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 SHRI KETAN SHAH AND M/s K N TRADERS.
CO/ 452 /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 Shri Ketan Shah/ M/s K N Traders had transacted in the scrip of MHL with an intention of artificially raising the price of the scrip and also for building artificial volumes in collusion with certain entities connected with it. It was also revealed during the investigation that Shri Ketan Shah / M/s K N Traders had acted in concert through a selected cartel of brokers of BSE and NSE and were involved in circular trading in the scrip which had pushed up the volumes to artificial levels at both NSE and BSE during the period from June 2000 to December 2000.
1.3 Investigations disclosed that Shri Ketan Shah/ M/s K N Traders had been responsible in artificially raising price of the scrip of MHL, having entered into purchase and sale of securities without intending to trans fer the beneficial ownership and also for the purpose of creating a false / artificial market for the scrip.
1.4 Shri Ketan Shah/ M/s K N Traders have been found to be acting in concert with other clients for a common purpose and objective for manipulation of scrip of MHL. From the investigation it was also found that Shri Ketan Shah/ M/s K N Traders had violated the provisions of Regulation 4(b) and 4(d) of SEBI (FUTP) Regulations, 1995. It was also observed that Shri Ketan Shah/ M/s K N Traders had traded heavily in another scrip, Eonour Software Ltd. which was also investigated by SEBI for price manipulation and was revealed that Shri Ketan Shah/ M/s K N Traders along with other clients was responsible for the price manipulation of Eonour Software Ltd. also.
2.1 SEBI issued a show cause notice dated 14.06.2002 to Shri Ketan Shah/ M/s K N Traders asking them to show cause as to why suitable directions including such directions debarring / prohibiting Shri Ketan Shah/ M/s K N Traders 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 (FUTP) 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.
3.1 Shri Ketan Shah proprietor of M/s K N Traders had submitted a reply dated June 24, 2002 in which it was stated that he had been recommending various scrips based on his own research and he was also trading in the scrip under reference in which his employer company viz. Jem Fiscal Ltd. was also trading. He further stated that he was not taking delivery of MHL as the same was illiquid. He used to square off his position on the same day or in same settlements with profits / loss as the case may be.
3.2 He also stated that he had recommended certain other scrips viz. ACC, TISCO etc. on the website of Jem Fiscal Ltd. It was also said that he had traded heavily on these scrips (other than Eonour Technologies etc.) but he had not taken delivery of these scrips as well and he used to square off the transactions in the same settlement or at times on the same day. He also emphasized that he never used to take deliveries of any scrip he was trading mainly due to lack of funds.
3.3 He further stated that since he was engaged in trading in NSE/BSE and also doing arbitrage he had to employ services of 3 to 4 brokers of both the Exchanges. Further the quantum of the trade in MHL was less than 2% of the total trading during that period, which is negligible.
3.4 Subsequently, an opportunity of hearing was granted on 28.10.2002 which was communicated to M/s K N Traders vide letter dated 01.10.2002. Shri Ketan Shah, Proprietor M/s K N Traders had appeared and reiterated his submissions in the reply that was sent to SEBI in response to show cause notice.
