SECURITIES AND EXCHANGE BOARD OF INDIA
CORAM: Dr. T. C. NAIR, WHOLE TIME MEMBER
IN THE MATTER M/s. NATURAL EXPO AGRO INDUSTRIES LIMITED AGAINST SHRI KEYOOR M. BAKSHI, DIRECTOR, M/S. VRUSHTI FINANCIAL SERVICES PRIVATE LIMITED
WTM/ TCN / 59/11/IVD /06/
DATE OF HEARING: 11th July, 2006
APPEARANCES:
FOR NOTICEES:
Shri Keyoor M. Bakshi
FOR SEBI:
Shri P. K. Bindlish, General Manager
Shri V R Prasad, Deputy Legal Advisor
ORDER
(UNDER SECTION 11 (4) (b) READ WITH SECTION 11 B OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992)
Background
1. Natural Expo Agro Industries Ltd. (NEAL) is a public limited company with its registered and corporate office at 9th Floor, Galav Chambers, Near Sardar Patel Statue, Sayaji Gunj, Vadodara, Gujarat 390005. NEAL came out with a public issue of Rs. 275 lacs in February-March, 1996, in order to part-finance the project for manufacturing Jaquard Woven Furnishing and Curtain Fabrics. The issue for 77 lakh equity shares of Rs.10/- each for cash aggregating to Rs.770 lakhs opened on 03.05.95 and closed on 06.05.95. Several complaints were received regarding delay in transfer of shares and manipulation of price of the shares.
2. A preliminary investigation by the Securities and Exchange Board of India (hereinafter referred to as SEBI) showed that there was a delay in transfer of shares as well as in the dispatch of shares after transfer. It was also noted that trading in the share was suspended by The Stock Exchange, Mumbai (BSE) on some days on account of abnormal increase in the price. In view of the above, investigation was ordered into the affairs relating to dealing in shares in respect of public issue by NEAL, its Lead Manager, Registrar and other persons/intermediaries associated with the public issue, vide order dated 30.01.97.
3. The investigations conducted by SEBI revealed as under:
a. NEAL did not receive the minimum required subscription to the public issue and the same was subscribed only to the extent of 14%.
b. In order to circumvent the requirement of minimum subscription, NEAL had entered into an arrangement through Galav Finance and Investments Pvt. Ltd. (‘GFIL) whereby GFIL financed applications for the issue in order to ensure minimum subscription and NEAL bought back the shares allotted. It was observed that NEAL transferred funds to GFIL, which in turn transferred the funds to the applicants, who later issued cheques to NEAL. Thus, in fact, NEAL did not receive any real consideration and also utilized the proceeds of the public issue for arranging subscription and for circumventing the requirement of minimum subscription.
c.NEAL and its directors made allotments without receiving the minimum subscription in the Issue.
d. The share certificates allotted to the applicants were not dispatched to them by NEAL, and were retained by it. 6 Lakh shares which had arrears of call money were traded in the market through various brokers including GFIL. The prices of the scrip went up abnormally due to the cornering of shares coupled with artificial scarcity of stock through intentional delay in transfer of shares by NEAL.
4. In the course of investigation, it was noted that on BSE the opening price of the scrip was Rs.19 on 07.03.95 and the same went up to Rs.50 on 18.07.95. After being in the range of Rs.30 to Rs.50 till 01.09.95, the price fell to Rs.15 on 18.09.95. It varied in the range of Rs.26 and Rs.50 between 25.09.95 and 08.12.95. The opening price on 04.01.96 was Rs.48. Thereafter, the price of the scrip showed an increasing trend and went up to Rs.88.75 on 20.02.96. It then showed a continuous downtrend to end at Rs.9.25 on 13.05.96.
5. On NSE, the opening price of the scrip was Rs.15.50 on 26.06.95, and went upto Rs.51 on 24.07.95. After being in the range of Rs.30 to Rs.46 till 31.8.95, the price fell to Rs.19.50 on 14.09.95. It varied in the range of Rs.25 and Rs.51 between 25.09.95 and 22.12.95. The opening price on 02.01.96 was Rs.46. Thereafter, the price of the scrip showed an increasing trend and went up to Rs.84 on 08.02.96. It then showed a continuous downtrend to end at Rs.11 on 15.05.96.
