BEFORE THE ADJUDICATING OFFICER SECURITIES AND EXCHANGE BOARD OF INDIA [ADJUDICATION ORDER NO.

VSS/AO- 75/2009] __________________________________________________ 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 Sunil Giridharilal Raheja (PAN.AAEPR4712N) FACTS OF THE CASE IN BRIEF 1. Securities and Exchange Board of India (hereinafter referred to as SEBI) conducted investigation into the trading done by Mr. Sunil Giridharilal Raheja, Mrs. Simran Raheja and Mr. Swaminathan Subramani (hereinafter collectively referred to as Group) from January 1, 2008 to May 5, 2008 (hereinafter referred to as Investigation Period) in the following scrips: a) b) c) d) e) f) g) Visesh Infotecnics Ltd. Sanra Software Ltd. Jumbo Bag Ltd. Cerebra Integrated Technologies Ltd. Brushman India Ltd. Tricom India Ltd. Glory poly Films Ltd.

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h) i) j) k) l)

Rainbow Foundations Ltd. GV Films Ltd. Yogi Sung-Won India Ltd. Kaashyap Radiant Systems Ltd. International Hometex Ltd.

2.

It was alleged that Mr. Sunil Giridharilal Raheja (hereinafter referred to as Noticee) along with Mrs. Simran Raheja and Mr. Swaminathan Subramani had indulged in self/synchronized trading which led to creation of artificial volumes in the aforesaid scrips and was designed to create a false market leading to significant price movement in the aforesaid scrips and, hence, violated the provisions of regulations 4 (2) (a), (b) and (g) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003 (hereinafter referred to as PFUTP).

3.

The aforesaid alleged violations, if established, make the Noticee liable for monetary penalty under section 15HA of Securities and Exchange Board of India Act, 1992 (hereinafter referred to as SEBI Act).

APPOINTMENT OF ADJUDICATING OFFICER

4.

The undersigned was appointed as Adjudicating Officer vide order dated November 24, 2008 under section 15 I of SEBI Act read with rule 3 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as Rules) to inquire into and adjudge the alleged violations of provisions of PFUTP.

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SHOW CAUSE NOTICE, HEARING AND REPLY 5. Show Cause Notice No. EAD-5/VSS/RS/152410/2009 dated January 30, 2009 (hereinafter referred to as SCN) was issued to the Noticee under rule 4(1) of the Rules to show cause as to why an inquiry should not be held against the Noticee and penalty be not imposed on the Noticee under section 15HA of SEBI Act for the alleged violation specified in the said SCN.

6.

The Noticee vide letter dated February 09, 2009 replied to the SCN stating, inter alia, the following :
I am having Trading accounts with the brokers as mentioned in your above letter. With regard to the Trading System I was doing such type of Transactions with the only SOLE purpose of maintaining the Credit/Debit balances with the respective Brokers with whom I am having accounts. To ensure that I receive the shares at the same rates I used to put the sale and buy orders simultaneously at the same rate and same time to the respective brokers with whom I had to maintain the Credit balance. Sir, I declare your good selves there is not intention to manipulate the price by creating an artificial market. Even though Mrs. Simran is wife of myselves she has got her own individuality and own decisions,participates in Stock Market on her own and we both not to be considered as group at all. Also wife using her husband's phone is common. This had happened only due to Ignorance and not knowing the facts that your good self will object the same. I sincerely apologize the same and humbly plead your good selves to excuse and bear with me for the same.

7.

In the interest of natural justice and in order to conduct an inquiry as per rule 4 (3) of the Rules, the Noticee was granted an opportunity of personal hearing on April 13, 2009 at SEBI, Southern Regional Office, Chennai vide notice dated March 2, 2009. Mr. N. Rajkumar, Authorized Representative, appeared on behalf of the Noticee (hereinafter referred to as AR). During the hearing, the AR reiterated the submissions made vide letter dated February 09, 2009. The Noticee vide letter dated April 13, 2009 made further submissions stating, inter-alia, the following:

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A synchronized trade is a transaction wherein the buy and sell order quantities are identical, and are put through at exactly the same time on the trading platform. One of the guiding principles in proving synchronized trading, as per the SEBI Regulations, is the exactness of the price and quantity of the 'buy' and 'sell' orders and the closeness in time at which they are placed. The Securities Appellate Tribunal had clarified that synchronized trading is per se not illegal unless the intent to manipulate the price by creating an artificial market is proven. For the market manipulation stated in Regulation 4 (of FUTP Regulations) if one is to be charged it is absolutely necessary to prove that the person had acted intentionally," SAT had said in the Nirmal Bang case. In the Videocon case, the Tribunal examined the extent of evidence required to establish the charge of market manipulation and observed: "... in the absence of reasonably good evidence to support, charge of market manipulation, which is a very serious one, cannot stick on the Appellant company, merely on surmises and conjectures." I wish to state that none of the transactions done by me falls neither in Synchronized trading nor Circular trading, as it has failed to fulfil the entire criteria as defined by the applicable Acts in force from time to time. Trading Mantra: High Volume Low Margin is the concept of my trading. I do trade regularly for my living. Whatever trade done, I had no intention of misleading the market and I have a Depository Partcipant Account for receiving delivery in demat form from my broker thereby establishing that I have no intention of denying the transfer of beneficial ownership. There is no rule which states that the market price of a share should be so many times of its earnings. The prices are subject to market demand and supply. Trading a mere 10% of the shares does not mean that I have the intention to operate only as a device to inflate, depress or cause fluctuations in the price of such security for wrongful gain or avoidance of loss. The trading system is as such that the trades will result in delivery in T+2 days for delivery based and netting basis for intra day trading. As a trader when the share price comes down when I purchased at a high price, any trader/investor for that matter will try to average it or exit from that particular share. Mere "netting" does not result in violation 4 (2)@)(g) of PFUTP Regulations.

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However, I agree that the transactions have been done only due to the fact that that I was not in a position to honour my payments in time and availed the extra time limit granted by the broker, as I was facing severe financial crunch. For all companies which appear in your letter, the said shares traded by me does not exceed even half a percent of its paid up capital or outstanding capital of the company. The price of the said shares have not been substantially increased or decreased. CONSIDERATION OF ISSUES AND FINDINGS

8.

The issues that arise for consideration in the present case are :

a) Whether the Noticee had violated regulations 4 (2) (a), (b) and (g) of PFUTP? b) Does the violation, if any, on the part of the Noticee attract monetary penalty under section 15 HA of SEBI Act? c) If so, what would be the monetary penalty that can be imposed taking into consideration the factors mentioned in section 15J of SEBI Act?

9.

Before moving forward, it will be appropriate to refer to the relevant provisions of PFUTP, which reads as under:

4. Prohibition of manipulative, fraudulent and unfair trade practices (2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely: (a) indulging in an act which creates false or misleading appearance of trading in the securities market; (b) dealing in a security not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress or cause fluctuations in the price of such security for wrongful gain or avoidance of loss; (c) .

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(d) (e) (f) (g)

. . . entering into a transaction in securities without intention of performing it or without intention of change of ownership of such security.

10. Upon careful perusal of the documents available on record including the basis of allegations made, submissions of the Noticee, etc., I find the following:

a) Mrs. Simran Raheja is the wife of the Noticee, which has been admitted by the Noticee. Mr. Swaminathan Subramani shared a common contact mobile number, viz. 9884482935 with the Noticee. The Noticee, during the hearing, submitted that he does not know Mr. Swaminathan Subramani. He also submitted that he, his wife and Mr. Subramani were introduced by one Mr. Amit who, by mistake, had written the same contact number for all of them in the KYC forms and hence, they should not be considered as a group. However, the material available on record reveals that Mr. Swaminathan Subramani and the Noticee were introduced by the same person, both of them dealt in the same scrips with the same set of brokers during the same period and, above all, in the same pattern. All these cannot be said to be mere

coincidence. The claim of the Noticee that he does not know Mr. Swaminathan Subramani does not appear to be true. Hence, the contention of the Noticee in this regard is devoid of merit.

b) The examination of the trade-order log, details of which were provided to the Noticee as Annexure to the SCN, reveals that the Group had indulged in self trades in all 12 scrips through

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different/same brokers creating artificial volumes to the extent of 43,57,157 shares. The summary of the trades executed by the Group is given below:

Scrip Name

Self Trade (Volume)

Volume Traded by the Group

Total Volume in the Scrip

Self Trade as a % of total volume 8.68%

Visesh Infotecnics Ltd Sanra Software Ltd Jumbo Bag Ltd Cerebra Integrated Technologi es Ltd Brushman India Ltd. Tricom India Ltd Glory poly Films Ltd. Rainbow Foundation s Ltd GV Films Ltd Yogi SungWon India Ltd Kaashyap Radiant Systems Ltd Internation al Hometex Ltd Total

1,285,919

4,465,928

14,820,246

Self Trade as a % of Trading done by the Group 28.79%

189,032

793,366

1,748,837

10.81%

23.83%

33676 328,122

152822 2,097,574

9,385,783 3,043,853

0.36% 10.78%

22.04% 15.64%

4000 314,654 214,580 25,026

30792 3,405,987 2,503,938 365,913

3,885,780 7,047,927 8,846,033 797,612

0.10% 4.46% 2.43% 3.14%

12.99% 9.24% 8.57% 6.84%

1,887,620 4500

33,991,639 234573

306,776,071 919,272

0.62% 0.49%

5.55% 1.92%

69822

26668441

333,350,848

0.02%

0.26%

206

603628

4,510,517

0.00%

0.03%

4,357,157

75,314,601

695,132,779

0.63%

5.79%

c) The Group had created substantial artificial volumes in these scrips by indulging into self trades/synchronized trades.

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d) For instance, in 5 scrips, viz. Visesh Infotecnics Ltd., Sanra Software Ltd., Jumbo Bag Ltd., Cerebra Integrated Technologies Ltd. And Brushman India Ltd., the percentage of self trades was more than 10% of the volume traded by the group as seen from the aforesaid table. Similarly, in respect of 4 scrips, viz., Tricom India Ltd., Glory Poly Films Ltd., Rainbow Foundations Ltd. and GV Films Ltd., the percentage of self trades was between 5 and 10%. In respect of 1 scrip, viz., Yogi Sunwon India Ltd., the percentage was more than 1% and in respect of 2 scrips, viz., Kaashyap Radiant Systems Ltd. and International Hometex Ltd. the percentage was less than 1.

e) The Noticee had traded in all the 12 scrips during the investigation period.

f) In several instances, the Noticee himself was the buyer as well as the seller in all the 12 scrips. In other words, the Noticee was present on both the legs of the transactions. This pattern of trading is known as self trading.

g) The Noticee had indulged in such self trades through 12 brokers and created an aggregate volume of 42,16,542 shares in all the 12 scrips. The details of the self trades done by the Noticee are given below:

Scrip Name

Wash Volume

Volume traded by Entiy in the Scrip

Total Volume in the Scrip

% of Wash Trades to Total Volume in the Scrip 8.41

Visesh Infotecnics Ltd

1,246,788

3,404,145

14,820,246

% of Wash Trades to Volume traded by the Entity in the Scrip 36.63

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Sanra Software Ltd Jumbo Bag Ltd Cerebra Integrated Technologies Ltd Brushman India Ltd. Tricom India Ltd Glory poly Films Ltd. Rainbow Foundations Ltd GV Films Ltd Yogi Sung-Won India Ltd Kaashyap Radiant Systems Ltd International Hometex Ltd Total

148,294 33,676 319,072

556,423 152,822 1,521,704

1,748,837 9,385,783 3,043,853

8.48 0.36 10.48

26.65 22.04 20.97

4,000 298,839 186,299 24,026 1,881,020 4,500 69,822

30,792 2,610,779 1,836,855 272,707 25,793,931 234,573 26,668,441

3,885,780 7,047,927 8,846,033 797,612 306,776,071 919,272 333,350,848

0.1 4.24 2.11 3.01 0.61 0.49 0.02

12.99 11.45 10.14 8.81 7.29 1.92 0.26

206 4,216,602

603,628 63,686,800

4,510,517 695,132,779

0.01 0.61

0.03 6.62

h) The trading pattern of the Noticee in the scrip of M/s Visesh Infotecnics Ltd. reveals that he had indulged in 31 self trades which were executed through one broker, viz. Dawnay Day AV Securities P. Ltd. The Noticee used the same client code for

both the legs of, i.e. buy and sell, transaction. By this, he created a volume of 9,78,842 shares (6.6% of the market volume). The details of the same are given below:

Trade Date

Buy Client Code SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021

Sell Client Code SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021

Trade Rate

Trade Qty

18-Jan-08 21-Jan-08 1-Feb-08 5-Feb-08 7-Feb-08 8-Feb-08 11-Feb-08 18-Feb-08

33.45 30.80 22.05 24.25 24.56 22.96 23.01 23.81

23936 36653 230613 325 5224 6447 7095 21263

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19-Feb-08 20-Feb-08 21-Feb-08 22-Feb-08 3-Mar-08 4-Mar-08 5-Mar-08 11-Mar-08 19-Mar-08 24-Mar-08 26-Mar-08 27-Mar-08 3-Apr-08 4-Apr-08 8-Apr-08 9-Apr-08 10-Apr-08 15-Apr-08 16-Apr-08 17-Apr-08 21-Apr-08 23-Apr-08 25-Apr-08 Total

SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021

SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021 SR021

23.91 23.41 23.71 23.70 24.90 23.95 22.29 21.50 19.90 17.91 18.39 19.24 17.25 16.74 16.90 17.07 18.02 17.60 18.00 19.32 21.52 19.90 19.95

21666 16353 18675 19450 23979 13318 4719 49200 48136 32630 4199 27290 59760 57992 16201 29400 42910 39200 9517 83464 14174 9053 6000 978842

i)

The Noticee had carried out self trades at prices varying considerably from the previous trades and thereby established new price in the scrip. The LTP variation of trades by the Noticee in 5 scrips, viz. Cerebra Integrated Technologies Ltd., Glory poly Films Ltd., Jumbo Bag Ltd., Sanra Software Ltd. and Tricom India Ltd., is shown in the table given below:

S. No. 1. 2. 3. 4. 5.

Scrip Cerebra Integrated Technologies Ltd. Glory poly Films Ltd. Sanra Software Ltd. Tricom India Ltd. Jumbo Bag Ltd.

LTP Variation -8.08% to 9.60% -4.99% to 10.78% -5.49% to 10.03% -5.16% to 9.72% -2.76% to 1.67%

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j)

Since the Noticee executed these self trades in such a manner where the quantity, price and the time of execution are almost same, they can also be classified as synchronized trading.

k)

The Noticee has indulged in synchronized trading in 26 transactions with Mrs. Simran Raheja, his wife, in the various scrips creating an artificial volume of 94,118 shares. The details of timing, volume and price are given below:

Date

Security

Buy ID

1/4/2008 1/4/2008 3/3/2008 3/4/2008 4/4/2008 4/4/2008 5/2/2008 7/3/2008 7/4/2008 7/4/2008 8/4/2008 8/4/2008 9/4/2008 9/4/2008 12/3/2008 14/02/2008 16/04/2008 17/01/2008 17/04/2008 17/04/2008 23/04/2008 23/04/2008

531675 531675 532857 531312 532857 532857 532411 532857 531675 532857 531675 531675 523277 523277 532413 532413 532413 532411 531675 531675 531675 532413

B_692_S1IK002 B_692_S1IK002 B_291_56KS23 B_3085_S756 B_692_S1IK002 B_692_S1IK002 B_3085_S756 B_692_S1IK002 B_3118_33000042 B_3118_33000042 B_3118_33000042 B_673_QMXH1 B_3085_S756 B_3085_S756 B_692_S1IK002 B_3118_33000042 B_3085_S756 B_3055_401S095 B_692_S1IK002 B_3085_S756 B_673_QMXH1 B_3085_S756

BO Entry Time 10:08:09 12:16:13 15:24:09 15:18:37 13:20:23 15:22:32 11:27:32 13:50:02 10:33:00 10:46:02 10:37:54 14:12:00 12:49:23 13:05:07 11:36:10 15:09:22 11:24:47 15:00:09 10:10:15 12:15:55 11:26:41 15:06:46

BO Volume 5000 5000 717 5000 1000 4500 5000 2000 1000 2500 100 10000 3000 2500 1000 2000 1000 20000 1 5000 3500 8000

