The Hindu Business Line : SEBI imposes penalty on `clients' of broking firm

Kolkata March 29 SEBI has imposed a penalty of Rs 25 lakh collectively on Mr Ramod K. Agarwal, Ms Sumitra Devi Agarwal and Mr Rahul Kumar Agarwal - "clients" of a broking firm Rajat Share and Stock Brokers Pvt Ltd — for indulging in artificial stock trading at Magadh Stock Exchange in August 2005.

Mr Amit Pradhan, adjudicating officer of the SEBI, on Thursday ordered them to make the payment within 45 days.

The SEBI official, in his probe, had detected a conspiracy involving Rs 89.28 crore. He observed that "there was a nexus" between the broker, clients and promoter of Bhoruka Financial Services Ltd (BFSL).

"The association of this nature rules out any element of subjectivity in the whole ulterior process and indicates that the entities were hand in glove in the whole manipulative process," it was stated.

BFSL, an NBFC, held land admeasuring 15 acres at Whitefield Road, Bangalore, which it `purchased' from its sick group company, Bhoruka Steel Ltd in December 2002 at Rs 4.21 crore

Land deal

The land was registered in BFSL's name in June 2004. The promoters of BFSL wanted to sell the land and DLF Commercial Developers Ltd (DCDL) was agreeable to the purchase.

The promoters of BFSL held 198,850 shares in the company constituting 98.73 per cent of its equity. The promoters of BSFL sold their entire holding at Rs 4,490 per share to DCDL. BFSL scrip was listed only in the Bangalore Stock Exchange. However, it was `traded' in Magadh Stock Exchange Association (MSEA) under the `permitted category' for a brief period to allow transactions.

On July 27, 2005, then Officiating Executive Director (OED) of MSEA issued a `notification' that trading in MSEA would commence shortly, without mentioning any date. This `notification' was faxed to the promoter of BFSL the same day and on July 28, 2005 the sellers and DCDL entered a share purchase agreement (SPA) for transacting in BFSL shares at MSEA through Rajat Share and Stock Broker.

Accordingly, the sellers transferred the first lot of demat shares to Rajat's account and on August 1, 2005, DCDL transferred corresponding funds to Rajat's account. Rajat applied to OED on August 1, 2005 to permit trading in the scrip of BSFL in MSEA.

The SEBI officer said that permission for trade in BSFL scrip in MSEA under the `permitted category' was illegal as the exchange did not have the authorisation from SEBI.

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