Order under Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 read with Section 11 and 11B of SEBI Act, 1992

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Mar 23, 2004

Orders : Orders of Chairman/Members

SECURITIES AND EXCHANGE BOARD OF INDIA

ORDER

Order under Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 read with Section 11 and 11B of SEBI Act, 1992.

CO/210/ISD/03/2004

Date	Shares Issued	Face Value	Price	Particulars
29^th October 1993	700	10	10	Subscription to Memorandum
23^rd April 1994	82,50,000	10	10	Issued to Promoters and Employee’s Trust
21^st October 1994	9,57,49,300	10	10	Public Offer and Firm Allotment
Total	10,40,00,000

1.3 It is observed that on March 31, 2000, GTB allotted 1,48,00,000 equity shares of Rs. 10 each at a premium of Rs. 75 per share to various institutions, Mutual Funds, Bodies Corporate on private placement basis. During the year 1999-2000 International Finance Corporation – Washington, exercised their option to convert the convertible loan of US $ 5 million, given to the company in 1998, into equity shares at a price of Rs. 85 per share.

1.4 The Distribution schedule of the company as on 30^th March 2000 was as follows:

Sr. No.	Category	No. of Shares	Percentage
1.	Foreign Financial Institutions	2,63,56,133	25.35
2.	Non-Resident Indians	5,97,034	0.58
3.	Overseas Corporate Bodies	18,03,000	1.74
4.	FI’s/Banks	7,10,000	0.68
5.	Other Bodies Corporate	2,23,02,550	21.44
6.	Director & Relatives	65,28,526	6.28
7.	Public	3,18,22,227	30.59
	Total	10,40,00,000	100

2.0.SEBI vide its ex-parte order dated 31.12.2002, as an interim measure, prohibited the said promoters and associate entities from dealing in securities of GTB till investigations were completed. After giving a post decisional hearing vide order dated 13.06.2003 the said order was continued. Subsequently, a show cause notice dated 21.10.2003 was issued to the said promoters and the associate entities communicating them the findings of investigation and charges. Following are the charges in the show cause notice:

2.1 The promoters and associate entities sold about 1.31 crore shares in NSE and BSE. These shares were picked up by Ketan Parekh entities in synchronized manner. About 95 lakh shares in NSE and about 36 lakh shares were sold in BSE, by the said promoters and associate entities. Out of the 95 lakh shares sold by the promoters and associate entities in NSE about 77 lakh shares were sold during the period November 22, 1999 to December 08, 1999 and about 18 lakh during September and October 99. Out of these sales almost 86 lakh shares were picked up by KP entities and about 8.5 lakh shares were purchased by DITC, Mauritius based entity, in synchronized manner. Out of the 36 lakh shares sold in BSE during the said period about 28 lakh shares were picked up by KP entities and about 4.5 lakh shares were purchased by DITC/DBMG of Mauritius in synchronized manner.

2.2 It was further alleged that out of the said 1.31 crore shares sold, about 1.14 crore shares were picked up by KP entities and 13.5 lakh shares were purchased by DITC or its sub account DITC/DBMG, in a synchronized manner. The promoter and associate entities were only sellers during the whole period of investigation i.e. November 1999 to February 2000. The said entities have sold most of their shares at the initial period of investigation i.e. between November 1999 to December 1999.During this period the maximum price at which they sold the shares was at about Rs.67 and the average price of the shares was about Rs.52 approximately. The said entities were not purchasing the shares at the time of price rise.

The promoters and the associate entities stated that they were not aware that the buying party is Ketan Parekh or his entities and that they had delivered their shares even before the sale to CSFB as follows:

Date	Shares
17.11.99	300,000
19.11.99	58,18,450
20.11.99	1,00,000
23.11.99	1,41,750
27.11.99	6,00,000
29.11.99	29,750
30.11.99	2,50,000
2.12.99	5,75,000

2.3.A bulk of share of about 58 lakh was already delivered to CSFB much before most of the sales had taken place. One Mr. Sudepto Deb, former employee of CSFB stated that they were aware of the buying interest of the KP entities into the scrip. CSFB coordinated with the KP entities to sell these shares. Further, the member broker ALDAN (now called Mangal Keshav Securities Ltd.) stated that the deals were being coordinated by Shri Niraj Gelli. Shri Niraj Gelli in his statement said that they were never on the phone coordinating the deals at the time of execution of trades and that it was only in the morning hours before the market hours that the promoters used to tell the broker about the sales to be made, and that he was not aware of the buyer. The said statement was enclosed to the show cause notice. Shri. Ramesh Gelli also stated that at the time when they were selling the shares they were down loading the pattern of new holdings and that it was seen in the pattern that director of ALDAN Investments had also purchased about 2 lakhs shares.

The sale made through ALDAN through NSE and BSE were as under:

Date	No of Shares sold
2-9-99	400000
8-9-99	600000
16-9-99	500000
22-9-99	500000
1-10-99	500000
15-11-99	500000
1-12-99	500000
5-10-99	403550
2-12-99	321000
3-12-99	209680

In total about 44.3 lakh shares were sold through ALDAN.

Niraj Gelli in his statement stated that he used to place an order in the morning hours specifying no. of shares to be sold and the brokers would get back with confirmation after trading hours and he had no knowledge about who the buyers were or the exact time at which the transactions were performed and that he had not specified the exact price at which the shares were to be sold and requested the sales to be performed at market price. He had also stated that there were no instructions regarding what time the shares were to be sold and the same was determined by the broker himself. Mr. Ramesh Gelli and Mr. Sridhar Subasri were instructing him the no. of shares to be sold on a particular day. After this Shri Niraj Gelli would call the broker and instruct them the no. of shares to be sold at market price. On receiving confirmation Niraj Gelli would take care of any back office activity as required. He stated that he had no knowledge on who the buyer was and hence could not have been interacting on telephone with the buying broker. He stated that after instructing the broker to sell, he would place the sell order by himself during the day and the other promoters were not on the telephone with him at the instance of execution.

Therefore, the statements given by the member broker ALDAN and by Shri Niraj Gelli were contradictory. Further, CSFB stated that they were aware of the buying interest of the KP entities and used to enquire when the promoters asked to sell the shares that if they were interested in purchasing the shares. Further it was also stated that there was an understanding between the selling broker (CSFB) and the buyer that he would be buying the shares before they started putting the trades.

2.4.It was observed that huge amount of loans were given to KP entities by GTB. The loans given to KP entities during the period April 99 to March 2000 are given as annexure to the show cause notice. In the loans, the funded outstanding is in the form of Overdrafts while Non-fund is in the form of Bank Guarantees. The KP entities were active in the market purchasing the GTB shares during this time. During November 99 to December 99 promoter and associated entities sold about 1.2 crore shares and out of these shares 1.14 crores were picked up by KP entities. The details are as under:

Date	Quantity in BSE (lakh)	Quantity in NSE (lakh)	Approximate Rate (Rs)	Approx Value in (Rs crore)
8-9-99		5.90	31	1.84
19-9-99		3.00	31.9	.96
5-10-99		4.00	34.05	1.36
22-9-99	4.35		29	1.26
1-10-99	2.50		37	.92
15-11-99	5.00		38.5	1.92
18-11-99		1.00	39.35	.39
22-11-99	10.00		41.15	4.1
24-11-99		10.00	45.85/46.05	4.6
25-11-99		13.60	45.6	6.20
29-11-99		3.10	51.05	1.58
1-12-99		9.30	61.90	5.75
2-12-99		10.00	62.5/58.4	5.97
3-12-99		10.00	63.25	6.32
6-12-99	10.00		62.4	6.24
7-12-99	9.5		59	5.60
8-12-99		10.00	67.05	6.70
Total	41.35	79.60		61.75

It was further observed that during October 2000 onwards till January 2001 when the price of the scrip was rising GTB had given about 200 crores to KP entities as loan. It was during this time that the price of the scrip was rising and also there was news of merger of GTB bank with UTI bank during this period.

2.5.JPC Report had following comment on the issue in para 7.30 (viii):

"GTB has provided fund and non-fund facilities to Ketan Parekh entities. GTB has acted as sole clearing banker for broking entities of Ketan Parekh Group and as per requirements of both BSE and NSE all purchases and sales of shares, transacted through the stock exchange are settled through their accounts with their sole clearing banker GTB received obligation statements from both BSE and NSE providing various details and bank has stated that they, on the basis of these obligations statement, are able to monitor usage of funds. Further the Bank has submitted an audit report on utilization of bank funds by Ketan Parekh entities between October 2000 and February 2001 and is satisfied on end use of funds, as also that the loans are not used to trade in GTB shares. RBI has confirmed the same"

2.6.It was observed that on March 31, 2000, the company allotted 1,48,00,000 equity shares of Rs.10 each at a premium of Rs. 75 per share to various Institutions, Mutual Funds, Bodies Corporate on private placement basis. Following are the entities to whom the preferential allotment was made in March 2000:

Sr. no.	Name of the allottee	No. of shares
1.	IFC Washington	1,432,000
2.	Sun F & C Mutual Fund	500,000
3.	Prudential ICICI Mutual Fund	940,000
4.	Kotak Mahindra Finance Ltd.	1,760,000
5.	Nishkalp Investor & Trading Co. Ltd.	5,882,350
6.	Nakshatre Software Pvt Ltd.	600,000
7.	Chitrakut Computer Pvt. Ltd.	719,650
8.	Palmprint Textiles (India) Ltd.	1,000,000
9.	Ama Real Estate Pvt. Ltd.	975,000
10.	MF Properties Ltd.	1,000,000
	Total	14,800,000

2.7.Shri Ramesh Gelli had stated that "the bank was planning to enter into insurance business and was preparing its business plans and had even recruited a few actuaries to work on this insurance plan. Undertaking insurance business through a separate entity was a requirement of possessing a net worth of Rs.500 crores by the bank. He stated that their own projections indicated that the bank might reach a level of Rs.400 crores by March 2000 and hence the bank planned to raise at least 100 crores further equity. He stated that the bank, therefore, took steps to raise the equity and were able to make a preferential allotment of 1.48 crores shares at Rs.85 per share for a total amount of about Rs.125 crores. Further it is observed that two Ketan Parekh entities namely, Chrittrakut Computers Ltd. and Nakshatra Software Ltd. were allotted shares in the said preferential allotment.

It was stated by the promoters that " Tata Finance Ltd. was appointed as the Lead Manager and they were involved in marketing the entire issue. As promoters they discussed with IFC Washington who agreed to make a substantial investment in this issue. Further, promoters stated that they were not aware why KP entities applied for the allotment and at that time they did not see any disqualification in them.

