SECURITIES AND EXCHANGE BOARD OF INDIA
CO/57/ISD/09/2004
ORDER UNDER SECTION 11 AND 11B OF THE SEBI ACT AGAINST PROMOTERS OF KOLAR BIOTECH LTD. AND OTHERS
SEBI had received complaints from various entities regarding massive fraud alleged to have been committed by the company viz. Kolar Biotech Ltd. The complainants had stated that the promoters of the company have committed a fraud on a large scale. The other companies belonging to the Group being Soundcraft Industries Ltd. and Adam Comsof Ltd. Complainant has further stated that company had announced a bonus issue of 2:1 and also advertised in the ‘Economic Times’ regarding their ADR issue. Further, in the Economic Times there was also a sale notice by BOI regarding the property of Shri Raj Basantani who is the main promoter of Kolar Biotech Ltd.. The complainant had also mentioned that the registered office of Kolar has been sealed by various banks, yet the company has advertised regarding its meeting to consider GDR issue.
Subsequently, SEBI had advised BSE to examine the matter and submit the report to SEBI. BSE had submitted a brief report on investigation conducted by the exchange covering the period July 26, 2004 to August 17, 2004 in case of Kolar Biotech Ltd. and Soundcraft Industries Ltd. and February 09, 2004 to August 10, 2004 in case of Adam Comsof Ltd.
The findings of the investigations conducted by BSE were as given below ::
- Kolar Biotech Ltd.
After the declaration of the bonus issue by the Board of Directors of the company on August 04, 2004, the average daily volumes surged by around 540 % as compared to the average daily volumes registered immediately prior to the announcement. The price also increased from Rs.1.04 to Rs.2.12 from August 04, 2004 to August 10, 2004.
The Greater Bombay Co-operative Bank had received recovery certificate on July 27, 2004 and registered office of the company had been sealed by Special Recovery and Sales officer of the bank. The company did not intimate the exchange regarding such adverse developments. However, it intimated the exchange vide its letter dated July 29, 2004 stating that a Board meeting for considering a bonus issue is fixed at its Registered Office on August 03, 2004 However, the venue of the said Board meeting was already sealed before the date of communication by the company. Thus the company has misrepresented to the stock exchange.
After the announcement of the bonus issue, the entities related to the company had sold 3.45 crore shares (34.54 % of the share capital) which constituted around 30% of the total trading volume.
The company vide its letter August 12, 2004 informed the Exchange that it would hold its Board meeting to consider the issue of GDR in its registered office, which as per the information available was sealed. The company had also advertised the notice of the Board meeting at the registered office in the Economic Times dated August 13, 2004,. Thus it appeared prima facie that company had issued an advertisement on August 13, 2004 to hold its Board meeting at its registered office even when it was fully aware of the fact that the said premises were sealed w.e.f. July 28, 2004 on account of recovery action by the Greater Bombay Co-operative Bank.
BSE had stated that the events depicted above seem to suggest that entities connected to the company may have possessed the information about recovery action by Greater Bombay Co-operative Bank Ltd., which was not available to the investors at large and SEBI may examine any violations with regard to SEBI Prohibition of Insider Trading Regulations 1992 (as amended from time to time), with regard to transactions executed by the entities connected to the company / promoters.
The exchange had transferred the said scrip to ‘Z’ group (trade to trade basis) w.e.f. August 24, 2004
2. Soundcraft Industries Ltd.
Although no major spurt in price and volume was observed in the scrip, it was observed that some banks are net sellers in the scrip during the period under investigation which might be on account of invoking the collaterals
The exchange had transferred the scrip to ‘Z’ group w.e.f. August 24, 2004 and a show cause letter was issued to the company for violating certain clauses of the listing agreement.
3. Adam Comsof Ltd.
The price of the scrip fell from Rs.22.50 to Rs.2.16 during the period of examination despite announcement by the company to issue bonus shares. However, it appears that the two Board Meetings proposed to be held for approval of bonus issue were not held, and also no communication in this respect was sent to the exchange by the company. The second Board Meeting was proposed to be held at the registered office of the company on August 23, 2004, although the said office was already sealed on July 28, 2004 by the leading bank of Soundccraft Industries Ltd. (group company having the same registered office).
A sharp fall in the profit and turnover of the company was observed in the March 2004 quarter compared to the December 2003 quarter. The member Kolar Sharex Pvt. Ltd. having the same registered office address as that of the company had the maximum concentration in sales (32.74% in gross sales and 51.08% in net sales). This member had mainly dealt for clients connected to the company and these clients were net sellers for around 20% of the capital of the company.