6. The major brokers who dealt in the scrip of NEAL were Galav Finance and Investments Pvt. Ltd. (GFIL), Raj Investments and Manyog Investments Ltd. as per details furnished by Mangal Keshavlal, member BSE. The dealings of GFIL and Raj Investments in the scrip of NEAL were as under:
|
Entity
|
Settl. No.
|
Buy
|
Sell
|
Net
|
|
GFIL
|
18
|
4700
|
100
|
4600
|
|
|
19
|
77400
|
82000
|
-4600
|
|
|
20
|
10500
|
10500
|
0
|
|
|
21
|
271700
|
271700
|
0
|
|
|
22
|
274200
|
212600
|
61600
|
|
|
23
|
93100
|
47400
|
45700
|
|
|
24
|
3600
|
0
|
3600
|
|
|
74
|
400
|
0
|
400
|
|
|
78
|
32300
|
0
|
32300
|
|
|
Total
|
767900
|
624300
|
143600
|
|
|
|
|
|
|
|
Raj Inv
|
21
|
4100
|
0
|
4100
|
|
|
22
|
13200
|
13200
|
0
|
|
|
23
|
7700
|
0
|
7700
|
|
|
77
|
13200
|
0
|
13200
|
|
|
Total
|
38200
|
13200
|
25000
|
7. M/s. Vrushti Financial Services Pvt. Ltd. (VFSPL), one of the front entities of Shri D K Dalal (a dealer in the scrip of NEAL), accepted during investigation that deliveries of shares transacted by GFIL and M/s Raj Investment were taken by it. Also it was found that VFSPL had acted as a conduit for providing funds to the various brokers/ sub-brokers, to the extent of Rs. 16.3 crores, through whom the front entities of Shri D K Dalal purchased shares.
8. A notice dated 27.09.02 was issued to VFSPL, wherein it was alleged that VFSPL had aided, abetted and assisted Shri D K Dalal in market manipulation in the scrip of NEAL violating the provisions of Regulations 4(a), (b) (d) & (e) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to securities market) Regulations, 1995, and VFSPL was asked to show cause as to why appropriate directions including directions debarring VFSPL from accessing the capital market and dealing in securities for a suitable period, should not be issued under Section 11B of SEBI Act, 1992 read with Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to securities market) Regulations, 1995. However, VFSPL had not replied to the said show cause notice.
9. Thereafter opportunities of hearing were granted to VFSPL on 26.02.03 and 27.02.03. VFSPL failed to turn up at the time of the hearing before SEBI, inspite of the service of notice. Therefore, SEBI proceeded ex-parte against the entity and its directors and passed an order dated 05.09.03 directing VFSPL and its directors mainly Shri. Shailesh Thakkar and Shri. Keyoor M. Bakshi to dissociate from the capital market for a period of five years.
10. An appeal no.167/03 was filed by Shri. Keyoor M Bakshi before the Hon’ble Securities Appellate Tribunal (SAT) challenging the order dated 05.09.03 passed by SEBI. SAT after hearing the matter, vide an order dated 15.10.04, set aside the impugned order of SEBI against Shri. Keyoor M. Bakshi on the ground that no Show Cause Notice was issued to him in his capacity as a director in VFSPL and thereby SEBI did not adhere to the principles of natural justice. SAT however gave liberty to SEBI to issue fresh Show Cause Notice in this matter and initiate proceedings.
Show Cause Notice, Reply and Hearing
11. Pursuant to the aforesaid direction of SAT, a Show Cause Notice dated 19.11.04 was issued to Shri Keyoor M. Bakshi in his capacity as a director of VFSPL asking him to show cause as to why appropriate directions including directions debarring him from accessing the capital market and dealing in securities for a suitable period, should not be issued under Section 11B of SEBI Act, 1992 read with Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to securities market) Regulations, 1995.
12. Shri. Keyoor M. Bakshi submitted his reply dated 14.12.04 in response to the aforesaid show cause notice whereby, he submitted as follows:
a. VFSPL is not aware about the contents of the show cause notice and its name has not been mentioned except for the last page therein.
b. The delivery of shares to VFSPL was taken for and on behalf of Shri D K Dalal, a tenant in the premises occupied by VFSPL. No contract notes/ bills were ever issued in the name of VFSPL for the said shares and VFSPL had not purchased or sold in the scrip of NEAL.
c.He was not involved in the day to day affairs of VFSPL and Shri. Shailesh Thakkar was the one who handled the day to day operations. This was further corroborated by an affidavit signed by Shri. Shailesh Thakkar confirming the aforesaid submission.
d. After having known that his name was included just because of the fact that he was a director of VFSPL, he had discussed and ascertained the facts of the matter.
e. The involvement of VFSPL in the transactions in the scrip of NEAL was due to persuasion of Shri. D. K. Dalal. For facilitating these transactions bank account was opened with Central Bank of India, Gandhi Road Branch, Ahmedabad and a signed cheque book was issued to Shri. D. K. Dalal by Shri Thakkar, in good faith.