During the course of investigations the proposed merger of Global Trust Bank with the UTI Bank Ltd. was announced on January 24, 2001. Based on this announcement the valuation report was called for from SBI Caps, the manager to the merger. As per the valuation report submitted by SBI Caps four criteria were used for valuation of the two banks and the swap ratio of their shares. The swap ratio arrived at based on each criteria is presented in the following table:

Valuation Method	Global Trust Bank	UTI Bank	Ratio
Maintainable Profits Method	Yield Value Per Share (in Rs.)		2.17
	72.10	33.24
Book Value Method	Book Value Per Share (in Rs.)		2.31
	52.16	22.58
Price Earnings Multiple Method	Price based on Sector P/E (in Rs.)		2.22
	51.40	23.10
Market Price Method	Average Market Price (in Rs.)		1.86
	75.48	40.62

From the above given valuation methods it can be observed that the market price method was one of the criteria used by the SBI Caps for deciding the swap ratio. Based on these swap ratios and some of the qualitative factors, SBI Caps suggested a swap ratio of 2.25 shares of UTI Bank for 1 share of Global Trust Bank. Pursuant to this valuation, another valuation was carried out by Deloitte Haskins & Sells as submitted by Global Trust Bank in March 2001. This valuation also proposed a similar ratio of 2.25 shares of UTI Bank for 1 share of Global Trust Bank.

A second view was taken by UTI bank which was conducted by Delloitte Haskins & Sells. The swap ratio arrived at based on each criteria is presented in the following table.

Company	UB	GTB	Indicative ratio
Net Asset Value
Book Value as on 31.3.2000	18.16	43.52	2.40
Book Value as on 31.12.2000	22.57	52.01	2.30
Intrinsic Value as on 31.12.2000	21.40	57.03	2.66

Intrinsic value as on 31.12.2000 (conservative scenario)	14.91	51.16	3.43
EPS
2 years 9 months ending 31.12.2000 – weighted	4.07	10.63	2.61
1 year 31.3.2000	3.86	8.95	2.32
9 months 31/12/2000 (annualized)	4.58	11.32	2.47
Market Quotes (on NSE)
6 months weighted average price excluding the period from 3/10/00 to 1/1/22000	43.28	81.19	1.88
6 months average of lows	39.90	71.92	1.80
4 months ended 23^rd July 2000	36.07	66.47	1.84

Further it was also stated in the report that "It would be seen that while the net asset value per share would indicate a ratio of around 3:1, the EPS indicates a ratio of around 2.5 to 2.6:1. On the other hand, the market price, which is, inter alia, reflective of the growth potential of the banks, indicates a ratio of around 1.8:1 to 1.9 to 1. In a merger on a going concern basis, the potential earning capacity as reflected by the market prices has to receive a higher weightage especially where the shares of both banks are regularly traded and one of the banks viz. UTI Bank (UB) has a relatively higher PE multiple on account of the institutional backing of UTI and the potential business arising therefore,. This would have the effect of the fair ratio tending towards 2:1, reflecting the extra weightage to the market price. On the other hand an appropriate weightage to the net asset value and the fact that some weightage has to be upwards, towards 2.5:1 which reflects the ratio based on EPS of the two banks. The fact that the market price needs to be given predominant significance as it reflects the perception of the market and the investors as regards the potential earnings capacity of both the banks, and that the merger would result in UTI – the promoter of UB – becoming the largest single shareholder in the merged bank resulting in it getting management control of the merged entity, has to be kept in mind in determining the fair exchange ratio. It was also mentioned in the report that the fair basis for the amalgamation of UB into GTB would be 4 (four) equity shares of GTB of Rs.10/- each fully paid up for every existing 9 (nine) equity shares of UB of Rs.10/- each fully paid up".

However, in April 2001, there was a press release from the Global Trust Bank, which said that the merger between the two banks had been called off citing the reason as the environment not being conducive.

2.8.Investigations revealed that price of the shares of Global Trust Bank were manipulated during the period October 2000 to February 2001 i.e. prior to announcement of proposed merger of Global Trust Bank with UTI Bank. During the period before this the KP entities had cornered large number of shares and the price was manipulated by the KP entities.

Shri Ramesh Gelli replying to a question as to whether during the period October 11, 2000 to November 20, 2000 the price rise of Global Trust Bank Ltd shares were much more than the other new generation pvt. bank shares and whether this would have impacted the merger swap ratio of (UTI Bank with Global Trust Bank Ltd merger) in favour of Global Trust Bank Ltd. stated that the merger discussion between Global Trust Bank Ltd and UTI Bank commenced in middle of December 2000 and concluded by end of January 2001. During the entire period of negotiation the share price of Global Trust Bank Ltd had actually fallen while that of UTI bank had gone up. While considering the merger the swap ratio was evolved by SBI Capital Markets based on four parameters only one of which was connected with the share price. Even this was factored in based on six months average price which would have normally taken care of price fluctuations over shorter period of time. Being only one of the four factors the impact of such price rise over 10 days would have been marginal. Not withstanding this a second valuation was done by . Deloitte Haskins and Sells who ignored the periods of such volatile periods and computed the share price ratio which was again one of the four parameters on multiple approaches and still arrived at the same swap ratio. This abundantly proves that the swap ratio was not influenced by the above stated price movement.

He further stated that in the last method i.e. Market Quotes, the 6 months average price excluding the period from 3.10.00 to 1.12.00 was taken. This covered the period and even four months ended 23rd July 2000 was taken. But both these periods cover the period of April 2000 to August 2000. JPC report no 3 mentions about the manipulations by KP entities in this period also. Swap ratio for amalgamation was not based only on the market value of the share, but certainly it was one of the criteria for justifying the swap ratio.

2.9.The investigations revealed that the promoters and their associate entities acquired, by way of inter-se transfer, 62,50,000 shares on October 18^th, 1999 from GTB's foreign collaborator, T A Enterprise Berhad, Malaysia at a price of Rs.26.60 and 71,50,000 shares on December 6^th, 1999 from another foreign collaborator Hambrecht & Quist Inc., USA at a price of Rs.32.00.The average price at which the promoters purchased these shares was at abour Rs.29.50 per share Approximately 1.37 crore shares were sold in NSE and BSE through brokers ALDAN, NIKKO and CSFB at an average price of around Rs.52.

Out of the said 1.37 crore shares sold at BSE and NSE approximately, 1.14 crore shares were purchased by Ketan Parekh entities and about 0.13 crore shares by DITC/DBMG, through matched/washed/structured deals. Instances of synchronized/structured deals by Triumph International, NH Securities, Milan Mahendra, Nikko, Mukesh BABU Securities, Keynote, Aldan and CSFB were enclosed as ANNEXURE 6, to the show cause notice. The proximity of putting of buy and sale orders, exact matching of rate and quantity clearly show that buy and sell orders were put with a view to ensure matching of the trades between promoter group i.e. no. 1 to 13 of you and Ketan Parekh entities in pursuance to a pre-meditated arrangement. There are hundreds of brokers dealing in same scrip spread across more than 200 cities matching of trades between promoter group and Ketan Parekh entities on almost all the occasions unambiguously indicate that deals were matched/washed/structured/synchronized. Moreover it was admitted by representative of Credit Suisse First Boston and Keynote that transactions done through them were synchronized transactions and buying and selling orders were co-ordinated by Ketan Parekh/Karthik Parekh.

Further, during the period September 1999 to December 1999, large funds were given as loans to Ketan Parekh entities by GTB. During this period only the KP entities had purchased almost all the shares, about 1.37 crore shares at an average price of Rs 52 (approximately) of promoters in a pre negotiated manner. Many times collateral for the loan taken was pay out.

2.10.It was, therefore, alleged that the promoters and their associates indulged in market manipulation and also aided and abetted Ketan Parekh entities in circular trades and cornering of floating stock leading to manipulation of prices in violation of the provisions of Regulation 4 (a), (b), (c) & (d) of the SEBI (Prohibition of Fraudulent & Unfair Trade Practices relating to the Securities Market Regulations) 1995 read with the SEBI Act, 1992.

3.0.In reply to the show cause notice, Shri Ramesh Gelli and Smt. Premkala Gelli along with Shri Jayant Madhav, Shri Girish Gelli, Shri Niraj Gelli, Shri Sridhar Subasri, Shri Annapurna Sridhar, Anjanaya Trades Pvt. Ltd., Chiranjeevi Trades Pvt. Ltd., Gajanan Financial Services Pvt. Ltd., Gajmukh Investments Pvt. Ltd., Kadrish Finance & Invst. Pvt. Ltd. and Bombay Mahalakshmi Trades Pvt. Ltd. submitted their common reply as under:

3.1 They submitted that the promoters were not trading in GTB shares. There were no sales by the promoters during the years 1993-94; 1994-95; 1995-96 and 1996-97. There were negligible sales during 1997-98; 1998-99 and 2000-2001. Only during 1999-2000 the promoters sold large number of shares. They submitted that but for the compulsion they would not have sold their shares.

3.2.They submitted that promoters were under compulsion to sell shares in 1999-2000 and that this was also recognized in the JPC report at para 5.131. The promoters stated that they purchased shares from the technical partners – TA Enterprises and H&O with approvals from RBI and the same was intimated to SEBI and the Stock Exchange.

3.3.Promoters stated that they sold the shares through registered brokers which included CSFB; Aldan (Magal Keshav). The promoters stated that they were not aware of any relationship or nexus between these brokers and Ketan Parekh. They contended that no one including those active in the market / stock exchanges or regulators knew about any such relationship – much less promoters. They stated that in case of other brokers deliveries were made as sales were made by them.

3.4.They contended that they were not selling their shares at any time despite higher prices except under a compelling need in 1999-2000. They stated that they were not aware of any connection between the brokers and Ketan Parekh and that they were not only the sellers during this period. They stated that the total traded volume on NSE and BSE for six months of September 1999 – March 2000 were 10.3 crores shares. They contended that no accumulation of shares by the KP Group or any one else was observed from the downloads to suspect any cornering of shares. They submitted that the only major acquirer was DBMGOF an FII and they had no reason to suspect any malafides in their purchases.

3.5.They stated that they were not aware of price manipulations, if any, and were not beneficiaries. They contended that as per JPC report SEBI analysed the price movements of GTB shares and concluded that the promoters did not benefit from the price rise – JPC report para 5.132 and 5.134.

3.6.They stated that during the period when they sold the shares, there was no undue / sudden price increases and hence sales were done in normal course. They contended that during this period the share price increase of GTB shares showed actually a secular trend. They contended that during this period share prices of many banks had in fact shown a high growth as observed by JPC under para 7.30(iv) of its report. They stated that from 01.09.1999 to 08.12.1999 i.e. over 69 trading days the shares price of GTB moved from Rs.35.60 to Rs.64.45 i.e. 81% increase on NSE and from Rs.35 to Rs.63.20 i.e. 80.5% on BSE and on the other hand, during the said period, certain private sector banks had shown a dramatic movement in their share prices. HDFC bank recorded 100% increase in jut 17 trading days; ICICI bank 104.5% in just 16 trading days etc. Thus shares of other banks had shown a more rapid growth than GTB shares. They stated that on the dates when the promoters sold their shares no spurt in share prices was observed. They submitted that in fact GTB had recorded a 44% increase in profits for half year ended Sept. 99 – a sign for a growth which results were published on 29.10.1999 over corresponding period for the previous year. They, therefore, stated that no special reason need be attributed to the share price movement during the said period come to any conclusion of price manipulations.