4.1 I have carefully considered the findings of investigation and the submissions made by Shri Ketan Shah. I find that M/s. K. N. Traders is a proprietary concern of Shri Ketan Shah residing at A-13, Badrinath Apartment, Shimpoli Road, Borivli (West) Mumbai 92. His office address during the period under investigation was 28, Great Western Building, 1st Floor, S. B. Road, Fort, Mumbai 23, which is the same as that of Jem Fiscal & Hakeem Auto, where he was employed as Research Manager. M/s. K. N. Traders had been dealing in securities and had been trading in different scrips during the period under investigation. The dealings of M/s. K. N. Traders in the scrip of Morepen Hotels Ltd. with different brokers are given as under:
|
Name of the Broker
|
Sett #
|
Purchases
|
Sales
|
Gross
|
Net
|
|
Shilpa Stock Broker
|
Demat
|
379026
|
379026
|
758052
|
0
|
|
Member of BSE
|
22
|
2000
|
2000
|
20600
|
0
|
|
|
23
|
10300
|
10300
|
20600
|
0
|
|
|
24
|
13900
|
13900
|
27800
|
0
|
|
|
25
|
14200
|
14200
|
28400
|
0
|
|
|
26
|
14400
|
14400
|
28800
|
0
|
|
|
27
|
16700
|
16700
|
33400
|
0
|
|
|
28
|
13500
|
13500
|
27000
|
0
|
|
|
29
|
1600
|
1600
|
3200
|
0
|
|
Total
|
|
465626
|
465626
|
931252
|
0
|
|
Adi Motafram
|
37
|
27,900
|
27,900
|
55,800
|
0
|
|
Member of NSE
|
38
|
9,400
|
9,400
|
18,800
|
0
|
|
|
39
|
13,900
|
13,900
|
27,800
|
0
|
|
|
40
|
14,800
|
14,800
|
29,600
|
0
|
|
|
41
|
3,400
|
3,400
|
6,800
|
|
|
Total
|
|
69,400
|
69,400
|
1,38,800
|
0
|
|
Shreepati Holdings
|
35
|
5,100
|
5,100
|
0
|
0
|
|
Pvt Ltd Member of NSE
|
36
|
13,500
|
13,500
|
0
|
0
|
|
|
37
|
8,000
|
8,000
|
0
|
|
|
|
38
|
15,000
|
15,000
|
0
|
|
|
|
39
|
15,800
|
15,800
|
0
|
|
|
|
40
|
14,500
|
14,500
|
0
|
|
|
|
41
|
15,300
|
15,300
|
0
|
0
|
|
|
42
|
4,000
|
4,000
|
0
|
0
|
|
Total
|
|
91,200
|
91,200
|
1,82,400
|
0
|
|
Grand Total
|
|
6,26,226
|
6,26,226
|
12,52,452
|
0
|
4.2 Shri Ketan Shah of M/s. K. N. Traders had stated that the Directors of Shilpa Stock Brokers were known to him and therefore there was no need for an introduction. Also, Shri Ramesh, a friend of his had introduced their firm to M/s Adi Mofatram and Shri Nikesh, who was known to Shri Prashant Shah, proprietor of Prashant Investments, had introduced M/s. K. N. Traders to Shreepati Holdings and Finance Pvt. Ltd. Regarding the margins not being paid, Shri Ketan Shah had stated that since the brokers were known to him personally, no margin was insisted. He had also stated that since the total amount of pay-in/pay-out in almost all the settlements had been petty, he used to settle the bills on a monthly basis with almost all the brokers. He had also stated that since the brokers had set an unstated limit for trading, he had no option but to trade with different brokers, when asked about the reasons for having traded in the illiquid scrip of MHL with many brokers.
4.3 The reasons for having traded in illiquid scrip like Morepen Hotels, according to Shri Ketan Shah, was that the same was based on his equity research, wherein he found the fundamentals of the company sound. However, when he was confronted to provide some of the fundamentals of the company by the investigating team, he failed to give the same. When he was asked to give the details of some of the scrips in which he did research during the period under consideration, to which he said that he did purchase on recommendation, scrips like ACC, TISCO, TELCO, Morepen, Eonour Software, Cipla etc. He had also said that some of the recommendations were available on the web site of Jem Fiscal viz. www.jemfiscal.com wherein he was professionally employed in equity research at that time. The reasons for squaring off his positions on the same day was given by Shri Ketan Shah to be that since he did not have adequate margins, he used to square off the position on the same day and whatever profits he had earned in the dealing of the scrip had been wiped out by way of fine paid to the brokers, which was levied by The Stock Exchange, Mumbai.
