adjudication order in respect of monarch research & brokerage pvt. ltd. in the matter of m/s....
TRANSCRIPT
Adjudication Order in the matter of M/s. Monarch Research and Brokerage Pvt. Ltd Page 1 of 29
BEFORE THE ADJUDICATING OFFICER
SECURITIES AND EXCHANGE BOARD OF INDIA
[ADJUDICATION ORDER NO. AK/AO- 57/2015] __________________________________________________________
UNDER SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH RULE 5
OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER)
RULES, 1995
In respect of
M/s. Monarch Research & Brokerage Pvt. Ltd. (PAN: AACCK5762C)
In the matter of
M/s. Sky Industries Ltd.
_____________________________________________________________
FACTS OF THE CASE
1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) conducted an investigation
with respect to trading in the scrip of M/s. Sky Industries Ltd. (hereinafter referred to as ‘SIL’ or ‘the
company’) for the period January 1, 2009 to May 10, 2010 (hereinafter referred to as the
‘Investigation Period’). The scrip was listed on the Bombay Stock Exchange Ltd. (hereinafter
referred to as ‘BSE’) as well as on Jaipur Stock Exchange Ltd. (hereinafter referred to as ‘JSEL’) and
The Calcutta Stock Exchange Ltd. (herein after referred to as ‘CSE’). However, there was no trading
in the scrip during the investigation period on JSEL and CSE.
2. Investigation observed that during the period January 1, 2009 to May 10, 2010 (hereinafter referred
to as ‘Investigation Period’), total traded quantity in SIL scrip on BSE was 44,64,906 shares. It was
observed that one Mr. Vijay Vora bought 95,945 shares from his wife Ms. Hina Vora (one side). Out
of the same, M/s Monarch Research and Brokerage Pvt. Ltd. (hereinafter referred to as 'the
Noticee'/ 'Monarch') acted as both Broker and Counterparty Broker for 5,902 shares traded
between Mr. Vijay Vora and Ms. Hina Vora. Mr. Vijay Vora sold 59,302 shares to Ms. Hina Vora (one
side) during the investigation period. Out of the same, Monarch acted as both Broker and
Adjudication Order in the matter of M/s. Monarch Research and Brokerage Pvt. Ltd Page 2 of 29
Counterparty Broker for 41,768 shares traded between Mr. Vijay Vora and Ms. Hina Vora. Thus,
Monarch executed cross deals which accounted for 6% of Mr. Vijay Vora’s buy & Ms. Hina Vora’s sell
and 70% of Mr. Vijay Vora’s sell and Ms. Hina Vora’s buy. It was noted further that out of the same,
6,500 shares were synchronized, and in some instances both buy and sell trades were executed
from the same terminal. It was also observed that with respect to the self trades for 18,358 shares
of Mr. Vijay Vora, Monarch acted as both broker and counterparty broker for 5,087 shares and in
some instances both buy and sell trades were executed from the same terminal.
3. It was, thus, alleged that the Noticee failed to exercise due skill and care in terms of clause A(2) of
Code of Conduct for Stock Brokers as specified under Schedule II read with Regulation 7 of SEBI
(Stock Broker and Sub-broker) Regulation, 1992 (hereinafter referred to as ‘Stock Brokers
Regulations’).
APPOINTMENT OF ADJUDICATION OFFICER
4. Ms. Barnali Mukherjee was appointed as the Adjudicating Officer on April 05, 2013 under section
15-I of SEBI Act read with rule 3 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by
Adjudicating Officer) Rules, 1995 (hereinafter referred to as ‘SEBI Rules’) to inquire into and adjudge
the alleged violations committed by the Noticee. Consequently upon transfer of Ms. Barnali
Mukherjee, I was appointed as the Adjudicating Officer vide order dated August 08, 2013 under
Section 15-I of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI
Act’) read with rule 3 of SEBI Rules to inquire into and adjudge under Section 15HB of the SEBI Act,
for the alleged violation of Stock Brokers Regulations by Monarch.
SHOW CAUSE NOTICE, REPLY AND PERSONAL HEARING
5. Show Cause Notice (SCN) no. EAD-6/BM/VG/11564/2013 dated May 15, 2013 was issued to the
Noticee under rule 4 of the Rules read with Sub-section (2) of Section 15I of SEBI Act to show cause
as to why an inquiry should not be held and penalty be not imposed under Section 15HB of the SEBI
Act for the alleged violation specified in the said SCN. Upon receipt of the SCN, the Noticee vide
letter dated May 30, 2013 requested for additional time of 15 working days to file their reply to the
SCN. The request of the Noticee was acceded to. Thereafter, the Noticee filed its reply dated June
Adjudication Order in the matter of M/s. Monarch Research and Brokerage Pvt. Ltd Page 3 of 29
22, 2013. The Noticee vide their aforesaid reply while denying the allegations made in the SCN have
inter alia made the following submissions:
5.1 That the total number of shares traded on floor of BSE during the investigation period was
44,64,916, and as compared to the same, their client’s trading during the investigation period
was very negligible, no own trading was done at any point of time, and such negligible trades
could not have had any influence in the market to attract the investing public at large;
5.2 That out of the top ten buyers and sellers shown in the SCN, only two were their clients. Further,
volumes of the said two persons shown was not correct and that the respective buy and sell of
share quantity was very less, as given below:
Sr. No. Client’s Name Total Buy Quantity Total Sell Quantity
1. Ms. Hina Vora 2,94,833 2,50,664
2. Mr. Vijay Vora 6,80,540 6,43,804
Therefore the quantity for total buy and sell during investigation period does not tally with the
SCN issued;
5.3 That the details mentioned in the SCN regarding the observations of investigation team and the
allegation made regarding the reversal trades has been noted by them, however, details have
not been provided to them. As regards details provided to them in Annexure II of the SCN, the
client name appears, however, the broker details have not been made available to them.
Further Annexure III gives different brokers of BSE, therefore, the details stated in the said
annexure were not correct as per their information. Further, they have they had not placed any
reversal trade during the investigating period;
5.4 That the allegation made regarding synchronized trade for the period of two days for which
details were given in the table in the SCN did not tally with the annexure of the SCN and the
same has not been accepted by the Noticee;
5.5 That the details provided in Annexure IV to the SCN did not tally as per the details given in the
SCN and that the complete details were not provided by the Investigating Authority;
5.6 That the allegation that they failed to exercise due skill and care in terms of Clause A(2) of Code
of Conduct of Stock Broker under Schedule II read with Regulation 7 of the Stock Brokers
Regulations is not correct. They had taken due skill, care and diligence in conduct of their
business and they believe in self-regulation and compliance and they abide by all the rules,
regulations and bye-laws of the relevant authority;
5.7 That the trades were executed on behalf of their client and as per the market mechanism
provided by BSE.
Adjudication Order in the matter of M/s. Monarch Research and Brokerage Pvt. Ltd Page 4 of 29
6. It was observed from the above that the Noticee had stated that certain details were either not
provided to them, or, the details in the SCN did not tally with Annexure provided with the SCN.
However, from the submissions made, the exact nature of the query was not clear. Hence, an e-mail
dated September 2, 2013 was sent to the Noticee, providing the following clarifications/ seeking
further information from the Noticee to appreciate Noticee’s point of view with regard to the
discrepancies pointed out:
6.1 As regards the discrepancy pointed out by the Noticee with respect to the total buy and total
sell quantity of their client as given in the SCN, it was clarified that the figures provided in the
table in the SCN represented the trades of the clients in respect of all brokers across the market
during the investigation period;
6.2 As regards the submission that details in Annexure III to the SCN were not correct, the Noticee
was advised to elaborate as to exactly what was the discrepancy noted by them and also submit
the correct details as per their records;
6.3 As regards the submission that the details of synchronized trades given in the para 5 of SCN did
not tally with Annexure attached to SCN, it was clarified that the table at para 5 indicated the
reversal of trades, where both buy and sell orders were executed from the same terminal. It
was further clarified that out of three instances mentioned in the table, only first and third
related to synchronized trades. It was also clarified that in respect of 46,670 trades between
Hina Vora and Vijay Vora, where the Noticee acted as both broker as well as counter party
broker, the particulars of the said reversal trades were given at Annexure III to the SCN;
6.4 With regard to Noticee’s submission that Annexure IV did not tally with the details given in SCN,
the Noticee was advised to elaborate on the discrepancies noted.
