Nirmal Bang Securities Pvt. Ltd. Appellant

M/s.Bang Equity Broking Pvt. Ltd. Appellant

M/s. Bama Securities Ltd. Appellant

M/s. Bang Securities Pvt. Ltd. Appellant

These four appeals are directed against the Respondent�s composite order pertaining to the Appellants passed on 30.7.2002. The order is under regulation 29(3) of the Securities and Exchange Board of India (Stock Brokers and Sub Brokers) Regulations, 1992 (the Stock Broker Regulations) read with regulation 13 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities market) Regulations, 1995 (the FUTP Regulations). According to the Respondent (SEBI) "the index movements of stock exchanges showed excessive volatility especially during mid February to mid March, 2001". In the context of "apprehensions of possible attempts by certain entities to distort the true market discovery and manipulate the securities market" SEBI carried out a preliminary investigation to find out the role of various entities including the Appellants. According to SEBI these preliminary investigations revealed that the Appellants had indulged in large trading transactions in the scrips of some companies (stated in the impugned order) and "these transactions prima facie appeared, inter alia, to have been carried out to artificially depress the prices" of the scrips of the said companies. In that context on 18.4.2001 SEBI passed an exparte order debarring the Appellants from undertaking any fresh business as stock brokers and sub brokers till further order. A post decisional hearing was given to the Appellants on 30.4.2001 and thereafter an interim order confirming the exparte order was passed on 4.6.2001. On the same day an Enquiry Officer was appointed. The Enquiry Officer issued a show cause notice to the Appellant on 10.9.2001. He also issued a second show cause notice to them on 25.1.2002. The Enquiry Officer submitted his report on 22.5.2002. The Enquiry Officer in his report observed inter alia that:

1. Nirmal Bang Securities Pvt. Ltd.(NBS):

1. Indulging in large trading transactions in the selective scrips with a view to depress artificially the prices of these securities between mid February and mid March 2001 in a concerted manner with BEB. These scrips are of Global Tele, HFCL, Infosys, Satyam, DSQ Software, Zee Telefilms and Reliance Industries.

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

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

1. Bang Equity Broking Pvt. Ltd. (BEB):

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

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

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

4. Dealing with Palombe, an unregistered sub broker.

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

1. Bama Securities Ltd (Bama):

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

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

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

1. Bang Securities P. Ltd. (BSL/BSPL):

The Respondent, in the light of the findings of the Enquiry Officer issued a show cause notice to the Appellants on 30.5.2002. They responded to the same by filing replies. They made oral submissions and filed written submissions also. The Respondent adjudicated matter and came to the conclusion that the Appellants "have indulged in large trading transactions with a view to depress the market artificially in a concerted manner, (indulged) in short sales, synchronised trading, trading in particular time slots when the share prices registered substantial fall, routing of large transactions through unregistered sub brokers". In the light of the said finding, the Respondent held the Appellants guilty of violating the Code of Conduct specified in Schedule II of the Stock Broker Regulations and regulations 4(a) to (d) of FUTP Regulations and ordered cancellation of the Appellants� registration with SEBI. Claiming to be aggrieved by the said order the Appellants preferred the present appeals under section 15T of the Securities and Exchange Board of India Act, 1992, (the SEBI Act) praying inter alia that the Respondent�s order dated 30.7.2002 be set aside.

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

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

Learned Senior Counsel having stated the scenario as aforesaid made the following submissions.

The impugned order has been passed in violation of Regulation 29(3) of the Stock Brokers Regulations, that Regulation 29(3) requires SEBI to pass the requisite orders within 30 days of the receipt of the reply to the show cause notice from the noticee. He submitted that the requirements under Regulation 29(3) are mandatory and no relaxation is available.