3.7. They submitted that if indeed they were aware of price manipulations or any nexus between the brokers and KP they would not have sold their shares early on. They argued that they would have certainly taken benefit of such price increase either by delaying their sales or deferring some sales to later periods or sold more shares during the periods of higher prices. They stated that after 08.12.1999 they did not sell any shares during the year despite a substantial increase in share price. They argued that this prove that the promoters were not aware of any manipulations or acquisitions of shares of KP and there was no intention of benefiting from such price rise.

3.8.They argued that KP group was banking with GTB since 1996 and that he was certainly an important broker after whom a number of banks were after for their business and that nothing could have been suspected in his operations till 2001 March - leave alone in 1999. They contended that the bank had made available normal funding for his business based on turnover and the bank had made sure that no monies were utilized by KP group for buying shares of GTB as confirmed by Internal Audit Report. The fund utilized by the group has utilization of the limits. In fact the accounts were also in credit balances on many days as revealed by the credit summations in the accounts. Therefore, it would be incorrect to relate the banking limits provided to the Group which was banking with GTB since 1996 till March 2001 to sales of shares by the promoters during September to December 1999.

3.9.The promoters further submitted that in its interim report of December 2001 the price movement of GTB was analyzed in four periods as follows:

Period marked as	From date	To date	Price at the beginning of the period	Price at the end of the period
A-A	21.11.99	08.12.99	Rs.43.40	Rs.63.20
B-B	15.12.99	23.12.99	Rs.60.00	Rs.74.60
C-C	30.12.99	10.01.00	Rs.67.00	Rs.81.00
D-D	25.01.00	03.02.00	Rs.78.00	Rs.101.50

3.10.They stated that SEBI also had confirmed that promoters had not sold any shares during the period marked B-B, C-C, D-D. They, therefore, contended that the promoters sold most of the shares purchased from technical partners early on and did not benefit in subsequent price rise / manipulation, if any.

3.11.They further stated that in second interim report of December 2001 it was stated that Ketan Parekh entities purchased GTB shares from bulk sellers and the promoters of GTB in late 1999. They contended that the phenomenon of synchronized trading which was widely prevalent in the market was also found in the above transactions. They argued that SEBI had since confirmed that the synchronized deals are ipso facto not illegal, and that in the screen based trading that is prevalent in the stock exchanges, the buyer or the broker will not be aware of the identity of the seller or broker. They stated that SEBI has further confirmed that most of the GTB shares purchased by KP entities from promoters and others during last quarter of 1999 were placed by Ketan Parekh entities to an FII client, DBMG of Mauritius.

3.12.They further stated that SEBI’s investigation did not show promoter corporate involvement in price manipulation of the GTB scrip.

3.13. The promoters contended that Shri R S Hugar, CMD of the bank in September 2000 confirmed in his deposition to the Committee that in his opinion, there was no nexus between KP group and promoters of GTB. Since, most of the allegations made by SEBI in their investigation report were denied by the Ex-Chairman Shri Ramesh Gelli, SEBI was asked to comment by JPC. In their detailed reply, SEBI confirmed their earlier findings but could not substantiate them. So far as the question of insider trading in concerned, SEBI stated in their reply as under:

"No evidence has been observed so far, which would bring the sale transactions of the promoters within the ambit of Insider Trading Regulations. In none of the three reports submitted to JPC there are any findings indicating insider trading by the promoters".

3.14.They further stated that, GTB provided fund and non fund facilities to Ketan Parekh entities. GTB acted as sole clearing banker for broking entities of Ketan Parekh Group and as per requirements of both BSE and NSE all purchases and sale of shares, transacted through the stock exchange were settled through their accounts with their sole clearing banker. GTB received obligation statements from both BSE and NSE providing various details and bank stated that on the basis of these obligations statement they were able to monitor usage of funds. They contended that the bank submitted an audit report on utilization of bank funds by Ketan Parekh entities between October 2000 and February 2001 and was satisfied on the end use of funds and that the loans were not used to trade in GTB shares.

3.15.They contended that SEBI submitted three investigation reports on GTB and concluded :

1. there was no evidence of insider trading by the promoters;
2. promoters sold their shares in October-December 1999 before the share prices really went up high and have not benefited from the price rise;
3. promoters sold only 90,000 shares during the 12 months period April-March 2001.

They stated that with regard to charge 4, it was vague and disjointed. The submitted that the alleged increase of GTB scrip by 34.86% between 13.10.2000 to 10.11.2000 occurred, happened one year after the alleged purchase of the subject shares by Ketan Parekh entities which was alleged to have taken place between September – October 1999 and 22.11.199 to 08.12.1999. They reiterated that (a) their sales of shares were meager and insignificant during the said period except between 01.09.99 to 08.12.99 under certain compulsions (b) they were not engaged in any synchronization / logging in of trades in a pre meditated fashion / creation of artificial volumes / circular trading / churning of the same stock market manipulation etc. in the alleged picking up of subject shares by Ketan Parekh entities and ‘DITC/DBMG of Mauritius’ (c) they were not aware who the purchase were and that The information and data available from official records did not indicate any significant of owning of shares on Ketan Parekh Group.

They stated that SEBI has itself confirmed that in screen based trading, the buyer or his broker and the seller or his broker will not be aware of the identity of the other. They contended that SEBI also concluded in its report to JPC that there was no insider trading in the sale of the subject shares. They stated that this was also corroborated by the statement of new Chairman – Managing Director of GTB before the JPC that there was no nexus between the Ketan Parekh Group and the answering recipients.

With reference to para no.5 it is reiterated that they were not aware of or involved in the synchronization, if any, in the alleged purchase of the subject shares of the KP entities or DITC or DITC/DBMG. They stated that their sales were completed before the substantial price increase in GTB shares from December 1999 to February 2000. They contended that the JPC report stated that SEBI confirmed that they sold much of the shares early and did not benefit from this rise in price demonstrate that there could not have been any synchronization by answering recipient.

With reference to para no.6, they reiterated that they were not aware of any synchronized or that the counter buying party was Ketan Parekh or his so called ‘entities’ . They stated that they had delivered their shares to CSFB before any sale to a third party.

With reference to para 7, they contended that the statement of Pradip N Pai enclosed with the notice stated that the subject shares were delivered to Adlan before the execution of sales. This statement is false in facts.

With reference to para 6.1, the statement of Mr. Sudepto Deb, they stated that his statement established that there was not synchronization on their part with Ketan Parekh companies in the sale of the subject shares. They stated that Mr. Deb confirmed in his response to Ques. 5 that they had instructed that the shares were to be sold ‘on the screen at the market price’. They argued that his statement indicated that the synchronization, if any, was owing to the arrangement between CSFB and Ketan Parekh in this regard. They further argued that his statement also corroborated the statement of Niraj Gelli that he was not in contact with the brokers at the time of execution of the sales of the subject shares.

With regard to the statement of Ramesh Gelli, it is stated that the downloading of shareholdings from the NSDL was conducted by GTB as a matter of precaution once a month and no major changes or dramatic increase or accumulation or cornering of shares the holding of any particular party appeared in the downloads for the relevant time.

They denied the statement of Pradip N. Pai to the effect that deals were being co-ordinated by Niraj Gelli in particular the statement of Pradip N. Pai in response to Ques. 5 that recipient no.5 would remain on phone till orders were executed and confirmed to him over phone was denied by them.

They contended that while SEBI reported in regard to allegations of market manipulation that CSFB had made a large number of transactions on behalf of entities associated with Ketan Prekh and aided and abetted Ketan Parekh entities in circular trading and in putting fictitious and non genuine trades with a view to creating a misleading appearance of trading and artificial volumes in certain scrips through circular trade, there is no finding of any involvement on their part. They contended that when SEBI was asked to comment on the denial of recipient no.1 before the JPC of any synchronization of trades with Ketan Parekh or manipulation of the GTB scrip, SEBI was, according to the JPC report was unable to substantiate any of its claims in this regard the JPC report stated that Ketan Parekh admitted to having engaged in circular trading with CSFB and there was no mention of any pre arrangement or other involvement of the answering recipient in this regard by him. They, therefore, contended the synchronization or market manipulation concerning GTB shares, if any, was between CSFB and Ketan Parekh without their involvement.

With reference to para No.9 they contended that the contradiction, if any, by Pradip N. Pai of the statement of Niraj Gelli was denied as being false and misleading. They requested SEBI to furnish the so called statement of CSFB referred to therein. They contended that no such statement was enclosed with the notice and that the statement of Mr. Deb who was a former employee of CSFB could not be taken as a statement of CSFB. They further contend that the alleged statement by CSFB did not point to any synchronization or involvement on the part of the answering recipient.

With reference to para 10 they stated that they were unaware that KP entities were active in the market purchasing GTB shares in the period stated. They also denied any knowledge of the table set out in para 10.

With reference to para 10.1 and 10.2, they stated that since the audit report of GTB which was confirmed by the RBI showed that the end use of the funds advanced to Ktan Prekh companies by GTB was correct and they were not used to trade in GTB shares, even assuming without admitting that the price of the GTB scrip was rising at any point between October 2000 and January 2001 as alleged in para 10.1, this was not owing to any trading by these Ketan Parekh companies in GTB shares using the funds of GTB.

They contended that the advancing of funds by GTB to the brokering companies of Ketan Parekh was in keeping with the RBI policy prevailing at this time and also in keeping with GTB’s role as their clearing banker. They stated that in the summary of the Ketan Parekh company accounts with GTB between April 1999 – March 2000 annexed as Annx. 5 to the notice it was established that the sanction in respect of each of these accounts was with a 125% security margin and the security was maintained as per the sanction terms and in line with the outstanding.

They contended that the notice did not anywhere allege that the so called KP entities traded in GTB shares in the period October 2000 to January 2001 and that the only allegation of such trading by KP entities is in respect of the previous year in the period September 1999 to December 1999.

With reference to para 10.1, they stated that there is no allegation that either the promoters or KP entities made any purchase or sales of GTB shares in the period October 2000 to January 2001. They contended that the increase in the share price until mid November 2000 was due to the fact that GTB had a rise in 51.23% of its net profit at Rs.68.60 crore for the half year ended 20.09.2000 as compared to corresponding period in the previous year. With reference to the merger of GTB with UTI they stated that negotiations in this regard started on 15.12.2000 and concluded on 23.01.2001 during which period the share price of GTB fell and that UTI Bank increased.

With regard to para 11 -11.1 they stated that apart from discussions with M/s IFC Washington they did not have any contact with the parties who picked up the preferential shares since all of whom were dealt with by the lead manager. Nakshtra Software Pvt. Ltd. and Chitrakoot Computer Pvt. Ltd. picked up 8.91% of the preferential allotment which constituted 1.09% of the total issued capital of GTB. They stated that they did not suspect any wrong doing in the allotment to these two companies nor was there any allegation of wrong doing in the notice.

