Nirmal Bang Securities Pvt. Ltd. v. The Chairman Securities And Exchange Board Of India ., Securities Appellate Tribunal, Judgment, Law, casemine.com

Citation Codes

Equivalent Citations

citation codes

Case Number

Appeal No. 54 of 2002, Appeal No. 55 of 2002, Appeal No. 56 of 2002 and Appeal No. 57 of 2002

Advocates

Ms. Farzana Mojgani,) Solicitor)
Shri Anindya K. Das,) Manager, SEBI)
Shri Janak D. Dwarkadas,) Senior Advocate,)
Shri Shyam Mehta,) Advocate)
Shri Somasekhar Sundaresan,) Advocate)
Shri Rafiq Dada) Senior Advocate)
Shri Kumar Desai,) Advocate)
Ms. Daya Gupta) Advocate)
Shri J. Ranganayakulu,) Jr. Legal Adviser, SEBI)

Judges

C. Achuthan, Presiding Officer

Acts

section 4(3) Act, 1992 read with regulation 29(3) of SEBI (Stock Brokers and sub Regulations, 1992 read with Regulation 13
SECURITIES AND EXCHANGE BOARD OF INDIA ACT 1992
17(a)(1) of the Securities Act and section 10(b) and 15(c) of the Exchange Act
Section 12(3) of the SEBI Act. Regulation 3 and 4 of the FUTP Regulations
Sections 11B of the SEBI Act.203. Section 11(2)(e) of the SEBI Act,
provisions of the Code of Criminal Procedure Evidence Act
Regulation Rule of the Code of Conduct
LAND CUSTOMS ACT
effect.244. Section 4(3) referred
SECTION 3 EVIDENCE ACT
section 12(3) of the SEBI Act.

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Smart Summary

Factual and Procedural Background

This opinion concerns four appeals against a composite order dated 30 July 2002 issued by the Securities Exchange Board of India ("SEBI") under regulation 29(3) of the SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 and regulation 13 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 ("FUTP Regulations"). The order was based on a preliminary investigation by SEBI into alleged market manipulation and artificial depression of stock prices by the appellants through large trading transactions in selected scrips during a volatile period from mid-February to mid-March 2001. SEBI initially passed an ex-parte order on 18 April 2001 debarring the appellants from undertaking fresh business as stock brokers. Following a post-decisional hearing and enquiry by an Enquiry Officer, SEBI issued show cause notices, received replies, and adjudicated the matter, ultimately cancelling the registration of the appellants for violations including market manipulation, short sales, synchronized trading, and dealing through unregistered sub-brokers. The appellants challenged this order before the Tribunal.

Legal Issues Presented

Whether the appellants indulged in market manipulation and artificially depressed the prices of certain securities in violation of the SEBI Act, Stock Broker Regulations, and FUTP Regulations.
Whether SEBI complied with the procedural requirements, including the mandatory 30-day period under regulation 29(3) for passing orders after receipt of replies to show cause notices.
Whether SEBI had the authority under regulation 13 of the FUTP Regulations to cancel the registration certificates of the appellants on the charges found.
Whether the charges of dealing through unregistered sub-brokers, short sales, and synchronized trading were established against the appellants.
The standard and sufficiency of evidence required to prove market manipulation and fraudulent/unfair trade practices under the FUTP Regulations.

Arguments of the Parties

Appellants' Arguments

The appellants contended that they acted only as brokers executing orders on behalf of clients without influencing investment decisions and thus cannot be held responsible for price manipulation.
They argued that the market price falls were part of a global decline in Information Technology, Communication and Entertainment (ICE) stocks and not due to their transactions.
The appellants claimed the percentage of their trading volume relative to total market volume was too small to impact prices materially.
They challenged SEBI's use of net sales methodology, arguing it was flawed and did not establish causation for price depression.
The appellants emphasized the absence of intention or motive to manipulate prices, noting that many sales were limit orders and backed by deliveries.
They asserted SEBI failed to distinguish proprietary trades from client trades and did not prove their knowledge of synchronized trades.
Regarding procedural issues, Bama Securities argued the impugned order was passed beyond the 30-day period after their reply without a personal hearing, violating regulation 29(3).
The appellants disputed SEBI's authority to cancel their registrations under regulation 13 of the FUTP Regulations, contending that cancellation is only permissible under regulation 26 of the Stock Broker Regulations for specific grounds like fraud.
They submitted that the charges of dealing through unregistered sub-brokers were unsubstantiated and that SEBI failed to initiate action against the alleged unregistered sub-brokers themselves.
The appellants maintained that the penalty of cancellation was disproportionate given the charges established and requested modification to suspension periods.

Respondent's (SEBI) Arguments

SEBI alleged that the appellants engaged in manipulative trading practices including large transactions intended to artificially depress prices in a concerted manner, short sales after prohibition, synchronized trades, and dealing through unregistered sub-brokers.
SEBI emphasized the evidence of synchronized trades between Bang Equity Broking Pvt. Ltd. and First Global Stock Brokers, amounting to approximately Rs. 200 crores, creating artificial volumes disrupting market equilibrium.
SEBI contended the appellants had installed trading terminals at Palombe Securities, an unregistered entity, facilitating unauthorized sub-broker activities.
SEBI maintained that the charges were supported by detailed analysis of trading patterns, net sales, and specific time slot sales causing price falls.
SEBI argued that the impugned order was passed within the prescribed 30-day period following the personal hearing held on 1 July 2002, including for Bama Securities, given the consolidated proceedings against all appellants.
SEBI submitted that regulation 13 of the FUTP Regulations empowers it to suspend or cancel registration of intermediaries for violations, independent of the Stock Broker Regulations, and that the FUTP Regulations constitute a self-contained code for fraudulent and unfair trade practices.
SEBI asserted that the standard of proof applicable is preponderance of probabilities, not beyond reasonable doubt, and that mens rea may be inferred from circumstantial evidence including trading data and price movements.
SEBI urged that speculative transactions undertaken in concert to manipulate prices constitute violations warranting cancellation of registration.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Bareilly Electric Supply Co. Ltd. v. Workmen (1971) 2 SCC 617	Requirement of producing evidence to prove charges and adherence to principles of natural justice.	Reiterated that natural justice principles apply even if Evidence Act is not applicable.
Videocon International v. SEBI (2002) 4 CLJ 402 (SAT)	Charge of market manipulation requires reasonably good evidence; cannot rest on surmises and conjectures.	Supported the need for evidence beyond mere suspicion to uphold market manipulation charges.
Hansraj Guipta v. Dehra Dun — Mussoorie Electric Tramway Co. Ltd. (1940 Privy Council 98)	Party alleging fraud must prove it by cogent evidence; suspicion insufficient.	Emphasized that proof of fraud requires strong evidence incompatible with good faith.
Gulabdchand v. Kudilal (AIR 1966 SC 1734)	Standard of proof in civil proceedings applies equally in fraud cases; courts keep presumption of innocence.	Applied civil standard of proof while recognizing presumption of honesty.
Varanasi Sanskrit Vishwa Vidyalaya v. Dr. Rajkishore Tripathi	General allegations without particulars insufficient to prove acting in concert or collusion.	Held that proof of collusion requires particularized evidence, not mere strong language.
A.N Parasuraman v. State of Tamil Nadu (1989) 4 SCC 683	Delegated authority cannot exercise uncanalised, unlimited and arbitrary power; legislative policy must be followed.	Supported the principle that SEBI's powers must be exercised within prescribed guidelines.
State of Kerala v. M.K Krishnan Nair (1978) 1 SCC 552	Where two constructions possible, the one avoiding unconstitutionality should be adopted.	Applied harmonious construction to uphold constitutionality of provisions.
British Airways Plc v. Union of India (2002) 2 SCC 95	Principle of harmonious construction of statutes to give effect to all provisions.	Guided interpretation of SEBI regulations harmoniously.
Ranjit Thakur v. Union of India (1987) 4 SCC 611	Penalty must be commensurate with offence; disproportionate penalties violate Article 14.	Informed the court’s approach to assessing proportionality of penalties imposed by SEBI.
Atul Kanodia v. SEBI (2002) 46 CLA 251 (SAT)	Mandatory requirement to pass orders within 30 days under regulation 29(3); failure vitiates order.	Applied to assess procedural compliance in passing the impugned order.
Directorate of Enforcement v. MCTM Corpn. Ltd. (1996) 2 SCC 471	Mens rea not required in regulatory adjudication for imposing penalty under FUTP Regulations.	Supported SEBI’s position that scienter may be inferred and is not an absolute requirement.
Bank of India v. D. Suryanarayana (1999) 5 SCC 762	Strict rules of evidence do not apply in departmental inquiries; proof by reasonable person acting reasonably is sufficient.	Guided standard of proof in SEBI adjudicatory proceedings.
M.S Bindra v. Union of India (1998) 7 SCC 310	Possibility alone insufficient to sustain disciplinary action; proof beyond reasonable doubt necessary.	Referenced in context of disciplinary standards and natural justice.
L.D Jaisinghani v. Naraindas N. Punjabi (1976) 1 SCC 354	Disciplinary findings must leave no reasonable doubt about guilt; surmise and suspicion insufficient.	Emphasized requirement of convincing evidence in disciplinary proceedings.
Ambalal v. Union of India AIR 1964 SC 264	Burden of proof on authorities to bring home guilt by adducing evidence.	Reiterated burden of proof in quasi-criminal regulatory proceedings.

Court's Reasoning and Analysis

The Tribunal undertook a detailed examination of the factual matrix, procedural compliance, and legal framework governing SEBI's powers and the charges against the appellants. It noted that the appellants were part of a group controlled by the Bang family and collectively referred to as the "Bang Entities." The Tribunal observed that SEBI's preliminary investigation and enquiry by the Enquiry Officer found the appellants engaged in large trading transactions in selected scrips with the alleged intention to artificially depress prices during a volatile market phase.

The Tribunal scrutinized the evidence on market manipulation, including trading volumes relative to total market volumes, trading patterns, net sales data, and specific time slot analyses. It found that the appellants' trading volumes constituted a small percentage of total market activity, insufficient to materially impact prices. The Tribunal also found no consistent pattern linking the appellants’ transactions to price falls, noting instances where prices fell despite the appellants being net buyers and vice versa. It emphasized that mere selling in a falling market does not constitute manipulation absent intent.

The Tribunal highlighted deficiencies in SEBI's net sales methodology, its failure to distinguish between proprietary and client trades, and lack of proof of the appellants' knowledge in synchronized trades. It found that SEBI did not investigate the alleged unregistered sub-brokers themselves, weakening that charge. The Tribunal recognized that short sales by NBS and BEB after the ban were established violations, as were synchronized trades by BEB with First Global Stock Brokers. It also found that sales by Bama in specified time slots contributed to price falls.

On procedural grounds, the Tribunal held that SEBI complied with the mandatory 30-day period for passing the impugned order, including for Bama Securities, because the proceedings and hearing were consolidated. It rejected the appellants' contention that the order was time-barred.

Regarding SEBI's authority to cancel registration under regulation 13 of the FUTP Regulations, the Tribunal held that the FUTP Regulations constitute a self-contained code empowering SEBI to impose suspension or cancellation penalties independent of the Stock Broker Regulations. It rejected the appellants' argument that cancellation is limited to grounds enumerated in regulation 26 of the Stock Broker Regulations. The Tribunal emphasized that penalty must be proportionate to the gravity of the proven charges.

Applying the relevant legal standards and precedents, the Tribunal concluded that the charge of artificially depressing the market was not substantiated by sufficient evidence. It underscored that market manipulation is a serious charge requiring convincing proof and that surmises and conjectures are inadequate. However, the Tribunal upheld the findings on short sales by NBS and BEB, synchronized trading by BEB, and Bama's sales in certain time slots. It found no charge established against Bang Securities Pvt. Ltd.

Holding and Implications

The Tribunal issued the following rulings:

The charge of artificially depressing the market through large trading transactions in concert was not proved and is therefore rejected.
The charges of short sales by NBS and BEB after the ban, synchronized trading by BEB, and Bama's sales in specified time slots contributing to price falls were upheld.
The impugned order cancelling the registration certificates of the appellants is modified: the certificate of registration of Nirmal Bang Securities Ltd. is suspended for two years; Bama Securities Ltd. is suspended for three years; and the cancellation of Bang Securities Pvt. Ltd.'s registration is set aside as no charges were established against it.
The Tribunal held that SEBI complied with procedural requirements including the 30-day period under regulation 29(3) and that the consolidated proceedings justified a common order.
On SEBI's powers, the Tribunal confirmed that regulation 13 of the FUTP Regulations empowers SEBI to suspend or cancel registration independent of the Stock Broker Regulations, subject to procedural safeguards.

Implications: The decision clarifies the evidentiary and procedural standards SEBI must meet in adjudicating market manipulation and related charges. It underscores the necessity for SEBI to produce reasonably convincing evidence for serious charges and to observe mandatory procedural timelines. The ruling modifies the penalty imposed to align with the gravity of established violations, setting a precedent for proportionality in regulatory sanctions. No broader legal principles beyond the facts and regulations cited were established.

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Nirmal Bang Securities Pvt. Ltd. v. The Chairman Securities And Exchange Board Of India .

1. These four appeals are directed against the Respondent's composite order pertaining Appellants passed on 30.7.2002 The order is under regulation 29(3) of the Securities Exchange Board of India (Stock Brokers and Sub Brokers) Regulations, 1992 (the Stock Regulations) read with regulation 13 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities market) Regulations, 1995 FUTP Regulations). According to the Respondent (SEBI) “the index movements exchanges showed excessive volatility especially during mid February to mid March, the context of “apprehensions of possible attempts by certain entities to distort the true discovery and manipulate the securities market” SEBI carried out a preliminary investigation find out the role of various entities including the Appellants. According to SEBI preliminary investigations revealed that the Appellants had indulged in large transactions in the scrips of some companies (stated in the impugned order) and transactions prima facie appeared, inter alia, to have been carried out to artificially depress prices “of the scrips of the said companies. In that context on 18.4.2001 SEBI passed an order debarring the Appellants from undertaking any fresh business as stock brokers brokers till further order. A post decisional hearing was given to the Appellants on 30.4.2001 and thereafter an interim order confirming the exparte order was passed on 4.6.2001 same day an Enquiry Officer was appointed. The Enquiry Officer issued a show cause the Appellant on 10.9.2001 He also issued a second show cause notice to them on 25.1.2002 The Enquiry Officer submitted his report on 22.5.2002 The Enquiry Officer in his observed inter alia that:

2. A. Nirmal Bang Securities Pvt. Ltd. (NBS):

1. Indulging in large trading transactions in the selective scrips with a view to depress artificially the prices of these securities between mid February and mid March a concerted manner with BEB. These scrips are of Global Tele, HFCL, Infosys, Satyam, DSQ Software, Zee Telefilms and Reliance Industries.

2. Dealing with unregistered sub brokers, Money Growth Investments and Arihant Investments

3. Indulging in short sales after 8.3.2001 in violation of SEBI Circular d

3. A. Bang Equity Broking Pvt. Ltd. (BEB):

1. Indulging in large trading transactions in the selective scrips with a view to depress artificially the prices of these securities between mid February and mid March concerted manner. NBS was acting in concert with BEB in effecting large scale transactions in the scrips of Global Tele, HFCL, Infosys, Satyam, DSQ, Zee Telefilms. The trading by BEB in Global Tele, HFCL, Infosys, Satyam, DSQ and Zee Telefilms in which BEB had significant sales between mid February & March were found manipulative.

2. Two lakh shares of Global Tele were sold when share prices registered substantial

3. Indulging in synchronised trades with First Global Stock Brokers (FGSB) in which price, quantity etc were matched and which in turn is a manipulative practice.

4. Dealing with Palombe, an unregistered sub broker.

5. Indulging in short sales after 8.3.2001 in violation of SEBI Circular d

4. A. Bama Securities Ltd. (Bama):

1. Indulging in large trading transactions in the selective scrips with a view to depress artificially the prices of these securities between mid February and mid March concerted manner. The trading by Bama in Global Tele in Settlement No. 8, HFCL Settlement No. 11, Satyam in Settlement No. 11, are considered significant sales. trading by Bama on 23 February, 1 March, 2 March 2001 are very high and manipulative.

2. When share prices registered substantial fall — there were 11 sales in time slots were considered significant.

3. Bama was acting in concert with Bang Securities (BSL/BSPL) for indulging in simultaneous sales in the scrips of Infosys, Reliance and Satyam on the

5. A. Bang Securities P. Ltd. (BSL/BSPL):

Indulging in large trading transactions in the selective scrips with a view to artificially the prices of these securities between mid February and mid March concerted manner. The trading by BSL in Global Tele, HFCL, Reliance and were considered significant sales for the depression in the share prices.

6. The Respondent, in the light of the findings of the Enquiry Officer issued a show cause the Appellants on 30.5.2002 They responded to the same by filing replies. They made submissions and filed written submissions also. The Respondent adjudicated matter and the conclusion that the Appellants “have indulged in large trading transactions with a depress the market artificially in a concerted manner, (indulged) in short sales, synchronised trading, trading in particular time slots when the share prices registered substantial fall, of large transactions through unregistered sub brokers”. In the light of the said finding, Respondent held the Appellants guilty of violating the Code of Conduct specified in Schedule of the Stock Broker Regulations and regulations 4(a) to (d) of FUTP Regulations and cancellation of the Appellants' registration with SEBI. Claiming to be aggrieved by order the Appellants preferred the present appeals under section 15T of the Securities Exchange Board of India Act, 1992, (the SEBI Act) praying inter alia that the Respondent order dated 30.7.2002 be set aside.

7. Shri Janak Dwarkadas, learned Senior Counsel appearing for the Appellants referred profile of the Appellants in each of the appeals. He submitted that the Appellants no. 54/2002 (NBS) and 55/2002 (BEB) are corporate members of Bombay Stock Exchange (BSE) with three membership rights. Appellant in appeal no. 56/2002 (Bama)is a member National Stock Exchange and Appellant in appeal no. 57/2002 (BSPL) is a sub broker Appellants in appeal no. 54/2002 and 55/2002. The Appellant companies are presently management of the family members of Shri Nirmal Bang, namely Shri Delip Bang Kishore Bang. There are over 100 sub brokers registered under these entities—NBS, 20 of BEB and 35 of Bama providing service to over 10000 retail investors across country. According to the Appellants during the year 2000-2001, their annual traded was to the tune of Rs. 57,196 crores. Learned Senior Counsel submitted that the Appellants merely act as brokers for their various clients and transact in securities on their behalf giving them any advice as to what securities to buy or sell, that they simply execute the for the sale or purchase of securities placed with them by their clients without influencing contributing to the investment decisions of their client in any manner. Learned submitted that SEBI has not bothered to recognise the Appellants' position. For executing orders of the clients as the clients' agents, the Appellants can not be held to have indulged price manipulation, that the Respondent has not made any attempt to find out whether alleged transactions were all proprietary transactions or transacting for the clients. Dwarkadas submitted that according to the Respondent's theory Bulls are good and Bears bad. He submitted that a market cannot operate without a buyer and a seller, that it is not to condemn those who sell the shares. Learned Senior Counsel submitted that SEBI provided several built in safeguards to regulate the market and it is for SEBI to show how safeguards were not observed, that carrying on transactions without flouting any regulations and by adhering to the safeguards cannot be viewed as a violation requirements in position.

8. Learned Senior Counsel referred to the list of dates and events furnished in the submission of the Appellants and submitted that in 1999-2000 there was an unprecedented boom in the information technology communication and entertainment stock (ICE Stocks) over the world, that this resulted in buoyancy in the price of ICE stocks, that the prices stocks rose inter alia on NASDAQ as well as on the Stock Exchanges in India, that during period the prices of these ICE stocks touched all time higher figures. He submitted that companies whose prices, the Appellants are accused of artificially depressing, had also part of the unprecedented boom in prices during the period. Learned Senior Counsel stated during the period March 2000-2001 the upward trend in the prices of the ICE stock witnessed global meltdown and the prices of these shares fell rapidly during this period, that NASDAQ registered a fall of over 60% during this period, that even in India the prices of ICE crashed and the Sensex registered a fall of around 28% during this period, that the same the Appellants are accused of depressing, also witnessed a fall in prices in tune with trend. He submitted that on 28.2.2001, on presentation of Union Budget, the Sensex rose points. The share prices reacted to the market sentiment and rose, including the relevant referred to in SEBI's order, but SEBI has not charged any person in the context of Sensex by 176 points. But Sensex fell by 171 points on 2.3.2001 According to the learned Counsel this fall was due to sell off by foreign funds in Technology, Media and Telecom and profit warning by Oracle, the world's second largest software company as reported media, that the Respondent took note of the said fall and commenced investigation to the reasons for the fall in the market, though it did not consider to carry out any investigation the sudden spurt of Sensex by 176 points on 28.2.2001 He submitted that SEBI conducted in such a manner, as if it is mandated to carry out investigations etc., only when the share fall and not when the prices move up even if such movement is artificial. Learned Counsel stated that on 13.3.2001 “Tehehlka” revelations led to overall depression in sentiment owing to political instability. He submitted that the Respondent has ignored circumstances leading to the fall in price of scrips, which was a general phenomenon, decided to charge the Appellants responsible for depressing the market without any justification. Learned Senior Counsel having stated the scenario as aforesaid made the following.

9. Limitation:

10. The impugned order has been passed in violation of Regulation 29(3) of the Stock Regulations, that Regulation 29(3) requires SEBI to pass the requisite orders within 30 the receipt of the reply to the show cause notice from the noticee. He submitted requirements under Regulation 29(3) are mandatory and no relaxation is available. Even where a personal hearing has been sought, it is incumbent on SEBI to conclude process and make the Order within the aforesaid period of 30 days. But SEBI has follow the mandatory requirement of regulation 29(3) in the Appellants' case. He stated show cause notice dated 30 May, 2002 was issued to all the Appellants including Bama. replied to the aforesaid notice vide its letter dated 12th June, 2002. This reply was delivered SEBI on 12th June, 2002. Bama did not seek any personal hearing in the matter. Accordingly Bama did not appear before the Chairman, SEBI at the hearing afforded by the Chairman, and availed by the other Appellants. Consequently, as far as Bama is concerned, the order show cause notice was required to be passed not later than 11th July, 2002 in view of Regulation 29(3). The impugned order is however dated 30 July, 2002. Therefore, Bama is concerned the impugned order has been passed in violation of the said Regulation (3). The provisions of Regulation 29(3) being mandatory the failure to comply with will vitiate any order passed in violation thereof. In view of the aforesaid, the impugned vitiated at least qua Bama. In the impugned order, the Respondent has come to the conclusion that all the Appellants were acting in concert to artificially depress the price in certain this regard, the findings against the Appellants are therefore not severable. SEBI, common order against all the Appellants in spite of the requests of the Appellants to treat all individually and separately and to pass separate orders in respect of each of them. clubbing all the Appellants together and rendering a finding in the impugned order that Appellants acted in concert to artificially depress the price in the scrip, the impugned become inseverable. Consequently, if the impugned order is vitiated qua Bama on account violation of the said Regulation 29(3), the impugned order can not survive qua the other Appellants and must be set aside in toto. In support of the submission this Tribunal Atul Kanodia v. SEBI ((2002) 46 CLA 251 (Sat) was cited.

Cancellation. of Registration of the Appellants not permissible

11. SEBI is not empowered to cancel the registration of the Appellants on the basis of the rendered in the impugned order. From the impugned order it is clear that SEBI has found Appellants guilty of having violated the provisions of the Stock Brokers Regulation FUTP Regulations and the impugned order has been passed by SEBI, under Regulation the Stock Brokers Regulations and Regulation 13 of the FUTP Regulations. SEBI empowered or entitled to cancel the registration of the Appellants on the grounds of violation the aforesaid Regulations. The penalty of cancellation of registration of Stock Broker/Broker can be imposed by SEBI only on the grounds stipulated under Regulation 26(Stock Brokers Regulations that:

i. if the stock broker/sub-broker violates any provisions of the insider trading regulations or take over regulations; or (ii) if he is guilty of fraud or is convicted of a criminal offence; or (iii) if his membership of the Stock Exchange is cancelled by the Stock Exchange.

12. In the instant case, the Appellants have not been charged with or found guilty of any aforesaid. Therefore, SEBI is not entitled or empowered to cancel the registration Appellants.

13. Regulation 13 of the FUTP Regulations provides that:

“The Board may, in the circumstances specified in Regulation 11, and prejudice to its powers under Regulation 12, initiate action for suspension cancellation of registration of an intermediary holding a certificate of registration under section 12 of the Act.

Provided that no such certificate shall be suspended or cancelled unless the procedure specified in the Regulation applicable to such intermediary is complied.

14. It is apparent that though Regulation 13 empowers SEBI to initiate action for suspension cancellation of registration of an intermediary, which would include a stock broker/sub it does not provide for the situations in which the registration may be suspended.

15. The situation under which the registration of a Stock Broker — Sub-Broker may be suspended cancelled by SEBI are prescribed in Regulation 26 of the Stock Brokers Regulations. Therefore, of necessity, in deciding whether the registration of a Broker/Sub-Broker can be suspended cancelled in a given situation, aid must be taken of the provisions of the said Regulation this regard, it be noted that the FUTP Regulations, were made in 1995 whereas the Brokers Regulations, were made in 1992 i.e prior to the notification of FUTP Regulations, which shows that while framing the FUTP Regulations the law-makers were aware and event deemed to be aware of the pre-existing Stock Brokers Regulations. Consequently, proviso to Regulation 13 must be read harmoniously with the provisions of the said Regulation 26. The Stock Broker Regulations provide for suspension of registration of Stock Brokers Brokers in Regulation 26(1) in certain situations. Regulation 26(1)(v) specifically provides the suspension of registration in the event of a Broker/Sub-Broker indulging in manipulation price rigging in the market (which is the charge/finding against the Appellants in the case). Regulation 26(2) provides for the penalty of cancellation of registration. Regulation (ii) provides for the cancellation of registration in the event of a Stock Broker/Sub being found guilty of fraud. Hence it is clear that though market manipulation and fraud covered by the FUTP Regulations, different penalties are prescribed for market manipulation and fraud by Regulation 26 of the Stock Broker Regulations. Thus, it is clear that intermediary — such a Broker/Sub-Broker — is found guilty of violating the FUTP Regulations, the penalty which may be awarded would depend upon whether the violation complained within Regulation 26(1) or Regulation 26(2) of the Stock Broker Regulations. Though manipulation and fraud are both covered by the FUTP Regulations, market manipulation suspension of registration, fraud entails cancellation of registration. The different punishments of suspension and cancellation have obviously been provided for on the basis of the seriousness of the charge/violation. The charge of fraud, being more serious than that of manipulation, therefore entails cancellation of registration while market manipulation suspension of registration. As far as the Appellants are concerned, the charge/finding the Appellants is that of market manipulation, i.e violation of Regulation 4 of the Regulations. This would be covered by Regulation 26(1)(i)(v) of the Stock Broker Regulations and not by Regulation 26(2). Accordingly, there was no question of canceling the registration the Appellants and the impugned order is therefore clearly ultra vires and without authority. Regulation 13 of the FUTP Regulations, uses the word “intermediary”. An intermediary include merchant bankers, portfolio managers, mutual funds, venture capitalists, registrars issue, share transfer agents, under-writers, foreign institutional investors, etc., that for the intermediaries separate Regulations have been framed by the Legislature. It is significant that each of these Regulations which apply to the different intermediaries, contain provisions such as Chapter VI of the Stock Broker Regulations, providing for eventualities/situation which the registration of the intermediary can be suspended or cancelled. An examination different Regulations in respect of the different intermediaries will show that the Legislature consciously provided for specific situations in which the registration of a particular intermediary may be cancelled or suspended. These provisions are intermediary-specific and offence it is apparent that while prescribing the situations/eventualities in which the registration intermediary may be cancelled or suspended, the Legislature has taken into consideration functions of the intermediary, the likelihood, ability, and possibility of the intermediary committing a particular violation, the consequences on the intermediary, etc. For whereas Regulation 26 of the Stock Broker Regulations merely provides for suspension registration of a Stock Broker/Sub-Broker for market manipulation, Regulation 23 of (Foreign Institutional Investors) Regulations, 1995 provides for cancellation of registration FII for indulging in market manipulation.

16. An analysis of the provisions of Regulations 25 and 26 will show that Regulation 25 is provision conferring upon SEBI the general power to impose the penalty of suspension cancellation of registration, Regulation 26 prescribes the situations, conditions under which penalty of suspension or cancellation of registration may be imposed. In other words Regulation 26 contains the guidelines to be followed by SEBI while imposing a penalty of suspension cancellation of registration and such penalties imposed by SEBI is strictly in accordance the provisions of Regulation 26. This is further born out by the fact that Regulation 26 covers the situations listed in Regulation 25(1). This is the only harmonious construction that placed on Regulations 25 and 26 and the only construction by which the provisions Regulations 25 and 26 will be given full effect to and rendered workable. This will also Regulation 25 from being rendered unconstitutional.

No. Artificial Depression of Prices by the Appellants

Artificial. depression not established

17. Apart from intention, it has also to be established as a fact that the depression in the prices securities was artificial. Hence, it will have to be shown that the depression in share prices an unreal or a fake or a temporary one. In the instant case, it is absolutely clear depression in share prices was an unreal or a fake or a temporary one. In the instant case, absolutely clear that the depression in the share prices was a real and genuine depression by such factors like unprecedented boom in the Information Technology, Communication Entertainment stocks, (ICE stocks) all over the world, an irrational exumberance witnessed the various stocks and global indices touched all time high figures, that this uptrend witnessing a meltdown post March 2000 and prices of the ICE stocks started falling rapidly, NASDAQ registered a fall of over 60% between March 2000 to March 2001, the markets and Korean markets also fell between 25% to 40% during this period consonance with the Intentional trends, Indian share prices also fell and the Sensex registered fall of around 28% during this period. Various Indian Companies had overseas listings. ADR's of various Indian IT companies like Infosys, Wipro, Satyam (Relevant stocks) fell in line with the fall of Global prices. Factors particular to Indian markets were failure Calcutta Stock Exchange; Madhavpura Bank Scam; financial problems of Ketan Parekh; selling by FIIs; large selling by Indian Institutions; issues of Corporate Governanace in stocks; Gujrat Earthquake; fears of economic slowdown; downward revision of weightage India in the MSCI Emerging markets index; the UTI debacle; the sudden withdrawal from the ALBM segment etc. as reported by SEBI and Newspapers.

