BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA

[ADJUDICATION ORDER NO. - SRP/RK/AO: 254/2012]

UNDER SECTION 15 I OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH RULE 5 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995

In respect of

J H P Securities Private Limited

Member Broker of BSE

SEBI Registration No. – INB 010990036

(PAN – AAACJ2847H)

In the matter of Gemstone Investments Limited

BACKGROUND IN BRIEF

1. The Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) conducted investigations into the affairs, trading and dealings in the shares of Gemstone Investments Limited (hereinafter referred to as ‘Company/GIL’) for the period from August 28, 2006 to August 21, 2008 on the basis of a report received from the Ltd. (hereinafter referred to as ‘BSE’) regarding substantial reduction in the shareholding of the promoters of the Company and unusual spurt in price and traded volume of the scrip.

2. On investigation, it was, inter alia, observed by SEBI that the stock broker JHP Securities Private Limited (hereinafter referred to as the ‘Noticee’) had the highest purchase and sale concentration in the scrip of GIL during the period of investigation. The major clients of the Noticee were (i) Prem Parekh, (ii) Mala Hemanth Seth, (iii) Kishore Chauhan, (iv) Hemanth Seth, (v) Bhavesh P Pabari and (vi) Ankit Sanchaniya. The investigations, prima facie, revealed that these clients of the Noticee were related/ connected with each other and were part of a larger group of entities which were connected/related with each other and with the director of GIL. This larger group included, along with the aforesaid clients of the Noticee, Bharat Thakker, Narendra Ganatra, Manish Joshi, Rajesh Bhanushali, Vinayak Bhanage, Bhupesh Rathod, Janak Vyas, Devendra A. Vadhaiya, Jayesh Kuwadia, Ashish Ganatra and Nimesh Ganatra. These entities traded in the scrip of GIL on the Bombay Stock Exchange

Page 1 of 16 (BSE) under different client codes and also engaged in off-market deals in the shares of GIL. On analysis of the trades it was observed that these entities have entered into synchronized, circular and reversal trades and thereby manipulated the price and traded volumes of the scrip. The investigations also found that one person from the aforesaid group, namely, Devendra A Vadhaiya was the terminal operator and person-in-charge of a branch office of the Noticee located in Andheri, Mumbai, from which most of the alleged synchronized, circular and reversal of trades were executed.

3. On the basis of analysis of trades of the Noticee and its clients and other findings of the investigation it has been alleged that the Noticee has traded in substantial volume in the scrip of GIL on behalf of its clients, who were part of the aforesaid group, and acting in collusion with them it has indulged in synchronized, circular and reversal trades in order to manipulate the price and traded volumes of the scrip in violation of the provisions of regulations 4(1), 4(2)(a), and 4(2)(e) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (hereinafter referred to as ‘PFUTP Regulations’) and clauses A(1), A(2), A(3), A(4) and A(5) of the Code of Conduct for Stock Brokers as stipulated under Schedule II read with regulation 7 of the of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992 (hereinafter referred to as ‘Brokers Regulations’).

APPOINTMENT OF ADJUDICATING OFFICER

4. The undersigned has been appointed as Adjudicating Officer under section 15 I of the SEBI Act read with rule 4 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as ‘Rules’) vide order dated March 31, 2010 to inquire into and adjudge under sections 15HA and 15HB of the SEBI Act, the aforesaid alleged violation of the provisions of the PFUTP Regulations and Brokers Regulations by the Noticee.

SHOW CAUSE NOTICE, HEARING AND REPLY

5. Show Cause Notice dated May 31, 2010 (hereinafter referred to as ‘SCN’) was issued to the Noticee under rule 4(1) of the Rules. The Noticee was asked to show cause as to why an inquiry be not held and penalty be not imposed on it under sections 15HA and 15HB of the SEBI Act, for the alleged violation of the provisions of regulations 4(1) and 4 (2) (a) and 4(2)(e) of the PFUTP Regulations and clauses A(1) to A(5) of the Code of Conduct for Stock Brokers provided under the Brokers Regulations.

