Adjudication Order in respect of Monarch Research & Brokerage Pvt. Ltd. in the matter of M/s. Sky Industries Ltd

Adjudication Order in the matter of M/s. Monarch Research and Brokerage Pvt. Ltd Page 1 of 29

BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA

[ADJUDICATION ORDER NO. AK/AO- 57/2015] __________________________________________________________

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

M/s. Monarch Research & Brokerage Pvt. Ltd. (PAN: AACCK5762C)

In the matter of

M/s. Sky Industries Ltd.

_____________________________________________________________

FACTS OF THE CASE

1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) conducted an investigation

with respect to trading in the scrip of M/s. Sky Industries Ltd. (hereinafter referred to as ‘SIL’ or ‘the

company’) for the period January 1, 2009 to May 10, 2010 (hereinafter referred to as the

‘Investigation Period’). The scrip was listed on the Bombay Stock Exchange Ltd. (hereinafter

referred to as ‘BSE’) as well as on Jaipur Stock Exchange Ltd. (hereinafter referred to as ‘JSEL’) and

The Calcutta Stock Exchange Ltd. (herein after referred to as ‘CSE’). However, there was no trading

in the scrip during the investigation period on JSEL and CSE.

2. Investigation observed that during the period January 1, 2009 to May 10, 2010 (hereinafter referred

to as ‘Investigation Period’), total traded quantity in SIL scrip on BSE was 44,64,906 shares. It was

observed that one Mr. Vijay Vora bought 95,945 shares from his wife Ms. Hina Vora (one side). Out

of the same, M/s Monarch Research and Brokerage Pvt. Ltd. (hereinafter referred to as 'the

Noticee'/ 'Monarch') acted as both Broker and Counterparty Broker for 5,902 shares traded

between Mr. Vijay Vora and Ms. Hina Vora. Mr. Vijay Vora sold 59,302 shares to Ms. Hina Vora (one

side) during the investigation period. Out of the same, Monarch acted as both Broker and


Counterparty Broker for 41,768 shares traded between Mr. Vijay Vora and Ms. Hina Vora. Thus,

Monarch executed cross deals which accounted for 6% of Mr. Vijay Vora’s buy & Ms. Hina Vora’s sell

and 70% of Mr. Vijay Vora’s sell and Ms. Hina Vora’s buy. It was noted further that out of the same,

6,500 shares were synchronized, and in some instances both buy and sell trades were executed

from the same terminal. It was also observed that with respect to the self trades for 18,358 shares

of Mr. Vijay Vora, Monarch acted as both broker and counterparty broker for 5,087 shares and in

some instances both buy and sell trades were executed from the same terminal.

3. It was, thus, alleged that the Noticee failed to exercise due skill and care in terms of clause A(2) of

Code of Conduct for Stock Brokers as specified under Schedule II read with Regulation 7 of SEBI

(Stock Broker and Sub-broker) Regulation, 1992 (hereinafter referred to as ‘Stock Brokers

Regulations’).

APPOINTMENT OF ADJUDICATION OFFICER

4. Ms. Barnali Mukherjee was appointed as the Adjudicating Officer on April 05, 2013 under section

15-I of SEBI Act read with rule 3 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by

Adjudicating Officer) Rules, 1995 (hereinafter referred to as ‘SEBI Rules’) to inquire into and adjudge

the alleged violations committed by the Noticee. Consequently upon transfer of Ms. Barnali

Mukherjee, I was appointed as the Adjudicating Officer vide order dated August 08, 2013 under

Section 15-I of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI

Act’) read with rule 3 of SEBI Rules to inquire into and adjudge under Section 15HB of the SEBI Act,

for the alleged violation of Stock Brokers Regulations by Monarch.

SHOW CAUSE NOTICE, REPLY AND PERSONAL HEARING

5. Show Cause Notice (SCN) no. EAD-6/BM/VG/11564/2013 dated May 15, 2013 was issued to the

Noticee under rule 4 of the Rules read with Sub-section (2) of Section 15I of SEBI Act to show cause

as to why an inquiry should not be held and penalty be not imposed under Section 15HB of the SEBI

Act for the alleged violation specified in the said SCN. Upon receipt of the SCN, the Noticee vide

letter dated May 30, 2013 requested for additional time of 15 working days to file their reply to the

SCN. The request of the Noticee was acceded to. Thereafter, the Noticee filed its reply dated June


22, 2013. The Noticee vide their aforesaid reply while denying the allegations made in the SCN have

inter alia made the following submissions:

5.1 That the total number of shares traded on floor of BSE during the investigation period was

44,64,916, and as compared to the same, their client’s trading during the investigation period

was very negligible, no own trading was done at any point of time, and such negligible trades

could not have had any influence in the market to attract the investing public at large;

5.2 That out of the top ten buyers and sellers shown in the SCN, only two were their clients. Further,

volumes of the said two persons shown was not correct and that the respective buy and sell of

share quantity was very less, as given below:

Sr. No. Client’s Name Total Buy Quantity Total Sell Quantity

1. Ms. Hina Vora 2,94,833 2,50,664

2. Mr. Vijay Vora 6,80,540 6,43,804

Therefore the quantity for total buy and sell during investigation period does not tally with the

SCN issued;

5.3 That the details mentioned in the SCN regarding the observations of investigation team and the

allegation made regarding the reversal trades has been noted by them, however, details have

not been provided to them. As regards details provided to them in Annexure II of the SCN, the

client name appears, however, the broker details have not been made available to them.

Further Annexure III gives different brokers of BSE, therefore, the details stated in the said

annexure were not correct as per their information. Further, they have they had not placed any

reversal trade during the investigating period;

5.4 That the allegation made regarding synchronized trade for the period of two days for which

details were given in the table in the SCN did not tally with the annexure of the SCN and the

same has not been accepted by the Noticee;

5.5 That the details provided in Annexure IV to the SCN did not tally as per the details given in the

SCN and that the complete details were not provided by the Investigating Authority;

5.6 That the allegation that they failed to exercise due skill and care in terms of Clause A(2) of Code

of Conduct of Stock Broker under Schedule II read with Regulation 7 of the Stock Brokers

Regulations is not correct. They had taken due skill, care and diligence in conduct of their

business and they believe in self-regulation and compliance and they abide by all the rules,

regulations and bye-laws of the relevant authority;

5.7 That the trades were executed on behalf of their client and as per the market mechanism

provided by BSE.


6. It was observed from the above that the Noticee had stated that certain details were either not

provided to them, or, the details in the SCN did not tally with Annexure provided with the SCN.

However, from the submissions made, the exact nature of the query was not clear. Hence, an e-mail

dated September 2, 2013 was sent to the Noticee, providing the following clarifications/ seeking

further information from the Noticee to appreciate Noticee’s point of view with regard to the

discrepancies pointed out:

6.1 As regards the discrepancy pointed out by the Noticee with respect to the total buy and total

sell quantity of their client as given in the SCN, it was clarified that the figures provided in the

table in the SCN represented the trades of the clients in respect of all brokers across the market

during the investigation period;

6.2 As regards the submission that details in Annexure III to the SCN were not correct, the Noticee

was advised to elaborate as to exactly what was the discrepancy noted by them and also submit

the correct details as per their records;

6.3 As regards the submission that the details of synchronized trades given in the para 5 of SCN did

not tally with Annexure attached to SCN, it was clarified that the table at para 5 indicated the

reversal of trades, where both buy and sell orders were executed from the same terminal. It

was further clarified that out of three instances mentioned in the table, only first and third

related to synchronized trades. It was also clarified that in respect of 46,670 trades between

Hina Vora and Vijay Vora, where the Noticee acted as both broker as well as counter party

broker, the particulars of the said reversal trades were given at Annexure III to the SCN;

6.4 With regard to Noticee’s submission that Annexure IV did not tally with the details given in SCN,

the Noticee was advised to elaborate on the discrepancies noted.