18. If SEBI does not admit the above factors responsible then it has to prove its version. It go by surmises and conjunctures.

19. One fact alone establishes that the depression in the share prices of the concerned scrips an artificial one but was a real one. The prices of shares continued a downward spiral even 15 March 2001 upto August 2001. If, as alleged, the depression in the prices were and brought about by the alleged acts of the Appellants, then on and after 18 when the Appellants broking operations were suspended, the trend would have been reversed.

20. Before SEBI can accuse a person of causing an artificial depression in the price of a scrip, must also determine how much of the fall in the price was artificial and how much of it and what proportion of the fall can be attributed to a particular person/transaction.

21. It was impossible for the Appellants to have depressed the prices of the concerned scrips of the following: Referred to the following chart showing the equity capital and capitalization of the concerned scrips together with the average traded volumes in stocks.

Stock Equity Capital Price 15-Feb Market Cap Average volume BSE Average volume NSE Appellants Volume Rs. Crs. Rs. Rs. Crs. No. of Shares No. of Shares No. of Shares Global Tele 43.72 642 2,806 52,84,591 75,09,931 HFCL 78.82 1002 7,897 65,23,179 1,00,05,673 DSQ Software 30.55 457 1,396 45,44,178 87,50,937 Zee Telefilms 41.25 244 10,065 1,32,91,975 1,63,99,270 11,55,038 Wipro 46.50 2943 68,424 8,91,076 7,83,576 Satyam Comp. 56.24 378 10,629 1,36,41,985 1,82,03,321 10,97,614 MTNL 630.00 182 11,466 27,54,052 27,37,317 SBI 526.30 244 12,841 21,65,460 28,50,512 Infosys 33.08 6497 42,984 6,42,255 7,35,470 Sterlite Opticals 27.95 768 4,293 9,29,737 5,62,615

22. By way of illustration referred to Global Tele, that against a capital of Rs. 43.72 crores capitalisation was Rs. 2806 crores, which indicates that the share was heavily traded. transacted by the Appellant was just 2.86% of the total volume. No inference can be the basis of the data that such a small percentage of trade was responsible for depressing market. SEBI has not bothered to find out who are the persons who traded in the 97.15%, that it is not stated as to whether 2.85% was purchase or sale, that SEBI has not as to whether the Appellants were doing proprietary transactions or for clients.

23. All the stocks listed above have a huge market capitalization and substantial holdings FIIs and Indian Financial Institutions and are highly liquid and actively traded scrips. Indian Institutions like UTI have come to play a very important role in the Indian Capital and market movements to a large extent are determined by the buying and selling pattern FIIs & Indian Institutions. FII volumes are 5%-10% of the total volumes and account for 40% of the total delivery volumes at the exchange. FIIs had cumulative sales of Rs. 1,344 on February 28, 2001, March 1, 2001 and March 2, 2001. Any attempt to depress the said shares “artificially” would result in an immediate buying from the various FIIs SEBI over the years has put in a number of safeguards in terms of limits on individual broker can carry, global limits across scrips on individual brokers, high/low circuit each stock on any trading day etc.

Requisite. intention not established

24. Before a person can be held guilty of violating Regulation 4(a) of the FUTP Regulations, be established that the transaction in securities were effected or entered into with the intention artificially depressing the prices of securities. This intention will have to be determined on a consideration of the factors: (a) that the role played by the intermediary in the market instance, that, they operated a discount broking house; that they did not control or influence investment decisions of their clients; that if such an intermediary were to only execute its constituents, it cannot be held guilty of depressing the price artificially or otherwise, market conditions e.g whether the share price was already falling before the sales were (c) the nature of sales, i.e short sales, sales against previous purchases, sales against deliveries, limit order sales etc., (d) previous positions in the scrip (e) subsequent positions in the previous and subsequent volumes of the member in the relevant scrip, (g) trading pattern other scrips, (h) motive (i) general trading pattern of other market participants like general sentiment in the market.

25. The fact that the Appellants did not have any such intentions is clear from the fact markets were already falling since January 2001 and continued to fall even after 15 2001; that most of the sales of the Appellants were either against previous purchases delivery, all sales were limit order sales, the Appellants were also net buyers during the period. On a particular day in a particular settlement, there are several instances where when of the Appellants had net sales in a scrip, the other Appellants had net purchases in scrip. The Appellants were overall net buyers in the market especially in index weighted during the relevant period. No motive has been established by SEBI.

Net. sales methodology flawed

26. For holding a person guilty of violating Regulation 4(a), it must be established that specific transactions effected or entered into by a person caused a depression in the price scrip. In other words, SEBI must identify those specific transactions of a person, which depressed the price of the scrip. SEBI cannot hold a person guilty of violating Regulation on the basis of the net sales of the person either at the end of the day or at the end settlement. In the instant case, this is exactly what SEBI has done. SEBI has impugned net sales of the Appellants and concluded that these net sales led to an artificial depression prices of the concerned scrips. This approach of SEBI is absurd for the reason that if are to be the criteria for holding a person guilty of market manipulation, a person who short a large quantity of shares which actually results in the artificial depression of price of but covers up these sales by purchasing the same after the price has fallen and creates purchase position, will not be guilty of artificial depression of prices. On the other person who has been holding a huge quantity of shares of a particular scrip for a long time finds that the market is falling and decides to sell the whole lot of shares thereby creating net sale position for himself, will be held guilty of artificially depressing prices. The findings of the Chairman, SEBI in this regard are that “the findings are given in the context market fall therefore there is no need to give a finding for every instance that it resulted. The co-relation between the price movement and fall is self-explanatory from the figures.” says there is a fall in the market and therefore it need not explain. Sales have resulted delivery. So how Appellants are benefited, that SEBI has to show this.

“the net sale position is not altered whether there is a delivery”. SEBI sees sales. In fact actual delivery of shares indicates the bonafides of the Appellants.

“I found that the member did not deny the sales but only stated that they resulted deliveries, which in any case will not alter the net sales position”. In a falling the Appellant sold, so it is necessary to correlate the sale.

“as already stated, it is not necessary that every time the finding on correlation the transactions and the fall should be given.”

The aforesaid “findings” are fallacious and in fact demonstrates the inability to arrive at a sound factual finding.

27. The concerned scrips are traded on both NSE and BSE. All market participants are permitted trade on both the exchanges. NSE had twice the traded volumes of the BSE. Accordingly, aggregate net sales of both BSE & NSE, are required to be considered when computing percentage net sales of the Appellants. This is more so because both the exchanges had settlement period and lot of shifting of positions used to take place on the last day settlement period in view of the carry forward margin requirement.

28. Appellants' net sales had no impact on prices.

29. Far from causing any depression in the share price, the net sales of the Appellants, in no impact on the prices of the concerned scrips. This is clear from the discussion below. be seen that the Enquiry Officer (EO) as well as the Respondent have deliberately ignored overlooked all the relevant and material facts, which were obviously inconvenient with a view to achieve the pre-determined objective of holding the Appellants guilty. set below completely demolish the findings in the Enquiry Report and the Impugned Order.

30. Specific submissions on the Enquiry Report and the Impugned Order

31. Net positions of NBS and BEB

32. The scrip-wise analysis of the same is given below:

Global Telesystems

Settlement Number Date From Date To Opening price High Price Closing price Net Position % of net of BSE Net Position Rs. Rs. Rs. Nirmal Bang Bang Equity 1046 05.2.01 09.2.01 670 696 630 +70,406 +8.2% +2,612 1047 12.2.01 16.2.01 632 655 609 +28,449 +3.2% +3,415 1048 19.2.01 23.2.01 615 624 439 -40,052 -4.6% +2,210 1049 26.2.01 02.3.01 443 454 312 -3,50,315 -17.9% - 1050 05.3.01 09.3.01 306 312 225 +254,782 +14.1% +167,786 1051 12.3.01 16.3.01 210 241 206 +17,870 +1.3% +1,571

33. The settlement-wise positions given above are admittedly net positions for the settlement without taking into account the opening positions. Hence, the finding of SEBI, that the position of 70,406 shares in S. No. 1046 was reduced to 28,449 shares in S. No. 1047 is in fact, these were separate purchases made in two different settlements. NBS & BEB purchased shares in Settlement No. 1046. But price fell from Rs. 670 to Rs. 630. Same is the position No. 1047. In Sett. 1048 NBS was selling but price was falling, but BEB was purchasing price fell. The data shows that the price movement was independent of the fact that whether Appellants were purchasing or selling S. No. 1048 while NBS had a net sale of 40,052 BEB had a net purchase of 2,210 shares. Similarly, on 27 Feb, 2001, 1 March, 2001 March, 2001 between NBS and BEB, one had a net sale while the other had a net purchase. clearly shows that the two entities were not acting in concert.

34. The Finding of the Respondent that there was a conversion of a purchase position position in S. No. 1048 is erroneous in as much as after selling 40,052 shares, NBS was purchaser to the tune of 58,803 shares between S. No. 1046 to S. No. 1048 (Page 65 Appeal).

35. On the basis that the net sales of NBS of 40,052 shares in S. No. 1048 represents 4.6% of sales at BSE and the price fell by Rs. 170 from Rs. 609 to Rs. 439 in that settlement, the of NBS accounted for a fall of only Rs. 7.82

36. It is further clear that the net sales of NBS accounted for a miniscule 4.6% of BSE net, shows that there were huge net sales by others, which accounted for 95.4% of the total net

Settlement No. 1049:

Date Closing price Rs. Change in prices Rs. % change in price Net position for the day Nirmal Bang 26.2.2001 416 (-) 23 -5% (-)3,88,000 27.2.2001 354 (-) 62 -16% (-)1,05,545 28.2.2001 405 (+) 51 +16% (+) 7,044 1.3.2001 372 (-) 33 -8% (-)54,396 2.3.2001 312 (-) 60 -16% (+)2,39,609

37. The finding of the Respondent that NBS was a net seller in 4 out of the 5 days of S. No. erroneous. NBS had net sales only on 3 out of the 5 days. This shows that the Respondent simply repeated what the Enquiry Officer has stated without application of mind. On that the net sales of NBS of 3,50,315 shares in S. No. 1049 represents 17.9% of the net BSE and the price fell by Rs. 127, from Rs. 439 to Rs. 312 in that settlement, the net sales accounted for a fall of only Rs. 22.74 Similar figures for BEB would account for Rs. 11.88

38. All the sales of NBS and BEB were pursuant to limit orders. This fact can be ascertained the Order Book. In other words, NBS and BEB specified the price at which they were to sell the shares to willing buyers. The limit prices were within +/- -0.5% of the prevailing market prices. The significance of a limit order is that if a person is desirous of artificially depressing the price, his natural and most obvious action would be to either make huge without any limit or more likely to offer large number of shares for sale at a price much than the prevailing market price. This is not the case in respect of even a single sale transaction of either NBS or BEB. Both the Enquiry Officer and Chairman have conveniently completely ignored this aspect of the matter. Not a single sale transaction of NBS or BEB were executed the lower circuit filter rate and SEBI has not produced a single such instance. The Chairman further ignored the fact that the price of the scrip fell from Rs. 670 to Rs. 609 i.e by inspite of NBS and BEB being net purchasers in S. No. 1046 and S. No. 1047. The Chairman further ignored the fact that by the end of S. No. 1048 (from S. No. 1046), the price of had fallen by Rs. 231, to Rs. 439 when NBS had a net purchase of 58,803 shares and BEB net purchase of 8,237 shares. In other words, the share price during S. No. 1046 to S. No. by 35%, when NBS and BEB were net buyers. This shows that there was no co the Appellants' transactions and the fall in the share prices. SEBI further ignored the fact S. No. 1050 and S. No. 1051, both NBS and BEB had large net purchases inspite of which share price fell from Rs. 312 to Rs. 206 i.e by Rs. 106 or by 34%. Once again this shows there was no co-relation or linkage between the transactions of the Appellants and the fall price of the share. On 2 March 2001, when NBS purchased 2,39,609 shares, the price Rs. 60 i.e by 16% and hit the lower circuit filter. Similarly, on 28 February 2001, when and BEB had a combined purchase of 14,739 shares only, the price went up by Rs. 51 and upper circuit filter. Once again this establishes that there was no co-relation or linkage the transactions of the Appellants and the fall in the price of the scrip.

39. The above instances clearly show that the findings of SEBI are wholly misconceived erroneous.

40. All the net sales considered by SEBI include sales on behalf of clients, which were effected the instructions of the clients. SEBI has not bothered to distinguish between client proprietary sales and has treated them on par. This action is clearly untenable. This is more view of the fact that SEBI has nowhere alleged that the Appellants were acting in concert their clients nor that these client trades were actually proprietary trades of the Appellant. case of BEB, all the sales were on behalf of clients.

Settlement Number Date From Date To Opening price High Price Closing price Our Net Position % of net of BSE Our Net Position Rs. Rs. Rs. Nirmal Bang Bang Equity 1044 22.1.01 26.1.01 1,241 1,300 1,269 -46,225 -5.0% +59390 1045 29.1.01 02.2.01 1,250 1,264 1,027 -16,257 -0.7% +3935 1046 05.2.01 09.2.01 1,000 1,039 965 +16,375 +1.0% +57764 1047 12.2.01 16.2.01 950 1,019 909 -20,173 -1.9% - 1048 19.2.01 23.2.01 910 923 743 +69,761 +6.7% +78,220 1049 26.2.01 02.3.01 740 752 605 +16,852 +0.7% - 1050 05.3.01 09.3.01 585 625 326 +18,015 +0.5% +5,556 1051 12.3.01 16.3.01 301 322 214 +22,820 +0.6% +27,724

41. Significantly, the Enquiry Officer has not found NBS and BEB guilty of artificially depressing the price of this scrip. Despite this, the Respondent has concluded that NBS and BEB depressed the price of this scrip by acting in concert.

42. From the above table, it is clear that in 3 of the settlements, the net positions of NBS were exactly the opposite. In 4 settlements, NBS and BEB had net purchase position. BEB has net purchase position in 6 out of 8 settlements. NBS and BEB have common position only in one settlement i.e S. No. 1047. This fact clearly established that NBS were not at all acting in concert to depress the price of the scrip. Admittedly, in Settlement the entire net sales of NBS were against delivery and the entire net sales of BEB were previous purchases. In S. No. 1047, the price of the scrip fell by Rs. 41. Accordingly the can be attributed to NBS and BEB is 6.9% of Rs. 41 i.e Rs. 2.83, which is insignificant. S. No. 1049, while BEB was a net seller, NBS was a net purchaser. This clearly shows Appellants had no intention of depressing the price of the scrip. In S. No. 1049, BEB combined sale position of 2.8% and the price fell by Rs. 138. Accordingly, the fall that attributed to NBS and BEB is 2.8% of Rs. 138 i.e Rs. 3.86, which is again insignificant. S. No. 1048, when NBS and BEB were both net purchasers, the price fell by Rs. 166 Rs. 909 to Rs. 743, a fall of 18.26%. This shows that there was no co-relation between Appellants' transactions and the fall in the share prices. Similarly in S. No. 1050 and 1051, NBS and BEB were net purchasers, the price fell from Rs. 605 to Rs. 214, a fall of (65.45%). This shows that there was no co-relation between the Appellants' transactions fall in the share prices.

43. All the sales of NBS and BEB were pursuant to limit orders. In other words, NBS specified the price at which they were offering to sell the shares to willing buyers. prices were within +/- 0.5% of the prevailing market prices. The significance that if a person is desirous of artificially depressing the price, his natural and most action would be to either make huge sales without any limit or more likely to offer large of shares for sale at a price much lower than the prevailing market price. It is pertinent that this is not the case in respect of even a single sale transaction of either NBS or BEB. the Enquiry Officer and the Respondent have conveniently ignored this aspect of the matter. a single sale transaction of NBS or BEB were executed at the lower circuit filter rate.

44. All the net sales considered by SEBI include sales on behalf of the clients, which were on the instructions of the clients. SEBI has not bothered to distinguish between client proprietary sales and has treated them on par. This action is clearly untenable. This is more view of the fact that SEBI has nowhere alleged that the Appellants were acting in concert their clients nor that these client trades were actually proprietary trades of the Appellant. case of BEB, all the sales were on behalf of clients.

Infosys Tehnologies

Settlement Number Date From Date To Opening price High Price Closing price Our Net Position % of net of BSE Out Net Position Rs. Rs. Rs. Nirmal Bang Bang Equity 6,860 1046 05.2.01 09.2.01 6,777 6,777 6,406 +1,796 +1.0% +341 1047 12.2.01 16.2.01 6380 6,537 6,254 +7,139 +4.8% +270 1048 19.2.01 23.2.01 6260 6,343 5,598 -2,687 -1.0% +220 1049 26.2.01 02.3.01 5,730 6,330 4,940 -18,600 -6.4% +1,011 1050 05.3.01 09.3.01 4,700 5,315 4,817 -9,549 -3.3% - 1051 12.3.01 16.3.01 4,738 4,990 4,694 -42,013 -12.6% -

45. The net sales of 18,600 of NBS in S. No. 1049 were fully delivered. In S. No. 1049, the scrip fell from Rs. 5,598 to Rs. 4,940 i.e by Rs. 658. On this basis, the net sales of NBS accounted for only Rs. 42.11 of the fall. In S. No. 1049, while NBS was a net seller, was a net purchaser. This clearly militates against any intention on the part of the Appellants depress the price of the scrip.

46. The sale of 42,013 shares by NBS in S. No. 1051 was backed by delivery. The fall in price S. No. 1051 was Rs. 123. Consequently, the fall is attributable to NBS would be Rs. 15.50 S. No. 1046 and S. No. 1047, when NBS and BEB were net purchasers, the price Rs. 6,860 to Rs. 6,254, a fall of Rs. 606. This shows that there is no co-relation between transactions of the appellants and the fall in the price of the scrip. In S. No. 1048, when NBS 2,687 shares, the price fell by Rs. 656 whereas in S. No. 1049 when NBS sold 18,600 shares price fell by Rs. 658 only. This again shows that there was no co-relation between the by NBS and the fall in prices. In S. No. 1050 when NBS sold 9,549 shares, the price Rs. 123 and in S. No. 1051, when NBS sold 42,013 shares, the price fell by Rs. 123 only. again shows that there is no co-relation between the net sales by NBS and the fall in prices. SEBI's own showing, the net sales of BEB of 162 shares in S. No. 1051 constitutes 0.0% net of BSE and yet an allegation of acting in concert with NBS is made on the basis of This establishes that the fall is natural and not artificial. In S. No. 1048, the net sales amounting to 2,687 shares were equivalent to only 1% of the net of BSE. Hence, it follows totally 2,66,013 shares were sold by others. Similarly in S. No. 1049, while NBS sold shares, 2,72,025 shares were sold by others. So also, in S. No. 1050, while the combined of NBS and BEB were 10,774 shares, the net sale of others was 2,78,589. In S. No. 1051, the combined net sales of NBS and BEB were 42,175 shares, the net sale of others 2,91,261. In total, while NBS and BEB sold 73,005 shares in 4 settlements on the BSE, of 11,07,888 were sold by other market participants. If the figures of NSE are taken account, the percentage net sale of NBS and BEB would be miniscule. Hence it is NBS and BEB were net sellers only to a small extent and the major net sales were market participants.

47. The submissions regarding limit orders, non-distinguishing of client and proprietary trades the absence any sales at the lower circuit filter levels reiterated.

Satyam Computers

Settlement Number Date From Date To Opening price High Price Closing price Our Net Position % of net of BSE Our Net Position Rs. Rs. Rs. Nirmal Bang Bang Equity 1043 15.01.01 19.01.01 386 421 418 -70,086 -2.2% +17,147 1044 22.1.01 26.1.01 424 430 414 +2,41,352 +9.2% - 1045 29.1.01 02.2.01 400 428 415 +2,813 +0.1% - 1046 05.2.01 09.2.01 400 412 372 -224,803 -5.6% +7,944 1047 12.2.01 16.2.01 375 387 365 +289,734 +9.5% +85,763 1048 19.2.01 23.2.01 361 376 318 -35,040 -1.6% - 1049 26.2.01 02.3.01 321 353 263 -344,378 -8.2% +26,357 1050 05.3.01 09.3.01 250 280 229 +305,263 +10.2% +2,365 1051 12.3.01 16.3.01 230 264 237 -78,831 -1.6% -

48. The settlement-wise position given above are admittedly net positions for the settlement taking into account the opening positions. Hence, the finding of the Respondent, purchase position of 2,41,352 shares in S. No. 1044 were reduced to 2,813 shares in S. No. incorrect (Page 68 of the Appeal). In fact, these were separate purchases made in two settlements.

49. The net sales of NBS in S. No. 1046, 1048 and 1051 were either against previous purchases against delivery. The net sales of BEB in all the settlements were either against purchases or for delivery. Besides, all sales of BEB were on behalf of its clients.

50. In S. No. 1046, when NBS was a net seller, the price of the scrip fell from Rs. 415 to Thereafter, in S. No. 1047, when NBS was a net purchaser, the price still fell. Also in S.when NBS was a net buyer, the price fell further by Rs. 34. Thereafter, in S. No. 1051, when NBS and BEB were net sellers, the price went up by Rs. 8/-. This clearly shows that there co-relation between the transactions of the appellants and the movement in the price of This also shows that NBS and BEB were not acting in concert. Out of the 9 settlements above, NBS and BEB had different positions in 5 settlements, common purchase positions settlements and common sale positions in 2 settlements. In S. No. 1046 and 1049, in respect which it is alleged that NBS effected net sales with a view to depress the price of the scrip, seen that BEB had net purchases. This clearly militates against the imputation of any to the appellants to depress prices. It has been held by the Respondent that NBS and BEB in concert in S. No. 1048 and 1051 to bring down the prices as they were both net sellers settlements. The Respondent completely overlooked the fact that in S. No. 1051, the price scrip closed at a figure higher than the closing price in S. No. 1050. The Respondent has that the net purchases in S. No. 1047 and 1050 were to cover the net sales of the settlements. He has conveniently ignored the fact that the net sales in S. No. 1046 and 1051 against previous purchases.

51. The particulars of the net sales of NBS and BEB viz-a-vis the net sales by other participants are that

S. No. Our Sales Sales by other market participants. 1046 -2,24,803 -37,89,536 1047 + -30,49,830 1048 -1,17,590 -20,72,410 1049 -3,44,378 -38,55,354 1050 + -29,92,775 1051 -1,15,053 -48,11,884

DSQ Software

Settlement Number Date From Date To Opening price High Price Closing price Our Net Position % of net of BSE Out Net Position Rs. Rs. Rs. Nirmal Bang Bang Equity 415 1046 05.2.01 09.2.01 410 446 418 +321,012 +57.2% +405 1047 12.2.01 16.2.01 415 463 423 +415 +0.1% - 1048 19.2.01 23.2.01 424 433 369 -14,298 -3.1% - 1049 26.2.01 02.3.01 375 398 304 +132,300 +19.8% +285 1050 05.3.01 09.3.01 300 318 212 +15,195 +0.6% +9,255 1051 12.3.01 16.3.01 195 195 145 +4,020 +0.1% +7,245

52. Significantly, neither the Enquiry Officer nor the Respondent has found that either NBS effected transactions in the shares of this scrip with the intention of causing an depression in the price of this scrip or that the transactions effected by NBS or BEB, caused a depression in the price of this scrip. In fact, as far as BEB is concerned, the Respondent has not even confirmed the findings of the Enquiry Officer. The only conclusions of the Officer are that NBS unwound its net purchases and that BEB was also simultaneously shares of this scrip.

53. The finding of the Enquiry Officer and the Respondent that the net purchases made by S. No. 1046 were unwound in the subsequent S. No. 1047 and 1048 is incorrect. The Respondent has wrongly stated that this fact was admitted by the Appellants. The net positions given statement contained in the report of the Enquiry Officer are the net positions arrived basis of the purchases and sales in a particular settlement without taking into account opening position in the settlement. In view of this, the net positions of +415 and other market participants. S. Nos. 1047 and 1048 do not reflect the unwinding of previous purchases. This establishes the findings that the net purchases in S. No. 1046, which stood at 52.6% of the net of BSE down to 0.1% of the net purchase position in S. No. 1047, which shows that NBS purchased shares in this settlement than the shares it sold. These facts have been conveniently ignored the Enquiry Officer as well as the Respondent.

54. Both the Enquiry Officer as well as the Respondent have failed and neglected to analyse trend in the price of this scrip with reference to the transactions of NBS and BEB, essential to determine whether these transactions caused any depression, artificial or otherwise, in the price of the scrip. In fact, this is the single most important factor, which was required be considered by SEBI. The approach of SEBI for reaching conclusions on the unwinding of previous purchases de hors the effect of the transactions on the price of the misconceived and erroneous. The reasons for adopting this approach are obvious, as evident from the following that even if the finding of the Enquiry Officer and the Respondent that NBS unwound previous purchases in S. No. 1047 is to be accepted, it is significant price of the scrip has risen during this settlement as compared to the previous one. This that the purported unwinding of previous purchases did not cause any depression in the scrip.

55. In S. No. 1049, 1050 and 1051, the price of the scrip registered a substantial fall despite being a net purchaser in each of these settlements. Instead of appreciating this fact, Enquiry Officer and the Respondent have stated that the net purchases in these settlements to be seen against the background of unwinding previous purchases. The whole approach SEBI is flawed. The Enquiry Officer and the Respondent have both failed to appreciate of the six settlements under consideration, NBS had net sales only in one. In S. No. 1047, NBS was a net purchaser, BEB was a net seller. This completely demolishes the finding BEB was simultaneously selling shares of this scrip. The net sales of BEB are completely insignificant in comparison with the total volumes of the scrip on the BSE. The net sales constituted 0.5% and 0.1% of the net of BSE in S. No. 1047 and 1048 respectively. In net sales of BEB in S. No. 1048 were only 606 shares. These net sales could never have effect on the price of the scrip. In fact, also, the net sales of BEB did not cause any fall price of the scrip. This is clear from one fact alone and that is that when BEB was a net S. No. 1047, the price of the scrip rose. The submissions regarding limit orders, distinguishing of client and proprietary trades and the absence of any sales at the lower filter levels reiterated.

Zee Telefilms

Settlement Number Date From Date To Opening price High Price Closing price Our Net Position % of net of BSE Out Net Position Rs. Rs. Rs. Nirmal Bang Bang Equity 254 1046 05.2.01 09.2.01 252 260 230 -52,205 -1.8% - 1047 12.2.01 16.2.01 229 247 231 -21,936 -0.7% +144,340 1048 19.2.01 23.2.01 234 240 210 -141,699 -1.6% - 1049 26.2.01 02.3.01 215 215 136 +209,795 4.37% - 1050 05.3.01 09.3.01 125 147 115 +37,013 0.3% +44,200 1051 12.3.01 16.3.01 113 156 144 -87,183 -1.1% -

Date BEB Net Closing Price Price Change 16.2.2001 231 19.2.2001 +63,025 229 20.2.2001 +105,925 232 21.2.2001 -41,500 237 22.2.2001 -257,590 235 23.2.2001 -52,640 210 26.2.2001 +18,865 192 27.2.2001 -95,510 165 28.2.2001 -850 171 01.3.2001 +23,135 162 02.3.2001 -27,660 136

56. With regard to trading in this scrip, the main findings are against BEB. As far as concerned, the only finding of the Enquiry Officer as well as the Respondent is that to the that NBS and BEB were simultaneously selling in S. No. 1048 and 1049, they could not to be acting in concert. As against BEB, the Enquiry Officer has come to the conclusion can be reasonably concluded that the purchases in S. No. 1050 when the closing price was could be with a view to cover the earlier short sales and/or taking advantage of the fall after hammering down the prices.” The Respondent has merely substituted the words “could with the word “was”. Both the Enquiry Officer and the Respondent have not given any in support of the finding of “hammering down the prices” by BEB. As such, it is clear Enquiry Officer and the Respondent have both proceeded on the presumption that hammered down the price of the scrip without coming to any independent reasoned conclusion in that regard.

57. An examination of the above tables will clearly show that the transactions of NBS and not cause any depression in the price of the scrip. In fact, these transactions did not impact at all on the price of the scrip. In S. No. 1047, the price of the scrip remained despite net sales of NBS to the tune of 21,036 shares and net purchases of BEB to the 1,44,340 shares. Thereafter, despite NBS being a net purchaser in S. No. 1049 to the 2,09,795 shares, the price of the scrip registered a substantial fall. Subsequently, even NBS and BEB were both net purchasers in S. No. 1050, the price of the scrip continued Significantly, in S. No. 1051, when both NBS and BEB were net sellers, the price of rose. These facts clearly establishes that neither NBS nor BEB caused any fall in the price scrip much less hammered the price of the scrip. In S. No. 1047 and 1049, both NBS had different positions. When NBS had net sales, BEB had net purchases and vice versa. completely demolishes the charge/finding that NBS and BEB were acting in concert net sales of NBS and BEB taken together were insignificant when compared to the net and consequently could never have had any impact on the price of the scrip. Both the Officer and the Respondent have stressed on the fact that on 23 and 27 February March 2001, when BEB was a net seller the price of the scrip registered a fall. Both the Officer and the Chairman, SEBI have ignored the fact that the price of the scrip registered even when BEB was a net purchaser on 19 & 26 February and 1 March 2001, which that the transactions of BEB did not have any effect on the price of the scrip much less in a depression in the price of the scrip. Another significant fact is that when BEB relatively large net purchase position on 20 February 2001 and a relatively large sale on 22 February 2001, the price of the scrip barely moved. Further, on 21 February 28 February 2001, the price of the scrip in fact rose despite the net sales of BEB. relevant facts have been conveniently ignored and overlooked by the Enquiry Officer Chairman, SEBI. It is clear that they have deliberately turned a blind eye to these facts. confronted with all this facts both Enquiry Officer as well as the Respondent has rendered incredible findings as follows(in confirmation of the finding of the EO) that:

“As already stated, it is not necessary that every time the finding on correlation between the transactions and the fall should be given. It is to be kept in mind whole enquiry is with regard to depression in share prices caused artificially member” (Page 36 of the Impugned Order).

“In cases of this nature when there is a series of transactions over a period of cannot be determined with mathematical accuracy the extent of the fall vis members trade. What is to be seen is the overall trading behaviour of the member proportion of his sales to the exchange net sales should be taken into account. the view that we should see as to what is the contribution of the member to the as a whole in the market whether the purchases are on account of covering of short sales”(Page 46 of the Impugned Order).

58. The submissions regarding limit orders, non-distinguishing of client and proprietary trades the absence of any sales at the lower circuit filter levels reiterated.

