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BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA

[ADJUDICATION ORDER NO. PG/AO-25/2010]

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

Rajesh Kumar

(PAN.: Not Available)

In the matter of

M/s. GHCL Ltd.

FACTS OF THE CASE IN BRIEF

1. Securities and Exchange Board of India (hereinafter referred to as

“SEBI”) conducted investigation into trading in the scrip of M/s.

GHCL Ltd. (hereinafter referred to as ‘GHCL’) for the period from

November 06, 2006 to March 31, 2007 (hereinafter referred to as

‘period of investigation’) due to sharp rise in price and volume of

the scrip on National Stock Exchange of India Ltd. (hereinafter

referred to as ‘NSE’) and Bombay Stock Exchange Ltd. (hereinafter

referred to as ‘BSE’).

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2. The role of the brokers and their clients who had traded in the scrip

was scrutinized. It was alleged that Carissa Investment Pvt.

Limited (hereinafter referred to as “Carissa”), Darpan Garden

Exports Private Ltd (hereinafter referred to as “Darpan”), Jalco

Financial Service Pvt. Ltd (hereinafter referred to as “ Jalco/ JFPL”), Pathik Merchandise Pvt. Ltd (hereinafter referred to as

“Pathik”) and Wilful Finance and Investment Co Pvt. Ltd

(hereinafter referred to as “Wilful”), which belong to the same

group viz. Jalco Group (hereinafter referred to as ‘Jalco Group’),

had indulged in synchronization of deals/reversal trading/fictitious

trading in the shares of GHCL in such a manner that led to creation

of artificial volume and impacted the price of the scrip.

3. It was alleged that Mr. Rajesh Kumar (hereinafter referred to as

“Rajesh / Noticee”) who was one of the directors of Carissa had

aided and abetted Jalco Group in the manipulation of price/volume

of the said scrip and consequently, violated regulation 4(2)(a) and

(g) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices

relating to Securities Market) Regulation, 2003 (hereinafter referred

to as “PFUTP Regulations”) and, therefore, liable for monetary

penalty under section 15HA of Securities and Exchange Board of

India Act, 1992 (hereinafter referred to as “SEBI Act”).

APPOINTMENT OF ADJUDICATING OFFICER 4. Mr V.S. Sundaresan was appointed as Adjudicating Officer vide

order dated October 22, 2008 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 ‘Rules’) to inquire into and adjudge the alleged violations of

the provisions of SEBI Act and PFUTP Regulations. Consequent to

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transfer of Mr V S Sundaresan, the undersigned has been

appointed as Adjudicating Officer vide order dated November 12,

2009.

SHOW CAUSE NOTICE, HEARING AND REPLY

5. Show Cause Notice dated November 28, 2008 (hereinafter referred

to as “SCN”) was issued to the Noticee under rule 4(1) of the

Rules to show cause as to why an inquiry should not be held

against the Noticee and penalty be not imposed under section

15HA of SEBI Act for the alleged violation specified in the said

SCN. Same SCN was also sent to other directors of Jalco group

companies, viz. Alok Kumar Srivastava, Bhairav Dutt Naliwal,

Pradeep Kumar, Vinay Kumar Mehta, Manohar Ram & Balbeer

Singh. While the original SCN was returned undelivered, it appears

that the noticee procured a copy of the same from one of the other

directors of Jalco group entities who had been issued similar SCNs.

6. The Noticee vide letter dated December 22, 2008 sought further

time to reply to the said SCN. Thereafter, the Noticee vide his reply

dated May 04, 2009 denied all the allegations and submitted the

following:

That the SEBI order dated April 25, 2007 was passed in gross

violation of principles of natural justice.

That he had not traded in the scrip of GHCL during the

investigation period in his individual capacity.

7. In the interest of natural justice and in order to conduct an inquiry

as per rule 4(3) of the Rules, the Noticee was granted an

opportunity of hearing on May 05, 2009 vide notice dated April 08,

2009. However, the same was returned undelivered. Another

opportunity of hearing was granted to the Noticee on July 06, 2009

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vide notice dated June 08, 2009. However, the same was also

returned undelivered with no remark. Another hearing notice dated

August 12, 2009 fixing August 26, 2009 as date of hearing was

issued to the Noticee. The same was also uploaded on the SEBI

web site under the title ‘Unserved summons / notices‘. As per A.D.

card received, the notice was delivered to the Noticee. However,

the Noticee neither appeared nor sought adjournment. Another

hearing notice dated December 04, 2009 fixing December 14, 2009

as date of hearing was sent to the Noticee by Speed Post A.D.. The

same was also uploaded on SEBI web site under label captioned

“Unserved summons/Notices”. However, the same was returned

undelivered with remark “Left”. Another hearing notice dated

January 05, 2010 fixing January 27, 2010 as date of hearing was

sent to the Noticee through Northern Regional Office of SEBI. The

notice was also uploaded on SEBI website under title captioned

“Unserved summons/Notices”. The Notice was delivered to the

Noticee. The Noticee vide letter dated January 25, 2010 requested

to hold the hearing in Delhi. Vide Notice dated April 07, 2010 the

Noticee was informed that already two opportunities of hearing in

Delhi had been given to the Noticee vide Notices dated June 08,

2009 and December 04, 2009. Hence, the request of the Noticee to

keep the hearing in Delhi cannot be accepted. Another Hearing

Notice dated April 07, 2010 was issued to the Noticee fixing April

19, 2010 as date of hearing. However, the same was returned

undelivered with remark “no such person residing at the said

address”.

8. The Noticee had duly received the SCN dated November 28, 2008.

He had also responded to the SCN vide letter dated May 04, 2009.

He had also accepted two hearing Notices dated August 12, 2009

and January 05, 2010. He ahs also responded to the SCN as well

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as to the hearing notice dated January 05, 2010. This means he is

aware of the ongoing adjudication proceedings against him.

Therefore, the onus is on the Noticee to inform about change, if

any, in his address. The Noticee has not communicated anything in

this regard.

9. I observe that six opportunities of hearing have been given to the

Noticee of which two were for appearance in his city of residence,

i.e. Delhi. The Noticee neither appeared nor made any

submissions despite being aware of the proceedings. I am

convinced that ample opportunities have been given to the Noticee

to explain his case. As per rule 4(7) of the Rules, if any person fails,

neglects or refuses to appear as required by sub-rule (3) before the

Adjudicating Officer, he may proceed with the inquiry in the

absence of such person after recording the reasons therefor.

