TCN/ 43/ID3/07/2007
SECURITIES AND EXCHANGE BOARD OF INDIA
Coram: Dr. T. C. Nair, Whole Time Member
Name of the noticees: M/s. Manyog Investments Private Limited and its
directors, Shri Manish N Shah and Shri Yogesh Ruparel
Date of Hearing: 11-07-2006
Appearance of Parties
For the Noticees: Shri Yogesh Ruparel and Shri Manish Shah, Directors
of M/s. Manyog Investments Private Limited
For SEBI : Shri P. K. Bindlish, General Manager
Shri Ashok Nimbekar, Manager
Directions under Section 11(4) (B) read with Section 11B of the SEBI Act, 1992 and Regulation 11 of SEBI (Prohibition Of Fraudulent And Unfair Trade Practices relating to Securities Market) Regulations, 1995 read with Regulation 13 Of SEBI (Prohibition Of Fraudulent And Unfair Trade Practices relating to Securities Market) Regulations, 2003 against M/s. Manyog Investments Private Limited and Its Directors, Shri Manish N Shah And Shri Yogesh Ruparel, in the matter of M/s. Natural Expo Agro Industries Limited
1.0 BACKGROUND
1.1 Natural Expo Agro Industries Ltd. (NEAL) is a public limited company with its registered and corporate office at 9th Floor, Galav Chambers, Near Sardar Patel Statue, Sayaji Gunj, Vadodara, Gujarat 390005. NEAL came out with a public issue of Rs. 275 Lakh in February-March, 1996, in order to part-finance the project for manufacturing Jaquard Woven Furnishing and Curtain Fabrics. The issue for 77 Lakh equity shares of Rs.10/- each for cash aggregating to Rs.770 Lakh opened on 3.5.1995 and closed on 6.5.1995. Several complaints were received regarding delay in transfer of shares and manipulation of price of the shares. A preliminary investigation by the Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) showed that there was a delay in transfer of scrip as well as in the dispatch of shares after transfer. It was also noted that Bombay Stock Exchange (BSE) suspended trading in the scrip on some days on account of abnormal increase in the price. In view of the above, formal investigation was ordered into the affairs relating to dealing in shares in respect of public issue by NEAL, its lead manager, Registrar and other persons/intermediaries associated with the public issue, vide order dated 30.1.1997.
1.2 The report on investigation was submitted to SEBI on 18.4.2002. Investigations revealed that the public issue of NEAL did not get required minimum subscription and that the issue was subscribed only to the extent of 14%. It was also noticed that to circumvent the requirement of minimum subscription NEAL entered into a financing arrangement through Galav with the 6 applicants. The shares allotted were purchased back by NEAL. It was claimed that the stockinvests with which these applicants had applied in the public issue were lost after finalization of the basis of allotment, and therefore, NEAL asked these applicants to give cheques for the equivalent amount. However, investigations brought out that NEAL transferred funds to Galav, which in turn transferred them to these applicants who, later issued cheques to NEAL. Thus, NEAL received no consideration from these 6 applicants, who were allotted 6 lac shares. NEAL thus utilized the proceeds of the Public Issue for arranging subscription and circumventing requirement of minimum subscription. It was seen that public issue proceeds were first transferred to Galav, which in turn gave it to applicants for subscribing to the public issue. Pursuant to this arrangement shares were allotted to the applicants were purchased back by NEAL. This is evident from the following extracts of the bank accounts.
Bank Account of Galav with Union Bank of India, Nariman Point, Mumbai
|
Date
|
Particulars
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Chq. No
|
Dr
|
Cr
|
Balance
|
|
31/5/95
|
By Cash
|
|
|
2500
|
2500
|
|
3/6/95
|
Tr. Chq Book Chg.