7. The Noticee replied to the above e-mail vide letter dated October 1, 2013, stating as under:
7.1 That the trading details provided in Annexure III had been given in respect of all the brokers who
had traded in the alleged scrip, for and on behalf of their clients, however, they had not done a
single trade in the said scrip;
7.2 That though para (5) of the SCN states that in respect of 47,670 shares, the Noticee acted both
as broker and counter party broker, the same does not tally with the table given in the SCN
under the same para. Further, that they had not done any reversal of trades of their clients in
the alleged SIL scrip;
Adjudication Order in the matter of M/s. Monarch Research and Brokerage Pvt. Ltd Page 5 of 29
7.3 That bifurcation of the details given in Annexure 4 to the SCN has not been provided. Further, in
the said Annexure and in the column “ORD QTY” “BUY SELL”, only buy quantity has been stated
and no sell quantity has been given;
7.4 That though para (6) of SCN mentions quantity of 5,087 shares for which the Noticee acted as
both broker and counter party broker, table given in the para shows trade quantity which is 678
shares for three trades, hence, does not tally.
8. Further written submissions dated October 03, 2013 were filed by the Noticee inter alia making the
following submissions:
8.1 That they had no intention of violating any Rules, Regulations and Bye Laws of SEBI as
mentioned in SCN;
8.2 That they believe in self-regulation and compliance and trade executed by them on behalf of
their clients was as per the available market mechanism provided by BSE;
8.3 That the order was placed at the market price and they had not placed the order above/ below
the market price available on the floor of the exchange;
8.4 The Noticee has cited the following Orders of the Learned Whole Time Member (hereinafter
referred to as ‘WTM’) of SEBI and Hon’ble Securities Appellate Tribunal (hereinafter referred to
as ‘SAT’):
8.4.1 M/s. FMC Securities Ltd., SEBI registration number (INB011079838) (presently known as
M/s. Share India Securities Ltd.) in the matter of trading in shares of M/s Aditya Infosoft
Ltd. {Whole Time Member};
8.4.2 M/s. SPS Share Brokers Pvt. Ltd. in matter of M/s. Ravalgaon Sugars Farms Ltd. and
Shrenuj & Co. Ltd. {Whole Time Member};
8.4.3 M/s. Tropical Securities and Investment Pvt. Ltd. in matter of Prudential Pharmaceuticals
Ltd. {Whole Time Member};
8.4.4 M/s. Finquest Securities Pvt. Ltd. vide appeal no. 119 of 2013 (SAT);
8.4.5 M/s. R. R. Chokhani Stock Brokers Pvt. Ltd. vide appeal no.217 of 2012 (SAT)
8.4.6 M/s. SPJ Stock Brokers Pvt. Ltd. vide appeal no. 52 of 2013(SAT).
9. Vide hearing notice dated September 11, 2013, the Noticee was granted an opportunity for personal
hearing on October 4, 2013. The Noticee vide letter dated October 03, 2013 authorized Mr. Mayukh
Pandya, Authorised Representative (hereinafter referred to as ‘AR’) to appear on their behalf. At the
Adjudication Order in the matter of M/s. Monarch Research and Brokerage Pvt. Ltd Page 6 of 29
time of hearing, the AR of the Noticee filed the aforesaid letter dated October 03, 2013
(inadvertently recorded as October 03, 2010 in the hearing minutes). At the hearing, the queries
raised by the Noticee through its various letters were explained to the satisfaction of the AR. The AR
reiterated the submissions made and undertook to file further submissions by October 11, 2013.
The Noticee vide its letter dated October 10, 2013 inter alia submitted as follows:
9.1 That the terminal number mentioned in the SCN is not a terminal number, but, it is an
Intermediate Message Layer ID (hereinafter referred to as ‘IML id’);
9.2 That from the same IML id maximum 50 number of users can log in, and if maximum number of
users exceed 50, then it will automatically shift to another IML id. Further, the said mechanism
is provided by the exchange empanelled service provider;
9.3 That as regards the buy and sell order from the same terminal, the time of entering the orders
are different and not the same;
9.4 That their clients viz. Mr. Vijay Vora and Ms. Hina Vora are their regular clients and they traded
in other scrips as well during the investigation period. The said clients had also kept collateral
securities with the Noticee, which was higher than their trades in the alleged SIL scrip.
10. The queries raised by the Noticee had raised certain queries, and the same were clarified to the
satisfaction of the AR at the time of the personal hearing. However, it appeared from the reply
dated October 10, 2013 that the Noticee had only addressed the charge pertaining to execution of
trades as broker and counterparty broker from the same terminal. Hence, a supplementary show-
cause notice No. EAD-6/AK/VG/7015/2015 dated March 5, 2015 was sent to the Noticee in
continuation to the SCN dated May 15, 2013 for elaborating through certain instances the charge
set out in the SCN dated May 15, 2013.
11. The Noticee vide letters dated April 04, 2015 and April 23, 2015, sought extension of time to reply to
the Supplementary SCN. Vide letter dated May 12, 2015, the Noticee inter alia made the following
submissions to the supplementary show cause notice:
11.1 That the Noticee acted as broker and counterparty broker for 5,902 shares, out of the total
of 95,945 shares that got traded between Mr. Vijay Vora and Ms. Hina Vora, which is nearly
6%, hence negligible;
11.2 That as regards the trades being executed from the same terminal, reference is drawn to
reply dated October 10, 2013;
Adjudication Order in the matter of M/s. Monarch Research and Brokerage Pvt. Ltd Page 7 of 29
11.3 That they had taken due care while registering the said clients and all necessary documents
which were necessary and mandatory as per the Rules, Regulations and Bye Laws of SEBI
and the Exchanges were collected from the respective clients and also forwarded to the
investigating authority when demanded;
11.4 That the said clients had not only traded in the scrip of SIL, but, also in other scrips during the
investigation period;
11.5 That as regards the synchronized trades, the trades were executed as per the instructions
received from the respective clients, as per the market mechanism made available by the
Exchange;
11.6 That since inception as member of BSE, they were dealing with retail clients only. Further
during the period more than 45,797 trades had taken place, and considering the same, they
had no intention of violating any Rules, Regulations and Bye Laws of respective authorities;
11.7 That there was no artificial volume created by the said clients and both the clients used to
meet their obligations regularly and within time. Further, the said clients had also traded in
many other scrips during the investigation period and had met their obligation regarding
funds and securities within the prescribed time limit;
11.8 That a comparison of the trades of the said two clients vis-à-vis all registered clients during
the investigation period reveals that the volume of the said two clients was very very
negligible to create any artificial volume to attract the investing public at large;
11.9 That the Compact Disc containing the trades of Mr. Vijay Vora and Ms. Hina Vora through
Monarch, Mr. Vijay Vora’s self trades through Monarch and Integrated Trade and Order log
for the days on which Monarch acted as broker and counterparty broker to the trades of Mr.
Vijay Vora and Ms. Hina Vora was taken note of;
11.10 That they had taken due care with respect to the above clients, the clients had never failed to
meet their obligations, and the Noticee had not allowed the said clients any special privilege
or facility for trades in the alleged SIL scrip, beyond their financial soundness or ability.
12. Vide letter dated June 1, 2015, a final opportunity for personal hearing was granted to the Noticee
on June 23, 2015. During the said hearing, the AR reiterated the submissions made in reply dated
May 12, 2015. The AR also stated that there were no past non-compliance by the Noticee of SEBI
Act and Regulations and no action has been taken by SEBI in past against the Noticee.
Adjudication Order in the matter of M/s. Monarch Research and Brokerage Pvt. Ltd Page 8 of 29
CONSIDERATION OF ISSUES AND FINDINGS
13. I have carefully examined the SCN, the Supplementary SCN, the submissions made and the
documents available on record. The allegations against the Noticee is that by acting as both broker
and counterparty broker to the fictitious trades of Ms. Hina Vora and Mr. Vijay Vora, the Noticee
failed to exercise due skill and care in terms of clause A (2) of Code of Conduct for Stock Brokers as
specified under Schedule II read with Regulation 7 of Stock Brokers Regulations.
14. The issues that, therefore, arise for consideration in the present case are:
a) Whether Monarch failed to carry out its business with due skill, care and due diligence in terms
of clause A(2) of Code of Conduct for Stock Brokers as specified under Schedule II read with
Regulation 7 of Stock Brokers Regulations?
b) Does the violation, if any, on the part of Monarch attract monetary penalty under section 15HB
of the SEBI Act?
c) If so, what would be the monetary penalty that can be imposed against Monarch taking into
consideration the factors mentioned in section 15J of the SEBI Act?
15. Before moving forward, it will be appropriate to refer to the relevant provisions of the Stock Brokers
Regulations, which read as under:
Stock-Brokers to abide by Code of Conduct
7. The stock-broker holding a certificate shall at all times abide by the Code of Conduct as specified
at Schedule II.
SCHEDULE II
Code of Conduct for Stock Brokers
A. GENERAL
(2) EXERCISE OF DUE SKILL AND CARE: A stock-broker, shall act with due skill, care and diligence
in the conduct of all his business.
