Adjudication Order in respect of Hi-Fi Tradecom Pvt. Ltd. and Sangita Securities Pvt. Ltd.
In the matter of GHCL Ltd.
Page 1 of 14 April 02, 2012
BEFORE THE ADJUDICATING OFFICER
SECURITIES AND EXCHANGE BOARD OF INDIA
[ADJUDICATION ORDER NO. JS/AO–01/2012]
__________________________________________________________________________________
UNDER SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT,
1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND
IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995
In respect of:
1) Hi-Fi Tradecom Private Limited
(PAN – Not Available)
2) Sangita Securities Private Limited
(PAN – Not Available)
In the Matter of: GHCL Ltd.
__________________________________________________________________________________
BACKGROUND
1. Securities and Exchange Board of India (hereinafter referred to as “SEBI”) conducted
investigation in the scrip of GHCL Limited (hereinafter referred to as “the
Company/GHCL”) for the period from February 01, 2006 to March 30, 2006
(hereinafter referred to as the “investigation period”) for trading on the National
Stock Exchange of India Ltd. (hereinafter referred to as “NSE”) and The Bombay
Stock Exchange Ltd. (hereinafter referred to as “BSE”).
2. Price-volume data of the scrip GHCL recorded at NSE and BSE was as below:
(Face value ` 10 per share)
Exchange Open (`) High (`) Low (`) Close (`) Volume
NSE
129.00
(Feb 1, 2006)
167.05
(Mar 23, 2006)
126.15
(Feb 2, 2006)
164.35
(Mar 30, 2006)
2,89,02,331
BSE
128.25
(Feb 1, 2006)
166.55
(Mar 23, 2006)
125.50
(Feb 1, 2006)
163.55
(Mar 30, 2006)
1,27,01,978 Adjudication Order in respect of Hi-Fi Tradecom Pvt. Ltd. and Sangita Securities Pvt. Ltd.
In the matter of GHCL Ltd.
Page 2 of 14 April 02, 2012
3. Major spurt in price was observed from March 08, 2006 where the scrip opened at `
132.95 and increased to ` 167.05 (25.65%) on March 23, 2006 and closed at ` 164.35 on
March 30, 2006. Prior to the investigation period, the scrip traded within the range of `
119 to ` 135 with an average volume of 3,72,085 shares. It traded within the range of `
156 to ` 193 during April 01 – 30, 2006 (immediately after the investigation period)
with an average volume of 1,51,948 shares.
4. It was observed that during the investigation period, a group of clients connected to
each other, i.e., the Jalco Group consisting of the following companies: Hi-Fi
Tradecom Pvt. Ltd. (hereinafter referred to as the ‘Hi-Fi’), Jalco Financial Services Pvt.
Ltd. (hereinafter referred to as the ‘Jalco’), Wilful Finance & Investment Company Pvt.
Ltd. (hereinafter referred to as the ‘Wilful’), Shailaja Finance Ltd. (hereinafter referred
to as the ‘Shailaja’), Signet Suppliers Pvt. Ltd. (hereinafter referred to as the ‘Signet’),
Dhoop Sales Private Ltd. (hereinafter referred to as the ‘Dhoop’), Sangita Securities
Pvt. Ltd. (hereinafter referred to as the ‘Sangita’) and Pathik Merchandise Pvt. Ltd.
(hereinafter referred to as the ‘Pathik’) traded substantially in the shares of the
Company.
5. It was observed that Shri Sanjay Jalan was the promoter of Jalco and Wilful and
introducer of Sangita. Further, Sangita and Hi-Fi had a common address. Jalco also
shared its address with Signet, Dhoop and Pathik. Fund movement was observed
between Jalco and Shailaja. Shri Manohar Ram (Director of Pathik) also had
Directorship in Wilful. Thus, these entities were connected and their trading has been
cumulatively treated as the ‘Jalco Group’. These entities altogether traded 2,08,25,138
shares on gross basis (25.03% for total traded quantity at both the exchanges). It was
observed that these entities traded through multiple brokers, on the NSE and the BSE
and that the Jalco Group which traded substantially in the scrip also executed
synchronized trades within the group. The summary of trades of the Jalco Group was
as below:
NSE BSE
Client Name Buy
Qty (%) Sell Qty (%) Buy Qty (%) Sell Qty (%)
Jalco 6088015 21.06 4484993 15.52 269239 2.12 4384889 34.52
Wilful 2028212 7.01 1174962 4.07 21116 0.17 625000 4.92
Signet 210000 0.73 210000 0.73 0 0.00 0 0.00Adjudication Order in respect of Hi-Fi Tradecom Pvt. Ltd. and Sangita Securities Pvt. Ltd.
