SECURITIES AND EXCHANGE BOARD OF INDIA
DIRECTION UNDER 11B OF SEBI ACT, 1992 READ WITH REGULATION 12 OF SEBI (PROHIBITION OF FRAUDULENT AND UNFAIR TRADE PRACTICES RELATING TO SECURITIES MARKET) REGULATIONS, 1995 AGAINST M/s VAIBHAVLAXMI CONSULTANCY.
CO/ 456/IES/01/2003
1.1 Investigations were conducted in the scrip of M/s Morepen Hotels Ltd. (hereinafter referred to as MHL) by SEBI following a major spurt in the total volume and price of the scrip. From 29,400 shares during January 2000 including nil volume for the entire month of July 2000, it shot up to 11,34,200 shares during the period August to November. Further, the percentage of net quantity delivered to gross quantity traded during the period September 11 to November 17,2000 was less than 1% of the total traded volume on the Exchange. Although the brokers of BSE and NSE generated volumes in lakhs, their net delivery obligations in the scrip was however in the range of 100 to 200 shares. The price of the scrip also had gone up to a 52 week high at Rs.285/- on September 11, 2000 which was followed by a fall in price of 52 week low at Rs.154.65 on November 15, 2000.
1.2 Investigations revealed that M/S Vaibhavlaxmi Consultancy had transacted substantially in the scrip as an unregistered entity of M/s Triveni Management Consultancy Pvt. Ltd., (TM, NSE). It appeared from the trading pattern employed by M/S Vaibhavlaxmi Consultancy that the same was intended to artificially raise the price of the scrip and also build artificial volumes in collusion with certain other entities. It was revealed during the course of investigations that the ultimate client of M/S Vaibhavlaxmi Consultancy who had traded in the scrip, was M/s S.M. Investments whose proprietor was Shri Shamshad Sheik. Investigations had revealed that Shri Shamshad Sheik was an employee of M/s Jem Fiscal Ltd., who alongwith other clients were found to be involved in ‘Circular Trading’ in the scrip of MHL.
1.3 It was also found that inspite of repeated letters/summons issued to M/S Vaibhavlaxmi Consultancy, they had failed to furnish the required details/information and also had not appeared before the Investigating Team in response to the summons and thus was found guilty of non cooperation with the investigation proceedings.
1.4 M/S Vaibhavlaxmi Consultancy have thus been found to be acting in concert with other clients for a common purpose and objective for manipulation of scrip of MHL. M/s Vaibhavlaxmi Consultancy was thus found to have violated the provisions of Regulation 4(b) and 4(d) of SEBI (FUTP) Regulations, 1995. In addition to the above, it was also revealed that M/s Vaibhavlaxmi Consultancy had traded in the scrip of MHL through M/s Triveni Management Consultancy Pvt. Ltd., NSE as an unregistered entity and thus was found to have violated the provisions of Section 12(1) of the Securities and Exchange Board of India Act 1992, which requires that intermediaries dealing in securities market should obtain a certificate of registration from the Board to carry out business in securities market. The acts of M/s Vaibhavlaxmi Consultancy were thus detrimental to the interests of the investors and also for the orderly development of securities market.
2.1 SEBI issued a show cause notice dated 18.06.2002 to M/S Vaibhavlaxmi Consultancy, asking them to show cause as to why suitable directions including such directions debarring / prohibiting M/S Vaibhavlaxmi Consultancy, from dealings in securities market for a suitable period should not be issued under Section 11B of the SEBI Act, read with Regulations 11 and 12 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 1995. They were also asked to submit their reply supported by necessary records / evidences which they like to adduce in their support within 21 days from the date of receipt of the notice failing which it was indicated that SEBI shall presume that they had no explanation to offer and it would be constrained to pass appropriate orders. However, no reply has been received from M/s.Vaibhavlaxmi Consultancy.
2.2 Subsequently, an opportunity of hearing was granted on 28.10.2002 which had been communicated to M/s Vaibhavlaxmi Consultancy. vide letter dated 01.10.2002. No one represented M/s. Vaibhavlaxmi Consultancy in the said hearing that took place on 28.10.2002.
3.1 I have carefully considered the findings of Investigation. I find that that M/s. Vaibhavlaxmi Consultancy is an unregistered sub-broker of M/s Triveni Management Consultancy Services Ltd., which is a member of National Stock Exchange Ltd. The summons sent to Shri Vijay Sanghavi residing at A/1, Matru Ashish, 1st Floor, Kandivali (West), Mumbai – 67, the contact person by our letter dated July 10, 2001 was unreplied. However, the following are the trading details of its ultimate client, namely M/s S M Investment (Prop. Shamshad Sheik):
|
Settl. No.
|
Gross Purchases
|
Gross Sales
|
Net
|
|
43
|
21,700
|
21,700
|
0
|
|
44
|
7,600
|
7,600
|
0
|
|
45
|
4,000
|
4,000
|
0
|
|
46
|
20,300
|
20,300
|
0
|
|
47
|
19,800
|
19,800
|
0
|
|
48
|
18,000
|
18,000
|
0
|
|
49
|
19,100
|
19,100
|
0
|
|
50
|
20,700
|
20,700
|
0
|
|
51
|
18,500
|
18,500
|
0
|
|
52
|
17,000
|
17,000
|
0
|
|
53
|
19,000
|
19,000
|
0
|
|
Total
|
1,85,700
|
1,85,700
|
0
|
3.2 The details provided by the ultimate client and the broker indicate that M/s Vaibhavlaxmi Consultancy had traded on behalf of M/s S M Investment, who had been found to be one of the entities responsible for creating artificial volume in the scrip by continuously squaring off his positions at the end of each settlement. M/s Vaibhavlakshmi Consultancy is thus clearly guilty of aiding and abetting S. M Investments in the market manipulations of the scrip.
3.3 It is also found that M/s Vaibhavlaxmi Consultancy had acted as a sub-broker for the trades mentioned above and thus is guilty of dealing in securities market as unregistered sub-broker. The client of unregistered sub-broker M/s Vaibhavlaxmi Consultancy, along with entities acting in concert, were the pre-dominant traders in the scrip during the period under consideration and were creating artificial volume in this scrip. Investigations revealed that the ultimate client of Vaibhavlaxmi Consultancy i.e. S. M. Investments were found to be aiding and abetting Shri.Nazir Hakeem of Jem Fiscals Ltd. who were the main manipulators in the scrip. It is therefore seen that he has knowingly allowed his client to have traded in an illiquid scrip.
3.4 Therefore, in view of the above I find that M/s Vaibhavlakshmi Consultancy has aided and abetted the client in creating a false and misleading appearance of trading in the scrip. They are, therefore, guilty of violating the provisions of Regulation 4 (b) and Regulation 4 (d) of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995. Vaibhavlakshmi Consultancy is also guilty of violating the provisions of Section 12(1) of the SEBI Act, 1992, which requires that all the entities dealing in securities market should obtain a certificate of registration from SEBI before they undertake business in securities market. It has also disobeyed the summons issued during the investigation proceedings.
3.5 Therefore, in exercise of the powers conferred upon me under Section 4(3) of SEBI Act, 1992 read with Section 11B and Regulation 11 and12 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995, I hereby prohibit M/s Vaibhavlakshmi Consultancy from dealing in securities for a period of two years. This order shall come into force with immediate effect.
Place : Mumbai
G. N. Bajpai
Date : January 08, 2003
Chairman
Securities & Exchange Board of India