Despite having been given ample opportunities as stated above,

the Noticee has failed to avail the opportunity of personal hearing. I

am, therefore, compelled to proceed with the matter ex-parte based

on the material available on record.

10. I have taken into consideration the contention of the Noticee that

the Order passed by SEBI on April 25, 2007 was in gross violation

of the principle of natural justice. However, I am of the view that the

Order passed by SEBI on April 25, 2007 is relating to different

proceedings. Further, the principles of natural justice have been

diligently followed in the present proceedings.

CONSIDERATION OF ISSUES AND FINDINGS 11. The issues that arise for consideration in the present case are :

a) Whether the Noticee had violated Regulation 4(2) (a) and (g) of

PFUTP Regulations?

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b) Does the violation, if any, on the part of the Noticee attract

monetary penalty under section 15HA of SEBI Act?

c) If so, what would be the monetary penalty that can be imposed

taking into consideration the factors mentioned in section 15J of

SEBI Act?

12. Before moving forward, it will be appropriate to refer to the relevant

provisions of PFUTP Regulations, which read as under:

4. Prohibition of manipulative, fraudulent and unfair trade practices (2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely: -

(a) indulging in an act which creates false or misleading appearance of trading in the securities market;

(b) … (c) … (d) … (e) … (f) … (g) entering into a transaction in securities without intention of

performing it or without intention of change of ownership of such security.

13. On perusal of the documents available on record and written

submissions made by the Noticee, I find the following:

i. During the investigation period, the scrip of GHCL was traded

for 102 days and generated a volume of 3,96,03,752 shares

on BSE, i.e. an average volume of 3,88,272 shares per day,

and 6,75,92,964 shares on NSE, i.e. an average volume of

6,62,676 shares per day.

ii. Out of 102 trading days, the Jalco Group entities traded on 92

trading days on BSE and on 99 trading days at NSE.

iii. The Jalco Group entities had indulged in synchronized trading

through several brokers. Details of the brokers and their

abbreviations are given below:

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Broker Name Hereinafter referred to as

Clients

Anand Rathi Securities Pvt. Ltd ARSL Darpan, Wilful UTI Securities Ltd. UTI Carissa, Darpan,

JFPL, Pathik, Wilful Edelweiss Securities Pvt. Ltd. ESPL Darpan, Wilful Kotak Securities Ltd. Kotak JFPL, Wilful Brics Securities Ltd. BSL JFPL, Wilful Motilal Oswal Securities Ltd. MOSL Darpan LKP Shares & Securities Ltd. LKP JFPL India Infoline Securities Pvt. Ltd. IISPL JFPL, Wilful Indiabulls Securities Ltd. Ibull JFPL, Wilful Adinath Capital Services Limited ACSL Carissa, JFPL J M Morgan Stanley Retail Services Pvt Limited

JM JFPL, Wilful

Ashika Stock Broking Ltd. Ashika Carissa, Wilful Karvy Stock Broking Ltd. Karvy JFPL Emkay Share & Stock Brokers Ltd. MK JFPL

J.M. Morgan Stanley Financial Services Pvt. Ltd.

Morgan Wilful

Fortis Securities Ltd. FSL Wilful IL & FS Investsmart Ltd. ILFS JFPL K & A Securities (P) Ltd. KA Carissa MR Share Broking Pvt. Ltd MR JFPL Navratan Capital & Securities Pvt. Ltd. NCSPL Wilful

iv. Jalco Group entities had executed large number of

transactions in the scrip of GHCL during the investigation

period thereby creating huge volume in the scrip. The trading

details at BSE and NSE are given below:

Trading Details at BSE

Entity Name

Buy Volume (no. of shares)

Buy Value (Rs. in crore)

Sell Volume (no. of shares)

Sell Value (Rs. in crore)

Carissa 1,33,524 2.24 2,10,000 3.53 Darpan 29,13,041 48.85 26,89,678 44.12 JFPL 76,58,284 126.55 1,04,00,469 174.46 Pathik 5,96,279 10.28 5,85,000 9.83 Wilful 37,93,422 63.50 33,08,309 54.64 Total 1,50,94,550 251.43 1,71,93,456 286.58

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Trading Details at NSE Entity Name

Buy Quantity (no. of shares)


Sell Quantity (no. of shares)


Carissa 6,42,854 10.51 5,91,375 9.45 Darpan 36,99,321 61.88 29,04,113 48.61 JFPL 1,88,32,300 314.69 1,42,11,310 237.70 Pathik 2,52,095 4.44 3,18,991 5.69 Wilful 82,15,423 134.93 75,14,278 123.32 Total 3,16,41,993 526.44 2,55,40,067 424.76

v. The trading details reveal that Jalco Group entities had

purchased shares of GHCL worth Rs.777.86 crore and sold

shares of GHCL worth Rs.711.33 crore at BSE and NSE.

vi. Jalco group’s trading constituted 38.11% of total market-buy

quantity and 43.41% of market-sell quantity at BSE, while at

NSE, it constituted 46.81% of total market-buy quantity and

37.75% of total market-sell quantity.

vii. Jalco Group entities had also traded among themselves during

the investigation period. The trading volume was generated

through buying by one group entity through one broker and

selling by another group entity through same/another broker.

Details of their trading done amongst themselves are given

below:

Trading Details at BSE

Entity Name





Carissa 74,524 1.25 2,43,650 4.08 Darpan 16,19,254 27.11 12,06,605 19.76 JFPL 25,43,871 42.53 39,57,148 66.60 Pathik 1,67,509 2.95 99,501 1.66 Wilful 21,63,418 36.13 10,61,672 17.87 Total 65,68,576 109.96 65,68,576 109.96

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Trading Details at NSE

Entity Name





Carissa 4,96,458 8.12 2,36,221 3.83Darpan 16,73,278 27.91 7,45,060 12.11JFPL 56,01,896 91.57 60,24,707 99.10Pathik 0 0.00 47,871 0.85Wilful 35,28,458 57.05 39,49,019 63.88Total 1,13,00,090 184.64 1,10,02,878 179.78

viii. Upon analysis of the tables given above, I find the following:

On BSE the Jalco Group entities purchased 65,68,576

shares and sold 65,68,576 shares of GHCL by trading

among themselves.

The said purchases constituted 43.52% of total purchases

made by them and said sales constituted 38.20% of total

sales made by them on BSE.

On NSE, Jalco Group entities purchased 1,13,00,090

shares and sold 1,10,02,878 shares by trading among

themselves.