Settlement Number Date From Date To Opening price High Price Closing price Our Net Position % of net of BSE Out Net Position Rs. Rs. Rs. Nirmal Bang Bang Equity 2,713 1046 05.2.01 09.2.01 2,755 2,985 2,938 +16,153 +4.8% +9,844 1047 12.2.01 16.2.01 2,930 3,074 2,828 -4,359 -2.2% - 1048 19.2.01 23.2.01 2,820 2,889 2,501 +3,171 +1.9% +238 1049 26.2.01 02.3.01 2,550 2,637 2,079 -10,229 -3.96% +258 1050 05.3.01 09.3.01 2,001 2,315 1,935 +12,005 5.1% - 1051 12.3.01 16.3.01 1,890 1,950 1,660 +265 0.1% -

Though the Enquiry Officer concluded the trading pattern in the scrip did not significant net sales with a view to depress the prices except in S. No. 1047 when NBS and BEB had net sales, the Respondent did not confirm this finding Impugned Order. The Respondent has completely ignored this finding. The reasonable conclusion can be that the Respondent has not agreed with the findings the Enquiry Officer. In this view of the matter, the Appellants are not dealing findings of the Enquiry Officer.

59. Trading. by BAMA on 23rd February, 1st & 2nd March 2001.

60. The Enquiry Officer and the Respondent both came to the conclusion that the trading pattern Bama on 22, 23 and 28 February, 1 and 2 March in the scrips of Global Telesystems, HFCL, Satyam, Silverline, Zee and Wipro showed that Bama was a consistent net seller also unwound the previously built purchase positions and created fresh net sales positions can be said to have contributed to the artificial depression of prices of these scrips during relevant period.

61. According to the Enquiry Officer and the Respondent, Bama was a consistent seller scrips on 22, 23 and 28 February and 1 and 2 March, 2001 as under:

Scrip 22-Feb 23-Feb 28-Feb 1-Mar Global Telesystems (10,577) (163,155) 36,939 (41,385) HFCL 50,480 33,699 (27,086) (27,893) Satyam (194,626) 42,254 306,214 (171,620) Silverline (41,920) (63,020) (144,930) (139,598) Wipro 855 2,413 (55) (15,068) Zee Telefilms 164,460 27,194 (64,563) (117,316)

62. On the basis of the aforesaid data, the Respondent and the EO concluded that Bama consistent net seller in the above scrips on the above dates.

63. The above figures were supplied by Bama to the EO on the basis of the data contained first Show Cause Notice. The net positions on each day have been computed after considering the opening purchase/sale positions and do not represent the net positions only for that being so, it is apparent that Bama was not a net seller as alleged but was a net purchaser several days. For eg. On 23 February 2001, Bama was a net purchaser in Satyam and on 1 March 2001, Bama was a net purchaser in Silverline; and on 2 March 2001, Bama a net purchaser in HFCL, Silverline and Zee Telefilms. It is obvious that both the EO Respondent have erred while analyzing the data and have overlooked the aforesaid facts.

64. It is submitted that the entire approach of the EO and the Respondent, of judging Bama basis of net sales is misconceived and erroneous. All the findings rendered by the EO Respondent on the basis of the net sales methodology are vitiated. While analyzing transactions of Bama, SEBI ought to have considered the fact that Bama had also purchased shares of these scrips on the days in question and that Bama was not only selling shares. a relevant factor required to be considered when determining whether Bama had entered transactions with the intention of hammering the prices of the scrips. Both the EO Respondent have failed to consider this fact.

65. It is also imperative for SEBI to determine the impact of the sales on the price of the before coming to the conclusion that these sales could be said to have contributed artificial depression of prices of these scrips. No such exercise was carried out either by or the Respondent. In fact, the prices of the scrips have not even been referred to either show cause notices or in the Impugned Order. No attempt whatsoever has been establish that the prices of the scrips had fallen. This alone vitiates the findings of the Respondent. There has also been no attempt to show that the depression in the prices scrips, if any, was indeed artificial and both the EO and the Respondent have proceeded assumption that the prices of the scrips had fallen and that such a fall was artificial.

66. It is clear from the findings of the EO and the Respondent that no correlation between sale position of Bama and the alleged artificial depression of prices of the scrips established. Both of them have concluded that the net sales position of Bama “can be have contributed to the artificial depression of prices of these scrips during the relevant This finding is clearly speculative and vague and can never form the basis of a finding against Bama. When faced with the submission that no such correlation has been established, both the EO and the Respondent concluded that it was not necessary that everytime the on correlation between the transactions and the fall should be given.

67. Despite the fact that all the aforesaid submissions of Bama were contained in its replies show cause notices, the same have been totally ignored b y the EO and the Respondent arriving at the final conclusions. This shows the prejudiced mind of SEBI and its pre intention of holding Bama guilty irrespective of the facts of the case.

Sales. in Select Time Slots

68. The particulars of the transactions in respect of which the Respondent has found Bama causing a fall in the prices of the scrip by selling in specified time slots are as that:

Scrip Date Time from Time to Minutes Quantity % of market Fall in price Global Telesystems 23-Feb-01 15:04 15:14 0:10 85,655 11.68% (18.65) Global Telesystems 2-Mar-01 12:33 12:41 0:08 49,315 9.74% (12.90) Satyam 1-Mar-01 14:13 14:33 0:20 155,744 5.01% (17.65) Satyam 2-Mar-01 10:57 11:05 0:08 62,714 3.97% (12.20) Satyam 2-Mar-01 13:17 13:53 0:36 63,979 2.56% (12.85) SSI 2-Mar-01 13:41 13:54 0:13 9,955 14.79% (28.00) SSI 2-Mar-01 12:32 13:01 0:29 19,450 11.13% (71.00) Wipro 1-Mar-01 13:33 13:41 0:08 9,026 15.46% (15.00) Zee Telefilms 23-Feb-01 12:26 12:35 0:09 76,279 2.33% (8.35) Zee Telefilms 1-Mar-01 12:53 13:56 1:03 129,478 6.52% (8.95) Zee Telefilms 2-Mar-01 12:00 12:22 0:22 116,932 7.04% (11.65)

69. It is to be noted that the E.O did not find Bama guilty of selling shares with the intention artificially depressing the prices of the scrips to induce the sale or purchase of securities other person. The E.O has simply concluded that net sales of Bama in thee time bands fall in the share prices. The report of the E.O which Bama was called upon to show itself failed to make out a case of any violation of the prohibition contained in respect FUTP Regulations. The report was liable to be discarded exfacie on this ground alone. Respondent before whom this argument was raised, realising this inherent deficiency Enquiry Report, exceeded his jurisdiction by holding that these net sales of Bama were deliberately to depress the prices of the scrips. It is therefore, clear that the Respondent gone beyond the report of the E.O Not only this, it is also apparent that the Respondent Bama guilty of a charge, which was not made by the Enquiry Officer.

70. The very graphs relied upon by the Enquiry Officer reveal a completely perverse, unscientific and irrational approach on the part of the Enquiry Officer. In fact, it is attempt to reach a pre-meditated conclusion or a case of misplaced wisdom by hindsight. established by the fact that the Enquiry Report does not contain any information or particulars with regard to either the quantity or price or the sellers responsible for the fall in the price very same scrips during the other time slots plotted on the graph. The Enquiry Report contain any information whatsoever with regard to the purchases, if any, made by Bama before or during the concerned time slots. In fact, from charts appearing hereinafter, apparent that within the very same time slots in which Bama is alleged to have sold shares the alleged intention of depressing the prices, Bama also purchased shares. What however appears to have done is to deliberately withhold the information with regard purchases made during the time slots by Bama and tabulate “the net sales position” giving impression to the reader that Bama was only a seller and not a purchaser of these shares these time slots. The Enquiry Report does not contain any information with regard to sellers, if any, the quantity and the price at which such sellers also sold the shares of same scrip during the very same time slots during which Bama is alleged to have caused the price of the scrips. The Enquiry Report does not take into account the market sentiments well as the other factors which could have lead to either a general fall in the prices of the or a fall in the prices of the scrip in this particular segment of the market which is reflected segment-wise indices popularly known as BSE Index or Mindex. The Enquiry Report not take into account the fact whether there was any means rea or motive on the part of allegedly causing a fall in the prices of the scrips which would have been easily ascertainable determined if Bama had purchased the shares of the very same scrips soon after allegedly caused a fall in the prices thereof. The Enquiry Report also overlooks extremely significant fact, namely, that whereas Bama did sell the shares mentioned the table during the indicated time slot, Bama also purchased shares of other companies in segment during the same time slot. Enclosed herein and marked as Annexure “3” is showing the different purchases made by Bama during the same time slot. This would show not only were the sales driven by market prices but also that the purchases within segment were also at the market determined prices. If the intention, as held by the Respondent (but not by the Enquiry Officer) was to deliberately depress the prices of the scrip then would not have simultaneously acquired shares of other scrip in the same segment at determined prices during the same time slot. The Enquiry Report further overlooks significant fact, namely that during the said time slots Bama purchased shares of the very companies. This information was deliberately overlooked by SEBI though available in logs. This militates against any allegation/charge of any intention of Bama to depress of scrip much less to depress them artificially. The Enquiry report further overlooks and every sale was a limit order sale, the limit being in the range of 0.5% of the market All the sales were executed as per the limit orders.

Analysis. of time slots

The following analysis will clearly establish that the sales of Bama did not impact on the price of the scrip, much less cause any fall/depression thereof.

i) 23rd February 01

Global Telesystem

Time: 15:04 to 15:14

Price fell by Rs. 18.65 from Rs. 457 to 438

BUY SELL Order Total Qty Average rate Start time End time Total qty Average rate Start time 200102231327097 300 453.00 15:05:52 15:06:07 200102231340940 6521 450.01 15:06:33 200102231341857 20599 448.02 15:06:44 200102231280548 100 447.00 15:06:58 15:06:58 200102231325974 300 445.40 200102231320707 10 445.00 15:07:28 15:07:28 200102231345924 50000 444.00 15:07:33 200102231311249 1000 442.00 15:08:39 15:08:39 200102231275361 100 441.23 15:08:49 200102231356040 50 442.00 15:09:30 15:09:30 200102231359429 50 443.00 15:10:11 15:10:11 200102231359738 50 443.90 15:10:38 15:10:38 200102231368207 50 441.25 15:11:59 15:11:59 200102231369114 100 441.00 15:12:12 15:12:12 200102231356834 5 440.00 15:12:54 15:12:54 200102231376357 50 439.00 15:13:50 15:13:50 200102231377229 20000 438.00 15:14:00 200102231378908 100000 439.74 15:14:23 15:14:23 200102231379097 100 440.00 15:14:26 15:14:26

71. Apart from sales there were also purchases made by Bama during this time slot, which uniformly spread out throughout the time slot. Before the first sale transaction of Bama, price had already fallen from Rs. 457 to Rs. 450 i.e Rs. 7 out of a total fall of Rs. 18. Between period from 15:08:39 to 15:13;50, Bama was a continuous purchaser, inspite of which the of the scrip fell. After every sale transaction of Bama, the price of the scrip in fact, almost the same — it moved up/down by only a rupee i.e 0.20% of the prevailing price. the sale transaction of 20,000 shares in the period from 15:14:00 to 15:14:08, the price scrip rose. 50000 shares were traded in 33 second from 15:07:33 to 15:08:06 and 20000 were traded in 8 seconds from 15:14:00 to 15:14:08. This is indicative of the depth and of the scrip. It also shows that the trades were between willing buyers and willing prevailing market prices. Any fall in price cannot be attributed to the seller.

72. It is clear from the above that there is no co-relation between purchases/sales by Bama movement in share price. This indicates the depth in liquidatory of the scrip.

ii) 2nd March ’01

Global Telesystem

Time: 12:33 to 12:41

Price fell by Rs. 12.90 from Rs. 330 to 317

BUY SELL Order Total Qty Average rate Start time End time Total qty Average rate Start time 200103020764670 100 328.80 12:34:41 12:34:41 200103020786247 100 325.40 12:36:11 12:36:11 200103020791513 50000 320.39 12:37:27 200103020805710 15 317.25 12:41:06 200103020807073 500 318.00 12:41:27 12:41:29

73. The price of the scrip was already falling when Bama sold 50,000 shares. By this time, of the scrip had already fallen by about Rs. 10. After the sale of 50,000 shares by Bama, of the scrip remained almost unchanged. In the 4 minutes after the sale of 50,000 shares, price had moved only by about Rs. 2.39 i.e 0.74%.

74. The sales and purchases were uniformly spread out throughout this time slot.

iii) 1st March ’01

Satyam Computers

Time: 14:13 to 14:33

Price fell by Rs. 17.65 from Rs. 333 to 315

BUY SELL Order Total Qty Average rate Start time End time Total qty Average rate Start time 200103011239131 50 332.50 14:15:42 14:15:42 200103010794985 50 332.50 14:15:44 14:15:44 200103011184900 200 332.50 14:15:44 14:15:44 200103011241115 150 331.50 14:16:05 200103011246832 200 331.60 14:17:14 200103011184456 200 331.00 14:17:45 14:17:46 200103011251660 1000 330.00 14:18:12 200103011255062 100 329.90 14:18:49 14:18:49 200103011275317 200 332.25 14:22:59 14:22:59 200103011276396 500 332.70 14:22:59 14:22:59 200103011276746 50 332.25 14:23:10 14:23:17 200103011258565 200 330.00 14:25:26 14:25:26 200103011256768 25 329.85 14:25:32 14:25:32 200103010983473 300 328.00 14:25:59 14:26:18 200103011243574 50 327.60 14:26:19 14:26:19 200103010737582 50 327.60 14:26:19 14:26:19 200103011293812 200 328.70 14:26:36 200103011295406 500 329.00 14:26:57 200103011295532 50 328.00 14:27:36 14:27:36 200103011300134 50 327.73 14:27:57 14:27:57 200103011300601 50 326.15 14:28:26 14:28:26 200103011304023 50 325.10 14:28:47 14:28:47 200103011304713 77961 325.02 14:28:47 200103011191399 500 325.00 14:28:48 14:28:48 200103011307208 25 323.00 14:29:13 14:29:13 200103011307596 1000 321.05 14:29:17 200103011308362 50 322.80 14:29:24 14:29:24 200103011308736 600 322.50 14:29:27 200103011310444 1000 322.60 14:29:43 200103011312279 5000 321.05 14:29:58 200103010583294 100 320.00 14:30:14 14:30:14 200103011315834 100 319.00 14:30:31 200103011319104 96006 317.75 14:31:02

75. After one of the largest sale transactions of 77,961 shares, there was no change at all in of the scrip. After the other large sale transaction of 96,006 shares, there was virtually no in the price of the scrip. The sale of these shares was at the average rate of Rs. 317.75 Two minutes thereafter, the price of the scrip was Rs. 315.

76. During the periods when the price of the scrip registered the latest fall of Rs. 4, Bama continuous purchaser (Bama had insignificant sales prior to these periods). When the from Rs. 333 to Rs. 325, Bama was a net buyer to the extent of 125 shares. 77,961 shares sold within 7 seconds, which is indicative of the fact that the trades were between willing and willing sellers. It also reflects the depth and liquidity of the scrip.

iv) 2nd March ’01

Satyam Computers

Time: 10:57 to 11:05

Price fell by Rs. 12.20 from Rs. 298 to 286

BUY SELL Order Total Qty Average rate Start time End time Total qty Average rate Start time 200103020359977 500 297.49 10:57:27 200103020356895 20 298.00 10:58:11 200103020367822 20 296.00 11:00:30 11:00:30 200103020375050 5000 295.04 11:00:49 200103020379158 200 292.55 11:01:34 200103011546973 25 292.00 11:01:43 11:01:43 200103020322064 200 291.00 11:01:51 11:01:51 200103020139520 500 290.00 11:02:02 11:02:02 200103020168259 100 290.00 11:02:02 11:02:02 200103020283549 200 290.00 11:02:03 11:02:03 200103020217637 10 289.00 11:02:04 11:02:04 200103020383631 1000 288.80 11:02:23 11:02:23 200103020383828 200 288.80 11:02:25 11:02:25 200103020385548 200 286.18 11:03:18 200103020389146 45026 286.52 11:03:19 200103020392602 200 287.45 11:03:52 11:03:52 200103020394248 100 287.80 11:04:07 11:04:07 200103020397663 100 287.00 11:04:40 11:04:40 200103020397592 15623 287.02 11:04:40 200103020398480 15623** 300 286.10 11:04:56 200103020399354 1000 286.00 11:04:58

77. Apart from sales, there were also purchases made by Bama during this time slot, which uniformly spread out throughout the time slot. After the first two sales transactions, the scrip actually rose. Between the period from 11:01:43 to 11:02:25, Bama was a continuous purchaser, inspite of which the price of the scrip fell. After the largest sale transaction of shares in the period from 11:03:19 to 11:03:26, the price of the scrip rose. After the 15,623 shares by Bama, the price fell by less than a rupee. This shows that this sale impact on the price of the scrip. During the period when the share price registered the maximum fall from Rs. 297.49 to Rs. 22286.18, Bama had purchases of 2,255 shares. Hence the net Bama during this period, were only 3,665 shares. When compared with the total net Bama of 65,214 shares during this time slot, it is seen that the net sales of Bama during period when the shares registered the maximum fall, were insignificant. SEBI has alleged during this time slot, the price of the scrip registered a fall of Rs. 12.2 From the above facts, clear that when the share price fell from Rs. 297.49 to Rs. 286.18 i.e by Rs. 11.31, the net Bama were 3,665 shares, which is insignificant. According to SEBI, the net sales of 62,714 shares constituted 3.97% of the market. On this basis, 3,665 shares would constitute 0.23% of the market. It is therefore clear that when the share price fell by Rs. 11.31, the of Bama were only 0.23% of the market. It is clear from the above that even the sale of shares of Satyam within 7 seconds, had no impact on the market price of the share. In price rose. This indicates the depth and liquidity of the scrip.

v) 2nd March ’01

Satyam Computers

Time: 13:17 to 13:53

Price fell by Rs. 12.85 from Rs. 280 to 267

BUY SELL Order Total Qty Average rate Start time End time Total qty Average rate Start time 200103020932830 500 279.75 13:17:13 200103020935465 100 279.65 13:18:53 13:18:53 200103020937137 500 280.00 13:18:53 13:18:53 200103020944086 100 280.55 13:18:57 200103020948389 500 280.50 13:19:49 13:19:54 200103020961160 100 277.90 13:22:40 200103020961358 500 278.50 13:23:05 200103020963342 260 278.50 13:23:14 13:23:14 200103020979429 500 278.05 13:27:49 13:27:49 200103020987307 50 276.20 13:30:10 13:30:10 200103021000571 200 274.50 13:33:52 13:33:52 200103020996365 200 274.35 13:34:25 200103021005619 5,000 274.99 13:35:06 13:35:07 200103021015912 1,000 274.89 13:37:51 13:37:51 200103021036928 500 276.00 13:43:32 13:43:32 200103021035966 500 275.05 13:44:20 13:44:20 200103021042941 20 275.50 13:45:23 13:45:23 200103021044099 1,000 275.75 13:45:35 13:45:35 200103021060951 2,500 273.64 13:50:30 200103021063019 5,000 272.53 13:51:07 200103020747051 20 271.00 13:51:27 13:51:27 200103020578969 50 271.00 13:51:27 13:51:27 200103021007512 5,000 271.00 13:51:28 13:51:29 200103021064782 70,299 270.04 13:51:33 200103021065419 20 270.00 13:51:41 13:51:41 200103021067738 300 268.55 13:52:11 200103021071400 200 268.95 13:53:01 13:53:01 200103021075430 100 268.95 13:53:58 13:53:58

78. Apart from sales, there were also purchases made by Bama during this time slot, which uniformly spread out throughout the time slot. The latest and only significant sale transaction Bama of 70,299 shares had no impact whatsoever on the price of the scrip— scrip did not change at all. From 13:17:13 to 13:51:33 (before the sale of 70,299 shares) when the price of the share fell from Rs. 282 to Rs. 270, Bama was a net buyer to the 6,300 shares. After the sale of 70,299 shares, during this time slot, the price fell only After the purchase of 5,000 shares at 13:51:28, the price of the scrip fell. Similarly, purchase of 1,000 shares at 13:45:35, the price of the scrip fell. This clearly shows that was no correlation between the transactions of Bama and the movement in the price of the

vi) 2nd March ’01

Time: 12:32 to 13:01

Price fell by Rs. 71 from Rs. 1101 to 1030

BUY SELL Order Total Qty Average rate Start time End time Total qty Average Start rate Start time 200103020803796 500 1071.39 12:40:38 200103020805447 10000 1070.00 12:41:18 200103020819153 10 1065.00 12:44:35 12:44:35 200103020831870 9000 1062.21 12:47:48 200103020848913 25 1054.00 12:52:40 12:52:40 200103020852567 5 1048.10 12:53:45 200103020856801 10 1050.00 12:55:19 12:55:19 200103020859198 10 1040.00 12:57:50 12:57:50

79. Apart from the sales, there were also purchases made by Bama during this time slot, which uniformly spread out throughout the time slot. By the time Bama's first sale transaction place, the price of the scrip had already fallen by Rs. 30. This fall can therefore attributed to Bama. It also shows that the price was already falling before Bama executed first sale transaction in this time slot. The sales of Bama did not have any significant the price of the scrip. After Bama sold 10,000 shares at 12:41:18 at the average rate of after 4 minutes the price of the scrip was about Rs. 1065. Similarly, after Bama sold 9,000 at 12:47:48 at the average rate of Rs. 1062, after almost 8 minutes the price of the scrip about Rs. 1050. The percentage fall comes to 0.93% and 1.13% respectively, insignificant. This is without taking into account the transactions of other market participants the intervening periods. During the period between 12.52 and 12.58, though Bama was purchaser, the price of the scrip continued to fall.

vii) 2nd March ’01

Time: 13:41 to 13:54

Price fell by Rs. 28 from Rs. 1033 to 1005

BUY SELL Order Total Qty Average rate Start time End time Total qty Average rate Start time 200103021070827 10000 1010.62 13:52:53 200103021078802 50 1005.00 13:54:48 13:54:48 200103021079417 5 1006.00 13:54:55

80. By the time, Bama sold 10,000 shares, the price of the scrip had already fallen by about Obviously, Bama cannot be held responsible for the fall in the share price. The price had declined. Apart from sales, Bama had also purchased shares of this scrip during this. Even if it is assumed (without admitting) that Bama's sale of 10,000 shares caused the fall by Rs. 5.62, this fall is less than 0.5%, which is totally insignificant. Despite Bama the price of the scrip rose to Rs. 1016 at about 13:57. This shows that Bama's transactions no impact on the price of the scrip.

viii) 1st March ’01

Time: 13:33 to 13:41

Price fell by Rs. 15

BUY SELL Order Total Qty Average rate Start time End time Total qty Average rate Start time 200103011091685 100 2541.63 13:35:44 13:35:44 200103011096686 4128 2522.41 13:37:28 200103010244645 2 2515.00 13:37:29 13:37:29 200103011101887 5000 2500.60 13:39:14

81. Just as in the other cases, apart from sales there were also purchases by Bama during slot, which was uniformly spread out throughout the time slot. Even after Bama purchased shares in this scrip, the price fell. Significantly, these purchases were of very small quantities 100 shares and 2 shares. After the sale of just 2 shares, the price of the scrip fell by Rs. 15. This clearly establishes that the price of the scrip was falling due to market sentiments and not due to the transactions of Bama. In the period between Bama's first purchase sale, the price of the scrip had already fallen by Rs. 19. This was before even Bama executed single sale transaction. This shows that the price of the scrip was already falling. Even traded price of the scrip is taken at Rs. 2500, a fall in price of Rs. 15 is only 0.6%, totally insignificant. Coupled with the fact that this scrip was extremely liquid and large volumes, the fall in price by Rs. 15 was not at all unusual.

ix) 1st March ’01

Zee Telefilms

Time: 12:53 to 13:56

Price fall by Rs. 8.95

BUY SELL Order Total Qty Average rate Start time End time Total qty Average rate Start time 200103010953046 500 173.25 12:53:51 200103010956501 500 173.15 12:54:47 200103010960525 10 173.00 12:55:51 12:55:51 200103010965739 100 172.95 12:57:20 12:57:20 200103010970970 1000 172.55 12:58:51 12:58:51 200103010825864 200 171.50 13:00:31 13:00:31 200103010686143 10 171.00 13:03:44 13:03:44 200103010992233 200 170.90 13:05:46 13:05:46 200103010998502 300 171.00 13:09:43 13:09:43 200103011011428 34448 170.00 13:11:29 200103010471763 500 169.00 13:11:56 13:11:56 200103011013448 500 169.00 13:12:17 200103011015752 500 169.45 13:12:55 13:12:55 200103010272796 100 168.60 13:13:08 13:13:08 200103011022048 100 168.45 13:14:59 13:14:59 200103011027995 1000 169.20 13:17:04 13:17:04 200103011031102 50 169.00 13:18:07 13:18:07 200103011044769 2500 166.00 13:22:44 200103011050071 200 166.00 13:24:35 13:24:35 200103011054592 500 166.00 13:25:35 200103011055411 500 165.75 13:25:51 200103011062476 200 166.20 13:27:52 200103011071378 100 167.17 13:30:24 200103011083849 5000 168.00 13:33:15 13:33:18 200103011097345 50 167.00 13:37:43 13:37:43 200103011103164 500 167.50 13:39:39 13:39:39 200103011108332 200 167.00 13:41:34 13:41:34 200103011124772 100 167.00 13:48:00 13:48:00 200103011128094 50 166.00 13:51:47 13:51:47 200103011136077 2500 166.21 13:52:00 200103010446964 500 165.00 13:53:55 13:53:55 200103010224307 1000 165.00 13:53:55 13:53:55 200103011082701 100 165.10 13:53:55 13:53:55 200103011141482 99000 16.05 13:52:00 200103011116349 500 165.00 13:53:57 13:53:57 200103011142075 550 165.00 13:55:10 200103011146762 550 165.00 13:55:34 13:55:34 200103011086577 500 164.64 13:56:05

82. Apart from sales, there were also purchases made by Bama during this time slot, which uniformly spread out throughout the time slot. The two major sale transactions of 34,448 99,000 shares did not have any impact at all on the price of the scrip. The share price moved after these sales. The price of the scrip fell during the period when Bama continuous purchaser. Though Bama was a net buyer from 12.53 to 13.10 and 13.33 the price of the scrip continued to fall. It is seen that the price of the scrip fell irrespective of the nature of the transaction of Bama i.e whether it was a sale or a This clearly establishes that the decline in the price of the scrip was due to market sentiments and not due to the transactions of Bama.

ix) 23rd February ’01

Zee Telefilms

Time: 12:26 to 12:32

Price fell by Rs. 8.35 from Rs. 228 to Rs. 220

BUY SELL Order Total Qty Average rate Start time End time Total qty Average rate Start time 200102230349791 10915 226.20 12:27:44 12:27:47 200102230140708 10 225.00 12:28:10 12:28:10 200102230518566 100 225.10 12:28:10 12:28:10 200102230695006 99000 225.02 12:28:10 200102230682257 60 225.00 12:28:14 12:28:14 200102230697472 200 223.90 12:28:52 12:28:52 200102230698033 1000 223.75 12:29:00 200102230700697 200 224.00 12:29:44 12:29:44 200102230700811 100 224.00 12:29:46 12:29:46 200102230705467 1000 222.50 12:31:10 12:31:10 200102230707239 2000 222.90 12:31:39 12:31:39 200102230708358 200 222.45 12:31:56 12:31:56

83. Neither of the two sale transactions had any impact whatsoever on the price of the scrip. after the sale of 99,000 shares, the price of the scrip remained unchanged. In fact, the scrip fell steadily during the period when Bama was purchasing the shares. This shows the transactions of Bama had no impact on the price. Significantly, after Bama purchase of 10,915 shares, the price of the scrip fell marginally by Rs. 120. This again that Bama's transactions did not affect the price of the scrip and that the price was market sentiments. During the period that Bama traded in the shares of this scrip, the by only Rs. 3.75 out of the fall of Rs. 8.35 attributed by SEBI during this time period. By Bama sold shares of this scrip, the price had already fallen. Apart from sales, Bama purchased shares during this time slot.

2nd March ’01

Zee Telefilms

Time: 12:00 to 12:22

Price fell by Rs. 11.65 from Rs. 150 to Rs. 138

BUY SELL Order Total Qty Average rate Start time End time Total qty Average rate Start time 200103020646954 100 149.80 12:01:07 12:01:07 200103020651953 200 149.75 12:03:21 12:03:21 200103020660118 25000 148.80 12:04:58 200103020686361 1000 145.87 12:13:40 200103020701918 40538 145.16 12:16:19 200103020702181 361 144.95 12:16:25 200103020704266 100000 143.75 12:16:59 12:16:59 200103020707935 87680 143.00 12:18:07 200103020686171 10000 142.59 12:18:09 200103020709997 5000 142.88 12:18:25 200103020696148 1000 140.75 12:19:21 12:19:21 200103020705077 100 141.00 12:19:21 12:19:21 200103020711086 5000 139.90 12:19:24 12:19:29 200103020713343 50 140.00 12:19:24 12:19:25 200103020714384 35599 140.05 12:19:24 200103020714799 18204 139.90 12:19:29

84. Apart from sales, there were also purchases made by Bama during this time transactions were uniformly spread out throughout the time slot. The price of continuously fell irrespective of whether Bama purchased or sold shares. Even after purchased shares, the price continued to fall. In fact, despite Bama's relatively large transaction of 1,00,000 shares, the price of the scrip fell. The sales of Bama had no real on the price of the scrip. After the sale of 40,538 shares, the price fell by only Similarly, after the sale of 87,680 shares, the price fell by only Rs. 0.41 and after the 35,599 shares, the price fell by only Rs. 0.15 Significantly, after the sale of 10,000 shares, price rose by Rs. 0.29 The above facts clearly shows that the transactions of Bama did the price of the scrip and that the price was ruled by market sentiments. The speed with the transactions were executed indicate the tremendous depth and liquidity of the scrip the trades were between willing buyers and sellers at price discovered through the screen trading mechanism.

Concerted. action by BAMA and BSPL

85. Both, the Enquiry Officer and the Respondent have come to the conclusion that Bama and were acting in concert with each other to artificially depress the share prices of Infosys Reliance on 1 March 2001 and of Satyam Computers on 2 March 2001. This conclusion been justified ostensibly on the basis of the following sale transactions of Bama and BSPL.