Even where a personal hearing has been sought, it is incumbent on SEBI to conclude such process and make the Order within the aforesaid period of 30 days. But SEBI has failed to follow the mandatory requirement of regulation 29(3) in the Appellants� case. He stated that the show cause notice dated 30th May, 2002 was issued to all the Appellants including Bama. Bama replied to the aforesaid notice vide its letter dated 12th June, 2002. This reply was delivered to SEBI on 12th June, 2002. Bama did not seek any personal hearing in the matter. Accordingly Bama did not appear before the Chairman, SEBI at the hearing afforded by the Chairman, SEBI and availed by the other Appellants. Consequently, as far as Bama is concerned, the order in the show cause notice was required to be passed not later than 11th July, 2002 in view of the said Regulation 29(3). The impugned order is however dated 30th July, 2002. Therefore, as far as Bama is concerned the impugned order has been passed in violation of the said Regulation 29(3). The provisions of Regulation 29(3) being mandatory the failure to comply with the same will vitiate any order passed in violation thereof. In view of the aforesaid, the impugned order is vitiated at least qua Bama. In the impugned order, the Respondent has come to the conclusion that all the Appellants were acting in concert to artificially depress the price in certain scrips. In this regard, the findings against the Appellants are therefore not severable. SEBI, passed a common order against all the Appellants in spite of the requests of the Appellants to treat them all individually and separately and to pass separate orders in respect of each of them. By clubbing all the Appellants together and rendering a finding in the impugned order that all the Appellants acted in concert to artificially depress the price in the scrip, the impugned order has become inseverable. Consequently, if the impugned order is vitiated qua Bama on account of a violation of the said Regulation 29(3), the impugned order can not survive qua the other three Appellants and must be set aside in toto. In support of the submission this Tribunal�s decision in Atul Kanodia Vs. SEBI ((2002) 46 CLA 251 (Sat) was cited.

SEBI is not empowered to cancel the registration of the Appellants on the basis of the findings rendered in the impugned order. From the impugned order it is clear that SEBI has found the Appellants guilty of having violated the provisions of the Stock Brokers Regulation and the FUTP Regulations and the impugned order has been passed by SEBI, under Regulation 29(3) of the Stock Brokers Regulations and Regulation 13 of the FUTP Regulations. SEBI is not empowered or entitled to cancel the registration of the Appellants on the grounds of violation of the aforesaid Regulations. The penalty of cancellation of registration of Stock Broker/Sub Broker can be imposed by SEBI only on the grounds stipulated under Regulation 26(2) of the Stock Brokers Regulations that:

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

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

Regulation 13 of the FUTP Regulations provides that:

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

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

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

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

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

One fact alone establishes that the depression in the share prices of the concerned scrips was not an artificial one but was a real one. The prices of shares continued a downward spiral even after 15^th March 2001 upto August 2001. If, as alleged, the depression in the prices were artificial and brought about by the alleged acts of the Appellants, then on and after 18^th April, 2001, when the Appellants broking operations were suspended, the trend would have been reversed.

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

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

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

All the stocks listed above have a huge market capitalization and substantial holdings by the FIIs and Indian Financial Institutions and are highly liquid and actively traded scrips. FIIs and Indian Institutions like UTI have come to play a very important role in the Indian Capital market and market movements to a large extent are determined by the buying and selling pattern of the FIIs & Indian Institutions. FII volumes are 5%-10% of the total volumes and account for 35% to 40% of the total delivery volumes at the exchange. FIIs had cumulative sales of Rs.1,344 crores on February 28, 2001, March 1, 2001 and March 2, 2001. Any attempt to depress the prices of the said shares "artificially" would result in an immediate buying from the various FIIs and FIs. SEBI over the years has put in a number of safeguards in terms of limits on individual scrips a broker can carry, global limits across scrips on individual brokers, high / low circuit filters for each stock on any trading day etc.

