ORDER
Madhukar, Member
1. Whereas, an investigation was conducted into the unusual price movement in the scrip of Saw Communications Limited (hereinafter referred to as SCL) during the period 01.10.99 to 31.03.00 and it was brought out that the price of the scrip went up from Rs. 19.35/- per share in 01.10.99 to a high of Rs. 106.00/- per share on 04.01.00, and,
2. whereas, there was nothing in the fundamentals of SCL nor there was any corporate developments which could have justified the steep movement in the scrip of SCL, and,
3. whereas, M/s. M S Consultancy Services, Sub-broker (hereinafter referred to as ‘the sub-broker’) to M/s. Acme Share and Stock Brokers Private Limited, Member, The Stock Exchange, Mumbai, (hereinafter referred to as ‘Acme’) had dealt in the scrip of SCL and SFL for Shri Virag K Gandhi, Khambhat. A total of 1,01,700 shares were purchased and 2,11,200 shares were sold by the sub-broker, and,
4. whereas, an enquiry officer was appointed vide an order dated 13.05.03 to inquire into the role of the sub-broker for its dealings in the scrip of SCL for its ultimate client, Shri Viraj Gandhi and to inquire into the violation of the Code of Conduct for Stock Brokers prescribed in Schedule II of Regulation 15 of SEBI (Stock Brokers and Sub-brokers) Regulations, 1992 for failure to exercise due care and skill in its dealings in the scrip of SCL and Regulation 4 of SEBI ( Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995, and ,
5. whereas, the enquiry officer after inquiring into the violations of the member had submitted a report dated 10.02.05, concluded that the sub-broker has failed to exercise due skill, care and diligence and has therefore violated the Code of Conduct for Stock Brokers prescribed in Schedule II of Regulation 15 of SEBI (Stock Brokers and Sub-brokers) Regulations, 1992. Therefore, the enquiry officer recommended that the member be warned, and,
6. whereas, a show cause notice dated 22.03.05 was issued to the sub-broker under Regulation 13(2) of SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002, annexing a copy of the enquiry report asking it to reply within 15 days or else it would be presumed that the member had no explanation to offer and SEBI would be free to take such action as it deems fit, and,
7. whereas, no reply has been received from the sub-broker in response to the show cause notice issued by SEBI, and,
8. whereas, the issue for consideration is whether the sub-broker is guilty of violating the provisions of the provisions of the Code of Conduct for Stock Brokers prescribed in Schedule II of Regulation 15 of SEBI (Stock Brokers and Sub-brokers) Regulations, 1992, by virtue of its carrying out the deals for its ultimate client Shri Viraj Gandhi.
9. I note that the sub-broker was issued a show cause notice on 22.03.05, annexing therewith a copy of the enquiry report, asking him to reply within a period of 15 days thereof. The sub-broker has chosen not to reply to the show cause notice. I am convinced that sufficient opportunity has been accorded to the sub-broker to present its reply, in satisfaction of the principles of natural justice.
10. Now, therefore, I proceed to analyse the issues. I have considered the findings of the enquiry officer in his report dated 10.02.05.
11. I have seen from the investigations that the sub-broker had traded a total of 3,12,900 shares comprising of 1,01,700 shares bought and 2,11,200 shares sold through Acme. The sub-broker had traded for Shri Virag Gandhi, who had contributed to almost 100% of the trades in the scrip of SCL. The value of trades in SCL by Shri Gandhi through the sub-broker constituted about 6.61% of the total value of trades of Shri Gandhi through the sub-broker.
13. Though this does not lead to the conclusion that the sub-broker aided and abetted the price manipulation in the scrip of SCL, but this certainly shows the non-exercise of due skill, care and diligence on the part of the sub-broker in performing its duties and fulfilling its responsibilities as an intermediary in the stock exchange mechanism.
14. Therefore, I am inclined to agree with the view of the enquiry officer that the sub-broker has violated the Code of Conduct for Stock Brokers prescribed in Schedule II of Regulation 15 of SEBI (Stock Brokers and Sub-brokers) Regulations, 1992 by carrying on transactions in the scrip of SCL for Shri Viraj Gandhi.
15. Now, therefore, in exercise of powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 read with regulations 13(4) of SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002, I hereby warn M/s. M S Consultancy Services, sub-broker, (SEBI Registration No. INS 010530116) to M/s. Acme Share and Stock Brokers Private Limited, member, The Stock Exchange, Mumbai to be careful not to carry on activities of the nature executed in the scrip of M/s. Sawaca Communications Limited.