BO Price 151.50 147.50 105.50 48.40 67.00 67.00 24.35 102.40 143.80 64.50 140.90 141.00 5.47 5.47 35.00 29.40 33.35 34.00 142.45 138.50 148.00 36.85

Sell ID

B_3085_S756 B_673_QMXH1 B_692_S1IK002 B_692_S1IK002 B_3085_S756 B_3085_S756 B_3063_U17410 B_3055_401S095 B_3085_S756 B_673_QMXH1 B_3085_S756 B_3085_S757 B_3118_33000042 B_3118_33000042 B_3085_S756 B_673_QMXH1 B_3118_33000042 B_692_S1IK002 B_3055_401S095 B_3118_33000042 B_692_S1IK002 B_3118_33000042

SO Entry time 10:08:01 12:16:10 15:24:34 15:18:21 13:20:01 15:22:22 11:27:26 13:49:58 10:32:52 10:45:55 10:37:48 14:11:31 12:49:10 13:04:35 11:36:03 15:09:13 11:24:42 14:59:51 10:09:49 12:15:54 11:26:52 15:05:53

SO Volume 5000 5000 717 5000 1000 4500 5000 2000 1000 2500 100 10000 3000 2500 1000 2000 1000 20000 1 5000 3500 8000

SO Price 151.50 147.50 105.50 48.40 67.00 67.00 24.35 102.40 143.80 64.50 140.90 141.00 5.47 5.47 35.00 29.40 33.35 34.00 142.45 138.50 148.00 36.85

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27/03/2008 28/01/2008 28/03/2008 29/04/2008

531312 532413 531675 532857

B_3085_S756 B_692_S1IK002 B_692_S1IK002 B_692_S1IK002

10:37:27 15:06:13 10:34:45 15:12:14

500 100 4000 1700

38.00 29.75 148.90 65.00

B_692_S1IK002 B_3085_S756 B_3085_S756 B_3085_S756

10:37:49 15:05:46 10:34:16 15:12:07

500 100 4000 1700

38.00 29.75 148.90 65.00

11. In this regard, it would be pertinent to refer to the observations and decisions of the Honble SAT in the following matters where the entities were involved in self trades and synchronized trades.

(a) In the matter of Ask Holdings Pvt. Ltd. vs. SEBI, Honble SAT has held ..The buyer and the seller were the appellants themselves and these trades were executed primarily with a view to artificially increase the trading volumes in the scrip of the Company. Artificial increase in the volumes of scrip has the adverse effect on the innocent investors of the market who get induced to buy the shares because they seldom have knowledge about the scrip and follow the herd mentality while trading. The adjudicating officer was, therefore, right in holding that the appellants had violated the provisions of Regulation 4 of the Securities & Exchange Board of India (Prohibition of Fraudulent & Unfair Trade Practices relating to Securities Market) Regulations, 1995. The allegations are rather serious and the appellants by indulging in artificial trades had polluted the stock market. The penalty of Rs. 10 lakh imposed appears to be reasonable in the circumstances of the present case and it does not call for any interference in appeal.

(b) The Honble SAT, in Ketan Parekh Vs. Securities & Exchange Board of India (Appeal No. 2 of 2004), observed that, A synchronized transaction even on the trading screen between genuine parties who intend to transfer beneficial interest in the trading stock and who undertake the transaction only for that purpose and not for rigging the market is not illegal and cannot violate the regulations. As already

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observed synchronisation or a negotiated deal ipso facto is not illegal. A synchronised transaction will, however, be illegal or violative of the Regulations if it is executed with a view to manipulate the market or if it results in circular trading or is dubious in nature and is executed with a view to avoid regulatory detection or does not involve change of beneficial ownership or is executed to create false volumes resulting in upsetting the market equilibrium. Any transaction executed with the intention to defeat the market mechanism whether negotiated or not would be illegal. Whether a transaction has been executed with the intention to manipulate the market or defeat its mechanism will depend upon the intention of the parties which could be inferred from the attending circumstances because direct evidence in such cases may not be available. The nature of the transaction executed, the frequency with which such transactions are undertaken, the value of the transactions, whether they involve circular trading and whether there is real change of beneficial ownership, the conditions then prevailing in the market are some of the factors which go to show the intention of the parties. This list of factors, in the very nature of things, cannot be exhaustive. Any one factor may or may not be decisive and it is from the cumulative effect of these that an inference will have to be drawn.