In the matter of GHCL Ltd.
Page 3 of 14 April 02, 2012
Dhoop 25000 0.09 44637 0.15 0 0.00 0 0.00
Pathik 0 0.00 253811 0.88 0 0.00 15000 0.12
Shailaja 179508 0.62 0 0.00 86511 0.68 0 0.00
Hi-Fi 124245 0.43 285000 0.99 0 0.00 15000 0.12
Sangita 285000 0.99 0 0.00 15000 0.12 0 0.00
Total 8939980 30.93 6453403 22.33 391866 3.09 5039889 39.68
6. It was observed that Sangita bought 3,00,000 (2,85,000 at NSE and 15,000 at BSE)
shares of the Company during February 23 – March 3, 2006, in which 2,96,357 shares
(2,82,256 at NSE and 14,101 at BSE) were bought from Hi-Fi. It was also observed that
all these 20 trades were synchronised wherein time gap between placing buy orders
and sell orders were 0-7 seconds and quantity and rate were also identical. It was
further observed from the account opening forms of Sangita (India Infoline) and Hi-Fi
(Indiabulls) that Mrs. Sangita Jhunjhunwala and Mrs. Suruchi Jhunjhunwala, the
directors of Sangita, were the family members of Smt. K D Jhunjhunwala who had
directorship in Hi-Fi.
7. It was observed that two promoter entities of the Company, Carissa Investment Pvt.
Ltd. (hereinafter referred to as the ‘Carissa’) and ILAC Investment Pvt. Ltd.
(hereinafter referred to as the ‘ILAC’) transferred shares as well as funds to the Jalco
Group during the investigation period when Jalco group was trading substantially
which created volume. It was also observed that Jalco shared common address with
Carissa and ILAC. It was further observed that Shri V K Mehta was director of Dhoop
and also of Carissa.
8. It was alleged that the Jalco Group received shares from the promoter entities and
they traded in the market substantially in the shares of the Company which created
artificial volume and subsequently transferred shares to the promoter entities. It was,
inter-alia, alleged that Hi–Fi and Sangita as a part of the Jalco Group executed
synchronised trades and traded among the group during the investigation period
without any intention to effect transfer of beneficial ownership. It was further alleged
that Hi–Fi and Sangita alongwith other entities of the Jalco Group, employed as well
as aided and abetted in employing manipulative trade practices which led to creation
of artificial volumes and impacted the price of the scrip of the Company during the
investigation period. Adjudication Order in respect of Hi-Fi Tradecom Pvt. Ltd. and Sangita Securities Pvt. Ltd.
In the matter of GHCL Ltd.
Page 4 of 14 April 02, 2012
APPOINTMENT OF ADJUDICATING OFFICER
9. The undersigned was appointed as the Adjudicating Officer vide Order dated June 18,
2009 and the said appointment was conveyed vide proceedings of the Whole Time
Member dated June 29, 2009 to inquire into and adjudicate under Section 15 HA of the
SEBI Act, 1992, the alleged violation of provisions of Regulation 4(1), 4(2) (a), (b) and
(g) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities
Market) Regulations, 2003 (hereinafter referred to as “PFUTP Regulations”).
SHOW CAUSE NOTICE, HEARING & REPLY
10. A Show Cause Notice (hereinafter referred to as “SCN”) in terms of the provisions of
Rule 4(1) of SEBI (Procedure for Holding Inquiry and Imposing Penalties by
Adjudicating Officer) Rules, 1995 (hereinafter referred to as “Adjudication Rules”)
was issued to Hi–Fi and Sangita on November 30, 2009, calling upon to show cause
why an inquiry should not be held against them under Rule 4 of the Adjudication
Rules for the alleged violations.
