee further submitted that whatever it was obliged to do
vis-`a-vis the client in terms of regulations, it had done that and it cannot be
accused of not exercising due sill and care as it has done so as expected of a
prudent broker. There were several other clients who were also trading through
the Noticee in the scrip of VEL during the relevant period. No trading was done
by the directors/employees/relatives of the Noticee in the scrip of VEL during
the relevant period. The trades of the said client constituted a mere 0.019% of its
total turnover across segments or 0.074% of the cash market turnover during
the relevant period. The Noticee has not made any profit out of the alleged
transactions except earning brokerage during the relevant period.

24. Further, vide letters dated August 12, 2013 and August 05, 2014, the Noticee
submitted copies of the KYC forms of clients who traded in the scrip of VEL
through Shri Rajesh Pradhan along with the copies of the KYC forms of Shri
Rajesh Pradhan and his wife, copies of sub-broker registration documents of
Shri Rajesh Pradhan along with the copy of his sub-broker cancellation
documents and trade details.
25. I have carefully perused the allegations and the submissions made by the
Noticee and find that the Noticee while trading in the scrip of VEL was having
the highest concentration in trading at both the exchanges. I also find that the
Noticee had carried out trades for its clients who were related to VEL. The said
trades were executed by the Noticee's sub-broker Shri Rajesh Pradhan, who in
turn had executed 26 cross deals on 17 trading days for 640855 shares on BSE,
out of which 17 cross deals were executed through synchronized orders where
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the time difference in placing these orders ranged between 0 to 16 seconds,


while the rate and quantity were identical. Similarly, on NSE 43 cross deals on
13 trading days for 2,60,982 shares were executed out of which 19 cross deals
for 2,57,046 shares were executed through synchronized orders, where the time
difference in placing the orders ranged between 0 to 38 seconds only. By
executing the said trades, a sudden spurt in volume was observed in the said
scrip when compared to the other trading days.

26. From the material available on record, I find that Noticee's sub-broker Shri
Rajesh Pradhan had executed the trades for its clients in a manipulative way
and few of the trades are illustrated as under:
(i) VIPL had bought 2,35,860 shares (96.41%) on BSE, on February 27, 2009 and
Admire and Windmill were counterparties who bought 2, 09,704 and 26,154
respectively. There was a time difference of merely 1 to 7 seconds between
placing these orders. Further, the rate and quantity of these orders were also
identical. VIPL bought 26,020 shares on NSE, on April 22, 2009 and Occasion
was the counterparty for 25,960 shares. It is observed that there was no time
difference between placing of these orders.
(ii) Smt. Reena Valecha had bought 1,00,100 shares (93.77%) on March 20, 2009
and 8,295 shares (41.89%) on March 24, 2009 on BSE and Occasion was a
major counterparty for 1,08,295 shares and time difference was ranging from
0 to 7 seconds. Further it is observed that, the rate and quantity were also
identical for these orders.
(iii) On May 7, Smt. Padma Valecha had bought 1,00,000 shares (49,525 shares on
BSE and 50,475 shares on NSE) that constituted 67.25% of total volume
recorded at exchanges (combined) and Occasion was a counterparty for
98,900 shares (49,000 shares on BSE and 49,900 shares on NSE). The time
difference between placing of these orders was 0 second on NSE and 1 second
at BSE. Further, the rate and quantity in respect of these orders were also
identical.
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(iv) Smt. Nirjari Desai had bought 25,000 shares on April 15, 2009, 24,850 shares
on May 5, 2009, 5,000 shares on August 7, 2009 and 5,600 shares on August 12,
2009 and Occasion was a major counterparty for 24,950 shares, 24,850 shares,
5,000 shares and 5496 shares respectively. Her contribution (exchange wise)
was ranging from 21.74% to 76.41% of the volume on the day. The time
difference between placing orders was 0 seconds in all days except once,
wherein, it was 16 seconds.
(v) Windmill and Worth together bought 64,450 shares on BSE and 63,400 shares
on NSE from November 30, 2009 to December 16, 2009, and were
counterparties for each other for 62,325 shares and 63,400 shares respectively.
The time difference between orders placed on BSE was ranging 1-6 seconds
while on NSE it was nil. Further, the rate and quantity were also identical for
these orders.