With reference to charges at 12 to 14.2, they stated that even assuming without admitting there was a dramatic rise in the prices of GTB from 11.10.2003 to 20.11.2000, this did not influence the swap ratio calculation of either SBI or DHS. As may seen from Annx. 14, in SBI’s calculation the final ratio arrived at was the average of four ratios calculated by four separate methods. Of these four methods, three did not take into account the market price of GTB shares. Even the market price ratio was based on the average of the market price in the six months preceding January 2001. Thus not only did the MPR average out the share price over six months, which in itself attenuates the effect of any sudden and brief hike in prices in this period, the MPR figure was itself averaged with the ratios arrived at by the other three methods. The final figure of 2.25 UTI : 1 GTB share is closer to the ratios arrived at by the Maintainable Profits, Book Value and Price Earnings Multiple Methods than the MPR. The ratio arrived by DH, who was independently appointed by UTI, was the same as that arrived by SEBI even though DHS excluded the period from 03.10.2000 to 01.12.2000 when the price of GTB shares is said to have shown significant increase.

They stated with reference to para no. 13 that the allegation therein is vague and unsubstantiated as no material had been disclosed to show the basis on which the investigations revealed that the price of the shares were manipulated during the period October 2000 to February 2001. They have denied any knowledge of or involvement with the alleged cornering of large number of shares and manipulation of price by KP entities.

With reference to para 14, they stated that in the first place as per Annex. 15, there was a general rise in share prices of banks in the period October to December 2000. This general rise had been confirmed in the JPC report. Secondly, a perusal of the said Annx. 15 revealed that the share price rise of GTB and ICICI was approximately the same for the month of September 2000. The share price rise of ICICI was 14% higher than that of GTB in October 2000. In November 2000, the difference between the highest and lowest rates of GTB is approximately same as that of ICICI. Also the pattern of increase of share prices of GTB was commensurate with the pattern of increase shown by all the other banks including ICICI and UTI. For instance, the percentage increase of most of the banks, including GTB was lower in September 2000 than in October 2000. The percentage increase in November 2000 was higher than October 2000. Banks such as IDBI, UWB and IndusInd Bank showed dramatic increase in November 2000 as compared with their respective share price increases in the previous month. In December 2000, the percentage increase of all the banks including GTB, UTI and ICICI was lower than in the previous months.

With reference to para no.14.2, they stated that the contentions therein are contradictory and unclear. The six month period in the ‘market quotes’ method referred to was from 19.07.2000 to 18.01.2001 excluding the period from 03.10.2000 to 01.12.2000 and does not cover t he period April 2000 to August 2000 as alleged. The allegation that ‘JPC Report no.3 mentions about manipulation by KP entities in this period also’ is also vague and unclear. In the first place, there were no details as to which particular mention in the JPC report of manipulation by KP entities is being referred to here. Secondly, the JPC report found that KP entities were involved in the stock market scam in general but there is no finding that they were specifically involved in the manipulation of share prices of GTB, if any. With regard to increase in period October to December 2000 it is seen that none of the answering recipient were sellers or buyers of GTB shares at this time. Even the KP entities with whom the allegation of abetment is made, have been found not to have been buyers of such shares in this period. The increase in the price is also not disproportionate to the general increase in the bank share prices at this time. In any event, given that neither the answering recipient nor the KP entities are alleged to have been buyers or sellers in this period, no role can be ascribed to the answering recipient as to such price increase.

With reference to para 16, they denied any knowledge, involvement, aiding or abetting of so called KP entities or DITC / DBMG in the alleged matching / washing / structuring / synchronization in the purchase of 1.3 crore GTB shares sold on BSE and NSE. With regard to the proximity on the putting of buy and sell orders and matching of the rate and quantity of shares, they denied having any premeditated arrangement between them and KP entities. With reference to the admission by ‘representative’ of CSFB and Keynote they stated that the alleged admission that the CSFB and Keynote engaged in synchronized transactions and co-ordinated buying and selling orders with the answering recipient.

With reference to para no. 17 they denied that the promoters of GTB sold the said 1.3 crore shares to the so called KP entities in a pre negotiated manner as alleged. They further submitted that proper collateral was taken for the loans and there was nothing irregular either in the grant or utilisation of funds by the KP entities.

With reference to para 18, they denied that they indulged in market manipulation or aided or abetted KP entities in circular trades or the cornering of floating stock leading to the manipulation of share price in violation of Reg. 4(a), (b), (c) and (d) of the regulations read with SEBI Act as alleged.

Even assuming without admitting that there was synchronization as alleged, the fact that the share price movement of GTB in the period September to December 1999 and October to December 2000 was no different to that of other banks in the same period, the synchronization did not have any effect on GTB share prices, and therefore, the sale of the subject shares cannot be said to have distorted the price of GTB shares by any person. They pointed out that there was no allegation of share sales not accompanied by delivery of shares, nor was there any allegation of synchronized purchases of GTB shares by KP entities or any other party after December 1999. They therefore contended that there was no market manipulation within the meaning of Reg.4(a) to (d) of the Regulations.

They argued that SAT held in Sterlite Industries (India) Ltd. v/s SEBI (2001 45 CLA 195) that deceit or fraud is an essential element of the wrong under Reg. 4(a) and (d) of the regulations and no such allegation has even been made. They contended that SEBI had stated before JPC that synchronized deals were ipso facto not illegal.

4.1 Dr. Jayanta Madhab, replied to the show cause notice, separately as under:

1. 1. that he was one of the original promoter of GTB and subscribed to 15 lakh shares at par;
  2. he stated that he was a Director of the Board of the Bank since inception till October 2002 and that he visited Hyderabad in connection with the Board meetings and other formal meetings. He contended that, otherwise, he resided in Delhi and Guwahati and that there had been no meeting nor discussions held with the "Group" on this subject of acquisition or disposition of shares of the "Group";
  3. he contended that he did not engage himself in trading in GTB shares and has not sold or bought any shares on any exchange. He submitted that he sill owned the same number of shares as earlier and that there were no transactions on his account in any stock exchange. He stated that the was not a party to the "Groups" decision on the subject of purchase of shares from the technical partners during the second half of 1999;
  4. he contended that there was no financial gain or loss for answering recipient on the transactions made by the "Group". He stated that he had no financial or other interest in the "Group’s" companies mentioned in the notice;
  5. he argued that the supposition that he was a party to the buying and selling of shares by the "Group" is not correct;
  6. in view of the above, he argued that his name be deleted from the list of noticees of notice under reply and also from all proceedings before SEBI in this regard.

1. Promoters sold shares between September 1999 and December 1999. Promoters were not trading in GTB shares. There were no sales by the promoters during the year 1993-94; 1994-95; 1995-96 and 1996-97. There were negligible sales during 1997-98, 1998-99 and 2000-2001. Only during September 1999 – December 1999 the promoters sold large number of shares as they had to oblige the request of their technical partners to buy their shares as they were exiting. It is clear that but for the compulsion they would not have sold their shares.
2. Promoters were under compulsion to sell the shares in 1999-2000. This is also recognized in the JPC report. Promoters purchased shares from the technical partners – TA Enterprises and H& O with approvals from RBI which approval included purchase price and the same was intimated to SEBI and the Stock Exchange.
3. Between Sept. 1999 and March 2000 there was a general increase in the prices of Bank shares and there were banks which recorded a higher rise than GTB. In 1999 when the promoters sold shares between September to December8th the price moved from Rs.35.60 to Rs.64.45 and this rise was in consonance with general price movement in banking shares. The GTB share price had peaked between 15.12.1999 and 03.02.2000 during which period the promoters were not sellers. Again there was rise in the share price between September 2000 and November 2000 and even during the period the promoters were not sellers while associates sold a meager 90,000 shares only.
4. Thus, it can be seen that the promoters were not selling their shares at any time despite high prices except under a compelling need in September to December 1999. The price rose substantially between December 1999 – April 2001 and there were no sale by promoters during the period. On the other hand there were other investors who sold during the period and made huge profit as reported in JPC report. All shares sold by promoters were through members of stock exchange, entirely by delivery based at the then prevailing market prices. Promoters have not indulged in any trading, day trading or any buy-sell activities.
5. From the details of para 14 it is clear that the promoters have not indulged in creation of artificial markets, in GTB shares. Every sales is delivery based. That is genuine transfer of ownership. There is no significant buying of shares accompanying the sale, which would lend to the charge of creating artificial market / volumes. The transactions are not sham. It is therefore very clear that the sale by promoters have not created any artificial markets.
6. During the period promoters sold the GTB shares there has been no distortion of the price discovery mechanism. This is borne by the fact that through out the period of sale by promoters, the GTB share prices displayed a very secular trend without any abnormalities. An analysis of shares prices clearly brings out the fact that movement of shares prices have smooth with no unusual vertical climb. Every increase is followed by days of correction and decreases which is perfect market response to demand and supply. Also SEBI has in place other safeguards to maintain market equilibrium like daily price bands, that is upper and lower circuit filters. In this instance the sale by promoter group did not affect price discovery. Any conclusion that synchronized sale affect price discovery, appears to be a theoretical probability, which is clearly not supported y empirical data, that price discovery was affected or the actions resulted in distortion of market equilibrium. As a matter of fact SEBI in its order of 13.06.2003 on para 14 have stated "SEBI has evidence that these deals have been entered into by or on behalf of promoter group of GTB in order to create artificial volume and to distort market equilibrium……." It is submitted no such evidence has been provided in the show cause notice and therefore, the charge of SEBI in respect of artificial volume and price distortion is not based on facts and therefore not sustainable.
  1. The following would also bring out the fact that the price movement of GTB during the relevant period of investigation is not abnormal and in line with the share prices of other scrips in the industry.

1.Though SEBI came to the conclusion that the prices of GTB shares were manipulated between October 2000 and February 2001, details of the basis on which SEBI has concluded that there existed manipulation of GTB shares was not provided. For example there are no details on (a) price increase of GTB which was so abnormal and which was not in line with rest of the banking industry or (b) abnormal price volatility in the period (c) any other facts which has lead to the conclusion that the GTB share price were manipulated. In the absence of specific details he contended that the reply to show cause notice cannot be precise, and would necessarily be limited to the promoters understanding of the issues.

2.He stated that there is no statement of reference of any findings on the presence of manipulation between October 1999 and February 2000 in the show cause notice, which is issued on conclusion of the investigation, it is reasonable to presume that SEBI at the end of its investigations, has not found sufficient for making a case of manipulation in GTB shares in October 1999 to February 2000.

3.He contended that, it should therefore, be presumed that the show cause notice relates to price manipulation of GTB shares in October 2000 to February 2001, and the role the promoter group in this regard.

4. He argued that the above conclusion is also strengthened from the order of SEBI of June 13, 2003 para 2 which is as under:

"On the basis of the findings of investigation conducted till 31.12.02 it was inter alia, observed that shares of GTB were manipulated during the period October 2000 to February 2001 i.e. prior to announcement of proposed merger of GTB with UTI Bank. Investigations further revealed, inter alia, that the promoters group entities had indulged in creation of artificial market in the scrip of GTB. Further some of the KP group entities have used other entities to park shares to circumvent the provision of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997".

