O R D E R
UNDER RULE 5 OF THE SEBI (PROCEDURE FOR HOLDING ENQUIRY AND IMPOSING PENALTY BY THE ADJUDICATING OFFICER) RULES, 1995
READ WITH SECTION 15A OF THE SEBI ACT, 1992
AGAINST
PRAVIN KUMAR JAIN
1. Amidst reports of alleged market manipulation and irregularities in the trading of the shares of Prime Capital Market Limited, (for brevity’s sake, hereinafter referred to as PCML), the Securities and Exchange Board of India (SEBI) initiated an investigation into the said matter for the period between March 17, 2005 and September 16, 2005 as also to determine in the said process, the possible violation of the provisions of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 and the SEBI (Stock brokers and Sub-brokers) Regulations, 1992 (hereinafter referred to as FUTP Regulations and the Broker Regulations, respectively) by various entities. The scrip of PCML was listed on the Calcutta Stock Exchange (CSE) at the time of investigation. In connection thereof, the trading details of various entities who had transacted in the scrip of PCML was collected and their trading patterns were analysed along with the data and the volumes contributed by them.
2. The preliminary investigation findings, inter alia revealed that the trades of these entities had largely contributed to the price movement and the false appearance of liquidity and volumes in the said scrip. Shri Pravin Kumar Jain (for brevity’s sake, hereinafter referred to as Pravin) being a client of one of the several brokers who had traded extensively in the scrip of PCML, was also alleged to have facilitated the manipulation in the scrip of PCML.
3. In order to confirm the veracity of these findings during the process of investigation, all the brokers involved i.e. M/s DB & Co (DBC); M/s Shivam Stock Broking Pvt. Ltd. (Shivam), M/s Sanju Kabra (SK) and M/s D.K. Khandelwal registered with SEBI and being members of the CSE were along with their respective clients and directors summoned for examination of their books of accounts and other relevant documents including KYC norms and were also asked to produce other related information viz, trading details etc.
4. Pravin was also summoned by the investigating officer to appear before him to produce the books of accounts with other required documents that he intended to rely upon in his defense. It was also made clear to Pravin that in case he failed to appear on the scheduled date before the investigating authority; necessary action would be initiated against him under the relevant provision of the SEBI Act, 1992 (Act). It has been alleged that Pravin failed to comply with the said summons making him liable for being proceeded against in terms of Section 15A of the Act.
5. Accordingly adjudicating proceedings were ordered against Pravin and in that context I was appointed as the Adjudicating Officer vide the order of SEBI dated June 16, 2006 to enquire into the alleged acts of omissions and commissions by Pravin.
NOTICE/REPLY/PERSONAL HEARING
6. A notice dated December 22, 2006 under Rule 4 of the SEBI (Procedure for holding inquiry and imposing penalties by Adjudicating Officer) Rules,1995 (Rules) was issued to Pravin along with relevant documents annexed thereto with an advice to show cause within 14 days of the receipt of notice, as to why inquiry proceedings should not be held against him in terms of the above said rule and why the penalty as prescribed therein should not be imposed upon him.
7. In reply to the same, Pravin vide his undated letter received at SEBI on January 10, 2007 submitted some information about himself and details of the trades executed for him along with documents to substantiate the same. As certain infirmities were noted in the information so provided, such as the address of Pravin as mentioned in the documents submitted by him, differing from the address reflected in his letterhead etc, a notice of hearing dated April 09, 2007 was sent to Pravin at the address at which the notice to show cause was earlier sent and which was duly acknowledged by Pravin, with an advice to appear before me on April 23, 2007. The said notice was however returned undelivered by the postal authorities with the remark “left”. Another notice of hearing dated June 14, 2007 was sent to Pravin advising him to appear before me for the personal hearing scheduled on June 25, 2007. This notice was sent to the address as was printed on the letter head of Pravin. Once again the letter was returned undelivered with the remark “Left”. In view of the same, I consider it appropriate to proceed in the case based on the material available on record.