6. During the pendency of the proceedings the Noticee applied before SEBI for settlement of the matter through consent process, however, its consent application was rejected. Subsequently, vide letter dated October 13, 2011 the Noticee submitted its reply to the SCN. After perusal of

Page 2 of 16 the same it was decided to conduct an inquiry in the matter and for the purpose an opportunity of hearing was granted to the Noticee on October 31, 2011. However, the Noticee requested to adjourn the hearing. Therefore, the hearing was adjourned to December 13, 2011. Shri V M Singh, Advocate and Shri Vishal Ashwin Patel, Director of the Noticee, appeared for hearing and reiterated the submissions made vided letter dated October 13, 2011. The submissions of the Noticee, in brief, are as under:  Noticee is in the business of stock broking since the year 1984 and it has 70 employees.  The Noticee has not carried out any trade in the scrip of GIL in its proprietary account. Neither the Noticee nor any of its Directors has any relation/connection with any of its clients named in the SCN, except the stock-broker constituent relationship. It has no interest in the impugned transactions except the brokerage earned.  Noticee was not aware of any connection/relation between its clients and other entities named in the SCN. All the transactions carried out for its clients were through the market mechanism where there is complete anonymity as to the counter-party to the transactions. Further, all transactions were backed by delivery and all settlement obligations were duly met.  Devendra Vadhaiya was the terminal operator at the relevant time and he ceased to be so in the year 2008.  Noticee has stated that it has always maintained highest standards of integrity and had always exercised due skill care and diligence in its functioning.

CONSIDERATION OF ISSUES AND FINDINGS

7. I have carefully examined the allegations against the Noticee, the submissions made by it and the material/evidence on record. It has been alleged that the Noticee has traded on behalf of its clients, namely, Prem Parekh, Mala Hemanth Seth, Kishore Chauhan, Hemanth Seth, Bhavesh P Pabari and Ankit Sanchaniya and purchased 71,62,146 shares of GIL (constituting 28.5% of the total market volume during the investigation period) and sold 68,40,013 shares of GIL (constituting 26.78% of the total market volume during the investigation period). It has been also alleged that these clients were related/connected with each other and with the larger group (named above) which among others included Davendra Vadhaiya. Vadhaiya was the Branch In-charge of the Andheri Branch in Mumbai of the Noticee and also the terminal operator from which the alleged synchronized, circular and reversal of trades were executed. The extract of the trade log showing details of synchronized, circular and reversal trades were provided to the Noticee. Therefore, it was alleged that the Noticee, acting in collusion with its clients and others indulged in synchronized, circular and reversal trades in order to manipulate

Page 3 of 16 the price and volume of the scrip, in violation of the provisions of regulation 4(1), 4(2)(a), and 4(2)(e) of the PFUTP Regulations. Further, as the Noticee is a stock broker and as such it was required not to indulge in manipulative trades, maintain highest standards of integrity and exercise due skill, care and diligence in its functioning, therefore, it was also alleged that it has violated the provisions of clauses A(1), A(2), A(3), A(4) and A(5) of the Code of Conduct for Stock Brokers. The provisions of these regulations are reproduced hereunder:

PFUTP Regulations 4. Prohibition of manipulative, fraudulent and unfair trade practice (1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities. (2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely:- (a) indulging in an act which creates false or misleading appearance of trading in the securities market; ...... (e) any act or omission amounting to manipulation of the price of a security; ...... Brokers Regulations 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 (1) Integrity: A stock-broker, shall maintain high standards of integrity, promptitude and fairness in the conduct of all his business. (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. (3) Manipulation: A stock-broker shall not indulge in manipulative, fraudulent or deceptive transactions or schemes or spread rumours with a view to distorting market equilibrium or making personal gains. (4) Malpractices: A stock-broker shall not create false market either singly or in concert with others or indulge in any act detrimental to the investors’ interest or which leads to interference with the fair and smooth functioning of the market. A stock-broker shall not involve himself in excessive speculative business in the market beyond reasonable levels not commensurate with his financial soundness.

