Order against Manyog Investments Pvt Limited

 ORDER UNDER SECTION 11 READ WITH SECTION 11B AGAINST M/s MANYOG INVESTMENTS PVT LTD IN DEALING WITH SHARES OF M/s JYOTI RESINS & ADHESIVES LTD.

1. Manyog Investments Pvt. Ltd (MIPL) was a Sub-Broker registered with SEBI operating from 8/10, Alkesh Dinesh Modi Marg, 31, Khatau Bldg., 2^nd Floor, Bombay 400 023.
2. SEBI conducted investigation into the alleged price manipulation in the scrip of Jyoti Resins & Adhesives Ltd. (hereinafter referred to as JRAL). Investigations, prima facie, revealed that price of the scrip of JRAL was manipulated by Shri Devendra Kantilal Dalal in connivance with the promoters of JRAL. It was further noticed that in the manipulation funds of JRAL and Jyoti Cosmetics Ltd. (hereinafter referred to as ‘JCL’) and a group company of JRAL were also utilised.
   1. JRAL came out with a public issue in the month of September 1994, for 29.8 lac equity shares of Rs. 10/- each for cash at par aggregating to Rs. 298 lacs. The shares of this company got listed at Vadodara (Regional), Ahmedabad, Cochin and Bombay Stock Exchanges.
   2. It was observed that there was abnormal and steep rise in price volume movements in this scrip especially during August 22, 1995 to October 6, 1995. The price rose from Rs.15/- to Rs.181/- during this period. Volumes touched a figure of around 5 lacs shares a day at BSE. It was noticed that during September 18 to October 6, the price moved from Rs.50/- to Rs.181/- per share. Similar trend in price-volume was observed at Vadodara Stock Exchange and Ahmedabad Stock Exchange.
   3. Investigations revealed that shares during this period were purchased in large volumes by one Uditta Investrade Pvt. Ltd (hereinafter referred to as UIPL). UIPL purchased 13,69,500 shares through various brokers and Sub-Brokers. It started cornering shares from 14.8.95 when the price was Rs.10/- and continued to purchase shares when the price moved to Rs.181/-.
   4. During the course of investigations, UIPL and its director Shri Sunil K. Patel revealed that orders for purchase of shares of JRAL were given by Shri. Devendra Kantilal Dalal.
   5. Investigations revealed that the Directors of UIPL were closely associated with management of JRAL. This was evident from the following facts:

1.  
   1. Shri Sunil Kanubhai Patel, a Director of JRAL, in his statement dated 28.11.96 to SEBI stated that though he was a Director of UIPL and signed the documents of UIPL, in fact UIPL was managed by Shri Devendra Kantilal Dalal.
   2. Smt. Jyotika Jagdish Patel, Shri Dinesh Nathalal Patel, Shri Harshad Govindbhai Patel and Shri Chandulal C Patel were the Directors of JRAL. As per the Memorandum and Articles of Association of UIPL, Smt. Abha H Patel and Shri Kanubhai Patel are directors of UIPL. Smt. Abha H. Patel is the wife of Shri Harshad Govindbhai Patel (one of the promoter director of JRAL) and holds 22,500 transferable shares of JRAL under the promoters quota. Shri Sunil K Patel is the brother in law of Jagdish N Patel. The Memorandum and Articles of Association of UIPL, bears signature of Sh. Jagdish Nathalal Patel as witness.
   3. The premises which UIPL occupied in Nov 1994 was owned by Shri Chandulal C Patel (a Directior of JRAL) who is a relative of Mrs. Jyotikaben Jagdishbhai Patel (sister of Sunil K Patel and a Director of JRAL). The premises in which UIPL shifted after August 95 was the registered office of JRAL.

From the above, it is evident that UIPL is company controlled by relatives of promoters and directors of JRAL.

1. Analysis of the funds flow in the books of UIPL revealed that money has flowed into the account of UIPL from JCL and JRAL. JCL is a Group company of JRAL and Shri Jagdish N Patel and Sh. Dinesh N Patel are the common Directors of JCL and JRAL. JRAL has given an ICD of Rs.56.45 lakhs and JCL has given and ICD of Rs.237.1 lakhs to UIPL. The fact that ICD’s were given without any security or guarantee to UIPL (which does not have its own office and whose networth is not more than a few thousand rupees) clearly indicates that the Directors of JRAL and JCL have routed the funds through UIPL for making it available to DK Dalal for rigging the price of JRAL. These facts were confirmed by Shri Sunil K Patel (Director of UIPL) in his statement to SEBI on 28.11.96.
   1. It was revealed during investigations that JRAL had made an application for 500 shares of Rs.10,000/- each of Kanan Lease & Real Fin. Pvt Ltd. (a company owned by Ms. Hemangi Dalal wife Shri Devendra Kantilal Dalal). This indicates that Rs.50 lakhs paid as application money to Kanan Lease & Real Fin. Pvt. Ltd. is the consideration given to Shri Devendra Kantilal Dalal by JRAL for conducting the price rigging operation in the scrip of JRAL. The above facts indicate that the Promoters and Directors JRAL has used and diverted the funds of JRAL and JCL for rigging the share prices of JRAL.
   2. SEBI investigations revealed that major part of the floating stock of the company 21,00,000 shares was cornered at a lower price by Devendra Kantilal Dalal in connivance with promoters through various brokers at BSE, VSE and ASE. This cornering facilitated rigging up of the prices. These purchases were done through the following set of brokers and sub brokers.