7. The Noticee replied to the above e-mail vide letter dated October 1, 2013, stating as under:

7.1 That the trading details provided in Annexure III had been given in respect of all the brokers who

had traded in the alleged scrip, for and on behalf of their clients, however, they had not done a

single trade in the said scrip;

7.2 That though para (5) of the SCN states that in respect of 47,670 shares, the Noticee acted both

as broker and counter party broker, the same does not tally with the table given in the SCN

under the same para. Further, that they had not done any reversal of trades of their clients in

the alleged SIL scrip;


7.3 That bifurcation of the details given in Annexure 4 to the SCN has not been provided. Further, in

the said Annexure and in the column “ORD QTY” “BUY SELL”, only buy quantity has been stated

and no sell quantity has been given;

7.4 That though para (6) of SCN mentions quantity of 5,087 shares for which the Noticee acted as

both broker and counter party broker, table given in the para shows trade quantity which is 678

shares for three trades, hence, does not tally.

8. Further written submissions dated October 03, 2013 were filed by the Noticee inter alia making the

following submissions:

8.1 That they had no intention of violating any Rules, Regulations and Bye Laws of SEBI as

mentioned in SCN;

8.2 That they believe in self-regulation and compliance and trade executed by them on behalf of

their clients was as per the available market mechanism provided by BSE;

8.3 That the order was placed at the market price and they had not placed the order above/ below

the market price available on the floor of the exchange;

8.4 The Noticee has cited the following Orders of the Learned Whole Time Member (hereinafter

referred to as ‘WTM’) of SEBI and Hon’ble Securities Appellate Tribunal (hereinafter referred to

as ‘SAT’):

8.4.1 M/s. FMC Securities Ltd., SEBI registration number (INB011079838) (presently known as

M/s. Share India Securities Ltd.) in the matter of trading in shares of M/s Aditya Infosoft

Ltd. {Whole Time Member};

8.4.2 M/s. SPS Share Brokers Pvt. Ltd. in matter of M/s. Ravalgaon Sugars Farms Ltd. and

Shrenuj & Co. Ltd. {Whole Time Member};

8.4.3 M/s. Tropical Securities and Investment Pvt. Ltd. in matter of Prudential Pharmaceuticals

Ltd. {Whole Time Member};

8.4.4 M/s. Finquest Securities Pvt. Ltd. vide appeal no. 119 of 2013 (SAT);

8.4.5 M/s. R. R. Chokhani Stock Brokers Pvt. Ltd. vide appeal no.217 of 2012 (SAT)

8.4.6 M/s. SPJ Stock Brokers Pvt. Ltd. vide appeal no. 52 of 2013(SAT).

9. Vide hearing notice dated September 11, 2013, the Noticee was granted an opportunity for personal

hearing on October 4, 2013. The Noticee vide letter dated October 03, 2013 authorized Mr. Mayukh

Pandya, Authorised Representative (hereinafter referred to as ‘AR’) to appear on their behalf. At the


time of hearing, the AR of the Noticee filed the aforesaid letter dated October 03, 2013

(inadvertently recorded as October 03, 2010 in the hearing minutes). At the hearing, the queries

raised by the Noticee through its various letters were explained to the satisfaction of the AR. The AR

reiterated the submissions made and undertook to file further submissions by October 11, 2013.

The Noticee vide its letter dated October 10, 2013 inter alia submitted as follows:

9.1 That the terminal number mentioned in the SCN is not a terminal number, but, it is an

Intermediate Message Layer ID (hereinafter referred to as ‘IML id’);

9.2 That from the same IML id maximum 50 number of users can log in, and if maximum number of

users exceed 50, then it will automatically shift to another IML id. Further, the said mechanism

is provided by the exchange empanelled service provider;

9.3 That as regards the buy and sell order from the same terminal, the time of entering the orders

are different and not the same;

9.4 That their clients viz. Mr. Vijay Vora and Ms. Hina Vora are their regular clients and they traded

in other scrips as well during the investigation period. The said clients had also kept collateral

securities with the Noticee, which was higher than their trades in the alleged SIL scrip.

10. The queries raised by the Noticee had raised certain queries, and the same were clarified to the

satisfaction of the AR at the time of the personal hearing. However, it appeared from the reply

dated October 10, 2013 that the Noticee had only addressed the charge pertaining to execution of

trades as broker and counterparty broker from the same terminal. Hence, a supplementary show-

cause notice No. EAD-6/AK/VG/7015/2015 dated March 5, 2015 was sent to the Noticee in

continuation to the SCN dated May 15, 2013 for elaborating through certain instances the charge

set out in the SCN dated May 15, 2013.

11. The Noticee vide letters dated April 04, 2015 and April 23, 2015, sought extension of time to reply to

the Supplementary SCN. Vide letter dated May 12, 2015, the Noticee inter alia made the following

submissions to the supplementary show cause notice:

11.1 That the Noticee acted as broker and counterparty broker for 5,902 shares, out of the total

of 95,945 shares that got traded between Mr. Vijay Vora and Ms. Hina Vora, which is nearly

6%, hence negligible;

11.2 That as regards the trades being executed from the same terminal, reference is drawn to

reply dated October 10, 2013;


11.3 That they had taken due care while registering the said clients and all necessary documents

which were necessary and mandatory as per the Rules, Regulations and Bye Laws of SEBI

and the Exchanges were collected from the respective clients and also forwarded to the

investigating authority when demanded;

11.4 That the said clients had not only traded in the scrip of SIL, but, also in other scrips during the

investigation period;

11.5 That as regards the synchronized trades, the trades were executed as per the instructions

received from the respective clients, as per the market mechanism made available by the

Exchange;

11.6 That since inception as member of BSE, they were dealing with retail clients only. Further

during the period more than 45,797 trades had taken place, and considering the same, they

had no intention of violating any Rules, Regulations and Bye Laws of respective authorities;

11.7 That there was no artificial volume created by the said clients and both the clients used to

meet their obligations regularly and within time. Further, the said clients had also traded in

many other scrips during the investigation period and had met their obligation regarding

funds and securities within the prescribed time limit;

11.8 That a comparison of the trades of the said two clients vis-à-vis all registered clients during

the investigation period reveals that the volume of the said two clients was very very

negligible to create any artificial volume to attract the investing public at large;

11.9 That the Compact Disc containing the trades of Mr. Vijay Vora and Ms. Hina Vora through

Monarch, Mr. Vijay Vora’s self trades through Monarch and Integrated Trade and Order log

for the days on which Monarch acted as broker and counterparty broker to the trades of Mr.

Vijay Vora and Ms. Hina Vora was taken note of;

11.10 That they had taken due care with respect to the above clients, the clients had never failed to

meet their obligations, and the Noticee had not allowed the said clients any special privilege

or facility for trades in the alleged SIL scrip, beyond their financial soundness or ability.

12. Vide letter dated June 1, 2015, a final opportunity for personal hearing was granted to the Noticee

on June 23, 2015. During the said hearing, the AR reiterated the submissions made in reply dated

May 12, 2015. The AR also stated that there were no past non-compliance by the Noticee of SEBI

Act and Regulations and no action has been taken by SEBI in past against the Noticee.


CONSIDERATION OF ISSUES AND FINDINGS

13. I have carefully examined the SCN, the Supplementary SCN, the submissions made and the

documents available on record. The allegations against the Noticee is that by acting as both broker

and counterparty broker to the fictitious trades of Ms. Hina Vora and Mr. Vijay Vora, the Noticee

failed to exercise due skill and care in terms of clause A (2) of Code of Conduct for Stock Brokers as

specified under Schedule II read with Regulation 7 of Stock Brokers Regulations.

14. The issues that, therefore, arise for consideration in the present case are:

a) Whether Monarch failed to carry out its business with due skill, care and due diligence in terms

of clause A(2) of Code of Conduct for Stock Brokers as specified under Schedule II read with

Regulation 7 of Stock Brokers Regulations?

b) Does the violation, if any, on the part of Monarch attract monetary penalty under section 15HB

of the SEBI Act?

c) If so, what would be the monetary penalty that can be imposed against Monarch taking into

consideration the factors mentioned in section 15J of the SEBI Act?