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

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

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

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

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

Specific submissions on the Enquiry Report and the Impugned Order

Net positions of NBS and BEB

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

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

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

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

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

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

All the sales of NBS and BEB were pursuant to limit orders. This fact can be ascertained from the Order Book. In other words, NBS and BEB specified the price at which they were offering to sell the shares to willing buyers. The limit prices were within +/- -0.5% of the prevailing market prices. The significance of a limit order is that if a person is desirous of artificially depressing the price, his natural and most obvious action would be to either make huge sales without any limit or more likely to offer large number of shares for sale at a price much lower than the prevailing market price. This is not the case in respect of even a single sale transaction of either NBS or BEB. Both the Enquiry Officer and Chairman have conveniently completely ignored this aspect of the matter. Not a single sale transaction of NBS or BEB were executed at the lower circuit filter rate and SEBI has not produced a single such instance. The Chairman has further ignored the fact that the price of the scrip fell from Rs.670 to Rs.609 i.e. by Rs.61, inspite of NBS and BEB being net purchasers in S.No.1046 and S.No.1047. The Chairman further ignored the fact that by the end of S.No.1048 (from S.No.1046), the price of the scrip had fallen by Rs.231, to Rs.439 when NBS had a net purchase of 58,803 shares and BEB had a net purchase of 8,237 shares. In other words, the share price during S.No.1046 to S.No.1048 fell by 35%, when NBS and BEB were net buyers. This shows that there was no co-relation between the Appellants� transactions and the fall in the share prices. SEBI further ignored the fact that in S.No.1050 and S.No.1051, both NBS and BEB had large net purchases inspite of which the share price fell from Rs.312 to Rs.206 i.e. by Rs.106 or by 34%. Once again this shows that there was no co-relation or linkage between the transactions of the Appellants and the fall in the price of the share. On 2^nd March 2001, when NBS purchased 2,39,609 shares, the price fell by Rs.60 i.e. by 16% and hit the lower circuit filter. Similarly, on 28^th February 2001, when NBS and BEB had a combined purchase of 14,739 shares only, the price went up by Rs.51 and hit the upper circuit filter. Once again this establishes that there was no co-relation or linkage between the transactions of the Appellants and the fall in the price of the scrip.

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

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

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

From the above table, it is clear that in 3 of the settlements, the net positions of NBS and BEB were exactly the opposite. In 4 settlements, NBS and BEB had net purchase position. In fact, BEB has net purchase position in 6 out of 8 settlements. NBS and BEB have common net sales position only in one settlement i.e. S.No.1047. This fact clearly established that NBS and BEB were not at all acting in concert to depress the price of the scrip. Admittedly, in Settlement 1047, the entire net sales of NBS were against delivery and the entire net sales of BEB were against previous purchases. In S.No.1047, the price of the scrip fell by Rs.41. Accordingly the fall that can be attributed to NBS and BEB is 6.9% of Rs.41 i.e. Rs.2.83, which is insignificant. In S.No.1049, while BEB was a net seller, NBS was a net purchaser. This clearly shows that the Appellants had no intention of depressing the price of the scrip. In S.No.1049, BEB had a combined sale position of 2.8% and the price fell by Rs.138. Accordingly, the fall that can be attributed to NBS and BEB is 2.8% of Rs.138 i.e. Rs.3.86, which is again insignificant. In S.No.1048, when NBS and BEB were both net purchasers, the price fell by Rs.166 i.e. from Rs.909 to Rs.743, a fall of 18.26%. This shows that there was no co-relation between the Appellants� transactions and the fall in the share prices. Similarly in S.No.1050 and 1051, when NBS and BEB were net purchasers, the price fell from Rs.605 to Rs.214, a fall of Rs.396 (65.45%). This shows that there was no co-relation between the Appellants� transactions and the fall in the share prices.

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

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

The net sales of 18,600 of NBS in S.No.1049 were fully delivered. In S.No.1049, the price of the scrip fell fromRs.5,598 to Rs.4,940 i.e. by Rs.658. On this basis, the net sales of 6.4% of NBS accounted for only Rs.42.11 of the fall. In S.No.1049, while NBS was a net seller, BEB was a net purchaser. This clearly militates against any intention on the part of the Appellants to depress the price of the scrip.

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

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

The settlement-wise position given above are admittedly net positions for the settlement without taking into account the opening positions. Hence, the finding of the Respondent, that the purchase position of 2,41,352 shares in S.No.1044 were reduced to 2,813 shares in S.No.1045 is incorrect (Page 68 of the Appeal). In fact, these were separate purchases made in two different settlements.