|
|
100
|
|
2400
|
|
3/6/95
|
Trf. From CA 24123
|
|
|
300500
|
3007400
|
|
3/6/95
|
PO issued to Ketan Doshi
|
126501
|
3000750
|
|
6650
|
|
5/6/95
|
Trf. From CA 24123
|
|
|
1400000
|
1406650
|
|
6/6/95
|
Cl. Ketan Doshi
|
126502
|
1400000
|
|
6650
|
|
9/6/95
|
Trf. From CA 24123
|
|
|
5000000
|
5006650
|
|
13/6/95
|
Cl. Piyush Avlani
|
126503
|
5000000
|
|
6650
|
|
16/6/95
|
Trf. From CA 24123
|
|
|
5000000
|
5006650
|
|
16/6/95
|
Cl. PK Doshi
|
126504
|
5000000
|
|
6650
|
|
21/6/95
|
Trf. From CA 24123
|
|
|
5000000
|
5006650
|
|
21/6/95
|
Cl. Bhavna Doshi
|
126505
|
5000000
|
|
6650
|
|
22/6/95
|
Trf. From CA 24123
|
|
|
5000000
|
5006650
|
|
22/6/95
|
Cl. Muktaben Doshi
|
126506
|
5000000
|
|
6650
|
|
28/6/95
|
Trf. CD/24223
|
|
|
2500000
|
6650
|
|
28/6/95
|
Trf. From CA 24123
|
|
|
2500000
|
5006650
|
|
28/6/95
|
Cl. Kamlesh Doshi
|
126507
|
2500000
|
|
2506650
|
|
28/6/95
|
Trf. DD fav Kanan Dalal Sec. Ltd
|
126508
|
2503750
|
|
2900
|
|
1/7/95
|
Trf. Chq. Rtd. Chg
|
|
10
|
|
2890
|
|
4/7/95
|
Trf. From CA 24123
|
|
|
2500000
|
2502890
|
|
4/7/95
|
Cl. Kamlesh Doshi
|
126509
|
2500000
|
|
2890
|
|
|
Total
|
|
31904610
|
31907500
|
|
|
|
Carried Forward
|
|
|
|
2890
|
As submitted by Union Bank of India, Nariman Point, CA-24123 is the Current Account of NEAL. From the above extracts, it is seen that payments made by Galav to the 6 applicants were received to the credit of Galav from the account of NEAL. This money itself was paid by cheque by the applicants in favour of NEAL, as can be seen from the following fund-flow statement.
Circulation of Funds from NEAL to GALAV and from GALAV to six Applicants and back to NEAL
|
|
|
In the books of
|
|
|
|
NEAL
|
Galav
|
NEAL
|
|
Date
|
Particulars
|
Amount
|
Amount
|
Amount
|
|
3/6/95
|
From NEAL to Galav
|
3005000
|
|
|
|
3/6/95
|
From Galav to Ketan Doshi
|
|
300500
|
|
|
5/6/95
|
From NEAL to Galav
|
1400000
|
|
|
|
6/6/95
|
From Galav to Ketan Doshi
|
|
1400000
|
|
|
8/6/95
|
From Ketan Doshi to NEAL
|
|
|
5000000
|
|
|
|
|
|
|
|
9/6/95
|
From NEAL to Galav
|
5000000
|
|
|
|
13/6/95
|
From Galav to Piush Avlani
|
|
5000000
|
|
|
15/6/95
|
From Piush Avlani to NEAL
|
|
|
5000000
|
|
|
|
|
|
|
|
16/6/95
|
From NEAL to Galav
|
5000000
|
|
|
|
16/6/95
|
From Galav to Paulomi Doshi
|
|
5000000
|
|
|
20/6/95
|
From Paulomi Doshi to NEAL
|
|
|
5000000
|
|
|
|
|
|
|
|
21/6/95
|
From NEAL to Galav
|
5000000
|
|
|
|
21/6/95
|
From Galav to Bhavna Doshi
|
|
5000000
|
|
|
22/6/95
|
From Bhavna Doshi to NEAL
|
|
|
5000000
|
|
|
|
|
|
|
|
23/6/95
|
From NEAL to Galav
|
5000000
|
|
|
|
23/6/95
|
From Galav to Muktaben Doshi
|
|
5000000
|
|
|
27/6/95
|
From Muktaben Doshi to NEAL
|
|
|
5000000
|
|
|
|
|
|
|
|
28/6/95
|
From NEAL to Galav
|
2500000
|
|
|
|
28/6/95
|
From Galav to Kamlesh Doshi
|
|
2500000
|
|
|
29/6/95
|
From Kamlesh Doshi to NEAL
|
|
|
2500000
|
|
4/7/95
|
From NEAL to Galav
|
2500000
|
|
|
|
4/7/95
|
From Galav to Kamlesh Doshi
|
|
2500000
|
|
|
5/7/95
|
From Kamlesh Doshi to NEAL
|
|
|
2500000
|
|
|
|
|
|
|
|
|
|
29405000
|
29405000
|
30000000
|
From the above table it can be seen that the same Rs.50 lac was circulated to and from apparently to give an impression that the loss of stock invests of Rs.3 crores had been fully made up and the issue had been subscribed to the extent of required minimum subscription. The findings of the investigation can be summarized as below:
a. NEAL did not receive the minimum required subscription to the public issue and it was subscribed only to the extent of 14%;
b. In order to circumvent the requirement of minimum subscription, NEAL had entered into an arrangement through Galav Finance and Investments Pvt. Ltd. (GFIL) whereby they financed applications for the issue in order to ensure minimum subscription and NEAL purchased back the shares allotted. It was seen that NEAL transferred funds to GFIL which in turn transferred the funds to the applicants who later issued cheques to NEAL. Thus, NEAL did not receive any real consideration and also utilized the proceeds of the public issue for arranging subscription and for circumventing the requirement of minimum subscription;
c.NEAL and its directors made allotments without receiving the minimum subscription in the Issue;
d. The share certificates allotted to the applicants were not dispatched to them by NEAL, rather these shares were retained by the company. 6 Lakh shares which had arrears of call money were traded in the market through various brokers including GFIL. The prices of the scrip went up abnormally due to the cornering of shares coupled with artificial scarcity of stock through intentional delay in transfer of shares.