15. Before moving forward, it will be appropriate to refer to the relevant provisions of the Stock Brokers

Regulations, which read as under:

Stock-Brokers to abide by Code of Conduct

7. The stock-broker holding a certificate shall at all times abide by the Code of Conduct as specified

at Schedule II.

SCHEDULE II

Code of Conduct for Stock Brokers

A. GENERAL

(2) EXERCISE OF DUE SKILL AND CARE: A stock-broker, shall act with due skill, care and diligence

in the conduct of all his business.

FINDINGS

16. Upon careful perusal of the material available on record, I now proceed with the findings in

connection with the role of Noticee on the violations as alleged in the case. As brought out in the


earlier part of the Order, it is observed that in respect of trades between Mr. Vijay Vora and Ms.

Hina Vora, the Noticee acted as both Broker and Counterparty Broker for 47,670 shares. Such trades

between Hina Vora and Vijay Vora with Monarch as the broker as well as the counterparty broker

were observed to have been executed on 38 days during the investigation period and involved 86

trades.

17. It is further noted that out of 47,670 shares of SIL scrip for which the Noticee acted as broker and

counterparty broker, 3 trades for 6,500 shares were synchronized i.e. trades where order quantity

and order price difference is nil and order time difference is less than 60 seconds. The details of the

said synchronized trades are shown below:

Trade

Date

Trade

Time

Member

Name

Client

Name

Trade

Qty

Trade

Rate

Order

Time

Order

Rate

Order

Qty

Cp

Member

Name

Cp

Client

Name

Cp

Order

Time

Cp

Order

Rate

Cp

Order

qty

30/07/2009 12.43.08.000000 Monarch Hina 2500 72.5 12:43:07.683558 72.5 2500 Monarch Vijay 12:43:04.549307 72.5 2500



18. Further, 8 trades of 1,276 shares were structured, i.e., the price was identical and the Buy and sell

orders were placed within one minute of each other. The structured trades are as shown below:

Trade

Date

Trade

Time

Member

Name

Client

Name

Trade

Qty

Trade

Rate

Order

Time

Order

Rate

Order

Qty

Cp

Member

Name

Cp

Client

Name

Cp

Order

Time

Cp

Order

Rate

Cp

Order

qty

26/08/2009 14.21.31.000000 Monarch Hina 10 78 14:21:11.552796 78 200 Monarch Vijay 14:21:30.794120 78 10

14/09/2009 15.22.54.000000 Monarch Vijay 51 87.5 15:22:54.162832 87.5 100 Monarch Hina 15:22:48.466642 87.5 500






28/04/2010 14.50.22.040833 Monarch Vijay 65 106.5 14:50:21.900033 106.5 65 Monarch Hina 14:49:56.839753 106.5 4000

19. As regards the trades between Mr. Vijay Vora and Ms. Hina Vora which were not synchronized and

where Monarch acted as the broker and counterparty broker, a few instances have been elaborated

to explain how Monarch failed to exercise due skill, care and diligence in conduct of his business to

prohibit creation of artificial volume in the scrip of SIL through fictitious trades executed between

husband and wife:


A. On 12.04.2010, Ms. Hina Vora bought 10,000 shares from Mr. Vijay Vora as follows:

I. It is observed from the trade and order log that at 12:30:13.758400, vide order id

20000066030261, Ms. Hina Vora placed a buy order for 10,000 shares at Rs. 95.50. A few

seconds later, at 12:30:19.862574, vide order id 20000066030269, Mr. Vijay Vora placed a sell

order for 10,000 shares at Rs. 95.30. It is pertinent to note here that the last two trades prior to

the placing of the aforesaid orders by Ms. Hina Vora and Mr. Vijay Vora had happened at

12.28.24.147993 and 12.28.47.878362 at Rs. 99 and Rs. 99.90 for 19,000 and 1 share

respectively. In respect of trade for 19,000 shares at Rs. 99, Mr. Vijay Vora through stock broker

M/s. M R Share Broking Pvt. Ltd. was on the buy side and Ms. Hina Vora through Monarch was

on the sell side. In respect of trade for 1 share at Rs. 99.90, Ms. Hina Vora through Monarch was

on the buy side.

II. It is noted from the above that Mr. Vijay Vora had placed the sell order at a discount of Rs. 4.60

to the ruling market price. Further, since the quantity of the buy order of Ms. Hina Vora and sell

order placed by her husband Mr. Vijay Vora within close proximity to one another were the

same, and the sell rate of Mr. Vijay Vora was lower than the buy rate of Ms. Hina Vora, it should

have immediately alerted Monarch of the intent of Mr. Vijay Vora and Ms. Hina Vora to cause

artificial volumes in the scrip of SIL.

III. At trade time 12.30.19.939237, the two orders matched resulting in trade for 10,000 shares at

Rs. 95.50. It is pertinent to note here that even subsequent to the aforesaid trades of Ms. Hina

Vora and Mr. Vijay Vora, at 12.31.11.716233, self trade of Mr. Vijay Vora had occurred for 51

shares at Rs. 99.90 due to Mr. Vijay Vora placing buy order for 100 shares at Rs. 99.90 through

Monarch at 12:30:25.356679 and sell order through Monarch for 51 shares at Rs. 99.90 at

12:31:11.649483.

IV. All of the aforesaid makes it clear that Monarch failed to prohibit such trades, though he was

the broker and counterparty broker and this strengthens the fact that Monarch did not exercise

due skill, care and diligence in conduct of his business to prohibit creation of artificial volume in

the scrip of SIL. The aforementioned trade of 10,000 shares between Ms. Hina Vora and Mr.


Vijay Vora and the manner in which the trades immediately prior to and subsequent to were

getting executed are shown below for better appreciation of the aforesaid facts:

B. On 21.04.2010, Ms. Hina Vora bought 8,000 shares from Mr. Vijay Vora as follows:

I. It is observed from the trade and order log that at 11:28:57.612581 vide order id

11000056027834, Ms. Hina Vora placed a buy order for 8,000 shares at Rs. 97.75. A few seconds

later at 11:28:59.731447, vide order id 11000056027840, Mr. Vijay Vora placed a sell order for

8,000 shares at Rs. 97.50. It is pertinent to note here that only three trades had taken place on

the day prior to the placing of buy and sell orders by Ms. Hina Vora and Mr. Vijay Vora as

aforesaid and all the three trades had taken place at Rs. 98.95. For all the 3 trades, Mr. Vijay

Vora through stock broker M/s. M R Share Broking Pvt. Ltd. was on the buy side, and for 2 out of

the said 3 trades, Ms. Hina Vora through Monarch was also on the sell side.

II. It is, thus, noted that Mr. Vijay Vora had placed the sell order at a discount of Rs. 1.45 to the

ruling market price. Further, since the quantity of the buy order of Ms. Hina Vora and sell order

placed by her husband Mr. Vijay Vora within close proximity to one another were the same, and

the sell rate of Mr. Vijay Vora was lower than the buy rate of Ms. Hina Vora, it should have

immediately alerted Monarch of the intent of Mr. Vijay Vora and Ms. Hina Vora to cause

artificial volumes in the scrip of SIL.

TRADE_DATE TRADE_TIME

MEMBER_NAME

CLIENT_NAME

TRADE_QTY

TRADE_RATE

LTP_INRS

LTP_PERCENTAGE

TRADE_VALUE

CP_MEMBER_NAME

CP_CLIENT_NAME

04/12/2010 12.28.24.147993

MR SHARE BROKING PVT.LTD.

VIJAY JAMNADAS VORA 19000 99 3.9 3.93 1881000

MONARCH RESEARCH & BROKERAGE PVT.LTD.

HINA VIJAYKUMAR VORA

04/12/2010 12.28.47.878362


HINA VIJAYKUMAR VORA 1 99.9 0.9 0.9 99.9

RELIGARE SECURITIES LTD.

LAKSHMI VAITHILINGAM

04/12/2010 12.30.19.939237


HINA VIJAYKUMAR VORA 10000 95.5 -4.4 -4.6 955000


VIJAY JAMNADAS VORA

04/12/2010 12.30.25.410570


VIJAY JAMNADAS VORA 49 99.9 4.4 4.4 4895.1

RELIGARE SECURITIES LTD.