Page 4 of 16 (5) Compliance with statutory requirements: A stock-broker shall abide by all the provisions of the Act and the rules, regulations issued by the Government, the Board and the stock exchange from time to time as may be applicable to him.

8. It is observed from the available records that the six clients of the Noticee, namely, Prem Parekh, Mala Hemanth Seth, Kishore Chauhan, Hemanth Seth, Bhavesh P Pabari and Ankit Sanchaniya are connected/ related with each other and with the larger group of entities which includes Bharat Thakker, Narendra Ganatra, Manish Joshi, Rajesh Bhanushali, Vinayak Bhanage, Bhupesh Rathod, Janak Vyas, Devendra A. Vadhaiya, Jayesh Kuwadia, Ashish Ganatra and Nimesh Ganatra. Prem Parekh, who is a client of the Noticee, is having funds and securities movement with other clients of the Noticee, namely, Bhavesh Pabari, Hemant Sheth and Kishore Chauhan in market as well as in off market transactions. Further, it is observed from the material on record that Bhupesh Rathod had introduced Hemanth Seth, Prem Parekh, Bhavesh Pabari and Kishore Chauhan to the stock broker - S P Jain Securities Pvt. Ltd. It is also observed that Ms. Mala Sheth is wife of Mr. Hemant Sheth and she was also having funds movement as well as on-market and off-market transactions with Prem Parekh, Bhavesh Pabari, Bhupesh Rathod and Hemanth Seth. It is also observed that Mr. Ankit Sanchania was having funds and securities movement with Bhavesh Pabari and Prem Parekh and he was having the same telephone number as that of Prem Parekh. Bhavesh Pabari and Narendra Ganatra are friends and they have common office address. The investigation has also found that Nimesh Ganatra and Narendra Ganatra share common address and Narendra Ganatra was the introducer of Nimesh to the stock broker Adroit Financial Services Limited. The bank account of Nimesh shows transactions with Bhavesh Pabari. Hemanth Sheth had a joint bank account in with Bhavesh Pabari and had securities and funds movement with Bhavesh Pabari, Prem Parekh and Kishore Chauhan. Kishore Chauhan and Bhavesh Pabari are also having joint bank account in Axis Bank. Davendra Vadhaiya, who was terminal operator and person-in-charge of a branch of the Noticee, had entered into off market trades with Prem Parekh during the period of investigation.

9. It is observed that a person with whom someone shares his/her bank account or the telephone number or address or a person who introduces someone to a stock broker as mentioned above or the persons with whom someone is dealing in off market and having funds and securities movement, cannot be the strangers, but would certainly be related/connected with each other in some manner. It is pertinent to mention here that with respect to the alleged violation of the provisions of PFUTP Regulations, relation/ connection does not mean that the a person should be related to the others in the group by way of any familial relation or any other close relation; rather the relation/connection may be of any kind i.e. professional/business relation etc. I am of

Page 5 of 16 the opinion that depending on the facts and circumstances of the case the persons who are related to each other by virtue of some professional/business relations or otherwise are also related/connected entities if they are acting in collusion within themselves to enter into such transactions. Now, here a question arises as to whether the Noticee, its clients and other aforesaid Group entities were having any collusion while entering into such transactions. In this context, it is stated that the relation of any kind does not ipso facto makes a person liable of manipulation of trades, however, in some cases it can be seen/observed from the pattern of trades or series of transactions or other circumstances that a person is involved with others in majority of trades, which are executed in such fashion between them in pursuance of any prior understanding. In other words, it means that such collusion can be seen/observed from the attending circumstances of the trades which gives presumption that the trades would not have been matched/synchronized/circular/ reversal etc. in an automated mechanism of the stock exchange, unless the same are so planted or designed with the intention to result in same fashion as desired by entities. The discussions below will make it clear that the Noticee and others as aforesaid were acting with prior understanding.