• 71 % of the Floating Stock.

1.  
   1. Further, investigations brought out that Shri Devendra Kantilal Dalal, dealt in the name of following entities. These entities acted as front for DK Dalal:

1.  
   1. Swati Stock Holding Company
   2. Samal Stock Holding Pvt. Ltd.
   3. Mahavir Stock Chem Corporate
   4. Havemore Financial Services Pvt. Ltd.
   5. Uditta Investrade Pvt. Ltd.

1.  
   1. Thus, the total purchases by Shri DK Dalal, in Jyoti Resins, was to the extent of 21 lakh shares, which is around 70% of the total floating stock in this scrip. Purchase of such large floating stock resulted in cornering of shares. Continuous purchases, knowing fully well that only limited floating stock was available, led to rigging of prices of the share. Manyog Investments purchased a total of 2,08,400 shares for the entities of D K Dalal. This is evident from the table.

1. Investigations against Manyog Investments Pvt. Ltd. revealed that it has dealt on behalf of the following clients:

1. Uditta Investrade Pvt. Ltd.
2. Swati Stock Holding Company.
3. Mahavir StockChem Corporate

Further the representatives of Manyog Investments in their recorded statements have admitted that they have dealt for Shri DK Dalal in large number of shares apart from JRAL shares.
 
 

1.  
   1. Investigations against Swati Stockholding Co. and Mahavir Stockchem Corporate brought out that these are fictitious entities. Mr. Sunil Patel, Director of UIPL admitted on oath that although on record he is director of UIPL and he had signed the papers of UIPL but for all practical purposes the company i.e UIPL was being managed by Shri DK Dalal. All the credits and debits in this account of UIPL were at the instance of Shri DK Dalal.

5.0 Based on the above findings, a show cause notice dated September 30, 2002 was issued to Manyog Investments & Promoters under Section 11 and 11B of SEBI Act, 1992 read with Regulation 11 of the SEBI (Prohibition of Fraudulent and Unfair trade Practices relating to securities market) Regulations to show-cause as to why suitable direction in the interest of investors and securities market including directions prohibiting the company and its directors/promoters from dealing in securities & accessing the capital market.
 
 

1.  
   1. Manyog Investments vide its reply dated November 20, 2002 has stated that its purchases of JRAL shares during relevant period merely forms part of its sub-broking business and the said purchases were bonafide and without any intention what so ever to manipulate the price in said scrip. Further, it has submitted that they aren’t aware of any nexus between JRAL and UIPL nor it had any knowledge that Mr. DK Dalal through UIPL had cornered a major chunk of floating stock of the company at the time executing the sauda and also the modus operandi of Mr. DK Dalal in collusion with the promoters of the JRAL was not known to it at that time.
   2. An opportunity of personal hearing was also given to Manyog Investments on Fenruary 12, 2003. Shri Manish N. Shah, Director of Manyog Investments appeared before me. While reiterating its submissions made by Manyog Investments vide letter dated November 20, 2002 the director has further submitted that they have co-operated with SEBI in its investigations in all earnest and stated that except for fair sub-broking they did not involve in any fraudulent and unfair trade practices relating to securities market.

6.0 I have carefully examined the facts and circumstances of the case. I have also carefully considered the submissions made by the Director of Manyog Investments before me and also in its letter dated November 20, 2002. It is evident from the table that M/s. Manyog Investments purchased a total of 2,08,400 shares for the entities of Shri D.K. Dalal. After considering the submissions made by Manyog Investments, I believe that the transactions were entered in the normal course of sub broking and not with the purpose to involve in any Fraudulent and Unfair Trade Practices so as to affect the stabilitiy and integrity of the Securities market. Regulation 15 of SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 prescribe Code of Conduct for sub brokers. Clause A (1) & (2) of Schedule II prescribe that "A sub broker shall maintain high standards of integrity, promptitude and fairness and shall act with due skill, care and diligence in conduct of all investment business". Manyog Investments while acting as Sub Broker at that point of time could have been more cautious in observing the above stated principles. However, in light of submissions made before me and also vide its letter dated November 20, 2002 and in the interest of the investors and safety and security of the capital market, in exercise of powers conferred on me under Section 4(3) read with Section 11 and 11B of SEBI Act, I, hereby, warn M/s Manyog Investments Pvt. Ltd. to be more cautious in future in its dealings with securities and adhering to the provisions of SC(R ) Act, 1956, and the Rules made thereunder and the provisions of SEBI Act, 1992 and the Rules and Regulations made thereunder.
 
 Place : Mumbai                 G. N. Bajpai
Date:28.3.03                     Chairman
                                            Securities and Exchange Board of India