LAKSHMI VAITHILINGAM

04/12/2010 12.31.11.716233


VIJAY JAMNADAS VORA 51 99.9 0 0 5094.9


VIJAY JAMNADAS VORA


III. At trade time 11.28.59.934907, the two orders matched resulting in trade for 8,000 shares at Rs.

97.75. Thus, once again Monarch failed to prohibit such trades though he was the broker and

counterparty broker. This strengthens the fact that Monarch did not exercise due skill, care and

diligence in conduct of his business to prohibit creation of artificial volume in the scrip of SIL.

C. On 22.04.2010, Ms. Hina Vora bought 5,000 shares from Mr. Vijay Vora as follows:

I. It is observed from the trade and order log that at 11:25:34.158850, vide order id

15000057023686, Mr. Vijay Vora had placed a sell order for 5,000 shares at Rs. 97.95 through

Monarch. The said order was updated to Rs. 97.85 at 13:36:12.290958. Immediately thereafter

at 13:36:21.916066, vide order id 15000057033146, Ms. Hina Vora placed a buy order for 5,000

shares at Rs. 97.85 through Monarch.

II. Thus, it is observed that though Mr. Vijay Vora had placed the sell order at 11:25:34.158850, the

sell order rate of Mr. Vijay Vora was lowered to Rs. 97.85 at 13:36:12.290958 and immediately

thereafter, Ms. Hina Vora’s buy order was placed in sync with Mr. Vijay Vora’s sell order

quantity and price at 13:36:21.916066. This resulted in trade for 5,000 shares at Rs. 97.85 at

13.36.22.052532.

III. Since both husband and wife had placed the sell and buy orders through Monarch, and after the

husband had updated his sell order rate, the wife had immediately thereafter placed her buy

order in sync with the sell order of her husband, matching both the quantity and price, it

becomes once again, but, obvious that the broker Monarch had not exercised due skill, care and

diligence in conduct of his business to prohibit creation of artificial volume in the scrip of SIL due

to fictitious trades between husband and wife.

D. On 26.04.2010, Ms. Hina Vora bought 3,000 shares from Mr. Vijay Vora as follows:

I. It is observed from the trade and order log that at 14:35:40.809775 vide order id

11000058037197, Ms. Hina Vora through Monarch placed a buy order for 3,000 shares at Rs.

103.25. Thereafter at 14:37:15.385847, vide order id 20000068040636, Mr. Vijay Vora through


Monarch placed a sell order for 3,500 shares at Rs. 103.25. Since the rate of the buy order of

Ms. Hina Vora and sell order placed by her husband Mr. Vijay Vora within close proximity to one

another were the same, it should have immediately alerted Monarch of the intent of Mr. Vijay

Vora and Ms. Hina Vora to cause artificial volumes in the scrip of SIL.

II. At 14.37.15.589565, out of sell order id 20000068040636 of Mr. Vijay Vora, 240 shares matched

with third party, before buy order of Ms. Hina Vora matched with sell order of Mr. Vijay Vora

resulting in a trade for 3,000 shares at Rs. 103.25 at trade time 14.37.15.590085. Immediately

thereafter at 14:37:22.953030, Mr. Vijay Vora through Monarch deleted the balance quantity of

260 shares from his sell order. This confirms the fact that intent of Ms. Hina Vora and Mr. Vijay

Vora was to create artificial volume in SIL scrip. However, Monarch did not prohibit such trades

though he was the broker and counterparty broker. Hence, there is no question of doubt that

Monarch did not exercise due skill, care and diligence in conduct of its business to prohibit

creation of artificial volume in the scrip of SIL.

E. On 14.09.2009, Ms. Hina Vora bought 1,000 shares from Mr. Vijay Vora as follows:

I. At 10:45:21.850103, vide order id 19000028022018, Mr. Vijay Vora through Monarch placed a

sell order for 2,000 shares at Rs. 92. The sell order rate was reduced to Rs. 91.50 at

10:50:31.120883 and further reduced to Rs. 91 at 10:56:35.114398. Subsequent to the same, at

10:59:26.297908, Ms. Hina Vora through Monarch placed a buy order for 1,000 shares at Rs. 91

vide order id 14000027017362. Prior to the same, Mr. Vijay Vora through Monarch had also

placed a buy order for 1,000 shares at Rs. 87 at 10:58:34.261887 vide order id 12000025025163.

II. At 10.58.30.000000, 1000 shares of sell order id 19000028022018 of Mr. Vijay Vora matched

with a third party before buy order id 14000027017362 of Ms. Hina Vora matched with sell

order id 19000028022018 of Mr. Vijay Vora resulting in a trade for 1,000 shares at Rs. 91 at

trade time 10.59.26.000000. Subsequent to the same Mr. Vijay Vora through Monarch at

11:08:17.099581, deleted his buy order for 1,000 shares placed vide order id 12000025025163.

III. Further, it is observed that immediately after deleting the pending buy order for 1,000 shares as

aforesaid, Mr. Vijay Vora through Monarch placed two sell orders for 71 and 100 shares at


11:08:42.734110 and 11:08:57.810708 respectively, each at Rs. 86/- though the last traded price

at that point of time was Rs. 91.35.

IV. The fact that Mr. Vijay Vora through Monarch had deleted his buy order for 1,000 shares, after

1,000 shares from his earlier pending sell order of 2,000 shares matched with Ms. Hina Vora,

strengthens the case that Mr. Vijay Vora had placed the buy order for 1,000 shares only with an

intent to create artificial volume in SIL scrip. It is pertinent to note here that immediately after

deleting his buy order for 1,000 shares as aforesaid, Mr. Vijay Vora had placed his sell orders

through Monarch at Rs. 86, i.e. at a rate much lower than the last traded price of Rs. 91.35.

V. Despite the manipulative intent of Mr. Vijay Vora and Ms. Hina Vora becoming evident from the

manner in which they placed their trades, whereby buy/ sell order rates were kept away from

the last traded price and then matched by placing corresponding sell/ buy orders, Monarch

though being the broker and counterparty broker to such trades, failed to exercise due skill, care

and diligence.

F. On 12.10.2009, Mr. Vijay Vora bought 993 shares from Ms. Hina Vora as follows:

I. At 13:59:15.658832 vide order id 18000066036415, Ms. Hina Vora through Monarch placed a

sell order for 1,000 shares at Rs. 103.90. Immediately thereafter at 14:03:58 vide order id

18000066036754, Mr. Vijay Vora through Monarch placed a buy order for 1,000 shares at Rs.

104. Since the sell order rate was less than the buy order rate, it was, but, obvious that the two

orders placed in close proximity of one another would match.

II. The last traded price prior to Mr. Vijay Vora’s placing of buy order as aforesaid was Rs. 102.35.

Despite the same, Mr. Vijay Vora had placed his buy order at a much higher price of Rs. 104.

III. At 14.03.58, 7 shares of Mr. Vijay Vora’s buy order matched with third party at Rs. 103.75 before

a trade for 993 shares at Rs. 103.90 got executed between Mr. Vijay Vora and Ms. Hina Vora.

The buy order of Mr. Vijay Vora pulled the price of SIL scrip up cumulatively by Rs. 1.45 by

execution of the aforesaid two orders.


IV. The fact that Mr. Vijay Vora was placing his buy order at a steep increment to the last traded

price made it evident that Mr. Vijay Vora’s intent was to match his buy order with the sell order

of Ms. Hina Vora to create an appearance of trading in the scrip of SIL and in the process

manipulate the price of SIL scrip. Monarch though being the broker and the counterparty broker

to Mr. Vijay Vora’s buy and Ms. Hina Vora’s sell orders, repeatedly failed to exercise due skill,

care and diligence in conduct of his business.

20. Similarly, out of self trades of Mr. Vijay Vora for 18,358 shares i.e. trades in which both buyer and

the seller are the same party and does not result in change of beneficial ownership, the Noticee

Monarch is observed to have acted as both broker and counterparty broker for 5,087 shares. Such

self trades by Mr. Vijay Vora with Monarch as the broker as well as the counterparty broker were

observed to have been executed on 23 days during the investigation period and involved 37 trades.