APPRECIATON OF FACTS
8. I have carefully examined the contents of the investigation report, the documents available on record and other facts and circumstances relevant to this case. While taking into account, the issues highlighted in the report as against Pravin and the broker who is alleged to have executed trades on his behalf, I consider it necessary to recapitulate certain details of the case as brought out in the investigation report that gave rise to the present proceedings.
9. The average price of the scrip of 'PCML' at the CSE was Rs.14.00 on March 17, 2005 which then went up to Rs.280.40 on September 15, 2005. That is to say, the scrip of PCML witnessed a price rise of 1903% within a period of 5 months and 28 days. Incidentally the scrip of PCML was also suspended from trading at the exchange for various listing irregularities and the company is listed as one of the many vanishing companies, which fact was brought to the notice of the general public by the Ministry of Company Affairs vide Notice dated October 14, 2005.
10. In view of the same, vide an ad interim ex-parte order dated September 29, 2005 passed under Sections 19 read with 11(1), 11B, 11(4)(a) and 11(4)(b) of the SEBI Act, 1992, (Act), SEBI inter alia suspended trading in the shares of PCML on the CSE till further directions and also directed DBC, SK and Shivam not to buy, sell or deal in securities in any manner either directly or indirectly, pending further directions in this regard.
11. The interim order of SEBI dated September 29, 2005 was confirmed by SEBI in the order dated January 12, 2006. The said order also directed that the suspension on the trading in the shares of PCML on the exchange could be withdrawn, subject to the deletion of the name of PCML from the list of vanishing companies as appeared in the Public Notice dated October 14, 2005 issued by the Ministry of Company Affairs.
12. In this context, I have noted on record a letter dated March 9, 2006 addressed by PCML to the Ministry of Company Affairs, Kolkata and another letter dated January 13, 2006, to the Ministry of Company Affairs, Delhi, inter alia requesting for the deletion of the name of PCML from the list of vanishing companies. However there is no evidence on record to verify whether the name of PCML was deleted from the said list.
13. Be that as it may, the findings of investigation has highlighted the involvement of four brokers and their respective clients in the rise of the price of the shares of PCML from Rs.14/- to Rs.280.40/-, primarily because of the nature of the trades executed by them in tandem and the fact that all of them were collectively found to have contributed to the majority of the volume of PCML at the CSE between March 17, 2005 and September 16, 2005. These brokers and their clients are listed below:-
a) DBC and their clients; M/s Bhuwania Vinimay Pvt Ltd (Bhuwania) and TDB;
b) SK and their clients; Bhuwania and Zenser Merchantile Pvt. Ltd. (Zenser);
c) Shivam and their clients; Bhuwania, Zenser, Pravin Kumar Jain and Fine Trade Merchantile Co Ltd;
d) DKK and their clients; Fine Trade Merchantile Co. Pvt. Ltd, Jain Stock & Share Brokers Ltd, Machindra Nath Multi Trade Pvt. Ltd and Silver Flag Trading Co. Ltd.
14. A total of 36,43,606 shares of PCML (both buy and sale) were alleged to have been traded at the exchange. The major brokers who traded in the said scrip were found to be DBC, SK and Shivam while the trades of DKK were alleged to amount to 22,100 shares only constituting 0.6 % of the total volume of PCML at the CSE during the period of investigation (the volume of others i.e. DBC being 41.67%, Shivam being 21.1% and that of SK being 30% of the total volume of PCML at the CSE). The transactions executed by these brokers were together alleged to constitute more than 93% of the trading volume at CSE during the period under investigation. Most of the trades of these brokers were found to be client-to-client trades and executed on a single terminal of the same broker and were so placed that the buy and sale orders were of the same quantity and at the same price in PCML, which led to the price rise and matched trades. Order time of these trades also showed that both buy and sale orders were given either in identical time or within a gap of a few seconds. Instances of matched trades between the selected brokers were also noticed.
