WTM/GA/97/ISD/11/06
SECURITIES AND EXCHANGE BOARD OF INDIA
CORAM: G.ANANTHARAMAN, WHOLETIME MEMBER
IN THE MATTER OF
M/S. NISKALP INVESTMENTS & TRADING COMPANY LIMITED.
Date of Hearing: March 16, 2006
Appearance :
For Noticee: Shri. Jose Peter, Director
Shri. Kamlesh Parekh, Constituted Attorney
For Securities and Exchange Board of India: Shri. J. Ranganayakulu, Joint Legal Advisor
DIRECTIONS UNDER SECTIONS 11 AND 11B OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH REGULATION 11 OF SECURITIES AND EXCHANGE BOARD OF INDIA (PROHIBITION OF FRAUDULENT AND UNFAIR TRADE PRACTICES RELATING TO THE SECURITIES MARKET) REGULATIONS, 2003
1.0 BACKGROUND
1.1 The shares of Global Trust Bank (hereinafter referred to as GTB) were listed on Bombay Stock Exchange Ltd. (hereinafter referred to as BSE) and National Stock Exchange of India Ltd. (hereinafter referred to as NSE). The price of the shares of GTB had witnessed a significant rise accompanied with rise in volumes in the said stock exchanges during the financial year 2000-2001.
1.2 It was noticed that the price of the said shares had gone up from a low of Rs.57.00/- on October 11, 2000 to Rs.114.70/- on November 20, 2000 on BSE i.e., an increase of more than 100% in just 29 trading sessions. During the same period the price of the said shares on NSE had gone up from a low of Rs.57.05/- to a high of Rs.114./-. During the period from September 01, 2000 to October 10, 2000, the average daily volumes in the shares of GTB on BSE were below 38,000 shares while the same had increased to more than 7,70,000 shares during the period October 25, 2000 to November 23, 2000 . The average daily volumes on NSE during the same periods were 4,20,000 shares and 12,96,000 shares respectively.
1.3 Securities and Exchange Board of India (hereinafter referred to as SEBI) conducted investigations into the buying, selling and dealings in the shares of GTB inter alia under the provisions of Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the Act) read with Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 1995 (hereinafter referred to as the said Regulations). During the course of investigations, it was observed that there was significant concentration of trading in the shares of GTB among a few stock brokers and common clients associated with Shri. Ketan Parekh (hereinafter referred to as KP entities). It was further observed that KP entities had purchased shares from the promoter group of GTB in a synchronized manner and later parked the said shares with some Foreign Institutional Investors (FIIs) and Overseas Corporate Bodies (OCBs), thereby creating the artificial volumes in the said shares . The investigation conducted by SEBI further revealed that, certain entities including Niskalp Investments & Trading Company Limited (hereinafter referred to as Niskalp) were used by KP entities for circular trading, parking of shares, creation of artificial market and volumes, building up of concentration in select shares, circumvention of inter alia, the provisions of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as the Takeover Regulations).
1.4 In view of the above, SEBI vide an interim order dated December 31, 2002 directed 50 entities including Niskalp not to buy, sell or transfer, pledge or dispose off or deal in any other manner in the shares of GTB, either directly or indirectly till the completion of investigations. Subsequently, after affording a post decisional hearing, the above directions were revoked in respect of 14 entities including Niskalp by SEBI, vide order dated June 12, 2004.
2.0 Show cause notice and Niskalp’s reply
2.1 A show cause notice dated August 13, 2004 was issued by SEBI to Niskalp under sections 11 and 11B of the Act read with regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003 (hereinafter referred to as the 2003 Regulations) asking it to show cause as to why suitable directions should not be issued against it for the alleged violation of regulation 4(a) and (b) of the 1995 Regulations.
2.2 Niskalp vide reply dated September 22, 2004 inter alia submitted that it had not violated the provisions of regulation 4(a) and 4(b) of the 1995 Regulations. It was further submitted that, GTB had allotted 58,82,350 of its equity shares to Niskalp on preferential basis on May 12, 2000, in terms of its request. It was further submitted that the aforesaid shares of GTB were sold by Niskalp in three lots, the last one being on October 30, 2000, amounting to 28,82,350 equity shares with a total value of Rs.22,61,10,463/-. The sale of the said equity shares of GTB was effected through a stock broker known as Triumph Securities Ltd, on BSE. Niskalp added that, it was not at all aware about the KP entities which were referred to in the show cause notice. It was contended that Niskalp was not aware about the alleged manipulation in the shares of GTB. Niskalp further added that it was not aware/concerned about the persons to whom the shares of GTB were sold. It was added that the management of Niskalp was changed and the current management had not committed any wrongful action.
2.3 It was added that no case was made out by SEBI to hold Nishkalp liable for the alleged contravention of the 2003 Regulations. It was also stated that the proceedings under sections 11 and 11B of the Act read with regulations 11 & 12 of the 2003 Regulations was without jurisdiction and not maintainable. It was contended that the proceedings under sections 11 and 11B of the Act was initiated during the year 2002 and the order passed on December 31, 2002 was subsequently revoked on June 12, 2004. In view thereof, no case was made out for re-invoking provisions of 11 and 11B of the Act read with Regulations 11 & 12 of the 2003 Regulations. An opportunity of hearing was granted to Nishkalp on March 16, 2006, to make its submissions and the same was availed by Nishkalp . Shri Jose Peter, Director with Shri. Kamlesh Parekh, constituted attorney of Nishkalp appeared and made submissions before me.