1.3 In the course of investigation, it was noted that on BSE the opening price of the scrip was Rs.19 on 3.7.1995 and went up to Rs.50 on 18.7.1995. After being in the range of Rs.30 to Rs.50 till 1.9.1995, the price fell to Rs.15 on 18.9.95. It varied in the range of Rs.26 and Rs. 50 between 25.9.1995 and 8.12.1995. The opening price on 4.1.1996 was Rs.48. Thereafter, the price of the scrip showed a rising trend and went up to Rs.88.75 on 20.2.1996. It then showed a continuous downward trend to end at Rs.9.25 on 13.5.1996.
1.4 On NSE, the opening price of the scrip was Rs.15.50 on 26.6.1995, and it went up to Rs.51 on 24.7.1995. After being in the range of Rs.30 to Rs.46 till 31.8.95, the price fell to Rs.19.50 on 14.9.95. It moved in the range of Rs.25 and Rs. 51 between 25.9.95 and 22.12.95. The opening price on 2.1.96 was Rs.46. Thereafter, the price of the scrip showed a rising trend and went up to Rs.84 on 8.2.96. It then showed a continuous downward trend to end at Rs.11 on 15.5.96.
1.5 The major brokers who dealt in the scrip of NEAL for Galav Finance and Investments Pvt. Ltd., Raj Investments and Manyog Investments Pvt. Ltd. (MIPL) were M/s. Kalpesh K Chawalla (on ASE and BSE) and M/s. Mangaldas Keshavlal, M/s. Chandrakant Kantilal Shah, Subhash V Shah (with whom Manyog Investments was affiliated as an un-registered sub-broker) and S J Thacker on BSE. as per details furnished by Mangal Keshavlal, member BSE.
1.6 MIPL had admitted at the time of investigation that they dealt in the scrip of NEAL on the orders of one Shri D K Dalal and bought 1,49,300 shares of NEAL in the name of GFIL. Shri D K Dalal (Devendra Kantilal Dalal) was a declared defaulter of ASE and had dealt in the scrip of NEAL through MIPL in the name of his front entity, M/s. Galav Investments. The said Shri D K Dalal had been prohibited from dealing in securities for a period of 5 years vide an order dated 20-02-2002 passed by the Chairman, SEBI for his manipulative role while dealing in the scrip of NEAL.
1.7 A notice dated 27.09.2002 was issued to MIPL, wherein it was alleged that MIPL had aided, abetted and assisted Shri D K Dalal in market manipulation in the scrip of NEAL violating the provisions of Regulation 4(a), (b) (d) & (e) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to securities market) Regulations, 1995, and asked to show cause as to why appropriate directions including directions debarring MIPL from accessing the capital market and dealing in securities for a suitable period, should not be issued under Section 11B of SEBI Act, 1992 read with Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to securities market) Regulations, 1995.
1.8 No reply to the show cause notice was received from MIPL. Thereafter opportunities of hearing were granted to MIPL on 26.02.2003 and 27.02.2003. MIPL failed to turn up for the hearing before SEBI. Therefore, SEBI proceeded ex-parte against the entity and its directors and passed an order dated 05.09.03 directing MIPL and its directors Shri Yogesh Ruparel and Shri Manish Shah to dissociate from the capital market for a period of five years.
1.9 An appeal no.139/03 was filed by MIPL before the Hon’ble Securities Appellate Tribunal (SAT) challenging the order dated 05.09.03 passed by SEBI. SAT after hearing the matter, vide an order dated 12.01.2004, set aside the impugned order of SEBI against MIPL on the ground that the Show Cause Notice issued to MIPL and its Directors were not served thereby not adhering to the principles of natural justice. SAT however gave liberty to SEBI to issue fresh Show Cause Notice in this matter and initiate proceedings.