15. As per the findings of investigation, the positions of the major clients of DBC, Sanju and Shivam was stated to be as follows :-
|
Name of the client
|
Name of the brokers
|
|
|
DBC.
|
Sanju
|
Shivam
|
|
Qty.
|
% to brokers total volume
|
Qty.
|
% to brokers total volume
|
Qty.
|
% to brokers total volume
|
|
Bhuwania
|
675802
|
44.5%
|
83801
|
7.74%
|
380851
|
49.5%
|
|
Zenser
|
-
|
-
|
46100
|
4.26%
|
223650
|
29%
|
|
Pravin Kumar Jain
|
-
|
-
|
-
|
-
|
48750
|
6%
|
|
Fine Trade Mercantile Co. Pvt. Ltd.
|
-
|
-
|
-
|
-
|
39000
|
5%
|
|
TDB
|
80000
|
5.3%
|
-
|
-
|
-
|
-
|
16. The trades of Shivam through whom Pravin was also alleged to have traded were found to have created large volumes at the exchange as is evident from their turnover in the scrip of PCML given below:-
|
Name of the Member
|
Trading Data
|
|
No. of shares bought
|
% to total buy
|
No. of shares sold
|
% to total sell
|
Total no. of shares
|
% to total buy & sell
|
|
Shivam Stock Broking
|
7,52,950
|
41.33
|
15901
|
0.87
|
7,68,851
|
21.10
|
17. Almost all the trades of Shivam were executed as cross deals (wherein the buying and selling broker was the same) or as synchronized deals (wherein the counter party broker was Sanju Kabra ). The extent of their cross deals and matched trades in the scrip of PCML between March 17 2005 and September 15, 2005 and that with the other brokers is given below.
|
Name of the broker
|
Cross and Matched transactions
|
|
D B & Co
|
Sanju Kabra
|
Shivam Stock Broking
|
D K Khandelwal & Co
|
|
Qty
|
%
|
Qty
|
%
|
Qty
|
%
|
Qty
|
%
|
|
Shivam Stock Broking Pvt. Ltd.
|
3000
|
0.3
|
740250
|
96.2
|
25600
|
3.3
|
22000
|
99.5
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
18. Upon an analysis of the information given above, it appears that the trades of Shivam for their respective clients were executed so as to ensure an apparent increase in the price of the scrip since these trades by Shivam were singly found to have been responsible for raising the price of the scrip of PCML from Rs.199.80 to Rs.280.60. Incidentally SK and Shivam who traded between themselves to a large extent were found to share the same office address i.e. 2, India Exchange Place, 1st Floor, Room No. 2, Kolkata -700 001.
19. The main entities found to have transacted through Shivam and the details of their transactions in the scrip of PCML as per the findings of investigation is as shown below:
|
Sl.
No.
|
Name of the client and address
|
Quantity
|
% to brokers volume
|
|
1
|
Bhuawania Vinimay Pvt. Ltd.
|
3,80,851
|
49.5%
|
|
2
|
Fine Trade Mercantile Co. Pvt. Ltd.(Fine trade)
|
39,000
|
5%
|
|
3
|
Pravin Kumar Jain
|
48750
|
6%
|
|
4
|
Zenser Merchandise Pvt. Ltd.
|
223650
|
29%
|
20. With a view to determine exactly the extent of the nexus between the various brokers, clients and the management/ employees/promoters of PCML as also their respective roles if any, in the manipulation in the scrip of PCML, on the basis of the information that would be obtained and the violations committed by them in the said process, the Investigating officer of SEBI also sent summons to Pravin, among many others to reply and to appear before the investigation authority along with the information as called for, the details of which are as under.
|
Sl.No.
|
Date of Summons
|
To reply by/to appear on
|
Date of reply / appearance
|
|
1
|
March 31, 2006
|
April 10,2006
|
The summons was acknowledged by Pravin and he sought for time to appear before the officer along with documents.