21. It is noted that out of the above self trades, Mr. Vijay Vora executed 3 structured trades for 201

shares as shown below:

TRADE DATE

TRADE TIME

MEMBER NAME

CLIENT NAME

TRADE QTY

TRADE RATE

ORDER TIME

ORDER RATE

ORDER QTY

CP MEMBER

NAME

CP CLIENT NAME

CP ORDER

TIME

CP ORDER RATE

CP ORDER

QTY

19/06/2009 12.47.01.000000 Monarch Vijay 100 74.2 12:47:01.221854 74.2 100 Monarch Vijay 12:46:24.146967 74.2 1000




22. With regard to the Self Trades of Mr. Vijay Vora which were not structured and where Monarch

acted as the broker and counterparty broker, a few instances have been elaborated to explain how

Monarch failed to exercise due skill, care and diligence in conduct of his business to prohibit

creation of artificial volume in the scrip of SIL due to fictitious self trades executed by Mr. Vijay Vora:

A. Self trade by Mr. Vijay Vora on 05.01.2010 for 1,000 shares


buy order for 1,000 shares at Rs. 93. A little later at 15:11:48.843732, vide order id

23000033037286, Mr. Vijay Vora through Monarch placed a sell order for 2,000 shares at Rs. 93.


II. At 15:00:18.680235 when Mr. Vijay Vora placed the buy order at Rs. 93, it is observed that the

trades were getting executed at Rs. 94 and above. In fact, prior to Mr. Vijay Vora placing his buy

order at Rs. 93, the trades for the day had got executed at Rs. 94 and above. Hence, it was

evident to Monarch that the buy order of Mr. Vijay Vora would not get executed immediately.

When 11 minutes later Mr. Vijay Vora placed a sell order again through Monarch at the same

rate as his buy order, any prudent broker who would have exercised due care and diligence to

prevent such self trade from happening. However, Monarch failed to do so despite being the

broker and the counterparty broker to the trade.

B. Self trade by Mr. Vijay Vora on 11.02.2010 for 448 shares


sell order for 1,000 shares at Rs. 123.7. Immediately thereafter between 11.11.49.050297 upto

11.11.51.267981, 4 trades for 20, 100, 50 and 200 shares got executed at Rs. 123.7. At this

juncture, the price of the scrip fell to Rs. 123 and below, thus, 630 shares of the aforesaid sell

order of Mr. Vijay Vora remained unexecuted. The trade rate subsequently came down upto

115.35 and again moved up to Rs. 122 at 12.39.16.531665.

II. At this point of time, at 12:39:55.609148, vide order id no. 14000075010203, Mr. Vijay Vora

through Monarch placed a buy order for 500 shares at Rs. 125. The last trade price prior to Mr.

Vijay Vora’s placing the said buy order had got executed at Rs. 122. Despite the same, Mr. Vijay

Vora had placed his buy order at a much higher rate of Rs. 125 i.e. at a steep increment to the

last traded price. Again at 12:40:43.896373, vide order id 14000075010232, Mr. Vijay Vora

through Monarch placed another buy order for 1,000 shares at Rs. 125. The two buy orders of

Mr. Vijay Vora, thus, moved the price of the scrip up. At trade time, 12.40.44.539556, self trade

for 446 shares got executed at Rs. 123.7 as pending sell order id 13000061010234 of Mr. Vijay

Vora matched with his buy order id 14000075010232.

III. Immediately thereafter at 12:40:57.492954, Mr. Vijay Vora updated his sell order rate to Rs. 137

from Rs. 123.7, hence, the pending quantity of 184 shares (630-446) remained unexecuted till

the end of the day. Thus, it again becomes clear that had Monarch exercised due care and


diligence in discharge of its duty as a broker, it would have prevented such self trade from

happening.

23. I note that the aforesaid instances defeat the argument put forth by Monarch that they had placed

the orders at the market price and they had not placed the orders above / below the market price

available on the floor of the exchange. In fact, I note from the instances elaborated above that the

clients Mr. Vijay Vora/ Ms. Hina Vora were placing their buy/ sell orders away from the market rates

through Monarch and subsequently placing their corresponding sell/ buy orders again through

Monarch, in such a manner, so as to match with the pending buy/ sell orders. I further find that the

clients Mr. Vijay Vora/ Ms. Hina Vora were also carrying out synchronized/ structured trades

between themselves through Monarch. This conduct of the two clients could have alerted any

prudent stock broker to take steps for preventing such fictitious trades from happening, however,

the Noticee failed to exercise due care and diligence.

24. Further, I note that the client Mr. Vijay Vora had also done self trades, wherein the Noticee was the

buying broker as well as the selling broker. I find that the Noticee was the broker and the

counterparty broker for self trades for 5,087 shares executed by Mr. Vijay Vora on 23 days during

the investigation period and involved 37 trades. I find that these self trades were done by Mr. Vijay

Vora without effecting any change in beneficial ownership, and thus, undoubtedly fictitious and

meant to create false appearance of trading in the scrip. With regard to the self trades, I note that

Hon’ble Securities Appellate Tribunal (SAT) in Anita Dalal vs. SEBI (Appeal No. 211 of 2012 decided

on December 03, 2012) has held that:

"Self trades admittedly are illegal. This Tribunal has held in several cases that self trades call for

punitive action since they are illegal in nature. In M/s. Jayantilal Khandwala & Sons Pvt. Ltd. vs.

Securities and Exchange Board of India (Appeal no. 24 of 2011 decided on June 8, 2011) this Tribunal

has held that “one cannot buy and sell shares from himself. Such transactions are obviously fictitious

and meant only to create false volumes on the trading screen of the exchange."

25. Monarch, however, failed to take such due skill, care and diligence in the conduct of its business to

prohibit creation of artificial volume in the scrip of SIL through fictitious trades executed between

husband and wife/ self trades executed by Mr. Vijay Vora. In the matter, I note that the Hon’ble

Supreme Court in the matter of Chander Kanta Bansal vs. Rajinder Singh Anand [(2008) 5 SCC 117]


has discussed the concept of ‘due diligence’ and observed that due diligence meant ‘reasonable

diligence; …. such diligence as a prudent man would exercise in the conduct of his own affairs.’

26. I note here that Monarch has repeatedly argued that the impugned trades were a miniscule

percentage of their total trades to create any artificial volume to attract the investing public at large.

I note that Monarch during the investigation period had executed cross deals which accounted for

6% of Mr. Vijay Vora’s buy and Ms. Hina Vora’s sell and 70% of Mr. Vijay Vora’s sell and Ms. Hina

Vora’s buy in respect of trades between Ms. Hina Vora and Mr. Vijay Vora. Further, 6,500 shares i.e.

13% out of the total of 47,670 shares, where Monarch acted as a broker and counterparty broker to

the trades of Mr. Hina Vora and Ms. Vijay Vora, were synchronized. Similarly, out of self trades for

18,358 shares executed by Mr. Vijay Vora, Monarch acted as a broker and counterparty broker for

5,087 shares i.e. 27%. In fact, I note that the aforesaid percentages are significant enough to

conclude that Monarch facilitated its clients Mr. Vijay Vora/ Ms. Hina Vora to execute fictitious

trades detrimental to the interest of investors trading in SIL scrip during the relevant period.

27. Monarch has submitted that the terminal number mentioned in the SCN was not a terminal number,

but, was an IML id, and that 50 number of users could log in from the same IML id, and if maximum

number of users exceeded 50, then it would automatically shift to another IML id. Further, that the

said mechanism is provided by the exchange empanelled service provider. As regards the buy and

sell order from the same terminal, I note that it has been submitted that the time of entering the

orders are different and not the same.

28. I further note that Monarch has inter alia also stated that their clients viz. Mr. Vijay Vora and Ms.

Hina Vora are their regular clients and they traded in other scrips as well during the investigation

period. Further, the said clients used to meet their obligation regarding funds and securities within

the prescribed time limit, and that the said clients had kept collateral securities with the Noticee,

which was higher than their trades in the alleged SIL scrip.