Thus it is seen that SEBI has found evidence of manipulation in the shares of GTB only in respect of period October 2000 to February 2001, and would like to determine the role of promoters through this show cause notice.

5.He stated that as per the show cause notice the only action of the promoter group, which SEBI has relied to determine the complicity in the manipulation of GTB shares, is the sale of 1.3 crore GTB shares by the promoters on the NSE and BSE between September and December 1999. SEBI holds that the shares sold 1.04 crore shares were picked up by KP entities in a synchronized manner. A further 13 lakh shares were purchased by DITC / DBMG of Mauritius in a synchronized manner. Further at para 16 of show cause notice SEBI has amplified that the proximity of putting of buy and sale orders, exact matching of rate and quantity clearly show that buy and sell orders were put with a view to ensure matching of trades between promoter group and KP entities in pursuance of a pre-mediated arrangement. SEBI later in the same para describes these transactions as matched / washed / structured / synchronized deals. It is based on this alleged single action of the promoters that SEBI has concluded that promoters indulged in manipulation of GTB shares and abetted KP entities on manipulation.

6. He contended that there is no regulation in force, even as of today thereof. The answer is there is no regulation in force, even as of today, that lists synchronized trades as a violation. On the contrary SEBI has confirmed to JPC that Synchronized transactions are ipso facto not illegal. JPC report in the same para also states that such synchronized trades, as noticed in the ale of shares by the promoters was widely prevalent. This fact that the actions of the promoters are not a violation of any regulations, we submit, are sufficient grounds to exonerate and discharge the promoters in this show cause notice. Whatever the description by SEBI of such transactions being washed / structure etc. the same may at best be categorized as not desirable activities. The legal position is clear that a synchronized trade is not a violation of any regulation, there cannot be any consequent charges of abetment, collusion etc.

7.He submitted that the above argument that synchronized trades are ipso facto not illegal was placed in the post decisional personal hearing. Referring to this in its order of June 13, 2003, SEBI has, at para 3, stated the following "In this regard it may be clarified that synchronized deals per se may not be illegal unless some motive of price manipulation, distortion or price discovery mechanism, creation of artificial market is attributed to it. In the present case, SEBI has evidence that these deals have been entered into by or behalf of promoter group of GTB in order to create artificial volumes and to distort market equilibrium in violation of the provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulation, 1995" that the definition of circumstances under which the non violation act of synchronized trade, becomes a violation of Regulation, is a new definition, and at best can only have prospective application and cannot be applied retrospectively in 2003 to an act of sale of shares in 1999.

8. He further argued that, if the act of the promoters’ sale of shares in 1999 is subject to the test of (a) motive of price manipulation; (b) distortion of price discovery mechanism and (c) creation of artificial markets, the following would emerge.

9.The only Act of the promoters in the stock market vis-à-vis GTB shares has been the sale of shares in September – December 1999. The details sale of shares by promoters are as follows:

1. Promoters sold shares during September 1999 to December 1999. Actually during this period share price increase of GTB showed a secular trend. During the period when promoters sold the shares there was no undue / sudden price increases and sales were done in normal course. In fact, during this period there was a general increase in the share prices of banking industry. Actually during the period Nov. 1999 to March 2000 there was substantial increase in higher volatility in the prices of banks shares. Many other banks had higher rise and volatility than GTB.

b. It can be seen from 01.09.1999 to 08.12.1999 i.e. over 69 trading days the share price of GTB moved from Rs.35.60 to Rs.64.45 i.e. 81% increase on NSE and from Rs.35 to Rs.63.20 i.e. 80.5% on BSE. On the other hand during this period certain private sector banks had shown a dramatic increase in their share prices. HDFC bank recorded 100% increase in just 17 trading days; ICICI bank 104.5% in just 16 trading days. UTI Bank 72% in just15 trading days, etc. The rate of average increase per day in the share price of GTB was lower as compared to these banks during this period.

c. Also on the dates when the promoters sold their shares or during the day of sale (i.e. open, high, low and closing prices) no spurt in shares prices are observed. In fact GTB had recorded a 44% increase in profits for the half year ended Sept. 1999 which over corresponding period for the previous year was a significant performance which justifies the price increase. Therefore, no special reason can be attributed to the share price movement during the aid period or on the dates of sale by promoters to come to any conclusions of price manipulations.

With regard to second period i.e. October to December 2000, he submitted that :
1. There was also a general rise in share prices of banks. This general rise has been confirmed in the JPC report. With reference to the observation in the show cause notice para 14, he stated that a number of banks had registered a high increase during the period and nothing peculiar could be noticed in the price rise of GTB shares. He further submitted that in any case promoters were not sellers during this period. As perusal of Annx. B9 revealed that the share price of GTB and ICICI was approximately the same for the month of September 2000. The share price rise of ICICI was 14% higher than that of GTB in October 2000. In November 2000 the difference between the highest and lowest rates of GTB is approximately that same as that of ICICI. Also the pattern of increase shown by all the other banks including ICICI and UTI. For instance, the percentage increase of most of the banks, including GTB, was lower in September 2000 than in October 2000. The percentage increase in November 2000 was higher than in October 2000. Banks such as ICICI, UTI and IndusInd Bank showed dramatic increases in November 2000 as compared with their respective share price increases in the previous month. In December 2000, the percentage increase of all the banks including GTB, UTI and ICICI was lower than in previous month.
2. As regards the increase in GTB share price during October and November 2000, he stated that it is also justified by the fact that GTB had a rise in 51.23% of its net profit at Rs.68.60 crore for the half year ended 30.09.2000 as compared to the corresponding period in previous year.

He further submitted that SEBI has again not produced any evidence of ‘motive’ in respect of the alleged action of synchronized trades. If one were to look at the sales by the promoters, it is seen that while prices of GTB shares peaked between 15.12.1999 from Rs.60 to Rs.101.55 on 03.02.2000, the promoters had not sold any shares during this peak period. Similarly, when the share price moved from Rs.63.85 in Sept. 2000 to Rs.101.55 in Nov. 2000 promoters were not sellers while associates sold a meager 90,000 shares. Thus for a moment assuming that the synchronized trades resulted in price increase, the promoters are not beneficiaries. This fact has also been acknowledged by JPC when it clearly records "…. it therefore appears that promoters sold most of the shares purchased from technical partners early on, and did not benefit in subsequent price rise / manipulation if any". Thus no motive has been established.

With regard to question whether price manipulation helped obtain a more favourable ratio to GTB shareholders and promoters, as a result of manipulation. He contended that this is a non issue. He explained that DHS after ignoring periods of high prices of GTB in the six months preceding the merger arrived at the same swap ratio of 9 shares of UTI Bank to 4 shares of GTB. Hence, the ratio was insulated from any market volatility, and hence no undue benefits accrued to GTB shareholders or promoters. He argued that in any event the merger did not go through.

He stated that subjecting the alleged synchronized trades to the test of accompanying motive, distortion of price discovery mechanism or creation of artificial volumes, it is clear that none of the three conditions exist vis-à-vis promoters. Thus synchronized trades are ipso facto not illegal, and in the present case there is no evidence of presence of any of the three accompanying acts which can make the synchronized trade a violation of regulation.

He submitted that promoters are in no way connected with synchronized trades, and this would place them away even from any shadow of violation.
1. Promoters sold the shares through registered brokers which included CSFB; Aldan and Mangal Keshav. The promoters were not aware of any relationship or nexus between these brokers and Ketan Parekh (KP). (we suspect no one including those active in the market / stock exchanges or regulators knew about any such relationship – much less promoters). Promoters delivered shares to CSFB even before sale were made by CSFB. In the case of other brokers deliveries were made and when sales were made by them and informed to us.
2. Promoters were not aware of or involved in the synchronization, if any, in the alleged purchase of the subject shares by the KP entities of DITC or DITC/ DBMG. As can be seen, stales by the promoters were completed much before the substantial price increase in GTB shares from 15.12.1999 and did not benefit from this rise in price demonstrates that there could not have been any synchronization by the promoters.
3. Promoters were not aware of any synchronization or that the counter buying party was Ketan Parekh or his so – called "entities". The promoters had delivered their shares to CSFB before any sales to a third party. In regard to the statement of Mr. Sudepto Deb of CSFB provided by SEBI, the promoters state that this statement establishes that there was no synchronization on the part of the promoters with Ketan Parekh companies in the sale of the subject shares. Mr. Deb confirms in his response to Ques. 5 that the promoters had instructed that the shares were to be sold "on the screen at the market price". His statement indicates that the synchronization, if any, was owning to the arrangement between CSFB and Ketan Parekh and there was not involvement whatsoever of the promoters in this regard. In any event the alleged statement of CSFB that they were aware of the buying interest of the so called KP entities and upon receiving sell orders from the promoters would check whether the KP entities were interested in purchasing the same and that the latter would purchase the shares before CSFB put the trades does not point to any synchronization or involvement on the part of the promoters. Mr. Deb’s statement further states that selling transactions were to be carried out after tock was transferred to their account and post confirmation from the operations department. This statement also corroborates the statement of the promoters reply that he was not in contact with the brokers at the time of execution of sales of the subject shares.
4. The statement of Pradip N. Pai enclosed with the notice under reply states that the subject shares were delivered to Adlan before the execution of sales. This is contrary to facts. The statement of Pradip N. Pai to the effect that deals were being co-ordinated by promoters representatives is denied. In particular the statement of Pradip N. Pai in response to Ques. No.5 that promoter would remain on the phone till orders were executed and confirmed to him over the phone is denied. This could not have been possible as there were four to five trades done by this broker on a particular day and it would not have been possible that someone is on the line all through co-ordinating the sale. Further the statement says that as soon as they came to know KP Group was involved in the purchase of shares they called off sales on behalf of promoters. The fact that they were the selling brokers from the beginning to the end, that is Sept. 1999 to Dec. 1999 clearly indicates that the statement is not true. Thus Mr. Pai’s statement is false and misleading.
5. With regard to the reference to the statement of Mr. Ramesh Gelli, it is stated that the downloading of shareholdings from the NSDL was conducted by GTB as a matter of precaution once a month and no major changes or dramatic increase or accumulation or cornering of shares in the holding any particular party appeared in the downloads for the relevant time as may be seen from the table of shareholders of GTB enclosed hereto. There were no large accumulation of shares by KP entities as the peak holdings by the group in Oct. 99 was 0.08%; Nov. 99 was 0.02%; Dec. 99 was 3.53% Jan 2000 was 1.91% and in Feb. 200 was 1.42%.
6. He argued that if the promoters were aware of KPs interest or his alleged manipulations they would not have sold their shares at prices that were much lower than peak prices. Also, that there were cross deals between CSFB and KP Group and that a director of Aldan had purchased GTB shares for himself suggests that they could have been in the knowledge or understanding with KP group.

