Order against Ravi Totla

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 RAVI TOTLA 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 the 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.Ravi Totla 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. Ravi Totla 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. Ravi Totla 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. Ravi Totla 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 between PSPL and Shri. Totla respectively. These terms and conditions of MOU between PSPL and Shri. Totla 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 Totla received 40,000 shares of VML duly transferred on his name from PSPL. Shri Ravi Totla started trading through the counters of Shri. Kamal Binani. His transaction particulars in VML scrip are as follows:
   
   
   

   SETT. NO.	Buy Position	Sell Position	Net Position
   BROK.	KAMAL BINANI
   Intermediary	Ravi Investment
   Final Client	Sunil Sharma
   B02	200	200		NIL
   B03	1,63,800	88,500		+75,300
   B04	1,800	31,500		-29,700
   B05	4,400	4,800		-400
   B06	0	1,600		-1,600
   TOTAL	1,70,200	1,26,600		+43,600

   It was observed that large buying by Shri Ravi Totla in Settlement No.B03 (gross purchase position of 1,63,800) caused artificial spurt in scrip price, which touched high of Rs.90. Shri Totla also had a sell position of 88,500 which meant that net purchases were to the tune of 75,300 shares . However, Shri Ravi Totla failed to make payment to the broker towards his net purchases. Though , part payment in respect of same was arranged through the kapali issued by Mukesh Kothari, member - BSE but he defaulted in respect of balance amount. This led Shri Ravi Totla’s broker to sell the shares in his hand in the subsequent settlements to recover the balance due from his client. When asked during the course of investigation as to why he didn’t taken due care while executing such abnormal transaction as reflected in the above table, Shri Ravi Totla replied that he entered into the transaction to make profit though there was no intention to create false market. This clearly indicates that his concern was to get timely payment from client prior to settlement and if client made the prompt payment towards his transactions then Shri Ravi Totla wouldn’t have hesitated from carrying out such abnormal transactions. Shri Totla failed to act with due care, skill and diligence and his acts led to artificial rise in the scrip price and creation of artificial market in the VML scrip."
   
   
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 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 and the rest were with the other people. From the total lot of 4,00,000 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 being churned and rotated in the market time and again by MOU particpants and that 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 Totla. 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.
   
   
   
6. Show cause notice was issued to Shri Ravi Totla but no reply was received to this show cause notice. A hearing to present his case before me was also given to Shri Totla on May 30,2002 but this was also not availed. Shri Totla neither made any written submission nor appeared for the hearing. As various opportunities had been given to Shri Totla 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 Totla from time to time, and I am satisfied that charges levelled in the show cause notice is substantiated. I find that promoters of VML entered into an arrangement with a group of persons/entities including Shri Totla 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 Totla was one of the important member of the group of those MOU participants. I find that Shri Totla 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. 
   
   
   
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 that MOU participants including Mr.Totla 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.Totla, yet the fact remains that Mr.Totla 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 Ravi Totla 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 __ day of August , 2002.
 

Place : Mumbai