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BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA


[ADJUDICATION ORDER NO. IVD-ID1/EAL/AO/DRK-VB/EAD3-728/53-2015]
______________________________________________________________________
UNDER SECTION 15 I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT,
1992 READ WITH RULE 5(1) OF SECURITIES AND EXCHANGE BOARD OF INDIA
(PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY
ADJUDICATING OFFICER) RULES, 1995
In respect of:
Gajanan Enterprises
4th Floor, Rustom building,
29, Veer Nariman Road,
Mumbai 400 001
PAN No.: AAKFG7595A
______________________________________________________________________
FACTS IN BRIEF
1. Securities and Exchange Board of India (hereinafter referred to as SEBI)
conducted an investigation into the trading in the scrip of Ess Dee Aluminium Ltd.
(hereinafter referred to as EAL) on BSE Limited (hereinafter referred to as
'BSE') and National Stock Exchange of India Ltd (hereinafter referred to as
'NSE') during the period September 01, 2012 to June 30, 2013 (hereinafter
referred to as Investigation Period). It is noted from the findings of the
investigation report (hereinafter referred to as IR) that the scrip of EAL rose
from ` 116.85 to a high of ` 617 and closed at ` 507.75 during the Investigation
period.

APPOINTMENT OF ADJUDICATING OFFICER

2. I was appointed as Adjudicating Officer and the same was communicated vide
proceedings of the Whole Time Member appointing Adjudicating Officer dated
February 05,2014 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 the
Securities and Exchange Board of India (Procedure for Holding Inquiry and
Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to
as Rules), to inquire into and adjudge under Section 15HA of the SEBI Act, the
violation of Regulations 3(a), 3(b), 3(c), 3(d), 4(1), 4(2)(a) and 4(2)(g) of the SEBI
(Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities
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Market) Regulations, 2003 (hereinafter referred to as "PFUTP Regulations")


alleged to have been committed by Gajanan Enterprises (hereinafter referred to
as noticee).

SHOW CAUSE NOTICE, REPLY AND HEARING

3. A Show Cause Notice no. A&E/EAD-3/DRK-DS/8048/2014 dated March 13,


2014 (hereinafter referred to as 'SCN') was served on the noticee by Hand
Delivery Acknowledgement Due(hereinafter referred to as 'HDAD') in terms of
the provisions of Rule 4 of the Rules, requiring the noticee to show cause as to
why an inquiry should not be held against the noticee and why penalty, if any,
should not be imposed on it under Section 15HA of the SEBI Act for the alleged
violation of the provisions of Regulations 3(a), 3(b), 3(c), 3(d), 4(1), 4(2)(a) and
4(2)(g) of PFUTP Regulations.
4. It is observed that the trades of the noticee contributed to ` 30.25 to New High
Price discovery (6.06% of NHP) at BSE and at NSE the trades contributed to
`56.85 to the New High Price discovery (11.37% of NHP). It is further observed
that during the investigation period the noticee had dealt in EAL in the following
manner :

Sr. No.

Exchange

No. of shares buy/ sell

Contribution

to

the

total

market volume (in %)


1.

BSE

2,65,815 (buy)

1.79

2.

BSE

2,86,070 (sell)

1.93

3.

NSE

3,45,719 (buy)

0.95

4.

NSE

3,42,323 (sell)

0.94

5. It was alleged in the SCN that the noticee had executed self trades leading to
false and misleading appearance of trading in the scrip of EAL. The details of self
trades executed by the noticee in EAL are as follows:

Exchange

Stock
Broker
on Both
Buy and
Sell Side

Gajanan
BSE
Enterprises
Ltd.
Gajanan
NSE
Enterprises
Ltd.
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BP
Equities
Pvt. Ltd.
BP
Equities
Pvt. Ltd

Name of
the Entity

Total
Self
Trade
Volume

No. of self
trades

No. of
Self
Trade
from
the
same
terminal

23898

703

453

49

0.16

-2.2

21446

1886

419

47

0.06

36.65

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No. of
days on
which
self
trades
done