The said purchases constituted 35.71% of total purchases

made by them and the said sales constituted 43.08% of

total sales made by them on NSE.

ix. Jalco Group entities had executed several synchronized

trades among themselves during the investigation period.

There were 102 such transactions where the Jalco Group

entities had indulged in synchronized trades amongst

themselves. In all these instances, the difference between buy

order time and sell order time was less than a minute. In all

these trades, the price and quantity of buy order and sell order

were the same. The details of the same are given below:

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Date Buy/Sale Trade Price

Buy/Sale Qty

Trade Time Buying Broker

Buying Client

Buy Order Time

Selling Broker

Selling Client

Sell Order Time

Time Difference

4/12/2006 177.05 15000 13:31:15 UTI JFPL 13:31:15 ESPL Darpan 13:31:12 0:00:034/12/2006 177.05 7000 13:31:42 UTI JFPL 13:31:28M ESPL Darpan 13:31:41 0:00:134/12/2006 176.9 25000 15:16:21 UTI Pathik 15:16:19 Kotak JFPL 15:16:21 0:00:026/12/2006 174.2 25000 2:13:59 PM Karvy JFPL 2:13:59 PM BSL JFPL 2:13:54 PM 0:00:05

6/12/2006 174.4 5000 2:25:33 PM Ashika Wilful 2:25:33 PM ARSL, Darpan 2:25:20 PM 0:00:136/12/2006 174.4 5000 2:25:59 PM Ashika Wilful 2:25:58 PM ARSL, Darpan 2:25:47 PM 0:00:116/12/2006 174.4 5000 2:26:13 PM Ashika Wilful 2:26:12 PM ARSL, Darpan 2:26:04 PM 0:00:086/12/2006 174.2 25000 2:32:20 PM UTI Wilful 2:32:16 PM MOSL Darpan 2:32:20 PM 0:00:04

12/12/2006 165 5000 1:39:46 PM UTI JFPL 1:39:31 PM LKP JFPL 1:39:46 PM 0:00:1512/12/2006 159.5 20000 2:43:44 PM UTI JFPL 2:43:42 PM BSL JFPL 2:43:44 PM 0:00:0212/12/2006 159.15 20000 2:44:21 PM UTI JFPL 2:44:09 PM BSL JFPL 2:44:11 PM 0:00:0212/12/2006 159 20000 2:54:37 PM UTI JFPL 2:54:36 PM BSL JFPL 2:54:36 PM 0:00:0012/12/2006 164.15 10000 3:18:40 PM UTI JFPL 3:18:37 PM BSL JFPL 3:18:39 PM 0:00:02

1/3/2007 165.4 15000 14:46:00 IISPL JFPL 14:45:59 IISPL Wilful 14:46:00 0:00:011/3/2007 165.4 20000 14:46:51 IISPL JFPL 14:46:43 IISPL Wilful 14:46:51 0:00:086/3/2007 162.5 50000 3:59:45 PM IISPL JFPL 3:59:41 PM BSL JFPL 3:59:44 PM 0:00:036/3/2007 162.5 10000 4:02:26 PM IISPL JFPL 4:02:25 PM Ibull JFPL 4:02:25 PM 0:00:008/2/2007 177 25000 13:13:16 BSL JFPL 13:13:12 ACSL JFPL 13:13:16 0:00:048/2/2007 177.05 25000 13:13:46 BSL JFPL 13:13:41 ACSL JFPL 13:13:46 0:00:058/2/2007 177.1 25000 13:18:11 BSL JFPL 13:18:10 ACSL JFPL 13:18:11 0:00:018/2/2007 177 25000 15:06:21 BSL JFPL 15:06:20 ACSL JFPL 15:06:21 0:00:018/3/2007 163.8 25000 3:49:55 PM Kotak Wilful 3:49:54 PM ESPL Darpan 3:49:54 PM 0:00:008/3/2007 163.85 25000 3:50:09 PM Kotak Wilful 3:50:09 PM ESPL Darpan 3:50:07 PM 0:00:029/3/2007 163.4 2000 14:15:07 IISPL JFPL 14:15:07 BSL JFPL 14:14:08 0:00:599/3/2007 163.55 25000 15:38:27 NCSPL Wilful 15:38:27 JM JFPL 15:38:18 0:00:09

11/1/2007 167.9 25000 2:14:28 PM ARSL., Wilful 2:14:27 PM Ashika Carissa 2:14:25 PM 0:00:0211/1/2007 167.9 25000 2:14:47 PM ARSL., Darpan 2:14:47 PM Ashika Carissa 2:14:46 PM 0:00:0111/1/2007 167.85 50000 2:22:51 PM ARSL., Darpan 2:22:51 PM UTI JFPL 2:22:46 PM 0:00:0512/1/2007 169.3 25000 11:40:09 AM ARSL., Darpan 11:40:08 AM Ashika Carissa 11:40:08 AM 0:00:0012/1/2007 169.3 25000 11:40:23 AM ARSL., Darpan 11:40:23 AM Ashika Carissa 11:40:20 AM 0:00:0312/1/2007 168.7 25000 12:18:33 PM UTI JFPL 12:18:32 PM ARSL, Darpan 12:18:32 PM 0:00:00

12/3/2007 164.6 25000 15:10:59 IISPL JFPL 15:10:55 Kotak JFPL 15:10:59 0:00:0412/3/2007 164.4 25000 15:11:25 IISPL JFPL 15:11:23 Kotak JFPL 15:11:25 0:00:02

13/02/07 164.25 50000 2:52:13 PM Ibull JFPL 2:52:12 PM IISPL Wilful 2:52:13 PM 0:00:0113/02/07 164.3 50000 2:52:32 PM Ibull JFPL 2:52:25 PM IISPL Wilful 2:52:32 PM 0:00:0713/03/07 163.25 25000 15:03:43 KA Carissa 15:03:43 ACSL Carissa 15:03:40 0:00:0313/03/07 163.3 25000 15:04:00 KA Carissa 15:04:00 ACSL Carissa 15:03:58 0:00:0213/03/07 163.2 25000 15:04:19 KA Carissa 15:04:19 ACSL Carissa 15:04:16 0:00:0313/03/07 163.35 25000 15:04:34 KA Carissa 15:04:34 ACSL Carissa 15:04:31 0:00:0313/12/06 166.5 50000 2:53:52 PM UTI Darpan 2:53:51 PM IISPL JFPL 2:53:47 PM 0:00:0419/02/07 171 3387 1:39:19 PM UTI Wilful 1:38:59 PM BSL Wilful 1:39:19 PM 0:00:2019/03/07 162.25 5000 3:37:44 PM ESPL Darpan 3:37:44 PM BSL JFPL 3:37:44 PM 0:00:0019/03/07 162.25 10000 3:38:01 PM ESPL Darpan 3:38:01 PM BSL JFPL 3:37:59 PM 0:00:02

