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 SMT JYOTSNA S. SHAH AND SHRI VISHAL S SHAH, 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 :
| Date |
|
Cheq. No |
|
Particulars |
|
Debit |
|
Credit |
|
Balance |
|
| 5.1.00 |
|
|
|
By Trf |
|
|
|
40,00,000 |
|
40,11,911.05 |
|
| 5.1.00 |
|
600812 |
|
To Transfer |
|
40,00,000 |
|
|
|
11,911.05 |
|
| 5.1.00 |
|
|
|
By Trf |
|
|
|
40,00,000 |
|
40,11,911.05 |
|
| 5.1.00 |
|
600813 |
|
To transfer |
|
40,00,000 |
|
|
|
11,911.05 |
|
| 5.1.00 |
|
|
|
By trf |
|
|
|
30,00,000 |
|
30,11,911.05 |
|
| 5.1.00 |
|
600814 |
|
To transfer |
|
30,00,000 |
|
|
|
11,911.05 |
|
| 5.1.00 |
|
|
|
By trf |
|
|
|
30,00,000 |
|
30,11,911.05 |
|
| 5.1.00 |
|
600815 |
|
To transfer |
|
30,00,000 |
|
|
|
11,911.05 |
|
| 5.1.00 |
|
|
|
By trf |
|
|
|
10,00,000 |
|
10,11,911.05 |
|
| 5.1.00 |
|
600824 |
|
To transfer |
|
10,00,000 |
|
|
|
11,911.05 |
|
| 5.1.00 |
|
|
|
By trf |
|
|
|
40,00,000 |
|
40,11,911.05 |
|
| 5.1.00 |
|
600816 |
|
To transfer |
|
40,00,000 |
|
|
|
11,911.05 |
|
| 5.1.00 |
|
|
|
By trf |
|
|
|
40,00,000 |
|
40,11,911.05 |
|
| 5.1.00 |
|
600817 |
|
To transfer |
|
40,00,000 |
|
|
|
11,911.05 |
|
| 5.1.00 |
|
|
|
By trf |
|
|
|
40,00,000 |
|
40,11,911.05 |
|
| 5.1.00 |
|
600818 |
|
To transfer |
|
40,00,000 |
|
|
|
11,911.05 |
|
| 5.1.00 |
|
|
|
By trf |
|
|
|
40,00,000 |
|
40,11,911.05 |
|
| 5.1.00 |
|
600819 |
|
To transfer |
|
40,00,000 |
|
|
|
11,911.05 |
|
| 5.1.00 |
|
|
|
By trf. |
|
|
|
40,00,000 |
|
40,11,911.05 |
|
| 5.1.00 |
|
600820 |
|
To transfer |
|
40,00,000 |
|
|
|
11,911.05 |
|
| 5.1.00 |
|
|
|
By trf |
|
|
|
40,00,000 |
|
40,11,911.05 |
|
| 5.1.00 |
|
600821 |
|
To transfer |
|
40,00,000 |
|
|
|
11,911.05 |
|
| 5.1.00 |
|
|
|
By trf |
|
|
|
40,000,000 |
|
40,11,911.05 |
|
| 5.1.00 |
|
600823 |
|
To transfer |
|
30,00,000 |
|
|
|
10,11,911.05 |
|
| 5.1.00 |
|
|
|
By trf |
|
|
|
40,00,000 |
|
50,11,911.05 |
|
| 5.1.00 |
|
600822 |
|
To transfer |
|
40,00,000 |
|
|
|
10,11,911.05 |
|
| 5.1.00 |
|
|
|
By trf |
|
|
|
10,00,000 |
|
20,11,911.05 |
|
| 5.1.00 |
|
600826 |
|
To transfer |
|
10,00,000 |
|
|
|
10,11,911.05 |
|
| 5.1.00 |
|
600827 |
|
To transfer |
|
10,00,000 |
|
|
|
11,911.05 |
|
| |
|
|
|
Total |
|
4,80,00,000 |
|
4,80,00,000 |
|
|
|
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.
1. 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.