% of Self
Traded
Quantity
to market
Volume

Net LTP
contribution
by self
trades

6. Vide email dated March 24, 2014, the noticee requested for the soft copy of the
trade log and on the same day vide email dated March 24, 2014, the noticee was
provided with the soft copy of the trade log.
7. The noticee vide his letter dated April 05, 2014 replied to the SCN and his
submissions are summarised as below:
a) We trade through multiple dealers who carry out jobbing, arbitrage and
positional trading in securities on one or more Exchanges. This is carried
out through multiple trading strategies that are deployed while executing
the transactions.
b) One such strategy is momentum trading. We identify the movement in a
security and take a position based on the movement. We place trigger
orders for one share across multiple securities (which at times goes to 200
scrips) as fixed interval. Sell trigger orders are placed to identify the
upwards movement in the price of the security and buy trigger orders are
placed to identify the downwards movement in the price of the security. If
these orders get executed it is a sign that stock is moving upwards or
downwards. The dealers immediately analyze the volume and trend in the
stock and if they find the movement to be strong enough, they place the
orders for purchase of the security for a larger quantity at a much higher
price, sometimes even 2% to 3% higher than the last traded price so that a
large quantity of shares can be purchased from the intending sellers.
c) Our volume in the security was meagre 1.86% (BSE) and 0.94% (NSE) of
the market volume, which can no way create any false or misleading
appearance of trading in any security. The internally matched trades from
the same terminals during the said period were a negligible 0.005% (821
shares) for BSE and 0.006% (2380 shares) for NSE.
d) As alleged in the SCN there are 419 self trades on NSE and 453 self
trades on BSE from the same terminal. However, the fact remains that
there are only 106 self trades on BSE from the same terminal.
e) As we trade through multiple terminals, the dealers are not aware of the
orders placed by other dealers. In some cases the buy order of one dealer
inadvertently matches with that of other terminals, which we believe,
should not be treated as self trades.
f) Further it may be noted that when the price of a security moves upwards,
some of the limit buy orders remain in the pending order book. Likewise
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which it moves downwards, the unexecuted limit sell orders remain in the
pending order book. At the time of reversal of movement, the dealer may
be required to immediately place orders which may sometimes matched
against previously placed pending orders. Many a times only a part of the
order matches internally leaving the balance order to match with other
market participants.
g) The net LTP contribution by our self trades was a miniscule Rs.-2.2.If we
had intention to influence the price movement then we would have
contributed in the price rise and not in the price fall. This goes ahead to
substantiate that the self trades were merely incidental and purely
unintentional.
8. Subsequently, as requested by the noticee, vide hearing notice dated May 08,
2014, the noticee was granted an opportunity of personal hearing on May 19,
2014 at 12 Noon at SEBI Bhavan, Mumbai. The Noticee vide letter dated May
14, 2014 sought adjournment of the hearing on account of the non-availability of
the concerned person. Further, vide letter dated May 14, 2014, the noticee filed
additional reply to the SCN and submitted the following:
a. We would like to bring to your kind notice, the order of Hon'ble Securities
Appellate Tribunal dated January 24, 2014 in the case of Smt. Krupa
Sanjay Soni v. SEBI where the SAT had taken a view that "a few
instances of self trades in themselves would not, ipso facto, amount to an
objectionable trades."
b. In addition to this, in a similar matter of Gayatri Projects Ltd., the
Adjudicating Officer, vide its order dated April 30, 2014 concluded that the
charges against the noticees in the SCN do not stand established and the
matter was disposed off on the grounds that when the percentage of self
trades is negligible, the self trades are not capable of creating artificial
volume.
c. The percentage of self trades in the matter of Gayatri Projects was 1.72%
and Smt. Krupa Sanjay Sony was 1.99%.
9. Subsequently vide hearing notice dated May 23, 2014, the noticee was granted a
final opportunity of personal hearing on June 25, 2014 at 11.30 AM at SEBI
Bhavan, Mumbai. Vide letter dated June 03, 2014, the noticee requested to
postpone the said hearing as the concerned person was not available.

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10. Vide letter dated June 18, 2014, the noticee was informed that hearing scheduled
on June 25, 2014 is the final hearing granted to the noticee and if the noticee
fails to appear for the same, the matter shall be proceeded with the material
available on record. In response to the said letter, the noticee vide letter dated
June 19, 2014 requested to reschedule the aforesaid hearing from 11.30 AM to
04.30 PM as the concerned official was attending matter at SAT and therefore
not available at 11.30 AM. Acceding to this request of the noticee, vide letter
dated June 20, 2014, the noticee was informed that the final hearing shall be
taken up at 04.15 PM on June 25, 2014.
11. Vide letter dated June 23, 2014, the noticee authorised Shri Sandeep Jain, Sr.
Manager of the noticee and CA. Ravi Ramaiya, as Authorised Representatives
(hereinafter referred to as 'ARs') to attend the said hearing. However, vide the
said letter noticee stated that due to unavoidable circumstances, the noticee
requested to adjourn the said hearing to 11.00 AM on June 26, 2014.
12. ARs of the noticee appeared for the hearing and made the following submissions:
a) ARs have reiterated the submissions made vide replies dated April 05,
2014 and May 14, 2014.
b) ARs further submitted that total volume traded by the noticee is meagre.
c) ARs have undertaken to submit details of the no. of shares traded by the
noticee in Capital Market Segment, the details of the delivery based trades
and additional reply, if any, within a week.