2.0 SHOW CAUSE NOTICE
2.1 Pursuant to the aforesaid direction of SAT, a Show Cause Notice dated 04.03.2004 was issued to MIPL and its directors Shri Yogesh Ruparel and Shri Manish Shah asking them to show cause as to why appropriate directions including directions debarring them from accessing the capital market and dealing in securities for a suitable period, should not be issued under Section 11B of SEBI Act, 1992 read with Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995.
2.2 MIPL and its directors submitted their reply vide letters dated 22.03.2004 in response to the aforesaid show cause notice whereby, they have submitted as follows:
i They were sub-brokers in the secondary market and they had no idea as to the public issue of NEAL and hence were not in a position to comment on the same.
ii All purchases of the entities were bonafide and were executed in the normal course of business without any intention to manipulate the market.
iii They were not aware of the nexus of Shri D K Dalal with the other brokers nor did they have anything to do with the connivance of Shri D K Dalal with the promoters of NEAL.
iv They were not doing sub-broking business only for Shri D K Dalal and there was no reason for them being construed as a front entity of Shri D K Dalal.
v All they did was fair sub-broking business and in a similar show cause notice in the matter of Jyoti Resins and Adhesives Ltd. they were relieved of all the charges brought out against them.
2.3 A personal hearing was scheduled before me for MIPL and its Directors on 11.07.2006, when the noticees attended the hearing and reiterated the submission made earlier. Subsequently, written submissions dated 13.07.2006 was also made available whereby they maintained that:
a. NEAL was listed on NSE & BSE and they had struck their first transaction after six months of listing. Even before that the price had fluctuated between Rs.15/- and Rs.50/-. The transactions were done only on BSE and they had a turnover of a few thousand shares against the market turnover of five lakhs per day.
b. At the time when the transactions were entered into there was no requirement for the sub-brokers to get compulsorily registered through the broker through whom they operated and they had acted through only broker Subash V Shah. They could not create artificial volume by dealing with one broker only.
c. They had sold shares with the fully paid up stamp on the share certificates and those that had been purchased through them. Therefore, the allegation of delivering partly paid shares cannot sustain. Also, there was no instance of bad delivery from the market in this regard.
3.0 CONSIDERATIONS OF ISSUES
3.1 I have considered the findings of the investigations, the charges made out in the show cause notice dated 27.09.2002 against MIPL and its directors, the order passed by SEBI dated 05.09.2003, the subsequent order of SAT dated 12.01.2004, the show cause notice dated 04.03.04 and submissions of MIPL and its directors. The charges from the show cause notice is two fold, one is whether MIPL had acted as a sub-broker without obtaining a valid registration and secondly whether MIPL and its directors had aided and abetted Shri D. K. Dalal in manipulating the price in the scrip of NEAL.
3.2 With regard to the allegation that MIPL had acted as an unregistered sub-broker of Subhash V. Shah, it had submitted that they were not required to be registered as a sub-broker when the transactions in the scrip of NEAL were carried out for and on behalf of Shri. D. K. Dalal. However vide SEBI Circular no. SMD-1/3118 dated December 27, 1993 attention has been drawn to Section 12 of SEBI Act which requires the sub-brokers to get registered with SEBI for doing business in securities. As the transaction undertaken by MIPL in the scrip of NEAL for Shri D. K. Dalal pertains to the period, between September 1995 and February 1996, MIPL was required to be registered as a sub-broker for carrying out transactions in securities. Therefore the contention of MIPL that they were not required to be registered when their transactions in scrip of NEAL were carried out cannot hold good. Thus, I find that by acting as an un-registered sub-broker, MIPL has contravened Section 12 of the SEBI Act, 1992 read with Rule 3 of the SEBI (Stock Brokers and Sub-brokers) Rules, 1992.
3.3 The second allegation against MIPL is that, it has aided and assisted Shri D. K. Dalal and connived with the promoters of NEAL in manipulation of the prices of the scrip in violation of the provisions of Regulation 4 (a), (b), (d) and (e) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995. I note that NEAL had received delivery of the 6 lakh shares allotted to the 6 applicants along with duly signed transfer deeds. These shares, for which call (allotment) money was still in arrears, were transacted in the market through the front entities of DK Dalal in order to manipulate the prices of the NEAL scrip which went up from Rs.22 to Rs.87 during the book closure period. NEAL has admitted to delay in transfer of shares and dispatch of certificates in respect of transfer requests outstanding on the book closure date. Prices of the scrip went up abnormally due to large cornering of shares coupled with artificial creation of scarcity of stock through intentional delay in transfer of shares.