FINDINGS
16. Upon careful perusal of the material available on record, I now proceed with the findings in
connection with the role of Noticee on the violations as alleged in the case. As brought out in the
Adjudication Order in the matter of M/s. Monarch Research and Brokerage Pvt. Ltd Page 9 of 29
earlier part of the Order, it is observed that in respect of trades between Mr. Vijay Vora and Ms.
Hina Vora, the Noticee acted as both Broker and Counterparty Broker for 47,670 shares. Such trades
between Hina Vora and Vijay Vora with Monarch as the broker as well as the counterparty broker
were observed to have been executed on 38 days during the investigation period and involved 86
trades.
17. It is further noted that out of 47,670 shares of SIL scrip for which the Noticee acted as broker and
counterparty broker, 3 trades for 6,500 shares were synchronized i.e. trades where order quantity
and order price difference is nil and order time difference is less than 60 seconds. The details of the
said synchronized trades are shown below:
Trade
Date
Trade
Time
Member
Name
Client
Name
Trade
Qty
Trade
Rate
Order
Time
Order
Rate
Order
Qty
Cp
Member
Name
Cp
Client
Name
Cp
Order
Time
Cp
Order
Rate
Cp
Order
qty
30/07/2009 12.43.08.000000 Monarch Hina 2500 72.5 12:43:07.683558 72.5 2500 Monarch Vijay 12:43:04.549307 72.5 2500
30/07/2009 14.22.56.000000 Monarch Hina 1000 72.4 14:22:55.835686 72.4 1000 Monarch Vijay 14:22:54.967764 72.4 1000
21/04/2010 15.40.39.769004 Monarch Hina 3000 96.9 15:40:39.478768 96.9 3000 Monarch Vijay 15:40:39.537871 96.9 3000
18. Further, 8 trades of 1,276 shares were structured, i.e., the price was identical and the Buy and sell
orders were placed within one minute of each other. The structured trades are as shown below:
Trade
Date
Trade
Time
Member
Name
Client
Name
Trade
Qty
Trade
Rate
Order
Time
Order
Rate
Order
Qty
Cp
Member
Name
Cp
Client
Name
Cp
Order
Time
Cp
Order
Rate
Cp
Order
qty
26/08/2009 14.21.31.000000 Monarch Hina 10 78 14:21:11.552796 78 200 Monarch Vijay 14:21:30.794120 78 10
14/09/2009 15.22.54.000000 Monarch Vijay 51 87.5 15:22:54.162832 87.5 100 Monarch Hina 15:22:48.466642 87.5 500
13/04/2010 15.01.18.891666 Monarch Hina 150 99.9 15:01:18.802364 99.9 150 Monarch Vijay 15:00:55.589399 99.9 5000
28/04/2010 14.58.30.283257 Monarch Hina 399 105 14:57:33.411964 105 1000 Monarch Vijay 14:58:30.164675 105 500
28/04/2010 14.58.18.320066 Monarch Hina 300 105 14:57:33.411964 105 1000 Monarch Vijay 14:58:18.159941 105 300
28/04/2010 14.58.08.870177 Monarch Hina 200 105 14:57:33.411964 105 1000 Monarch Vijay 14:58:08.685368 105 200
28/04/2010 14.57.39.156045 Monarch Hina 101 105 14:57:33.411964 105 1000 Monarch Vijay 14:57:39.099421 105 101
28/04/2010 14.50.22.040833 Monarch Vijay 65 106.5 14:50:21.900033 106.5 65 Monarch Hina 14:49:56.839753 106.5 4000
19. As regards the trades between Mr. Vijay Vora and Ms. Hina Vora which were not synchronized and
where Monarch acted as the broker and counterparty broker, a few instances have been elaborated
to explain how Monarch failed to exercise due skill, care and diligence in conduct of his business to
prohibit creation of artificial volume in the scrip of SIL through fictitious trades executed between
husband and wife:
Adjudication Order in the matter of M/s. Monarch Research and Brokerage Pvt. Ltd Page 10 of 29
A. On 12.04.2010, Ms. Hina Vora bought 10,000 shares from Mr. Vijay Vora as follows:
I. It is observed from the trade and order log that at 12:30:13.758400, vide order id
20000066030261, Ms. Hina Vora placed a buy order for 10,000 shares at Rs. 95.50. A few
seconds later, at 12:30:19.862574, vide order id 20000066030269, Mr. Vijay Vora placed a sell
order for 10,000 shares at Rs. 95.30. It is pertinent to note here that the last two trades prior to
the placing of the aforesaid orders by Ms. Hina Vora and Mr. Vijay Vora had happened at
12.28.24.147993 and 12.28.47.878362 at Rs. 99 and Rs. 99.90 for 19,000 and 1 share
respectively. In respect of trade for 19,000 shares at Rs. 99, Mr. Vijay Vora through stock broker
M/s. M R Share Broking Pvt. Ltd. was on the buy side and Ms. Hina Vora through Monarch was
on the sell side. In respect of trade for 1 share at Rs. 99.90, Ms. Hina Vora through Monarch was
on the buy side.
II. It is noted from the above that Mr. Vijay Vora had placed the sell order at a discount of Rs. 4.60
to the ruling market price. Further, since the quantity of the buy order of Ms. Hina Vora and sell
order placed by her husband Mr. Vijay Vora within close proximity to one another were the
same, and the sell rate of Mr. Vijay Vora was lower than the buy rate of Ms. Hina Vora, it should
have immediately alerted Monarch of the intent of Mr. Vijay Vora and Ms. Hina Vora to cause
artificial volumes in the scrip of SIL.
III. At trade time 12.30.19.939237, the two orders matched resulting in trade for 10,000 shares at
Rs. 95.50. It is pertinent to note here that even subsequent to the aforesaid trades of Ms. Hina
Vora and Mr. Vijay Vora, at 12.31.11.716233, self trade of Mr. Vijay Vora had occurred for 51
shares at Rs. 99.90 due to Mr. Vijay Vora placing buy order for 100 shares at Rs. 99.90 through
Monarch at 12:30:25.356679 and sell order through Monarch for 51 shares at Rs. 99.90 at
12:31:11.649483.
IV. All of the aforesaid makes it clear that Monarch failed to prohibit such trades, though he was
the broker and counterparty broker and this strengthens the fact that Monarch did not exercise
due skill, care and diligence in conduct of his business to prohibit creation of artificial volume in
the scrip of SIL. The aforementioned trade of 10,000 shares between Ms. Hina Vora and Mr.
Adjudication Order in the matter of M/s. Monarch Research and Brokerage Pvt. Ltd Page 11 of 29
Vijay Vora and the manner in which the trades immediately prior to and subsequent to were
getting executed are shown below for better appreciation of the aforesaid facts:
B. On 21.04.2010, Ms. Hina Vora bought 8,000 shares from Mr. Vijay Vora as follows:
I. It is observed from the trade and order log that at 11:28:57.612581 vide order id
11000056027834, Ms. Hina Vora placed a buy order for 8,000 shares at Rs. 97.75. A few seconds
later at 11:28:59.731447, vide order id 11000056027840, Mr. Vijay Vora placed a sell order for
8,000 shares at Rs. 97.50. It is pertinent to note here that only three trades had taken place on
the day prior to the placing of buy and sell orders by Ms. Hina Vora and Mr. Vijay Vora as
aforesaid and all the three trades had taken place at Rs. 98.95. For all the 3 trades, Mr. Vijay
Vora through stock broker M/s. M R Share Broking Pvt. Ltd. was on the buy side, and for 2 out of
the said 3 trades, Ms. Hina Vora through Monarch was also on the sell side.
II. It is, thus, noted that Mr. Vijay Vora had placed the sell order at a discount of Rs. 1.45 to the
ruling market price. Further, since the quantity of the buy order of Ms. Hina Vora and sell order
placed by her husband Mr. Vijay Vora within close proximity to one another were the same, and
the sell rate of Mr. Vijay Vora was lower than the buy rate of Ms. Hina Vora, it should have
immediately alerted Monarch of the intent of Mr. Vijay Vora and Ms. Hina Vora to cause
artificial volumes in the scrip of SIL.
TRADE_DATE TRADE_TIME
MEMBER_NAME
CLIENT_NAME
TRADE_QTY
TRADE_RATE
LTP_INRS
LTP_PERCENTAGE
TRADE_VALUE
CP_MEMBER_NAME
CP_CLIENT_NAME
04/12/2010 12.28.24.147993
MR SHARE BROKING PVT.LTD.
VIJAY JAMNADAS VORA 19000 99 3.9 3.93 1881000
MONARCH RESEARCH & BROKERAGE PVT.LTD.
HINA VIJAYKUMAR VORA
04/12/2010 12.28.47.878362
MONARCH RESEARCH & BROKERAGE PVT.LTD.
HINA VIJAYKUMAR VORA 1 99.9 0.9 0.9 99.9
RELIGARE SECURITIES LTD.
