Order against Vijay Bubna

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 VIJAY BUBNA 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 as per 78 day report filed with SEBI . 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 large extent (around 89% of the total shares allotted) i.e. there was hardly any genuine subscription from the public. Investigations also revealed that promoters had not brought in their part of the contribution as shown in the prospectus and in the share capital of the company.

2. Investigations brought out that Shri. Suresh Sharma Managing Director of VML approached a group of persons /entities including Sisia Investment and Leasing Limited (SIL)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 SIL for sale. A Memorandum of Understanding (hereinafter referred as ‘MOU’) was also entered between PSPL and the above mentioned person /entity of the group. As per the terms and conditions of MOU, SIL 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 SIL 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 SIL 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.

 

SETT. NO.	Buy Position	Sell Position		Net Position		Buy Position		Sell Position		Net Position
BROK.	R. R. BOHRA					M/s. DAHYABHAI SHARES
Intermediary	VIJAY INVESTMENT					VIJAY INVESTMENT
Final Client	R. K. Goyal(SIL)					R. K. Goyal(SIL)
B03	83,400		84,300		-900	-	-		-
B04	5,900		26,500		-20,400	-	-		-
B05	3,01,400		2,79,000		+22,400	-	-		-
B06	2,21,600		2,61,800		-40,200	-	-		-
B07	43,900		37,200		+6,700	16500	1600		+14900
B08	4,200		21,200		-17,000	0	14000		+14000
B09	31,800		16,600		+15,200	16000	1600		+14400
B10	0		25,500		-25,500	-	-		-
TOTAL	6,92,200		7,52,100		-59,900	32500	17200		+15300

 

 

Vijay Investment	BUY POSITION	SELL POSITION	NET POSITION
GRAND TOTAL	7,24,700	7,69,300	-44,600

From the transaction particulars, it is observed that Shri Bubna’s client Shri R. K. Goyal (Director, SIL) resorted to heavy trading specially during the settlement no.3, 5 & 6. Shri Bubna’s percentage of trading to the total trading done by MOU participants amounted to 28%, 54% and 48% during the Settlement No.3, 5, & 6 respectively. In the entire transaction spread over eight settlements, Shri Bubna off loaded 59,900 shares. His total gross trading volume in the scrip of VML was 14,94,000 shares. When questioned during the course of investigations about this abnormal trading volume, Shri Bubna stated that while transacting on behalf of client as a sub-broker, his role was limited to timely collection of margin/payments as asked by the broker. It was further stated that since Shri. Goyal many a times had credit balance with him and the shares sold in the market were on R. K. Goyal’s name only, he couldn’t find any reason to suspect bonafide of his client. Shri Bubna failed to see that such huge concentration of trading by him in the VML scrip which was an unknown and illiquid scrip and whose fundamentals were not known led to creation of false market.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%. It was observed that during this period of trading, the total fully paid up shares of VML were only 4,50,000 shares, out of which 4,00,000 shares were on the name of PSPL and the rest were with the other people. From this lot of 4,00,000 fully paid up shares of VML , PSPL gave 2,00,000 shares to MOU participants to sell 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 1.7 lacs which is a around 61% of traded quantity. This clearly indicates that same shares were churned and rotated in the market time and again; and that large volumes were result of creation of artificial market. This large trading in scrip coupled with the fact that same shares were being circulated should have alerted any vigilant sub-broker, albeit unregistered one, but Shri Bubna seemed to be oblivious to being part of market manipulation and continued trading heavily in the scrip. This carelessness and continued trading by the sub broker facilitated churning of same shares repeatedly in the market and led to creation of false market in the scrip. It was observed that Shri Bubna failed to act with due skill, care and diligence while conducting transactions and did not care to prevent the market manipulation.

 

6. In view of above, it appeared prima facie that Shri. Vijay Bubna has contravened the provisions of the Section 11 of the Securities and Exchange Board of India Act, 1992, Regulation 4 (a) of Securities and Exchange Board of India (Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 read with SEBI Act, 1992. Show cause for the violation of the provisions of the SEBI Act, 1992 SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Markets) Regulations, 1995 was issued to Shri. Vijay Bubna but he did not furnish any reply in response to the show cause. A hearing to present his case before me was also given to Shri Bubna on May 30, 2002. Shri Bubna appeared for the hearing and stated that he was concerned with timely collection of payments and margin as his duties and ensured that there was no problem in these counts. He also stated that he was not aware that his client was indulging in price manipulation and he did not suspect the conduct of his client

7. I have considered the findings of investigations, material and evidence available on record, submissions made by Shri Bubna 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 to manipulate the market and offload the shares at the manipulative prices. I find that Shri Mishra who was one of the MOU participants gave shares received from promoters of VML to Shri Bubna. I find that Shri Bubna indulged in large trading in the shares of VML and was involved in creation of false market. His large trading in non descript illiquid scrip with unknown fundamentals led to creation of artificial market and manipulation of prices. If Mr.Bubna was vigilant and careful enough, he could have noticed that trading of his client was manipulative in nature. Mr.Bubna also failed to register himself before acting as a sub broker. 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 Vijay Bubna is prohibited from acting as a sub broker and dealing in securities for a period of six months. This order shall come into force with effect from 26^th August, 2002.
 
 

 

Ordered this ___22nd_ day of August , 2002.