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ORDER

UNDER RULE 5 OF THE SEBI (PROCEDURE FOR HOLDING


ENQUIRY AND IMPOSING PENALTY BY THE ADJUDICATING
OFFICER) RULES, 1995

AGAINST

ASK FINANCIAL SERVICES PVT LTD.


(PAN NO. AAACA4844M)

1. The present proceedings stand initiated against Ask Financial


Services Pvt Limited (for brevity’s sake, hereinafter referred to as
ASK), Member of the National Stock Exchange of India (NSE) on
the capital market segment with SEBI Registration No INB
230642430 and the Derivatives Segment with SEBI Registration No
INF 230642430 on account of their alleged default in complying
with the direction issued by the Securities and Exchange Board of
India (SEBI).

2. Hence, I was appointed as the Adjudication officer to enquire and


adjudge under Section 15HB of the SEBI Act, 1992, the alleged
failure of ASK to exercise the due skill, care and diligence required
of them as a registered broker resulting in the alleged violation by
ASK of Clauses A(1) (2) and (5) of the code of conduct for Stock
Brokers specified in Schedule II of the SEBI (Stock Brokers and
Sub Broker) Regulations, 1992 (Broker Regulations) read with
Regulations 7 and 26 of the said Regulations.

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3. Accordingly, I issued a notice to show cause upon ASK in this
regard and advised them to make their written submissions. The
gist of their submissions made in their reply dated September 08,
2006, are summarized below :-

a. The order dated January 12, 2006 passed by a Whole Time


Member of SEBI which inter alia restrained Manojdev Seksaria
(Seksaria) from buying, selling or dealing in the securities
market, either directly or indirectly till further directions was
passed by SEBI in “the matter of IDFC Ltd” and related to the
shares of IDFC Limited. They had not dealt on behalf of their
client; Seksaria in the shares of IDFC and had not done any
transactions on his behalf on or after January 12, 2006 which
could be said to be manipulative or fraudulent or deceptive.
b. This order gave instructions to the Exchanges and DPs only.
There was no order against them or against NSE brokers
generally, by SEBI or by any other authority. There was no
communication to them or even to the NSE brokers generally,
either by SEBI or by the exchange, not to do any dealings on
behalf of Manojdev Seksaria on January 13, 2006 or at any
time prior thereto.
c. They had on January 13, 2006 itself, informed the NSE about
the trades carried out on behalf of their client and referring to
the SEBI order had sought for clarifications as to whether the
person “Manojdev Seksaria” mentioned in the SEBI order was
the same as their client; Manoj G Seksaria, but NSE did not
respond to their query on January 13, 2006 or soon
thereafter. (A copy of their letter dated January 13, 2006 was
enclosed).
d. They had not done any fresh transaction on behalf of their
client.

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e. They had been instructed by their client to close his positions
in the capital and F&O segment on January 12, 2006 and had
accordingly carried out some trades on January 13, 2006, the
details of which are as follows :-
? Transactions for “N OPTSTK ICICIBANK 26JAN2006
560.00 CA” for 700 shares on 12-12-2005. Under the NSE
Regulations and Bye-laws, the said open position would
have closed automatically on January 26, 2006, if not
closed earlier. The risk of any investors or group of
investors was thus reduced by not keeping the transaction
open till 26/01/2006.
? Transactions in “N FUTSTK RELIANCE 26JAN2006” viz
04/01/06 + 6000 shares, 05/10/06 + 12000 shares,
09/01/06 + 3000 shares (total 21000 shares). Under the
NSE Regulations and Bye-laws, the said open position
would have closed automatically on or before 26/01/2006,
if not closed earlier. By closing them on 13/01/2006, they
had in fact avoided any uncertainty and thereby reduced
the risk to all concerned, including the stock exchange and
themselves.
? A sell trade on January 13, 2006 of 11,000 shares of
Reliance Industries Limited that were purchased on
12/01/2006 in Settlement No.2006008 N, because later on
12/01/2006, their client had expressed his inability to
clear the outstanding dues or to pay for the same and
accordingly had instructed them to sell the said shares and
adjust the amount against his outstanding obligation. This
transaction on January 13, 2006 was merely to reverse the
purchase transactions on the previous day i.e. 12/01/2006
and was intended to reduce the risk to all concerned,

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including the stock exchange and themselves and was in
keeping with the requirements of acting with due skill, care
and diligence.
f. In all, they had on 13/01/2006, done only three transactions
on the floor of the exchange at the market rate which were to
close the existing open positions.
g. There was no question of them having indulged in any
manipulative, fraudulent or deceptive transactions with a view
to distort market equilibrium or to make any personal gains.
h. All their actions were manifestly bonafide showing high degree
of promptitude and fairness and could by no stretch of
imagination be termed as manipulative or fraudulent or
deceptive.