|
|
2
|
April 28, 2007
|
May 9 , 2007
|
The summon was returned undelivered
|
|
3
|
May 17, 2007
|
May 24, 2007
|
The summons was also returned undelivered.
|
21. The extent of the information sought for from Pravin by the investigating officer and the details, if any, as provided by him upon receiving the notice to show cause in the present proceedings is given below: -
i. The address of Pravin. The same was provided.
ii. Name and address of the promoter/director/partner, if the entity is not an individual. The answer was stated to be NIL.
iii. PAN No: The same was provided.
iv. Demat Account Details, which was provided supported by documents.
v. Details of transactions in the scrip of PCML during the period from January 1, 2005 to September 30, 2005 with details of the date, quantity, rate of shares purchased/sold and the dates, if and when the shares were sold /bought during this period and also the holding statement if the shares were still on hold. The same was provided supported with documents.
vi. Copy of the Contract Notes issued by the broker for the transactions in the scrip for the period January 1, 2005 to September 30, 2005. Pravin provided the copies of the Contract Notes issued by Shivam and DBC for the said period supported by documents.
vii. Copy of the relevant statement of accounts issued by the broker for the transactions of Pravin in the scrip of PCML during the period January 1, 2005 to September 30, 2005. Pravin provided the copies of the relevant statement of accounts issued by Shivam and DBC for his transactions in the said scrip during the period January 1, 2005 to September 30, 2005.
viii. Statement of deliveries made to the broker and received from the broker for the transactions in the scrip during the period giving details of the date of transaction. The same was provided with reference to the transactions executed by Shivam and DBC along with supporting documents.
ix. Details of relevant bank transactions, evidencing the receipts and payments from/to the broker for the transactions pertaining to the scrip of PCML. The same was provided along with supporting documents.
x. Details of all off market transactions, if any, in the scrip during the period from January 1, 2005 to September 30, 2005. No reply in this regard was provided.
xi. Details of relationship with the promoters/directors of the company, if any. It was stated that there was no relationship.
xii. Details of relationship with the brokers dealing in the scrip, if any. It was stated that there was no relationship.
xiii. Reasons for trading in this scrip. The same was not provided.
22. I have examined at length the information submitted by Pravin along with the documents submitted in support thereof. From the same what stands out is that the information provided by Pravin brings out certain facts not gathered during the course of the investigation.
23. For instance, while highlighting the role of the major persons who traded in the scrip of PCML, the findings of investigation have inter alia brought out the fact that Pravin was one of the clients who traded in the scrip of PCML and contributed to 6% of the total volume of Shivam in the said scrip. However as per the information submitted by Pravin which is substantiated with the supporting documents viz. copies of the contract note that evidence the details of their transactions in the scrip of PCML during the period from January 1, 2005 to September 30, 2005 including details of the date of purchase, quantity and rate at which shares were purchased during this period and copies detailing relevant bank transactions, it is clear that Pravin had not only transacted through Shivam and purchased 48750 shares of PCML but that he had also traded through DBC and purchased 47150 shares of PCML. That is to say, he had purchased a substantial quantity of shares in the scrip of PCML. Thus as per the information given by Pravin himself, he had in total purchased 95900 shares of PCML through two different brokers, both of whom are alleged to have played a major role in the manipulation of the scrip of PCML. One of these transactions happened beyond the period of investigation i.e. after September 15, 2005 and some at rates higher than the rate deemed to be the highest price of the scrip at the relevant point of time. i.e. Rs 393/- as opposed to Rs 280/-. None of these facts were brought out in the investigation report. It would seem that even DBC did not bring this fact to the notice of the investigating team.