11. The aforesaid SCN was sent to Hi-Fi which returned undelivered and therefore the
same was resent alongwith Hearing Notice dated June 16, 2010 vide which an
opportunity of personal hearing was given to Hi-Fi which was scheduled for June 28,
2010, which was duly delivered to Hi-Fi. Since Hi-Fi failed to avail the opportunity of
personal hearing, vide Hearing Notice dated August 03, 2010 another opportunity
was granted to Hi-Fi on August 27, 2010. However, Hi-Fi failed to avail the
opportunity of personal hearing scheduled on August 27, 2010. Thereafter, another
opportunity of personal hearing was given to Hi-Fi on September 02, 2010 vide
Hearing Notice dated August 27, 2010 which Hi-Fi once again failed to avail. One
more opportunity of personal hearing was given to Hi-Fi on September 22, 2010 vide
Hearing Notice dated September 02, 2010 which Hi-Fi failed to avail.
12. Since no reply was received from Hi-Fi, another opportunity of personal hearing was
granted on October 29, 2010 vide Hearing Notice dated October 14, 2010. Shri R K
Dhaniwal, Authorised Representative (hereinafter referred to as “AR”) of Hi-Fi
attended the hearing on the scheduled date and requested for a copy of the SCN Adjudication Order in respect of Hi-Fi Tradecom Pvt. Ltd. and Sangita Securities Pvt. Ltd.
In the matter of GHCL Ltd.
Page 5 of 14 April 02, 2012
which was provided to the AR. Subsequently, Hi-Fi submitted its reply vide letter
dated November 12, 2010 and inter-alia made the following submissions
(a) It was denied that Hi-Fi was related / connected / associated with the Jalco Group in
any manner and it made a strong objection to being referred to as the ‘Jalco Group’.
(b) All transactions were open market purchase and sale and it was denied that just
because one of the directors of Hi-Fi was a relative of the directors of Sangita, the
transactions were synchronized, as both the entities were separate legal entity.
(c) It was submitted that Hi-Fi had given a detailed reply to letter no.
IVD/ID6/BM/MR/GHCL/135956/2008 dated 25.08.2008 and hence it was denied that
Hi-Fi had not offered comments on its trading.
(d) Hi-Fi had dealt in many other securities during the period of investigation including
the shares of GHCL and all trades were open market transactions and Hi-Fi had not
adopted any type of malpractices or unfair trading in any of the securities.
(e) It was denied that Hi-Fi had violated any of the provisions of the PFUTP regulations
or the provisions of the SEBI Act, as alleged.
13. The aforesaid SCN was sent to Sangita. However, as no reply was received, Hearing
Notice dated June 16, 2010 vide which an opportunity of personal hearing was given
to Sangita which was scheduled for June 28, 2010. Since Sangita failed to avail the
opportunity of personal hearing, vide Hearing Notice dated August 03, 2010 another
opportunity was granted to Sangita on August 27, 2010. However, Sangita failed to
avail the opportunity of personal hearing scheduled on August 27, 2010. Thereafter,
another opportunity of personal hearing was given to Sangita on September 02, 2010
vide Hearing Notice dated August 27, 2010 which Sangita once again failed to avail.
One more opportunity of personal hearing was given to Sangita on September 22,
2010 vide Hearing Notice dated September 02, 2010 which Sangita failed to avail.
14. Since no reply was received from Sangita, another opportunity of personal hearing
was granted on October 29, 2010 vide Hearing Notice dated October 14, 2010. Shri R K
Dhaniwal, AR of Sangita attended the hearing on the scheduled date and requested
for a copy of the SCN which was provided to the AR. Subsequently, Sangita
submitted its reply vide letter dated November 12, 2010 and inter-alia made the
following submissions Adjudication Order in respect of Hi-Fi Tradecom Pvt. Ltd. and Sangita Securities Pvt. Ltd.
In the matter of GHCL Ltd.