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19/03/07 162.25 2000 3:38:14 PM ESPL Darpan 3:38:13 PM BSL JFPL 3:38:12 PM 0:00:0119/03/07 162.2 5000 3:38:31 PM ESPL Darpan 3:38:31 PM BSL JFPL 3:38:30 PM 0:00:0119/03/07 162.15 1 3:39:17 PM ESPL Darpan 3:39:16 PM BSL JFPL 3:39:10 PM 0:00:0619/03/07 162.25 1 3:39:43 PM ESPL Darpan 3:39:42 PM BSL JFPL 3:39:35 PM 0:00:0719/03/07 162.25 10000 3:43:08 PM ESPL Darpan 3:43:07 PM BSL JFPL 3:43:08 PM 0:00:0119/03/07 162.25 1 3:43:28 PM ESPL Darpan 3:43:27 PM BSL JFPL 3:43:21 PM 0:00:0619/03/07 162.25 1 3:44:38 PM ESPL Darpan 3:44:37 PM BSL JFPL 3:44:31 PM 0:00:0619/03/07 162.25 10000 3:55:00 PM ESPL Darpan 3:54:57 PM BSL JFPL 3:54:59 PM 0:00:0219/03/07 162.25 5000 3:55:18 PM ESPL Darpan 3:55:15 PM BSL JFPL 3:55:18 PM 0:00:0319/03/07 162.35 10000 3:56:28 PM LKP JFPL 3:55:35 PM Karvy JFPL 3:56:12 PM 0:00:3719/03/07 162.35 1 3:59:37 PM ESPL Darpan 3:59:36 PM BSL JFPL 3:59:29 PM 0:00:0719/03/07 162.15 1 3:59:56 PM ESPL Darpan 3:59:55 PM BSL JFPL 3:59:49 PM 0:00:0619/03/07 162.75 25000 4:09:51 PM ESPL Darpan 4:09:49 PM BSL JFPL 4:09:50 PM 0:00:0119/12/06 162.65 1603 3:41:12 PM ARSL, Darpan 3:41:12 PM MK JFPL 3:40:28 PM 0:00:4421/02/07 169.2 50000 14:27:00 IISPL Wilful 14:27:00 Ibull JFPL 14:26:58 0:00:0221/02/07 169.4 50000 2:27:26 PM IISPL Wilful 2:27:25 PM Ibull JFPL 2:27:17 PM 0:00:0821/12/06 168.5 25000 2:34:58 PM IISPL Wilful 2:34:55 PM UTI JFPL 2:34:57 PM 0:00:0221/12/06 168.65 25000 2:35:12 PM IISPL Wilful 2:35:12 PM UTI JFPL 2:35:10 PM 0:00:0221/12/06 168.4 25000 2:35:29 PM IISPL Wilful 2:35:29 PM UTI JFPL 2:35:27 PM 0:00:0221/12/06 167.6 25000 2:40:08 PM UTI Wilful 2:40:07 PM IISPL JFPL 2:40:07 PM 0:00:0021/12/06 167.65 25000 2:40:19 PM UTI Wilful 2:40:17 PM IISPL JFPL 2:40:19 PM 0:00:0221/12/06 167.7 25000 2:40:30 PM UTI Wilful 2:40:28 PM IISPL JFPL 2:40:29 PM 0:00:0121/12/06 167.6 20000 2:40:49 PM UTI Wilful 2:40:47 PM IISPL JFPL 2:40:49 PM 0:00:0221/12/06 167.6 25000 3:12:39 PM MR. JFPL 3:12:39 PM UTI JFPL 3:12:39 PM 0:00:0022/03/07 158.75 10000 11:52:38 IISPL JFPL 11:52:38 IISPL Wilful 11:52:37 0:00:0122/03/07 158.8 10000 11:52:53 IISPL JFPL 11:52:53 IISPL Wilful 11:52:52 0:00:0122/03/07 158.75 10000 11:53:10 IISPL JFPL 11:53:10 IISPL Wilful 11:53:08 0:00:0222/03/07 158.8 10000 11:53:23 IISPL JFPL 11:53:23 IISPL Wilful 11:53:19 0:00:0422/03/07 158.8 10000 11:53:36 IISPL JFPL 11:53:36 IISPL Wilful 11:53:34 0:00:0222/03/07 159 20000 11:55:39 AM IISPL Wilful 11:55:39 AM IISPL JFPL 11:55:38 AM 0:00:0122/03/07 159 15000 11:56:55 AM IISPL Wilful 11:56:54 AM IISPL JFPL 11:56:48 AM 0:00:0622/03/07 158.8 25000 12:02:22 IISPL JFPL 12:02:22 IISPL Wilful 12:02:18 0:00:0422/03/07 158.75 25000 12:02:41 IISPL JFPL 12:02:41 IISPL Wilful 12:02:39 0:00:0223/03/07 154.5 20000 12:49:19 IISPL JFPL 12:49:19 IISPL Wilful 12:49:19 0:00:0023/03/07 154.5 30000 12:50:35 IISPL JFPL 12:50:35 IISPL Wilful 12:50:24 0:00:1123/03/07 154.4 20000 12:50:58 IISPL JFPL 12:50:58 IISPL Wilful 12:50:57 0:00:0123/03/07 154.4 10000 12:51:17 IISPL JFPL 12:51:17 IISPL Wilful 12:51:17 0:00:0023/03/07 153.9 25000 12:58:07 PM IISPL Wilful 12:58:06 PM IISPL JFPL 12:58:07 PM 0:00:0123/03/07 153.95 25000 12:58:21 PM IISPL Wilful 12:58:21 PM IISPL JFPL 12:58:18 PM 0:00:0323/03/07 154.3 25000 12:59:05 PM IISPL Wilful 12:59:04 PM IISPL JFPL 12:59:02 PM 0:00:0226/03/07 156.4 100000 11:26:40 AM Ibull JFPL 11:26:35 AM ESPL Wilful 11:26:39 AM 0:00:0426/03/07 156.4 100000 11:28:55 AM Ibull Wilful 11:28:54 AM ESPL Darpan 11:28:54 AM 0:00:0026/03/07 156.65 100000 12:36:06 Ibull JFPL 12:36:02 Ashika Wilful 12:36:06 0:00:0426/03/07 156.65 100000 12:36:24 Ibull JFPL 12:36:24 Ashika Wilful 12:36:23 0:00:0126/03/07 156.3 100000 13:41:48 Ibull JFPL 13:41:48 JM Wilful 13:41:48 0:00:0026/03/07 156 100000 1:42:29 PM Ibull JFPL 1:42:28 PM Morgan Wilful 1:42:27 PM 0:00:01