LAKSHMI VAITHILINGAM
04/12/2010 12.30.19.939237
MONARCH RESEARCH & BROKERAGE PVT.LTD.
HINA VIJAYKUMAR VORA 10000 95.5 -4.4 -4.6 955000
MONARCH RESEARCH & BROKERAGE PVT.LTD.
VIJAY JAMNADAS VORA
04/12/2010 12.30.25.410570
MONARCH RESEARCH & BROKERAGE PVT.LTD.
VIJAY JAMNADAS VORA 49 99.9 4.4 4.4 4895.1
RELIGARE SECURITIES LTD.
LAKSHMI VAITHILINGAM
04/12/2010 12.31.11.716233
MONARCH RESEARCH & BROKERAGE PVT.LTD.
VIJAY JAMNADAS VORA 51 99.9 0 0 5094.9
MONARCH RESEARCH & BROKERAGE PVT.LTD.
VIJAY JAMNADAS VORA
Adjudication Order in the matter of M/s. Monarch Research and Brokerage Pvt. Ltd Page 12 of 29
III. At trade time 11.28.59.934907, the two orders matched resulting in trade for 8,000 shares at Rs.
97.75. Thus, once again Monarch failed to prohibit such trades though he was the broker and
counterparty broker. This strengthens the fact that Monarch did not exercise due skill, care and
diligence in conduct of his business to prohibit creation of artificial volume in the scrip of SIL.
C. On 22.04.2010, Ms. Hina Vora bought 5,000 shares from Mr. Vijay Vora as follows:
I. It is observed from the trade and order log that at 11:25:34.158850, vide order id
15000057023686, Mr. Vijay Vora had placed a sell order for 5,000 shares at Rs. 97.95 through
Monarch. The said order was updated to Rs. 97.85 at 13:36:12.290958. Immediately thereafter
at 13:36:21.916066, vide order id 15000057033146, Ms. Hina Vora placed a buy order for 5,000
shares at Rs. 97.85 through Monarch.
II. Thus, it is observed that though Mr. Vijay Vora had placed the sell order at 11:25:34.158850, the
sell order rate of Mr. Vijay Vora was lowered to Rs. 97.85 at 13:36:12.290958 and immediately
thereafter, Ms. Hina Vora’s buy order was placed in sync with Mr. Vijay Vora’s sell order
quantity and price at 13:36:21.916066. This resulted in trade for 5,000 shares at Rs. 97.85 at
13.36.22.052532.
III. Since both husband and wife had placed the sell and buy orders through Monarch, and after the
husband had updated his sell order rate, the wife had immediately thereafter placed her buy
order in sync with the sell order of her husband, matching both the quantity and price, it
becomes once again, but, obvious that the broker Monarch had not exercised due skill, care and
diligence in conduct of his business to prohibit creation of artificial volume in the scrip of SIL due
to fictitious trades between husband and wife.
D. On 26.04.2010, Ms. Hina Vora bought 3,000 shares from Mr. Vijay Vora as follows:
I. It is observed from the trade and order log that at 14:35:40.809775 vide order id
11000058037197, Ms. Hina Vora through Monarch placed a buy order for 3,000 shares at Rs.
103.25. Thereafter at 14:37:15.385847, vide order id 20000068040636, Mr. Vijay Vora through
Adjudication Order in the matter of M/s. Monarch Research and Brokerage Pvt. Ltd Page 13 of 29
Monarch placed a sell order for 3,500 shares at Rs. 103.25. Since the rate of the buy order of
Ms. Hina Vora and sell order placed by her husband Mr. Vijay Vora within close proximity to one
another were the same, it should have immediately alerted Monarch of the intent of Mr. Vijay
Vora and Ms. Hina Vora to cause artificial volumes in the scrip of SIL.
II. At 14.37.15.589565, out of sell order id 20000068040636 of Mr. Vijay Vora, 240 shares matched
with third party, before buy order of Ms. Hina Vora matched with sell order of Mr. Vijay Vora
resulting in a trade for 3,000 shares at Rs. 103.25 at trade time 14.37.15.590085. Immediately
thereafter at 14:37:22.953030, Mr. Vijay Vora through Monarch deleted the balance quantity of
260 shares from his sell order. This confirms the fact that intent of Ms. Hina Vora and Mr. Vijay
Vora was to create artificial volume in SIL scrip. However, Monarch did not prohibit such trades
though he was the broker and counterparty broker. Hence, there is no question of doubt that
Monarch did not exercise due skill, care and diligence in conduct of its business to prohibit
creation of artificial volume in the scrip of SIL.
E. On 14.09.2009, Ms. Hina Vora bought 1,000 shares from Mr. Vijay Vora as follows:
I. At 10:45:21.850103, vide order id 19000028022018, Mr. Vijay Vora through Monarch placed a
sell order for 2,000 shares at Rs. 92. The sell order rate was reduced to Rs. 91.50 at
10:50:31.120883 and further reduced to Rs. 91 at 10:56:35.114398. Subsequent to the same, at
10:59:26.297908, Ms. Hina Vora through Monarch placed a buy order for 1,000 shares at Rs. 91
vide order id 14000027017362. Prior to the same, Mr. Vijay Vora through Monarch had also
placed a buy order for 1,000 shares at Rs. 87 at 10:58:34.261887 vide order id 12000025025163.
II. At 10.58.30.000000, 1000 shares of sell order id 19000028022018 of Mr. Vijay Vora matched
with a third party before buy order id 14000027017362 of Ms. Hina Vora matched with sell
order id 19000028022018 of Mr. Vijay Vora resulting in a trade for 1,000 shares at Rs. 91 at
trade time 10.59.26.000000. Subsequent to the same Mr. Vijay Vora through Monarch at
11:08:17.099581, deleted his buy order for 1,000 shares placed vide order id 12000025025163.
III. Further, it is observed that immediately after deleting the pending buy order for 1,000 shares as
aforesaid, Mr. Vijay Vora through Monarch placed two sell orders for 71 and 100 shares at
Adjudication Order in the matter of M/s. Monarch Research and Brokerage Pvt. Ltd Page 14 of 29
11:08:42.734110 and 11:08:57.810708 respectively, each at Rs. 86/- though the last traded price
at that point of time was Rs. 91.35.
IV. The fact that Mr. Vijay Vora through Monarch had deleted his buy order for 1,000 shares, after
1,000 shares from his earlier pending sell order of 2,000 shares matched with Ms. Hina Vora,
strengthens the case that Mr. Vijay Vora had placed the buy order for 1,000 shares only with an
intent to create artificial volume in SIL scrip. It is pertinent to note here that immediately after
deleting his buy order for 1,000 shares as aforesaid, Mr. Vijay Vora had placed his sell orders
through Monarch at Rs. 86, i.e. at a rate much lower than the last traded price of Rs. 91.35.
V. Despite the manipulative intent of Mr. Vijay Vora and Ms. Hina Vora becoming evident from the
manner in which they placed their trades, whereby buy/ sell order rates were kept away from
the last traded price and then matched by placing corresponding sell/ buy orders, Monarch
though being the broker and counterparty broker to such trades, failed to exercise due skill, care
and diligence.
F. On 12.10.2009, Mr. Vijay Vora bought 993 shares from Ms. Hina Vora as follows:
I. At 13:59:15.658832 vide order id 18000066036415, Ms. Hina Vora through Monarch placed a
sell order for 1,000 shares at Rs. 103.90. Immediately thereafter at 14:03:58 vide order id
18000066036754, Mr. Vijay Vora through Monarch placed a buy order for 1,000 shares at Rs.
104. Since the sell order rate was less than the buy order rate, it was, but, obvious that the two
orders placed in close proximity of one another would match.
II. The last traded price prior to Mr. Vijay Vora’s placing of buy order as aforesaid was Rs. 102.35.
Despite the same, Mr. Vijay Vora had placed his buy order at a much higher price of Rs. 104.
III. At 14.03.58, 7 shares of Mr. Vijay Vora’s buy order matched with third party at Rs. 103.75 before
a trade for 993 shares at Rs. 103.90 got executed between Mr. Vijay Vora and Ms. Hina Vora.
The buy order of Mr. Vijay Vora pulled the price of SIL scrip up cumulatively by Rs. 1.45 by
execution of the aforesaid two orders.
Adjudication Order in the matter of M/s. Monarch Research and Brokerage Pvt. Ltd Page 15 of 29
IV. The fact that Mr. Vijay Vora was placing his buy order at a steep increment to the last traded
price made it evident that Mr. Vijay Vora’s intent was to match his buy order with the sell order
of Ms. Hina Vora to create an appearance of trading in the scrip of SIL and in the process
manipulate the price of SIL scrip. Monarch though being the broker and the counterparty broker
to Mr. Vijay Vora’s buy and Ms. Hina Vora’s sell orders, repeatedly failed to exercise due skill,
care and diligence in conduct of his business.
