SECURITIES AND EXCHANGE BOARD OF INDIA
CORAM: G. ANANTHARAMAN, WHOLE TIME MEMBER
DIRECTIONS UNDER SECTION 11B OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 AGAINST THE DELHI STOCK EXCHANGE ASSOCIATION LIMITED.
Date of Hearing: September 22, 2006
Appearances :
For noticee : Shri Vinay Gupta, Director
Shri I C Singhal, Director
Shri V. Shankaran, Asst. General Manager
For Securities and Exchange Board of India: Ms Barnali Mukherjee, Dy. General Manager,
1.0 Background
1.1 The shares of Shreejee Yatayat India Ltd. (hereinafter referred to as the said company) were initially listed at the Bombay Stock Exchange Ltd., formerly known as the Stock Exchange, Mumbai (hereinafter referred to as BSE). There was no trading in the shares of the said company between May 13, 1999 to August 09, 2000 and the last trade prior to August 2000 took place at Rs. 2.15/- on May 13, 1999. The said company acquired the business of Shonkh Technologies Limited, an unlisted company, in the month of July 2000, by issuing its shares to the shareholders of Shonkh Technologies Limited, on preferential basis. The shares of Shonkh Technologies Limited were valued at Rs. 70/- per share and the swap ratio fixed for the preferential allotment was 1:1. Pursuant to the said acquisition of the business of Shonkh Technologies Limited, the said company changed its name to Shonkh Technologies International Ltd. (hereinafter referred to as STIL) with effect from July 27, 2000. The shares of the said company issued to the shareholders of Shonkh Technologies Limited, on preferential basis were listed at BSE on August 09, 2000 at a base price of Rs.70/- . The shares of STIL were listed at Delhi Stock Exchange Association Ltd. (hereinafter referred to as the DSE) on August 11, 2000 and the said shares were allowed to trade from August 16, 2000. The first trade (August 16, 2000) in the shares of STIL at DSE took place at a price of Rs.300/- , whereas the price at BSE on the said date was Rs. 95.05/-.
1.2 Securities and Exchange Board of India (hereinafter referred to as SEBI) conducted investigations into the listing and trading of the shares of STIL on BSE and DSE. It was noticed that there was no trading in the shares of the said company between May 13, 1999 to August 09, 2000 and the last trade prior to August 2000 took place at Rs. 2.15/- on May 13, 1999. It was further noticed that, at the time of the said listing of the shares of STIL at DSE, DSE had set the ‘Yesterday’s Closing Price’ (hereinafter referred to as YCP) at ‘0’ for the said shares and did not apply any circuit filters on the first day of its trading, which was the procedure followed for a newly listed scrip. It was alleged that, as the shares of STIL were already listed at BSE, DSE should have taken the YCP of the said shares on BSE as the base price and should have applied the circuit filters on the said price.
1.3 In view of the above facts and circumstances, it was alleged that DSE had facilitated the manipulation of the price of the shares of STIL, by not taking the YCP of the said shares at BSE and fixing the circuit filter, as mentioned above. It was further alleged that the high price of the shares of STIL at DSE had created artificial demand for the said shares at BSE and the same had also created scarcity of sell orders. It was also alleged that the promoters of STIL took advantage of this price difference and through their associate entities, sold nominal number of 50 shares of STIL on most of the days during the period August 09, 2000 to September 22, 2000, which had resulted in the artificial price rise of the said shares on BSE.
1.4 Accordingly, a notice dated December 07, 2005 was issued to DSE by SEBI, asking it to show cause as to why suitable directions under section 11 B of Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the Act) should not be issued against it.
2.0 CONSIDERATION OF ISSUES AND FINDINGS
2.1 DSE vide letter dated December 22, 2005 inter alia stated that the shares of STIL had already started trading at BSE in the name of Shreejee Yatayat India Ltd. before the same was listed at DSE. It was stated by DSE that, even before the shares of STIL had started trading at DSE, the quantity of shares of STIL traded at BSE were to the tune of 50, 100 and 50 shares on August 09, 2000, August 11, 2000 and August 14, 2000 , respectively. It was further stated that, in terms of the daily quotation list of BSE for August 10, 2000, the name of STIL was indicated as Shreejee Yatavat India Ltd. DSE stated that, it was not aware that the shares of STIL were already traded at BSE and further stated that, had the name of STIL appeared correctly in the official quotation list of BSE, it would have picked up the YCP and fixed the rate accordingly.
