Order against Shri Jalas Batra

SECURITIES AND EXCHANGE BOARD OF INDIA

ORDER

UNDER SECTION 11(4)(b) READ WITH SECTION 11 AND SECTION 11B OF SECURITIES AND EXCHANGE BOARD OF INDIA, ACT, 1992, READ WITH REGULATIONS 11 AND 13 OF SEBI (PROHIBITION OF FRAUDULANT AND UNFAIR TRADE PRACTICES RELATING TO SECURITIES MARKET) REGULATIONS, 2003.

AGAINST SHRI JALAS BATRA, IN THE MATTER OF SAWACA BUSINESS MACHINES LIMITED.

BACKGROUND

1. An investigation was conducted by SEBI, pursuant to Chairman’s order dated October 22, 2001, in order to find out whether there was any manipulation in the scrip of Sawaca Business Machines Limited (formerly Sawaca Finance Ltd.), in view of the observation that the scrip, which was illiquid prior to October, 1999, had gone up from Rs. 6.80 on October 26, 1999 to a high of Rs. 38.75 on December 30, 1999.

2. M/s. Sawaca Business Machines Limited (hereinafter to as “the company”) came out with a public issue of 30,00,000 shares in March, 1996. The shares of the company are listed for trading on The Stock Exchange, Mumbai and Ahmedabad Stock Exchange. The company was promoted by Shri Satish R. Shah and Smt. Shetal S. Shah, who were also the Directors of the company.

3. As per the information furnished by the company vide its letter dated March 14, 2001, the following persons were falling within the definition of Directors/friends and relatives as per Section 6 of the companies Act, 1956.

i. Satish R Shah
ii. Shetal S Shah
iii. Vishal S. Shah
iv. Jyotsna S. Shah

4. As per the records of the Office of Registrar of Companies, Gujarat, the following persons were shown as the Directors of the company (as on 30/11/2001).

a. Satish R. Shah
b. Shetal S. Shah
c. Hitesh J. Sanghvi
d. Mahendra Shah
e. Jalas Batra

5. It was observed that the company had not complied with the listing requirements, inasmuch as that it has failed to submit distribution schedule and financial results to BSE. As against last three years distribution schedules asked by the investigating team, the company vide its letter dated 28/04/01, submitted only one distribution schedule dated December 22, 2000. The company was issued reminders dated February 6, 2001, March 7, 2001, July 17, 2001 which indicates that the company has not been complying with the Regulatory requirements.

6. Investigations  revealed that one Shri Mahendra A. Shah, along with entities such as Harvic Management Services Ltd., Mayekar Investment Pvt. Ltd., and Rajesh N. Jhaveri were the predominant traders in the scrip of the company, during the period under investigation.  Investigations have established that trading by these persons, by and large, contributed to the initial price rise in the scrip. It was also seen that after they created investor interest in the scrip, they started selling the shares, which they were already holding and/or had purchased from the management.

7. During the course of the investigations, it was also observed that the company had issued 52,00,000 shares at Rs. 10/- per share, on preferential basis, on January 05, 2000, to various investors, including the promoter group. Perusal of the bank account statement of the company revealed that the company had resorted to ‘fictitious book entry’ for showing subscription towards preferential allotment. It was further observed that the company had shown a credit of only Rs. 4.80 crores in the bank account, as against  Rs. 5.20 crores required to have been received (52 lac shares @ Rs 10 per share), leading to an apprehension that the allotment of shares to these investors was irregular and improper and that there was no genuine infusion of funds into the account of the company. Thus, the whole process of funding towards the preferential allotment was shown as a ‘book entry’ and shares were allotted to various investors, including promoter group, without actual infusion of funds. The net balance in the company’s account had remained almost constant, even after the last credit entry pursuant to preferential issue.

8. Further, it is observed from the extract of statement of bank account of the company, that all these transactions have been reflected on the same day i.e. January 5, 2000, the details of which are re-produced hereunder :

It is seen that the amounts received towards the preferential allotment of shares were “credited” to and “debited” from the company’s account on the day of the allotment itself.