He explained the position with regard to synchronized trades as follows:

As regards purchase of shares by KP group his concerns, the details are as follows:
1. Promoters sold the shares through registered brokers which included CSFB; Aldan and Magal Keshav. The promoters were not aware of any relationship or nexus between these broker sand Ketan Parekh. (KP) Promoters delivered shares to CSFB even before sales were madeby CSFB. In the case of other brokers deliveries were made as and when ales were made by them and informed to them.
2. Promoters were not selling their shares at any time despite high prices except under a compelling need in 1999-2000. They were not aware of any connection between the brokers and KP. They were not the only sellers during this period. No accumulation of shares by the KP Group or any one else could be observed from the downloads to suspect any cornering of shares. The shares were purchased by KP group in the last quarter of 1999 were said to placed by KP entities to an FII client. The only major acquirer was DBMGOF an FII and the promoters had no reason to suspect any malafides in their purchase.
3. Promoters were not aware of price manipulations – if any, were not beneficiaries. Promoters completed sale of shares much before the high increase in GTB share price, which was post Dec.16 1999. The promoters did not benefit from the price rise.

Having established that promoters have nothing to do with the process of sale and any consequent violation thereof, we now would like to take up the issue of whether there is any cause – effect relationship between the sale between the sale of shares by promoters in Sept. to Dec. 1999, which contributed to the market manipulation in the GTB shares in Oct. 2000 to Feb. 2001. Firstly, it is too stretched to assume that sale in 1999 can lead to manipulation more than one year later in Oct. 2000 to Feb. 2001. Even so SEBI has produced no facts to substantiate promoters role in market manipulation. Thus it is not SEBI’s charge that promoters are directly involved in manipulation. The only inference that can be drawn from the statements made by SEBI is that the promoters by selling shares to KP entities in a pre-mediated fashion in 1999, abetted and enabled market manipulation by KP entities year later.

In this regard it may be noted sale of shares by promoters and purchases made by KP are independent, unconnected activities and cannot constitute abetment. If the selling brokers had acted in a way that violates SEBI Regulations, promoters cannot be responsible for the same.

A key element of SEBI’s charge of abetment by promoters is that the shares sold by the promoters in a pre mediated manner were subsequently used to manipulate the share price. Without prejudice to the position that promoters are not involved in the premeditated sale, it is submitted that this inference of SEBI is not correct. JPC report quoting SEBI reads as follows:

"SEBI has further confirmed that most of the GTB shares from promoters and others purchased by Ketan Parekh entities during the period of last quarter of 1999 were placed by Ketan Parekh entities to an FII client DBMG of Mauritius"

The promoter entities of Global Trust Bank acquired 1.44 crore shares @Rs.26.60 / @ Rs.32.00 from the foreign collaborators – TA Enterprise behard, Malaysia and Hambrent & Quist USA. During Sept. to Dec. 199, 1.31 crore shares out of the (1.44 crore) sold by promoter group and other were purchased by Ketan Parekh entities through matches / washed / structured / synchronized deals and were placed with an FII client and made a profit of Rs.2.46 crore"

From the above, it is clear that KP entities sold the shares almost immediately for profit, and such shares bought from promoters were not available for manipulation in Oct. 2000 to Feb. 2001. As the shares sold by the promoter group are not the shares used for manipulation in Oct. 2000 to Feb. 2001, SEBI charge of abetment by the promoter falls. The shares sold by promoters were already placed by KP entities to clients and were not available for manipulation before merger in Jan 2001or before preferential offer in March 2000.

From all the above it is clear that the promoters have not violated any regulation by their simple and single act of sale of shares in 1999. SEBI has placed two other facts side by side with sale of shares. These are loans by GTB to KP entities and preferential offer of shares in March 2000, in which some shares were also allotted by GTB to KP entities. SEBI has not reasoned any wrong doing in the Bank Loan or in the preferential allotment.

However, to obtain a complete picture all facts relating to both the above are given below:

As regards loans given by the bank to Ketan Parekh group are concerned the detail are as follows:
1. KP group was banking with GTB since 1996 and was certainly a large and an important broker and a number of banks were after for their business. Nothing could have been suspected in his operations till March 2001 – leave alone in 1999. The advance of funds by GTB the brokering companies of Ketan Parekh was in keeping with the RBI policy prevailing at this time and also in keeping with GTB’s role as their clearing banker. In the summary of the Ketan Parekh company accounts with GTB between April 1999 – March 2000 annexed to the notice as Annexure -5, it is established that the sanction in respect of each of these accounts was with 125% security margin and the security was maintained as per the sanction terms and in line with the outstanding.
2. The banks had made available normal funding for his business based on his turnover and the bank had made sure as standard procedure that no monies were utilized by the KP group or any broker for buying shares of GTB. The fund utilization by the group has been studied and it can be seen that there was nothing unusual in their utilization of the limits. In fact the accounts were also in credit balance on many days between Sept. to Dec. 1999 as revealed by the credit summations in the accounts. Therefore, it would be incorrect to relate the banking limits provided to the group which by the promoters during Sept. to Dec. 1999. Further the internal audit of GTB has also made a detailed study of loans to KP group going through every transaction, audit has found that no loan from GTB was utilized to fund GTB shares. RBI has also confirmed the same. (JPC report para 5.130 and para 7.30 (iii) and further that the end use of the funds advanced to Ketan Parekh companies by GTB was correct (first two line of para 5.128 of JPC report).
3. Also during the period under reference the aggregate outstanding of KP Group as at the end of the month are as follows: Oct. 99 – Rs.7.82 crores; Nov. 99 – Rs.27.37 crores; Dec. 99 – Rs.22.15 crores; Jan 2000 – Rs.30.59 crores and Feb. 2000 – Rs.15.92 crores. These outstandings are reasonable as related to his normal business. Further, the group fund based outstandings on two important dates 18.11.99 was Rs.10.7 crores which came down to Rs.13.8 lakhs on 08.12.99. Also the summary of loan utilization shows that at may points in the relevant periods the accounts showed positive balance.
4. The promoters submit that KP group was a major, much sought after profitable account. All loans were approved after due appraisal at the branch level and corporate banking dept. level. The loan amounts were fully justified as the KP group had turnover in excess of Rs.1,26,726 crores, a fact also confirmed by RBI.

21. As regards the preferential issue made by the bank the position is as follows:

a. Banking was planning entry into insurance business and its internal projections had shown that there would be a net worth shortfall in achieving the required Rs.500 crores. This gap according to the promoters was proposed to be covered by preferential offer of equity shares.

b. The promoters submit that the bank made a preferential allotment of 148 lakh shares in March 2000 and the issue was arranged by Tata Finance and shares placed through book – building method. In view of the FIPB approval required applications were not sought from FIIs, NRIs and OCBs.

c. There were ten allottees in the preferential allotment. Apart from IFC, Washington, marketing was done in all cases by Tata Finance. Al applications were scrutinized and forwarded by Tata Finance. In case of Nakshatra Software and Chitrakoot, Board did not find anything unusual. In any case the allotment together was about 1.09% of the issued capital of the bank. Promoters had held discussions only with IFC – Washington and no other investors.

Also at that point of time there was no apparent reason for any of the application to be considered ineligible, and hence Board did not reject any of the application. It would have been impossible for anyone to have then though of any relationship / involvements between various parties.

22. Shri Ramesh Gelli after the personal hearing of 24.12.2003, vide his letter dated 02.01.2004 submitted the following :

1. He stated that during the period October 2000 to February 2001 where SEBI has found that there has been market manipulation prior to merger announcement, they have represented to SEBI that during the period January 2000 to February 2001 promoters have not sold any shares and their associates have sold an insignificant number of shares (90,000) during the period. They further submit that the price rise was in consonance with the general price rise observed in the shares of many banks and in case of GTB share price movement was also supported by the high profits it has declared. The contemplated merger was not affected by the price movement as confirmed by a second valuation report. The Governor, Reserve Bank of India also stated before JPC that there was nothing illegal in it. In any event the merger did not happen.
2. He further submitted that as regards the sale by the promoters during the period September 1999 to 08.12.1999, there is no charge of manipulation during this period. However, he stated that they have explained that (a) Promoters were under compulsion to sell the shares (b) the promoters sold the shares on exchange and brokers were instructed to sell the shares "On the screen at the market price" as per their owns statements (c) Promoters sold the shares before the price rise and did not benefit from this high increase (d) In any case the price rise was in line with general price increase in bank shares (e) No accumulation of shares by KP Group could be observed from the list of share holders as downloaded from NSDL.

5.1 I have gone through the show cause notice, replies thereto of the promoters and their associates and the investigation report. On considering the above the following issues will arise for consideration:

1. Whether GTB Shares were manipulated?

It is an admitted fact that the prices of GTB shares rose from Rs.31 on 08.09.99 to Rs.67 on 08.12.99. It is further admitted that the prices of the scrip rose from Rs.68.70 on 13.10.2000 to Rs.92.65 on 10.11.2000. It was contended on behalf of promoters and their associates that no details as to whether the price increase of GTB was not in line with the rest of the banking industry or that there was abnormal price volatility during that period or that the share prices were manipulated. They further contended that SEBI admitted before JPC that there was no manipulation during October – November 1999 to February 2000. They stated that the allegation of manipulation was limited to the period from October 2000 to February 2001. It was further contended by them that as per SEBI’s interim order dated 13.06.2003 it was recorded that manipulation was there during the period October 2000 to February 2001 only.

In the reply to the show cause notice, it was contended on their behalf that they never sold shares of GTB from the year 1993 to 1999. They sold shares only in 1999-2000 out of compulsion. In proof of the same, they have furnished details of holding during the period 01.04.2000 to 31.03.2001 which according to them, show the unchanged position of holdings. They contended that JPC Report also had a reference to this. They quoted the extract of JPC Report as under in Annexure 2 to their reply :

" To the question whether it was a fact that the promoters of GTB had bought shares of …."

