WTM/GA/114/ISD/12/06
SECURITIES AND EXCHANGE BOARD OF INDIA
ORDER
[Under Sections 11 and 11B of Securities and Exchange Board of India Act, 1992 read with Regulation 11 of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003].
AGAINST SHRI. ASHOK MITTAL, ASHOK MITTAL & CO. AND CLARIDGES INVESTMENTS & FINANCE PVT. LTD. IN THE MATTER OF DEALINGS IN THE SHARES OF GLOBAL TRUST BANK.
1.0 Background
1.1 The shares of Global Trust Bank (hereinafter referred to as GTB) were listed on Bombay Stock Exchange Ltd. (hereinafter referred to as BSE) and National Stock Exchange of India Ltd. (hereinafter referred to as NSE). The price of the shares of GTB had witnessed a significant rise accompanied with rise in volumes in the said stock exchanges during the financial year 2000-2001.
1.2 It was noticed that the price of the said shares had gone up from a low of Rs.57.00/- on October 11, 2000 to Rs.114.70/- on November 20, 2000 on BSE i.e., an increase of more than 100% in just 29 trading sessions. During the same period the price of the said shares on NSE had gone up from a low of Rs.57.05/- to a high of Rs.114/-. During the period from September 01, 2000 to October 10, 2000, the average daily volumes in the shares of GTB on BSE were below 38,000 shares while the same had increased to more than 7,70,000 shares during the period October 25, 2000 to November 23, 2000. The average daily volumes on NSE during the same periods were 4,20,000 shares and 12,96,000 shares respectively.
1.3 In the facts and circumstances, Securities and Exchange Board of India (hereinafter referred to as SEBI) conducted investigations into the buying, selling and dealings in the shares of GTB inter alia under the provisions of Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the Act) read with Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 1995 (hereinafter referred to as the FUTP Regulations).
1.4 Vide an interim order dated December 31, 2002, SEBI also directed 50 entities including Shri. Ashok Mittal, Ashok Mittal & Co and Claridges Investments & Finance Pvt. Ltd., (hereinafter referred to as the said entities) not to buy, sell or transfer, pledge or dispose off or deal in any other manner in the shares of GTB, either directly or indirectly till the completion of investigations. After affording a post decisional hearing, the above directions were revoked in respect of 14 entities including the said entities by SEBI, vide order dated June 12, 2004. As the order dated December 31, 2002 was an ex-parte ad-interim order and the order dated June 12, 2004 was only confirmatory in nature, it was explicitly mentioned in the said order dated June 12, 2004 that "the revocation of the ex-parte ad interim order shall not in any way be construed as exonerating the said entities".
2.0 Show Cause Notice and the Reply
2.1 Pursuant to the investigations, a notice dated June 16, 2004 was issued by SEBI to the said entities under sections 11 and 11 B of the Act read with Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003 (hereinafter referred to as the 2003 Regulations) asking them to show cause as to why suitable directions should not be issued against them for the alleged violation of Regulation 4 (b) of the FUTP Regulations.
2.2 It has been alleged that there was significant concentration of trading in the shares of GTB among a few stock brokers and common clients associated with Shri. Ketan Parekh (hereinafter referred to as KP entities) and the said clients were related to each other and belonged to the same group. It was observed that KP entities had purchased shares from the promoter group of GTB in a synchronized manner and later parked the said shares with some Foreign Institutional Investors (FIIs) and Overseas Corporate Bodies (OCBs) including the said entities thereby creating the artificial volumes in the said shares. Based on the above, it prima facie appeared that there was no genuine interest of trading in the shares of GTB and that a small group of stock brokers and investors sought to create artificial volumes and tried to manipulate the price of the said shares.
2.3 It was also alleged that certain persons/ entities including the said entities were used by KP entities for circular trading, parking of shares, creation of artificial market and volumes, building up of concentration in select shares including GTB, circumvention of inter alia, the provisions of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as the Takeover Regulations) and in violation of Regulation 4(b) of the FUTP Regulations.
2.4 The said entities through its advocates (Desai and Diwanji) vide letter dated July 6, 2004 requested SEBI to grant two weeks time to file the reply. Accordingly, the time for filing the reply was extended by SEBI upto August 20, 2004.
2.5 Desai and Diwanji, Advocates and Solicitors vide letter dated August 18, 2004 submitted the reply on behalf of the said entities. It was inter alia submitted that the said entities had never facilitated the manipulation or created artificial volume or indulged in circular trading in the shares of GTB. It was further stated that the said entities had not violated Regulation 4(b) of the FUTP Regulations or any other SEBI Regulations. It was contended that some of the transactions executed by the said entities were outside the investigation period and that the said entities were not part of the KP entities. In their reply, the said entities had stated that there was no allegation to the effect that the funds used for purchasing the said shares were received from the KP Group or that the shares purchased by them were delivered to KP Group. It was claimed that Shri Ashok Mittal had various disputes with Shri Ketan Parekh and that M/s Triumph Securities Ltd. was declared as a defaulter by SSE on the basis of the complaint lodged by Shri. Ashok Mittal.
