Order against R M Mishra

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. M. MISHRA 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 theextent 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 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.M. Mishra 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.M. Mishra 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. Mishra 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. Mishra 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. Mishra 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.M. Mishra received total 80,000 shares of VML duly transferred on the names of R. R. Enterprises & Divya Enterprises (40,000 shares each). Of these Shri.Mishra sold 40,000 shares which were on the name of RR Enterprise to M/s. Kartik Fiscal Services Ltd.(KFSL) on a spot basis at the average rate of Rs. 48. In respect of 40,000 shares, which were in the names of Divya, Shri. Mishra gave it to Shri. R. K. Goyal to off load in the market with the understanding that profits would be shared. M/s. Kartik Fiscal Services who received the shares from Shri. R.M. Mishra started trading in those shares through the counter of Shri. K. B. Agarwal. The details of trading of Shri R.K.Goyal are given below :
   
   
   
   

   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. 4. 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 the 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 lot of 4,00,000 fully paid up shares VML shares, PSPL gave 2,00,000 shares to MOU participants to trade in the market.
   
   
   
5. 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 1.7 lac shares). This clearly indicates that same shares were churned and rotated in the market time and again by MOU participants 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 Mishra. This artificial market and manipulation of price 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.
   
   
   
6.  Show cause notice was issued to Shri R.M.Mishra no reply was received to this show cause notice. Various opportunities were given to Shri Mishra to present his defence against the charges levelled against him. An opportunity for hearing to present his case before me was also given to Shri Mishra on 30/05/02 but this was also not availed by him. Shri Mishra neither made any written submission nor appeared for the hearing. As various opportunities had been given to Shri Mishra 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.
   
   
   
7. I have considered the findings of investigations, material and evidence available on record, submissions made by Shri Mishra 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 Mishra 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 Mishra was one of the important member of the group of MOU participants. I find that Shri Mishra alongwith other MOU participants indulged in large trading in the shares of VML and through the concerted trading, created artificial market and price manipulation in the scrip of Vertex. 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.
   
   
   
8. Subsequently, 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.Mishra 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.Mishra, yet the fact remains that Mr.Mishra 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.M.Mishra 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