Date Scrip Bama BSPL 01.03.01 Infosys 15000 2490 01.03.01 Reliance 85917444 2,09,000 02.03.01 Satyam Computers 4,79,961 17,300

86. As far as Infosys and Reliance are concerned, the aforesaid finding is ex facie illegal contrary to the other findings of the Enquiry Officer and the Respondent. Both, the officer and the Respondent have come to the conclusion that the trading pattern Appellants in Infosys and Reliance on 1 and 2 March 2001 did not show any consistent pattern that could be said to have hammered down the prices of these scrips. Having found the transactions of the Appellants in the scrips of Infosys and Reliance on 1 2001 could not be said to have hammered down the prices of these scrips, there was absolutely no question of the Appellants including Bama and BSPL acting in concert to artificially the prices of these scrips on 1 and 2 March 2001. The finding of the Enquiry Officer Respondent in this regard is therefore not only unsustainable but is perverse. Further, Reliance is concerned, the price of the scrip rose from Rs. 415 to Rs. 440 on 1 price of this scrip therefore did not fall on 1 March 2001. Hence there was no question holding the Appellants guilty of depressing the price of the shares of Reliance on 1 2001, artificially or otherwise. Though this fact was noted by the Respondent, conveniently ignored and overlooked. It is apparent that SEBI acted with a predetermined with a view to find the Appellants guilty. Even otherwise, it is clear that the Enquiry Officer the Respondent have reached the conclusion of guilt without making any attempt whatsoever determine whether in fact the transactions of the Appellants had any impact on the prices scrips. Both of them have reached their conclusions merely on the basis of the fact Bama and BSPL had net sales in respect of these scrips on the same day. In this regard, submissions of the net sales methodology and the impact price are reiterated. It is submitted both the Enquiry Officer and the Respondent have ignored relevant facts and matters arriving at their respective conclusions of guilt. They have based their conclusions entirely extraneous considerations.

87. Both, the Enquiry Officer and the Respondent have not bothered to analyse the trading of either Bama or BSPL on 1 and 2 March 2001 to ascertain whether they in fact concert. Both, the Enquiry Officer and the Respondent have conveniently ignored the both Bama and BSPL had also purchased shares of these scrips on the aforesaid dates. case of Satyam Computers, they failed to appreciate that the net sales of BSPL were negligible and therefore insignificant for the purpose of concluding that BSPL was acting in concert Bama. Once again, it is submitted that the Enquiry Officer and the Respondent have relevant facts and have based their conclusions on baseless and unwarranted assumptions, surmises and conjectures.

88. The Respondent has simply copied the findings of the Enquiry Officer and reproduced in the impugned order. This shows a total non-application of mind on the part of the Chairman SEBI.

Dealings. on behalf of Shankar Sharma

89. Significantly, neither the EO nor the Respondent has found that BEB was aware of the trades on behalf of Shankar Sharma were synchronized. In fact both have held circumstances surrounding the transactions should have aroused the suspicion of BEB. fact implies that both the EO and the Chairman have accepted that BEB had no knowledge the trades were synchronized. Unless the client informs the broker that a particular synchronized, there is no way for the broker to know that the trade is synchronized. because in the screen based trading system, the identity of the counterparty broker revealed. In fact, his identity is never revealed. On SEBI's own showing in the report of and the Order of the Respondent, knowledge is an integral constituent of these offences. SEBI had any doubt as to whether Shri Nirmal Bang had knowledge of these trades, SEBI to have questioned him in that regard. However, SEBI did not do so and no statement Nirmal Bang was recorded by SEBI. So also, SEBI ought to have carried out investigations Palombe to ascertain who executed the trades and whether such a person/s was aware were synchronized and whether BEB was informed/aware of the same. However, SEBI do this. These facts clearly establish that SEBI was convinced that Shri Nirmal Bang consequently BEB had no knowledge of these trades. In any event an adverse inference drawn against SEBI for failing to obtain appropriate statements from Shri Nirmal Bang as Palombe. In view of the above, it must be presumed in favour of BEB that it knowledge of the impugned trades on behalf of Shankar Sharma.

90. Even if it is assumed without admitting that the trades were synchronized as charged and by SEBI, BEB cannot be held guilty of having violated the FUTP Regulations as well BSE Bye-laws since BEB was not aware that the transactions were synchronized, knowledge is an essential ingredient of the offences provided for in the FUTP Regulations well as the said BSE Bye-laws quoted by SEBI.

91. SEBI has found BEB guilty of violating Regulations 4(c) and 4(d) of the FUTP Regulations executing the purportedly synchronized trades. Even if it is assumed without admitting trades were synchronized, the trades do not violate the aforesaid Regulations 4(c) inter alia, for the reasons that:

92. Regulation 4(c) prohibits acts and which result in reflection of prices of securities transactions that are not genuine trade transactions. It is not the case of SEBI purportedly synchronized trades were not at market prices or that these trades had an impact the market prices of the said scrips. This being so, it is not the case of SEBI nor has established by SEBI that these trades resulted in a reflection of the prices of the said which are not related to market prices. In view of the aforesaid these trades did not Regulation 4(c). Regulation 4(d) prohibits transactions in securities not intended transfer of beneficial ownership but intended to operate only as a device to inflate, depress cause fluctuation in the market prices of securities. Significantly it is not the case of SEBI there any finding that these purportedly synchronized trades were intended to operate device to depress or cause fluctuation in the market price of the said scrips. The case SEBI is only that the trades were synchronized and were not genuine and were not intended effect transfer of beneficial ownership. It is submitted that this is not enough to find BEB of violating Regulation 4(d) and in the absence of SEBI establishing that the trades intended to operate only as a device to depress the market price of the scrips, the finding these trades are in violation of Regulation 4(d) cannot be sustained.

93. Bye-law 357(iii) of the BSE Bye-laws provides that if a broker purchases or sells securities assist or knowingly is a party to any purchase or sale of securities for the purpose of the equilibrium of the market or bringing about a condition of demoralisation in which prices will not fairly reflect the market value, it will amount to prejudicial business. It case of SEBI that these trades upset the equilibrium of the market or brought about a of demoralisation in which the prices did not fairly reflect the market value nor has established this. In view of this Bye-law 357(iii) has not been violated by BEB. This from the fact that BEB had no knowledge that the sales were purportedly synchronized. 357(ii) of the BSE bye-laws defines fictitious dealings and transactions in purchases or securities the execution of which would involve no change of ownership or the giving orders for the purchase or sale of securities with the knowledge of the character transactions. It is clear that knowledge is an essential ingredient of the offence. As stated BEB did not have any knowledge of the purportedly synchronized trades. Consequently can not be said to have violated the said Bye-law 357(ii).

94. The EO and the Respondent have overlooked the fact that these trades were screen based. screen based system, the price discovery is achieved by a matching of “best buy” and “orders. For instance, if a client wishes to purchase X quantity of shares at a limit price, will be executed at the market price or the limit price, which is lower. The vice versa is for a seller. Further, with the variety of safeguards in place such as circuit filter, scrip broker-wise limits etc. in a screen based trading system, a buy or sell order of unlimited or at rates exceeding the circuit filter limits cannot even be booked on the screen. Such if placed, will be rejected outright. Neither the EO nor the Respondent have made any examine and place on record material, which would indicate that the alleged synchronized transactions were at prices unrelated to the market. The finding of the EO and the Respondent that the quantum of the transactions i.e Rs. 50 crores per month, should have aroused suspicion of BEB is also baseless. Each of the scrips listed by the Enquiry Officer have trading volumes and all trades have been carried out on the screen based trading mechanism transparent manner at the prevailing market price. The total volume of transactions of Bang group at that time was about Rs. 90,000 crores per annum. Hence the volume transactions on behalf of Shankar Sharma w as too insignificant to arouse suspicion.

Relationship. with Palombe Securities And Finance Ltd.

95. The EO found that the trading terminals of NBS, BEB and BSPL were installed at the Palombe. He further found that the activities of Palombe were analogous to the activities sub-broker in the securities market. On this basis, he concluded that BEB had dealt through an unregistered sub-broker (Palombe is not a registered sub-broker) which amounts lack of due diligence, exercise of due skill and care expected of a registered broker as Code of Conduct applicable to broker (page 319 of volume II). The Respondent has reproduced the findings of the EO verbatim in his order. It is significant to note that the charge against the Appellants is one of “lack of due diligence, exercise of due skill and care expected a registered broker as per the Code of Conduct applicable to brokers”. It is submitted firstly neither the report of the EO nor the order of the Respondent identity the relevant Regulation Rule of the Code of Conduct applicable to brokers, which is alleged to have been Secondly, assuming while denying that Palombe was acting as a sub-broker, dealing unregistered sub-broker merely entails a penalty of Rs. 25,000 under the Stock Exchange laws. If such an activity were a prohibited/banned activity, the imposition of a monetary would not have been provided for in the Stock Exchange Bye-laws. Thirdly, it was only as 22 October, 2001 that SEBI vide its policy circular advised all Stock Exchanges trading Terminal only at the members Registered Office, Branch Office and their registered Sub-broker's Offices. The said circular goes to state that:

“Trading terminals granted earlier in places other than mentioned above should be withdrawn immediately.”

96. The said circular further goes on to advise the Stock Exchanges to amend their suitably to take action against broker who mis-utilise or permit misutilisation of their terminal for unregistered sub-broking activities and to amend its bye-laws to prohibit from dealing with sub-brokers, who are not registered with SEBI. This circular itself illustrates that prior to the issuance of the same, there was no rule or regulation barring this activity. the terminal installed at the premises of Palombe was prior to 22 October, 2001, Appellants cannot be accused of lack of due diligence, skill or care. In any event, installation of trading terminal in the premises of an unregistered sub-broker does not ipso result in evidence of lack of due diligence, skill or care on the part of broker. In fact, instant case, the Appellants cannot be said to have caused any prejudice to the investors in respect of the trades executed by Palombe on behalf of its own clients, it was not Palombe the Appellant who had issued the contract notes.

97. Another charge made by the EO and echoed by the Respondent is that it was not shown Appellants that Palombe was a person whom brokerage could be shared in terms of the to Bye-Law 218(a) or that Palombe was not a disqualified person for sharing brokerage of the proviso to Bye-Law 218(a). This charge is ex facie baseless and misconceived Bye-Law 218 it is abundantly clear that the Appellants were entitled to share brokerage Palombe, even if Palombe was purportedly a sub-broker. For the sake of convenience, Laws 218(a) and (b) are reproduced below:

A member may share brokerage with remisier, authorized clerk or employee own exclusive employment. He may similarly share brokerage with any other introducing a constituent provided such person:

a. Is not one with whom members are forbidden to do business under the rules, bye and regulations of the exchange.

b. Is not a remisier, authorized clerk or employee in the employment of another member.

c. Does not advertise in public press or in any other manner that he is acting as a d. Does not act as a broker within a distance of fifty miles of the city of Bombay.

e. Does not pass contracts in his own name or issue price lists or pamphlets in respect business in securities if working within a distance of fifty miles of the city of Bombay.

f. Does not issue price list or pamphlets or circulars in respect of business in securities other than its own constituents if acting as broker beyond the distance of fifty the city of Bombay.

98. From Bye-Law 218(a), it is apparent that a broker may share brokerage with any introducing a constituent pro vided such person is not disqualified under Clauses (i) Bye-Law 218(a). Even if it is assumed without admitting that Palombe was acting broker, a sub-broker is not a person disqualified under Clauses (i)to (vi) of Bye Accordingly the Appellants were entitled to share brokerage with Palombe. Curiously, EO and the Respondent have alleged that it was not shown by the Appellants that Palombe not a disqualified person for sharing brokerage in terms of the proviso to Bye submitted that it is not for the Appellants to show that Palombe is not a disqualified person sharing brokerage but it is for SEBI to show that Palombe is a disqualified person for brokerage under one or more of clauses (i)to (vi) of Bye-Law 218(a). he burden of clearly on SEBI. It is obvious that, being unable to discharge this onus, SEBI has tried the onus into the Appellants. The finding of the EO and the Respondent in this regard perverse.

Other. Charges

99. The Enquiry Officer and the Respondent have concluded that the Appellants have violated Code of Conduct prescribed. In Schedule II of SEBI (Stock Brokers and Sub Regulations, 1992. In this regard the following are the specific findings that (a) NBS and dealt with 2 and 1 unregistered sub-brokers respectively. (b) BEB dealt with FGSB synchronized manner. (c) NBS & BEB violated the circular dated 7 March 2001 prohibiting short sales, to the extent of Rs. 2.31 crores and Rs. 3.05 crores respectively. (d) BSPL have client registration forms in respect of five clients and had not issued sales/confirmation notes in respect of one of its clients viz: Indore Composite Pvt. Ltd.

100. As far as (b) is concerned, it has already been dealt with above and shown that the finding baseless and erroneous. As far as (a), (c) and (d) are concerned, the charges/findings are trivial a nature to warrant any punishment. With specific reference to (a), it is to be noted NBS had 56 registered sub-broker and Bama had 35 registered sub-brokers. Bama were not aware that these three persons were acting as sub-brokers and in fact these 3 had executed client registration forms. Moreover, there was nothing to prevent NBS and from registering these 3 parties as their sub-brokers — this would have been granted asking. Also, there was nothing to gain for NBS and Bama by not registering them brokers. With specific reference to (c), first and foremost the majority of short sales sub-brokers and only a small percentage were by direct clients of NBS and BEB. It is that a broker cannot supervise every transaction of his sub-broker. Secondly, the quantity volume of the trades are insignificant as compared to the overall volumes of NBS and the extent of compliance has been more than 95%. Thirdly, the contravention was clients and not on the proprietary account of NBS and BEB. Finally, it is submitted short sales were not attributable to any willful default or neglect on the part of NBS but were purely technical and unintentional. With specific reference to (d), that out of about clients, it was found that client registration forms were not available only in respect of of BSPL and BSPL had not issued confirmation notes in the case of only one client. Moreover, BSPL has had no dispute with any of its aforesaid clients nor was their any default. In view of the above, even assuming without admitting that the charges/findings are penalty of cancellation of registration is certainly not commensurate with the contraventions. Even the Enquiry Officer has recommended that a lenient view be respect of the absence of client registration forms Certain statements made by SEBI in its Written submissions were also countered Appellants. On the Respondents statement that “Two of the Bang entities had committed breach of the SEBI circular dated 22 October 2001 by having their trading terminals Palombe's office and allowing Palombe to execute trades on the said terminals” submitted that “This is not only a new argument, but also absurd, and total non application mind. The Appellants were prohibited from trading with effect from 19 April 2001 by dated 19 April 2001 passed by the Chairmen, SEBI under section 11B of the SEBI these circumstances the Respondent is now accusing the Appellants of committing a SEBI circular issued more than five months thereafter, i.e 22.10.2001” The allegation Written Submission that “all the time slots, which are identified and given in the show notice are time slots where net sales of Bama in the time slot was preceded by short sales”, this allegation is false and represents a new element of a charge, never levelled earlier, Respondent has also not produced any evidence.

101. Referring to the Respondent's submission with reference to time slot (ref. Zee Telefilms 23.2.2000) that “This is typographical error in Enquiry Report and Chairman order timings of the time slot, the time slot is 12.26 to 12.35 and not 12.26 to 12.32”, the Appellants submitted that the Respondent is now acknowledging errors in the impugned order, and the Respondent has clearly acknowledged non application of mind. The Respondent is changing the purchase and sale quantities to press the charge.

102. With reference to the Written Submission on specific instances listed in the order, Appellants have submitted that the Respondent suggests that the Appellants have selectively picked up certain scrips and analysed the trading pattern of Bama only in those scrips. mischievous and malafide suggestion since it is the Respondent who had picked up those to make allegations of artificial price depression against Bama. It was in response charges that the Appellants submitted an exhaustive explanation and analysis on scripwise clearly establishing that their transactions did not artificially depress the price of the scrips. apparent that SEBI is now relying on the findings of the Enquiry Officer and not those Chairman, SEBI. This is obviously because the Respondent has now realised that impugned order, the Chairman, SEBI has not found Bama guilty of artificially depressing prices of the scrips and therefore the Respondent is attempting to impose the impugned making general and wide ranging allegations.

103. The authorities cited by the learned Senior counsel:

i. Bareilly Electric Supply co. Ltd. v. Workmen (1971) 2 SCC 617 : AIR 1972 SC 330 On the question of the requirement of the Respondent producing evidence to prove the charges — when it is claimed that Evidence Act is not applicable, that does not that the principles of natural justice are not to be complied with.

ii. Videocon International v. SEBI (2002) 4 CLJ 402 (SAT)

In the absence of reasonably good evidence to support, charge of market manipulation, which is a very serious charge, can not stick on the Appellant Company merely surmises and conjunctures.

Regulation 4(a) of the FUTP Regulation attracts only if the transaction is made induce any other person to sell or purchase scuriti3es. To attract regulation intention of the party is relevant — and element of mensrea is also involved.

iii. Hansraj Guipta v. Dehra Dun — Mussoorie Electric Tramway Co. Ltd., 1940 Privy Council 98)

Party alleging fraud must prove it by cogent evidence.

The party alleging fraud is bound to establish it by cogent evidence and suspicion not be accept as proof. Unless therefore the proved circumstances are incompatible with the hypothesis of the person charged with fraud having acted in good faith, can not be accepted as affording sufficient proof of fraud.

iv. Gulabdchand v. Kudilal (AIR 1966 SC 1734)

The Indian Evidence Act applies the same standard of proof in civil cases. It makes no difference between cases in which charges of a fraudulent or character are made and cases in which such charges are not made. But this is not that the courts will not, while striking the balance of probability keep in presumption of honesty or innocence or the nature of the crime or fraud charged.

v. Varanasaya Sanskrit Vishwa Vidyalaya v. Dr. Rajkishore Tripathi and Concept of acting in concert-using strong language not sufficient. Proof required is not enough to state in general terms that there was collusion “without particulars. General allegations are insufficient even to amount to an averment or which only court ought to take notice, however strong the language in which are couched may be, and the same applies to undue influence and coercion.”

vi. A.N Parasuraman Etc. State of Tamil Nadu ((1989) 4 SCC 683 : AIR 1990 SC 40)

(cited in the context of interpretation of regulations 25 and 26 of Stock Regulations)

It is well established hat determination of legislative policy and formulation conduct are essential legislative functions which can not be delegated. permissible is to leave to the delegated authority the task of implementing the Act, after the legislature lays down adequate guidelines for the exercise of uncanalised, unlimited and arbitrary power can not be exercised by the delegatee.

vii. State of Kerala v. M.K Krishnan Nair ((1978) 1 SCC 552 : AIR 1978 SC 747)

There is ample authority for the proposition that where two constructions are that one which leads to unconstitutionality must be avoided and the other which to take provision constitutional should be adopted, even if straining of language necessary.

viii. British Airways Plc v. Union of India ((2002) 2 SCC 95 : AIR 2002 SC 391)

(on harmonious construction)

It is a cardinal principle of construction of a statute that effort should be construing the different provisions so that each provision will have its play and event of any conflict, a harmonious construction should be given. The well principle of harmonious construction is that effect shall be given to all the provisions so as to make it workable. A particular provision can not be picked up and interpreted to defeat another provision made in that behalf under the statute.

ix. Ranjit Thakur v. Union of India ((1987) 4 SCC 611 : AIR 1987 SC 2386)

(on quantum of penalty and bias)

The sentence has to suit the offence and the offender. It should not be vindictive unduly harsh. It should not be so disproportionate to the offence as to shock conscience and amount in itself to conclusive evidence of bias. The doctrine proportionality, as part of the concept of judicial review would ensure that even aspect which is, otherwise, within the exclusive province of Court Martial, decision of the Court even as to sentence is an outrageous defiance of logic sentence would not be immune from correction. Irrationality and perversity recognized ground of judicial review.

The penalty imposed must be commensurate with the gravity of the misconduct that any penalty disproportionate to the gravity of the misconduct would be violative Art. 14 of the Constitution. The point to note and emphasise is that all powers legal limits.

x. Atul Kanodia v. SEBI ((2002) 46 CLA 251 (Sat)

(on the requirement of adhering to 30 days period in terms of regulation passing orders)

Regulation 29(3) of the Stock Broker Regulations has specifically put the time pass the order of suspension or cancellation. It is a mandatory requirement, SEBI cannot ignore but adhere to. Taking into consideration the strictly mandatory provisions of regulation 29(3) and the fact that the order was passed the prescribed time limit of 30 days SEBI's order was set aside.

104. Shri Rafiq Dada learned Senior Counsel appearing for SEBI submitted that broadly limbs of the charges against the Appellants are that of (i) market manipulation (ii) Synchronised trading (iii) short sales and (iv)transactions with unregistered sub brokers.

105. Shri Dada explained the circumstances leading to the issuance of the impugned order, developments preceding the same. Learned Senior Counsel referred to the ad interim passed by SEBI on 18.4.2001 He submitted that the Appellants in the context of the interim order had submitted written submissions, describing them as “the Bang Entities”. is no denial that the Appellants are Nirmal Bang companies. He referred to para 10 of written submissions and stated that the Appellants have extracted therein the charges which were required to answer. He referred to the first show cause notice dated 4.6.2001 and submitted that the facts stated therein were not contested by the Appellants, that only the inference is in dispute. He also referred to the 2 show cause notice dated 25.1.2002 and the furnished therein in support of the charge of short sales, synchronised trading etc. He submitted that the Appellant had indulged in short sales even after banning the short sale on 7.3.2001 referred to the data and submitted that there is evidence of synchronised transactions, the is incredible, that the transactions were effected not once but several times, that remarkable coincidence. He submitted that the scope of the order is confined to the those two show cause notices. Shri Dada also stated that show cause notices issued Appellants are common, the charges are with reference to the manipulation of the market dealing in common scrips, during the common period, that technically the Appellants separate legal entities but in reality they are one and the same and they acted in concert. Respondent made the following further submissions:

106. The main points in the Show Cause Notice, Enquiry Report and the Chairman's Order can broadly dealt with under the following captions:

i. Synchronised Deals with Shri Shankar Sharma which were fictitious in nature.

ii. Relationship between Bang entities and Palombe Securities and Finance Ltd.

iii. Short sales by NBS & BEB after the ban on short sales.

iv. Manipulative Trading by each of the Bang Entities.

Synchronised. Deals with Shri Shankar Sharma which were fictitious in nature.

107. BEB has executed transactions, which are dubious in nature and made with a view to manipulate the market and avoid detection and to vitiate the transparency and fairness of the working market. These transactions were executed on behalf of Shankar Sharma, a director Global Stock Broking Private Ltd. (FGSB), member BSE and NSE and were matched FGSB acting on behalf of its proprietary sub-broker Vriddhi Confinvest India (Vriddhi). Shri Shankar Sharma is the Director of both the firms FGSB and Vriddhi also client of BEB. Thus BEB and FGSB were acting in concert and had indulged in trades. The approximate value of such trades executed through the member during the 20-02-2001 to 02-03-2001 is in excess of Rs. 50 crores. Further instances of such transactions for the month of 1 January to 19 February, 2001 and 5 March to 31 2001 were brought out in Show Cause Notice dated January 25, 2002. The total amount transaction during the period January to March of 2001 was Rs. 200 crores. The scrip, and price for these orders had been synchronised by the counter party brokers resulting circular trades, which were highly irregular in nature and violative of all prudential transparent norms of trading in securities. BEB and FGSB were artificially shifting which did not involve change of ownership and thereby creating false volumes resulting upsetting the market equilibrium. It was contended that there are no means of knowing any entity controlled by the client is simultaneously entering any contra order elsewhere the online trading system, confidentiality of counter parties is ensured and it is not possible the broker to know who the counter party broker is. Enquiry Officer has found that much of a coincidence over too long a period in too many transactions where both the transaction (BEB on behalf of Shri Shankar Sharma and FGSB on behalf of Vriddhi) entered buy and sell orders for the same quantity of shares almost simultaneously amount of such transaction during the period January to March of 2001 was Rs. 200 crores. most of the instances, the gap between the order placement and its matching is too narrow the complete order quantities got matched. In view of the close proximity of the order punched by both the parties in the system, these transactions between BEB and FGSB termed as synchronized transactions. Both the parties to the transactions had entered sell orders for the same quantity of shares almost simultaneously. There is no transfer these shares since purchase and sale quantity is exactly the same and by the same party. of the above it is clear that FGSB and BEB were acting in concert with each other and into in the synchronised deals between the period 1 January, 2001 and 31 aggregating to approximately Rs. 200 crores which did not involve change of ownership thereby created a false volumes resulting in upsetting the market equilibrium. Such transactions are per se manipulative and are regarded as such not only in India but world over.

Relationship. between Bang Entities and Palombe.

108. Investigations reveal that Bang Entities have a close nexus with a non-descript unregistered entity Palombe. Trading terminals of Bang Entities are installed at the office of Palombe has been used by various established broking entities to put their trades with circumvent trading limits and avoid detection. Palombe ostensibly introduced various clients trading with Bang entities, which include Shankar Sharma of FGSB, who in turn introduced by CSL Securities Consortium (hereinafter referred to as “CSL”) CSL also through BEB on the introduction of Palombe even though its own DSE and NSE terminals are installed at the office of Palombe. The arrangement between Bang entities Shankar Sharma by way of passing of brokerage to Palombe and synchronisation of order is indicative of a close nexus between them and their acting in concert. It is extremely for broking concerns to route their proprietary trades through other brokers and pay brokerages. The instant arrangement appears even more intriguing since the brokerage been passed on an shared between different entities. This complex arrangement has indications of a collusive nexus to circumvent and avoid detection of concentration and manipulative market practices. Whereas Palombe has described the payment of 50% brokerage earned business done by such clients as “introductory fees”, Shankar Sharma has described “Remissier charges”. The true nature of sharing of brokerage is being disguised under names but the fact remains that the payments have been made to Palombe for no responsibility in the trading of clients introduced by them. Bang entities made a cumulative payment of approximately Rs. 1.4 crores during 2000-2001 @ 50% brokerage on the done by various clients introduced by Palombe. This translates into a business of approximately Rs. 2800/- crores by Bang Entities for clients introduced by Palombe. This constitute important percentage.

109. The trading terminals of BEB, “BSL” and “NBS” (i.e 3 out of the 4 Bang Entities) are at the office of Palombe. Its main business is jobbing and investment on own account introducing clients to other brokers and sub brokers and earning sub brokers thereon. does jobbing and investments on NSE through Bama and BSL and on the BSE through NBS. It also trades through Consortium and on the DSE through CSL. Two of the Bang had committed a clear breach of the SEBI circular dated 22 October, 2001 by having trading terminals in Palombe's office and allowing Palombe to execute trades on terminals.

110. Palombe has introduced various clients such as Shankar Sharma, CSL and other Clients front entities for the Ketan Parekh Group to the Bang Entities. For the trades done clients Palombe received sub brokerage fees from Bang entities. In the case of trades Shankar Sharma through Bang Entities during the period 1 April 200 to 1 Palombe passed on part of sub brokerage received from BEB to CSL since they had introduced Shankar Sharma to Palombe. The introductory brokerage accrued to Palombe on account trades done by Shankar Sharma through BEB was approximately 30 lakhs for the year 2001 and therefore their trades routed by Shankar Sharma through BEB during the period approximately Rs. 600 crore.

111. The placement of terminals belonging to the Bang entities at a location outside the Bang office i.e Palombe's office and permitting Palombe to carry on business on these definitely goes beyond mere sharing of commission for introducing clients. From the clear that the relationship of Bang Entities with Palombe definitely goes beyond mere sharing commission for introducing clients. The activities of Palombe may be considered as analogous to the activity of a sub broker in the securities market but were much more than that. Therefore the Bang Entities had dealt with through unregistered sub broker which amounts to lack diligence, exercise of due skill and care expected of a registered broker as per the conduct applicable to the brokers.

Short Sales by NBS & BEB after the ban on short sales.

112. NBS and BEB indulged in short sales between 8 March, 2001 and 31 March, 2001 extent of Rs. 2.31 crores and Rs. 3.05 crores respectively in breach of SEBI Circular SMD/RPD/Policy/CIR—13/2001 dated 7 March 2001. Instances of intra day short sales short sales of NBS and BEB can be seen from the Chartered Accountant Report dated September 2001 which is based on documentary evidences such as Cumulative Day wise wise client wise position, Demat Holding Statements etc. submitted by them pursuant inspection conducted by the BSE. Copy of the report filed in the proceedings was referred The Appellants contention that the client was permitted to sell only when they had purchase position with any other exchange is not correct in view of the clear observation Chartered Accountant, that the transaction in respect of corresponding purchases, demat statement, purchase position on other exchange have been excluded. The short sales as the Chartered Accountant are in breach of SEBI Circular. It is found that NBS and BEB Circular dated 7 March 2001 on short sales to the extent of Rs. 2.31 crores and 3.05 respectively

Manipulative. trading by each of the Bang Entities

Trading. by Bama Securities Ltd.

113. Bama has indulged in large trading transactions and has created significant net sales scrips that either form part of stock indices or were momentum scrips including the Global Tele, HFCL, Infosys and Satyam with a view to depress artificially the prices securities between mid February and mid March in a concerted manner. Most of these were on proprietary account and on behalf of Bang Securities. The Enquiry Officer has the details of the trading pattern of Bama in the individual scrips and has come to the conclusion that the trading in the scrip of Global Tele in Settlement No. 8, HFCL in settlement Satyam in settlement no. 11 are significant. Bama has built significant sale position in scrips on specific dated i.e February 23, March 1 and 2 of 2001. Bama took these essentially on its own account and on behalf of its proprietary sub brokers BSPL manipulative trading with a view to hammer the scrip prices.

114. Enquiry Officer found that Bama was a consistent net seller, and had also unwound previously built purchase position and created fresh sales position especially in the Global Tele, HFCL, Satyam, Silverline, Zee Telefilms and Wipro on the crucial dates 23, 28 February, 1 and 2 March of 2001. Enquiry Officer has come to the conclusion Bama have contributed to the artificial depression of prices of these scrips during the period.