24. Be that as it may, I think it appropriate to highlight some other contextual facts that are relevant to this case. One is that a verification of client registration forms of various entities reveals that various client companies who traded heavily in the scrip of PCML such as Machindra, Silverflag and Fine Trade had common directors. Pravin Sawant; besides being the Director of Machindra Nath was also the director of Silverflag and Fine Trade. These clients i.e. Machindra Nath, Multi Trade Pvt. Ltd, Fine Trade and Silverflag shared common addresses. Fine Trade was also a client of Shivam; who had traded extensively in the scrip of PCML. Besides, Dhruv Narayan Jha, who was found to be one of the common directors of M/s Jain Stock and Share Brokers Limited, was also found to be earlier a director of PCML for more that 4 years i.e. from August 12, 2001 to October 15, 2005 and was found to have resigned from PCML on personal grounds on December 15, 2005 soon after the interim order was passed by SEBI, suspending trading of the shares of PCML. M/s Jain Stock and Share Brokers Limited and PCML were found to share the same office address. Shivam and he shared common addresses. From the client registration forms of Bhuwania and Zenser, (common clients of SK and Shivam) who were found to have purchased 14,10,204 shares of PCML i.e. 1140454 and 269750 shares respectively out of a total of 16,73,803 shares stated to have been purchased in PCML during the period of investigation i.e. 84% of the combined bought position of the three brokers and 77% of the total bought quantity at the exchange, it was noted that Dhruv Narayan Jha was also a director of Bhuwania and Zenser.
25. The facts above stated clearly bring out the nexus between the above discussed brokers, clients, directors and the management/ employees/promoters of PCML which enabled all of them to act in concert while trading in the scrip of PCML.
26. I have examined at length the whole investigation report for any specific finding as is relevant to Pravin and have noted that no facts are placed on record even by the investigation team regarding Pravin’s involvement in the manipulation of the scrip of PCML. There clearly does not appear to be any evidence as against Pravin to highlight his relationship with either the promoters/directors of PCML or even the brokers dealing in the scrip of PCML. Only on three occasions in the entire report is the name of Pravin mentioned. Once to bring out the quantum of his trades with Shivam, the second time to mention his address and the third time to discuss the action to be initiated against them.
27. Highlighting the volume of trades executed by an entity without discussing the nature of the same and their effect on the volumes/liquidity of the scrip cannot in any way establish the culpability of an entity on the issue of manipulation of any scrip. Moreover there are no underlying documents on record to substantiate the finding that Pravin contributed to the manipulation of the scrip of PCML. Clearly in the absence of any evidence on record suggesting the involvement of Pravin, the question of sustaining any charge of his involvement in the manipulation of the scrip of PCML also would seem remote. On his part too, while clearly providing details of the trades undertaken on his behalf, Pravin has categorically denied any relationship with any of the said entities.
28. Considering that Pravin has cooperated in the present proceedings to the extent of submitting the information as sought for by the investigating officer, upon receiving the notice to show cause in the present proceedings, the issue that requires determination is the relevance of his non appearance/non production of documents before the investigating officer at that point of time and whether the same was deliberate and thus hampered the process of investigation initiated by SEBI.
29. It is a matter of record that the first summons was responded to by Pravin in an unsigned letter with a request for additional time. The two summons sent thereafter by the investigation team at the same address i.e. “102, Edward Apts, Evershine Nagar, Malad (West) Mumbai were returned undelivered with the endorsement “unclaimed”.
30. The notice to show cause sent to Pravin in the present proceedings and duly acknowledged by him was also sent to the same address but responded to by Pravin along with the information as detailed above. However the notices of hearing sent to the same address were again returned undelivered with the endorsement “left”.
31. From the above, it does appear that initially Pravin attempted to evade the notice process, probably out of fear of any adverse action, considering the momentum of the investigation proceedings at that point of time but that later on better sense prevailing, he provided the information as sought for. However upon notices being issued in these proceedings seeking his personal appearance, he once again evaded the said notices.
32. In this context, I have examined the provisions of Sections 11C(3) and 11C(5) of the SEBI Act which read as under:
Section 11C(3) :- “The Investigating Authority may require any intermediary or any person associated with securities market in any manner to furnish such information to or produce such books, or registers, or other documents, or record before him or any person authorised by it in this behalf as it may consider necessary if the furnishing of such information or the production of such books, or registers or other documents, or record is relevant or necessary for the purposes of its investigation”.