Page 6 of 14 April 02, 2012
(a) It was denied that Sangita was related / connected / associated with the Jalco Group
and its promoters in any manner and it made a strong objection to being referred to as
the ‘Jalco Group’.
(b) All transactions were open market purchase and it was denied that just because of the
directors of Sangita were relative of a director of Hi-Fi, the transactions were
synchronized, as both the entities were separate legal entity carrying the business at
their own.
(c) It was submitted that Sangita had given a detailed reply to letter no.
IVD/ID6/BM/MR/GHCL/135956/2008 dated 25.08.2008 and hence it was denied that
Sangita had not offered comments on its trading.
(d) Sangita had dealt in many other securities during the period of investigation including
the shares of GHCL and all trades were open market transactions and Sangita had not
adopted any type of malpractices or unfair trading in any of the securities.
(e) It was denied that Sangita had violated any of the provisions of the PFUTP regulations
or the provisions of the SEBI Act, as alleged.
15. Vide letters dated November 12, 2010, Hi–Fi and Sangita had also requested for
another opportunity of personal hearing which was acceded to and accordingly vide
Hearing Notices dated July 27, 2011 opportunity of personal hearing was granted to
Hi–Fi and Sangita which was scheduled on August 17, 2011. However, Hi–Fi and
Sangita failed to avail the opportunity of personal hearing on the scheduled date, i.e.,
August 17, 2011. In this regard, I note that sufficient time and opportunities were
given to Hi–Fi and Sangita to appear for personal hearing and make submissions in
this matter in compliance with the principles of natural justice. I further note that till
date, Hi–Fi and Sangita have not made any further submissions before me. Therefore,
I note that the principles of natural justice have been duly complied with. Hence, I am
proceeding with the inquiry taking into account the material available on record.
ISSUES FOR CONSIDERATION
16. After perusal of the material available on record, I have the following issues for
consideration, viz.,
A. Whether Hi–Fi and Sangita have violated the provisions of Regulation 4(1), 4(2)
(a), (b) and (g) of PFUTP Regulations?
B. Whether Hi–Fi and Sangita are liable for monetary penalty under Section 15HA of
the SEBI Act, 1992? Adjudication Order in respect of Hi-Fi Tradecom Pvt. Ltd. and Sangita Securities Pvt. Ltd.
In the matter of GHCL Ltd.
Page 7 of 14 April 02, 2012
C. What quantum of monetary penalty should be imposed on Hi–Fi and Sangita
taking into consideration the factors mentioned in Section 15J of the SEBI Act,
1992?
FINDINGS
17. On perusal of the material available on record and giving regard to the facts and
circumstances of the case, I record my findings hereunder.
ISSUE 1: Whether Hi–Fi and Sangita have violated the provisions of Regulation 4(1), 4(2)
(a), (b) and (g) of PFUTP Regulations?
18. The relevant provisions of PFUTP Regulations read as under:
Regulation 4: Prohibition of manipulative, fraudulent and unfair trade practices
(1) Without prejudice to the provisions of regulation 3, no person shall indulge in a
fraudulent or an unfair trade practice in securities.
(2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it
involves fraud and may include all or any of the following, namely:—
(a) indulging in an act which creates false or misleading appearance of trading in the
securities market;
(b) dealing in a security not intended to effect transfer of beneficial ownership but intended
to operate only as a device to inflate, depress or cause fluctuations in the price of such
security for wrongful gain or avoidance of loss;
(g) entering into a transaction in securities without intention of performing it or without
intention of change of ownership of such security;
19. From the material available on record, it is observed that during the investigation
period, the entities belonging to Jalco Group traded with substantial concentration in
the scrip of the Company and altogether traded 2,08,25,138 shares on gross basis
(25.03% for total traded quantity at both the exchanges). It is also observed that the
Jalco Group had executed synchronized trades within the group for 9,50,844 at NSE
(3.29% of the market volume) and 1,76,024 shares at BSE (1.39% of the market
volume).