10. The Noticee has admitted that it has traded in the scrip of GIL on behalf of its aforesaid six clients during the period of investigation. It has been alleged, inter alia, in the SCN that the Noticee executed trades on behalf of its clients acting in collusion with them and other group entities in synchronized/circular/reversal manner and thereby artificially increased the volumes/price of the scrip. The Noticee vide his above said reply, has disputed the allegations contending that the only relationship it shares with its clients is that of client-broker relationship and that it is not connected/ related with any of its clients or other group members in any other manner. Further, it was not aware of their relationship, and the matching of such transactions with above said Group entities is merely a coincidence as the trading was done on the stock

exchange’s anonymous trading system.

11. I have carefully perused and examined the documents/evidence available on record in respect of the alleged indulgence of the Noticee on behalf of its clients and the aforesaid group members in synchronized/circular/reversal trades etc. It is observed from the trade/order log details that during the period March 20, 2007 to August 21, 2008, the price of the scrip rose from ` 18.80 on March 20, 2007 to ` 45.45 on November 12, 2007 then it came down to ` 27.95 on March 05, 2008 and rose to ` 51.80 on August 21, 2008. The scrip was traded for 348 days during this period with an average daily volume of 65,933 shares. During this period the Noticee was the major stock broker having sale concentration of 27.53% and buy concentration of 28.01% of the total market volume. The investigation has found that the major clients of the Noticee who traded in the scrip of GIL during this period were Prem Parekh, Ankit

Page 6 of 16 Sanchaniya, Bhavesh Pabari, Hemant Seth, Kishorebhai Chauhan and Mala Seth. It has been already observed that these persons were related/ connected amongst themselves and with

the group which included Narenda Ganatra and Davendra Vadhaiya etc.

12. As far as the circular/reversal trades entered into by the entities of the Group are concerned, cumulative details of such transactions are given in the table below:

No of Days No of Days Traded / %of Traded / Circular/ No of Circular / Circular circular No of Days reversal % to Days reversal trading Name of trading Name of the brokers indulged in buy Qty market indulge sell Qty % to the clients by client Circular buy d in market to gross Trading on Circular sell market buy side Trading on sale side Ashish Gogia International 0/0 0 0.00% 4/4 44300 98.44% 0.10% Ganatra Securities Ltd. JHP Securities Pvt. Ltd. Ltd. Anand Rathi Ankit Securities Ltd. 66/51 1443145 87.98% 60/41 1258965 81.03% 5.89% Sanchaniya S P Jain Securities Pvt. Ltd. Atlanta Share shoppee Ltd. Ltd. Bharat Arcadia Shares and 37/25 137936 75.40% 33/24 89391 70.54% 0.50% Thakkar Securities Pvt. Ltd. Ami shares and Stock Brokers Pvt. Ltd. Anand Rathi Securities Ltd. Arcadia Share & Stock Pvt. Ltd. India Infoline Ltd. Bhavesh JHP Securities Pvt. 223/168 2709751 74.72% 221/149 3055901 66.18% 12.56% Pabari Ltd. Religare Securities Ltd. S P Jain Securities Pvt. Ltd. Kotak Securities Ltd. Sunidhi Securities and Finance Pvt. Ltd. Bhupesh S P Jain Securities 5/3 64250 74.70% 21/18 602182 82.91% 1.45% Rathod Pvt. Ltd. Devendra Asit C. Mehta 21/19 159560 94.90% 14/12 59407 79.76% 0.48% Vaidhaiya Anand Rahti Securitis Ltd. India Infoline Ltd. JHP Securities Pvt. Ltd. Hemant S P Jain Securities 130/80 1648671 55.41% 107/79 1662224 70.52% 7.21% Sheth Pvt. Ltd. Sunidhi Securities and Financial Pvt. Ltd. Ami Stock Brokers Pvt. Ltd

