Securities & Exchange Board Of India vs Kishore R.Ajmera

Civil Appeal No. 2818 of 2008 (SEBI Vs. Kishore R. Ajmera) The respondent-Kishore R. Ajmera is a broker registered with the Bombay Stock Exchange. M/s. Prakash Shantilal & Company is one of the sub- brokers through whom the two clients, namely, Mayekar Investments Pvt. Ltd. and M/s. K.P. Investment Consultancy are alleged to have indulged in matching trades thereby creating artificial volumes in the scrip of one Malvica Engineering Ltd. (MEL) during the period 20.12.1999 to 31.3.2000 and 7.8.2000 to 31.8.2000. The gravamen of the allegations levelled against the sub-broker for which the respondent has been held to be vicariously liable is that during the aforesaid period the two clients, who are related to each other through majority shareholding in the hands of common family members, had through the sub-broker bought 66,300 shares and sold 77,700 shares of MEL during the first period and a total of 32,500 and 28,800 shares of MEL, respectively, during the second period. Not only both the clients were related but they were also beneficiaries of the allotment of the shares made directly by the parent company i.e. MEL. The said allotment incidentally was made out of the shares that were forfeited on account of failure to pay call money by the allottees, following a public offer. The scrip in question was a illiquid scrip where the volume of trading is normally minimal. A note of caution had also been struck by the Bombay Stock Exchange by circulating an advice requiring brokers to be aware of any unnatural (voluminous) trading in any such illiquid scrip. Yet, the transaction in question was gone through by the sub-broker acting through the terminal of the broker i.e. respondent-Kishore R. Ajmera. It is on the said facts that charges of negligence, lack of due care and caution were levelled against the sub-broker and in turn against the broker.

4. Aggrieved, the respondent filed an appeal before the Securities Appellate Tribunal under Section 15T of the SEBI Act. The aforesaid appeal was answered by the learned Tribunal by order dated 05.02.2008 by holding that in the absence of any direct proof or evidence showing the involvement of the sub-broker in allegedly matching the trades and thereby creating artificial volumes of trading resulting in unnatural inflation of the price of the scrip, the charges are not substantiated. The penalty imposed was accordingly interfered with. It is against the said order that the SEBI has filed the present appeal under Section 15Z of the SEBI Act.

6. It is further alleged that in respect of all the transactions buy and sell orders were placed within a time gap of 0 to 60 seconds. The volume of trading in the illiquid scrip being very high and the sequence of the buy and sell orders being in quick succession of time, the respondents have been held guilty of contravening Regulations 4(1), 4(2)(a), 4(2)(b), 4(2)(e), 4(2)(g) and 4(2)(n) of the FUTP Regulations, 1995 and also the provisions of the Code of Conduct Regulations, 1992. Accordingly, monetary penalty of Rs.9,00,000/- for violation of FUTP Regulations, 2003 and Rs.1,00,000/- for violation of the Code of Conduct Regulations have been imposed.

(ii) The client Indumati Goda though required under the relevant norms had not appeared before the respondent at the time of registration for opening an account. The required documents were submitted by one Shri Shirish Shah on his behalf.

(i) to (x) * * *

(xi) Indulging in fraudulent and unfair trade practices relating to securities.

(xii) to (xv) * * * (xvi)Failure to exercise due skill, care and diligence.”

31. In the light of the above discussions, we dismiss the Civil Appeal No.2818 of 2008 (SEBI Vs. Kishore R. Ajmera) and affirm the order dated 05.02.2008 passed by the Securities Appellate Tribunal, Mumbai. Insofar as the remaining appeals are concerned, we allow the same and set aside the orders of the Securities Appellate Tribunal, Mumbai passed in each of the appeals and restore the orders and penalty imposed on the respondents - brokers by the respective orders of the Whole Time Member of the SEBI.

FEBRUARY 23, 2016.