13. Subsequently, vide letter dated July 02, 2014, the noticee submitted that the
number of scrips traded in the Capital Market Segment and Quantity are 3,317
and 1,63,28,91,536 respectively. The noticee also submitted the details of
delivery based trade.

CONSIDERATION OF EVIDENCE AND FINDINGS

14. I have taken into consideration the facts and circumstances of the case and the
material made available on record.

15. The IR observed that the noticee had executed self trades during the
investigation period leading to false and misleading appearance of trading in the
scrip of EAL and hence had violated Regulations 3(a), 3(b), 3(c), 3(d), 4(1),
4(2)(a) and 4(2)(g) of PFUTP Regulations.
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16. Before moving forward with the reply of the noticee, I would like to quote the
following Orders of the Hon'ble Securities Appellate Tribunal (hereinafter referred
to as 'SAT') with respect to 'self trades' wherein it was held as follows :
i.

Order in the matter of Chirag Tanna Vs The Adjudicating Officer dated


June 16, 2011
Self trades have been defined by the Honble SAT as
"..trades in which both the buyer and the seller are the same entity."
Further in the same order, Honble SAT also held that:
..we have on record the trade and order logs from which it has been
pointed out by the learned counsel for the respondent Board that the
appellant had executed self trades i.e. trades in which he was both the
buyer and the seller. Such trades are, admittedly, fictitious and create
artificial volumes in the traded scrip..

ii.

Order in the matter of Triumph International Finance Ltd Vs. SEBI dated
May 04, 2007
..The buyer and the seller were also the same. It is obvious that these trades
were fictitious to which the appellant was a party. They were fictitious
because the buyer and the seller were the same..

iii.

Order in the matter of Systematix Shares & Stocks (India) Limited Vs.
SEBI dated 23.4.2012 :
"..It has been held in several cases by this Tribunal that self trades are
fictitious and reprehensible. Trades, where beneficial ownership is not
transferred, are admittedly manipulative in nature. .."

iv.

Order in the matter of Anita Dalal Vs. SEBI dated 03.12.2012 :


"..The appellant has been found guilty of self trade as well. 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..."

v.

Order in the matter of H.J. Securities Pvt. Ltd Vs. SEBI dated May 11,
2012
..Appellants are free to adopt any business model, but has to ensure that
whatever model is adopted, is in conformity with regulatory framework.

17. From the above cited orders of the Hon'ble SAT, I also note that a) Self Trades are trades wherein beneficial ownership is not transferred;
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b) Self trades are fictitious, manipulative, create artificial volume in the market
and are reprehensible;
c) Whatever be the trading strategy, it should ensure that such strategy
complies with the regulatory framework.

18. In addition to its submissions made in pre paras 7, 8 and 12, the noticee has also
quoted the Order of Hon'ble SAT in the matter of Smt. Krupa Sanjay Soni Vs
SEBI wherein it was observed that "a few instances of self trades in themselves
would not, ipso facto, amount to an objectionable trades."
19. As observed from the IR, it is noted that the noticee had indulged in self trades
on BSE & NSE during the investigation period for 703 & 1886 instances, out of
which on 453 & 419 instances the self trades had been executed from the same
terminal resulting into 64.43% & 22.21% of self trades from the same terminal on
BSE & NSE respectively. Therefore the submission of noticee that there were
few instances of self trades is factually incorrect / does not have any merit.

20. The noticee has stated that there were only 106 self trades on BSE from the
same terminal is not acceptable in the absence of any documentary proof
submitted by the noticee. The IR has observed that number of self trades
executed by the noticee on BSE from the same terminal is 453.

21. With respect to the submission of the noticee quoting the AO order dated April
30, 2014 in the matter of Gayatri Projects Limited, matter was disposed off on the
grounds that when the percentage of self trades is negligible, the self trades are
not capable of creating artificial volume. It is further submitted by the noticee that
the volume of self trades is extremely negligible / meagre.
22. In this regard, it is pertinent to quote the Honble SAT order dated May 11, 2012
in the matter of H.J. Securities Pvt. Ltd, wherein It has been held that "Simply
because the number of such self trades is not large by itself cannot justify
execution of self trades". In the instant case, the total self trade volume

is

extremely high i.e. 23,898 shares and 21,446 shares on BSE & NSE respectively
which is not negligible / meagre by any stretch of imagination and cannot be
merely incidental as contended by the noticee.