20. Similarly, out of self trades of Mr. Vijay Vora for 18,358 shares i.e. trades in which both buyer and
the seller are the same party and does not result in change of beneficial ownership, the Noticee
Monarch is observed to have acted as both broker and counterparty broker for 5,087 shares. Such
self trades by Mr. Vijay Vora with Monarch as the broker as well as the counterparty broker were
observed to have been executed on 23 days during the investigation period and involved 37 trades.
21. It is noted that out of the above self trades, Mr. Vijay Vora executed 3 structured trades for 201
shares as shown below:
TRADE DATE
TRADE TIME
MEMBER NAME
CLIENT NAME
TRADE QTY
TRADE RATE
ORDER TIME
ORDER RATE
ORDER QTY
CP MEMBER
NAME
CP CLIENT NAME
CP ORDER
TIME
CP ORDER RATE
CP ORDER
QTY
19/06/2009 12.47.01.000000 Monarch Vijay 100 74.2 12:47:01.221854 74.2 100 Monarch Vijay 12:46:24.146967 74.2 1000
26/03/2010 15.11.15.985757 Monarch Vijay 25 91.65 15:11:15.940336 91.65 25 Monarch Vijay 15:10:28.720751 91.65 100
26/03/2010 15.11.04.514086 Monarch Vijay 25 91.65 15:11:04.434675 91.65 25 Monarch Vijay 15:10:28.720751 91.65 100
12/04/2010 12.31.11.716233 Monarch Vijay 51 99.9 12:30:25.356679 99.9 100 Monarch Vijay 12:31:11.649483 99.9 51
22. With regard to the Self Trades of Mr. Vijay Vora which were not structured and where Monarch
acted as the broker and counterparty broker, a few instances have been elaborated to explain how
Monarch failed to exercise due skill, care and diligence in conduct of his business to prohibit
creation of artificial volume in the scrip of SIL due to fictitious self trades executed by Mr. Vijay Vora:
A. Self trade by Mr. Vijay Vora on 05.01.2010 for 1,000 shares
I. At 15:00:18.680235, vide order id 21000032036748, Mr. Vijay Vora through Monarch placed a
buy order for 1,000 shares at Rs. 93. A little later at 15:11:48.843732, vide order id
23000033037286, Mr. Vijay Vora through Monarch placed a sell order for 2,000 shares at Rs. 93.
Adjudication Order in the matter of M/s. Monarch Research and Brokerage Pvt. Ltd Page 16 of 29
II. At 15:00:18.680235 when Mr. Vijay Vora placed the buy order at Rs. 93, it is observed that the
trades were getting executed at Rs. 94 and above. In fact, prior to Mr. Vijay Vora placing his buy
order at Rs. 93, the trades for the day had got executed at Rs. 94 and above. Hence, it was
evident to Monarch that the buy order of Mr. Vijay Vora would not get executed immediately.
When 11 minutes later Mr. Vijay Vora placed a sell order again through Monarch at the same
rate as his buy order, any prudent broker who would have exercised due care and diligence to
prevent such self trade from happening. However, Monarch failed to do so despite being the
broker and the counterparty broker to the trade.
B. Self trade by Mr. Vijay Vora on 11.02.2010 for 448 shares
I. At 11:11:48.390470, vide order id 13000061010234, Mr. Vijay Vora through Monarch placed a
sell order for 1,000 shares at Rs. 123.7. Immediately thereafter between 11.11.49.050297 upto
11.11.51.267981, 4 trades for 20, 100, 50 and 200 shares got executed at Rs. 123.7. At this
juncture, the price of the scrip fell to Rs. 123 and below, thus, 630 shares of the aforesaid sell
order of Mr. Vijay Vora remained unexecuted. The trade rate subsequently came down upto
115.35 and again moved up to Rs. 122 at 12.39.16.531665.
II. At this point of time, at 12:39:55.609148, vide order id no. 14000075010203, Mr. Vijay Vora
through Monarch placed a buy order for 500 shares at Rs. 125. The last trade price prior to Mr.
Vijay Vora’s placing the said buy order had got executed at Rs. 122. Despite the same, Mr. Vijay
Vora had placed his buy order at a much higher rate of Rs. 125 i.e. at a steep increment to the
last traded price. Again at 12:40:43.896373, vide order id 14000075010232, Mr. Vijay Vora
through Monarch placed another buy order for 1,000 shares at Rs. 125. The two buy orders of
Mr. Vijay Vora, thus, moved the price of the scrip up. At trade time, 12.40.44.539556, self trade
for 446 shares got executed at Rs. 123.7 as pending sell order id 13000061010234 of Mr. Vijay
Vora matched with his buy order id 14000075010232.
III. Immediately thereafter at 12:40:57.492954, Mr. Vijay Vora updated his sell order rate to Rs. 137
from Rs. 123.7, hence, the pending quantity of 184 shares (630-446) remained unexecuted till
the end of the day. Thus, it again becomes clear that had Monarch exercised due care and
Adjudication Order in the matter of M/s. Monarch Research and Brokerage Pvt. Ltd Page 17 of 29
diligence in discharge of its duty as a broker, it would have prevented such self trade from
happening.
23. I note that the aforesaid instances defeat the argument put forth by Monarch that they had placed
the orders at the market price and they had not placed the orders above / below the market price
available on the floor of the exchange. In fact, I note from the instances elaborated above that the
clients Mr. Vijay Vora/ Ms. Hina Vora were placing their buy/ sell orders away from the market rates
through Monarch and subsequently placing their corresponding sell/ buy orders again through
Monarch, in such a manner, so as to match with the pending buy/ sell orders. I further find that the
clients Mr. Vijay Vora/ Ms. Hina Vora were also carrying out synchronized/ structured trades
between themselves through Monarch. This conduct of the two clients could have alerted any
prudent stock broker to take steps for preventing such fictitious trades from happening, however,
the Noticee failed to exercise due care and diligence.
24. Further, I note that the client Mr. Vijay Vora had also done self trades, wherein the Noticee was the
buying broker as well as the selling broker. I find that the Noticee was the broker and the
counterparty broker for self trades for 5,087 shares executed by Mr. Vijay Vora on 23 days during
the investigation period and involved 37 trades. I find that these self trades were done by Mr. Vijay
Vora without effecting any change in beneficial ownership, and thus, undoubtedly fictitious and
meant to create false appearance of trading in the scrip. With regard to the self trades, I note that
Hon’ble Securities Appellate Tribunal (SAT) in Anita Dalal vs. SEBI (Appeal No. 211 of 2012 decided
on December 03, 2012) has held that:
"Self trades admittedly are illegal. This Tribunal has held in several cases that self trades call for
punitive action since they are illegal in nature. In M/s. Jayantilal Khandwala & Sons Pvt. Ltd. vs.
Securities and Exchange Board of India (Appeal no. 24 of 2011 decided on June 8, 2011) this Tribunal
has held that “one cannot buy and sell shares from himself. Such transactions are obviously fictitious
and meant only to create false volumes on the trading screen of the exchange."
25. Monarch, however, failed to take such due skill, care and diligence in the conduct of its business to
prohibit creation of artificial volume in the scrip of SIL through fictitious trades executed between
husband and wife/ self trades executed by Mr. Vijay Vora. In the matter, I note that the Hon’ble
Supreme Court in the matter of Chander Kanta Bansal vs. Rajinder Singh Anand [(2008) 5 SCC 117]
Adjudication Order in the matter of M/s. Monarch Research and Brokerage Pvt. Ltd Page 18 of 29
has discussed the concept of ‘due diligence’ and observed that due diligence meant ‘reasonable
diligence; …. such diligence as a prudent man would exercise in the conduct of his own affairs.’
26. I note here that Monarch has repeatedly argued that the impugned trades were a miniscule
percentage of their total trades to create any artificial volume to attract the investing public at large.
I note that Monarch during the investigation period had executed cross deals which accounted for
6% of Mr. Vijay Vora’s buy and Ms. Hina Vora’s sell and 70% of Mr. Vijay Vora’s sell and Ms. Hina
Vora’s buy in respect of trades between Ms. Hina Vora and Mr. Vijay Vora. Further, 6,500 shares i.e.
13% out of the total of 47,670 shares, where Monarch acted as a broker and counterparty broker to
the trades of Mr. Hina Vora and Ms. Vijay Vora, were synchronized. Similarly, out of self trades for
18,358 shares executed by Mr. Vijay Vora, Monarch acted as a broker and counterparty broker for
5,087 shares i.e. 27%. In fact, I note that the aforesaid percentages are significant enough to
conclude that Monarch facilitated its clients Mr. Vijay Vora/ Ms. Hina Vora to execute fictitious
trades detrimental to the interest of investors trading in SIL scrip during the relevant period.