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

In S.No.1046, when NBS was a net seller, the price of the scrip fell from Rs.415 to Rs.372. Thereafter, in S.No.1047, when NBS was a net purchaser, the price still fell. Also in S.No.1050, when NBS was a net buyer, the price fell further by Rs.34. Thereafter, in S.No.1051, when both NBS and BEB were net sellers, the price went up by Rs.8/-. This clearly shows that there is no co-relation between the transactions of the appellants and the movement in the price of the scrip. This also shows that NBS and BEB were not acting in concert. Out of the 9 settlements shown above, NBS and BEB had different positions in 5 settlements, common purchase positions in 2 settlements and common sale positions in 2 settlements. In S.No.1046 and 1049, in respect of which it is alleged that NBS effected net sales with a view to depress the price of the scrip, it is seen that BEB had net purchases. This clearly militates against the imputation of any intention to the appellants to depress prices. It has been held by the Respondent that NBS and BEB acted in concert in S.No.1048 and 1051 to bring down the prices as they were both net sellers in these settlements. The Respondent completely overlooked the fact that in S.No.1051, the price of the scrip closed at a figure higher than the closing price in S.No.1050. The Respondent has surmised that the net purchases in S.No.1047 and 1050 were to cover the net sales of the previous settlements. He has conveniently ignored the fact that the net sales in S.No.1046 and 1051 were against previous purchases.

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

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

The finding of the Enquiry Officer and the Respondent that the net purchases made by NBS in S.No.1046 were unwound in the subsequent S.No.1047 and 1048 is incorrect. The Respondent has wrongly stated that this fact was admitted by the Appellants. The net positions given in the statement contained in the report of the Enquiry Officer are the net positions arrived at on the basis of the purchases and sales in a particular settlement without taking into account the opening position in the settlement. In view of this, the net positions of +415 and �14298 in S.Nos.1047 and 1048 do not reflect the unwinding of previous purchases. This establishes that the findings that the net purchases in S.No.1046, which stood at 52.6% of the net of BSE came down to 0.1% of the net purchase position in S.No.1047, which shows that NBS purchased more shares in this settlement than the shares it sold. These facts have been conveniently ignored by the Enquiry Officer as well as the Respondent.

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

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

With regard to trading in this scrip, the main findings are against BEB. As far as NBS is concerned, the only finding of the Enquiry Officer as well as the Respondent is that to the extent that NBS and BEB were simultaneously selling in S.No.1048 and 1049, they could not be said to be acting in concert. As against BEB, the Enquiry Officer has come to the conclusion that "it can be reasonably concluded that the purchases in S.No.1050 when the closing price was Rs.115 could be with a view to cover the earlier short sales and / or taking advantage of the fall in prices after hammering down the prices." The Respondent has merely substituted the words "could be" with the word "was". Both the Enquiry Officer and the Respondent have not given any reasons in support of the finding of "hammering down the prices" by BEB. As such, it is clear that the Enquiry Officer and the Respondent have both proceeded on the presumption that BEB hammered down the price of the scrip without coming to any independent reasoned conclusion in that regard.

