Order against R K Goyal.

ORDER UNDER SECTION 11 B OF THE SEBI ACT READ WITH REGULATION 11 OF THE SEBI (PROHIBITION OF FRAUDULENT & UNFAIR TRADE PRACTICES) REGULATIONS AGAINST SHRI R. K. GOYAL IN THE CASE OF VERTEX MACHINERIES LTD.

 

1. Investigations were conducted by the Securities and Exchange Board of India (hereinafter referred as SEBI) into abnormal price and volume movement in the scrip of M/s. Vertex Machineries Ltd. (hereinafter referred as "VML"), on the Stock Exchange, Mumbai (hereinafter referred to as "BSE"). VML came out with a public issue of 2,05,00,000 equity shares at par, of which 78,40,000 equity shares were given to the promoters, their relatives & friends on firm allotment basis, while the balance 1,26,60,000 equity shares were offered to the public. The maiden public issue, which opened for subscription between 15/02/1996 and 19/02/1996, got subscription to the extent of 90.56% of the public offer. Investigations revealed that there were irregularities in the public issue. Investigations brought out that group companies of VML directly and indirectly subscribed in the public issue of VML to extent of around 89% of the total shares allotted. Thus, there was hardly any genuine subscription from the public and shares were cornered with promoters/their group entities. Investigations also revealed that promoters had not brought in their part of the contribution as shown in the prospectus and shares worth Rs.8.18 crores were issued when contribution brought in by the promoters was only Rs.1.52 crores.

2. Investigations brought out that Shri. Suresh Sharma Managing Director of VML approached a group of persons /entities including Shri. R.K.Goyal for selling shares of VML. It was seen that 2,00,000 shares of VML which were standing in the name of Progressive Securities Pvt. Ltd. (hereinafter referred as ‘PSPL), an associate company of Vertex, were given to group of persons /entities (5) including Shri. R.K.Goyal for sale.A Memorandum of Understanding (hereinafter referred as ‘MOU’) was also entered between PSPL and each of the above mentioned person /entity of the group. As per the terms and conditions of MOU, Shri. R.K.Goyal like the other four persons /entities were to be given 40,000 shares of VML along with duly signed transfer deeds for the purpose of selling them in the market with a view to maximise the profit earned there from. It was further agreed that Shri. R.K.Goyal would submit all transaction particulars from time to time to the Director of PSPL. Minimum price for this transaction was fixed at Rs.12 per share and any profit earned above this value was to be distributed in the proportion of 60:40 among PSPL and Shri. R.K.Goyal respectively. The terms and conditions were similar to terms and conditions of other four persons /entities of the group approached by Managing Director of VML.

3. After signing an MOU, Shri R. K. Goyal received 40,000 shares of VML duly transferred on his name from PSPL. Apart from these shares, Shri R. K. Goyal also took delivery of another 40,000 shares of VML from Shri. R. M. Mishra, Director - Divya Enterprises (hereinafter referred as ‘DE’) for selling in the secondary market with an understanding that Shri Goyal will pay him back the profit earned from the sale of these shares. Shri Goyal traded in the secondary market through two sub-brokers namely Vijay Investment and Unique Investment. Vijay Investment in turn dealt through the counter of R. R. Bohra and M/s. Dahyabhai Shares, members-BSE. Whereas Unique Investment traded through the counters of B. D. Shroff and Nirmal Bang, members-BSE. Apart from this, Shri Goyal directly traded through the counter of Shri. Madhukar Seth, member-BSE in the names of Divya Enterprises and Sisaia Investment and Leasing. The transaction particulars are as follows:

SETT. NO.	Buy Position		Sell Position	Net Position	Buy Position	Sell Position	Net Position
BROK.	R. R. BOHRA				B. D. SHROFF + NIRMAL BANG
Intermediary	VIJAY INVESTMENT				UNIQUE INVESTMENT
B03	83,400	84,300		-900	2,500	2,000		+500
B04	5,900	26,500		-20,400	900	1,000		-100
B05	3,01,400	2,79,000		+22,400	6,500	6,400		+100
B06	2,21,600	2,61,800		-40,200	7,800	8,800		-1,000
B07	43,900	37,200		+6,700	18,500	1,000		+17,500
B08	4,200	21,200		-17,000	10,200	11,800		-1,600
B09	31,800	16,600		+15,200	4,100	0		+4,100
B10	0	25,500		-25,500	100	2,600		-2,500
TOTAL	6,92,200	7,52,100		-59,900	50,600	33,600		+17,000