4. On the basis of these submissions, ASK requested that the


proceedings be dropped. They also requested for a pre-decisional
hearing.

5. Accordingly, a notice of hearing dated September 15, 2006 was


issued to ASK with an advice to appear for the hearing scheduled
on September 26, 2006. ASK was represented by Mr. Ashok
Jogani, one of the directors of ASK who reiterated the submissions
advanced earlier and further stated that ASK were not aware of
any restraint order against their client; since the SEBI order
mentioned Manojdev Sakseria while their client was known to
them as Manoj Sakseria. He submitted a copy of the member-client
agreement entered into with their client to substantiate this
contention. Mr. Ashok Jogani also contended that when they had
asked their client on 13 January 2006, if he was the person who
was named in the order of SEBI, their client had denied the same
but confirmed to them this fact only on or about 16th of January,

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2006. It was stated that they had to execute the said orders else
their client would have suffered losses if the market had moved
against their client and then they would have been responsible for
the same. Mr. Ashok Jogani also stated that they had made no
gains except brokerage out of the said deals.

APPRECIATON OF FACTS:

6. I have examined the submissions urged before me, the material on


record including the order of the Whole Time Member, SEBI.

7. The undisputed facts related to this case are as follows:-


? Pursuant to reports of manipulations in initial public offerings
of various companies, SEBI examined the IPO dealings of
various companies including that of Yes Bank and IDFC.
Investigations in the case of IDFC revealed that Manojedev
Seksaria along with several other entities had adopted a
modus operandi of making applications in fictitious names for
cornering the retail portion of the IPO shares which would
have otherwise gone to genuine retail applicants, and had
thus abused the IPO allotment process.
? On account of the same, SEBI vide an interim order dated
January 12, 2006 which highlighted the role of these
dominant players, inter alia directed Manojdev Seksaria not to
buy, sell or deal in the securities market, either directly or
indirectly, till further directions. The order was effective from
January 12, 2006.

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? Vide the said order, the stock exchanges and the depositories
were directed to ensure that the directions issued in the order
were strictly enforced.
? The order in question was posted on the website of SEBI on
January 12, 2006 itself and was also communicated to the
media through a press release on the same day.
? The passing of the said order received wide media coverage the
next day in that all the national dailies especially the financial
dailies reported the same in detail.
? NSE also communicated the order to its broker members for
compliance of the order of SEBI vide their circular No
No/INVG/2006/03 dated January 13, 2006.

8. These facts thus establish the finding that there was no scope for
misinterpretation of the order and that it was suitably conveyed to
all the market participants.

9. Despite the same, ASK executed transactions for their client;


Seksaria who is one of the entities restrained to deal in the
securities market and have admitted to the said act, but attributed
the same primarily to a case of mistaken identity besides alleging
improper communication of the SEBI order to them. In support
thereof, they have advanced various contentions which I propose to
address below.

10. Their preliminary objection is that the order of SEBI was not
directed at them or against NSE brokers generally but to the
Exchanges and DPs only and that the said order passed “in the
matter of IDFC Ltd” related to the shares of IDFC Limited and they
had not dealt on behalf of their client; Mr. Manoj G Seksaria in the

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shares of IDFC and had in any case not done any transactions on
behalf of Mr. Manoj G. Seksaria on or after January 12, 2006
which could be said to be manipulative or fraudulent or deceptive.

11. These grounds besides being untenable and perverse are clearly
meant to divert the attention of this forum in all possible means.