After considering the above reply and the charge, I note that the volume of the trades in the scrip of GTB in the relevant period was substantially contributed by the promoters and their associates by their sales. Without their transactions, the volumes could not have been high. The price volume data of the scrip in the relevant period is as under:

Date	Total Traded Qty on NSE	Volume
1-Sep-99	26100	11500
2-Sep-99	427130	8619
3-Sep-99	103916	29007
6-Sep-99	276444	70140
7-Sep-99	174755	72405
8-Sep-99	970546	94150
9-Sep-99	647850	209499
10-Sep-99	329558	149125
14-Sep-99	246550	67785
15-Sep-99	142415	34520
16-Sep-99	1260103	61270
17-Sep-99	175285	130946
20-Sep-99	114975	167306
21-Sep-99	417786	377370
22-Sep-99	256361	745506
23-Sep-99	162356	135226
24-Sep-99	191466	182620
27-Sep-99	374076	240421
28-Sep-99	266026	161223
29-Sep-99	834269	493877
30-Sep-99	654349	496166
1-Oct-99	995687	482270
4-Oct-99	373341	182649
5-Oct-99	1035139	213940
6-Oct-99	220211	90776
7-Oct-99	343571	118289
8-Oct-99	484887	227631
11-Oct-99	662925	229307
12-Oct-99	773892	345469
13-Oct-99	653586	274568
14-Oct-99	343066	225029
15-Oct-99	236418	201666
18-Oct-99	377666	175760
20-Oct-99	155750	94931
21-Oct-99	101524	55760
22-Oct-99	135058	91634
23-Oct-99	133835	107400
25-Oct-99	200215	138958
26-Oct-99	275717	84650
27-Oct-99	194774	44000
28-Oct-99	126600	111931
29-Oct-99	230936	77762
1-Nov-99	720390	114071
2-Nov-99	391412	46480
3-Nov-99	219250	21830
4-Nov-99	110459	55748
5-Nov-99	76338	21402
7-Nov-99	53456	47441
9-Nov-99	218529	44819
10-Nov-99	113979	47427
11-Nov-99	65315	554651
12-Nov-99	55394	49532
15-Nov-99	120593	53592
16-Nov-99	148728	22925
17-Nov-99	118843	52110
18-Nov-99	786985	1209104
19-Nov-99	133895	712717
22-Nov-99	837879	273666
24-Nov-99	1703275	636564
25-Nov-99	2508652	5700
26-Nov-99	3647679	5950
29-Nov-99	1774271	83600
30-Nov-99	932067	347865
1-Dec-99	2143446	199513
2-Dec-99	2166506	1422055
3-Dec-99	1727038	1485991
6-Dec-99	672533	365836
7-Dec-99	1400890	1121576
8-Dec-99	2034338	878017
9-Dec-99	367576	199964
10-Dec-99	271391	846040
13-Dec-99	655518	115652
14-Dec-99	1046694	345609
15-Dec-99	285841	335650
16-Dec-99	499809	335938
17-Dec-99	666194	272218
20-Dec-99	834893	713891
21-Dec-99	605210	336277
22-Dec-99	1031613	195137
23-Dec-99	335950	36818
24-Dec-99	314477	95150
27-Dec-99	201371	48865
28-Dec-99	533724	125275
29-Dec-99	84700
30-Dec-99	134759

From the above it can be found that the scrip was artificially traded with high volumes without there being natural market for them. Manipulation of the scrip need not be in the prices but in several occasions manipulation was seen in creation of artificial volumes also. This created artificial interest in the scrip among the investors who were attracted by the high volumes. Therefore, I hold that the scrip of GTB was artificially manipulated by creating high volumes during the above period.

In the second instance, it is also admitted fact that the scrip was manipulated both on price and volumes. The price rose from Rs.68.70 to Rs.92.65 showing an increase of 34.86% from 13.10.2000 to 10.11.2000.

I therefore, hold that the scrip of GTB was artificially manipulated by creating high volumes during the above period.

2. Whether the promoters and associate of GTB indulged in market manipulation?

It is an admitted fact that the promoters and associate entities sold about 1.21 crore shares in NSE and BSE. It is also an admitted fact that these shares were picked up by Ketan Parekh entities. Out of the 95 lakh shares sold by the promoters and associate entities, almost 86 lakh shares were picked up by KP entities and about 8.5 lakh shares were purchased by DITC, Mauritius based entity. Out of the 36 lakh shares sold in BSE during the said period about 28 lakh shares were picked up by KP entities and about 4.5 lakh shares were purchased by DITC/DBMG of Mauritius. They however, disputed that they were ever done in synchronized manner.

It is noted that the promoter and associate entities were the only sellers during November 1999 to February 2000. This was not disputed by the said entities. During this period the maximum price at which they sold the shares was at about Rs.67 and the average price of the shares was about Rs.52 approximately. It is noted that the price of the scrip rose from Rs.38.5 to Rs.67 in the relevant period. It is further noted that the said entities were not purchasing the shares at the time of price rise.

Admittedly, the said entities sold their shares through the following brokers :

CSFB

Mangal Keshav

Aldan

It is noted that all these three brokers were acting on behalf of KP entities also. Almost all the sales made by the said entities as above were purchased by the said Ketan Parekh entities except the one purchased by an FII called DITTC.

The following are the sales made by the said entities through CSFB :

Date	Shares
17.11.99	300,000
19.11.99	58,18,450
20.11.99	1,00,000
23.11.99	1,41,750
27.11.99	6,00,000
29.11.99	29,750
30.11.99	2,50,000
2.12.99	5,75,000

The following are the sales made by the said entities through Aldan and Mangal Keshav.

Date	No of Shares sold
2-9-99	400000
8-9-99	600000
16-9-99	500000
22-9-99	500000
1-10-99	500000
15-11-99	500000
1-12-99	500000
5-10-99	403550
2-12-99	321000
3-12-99	209680

The said sales by the entities were instantaneously matched by the buy order of KP entities. The details of such matched and synchronized deals are already furnished as Annexure 6 to the show cause notice. The following are the instances where promoters of GTB have sold the shares and these shares are purchased by KP entities in synchronized manner:

These are few instances where Promoters of GTB have sold the shares and these shares are purchased by KP entities in synchronized manner

Trade Date	B ord time	S ord time	Trade Time	Buy / Sell / Trade Price	Trade Qty	Buy Order Qty	Sell Order Qty
								18-Nov-99	12:20:18	12:20:17	12:20:18	39.35	100000	100000	100000
								18-Nov-99	12:24:39	12:24:40	12:24:40	39.35	90000	90000	90000
18-Nov-99	12:25:00	12:25:00	12:25:00	39.35	99926	100000	100000
18-Nov-99	12:25:25	12:25:25	12:25:25	39.35	84926	85000	85000
18-Nov-99	12:25:57	12:25:56	12:25:57	39.35	99926	100000	100000
18-Nov-99	12:26:13	12:26:14	12:26:14	39.35	24726	25000	25000
18-Nov-99 Total					499504	500000	500000
24-Nov-99	10:46:58	10:46:59	10:46:59	45.85	148200	150000	150000
24-Nov-99	10:47:08	10:47:08	10:47:08	45.85	148200	150000	150000
24-Nov-99	10:47:25	10:47:27	10:47:27	45.85	148200	150000	150000
24-Nov-99	10:47:49	10:47:49	10:47:49	45.85	147200	150000	150000
24-Nov-99	10:47:59	10:47:59	10:47:59	45.85	38300	41000	41000
24-Nov-99	11:01:27	11:01:29	11:01:30	46.05	149300	150000	150000
24-Nov-99	11:01:44	11:01:45	11:01:45	46.05	149200	150000	150000
24-Nov-99	11:01:57	11:01:58	11:01:58	46.05	57900	59000	59000
24-Nov-99 Total					986500	1000000	1000000
25-Nov-99	14:25:25	14:25:27	14:25:27	45.6	199000	200000	200000
25-Nov-99	14:25:45	14:25:47	14:25:47	45.6	198300	200000	200000
25-Nov-99	14:27:05	14:27:06	14:27:06	45.6	191454	200000	200000
25-Nov-99	14:28:32	14:28:33	14:28:33	45.6	191451	200000	200000
25-Nov-99	14:29:08	14:29:06	14:29:08	45.6	196625	200000	200000
25-Nov-99	14:33:17	14:33:19	14:33:19	46	189400	200000	200000
25-Nov-99 Total					1359681	1400000	1397251
26-Nov-99	14:36:43	14:36:43	14:36:43	45.3	150000	150000	150000
26-Nov-99	14:37:10	14:37:09	14:37:10	45.3	150000	150000	150000
26-Nov-99	14:37:34	14:37:34	14:37:34	45.3	150000	150000	150000
26-Nov-99	14:38:00	14:38:00	14:38:00	45.3	149700	150000	150000
26-Nov-99	14:38:40	14:38:40	14:38:40	45.35	150000	150000	150000
26-Nov-99	14:39:04	14:39:04	14:39:04	45.35	100000	100000	100000
26-Nov-99 Total					849700	850000	850000
29-Nov-99	11:13:49	11:13:50	11:13:50	51.05	144900	150000	150000
29-Nov-99	11:14:50	11:14:51	11:14:51	51.05	29300	46450	46450
29-Nov-99 Total					174200	196450	196450
01-Dec-99	10:31:38	10:31:39	10:31:39	60.85	224750	225000	225000
01-Dec-99	10:31:51	10:31:51	10:31:51	60.85	224900	225000	225000
01-Dec-99	10:32:25	10:32:25	10:32:25	60.85	145850	146450	146450
01-Dec-99	11:31:44	11:31:44	11:31:44	61.9	80400	90000	90000
01-Dec-99	11:32:04	11:32:03	11:32:04	61.9	79300	90000	90000
01-Dec-99	11:32:24	11:32:25	11:32:25	61.9	78300	90000	90000
01-Dec-99	11:33:55	11:34:22	11:34:22	61.9	74300	90000	90000
01-Dec-99	11:34:45	11:34:45	11:34:45	61.9	21550	43550	43550
1-Dec-99 Total					929350	1000000	1000000
02-Dec-99	10:19:01	10:19:03	10:19:03	58.35	199700	200000	200000
02-Dec-99	10:19:16	10:19:15	10:19:16	58.35	200000	200000	200000
02-Dec-99	10:19:31	10:19:29	10:19:31	58.35	195850	200000	200000
02-Dec-99	10:19:53	10:19:53	10:19:53	58.35	76650	79000	79000
02-Dec-99	14:49:49	14:49:50	14:49:50	62.5	150000	150000	150000
02-Dec-99	14:50:11	14:50:12	14:50:12	62.5	150000	150000	150000
02-Dec-99	14:50:23	14:50:23	14:50:23	62.5	21000	21000	21000
2-Dec-99 Total					993200	1000000	1000000
03-Dec-99	13:00:36	13:00:36	13:00:36	63.25	198683	200000	200000
03-Dec-99	13:00:56	13:00:53	13:00:56	63.25	198183	200000	200000
03-Dec-99	13:01:49	13:01:49	13:01:49	63.25	198983	200000	200000
03-Dec-99	13:02:22	13:02:23	13:02:23	63.25	189303	190320	190320
03-Dec-99	13:48:09	13:48:09	13:48:09	63.5	209242	209680	209680
3-Dec-99 Total					994394	1000000	1000000
08-Dec-99	13:53:39	13:53:38	13:53:39	67.05	279475	300000	300000
08-Dec-99	13:54:57	13:54:57	13:54:57	66.25	300000	300000	300000
08-Dec-99	13:55:17	13:55:17	13:55:17	66.25	400000	400000	400000
8-Dec-99 Total					979475	1000000	1000000
Grand Total					7766004	7946450	7943701

From the above, it is evident that every time there was a sell order, one or the other KP entity was buying without any time gap. In their reply the entities denied having entered into any synchronized trades. They stated that they were not aware that the brokers with whom they were dealing were having any nexus with Ketan Parekh. Promoters stated that they delivered shares to CSFB before the sales were made and other brokers on confirmation of the sale. However, Shri Padip Pai of Aldan Investments, in the statement dated 31.01.2003 stated interalia, as under:

" The orders used to be placed by Shri Niraj Gelli on phone from Hyderabad. He used to be on the phone and tell us to put the order immediately at a particular price and quantity. Immediately, the orders, as instructed by Shri Gelli, used to be entered by us. The same used to get executed immediately. He used to remain on the phone till all these orders were executed and confirmed to him over the phone. The first time, we never suspected anything. However, when subsequent orders got to be executed immediately, we felt that Shri Gelli must be coordinating these trades and must be arranging for the buying broker also who would match our sell orders. Immediately we stopped the dealing with Shri Gelli and did not take any further orders from them".