3.0 CONSIDERATION OF ISSUES AND FINDINGS
3.1 I have carefully examined the findings of investigations, show cause notice dated August 13, 2004, the reply dated September 22, 2004 filed by Niskalp and other relevant materials available on record. In respect of the contention of Niskalp that proceedings under sections 11 and 11B of the Act read with regulation 11 and 12 of the 2003 Regulations is without jurisdiction, I would like to mention that SEBI had initiated the proceedings inter alia against Niskalp under the provisions of 1995 Regulations for the violations of regulation 4(a) and (b) thereof. Subsequently, SEBI, vide an interim order dated December 31, 2002 had directed 50 entities including Niskalp not to buy, sell or transfer, pledge or dispose off or deal in any other manner in the shares of GTB, either directly or indirectly till the completion of investigations, for the reasons stated therein. After the completion of the investigations and after affording an opportunity of hearing, the aforesaid interim order was revoked by SEBI (vide order dated June 12, 2004) as against 14 entities including Niskalp. The order dated June 12, 2004 was passed under 2003 Regulations, as the 1995 Regulations were repealed in the year 2003 in view of the commencement of the 2003 Regulations.
3.2 I further note that in terms of regulation 13 of the 2003 Regulations, any violation of the provisions of regulation 3,4,5 and 6 of the 1995 Regulations shall be investigated and proceeded under the provisions of 2003 Regulations. In the present case, the violations alleged against the Niskalp were regulation 4(a) and (b) of the 1995 Regulations and only the proceedings were continued under the provisions of 2003 Regulations. Further, the order dated December 31, 2002 was an ex-parte ad-interim order and the order dated June 2, 2004 was only confirmatory in nature and it was explicitly mentioned in the said order that “the revocation of the ex-parte ad interim order shall not in any way be construed as exonerating the said entities”. Therefore, the contention of Niskalp that 2003 Regulation is not applicable is not tenable and accordingly, the same is rejected.
3.3 I further note that the preferential shares of GTB allotted to Niskalp were sold by it in three lots to the entities controlled by/ or associated with Shri. Ketan Parekh in the month of September and October, 2000. I observed that Niskalp had sold 30,00,000 shares of GTB in the month of September in 2 lots at NSE through its stock broker M/s. Triumph International Finance Limited ( a KP entity ) and the remaining 28,82,350 shares were sold in BSE, through its stock broker M/s. Triumph Securities Limited (also a KP entity) The said shares of GTB were allegedly used by KP entities, in manipulating the securities market with large volumes. However, except the aforesaid transaction entered into by Niskalp, there was no direct evidence to show that it had sold the shares of GTB to the KP entities only with the intention of manipulating and creating artificial volumes in the said shares.
3.4 I note that except the fact that the stock brokers (M/s.Triumph International Finance Limited and M/s. Triumph securities Limited) through whom the shares of GTB were sold by Niskalp were belonging to KP entities, there was nothing to conclude that Niskalp was involved in the price manipulation in the shares of GTB. Niskalp had contended that it was not aware about the purchase of the shares sold by it by KP entities in a synchronised manner. There is no sufficient evidence to show that Niskalp was aware of the same and it would be probable that synchronised deals in the shares of GTB might have been entered into, without the knowledge of Niskalp. Though Niskalp had sold large volume of shares of GTB in the market to KP entities and the said shares might have been used by KP entities for circular trading, parking of shares, creation of artificial market and volumes, for circumventing the provisions of the Takeover Regulations, etc. alongwith certain other entities, there was no proof against Niskalp that it had sold the shares of GTB with the intention of creating artificial volumes and price manipulation in the shares of GTB.
3.5 Under the circumstances, I find that the evidence available against Niskalp is insufficient to hold it guilty of violating regulation 4(a) and (b) of the 1995 Regulations and therefore, I am, inclined to give a benefit of doubt to Niskalp in the present case.
4.0 Order
4.1 It is noted that SEBI ,vide interim order dated December 31, 2002 inter alia refrained Niskalp from buying, selling or transacting, pledging or disposing or dealing in any manner in the shares of GTB pending investigations in the matter. The said interim order was revoked in respect of 14 entities including Niskalp by SEBI vide order dated June 12, 2004. Taking into account all the above aspects including the submissions made by Niskalp, the absence of sufficient evidence with respect to its alleged role in the price manipulation in the shares of Global Trust Bank and also the fact that the shares of Global Trust Bank is not currently traded after its merger with Oriental Bank of Commerce, I am of the considered view that this is not a fit case which calls for any directions against Ms/ Niskalp Investments & Trading Company Limited.
4.2 I, therefore, in exercise of the powers delegated to me in terms of section 19 of SEBI Act, 1992 read with the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003 hereby dispose off the show cause notice dated issued to Ms/ Niskalp Investments & Trading Co. Ltd., as above.
| PLACE: MUMBAI |
G.ANANTHARAMAN |
| DATE : 07-11-06 |
WHOLE TIME MEMBER |
| |
SECURITIES AND EXCHANGE BOARD OF INDIA |