29. I find that the issue in question is not that the aforesaid clients had defaulted in meeting their

obligation regarding funds and securities within the prescribed time limit, and despite the same,

Monarch allowed them further exposure. The allegations against the Noticee is that by acting as

both broker and counterparty broker to the fictitious trades of Ms. Hina Vora and Mr. Vijay Vora,


the Noticee failed to exercise due skill and care in terms of clause A (2) of Code of Conduct for Stock

Brokers as specified under Schedule II read with Regulation 7 of Stock Brokers Regulations.

30. I note that the Noticee has further stated that due care was taken by them while registering the said

clients, and that all required documents which were necessary and mandatory as per the Rules,

Regulations and Bye Laws of SEBI and the Exchanges were collected from the respective clients. This

by itself was not sufficient. Exercise of due diligence in ongoing transactions is a continuous process,

and it is not a one-time measure to be adhered to while taking up the first transaction.

31. Further, Monarch has stated that they had not done any reversal of trades of their clients in the

alleged SIL scrip, as has been pointed out in the SCN. In the matter, I note that Monarch was the

broker and counterparty broker for 41,768 shares sold by Ms. Hina Vora to her husband Mr. Vijay

Vora. Again, I find that Monarch was also the broker and counterparty broker for 5,902 shares sold

by Mr. Vijay Vora to Ms. Hina Vora. Thus, I note that Monarch was the broker and counterparty

broker for reversal of 5,902 shares between Mr. Vijay Vora to Ms. Hina Vora.

32. I note that Hon’ble SAT in the matter of M/s. Kasat Securities Pvt. Ltd. Vs SEBI dated June 20, 2006

has held as follows:

“..It is obvious that these trades were executed by the clients and the appellant acted only as a

broker. If the appellant knew that the trades were fictitious then there would be no hesitation in

upholding the finding of the Board that it aided and abetted the parties to execute fraudulent

transactions.”

33. In the extant case, both Mr. Vijay Vora and Ms. Hina Vora were clients of the Noticee. Also, the

Noticee was well aware of the fact that they were husband and wife. Further, it is noted from the

aforesaid that both husband and wife were placing their orders away from the last traded price. Buy

orders were placed at rates much higher than the last traded price and the sell orders were placed

at a discount to the last traded price. The trades were subsequently matched between themselves.

In this manner, trading through Noticee Monarch, Ms. Hina Vora and Mr. Vijay Vora executed self

trades/ reversal trades/ synchronised trades. Being the broker and counterparty broker to such

fictitious trades placed by husband and wife, the Noticee’s suspicion should have been aroused that


Ms. Hina Vora and Mr. Vijay Vora were indulging in some kind of manipulation. Further, the

aforesaid instances demonstrate how Monarch failed to exercise due skill, care and diligence in

conduct of its business to prohibit creation of artificial volume in the scrip of SIL by Ms. Hina Vora

and/ or Mr. Vijay Vora through fictitious trades, which were not mere coincidences. There are 38

days during the investigation period involving 86 trades, wherein Monarch acted as the broker on

both the sides of the trade between Mr. Vijay Vora and Ms. Hina Vora and facilitated happening of

such fictitious trades. Also, Monarch was the broker and the counterparty broker for the self trades

executed by Mr. Vijay Vora on 23 days during the investigation period and involved 37 trades.

34. Regulation 7 of the Stock Brokers Regulations prescribes that stock broker holding a certificate shall

at all times abide by the Code of Conduct as specified in Schedule II. Clause A(2) of the Code of

Conduct mandates that a stock broker shall act with due skill, care and diligence in the conduct of all

its business. Such due skill, care and diligence means that broker shall remain careful and diligent so

that nothing untoward happens in the market or in the activities connected with it. By not being

able to detect such false volumes created by the aforesaid clients in SIL scrip, despite being a broker

and the counterparty to the fictitious trades of the said clients and being aware of the relationship

between them, makes a strong case against the Noticee of being indifferent and unconcerned, and

having failed to exercise due skill and care in terms of clause A (2) of Code of Conduct for Stock

Brokers as specified under Schedule II read with Regulation 7 of Stock Brokers Regulations.

35. The submission made by the Noticee can’t suffice for their inability and non complicity in the

aforesaid transactions and can’t establish that they were not guilty of the violation of the

aforementioned allegations. Therefore, I don’t find the explanations of the Noticee satisfactory.

Further, Monarch being a stock broker, understands the implications of his actions well, and, should

have put proper mechanisms in place, so as to avoid the trades of Mr. Vijay Vora through it resulting

in self trades. The same also holds true for the fictitious trades executed between Ms. Hina and Mr.

Vijay Vora. Every broker has the responsibility to exercise due care and diligence. The argument that

the said clients had also traded in many other scrips during the investigation period and had met

their obligation regarding funds and securities within the prescribed time limit, does not absolve the

Noticee Monarch from failure to discharge its duties as a prudent broker for the fictitious trades

executed by the said clients in SIL scrip.


36. I note further that the Noticee has stated that the trades were executed as per the instructions

received from the respective clients, as per the market mechanism made available by the Exchange.

In this connection, it would be relevant to refer to the order of the Hon'ble SAT in Madhukar Sheth

v. SEBI (Appeal No. 46 of 2002). The following is extracted from the said order dated 18th

September 2003:

“...It is true that a broker cannot act of his own against the instructions of the client. But no one can

compel him to be a party to manipulate the market. No doubt a broker is supposed to protect the

interest of his client, but he is also expected to protect the interest of the securities market in which

he operates. It is his duty to ensure not to be a party to any market manipulation and that the

market in which he operates is run on a healthy and non-manipulative basis."

37. Thus, in the instant case in light of the facts of the case and material available on record, I find that

Monarch as a broker failed to carry out its business with due skill, care and diligence in terms of

clause A (2) of Code of Conduct for Stock Brokers as specified under Schedule II read with Regulation

7 of the Stock Brokers Regulations for the transactions as aforesaid carried out by it on behalf of Ms.

Hina Vora and Mr. Vijay Vora.

38. In view of all of the above, I am convinced that it is a fit case for imposing monetary penalty under

section 15HB of SEBI Act. Hence, the next issue for consideration is what would be the monetary

penalty that can be imposed on Monarch for the violation of clause A(2) of Code of Conduct for

Stock Brokers as specified under Schedule II read with Regulation 7 of the Stock Brokers Regulations.

The Hon’ble Supreme Court of India in the matter of SEBI Vs. Shri Ram Mutual Fund [2006] 68 SCL

216(SC) held that “In our considered opinion, penalty is attracted as soon as the contravention of the

statutory obligation as contemplated by the Act and the Regulations is established and hence the

intention of the parties committing such violation becomes wholly irrelevant…”.

39. The aforesaid violations by Monarch makes it liable for penalty under Section 15 HB of the SEBI Act

which reads as follows:

15HB - Penalty for contravention where no separate penalty has been provided

Whoever fails to comply with any provision of this Act, the rules or the regulations made or directions

issued by the Board thereunder for which no separate penalty has been provided, shall be liable to a

penalty which may extend to one crore rupees.”

http://indiankanoon.org/doc/1016398/




40. While determining the quantum of penalty under sections 15HB of the SEBI Act, it is important to

consider the factors stipulated in section 15J of SEBI Act, which reads as under:

“15J - Factors to be taken into account by the adjudicating officer

While adjudging quantum of penalty under section 15-I, the adjudicating officer shall have due

regard to the following factors, namely:-

(a) 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.”

41. It is difficult in cases of such nature to quantify exactly the disproportionate gains or unfair

advantage enjoyed by an entity and the consequent losses suffered by the investors. I have noted

that the investigation report also does not dwell on the extent of specific gains made by the clients

or brokers.

42. I note that person found guilty of any regulations where no separate penalty has been provided is

liable to a penalty which may extend to one crore rupees, under Section 15HB of the SEBI Act.

