ADJUDICATION ORDER AGAINST ASK HOLDINGS (P) LTD. IN THE MATTER OF AKL SOFT AND INFOSYS 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) Pursuant to the investigation into the scrip of AKL Soft and Infosys Ltd. (hereinafter referred to as “AKL company”), Securities and Exchange Board of India (SEBI) appointed the undersigned as Adjudicating Officer under Rule 3 of SEBI (Procedure For Holding Inquiry And Imposing Penalties By Adjudicating Officer) Rules, 1995 read with Section 15 I of SEBI Act, 1992 to inquire into and adjudge the alleged practices of ASK Holdings Pvt. Ltd. (hereinafter referred to as ASK) which are prohibited under SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 for which penalty is imposable under Section 15-HA of SEBI Act, 1992. The aforesaid appointment was conveyed vide order dated September 21, 2004.
(II) NOTICE
A show cause notice (SCN) dated December 09, 2004 under Rule 4(1) of the said Rules was issued to ASK communicating the detailed charges leveled against it.
(III) REPLY
In response to the SCN, ASK sought one month additional time to file its reply vide letter dated December 20, 2004. However, ASK did not file any reply to the notice even after the one month period sought.
(IV) THE INQUIRY
The undersigned was of the view that an inquiry should be held in the matter and a notice of inquiry was therefore issued to ASK vide letter dated February 08, 2005, fixing the date of inquiry on February 18, 2005. An opportunity for filing reply to the SCN was also granted. Accordingly, ASK filed its written reply to the SCN vide letter dated February 17, 2004. Shri Ashok Jain, Director of ASK appeared before the undersigned for the inquiry and reiterated the submissions made vide the cited letter and pleaded for dropping of charges.
(V) BACKGROUND
- SEBI carried out an investigation in the scrip of AKL for the period 31st January, 2003 to 7th February, 2003, which revealed that the major two clients trading in the scrip were connected/related to each other and therefore a full fledged investigation in the scrip was recommended. Accordingly, investigation in the scrip was initiated for the period from 31st January, 2003 to 4th April, 2003.
2. During the period of investigation, it was observed that the scrip had opened at Rs. 8.6 on 31.01.2003, touched a intra-day high of Rs. 9.55 on 03.02.2003, then was traded between the price range of Rs. 8 to Rs. 9 till 12.02.2003. Subsequently, the scrip fell to its intra-day low of Rs. 1.70 on 04.04.2003 and finally closed at Rs. 1.80 on 04.04.2003.
- It was observed that during the period of investigation, the ultimate client of the member Ramrakh R Bohra (577), was ASK (Director Ashok Kumar Jain), and it had net purchased 15,66,001 shares, which accounted for 30.97 % of the total issued shares capital of the company and 79.37 % of the total floating stock of the company. Shri Vinod Khetan, the ultimate client of the member Ramaben Samani Finance P. Ltd. (101) had sold 15,57,405 shares, which accounted for 30.80 % of the total issued capital of the company.
- Shri Vinod Khetan had sold shares 15,57,405 shares in various settlements, which accounted for 30.80 % of the total issued shares capital of the company and 78.93 % of the total floating stock of the company.
5. It was observed that there was a single continuous buyer and a seller who had purchased and sold large quantities and were connected /related to each other and there was a low floating stock in the market. It was observed that these clients were reversing their positions in off market deals and were giving legality to their transactions, which were in the nature of financial accommodation.
- It was observed form the analysis of trades of more than 3000 shares that;
6.1. Total quantity executed in trades of more than 3000 shares was 8,57,584 shares, which was 42.08% of the total traded quantity during the period of investigation.
6.2. Total quantity executed in trades of more than 10000 shares, where the buy and sell orders were placed within one minute, was 722,185 shares, which was 35.44% of the total traded quantity during the period of investigation.
6.3. Out of 857,584 shares executed in trades of more than 3000 shares, 6,95,00 shares were executed between the buyer member Ramrakh R Bohra (577) and seller member Ramaben Samani Finance P. Ltd. (101), where the buy and sell orders were placed within 15 seconds of each other, where on most of the occasion, the sell orders were placed either prior to the buy orders or at the same time.
