A bench headed by Chief Justice P Sathasivam issued notice to the Ess Ess Intermediaries after Sebi alleged that certain entities, through collusion with the brokers and other clients, had transacted in the shares of Adani Export in a manner that led to creation of artificial volumes in the scrip.
The transactions were designed to create a false market and distorted market equilibrium, leading to a spurt in the price of the scrip, which did not have any correlation with the performance of the company, the market regulator stated.
While SAT had set aside market Sebis R 9 lakh penalty on Ess Ess Intermediaries, it upheld R1-lakh fine slapped by Sebi on the sub-broker firm for violation of broker norms.
The case relates to a Sebi probe in the scrip of Adani Export between July 9-14, 2004, and August 8, 2005 to September 9, 2005, wherein the firm's share price had witnessed wide fluctuations.
The regulator found that Ess Ess Intermediaries had traded substantially in the shares of Adani Exports for a client and had failed to exercise due diligence and had aided and abetted the client because of which the client was able to indulge in the manipulation for his personal gains in the scrip of Adani Export.
In this connection, the role of the Ess Ess, a sub-broker was also probed in respect of trading undertaken by it on behalf of its client Nitin R Patel.
Even if the sub-broker had not received any disproportionate gain or unfair advantage due to the said manipulation, the same had surely harmed the integrity of a fair and open market and had caused loss to the innocent investors, the petition stated.
Based on its findings, Sebi imposed the penalties in December, last year, following which Ess Ess had approached SAT against the regulators order.
The SAT, in its order, had noted that no evidence was available on record to establish a connection between Ess Ess and the alleged fraudulent transactions undertaken by Patel. Besides, the tribunal observed that the sub-broker had enjoyed no unfair advantage or benefit owing to the execution of trades.
However, it added that as even as a small time sub-broker, Ess Ess should have been more vigilant while executing the trades in question.