27. By executing the above trades, I find that there was a sudden rise in the
volumes in the scrip of VEL which ranged from 21.74% to 96.41% of the total
market volume. Therefore, I note that the Noticee had indeed executed cross
deals on both BSE and NSE on behalf of its clients through its sub-broker Shri
Rajesh Pradhan. Further, all these orders were placed from same location, viz.
Manu Mansion, 16 Shaheed Bhagat Singh Marg, Fort, Mumbai 400001, which
is corporate office of the Noticee.

28. I find that a cross deal transpires when the buyer and the seller have a common
trading member/stock broker and where the buy and sell orders have been
entered into within such time, where the prices of both the orders is the same
and where the quantity is by and large the same. When a buyer and seller
approach the stock broker for executing their respective trades, it is not always
necessary that they shall approach together. Such deals may or may not be a
negotiated deal. In any case, while executing a trade on behalf of the buyer and
the seller, the broker must ensure that the price and order matching mechanism
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of the system is not interfered, circumvented or evaded. Here, I would like to


refer the case of Bubna Stock Broking Services Limited vs. SEBI, order dated
4.11.2009 in Appeal no. 41 of 2009, wherein the Hon'ble SAT had held that cross
deal is a trade where the buyer and the seller have the same broker. Such deals
ipso facto are not illegal but they have to be executed only on the screen of the
Exchange in the price and order matching mechanism of the Exchange just like
any other normal trade. In other words, the broker is expected to put buy and
sell orders in to the system allowing the system to match the trades at the then
prevailing market price. I find that in the present case the trades executed by
the Noticee through its sub-broker Shri Rajesh Pradhan are nothing but cross
deals and cannot be treated as negotiated deals. Therefore, I do not find merit
in the submissions of the Noticee.
29. Further, the Noticee in its reply has stated that it did not have the knowledge of
its sub-broker being an employee of VEL. On perusal of the KYC form of Shri
Rajesh Pradhan as submitted by the Noticee vide letter dated August 12, 2013
and August 05, 2014, I find that, Shri Rajesh Pradhan has clearly mentioned in
point 3B of the KYC form that its official address is that of VEL and also under
the heading 'personal information of the client' his occupation has been stated
to be "Service". In view of the same, I find no merit in the submissions of the
Noticee .

30. Further, I do not find merit in the submissions of the Noticee that it had
executed certain trades for some of its clients who were related to VEL, not
knowing that they were related to VEL through its sub-broker Shri Rajesh
Pradhan, who was also an employee of VEL. I find that, the kind of trading
done by the Noticees sub-broker, Shri Rajesh Pradhan,

for the company

related entities should have alerted the Noticee, particularly as the sub-broker
was executing trades for significant quantities in the scrip of VEL. Therefore, I
conclude that the Noticee had failed to monitor the functioning of its subbroker and trading done by some of its clients. The Hon'ble SAT in the case of

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JM Mutual Fund and JM Capital Management Pvt. Ltd. V. SEBI, Appeal Nos. 3939A/2004 dated November 22, 2004 has observed that due diligence is an
obligation to exercise reasonable care and no hard and fast rule or straight
jacket method can be applied with regard to the principle of due diligence. The
act of exercising due diligence can be both an obligation and a defense to the
liability. The standard of diligence is required to be higher in the cases of
professionals or intermediaries who have special expertise or function to
operate in the securities market when compared to that of a man of ordinary
prudence. Also, in the case of Sharedeal Financial consultants Pvt. Ltd.

v.

Chariman, SEBI [2003] 44SCL 613 the Hon'ble SAT has observed, that in the
context of Stock Brokers, due diligence would imply at least such care and skill
as a man of ordinary prudence would exercise under similar circumstances.

