18 These applications were also made through stock invests which were purchased from Bank of India, Cumballa Hill Branch. It was seen that in this case, the stock invests were issued from the bank accounts of the first applicants, which were opened in the last week of April 1996. It was seen that for these five applications, Jatia and their family members had invested Rs.9,35,000/- per application. It was seen that the balance of Rs.65,000/- was put in by the Arihant Finance Corporation and the payments were found to have been made by Mani Investments, of which Farookh Pavri is the Partner (another financier in the issue), on behalf of Arihant Finance Corporation.
19 As regards applications being accompanied by pre-dated stock invests, Shri Jatia had stated that they acted on the advice of their broker, Shri Dilip Dalal, who said that he could manage to get the pre dated stock invests from Bank of India, Cumballa Hill Branch. As mentioned above, although Jatia and his family members had opened the accounts only on May 10, 1996, the stock invests that accompanied their applications are found to have been purchased from the accounts opened on April 27, 1996 in their name. Thus, I find that the intention behind making applications on behalf of Jatia and his family members, although stated to be for financing purposes, was not bonafide. In that case, there need not have used predated stock invests. They could have made the applications before the closure of the issue itself.
20 I find that the applicants had been aware of the allotment to be made in response to their applications, even before they made the applications in the public issue. Further, I also find that, on receipt of the principal and interest repayment from the financiers and on receipt of the shares allotted to the applicants from the Registrars, the applicants signed the blank transfer deeds and handed over the share certificates and the transfer deeds to Dilip Dalal and Farookh Pavri, respectively.
21 In order to look into the use of pre-dated stock invests by Shri Jatia and his family members, the investigation team approached Bank of India. Shri Kaku, who was the Chief Manager of Bank of India, Cumballa Hill Branch, Bombay, at the time of issue of these stock invests, had deposed before the investigating officials. He confirmed that the stock invests issued to the members of Jatia family, among others, were predated. On perusal of the bank records, it was observed that the money was debited from the accounts of the holders of these stock invests before the endorsement by the Registrar, thereby making the amount available or the lien fall below the amount for which the stock invests were issued. I also find that Shri Kaku stated that the respective parties showed him the basis of allotment and on that basis proportionate amount was allowed to be released. He also stated that on the presumption that the bank was having the security of the reduced liability, as per the basis of allotment, he allowed the withdrawal of money.
22 From the above, I find that Shri Jatia and his family members had financed the public issue by applying for large quantity of shares (around 12,00,000 shares), through stock invests fraudulently obtained, with a view to create an appearance of huge oversubscription, and also received assured allotment, thereby cornering the shares.
23 Jatia and his family members had opened the accounts only on May 10, 1996 and the stock invests that accompanied their applications are found to have been purchased from the accounts opened on April 27, 1996 in their name. This shows that the intention behind making applications on behalf of Jatia and his family members, although stated to be for financing purposes, was not bona fide. In that case, they need not have used predated stock invests. They could have done the same before the closure of the issue itself.
24 I note that Jatia and his family members had acted in such a manner so as to create a false impression of over subscription to the public issue of ISEL, which in turn appears to have created a false and misleading impression on the investors, regarding the high level of interest in the issue/company, which may have induced further interest of investors in the shares of the company, thereby leading to investor interest in the scrip, post listing.
25 This act on the part of Shri Jatia and his family is considered to be detrimental to the interest of investors in the securities market. This was clearly a fraud perpetrated on the investors and in violation of Regulation 3 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995. I am of the view that continuance of such persons in the market would be detrimental to the health of the securities market.
ORDER
26 In view of the above and in exercise of the powers conferred upon me in terms of Section 19 of SEBI Act, 1992 read with Regulation 11 of SEBI (Prohibition Of Fraudulent And Unfair Trade Practices Relating To Securities Markets) Regulations, 2003 and Section 11 And 11B of the SEBI Act, I hereby prohibit Shri V.K. Jatia & his family members, Shri Shubhkaran Jatia, Smt. Shashi Jatia, Smt. Rampyari Devi Jatia, Smt. Smita Jatia, Smt. Archna Jatia & Smt. Nita Jatia from buying, selling or dealing in securities for a period of 18 (eighteen) months.
27 This order shall come into force with immediate effect.