(c) In the case of Ashok K Chaudhary v SEBI, Appeal No 69 of 2008, dated November 5, 2008, the Honble SAT observed that such large number of reverse trades cannot take place through the mechanism of the system. These have obviously been manipulated. Moreover, reverse trades are fictitious trades meant to increase volumes on the screen of the trading system as there is no change of beneficial ownership in the traded shares.

(d) The Honble SAT, in Nirmal Bang Securities Pvt. Ltd Vs Chairman, SEBI, Appeal no. 54-57/2002, dated October 31, 2003 observed

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as follows: - BEB has been charged for synchronized deals with First Global. I have examined the data provided by the parties on this issue. I find many transactions between BEB and FGSB. There are many instances of such transactions. I find the scrip; quantity and price for these orders had been synchronized by the counter party brokers. Such transactions undoubtedly create an artificial market to mislead the genuine investors. Synchronized trading is violative of all prudential and transparent norms of trading in securities. Synchronized trading on a large scale can create false volumes. The argument that the parties had no means of knowing whether any entity controlled by the client is simultaneously entering any contra order elsewhere for the reason that in the online trading system, confidentiality of counter parties is ensured, is untenable. It was submitted by the Appellants that it was not possible for the broker to know who the counter party broker is and that trades were not synchronized but it was only a coincidence in some cases. Theoretically this is OK. But when parties decide to synchronize the transaction the story is different. There are many transactions giving an impression that these were all synchronized, otherwise there was no possibility of such perfect matching of quantity price etc. As the Respondent rightly stated it is too much of a coincidence over too long a period in too many transactions when both parties to the transaction had entered buy and sell orders for the same quantity of shares almost simultaneously.

12. The method and the manner in which the trades were executed are the most important factors to be considered in these circumstances. The motive, thereafter, automatically falls in line. Trades like cross deals and synchronized trades are executed on the trading screen of a stock exchange and with proper delivery versus payment system. Clearly in almost all the deals, the orders are placed so as to ensure a matching of the buy and the sell quantity and the buy and the sell

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price with the counter party. The buy and the sell orders are placed at almost the same time between the counter brokers, with a difference of a few seconds to few minutes. This proximity in the inputting of orders at the same price and for the same quantity, results in getting them matched, such that there is almost perfect matching in all the trades, with all the three parameters, viz., quantity, price and most importantly, the time required to conclude the trades, which to a large extent indicates synchronization in the logging in of the orders, albeit executed on the screen of the stock exchange.

13. This is what has transpired in the present case. The only difference is that in most of the instances the Noticee himself was the buyer and seller. A large number of self trades got matched regularly. The

phenomenal regularity with which the Noticee had indulged in such self trades, leads one to conclude, that these transactions were effectively meant to manipulate the market. It is my considered belief that frequency of such trades ensured consistent matching of the orders purely for the purpose of projection of the volumes of the scrips in a way that was not the market determined volumes but with a sinister motive to induce other persons to invest in the said scrips which lacked basic fundamentals.

14. In case an entity is alleged to have manipulated the market or distorted the market equilibrium in terms of the PFUTP and their acts are corroborated up to a certain extent by the investigation findings, then the underlying intention of the said entity is brought out. Furthermore, price manipulation does not only involve the

manipulation in the prices of the scrip but also includes building up of volumes. This is evident from the finding that the Noticee had indulged in self trades and created an artificial volume of 42,16,542 shares in the said scrips.

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15. The Noticee had also indulged in synchronized trading with his wife creating an artificial volume of 94,118 shares. The price and volume of all the transactions were exactly same. Moreover, the time difference between the placement of orders was few seconds.