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

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

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

According to the Enquiry Officer and the Respondent, Bama was a consistent seller in these scrips on 22^nd, 23^rd and 28^th February and 1^st and 2^nd March, 2001 as under:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Apart from sales, there were also purchases made by Bama during this time slot, which was uniformly spread out throughout the time slot. After the first two sales transactions, the price of the scrip actually rose. Between the period from 11:01:43 to 11:02:25, Bama was a continuous purchaser, inspite of which the price of the scrip fell. After the largest sale transaction of 45,026 shares in the period from 11:03:19 to 11:03:26, the price of the scrip rose. After the sale of 15,623 shares by Bama, the price fell by less than a rupee. This shows that this sale had no impact on the price of the scrip. During the period when the share price registered the maximum fall from Rs.297.49 to Rs.22286.18, Bama had purchases of 2,255 shares. Hence the net sales of Bama during this period, were only 3,665 shares. When compared with the total net sales of Bama of 65,214 shares during this time slot, it is seen that the net sales of Bama during the period when the shares registered the maximum fall, were insignificant. SEBI has alleged that during this time slot, the price of the scrip registered a fall of Rs.12.2. From the above facts, it is clear that when the share price fell from Rs.297.49 to Rs.286.18 i.e. by Rs.11.31, the net sales of Bama were 3,665 shares, which is insignificant. According to SEBI, the net sales of Bama of 62,714 shares constituted 3.97% of the market. On this basis, 3,665 shares would constitute only 0.23% of the market. It is therefore clear that when the share price fell by Rs.11.31, the net sales of Bama were only 0.23% of the market. It is clear from the above that even the sale of 45,026 shares of Satyam within 7 seconds, had no impact on the market price of the share. In fact the price rose. This indicates the depth and liquidity of the scrip.

Apart from sales, there were also purchases made by Bama during this time slot, which was uniformly spread out throughout the time slot. The latest and only significant sale transaction of Bama of 70,299 shares had no impact whatsoever on the price of the scrip � the price of the scrip did not change at all. From 13:17:13 to 13:51:33 (before the sale of 70,299 shares) i.e. when the price of the share fell from Rs.282 to Rs.270, Bama was a net buyer to the tune of 6,300 shares. After the sale of 70,299 shares, during this time slot, the price fell only by s.3. After the purchase of 5,000 shares at 13:51:28, the price of the scrip fell. Similarly, after the purchase of 1,000 shares at 13:45:35, the price of the scrip fell. This clearly shows that there was no correlation between the transactions of Bama and the movement in the price of the scrip.

Apart from the sales, there were also purchases made by Bama during this time slot, which was uniformly spread out throughout the time slot. By the time Bama�s first sale transaction took place, the price of the scrip had already fallen by Rs.30. This fall can therefore never be attributed to Bama. It also shows that the price was already falling before Bama executed its first sale transaction in this time slot. The sales of Bama did not have any significant effect on the price of the scrip. After Bama sold 10,000 shares at 12:41:18 at the average rate of Rs.1070, after 4 minutes the price of the scrip was about Rs.1065. Similarly, after Bama sold 9,000 shares at 12:47:48 at the average rate of Rs.1062, after almost 8 minutes the price of the scrip was about Rs.1050. The percentage fall comes to 0.93% and 1.13% respectively, which is insignificant. This is without taking into account the transactions of other market participants in the intervening periods. During the period between 12.52 and 12.58, though Bama was a net purchaser, the price of the scrip continued to fall.

By the time, Bama sold 10,000 shares, the price of the scrip had already fallen by about Rs.23. Obviously, Bama cannot be held responsible for the fall in the share price. The price had already declined. Apart from sales, Bama had also purchased shares of this scrip during this time slot. Even if it is assumed (without admitting) that Bama�s sale of 10,000 shares caused the price to fall by Rs.5.62, this fall is less than 0.5%, which is totally insignificant. Despite Bama�s sales, the price of the scrip rose to Rs.1016 at about 13:57. This shows that Bama�s transactions had no impact on the price of the scrip.

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

Apart from sales, there were also purchases made by Bama during this time slot, which was uniformly spread out throughout the time slot. The two major sale transactions of 34,448 and 99,000 shares did not have any impact at all on the price of the scrip. The share price barely moved after these sales. The price of the scrip fell during the period when Bama was a continuous purchaser. Though Bama was a net buyer from 12.53 to 13.10 and 13.33 to 13.53, the price of the scrip continued to fall. It is seen that the price of the scrip fell steadily irrespective of the nature of the transaction of Bama i.e. whether it was a sale or a purchase. This clearly establishes that the decline in the price of the scrip was due to market sentiments and not due to the transactions of Bama.