20. It is observed that Jalco traded through multiple brokers and altogether bought
63,07,254 shares and sold 88,69,882 shares which constituted 15.16% and 21.32% of the
total traded volume at both the exchanges during investigation period. It is also
observed that Wilful traded through multiple brokers and altogether bought 20,99,328
shares and sold 17,99,962 shares which constituted 5.05% and 4.33% of total market
volume respectively. Adjudication Order in respect of Hi-Fi Tradecom Pvt. Ltd. and Sangita Securities Pvt. Ltd.
In the matter of GHCL Ltd.
Page 8 of 14 April 02, 2012
21. From Annexure IV of the SCN it is observed that Carissa and ILAC, who were
promoter entities of the Company and shared common address with Jalco, had
altogether transferred 21,55,000 shares of the Company to Jalco, Wilful, Signet and
India Infoline during January 3-10, 2006 in off-market, and 3,50,000 shares to India
Infoline Investment Services Pvt. Ltd. (NBFC of India Infoline) on February 25, 2006.
22. Further, they received 9,65,000 shares from India Infoline on March 13, 2006 and same
were transferred to India Infoline Investment Services Pvt. Ltd. on March 14, 2006.
Again they received 6,45,000 shares on March 29, 2006 from Jalco and Wilful and same
were transferred to India Infoline Investment Services Pvt. Ltd. on March 30, 2006.
Carissa and ILAC received 26,71,000 shares on March 31, 2006 from Jalco, Wilful and
India Infoline Investment Services Pvt. Ltd. Thereafter, Carissa and ILAC transferred
shares to these entities in the first week of April 2006. Because Carissa and ILAC
transferred shares in the beginning of the quarter and received back the shares at the
end of quarter, no major change could be observed on the shareholding pattern of the
promoters.
23. Further during the course of statement recording before the Investigating Authority
(hereinafter referred to as “IA”), it was submitted by Shri V K Mehta, Director Carissa
and AR of ILAC that they had business relationship with Jalco, Wilful and Signet and
broker client relationship with India Infoline. It was further stated that the shares
which were transferred to India Infoline Investment Services Pvt. Ltd. were towards
margin for trading in the shares. It is observed that after receiving the shares from
Carissa, India Infoline Investment Services Pvt. Ltd. transferred the shares to Jalco
which were then transferred by Jalco to the pool account of its broker for meeting the
delivery obligations. From bank statement of Carissa (Citibank – 800002222) it is
observed that funds (within the range of ` 24,00,000 to ` 6,00,00,000) were transferred
to Jalco/Wilful on many occassions. Further, from the bank statements of Jalco/Wilful
it is observed that after receiving money from Carissa, Jalco/Wilful made payment to
the brokers.
24. It is observed that the Jalco Group comprising 8 entities together bought 93,31,846
shares (89,39,980 at NSE and 3,91,866 at BSE) which constituted 22.43% of total
volume recorded at both the exchanges, i.e., 4,16,04,309 shares and altogether sold
1,14,93,292 shares (64,53,403 at NSE and 50,39,889 at BSE) which constituted 27.63% of Adjudication Order in respect of Hi-Fi Tradecom Pvt. Ltd. and Sangita Securities Pvt. Ltd.
In the matter of GHCL Ltd.
Page 9 of 14 April 02, 2012
total volume recorded at both the exchanges. It is also observed that the day wise
contribution of the Jalco Group ranged from 11.79% to 52.36% on NSE and 0.49% to
42.29% on BSE. Among themselves they traded for 14,63,261 shares (12,87,237 at NSE
and 1,76,024 at BSE) including self trades which accounted for 3.52% of total traded
volume at both the exchanges. It is further observed that out of 267 trades (10 at BSE
and 257 at NSE), 59 trades (9 at BSE and 50 at NSE) for 11,26,868 shares (176024 at BSE
and 950844 at NSE) were executed through structured orders wherein time difference
between placing buy orders and sell orders were less than 1 min and rate and quantity
were also identical and were thus synchronized. Summary of their trading is given
below:
Exchange Buy Qty No. of
Buy
Order
Sell Qty No. of
Sell order
Traded
among Group
% of Mkt.