2.2 It was the contention of DSE that, it came to know the disparity of the prices of the shares of STIL ( between DSE and BSE ) only on August 17 - 18, 2000. DSE further stated that, if YCP at that stage was revised according to the price prevailing at BSE, the investors who had bought the said shares above Rs. 300/- would have incurred huge losses. DSE further stated that BSE had fixed the 8% upper circuit filter on the basis of volume of 50 shares even before the trading in the said shares commenced in DSE. DSE had also stated that the price of the shares of STIL kept rising at 8% everyday on BSE during the period August 09, 2000 to September 22, 2000 and that the price of the said shares were hugely discounted on BSE when it started trading there. It was also stated that, there was no loss to the investors and that it had never received any investor complaint. DSE had also stated that no trade took place in the shares of STIL at DSE during the period September 27, 2000 to October 26, 2000. However, thousands of shares of STIL were traded at BSE during the said period. DSE also stated that the price of the shares of STIL at DSE never affected the trading pattern of the said shares at BSE, as the latter was the dominant stock exchange.
2.3 An opportunity of hearing was also granted to DSE by me on September 22, 2006 in which its officials as mentioned above had appeared and re iterated the submissions made by DSE, vide its reply dated December 22, 2005. I have considered the aforesaid show cause notice, the reply of DSE to the said show cause notice and other relevant materials available on record.
2.4 I note that the main contention put forward by DSE was that, though the name of the said company was changed to STIL on July 27, 2000, the shares of STIL were traded in BSE in its old name, i.e Shreejee Yatayat India Ltd., at the time when the shares of STIL were listed in DSE on August 11, 2000. DSE had also stated that it came to know about the disparity of the prices of the shares of STIL (between DSE and BSE) only on August 17 - 18, 2000. In this context, I observe that, BSE vide its letter dated March 17, 2006 informed SEBI that, in the daily quotation list of August 10, 2000, the name of the company was inadvertently indicated as Shreejee Yatayat India Ltd. BSE had also stated that the name of the company was shown as Shonkh Technologies International Ltd. with effect from August 17, 2000 in the daily quotation.
2.5 I also note that, even before the shares of STIL were listed at DSE, the said shares were traded at BSE to the tune of 50, 100 and 50 shares on August 09, 2000, August 11, 2000 and August 14, 2000 respectively. The said trades were made immediately prior to August 16, 2000, the day on which the shares of STIL were allowed to trade at DSE. I also note that, BSE had already started circuit filter on August 09, 2000 on a price of Rs.70/- . Thus, I, note that the minimal trading in the shares of STIL had existed at BSE, even before the shares were allowed to trade on DSE from August 16, 2000.
2.6 Therefore, as the name of the scrip was indicated as Shreejee Yatayat India Ltd. in the daily quotation of BSE at the time of listing of shares of STIL at DSE ( August 11, 2000 ) and also in view of the fact that the name of the said scrip was shown as Shonkh Technologies International Ltd. in the daily quotation of BSE only with effect from August 17, 2000 (as per the information provided by BSE), it transpires that DSE might be labouring under the impression that STIL was not listed in BSE, while fixing the YCP at 0 and accordingly, benefit of doubt would go to DSE. In view of the above, the allegation that the said action of DSE had created artificial price rise in the shares of STIL may not be sustainable.
2.7 In view of the above, I am of the considered view that this is not a case which calls for any directions against the Delhi Stock Exchange Association Ltd.
3.0 ORDER
I, therefore, in exercise of the powers delegated to me in terms of section 19 of Securities and Exchange Board of India Act, 1992, do not find this to be a case which calls for any directions against the Delhi Stock Exchange Association Ltd. under section 11B of the said Act. Accordingly, I, hereby dispose off the show cause notice dated December 07, 2005 issued by Securities and Exchange Board of India to the Delhi Stock Exchange Association Ltd. as above.
| PLACE: MUMBAI |
G.ANANTHARAMAN |
| DATE: 9-10-2006 |
WHOLE TIME MEMBER |
| |
SECURITIES AND EXCHANGE BOARD OF INDIA |