Scrip 22-Feb 23-Feb 28-Feb 1st-Mar Closing Position Net for the day Closing Position Closing Position Net for the day Closing Position Net for the day Global Tele (10577) (152578) (163155) 36939 (78324) (41385) (58163) HFCL 50480 (16781) 33699 (27086) (807) (27893) 4352 Satyam (194626) 236880 42254 306214 (477834) (171620) (66894) Silverline (41920) (21100) (63020) (144930) 5332 (139598) 54874 Wipro 855 1558 2413 (55) (15013) (15068) (4214) Zee 164460 (137266) 27194 (64568) (52753) (117316) 178480

115. The table given in the Show Cause Notice dated September 10, 2001 contains the pertaining to purchases, sales made by Bama on the specific dates. The above table was from the said tables. The Enquiry Officer and the Respondent have considered the purchases, sales, opening and closing position of Bama on the specific dates. From the table above seen that Bama was net seller in Global Tele on all the days i.e on 23 February, 1 March 2001. Regarding the scrip of HFCL, Satyam, Wipro and Zee, Bama had net sales of 3 days. The impugned order clearly establishes that the net sales of the Bang entities Mid February and mid March when compared with the net at the exchange was significant. contended that basis of net sales taken by Enquiry Officer and Chairman is misconceived erroneous. When there is substantial market fall it is more logical to examine net position particular period (settlement/day/time slot) to understand the trading behaviour. The methodology gives the trading behaviour of the member during the relevant (settlement/day/time slot). The Enquiry Officer in the Enquiry Report has come conclusion that such sales had resulted in artificially depressing the prices of the shares.

116. Sales. in Concert with Bang Securities

117. Bama has built up position in several scrips in concert with BSPL to manipulate the prices. Net sales position in Global Tele. HFCL, Infosys, Reliance, Satyam Computers, Wipro, Zee Tele, HCL Tech, DSQ Software, Aptech, etc. were taken by the Bama on 2 March, on own account and for Bang Securities. It may be noted that BSPL is a sub of NSB and BEB. Enquiry officer has found that to the extent of the trading in Infosys, Reliance on 1 March and Satyam Computers on 2 March, BSPL and Bama Securities acting in concert with each other to artificially depress the share price. The section of Report (Page 92) referred by the Appellant pertains to analysis of trading pattern of certain scrips including Infosys, Satyam, etc. for the date 22, 23, 28 February, 1 March, 2001. The finding of Enquiry Officer is specific to trading pattern of Bama. Whereas page no. 103 of Enquiry Report the Enquiry Officer has analysed the trading position Bama and BSPL on 1 and 2 March of 2001 and have come to conclusion that BPSL Bama Securities were acting with each other artificially depress the share price.

Sales. in Time Slots

118. During mid February to mid March 2001 when the index movements of stock exchanges showed excessive volatility there were apprehensive of possible attempts by certain entities distort the true price discovery and manipulate the securities market. It was seen that there sudden and abrupt intra-day price movement in the scrips including index scrips momentum scrips. The time slots were identified when the price of the scrip has displayed sudden fall and the trading pattern of the members during the time was analysed to identify member(s) responsible for the fall. The analysis includes their sales, purchases during slot and their net position prior to the time slot i.e whether member has already short sold scrip. It may be noted the time slots identified and given in the Show Cause Notice where net sales of Bama in the time slot was preceded by short sale. The sale in the time Bama had contributed to the decline in the share prices. Enquiry Officer has observed that had sales, including short sales in the specified time slots as given in the show cause taking into account the quantum of shares sold, the fall in prices of the shares during slots, the percentage of members sales to the market and the duration of the time bands, concluded that the following are significant transactions in support of the charge member had sales including short sales during specific time bands and caused fall in the by these sales.

Scrip Date Time From Time To Minutes Sales % of market Global Tele 23-2-01 15:04 15.14 0.10 85655 11.68 Global Tele 2-3-01 1233 12.41 0.08 49315 9.74 Satyam 1-3-01 14.13 14.33 0.20 155744 5.01% Satyam 2-3-01 10.57 11.05 0.08 62714 3.97% Satyam 2-3-01 13.17 13.53 0.36 63979 2.56% SSI 2-3-01 13.41 13.54 0.13 9955 14.79% SSI 2-3-01 12.32 13.01 0.29 19450 11.13% WIPRO 1-3-01 13.33 13.41 0.08 9026 15.46% Zee Tele 23-2-01 12.26 12.32 0.09 76279 2.33% Zee Tele 1-3-01 12.53 13.56 1.03 129478 6.52% Zee Tele 2-3-01 12.00 12.22 0.22 116932 7.04%

119. Enquiry Officer has observed that the purchases in some other counters in this regard relevant as the issue being examined is whether the member was selling in the particular during the specified time slot when the prices of these scrips had fallen. Further, it is not whether such purchases made during the time slot when the price had fallen were preceded the short sales, in which case, it would be taking advantage of the fall in prices after hammering down the price earlier. It is not correct to say that there is deliberate attempt to withhold information regarding purchases of Bama during the time slot. The purchases and sales during the time slot were considered to arrive at net sales figure. The data pertaining purchases made during the time slot was available with appellant and the same has been his submissions. In all the time slots, which are given in Show Cause Notice, Bama sold before it has pressed further sales in the time slot. The information regarding sellers, their sales and purchases during the time slots during which Bama was alleged caused a fall in price of the scrips is irrelevant. The sales by other major sellers during period has been separately investigated by SEBI. The investigation was conducted to the impact of trading pattern of Bang Entities on the prices of the shares and hence the given in Show Cause Notice is relevant only to Bang entities.

120. Specific instances listed in the Enquiry Report and Chairman Order with regard to selected time slots were dealt with that:

(i) Global Telesystems — 23rd February

Scrip Date Time band Short Sell (Qty) % of short sale to market Qty) Diff in the op-cl price Global tele 23/2/01 15:04-15:14 85655 11:68 (18.65)

121. The show cause notice has given the net position during the time band, which has been after considering both purchases and sales made by the member during the relevant time Bama has purchased 11865 shares and sold 97520 shares during the time slot.

122. The Appellant has claimed that the purchases were uniformly spread out during the but it can be seen from the data given in the Appellant's submission that quantum of purchases and sales were different.

123. The Appellant has argued that before the first sale transaction of Bama, the price already by Rs. 7/-. In this regard it is to be noted that the Appellant has not considered each execution price and had merely taken average price for the sale transaction of 6521 shares. Based average price the Appellant has concluded that price of the scrip has fallen by Rs. 7 before first sale transaction, that during the time slot Bama has sold 97520 shares which is the factor.

124. The Appellant has argued that between the period from 15:08:39 to 15:13:50, Bama continuous purchaser. During the said time period Bama has merely purchased 1350 Whereas, just before and after the aforesaid time band Bama has sold 50000 shares (15:and 20000 shares (15:14:00) respectively.

125. The Appellant has argued that after every sale transaction, the price of the scrip, has remained same. This interpretation of the Appellant is not correct. The data given by him to his transaction only and merely shows that his next trade (purchase) was executed at which was after 15 seconds.

126. The Appellant has argued that order of 50000 shares and 20000 shares that trade in 33 and 8 seconds respectively is indicated of the depth and liquidity of the scrip. The should consider change in price which resulted in execution of 50000 shares to ascertain of his trades. The next trade of Bama was purchases of 1000 shares at Rs. 442.below then the average rate at which trade of 50000 shares were executive. This clearly the correlation between sale by Bama and the movement in share prices.

(ii) Global Telesystems — 2nd March market Qty)

Scrip Time band Short Sell (Qty) % to market sell Diff in the op cl price Global tele 12:33-12:41 49315 9.74 (12.90)

127. The Appellant purchased 700 shares and sold 50015 shares during the time slot when price dropped by Rs. 12.90

128. The Appellant has argued that the price of the scrip has already fallen by about Rs. 10.Bama sold 50000 shares. The Appellant has further argued after the sale of 50000 shares price almost remained same. In the four minutes of the sale the price has moved Rs. 2.39/- This interpretation of the Appellant that after the sale of 50,000 shares is not. The data presented by the Appellant merely shows that his subsequent purchase Rs. 318.00 at 12:41:27.

129. The Appellant argued that sale and purchase were uniformly spread out through out slot, that during the time slot the appellant had purchased 700 shares and had sold 50015 This shows that quantum of sales and purchases in the time slot is not uniform and that are far in excess of the purchases.

(iii) Satyam Computers — 1st March, 2001

Scrip Time band Short Sell (Qty) % of short sale to market sell Diff in the op-cl price during the band Satyamcomp 14:13-14:33 155744 5.01 (17.65)

130. The Appellant has argued that after one of the largest sale transactions of 77961 shares, was no change at all in the price of the scrip.

131. In this regard it was submitted by the Respondent that the said sale transaction of 77,961 took placed at 14:28:47 hours at Rs. 325.02 The order number for the said 200103011304713. The order number of subsequent trade of 500 shares was 200103011191399. From the order number it can be concluded that this purchase order was placed much before sale order for 77961 shares was placed. Subsequent order after the sale order for 77961 which resulted in purchase of 25 shares at Rs. 323.00 was placed on 14:29:13 hours. The analysis clearly shows that the sale transactions resulted in fall in price.

132. The Appellant has argued that after the sale transactions of 96006 shares there was no change the price of the scrip. This interpretation of data by the Appellant is not correct as the between the end of execution of the relevant trade (14:31:59 hours) and the end of the is just over 1 minute. During this time period the Appellant can themselves see that price has dropped to Rs. 315. This shows that there was a price drop after the aforesaid transaction.

133. The Appellant has argued that during the periods when the price of the scrip registered largest fall of Rs. 4 Bama was a continuous purchasers, that the Appellant has merely quantum of fall without giving the time period he is referring to and is an argument basis.

134. The Appellant has argued that when the price fell from Rs. 333 to Rs. 325, Bama was a to the extent of 125 shares. According to the Appellants' data, when the scrip price Rs. 333 to Rs. 325, Bama was a net seller of 77336 shares and not a net buyer of 125 may be noted that the Bang entities have not disputed SEBI's data at any time.

135. The Appellant has argued that execution of 77961 shares in several seconds is indicative depth and liquidity of the scrip. The depth in the market at a point of time depends on, inter supply and demand in the market. It should be noted that it took 57 seconds for execution 96006 shares.

(iv) Satyam Computers — 2nd March, 2001

Scrip Time band Short Sell (Qty) % to market sell Diff in the op-cl price Satyamcomp 10:57-11:05 62714 3.97 (12.20)

136. The Appellant has argued that apart from sale, there were also purchases made by Bama this time slot, which was uniformly spread out throughout the time slot. The data given Appellant is not correct. During the relevant time slot, Bama had purchased 5155 shares sold 67869 shares. Even if the data provided by the Appellant is accepted, Bama purchased 2665 shares and sold 67869 shares, that the quantum of sales and purchase are not uniform the sales are far in excess of the purchases.

137. The Appellant has argued that after the first two sale transactions the price of the scrip rose. From the data provided by the Appellant it can be seen that after first two sales transaction of 500 and 20 shares at average rate of Rs. 297.49 and Rs. 298.00 respectively, Bama purchased 20 shares at an average rate of Rs. 296.00 which is lower than the price Bama has sold 20 shares previously. There SEBI's allegations are correct.

138. The data given in the submissions only shows that purchase of 200 shares by Bama executed at 11:03:52, 26 seconds after Bama sold 45026 shares and the average purchase was higher than the average sale price. It was submitted by the Respondent that during slot 10:57 hours to 11:05 hours of March 2, 2001 Bama had net sale of 62714 shares around 3.97% of the shares traded during the period when the scrip price dropped by Rs.

(v) Satyam Computers — 2nd March, 2001

Scrip Time band Short Sell (Qty) % to market sell Diff in the op-cl price Satyamcomp 13:17-13:53 63979 2.56 (12.85)

139. During the relevant time slot, Bama had purchased 15520 shares and sold 79499 shares. denied that the sales and purchases were uniformly placed during the time slot. It further denied that there is no co-relation between the transaction of Bama and the movement the price of the scrip.

140. After the sale of 70299 shares, the Appellant himself has accepted that the scrip prices dropped after the said sale.

(vi) SSI — 2nd March, 2001

Scrip Time band Short Sell (Qty) % to market sell Diff in the op-cl price Softsoln 12:32-13:01 19450 11.13 (71.00)

141. During the relevant time slot, Bama had purchased 55 shares and sold 19505 shares. The drop during the time slot was Rs. 71. It was denied that neither the sales and purchases uniformly placed nor the quantum of sale and purchases were uniform during the time there was co-relation between the transaction of Bama and the movement in the price scrip.

(vii) SSI — 2nd March, 2001

Scrip Time band Short Sell (Qty) % to market sell Diff in the op-cl price Softsoln 13:41-13:54 9955 14.79 (28.00)

142. During the relevant time slot, Bama had purchased 50 shares and sold 10005 shares. Net Bama during the said time slot was around 14.8% of the market sell and the price drop the same period was Rs. 28.

143. The time slot pertains to 13.41 to 13.54 when the price dropped from Rs. 1033 to 1005. in the scrip to Rs. 1016 at about 1357 shows that earlier price fall was artificial and it is of the sale by Bama.

(viii) Wipro — 1st March, 2001

Scrip Time band Short Sell (Qty) % of short sale to market sell Diff in the op-cl price during the band Wipro 13:33-13:41 9026 15.46 (15.00)

144. During the relevant time slot, Bama had purchased 102 shares and sold 9128 shares. The drop during the time slot was Rs. 15. It was denied that neither the sales and purchases uniformly placed nor the quantum of sale and purchases were uniform during the time slot. It is evident from the data (order numbers) provided by the Appellant that the order for of 2 shares, which was not significant was placed much before the sale order which resulted the sale execution of 4128 shares. The buy order was executed only because the price was to drop by sales of Bama to that level.

(ix) Zee Telefilms — 1st March, 2001

Scrip Time band Short Sell (Qty) % of short sale to market sell Diff in the op-cl price during the band Zeetele 12:53-13:56 129478 6.52 (8.95)

145. During the relevant time slot, Bama had purchased 12820 shares and sold 142298 shares. price drop during the time slot was Rs. 8.95 The Respondent denied the Appellant neither the sales and purchases were uniformly placed nor the quantum of sale and purchases were uniform during the time slot.

146. It was argued by the Appellant that the sale transaction of 34,448 shares and 99,000 shares not have any impact at all on the price of the scrip. According to the Respondent provided by the Appellant clearly shows that the next transaction after the sale transaction 34448 shares at average price of 170 between 13.11.29 and 13.11.40 hrs was transaction of 500 shares at Rs. 169 at 13.11.56 hrs. Though the data pertains to his transaction only still it is clear that the scrip price has dropped after the sale transaction.

(x) Zee Telefilms — 23rd February, 2001

Scrip Time band Short Sell (Qty) % of short sale to market sell Diff in the op price Zeetele 12:26-12:35 76279 2.33 (8.35)

147. There is typographical error in Enquiry Report & Chairman Order regarding timings slot. the time is 12.26 to 12.35 and not 12.26 to 12.32 The correct time slot was given Cause Notice (12:26 to 12:35) and the Appellant was aware of the same. During the time slot, Bama had purchased 37985 shares and sold 306040 shares. The price drop during time slot was Rs. 8.35

148. It was argued by the Appellant that after the sale of 99000 shares the price of the scrip unchanged. According to the Respondent from data provided by Appellant, it can be order subsequent to sale of 99000 shares that got executed was purchase of 200 shares at price. From the order number it can be inferred that order placed for purchase of 60 shares much earlier than the order placed for sale of 99000 shares.

(xi) Zee Telefilms — 2nd March, 2001

Scrip Time band Short Sell (Qty) % to market sell Diff in the op-cl price Zeetele 12:00-12:22 116932 7.04 (11.65)

149. It was submitted by the Respondent that during the relevant time slot, Bama had purchased 106450 shares and sold 223382 shares. The price drop during the time slot was Rs. 11.65 Respondent denied the Appellants' version that transactions were uniformly placed during time slot.

150. The Respondent submitted that the time gap between the sale of 87680 shares and purchase 100000 shares in 00:01:08 hours and hence inferring about the impact of the transaction of 100000 shares is not correct.

151. It may be noted that the data provided by the Appellant shows that every subsequent transaction executed by Bama during the time slot is at lower price. The Appellant in his submission has picked up certain scrip and has stated that Enquiry has not found Bang entities individually or collectively guilty of artificially depressing prices of this scrip. The Respondent countering this submission submitted that the Officer has examined the trading pattern of the member between mid-February and mid in totality when the shares prices fell and have come to the conclusion.

(xii) Bang Equity Broking Pvt. Ltd. (BEB)

152. BEB has indulged in large trading transactions and has created significant net sales in key that either form part of stock indices or were momentum scrips including the scrip of Tele, Zee Telefilms, HFCL, Satyam Computers, MTNL, Infosys, DSQ Software, SBI, and Reliance Industries between mid February and mid March with a view to depress artificially the prices of these securities in a concerted manner.

153. The quantum of net sales in different scrips across various settlements by BEB manipulative trading with a view to hammer the scrip prices.

DATE SCRIPNAME NET SALES APPROX. VALUE (Rs. in crores) 23/2/01 Global Tele 186468 8.9 22/2/01 Zee Tele 257590 6.05 27/02/01 Zee Tele 95510 1.7 2/3/01 Zee Tele 27660 0.42 23/2/01 HFCL 32563 2.4 1/3/01 HFCL 21178 1.52 23/2/01 Satyam 138885 4.47 1/3/01 Satyam 79317 2.6 2/3/01 Satyam 28529 0.8 21/2/01 DSQ Soft 32065 1.3 1/3/01 DSQ Soft 12550 0.46 23/2/01 SBI 37370 84 28/2/01 WIPRO 44731 10.86 22/2/01 Reliance Ind 71590 2.97 1/3/01 DSQ Soft 103555 4.4

154. Enquiry Officer has analysed the details of the trading pattern of BEB in the individual and have come to the conclusion that BEB had significant sales between mid February March in the scrip of Global Tele, HFCL, Satyam, Infosys, DSQ Software, ZEE Tele. of Enquiry Officer in individual scrip is that:

(a) GLOBAL TELE

Date Date Open Hi Close BEB Sett No From To Buy Sell Net 1043 15-01-01 19-01-01 728 739 734 150,109 142,285 1044 22-01-01 26-01-01 740 787 732 121,242 122,304 1045 29-01-01 02-02-01 706 748 673 121,197 132,075 1046 05-02-01 09-02-01 670 696 630 64,426 61,814 1047 12-02-01 16-02-01 632 655 609 119,571 116,156 1048 19-02-01 23-02-01 615 624 439 113,458 111,248 1049 26-02-01 02-03-01 443 454 313 176,397 357,900 - 1050 05-03-01 09-03-01 306 312 226 254,078 86,292 1051 12-03-01 16-03-01 210 241 206 57,310 55,739

Dates Open High Close Buy Sales Net Market Sales 19.02.01 615 624 604.3 55138 7540 47598 5686710 20.02.01 605 608.75 582.75 5235 3155 2080 3913980 21.02.01 582 582 557.45 10080 10155 -75 3618289 22.02.01 554 554 518.5 13075 21293 -8218 4325143 23.02.01 519.8 522 438.9 29930 69105 -39175 6261836 St No. 1048 113458 111248 2210 23805958 26.02.01 443.1 454 415.8 24746 50880 -26134 6455577 27.02.01 420 426.75 353.15 35195 25607 9588 8921771 28.02.01 350.1 409.6 404.25 33143 25448 7695 8457716 01.03.01 409.6 429.95 372.1 38291 24475 13816 7083435 02.03.01 371.7 377 312.6 45022 231490 -186468 5678472 St No. 1049 176397 357900 -181503 36596971

155. Enquiry officer has come to the conclusion that the overall trading pattern by BEB in Tele in settlement Nos. 1048 and 1049 with particular reference to settlement No. 1049, BEB had net sale of 181503 shares (9.2% of the net at BSE), has contributed to the downfall the price. The price of the scrip dropped from Rs. 615 to Rs. 439 in settlement no. 1048 Rs. 443 to Rs. 313 in settlement no. 1049. The Enquiry Officer has further observed purchases the subsequent settlements i.e settlement no. 1050 and 1051 could be to cover the short settlement no. 1049 and also could be with a view to take advantage of the fall in price. trading behaviour is typical of a bear who sells short without possessing shares with bring about a fall in price and take advantage of the fall in prices by making purchases subsequent days to cover the earlier short sales.

156. It was further observed that in settlement No. 1049, BEB had net sale of 26134 on 26.Subsequent purchase by BEB on 27/2/01 to 1 March could be with a view to cover sales on 26/2/01. The price fell from Rs. 416 to Rs. 372 between 26/2/01 and 1/3/01. sales by BEB on 2/3/01 is quite high at — 186468 shares and the price fell by Rs. 60 on to close at Rs. 312.

HFCL.

Date Date Open Hi Close BEB Sett No From To Buy Sell Net 1043 15-01-01 19-01-01 1180 1222 1211 278,419 357,460 1044 22-01-01 26-01-01 1241 1300 1269 125221 65,831 1045 29-01-01 02-02-01 1250 1265 1027 185,845 181,910 1046 05-02-01 09-02-01 1000 1039 965 421,926 364,162 1047 12-02-01 16-02-01 950 1019 910 150,764 204,206 1048 19-02-01 23-02-01 910 923 743 251,746 172,926 1049 26-02-01 02-03-01 740 759 604 243,291 329,346 1050 05-03-01 09-03-01 585 625 327 123,647 118,091 1051 12-03-01 16-03-01 301 322 214 111,383 83,659

Dates Open High Low Close Buy Sales Net Market Sales 19.02.01 910 923 836.75 895.65 105192 58739 46453 9229266 20.02.01 892 903 865 869.2 78592 8020 70572 6522195 21.02.01 868 868 814 836.15 20491 29123 -8632 5302421 22.02.01 832 850.9 773.05 826.7 32757 29767 2990 6908481 23.02.01 822.5 822.5 731.5 742.8 14714 47277 -32563 7569125 St No. 48 251746 172926 78820 35531488 26.02.2001 740 751.95 677.65 688.5 27915 70045 -42130 6075372 27.02.2001 694 699.5 578.35 578.35 12591 40449 -27858 8560199 28.02.2001 542.6 670.85 532.1 670.4 102503 100359 2144 9917229 01.03.2001 690 759 635 718.05 82022 103200 -21178 7606238 02.03.2001 745.1 755 603.2 604.80 18260 15293 2967 9907310 St No. 49 243291 329346 -86055 42066348

157. Enquiry Officer has observed that BEB has liquidated the earlier net purchases and made sales in Settlement No. 1047 of-53442 which constituted 5% of the net sales of the Exchange. Enquiry Officer has observed that net purchase of BEB in settlement 1048 to 1051 and price of the scrip has to be examined in totality against the trading pattern of BEB between February and mid march when the share prices fell. BEB had net sales in the settlement immediately preceding S No. 1048 to the extent of-53442. Enquiry Officer has come conclusion that BEB after having been a seller in the earlier settlement had taken advantage the fall in the price in settlement No. 1048 with his purchases. Enquiry Officer has observed though BEB had net purchases in settlement No. 1050 and 1051 to the extent of 5556 and the price of the scrip fell by Rs. 259 and Rs. 87 respectively, these purchases were by a huge net sales of 86055 in settlement No. 1049, which constituted 3.5% of net sales Exchange. The price of the scrip which closed at Rs. 605 at the end of settlement no fallen to Rs. 326 and Rs. 214 at the end of settlement No. 1050 and 1051 respectively. Officer has further observed that after considering opening position, BEB had unwounded purchase positions of 90436 in S. No. 1048 of 4286 in S. No. 1049. Enquiry Officer has the conclusion that taking into consideration that BEB had significant net sales in settlement 1047 and 1049 which constitute - 5% and 3.5% of the net of the Exchange and had unwound previously built large purchase position in S. No. 1049 could have contributed to the fall prices of the scrips. His sales on 23/2/01, 26/02/01, 27/02/01 and 1/3/01 were also taken account for this purpose.

INFOSYS.

Date Date Open Hi Close BEB Sett No From To Buy Sell Net 1043 15-01-01 19-01-01 5860 6800 6779 39,961 36,738 1044 22-01-01 26-01-01 6950 6988 6778 23,650 18,723 1045 29-01-01 02-02-01 6610 6924 6860 8,148 18,933 1046 05-02-01 09-02-01 6777 6777 6406 17,866 17,525 1047 12-02-01 16-02-01 6380 6537 6254 10,657 10,387 1048 19-02-01 23-02-01 6260 6343 5598 8,344 8,124 1049 26-02-01 02-03-01 5730 6330 4940 18,883 17,872 1050 05-03-01 09-03-01 4700 5315 4817 9,292 10,517 1051 12-03-01 16-03-01 4738 4990 4694 6,364 6,526

158. Enquiry Officer has observed that BEB had net sales in settlement No. 1050 and 1051. purchases of earlier settlements were unwound.

SATYAM.

Date Date Open Hi Close BEB Sett No From To Buy Sell Net 1043 15-01-01 19-01-01 386 421 418 539,782 522,635 1044 22-01-01 26-01-01 424 430 414 239,280 295,684 1045 29-01-01 02-02-01 400 427 415 286,793 309,978 1046 05-02-01 09-02-01 400 412 372 386,724 378,780 1047 12-02-01 16-02-01 375 387 365 541,310 455,547 1048 19-02-01 23-02-01 361 376 318 277,184 359,734 1049 26-02-01 02-03-01 321 353 263 424,005 397,648 1050 05-03-01 09-03-01 250 280 229 267,146 264,781 1051 12-03-01 16-03-01 230 264 237 140,570 176,792

Dates Open High Close Buy Sales Net Market Sales 19.02.2001 361.25 373.9 372.1 51690 111047 -59357 11876278 20.02.2001 373.6 376.4 371.6 45680 19040 26640 10515941 21.02.2001 370 370 343.25 115401 19871 95530 15296333 22.02.2001 341.9 341.9 337.9 29353 35831 -6478 11895217 23.02.2001 336.5 336.5 317.75 35060 173945 -138885 11183237 St No. 48 277184 359734 -82550 60767006 26.02.2001 321 331.2 326.2 26165 16670 9495 9915426 27.02.2001 327.95 331.4 307.65 81585 46070 35515 19807416 28.02.2001 307 351.8 347 165740 76547 89193 21163183 01.03.2001 350.9 353 312.65 100858 180175 -79317 18346584 02.03.2001 311.5 314.7 262.65 49657 78186 -28529 16652302 St No. 49 424005 397648 26357 85884911

159. Enquiry Officer has observed that BEB had been significant seller, when the prices have across settlement 1047 to 1051. BEB had net sales of 82550 shares in S. No. 1048 and had advantage of the fall in prices and resorted to purchases in subsequent settlements 1049 1050. Considering, the opening position, BEB has reduced its purchase position in S No and had in subsequent settlements viz. S. No. 1049 and 1050, BEB has taken advantage fall and increased the purchase position which was subsequently in S. No. 1051 was Enquiry Officer has observed that BEB had net sales of 138885, 79317 and 285297 February, 1 March, and 2 March of 2001 respectively when the scrip price displayed Rs. 20, 34 and Rs. 50 respectively.

160. DSQ. Software

Date Date Open Hi Close BEB Sett No From To Buy Sell Net 1043 15-01-01 19-01-01 373 418 405 192515 192,875 1044 22-01-01 26-01-01 415 444 429 43,180 40,441 1045 29-01-01 02-02-01 407 450 415 93,286 93,226 1046 05-02-01 09-02-01 409 446 418 54,784 54,379 1047 12-02-01 16-02-01 415 463 423 78,367 81,725 1048 19-02-01 23-02-01 424 433 369 114,081 114,687 1049 26-02-01 02-03-01 375 398 304 105,340 105,055 1050 05-03-01 09-03-01 300 318 212 76,090 66,835 1051 12-03-01 16-03-01 195 195 145 88,884 81,639

Dates Open High Close Buy Sales Net Market Sales 19.02.2001 424 433 421.75 17081 10881 6200 4205763 20.02.2001 423 425.5 417.5 39965 7930 32035 4426111 21.02.2001 415.5 415.5 405.55 7990 40055 -32065 3466038 22.02.2001 401.15 404.95 397.95 29310 32295 -2985 5028516 23.02.2001 395.3 398.05 368.75 19735 23526 -3791 5120994 Sett No. 48 114081 114687 -606 22247422 26.02.2001 374.7 398.2 382.75 10190 22965 -12775 4700527 27.02.2001 385.35 389.7 337.7 30150 15625 14525 6797996 28.02.2001 336 380 373.95 41935 30580 11355 4849538 01.03.2001 378 385 361.7 15355 27905 -12550 4189442 02.03.2001 365.75 365.75 303.85 7710 7980 -270 5707945 Sett No. 49 105340 105055 285 26245448

161. Enquiry Officer has observed that BEB was net seller on 23 February, 1 March when the scrip price dropped by Rs. 52 Rs. 12 and Rs. 52 respectively. From 21 February, BEB was continuous net seller. In S No. 1047 and 1048, BEB had net sales and-606 respectively.

162. ZEE. TELE

Date Date Open Hi Close BEB Sett No From To Buy Sell Net 1043 15-01-01 19-01-01 243 263 261 441,118 138,053 1044 22-01-01 26-01-01 264 294 280 831,480 1,151,725 1045 29-01-01 02-02-01 269 273 254 921,929 733,219 1046 05-02-01 09-02-01 252 260 231 232,586 383,094 1047 12-02-01 16-02-01 229 247 231 221,970 77,630 1048 19-02-01 23-02-01 234 241 210 490,560 673,340 1049 26-02-01 02-03-01 215 215 136 175,786 257,806 1050 05-03-01 09-03-01 125 147 117 505,318 461,118 1051 12-03-01 16-03-01 120 157 144 227,241 259,087

Dates Open High Close Buy Sales Net Market Sales 19.02.2001 234 234.5 229.4 89925 26900 63025 11557626 20.02.2001 230 235 232.4 124795 18870 105925 10932968 21.02.2001 231 238.65 236.75 216500 258000 -41500 22796031 22.02.2001 235.25 240.9 235.25 19805 277395 -257590 16315587 23.02.2001 231.7 233.85 210.3 39535 92175 -52640 16369630 Sett No. 48 490560 673340 -182780 77971842 26.02.2001 215 215 192.3 29045 10180 18865 12272601 27.02.2001 193.05 195 164.95 44625 140135 -95510 16285411 28.02.2001 163 177.5 171.25 47930 48780 -850 15111212 01.03.2001 174 178 162.3 38476 15341 23134 9336566 02.03.2001 164 168 136.35 15710 43370 -27660 10542794 Sett No. 49 175786 257806 -82020 63548584

163. Enquiry Officer has observed that purchase in S. No. 1050, when prices of the scrip moved Rs. 125 to Rs. 117 are preceded by significant net sales in the earlier settlements viz. (182780 shares) and 1049 (82020 shares) when the prices have dropped from Rs. 234 to and from Rs. 215 to Rs. 136 respectively. Enquiry Officer has further observed that, considering the opening position, BEB had purchase position of 196290 shares was unwounded converted into sale position in subsequent settlements (S. No. 1049). Enquiry Officer concluded that the purchases in settlement No. 1050 when the closing price was Rs. 115 a view to cover the earlier short sales and/or taking advantage of the fall in price hammering down the prices. Enquiry Officer has observed that the trading pattern of settlement no. 1048 reveals that the purchases on 19 February and 20 liquidated on 21 February and fresh sales were made from 21 to 23 February. BEB sale of-257590 on 22 February and-52640 on 23 February when the price had Rs. 25. The purchases on 1 March, 2001 for 23135 shares were for covering earlier sales. had net sales of-95510 on 27 February and-850 on 28 February 2001.