43. Detailed analysis, brought out above, of the buy and sell orders placed by Ms. Hina Vora and Mr.

Vijay Vora that resulted in trades between husband and wife by placing the buy/ sell orders away

from the market rates and then matching the sell/ buy orders with each other, and also reversal/

synchronized/ structured/ self trades, all of which have been done through Monarch as broker and

counterparty broker, dismisses the Noticee’s version that they had taken due care with respect to

the above clients. On the contrary, the manner in which trades were placed by the Noticee on

behalf of the husband and wife clearly demonstrates beyond reasonable doubt that the Noticee

engaged in execution of such fictitious trades. I find that this is sufficient to prove that Monarch

failed to carry out its business with due, skill, care and due diligence in violation of Regulation 7 read

with Clause A(2) of Code of Conduct for Stock Brokers as specified in Schedule II of the Stock Brokers

Regulations.


44. I note that the Noticee has sought to rely upon the following Orders of SEBI and SAT, wherein stock

brokers have been given only a warning:

44.1 M/s. FMS Securities Ltd.( hereinafter referred to as ‘FMS’) in the matter of trading in

shares of M/s Aditya Infosoft Ltd., wherein the Learned WTM of SEBI vide Order dated July

23, 2013 had warned FMS to be careful and cautious in the conduct of its stock broking

activity and to adhere to and comply with all the statutory provisions while carrying out its

activities in the securities market.

On perusal of the said Order, I note that in the said case, the allegation against FMS was that

it had executed 10 self trades for 10,000 shares for the same client, wherein FMS was the

common broker who had placed the buy order for 10,000 shares and sell order for 10,000

shares on behalf of his client. Also that FMS had executed synchronized trade for its client

on buy side for 15,300 shares, when the client’s connected counterparty client trading

through another broker was on the sell side. In that case, the involvement of FMS in

synchronized transaction could not be established and FMS was found to be involved in self

trade on one day during the investigation period. Further, in the said case, SEBI had initiated

proceedings against the Noticee under Regulation 6(1) of SEBI (Procedure for Holding

Enquiry and Imposing Penalty) Regulations, 2002 (hereinafter referred to as ‘Enquiry

Regulations’) (since repealed) and continued under SEBI (Intermediaries) Regulations, 2008

(hereinafter referred to as ‘Intermediaries Regulations’), wherein a view was taken that

warning FMS would be reasonable and commensurate with violations committed by it in

that case.

The facts and circumstances of the extant case are different and involve adjudication

proceedings initiated against the Noticee under chapter VI-A of SEBI Act. Further, in the

extant case it is observed that Noticee had acted as the broker on both the sides of the

trade between Mr. Vijay Vora and his wife Ms. Hina Vora for 47,670 shares on 38 days

during the investigation period involving 86 trades, of which 3 trades for 6,500 shares were

synchronized. Also that the Noticee was the broker and the counterparty broker for self

trades for 5,087 shares executed by Mr. Vijay Vora on 23 days during the investigation

period involving 37 trades, of which 3 trades for 201 shares were structured. The Noticee

was also observed to have acted as the broker and counterparty broker for reversal of 5,902

shares between Mr. Vijay Vora to Ms. Hina Vora. Contrary to the aforesaid case referred by

the Noticee, in the instant case it has been established that the Noticee facilitated


happening of such fictitious trades through his indifferent and unconcerned conduct and did

not act with due skill, care and diligence that a person of ordinary prudence would act in the

normal circumstances in carrying out activities and functions relating to its business;

44.2 M/s. SPS Share Brokers Pvt. Ltd. (hereinafter referred to as ‘SPS’) in matter of M/s.

Ravalgaon Sugars Farms Ltd. (hereinafter referred to as ‘Ravalgaon’) and Shrenuj & Co.

Ltd (hereinafter referred to as ‘Shrenuj’), wherein the Learned WTM of SEBI vide Order

dated August 06, 2013 had issued a warning to SPS to be careful and cautious in the conduct

of its stock broking activity and not to repeat similar violations, as the same may result in

higher penalty.

On perusal of the said Order, I note that in the said case, the allegation against SPS was that

it had aided and abetted its client in creation of artificial volume in the scrips of Ravalgaon

and Shrenuj by entering into synchronized/ structured transactions with its counterparty

broker. Further, in the said case, SEBI had initiated proceedings against the Noticee under

Regulation 5(1) of Enquiry Regulations.


proceedings initiated against the Noticee under chapter VI-A of SEBI Act. Unlike the case at

hand, in this cited case, the broker SPS did not act on both (buy and sell) sides, i.e. as broker

and as counter party broker. Further, the cited case does not involve self trade and reversal

trade transactions. Also, unlike the extant case, in the cited case, SPS did not act as the

broker on both the sides of the trade between two related clients. Thus, in the case at hand,

since the Noticee has acted as broker and counter party broker in respect of self trades,

synchronized trades, reversal trades of its clients and also in respect of trades between

husband and wife, I find that its culpability and role is on a completely different footing than

as of the broker SPS in the cited case.

44.3 M/s. Tropical Securities and Investment Pvt. Ltd. (hereinafter referred to as ‘Tropical’) in

matter of Prudential Pharmaceuticals Ltd. (hereinafter referred to as ‘Prudential’), wherein

the Learned WTM of SEBI vide Order dated September 30, 2013 had issued a warning to

Tropical to be careful and cautious in the conduct of its stock broking activity and not to

repeat similar violations, as the same may then result in higher penalty.


On perusal of the said Order, I note that in the cited case, the allegation against Tropical was

that it had executed synchronized transactions with various entities to tide over the liquidity

problem/ pay-in requirement of the stock exchange, thus misusing the stock exchange

mechanism for the settlement of private financing arrangement outside the stock exchange.

Besides, in the cited case, the Learned WTM of SEBI had noted that though investigation

period was divided in two, there were only two intervening days that bifurcated the

investigation conducted by SEBI into two distinct investigation periods, and that the modus

operandi employed by the Noticee during both the investigation periods was same. The

Learned WTM of SEBI also noted the broker Tropical had already been suspended for one

month in respect of the latter part of the investigation period. Hence, considering the facts

in totality, a view was taken by the Learned WTM of SEBI that additional penalty of

suspension of registration certificate is not warranted in the matter and hence issued a

warning. The Learned WTM of SEBI in the cited case had also observed that in a similar case

in which similar modus operandi was employed by the appellants, the Hon’ble SAT had held

that “if all enquiries had been conducted simultaneously, the appellants would not have

found themselves in the situation in which they are today”. Further, in the said case, SEBI

had initiated proceedings against the Noticee under the Enquiry Regulations (since

repealed) and continued under the Intermediaries Regulations.


proceedings initiated against the Noticee under chapter VI-A of SEBI Act. Unlike the case at

hand, in the cited case, the broker Tropical did not act as the broker on both the sides of the

trade between two related clients. Thus, in the case at hand, since the Noticee has acted as

broker and counter party broker in respect of self trades, synchronized trades, reversal

trades of its clients and also in respect of trades between husband and wife, I find that its

culpability and role is on a completely different footing than as of the broker Tropical in the

cited case. Besides, it is pertinent to note here that warning was issued for the first

investigation period only after penalty of suspension of registration certificate had been

imposed on the broker Tropical for the latter investigation period, and after finding that the

modus operandi used during both the periods was the same.

44.4 M/s. Finquest Securities Pvt. Ltd. (hereinafter referred to as ‘Finquest’) vide SAT appeal no.

119 of 2013, wherein Hon’ble SAT while upholding that the act of receiving payments


through third parties was in violation of clause A (2) and A (5) of Schedule II prescribed under

Regulation 7 of Stock Brokers Regulations, set aside the penalty and directed the appellant

to be more careful in complying with the regulatory norms prescribed by SEBI, based on the

facts of the said case.

On perusal of the said Order, I note that in the cited case, the allegation against Finquest

was that it had contravened the contents of circular dated August 27, 2003 issued by SEBI by

accepting payments from third parties and unrelated entities on behalf of its registered

clients through normal banking channels like Real Time Gross Settlement i.e. RTGS and

cheques, thereby violating the Code of Conduct for stock brokers, in as much as, the

appellant had failed to act with due skill, care and diligence in conduct of its business. The

facts of the cited case are completely dissimilar to the present case, hence, the decision of

the Hon’ble SAT in the cited case cannot be made applicable to a completely different set of

facts and circumstances of the case in hand.

