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 NARENDRA NAWALE AND M/S N N INVESTMENTS.
CO/ 453/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 Narendra Nawale/ M/s N N Investments 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 Narendra Nawale/ M/s N N Investments 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 Narendra Nawale/ M/s N N Investments had been responsible in artificially raising price of the scrip of MHL, having entered into purchase and sale of securities without intending to transfer the beneficial ownership and also for the purpose of creating a false / artificial market for the scrip.
1.4 Shri Narendra Nawale/ M/s N N Investments 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 Narendra Nawale/ M/s N N Investments had violated the provisions of Regulation 4(b) and 4(d) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to) Regulations, 1995.
2.1 A show cause notice dated 14.06.2002 was issued to Shri Shri Narendra Nawale/ M/s N N Investments asking them to show cause as to why suitable directions including such directions debarring / prohibiting Shri Narendra Nawale/ M/s N N Investments 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. No reply has been received from Shri.Narendra Navale / M/s.N N Investment.
3.1 Subsequently, an opportunity of hearing was granted on 28.10.2002 which was communicated to M/s N N Investments vide letter dated 01.10.2002. Shri Narendra Navale Proprietor M/s N N Investment had appeared and reiterated his replies given during investigation.
I have carefully considered the findings of investigation and the submissions made by Shri Narendra Navale. I find that M/s. N. N. Investment is a proprietary concern of Shri Narendra Navale, residing at Om Sai Chawl, Room # 6, Hanuman Nagar, Pump House, Jijamata Marg., Andheri (East) Mumbai 93. Shri Nawale is an employee of Jem Fiscal Ltd. located at 28, Great Western Building, 1st Floor, S. B. Road, Fort, Mumbai 23. Although his proprietary concern was mainly into the activity of investing in securities market and jobbing, he is stated to be mainly dependent on the salary income from his employer M/s Jem Fiscals, which was approximately Rs. 40,000/- p.a. The dealings of M/s. N. N. Investment in the scrip of Morepen Hotels Ltd. with different brokers are given as under:
|
Name of the Broker
|
Settl No.
|
Purchases
|
Sales
|
Gross
|
Net
|
|
Shailee Securities
|
29
|
17,100
|
17,100
|
34,200
|
0
|
|
S. B. to P. K. Jain Securities P. Ltd.
|
30
|
14,700
|
14,700
|
29,400
|
0
|
|
|
31
|
10,900
|
10,900
|
21,800
|
0
|
|
|
32
|
8,000
|
8,000
|
16,000
|
0
|
|
|
33
|
21,800
|
21,800
|
43,600
|
0
|
|
|
34
|
20,200
|
20,200
|
40,400
|
0
|
|
|
35
|
22,700
|
22,700
|
45,400
|
0
|
|
|
36
|
21,000
|
21,000
|
42,000
|
0
|
|
|
37
|
20,300
|
20,300
|
40,600
|
0
|
|
|
38
|
18,800
|
18,800
|
37,600
|
0
|
|
Total
|
|
1,75,500
|
1,75,500
|
3,51,000
|
0
|
|
Toss Financial Serv.
|
42
|
16,500
|
16,500
|
33,000
|
0
|
|
Member NSE
|
43
|
19,800
|
19,400
|
39,200
|
400
|
|
|
44
|
9,700
|
9,700
|
19,400
|
0
|
|
|
45
|
8,900
|
8,900
|
17,800
|
0
|
|
|
46
|
22,000
|
21,800
|
43,800
|
200
|
|
|
47
|
18,700
|
18,900
|
37,600
|
-200
|
|
|
48
|
18,800
|
18,800
|
37,600
|
0
|
|
|
49
|
17,600
|
17,600
|
35,200
|
0
|
|
|
50
|
18,100
|
18,100
|
36,200
|
0
|
|
|
51
|
18,800
|
18,600
|
37,400
|
200
|
|
|
52
|
10,100
|
10,100
|
20,200
|
0
|
|
|
53
|
11,600
|
11,600
|
23,200
|
0
|
|
Total
|
|
1,90,600
|
1,90,000
|
3,80,600
|
600
|
|
Grand Total
|
|
3,65,500
|
3,65,500
|
7,31,000
|
600
|
3.2 Shri Nawale/ M/s N N Investments has not paid any margin to any of the above mentioned brokers/sub-brokers and he had said that he settled their bills at the end of the settlement. He had no specific reasons for trading in the scrip with many brokers.
3.3 It is found that the reasons for trading in illiquid scrip like Morepen Hotels given by Shri Narendra Navale was that his employer M/s. Jem Fiscal Ltd. was investing in the scrip and had been actively trading. However he also said that his employer had never asked him to trade in the scrip and he did all his trading on his own. According to Shri Narendra Nawale, the reasons for squaring off the position on the same day, was to avoid margin payments to the brokers . He also stated to have earned a profit of approx. Rs. 15,000/- for his transactions entered in the scrip.
3.4 Regarding the fact that Jem Fiscal Ltd., Prashant Investment, F. T. Traders, Hakeem Auto etc. having the same correspondence address as that of his, Shri Narender Navale failed to give any satisfactory reply and had said that he did these transactions to earn some additional income as his income from salary was too low. He denied having any relation with the trading of other entities operating from the same address although his employer M/s Jem Fiscals was also operating from this address.
4.1 The relationship / link of M/s N N Investments 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.
|
4.2 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. Joginder 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.
4.3 It is seen that Narendra Nawale/ M/s N N Investments had traded in the scrip in a manner which was “Circular in Nature” along with other clients. Shri Nawale of N N Investments is found to have merely created artificial volumes instead of investing in the scrip by taking delivery. From the trading details mentioned above, it is evident that the client had transacted in the scrip without giving or taking any delivery. Therefore, the purpose of his dealing was not to effect transfer of beneficial ownership but to create a false and misleading appearance of trading on the securities market.
4.4 In light of the above, I find that Shri Narendra Nawale/ M/s N N Investments 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.
4.5 Therefore, in exercise of the powers conferred upon me under Section 4(3) of SEBI Act, 1992 read with Section 11B and Regulation 11 and 12 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 , I hereby prohibit Shri Narendra Nawale and M/s N N Investments 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