164. In cases of this nature when there is a series of transactions over a period of time, it cannot determined with mathematical accuracy the extent of the price fall vis a vis the member What is to be seen is the overall trading behaviour of the member. Further, it depends, others, what proportion his sales are to the exchange net sales as a whole. Even if the was a net purchaser in one particular settlement, it has to be seen as to what is his contribution the demand as a whole in the market whether these purchases are on account of covering previous short sales.

165. NBS. acting with concert with BEB in effecting large sale transaction in the Global Tele, HFCL, Infosys, Satyam, DSQ, Zee Tele Films.

166. Global. Tele Systems

Date Date Open Hi Close BEB NBS Sett No From To Buy Sell Net % Net Buy Sell 1048 19-02-01 23-02-01 615 624 439 113,458 111,248 2,210 0.3% 540,929 580,981 1049 26-02-01 02-03-01 443 454 313 176,397 357,900 -181,503 -9.2% 508,790 859,105 1050 05-03-01 09-03-01 306 312 226 254,078 86,292 167,786 9.3% 529,984 275,202 1051 12-03-01 16-03-01 210 241 206 57,310 55,739 1,571 0.1% 234,815 216,945

167. Enquiry Officer has observed that NSB and BEB have simultaneously created net settlement 1049 constituting 17.9% and 9.2% of net at the Exchange and to this extent entities have acted in concert to have depressed the share price of Global Tele.

HFCL.

Date Date Open Hi Close BEB Sett No From To Buy Sell Net % Net Buy Sell 1046 05-02-01 09-02-01 1000 1039 965 421,926 364,162 57,764 3.7% 581,715 565,340 1047 12-02-01 16-02-01 950 1019 910 150,764 204,206 -53,442 -5.0% 643,954 664,127 1048 19-02-01 23-02-01 910 923 743 251,746 172,926 78,820 7.5% 738,323 668,562 1049 26-02-01 02-03-01 740 759 604 243,291 329,346 -86,055 -3.5% 880,204 863,352 1050 05-03-01 09-03-01 585 625 327 123,647 118,091 5,556 0.2% 239,986 221,971 1051 12-03-01 16-03-01 301 322 214 111,383 83,659 27,724 0.7% 245,576 222,756

168. Enquiry Officer has observed that in settlement 1047 both NBS & BEB had simultaneously of 20173 and 53442 shares respectively and together constitute 6.9% of sale at the exchange.

169. Infosys

Date Date Op Hi Cl BEB Sett No From To Buy Sell Net % Net Buy Sell 1047 12-02-01 16-02-01 6380 6537 6254 10,657 10,387 270 0.2% 62,139 55,000 1048 19-02-01 23-02-01 6260 6343 5598 8,344 8,124 220 0.1% 78,468 81,155 1049 26-02-01 02-03-01 5730 6330 4940 18,883 17,872 1,011 0.3% 148,760 167,360 1050 05-03-01 09-03-01 4700 5315 4817 9,292 10,517 -1,225 -0.4% 61,834 71,383 1051 12-03-01 16-03-01 4738 4990 4694 6,364 6,526 -162 0.0% 23,230 65,243

170. Enquiry Officer has observed that BEB and NBS had net sales in settlement No. 1050 covering the period 5/3/01 to 16/3/01 and Enquiry Officer has come to the conclusion this extent, BEB can be said to be acting in concert with NBS in artificially depressing by its sales.

Satyam.

Date Date Op Hi Cl BEB NBS Sett No From To Buy Sell Net % Net Buy Sell 1046 05-02-01 09-02-01 400 412 372 386,724 378,780 7,944 0.2% 2,885,180 3,109,983 1047 12-02-01 16-02-01 375 387 365 541,310 455,547 85,763 2.8% 1,553,704 1,263,970 1048 19-02-01 23-02-01 361 376 318 277,184 359,734 -82,550 -3.8% 1,727,274 1,762,314 1049 26-02-01 02-03-01 321 353 263 424,005 397,648 26,357 0.6% 2,435,456 2,779,834 1050 05-03-01 09-03-01 250 280 229 267,146 264,781 2,365 0.1% 925,412 620,149 1051 12-03-01 16-03-01 230 264 237 140,570 176,792 -36,222 -0.7% 459,371 538,202

171. Enquiry Officer has observed that in settlement No. 1048 and 51, both BEB and NBS sellers and to this extent they can be said to be acting in concert to bring down the prices.

172. DSQ. Software

Date Date Op Hi Cl BEB NBS Sett No From To Buy Sell Net % Net Buy Sell 1045 29-01-01 02-02-01 407 450 415 93,286 93,226 60 0.0% 754,105 789,005 1046 05-02-01 09-02-01 409 446 418 54,784 54,379 405 0.1% 724,383 403,371 1047 12-02-01 16-02-01 415 463 423 78,367 81,725 -3,358 -0.5% 468,678 468,263 1048 19-02-01 23-02-01 424 433 369 114,081 114,687 -606 -0.1% 479,278 493,576 1049 26-02-01 02-03-01 375 398 304 105,340 105,055 285 0.0% 693,198 560,898 1050 05-03-01 09-03-01 300 318 212 76,090 66,835 9,255 0.3% 379,339 364,144 1051 12-03-01 16-03-01 195 195 145 88,884 81,639 7,245 0.2% 265,517 261,497

173. Enquiry Officer has observed that NBS and BEB were net sellers together in Settlement

174. Zee. Tele

Date Date Op Hi Cl BEB NBS Sett No From To Buy Sell Net % Net Buy Sell 1043 15-01-01 19-01-01 243 263 261 441,118 138,053 303,065 5.5% 3,025,558 2,371,684 1044 22-01-01 26-01-01 264 294 280 831,480 1,151,725 -320,245 -6.4% 3,741,297 3,400,066 1045 29-01-01 02-02-01 269 273 254 921,929 733,219 188,710 6.0% 2,833,047 2,853,194 1046 05-02-01 09-02-01 252 260 231 232,586 383,094 -150,508 -5.3% 878,078 930,283 1047 12-02-01 16-02-01 229 247 231 221,970 77,630 144,340 4.5% 456,385 478,321 1048 19-02-01 23-02-01 234 241 210 490,560 673,340 -182,780 -2.0% 1,717,642 1,859,341 1049 26-02-01 02-03-01 215 215 136 175,786 257,806 -82,020 -1.7% 1,208,299 1,631,119 1050 05-03-01 09-03-01 125 147 117 505,318 461,118 44,200 0.4% 2,643,142 2,606,129 1051 12-03-01 16-03-01 120 157 144 227,241 259,087 -31,846 -0.4% 771,469 858,652

175. Enquiry Officer has observed that NBS and BEB had net sale simultaneously in settlement and to the extent they are acting in concert.

176. BEB has indulged in circular trading with an intention to hammer down the prices. During time slot 12.35 hrs to 12.42 hrs on March 2, 2001, BEB has sold 2 lacs shares of Global behalf of BS. The order for sale of 2 lac shares was matched with NBS for 184425 During the time slot BEB had a net sale of 200499 which constitute 53% of the sales during time slot.

177. Enquiry Officer has come to the conclusion that sale of such a huge chunk of share member within a span of 7 minutes when the share prices had fallen has contributed to The prices at which these shares were sold are also in the vicinity of the lowest circuit filter. BEB has executed transactions on behalf of Shri Shankar Sharma, Director, First Global Broking Pvt. Ltd., member BSE and NSE which are of dubious nature with a manipulate the market and avoid detection. This matter has already been discussed preceding pages and, therefore, not repeated here.

178. BEB has dealt with Palombe, an unregistered sub broker which amounts to lack diligence, exercise of due skill and care expected of a registered broker as per the conduct applicable to the brokers. This matter has already been discussed in the preceding and, therefore, not repeated here.

179. BEB has indulged in short sales between 8 March 2001 and 31 March 2001 to the Rs. 3.05 crores in violation of SEBI Circular No. SMD/RPD/Policy/CIR-13/2001 dated March 2001. This matter has already been discussed in the preceding pages and, therefore, repeated here.

180. Trading. by Bang Securities P. Ltd. (BSPL), Sub-broker

181. BSPL is a registered sub broker of NBS and BEB. BSPL has indulged in large transactions in the selective scrips including the scrip of HFCL, Global Tele, Zee Tele, Reliance Industries, SBI, Satyam and Infosys with a view to depress artificially the these securities between mid February and Mid March in a concerted manner. BSPL significant net sale position on 23 February, 1 and 2 March of 2001. BSPL has also for Ketan Parekh Group entities Classic Credit and Landmark and Palombe Securities, etc. Enquiry Officer, after analysing the trading pattern of BSPL, has found that the trading BSPL in Global Tele, HLL, Reliance and Satyam are significant for the depression in prices. Chairman has also reiterated the findings of the Enquiry Officer.

182. BSPL and Bama have acted in concert with each other. This matter has already been in the preceding pages and, therefore, not repeated here.

183. Trading. by Nirmal Bang Securities

184. NBS has indulged in large trading transactions and has created significant net sales in scrips that either form part of stock indices or were momentum scrips including the Global Tele, HFCL, Infosys, Satyam, DSQ Software, Zee Tele, Wipro, etc. with a depress artificially the prices of these securities between mid February and mid march concerted manner.

185. Enquiry Officer has analysed the details of the trading pattern of NBS in individual scrips the findings of Enquiry Officer are given below in details.

(a) Global Tele

Date Date Op Hi Cl BEB Sett No From To Buy Sell Net 1043 15-01-01 19-01-01 728 739 734 817,141 734,194 82,947 1044 22-01-01 26-01-01 740 787 732 710,281 731,341 -21,060 1045 29-01-01 02-02-01 706 748 673 587,114 633,960 -46,846 1046 05-02-01 09-02-01 670 696 630 377,204 306,798 70,406 1047 12-02-01 16-02-01 632 655 609 343,469 315,020 28,449 1048 19-02-01 23-02-01 615 624 439 540,929 580,981 -40,052 1049 26-02-01 02-03-01 443 454 313 508,790 859,105 -350,315 1050 05-03-01 09-03-01 306 312 226 529,984 275,202 254,782 1051 12-03-01 16-03-01 210 241 206 234,815 216,945 17,870

Date Op Hi Cl NBS Buy Sell 26.02.01 443 454 416 61020 449020 27.02.01 420 427 363 93850 199395 28-02-01 360 410 404 69945 62901 1.03.01 410 430 372 52932 107328 2.03.01 372 377 313 323035 83426

186. Enquiry Officer has observed that NBS had net sales of 350315 shares, which constituted of net of exchange. Enquiry Officer has come to the conclusion that subsequent purchases settlement No. 1050 and 1051 could be with a view to cover the earlier short sales in view large net sales undertaken by the member in the immediately preceding settlements. Settlement No. 1049, covering the period between 26 February and 2 March, as evident the table above, NBS was a net seller in 3 out of 5 days. Earlier, NBS has reduced purchase from S. No. 1046 at 70406 to 28449 in S No. 1047 and in S. No. 1048 it was converted into net sales of 40052 which constituted 4.6% of the net of BSE. It has been contended there is neither a reduction in net purchase position nor a conversion of purchase position sale position as the opening position was not taken into account to arrive at net position end of the relevant settlements.

187. In this regard it was submitted that the opening position is not important as the purchases sales in the relevant settlement gives the idea of the trading pattern of the Appellant settlement. It has also been argued that NBS had net sales only in 3 out of 5 days in settlement 1049. Even after accepting that NBS had net sales only in 3 days in settlement 1049, it affect the analysis and the final findings. It is contended that the net sales of NBS in settlement 1048 and 1049 representing 4.6% and 17.9% of the net sales at BSE contributed to fall Rs. 7.82 and Rs. 22.74 and Rs. 22.74 and Rs. 11.88 respectively. In this regard it was submitted that though Enquiry Report and Chairman Order have observed that there is a correlation between the Appellant's transaction and change in the scrip price, the Appellant assumption his contribution to the change in scrip price is equal to his net at the end of settlement of net at the exchange for the relevant period is not acceptable.

(b) HFCL

Date Date Op Hi Cl BEB Sett No From To Buy Sell 1043 15-01-01 19-01-01 1180 1222 1211 1,072,461 1,063,601 1044 22-01-01 26-01-01 1241 1300 1269 568,795 615,020 1045 29-01-01 02-02-01 1250 1265 1027 908,827 925,084 1046 05-02-01 09-02-01 1000 1039 965 581,715 565,340 1047 12-02-01 16-02-01 950 1019 910 643,954 664,127 1048 19-02-01 23-02-01 910 923 743 738,323 668,562 1049 26-02-01 02-03-01 740 759 604 880,204 863,352 1050 05-03-01 09-03-01 585 625 327 239,986 221,971 1051 12-03-01 16-03-01 301 322 214 245,576 222,756

188. Enquiry Officer has come to the conclusion that the purchase in Sett.1048 could be with to cover the short sales in the earlier settlements.

Date Date Op Hi Cl BEB Sett No From To Buy Sell 1043 15-01-01 19-01-01 5860 6800 6779 171,478 189,504 - 1044 22-01-01 26-01-01 6950 6988 6778 49,999 72,602 - 1045 29-01-01 02-02-01 6610 6924 6860 69,638 57,158 1046 05-02-01 09-02-01 6777 6777 6406 61,642 59,846 1047 12-02-01 16-02-01 6380 6537 6254 62,139 55,000 1048 19-02-01 23-02-01 6260 6343 5598 78,468 81,155 1049 26-02-01 02-03-01 5730 6330 4940 148,760 167,360 - 1050 05-03-01 09-03-01 4700 5315 4817 61,834 71,383 1051 12-03-01 16-03-01 4738 4990 4694 23,230 65,243 -

189. Enquiry Officer has observed that through out the period covering Sett No. 1048 a net seller. Particularly in Sett 1049 and Sett No. 1051, NBS had net sales of 6.4% and the net of BSE respectively. Enquiry Officer has come to the conclusion that NBS had in sales on the crucial dates when the share prices have fallen which created artificial depression in prices.

(d) Satyam

Date Date Op Hi Cl BEB Sett No From To Buy Sell 1043 15-01-01 19-01-01 386 421 418 3,247,084 3,317,170 -70,086 1044 22-01-01 26-01-01 424 430 414 3,050,630 2,809,278 241,352 1045 29-01-01 02-02-01 400 427 415 3,115,273 3,112,460 1046 05-02-01 09-02-01 400 412 372 2,885,180 3,109,983 -224,803 1047 12-02-01 16-02-01 375 387 365 1,553,704 1,263,970 289,734 1048 19-02-01 23-02-01 361 376 318 1,727,274 1,762,314 -35,040 1049 26-02-01 02-03-01 321 353 263 2,435,456 2,779,834 -344,378 1050 05-03-01 09-03-01 250 280 229 925,412 620,149 305,263 1051 12-03-01 16-03-01 230 01264 237 459,371 538,202 -78,831

190. Enquiry Officer has observed that the sales in sett no. 1048 and 49 were not fully backed deliveries which means that there wee short sales. NBS had created a net sales of 344378 constituting 8.2% of the net of exchange. The purchases in the settlement 1050 of 305263 appear to be the short covering for previous settlement. In the subsequent settlement No. 1051), NBS has a net sale of 78831 shares. Enquiry Officer has come to the conclusion purchases made in Settlement 1050 were made at lower prices after hammering down the by sales including short sales in the previous settlements of 1049 and also with a view its earlier sales. The trading pattern of the member is typical of a short seller who sells without possessing the same with a view that the prices will come down in future so short sales can be covered by purchasing at lower prices. Such sales are speculative seen together with other similar trades and trades of other Bang Entities and taking into the other facts and circumstances including the fact that the said trades did bring about the price, the said trades have been shown to be manipulative.

(d) DSQ Software

Date Date Op Hi Cl BEB Sett No From To Buy Sell 1043 15-01-01 19-01-01 373 418 405 394348 407,273 - 1044 22-01-01 26-01-01 415 444 429 396,955 398,850 1045 29-01-01 02-02-01 407 450 415 754,105 789,005 - 1046 05-02-01 09-02-01 409 446 418 724,383 403,371 321,012 1047 12-02-01 16-02-01 415 463 423 468,678 468,263 1048 19-02-01 23-02-01 424 433 369 479,278 493,576 - 1049 26-02-01 02-03-01 375 398 304 693,198 560,898 132,300 1050 05-03-01 09-03-01 300 318 212 379,339 364,144 1051 12-03-01 16-03-01 195 195 145 265,517 261,497

191. Enquiry Officer has observed that net purchases in settlement 1049 to 1051 has to against the background of unwinding purchases in previous settlement. NBS had larger purchases of 321012 in settl. no. 1046, which constituted 57.2% of net of BSE. In subsequent settlement 1047, NBS had net purchase of 415 shares & settlement 1048, NBS had net 14298 shares constituting 3.1% of the net of exchange.

(F) Zee Telefilms

Date Date Op Hi Cl BEB Sett No From To Buy Sell 1043 15-01-01 19-01-01 243 263 261 3,025,558 2,371,684 653,874 1044 22-01-01 26-01-01 264 294 280 3,741,297 3,400,066 341,231 1045 29-01-01 02-02-01 269 273 254 2,833,047 2,853,194 -20,147 1046 05-02-01 09-02-01 252 260 231 878,078 930,283 -52,205 1047 12-02-01 16-02-01 229 247 231 456,385 478,321 -21,936 1048 19-02-01 23-02-01 234 241 210 1,717,642 1,859,341 -141,699 1049 26-02-01 02-03-01 215 215 136 1,208,299 1,631,119 209,795 1050 05-03-01 09-03-01 125 147 117 2,643,142 2,606,129 37,013 1051 12-03-01 16-03-01 120 157 144 771,469 858,652 -87,183

192. Enquiry Officer has observed that NBS was continuous net seller from sett no. 1046 Subsequent purchases in settlement 1049 & 1050 appears to be towards covering the short in the earlier settlements. Again, in sett No. 1051, there was a net sale of 87013. NBS in concert BEB in effecting large sale transaction in the scrips of Global Tele, HFCL, Satyam, DSQ, Zee Tele Films in the settlements covering mid February and mid March. has dealt with the following un-registered sub brokers. Such acts of dealing with unregistered sub brokers is in violation of the Code of Conduct prescribed under the Stock Regulations.

a. Moneygrowth Investment & Cons Pvt. Ltd.

b. Arihant Stocks Ltd.

193. Bombay Stock Exchange had imposed a fine of Rs. 74,000/- under its bye- laws which by NBS.

194. Enquiry Officer has observed that NBS had not exercised due skill and care as required the Code of Conduct while dealing with the unregistered sub broker. The fine paid amounts to tacit admission of having dealt with an unregistered sub broker.

195. Chairman has agreed with findings of Enquiry Officer that NBS has dealt with Money and Arihant Stock who are not registered sub brokers.

196. NBS has indulged in short sales between 8 March 2001 and 31 March 2001 to the Rs. 2.31 crores in violation of SEBI Circular No. SMD/RPD/Policy/CIR-13/2001 dated March 2001.

197. Market. Manipulation:

198. In the matter of Carole L. Haynes it has been held that ‘Market manipulation refers generally practices such as wash sales, matched orders or rigged prices that are intended to investors by artificially affecting market activity.

It further states that “manipulation of securities listed for trading on a national exchange, makes it unlawful for a person to engage in a series of transactions that create apparent activity or raise or depress a stock's price when done for the purpose of others to buy or sell the security.”

“To establish a violation it must be shown as it has been in this case that one individuals effected a transaction in a “security registered on a national securities …… which involved no change in the beneficial ownership thereof, or with knowledge on order or orders of substantially the same size, at substantially the same time, substantially the same price, for the sale of any such security, has been or will be into by or for the same or different parties.”

It also must be established as it has in this matter, that the transaction was done purpose of creating a false or misleading appearance of active trading in “such security, a false or misleading appearance with respect to the market” for any such security.

However, proof of scienter in manipulation cases need not be direct, but rather inferred form circumstantial evidence, including evidence of price movement, activity and other factors. Further proof of manipulation is generally not based on activity, but rather on a course of conduct showing an intentional interference normal functioning of the market for a security. Indeed, manipulation is usually of acts, practices, and courses of conduct that deceive the market place:

“proof of manipulation almost always depends on inferences drawn from a mass of data. Findings must be gleaned from patterns of behavior, from apparent irregularities, from trading data. When all of these are considered together, they can emerge ingredients in a manipulative scheme designed to tamper with free market forces.”

It has also been held that “It is sufficient for the person to engage in a course of which operates as a fraud or deceit as to the nature of the Market for the security.”

It has inter alia been held that the practice of placing orders at or near the end of the order to cause the stock to close at an uptick is violative … “Absent an admission, manipulative intent may be inferred from circumstantial evidence.”

Scienter as an element of violation has also been discussed in Sterlite Industries (India) v. SEBI [2001] 34 SCL 485. it was held that “Scienter is an element of violation of 17(a)(1) of the Securities Act and section 10(b) and 15(c) of the Exchange Act Supreme Court had defined Sceinter as “a mental state embracing intent to manipulative or defraud” “recklessness is sufficient to satisfy the Scienter requirement”. there are a series of transactions which involve fraudulent/deceit and there are circumstances so strong such as repeated transactions involving 4 to 5 common select dates/select time slots/transactions without intent of delivery/totally synchronised trades-the finger of guilt must point out to them totally. An inference must be drawn circumstances and proving of mens rea is not required. SEBI stands by its earlier arguments on non requirement of mens rea to be proved.

199. Lifting. the Corporate Veil

200. The Respondent repeated and reiterates all that is stated in respect of ‘lifting the corporate in the Enquiry Officers Report dated 22 May, 2002.

201. Impugned. Order is in Breach of Regulations

202. The purpose for the SEBI and the establishment of SEBI can be found in the Preamble SEBI Act. The functions of SEBI and its power to issue directions are found in Sections 11B of the SEBI Act.

203. Section 11(2)(e) of the SEBI Act, provides that measures that can be taken by the Board alia to prohibit fraudulent and unfair trade practices relating to securities markets. Section (b) of the SEBI Act provides that measures can be taken by the Board for registering regulating inter alia the working of stock brokers, sub-brokers who may be associated securities market.

204. The Stock Broker Regulations is a general Regulation, regulating all stock brokers including brokers and their trading, cancellation or suspension of their certificate of registration, of brokers, etiquette, ethics etc. There was no specific Regulation relating to fraudulent unfair trade practices committed by the brokers. SEBI under sections 11 and 11B of Act has the power to regulate fraudulent and unfair trade practices and manipulative transactions done by any person including inter alia brokers and sub-brokers. When the FUTP Regulations came into force with effect from 25 October, 1995 it became a complete code relating Fraudulent and Unfair Trade Practices committed by any person including brokers brokers. The source of SEBI's power to Suspend and cancel the Registration of an intermediary can be traced to section 12(3) of the SEBI Act. Regulation 3 and 4 of the FUTP Regulations relate to prohibition of dealing in securities in a fraudulent manner and prohibition market manipulation. Regulation 2(c) defined fraud. FUTP Regulations provide procedure for investigation etc. Regulation 11 of the FUTP Regulation provide that SEBI consideration of the report of the Investigating Officer may issue directions for ensuring compliance with the provisions of the Act, rules and regulations as inter alia set Regulation 12 and may also as per Regulation 13 initiate action for suspension or cancellation the certificate of registration.

205. Deciding punishment is based on gravity of the offence and is always left to the judicial/judicial officer (Suppose the FUTP Regulations had come in first and the Brokers Regulations later). No guidelines are required for deciding the punishment except looking to the gravity the of the offence. All we are concerned with is cancellation or suspension. Gravity quantum of punishment may be corrected by the higher court. Where there is a complete no other guidelines can be referred to. One cannot restrict the power under a complete go to the brokers regulation.

SEBI is required to exercise its power to suspend or cancel the Registration intermediary by taking into account all the relevant facts and circumstances, exigencies the situation and the objects sought to be achieved.

The ratios of the following case law were cited support the above contention Kathi Raning v. State of Saurashtra, AIR 1952 SC 123 Paras 7 & 8 @ page 126.

N.T.F Mills Ltd. v. The 2nd Punjab Tribunal, AIR 1957 SC 329 Paras 16 & 19 @ & 336.

Digyadarsan R.R Varu v. State of AP, (1969) 1 SCC 844 : AIR 1970 SC 181 Paras 6 & 7 @ Pages 186 M. Chhagganlal v. Grater Bombay Municipality, AIR 1980 SC 2009 Para 15 @ page R.R Verma v. UOI, (1980) 3 SCC 402 : AIR 1980 SC 1461 Para. 4 @ page 1463

Without prejudice to the aforesaid it was submitted that the procedure to be followed suspension and or cancellation of the registration is found in Regulations intermediary concerned. It may be noted that even insider trading regulations and regulations did not provide for cancellation of registration or suspension of registration an intermediary. If an intermediary is guilty of an offence under the said Regulations procedure for suspension or cancellation of registration of that intermediary has to basis of relevant regulations applicable to the relevant intermediary concerned. section 13 of the FUTP Regulations, the Board may initiate action suspension/cancellation of registration but no procedure to be followed has been for. Therefore both for suspension/cancellation the procedure to be compiled procedure, one can go to the Regulations of the intermediary concerned.

206. The. Standard of Proof

207. SEBI is a regulatory Authority and regulates conduct of all intermediaries in the market. The Appellant being an intermediary could perform in the Security market fully the SEBI Regulatory jurisdiction. The proceedings that SEBI adopt are adjudicatory proceedings which are civil in nature. SEBI adjudicated proceedings are not criminal proceedings. In proceedings, standard of proof is on the basis of “preponderance of probabilities” “beyond reasonable doubt” as required in criminal cases.

208. Fraudulent or manipulative trading are therefore required to be proved by SEBI only basis of “preponderance of probabilities” and not “beyond reasonable doubt”. ??? v. Chaturbhuj M. Patel (1976) 1 SCC 747 : A.I.R 1976 S.C page 712. and National Housing Bank v. Grindlays Bank 1998 Volume 11 1998 (2) Law Judgements 153 at page 178.)

209. The enquiry proceedings are adjudicatory proceedings of a civil nature and are not proceedings and therefore the standard of proof required is not as high as that required criminal proceedings. Further strict rules of evidence are not applicable to adjudicate proceedings. The charges are required to be established by such evidence, acting upon reasonable person acting reasonably and objectively can conclude that the charges are ((1999) 5 SCC 762 : AIR 1999 SC 2407- Bank of India v. D. Suryanarayana). None of the trades executed Bang entities have been disputed. In the circumstances and applying the above principals charges as against the Bang entities can be said to have been proved.

Mensrea.

210. The enquiry proceedings being in the nature of adjudicatory proceedings are civil proceedings and not criminal proceedings. Mens reas is not required to be proved before a person can guilty of price manipulation or carrying on fraudulent trade practices. Since the SEBI the FUTP Regulations and the Broker Regulations are Regulatory enactments mens rea required to be proved when a penalty is imposed under an enactment for breach of obligation in adjudicatory proceedings. The rule that mens rea is required to be proved penalty can be imposed is not attracted. (Directorate of Enforcement v. MCTM Corpn. Ltd. (1996) 2 SCC 471 : AIR 1996 SC 1100.)

211. Assuming without admitting that mens rea is required to be proved before any charge FUTP regulation, can be said to have been proved that proof of manipulative intent inferred from circumstantial evidence such as evidence from price movement, trading etc as has been clearly established by SEBI. The manipulative intent has further been from the series of transactions which disclose a clear course of conduct and intention. However, proof of sceinter in manipulation cases need not be direct, but rather may be inferred circumstantial evidence, including evidence of price movement, trading activity and factors. Further proof of manipulation is generally not based on a single activity, but rather course of conduct showing an intentional interference with the normal functioning of the for a security. Indeed, manipulation is usually the results of acts, practices, and courses conduct that deceive the market place:

“proof of manipulation almost always depends on inferences drawn from a factual data. Findings must be gleaned from patterns of behaviour, from irregularities, and from trading data. When all of these are considered together, can emerge as ingredients in a manipulative scheme to designed to tamper market forces”. As held in the case of Carole L. Hynes.

Limitation

212. Regulation 29(3) of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992 “The Board after considering the reply to the show-cause notice, if received, shall as possible but not later than thirty days from the receipt of the reply, if any, pass such orders deems fit.”

213. In the present case a common interim order was passed on April 18, 2001 debarring Mr. Bang, Mr. Kishore Bang, and Mr. Dilip Bang and Bang Entities from undertaking business as stock broker or sub-broker till further orders. A common post-decisional was given to the Bang Entities on 30 April, 2001 at which the Bang entities made oral submissions and the Entities thereafter submitted their common written submissions, pursuant to which a common Order was passed on 4 June 2001 confirming the above The Show Cause Notices dated 10 September 2001 and 25 January 2002, were issued Bang Entities as joint noticees by the Enquiry Officer and the enquiry proceedings conducted him were also in common. SEBI by its order dated 4 June 2001 had appointed one officer in respect of the Bang Entities. A common Show Cause Notice dated 30 issued to the Bang Entities after the Enquiry Officer submitted his common Report May, 2002. A personal hearing was granted to the Bang Entities on 1 July 2002 common impugned Order was passed on 30 July 2002 i.e within 30 days of the oral/hearing and therefore the order is passed within the prescribed time limit under section the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992.

214. It is the Appellants contention that since Bama Securities did not ask/seek for any hearing the Order as against Bama is passed in violation of Regulation 29 (consequentially if the impugned order is vitiated qua Bama on account of a violation of Regulation 29(3) the impugned order cannot survive qua the other Entities.