f. VFSPL had no funds to finance the transactions in the scrip of NEAL and the investigations itself has brought out that VFSPL had only been a conduit for the transactions carried out by Shri. D. K. Dalal. In effect Shri D. K. Dalal used his own funds to finance his own market operations and VFSPL was made a scapegoat. VFSPL was not party to any fraudulent or unfair practices and the only lapse on its part was to allow the use of its bank account to Shri D. K. Dalal.
g. He was never approached and no statement of his was recorded by the Investigating Authority in the matter of NEAL. He further submitted that he was not involved in the securities market in any manner since July 1995 and also undertook not to be involved in the future.
h.He also submitted a decision of SAT in Appeal No. 133/2006 - Rahul Shah Vs SEBI wherein, it was held that a director not involved in the day to day affairs of the Company cannot be held responsible for its matters.
13. A personal hearing was scheduled before me for Shri Keyoor M. Bakshi on 11.07.06, when he attended the hearing and reiterated the submission made earlier. Subsequent to the hearing, Shri Keyoor M. Bakshi has submitted an affidavit stating that he was not in charge of the day-to-day affairs of VFSPL since April 1995 and that Shri Shailesh Thakkar has been solely incharge of the day-to-day affairs of the company, since then.
Considerations of Issues
14. I have considered the findings of the investigations, the charges made out in the show cause notice dated 27.09.02 against VFSPL and its directors, the order passed by SEBI dated 05.09.03, the subsequent order of SAT dated 15.10.04, the show cause notice dated 19.11.04 and submissions of Shri Keyoor M. Bakshi.
15. The question that arises for consideration is whether Shri Keyoor M. Bakshi was involved in the day-to-day management of VFSPL.
16. I have noted from the submissions of Shri Keyoor M. Bakshi that he is a practicing Company Secretary. He was a Director with VFSPL but was not involved in the day to day management of the same. The said submission has also been affirmed by the other director of VFSPL, Shri Shailesh Thakkar, vide an affidavit dated 30.10.03, filed before SAT. The allegations against VFSPL was relating to aiding and abetting Shri D. K. Dalal in his manipulative activities in the scrip of NEAL. For this purpose, VFSPL had acted as conduit for paying the brokers/sub-brokers transacting in the scrip and has taken delivery of shares of NEAL purchased by GFIL and M/s. Raj Investments.
17. In order to facilitate these transactions, Shri Shailesh Thakkar had issued a signed cheque book and had allowed Shri D. K. Dalal to operate the bank account of Central Bank of India, Gandhi Road Branch, Ahmedabad, the designated branch for clearing purposes of Ahmedabad Stock Exchange. As brought out, there has been no infusion of funds by VFSPL for carrying out the transactions of Shri. D. K. Dalal. In effect, but for allowing Shri. D. K. Dalal to operate the bank account and to issue a signed cheque book in his favour, no further activities have been carried out by VFSPL. These activities too have been done by Shri Shailesh Thakkar in his capacity as a director handling the day to day management of VFSPL. For such actions, VFSPL and Shri. Shailesh Thakkar have been appropriately penalised by being directed to dissociate from the securities market for a period of five years vide order of SEBI dated 05.09.03. The said order has not been appealed against, implying that the order has been accepted in toto by VFSPL and Shri. Shailesh Thakkar.
18. As submitted by Shri Keyoor M. Bakshi, he could not have had control over the handing over of the handling of bank account to Shri. D. K. Dalal since he was not involved in the day to day affairs of the Company. Further, as per the information made available by the ASE from the D-file records of VFSPL from the Registrar of Companies, Ahmedabad, it is noted that Shri Keyoor M. Bakshi was not a managing/ executive director of VFSPL during the year 1995-96. Shri Keyoor M. Bakshi has also filed an affidavit stating that he along with Shri Shailesh Thakkar were the directors of VFSPL and he was not incharge of the day-to-day affairs of the company since April 1995.
19. In the background of the facts and circumstances of the case under consideration, I am of the view that no direction need to be passed against Shri Keyoor M.Bakshi.
Order
20. Therefore, I, in exercise of powers conferred upon me under Section 19 of Securities and Exchange Board of India Act, 1992, read with Section 11 (4) of the Securities and Exchange Board of India Act, 1992, hereby direct no action against Shri Keyoor M. Bakshi in the matter.
21. Order accordingly.
| Place: Mumbai |
T C Nair |
| Date: 3rd November, 2006 |
Whole Time Member |
| |
Securities and Exchange Board of India |