9. On the same issue, Adjudicating proceedings have been initiated by SEBI against the company, for determining the possible violation of the provisions of Chapter VI A of SEBI Act, 1992 read with the provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.

10. The representatives of the company were given numerous opportunities to appear before the investigating authority and submit full information. However, the company has chosen not to submit full information/details and has failed to respond to various letters/ summons issued by SEBI. The details of letters sent to the company are as under:

SHOW CAUSE NOTICE, REPLY AND HEARING

11. Pursuant to the said investigation, SEBI issued a show cause notice dated September 29, 2003, calling upon the company and its directors to show cause as to why suitable directions under section 11(4) read with section 11B of the Securities and Exchange Board of India Act, 1992 should not be issued against them.  However, Shri Jalas Batra failed to submit any reply to the said Show Cause Notice.

12. In the interest of natural justice, an opportunity of hearing was granted to Shri Jalas Batra, before me on 22.12.03. However, he failed to avail of the same.

FINDINGS

13.  I have carefully examined the contents of the investigation report, the show cause notice and other material available on record.

14.  I have noted that Shri Jalas Batra has not responded to any correspondence sent by SEBI. He has not replied to either the show cause notice issued to him or availed of the opportunity of appearing before me, to make his submissions.

15.  However, I have observed that no specific allegation of price manipulation has been made against Shri Jalas Batra. Hence, as recorded by me in the orders of certain other directors of the company, namely, Smt. Jyotsna S Shah, Shri Vishal S Shah etc, in this case also, I do not record any findings regarding the role of Shri Batra in price manipulation of the company’s shares.

17.  Regarding the allegations made against the company and its directors, with respect to the preferential issue made by the company, I observe that:
i. By the company’s own admission, vide its letter dated September 13, 2001, it maintains a single bank account.
ii. Investigations into this account have revealed that the receipts in the account were only to the extent of Rs. 4.8 crores, as against Rs. 5.2 crores, being the total value of the shares issued on preferential basis.

18.  Thus, the company has violated the provisions of Clause 13.4.2 of SEBI (Disclosure and Investor Protection) Guidelines, 2000, which reads as under:-

“The equity shares and securities convertible into equity shares at a later date, allotted in terms of the above said Resolution shall be made fully paid up at the time of their allotment”.

19.  On a more serious note, I find that there is ample evidence to indicate that the preferential allotment was irregular and not in accordance with law in as much as the company has resorted to fictitious book entries for showing receipt of subscription towards preferential allotment of shares.  Thus, I find that there was no actual infusion of funds into the account of the company, on account of the preferential issue. Thus, the preferential issue has resulted in creation of fresh capital, without any infusion of funds.

20.  In view of the above, I am convinced that the company is guilty of violating the provisions of Regulation 6(d) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995, read with clause 13.4.2 of SEBI (Disclosure and Investor Protection) Guidelines, 2000.

21.  I have also noted that the company did not respond to the letters/ summons issued by SEBI on a number of occasions, which speaks volumes for the defiant attitude of the company towards the regulatory requirements prescribed by law. This attitude has hampered SEBI in discharging its statutory functions.

22. However, I have noted that the communication no. ROC /23926 /Inspection /03 /1077, issued by Registrar of Companies, State of Gujarat, to Ahmedabad Stock Exchange, mentions that Shri Jalas Batra became the director of the company only with effect from January 28, 2000 i.e. after the date on which the preferential issue was made by company. I note that the show cause notice was issued to Shri Batra, in his capacity as a director of the company. No individual act of commission or omission has been alleged against him.

23.  In view of the above, even though I find that there were serious violations in the preferential issue of the company, I am of the view that Shri Jalas Batra cannot be held guilty of the said violations, on account of the fact that he was not a director of the company during the preferential issue. Hence, I feel that it is a fit case to drop further proceedings in the matter, against Shri Jalas Batra.

ORDER

24.  Therefore, in exercise of the powers conferred upon me by virtue of Section 19, read with Sections 11 and 11B of the Securities and Exchange Board of India Act, 1992, read with Regulation 11 and 13 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003, I hereby direct that further proceedings against Shri Jalas Batra be dropped.