215. The central charge against the Appellants is that they acted in concert in depressing the various scrips and thereby indulged in market manipulation. In view of the same proceedings were taken against the Appellants. It is not disputed that Bama is part of Group. From the very beginning the Appellants were insisting on separate proceeding with attempt to demolish the charge of concerted action. The impugned order clearly found Appellants were acting in concert in depressing the prices of various securities. Unless hearing in the matter was completed, it was not possible to pass an order even though one Appellants did not seek for a personal hearing. It is to be noted that limitation goes demurrer. In the instant case since common notices were issued and a charge of concert was made, and an oral hearing was granted on the 1 of July 2002, the Order the period of limitation.

216. Bama Securities at no time prior to filing of the present proceedings contended that SEBI not pass any order against Bama Securities on the ground of limitation under Article Regulation 3. No such ground was alleged at the hearing granted by SEBI to all Entities on 1 July 2002.

217. The Tribunal in the case of Doogar & Associates Ltd. v. SEBI has held that “the scope expression ‘reply’ in sub regulation (3) of regulation 40 cannot be restricted only to reply to the show cause notice. Oral submissions are also to be treated as replies. Since, order was issued, within 30 days of the completion of the oral submissions and all submissions were required to be completed. It cannot be said that the order was issued the time limit prescribed regulation 40(3) of the 1992 regulations.” In the present case the proceedings conducted by SEBI against the Bang Entities are common the question passing a separate order against Bama Securities doesn't arise and therefore there the of any delay in passing the impugned Order dated 30 July, 2002, beyond the period prescribed under section 29(3) doesn't arise as the same was passed within 30 days of oral/personal hearing on 1 July 2002.

218. The ratio of the judgement in Atul Kanodia's case that the period of 30 days requires reconsidered in view of the following Judgments:

A. Bhaskaranand Agarwal v. State AIR 1998 Sikkim 4.

B. Ganesh Prasad Sah Kesari v. Laxmi Narayan Gupta ((1985) 3 SCC 53 : AIR 1985 SC 964).

C. Karnal Leather Karmachari Sanghatan v. Liberty Footwear Co. (1989) 4 SCC 448 : AIR 1990 SC 247.

219. Speculative transactions are per se not illegal. However, speculative transactions undertaken the Bang Entities in its entirely in the facts and circumstances of the present case have shown to be per se manipulative and illegal transactions, actions in breach of the Stock Regulations and Code of Conduct. The cumulative effect of all the transactions referred order taken together by each one or more of the Bang entities acting alone or in concert each other and/or others conclusively proves the charge that the Bang entities have indulged market manipulation.

Tribunal's Findings:

220. The impugned order is in relation to the conduct of the Appellants with reference to their activities in certain scrips during the mid February to mid March 2001.

221. Index movements of stock exchanges showed excessive voltatility especially during February to mid March, 2001. SEBI carried out preliminary investigation to find out of the same. The Appellants were also among some of the brokers/sub brokers subjected investigation. SEBI's preliminary investigation is stated to have revealed that the Appellants (Bang Entities) had indulged in large trading transactions in the scrips of Global Telesystems, HFCL, Zee Telefilms, Wipro, Satyam Computers, Infosys Technologies, Silverline Industries, Reliance Industries, LIC Housing, HCL Technologies etc. Based on a prima facie view these transactions were carried out by the Appellants to artificially depress the prices of securities, SEBI passed an exparte order on 18.4.2001 debarring them from undertaking fresh business as stock brokers and sub brokers till further orders. A post decisional followed. It was on 30.4.2001 Thereafter an interim order was issued on 4.6.2001 confirming the said ex parte order. An Enquiry Officer was also appointed simultaneously on the same The Enquiry Officer issued a show cause notice on 10.9.2001 During the course of the a second notice was issued on 25.1.2002 He completed the enquiry and submitted the 22.5.2002 In the light of the findings of the Enquiry officer, SEBI issued a show cause the Appellants on 30.5.2002 The notice was common. But the charges in respect of each were separately stated in the notice. The Appellants responded to the same denying the Chairman of SEBI adjudicated the notice and passed an order on 30.7.2002 canceling registration of the Appellants, holding that the Appellants had indulged in large transactions with a view to depress the market artificially in a concerted manner, indulged short sales and synchronized trading, traded in particular time slots when the share registered substantial fall and routed large transactions through unregistered sub brokers. were accordingly found guilty of violating the code of conduct specified in the Stock Regulations and regulation 4(a) to (d) of the FUTP Regulations.

222. The Appellants in appeal nos. 54/2002; (NBS); 55/2002; (BEB); and 56/2002 (Bama); Brokers. While NBS and BEB are members of BSE, Bama is a member of NSE. Appellant appeal no. 57/2002 is a sub broker to NBS and BEB. These brokers are stated to have about sub brokers operating for them, and that they are providing service to over 10,000 investors across the country.

223. The Appellants' annual traded turnover, in the year 2000-2001 according to them was Rs. 57,196 crores. According to the Appellants despite the large scale operation for over years there has not been a single instance of an investor grievance against them, signifying good business practices. It is an admitted fact that these four Appellants belong to Bang SEBI has alleged that they were acting in concert. Appellants have denied. Whether they acting in concert or not is a matter, to be decided in the light of the factual information. examine the same at the relevant context when we proceed further in the matter. The Appellants had claimed that theirs is a “discount broking house”, i.e they merely brokers for their various clients and transact in securities on their behalf without giving any advice as to what securities to buy or sell. In other words, the Appellants simply execute orders for the sale or purchase of securities placed with them by their clients without influencing or contributing to the investment decisions of the client in any manner. This version unrebutted by SEBI.

224. On a perusal of the said charges it is noticed that indulging in large trading transactions selective scrips with a view to depress artificially the prices of the select scrips between February to mid March 2001, is a common charge against all the Appellants. They are have acted in a concerted manner for accomplishing the objective of depressing the share The Enquiry Officer has linked the charges to violation of two Regulations i.e Stock Regulations and FUTP Regulations. Stock Broker Regulations has been stated to be alleging violation of Code of Conduct applicable to the Stock Brokers and Sub stipulated therein. FUTP Regulations are stated to have been violated alleging violation regulation (a) to (d) of the said Regulations.

225. In the impugned order there is no mention as to which of the clauses of the Code of Conduct attracted. However, it appears from the discussion in the order that the thrust is on the obligations grouped under Clause A of the Code of Conduct i.e:

A. General—(1) Integrity — A stock-broker, shall maintain high standards integrity, promptitude and fairness in the conduct of all his business

1. Exercise of due skill and care: A stock broker shall act with due skill, care and diligence in the conduct of all his business.

2. Manipulation: A stock broker shall not indulge in manipulative, fraudulent or deceptive transactions or schemes or spread rumours with a view to distorting equilibrium or making personal gains

3. 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 or which leads to interference with the fair and smooth functioning of the market. A stock broker not involve himself in excessive speculative business in the market beyond reasonable levels not commensurate with his financial soundness.

4. Compliance with statutory requirements: A stock broker shall abide by a the provisions of the Act and the rules, regulations issued by the Government, the Board and Exchange from time to time as may be applicable to him.

226. The Code of Conduct applicable to Sub brokers is separately provided in Schedule Stock Brokers Regulations. In the said Code under Clause “A” the requirements at (above have been stipulated. It is noted that sub brokers are attached to some brokers. example in the instant case Bang Securities P. Ltd., (BSPL) is a sub broker under BEB. Sub brokers are required to obtain registration certificate from SEBI to carry activities of sub broker.

227. Regulation 4(a) to (d) of the FUTP Regulations, which according to the Respondent, Appellants have violated is as follows:

No person shall—

a. effect, take part in, or enter into, either directly or indirectly, transactions securities, with the intention of artificially raising or depressing the prices securities, and thereby inducing the sale or purchase of securities by person;

b. indulge in any act, which is calculated to create a false or misleading appearance of trading on the securities market;

c. indulge in any act, which results in reflection of prices of securities based transactions that are not genuine trade transactions;

d. enter into a purchase or sale of any securities, not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress or cause fluctuations in the market price of securities;

(e)……………

The expression “fraud” has been defined in regulation 2(1)(c) of the Regulations as follows:

“Fraud” includes any of the following acts committed by a party to a or with his connivance, or by his agent, with intent to deceive another thereto or his agent, or to induce him to enter into the contract:

1. the suggestion, as to a fact, of that which is not true, by one who does believe it to be true;

2. the active concealment of a fact by one having knowledge or belief of fact;

3. a promise made without any intention of performing it;

4. any other act fitted to deceive;

5. any such act or omission as the law specially declares to be fraudulent; “fraudulent” shall be construed accordingly.

Explanation.—Mere silence as to facts likely to affect the willingness person to enter into a contract is not fraud, unless the circumstances case are such that regard being had to them, it is the duty of the keeping silence to speak, or unless his silence is in itself equivalent speech;”

228. Before proceeding further I would, at this stage, like to briefly explain the scope regulation 4 of the FUTP Regulation before we test the facts relating to the instant case reference to the regulations.

229. Chapter II titled “Prohibition of Fraudulent and Unfair Trade Practices relating to Securities market” is the core chapter in the FTUP Regulations. Regulation 3 thereunder prohibits person from buying selling or otherwise, dealing in securities in a fraudulent Prohibition against “market manipulation” is covered by regulation 4. Sub clauses (a) regulation 4 referred to in the order have been extracted above. Regulation 5 is on “prohibition of misleading statements to induce sale or purchase of securities and regulation 6 “unfair trade practices relating to securities”

230. Chapter III provides for investigation into alleged contravention of the regulations consequential action thereafter. Regulation 7 empowers SEBI suo motu or upon information received by it to cause an investigation to be made in respect of the conduct and affairs person buying, selling or otherwise dealing in securities, by an investigating officer, purposes, namely- (a) to ascertain whether there are any circumstances which would render person guilty of having contravened any of these regulations or directions issued there to investigate into any complaint of any contravention of the regulation, received investor, intermediary or any investors. In terms of regulation 8, in the normal course causing an investigation the Board is required to give notice to the person concerned requirement can be dispensed with for certain reasons specified in the regulation. Regulation is on the duties and obligations of the person under investigation. In terms of regulation concerned investigating officer is required to submit the investigation report to the Regulations 11, 12 and 13 deal with the follow up action.

“11. Power of the Board to issue directions:— The Board may, after consideration the report referred to in regulation 10, and after giving a reasonable opportunity hearing to the person concerned, issue directions for ensuring due compliance with the provisions of the Act, rules and regulations thereunder, for the purposes specified in regulation 12.

12. Purpose of directions:— The purpose for which directions under regulation be issued are the following namely:

(a) directing the person concerned not to deal in securities in any particular manner.

(b) requiring the person concerned to call upon any of its officers, other employees representatives to refrain dealing in securities in any particular manner;

(c) prohibiting the person concerned from disposing of any of the securities acquired contravention of these regulations;

(d) directing the person concerned to dispose of any such securities acquired contravention of these regulations, in such manner as the Board may deem restoring the status-quo ante.

13. Suspension or cancellation of registration:— The Board may, in the circumstances specified in regulation 11, and without prejudice to its power under regulation initiate action for suspension or cancellation of registration of an intermediary g a certificate of registrations under section 12 of the Act;

Provided that no such certificate of registration shall be suspended or cancelled the procedure specified in the regulation applicable to such intermediary is with”

231. On a perusal of regulation 4 it is clear that prohibition is against market manipulation clauses (a) to (e). This Tribunal in Videocon case had examined the scope of clause (a) follows:

“To attract regulation 4(a)(i) a person should have effected, taken part in, or entered into directly or indirectly, transactions in securities (ii) the transactions must be with an intention such transaction must be to artificially raise or depress the prices of securities (iv) the action must be to induce the sales or purchase of securities by any person. The ingredients regulation 4(d) are that (i) a person must enter into a purchase or sale of any securities purchase or sale must not be intended to effect the transfer of beneficial ownership purchase or sale must be intended to operate only as a device to inflate, depress fluctuations in the market price of securities. On a perusal of the regulation it is clear that of clause (a) is wider than the reach of clause (d). Regulation 4(a) brings not only the purchaser and seller but even third parties also to its ambit, if they are found in any way involved effecting or taking part in the transactions directly or indirectly. The motive behind the and the effect of the actions is also relevant. Transactions in securities, with the intention raising or depressing the prices of securities and thereby inducing the sale or purchase securities by any person is the pointer in this regard. Artificial action to induce other persons transact in securities is the core theme of regulation 4(d). According to Blacks Law Dictionary “deceit” means “a fraudulent and deceptive misrepresentation, artifice or device used by more persons to deceive and trick another, who is ignorant of the true facts, to the prejudice damage of the party imposed upon”. On a careful perusal of the regulation it is clear Sundaram pointed out that element of deceit is an underlying factor in the transaction. genuine transaction by itself cannot attract the regulation though such a transaction had in market price variation. Regulation 4(a) attracts only if the transaction is made intention of artificially raising or depressing the prices of securities so as to induce any person to sell or purchase the securities. The participation need not necessarily be direct, be indirect as well.

Prohibition in regulation 4(d) is on entering into transactions for a purchase or sale securities not intended to effect transfer of beneficial ownership but intended only as a distort the market price of securities. In other words the regulation covers speculative Under regulation 4(d) it is not necessary that the action should result in inducing purchase or sell the securities as in the case of regulation 4(a). It has to be noted that in clauses, the intention of the party is relevant. Therefore an element of mens rea involved.”

232. The ingredients of regulation (b) are that one should indulge in an act, that act calculated to create a false or misleading appearance of trading on the securities market. planning is not adequate to attract regulation. Action is the triggering point. But that should be a calculated one. It should be meant to misguide people. As the regulation requires action to create a false or misleading appearance of trading on the market, it is clear deliberate intention of the party is implicit. The reference is to positive act. Such positive by a person cannot be unintentional. Regulation 4(c) attracts if a person indulges in which results in reflection of prices of securities based on transactions that are not genuine transactions. Word indulge according to Websters Encyclopedic Dictionary means “to an inclination or desire”. Here again it is action based. The expression “indulge” used (b) (c) also gives credence to believe that the action should be an intentional one. In my the market manipulation stated in regulation 4 if one is to be charged it is absolutely necessary to prove that the person had acted intentionally. It is to be noted that the prohibition regulation 4 is on market manipulation. Market manipulation, by its very nature cannot attributed to any unintentional act. Intention is built in the process.

233. This Tribunal in Videocon case had examined the extent of evidence required to establish charge of market manipulation and had observed that

“As stated earlier, in the absence of reasonably good evidence to support, charge market manipulation, which is a very serious one, cannot stick on the Appellant company, merely on surmises and conjunctures.

234. In this context, with reference to the test of evidence applicable to the domestic inquiries, Dada had referred to the decision in Gulabchand (supra) that “it is wrong to insist that cases such charge must be proved clearly and beyond reasonable doubt”. He had also Hon'ble Bombay High Court in National Housing Bank (supra) in this regard. In the Hon'ble High Court had reiterated the principle laid down by the Hon'ble Supreme Gulabchand's case. This Tribunal is not suggesting for a moment that to proceed person under regulation 4(a) and 4(d), the charge must be proved beyond reasonable doubt. nature of evidence required for the purpose was considered by this Tribunal in Sterlite (supra). In the Sterlite case also the charge was manipulation of the market and the issued was also identical, but for the tenure of the prohibition. In the said case also Appellant Sterlite was represented by Shri Sundaram and the Respondent SEBI by Shri Dada. The expressed by this Tribunal in the said case are squarely applicable to the present case was held in the said case:

“Shri Dada had argued about the degree of evidence required in an adjudication the one, in contradistinction to the nature of evidence required in criminal proceedings in a court of law, that in an inquiry like the instant one it is the “preponderance probability” that is to be taken into consideration and not to go by “proof beyond doubt” as required in proceeding.

In this context it is to be noted that Chairman holding the Appellant guilty of in price manipulation has stated that “creation of false market and price is a very serious offence”. Evidence merely probabalising and endeavouring the fact on the basis of preponderance of probability is not sufficient to establish serious offence of market manipulation. When such a serious offence is investigated and the charge is established, the fall out of the same is multifarious. The impact of such an finding is wide especially in the case of a large public company having large of investors. The stigma sticks and it also hurts, not the company alone, shareholders as well. “Not all the King's horses and all the King’ salvage the situation. Mere conjunctures and surmises are not adequate to person guilty of such a serious offence. The extent of proof required to delinquent guilty has been explained by the Hon'ble Supreme Court in Bank v. Degala Surya Narayana ((1999) 5 SCC 762 : AIR 1999 SC 2407). The Court held:

“strict rules of evidence are not applicable to departmental enquiry proceedings. only requirement of law is that the allegation against the delinquent officer established by such evidence acting upon which a reasonable person acting reasonably and objectively may arrive at a finding upholding the gravament of the charges the delinquent officer. Mere conjuncture or surmise cannot sustain the finding even in departmental enquiry proceeding.

(emphasis supplied)

In M.S Bindra v. Union of India, (1998) 7 SCC 310 the Court had while deciding appeal against the removal of an officer from service on doubtful integrity held mere possibility is hardly sufficient to assume that it would have happened”. Nandakishore Prasad v. State of Bihar (1978) 3 SCC 366, the Court while considering the appeal against the removal of an employee from service based on the findings departmental enquiry viewed that “Before dealing with the contentions canvassed, may remind ourselves of the principles in point crystalised by judicial decisions. first of these principles is that disciplinary proceedings before a domestic tribunal of a quasi judicial character; therefore, the minimum requirement of the natural justice is that tribunal should arrive at its conclusion on the basis of some evidence, i.e evidential material which with some degree definiteness points to the guilt of the delinquent in respect of the charges against Suspicion cannot be allowed to take the place of proof even in domestic inquiries. pointed out by this Court in Union of India v. H.C Geol (AIR 1964 SC principle that in punishing the guilty scrupulous care must be taken to see innocent are not punished, applies as much to regular criminal trials as to disciplinary inquiries held under the statutory rules’.

(emphasis supplied).

235. In the context of a disciplinary action against an advocate, the Hon'ble Court had held disciplinary authority empowered to conduct the inquiry and to inflict the punishment of the body, in forming an opinion must be guided by the doctrine of benefit and is obligation to record a finding of guilt only upon being satisfied beyond reasonable would be impermissible to reach a conclusion on the basis of preponderance of evidence the basis of surmise, conjuncture or suspicion. It will also be essential to consider the dimension regarding mens rea. This proposition is hardly open to doubt or debate particularly regard to the view taken by this Court in L.D Jaisinghani v. Naraindas N. Punjabi . (1976) 354 : ((1976) 1 SCC 354 : AIR 1976 SC 373) at P. 376 — wherein Ray, CJ speaking for the Court has observed:

“In any case we are left in doubt whether the complainants version with which come forward with considerable delay was really truthful. We think that this nature, involving possible debarring of the advocate concerned the should be of a character which should leave no reasonable doubt about guilt. Disciplinary Committee had not only found the Appellant guilty but had disbarred permanently. (In Re An advocate 1989 Supp (2) SCC 25 : AIR 1989 SC 245)”

(emphasis supplied).

236. About the test of evidence in a civil proceeding, the following observations made Hon'ble Court (Razikram v. J.S Chauhan - AIR 1975 SC 667 : (1975) 4 SCC 769 is to

“It is true that there is no difference between the general rules of evidence in criminal cases and the definition proved in section 3 of the Evidence Act does a distinction between civil and criminal cases. Nor does this definition insist on proof because absolute certainty amounting to demonstration is rarely to be had affairs of life. Nevertheless, the standard of measuring proof prescribed definition is that of a person of prudence and practical good sense.. equally true about proof a charge of corrupt practice which cannot be established mere balance of probabilities”.

(emphasis supplied)

237. The Hon'ble Supreme Court in yet another case with reference to adjudication under Customs Act and Land Customs Act relating to imposition of penalty on the person concerned had held:

“To such a situation though the provisions of the Code of Criminal Procedure Evidence Act may not apply, except in so far as they are statutorily made applicable, the fundamental principles of criminal jurisprudence and of natural justice necessarily apply. If so, the burden of proof is on the customs authorities and they to bring home the guilt to the person alleged to have committed a particular under the said Acts by adducing evidence”(Ambalal v. Union of India AIR 264).

238. On application of the standard of evidence required to hold a person guilty of an offence, out by the Hon'ble Supreme Court cited above, it is seen that the evidence produced Respondents is not sufficient to hold the charge against the Appellant. From the referred to above it is clear that in the absence of reasonably strong evidence (though not reasonable doubt), even in a civil proceeding, a person cannot be held guilty and punishment. Mere surmise, conjucture or suspicion can not sustain the holding of guilt. very carefully examined the impugned order and find that the conclusion drawn Respondents holding the Appellant guilty of indulging in market manipulation in contravention of regulation 4(a) and 4(d) of the 1995 Regulations is not substantiated by sufficient evidence”.

239. The Appellants had submitted that the impugned order has been made in violation provisions of regulation 29(3) of the Stock Broker Regulations, in as much as it was beyond the thirty days' time prescribed in the Regulation and therefore, the order is bad not be sustained. According to the Appellants the show cause notice was issued Appellants including Bama on 30.5.2002 Bama replied to the show cause notice on 12.6.2002, Bama did not seek any person hearing before the Chairman. Consequently as far as concerned the order was required to be passed not later than 11.7.2002 But the order passed only on 30.7.2002 and therefore as far as Bama is concerned the order has been violation of the mandatory requirement of regulation 29(3), that accordingly the impugned is vitiated at least qua Bama. According to the Appellants, since the Respondent in its come to the conclusion that all the Appellants were acting in concert to artificially depress price in certain scrips, the findings against the Appellants are not severable and therefore impugned order is vitiated qua Bama, on account of the violation of regulation 29 (impugned order cannot survive qua the other three Appellants and therefore the order set aside in toto. The Appellants, in support of the said submission, had cited this Tribunal decision in Atul Kanodia.

240. According to regulation 27 of the Stock Brokers Regulations no order of penalty of suspension or cancellation shall be imposed except after holding an enquiry in accordance procedure specified in regulation 28. The proviso to the regulation keeps certain cases out purview of the said requirement. The proviso has no application to the present case. Section empowers SEBI to appoint an enquiry officer ‘for the purpose of holding an enquiry regulation 27.’

241. In terms of regulation 28(7) the Enquiry Officer is required, after taking into account all facts and submissions made by the Stock Broker, to submit a report to the Board recommend the penalty to be awarded as also on the justification of the penalty imposed show cause notice. In terms of regulation 29(1) on receipt of the report from the Officer, SEBI is required to consider the same and issue show cause notice to the Broker/Sub Broker as to why the penalty as it considers appropriate should not be imposed. regulation (2) requires the Stock Broker/Sub Broker to send to SEBI a reply to the show notice within 21 days from the date of receipt of the notice. According to sub regulation Board after considering the reply to the show cause notice, if received, shall as soon as but not later than thirty days from the receipt of the reply, if any, pass such order as fit.”

242. The fact of appointing the Enquiry Officer on 4.6.2001 and the Enquiry Officer submitting report to SEBI on 22.5.2002 is not disputed. On receipt of the enquiry report, SEBI show cause notice to the Appellants on 30.5.2002 Noticees replied to the show cause Except Bama others requested for a personal hearing. They were given personal hearing 1.7.2002 But Bama, though replied to the show cause notice vide its letter dated 12.6.2002, filed on the same day with SEBI did not seek any personal hearing and did not appear personal hearing on 1.7.2002 with other Appellants. The order was passed on 30.7.2002 facts remain undisputed. Now the question is in the light of the provisions of regulation and the facts stated above, whether the impugned order is vitiated qua Bama and others. view the answer to the question is in the negative for the reason that the impugned order combined order against the 4 Bang Entities stated therein and issuance of such an order possible only after completing the composite enquiry initiated by the Respondent. It is the enquiry was initiated against them in the light of the investigation carried out by SEBI they acted in a concerted manner to manipulate the market for certain scrips. It is noticed SEBI had passed a common ad interim order on 18.4.2001 A post decisional hearing was to the Bang Entities on 30.4.2001 at which they made common oral submissions, and a order was passed on 4.6.2001 SEBI vide its order dated 4.6.2001 appointed an Enquiry He issued show cause notices on 10.9.2001 and 25.1.2002 to the Bang entities as joint and the enquiry proceedings conducted by him were also common. He submitted one composite report to SEBI on 22.5.2002 after enquiry. The central charge, as per the Enquiry Report, the Appellants acted in concert in depressing the price of various scrips and thereby indulged market manipulation. In the facts and circumstances of the case it was not possible or feasible segregate Bama's case and issue a separate order. It is noticed that the hearing was concluded 1.7.2002 and the order was passed on 30.7.2002 well within the stipulated 30 days time the absence of any evidence on record to prove the contrary, the date of passing the order be accepted as 30.7.2002 as is reflected from the order itself. The ratio in the Atul Kanodia case has no application to the case, as in the said case the order was passed by SEBI, beyond 30 days prescribed in regulation 29(3). In the light of the facts and circumstances of the my view, the impugned order cannot be said to have been passed beyond 30 days and vitiated even qua Bama. The Respondent has also prayed to reconsider the ratio judgement in Kanodia and had for the purpose cited Bhaskaranand Agarwal v. State (AIR Sikkim 4); Ganesh Prasad Shah Kesari v. Laxminarayan Gupta ((1985) 3 SCC 53 : AIR 1985 SC 964) and Leather Karmachari Sanghetan v. Liberty Footwear Co. (AIR 1990 SC 427). I do not that reconsideration of Atul Kanodia is called for, for deciding the present case.

243. Yet another major legal issue, agitated by the Appellants is the authority of SEBI to impugned order cancelling the certificate of registration granted to the Appellants regulation 13 of the FUTP Regulations. In this context the order passed by the Respondent be looked into, which is extracted verbatim from the order as follows:

“I, G.N Bajpai in exercise of powers conferred upon me under section 4(3) Act, 1992 read with regulation 29(3) of SEBI (Stock Brokers and sub Regulations, 1992 read with Regulation 13 of SEBI (Prohibition of Fraudulent Unfair Trade practices relating to Securities Market) Regulations, 1995 do order cancellation of Registration of Nirmal Bang Securities Ltd., (NBS) Bang Equity Broking Pvt. Ltd. (BEB), Bama Securities Ltd., (BSL) — registered with SEBI and Bang Securities P. Ltd., (BS), sub broker registered SEBI with immediate effect.”

244. Section 4(3) referred to by the Chairman, empowers Chairman, SEBI to exercise all the of the Board, except those reserved for the Boards as determined by the Regulation. Regulation 29(3) as discussed earlier is the power vested in the Board to issue orders to Stock Brokers/Brokers, if considered necessary. Regulation 13 of the FUTP regulation is the one under the cancellation of the certificate of registration has been ordered.

245. Regulation 13 of the FUTP Regulations is on “suspension or cancellation of registration. According to the said section, “the Board may, in the circumstances specified in regulation and without prejudice to its power under regulation 12, initiate action for suspension cancellation of registration of an intermediary holding a certificate of registration under 12 of the Act.” The regulation provides that no such certificate of registration shall be suspended or cancelled unless the procedure specified in the regulation applicable to such intermediary complied with.

246. Regulations 11 and 12 referred in regulation 13 are as follows:

12. Purpose of directions:— The purpose for which directions under regulation be issued are the following namely:

(a) directing the person concerned not to deal in securities in any particular manner.

(b) requiring the person concerned to call upon any of its officers, other employees representatives to refrain dealing in securities in any particular manner;

(c) prohibiting the person concerned from disposing of any of the securities acquired contravention of these regulations;

(d) directing the person concerned to dispose of any such securities acquired in contravention of these regulations, in such manner as the Board may deem fit, restoring the status-quo ante.

247. Since the parties had relied on the provisions of regulation 25 and 26 of the Stock Regulations, it is considered necessary to extract the same also for ready reference.

248. Liability for action in case of default:

25. (1) A stock-broker who-

a. fails to comply with any conditions subject to which registration has been granted;

b. contravenes any of the provisions of the Act, rules or regulations;

c. contravenes the provisions of the Securities Contracts (Regulations) Act, or the rules thereunder;

d. contravenes the rules, regulations or bye-laws of the stock exchange;

shall be liable to any of the penalties specified in sub-regulation (2).

(2) The penalties referred to in sub-regulation (1) may be either-

(a) suspension of registration, after the inquiry, for a specified period; or

(b) cancellation of registration.

Suspension, cancellation of registration

26. (1) A penalty of suspension of registration of a stock-broker may be imposed if:

(i) the stock-broker violates the provisions of the Act, rules and regulations;

(ii) the stock-broker does not follow the code of conduct annexed at Schedule II;

(iii) the stock broker

a. fails to furnish any information related to his transactions in securities as required the Board;

b. furnishes wrong or false information;

c. does not submit periodical returns as required by the Board;

d. does not co-operate in any enquiry conducted by the Board;

(iv) the stock-broker fails to resolve the complaints of the investors or fails to satisfactory reply to the Board in this behalf;

(v) the stock-broker indulges in manipulating or price rigging or cornering activities market;

(iv) the stock-broker is guilty of misconduct or improper or unbusinesslike unprofessional conduct;

(vii) the financial position of the stock broker deteriorates to such an extent that the is of the opinion that his continuance in securities business is not in the interest of and other stock-brokers;

(viii) the stock broker fails to pay the fees;

(ix) the stock-broker violates the conditions of registration;

(x) the membership of the stock-broker is suspended by the stock exchange;

Provided that, the Board for reasons to be recorded in writing may in case of defaults of the type mentioned above impose a penalty of cancellation of registration stock-broker.