4.4 It is also seen that Shri Ketan Shah was aware that M/s. Jem Fiscal Ltd., his employer was also dealing in the scrip of MHL and that he had started dealing for small benefits arising out of jobbing. It is also observed that Shri Ketan Shah stated to have stopped trading in the scrip in October 2000 because of the enquiries from BSE and the fact that the exchange had also levied additional margin on the scrip.
4.5 The explanations given by Shri Ketan Shah on the questions put to him are not very satisfactory. At one point he had stated that since the fundamentals of the company were good, he had started trading in the scrip and at the same time, he also stated that he started trading in the scrip because his employer M/s. Jem Fiscal was also trading in the scrip and he wanted to make profit out of the trading/speculation done by him. Further, though he had recommended `a buy’ for Morepen Hotels Ltd., instead of investing in the scrip by taking delivery, he was seen merely squaring off positions and creating artificial volumes in the scrip and thereby contradicting the very recommendation of `buy’ done by him. It is also observed that though he had recommended many scrips like ACC, TISCO, etc., he was trading significantly in the scrip of Morepen Hotels Ltd and Eonour Software Ltd. only. The contention of Shri Ketan Shah that the brokers had set the unstated limit for his trading also does not appear to be right as he was squaring off his positions on the same day. Therefore, the only reason for trading with different brokers must have been to create artificial volume in the scrip.
4.6 The relationship / link of the M/s K N Traders with other clients is explained in the table below:
|
Name of the client
|
Relationship/Link with other clients
|
|
Jem Fiscal Ltd.
|
a) They are/were employer of Ketan Shah (K. N. traders), Prashant Shah (Prashant Investment), Kisan Parwad (K. P. Investment), Shamshad Sheikh (S. M. Investment), Narendra Navale (N. N. Investment).
|
|
|
b) The Director of the firm, Shri Nazir Hakeem is also a Director with Hakeem Auto Ltd.
|
|
|
c) Shri Nazir Hakeem introduced the bank a/c of F. T. Traders ( Prop. Fakruddin Moyiandi) with United Bank of India, Fort Branch.
|
|
|
d) Shri Prashant Shah ( Prashant Investments)placed orders on behalf of Jem Fiscal with Toss Financial Services, member NSE and Varun Stock Brokers, (Sub-broker to Suresh Rathi Securities)
|
|
Hakeem Auto Ltd.
|
a) The Director, Shri Nazir Hakeem is also a director of Jem Fiscal Ltd.
|
|
|
b) Introduced the bank account of F. T. Traders with United Bank of India.
|
|
N. N. Investment
|
a) The proprietor of the firm, Shri Narendra Navale, is an employee of Jem Fiscal Ltd.
|
|
|
b) He stated that he has traded on the recommendation of his employer’s website.
|
|
|
c) Shri Prashant Shah (Prop: Prashant Investment), who also in employment with Jem Fiscal Ltd. placed the orders on behalf of N. N. Investment with Toss Financial, member NSE.
|
|
S. M. Investment
|
a) The proprietor, Shri Shamshad Sheikh, is an employee of Jem Fiscal Ltd.
|
|
|
b) The account of the firm with United Bank of India was introduced by Shri Fakruddin Moiyaddi of F. T. Traders.
|
|
|
c) He had traded in the scrip because his employer, M/s. Jem Fiscal Ltd. was also trading in the scrip.
|
|
K. N. Traders
|
a) The proprietor, Shri Ketan Shah was employed with Jem Fiscal Ltd. as Manager (Reseach).
|
|
|
b) As per information provided by Shilpa Stock Brokers, he was trading on the terminal provided to Hakeem Auto Ltd.
|
|
|
c) He had given recommendation on the web site of Jem Fiscal Ltd.
|
|
|
d) He had also recommended the scrip for trading to Prashant Shah (Prashant Investment)
|
|
Prashant Investment
|
a) The proprietor, Shri Prashant Shah, is an employee of Jem Fiscal Ltd.