2.6 It was contended that Ashok Mittal and Company held the shares purchased by them (on November 16, 2000) for more than 2 years and the same were sold only after the SEBI order dated June 12, 2004. It was also stated that Claridges Investment and Finance Pvt. Ltd. had not purchased a single share of GTB either on its own account or for any of its clients in the period between October 11, 2000 to November 3, 2000. It was further stated that Claridges Investment and Finance Ltd. (executed through the exchange) purchased shares on behalf of European Investments Ltd. and Far East Investments Ltd. It was
further claimed that though Ashok Mittal & Co. had purchased 10 lakh shares of GTB, it was not aware who was the seller of the said shares. The said entities had also denied the execution of any cross deals. It was further submitted that the said entities had not violated the provisions of the FUTP Regulations. In view of the above, the said entities requested SEBI to discharge the show cause notice issued against them.
2.7 SEBI had granted various opportunities of hearing to the said entities and the same was finally heard on September 27, 2006. Shri M.S. Doctor, Advocate along with Ms Shruti Zota (advocate) and Shri. R S Ghona, authorized signatory appeared before me and made submissions on behalf of the said entities. The learned counsel reiterated the submissions made by the said entities vide their reply dated August 18, 2004. Written submissions were also filed by the advocate on behalf of the said entities during the course of the said hearing. It was inter alia submitted that the said entities had never sold the shares of GTB till July 2004 though there was nothing preventing them from selling the same between November 2000 and October 31, 2001. It was also submitted that there was nothing on record to connect the said entities with the KP entities.
3.0 Consideration of Issues and Findings
3.1 I have carefully examined the findings of investigations, show cause notice dated June 16, 2004, the reply dated August 18, 2004, the oral as well as the written submissions made on behalf of the said entities and other relevant materials available on record.
3.2 I note that Ashok Mittal & Co. was a proprietorship concern of Shri Ashok Mittal and Claridges Investments & Finance Pvt. Ltd. was a stock broker registered with SEBI wherein Shri Ashok Mittal was a Director. The transactions made by the said entities in the shares of GTB are as follows:
a. Transactions of Claridges Investment & Finance Pvt. Ltd.
(at NSE)
|
Sale Broker
|
Date
|
Buy/S
|
Price
|
Qty
|
Buy Broker
|
Buy Client
|
|
JFIB
|
12-Feb-01
|
Sell
|
94.59
|
4000000
|
Claridges Investments
|
Far East
|
|
CSFB
|
13-Feb-01
|
Sell
|
94.59
|
5000000
|
Claridges Investments
|
European, Far East
|
The seller for the above transactions were Copthall Mauritius (Copthal) through the stock broker Jardine Fleming India Broking Limited (JFIB), on February 12, 2001 and Kallar Kahar through CSFB, on February 13, 2001.
b. Transactions of Ashok Mittal & Co.:
|
Sale Broker
|
Date
|
Buy/S
|
Qty
|
Buy Broker
|
Buy Client
|
|
-
|
09-Nov-00
|
Sell
|
1000000
|
CSFB
|
Ashok Mittal & Co.
|
|
Sale Broker
|
Date
|
Buy/S
|
Qty
|
Buy Broker
|
Buy Client
|
|
TIFIL*
|
16-Nov-00
|
Sell
|
420000
|
TIFIL
|
Ashok Mittal & Co.
|
*Through a cross deal wherein TIFIL was also the stock broker to the sellers viz. Brentfield Holdings Ltd.
3.3 I find that the execution of the above transactions by the said entities are not disputed. However, they contended that the purchases of shares of GTB by Claridges Investment and Finance Ltd. (90,00,000 shares) as stated above were outside the period of SEBI investigation and that the same was done on behalf of its clients. In this regard, I note that SEBI had conducted investigations into the buying, selling and dealing in the shares of GTB for the period September 2000 to March 2001. The same was specifically mentioned in the show cause notice dated June 16, 2004 (Para 2.0). In view of the above, the contention of the said entities that the said transactions were made out side the investigation period can not be accepted and liable to be rejected as the transactions were admittedly executed within the said period.
3.4 The said entities further submitted that the above transactions (purchases) were made by Claridges Investment and Finance Ltd. as a stock broker on behalf of its clients, Far East Investments Ltd. and European Investments Ltd. As regards the purchase of 10 lakh shares of GTB made by Ashok Mittal & Co., it was contended that they were not aware who was the seller of the said shares. The said entities had
also denied that they had dealt in cross deal in respect of the purchase of 4,20,000 shares.