Page 7 of 16 Arcadia Shares and Janak Vyas Stock Brokers Pvt. 3/2 200 0.79% 8/8 4600 18.25% 0.01% Ltd. Jayesh Standard Chartered 0/0 0 0.00% 6/3 8765 43.83% 0.02% Kuwadia STCI Ltd. Arcadia Share & Stock Pvt. Ltd. India Infoline Ltd. JHP Securities Pvt. Kishor Ltd. 99/99 2090526 83.17% 86/64 1378560 67.10% 7.56% Chauhan Religare Securities Ltd. S P Jain Securities Pvt. Ltd. JHP Securities Pvt. Ltd. Mala Sheth Religare Securities 94/53 478081 64.97% 42/33 493865 86.39% 2.12% Ltd India Infoline Ltd. Manish Ami Shares and Stock 3/2 480 40.16% 14/12 77130 94.78% 0.17% Joshi Brokers Pvt. Ltd. Nimesh Ltd. 0/0 0 0.00% 11/10 31365 52.71% 0.13% Ganatra Anand Rathi Securities Ltd. Angel Broking Ltd. India Infoline Ltd. Prem Parikh JHP Securities Pvt. 135/105 2712299 77.69% 123/90 2735834 69.98% 11.87% Ltd. Kotak Securities Ltd. S P Jain Securities Pvt. Ltd. Rajesh Ami Shares and Stock 4/2 105100 98.77% 12/10 47510 33.03% 0.33% Bhanushali Brokers Pvt. Ltd. Total circular/ reversal trading by group 11549999 11549999 50.33%

13. I have noted from the above details that during the period of investigation a total of 1, 15, 49,999 shares were bought and exactly the same numbers of shares were sold among the entities grouped above and I am of the view that the same cannot be just a matter of coincidence. Further, the Noticee has not disputed or denied the execution of those transactions in the GIL scrip. In this regard, I have also noted that the aforesaid sale/purchase of shares have taken place between the group entities by executing large number of buy and sale transactions over a long period of time. Buying and selling of exactly the same number of shares within the same set of related/connected entities leaves no doubt in reaching to the conclusion that the said transactions are in the nature of circular /reversal trades. I have also observed that these transactions have been executed by the entities in a very latent and detection avoiding manner. Trades were executed by the group entities through different stock brokers using different client codes, and continuously over a long period. Therefore, it may not be possible in this order to show the entire gamut or cycle of all such trades (i.e. A>B>C>D>……………..>A) involving a total of 1, 15, 49,999 shares purchased and sold within the group entities, however, for the purpose of understanding a part of such trades executed between a few group entities are placed below in the flow chart format to show as to how such manipulative transactions were executed between the clients of the Noticee and other entities of the Group:

Page 8 of 16

Example - I

ANKIT SANCHANIYA

5/9/07: Sells 22500 shares to Prem

Parikh in the market

10/9/07: Sells 15900 shares to Prem

Parikh in the market

13/9/07: Sells 35400 shares to Prem Parikh in the market

PREM PARIKH 6/9/07: Sells 10000 shares to Ankit Sanchaniya in the market HEMANT SHETH 7/9/07: Transfers 15600 shares to Hemant 6/9/07: Sells 22910 shares to Kishore Sheth in the off-market Chauhan in the market 11/9/07: Transfers 2377 shares to Hemant 10/9/07: Sells 15900 shares to Prem Sheth in the off-market Parikh in the market 12/9/07: Sells 25899 shares to Hemant 11/9/07: Transfers 8000 shares to Sheth in the market Ankit Sanchaniya in the off-market 17/9/07: Sells 44280 shares to Hemant 14/9/07: Sells 4500 shares to Ankit Sheth in the market Sanchaniya and 24001 shares to 18/9/07: Transfers 2377 shares to Hemant Kishore Chauhan in the market Sheth in the off-market 17/9/07: Transfers 2377 shares to

Prem Parikh in the off-market

KISHORE CHAUHAN 10/9/07: Sells 7300 shares to Prem Parikh in the market 13/9/07: Sells 10000 shares to Prem Parikh in the market 17/9/07: Transfers 50000 shares to Prem Parikh in off-market 18/9/07: Sells 14800 shares to Prem Parikh in the market