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

Apart from sales, there were also purchases made by Bama during this time slot. The transactions were uniformly spread out throughout the time slot. The price of the scrip continuously fell irrespective of whether Bama purchased or sold shares. Even after Bama purchased shares, the price continued to fall. In fact, despite Bama�s relatively large purchase transaction of 1,00,000 shares, the price of the scrip fell. The sales of Bama had no real impact on the price of the scrip. After the sale of 40,538 shares, the price fell by only Rs.0.21. Similarly, after the sale of 87,680 shares, the price fell by only Rs.0.41 and after the sale of 35,599 shares, the price fell by only Rs.0.15. Significantly , after the sale of 10,000 shares, the price rose by Rs.0.29. The above facts clearly shows that the transactions of Bama did not affect the price of the scrip and that the price was ruled by market sentiments. The speed with which the transactions were executed indicate the tremendous depth and liquidity of the scrip and that the trades were between willing buyers and sellers at price discovered through the screen based trading mechanism.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

3. Does not advertise in public press or in any other manner that he is acting as a broker.

4. Does not act as a broker within a distance of fifty miles of the city of Bombay.

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

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

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

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

As far as (b) is concerned, it has already been dealt with above and shown that the finding is baseless and erroneous. As far as (a), (c) and (d) are concerned, the charges / findings are of too trivial a nature to warrant any punishment. With specific reference to (a), it is to be noted that NBS had 56 registered sub-broker and Bama had 35 registered sub-brokers. Bama and NBS were not aware that these three persons were acting as sub-brokers and in fact these 3 persons had executed client registration forms. Moreover, there was nothing to prevent NBS and Bama from registering these 3 parties as their sub-brokers � this would have been granted for the asking. Also, there was nothing to gain for NBS and Bama by not registering them as sub-brokers. With specific reference to ( c), first and foremost the majority of short sales were by sub-brokers and only a small percentage were by direct clients of NBS and BEB. It is obvious that a broker cannot supervise every transaction of his sub-broker. Secondly, the quantity and volume of the trades are insignificant as compared to the overall volumes of NBS and BEB and the extent of compliance has been more than 95%. Thirdly, the contravention was by retail clients and not on the proprietary account of NBS and BEB. Finally, it is submitted that the short sales were not attributable to any willful default or neglect on the part of NBS and BEB but were purely technical and unintentional. With specific reference to (d), that out of about 282 clients, it was found that client registration forms were not available only in respect of 5 clients of BSPL and BSPL had not issued confirmation notes in the case of only one client. Moreover, BSPL has had no dispute with any of its aforesaid clients nor was their any default.

In view of the above, even assuming without admitting that the charges / findings are correct, a penalty of cancellation of registration is certainly not commensurate with the alleged contraventions. Even the Enquiry Officer has recommended that a lenient view be taken in respect of the absence of client registration forms

Certain statements made by SEBI in its Written submissions were also countered by the Appellants. On the Respondents statement that "Two of the Bang entities had committed a clear breach of the SEBI circular dated 22^nd October 2001 by having their trading terminals in Palombe�s office and allowing Palombe to execute trades on the said terminals" it was submitted that "This is not only a new argument, but also absurd, and total non application of mind. The Appellants were prohibited from trading with effect from 19^th April 2001 by an order dated 19^th April 2001 passed by the Chairmen, SEBI under section 11B of the SEBI Act. In these circumstances the Respondent is now accusing the Appellants of committing a breach of SEBI circular issued more than five months thereafter, i.e. 22.10.2001" The allegation in the Written Submission that "all the time slots, which are identified and given in the show cause notice are time slots where net sales of Bama in the time slot was preceded by short sales", that this allegation is false and represents a new element of a charge, never levelled earlier, that the Respondent has also not produced any evidence.

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

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

The authorities cited by the learned Senior counsel:

1. Bareilly Electric Supply co. Ltd. V Workmen & Ors. AIR 1972 SC 330 On the question of the requirement of the Respondent producing evidence to prove the charges � when it is claimed that Evidence Act is not applicable, that does not mean that the principles of natural justice are not to be complied with.

