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    SECURITIES AND EXCHANGE BOARD OF INDIA

    AP/AO- 06/2005

    ADJUDICATION ORDER AGAINST SHRI HEERACHAND SALECHA IN THE MATTER OF GUJARAT FISCON LTD. UNDER RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995 READ WITH SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992.

    (I)                INTRODUCTION

    1.      The instant proceeding is directed against the non furnishing of information, in compliance of summons issued by the Investigating Authority (IA) appointed U/S 11C(1) of the Securities and Exchange Board of India Act, 1992 (hereinafter called "Act").� Pursuant to the compliant received by SEBI wherein the complainant alleged creation of artificial volumes in the scrip of Gujarat Fiscon Ltd. (GFL) by certain entities, the SEBI Board ordered an investigation to find out the alleged irregularities and possible violation of provisions of the Act and various rules and regulations framed there under.� During the said investigation by the Board, one of the client Shri Heerachand Salecha was summoned to provide certain information relating to his transactions in the shares of GFL during the investigation period.

    2.      Based on the finding of the investigation report, prima facie it appeared to the Board, that the said Shri Salecha had failed to provide information in response to summon issued by the IA, Shri Salecha has made himself liable for initiation of action U/S �15A (a) of the Act.� Consequently, the undersigned has been appointed as an Adjudicating Officer under Rule 3 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter called as "Rules") to enquire into the alleged violation of non-compliance of summon issued by the Investigating Officer.

    (II)             NOTICE

    A show cause notice (SCN) dated December 16, 2004 under Rule 4(1) of the said Rules was issued to Shri Heerachand Salecha communicating the detailed charges leveled against him.

    (III)          REPLY

    Shri Heerachand Salecha did not reply to the SCN, though the time for filing the same had expired.��

    (IV)          THE INQUIRY

    In view of the above, the undersigned was of the view that an inquiry should be held in the matter and a notice of inquiry was therefore issued to Shri Heerachand Salecha vide letter dated March 28, 2005, fixing the date of inquiry on April 25, 2005.� Neither Shri Heerachand Salecha nor his authorized representative appeared before the undersigned.� Also no request for adjournment was received for the inquiry on the cited dated. Therefore, the undersigned decided in terms of Rule 4(7) of the said Rules to proceed with the inquiry, as it appeared that Shri Heerachand Salecha deliberately avoided filing of reply to the notice under Rule 4 (3) of the said Rules and also failed to appear for the inquiry despite service of notice of inquiry.�

    (V)             BACKGROUND

    1. SEBI carried out an investigation in the scrip of Gujarat Fiscon Ltd for the period July 31, 2000 to December 15, 2000, which revealed that a cartel of clients and brokers who were known to each other and also had business relationships traded heavily in the scrip over a period of time and made heavy volumes in the scrip.�� Therefore a full-fledged investigation in the scrip was recommended. Accordingly, investigation in the scrip was initiated for the period from July 31 to December 15, 2000.

    2.      During the period of investigation, it was observed that the scrip had opened at Rs. 60.00 on 31.07.2000, touched a intra-day high of Rs. 104/- on 15.12.2000 then had touched a high of Rs. 113.50 on 27.11.00.

    1. It was observed that during the period of investigation, the total volume was 1299400 (Buy+Sell) on the exchange in this scrip.� The volume contributed by the 8 major members as well as the clients of the members was about 82% of the total volume.� The clients of these brokers has created artificial volumes.� Some of the brokers or their sub-brokers aided and abetted these clients in these activities.�
    1. Heerachand Salecha led the cartel of clients.� The other major contributors were Jatin R Shah, Kishorekumar K Vasa, Umashankar Agarwal and Deepak R Parekh.� Shri Heerachand Salecha, the major client in the whole episode, contributed to 10% of the total transactions in the scrip during investigation period. These transactions are the transactions, which he has carried out in his name. He was the client of Allwin Securities Ltd., sub broker to Joindre Capital Services Ltd. Summons were issued to Shri Heerachand Salecha for production of documents and also to appear before the IA.�
    1. Shri Heerachand Salecha did not produce the documents as required in the summons.�� He did not even furnished the basic information such as the name of the broker through him he has dealt, copy of DP account, copy of bank account, etc.
    1. The investigation further revealed that Shri Salecha was dealing through the broker M/s Ramaben Samini Finance Pvt. Ltd. in the name of Shri Kishore Kumar K Vasa.� Shri Vasa the client of Ramaben Samani Finance Pvt. Ltd. had submitted that he has not done a single transaction during his entire lifetime. Further he has stated that he was a sales tax consultant and that he was out of job for the last many years.� In the grip of these circumstances, he was referred to Shri Salecha, that he should be able to provide some employment.� On this pretext Shri Salecha advised him to fill up the KYC for the broker Ramaben Samani and assured him employment in due course.� Shri Salecha had used Shri Kishorekumar K Vasa's name and transacted through the broker.��� Shri Salecha denied the same in his statement dated May 31, 2004 in SEBI Office.�� He also stated that he does not know Shri Vasa and broker member Ramaben Samani Finance Pvt. Ltd.
    1. The transactions of Shri Salecha taking into account the tractions done through Ramaben Samani in the name of Shri Vasa accounts for 27.59% of the total volume.�
    1. The major clients in the said scrip i.e Shri Jatin R Shah, Shri Umashankar Agarwal and Shri Heerachand Salecha who were known to each other and had made transactions in the scrip had contributed 36% of the volume.� If the volume generated by Shri Salecha in the name of Shri Vasa is also added, it will constitute 53.58% if the total volume.� Besides other clients such as Smt. Vinap A Jain has also traded in the scrip "solely on the advise" of Shri Salecha.�� It was further observed that the major trades generated by Shri Salecha, Shri Jatin A Shah and their associates were matching among themselves.
    1. The other major client in the scrip Shri Jatin R Shah, in his statement he had stated that he and Shri Heerachand Salecha were known to each other. �Shri Jatin R Shah had also borrowed money from Shri Salecha in the past.� It was also revealed in the investigation report that Shri Kishorekumar Vasa had been used as the mask to a manipulation staged by the market manipulators.