3.4 I note that the shares allotted to the above mentioned six applicants were later purchased by NEAL and these very shares were sold in the market by promoter of NEAL after rigging the prices. Manyog Investments in conjunction with D K Dalal and promoters of NEAL rigged the prices in the scrip of NEAL. D. K. Dalal knowing that there was hardly any floating stock, rigged the price through continuous buying at successively high rates. Manyog acting as unregistered sub-broker for D. K Dalal colluded with various brokers and indulged in large scale purchase and sale of shares and created artificial market in the scrip. Later, on account of creation of artificial market, D. K. Dalal was able to offload part of the holding of promoters at artificially increased price. Manyog aided and assisted Shri D. K Dalal in creation of artificial market and manipulation of the price of scrip of NEAL. It was also seen from the delivery challans that were part of the shares purchased by Shri D K Dalal through Manyog etc were received by promoters of NEAL. Even when the call money was not received for these 6 lacs shares they were put in the market as fully paid up shares. Some of these shares, which were fraudulently sold in the market as fully paid shares, were sold through Manyog Investments. It was seen that large funds were received by Manyog Investment form Vrushti’s bank account which was front of Shri D K Dalal. The credits and debits arising in the bank account of Vrushti were for Shri Dalal’s entity Kanan Dalal Securities. I also note that MIPL has admitted that on orders from the said Shri D. K. Dalal, it had dealt with in the scrip of NEAL and that the transactions were made in the name of GFIL and that 1,49,300 shares were bought. The act of buying shares by an entity that had been declared a defaulter by a stock exchange, in the name of another entity i.e. GFIL, should have instilled some doubt in the mind of the sub-broker. In this case, the sub-broker, which itself was an un-registered sub-broker had traded on the orders of Shri D. K. Dalal and bought shares in the name of GFIL. I, thus hold that by executing the trades in this manner had acted in collusion with Shri D. K. Dalal. This gets further compounded by the fact that BSE levied special margins on various dates upto a level of Rs. 27/- and trading in the scrip was suspended by BSE several times for a day due to the abnormal price rise and despite all these, MIPL continued to deal for Shri D. K. Dalal in the name of GFIL.
3.5 I note that Manyog and its directors have submitted that in a similar show cause notice issued to them in the matter of M/s. Jyoti Resins & Adhesives Ltd., they have been absolved of the charges. In this regard, I find that every case is unique as the facts, circumstances and the gravity of the violations of every entity in the matter would differ. Taking into count the role of Manyog in the above referred case, Chairman, SEBI had vide his order 28-03-2003 had warned it. But, in the facts and circumstances of the present case before me and the findings with respect to the charges, I find that Manyog and its directors need to be proceeded against by passing suitable directions in the nature of restraining them from dealing in securities for a reasonable period.
3.6 I further note that SEBI has passed orders against GFIL, NEAL and its directors and Shri D. K. Dalal restraining them from associating with the securities market for a period of 5 years. I further note that above said entities had nexus, which is proved by the flow of shares and funds. The investigations have also found from the delivery challans that, part of the shares purchased by Shri D. K. Dalal through MIPL and the other brokers/sub-brokers were received by promoters of NEAL. It was seen that large funds were received by MIPL from M/s. Vrushti Financial Services Pvt. Ltd. (was the entity through which funds were routed to finance the manipulative transactions of Shri D. K. Dalal).
3.7 Thus based on the above findings, I hold MIPL liable for having violated the provisions of Regulation 4 (a) and (b) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 for which suitable directions in the nature of restraining MIPL for a suitable period would be apt in the facts and circumstances of the case.
4.0 ORDER
4.1 In view of the aforesaid findings, I, in exercise of powers conferred upon me under section 19 of SEBI Act, 1992 read with Section 11B of SEBI Act, 1992 and Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003, hereby direct that M/s. Manyog Investments Private Limited and its directors Shri Yogesh Ruparel and Shri Manish N Shah be restrained from buying, selling or dealing in securities in any manner and in any capacity for a period of 1 (one) year.
4.2 This order shall come into force with immediate effect.
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DATE: 25-07-2007
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T. C. NAIR
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PLACE: MUMBAI
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WHOLE TIME MEMBER
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SECURITIES AND EXCHANGE BOARD OF INDIA
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