Order against Ayush and Company

ORDER IN RESPECT TO M/S AYUSH AND CO. UNDER SECTION 11B OF SEBI ACT, 1992 READ WITH REGULATION 11 AND 12 OF SEBI ( PROHIBITION OF UNFAIR TRADE PRACTICES RELATING TO SECURITIES MARKETS ) REGULATIONS, 1995 IN THE CASE OF GCCL INFRASTRUCTURE AND PROJECTS LTD.

Significant rise in price and unusually high volumes were noticed in the scrip of GCCL Infrastructure and Projects Ltd. during January – June 1996 on The Stock Exchange, Mumbai ( BSE ) and Ahmedabad Stock Exchange ( ASE ). Investigations were conducted by SEBI into this alleged price rigging in the scrip of GCCL Infrastructure and Projects Ltd. (hereinafter referred to as GCCL). Investigations revealed that, the scrip of GCCL was listed on BSE on January 25, 1996 at a price of Rs.25/- and on ASE at a price of Rs.30/- on January 8, 1996. Subsequently, the price of the scrip moved up and reached to Rs.92/- on June 7, 1996. This sharp rise in the price was accompanied with significant volumes. The rise in price and volumes occurred in spite of various measures viz., imposition of special margin, suspension of trading in the scrip for a day. However the price and volume in the scrip continues to remain unusual. In view of this, the scrip was suspended indefinitely by the exchanges under the permission from SEBI. It was seen that the price rise in the scrip was not in consonance with the fundamentals of the company, GCCL.

Investigations revealed that, M/s Khandwala Finstock Pvt. Ltd., member ASE, had transacted in the scrip of GCCL in large quantities on BSE and ASE. It was seen that, M/s Khandwala Finstock Pvt. Ltd. had transacted in the scrip mainly on behalf of you i.e. M/s Ayush and Co.. The details of transactions done by you in the scrip of GCCL through M/s Khandwala Finstock Pvt. Ltd. are as under :
 
 

It was seen that, your transactions in the scrip of GCCL were in significant quantities, which disturbed market equilibrium and created artificial volume in otherwise ill-liquid scrip, which were in violation of provisions of Regulation 4(a) of the SEBI (Prohibition of Fraudulent & Unfair Trade Practices relating to the Securities Market Regulations) 1995 read with the SEBI Act, ’92.

Pursuant to investigations show-cause notice no. IES/ID2/RKK/UD/14250/2002 dated July 29, 2002 was issued to you for violation of the provisions of Regulation 4(a) of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995. An opportunity for personal hearing was also granted to you vide letter dated August 20, 2002 to appear on August 26, 2002, which was attended by you in which written submissions were made. It was stated that Ayush and Co. is a registered sub-broker. It was stated that, the transactions were done in your own account as well as on behalf of clients. It was also stated that, the transactions were negligible compared to the total turnover in the scrip. It was stated that, the trades were not "Encblock Trades" for which there would have been any prior arrangement for buying or selling the entire lot of shares and there was no prior arrangement for trades to match buyer or seller. It was stated that, there was no nexus between yourself with the clients in manipulating the shares of GCCL. It was stated that, due skill was exercised while executing the orders placed by clients and the allegations in respect to artificial market had been denied. It was stated that the transactions were in the nature of square-up transactions. It was also stated that the clients were regular in making payments and the exposure with regard to the clients was negligible and therefore the requirement for collection of margin does not arise and the transactions were within permissible limits. It was stated that, mere instruction of clients were carried out. It was stated that, the clients were permitted to trade in the scrip of GCCL under the normal course of business and no specific arrangement were made. It was stated that any other documents upon which reliance would be made, be given. It was contended that, the role attributed to Ayush and Co. was impossible to ascertain as the show cause notice is difficult to understand and no material particulars against the company have been furnished and on this ground it was stated that the show cause notice may be dropped. It was denied that Ayush and Co. had played any role in alleged manipulation in the scrip of GCCL or that Ayush and Co. had violated the provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markest), Regulations, 1995. It was stated that, contract notes were issued to clients regularly for all their dealings and merely the instructions of clients were executed.

I have carefully examined documents, facts and material on record. I find that the charges leveled against M/s Ayush and Co. are substantiated. It is seen that M/s Ayush and Co. had not contested the dealings in the shares of GCCL. It is also seen that M/s Ayush and Co. is registered as a sub-broker with SEBI only since June 1998 and had acted as a sub-broker in transacting the shares of GCCL, without registered with SEBI as a sub-broker as required in terms of the provisions of SEBI Act and SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992. It is also seen that, M/s Ayush and Co. had been dealing in the shares of GCCL March 1996 to May 1996. It was seen that the price of the scrip of GCCL had risen substantially during this period. Investigations revealed that the inflated price in the scrip was not justified and an artificial price was created in the scrip. It is seen that, M/s Ayush and Co. transacted in the in the shares of GCCL in significant quantities which resulted in disturbing market equilibrium and creation artificial volume in otherwise ill-liquid scrip. I, therefore find that, M/s Ayush and Co. have violated the provisions of Regulation 4(a) of the SEBI (Prohibition of Fraudulent & Unfair Trade Practices relating to the Securities Market Regulations) 1995 read with the SEBI Act, ’92. I, therefore, in exercise of the powers conferred in terms of Sub-Section (3) of Section 4 of SEBI Act read with Section 11B of SEBI Act, 1992 read with Regulation 11 and 12 of SEBI ( Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets ) Regulations, 1995 hereby direct that M/s Ayush and Co. is prohibited from accessing capital market for a period of One Year. It is further directed that, M/s Ayush and Co. shall not deal in securities for a period of One Year.

The Order shall come into force with effect from October 20, 2002.

Place : Mumbai                                     
Date : October 14, 2002                        
                                                   

G. N. BAJPAI
Chairman
Securities and Exchange Board of India