- It was observed during the investigation that:
7.1. There were more sell orders than the buy orders indicating a selling pressure during the period of investigation.
7.2. On the day, when there were large volumes, the member Ramrakh R Bohra (577) and Ramaben Samani Finance P. Ltd. (101) had contributed more than 90% to the same.
7.3. During the settlement no. DR/240-0203 to DR/007-0304, the member P Suryakant Share & Stock Brokers Pvt. Ltd. (792), Crescent Finstock Ltd.(186) and Ramrakh R Bohra (577) had placed large sell orders, however the same either were executed for small quantity or were not executed, as there were no buyers.
8. The client ASK during the investigations submitted that these were purely financing transactions. He also stated that there was never any intention to transfer the beneficial interest in the securities. The client stated that he was facing financial crisis on account of transactions with his clients and own account. These were aggravated when he registered with Ramrakh Bohra as a sub-broker. He had a liability of about Rs 60 lakhs. To tide over the crisis he stated that he had one of his clients Shri Vinod Khetan who sold the shares of AKL Soft & Infosys Ltd. from the terminals of Ramaben Samani Pvt. Ltd., which he bought from the broking terminal of Shri Ramrakh R Bohra.
- During the investigations it was submitted by the client ASK that these were purely financing transactions. ASK had also stated that there was never any intention to transfer the beneficial interest in the securities.
10. Investigation revealed that, ASK and Shri Vinod Khetan were known to each other and as per their admission they were business partners and friends. Shri Vinod Khetan in his statement stated that he has allowed his name to be used by ASK only with the intention of helping out his friend. ASK sold shares from the offices of Ramaben Samani Pvt. Ltd. in the name of Shri Vinod Khetan. ASK had the trading terminal of the broker Shri Ramrakh R Bohra. From this terminal he bought the shares offered by Ramaben Samani Pvt. Ltd.
11. On the day of the sale transactions Ramaben Samani Pvt. Ltd. gave the proceeds of the sale into the accounts, of Shri Vinod Khetan on the immediately next day before the payout of these transactions released by the stock exchange; i.e. two days in advance of the pay-out released by the exchange. These proceeds were used by ASK in meeting his other obligations. The proceeds of the sale of the shares as sold by Shri Vinod Khetan through Ramaben Samani Pvt. Ltd. were traced to his bank account maintained in the Bank of India, Stock Exchange Branch.
12. Investigation further revealed that the shares sold by Shri Vinod Khetan were obtained by ASK and Shri Vinod Khetan from Shri Sandeep Merchant from his demat a/c no. 10097547 with Bank of India on February 03, 2003 which were then delivered by Shri Vinod Khetan to meet his securities pay-in obligations for the sales at Ramaben Samani Pvt. Ltd.
- The modus operandi adopted by the client was that for the transactions at Ramaben Samani Pvt. Ltd. some times ASK used to place the orders and at other times Shri Vinod Khetan used to place the orders, directly with Smt. Sudha Vithlani, Director of Ramaben Samani Pvt. Ltd. Ramaben Samani Pvt. Ltd. stated that they had been given standing instructions by ASK and Shri Vinod Khetan to enter sale orders on the beginning of the market on the previous evening itself. ASK and Shri Vinod Khetan then were synchronizing the entry of the orders at the terminal of Shri Ramrakh R Bohra. These transactions were performed over and over again. The shares which were received at the end of Shri Ramrakh R Bohra for the bought transactions were then transferred from Shri Ramrakh R Bohra’s demat a/s no, 14936243 with SHCIL, to the demat account of Shri Vinod Khetan i.e. no. 16089888.
(VI) REPLY
ASK, vide its letter dated February 17, 2005 denied contravening the provisions of regulation 4(b), (c) and (d) of SEBI (FUTP) Regulations, 1995. It was submitted that Shri Ashok Jain, Director of ASK had undertaken the cited transactions AKL scrip only to overcome his financial crisis. There was no intention to disturb the market equilibrium of the scrip. There was no major fluctuation in the volume of the scrip and it was not their intention also. Since they could manage delivery of shares, they traded in the scrip to overcome its financial crisis. The aforesaid was reiterated in the personal hearing held on February 18, 2005.
(VII) FINDINGS
- It was observed that the ASK was also a client with the broker, before filing for registration as a sub-broker affiliated to Ramarakh R Bohra in October 2002. ASK was granted registration as a sub-broker of the broker in February 2003.