Page 9 of 16

BHUPESH RATHOD Example – II 28/9/07: Sells 98300

shares to Kishore Chauhan

and 1700 shares to Prem

Parikh in the market

MALA SHETH KISHORE CHAUHAN 28/9/07: Transfers 18650 28/9/07: Transfers 17850 shares to Bhupesh Rathod shares to Bhupesh Rathod in off-market in off-market

HEMANT SHETH 28/9/07: Transfers 20700 PREM PARIKH shares to Bhupesh Rathod 28/9/07: Transfers 8000 in off-market and sells shares to Bhupesh Rathod 28450 shares to Mala and 12000 shares to Sheth in the market Bhavesh Pabari in off- market and sells 40168 shares to Bhavesh Pabari in the market

BHAVESH PABARI 28/9/07: Transfers 90770 shares to Bhupesh Rathod, 20000 shares to Hemant Sheth, 18000 shares to Mala Sheth and 15000 shares to Kishore Chauhan in off-market. Also sells 2450 shares to Hemant Sheth, 300 shares to Prem Parikh, 1560 shares to Kishore Chauhan and 1550 shares to Mala Sheth in market Page 10 of 16

14. Further, it is observed that during the period from March 20, 2007 to August 21, 2008, on 116 days, the trades of the Noticee executed on behalf of its clients were found to be synchronized. On these days the Noticee placed a number of buy and sell orders in its system on behalf of its aforesaid clients in the scrip of GIL where there was no difference in prices of the buy and sell orders and the time difference between placing of orders was less than one minute. Further, from the annexure showing details of synchronized trades and counterparty clients it is observed that the shares were bought/sold where the counterparty buyers/sellers where always the group entities, i.e. the shares were rotated within the group entities. Majority of such synchronized trades have been executed between the clients of the Noticee i.e., when aforesaid six clients of the Noticee are on both the side of the trades. Further, there are many instances where Noticee has entered both buy and sell orders on behalf of its aforesaid clients, who were related/ connected with each other, in synchronized manner from its terminal located at Andheri Branch in Mumbai. Further, analysis of on-market and off-market trades of the group entities also indicate that on a number of instances one leg of transaction was through off-market trades. For example the movement of shares on August 17, 2007 is shown below:

Prem Parikh Balance of He received Prem Parikh selling 46302 shares in the 82597 shares shares in the Demat account from different made Market on 17th of Prem Parikh clients namely delivery of 46302 August, 2007 to is 8123 shares Bhavesh Pabari, Bhavesh Pabari on 17th August, Kishor shares on nd and Mala Sheth. 2007. Chauhan, Ankit 22 August, Sanchaniya and Bharat Thakker 2007. 17th to 22nd

15. Thus, it is observed that the Noticee has executed from its terminal a large number of synchronized trades, where same set of clients were on both buy and sell side. It is pertinent to mention the observations of the Hon’ble Securities Appellate Tribunal in Appeal No. 70 of 2008 in the matter of Rajesh Kumar Choudhary vs. SEBI decided along with Appeal No. 69 of 2008 (Ashok Kumar Chouidhary vs. SEBI) on 05/11/2008 where it was held that “A mere look at these two Annexures which contain the details of a large number of trades between them inter se makes it clear that the trades are reverse trades. When the appellant buys, it is Rajinder Rai who sells and vice-a-versa. Such large number of reverse trades cannot take place through the mechanism of the system. These have obviously been manipulated. Moreover, reverse trades are fictitious trades meant to increase volumes on the screen of the trading system as there is no change of beneficial ownership in the traded shares”.

Page 11 of 16

16. Apart from above, I have noted from the trade log that on many occasions the clients of the Noticee indulged in fictitious trades i.e. same client of the Noticee was on the buy side as well as sale side of the trade, although, through different stock broker. One such instance of fictitious trades is that on 8/6/2007 the Noticee executed fictitious trade on behalf of Kishore Chauhan for 1000 shares where the counterparty broker was S P Jain Securities Pvt. Ltd., Similarly, fictitious trades were also executed by the Noticee on 6/7/2007, 11/7/2007, 17/7/2007, 26/7/2007, 3/8/2007, 8/8/2007, etc.