16. The fact is that had the aforesaid discussed trades been executed in the normal course of business, the possibility of such perfect matching would not have been possible. The buy and sell prices of one entity were close to the buy/sell rates of the other entity in all the settlements, such that the trades of these entities were always matched. The transactions as pointed out in the table/s earlier and spread over a period of time are definitely done with some inbuilt component of intent involved. Greater the number of such self/synchronized trades, the larger is the chances of trades not being genuine in nature, which is bound to affect the market equilibrium. A trade can be executed on the screen and still be manipulative in nature. Considering the number of such trades, it is clear that there has been a gross mis-use of the screen based trading system. It is also to be stated that intention is inherent in all cases of synchronized trading involving large scale price

manipulation and the same was also brought out in the earlier cited case of Nirmal Bang Securities (P) Ltd. vs SEBI by the Honble SAT whereby it was observed that Intention is reflected from the action of the Appellant. Choosing selective time slots does not appear to be an involuntary action. Hence, the contention of the Noticee, whereby the Noticee had referred to the order in respect of Nirmal Bang Securities (P) Ltd. is devoid of merit.

17. I have considered the submissions of the Noticee countering the allegations leveled against him. One of the main submissions of the Noticee was that he indulged in the transactions merely for

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maintaining margins with his respective brokers. In my view, the Noticee through the said artificial trades interfered with the market equilibrium and thereby affected the manipulation of price and volume of the said scrips. Even assuming, without agreeing to the claim of the Noticee, that these trades were executed for margin purposes, in my view, nobody can be allowed to create artificial volume and thereby manipulate the prices in the securities market which have potential to induce the innocent investor in buying and selling particular scrip. The trades executed herein by the Noticee were admittedly not the real trades as there was no intention to change the beneficial ownership. When the trades were inherently non genuine, I do not feel that it is necessary to prove that investors had, in fact got induced and bought and/ or sold on the basis of these trades. Similar views were expressed by the Honble SAT in its order dated 14.7.2006 in Ketan Parekh Vs. SEBI wherein it had observed that When a person takes part in or enters into transactions in securities with the intention to artificially raise or depress the price he thereby automatically induces the innocent investors in the market to buy /sell their stocks. The buyer or the seller is invariably influenced by the price of the stocks and if that is being manipulated the person doing so is necessarily influencing the decision of the buyer / seller thereby inducing him to buy or sell depending upon how the market has been manipulated. We are therefore of the view that inducement to any person to buy or sell securities is the necessary consequence of manipulation and flows therefrom. In other words, if the factum of manipulation is established it will necessarily follow that the investors in the market had been induced to buy or sell and that no further proof in this regard is required. The market, as already observed, is so wide spread that it may not be humanly possible for the Board to track the persons who were actually induced to buy or sell securities as a result of manipulation and law can never impose on the Board a burden which is

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impossible to be discharged. This, in our view, clearly flows from the plain language of Regulation 4(a) of the Regulations.

18. I have also considered the submission of the Noticee with regard to his trading volume vis-a-vis paid up capital of the respective companies. Though the trading volume of the Noticee as compared to the paid up capital of the respective companies may be low, the trading volume as compared to the market volume is substantially high. The trading pattern also indicates the manipulative intent of the Noticee. Therefore, his submission in this regard is not acceptable.

19. I have also noted the submission of the Noticee made vide letter dated April 13, 2009 that the allegations were made on the basis of mere surmises and conjectures and perused the case law of videocon relied upon by him in this regard. I am of the view that the material available on record and my findings stated in the above paragraphs clearly show the inbuilt intension of the Noticee to manipulate the trading in the said scrips by creating artificial volumes attracting innocent investors to invest in those scrips. The trading pattern, details of transactions, etc., detailed above also make it clear that sufficient evidence is available to establish the allegation against the Noticee. Hence, I do not find any merit in the submission of the Noticee in this regard.

20. Regulation 4(2)(a) of PFUTP, inter alia, prohibits a person from indulging in an act which creates false or misleading appearance of trading in the securities market. Regulation 4(2)(b) of PFUTP, inter alia, prohibits dealings in a security intended to operate as a device to inflate, depress or cause fluctuations in the price of such security for wrongful gains. Regulation 4(2)(g) of PFUTP prohibits a person from entering into a transaction in securities without intention of

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performing it or without intention of change of ownership of such security. As detailed above, the acts of the Noticee clearly created false and misleading appearance in all the 12 scrips and also that he did not act in a bonafide manner. The facts of the case highlight the Noticees involvement, by executing continuous self trades in a substantial manner, in the manipulation of price/volume of all the scrips which led to creation of artificial volumes and misleading appearance of trading in the said shares. As the Noticee acted as both the buyer and the seller, there does not appear to be any genuine trading interest in the scrips.