27. Monarch has submitted that the terminal number mentioned in the SCN was not a terminal number,
but, was an IML id, and that 50 number of users could log in from the same IML id, and if maximum
number of users exceeded 50, then it would automatically shift to another IML id. Further, that the
said mechanism is provided by the exchange empanelled service provider. As regards the buy and
sell order from the same terminal, I note that it has been submitted that the time of entering the
orders are different and not the same.
28. I further note that Monarch has inter alia also stated that their clients viz. Mr. Vijay Vora and Ms.
Hina Vora are their regular clients and they traded in other scrips as well during the investigation
period. Further, the said clients used to meet their obligation regarding funds and securities within
the prescribed time limit, and that the said clients had kept collateral securities with the Noticee,
which was higher than their trades in the alleged SIL scrip.
29. I find that the issue in question is not that the aforesaid clients had defaulted in meeting their
obligation regarding funds and securities within the prescribed time limit, and despite the same,
Monarch allowed them further exposure. The allegations against the Noticee is that by acting as
both broker and counterparty broker to the fictitious trades of Ms. Hina Vora and Mr. Vijay Vora,
Adjudication Order in the matter of M/s. Monarch Research and Brokerage Pvt. Ltd Page 19 of 29
the Noticee failed to exercise due skill and care in terms of clause A (2) of Code of Conduct for Stock
Brokers as specified under Schedule II read with Regulation 7 of Stock Brokers Regulations.
30. I note that the Noticee has further stated that due care was taken by them while registering the said
clients, and that all required documents which were necessary and mandatory as per the Rules,
Regulations and Bye Laws of SEBI and the Exchanges were collected from the respective clients. This
by itself was not sufficient. Exercise of due diligence in ongoing transactions is a continuous process,
and it is not a one-time measure to be adhered to while taking up the first transaction.
31. Further, Monarch has stated that they had not done any reversal of trades of their clients in the
alleged SIL scrip, as has been pointed out in the SCN. In the matter, I note that Monarch was the
broker and counterparty broker for 41,768 shares sold by Ms. Hina Vora to her husband Mr. Vijay
Vora. Again, I find that Monarch was also the broker and counterparty broker for 5,902 shares sold
by Mr. Vijay Vora to Ms. Hina Vora. Thus, I note that Monarch was the broker and counterparty
broker for reversal of 5,902 shares between Mr. Vijay Vora to Ms. Hina Vora.
32. I note that Hon’ble SAT in the matter of M/s. Kasat Securities Pvt. Ltd. Vs SEBI dated June 20, 2006
has held as follows:
“..It is obvious that these trades were executed by the clients and the appellant acted only as a
broker. If the appellant knew that the trades were fictitious then there would be no hesitation in
upholding the finding of the Board that it aided and abetted the parties to execute fraudulent
transactions.”
33. In the extant case, both Mr. Vijay Vora and Ms. Hina Vora were clients of the Noticee. Also, the
Noticee was well aware of the fact that they were husband and wife. Further, it is noted from the
aforesaid that both husband and wife were placing their orders away from the last traded price. Buy
orders were placed at rates much higher than the last traded price and the sell orders were placed
at a discount to the last traded price. The trades were subsequently matched between themselves.
In this manner, trading through Noticee Monarch, Ms. Hina Vora and Mr. Vijay Vora executed self
trades/ reversal trades/ synchronised trades. Being the broker and counterparty broker to such
fictitious trades placed by husband and wife, the Noticee’s suspicion should have been aroused that
Adjudication Order in the matter of M/s. Monarch Research and Brokerage Pvt. Ltd Page 20 of 29
Ms. Hina Vora and Mr. Vijay Vora were indulging in some kind of manipulation. Further, the
aforesaid instances demonstrate how Monarch failed to exercise due skill, care and diligence in
conduct of its business to prohibit creation of artificial volume in the scrip of SIL by Ms. Hina Vora
and/ or Mr. Vijay Vora through fictitious trades, which were not mere coincidences. There are 38
days during the investigation period involving 86 trades, wherein Monarch acted as the broker on
both the sides of the trade between Mr. Vijay Vora and Ms. Hina Vora and facilitated happening of
such fictitious trades. Also, Monarch was the broker and the counterparty broker for the self trades
executed by Mr. Vijay Vora on 23 days during the investigation period and involved 37 trades.
34. Regulation 7 of the Stock Brokers Regulations prescribes that stock broker holding a certificate shall
at all times abide by the Code of Conduct as specified in Schedule II. Clause A(2) of the Code of
Conduct mandates that a stock broker shall act with due skill, care and diligence in the conduct of all
its business. Such due skill, care and diligence means that broker shall remain careful and diligent so
that nothing untoward happens in the market or in the activities connected with it. By not being
able to detect such false volumes created by the aforesaid clients in SIL scrip, despite being a broker
and the counterparty to the fictitious trades of the said clients and being aware of the relationship
between them, makes a strong case against the Noticee of being indifferent and unconcerned, and
having failed to exercise due skill and care in terms of clause A (2) of Code of Conduct for Stock
Brokers as specified under Schedule II read with Regulation 7 of Stock Brokers Regulations.
35. The submission made by the Noticee can’t suffice for their inability and non complicity in the
aforesaid transactions and can’t establish that they were not guilty of the violation of the
aforementioned allegations. Therefore, I don’t find the explanations of the Noticee satisfactory.
Further, Monarch being a stock broker, understands the implications of his actions well, and, should
have put proper mechanisms in place, so as to avoid the trades of Mr. Vijay Vora through it resulting
in self trades. The same also holds true for the fictitious trades executed between Ms. Hina and Mr.
Vijay Vora. Every broker has the responsibility to exercise due care and diligence. The argument that
the said clients had also traded in many other scrips during the investigation period and had met
their obligation regarding funds and securities within the prescribed time limit, does not absolve the
Noticee Monarch from failure to discharge its duties as a prudent broker for the fictitious trades
executed by the said clients in SIL scrip.
Adjudication Order in the matter of M/s. Monarch Research and Brokerage Pvt. Ltd Page 21 of 29
36. I note further that the Noticee has stated that the trades were executed as per the instructions
received from the respective clients, as per the market mechanism made available by the Exchange.
In this connection, it would be relevant to refer to the order of the Hon'ble SAT in Madhukar Sheth
v. SEBI (Appeal No. 46 of 2002). The following is extracted from the said order dated 18th
September 2003:
“...It is true that a broker cannot act of his own against the instructions of the client. But no one can
compel him to be a party to manipulate the market. No doubt a broker is supposed to protect the
interest of his client, but he is also expected to protect the interest of the securities market in which
he operates. It is his duty to ensure not to be a party to any market manipulation and that the
market in which he operates is run on a healthy and non-manipulative basis."
37. Thus, in the instant case in light of the facts of the case and material available on record, I find that
Monarch as a broker failed to carry out its business with due skill, care and diligence in terms of
clause A (2) of Code of Conduct for Stock Brokers as specified under Schedule II read with Regulation
7 of the Stock Brokers Regulations for the transactions as aforesaid carried out by it on behalf of Ms.
Hina Vora and Mr. Vijay Vora.
38. In view of all of the above, I am convinced that it is a fit case for imposing monetary penalty under
section 15HB of SEBI Act. Hence, the next issue for consideration is what would be the monetary
penalty that can be imposed on Monarch for the violation of clause A(2) of Code of Conduct for
Stock Brokers as specified under Schedule II read with Regulation 7 of the Stock Brokers Regulations.
The Hon’ble Supreme Court of India in the matter of SEBI Vs. Shri Ram Mutual Fund [2006] 68 SCL
216(SC) held that “In our considered opinion, penalty is attracted as soon as the contravention of the
statutory obligation as contemplated by the Act and the Regulations is established and hence the
intention of the parties committing such violation becomes wholly irrelevant…”.
39. The aforesaid violations by Monarch makes it liable for penalty under Section 15 HB of the SEBI Act
which reads as follows:
15HB - Penalty for contravention where no separate penalty has been provided
Whoever fails to comply with any provision of this Act, the rules or the regulations made or directions
issued by the Board thereunder for which no separate penalty has been provided, shall be liable to a
penalty which may extend to one crore rupees.”
Adjudication Order in the matter of M/s. Monarch Research and Brokerage Pvt. Ltd Page 22 of 29
40. While determining the quantum of penalty under sections 15HB of the SEBI Act, it is important to
consider the factors stipulated in section 15J of SEBI Act, which reads as under:
“15J - Factors to be taken into account by the adjudicating officer
While adjudging quantum of penalty under section 15-I, the adjudicating officer shall have due
regard to the following factors, namely:-
(a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a
result of the default;
(b) the amount of loss caused to an investor or group of investors as a result of the default;
(c) the repetitive nature of the default.”