SETT. NO.	Buy Position		Sell Position		Net Position	Buy Position		Sell Position		Net Position
BROK.	M/s. DAHYABHAI SHARES					MADHUKAR SETH
Intermediary	VIJAY INVESTMENT					-
B07	16500	1600		+14900		400	400		NIL
B08	0	14000		-14000		19900	8200		+11700
B09	16000	1600		+14400		17200	1000		+16200
B10	0	0		0		15600	2900		+12700
TOTAL	32500	17200		+15300		53100	12500		+40,600

R. K. GOYAL	BUY POSITION	SELL POSITION	NET POSITION
GRAND TOTAL	8,28,400	8,15,400	+13,000

 

  

 

  4. It was observed that during settlement no.3 to 8, Shri R. K. Goyal earned the profit of approximately Rs.10 lacs through the above reflected trading and also succeeded largely in off loading shares given to him. It was stated that a dispute arose between promoter of VML and MOU participants and as a result promoter of VML obtained stay from Indore Court against shares sold by MOU participants. Consequently, these shares were declared bad delivery by the exchange . While confirming the aforesaid transaction, Shri Goyal stated that due to announcement of bad delivery of shares announced by BSE during 8^th settlement, he decided to purchase shares from the market to cover the shares which became bad delivery.

5. Shri R. K. Goyal, thus, resorted to large trading in the scrip of VML and his cumulative Gross & Net position in eight settlements was 16,43,800 shares and 13,000 shares respectively. As stated above , promoters of VML had earlier cornered the shares of VML through allotment in public issue to the extent of around 89% and that total fully paid up shares of VML available for trading during the impugned period were only 4,50,000 shares, out of which 4,00,000 shares were in the name of PSPL From the total lot of these 4,00,000 fully paid up shares of VML , PSPL gave 2,00,000 shares to MOU participants to sell in the market.

6. It was observed during the course of investigations that approximately 2,80,000 shares were off loaded in the market during the impugned period and out of this shares sold by MOU participants were around 61% of traded quantity (in absolute numbers around 1.7 lac shares). This clearly indicates that same shares were being churned and rotated in the market time and again by MOU particpants and large volumes were result of creation of artificial market. The price of the scrip also showed unusual movements and this artificial increase was on account of concerted trading by MOU participants and Shri Goyal. This artificial market induced others to buy or sell or deal in the scrip. This creation of artificial market and manipulation of the prices maximised profits on sale of shares of VML which was envisaged in agreement between MOU participants and PSPL.

7. Show cause notice was issued to Shri R.K. Goyal but no reply was received to this show cause notice. A hearing to present his case before me was also given to Shri Goyal on May 30,2002 but this was also not availed. Shri Goyal neither made any written submission nor appeared for the hearing. As various opportunities had been given to Shri Goyal to meet charges levelled against him and he has not availed them, I therefore, proceed in the matter on the basis of material available on record.

8. I have considered the findings of investigations, material and evidence available on record, submissions made by Shri Goyal from time to time, and I am satisfied that charges levelled in the show cause notice are substantiated. I find that promoters of VML entered into an arrangement with a group of persons/entities including Shri Goyal to manipulate the market and offload the shares at the manipulative prices. The arrangement was reduced in writing as MOU between promoters and this group of persons/entities. Consequent to this, shares were given to MOU participants and were duly transferred within two to three days in the names of MOU participants. Shri R.K.Goyal was one of the important member of the group of MOU participants. I find that Shri Goyal alongwith other MOU participants indulged in large trading in the shares of VML and through the concerted trading, artificial market in the scrip of Vertex was created. It is also observed that a dispute arose between promoters of VML and MOU participants. The promoters brought in stay from the Court and as a result, BSE declared shares sold by MOU participants as bad delivery. Later, a compromise took place between some of the MOU participants and promoters of VML.

9. Subsequently, it was observed that the stay was vacated by the Court and delivery was declared as good delivery. However, from the totality of the facts and circumstances, I find that MOU participants including Mr.Goyal created artificial market in the scrip and manipulated the price of the scrip in collusion with promoters of VML. Though, there is no dispute presently between promoters of VML and Mr.Goyal, yet the fact remains that Mr.Goyal was party to market manipulations. I therefore, in the interest of investors, under the powers conferred on me under Section 4 (3) read with Section 11 B of the Securities and Exchange Board of India Act, 1992 and Regulation 11 of SEBI (Prohibition of Fraudulent & Unfair Trade Practices) Regulations, direct that Shri R.K.Goyal is prohibited from dealing in securities for a period of one year. This order shall come into force with effect from 26^th August, 2002.

Ordered this _22nd_ day of August , 2002.
 
 

Place : Mumbai