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26/03/07 156.45 25000 14:11:19 Ibull Wilful 14:11:19 ACSL JFPL 14:11:19 0:00:0026/03/07 156.4 25000 14:11:35 Ibull Wilful 14:11:35 ACSL JFPL 14:11:34 0:00:0126/03/07 156.4 25000 14:12:00 Ibull Wilful 14:12:00 ACSL JFPL 14:12:00 0:00:0026/03/07 156.4 25000 14:20:37 Ibull Wilful 14:20:37 ACSL JFPL 14:20:34 0:00:0326/03/07 156.3 25000 14:20:49 Ibull Wilful 14:20:49 ACSL JFPL 14:20:48 0:00:0126/12/06 166.65 10000 2:56:25 PM ESPL Wilful 2:56:24 PM UTI Pathik 2:56:11 PM 0:00:1327/02/07 167.5 15000 15:13:34 BSL JFPL 15:13:34 FSL Wilful 15:13:24 0:00:1028/02/07 165 25000 2:29:02 PM MR JFPL 2:28:59 PM BSL JFPL 2:29:01 PM 0:00:0228/02/07 165.35 50000 3:17:16 PM ILFS JFPL 3:17:16 PM UTI Wilful 3:17:15 PM 0:00:0128/03/07 150.2 50000 12:56:15 Kotak JFPL 12:56:15 FSL Wilful 12:56:14 0:00:0128/12/06 167 25000 1:16:12 PM UTI Carissa 1:16:12 PM BSL JFPL 1:16:12 PM 0:00:0028/12/06 167.05 25000 1:16:27 PM UTI Carissa 1:16:24 PM BSL JFPL 1:16:27 PM 0:00:0328/12/06 167.1 10000 1:16:37 PM UTI Carissa 1:16:36 PM BSL JFPL 1:16:37 PM 0:00:01

x. An analysis of the table given above reveals the following:

Out of 102 synchronized orders placed by Jalco Group

entities, in 15 orders the time difference between placing of

buy and sell orders was 0 seconds, in 22 orders the time

difference was 1 second and in 31 orders the time

difference was between 2 and 3 seconds. Hence, in 68 out

of 102 synchronised orders (i.e. 66.67% ), the time

difference in placing the orders was between 0 and 3

seconds.

Jalco Group entities created a volume of 25,40,996 shares

through synchronized trading, which constituted 14.22% of

the total trading conducted by them among themselves.

It is observed that at 13:31:12 hrs on 04.12.2006, Darpan

put in a sell order for 15,000 shares of GHCL @ Rs.177.05

through Edelweiss Securities Pvt. Ltd. At 13:31:15, JFPL,

trading through UTI Securities Ltd., entered a buy order for

15,000 shares @ Rs.177.05. The said orders matched with

each other and were executed at 13:31:15 hrs for 15,000

shares. The time gap between purchase and sale order

was 3 seconds. Further, the order quantity and price was

matching between the buying and selling entities.

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It is also observed that at 15:16:19 hrs on 04.12.2006,

Pathik put in a buy order for 25,000 shares of GHCL @

Rs.176.90 through UTI Securities Ltd. At 15:16:21, JFPL,

trading through Kotak Securities Ltd., entered a sell order

for 25,000 shares @ Rs.176.90. The said orders matched

with each other and were executed at 15:16:21 for 25,000

shares. The time gap between purchase and sale order

was 2 seconds and the order quantity and price was

matching between the buying and selling entities.

Carissa (the company in which the Noticee is one of the

directors) placed 7 buy orders, which were synchronized in

nature, and created a volume of 1,60,000 shares and

placed 8 sell orders, which were synchronized in nature,

and created a volume of 2,00,000 shares. Hence, out of

102 synchronized orders, Carissa was involved in 15

orders.

In 30 orders Carissa, JFPL or Wilful were present on both

the legs of the transactions, i.e. buy as well as sell side.

Details of such trades are given below: Date Buy/Sale

Trade Price

Buy/Sale Qty

Trade Time Buying Broker

Buying Client

Buy Order Time

Selling Broker

Selling Client

Sell Order Time

4/12/2006 176.85 25000 1:28:01 PM UTI JFPL 1:27:55 PM BSL JFPL 10:29:20 AM4/12/2006 176.85 25000 1:28:13 PM UTI JFPL 1:28:12 PM BSL JFPL 10:30:05 AM4/12/2006 176.85 25000 1:28:26 PM UTI JFPL 1:28:26 PM BSL JFPL 1:00:57 PM6/12/2006 174.2 25000 2:13:59 PM Karvy JFPL 2:13:59 PM BSL JFPL 2:13:54 PM

12/12/2006 165 5000 1:39:46 PM UTI JFPL 1:39:31 PM LKP JFPL 1:39:46 PM12/12/2006 159.5 20000 2:43:44 PM UTI JFPL 2:43:42 PM BSL JFPL 2:43:44 PM12/12/2006 159.15 20000 2:44:21 PM UTI JFPL 2:44:09 PM BSL JFPL 2:44:11 PM12/12/2006 159 20000 2:54:37 PM UTI JFPL 2:54:36 PM BSL JFPL 2:54:36 PM12/12/2006 164.15 10000 3:18:40 PM UTI JFPL 3:18:37 PM BSL JFPL 3:18:39 PM

6/3/2007 162.5 50000 3:59:45 PM IISPL JFPL 3:59:41 PM BSL JFPL 3:59:44 PM6/3/2007 162.5 10000 4:02:26 PM IISPL JFPL 4:02:25 PM Ibull JFPL 4:02:25 PM8/2/2007 177 25000 13:13:16 BSL JFPL 13:13:12 ACSL JFPL 13:13:168/2/2007 177.05 25000 13:13:46 BSL JFPL 13:13:41 ACSL JFPL 13:13:468/2/2007 177.1 25000 13:18:11 BSL JFPL 13:18:10 ACSL JFPL 13:18:118/2/2007 177 25000 15:06:21 BSL JFPL 15:06:20 ACSL JFPL 15:06:218/3/2007 163.5 25000 10:29:22 AM BSL JFPL 10:29:21 AM Kotak JFPL 1:28:01 PM