- It was observed that during the period of investigation, the ultimate client of the member Shri Ramrakh R Bohra (577), was ASK (Director Ashok Kumar Jain), and it had net purchased 15,66,001 shares, which accounted for 30.97 % of the total issued shares capital of the company and 79.37 % of the total floating stock of the company. Shri Vinod Khetan, the ultimate client of the member Ramaben Samani Finance P. Ltd. (101) had sold 15,57,405 shares, which accounted for 30.80 % of the total issued capital of the company.
- During the course of investigations by SEBI, the director of ASK Shri Ashok Kumar Jain in his sworn statement submitted that he had indulged in these transactions only to tide over the financial predicament. Describing his operations in the scrip he stated that Shri Vinod Khetan and Shri Ashok Kumar Jain used to jointly operate the office of ASK. The trades of these clients are as follows:-
|
Sr. no.
|
Settlement
no.
|
ASK Holdings Pvt. Ltd. (buy)
Ramrakh R Bohra
|
Vinod Khetan (sell)
Ramaben Samani Pvt. Ltd.
|
|
1.
|
215
|
231000
|
231000
|
|
2.
|
218
|
100000
|
100000
|
|
3.
|
219
|
100000
|
100000
|
|
4.
|
220
|
30000
|
30000
|
|
5.
|
221
|
100010
|
100000
|
|
6.
|
222
|
40000
|
40000
|
|
7.
|
223
|
91010
|
90015
|
|
8.
|
224
|
100000
|
100000
|
|
9.
|
226
|
128985
|
130000
|
|
10.
|
227
|
100000
|
100000
|
|
11.
|
229
|
30000
|
30000
|
|
12.
|
230
|
100000
|
100000
|
|
13.
|
231
|
39095
|
38000
|
|
14.
|
233
|
199490
|
192000
|
|
15.
|
235
|
1
|
0
|
|
16.
|
238
|
5
|
0
|
|
17.
|
239
|
177405
|
177405
|
It is obvious from the above that all the trades have been matched exactly with the other with respect to quantity except on a few occasions.
- The proceeds of the sale of the shares as sold by Shri Vinod Khetan through M/s Ramaben Samni Pvt. Ltd. were traced to his bank account and further the funds flow from his account to the account of ASK after the credit given by Ramaben Samani to Shri Vinod Khetan is also established at table depicting the said fund transfer in correspondence to trades of these clients may be seen as under:
|
Date
|
Amount Rs
|
Debit
|
Account no.
|
Credit
|
Account no.
|
|
3.2.03
|
2510000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
3.2.03
|
1684000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
4.2.03
|
358000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
5.2.03
|
225000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
5.2.03
|
1100000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
5.2.03
|
127000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
6.2.03
|
63616
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
6.2.03
|
2400000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
6.2.03
|
982000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
7.2.03
|
1307000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
10.2.03
|
2745000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
10.2.03
|
1064000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
10.2.03
|
1013000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
11.2.03
|
3500000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
11.2.03
|
33000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
12.2.03
|
1200000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
12.2.03
|
2145000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
12.2.03
|
600000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
14.2.03
|
1700000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
14.2.03
|
369000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
14.2.03
|
1022330
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
14.2.03
|
800000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
17.2.03
|
1500000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
17.2.03
|
500000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
17.2.03
|
427000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
18.2.03
|
1416000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
18.2.03
|
1086442
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
19.2.03
|
2306300
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
19.2.03
|
892000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
20.2.03
|
3000000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
21.2.03
|
2960000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
22.2.03
|
20000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
24.2.03
|
1490000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
24.2.03
|
2810000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
24.2.03
|
1043500
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
25.2.03
|
2455000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
25.2.03
|
2000000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
25.2.03
|
1193000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
26.2.03
|
1000000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
26.2.03
|
779300
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
27.2.03
|
2000000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
27.2.03
|
151391.4
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
27.2.03
|
12500
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
28.2.03
|
2700000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
28.2.03
|
1650000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
3.3.03
|
510000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
3.3.03
|
1057656
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
3.3.03
|
98000
|
ASK Holdings Ltd.