The said statement was denied in the reply filed by the entities. Further Shri Niraj Gelli and Shri Ramesh Gelli in their respective statements contradicted the said version. The statement of CSFB is very clear which stated that there was an understanding between the broker and the buyer i.e. KP entities that they would be buying the shares before they started putting the sell orders.

I do not agree with the reply of the entities that they were not aware of the details of the buying entities or that they did not know that the buying entities were associated with Ketan Parekh. The number of instances quoted above invariably suggest that there is a prior understanding of buying and selling between the sellers and buyers. The preponderance of the probability that can be drawn is that these are synchronized and structured deals.

I have further noted that GTB has facilitated fund based and non fund based credit limits to KP entities. It was observed that huge amount of loans were given to KP entities by GTB. The loans given to KP entities during the period April 99 to March 2000 are as under:

Sr. No.	Name of the entity to whom loan is given	Date of Sanction	Amount of Loan Fund	Advance Non Fund	Date of max. balance	Max. outstanding during the period. Fund	Outstanding during the period. Non Fund
1	Classic Share & Stock Broking	23.10.99	-	6.00
		25.11.99	7.00	-
		02.12.99	30.00	-
		23.12.99	13.00	-	03.12.99	30.01	16.00
		12.01.00	50.00	16.00

2	N.H. Securities	01.02.00	1300
		26.08.99	25.00
		24.11.99	32.70
		02.12.99	30.00		24.11.99	32.67	5.70
		23.12.99	16.75

3	Triumph International Finance	17.05.99	2.00
		26.08.99	30.00
		22.12.99	42.00		03.03.00	49.37	5.90
		01.02.99	20.00

4	Triumph Securities Ltd.	07.07.99	5.00
		26.08.99	25.00
		27.09.00	4.00	3.00	02.03.00	73.56	2.10
		15.12.00	50.00
		01.03.00	50.00

In the loans, the funded outstanding is in the form of Overdrafts while Non-fund is in the form of Bank Guarantees. The details of collateral security kept against the loans given as submitted by GTB is as under:

Exposure to KP related group accounts from April 1999 to March 2000.

1. Classic Share & Stock Broking Services Limited

Dt. Of sanction	Facility	Limit	Total	Closed on
23-Oct-99	BG (12 months)	6.00	1.80
25-Nov-99	OD ( 8 days)	7.00	7.90	01.12.99
02-Dec-99	OD (7 dyas)	30.00	37.90	08.12.99
23-Dec-99	OD (7days)	13.50	14.96	28.12.99
12-Jan-00	OD (12 months)	50.00
	BG (12monnths)	16.00
*01-Feb-00	OD (3 months)	13.00

It was noted that sanction was with 125% security margin and security was maintained as per sanction terms and in line with outstanding. Max. outstanding was Rs.28.29 crores on 22.02.00.

* Availed between 10^th Feb. 00 to 15^th Feb 00 against pay out of Rs.14 crores.

2. N H Securities Limited

Dt. Of sanction	Facility	Limit	Total	Closed on
26-Aug-99	OD (6 months)	25.00
24-Nov-99	OD ( 8 days)	32.70	50.56	01.12.99
02-Dec-99	OD(7 days)	30.00	37.14	08.12.99
23-Dec-99	OD(7 days)	16.75	18.09	28.12.99

It was noted that sanction was with 125% security margin and security was maintained as per the sanction terms and in line with outstanding. Max. outstanding was Rs.12.67 crores on 22.11.99

Triumph International Finance (I) Ltd.

Dt. Of sanction	Facility	Limit	Total	Closed on
17-May-99	OD (12 months)	2.00
	BG (12months)	3.25	2.49
26-Aug-99	OD ( 6 months)	30.00
22-Dec-99	OD (7 days)	42.00	47.96	29.12.99
01-Feb-00	OD (3 months)	20.00

It was noted that sanction was with 125% security margin and security was maintained as per sanction terms and in line with outstanding.

Triumph Securities Ltd.

Dt. Of sanction	Facility	Limit	Total	Closed on
17-Jul-99	OD	5.00		24.07.99
26-Aug-99	OD (6 months)	25.00
27-Sep-99	OD (12 months)	4.00
	BG (12 months)	3.00	1.09
15-Feb-00	OD (7 days)	50.00	78.15	21.02.00
01-Mar-00	OD (6 days)	50.00	247.10	09.03.00

It was noted that sanction was with 125% security margin and security was maintained as per sanction terms and in line with outstanding.

It was replied by the entities that the loan transactions were genuine and as per rules. It was further submitted that RBI had confirmed before the JPC that there was nothing wrong with the said loan transactions. They contended that GTB acted as a sole clearing banker for broking entities of KP Group and that GTB received obligation statements from NSE and BSE and on the basis of the said statements they were able to monitor the unused funds. They further contended that the bankers submitted an audit report on utilization of funds of KP entities and satisfied that the end use of funds was as per the sanctioned terms and that they were not used to trade in GTB shares. The reply of the entities is accepted to the extent that the funding was genuine and as per the prevailing practice. However, the said funding transactions would certainly point out the proximate relation between the KP entities and GTB Promoters and associates. I therefore hold that this was not a mere coincidence that during the relevant period KP entities were funded by GTB which was within the clear knowledge of the promoters and the entities.

One more important factor which was strikingly coinciding with the trading was that the preferential allotment by GTB during March 2000 at Rs.10 each with a premium of Rs.75 per share. It is noted among the allottees Nakshtra Software and Chitrakoot Computers were together allotted approximately 71 lakh shares and these entities were admittedly associated with Ketan Parekh. This shows that promoters were aware that KP entities were interested in the scrip and therefore applied for private placement. I do not agree with the reply of the entities that they were not aware of the allottees and that the Lead Manager Tata Finance Limited were involved in marketing the issue. It is noted that the entities contended further that the said KP entities were in no way disqualified. I therefore hold that the trading by KP entities in the scrip of GTB was within the knowledge of promoters and by transferring a big chunk of shares through structured and synchronized trades to KP entities resulted in artificial volume in the scrip. This also facilitated manipulation of the price and volume of the scrip by the KP entities. I therefore, hold that the said entities are guilty of violating Regulation a, b, c & d of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations.

3. Whether these entities aided and abetted Ketan Parekh?

As already stated above out of 1.31 crore shares of GTB sold by the entities 1.14 crore share were purchased by KP entities during Nov.99 to Feb. 00. Following are the major purchases of shares by KP entities of the shares sold by the said entities:

Date	Quantity in BSE (lakh)	Quantity in NSE (lakh)	Approximate Rate (Rs)	Approx Value in (Rs crore)
8-9-99		5.90	31	1.84
19-9-99		3.00	31.9	.96
5-10-99		4.00	34.05	1.36
22-9-99	4.35		29	1.26
1-10-99	2.50		37	.92
15-11-99	5.00		38.5	1.92
18-11-99		1.00	39.35	.39
22-11-99	10.00		41.15	4.1
24-11-99		10.00	45.85/46.05	4.6
25-11-99		13.60	45.6	6.20
29-11-99		3.10	51.05	1.58
1-12-99		9.30	61.90	5.75
2-12-99		10.00	62.5*3.2/58.4	5.97
3-12-99		10.00	63.25	6.32
6-12-99	10.00		62.4	6.24
7-12-99	9.5		59	5.60
8-12-99		10.00	67.05	6.70
Total	41.35	79.60		61.75

As already found above the said shares were purchased by KP entities in synchronized manner. In other words there was no gap between seller time of the said entities and the buyer time of the KP entities. By making available huge chunk of shares to KP entities the promoters facilitated the artificial price determination clandestinely done by KP entities. In this context, the funding by GTB to KP entities is also relevant though it is not proved that the said funding facilitated market manipulation. Further, the whole episode of merger of GTB with UTI Bank Ltd. announced on 24.01.2001 and declared called off in April 2001 is also a pointer towards the nexus between the promoters of GTB and KP entities, who making use of this news triggered the price. In other words the determination of the swap ratio on market price method led to manipulation of prices by KP entities. Therefore, I hold that promoters and associated entities aided and abetted Ketan Parekh entities directly and indirectly in manipulating the prices and volumes of GTB shares on both BSE and NSE.

Whether the interim order needs to be lifted?

It is noted that by an ad interim ex parte order dated 31.12.02 the promoters and the associate entities were debarred from dealing in securities of GTB till further orders on a preliminary prima facie finding of market manipulation in the scrip of GTB which was confirmed by an order dated 13.06.03 after post decisional hearing. The findings as above show that the price and volumes of GTB were artificially manipulated. The promoters and entities though not responsible for the price manipulation were certainly responsible for creation of artificial volumes in the scrip. By their commissions and omissions, the said entities directly and indirectly aided and abetted Ketan Parekh entities manipulate the prices and volumes of the scrip.

I have noted that the prohibition, which is remedial in nature is not a total prohibition from dealing in securities, it is only a partial prohibition restraining the said entities from dealing in the securities of GTB. Taking into all the facts and circumstances I am of the considered view that it would be in the interest of investors and orderly development of the securities market that the said partial prohibition continues for some time more.

Therefore, in the interest of the investors and safety and security of capital market, in exercise of powers conferred on me under Section 4(3) read with Section 11B and 11(4) of SEBI Act and Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995, I, hereby, confirm the order dated 13.06.2003 and direct the promoters namely Shri Ramesh Gelli, Smt. Premkala Gelli, Shri Jayant Madhav, Shri Girish Gelli, Shri Niraj Gelli, Shri Sridhar Subasri, Smt. Annapurna Sridhar and the associate entities namely Anjanaya Traders Pvt. Ltd., Chiranjeevi Traders Pvt. Ltd., Gajanan Financial Services Pvt. Ltd., Gajmukh Investments Pvt. Ltd., Kadrish Finance & Investments Pvt. Ltd., Bombay Mahalakshmi Traders Pvt. Ltd should continue to be debarred from dealing in securities of GTB till June 30, 2004 making total period of debarment as of 18 months from 31^st December 2002.

G. N. BAJPAI

CHAIRMAN

SECURITIES AND EXCHANGE BOARD OF INDIA

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Order under Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 read with Section 11 and 11B of SEBI Act, 1992 

Mar 23, 2004

Order under Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 read with Section 11 and 11B of SEBI Act, 1992

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