12. A bare perusal of the operative portion of the order dated January
12, 2006 clearly shows that there is no element of ambiguity in
determining that the said order was a general restraint order and
categorically restrained Seksaria and three others from buying,
selling or dealing in any scrip, either directly or indirectly, till
further directions while it specifically restrained several other
entities (whose names were also mentioned in the order) from
buying, selling or dealing in the shares of IDFC Ltd and in any
other ensuing future IPOs either directly or indirectly, till further
directions. Clearly there was no mention of restraint of dealings in
the shares of IDFC in particular in the case of Seksaria. ASK have
obviously tried to interpret the order of the Whole Time Member,
SEBI in a manner that suits them best. Moreover although ASK
was not a party to the said order, it was mandatory for them being
a registered entity, to ensure due compliance with any direction
issued by the securities market regulator in the interest of the
investors, especially when the same was conveyed to them.
Although ASK have challenged this issue, it is a fact that the
mandate issued by SEBI on January 12, 2006 was posted on the
SEBI website on January 12, 2006 itself and was also
communicated to the media through a press release on the same
day, which was then widely reported the very next day.

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13. As far as the NSE is concerned, the exchange had vide their
Circular No/INVG/2006/03 dated January 13, 2006 brought to
the attention of all their members, the passing of the order of SEBI
dated January 12, 2006 and had also advised them to ensure due
compliance with the said order. The circular also brought out the
fact that the detailed order of SEBI was available on the SEBI
website while the details of the clients against whom the SEBI
orders were passed were available on the NSE website under the
heading “Regulatory actions.” Assuming that ASK did not get to
view the circular at any time during the day on January 13, 2006,
the headlines of all the major newspapers, especially the financial
dailies on the very next day of the passing of the order of SEBI
dated January 12, 2006 reported the same in detail.

14. From the records I have noted that on January 13, 2006 itself, all
the national papers especially the financial dailies, viz. the
Economic Times, Mumbai edition, The Indian Express Mumbai
edition, The Hindustan Times Mumbai edition, The Times of India,
Mumbai edition, The Business Standard, Mumbai edition, The
Financial Express Mumbai edition, The Hindu Business Line, The
Asian Age Mumbai edition, The Free Press Journal Mumbai
edition, etc. reported in detail the passing of this order of SEBI and
the circumstances surrounding the passing of the said order.
These reports also brought out the observations of the Finance
Minister of India and the Chairman, SEBI warning stringent action
against all those involved either directly or indirectly in the IPO
scam. Most of these headline grabbing news also reported the
names of the major players involved in the said scam which
included the name of “Manojdev Seksaria”.

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15. Normally, all press reports are read early in the day by any person.
When it comes to the case of an active market participant, the
same assumes even more significance considering their
dependence on news of every kind which has implications on the
activity of the market, which in turn is bound to have an effect on
their businesses. Hence, ASK could not have been ignorant of such
wide media coverage as mentioned above. As an active market
participant, ASK would have been clued on to the happenings in
the market. That being the case, there is no basis for ASK to allege
ignorance of the passing of the order or cite a failure on the part of
SEBI or the exchange in communicating the order to them on
January 13, 2006 or at any time prior thereto. It would in fact be
logical to conclude that ASK were aware of the SEBI order on
January 12 2006 itself, if not the next day and yet executed the
said transactions.

16. But here too, ASK have a ready response which indicates the
brazen manner in which facts have been distorted by them and
without any manner of doubt, willfully. Taking an absolutely
diverse stand, they have contended that being unclear as to
whether the person mentioned in the order i.e. Manojdev Seksaria
was their client, who was apparently known to them as Manoj G
Seksaria, they had sought the necessary clarification from the NSE
in their letter dated January 13, 2006, but did not receive any. I
have examined the letter submitted by them to substantiate their
contention, as well as the undated account opening form of
Seksaria which mentions the name of the constituent as Manoj
Seksaria while the client member agreement, ALBM agreement and
indemnity agreements, all dated January 15, 2002 mentions the
name of their client as Manoj G. Seksaria. Agreed, that there is a
slight mismatch in the name mentioned in the order of SEBI and

