Order against Sunil Sharma

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 SUNIL SHARMA 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 crore were issued when contribution brought in by the promoters was only Rs.1.52 crore.

2. Investigations brought out that Shri. Suresh Sharma Managing Director of VML approached a group of persons /entities including Shri. Sunil Sharma 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 including Shri. Sunil Sharma for sale. A Memorandum of Understanding (hereinafter referred as ‘MOU’) was also entered between PSPL and each of above mentioned group of persons /entities (5). As per the terms and conditions of MOU, Shri. Sunil Sharma 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. Sunil Sharma 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. Sunil Sharma 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. After receiving the shares, Shri. Sunil Sharma started trading in those shares from settlement no.02 through one Ravi Investment, an unregistered sub broker who in turn executed the deals through the counter of Kamal Biyani, member - BSE. Trading details of Shri. Sunil Sharma’s transactions are as follows:

Large buying by Shri. Sunil Sharma (gross purchase position of 1,63,800) during Settlement No.B03 acting in concert with other MOU participants resulted in sudden spurt in price of shares of VML and it touched a high of Rs.90. Shri. Sunil also had a sell position of 88,500 during sett.no.B03i.e. he had net purchase position of 75,300 shares. At this juncture, Shri. Sunil failed to make payment to the broker towards his huge purchases. Afterwards Shri. Sharma arranged part payment through a Kapali issued by Mukesh Kothari, member - BSE and defaulted in respect of balance amount. The broker of Shri. Sunil then sold the shares which were not delivered to the client and were available with the broker in the subsequent settlements to recover the balance due from Shri. Sunil. When asked about this default, Shri. Sunil stated that he went on purchasing shares of VML on the instructions given by Mr. Suresh Sharma, Director – PSPL and MD of VML. However when Mr. Suresh Sharma refused to make any payment towards his (Shri. Sunil’s) purchases, he couldn’t arrange the fund for the same.

3. It appears that rather than off loading shares of VML in the market, Shri Sunil resorted to trading with sole aim of creating artificial market and maximising the rate of return. Shri Sunil went on buying on the basis of instructions assurance given by Shri. Suresh Sharma. 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 these fully paid up shares 4,00,000 shares were in the name of PSPL From this lot of 4,00,000 shares of VML PSPL gave 2,00,000 shares to MOU participants to trade in the market.

4. 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 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 Sunil Sharma This artificial market and manipulation of prices 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.

5. Show cause notice was issued to Shri Sunil Sharma but no reply was received to this show cause notice. A hearing to present his case before me was also given to Shri Sharma on May 30,2002 but this was also not availed. Shri Sharma neither made any written submission nor appeared for the hearing. As various opportunities had been given to Shri Sharma 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.

6. I have considered the findings of investigations, material and evidence available on record, submissions made by Mr.Sunil Sharma 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 Sunil Sharma 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 Sunil Sharma was one of the important member of the group of MOU participants. I find that Shri Sharma 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.

7. 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.Sunil Sharma 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.Sunil Sharma, yet the fact remains that Mr.Sunil Sharma 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 Sunil Sharma 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