3.5 I find that the transactions executed by Claridges Investment and Finance Ltd. were on behalf of its clients. There is no material to suggest that the said entities or the aforesaid clients of Claridges Investment and Finance Ltd. belong to the KP group. In view of this, the transactions executed by Claridges Investment and Finance Ltd. cannot be assailed on grounds of linkages with the KP Group. I also do not find sufficient corroborative evidence to prove that that the said transactions were done with the purpose of manipulating the price of the shares of GTB. Similarly, with regard to the transaction of 10,00,000 shares purchased by Ashok Mittal & Co. on November 09, 2000, it was alleged that the said shares were purchased by CSFB allegedly for Ashok Mittal & Co from Ketan Parekh group entities. I note that the said transaction was executed in two different stock exchanges. Though CSFB might have executed the transactions on behalf of Ketan Parekh group entities, the investigation could not establish any evidence to connect the said entities with Ketan Parekh group entities. Further, CSFB is not a KP entity. As there is no evidence that the said transaction was executed with a manipulative intent, the charge of manipulation can not sustain. Apart from this, there was another transaction of 4,20,000 shares of GTB on November 16, 2000 which was purchased by Ashok Mittal & Co from Brentfiled Holdings Ltd. through Triumph International Finance India Ltd, a KP entity. This was a cross deal. As this transaction was executed through KP entity and is a cross deal, it raises a suspicion. However mere suspicion can not sustain in the absence of corroborative evidence, which has not been brought out by the investigation.
3.6 It is alleged that majority of the shares in GTB was cornered by KP entities who later built up positions in the said shares through various entities including Claridges Investment & Finance Pvt. Ltd. in the abovementioned manner. I have also noted that the said entities have been alleged to have aided and abetted KP entities in parking of shares and creation of artificial volumes. Though the said entities had purchased large volume of shares of GTB (some of the shares through the KP entities), there is no proof against the said entities that they had bought the shares of GTB with the intention of creating artificial volumes and price manipulation in the shares of GTB. I have also noted that aforesaid shares were sold by the said entities after a long gap. I do not find any material that the said entities were involved in manipulation when they sold the shares in July 2004. Further, the shares were purchased through stock exchange mechanism and held for a long time. Even the clients of Claridges, Far East and European Investments, as per reply submitted by them, retained all but 2 lack shares till June, 2004. Therefore, no manipulative intent can be inferred and the charge of creating artificial volume and price cannot not legally sustain against the said entities, on the basis of bare suspicion sans any corroborative evidence. In the absence of sufficient material to link the said entities in respect of their role in the price manipulation of the shares of GTB, it cannot be concluded that the said entities were involved in the price manipulation in the shares of GTB.
3.7 Classic manipulation cases often feature a variety of sham transactions like synchronized trading, circular trading, parking of shares with the intention of manipulation, churning the portfolio to create artificial volumes etc. Such modus operandi is intended to give the false appearance of trading activity in the manipulated stock. The apparent activity, in turn, artificially sparks interest in the stock and increases demand. Manipulation is often predicated upon the extent to which the market was dominated by the persons. Isolated events like the present where only two or three transactions have occurred even if they are large transactions cannot ipso facto lead to a conclusion of any artificial control over supply or demand. Further, in the instant case, the shares purchased in 2000-01 though in large quantity have been held till about June 2004, which does not fit in to the scheme of manipulation normally noticed in the market.
3.8 Under the circumstances, I find that the evidence available against the said entities is insufficient to hold them guilty of violating regulation 4(b) of the said Regulations and therefore, I am, inclined to give a benefit of doubt to the said entities.
4.0 Order
4.1 Taking into account all the above aspects including the submissions made by the said entities, the absence of sufficient evidence with respect to their alleged role in the price manipulation in the shares of Global Trust Bank and also the fact that the shares of Global Trust Bank is not currently traded after its merger with Oriental Bank of Commerce, I am of the considered view that this is not a fit case which calls for any further directions against Shri Ashok Mittal, Ashok Mittal & Co and Claridges Investment and Finance Pvt. Ltd.
4.2 Therefore, I, in exercise of the powers conferred upon me in terms of Section 19 read with Section 11 B of the Securities and Exchange Board of India Act, 1992 and regulation 11 of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 hereby dispose off the show cause notice dated June 16, 2004 issued to Shri Ashok Mittal, Ashok Mittal & Co and Claridges Investment and Finance Pvt. Ltd., as above.
G. ANANTHARAMAN
WHOLE TIME MEMBER
SECURITIES AND EXCHANGE BOARD OF INDIA
PLACE : MUMBAI
DATE : 21-12-06