2. 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:
| Date |
|
Particulars |
|
Remarks |
|
| January 12, 01 |
|
Letter requesting the company to submit information |
|
No reply |
|
| February 6, 01 |
|
Reminder to the company |
|
The company was again reminded to send the memorandum and articles of association of the company, latest annual reports, copy of the distribution schedules, bank details, among others. |
|
| February 16, 01 |
|
Reminder |
|
Request for extension from the Co. |
|
| March 03, 01 |
|
Reminder |
|
No reply |
|
| March 14, 01 |
|
|
|
Furnished part of the information |
|
| April 12, 01 |
|
Letter requesting company to furnish all the information |
|
No reply |
|
| April 28, 01 |
|
|
|
Furnished part of the information |
|
| July 02, 01 |
|
Letter to furnish all information |
|
No reply |
|
| July 10, 01 |
|
|
|
Furnished Distribution schedule of Co. |
|
| July 17, 01 |
|
Letter to furnish information |
|
No reply |
|
| August 29, 01 |
|
Letter to furnish information |
|
No reply |
|
| September 19, 01 |
|
|
|
Furnished Bank statement of a/c. |
|
| February 12, 02 |
|
Given another opportunity of furnishing the information |
|
No reply |
|
| April 30, 02 |
|
Summons to appear in person along with details |
|
No reply |
|
| May 10, 02 |
|
|
|
Furnished part of the information and promised to be present on May 20, 2002 |
|
| May 21, 02 |
|
Summons to appear in person on May 31, 02 |
|
No reply |
|
| June 03, 02 |
|
Summons to appear in person on June 13, 02 |
|
No reply |
|
| July 07, 02 |
|
Informed the parties that action will be taken based on available records. |
|
No reply |
|
| July 11, 02 |
|
|
|
Company informed that they shall be present in SEBI office within 15 days from the date of letter i.e. July 26, 2002. |
|
SHOW CAUSE NOTICE, REPLY AND HEARING
3. 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. Smt. Jyotsna S Shah and Shri Vishal S Shah, both submitted their replies vide letters dated December 11, 2003.
4. In the interest of natural justice, an opportunity of hearing was granted to Smt. Jyotsna S Shah and Shri Vishal S Shah before me, on December 22, 2003. Shri Satish Shah appeared before me, on behalf of Smt. Jyotsna S Shah and Shri Vishal S Shah, and made submissions.
SUBMISSIONS OF SMT. JYOTSNA SHAH
5. Smt. Jyotsna Shah, vide her letter December 11, 2003, inter alia, submitted that she had never been a director of the company, although she was one of the original subscribers to the Memorandum of Association of the company. She further submitted that she did hold some shares in the company but had never sold any of these shares. She also denied having violated the provisions of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations,1995 and pleaded for withdrawal of the show cause notice.
SUBMISSIONS OF VISHAL S. SHAH
14. Shri Vishal S. Shah, vide his letter December 11,2003, inter alia, submitted that he had never been a director of the company, although he was one of the original subscribers to the Memorandum of Association of the company. He further submitted that he did hold some shares in the company but had never sold any of these shares. He also denied having violated the provisions of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 1995, and pleaded for withdrawal of the show cause notice.
FINDINGS
15. I have carefully examined the contents of the investigation report, the show cause notice and other material available on record.
16. I have noted the submissions made by Smt. Jyotsna S Shah and Shri Vishal S Shah, in their letters dated December 11, 2003, to the effect that they had not sold any of the shares held by them, to Shri Mahendra Shah, who is alleged to have indulged in manipulation of the shares of the company. I have also noted that no specific allegation of price manipulation has been made against Smt. Jyotsna S Shah and Shri Vishal S Shah. Hence, I do not record any findings in this regard.
17. However, 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 also considered the submissions made by Smt.Jyotsna S.Shah and Shri Vishal Shah, vide their letters dated December 11, 2003. I note that Smt. Jyotsna S.Shah and Shri Vishal Shah had denied being directors of the company, at any point of time. I also note their submission that they had never been in the management of affairs and business of the company, although they were signatories to the MoA of the company; as also the submission that they did hold some shares in the company, but had never sold any of their shares to any person. I also note that the communication no. ROC/23926/Inspection/03/1077, issued by Registrar of Companies, State of Gujarat, to Ahmedabad Stock Exchange, does not mention the names of Shri Vishal Shah and Smt. Jyotsna S. Shah, as directors of the company.
23. In view of the above, I find merit in the contentions of Smt.Jyotsna S.Shah and Shri Vishal Shah, and am convinced that they cannot be held guilty of violating the provisions of SEBI ( Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market ) Regulations,1995. Hence, I feel that it is a fit case to drop further proceedings in the matter against Smt.Jyotsna S.Shah and Shri Vishal Shah.
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 Smt.Jyotsna S.Shah and Shri Vishal Shah be dropped.
| |
A.K.BATRA |
|
Date: July 13, 2004
|
WHOLE TIME MEMBER |
| Place: MUMBAI |
SECURITIES AND EXCHANGE BOARD OF INDIA |