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8/3/2007 163.6 25000 10:30:05 AM BSL JFPL 10:29:59 AM Kotak JFPL 1:28:12 PM8/3/2007 163.4 25000 1:00:57 PM BSL JFPL 1:00:57 PM Kotak JFPL 1:28:19 PM9/3/2007 163.4 2000 14:15:07 IISPL JFPL 14:15:07 BSL JFPL 14:14:08

12/3/2007 164.6 25000 15:10:59 IISPL JFPL 15:10:55 Kotak JFPL 15:10:5912/3/2007 164.4 25000 15:11:25 IISPL JFPL 15:11:23 Kotak JFPL 15:11:25

13/03/07 163.25 25000 15:03:43 KA Carissa 15:03:43 ACSL Carissa 15:03:4013/03/07 163.3 25000 15:04:00 KA Carissa 15:04:00 ACSL Carissa 15:03:5813/03/07 163.2 25000 15:04:19 KA Carissa 15:04:19 ACSL Carissa 15:04:1613/03/07 163.35 25000 15:04:34 KA Carissa 15:04:34 ACSL Carissa 15:04:3114/03/07 161.9 40000 3:55:29 PM BSL JFPL 3:55:28 PM Karvy JFPL 2:19:02 PM19/02/07 171 3387 13:39:19 UTI Wilful 13:38:59 BSL Wilful 13:39:1919/03/07 162.35 10000 3:56:28 PM LKP JFPL 3:55:35 PM Karvy JFPL 3:56:12 PM21/12/06 167.6 25000 3:12:39 PM MR JFPL 3:12:39 PM UTI JFPL 3:12:39 PM28/02/07 165 25000 2:29:02 PM MR JFPL 2:28:59 PM BSL JFPL 2:29:01 PM

xi. It was observed that Carissa had placed 4 orders where it was

present on both the sides of the transaction. On 13.03.2007

Carissa placed 4 buy orders through KA between 15:03:43

and 15:04:34 of 25,000 shares each with a price range of

Rs.163.20 to Rs.163.35 and placed 4 sell orders through

ACSL from 15:03:40 to 15:04:31 of same quantity and at same

price. The time difference between placement of individual buy

and sell orders was 2 to 3 seconds. It is clear that these

transactions have only resulted in artificial trading volume.

xii. Jalco Group entities had also indulged in off-market

transactions among themselves. Details of the same are given

below:

Source Client Name

Target client name

Execution date

No. of shares

JFPL 10/04/2005 200000 JFPL 10/28/2005 700000

1/3/2006 340000 Wilful 1/6/2006 100000

Carissa JFPL 4/3/2006 100000 JFPL 4/4/2006 300000 Wilful 4/4/2006 345000

6/9/2006 50000

Darpan

JFPL

6/20/2006 200000

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7/1/2006 259000

7/10/2006 75000 Darpan 8/3/2006 100000 Darpan 8/4/2006 200000

JFPL Wilful 11/6/2006 145000 Darpan 11/14/2006 200000

11/14/2006 200000 11/21/2006 100000 11/22/2006 300000 12/4/2006 150000 12/4/2006 36000 12/4/2006 34000

Wilful JFPL 12/14/2006 40000

xiii. The entities of Jalco Group share the common address viz.

House No. 6, Pocket - 40, Chittaranjan Park, New Delhi-

110019.

xiv. Jalco Group entities were also having some common directors

across the group. The details of the directors of the Jalco

Group are given below:

Entities Directors Directorship in other companies DARPAN

1. Alok Kumar Srivastva 2. Bhairav Dutt Naliwal 3. Sanjay Jalan (Former Director. Resigned in Sept 2006)

Bhairav Dutt Naliwal is also Director of 1. Wilful Finance 2. Jalco Enterprises Pvt. Ltd. 3. Jalco Plasto Chem Industries Pvt. Ltd. Alok Kumar Srivastava is also Director of 1. Jalco Financial Services Pvt. Ltd. 2. Jalco Enterprises Pvt. Ltd. 3. Jalco Plasto Chem Industries Pvt. Ltd. 4. Antartica

WILFUL FINANCE

1. Bhairav Dutt Naliwal 2. Pradeep Kumar 3. Balbeer Singh 4. Manohar Ram (resigned on 23/01/07)

Manohar Ram is also Director of 1. Carissa Investments Pvt. Ltd. 2. Comosum Investments Pvt. Ltd. 3. Dear Investments Pvt. Ltd. 4. Lovely Investments Pvt. Ltd. 5. Jalco Plasto Chem Industries Pvt. Ltd. 6. Jalco Financial Services Pvt. Ltd

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7. Dew Films Pvt. Ltd. 8. Grotto Pharmaceuticals Pvt. Ltd.

JALCO FINANCIAL SERVICES PVT. LTD.

1. Alok Kumar Srivastva 2. Vinay Kumar Mehta 3. Manohar Ram

Vinay Kumar Mehta is also director of

1. Antartica 2. Carissa Investments Pvt.

Ltd. 3. Comosum Investments Pvt.

Ltd. ANTARCTICA

1. Alok Kumar Srivastva 2. Vinay Kumar Mehta 3. Manohar Ram

CARISSA INVESTMENTS PVT LTD

1. Rajesh Kumar 2. Vinay Kumar Mehta 3. Manohar Ram

COMOSUM INVESTMENTS PVT LTD

1. Suruj Gurung 2. Vinay Kumar Mehta 3. Manohar Ram

xv. Jalco Group had created significant volume in the scrip of

GHCL during the investigation period. This is evident by the

fact that the average trading volume, which was 4,46,738 and

1,58,414 shares at NSE and BSE respectively during the 3

days (i.e. 20th, 23rd, 24th April, 2007), fell to 54,851 and

41,729 shares at NSE and BSE respectively during the three

days (25th, 26th and 27th April 2007) when SEBI passed an

interim order dated April 25, 2007 restricting Jalco Group

entities from trading in GHCL scrip. The average volume fell

by 87.72% and 73.65% at NSE and BSE respectively after the

interim order. Similarly, during the period 2nd April, 2007 to

24th April, 2007 (16 trading days), the average price of GHCL

shares for the period was Rs.170.39 at BSE whereas for the

period after passing the interim order, viz. 25th April, 2007 to

21st May, 2007 (16 trading days), the average price was

Rs.133.77. The price fall was around 21.49% after the interim

order.