    �

    (VI)          REPLY

     

    It is observed that, Shri Heerachand Salecha has not filed any reply and no oral submissions are made since nobody appeared for the personal hearing. In the absence of same, I am proceeding with this inquiry on the basis of available material in the records.�

     

     

    (VII)       FINDINGS

     

    1. It is observed from the investigation report that the price of the scrip had risen from Rs. 60.00 on July 31, 2000 to Rs. 104.00 on December 15, 2000 and had touched a high of Rs. 113.50 on November 27, 2000.

     

    1. Based on an investor complaint that the shares of Gujarat Fiscon Ltd. (GFL) are being manipulated and artificial volumes are created by the broker entities in connivance with the investors, SEBI carried out an investigation to inquire into the matter.�

     

    1. It was observed that the cartel of clients was led by Heerachand Salecha.� The other major contributors were Jatin R Shah, Kishorekumar K Vasa, UmaShankar Agarwal and Deepak R Parekh.� Shri Heerachand Salecha (Salecha), the major client in the whole episode, contributed to 10% of the total transactions in the scrip during investigation period. These transactions are the transactions, which he has carried out in his name. He was the client of Allwin Securities Ltd., sub broker to Joindre Capital Services Ltd. Summons were issued to Shri Heerachand Salecha for production of documents and also to appear before the IA.

     

    1. The investigations further revealed that Shri Salecha was dealing through the broker M/s Ramaben Samani Finance Pvt. Ltd. in the name of Shri Kishore Kumar K Vasa.� He had submitted that he has not done a single transaction during his entire lifetime. Further he has stated that he was a sales tax consultant and that he was out of job for the last many years. In the grip of these circumstances, he was referred to Shri Salecha, that he should be able to provide some employment.� On this pretext Shri Salecha advised him to fill up the KYC for the broker Ramaben Samani and assured him employment in due course. Shri Vasa also submitted an affidavit to this effect.

     

    1. The Investigating Authority after examining, Shri Vasa, Shri Salecha and others, concluded that Shri Salecha has been the mastermind behind the creation of the false liquidity in the scrip. Towards this end he has enrolled Shri Vasa as a client with M/s Ramaben Samani and also employed the services of Ramaben Samani, while he himself was dealing through M/s Allwin Securities Ltd. The transactions of Shri Salecha, taking into account the transactions done through Ramaben Samani in the name of Shri Vasa accounts for 27.59% of the total volume. Shri Heerachand Salecha had acted as the nodal agency in this nexus of Market manipulators.

     

    1. The role of Shri Salecha in the whole investigation process was extremely important and for that purpose SEBI issued summons dated April 30, 2004 to Shri Salecha to produce following details and documents and to appear in person before the IA on May 12, 2004 :

     

                                                      i.      The complete trade details in the scrip for period January 1, 2000 to December 31, 2000.� These details should include data-wise, settlement wise buy and sell positions in the scrip, buy price, sell price and spot transactions/cross deals/off market transactions executed by you which were not reported to the exchange.� Indicate gross purchases, gross sales and net positions taken in the scrip during the period.

     

                                                   ii.      The DP statement for the period from January 1, 2000 to December 31, 2000.

     

                                                 iii.      Copy of the bank statement for the period January 2000 to December 2000.

     

    1. The summons sent at his office address returned undelivered with the remark, � Door Locked�. His broker, Joindre Capital Services Ltd. was then advised to deliver the summons to Shri Salecha. The broker succeeded in delivering the summons, which were received by one Shri Hiralal B. Vara on behalf of Shri Heerachand Salecha who was present at the office of Shri Salecha. Responding to the summons Shri Heerachand Salecha stated that he was not comfortable with English and hence further communications to him should be made in Hindi only. However neither he furnished the information nor he appeared in person in compliance with summons.