Volume
NSE 8939980 1500 6453403 430 1287237 4.45
BSE 391866 54 5039889 113 176024 1.39
Total 9331846 1554 11493292 543 1463261 5.84
25. It is observed that out of the above, following were synchronized which were
executed by them on 8 days and their trades constituted 1.39% of the market volume
on BSE and 3.29% of the market volume on NSE.
26. It is observed that the IA had sought information from the entities of Jalco Group with
regard to the relationship with GHCL and its promoters/directors, shareholding and
mode of acquisition of shares, trading details, bank statements, demat statements,
comments on their trading, etc. It is also observed that during the course of statement
recording before the IA, Shri Mulridhar Vyas (an authorized representative of Jalco
and Wilful) on behalf of Jalco and Wilful stated in his statement recorded on January
19-20, 2009 that they had no relationship with GHCL or its promoter/directors.
However, as already observed, there was transfer of funds and securities between the
entities of Jalco Group and the promoter entities of GHCL (Carissa/ILAC).
NSE BSE
Buy
Client
Name
Sell
Client
Name
No.
of
Buy
ord
er
no.
of
sell
ord
er
no.
of
trad
es
Traded
Qty
Qty
traded
through
Structure
d order
% to
traded
Qty
No
of
Buy
ord
ers
no.
of
sell
ord
ers
no.
of
trade
s
Traded
Qty
Qty
traded
through
synchron
ized
order
% to
traded
Qty
Jalco Wilful 25 25 26 525959 444747 84.56 6 6 6 149900 149900 100
Signet Signet 9 9 17 197669 197669 100 0 0 0 0 0 0
Sangita Hi-Fi 17 17 17 282256 282256 100 3 3 3 14101 14101 100
Shailaja Pathik 2 2 2 26172 26172 100 1 1 1 12023 12023 100
Grand Total 53 53 62 1032056 950884 92.13 10 10 10 176024 176024 100 Adjudication Order in respect of Hi-Fi Tradecom Pvt. Ltd. and Sangita Securities Pvt. Ltd.
In the matter of GHCL Ltd.
Page 10 of 14 April 02, 2012
27. It is observed that on March 13, 2006 Jalco sold 28,09,569 shares where the
counterparty was GMO Emerging Market Fund and its connected entities trading
through the broker Quantum Securities Ltd. (hereinafter referred to as “Quantum”)
and the trades were synchronized. It is observed that Jalco stated before the IA that
Emerging Market Funds (FII) wanted to buy shares of the Company and they received
request through Quantum and offered to sell and was not aware of the counterparty.
It is observed that FII bought shares and were holding the shares during next quarter.
28. It is observed that Dhoop bought 25000 shares and sold 44637 shares and major
counterparty were Wilful and Jalco who were the group entities. It is also observed
that Pathik sold 2,53,811 shares at NSE and majority of shares were bought by Jalco,
Wilful and Shailaja and out of the above shares sold by Pathik few trades were
synchronized with Shailaja. It is further observed that there was movement of funds
between Shailaja & Jalco. Shailaja had received ` 2,42,00,000 from Jalco on April 18,
2006. From the copy of ledger account submitted by Shailaja to the IA, it is observed
that funds were given to Jalco during April 1, 2005 to April 19, 2005 and was taken
back on April 18, 2006 (after one year) without paying any interest.
29. As already observed, the promoter of Jalco and Wilful, i.e., Shri Sanjay Jalan was the
introducer of Sangita and Sangita & Hi-Fi shared a common address. Further, from
the account opening forms of Sangita (India Infoline) and Hi-Fi (Indiabulls), it is
observed that Mrs. Sangita Jhunjhunwala and Mrs. Suruchi Jhunjhunwala, the
directors of Sangita, were the family members of Smt. K D Jhunjhunwala who had
directorship in Hi-Fi. It is observed that as a part of the Jalco Group, Hi-Fi bought
1,24,245 shares of the Company (at NSE) and sold 3,00,000 shares of the Company
(2,85,000 at NSE and 15,000 at BSE). Further, Sangita bought 3,00,000 shares (2,85,000
at NSE and 15,000 at BSE) during February 23-March 3, 2006, in which 2,96,357 shares
(2,82,256 at NSE and 14,101 at BSE) were bought from Hi-Fi and these 20 trades were
synchronized wherein time gap between placing buy orders and sell orders were 0-7
seconds and quantity and rate were also identical.