44.5 M/s. R R Chokahani Stock Brokers Pvt. Ltd. (hereinafter referred to as ‘R R Chokhani’) vide

SAT appeal no.217 of 2012, wherein too similar to the earlier case, Hon’ble SAT while

upholding that the act of receiving payments through third parties was in violation of clause

A (2) and A (5) of Schedule II prescribed under Regulation 7 of Stock Brokers Regulations, set

aside the penalty and directed the appellant to be more careful in complying with the

regulatory norms prescribed by SEBI based on the facts of the said case.

On perusal of the said Order, I note that in the cited case, the allegation against R R

Chokhani was that it had traded for some clients who were related to the promoters of Bank

of Rajasthan and received payments for trades from third parties, which is specifically

prohibited by SEBI vide circular dated August 27, 2003. As has been brought out above, the

facts of the cited case are completely dissimilar to the present case, hence, the decision of

the Hon’ble SAT in the cited case cannot be made applicable to a completely different set of

facts and circumstances of the case in hand.

44.6 M/s. SPJ Stock Brokers Pvt. Ltd. (hereinafter referred to as ‘SPJ’) vide SAT appeal no. 52 of

2013, wherein Hon’ble SAT had quashed and set aside the impugned order dated February

08, 2013 in the matter of M/s. Adani Exports Ltd.


The cited case pertains to alleged synchronized transactions carried out by SPJ on behalf of

one group. In the matter, the Hon’ble SAT observed that except recording that trades

executed by SPJ with one group were synchronized, no other particulars were set out in the

impugned order. The Hon’ble SAT in the said case held that there was no direct or

circumstantial evidence which is brought on record to suggest that SPJ was connected to the

group or connived with that group, hence, it would not be proper to hold SPJ guilty of

violating PFUTP Regulations/ Stock Broker Regulations;

Contrary to the same, in the case at hand, there was enough evidence on record from the

pattern of trading which has been illustrated above, to make the Noticee aware that

husband and wife were executing fictitious trades in SIL scrip. Further, in the case at hand,

since the Noticee has acted as broker and counter party broker in respect of self trades,

synchronized trades, reversal trades and also in respect of trades between husband and

wife, I find that its culpability and role is on a completely different footing than as of the

broker SPJ in the cited case.

45. Further, as regards the matters referred to by the Noticee as above, I note that nothing is brought

on record to show that facts in the so referred cases are similar to the facts in the extant case. I note

that circumstances and the facts of the said six cases referred by the Noticee are otherwise different

to the facts of the extant case as has been brought out above in detail. Further, some of these cases,

I find, are enquiry matters which does not involve levy of monetary penalties, unlike in the extant

case, wherein adjudication proceedings under Chapter VI-A of SEBI Act have been initiated against

the Noticee.

46. Also, assuming that lower penalty had been imposed based on the facts and circumstances of that

case, it does not automatically imply that same lower penalty need to be imposed in the extant

case. The determination of penalty in the extant case would depend upon the facts and

circumstances of the extant case. In the matter, I would like to refer to the Order of the Hon'ble

Securities Appellate Tribunal (SAT) in the matter of Hybrid Financial Services Limited Vs. SEBI

(Appeal No.119 of 2014 and Order dated June 12, 2014), wherein SAT had observed as follows:

"……. argument that penalty imposed on appellant is excessive compared to penalty imposed in the

case of M/s. Kamalakshi Finance Corporation Ltd. (supra) and Gupta Carpet International Ltd. is also

without any merit, because, firstly, nothing is brought on record to show that facts in that case are


similar to the facts in the present case. Secondly, assuming that excessive relief is granted by SEBI in

some cases, it does not mean that in all other cases similar reliefs should be granted especially when

the Regulations prescribe stringent action for non compliance of disclosure provisions which are

mandatory…..”

47. Further, I note that the Noticee has repeatedly highlighted that the clients Ms. Hina Vora and Mr.

Vijay Vora’s trades through Monarch were very negligible. It is apparent from the case laws referred

above that fictitious trades of the nature executed through Monarch were ordinarily and of their

nature, baneful practices which will, invariably, have the purpose and, often, the effect of interfering

with the integrity of securities market, even though such fictitious trades may be miniscule in

quantity. This sort of activity is, therefore, rightly considered to be illegal, and justifiably so. Further,

vide Order dated October 22, 2013, the Hon’ble Securities Appellate Tribunal (SAT) while

upholding the Order passed by the Learned WTM of SEBI in the matter of Angel Broking Pvt. Ltd.

(hereinafter referred to as ‘ABL’) has held that the argument that the turnover in Sun Infoway Ltd.

scrip was miniscule compared to the large turnover of the appellant and hence penalty need not be

imposed against ABL cannot be accepted, because imposition of penalty for violating provisions of

SEBI Act and regulations made thereunder are not dependent upon total turnover of person

violating the provisions of SEBI Act/ regulations made thereunder. The Hon’ble SAT has opined that

one who has violated the provisions of SEBI Act and regulations made thereunder, must suffer even

if turnover in the scrip in which violations are found is miniscule compared to the total turnover of

that person.

48. In the instant case, I find that Monarch allowed its clients to execute fictitious trades through it. Out

of 95,945 shares Mr. Vijay Vora bought from his wife Ms. Hina Vora (one side), Monarch acted as

both Broker and Counterparty Broker for 5,902 shares traded between Mr. Vijay Vora and Ms. Hina

Vora. Out of 59,302 shares Vijay Vora sold to Ms. Hina Vora during the investigation period,

Monarch acted as both Broker and Counterparty Broker for 41,768 shares traded between Mr. Vijay

Vora and Ms. Hina Vora. Thus, Monarch executed cross deals which accounted for 6% of Vijay Vora’s

buy & Ms. Hina Vora’s sell and 70% of Vijay Vora’s sell and Ms. Hina Vora’s buy of trades between

Ms. Hina Vora and Mr. Vijay Vora. Such trades for 47,670 shares between Mr. Vijay Vora and Ms.

Hina Vora, wherein the Noticee acted as both Broker and Counterparty Broker, were observed to

have been executed on 38 days during the investigation period and involved 86 trades. Further,


6,500 shares i.e. 13% out of the total of 47,670 shares, where Monarch acted as a broker and

counterparty broker to the trades of Mr. Hina Vora and Ms. Vijay Vora, were synchronized. I note

that the Noticee also acted as both broker and counterparty broker in respect of self trades for

5,087 shares executed on 23 days, involving 37 trades during the investigation period, out of the

total self trades for 18,358 shares of Mr. Vijay Vora. Thus, the Noticee was the broker and

counterparty broker in respect of more than one-fourth of the self trades of Mr. Vijay Vora in SIL

scrip during the investigation period.

ORDER

49. After taking into consideration all the facts and circumstances of the case, I impose a penalty of

Rs.35,00,000/- (Rupees Thirty Five Lac only) on the Noticee, M/s. Monarch Research & Brokerage

Pvt. Ltd. under Section 15 HB of the SEBI Act for violation of clause A(2) of Code of Conduct for Stock

Brokers as specified under Schedule II read with Regulation 7 of Stock Brokers Regulations which will

be commensurate with the violations committed by the Noticee.

50. The Noticee shall pay the said amount of penalty by way of demand draft in favour of “SEBI -

Penalties Remittable to Government of India”, payable at Mumbai, within 45 days of receipt of this

order. The said demand draft should be forwarded to Enforcement Department, Division of

Regulatory Action-IV, SEBI Bhavan, Plot No. C – 4 A, “G” Block, Bandra Kurla Complex, Bandra (E),

Mumbai – 400 051.

51. In terms of rule 6 of the Rules, a copy of this order is sent to the Noticee and also to the Securities

and Exchange Board of India.

Date: July 31, 2015 Anita Kenkare

Place: Mumbai Adjudicating Officer

Documents

Adjudication Order in respect of Monarch Research & Brokerage Pvt. Ltd. in the matter of M/s. Sky Industries Ltd