21. In order to establish the fraudulent nature of trades indulged in by the Noticee, reference may also be made to the definition of fraud laid down in regulation 2 (1) (c) of the PFUTP, which reads as follows:

"2 (1)(c) "fraud" includes any act, expression, omission or concealment committed whether in a deceitful manner or not by a person or by any other person with his connivance or by his agent to deal in securities,whether or not there is any wrongful gain or avoidance of any loss, 22. Generally, self trades/ synchronized trades are the instruments/tools employed by some unscrupulous elements in the securities market to manipulate the market and deceive the general/genuine investors in the market place. The pattern of trading, behaviour of the entities, apparent irregularities and the available trading data, etc., prove manipulation which always depends on inferences drawn on a mass of factual detail. When all of these are considered together, they can emerge as ingredients to prove the manipulative scheme designed and executed by such manipulators with intent to tamper with free market forces.

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23. In view of foregoing, I find that the submissions of the Noticee are not tenable and consequently, hold that the charges leveled against the Noticee are proved and that the allegation of violation of provisions of regulations 4 (2) (a), (b) and (g) of PFUTP by the Noticee stands established.

24. The Honble Supreme Court of India in the matter of SEBI Vs. Shri Ram Mutual Fund [2006] 68 SCL 216(SC) held that In our considered opinion, penalty is attracted as soon as the contravention of the statutory obligation as contemplated by the Act and the Regulations is established and hence the intention of the parties committing such violation becomes wholly irrelevant.

25. Thus, the aforesaid violation by the Noticee make him liable for penalty under Section 15HA of SEBI Act, 1992 which 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. 26. While determining the quantum of penalty under section 15HA, it is important to consider the factors stipulated in section 15J of 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) (b) (c) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; the amount of loss caused to an investor or group of investors as a result of the default; the repetitive nature of the default.

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27. It is difficult, in cases of such nature, to quantify exactly the disproportionate gains or unfair advantage enjoyed by an entity and the consequent losses suffered by the investors. I have noted that the investigation report also does not dwell on the extent of specific gains made by the Noticee. Suffice to state that keeping in mind the practices indulged in by the Noticee, gains per se were made by the Noticee in that he traded in various scrips in a manner meant to create artificial volumes and liquidity which is an important criterion, apart from price, capable of misleading the investors while making an investment decision. In fact, liquidity/volumes in particular scrip raise the issue of demand in the securities market. The greater the liquidity, the higher is the investors attraction towards investing in that scrip. Hence, anyone could have been carried away by the unusual fluctuations in the volumes and been induced into investing in the said scrip. Besides, this kind of activity seriously affects the normal price discovery mechanism of the securities market. People who indulge in manipulative, fraudulent and deceptive transactions, or abet the carrying out of such transactions which are fraudulent and deceptive, should be suitably penalized for the said acts of omissions and commissions. Considering the continuous effort of the Noticee in this aspect where the self trades/synchronized trades were carried out over a period of time and that too in as many as 12 scrips, it can safely be surmised that the nature of default was also repetitive.

ORDER

28. After taking into consideration all the facts and circumstances of the case, I impose a penalty of Rs.8,00,000/- (Rupees Eight Lakh only) under section 15HA of SEBI Act on the Noticee which will be commensurate with the violation/s committed by him.

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29. The Noticee shall pay the said amount of penalty by way of demand draft in favour of SEBI - Penalties Remittable to Government of India, payable at Mumbai, within 45 days of receipt of this order. The said demand draft should be forwarded to Mr.S. Ramann, Officer on Special Duty, Integrated Surveillance Department, Securities and Exchange Board of India, SEBI Bhavan, Plot No.C4-A, G Block, Bandra Kurla Complex, Bandra (East), Mumbai400 051.

30. In terms of rule 6 of the Rules, copies of this order are sent to the Noticee and also to the Securities and Exchange Board of India.

Date: May 11, 2009 Place: Mumbai

V.S.SUNDARESAN
ADJUDICATING OFFICER

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