30. In view of the aforesaid, it is apparent that entities of Jalco Group received shares
from the promoter entities, traded in the market substantially, executed synchronized
trades and also traded among the group which created artificial volume and at the Adjudication Order in respect of Hi-Fi Tradecom Pvt. Ltd. and Sangita Securities Pvt. Ltd.
In the matter of GHCL Ltd.
Page 11 of 14 April 02, 2012
end of the quarter the Jalco Group transferred shares to the promoter entities. I am of
the considered opinion that the entire chain of events of transferring securities and
funds by the promoter entities of GHCL to the related entities of Jalco Group, dealing
in the shares by Jalco Group in substantial quantity through synchronized trades and
trading among groups to create huge volume in the market and shares received back
by the promoters, tends to indicate a manipulation scheme which created misleading
appearance of trading.
31. Now I deal with the submissions of Sangita and Hi-Fi made vide their letters dated
November 12, 2010. I note that Sangita and Hi-Fi have neither denied nor disputed the
trades but have made analogous statements and, inter-alia, have submitted that all
transactions were open market and they denied that just because the directors of
Sangita were relative of a director of Hi-Fi, the transactions were synchronized, as
both the entities were separate legal entity carrying the business at their own. Sangita
and Hi-Fi also submitted that they had dealt in many other securities during the
investigation period including the shares of GHCL. I don’t find the aforesaid
submissions of Sangita and Hi-Fi satisfactory and also don’t find that the same can
absolve them from the violation of law. I also find that though, in isolation, the trades
of Sangita or Hi-Fi may seem innocuous, however, considering the background
elaborated earlier, wherein securities and funds were transferred by the promoter
entities of GHCL to the related entities of Jalco Group, dealing in the shares by Jalco
Group in substantial quantity through synchronized trades and trading among
groups to create huge volume in the market and shares received back by the
promoters and the connivance of the Jalco Group in this regard, the transactions of
Sangita and Hi-Fi clearly reinforce their role as members of Jalco Group.
32. I find it too much a coincidence that Sangita bought 3,00,000 (2,85,000 at NSE and
15,000 at BSE) shares and Hi-Fi sold 3,00,000 (2,85,000 at NSE and 15,000 at BSE)
shares during the same time period. Further, the fact Sangita bought 3,00,000 shares
(2,85,000 at NSE and 15,000 at BSE) during February 23-March 3, 2006, in which
2,96,357 shares (2,82,256 at NSE and 14,101 at BSE) were bought from Hi-Fi highlights
the fact that the trades were carried out as part of Jalco Group to create artificial
volume. Moreover, these transactions were carried out through a number of trades on
different dates and the 20 trades were synchronized wherein time gap between
placing buy orders and sell orders were 0-7 seconds and quantity and rate were Adjudication Order in respect of Hi-Fi Tradecom Pvt. Ltd. and Sangita Securities Pvt. Ltd.
In the matter of GHCL Ltd.
Page 12 of 14 April 02, 2012
identical. Sangita and Hi-Fi have not been able to explain their transactions in the
given background.
33. In view of the aforesaid, I find that the acts of manipulative trading by Hi–Fi and
Sangita helped in creating artificial demand and thereby leading to a false appearance
of trading in the scrip of the Company as also as causing fluctuations in the price of
the scrip of the company as these kind of activities seriously affect the normal price
discovery mechanism of in the securities market. In light of the facts of the case and
material available on record I am convinced that Hi–Fi and Sangita have violated the
provisions of Regulation 4(1), 4(2) (a) (b) & (g) of PFUTP Regulations.
ISSUE 2: Whether Hi–Fi and Sangita are liable for monetary penalty under Section 15HA
of the SEBI Act, 1992?