17. Thus, it is also evident from the discussions above that that the Noticee has contributed more than 25% of the total traded market volume of the scrip during the period under consideration and has executed synchronized trades on as many as 116 days where the trades have matched between the same set of entities who were related/connected with each other. Further, these irregular trades were executed from the terminal of the Noticee located at its Andheri Branch by an employee of the Noticee who was also connected with the group entities. I am of the view that these things negate all the contentions of the Noticee. I am of the view that executing such a large number of synchronized /circular and reversal trades regularly between the same set of persons/entities for a considerably long period of time in an illiquid scrip from a terminal of the Noticee is not possible unless the Noticee was acting in collusion with its clients and other entities. Matching of trades between same set of clients from the same terminal for a long time cannot be by virtue of coincidence, but same are intended to manipulate the market and to get benefit out of it by defeating the fair market mechanism. Since, during the period GIL was relatively illiquid scrip, such trades reveal synchronization and make me to believe that those were executed to artificially increase the volume and to induce other investors to trade in the scrip.

18. In the matter, I would also to give reference of the Order of the Hon’ble Securities Appellate Tribunal dated 14.7.2006 passed in the matter of 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

Page 12 of 16 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.”

It was further held by Honble Tribunal “that a synchronized transaction will however be illegal or violative, if it is executed with a view to manipulate the market or if it results in circular trading and is executed with a view to avoid regulatory detection or executed to create false volumes. Whether a transaction has been executed with the intention to manipulate the market and to defeat the mechanism the intention can only be inferred from attending circumstances, because direct evidence of such cases may not be available.”

19. It is also observed that from the details provided to the Noticee in Annexure VI and VII to the SCN, that during April 24, 2007 to August 21, 2008 the Group entities accounted for a total cumulative last traded price (LTP) variation of ` 30/- in the scrip. They raised the price of the scrip from ` 21.80 to ` 51.80 by executing large numbers of buy orders at the price higher than the LTP during this phase. I have noted that the Noticee has executed trades on behalf of its clients - Prem Parekh, Hemant Sheth, Mala Sheth, Bhavesh Pabari, Kishore Chauhan and Ankit Sanchania - by placing buy orders at the prices higher than the LTP. I have also noted the instances where the Noticee has executed the trades by placing buy orders at the prices higher than the LTP during this period on 6/7/2007, 11/7/2007, 17/7/2007, 26/7/2007, 27/7/2007, 31/7/2007, 2/8/2007, 3/8/2007, 6/8/2007, 7/8/2007, 10/8/2007, 16/8/2007, 17/8/2007, 24/8/2007, 28/8/2007, 28/8/2007, 30/8/2007, 4/9/2007, 6/9/2007, 7/9/2007, 10/9/2007, 12/9/2007, 13/9/2007, 17/9/2007, 19/9/2007, 20/9/2007, 21/9/2007, 24/9/2007, 25/9/2007, 28/9/2007, 3/10/2007, 4/10/2007, 5/10/2007, 9/10/2007, 10/10/2007, 11/10/2007, 12/10/2007, 15/10/2007, 16/10/2007, 17/10/2007, 18/10/2007, 19/10/2007, 22/10/2007, 23/10/2007, 24/10/2007, 29/10/2007, 31/10/2007, 1/11/2007, 2/11/2007, 6,11/2007, 7/11/2007, 12/11/2007 and 13/11/2007. In the above said instances, the Noticee raised the price of the scrip in the range of ` 0.1 to ` 3.35 as compared to last traded price of the scrip.