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14. Hon’ble SAT in Ketan Parekh Vs. Securities & Exchange Board of India

(Appeal No. 2 of 2004) held that in order to find out whether a

transaction has been executed with the intention to manipulate the

market or defeat its mechanism will depend upon the intention of

the parties which could be inferred from the attending

circumstances because direct evidence in such cases may not be

available. In the case of Ashok K Chaudhary v SEBI, Appeal No 69 of

2008, dated November 5, 2008, the Hon’ble SAT observed that

large number of reverse trades raise a presumption of manipulative

transactions.

15. The method and the manner in which the trades were executed are

the most important factors to be considered in these circumstances.

In 102 orders, the orders were so placed so as to ensure immediate

matching of the buy and sell quantity and the price with the same

counterparties viz. the Jalco Group entities. The buy and sell orders

were placed at almost the same time between the counterparty

entities, with a difference of zero to few seconds. This proximity in

the inputting of orders at the same price and for the same quantity,

resulted in their immediate matching, thus proving synchronization

in placement of the same. Further, Carissa, JFPL and Wilful also

indulged in fictitious trading by being present on both the legs of

certain transactions. This proves that the Jalco Group entities were

only creating artificial volumes in the market. The Noticee is one of

the directors of Carissa.

16. A large number of trades got matched among the Jalco Group

entities during the investigation period. The phenomenal regularity

with which these entities had indulged in such synchronized/self

trades leads one to conclude that these transactions were

effectively meant to manipulate the market. It is my considered

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belief that these trades were only creating artificial volumes with the

motive to induce general investors to invest in the said scrip.

17. The fact is that had the aforesaid trades been executed in the

normal course of business, such perfect matching would not have

been possible. The buy and sell order prices of one entity were

always same as the buy/sell rates of the other entity in all the

settlements so that they resulted in immediate trades amongst

themselves. The transactions as mentioned earlier which were

spread over a period of time were definitely done with some inbuilt

component of ‘intent’ involved. Greater the number of such

synchronized trades, the larger is the chance of trades not being

genuine in nature, which is bound to affect the market equilibrium.

Considering the number of such trades, it is clear that there has

been a gross misuse of the screen based trading system. It is also

to be stated that “intention” is inherent in all cases of synchronized

trading involving large scale manipulation and the same was also

brought out in the case of Nirmal Bang Securities (P) Ltd. vs SEBI

by the Hon’ble SAT whereby it was observed that “Intention is

reflected from the action of the Appellant. Choosing selective time slots

does not appear to be an involuntary action.”

18. In my view, the Jalco Group entities by execution of these

synchronized transactions as well as by indulging in self trades

created artificial liquidity in the scrip and played a role in the

manipulation of trading. Further, the Noticee through the said

artificial trades interfered with the market equilibrium and thereby

affected the volume of the said scrip. When the trades were

inherently not genuine, I do not feel that it is necessary to prove

that investors had, in fact, got induced and bought and/or sold on

the basis of these trades. Similar views were expressed by the

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Hon’ble SAT in its order dated 14.7.2006 in Ketan Parekh Vs. SEBI

wherein it had observed that “When a person takes part in or enters

into transactions in securities with the intention to artificially raise or

depress the price he thereby automatically induces the innocent investors

in the market to buy /sell their stocks. The buyer or the seller is invariably

influenced by the price of the stocks and if that is being manipulated the

person doing so is necessarily influencing the decision of the buyer / seller

thereby inducing him to buy or sell depending upon how the market has

been manipulated. We are therefore of the view that inducement to any

person to buy or sell securities is the necessary consequence of

manipulation and flows therefrom. In other words, if the factum of

manipulation is established it will necessarily follow that the investors in

the market had been induced to buy or sell and that no further proof in

this regard is required. The market, as already observed, is so wide

spread that it may not be humanly possible for the Board to track the

persons who were actually induced to buy or sell securities as a result of

manipulation and law can never impose on the Board a burden which is

impossible to be discharged. This, in our view, clearly flows from the plain

language of Regulation 4(a) of the Regulations.

19. I find that the Jalco Group entities had executed 102 synchronized

orders among themselves and Carissa was present in 15 trades.

Moreover, 4 orders were such where Carissa was present on both

the legs of the trade. Further, out of 102 orders, in 68 orders the

time difference between buy orders and sell orders was less than 3

seconds. This indicates a high degree of coordination between the

said entities.

20. The directors are the controllers of the company’s affairs. The

Board of Directors is the brain and the company is the body. The

company can and does act only through the Board. When the brain,

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i.e., the Board functions, the company, i.e. the body, is said to

function. Thus, the functioning of the company is totally controlled

and directed by its directors. The company is a legal yet inanimate

body. It is actually the directors and the other employees who act

on behalf of the company. As mentioned above, Carissa had traded

heavily in the scrip of GHCL during the investigation period. This

significant portion of turnover was done through a large number of

transactions and over a long period of time. Considering the fact

these were manipulative transactions executed between related

entities through synchronized order placement, the directors are

definitely liable for such activity of the company which misled the

general investors.

21. Thus, a director of a company can be held responsible for all the

actions/inactions of the company. As regards lifting of corporate veil

for this purpose, it would be appropriate to refer to the following

case laws:

• Pennington (Company Law - 5th Edn. 1985 at P. 53) states that

"where the protection of public interests is of paramount importance or where the company has been formed to evade obligations imposed by the law", the Court will disregard the corporate veil.

• Professor of Law, S. Ottolenghi in his article "From Peeping Behind

the Corporate Veil, to Ignoring it Completely" says "the concept of 'piercing the veil' in the United States is much more developed than in the U. K. The motto, which was laid down by Sanborn, J. and cited since then as the law, is that 'when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons. The same can be seen in various European jurisdictions". ((1990) 53 Modern Law Review 338). Indeed, as far back as in 1912, another American Professor L. Maurice Wormser examined the American decisions on the subject in a brilliantly written article "Piercing the veil of corporate entity" (published in (1912) XII Columbia Law Review 496) and summarised their central holding in the following words:

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“ The various classes of cases where the concept of corporate entity should be ignored and the veil drawn aside have now been briefly reviewed. What general rule, if any, can be laid down? The nearest approximation to generalization which the present state of the authorities would warrant is this; When the concept of corporate entity is employed to defraud creditors, to evade an existing obligation, to circumvent a statute, to achieve or perpetuate monopoly, or protect knavery or crime, the Courts will draw aside the web of entity, will regard the corporate company as an association of live, up-and-doing, men and women shareholders, and will do justice between real persons."