(2) A penalty of cancellation of registration of a stock-broker may be imposed if:

(i) the stock-broker violates any provisions of insider trading regulations or regulations;

(ii) the stock-broker is guilty of fraud or is convicted of a criminal offence; and i. cancellation of membership of the stock-broker by the stock exchange;

249. The Appellants have contested SEBI's power under regulation 13 of the FUTP Regulations order cancellation of the registration on the basis of the findings rendered in the impugned According to them SEBI has passed the order for violation of the provisions of the Stock Regulations and FUTP Regulations. According to the Appellants penalty of cancellation registration of Stock Broker/Sub Broker can be imposed only on the three grounds stipulated under regulation 26(2) of the Stock Broker Regulations, that in the instant case Appellants have not been charged with or found guilty of indulging in fraud, the certificate registration can not be cancelled. In this context Shri Dwarkadas had argued elaborately, referring to the provisions of regulations 25, and 26 of the Stock Broker Regulations. also cited authorities, which I have referred to in the earlier part of this order while setting his arguments, in support of his contention that the penalty of suspension or cancellation imposed as per the guidelines provided in regulation 26 only. In this context referring regulation 26(1)(v) the learned Senior Counsel had submitted that the said regulation specifically provides for the suspension of registration in the event of a broker/sub indulging in manipulation or price rigging in the market (which is the charge/finding against Appellants in the present case), that though market manipulation and fraud are both covered the FUTP Regulations, different penalties have been prescribed in Regulation 26 manipulation entails suspension of registration, fraud entails cancellation of registration, different punishments of suspension and cancellation have obviously been provided for, basis of the seriousness of the charge/violation. Referring to the expression ‘intermediary in Regulation 13, Shri Dwarkadas stated that Stock Brokers and Sub Brokers are not market intermediaries, and there are several market intermediaries (referred to in section the SEBI Act) and their activities are regulated by separate set of Regulations notified that an examination of these Regulations will show that SEBI had consciously specific situations in which the registration of a particular intermediary may be cancelled suspended, that these provisions are intermediary centric and offence specific, that it is that while prescribing the situations/eventualities in which the registration of an intermediary may be suspended or cancelled, the functions of the intermediary committing a violation, the consequences on the intermediary etc. have been taken into consideration. of an example he had cited regulation 23 of the SEBI (Foreign Institutional Investors) Regulations, 1995 which provide for cancellation of certificate of registration of an indulging in market manipulation, that for the same offence, in terms of regulation 26(only suspension of certificate of registration has been provided. He had further submitted the provisions of Regulation 25 are general provisions conferring upon SEBI the general to impose the penalty of suspension or cancellation of registration, Regulation 26 prescribes situations/conditions under which the penalty of suspension or cancellation of registration be imposed, that Regulation 26 contains the guidelines to be followed by SEBI while a penalty of suspension or cancellation of registration and such penalties imposed by strictly in accordance with the provisions of Regulation 26. According to him this is further out of the fact that regulation 26 covers all the situations listed in Regulation 25(1). Senior Counsel had submitted that this is the only harmonious construction that can be on regulations 25 and 26 and the only construction by which the provisions of regulations and 26 and the only construction by which the provisions of regulations 25 and 26 will full effect and rendered workable.

250. Shri Rafiq Dada, Learned Senior Counsel for the Respondent countering the Appellants submissions on the power under Regulation 13 submitted that Stock Broker Regulations general Regulation, regulating the activities of the Stock Brokers and Sub Brokers provides the consequences that would visit them on violation of the requirements stipulated therein. He submitted that there was no specific Regulation relating to fraudulent and trade practices committed by the Brokers, and till such time the FUTP Regulations were in, sections 11 and 11B which provide adequate power to SEBI, were invoked to deal fraudulent and unfair trades practices indulged in by any person including Stock Brokers Sub Brokers, that FUTP Regulations was notified on 25.10.1995 Learned Senior submitted that FUTP Regulations by itself is a complete code relating to Fraudulent and Trade practices. It provides for prohibiting the fraudulent and unfair trade practices. The to person who indulges in the fraudulent and unfair trade practices is provided in the Regulation itself, that it is a self contained regulation and that SEBI's power to impose penalties directions under the said Regulation is not subject to the provisions of any other Regulations. Learned Senior Counsel referred to regulation 13 of the FUTP Regulations and submitted SEBI is empowered to suspend or cancel the certificate of registration of the concerned intermediary and with a view to avoid repetition, the Regulation has made a cross reference the procedure to be followed as specified in the Regulations applicable to intermediaries, before suspending or cancelling the certificate of registration granted to terms of section 12 of the SEBI Act. He submitted that deciding punishment is based gravity of the offence and that decision is always left to the authorities imposing the that no guidelines as such are required for deciding the quantum of punishment/nature punishment, as provided in the law. According to the learned Senior Counsel, since Regulations by itself is a complete code, no other guidelines need be referred to, and one restrict the power under FUTP Regulations and go to the Stock Broker Regulations. In of his submission he cited certain authorities which I have set out in the earlier part of this Learned Senior Counsel referring to the Appellants' submission that the penalty suspension/cancellation of intermediaries the applicable regulation for imposition of penalty suspension/cancellation should be those Regulations. Shri Dada submitted that Regulations is not intermediary specific but it is offence specific and for the violation provisions of the said Regulations, the penalty provided therein is to be imposed and penalty provided elsewhere. He had submitted that the fact even insider trading regulations takeover regulations did not provide for cancellation of registration or suspension of registration of an intermediary, does not mean that if any intermediary is found to be guilty of indulging insider trading its certificate of registration can not be suspended or cancelled. He submitted it is under regulation 13 of the FUTP Regulations such intermediaries can be awarded punishment of suspension or cancellation of their certificate of registration. Learned Counsel submitted that regulations 25 and 26 of the Stock Broker Regulations do not in curtail the powers of SEBI under regulation 13 of the FUTP Regulations.

251. I have given considerable thought to the rival contentions on the powers of SEBI suspension/cancellation of the certificate of registration granted to the intermediaries, on those intermediaries guilty of violating the provisions of FUTP Regulations. The principles to be followed in inflicting penalties have been provided by the Hon Court in several cases. To quote one such decision is that of Ranjit Thakur's case (AIR 2386). The Hon'ble Court in the said case has observed that the sentence has to suit the and the offender, that it should not be vindictive or harsh and it should not disproportionate to the offence as to shock the conscience and amount in itself to conclusive evidence of bias. The Hon'ble Court had further held that the penalty imposed commensurate with the gravity of the misconduct and that any penalty disproportionate gravity of the misconduct would be violative of Article 14 of the Constitution.

252. SEBI's power to suspend or cancel the certificate of registration of an intermediary registered with it flows from section 12(3) of the SEBI Act. In terms of the said section “the Board by order suspend or cancel a certificate of registration in such manner as may be determined the regulations. Provided that no order under this sub section shall be made unless the concerned has been given a reasonable opportunity of being heard.” In this context it noted that the power to suspend or cancel the certificate of registration is vested in SEBI be determined by regulations. The only rider is that before issuing the order, SEBI has the concerned intermediary a reasonable opportunity of being heard — i.e a requirement comply with the rules of natural justice.

253. FUTP Regulations, in my view is a self contained Regulation. It's objective is to fraudulent and unfair trade practices relating to securities market. It's scope and reach restricted only to Stock Brokers and Sub Brokers. Any person indulging in Fraudulent Unfair Trade Practices relating to Securities Market is amenable to the provisions of the Regulations. But the power to suspend or cancel the certificate of registration can not go the entities (intermediaries) mentioned in section 12. The persons, who do not certificate of registration can also indulge in fraudulent and unfair trade practices.

254. It is in the said context one is required to consider the scope of regulation 13. As stated SEBI is empowered “to initiate action for suspension or cancellation of registration intermediary holding a certificate of registration under section 12 of the Act.” This subject to what is stated in the proviso that “no such certificate of registration shall be suspended or cancelled unless the procedure specified in the regulation applicable to such intermediary complied with”. The said mandatory provision requiring compliance of the procedure in the relevant regulation is nothing but a reiteration of the requirement of the proviso to 12 requiring compliance of the requirements of the principles of natural justice. In my cross reference to comply with the specific procedure preceding cancellation/suspension certificate of registration available in the regulations applicable to intermediaries, is only view to avoid undue burdening of the Regulation by repealing those requirements in the FUTP Regulations and such cross references in the Regulations are very common. noted that SEBI has now codified the procedure for holding enquiries vide Securities Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Penalty) Regulations, 2002, and the same is applicable to all intermediaries including Brokers and Sub Brokers.

255. I have noted the argument advanced by Shri Dwarkadas that since regulation 26 clarifies offences for imposing the penalty of suspension and cancellation, the Respondent has the guidelines provided in the said Regulation. But I find difficult to agree with his submission that for violation of FUTP Regulations, penalty of suspension or cancellation of certificate registration be made only as per the provisions of regulation 26.

256. Regulation 26(1) inter alia provided that a penalty of suspension of registration of broker may be imposed, if a Stock broker violates the provisions of the SEBI Act, regulations, and the Stock Broker indulges in manipulating or price rigging or activities in the market. One of the grounds for cancellation provided in regulation 26 “the Stock Broker is guilty of fraud, or if convicted of a criminal offence.”

257. On a careful perusal of the FUTP Regulations, I find that its scope is much wider than regulation 26 that it is not confined to manipulating or price rigging or cornering activities. It could from the scheme of the FUTP Regulations that it deals with “Fraudulent and Unfair Practices”. All the unfair trade practices need a not necessarily be fraudulent trade though all the fraudulent trade practice could be unfair trade practices. In this context noted that the FUTP Regulations has recognised this distinction as could be seen Regulation itself. Regulation 3 Prohibits persons buying or selling or otherwise dealing securities in a fraudulent manner. Expression “fraudulent” has been defined in regulation. The said definition has been set out in the earlier part of this order. Regulation Prohibition against market manipulation. The Appellants in the instant case have been for violating the said Regulation (4). Regulation (5) is on prohibition of misleading statements to induce sale or purchase of securities Regulation 6 is on prohibition of unfair trade relating to securities.

258. It is thus clear that the FUTP Regulations' coverage is much wider and the offences for penalty of suspension/cancellation provided in regulation 26. Regulation 26 is not exhaustive take care of all the offences under the said Regulations. If the Appellants' stand is taken penalty of suspension/cancellation can be imposed only in terms of regulation 26, that to a situation whereunder SEBI will not be in a position to award penalty or suspension Stock Broker or Sub Broker for an offence not covered under regulation 26(1) or 26 (argument that are no guidelines to decide the nature of the penalty in regulation therefore the provisions as such are arbitrary, in my view, is not tenable. It is not uncommon provide alternate penalties to meet several offences and as to what should be the penalty the alternative, is left to the discretion of the authority imposing the penalty. The position clear from section 24 of the SEBI Act. The said section is extracted below.

“24(1) Without prejudice to any award of penalty by the adjudicating officer under Act, if any person contravenes or attempts to contravene or abets the contravention the provisions of this Act or of any rules or regulations made thereunder he punishable with imprisonment for a term which may extend to one year, or with or with both”.

259. The legislature has not provided any guidelines except capping the term of imprisonment. the maximum fine leviable has not been stipulated. In what circumstances, penalty imprisonment is to be awarded and in what circumstances fine is to be imposed and circumstances both imprisonment and fine can be imposed, are left to the discretion of No doubt the authority imposing the penalty can not impose the same whimsically. It context one has to look for the guidance given by the Hon'ble Supreme Court in Ranjit case referred earlier — that the penalty imposed must be commensurate with the gravity misconduct and that any penalty disproportionate to the gravity of the misconduct would violative of Article 124 of the Constitution.

260. For the reasons stated above I am of the view that SEBI is empowered to award the penalty suspension or cancellation of the certificate of registration granted to the Appellants establishing violation of the FUTP Regulations. Whether in a particular case suspension cancellation is warranted would depend up on the offence for which the penalty imposed.

261. Having come to the conclusion that the impugned order is not time barred and that competent under regulation 13 of the FUTP Regulations to award penalty of cancellation certificate of registration of Stock Brokers/Sub Brokers now let us examine as to whether charges levelled against the Appellants have been established. The Respondent in its enumberated the findings of the Enquiry Officer based on which the Respondent had issued show cause notice to the Appellants. Entitywise charges have been stated in the order. reference purpose I have grouped the charges in some cases. Some of these charges subsequently dropped. In this order, at the appropriate context I have referred to the same.

262. There is a common charge against all the 4 Appellants that they had indulged in large transactions in the selected scrips (specifically mentioned in the order) with a view to artificially the prices of these scrips between mid February and mid March 2001 in a concerted manner. In the case of NBS, BEB it has been specifically stated that they acted in concert each other in effecting large scale transactions in the scrips of Global Tele, HFCL, Satyam, DSQ and Zee Telefilms.

263. NBS has been charged also on two other counts i.e

i. Dealing with unregistered sub brokers viz. Money Growth Investments and Arihant Investments

ii. Indulging in short sales after 8.3.2001 in violation of SEBI circular dated 7.3.2001 In the case of BEB the other charges are that

(i) Two lakh shares of Global Tele were sold when share prices registered substantial fall.

(ii) Indulged in synchronized trades with First Global Stock Brokers (FGSB) the price, quantity etc were matched and which in turn is a manipulative practice.

iii. Dealing with Palombe, an unregistered sub broker.

iv. Indulging in short sales after 8.3.2001 in violation of SEBI Circular dated 7.3.2001

264. In the case of Bama the other charges are:

i. Dealing in securities in a structured manner in time slots.

ii. Acted in concert with Bang Securities (BSL) for indulging in simultaneous sales scrips of Infosys, Reliance and Satyam on the specified dates.

265. In the case of Bang Securities

266. Apart from the charge that it was indulging in large trading transactions in selected scrips view to depress artificially the prices of those securities, it has also been alleged that they in concert with Bama for indulging in simultaneous sales in the scrips of Infosys, Reliance Satyam on the specified dates.

267. It is noted that the four Appellants are owned, managed and controlled by Bang family. the Appellants themselves have described them as “Bang Entities”. The fact that separate entities in the eyes of law, does not change their basic character of Bang family. It can be safely concluded that the controlling mind of these 4 entities are common. But they had acted in a concerted manner so as to depress the market is a question of fact we will come later.

268. The Respondent in its order has stated that the Bang entities have “indulged in large transactions with a view to depress artificially in a concerted manner”, short sales, synchronized trading, trading in particular time slots when the share prices registered substantial fall, of large transactions through unregistered sub brokers and guilty of violating the Conduct specified in Schedule II of the SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 and Regulation 4(a) to (d) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 1995”.

269. I agree with the Appellants' submission that if the Enquiry Officer's findings alleging of regulation 4 of the FUTP Regulations on the ground that the Appellants had intentionally brought down the market, to establish the charge the Respondents have to bring on requisite evidence to show:

(i) that the Appellants' transactions resulted in a fall in shares

i. that such fall in price was artificial

ii. that the intention behind effecting such transactions was to manipulate prices

iii. that they thereby induced the sale or purchase of securities by any person.

270. Market manipulation being a serious charge, the consequences that would visit the manipulation on proving the charge is quite harsh, reasonably convincing evidence need be brought establish the charge. Surmises and conjuctures are not enough.

271. The common charge, as stated earlier, applicable to all the 4 Appellants is that of indulging large trading transactions with a view to depress the market artificially in a concerted During the course of the arguments it was stated that “Bulls” & “Bears” operate in market. According to the Glossary of Capital Market published by SEBI (June 1991) means “An operator who first buys and then sells shares”. An investor who is buying because feels price will go up in that share or the general market price will rise. A “Bull Market rising market with abundance of buyers and relatively few sellers” “Bear” means “A market operator who expects the market price of shares to decline”. The term also refers one who has sold shares which he does not possess, in the hope of buying them back at price, when the market price of the shares come down in the near future. A “Bear Market weak or falling market characterised by the dominance of Sellers”. It was alleged Respondent that the Appellants operated in Bear Market. SEBI in its order has attempted down the Appellants mainly on the ground that they were sellers. SEBI seems to have the notion that selling in a falling market is a market manipulation. It is not selling per the intention of the seller that would decide as to whether he was indulging in manipulation. Selling scrips in a falling market, with no intentin of manipulation, in my view can not regulation 4.

272. I have perused the data furnished by the Appellants and the Respondents with reference allegation of large trading transactions by the Appellants with a view to depress the market. Appellants have denied the charge of large trading transactions and also the allegation concerted action by them. Since I have already set out the data relied on by the parties regards in the context of their respective submissions recorded in the earlier part of the do not propose to reproduce the same here. I have examined those data with reference observation made by the Respondent in respect of the transactions in each scrip stated order. It is seen from the data before me that the percentage of the transactions carried out Appellants with reference to the total transactions in each of the select securities is very as to have any material impact on the price of the scrips. This is supported from the information furnished by the Appellants (which SEBI has not disputed) in respect of the equity capital market capitalization of the concerned scrips together with the average traded volume select stocks. As per the said information furnished by them volume of trade effected Appellants as % of the total volume traded on the exchange was — Global Tele 2.55%, DSQ 3.13%, Zee Tele — 3.89%, Wipro — 2.74%, Satyam — 3.45%, MTNL — 3.89%, Infosys — 4.33%, Sterlite — 3.16%. It is noted that SEBI has in its order stated “index movements of stock exchanges showed excessive volatility especially during February to mid March 2001.” But it is not even the case of SEBI that there was any conspiracy or complicity between the Appellants and any other brokers to deliberately bring down have also perused the transactions effected by the Appellants, as revealed in the material me and the price movement. But I do not find any correlation between the nature transactions and the price movements. It is noted that in certain cases when the Appellants buying shares, the price of the scrip was falling and in certain cases when the scrips were by the Appellants, prices were going up. I have also made an attempt to find out whether was any particular pattern to suggest that the transactions were designed to influence the but I could not see any such pattern in the transaction. There were instances when prices fallen when the Appellants were buying, but there were also instances when prices were up when the Appellants were selling. It is also seen that the Appellants are brokers (except Securities Ltd.). Their submission is that they are essentially “discount brokers” i.e capacity as a broker, they merely execute orders placed by various clients, without contributing to the investment decision of the client in respect of whether or not to acquire or sell whether or not the price at which order is placed appropriate, that no advice of any provided to any client, which in fact, takes the investment decision without being influenced the Appellants. In this context it is to be noted that in terms of clause B(1) of the Conduct applicable to Stock Brokers ‘A stock broker in his dealings with the clients general investing public shall faithfully execute the orders for buying and selling of securities the best available market price….’. In the normal course, the Broker acts only as an agent client. To prove that the Broker was deciding the transactions for the client, one has to evidence. SEBI has not produced any evidence to show that the transactions done Appellants were in their own account or on clients' account. The learned Senior Counsel Respondent had submitted that the Appellants' conduct has to be viewed from their conduct. I have not missed this submission. But the material on record do not support learned Senior Counsel's submission that in the totality of the facts and circumstances Appellants could be considered to have indulged in large trading transactions to depress market.

273. Undertaking large trading transactions, following the rules and regulations and complying safety requirements, by itself is not something irregular or undesirable. But if it is established that the motive behind such transaction is to artificially depress the market then it is manipulation prohibited by the FUTP Regulations. There are two aspects which need in this regard — i.e whether the traded volume was large enough to have an impact market and (2) whether large transactions that could affect the market was effected motive of manipulating the market. In this context I would like to state that not only artificially depressing the market is a manipulation, but artificially raising the market is also a manipulation. The crucial factor in deciding whether their trading was to manipulate the market, underlying intention of the Stock Broker. The test of evidence need not be the litmus Intention can not be established that easily in such cases. But there should be some reasonable and convincing evidence to prove the motive. “Belief” however, benign and genuine, can a substitute for evidence. I have already discussed the case of evidence required to prove charge of manipulation in the case of Videocon. The relevant extract from the said decision already been provided in the earlier part of the order. The scope of regulation 4(a) to FUTP Regulations has also been stated in the earlier part of the order. The test of evidence establish the charge of market manipulation is a realistic one. SEBI has failed to satisfy test. In the absence of adequate evidence to show that the Appellants had indulged in large transaction with a view to depress the market, this charge fails. On mere suspicion and inference, it can not be held that the Appellant had transacted in securities with the intention hammering down the price of the scrips. On the contrary the Appellants had demonstrated their reply that fall in prices of shares at that time was not peculiar to Indian market, that global phenomenon, that the trend noticed in Indian markets was in tune with the global am not endorsing this view; neither I am ignoring. In any case since the Appellants had such an argument, it was for SEBI to disprove that version, which SEBI has not done. like to make it clear in this context that my finding that the charge under discussion stick is based only on the basis of the limited material available before me.

274. Trading by Bama

275. It has been alleged that the trading pattern of Bama on 22, 23 and 28 February and 1 March in the scrips of Global Tele, HCL, Satyam, Silverline, Zee and Wipro showed that was a consistent net seller. The Appellant has questioned the data on the ground that do not represent the true position. I do not consider that it is necessary to go into the further, as the motive of Bama has not been established. In fact the Respondent itself is in the matter as could be seen from the statement that “the net sales position of to have contributed to the artificial depression of price of these scrips during the period.”

276. The Respondent had alleged that NBS had transacted with two unregistered firms Money Growth Investments and Arihant Investments and BEB with another unregistered viz. Palombe. The Appellants have disputed the charge. It seems that SEBI itself recognised those three companies as unregistered sub broker. As I could see from the SEBI had started its investigation into the business transactions in the year 2001. Certainly must have examined the role of the said so called unregistered Sub brokers. According (d) of the SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 (Broker Rules) broker “means any person not being a member of a Stock Exchange who acts on behalf stock broker as an agent or otherwise or assisting the investors in buying, selling or dealing securities through such stock brokers”. In terms of rule 3 “No stock broker or sub broker buy sell or deal in securities unless he holds a certificate granted by the Board under Regulations”. Procedure for registration is provided in regulation 12 of the Stock Regulations as follows:

12(1). The Board on being satisfied that the sub broker is eligible shall grant a certificate Form E to the sub broker and send an intimation to that effect to the stock exchange exchanges as the case may be;

(2) The Board may grant a certificate of registration to the applicant subject to the terms conditions as stated in rule 5

277. In this context it is to be noted that SEBI is empowered under section 24 of the SEBI Act criminal prosecution against those persons who contravene the provisions of the SEBI any rules or regulations made thereunder. Violation of the requirements under the Broker requiring sub broker to get registered is an offence in terms of section 24 of the Act. If that sure that the entities namely Money Growth Investments and Arihant Investments Palombe are unregistered sub brokers why SEBI did not take any action against them. not produced any evidence to the effect that these entities are unregistered sub brokers they had indulged in transactions without getting proper registration from SEBI, proceeded against them in terms of section 24, at least. SEBI has not even stated that issued a show cause notice in this matter to them. If there are any reasons for not proceeding against them, the same has not been stated. The inference that could be drawn in this context that SEBI itself appears to be unsure as to whether those three entities are actually unregistered sub brokers. If SEBI had any tangible evidence to support the version put in the impugned holding those three entities as unregistered sub brokers, there was no reason for SEBI proceed against them for violation of the Broker Rules. Since the Appellants had SEBI's version that those entities are unregistered sub brokers, all the moreit was for prove that they are unregistered sub brokers. In fact SEBI in its order has gone to the saying that “It is not shown by the member that Palombe is one such person with brokerage can be shared in terms of the proviso to bye law 218(a) of BSE or Palombe disqualified person for sharing brokerage in terms of the proviso to the bye law 218(a)” for the Respondent, which has leveled the charge that BEB had transacted through which allegedly is an is an unregistered sub broker, to prove the charge and not Appellant to prove as suggested in the order. About the other two entities NBS those entities had represented to it as clients remains unrebutted. There is nothing on substantiate the charge that NBS and BEB had made huge transactions through unregistered brokers, so as to view that they had violated the Stock Broker Regulations as alleged Respondent.

278. SEBI banned short sales by its circular dated 7.3.2001 Till 7.3.2001 there was no prohibition short selling provided it was not meant to manipulate the market. But SEBI banned short with effect from 8.3.2001 This circular was issued as a risk management measure in the of the then prevailing market condition. Such prohibition was put in position at that protect the interests of the investors and the securities market. So violation of the banning short sales is a very serious matter. The fact that NBS and BEB had indulged sale after 8.3.2001 is born out of records NBS & BEB indulged in short sales between and 31.3.2001 to the extent of Rs. 2.31 crores and 3.05 crores. The Respondent has established the charge. The Appellants have only explained the circumstances under which had short sold the securities. I am not convinced by the explanation. Since the charge established, there is no escape from the consequences that should visit the Appellants flouting the SEBI's direction in its letter dated 7.3.2001

279. The charge of selling two lakh shares of Global Tele when share prices registered fall against BEB has been given up.

280. BEB has been charged for synchronized deals with First Global. I have examined provided by the parties on this issue. I find many transactions between BEB and FGSB. are many instances of such transactions. I find the scrip, quantity and price for these orders been synchronized by the counter party brokers. Such transactions undoubtedly create artificial market to mislead the genuine investors. Synchronized trading is violative prudential and transparent norms of trading in securities. Synchronized trading on a large can create false volumes. The argument that the parties had no means of knowing whether entity controlled by the client is simultaneously entering any contra order elsewhere reason that in the online trading system, confidentiality of counter parties is ensured, untenable. It was submitted by the Appellants that it was not possible for the broker who the counter party broker is and that trades were not synchronized but it was coincidence in some cases. Theoretically this is OK. But when parties decide to synchronize transaction the story is different. There are many transactions giving an impression that were all synchronized, otherwise there was no possibility of such perfect matching of price etc. As the Respondent rightly stated it is too much of a coincidence over too long in too many transactions when both parties to the transaction had entered buy and sell orders the same quantity of shares almost simultaneously. The data furnished in the show cause certainly goes to prove the synchronized nature of the transaction which is in violation regulation 4 of the FUTP Regulations. The facts on record categorically establishes had indulged in synchronized trading in violation of regulation 47 of the FUTP Regulations. synchronized trading intention is implicit.

281. Bama has been charged for effecting sales in time slots. I have gone through the data for the purpose, as available on record. The Respondent has established with proof that time slots by Bama had contributed to the decline in the share prices. The following table illustrates the case.

Scrip Date Time From Time To Minutes Sales % of market Global Tele 23-2-01 15:04 15.14 0.10 85655 11.68 Global Tele 2-3-01 1233 12.41 0.08 49315 9.74 Satyam 1-3-01 14.13 14.33 0.20 155744 5.01% Satyam 2-3-01 10.57 11.05 0.08 62714 3.97% Satyam 2-3-01 13.17 13.53 0.36 63979 2.56% SSI 2-3-01 13.41 13.54 0.13 9955 14.79% SSI 2-3-01 12.32 13.01 0.29 19450 11.13% WIPRO 1-3-01 13.33 13.41 0.08 9026 15.46% Zee Tele 23-2-01 12.26 12.32 0.09 76279 2.33% Zee Tele 1-3-01 12.53 13.56 1.03 129478 6.52% Zee Tele 2-3-01 12.00 12.22 0.22 116932 7.04%

282. I have considered the explanation given by the Appellants. But I am not convinced by in my view the Respondent has established its case. These transactions in my view had contributed to the price fall. The Appellant BEB, by the very nature of the transaction absolve itself of the involvement in the transaction. Intention is reflected from the action Appellant. Choosing selective time slots does not appear to be an involuntary action. saying that these time slot sales were responsible for the market fall. But these time contributed to the market fall. The Respondent had observed that Bama had sales short sales in the specified time slots as given in the show cause notice. Taking into account quantum of shares sold, the fall in price of the shares during the time slots had concluded the data support the charge that the member had sales including short sales during specific bands and caused fall in the price.

283. The charge against Bang Securities which is a sub broker is that of indulging in excessive to bring down the prices, acting in concert with others, short sale of 2 lakh shares of Global system, receipt of loan of Rs. 5 crores from Palombe and sharing of introductory fees with

284. “The charge of excessive sales to bring down the prices” remains unestablished. examined the data provided in support of the charge which does not establish the charge. as stated earlier, there is no evidence — even an inference to show that the Appellant transacting in securities with a view to depress the market. In the absence of adequate such a serious charge is not to be sustained. For the said reason the charge of acting in also fails. The Enquiry Officer himself has dropped the charge of short sale of 2 lakh Global Telesystem. Similarly the Enquiry Officer has dropped the charge of receiving Rs. 5 crores from Palombe. In these circumstances none of the charges against the Securities P. Ltd., survives.

285. I have taken into consideration all the relevant facts and explanations/submissions of the placed befrore me. The charge that the Appellants had indulged in large trading transactions with a view to depress the market artificially in a concerted manner remains unsubstantiated. From the particulars furnished by the Respondent it is clear that the share prices had certain days in the period covered under investigation, and the price fall was steep on and on certain days thereafter. But the Respondent has attributed the cause of such steep fall to the transactions effected by the Appellants. But considering the Appellants transactions with reference to total volume of the particular scrip traded at the exchanges, those days, it is difficult to believe that such a small percentage of trade with reference volume traded on the stock exchanges would have resulted in such crash in price. SEBI even suggested in their order as to whether others were also involved, and if so there nexus between them and the Appellants, whether the price fall was as as a result conspiracy and if so who are the other players. The impugned order is silent about other who could have contributed to the crash of the market. Perhaps a composite investigation consolidated order with reference to the market upheaval witnessed during the relevant would have been more rewarding than bringing out truncated orders. It is not the number orders that is relevant. It is the stuff of the order that matters. In any case since the Respondent has failed to prove with reasonably convincing evidence the charge of artificially depressing market, the said charge can not be sustained. Once the said charge itself fails, the question whether Bang Entities acted in concert or not becomes academic. The charge of dealing unregistered sub brokers by NBS & BEB also fails for the reason stated earlier. The charge NBS and BEB had indulged in short sales after 8.3.2001 remains established. The charge BEB had indulged in synchronized deals with FGBS also stands established. Also the that Bama's sales in certain picked up time slots had an adverse effect on the market established. No charge against BSL has been established.

286. Respondent has cancelled the certificate of registration of all the Appellants. Perhaps harsh penalty was awarded because of the view it had held that the Appellants had securities with the intention to depress the market. But since the said central charge has be established it is felt that it is not proper to award the penalty of cancellation of certificate registration. Cancellation of Certificate of registration is akin to capital punishment as intermediary is concerned and therefore the same has to be awarded with great care and as certain charges have been established against the Appellants, imposition of commensurate with the gravity of the said charges is justified. They deserve to be punished the proven charges. Taking into consideration all the relevant aspects I am of the view suspension of certificate of registration of NBS for 2 years is adequate. In the case of Bama suspension for a period of 3 years, in my view is reasonabe. Accordingly the order by the Respondent is modified to the said extent. The period of suspension and the cancellation already undergone by the Appellants (NBS, BEB and Bama) will be considered computing the period of suspension now awarded.

287. Since no charge has been established against Bang Securities Pvt. Ltd, no penalty is called its case. Therefore, that part of the order cancelling the certificate of registration granted Securities Pvt. Ltd., is set aside.

288. The appeals are disposed of in the above lines.

Nirmal Bang Securities Pvt. Ltd. v. The Chairman Securities And Exchange Board Of India .

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellants' Arguments

Respondent's (SEBI) Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Nirmal Bang Securities Pvt. Ltd. v. The Chairman Securities And Exchange Board Of India .

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