23. It is submitted by the noticee that it has adopted a strategy called momentum
trading strategy. At this juncture, I would like to add that whatever be the trading
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strategy employed by the noticee, the same should be within the regulatory
parameters to ensure that it complies with the full regulatory framework, including
not resulting into / avoidance of self trades.
24. The noticee has further submitted that trades were incidental and purely
unintentional. The number of self trades executed particularly from same terminal
i.e 453 trades in BSE and 419 trades in NSE itself shows that the fact was
different from the submissions of the noticee. Further, the number of self trades
executed in BSE is 703 and in NSE is 1,886 which in my opinion cannot be
merely incidental as contended by noticee.

25. In view of the aforesaid discussion / observations / Hon'ble SAT Orders, it can be
concluded that the noticee has executed self trades in such high volumes and
the number of self trades from the same terminal is very high which resulted in
false and misleading appearance of trading thereby violating the provisions of
Regulations 3(a), 3(b), 3(c), 3(d), 4(1), 4(2)(a) and 4(2)(g) of PFUTP Regulations
. The text of the aforesaid provisions is reproduced below:
PFUTP Regulations
3. Prohibition of certain dealings in securities
No person shall directly or indirectly
a) buy, sell or otherwise deal in securities in a fraudulent manner;
b) use or employ, in connection with issue, purchase or sale of any security
listed or proposed to be listed in a recognized stock exchange, any
manipulative or deceptive device or contrivance in contravention of the
provisions of the Act or the rules or the regulations made there under;
c) employ any device, scheme or artifice to defraud in connection with
dealing in or issue of securities which are listed or proposed to be listed on
a recognized stock exchange;
d) engage in any act, practice, course of business which operates or would
operate as fraud or deceit upon any person in connection with any dealing
in or issue of securities which are listed or proposed to be listed on a
recognized stock exchange in contravention of the provisions of the Act or
the rules and the regulations made there under.

4. Prohibition of manipulative, fraudulent and unfair trade practices


(1) Without prejudice to the provisions of regulation 3, no person shall indulge in
a fraudulent or an unfair trade practice in securities.
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(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;

(g) entering into a transaction in securities without intention of performing it or


without intention of change of ownership of such security;

26. The said violations attract penalty under Section 15HA of the SEBI Act. The text
of the said provisions is reproduced below:

"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.
27. In this regard, the provisions of Section 15J of the SEBI Act and Rule 5 of the
Rules require that while adjudging the quantum of penalty, 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.

28. With regard to the above factors to be considered while determining the quantum
of penalty, it is noted that the disproportionate gain or unfair advantage made by
the noticee or loss caused to the investors as a result of violations committed by
the noticee are not available on record. Further, it may also be added that it is
difficult to quantify the unfair advantage made by the noticee or the loss caused
to the investors in a default of this nature.

29. In view of the abovementioned conclusion, I hereby impose a penalty of


` 20,00,000 /- (Rupees Twenty Lakh Only) on the noticee under Section 15 HA of
the Securities and Exchange Board of India Act, 1992, for the violation of
Regulations 3(a), 3(b), 3(c), 3(d), 4(1), 4(2)(a) and 4(2)(g) of the SEBI
(Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities

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Market) Regulations, 2003. which is appropriate in the facts and circumstances


of the case.
ORDER
30. In exercise of the powers conferred under Section15 I of the Securities and
Exchange Board of India Act, 1992, and Rule 5 of Securities and Exchange
Board of India (Procedure for Holding Inquiry and Imposing Penalties by
Adjudicating Officer) Rules, 1995, I hereby, impose a penalty of ` 20,00,000 /(Rupees Twenty Lakh Only) on Gajanan Enterprises in terms of the provisions of
Section 15HA of the Securities and Exchange Board of India Act,1992 for the
violation of Regulations 3(a), 3(b), 3(c), 3(d), 4(1), 4(2)(a) and 4(2)(g) of the SEBI
(Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities
Market) Regulations, 2003. In the facts and circumstances of the case, I am of
the view that the said penalty is commensurate with the violations committed by
Gajanan Enterprises.
31. The penalty shall be paid by way of Demand Draft drawn 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 shall be forwarded to the Chief
General Manager, Enforcement Department, Securities and Exchange Board of
India, Plot No. C4-A, G Block, Bandra Kurla Complex, Bandra (E), Mumbai
400 051.

32. In terms of the provisions of Rule 6 of the Securities and Exchange Board of
India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating
Officer) Rules 1995, copies of this order are being sent to Gajanan Enterprises,
4th Floor, Rustom building, 29, Veer Nariman Road, Mumbai 400 001 and also to
the Securities and Exchange Board of India, Mumbai.

Place: Mumbai

D. RAVI KUMAR

Date: March 31, 2015

CHIEF GENERAL MANAGER &


ADJUDICATING OFFICER

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