31. From the above, I conclude that by employing Shri Rajesh Pradhan, an
employee of VEL as a Sub-broker, who facilitated some the company related
entities to trade in the scrip and create artificial volume in the scrip, the Noticee
has indeed aided and abetted the said clients and executed sham transactions in
the scrip of VEL thereby failing to exercise due diligence in identifying
employee or related entities of VEL who traded in the scrip and thus, has
violated the provisions of Regulations 3 (a), (b), (c), (d) and 4 (1) of the PFUTP
Regulations read with Section 12A (a), (b) and (c) of the SEBI Act, warranting
imposition of monetary penalty under Section 15 HA of the SEBI Act and also,
violating Clauses A (1), (3) and (4) of the Code of Conduct as specified under
Schedule II read with Regulation 7 of the Broker Regulations, warranting
imposition of monetary penalty under Section 15 HB of the SEBI Act.

32. Section 15 HA and 15 HB of SEBI Act, 1992 read as follows:


Penalty for fraudulent and unfair trade practices.
15HA. If any person indulges in fraudulent and unfair trade practices relating to
securities, he shall be liable to a penalty of twenty-five crore rupees or three times the
amount of profits made out of such practices, whichever is higher.
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15HB.Whoever fails to comply with any provision of this Act, the rules or the regulations
made or directions issued by the Board thereunder for which no separate penalty has been
provided, shall be liable to a penalty which may extend to one crore rupees.
33. The Honble Supreme Court of India in the matter of SEBI v. Shri Ram Mutual
Fund [2006] 68 SCL 216(SC) inter alia held: once the violation of statutory
regulations is established, imposition of penalty becomes sine qua non of violation and
the intention of parties committing such violation becomes totally irrelevant. Once the
contravention is established then the penalty is to follow.
34. While imposing monetary penalty, it is obligatory to consider the factors
stipulated in Section 15J of the SEBI Act which reads as under:
15J - Factors to be taken into account by the adjudicating officer
While adjudging quantum of penalty under section 15-I, the adjudicating officer
shall have due regard to the following factors, namely:(a) the amount of disproportionate gain or unfair advantage, wherever
quantifiable, made as a result of the default;
(b) the amount of loss caused to an investor or group of investors as a result of the
default;
(c) the repetitive nature of the default.
35. I observe that, from the material available on record, it is difficult to quantify
any gain or unfair advantage accrued to the Noticee or the extent of loss
suffered by the investors as a result of the default of the Noticee. The defaults
are repetitive in nature. I find that, the Noticee being a registered intermediary
is under an obligation to comply with the various Rules and Regulations
applicable to it which it has failed to do.

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ORDER

36. In view of the above, after considering all the facts and circumstances of the
case and exercising the powers conferred upon me under Section 15-I (2) of the
SEBI Act read with Rule 5 of the Adjudication Rules, I hereby impose a penalty
of ` 5,00,000/- (Rupees Five Lakh Only) under Section 15 HA of the SEBI Act
and a penalty of `2,00,000/- (Rupees Two Lakh Only) under Section 15 HB of
the SEBI Act. Thus a total penalty of ` 7,00,000/- (Rupees Seven Lakh Only)
has been imposed on the Noticee viz. Techno Shares & Stocks Pvt. Ltd. In my
view, the penalty is commensurate with the default committed by the Noticee.
37. The penalty amount as mentioned above shall be paid by the Noticee through a
duly crossed demand draft drawn in favour of SEBI Penalties Remittable to
Government of India and payable at Mumbai, within 45 days of receipt of this
order. The said demand draft should be forwarded to the Division Chief,
Enforcement Department (DRA-1), Securities and Exchange Board of India, Plot
No. C4-A, G Block, Bandra Kurla Complex, Bandra (E), Mumbai 400 051.
38. In terms of the provisions of Rule 6 of the Adjudicating Rules the copies of this
order are sent to the Noticee and also to Securities and Exchange Board of
India.

Date: January 02, 2015

D. SURA REDDY

Place: Mumbai

GENERAL MANAGER &


ADJUDICATING OFFICER

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