2. Videocon International Vs. SEBI (2002)4 CLJ 402(SAT)

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

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

3. Hansraj Guipta & Ors. V Dehra Dun � Mussoorie Electric Tramway Co. Ltd., (AIR 1940 Privy Council 98)

   Party alleging fraud must prove it by cogent evidence.

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

4. Gulabdchand V Kudilal (AIR 1966 SC 1734)

   The Indian Evidence Act applies the same standard of proof in civil cases.

   It makes no difference between cases in which charges of a fraudulent or criminal character are made and cases in which such charges are not made. But this is not to say that the courts will not, while striking the balance of probability keep in mind the presumption of honesty or innocence or the nature of the crime or fraud charged.

5. Varanasaya Sanskrit Vishwa Vidyalaya a& Anr. V Dr. Rajkishore Tripathi and Anr.

   Concept of acting in concert - using strong language not sufficient. Proof required . It is not enough to state in general terms that there was collusion "without more particulars. General allegations are insufficient even to amount to an averment of fraud or which only court ought to take notice, however strong the language in which they are couched may be, and the same applies to undue influence and coercion."

6. A.N. Parasuraman Etc. State of Tamil Nadu (AIR 1990) SC 40

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

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

7. State of Kerala V M. K. Krishnan Nair (AIR 1978 SC 747)

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

8. British Airways Plc V Union of India (AIR 2002 SC 391)

   (on harmonious construction)

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

9. Ranjit Thakur V Union of India (AIR 1987 SC 2386)

   (on quantum of penalty and bias)

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

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

10. Atul Kanodia V SEBI ((2002) 46 CLA 251 (Sat)

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

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

The main points in the Show Cause Notice, Enquiry Report and the

Chairman�s Order can broadly dealt with under the following captions:

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

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

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

4. Manipulative Trading by each of the Bang Entities.

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

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

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

Palombe has introduced various clients such as Shankar Sharma, CSL and other Clients who are front entities for the Ketan Parekh Group to the Bang Entities. For the trades done by these clients Palombe received sub brokerage fees from Bang entities. In the case of trades done by Shankar Sharma through Bang Entities during the period 1^st April 200 to 1^st March 2001 Palombe passed on part of sub brokerage received from BEB to CSL since they had introduced Shankar Sharma to Palombe. The introductory brokerage accrued to Palombe on account of trades done by Shankar Sharma through BEB was approximately 30 lakhs for the year 2000-2001 and therefore their trades routed by Shankar Sharma through BEB during the period was approximately Rs.600 crore.

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

NBS and BEB indulged in short sales between 8^th March, 2001 and 31^st March, 2001 to the extent of Rs.2.31 crores and Rs.3.05 crores respectively in breach of SEBI Circular No. SMD/RPD/Policy/CIR�13/2001 dated 7^th March 2001. Instances of intra day short sales and net short sales of NBS and BEB can be seen from the Chartered Accountant Report dated 2^nd September 2001 which is based on documentary evidences such as Cumulative Day wise Scrip wise client wise position, Demat Holding Statements etc. submitted by them pursuant to the inspection conducted by the BSE. Copy of the report filed in the proceedings was referred to.

The Appellants contention that the client was permitted to sell only when they had a prior purchase position with any other exchange is not correct in view of the clear observation of the Chartered Accountant, that the transaction in respect of corresponding purchases, demat holding statement, purchase position on other exchange have been excluded. The short sales as found by the Chartered Accountant are in breach of SEBI Circular. It is found that NBS and BEB violated Circular dated 7^th March 2001 on short sales to the extent of Rs.2.31 crores and 3.05 Crores respectively

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

Enquiry Officer found that Bama was a consistent net seller, and had also unwound the previously built purchase position and created fresh sales position especially in the scrip of Global Tele, HFCL, Satyam, Silverline, Zee Telefilms and Wipro on the crucial dates of 22^nd , 23^rd, 28^th February, 1^st and 2^nd March of 2001. Enquiry Officer has come to the conclusion that Bama have contributed to the artificial depression of prices of these scrips during the relevant period.