20. In view of the foregoing, I find that the submissions of the Noticee are not convincing and the same do not hold good. 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 in collusion with its clients and other group members as far as the aforesaid trades in the scrip of GIL is concerned. I am of firm belief that the Noticee acting with prior understanding with its clients

Page 13 of 16 who were related/ connected with the aforesaid members of the group created artificial volumes in the market by way of abovementioned synchronized, circular, reversal and fictitious trades. They also influenced/increased the price of the scrip on a number of occasions by placing and executing large numbers of buy orders at a price higher than the last traded price (LTP). Such manipulative trades induced other investors to trade in the shares of GIL. Therefore, based on the abovementioned facts and circumstances of the case I arrive at the conclusion that the Noticee has violated the provisions of Regulations 4(1), 4(2)(a) and 4(2)(e) of the PFUTP Regulations and is liable for imposition of penalty under section 15HA of the SEBI Act.

21. Further, in terms of Clauses A1 to A5 of the Code of Conduct prescribed under the provisions of Brokers Regulations, a stock broker shall not, inter alia, create false market or indulge in any act detrimental to the investors’ interest or which leads to the interference with the fair and smooth functioning of the securities market. The Broker shall also maintain high standards of integrity, promptitude and fairness and shall act with due skill, care and diligence in the conduct of its business. It also mandates that the Broker shall not, inter alia, indulge in manipulative transactions with a view to distort the market equilibrium. The synchronized, circular, reversal and fictitious trades of the Noticee as explained hereinabove, in detail establishes that the Noticee has shown total disregard for the law and conduct expected from it as a market intermediary. It executed synchronized and fictitious trades between its clients for a long period of time which created misleading appearance of trading, artificial volume and price in the shares of GIL. It further shows that the Noticee had failed to exercise due skill, care and diligence and not maintained high standards of integrity, promptitude, fairness in the conduct of business as a stock broker. Therefore, I hold that the Noticee has also violated the provisions of clauses A (1) to A (5) of the Code of Conduct for Stock Brokers as stipulated in the Brokers Regulations read with regulation 7 of Brokers Regulations and is liable for imposition of penalty under section 15HB of the SEBI Act.

22. The provision of section 15HA and 15HB of SEBI Act, 1992 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.

Penalty for contravention where no separate penalty has been provided 15HB. 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.]”.

Page 14 of 16

23. While determining the quantum of penalty under section 15HA and 15HB, 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.”

24. 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 broker. Suffice to state that keeping in mind the practices indulged in by the Noticee, gains per se were made by the Noticee in that it traded in the scrip of GIL 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. The greater the liquidity, the 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. I am of the strong opinion that if an intermediary of the capital market indulges in manipulative, fraudulent and deceptive transactions, or abet the carrying out of such transactions which are fraudulent and deceptive, he/it should be suitably penalized for such acts of omissions and commissions. Further, there is nothing on record to show that the Noticee has indulged in this practice repetitively. Therefore, while deciding the quantum of penalty I have considered the factors such as the number of irregular trades executed from the trading terminal of the Noticee and the factors like the volumes of buy and sale trades executed in the scrip through the Noticee.

ORDER

25. In exercise of the powers conferred upon me under Section15 I of the Act and rule 5 of the Rules, I impose penalty of `.6,00,000/- (Rupees six lakh only) on the Noticee in terms of the provisions of Section 15 HA of the Act for the violation of the provisions of Regulations 4(1),

Page 15 of 16 4(2)(a) and 4(2)(e) of PFUTP Regulations and `.2,00,000/- (Rupees two lakh only) in terms of the provisions of Section 15HB of the Act for the violation of the provisions of clauses A(1) to (5) of the Code of Conduct for Stock Brokers as specified under Schedule II read with regulation 7 of the Brokers Regulations (i.e. a total amount of rupees eight lakh only). In the facts and circumstances of the case, I am of the view that the said penalty is commensurate with the violations committed by the Noticee.

26. 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 the General Manager, IVD – ID 8, Securities and Exchange Board of India, SEBI Bhavan, Plot No.C4-A, “G” Block, Bandra Kurla Complex, Bandra (East), Mumbai–400 051.

27. In terms of Rule 6 of the Adjudication Rules, copies of this order are sent to the Noticee and also to SEBI.

Date: January 31, 2012 Satya Ranjan Prasad Place: Mumbai ADJUDICATING OFFICER

Page 16 of 16