Section 11C(5): “Any person, directed to make an investigation under sub-section (1), may examine on oath, any manager, managing director, officer and other employee of any intermediary or any person associated with securities market in any manner, in relation to the affairs of his business and may administer an oath accordingly and for that purpose may require any of those persons to appear before it personally”.
33. Further 8(1) of SEBI FUTP Regulations read as under
1) It shall be the duty of every person in respect of whom an investigation has been ordered under regulation 7-
(a) to produce to the Investigating Authority or any person authorized by him such books, accounts and other documents and record in his custody or control and to furnish such statements and information as the Investigation Authority or the person so authorized by him may reasonably require for the purposes of the investigation;
(b) to appear before the Investigation Authority personally when required to do so by him under regulation 6 or regulation 7 to answer any question which is put to him by the Investigation Authority in pursuance of the powers under the said regulations.
34. Thus every entity connected with an investigation process is under an obligation to provide the information as sought for by the Investigating Authority. The decision to call for such information and the judgment as to its relevancy is completely the discretion of the investigating authority and is in furtherance of the discharge of its official duties. It is not for the noticee to question the relevance of the information sought for. The noticee under the summons is only obliged legally or morally, to cooperate with the Investigating Authority and furnish the required information. In case of any evasion of the regulatory provisions of the regulator issued in the interests of the investors, due cognizance should be taken and liability should be fixed thereon
35. Accordingly the provisions of Section 15 A of the SEBI Act, 1992 incorporated in the said statute inter alia provide that in case of failure to furnish any information to the Board, the said action would invite a liability of one lakh rupees to be imposed by the Adjudicating officer for each day during which such failure continues or one crore rupees, whichever is less. At the same time, certain factors are also be taken in to account by the Adjudicating Officer, as is evident from the provisions of Section 15J of the Act which also find mention in Rule 5(2) of the SEBI (Procedure for holding enquiry and imposing penalty by the Adjudicating Officer) Rules, 1995 i.e. the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; the amount of loss caused to an investor or group of investors as a result of the default and the repetitive nature of the default.
36. These factors mentioned above, are to be relied upon with due discretion that is to be exercised judiciously, depending upon the facts and circumstances of each case as well as after analysing all the relevant material available on record.
37. In the present case, there was manipulation in the scrip of PCML accompanied by fraudulent activities by several entities which was bound to have affected a lot of parties in a way, not necessarily expressly highlighted at all times.
38. I am however cognizant of the fact that there is no material on record evidencing the apparent involvement of Pravin in the manipulation of the scrip of PCML. Hence, although he attempted to evade the notice processes and thus failed to provide the information that was essential and crucial to the successful culmination of the investigation proceeding and was also information that was not within the knowledge of the investigation officer, he did cooperate during the present proceedings by submitting the information which was sought for by the investigating officer during the course of the investigation by submitting the required information upon receipt of the notice to show cause issued to him in the present proceedings.
PENALTY:
39. Considering the above and the surrounding mitigating circumstances, I am inclined to adopt a lenient view in the present matter and hence in exercise of the powers conferred upon me under Rule 5 of the SEBI (Procedure for Holding Inquiry and Imposing Penalty by the Adjudicating Officer) Rules, 1995, in the interest of justice, equity and good conscience, think it is appropriate to levy a penalty of Rs. Twenty Five Thousand only (Rupees 25,000/-only ) on Pravin Kumar Jain.
40. The penalty amount shall be paid within a period of 45 days from the date of receipt of this order through a cross demand draft drawn in favour of “SEBI- Penalties remittable to the Government of India and payable at Mumbai” which may be sent to Shri Jayanta Jash, Deputy General Manager, Securities and Exchange Board of India, L&T Chambers, 16, Camac Street, Kolkata 700017.
PLACE: MUMBAI G. BABITA RAYUDU
DATE: JUNE 29, 2007 ADJUDICATING OFFICER