|
|
|
b) He had traded in the scrip based on the recommendation on the website of his employer.
|
|
|
c) Had discussed the matter with Ketan Shah (K. N. Traders) before he started trading in the scrip
|
|
|
d) He had placed orders for Jem Fiscal Ltd. with Varun Stock Brokers (Suresh Rathi Securities Pvt. Ltd.)
|
|
|
e) He had also placed orders for Jem Fiscal Ltd. with Toss Financial, Member NSE.
|
|
|
f) He had placed orders for N. N. Investment with Toss Financial, member NSE.
|
|
K. P. Investment
|
a) He is employed with Jem Fiscal Ltd.
|
|
|
b) Has traded mainly because his employer, Jem Fiscal Ltd. was also trading/investing in the scrip.
|
|
F. T. Traders
|
a) Shri Fakruddin Moiyadi, Prop. F. T. Traders, had given the office address of Jem Fiscal Ltd. as his correspondence address.
|
|
|
b) The BOLT terminal provided by Bhupendra M. Bheda to F. T. Traders was installed at the office address of Jem Fiscal Ltd.
|
|
|
c) The account of F. T. Traders with United Bank of India, Fort Branch was introduced by Shri Nazir Hakeem, who is a Director of Jem Fiscal Ltd. and Hakeem Auto Ltd.
|
|
|
d) Shri Fakruddin Moiyadi had introduced the account of S. M. Investment (Proprietor: Shri Shamshad Sheikh, an employee of Jem Fiscal Ltd.) with United Bank of India.
|
4.7. The other indicators showing the connections of the clients are as under:
¨ FT Traders ( Shri Fakruddin Moiyandi) had dealt through three members of BSE simultaneously viz. Bhupendra Bheda, Dinesh J Shah and Anantrai A Parekh
¨ Jem Fiscal Ltd dealt through two members of BSE simultaneously namely, Suresh Rathi Securities and GSB Capital Markets
¨ Prasanth Investments ( Prasanth Shah) and KP Investments (Kisan Parwad) have dealt in the scrip of MHL simultaneously through two BSE members viz. Joindre Capital and MJ Doshi.
¨ Hakeem Auto shared the same address as that of FT Traders and KN Traders
¨ Both FT Traders and KN Traders have accounts with United Bank of India and their account nos were close to each other i.e 4664 and 4667.
¨ The fax no. 2818179 given by Prasanth investments ( Prasanth Shah) is the same as that of Hakeem Auto and KN Traders.
¨ The telephone nos. provided by FT Traders in the client registration form to BSE member M/s DJ Shah were in the name of Smt. Hakeem Zohra who is one of the directors of Jem Fiscal Ltd
¨ The telephone numbers provided by KP investments and Prasanth Investments in their client forms were matching with the telephone nos of Hakeem Zohra who is a director of Jem Fiscals Ltd
¨ Both Narendra Navale of NN Investments and Kisan Parwad of KN Traders shared the same address viz. Ganesh Nagar, Pump House, Andheri East.
4.8From the above, it is seen that M/s.K. N. Traders was related to other clients dealing in the scrip. The client has also traded in the scrip in a manner which was “Circular in Nature” and the same was evident from his connections with other clients. It is also noteworthy that the client had traded in another scrip Eonour Software Ltd in a similar manner and M/s K N traders along with almost the same set of clients were found responsible for the price manipulation of this scrip also. Also, from the trading details mentioned above, it is evident that the client had transacted in the scrip without giving and taking any significant delivery. Therefore, the purpose of his dealing does not seem to be transfer of beneficial ownership whereas the same could only be for creating a false and misleading appearance of trading on the securities market.
4.9 In light of the above, I find that M/s K. N. Traders is guilty of Violating the Provisions of Regulation 4 (b) and 4 (d) of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market), Regulations, 1995.
4.10 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 in Securities Market) Regulations, 1995, I hereby prohibit Shri Ketan Shah and M/s K N Traders 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