|
1601
|
Vinod Khetan
|
22357
|
|
4.3.03
|
1673500
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
5.3.03
|
2040000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
5.3.03
|
223000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
6.3.03
|
195569
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
7.3.03
|
700000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
7.3.03
|
1139300
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
10.3.03
|
1200000
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
10.3.03
|
33000
|
ASK Holdings Ltd.
|
1601
|
Vinod Khetan
|
22357
|
|
11.3.03
|
1500000
|
ASK Holdings Ltd.
|
1601
|
Vinod Khetan
|
22357
|
|
12.3.03
|
280216
|
Vinod Khetan
|
22357
|
ASK Holdings Ltd.
|
1601
|
|
25.3.03
|
283290
|
ASK Holdings Ltd.
|
1601
|
Vinod Khetan
|
22357
|
- It is observed from the above that the transactions were fictitious in nature. Shri Ashok Kumar Jain, Director of ASK in his statement dated April 16, 2004 stated that “We used to synchronize the entry of the orders at my terminal (RRBohra) at for Shri Vinod Khetan(R Samani). While at times I have been the initiator of the orders i.e. buy orders, at others R Samani has been the initiator. For this purpose I used to speak telephonically online with Ms. Sudha Vithlani on some occasions and at other times with her employees.” He has further confirmed in his statement before the Investigating Authority that these transactions were entered into without the intention of the transfer of the ownership of the shares. He also agreed to the conclusion of the Investigating Authority that these transactions created false and misleading appearance of trading in the market in the scrip, as more than 90% of the transactions in this scrip was attributed to ASK especially when they did not even intend to transfer the ownership of the shares.
- From the above it is clear that Shri Vinod Khetan has traded through the broker Ramaben Samani Pvt. Ltd. in the scrip. The client has agreed to having synchronized the trading and stated that the sole purpose of these trades was to help out ASK out of his financial crisis. Shri Vinod Khetan stated that “these transactions were done mainly to facilitate and accommodate Ashok Jain since he was facing some financial crisis.”
- The extract of the Shri Vinod Khetan’s bank account in the Bank of India and the Depository account bear testimony to the fact that the funds were transferred from the account of Shri Vinod Khetan on the day they were received from Ramaben Samani Pvt. Ltd. to ASK. The depository account shows that once the settlement was cleared and the ASK was in the possession of the shares, he would transfer it to the account of Shri Vinod Khetan, which would again be sold by Shri Vinod Khetan through Ramaben Samani Pvt. Ltd.
- The client ASK has therefore been found guilty of creation of artificial volumes in the scrip and therefore indulged in fraudulent and unfair trade practices relating to securities and which is prohibited under Regulation 4 (b), (c) and (d) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the securities market) Regulations 1995, which inter – alia provides:- 4 (b), (c) & (d) : No person shall ;
(b) Indulge in any act, which is calculated to create a false or misleading appearance of trading on the securities market;
(c) Indulge in any act, which results in reflection of prices of securities based on transactions that are not genuine transactions;
(d) Enter into a purchase or sale of any securities, not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress or cause fluctuations in the market price of securities.”
- In view of the above it is held that ASK has violated the provisions of section 15HA of SEBI Act, 1992 for having indulged in fraudulent and unfair trade practices relating to securities markets. The violations in this regard attracts the penalty as prescribed under section 15HA 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.
As regards the disproportionate gain or unfair advantage there are no exact quantifiable figures available with respect to the default observed on the part of ASK. However, large and substantial money has been involved which has been used by ASK in a design to get rid of their financial crisis. I find that the money given by Shri Vinod Khetan to ASK out of the sale proceeds from Ramaben Samani Pvt. Ltd. has been utilized by ASK in meeting their pay-in obligation to Shri R R Bohra and in doing so they have mis-utilized the stock exchange mechanism for their personal illegal gains and thereby created artificial volumes in the scrip which resulted in artificial increase of the price in the scrip. The violation is undoubtedly is very serious and of course repetitive in nature and therefore I consider that the monetary penalty needs to be imposed as a corrective measure.
(VIII) ORDER
The submissions of the ASK have been considered and dealt in detail as above and in view of the findings arrived at, I consider it to be a fit case for imposition of penalty under sections 15 HA 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. Fifty Thousand only (Rs.50,000/-) on the ASK.
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: April 11, 2005.
Place: Mumbai
AMIT PRADHAN
ADJUDICATING OFFICER