• In Palmer's Company Law, this topic is discussed in Part-II of Vol-I.

Several situations where the Court will disregard the corporate veil are set out. It would be sufficient for our purposes to quote the eighth exception. It runs:

"The Courts have further shown themselves willing to 'lifting the veil' where the device of incorporation is used for some illegal or improper purpose.... Where a vendor of land sought to avoid the action for specific performance by transferring the land in breach of contract to a company he had formed for the purpose, the Court treated the company as a mere 'sham' and made an order for specific performance against both the vendor and the company".

• In Tata Engineering and Locomotive Company Limited v. State of

Bihar, (1964) 6 SCR895: (AIR 1965 SC 40), the following passage from the decision is extracted below.(para 27 of AIR):

"Gower has classified seven categories of cases where the veil of a corporate body has been lifted. But, it would not be possible to evolve a rational consistent and inflexible principle which can be invoked in determining the question as to whether the veil of the corporation should be lifted or not. Broadly, where fraud is intended to be prevented, or trading with enemy is sought to be defeated, the veil of corporation is lifted by judicial decisions and the shareholders are held to be 'persons who actually work for the corporation'."

• In DHN Food Distributors Ltd. v. London Borough of Tower Hamlets, (1976) 3 All ER,462, the Court of Appeal dealt with a group of companies. Lord Denning quoted with approval the statement in Gower's Company Law that "there is evidence of a general tendency to ignore the separate legal entities of various, companies within a group, and to look instead at the economic entity of the whole group". The learned Master of Rolls observed that "this group is virtually the same as a partnership in which all the three companies are partners".

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He called it a case of "three in- one" --and, alternatively, as "one-in-three".

• In this context, decision of the Hon’ble Supreme Court in Delhi

Development Authority vs Skipper Construction Co. Pvt Ltd. (1996) 4 Comp LJ 233 (SC) … AIR 1996 SC 2005 that (para 27 at page 247 of COMP LJ ) may be referred to. The following is extracted from the said judgment.

“The concept of corporate entity was evolved to encourage and promote trade and commerce but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or defrauding others , the court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned. The fact that an individual and members of his family have created several corporate bodies would not prevent the court from treating all of them as one entity belonging to and controlled by that individual and family. If it is found that these corporate bodies are merely cloaks behind which lurks the individual and /or members of his family and that the device of incorporation was really a ploy adopted for committing illegalities and /or to defraud people”.

22. In view of the above, I am of the view that the directors of the

company as well as the company which had traded in the scrip

fraudulently and was involved in the market manipulation, are jointly

and severally liable for any violation of PFUTP Regulations.

23. Regulation 4(2) (a) of PFUTP Regulations prohibits a person from

indulging in an act which creates false or misleading appearance of

trading in the securities market. Regulation 4(2)(g) of PFUTP

Regulations prohibits from entering into a transaction in securities

without intention of performing it or without intention of change of

ownership of such security. As detailed above, the acts of Carissa

clearly created false and misleading appearance of trading in the

shares of GHCL and the Noticee is one of the directors of Carissa. I

agree with the submission of the Noticee that he had not traded in

the scrip of GHCL in his proprietary account. However, the Noticee,

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being a director of Carissa, is liable for the actions of the said

company in respect of trading in GHCL shares during the

investigation period. In view of the foregoing, I am of the view that

the facts of the present case clearly bring out an element of fraud

and unfair trade practices indulged in by the Noticee on behalf of

Carissa. Therefore, I hold that the charges leveled against the

Noticee are proved and that the allegation of violation of provisions

of regulations 4(2)(a) and (g) of PFUTP Regulations by the Noticee

stands established.

24. 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…”.

25. Thus, the aforesaid violations by the Noticee make him liable for

penalty under Section 15HA of SEBI Act, 1992 which reads as

follows:

“Penalty for fraudulent and unfair trade practices 15HA. If any person indulges in fraudulent and unfair trade practices relating to securities, he shall be liable to a penalty of twenty-five crore rupees or three times the amount of profits made out of such practices, whichever is higher.”

26. While determining the quantum of penalty under section 15HA, 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:-

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(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.”

27. 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 Noticee or Carissa or Jalco Group entities.

Suffice to state that considering the trade practices followed by

Carissa during the investigation period, gains per se were made by

the Noticee and Carissa in that it traded in the scrip in a manner

meant to create artificial volumes and liquidity which is an important

criterion, apart from price, capable of misleading the investors while

making an investment decision. In fact, liquidity/volumes in

particular scrip raise the issue of ‘demand’ in the securities market.

Greater the liquidity, higher is the investors’ attraction towards

investing in that scrip. Hence, anyone could have been carried

away by the unusual fluctuations in the volumes and been induced

into investing in the said scrip. Besides, this kind of activity

seriously affects the normal price discovery mechanism of the

securities market. People who indulge in manipulative, fraudulent

and deceptive transactions, or abet the carrying out of such

transactions which are fraudulent and deceptive, should be suitably

penalized for the said acts. Considering the numerous

synchronized and manipulative trades done by Carissa over a

period of time, it can safely be surmised that the nature of default

was also repetitive. The Noticee being director of Carissa is liable

for these activities of the company as stated above.

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ORDER

28. In terms of provisions of rule 5(1) of the Rules, I impose a penalty

of Rs. 50,000/- (Rupees Fifty thousand only) under section 15 HA

of SEBI Act on the Noticee, Mr. Rajesh Kumar resident of 4,

University Road, Mall Road, Delhi 110017 for violation of provisions

of regulations 4(2)(a) and (g) of PFUTP Regulations. Considering

the facts and circumstances of the case, this penalty will be

commensurate with the violations committed by the Noticee.

29. 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 Mr. S.

Ramann, Officer on Special Duty, Integrated Surveillance

Department, SEBI, SEBI Bhavan, Plot No. C – 4 A, “G” Block,

Bandra Kurla Complex, Bandra (E), Mumbai – 400 051.

30. In terms of rule 6 of the Rules, copies of this order are sent to the

Noticee and also to SEBI.

Date: May 31, 2010 PIYOOSH GUPTA Place: MUMBAI ADJUDICATING OFFICER

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