41. It is difficult in cases of such nature to quantify exactly the disproportionate gains or unfair
advantage enjoyed by an entity and the consequent losses suffered by the investors. I have noted
that the investigation report also does not dwell on the extent of specific gains made by the clients
or brokers.
42. I note that person found guilty of any regulations where no separate penalty has been provided is
liable to a penalty which may extend to one crore rupees, under Section 15HB of the SEBI Act.
43. Detailed analysis, brought out above, of the buy and sell orders placed by Ms. Hina Vora and Mr.
Vijay Vora that resulted in trades between husband and wife by placing the buy/ sell orders away
from the market rates and then matching the sell/ buy orders with each other, and also reversal/
synchronized/ structured/ self trades, all of which have been done through Monarch as broker and
counterparty broker, dismisses the Noticee’s version that they had taken due care with respect to
the above clients. On the contrary, the manner in which trades were placed by the Noticee on
behalf of the husband and wife clearly demonstrates beyond reasonable doubt that the Noticee
engaged in execution of such fictitious trades. I find that this is sufficient to prove that Monarch
failed to carry out its business with due, skill, care and due diligence in violation of Regulation 7 read
with Clause A(2) of Code of Conduct for Stock Brokers as specified in Schedule II of the Stock Brokers
Regulations.
Adjudication Order in the matter of M/s. Monarch Research and Brokerage Pvt. Ltd Page 23 of 29
44. I note that the Noticee has sought to rely upon the following Orders of SEBI and SAT, wherein stock
brokers have been given only a warning:
44.1 M/s. FMS Securities Ltd.( hereinafter referred to as ‘FMS’) in the matter of trading in
shares of M/s Aditya Infosoft Ltd., wherein the Learned WTM of SEBI vide Order dated July
23, 2013 had warned FMS to be careful and cautious in the conduct of its stock broking
activity and to adhere to and comply with all the statutory provisions while carrying out its
activities in the securities market.
On perusal of the said Order, I note that in the said case, the allegation against FMS was that
it had executed 10 self trades for 10,000 shares for the same client, wherein FMS was the
common broker who had placed the buy order for 10,000 shares and sell order for 10,000
shares on behalf of his client. Also that FMS had executed synchronized trade for its client
on buy side for 15,300 shares, when the client’s connected counterparty client trading
through another broker was on the sell side. In that case, the involvement of FMS in
synchronized transaction could not be established and FMS was found to be involved in self
trade on one day during the investigation period. Further, in the said case, SEBI had initiated
proceedings against the Noticee under Regulation 6(1) of SEBI (Procedure for Holding
Enquiry and Imposing Penalty) Regulations, 2002 (hereinafter referred to as ‘Enquiry
Regulations’) (since repealed) and continued under SEBI (Intermediaries) Regulations, 2008
(hereinafter referred to as ‘Intermediaries Regulations’), wherein a view was taken that
warning FMS would be reasonable and commensurate with violations committed by it in
that case.
The facts and circumstances of the extant case are different and involve adjudication
proceedings initiated against the Noticee under chapter VI-A of SEBI Act. Further, in the
extant case it is observed that Noticee had acted as the broker on both the sides of the
trade between Mr. Vijay Vora and his wife Ms. Hina Vora for 47,670 shares on 38 days
during the investigation period involving 86 trades, of which 3 trades for 6,500 shares were
synchronized. Also that the Noticee was the broker and the counterparty broker for self
trades for 5,087 shares executed by Mr. Vijay Vora on 23 days during the investigation
period involving 37 trades, of which 3 trades for 201 shares were structured. The Noticee
was also observed to have acted as the broker and counterparty broker for reversal of 5,902
shares between Mr. Vijay Vora to Ms. Hina Vora. Contrary to the aforesaid case referred by
the Noticee, in the instant case it has been established that the Noticee facilitated
Adjudication Order in the matter of M/s. Monarch Research and Brokerage Pvt. Ltd Page 24 of 29
happening of such fictitious trades through his indifferent and unconcerned conduct and did
not act with due skill, care and diligence that a person of ordinary prudence would act in the
normal circumstances in carrying out activities and functions relating to its business;
44.2 M/s. SPS Share Brokers Pvt. Ltd. (hereinafter referred to as ‘SPS’) in matter of M/s.
Ravalgaon Sugars Farms Ltd. (hereinafter referred to as ‘Ravalgaon’) and Shrenuj & Co.
Ltd (hereinafter referred to as ‘Shrenuj’), wherein the Learned WTM of SEBI vide Order
dated August 06, 2013 had issued a warning to SPS to be careful and cautious in the conduct
of its stock broking activity and not to repeat similar violations, as the same may result in
higher penalty.
On perusal of the said Order, I note that in the said case, the allegation against SPS was that
it had aided and abetted its client in creation of artificial volume in the scrips of Ravalgaon
and Shrenuj by entering into synchronized/ structured transactions with its counterparty
broker. Further, in the said case, SEBI had initiated proceedings against the Noticee under
Regulation 5(1) of Enquiry Regulations.
The facts and circumstances of the extant case are different and involve adjudication
proceedings initiated against the Noticee under chapter VI-A of SEBI Act. Unlike the case at
hand, in this cited case, the broker SPS did not act on both (buy and sell) sides, i.e. as broker
and as counter party broker. Further, the cited case does not involve self trade and reversal
trade transactions. Also, unlike the extant case, in the cited case, SPS did not act as the
broker on both the sides of the trade between two related clients. Thus, in the case at hand,
since the Noticee has acted as broker and counter party broker in respect of self trades,
synchronized trades, reversal trades of its clients and also in respect of trades between
husband and wife, I find that its culpability and role is on a completely different footing than
as of the broker SPS in the cited case.
44.3 M/s. Tropical Securities and Investment Pvt. Ltd. (hereinafter referred to as ‘Tropical’) in
matter of Prudential Pharmaceuticals Ltd. (hereinafter referred to as ‘Prudential’), wherein
the Learned WTM of SEBI vide Order dated September 30, 2013 had issued a warning to
Tropical to be careful and cautious in the conduct of its stock broking activity and not to
repeat similar violations, as the same may then result in higher penalty.
Adjudication Order in the matter of M/s. Monarch Research and Brokerage Pvt. Ltd Page 25 of 29
On perusal of the said Order, I note that in the cited case, the allegation against Tropical was
that it had executed synchronized transactions with various entities to tide over the liquidity
problem/ pay-in requirement of the stock exchange, thus misusing the stock exchange
mechanism for the settlement of private financing arrangement outside the stock exchange.
Besides, in the cited case, the Learned WTM of SEBI had noted that though investigation
period was divided in two, there were only two intervening days that bifurcated the
investigation conducted by SEBI into two distinct investigation periods, and that the modus
operandi employed by the Noticee during both the investigation periods was same. The
Learned WTM of SEBI also noted the broker Tropical had already been suspended for one
month in respect of the latter part of the investigation period. Hence, considering the facts
in totality, a view was taken by the Learned WTM of SEBI that additional penalty of
suspension of registration certificate is not warranted in the matter and hence issued a
warning. The Learned WTM of SEBI in the cited case had also observed that in a similar case
in which similar modus operandi was employed by the appellants, the Hon’ble SAT had held
that “if all enquiries had been conducted simultaneously, the appellants would not have
found themselves in the situation in which they are today”. Further, in the said case, SEBI
had initiated proceedings against the Noticee under the Enquiry Regulations (since
repealed) and continued under the Intermediaries Regulations.
The facts and circumstances of the extant case are different and involve adjudication
proceedings initiated against the Noticee under chapter VI-A of SEBI Act. Unlike the case at
hand, in the cited case, the broker Tropical did not act as the broker on both the sides of the
trade between two related clients. Thus, in the case at hand, since the Noticee has acted as
broker and counter party broker in respect of self trades, synchronized trades, reversal
trades of its clients and also in respect of trades between husband and wife, I find that its
culpability and role is on a completely different footing than as of the broker Tropical in the
cited case. Besides, it is pertinent to note here that warning was issued for the first
investigation period only after penalty of suspension of registration certificate had been
imposed on the broker Tropical for the latter investigation period, and after finding that the
modus operandi used during both the periods was the same.
44.4 M/s. Finquest Securities Pvt. Ltd. (hereinafter referred to as ‘Finquest’) vide SAT appeal no.
119 of 2013, wherein Hon’ble SAT while upholding that the act of receiving payments
Adjudication Order in the matter of M/s. Monarch Research and Brokerage Pvt. Ltd Page 26 of 29
through third parties was in violation of clause A (2) and A (5) of Schedule II prescribed under
Regulation 7 of Stock Brokers Regulations, set aside the penalty and directed the appellant
to be more careful in complying with the regulatory norms prescribed by SEBI, based on the
facts of the said case.