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that in their records. Yet if one were to give credence to this
element of uncertainty surrounding the identity of their client, one
should also not loose sight of the fact that the magnitude of the
IDFC IPO scam, which created a furore in the market, especially
since the same was preceded by the IPO scam of YES Bank, was
large and involved over 42,000 multiple demat accounts, five
banks, three merchant bankers, one registrar and two
depositories. SEBI had also referred several banks to the Reserve
Bank of India for further action. Crores of rupees were at stake and
the involvement of all the major players in the said case including
that of Seksaria was well chronicled in the SEBI order and in the
headline grabbing news which was covered by the print and
electronic media on the next day of the passing of the order and for
many days thereafter. Seksaria was thus obviously not a small
market player while ASK were and continue to be an active market
participant both in the cash and derivatives segment. It stands to
reason they would have been alerted to the scam and the events
that followed, which left no room for confusion or scope for
entertaining doubt. If confusion were to arise at all and on that
ground alone, then ASK ought to have also entertained a doubt
about the identity of their client itself, who was known to them for
several years and referred to in their client related documents in
two different names i.e. Manoj G. Seksaria and Manoj Seksaria.
Incidentally another broker member; M/s Brics Securities Limited
who had opened an account for Seksaria only a month before the
date of the passing of the order of SEBI and had also executed
transactions for Seksaria in contravention of the said order,
entertained no such doubt about the identity of their client even
though in the documentation maintained at their end viz; know
your client form, Pan copy, bank account details and passport, the
name of Seksaria was mentioned as Manoj Gokulchand Seksaria.

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Clearly, ASK having executed the impugned transactions, have
now tried to take shelter behind the alleged lack of clarity
surrounding the identity of their client and have also alleged
failure on the part of the exchange to respond to their queries as
also their client; who is stated to have initially denied the same but
admitted to the same with an explanation only later in the month,
after the transactions were executed. The belated explanation, if at
all an issue that needs to be resolved between ASK and their client
which in any case does not appear to have resulted in any issue
between the parties.

17. ASK have however contended that they carried out the instructions
of their client and had they not executed the impugned trades and
the market would have moved against their client, then there was
the possibility of their client suffering losses for which they would
have been held accountable.

18. This plea is not only hollow but without any substance.
Considering that as per their own admission, they had time upto
the last Thursday of January i.e., 26th January, 2006 to close
down two transactions in the F&O segment, they could have
awaited the necessary instructions from the NSE/SEBI. Instead
they went ahead on the very next day and executed the impugned
transactions in active collusion of their client, behind the guise of
complying with the instructions of their client. This is apparent
from the haste displayed by them in the transaction executed in
the cash segment too, for which they have no ready excuse other
than the obvious one of stating that they were bound to act as per
the instructions of their client. At stake here was also the interest
of the investors at large and the mandate issued by the regulator

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in the interest of sustaining a healthy market which was blissfully
ignored.

19. Although ASK have contended that they had acted in good faith
and with the highest levels of integrity and promptitude and had
complied with the requirements of the exchange and SEBI at all
times and that they had made no gains except brokerage, there are
however several factors which completely nullify the alleged claim
of bona fides made by the ASK.

20. The IPO scam of IDFC highlighted the role of all the applicants in
the issue process who were alleged to be fictitious, and also the
fact that most of these applicants immediately transferred their
IPO shares to specified individuals in off market transactions prior
to the date of commencement of trading on the stock exchanges i.e.
their demat accounts effectively served as conduits for cornering
the IPO shares of IDFC. These specified individuals included
Manojdev Seksaria, Roopal Ben Naresh Bhai Panchal and
Purshottam Bhudwani who were held guilty of unjust enrichment
by masquerading in the retail category at the cost of genuine retail
investors.

21. Manojdev Seksaria was found to have adopted a modus operandi


of making applications in benami names for cornering the retail
portion of the IPO shares which would have otherwise gone to
genuine retail applicants, in as much as around 36 other demat
accounts having the same address as Manojdev Seksaria, were
found to have received in their respective demat accounts, several
shares from various dematerialised account holders. All these 36
dematerialised account holders had Seksaria as their surname or
part of their surname and had a common address and a common

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surname/part name. All these accounts including that of Manojdev
Seksaria together received 266 shares each from 2025
dematerialised account holders aggregating to 5,38,650 shares in
off market transactions on August 12, 2005. As the scrip of IDFC
commenced trading on the exchanges on August 12, 2005, no
market buyer could have received delivery from the exchange on
August 12, 2005 (settlement being T+2 basis).

22. On account of the same, upon completion of a long and eventful


investigation into these reports of manipulation in the initial public
offering and the abuse of the IPO allotment process, SEBI vide an
interim order dated January 12, 2006 passed under Sections 11B
and 11(4)(b) of the SEBI Act, 1992, which highlighted the role of
these dominant players who contributed to the IPO abuse, inter
alia directed Manojdev Seksaria not to buy, sell or deal in the
securities market either directly or indirectly till further directions.