     

    1. As requested by Shri Salecha, the summons, in Hindi were issued to him. However, the person carrying the letter found the premises locked and was informed that Shri Salecha had shifted from this address. Thereafter, his broker Joindre Capital Services Ltd. was again advised to deliver the letter to Shri Salecha. The broker again delivered the letter containing summons to him.� I am in agreement with the observation of IA that all the above actions of Shri Salecha were aimed at nothing, but to delay and deviate the process and focus of investigations.

     

    1. I further observed that Shri Heerachand Salecha could not produce the documents as required in the summons. These were essential from the point of view of unearthing of facts of the case.� Special arrangements were made by IA to record the statement of Sh. Salecha in Hindi. During the proceedings of the examination on oath, he expressed his inability to submit the information and stated that there was no law, which requires to keep those documents in place. He had also stated that he did not know Ramaben Samani Finance Pvt. Ltd., Sudha Vithlani or Kishorekumar K. Vasa.� He did not even furnished the basic information such as the name of the broker through whom he has dealt, copy of DP account, copy of bank account, etc. Shri Heerachand Salecha had stressed for the copy of statement and on informing him by IA that the copy can not be provided �right now� and would be provided if he is charged for violations, Shri Salecha refused to sign the statement and made a sudden exit. The entire conduct of Shri Salecha, suggest that he has failed to furnish the information as required by the summons dated April 30, 2004.

     

    1. �The conduct of Shri Salecha can be better defined as non-compliance of a statutory direction contained in a summon issued under Section 11(3) of the SEBI Act, 1992.���

     

    1. Another question remains to be answered here is whether the summons were served upon Shri Salecha in the said investigation proceedings.� In this regard, I observe that twice the summons were served with great difficulty on account of non co-operative attitude of Shri Salecha, through the broker of Shri Salecha.� In response to the said summons it is observed from the unsigned statement of Shri Salecha,� that he appeared before IA on May 31, 2004 and his statement was recorded by the Officers of SEBI namely Shri Atul Agarwal and Shri Ch..Deepak Mishra.� From the perusal of the said statement it is observed that Shri Salecha has been defiant all the time in disclosing the information and highly non-cooperative to the IA.� The said conduct on the part of Shri Salecha is nothing but a deliberate failure to furnish documents and the information, which he was duty bound and required to furnish under the provisions of the SEBI Act, 1992.� The said conduct is in violation of provisions of Section 11 (3) read with Section 11C of the SEBI Act, 1992.� The violations in this regard attracts the penalty as prescribed under sub-section (a) of Section 15 A of the SEBI Act and in order to adjudge the quantum of penalty, I have to consider the following factors:

     

    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 and

    c)        the repetitive nature of the default.

     

    1. As regards the disproportionate gain or unfair advantage and loss to the investors it is observed that during the period of investigation the total volume of the trading was 1299400 shares of the GFL.� It is also the finding of the investigation that Shri Salecha in connivance with his known entities had contributed 53.55% of the total volume of the shares traded in the exchange.� Such a huge volume traded by Shri Salecha will definitely have an impact on the securities market in terms of money since prices of the shares raised from Rs. 60 to Rs. 104 and also touched a high of Rs. 113.50 during the investigation period.�� There are however no exact figures to quantify the amount of loss caused to investors or group of investors as a result of the default but more than Rs. 40 per share artificial rise in the price during the investigation period must have impacted a lot adversely to the wealth of investors.�

     

    1. It is also observed that since there has been deliberate non � compliance of the statutory summons issued under Section 11 C (2) of SEBI Act, by Shri Salecha, thereby causing interference in the statutory investigation process, I consider that the monetary penalty needs to be imposed as a corrective measure. I find the said violation as repetitive in nature since twice the summons were issued to Shri Salecha which were not complied by him in real sense.� Shri Salecha's non co-operating attitude is still continuing as none of the notice under these adjudication proceedings is responded to by Shri Salecha.�

     

     

    (VIII) ORDER

    Taking into consideration the material and evidence on record and in view of the findings arrived at, I consider it to be a fit case for imposition of penalty under sections 15 A (a) of the SEBI Act, 1992. In view of the same and in exercise of the powers conferred under section 15-I (2) of the SEBI Act, 1992, read with, Rule 5 of the said Rules, I hereby impose penalty of Rs. 2,00,000/- (Two Lakhs Only) -on Shri Heerachand Salecha.

    The aforesaid penalty shall be paid 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 of SEBI, Investigation Department, ID-3 at SEBI, Mittal Court, B- Wing, 1st Floor, 224 Nariman Point, Mumbai 400 0021.

     

     

    DATE: MAY 5, 2005� ��������������������������������������������� AMIT PRADHAN

    PLACE: MUMBAI� ��������������������������������������ADJUDICATING OFFICER

    ���������������

     

     

     

     



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