On perusal of the said Order, I note that in the cited case, the allegation against Finquest
was that it had contravened the contents of circular dated August 27, 2003 issued by SEBI by
accepting payments from third parties and unrelated entities on behalf of its registered
clients through normal banking channels like Real Time Gross Settlement i.e. RTGS and
cheques, thereby violating the Code of Conduct for stock brokers, in as much as, the
appellant had failed to act with due skill, care and diligence in conduct of its business. The
facts of the cited case are completely dissimilar to the present case, hence, the decision of
the Hon’ble SAT in the cited case cannot be made applicable to a completely different set of
facts and circumstances of the case in hand.
44.5 M/s. R R Chokahani Stock Brokers Pvt. Ltd. (hereinafter referred to as ‘R R Chokhani’) vide
SAT appeal no.217 of 2012, wherein too similar to the earlier case, Hon’ble SAT while
upholding that the act of receiving payments through third parties was in violation of clause
A (2) and A (5) of Schedule II prescribed under Regulation 7 of Stock Brokers Regulations, set
aside the penalty and directed the appellant to be more careful in complying with the
regulatory norms prescribed by SEBI based on the facts of the said case.
On perusal of the said Order, I note that in the cited case, the allegation against R R
Chokhani was that it had traded for some clients who were related to the promoters of Bank
of Rajasthan and received payments for trades from third parties, which is specifically
prohibited by SEBI vide circular dated August 27, 2003. As has been brought out above, the
facts of the cited case are completely dissimilar to the present case, hence, the decision of
the Hon’ble SAT in the cited case cannot be made applicable to a completely different set of
facts and circumstances of the case in hand.
44.6 M/s. SPJ Stock Brokers Pvt. Ltd. (hereinafter referred to as ‘SPJ’) vide SAT appeal no. 52 of
2013, wherein Hon’ble SAT had quashed and set aside the impugned order dated February
08, 2013 in the matter of M/s. Adani Exports Ltd.
Adjudication Order in the matter of M/s. Monarch Research and Brokerage Pvt. Ltd Page 27 of 29
The cited case pertains to alleged synchronized transactions carried out by SPJ on behalf of
one group. In the matter, the Hon’ble SAT observed that except recording that trades
executed by SPJ with one group were synchronized, no other particulars were set out in the
impugned order. The Hon’ble SAT in the said case held that there was no direct or
circumstantial evidence which is brought on record to suggest that SPJ was connected to the
group or connived with that group, hence, it would not be proper to hold SPJ guilty of
violating PFUTP Regulations/ Stock Broker Regulations;
Contrary to the same, in the case at hand, there was enough evidence on record from the
pattern of trading which has been illustrated above, to make the Noticee aware that
husband and wife were executing fictitious trades in SIL scrip. Further, in the case at hand,
since the Noticee has acted as broker and counter party broker in respect of self trades,
synchronized trades, reversal trades and also in respect of trades between husband and
wife, I find that its culpability and role is on a completely different footing than as of the
broker SPJ in the cited case.
45. Further, as regards the matters referred to by the Noticee as above, I note that nothing is brought
on record to show that facts in the so referred cases are similar to the facts in the extant case. I note
that circumstances and the facts of the said six cases referred by the Noticee are otherwise different
to the facts of the extant case as has been brought out above in detail. Further, some of these cases,
I find, are enquiry matters which does not involve levy of monetary penalties, unlike in the extant
case, wherein adjudication proceedings under Chapter VI-A of SEBI Act have been initiated against
the Noticee.
46. Also, assuming that lower penalty had been imposed based on the facts and circumstances of that
case, it does not automatically imply that same lower penalty need to be imposed in the extant
case. The determination of penalty in the extant case would depend upon the facts and
circumstances of the extant case. In the matter, I would like to refer to the Order of the Hon'ble
Securities Appellate Tribunal (SAT) in the matter of Hybrid Financial Services Limited Vs. SEBI
(Appeal No.119 of 2014 and Order dated June 12, 2014), wherein SAT had observed as follows:
"……. argument that penalty imposed on appellant is excessive compared to penalty imposed in the
case of M/s. Kamalakshi Finance Corporation Ltd. (supra) and Gupta Carpet International Ltd. is also
without any merit, because, firstly, nothing is brought on record to show that facts in that case are
Adjudication Order in the matter of M/s. Monarch Research and Brokerage Pvt. Ltd Page 28 of 29
similar to the facts in the present case. Secondly, assuming that excessive relief is granted by SEBI in
some cases, it does not mean that in all other cases similar reliefs should be granted especially when
the Regulations prescribe stringent action for non compliance of disclosure provisions which are
mandatory…..”
47. Further, I note that the Noticee has repeatedly highlighted that the clients Ms. Hina Vora and Mr.
Vijay Vora’s trades through Monarch were very negligible. It is apparent from the case laws referred
above that fictitious trades of the nature executed through Monarch were ordinarily and of their
nature, baneful practices which will, invariably, have the purpose and, often, the effect of interfering
with the integrity of securities market, even though such fictitious trades may be miniscule in
quantity. This sort of activity is, therefore, rightly considered to be illegal, and justifiably so. Further,
vide Order dated October 22, 2013, the Hon’ble Securities Appellate Tribunal (SAT) while
upholding the Order passed by the Learned WTM of SEBI in the matter of Angel Broking Pvt. Ltd.
(hereinafter referred to as ‘ABL’) has held that the argument that the turnover in Sun Infoway Ltd.
scrip was miniscule compared to the large turnover of the appellant and hence penalty need not be
imposed against ABL cannot be accepted, because imposition of penalty for violating provisions of
SEBI Act and regulations made thereunder are not dependent upon total turnover of person
violating the provisions of SEBI Act/ regulations made thereunder. The Hon’ble SAT has opined that
one who has violated the provisions of SEBI Act and regulations made thereunder, must suffer even
if turnover in the scrip in which violations are found is miniscule compared to the total turnover of
that person.
48. In the instant case, I find that Monarch allowed its clients to execute fictitious trades through it. Out
of 95,945 shares Mr. Vijay Vora bought from his wife Ms. Hina Vora (one side), Monarch acted as
both Broker and Counterparty Broker for 5,902 shares traded between Mr. Vijay Vora and Ms. Hina
Vora. Out of 59,302 shares Vijay Vora sold to Ms. Hina Vora during the investigation period,
Monarch acted as both Broker and Counterparty Broker for 41,768 shares traded between Mr. Vijay
Vora and Ms. Hina Vora. Thus, Monarch executed cross deals which accounted for 6% of Vijay Vora’s
buy & Ms. Hina Vora’s sell and 70% of Vijay Vora’s sell and Ms. Hina Vora’s buy of trades between
Ms. Hina Vora and Mr. Vijay Vora. Such trades for 47,670 shares between Mr. Vijay Vora and Ms.
Hina Vora, wherein the Noticee acted as both Broker and Counterparty Broker, were observed to
have been executed on 38 days during the investigation period and involved 86 trades. Further,
Adjudication Order in the matter of M/s. Monarch Research and Brokerage Pvt. Ltd Page 29 of 29
6,500 shares i.e. 13% out of the total of 47,670 shares, where Monarch acted as a broker and
counterparty broker to the trades of Mr. Hina Vora and Ms. Vijay Vora, were synchronized. I note
that the Noticee also acted as both broker and counterparty broker in respect of self trades for
5,087 shares executed on 23 days, involving 37 trades during the investigation period, out of the
total self trades for 18,358 shares of Mr. Vijay Vora. Thus, the Noticee was the broker and
counterparty broker in respect of more than one-fourth of the self trades of Mr. Vijay Vora in SIL
scrip during the investigation period.
ORDER
49. After taking into consideration all the facts and circumstances of the case, I impose a penalty of
Rs.35,00,000/- (Rupees Thirty Five Lac only) on the Noticee, M/s. Monarch Research & Brokerage
Pvt. Ltd. under Section 15 HB of the SEBI Act for violation of clause A(2) of Code of Conduct for Stock
Brokers as specified under Schedule II read with Regulation 7 of Stock Brokers Regulations which will
be commensurate with the violations committed by the Noticee.
50. The Noticee shall pay the said amount of penalty by way of demand draft in favour of “SEBI -
Penalties Remittable to Government of India”, payable at Mumbai, within 45 days of receipt of this
order. The said demand draft should be forwarded to Enforcement Department, Division of
Regulatory Action-IV, SEBI Bhavan, Plot No. C – 4 A, “G” Block, Bandra Kurla Complex, Bandra (E),
Mumbai – 400 051.
51. In terms of rule 6 of the Rules, a copy of this order is sent to the Noticee and also to the Securities
and Exchange Board of India.
Date: July 31, 2015 Anita Kenkare
Place: Mumbai Adjudicating Officer