The table given in the Show Cause Notice dated September 10, 2001 contains the figures pertaining to purchases, sales made by Bama on the specific dates. The above table was derived from the said tables. The Enquiry Officer and the Respondent have considered the purchases, sales, opening and closing position of Bama on the specific dates. From the table above it can be seen that Bama was net seller in Global Tele on all the days i.e. on 23^rd February, 1^st and 2^nd March 2001. Regarding the scrip of HFCL, Satyam, Wipro and Zee, Bama had net sales in 2 out of 3 days. The impugned order clearly establishes that the net sales of the Bang entities during Mid February and mid March when compared with the net at the exchange was significant. It is contended that basis of net sales taken by Enquiry Officer and Chairman is misconceived and erroneous. When there is substantial market fall it is more logical to examine net position for a particular period (settlement/day/time slot) to understand the trading behaviour. The net sales methodology gives the trading behaviour of the member during the relevant period (settlement/day/time slot). The Enquiry Officer in the Enquiry Report has come to the conclusion that such sales had resulted in artificially depressing the prices of the shares.

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

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

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

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

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

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

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

The Appellant has argued that between the period from 15:08:39 to 15:13:50, Bama was a continuous purchaser. During the said time period Bama has merely purchased 1350 shares. Whereas, just before and after the aforesaid time band Bama has sold 50000 shares (15:07:33) and 20000 shares (15:14:00) respectively.

The Appellant has argued that after every sale transaction, the price of the scrip, has almost remained same. This interpretation of the Appellant is not correct. The data given by him pertain to his transaction only and merely shows that his next trade (purchase) was executed at 15:14:23 which was after 15 seconds.

The Appellant has argued that order of 50000 shares and 20000 shares that trade in 33 seconds and 8 seconds respectively is indicated of the depth and liquidity of the scrip. The appellant should consider change in price which resulted in execution of 50000 shares to ascertain impact of his trades. The next trade of Bama was purchases of 1000 shares at Rs.442/- which is Rs. 2/- below then the average rate at which trade of 50000 shares were executive. This clearly shows the correlation between sale by Bama and the movement in share prices.

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

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

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

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

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

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

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

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

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

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

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

The data given in the submissions only shows that purchase of 200 shares by Bama was executed at 11:03:52, 26 seconds after Bama sold 45026 shares and the average purchase price was higher than the average sale price. It was submitted by the Respondent that during the time slot 10:57 hours to 11:05 hours of March 2^nd, 2001 Bama had net sale of 62714 shares which is around 3.97% of the shares traded during the period when the scrip price dropped by Rs.12.20.

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

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

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

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

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

During the relevant time slot, Bama had purchased 102 shares and sold 9128 shares. The price drop during the time slot was Rs.15. It was denied that neither the sales and purchases were uniformly placed nor the quantum of sale and purchases were uniform during the time slot.

It is evident from the data (order numbers) provided by the Appellant that the order for purchase of 2 shares, which was not significant was placed much before the sale order which resulted in the sale execution of 4128 shares. The buy order was executed only because the price was made to drop by sales of Bama to that level.

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

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

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

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

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

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

It may be noted that the data provided by the Appellant shows that every subsequent sale transaction executed by Bama during the time slot is at lower price.

The Appellant in his submission has picked up certain scrip and has stated that Enquiry Officer has not found Bang entities individually or collectively guilty of artificially depressing the prices of this scrip. The Respondent countering this submission submitted that the Enquiry Officer has examined the trading pattern of the member between mid-February and mid-March in totality when the shares prices fell and have come to the conclusion.

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

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

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

(a) GLOBAL TELE

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

It was further observed that in settlement No.1049, BEB had net sale of 26134 on 26/2/2001. Subsequent purchase by BEB on 27/2/01 to 1^st March could be with a view to cover the short sales on 26/2/01. The price fell from Rs.416 to Rs.372 between 26/2/01 and 1/3/01. The net sales by BEB on 2/3/01 is quite high at � 186468 shares and the price fell by Rs.60 on that day to close at Rs.312.

HFCL