23. Being a registered entity of SEBI, ASK was bound by the Code of
Conduct under which they are registered and ought to have acted
accordingly. Clauses A (1) (2) and (5) of the Code of conduct read
with Schedule II of Regulation 7 of the Broker Regulations
mandates all stock brokers holding a certificate of registration to
act in a prompt, ethical, and professional manner and exercise at
all times, due skill, care and diligence in the conduct of all their
business dealings. Regulation 26(xv) of the Broker Regulations,
inter alia renders a broker liable for monetary penalty in case they
fail to comply with the direction issued by the Board under the Act
or the Regulations framed thereunder.

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24. The failure on the part of ASK to abide with this code of conduct
stands established by their blatant defiance of the directions
issued by the market regulator.

25. This belief is strengthened considering that right from the


beginning, ASK have tried to justify their actions by raising inane
issues one after another. Apart from attempting to overreach the
orders of SEBI, they have attempted time and again to draw red
herrings. Still worse is the distortions being given to the facts of
the case with oblique motives.

26. In any case, even if I have to accept the explanation of ASK that
they had not willfully acted in defiance of the order of SEBI, that
however, does not absolve them of the liability incurred on account
of their actions which renders them liable for action under the
provisions of Section 15 HB of the SEBI Act, 1992 and prescribes
the penalty upto Rs.1 crore to be levied in cases of non compliance
with any provision of the Act, the rules or the regulations made or
directions issued by the Board for which no separate penalty has
been provided. As ASK carried out the impugned transactions
contrary to the very spirit and order passed by SEBI, it is
imperative that persons involved in the said violations are dealt
firmly and an appropriate deterrent penalty is imposed upon them.

27. Before fixing the quantum of penalty that is commensurate with


the charge established against ASK, it would be necessary to also
refer to certain factors as enumerated under Section 15J of the
SEBI Act, 1992 which also find mention in Rule 5(2) of the SEBI
(Procedure for holding enquiry and imposing penalty by the
Adjudicating Officer) Rules, 1995 i.e. the amount of
disproportionate gain or unfair advantage made as a result of the

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said default, the amount of loss caused to the investors and the
repetitive nature of default.

28. Although ASK have tried to emphasis on the fact that they had
only earned brokerage in these deals and had not made any
disproportionate gains from the dealing nor taken any unfair
advantage or caused any loss to any group of investors,
considering the act in its entirety, I am not inclined to give the
circumstances surrounding such instances, any benefit of doubt.
More importantly, I cannot lose sight of the fact that SEBI was
exercising jurisdiction conferred upon it by the statute to inter alia
regulate the securities market and protect the interests of the
investors operating in the market. Hence sufficient regard has to
be given to the mandate issued by SEBI from time to time. It is
clear that if such orders are violated, the interest of the investors is
jeopardized. Hence sufficient cognizance has to be taken of such
disregard and suitable liability should be fixed there upon or else,
the entire purpose of enactment of the statute would become
redundant.

29. In view thereof, although I am inclined to hold that the penalty


need not be imposed in terms of the exact quantum specified in
Section 15HB of the Act, imposition of a stringent penalty is very
much necessitated. This will set an example for those who have a
propensity for disregarding orders issued by the regulator.

PENALTY

30. On a judicious exercise of the discretion conferred upon me,


bearing in mind the fact that ASK is a registered entity and on
account of the same ought to have acted with a fair degree of

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integrity, due diligence and care in their dealings, which they failed
to do, I in exercise of the powers conferred upon me under Rule 5
of the SEBI (Procedure for Holding Enquiry and Imposing Penalty
by the Adjudicating Officer) Rules, 1995, am of the considered view
that for the aforementioned violation, it would be appropriate to
impose a penalty of Rs. 10,00,000/- (Rupees Ten lakhs only) on
Ask Financial Services Private Limited whose PAN No. is
AAACA4844M.

31. The penalty amount shall be paid within a period of 45 days from
the date of receipt of this order through a cross demand draft
drawn in favour of “SEBI- Penalties remittable to the Government
of India and payable at Mumbai” which may be sent to Shri S.
Ramann, Chief General Manager, Securities and Exchange Board
of India, SEBI Bhavan, Plot No.C4-A, G Block, B Wing, Bandra
Kurla Complex, Bandra (E), Mumbai – 400 051.

PLACE: MUMBAI G. BABITA RAYUDU


DATE: AUGUST 06, 2007 ADJUDICATING OFFICER

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