34. The provisions of Section 15 HA of the SEBI Act, 1992 reads,
Penalty for fraudulent and unfair trade practices:
Section 15HA:
If any person indulges in fraudulent and unfair trade practices relating to securities,
he shall be liable to a penalty of twenty-five crore rupees or three times the amount of
profits made out of such practices, whichever is higher.
35. After carefully considering the facts and circumstances of the case and violation
committed by Hi–Fi and Sangita, I am of the opinion that Hi–Fi and Sangita are liable
for monetary penalty under Section 15HA of the SEBI Act, 1992.
ISSUE 3: What quantum of monetary penalty should be imposed on Hi–Fi and Sangita
taking into consideration the factors mentioned in Section 15J of the SEBI Act, 1992?
36. While imposing monetary penalty it is important to consider the factors stipulated in
Section 15J of the Act, which reads as under:
“15J - Factors to be taken into account by the adjudicating officer
While adjudging quantum of penalty under section 15-I, the adjudicating officer shall have
due regard to the following factors, namely:-
(a)the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as
a result of the default;
(b)the amount of loss caused to an investor or group of investors as a result of the default;
(c)the repetitive nature of the default.”
37. I note that on the basis of data available on record, it is difficult, in cases of such
nature, to quantify exactly the disproportionate gains or unfair advantage enjoyed by Adjudication Order in respect of Hi-Fi Tradecom Pvt. Ltd. and Sangita Securities Pvt. Ltd.
In the matter of GHCL Ltd.
Page 13 of 14 April 02, 2012
an entity and the consequent losses suffered by the investors. Further the amount of
loss to an investor or group of investors also cannot be quantified on the basis of
available facts and data. Even though the monetary loss to the investors cannot be
computed, any manipulation in the volume caused by vested interest always erodes
investor confidence in the market so that investors find themselves at the receiving
end of market manipulators. Artificial volume leads to artificial liquidity and it is well
known that greater the liquidity, the higher is the investors’ attraction towards
investing in that scrip. Besides, this kind of activity seriously affects the normal price
discovery mechanism of the securities market. People who indulge in manipulative,
fraudulent and deceptive transactions, or abet the carrying out of such transactions
which are fraudulent and deceptive, should be suitably penalized for the said acts of
omissions and commissions.
38. In the forgoing paragraphs it is now established that Hi–Fi and Sangita have violated
the provisions of Regulation 4(1), 4(2) (a) (b) & (g) of PFUTP Regulations. Considering
the facts and circumstances of the case and the violations committed by Hi–Fi and
Sangita, I find that imposing a penalty of ` 1,00,000/- (Rupees One Lakh only) on HiFi Tradecom Private Limited and ` 1,00,000/- (Rupees One Lakh only) on Sangita
Securities Private Limited would be commensurate with the violations committed by
them.
ORDER
39. Considering the facts and circumstances of the case, in terms of the provisions of
Section 15HA of SEBI Act, 1992 and Rule 5(1) of the Adjudication Rules, I hereby
impose a penalty of ` 1,00,000/- (Rupees One Lakh only) on Hi-Fi Tradecom Private
Limited and ` 1,00,000/- (Rupees One Lakh only) on Sangita Securities Private
Limited.
40. The penalty shall be paid by way of demand draft drawn in favour of “SEBI –
Penalties Remittable to Government of India” payable at Mumbai within 45 days of
receipt of this Order. The said demand draft shall be forwarded to the Division Chief,
Investigation Department, Securities and Exchange Board of India, Plot No. C4-A, ‘G’
Block, Bandra Kurla Complex, Bandra (E), Mumbai – 400051. Adjudication Order in respect of Hi-Fi Tradecom Pvt. Ltd. and Sangita Securities Pvt. Ltd.
In the matter of GHCL Ltd.
Page 14 of 14 April 02, 2012
41. In terms of the provisions of Rule 6 of the SEBI (Procedure for Holding Inquiry and
Imposing Penalties by Adjudicating Officer) Rules 1995, copies of this Order are being
sent to Hi-Fi Tradecom Private Limited and Sangita Securities Private Limited and
also to Securities and Exchange Board of India.
Date: April 02, 2012 Jeevan Sonparote
Place: Mumbai Adjudicating Officer