Shri Rajkumar Basantani, the erstwhile director of the company (who had resigned from the Board of Directors on November 25, 2003) was a net seller for 11,29,502 shares during the period of examination.
Subsequent to the period of examination, the client Cavelier Securities (dealing through the member Ruchiraj Securities) purchased 15,31,773 shares of the company and then sold around 12,33,887 shares of which 11,63,000 shares were purchased by Million Investrade Ltd. (dealing through the member Kolar Sharex Pvt. Ltd.), a client connected to the company.
Thus, it appeared that there was a transfer of holdings between entities connected to the company, by first offloading to the market and then acquisition by Cavelier Securities from the market, who in turn offloaded the shares to other entities connected to the company.
In view of the above, BSE had forwarded the report to SEBI for information and further investigation / necessary action regarding violation, if any of the SEBI (Substantial Acquisition and Takeover) Regulations, 1997 or the SEBI (Prohibition of Insider Trading), Regulations, 2002 by the clients dealing in the scrip.
The scrip was transferred to the ‘Z’ group w.e.f. August 24, 2004 as a surveillance measure.
Since the announcement of bonus issue by Kolar Biotech Ltd. was after the adverse development which was not disclosed to the stock exchange, the possibility of creating investor interest in the scrip (by way of announcement of bonus) and insider trading to facilitate exit by the promoters could not be ruled out.
In light of the various above mentioned irregularities and after considering the recommendations of BSE, SEBI has decided to undertake full fledged investigation in all the three scrips.
The limited purpose of the present order is to prevent the promoters/ directors of the said companies and other persons related to them from indulging in further price manipulation and other irregularities to circumvent the provisions of SEBI Act and regulations etc or acting in any manner that may be detrimental to the interest of the securities market and the investors pending completion of the investigation. Such preventive action is necessary in order to refrain the promoters/ directors of the said companies and other persons related to them from dealing in the shares of the group companies pending completion of investigation.
In view of the emergent situation, it is necessary to ensure that no further harm or detriment is caused to the market or that investors are not adversely affected. Hence after taking into consideration the above mentioned facts and circumstances of the case, in exercise of the powers conferred upon me under section 11(4) (b) of the SEBI Act, 1992, read with Sections 11 and 11B of the SEBI Act, 1992, I hereby direct the following entities (being either promoters, directors, major shareholders of these companies or major sellers in the said scrips during the period of investigations by BSE and the entities related to them) not to buy, sell or deal in any other manner the shares of Kolar Biotech Ltd. Soundcraft Industries Ltd. and Adam Comsof Ltd. till the investigations are completed. During the said period, the following entities shall not buy, sell or transfer, pledge or dispose off or deal in any other manner the shares of these companies, directly or indirectly.
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Sr. No.
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Name of the Entity
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1.
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Sh. Rajkumar C. Basantani – major shareholder, Soundcraft Industries Ltd.
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2
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Smt. Seema R. Basantani – major shareholder, Soundcraft Industries Ltd.
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3
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Sh. Rajkumar C. Basantani (HUF) – major shareholder, Soundcraft Industries Ltd.
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4
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Exclusive Impex Ltd. – major shareholder, Soundcraft Industries Ltd.
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5
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Balwan Exports Pvt. – major shareholder, Soundcraft Industries Ltd.
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6
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Xenia Properties Pvt. – major shareholder, Soundcraft Industries Ltd.
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7
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Reshma Plastics Pvt. Ltd.- – major shareholder, Kolar Biotech Ltd.
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8
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Sh. Vinod R. Hingorani – major shareholder, Adams Comsof Ltd..
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9
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RVSK Information Technology Ltd.- major shareholder, Adams Comsof Ltd
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10
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Glorious Investrade P. Ltd. - major shareholder, Adams Comsof Ltd
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11
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Sh. Pradeep Rathi – Promoter, Adam Comsof Ltd.
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12
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Sh. Indramal S. Jain - Promoter, Adam Comsof Ltd.
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13
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Sh. Nazir N. Desai - Promoter, Kolar Biotech Ltd..
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14
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Sh. Maqbool A.G. Matwankar - Promoter, Kolar Biotech Ltd
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15
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Sh Rajesh Agarwal - Promoter, Soundcraft Industries Ltd.
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16
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Sh. Lahar Chand Kochar - Promoter, Soundcraft Industries Ltd
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17
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Sh. Shambhoo Prasad Sharma - Promoter, Soundcraft Industries Ltd
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18
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Manorama Trading Ltd. - Promoter, Kolar Biotech Ltd.
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19
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Adsul Trading Pvt. Ltd.- Major selling client
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20
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Sangam Infotech Pvt. Ltd. - Major selling client
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21
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Smt. Aarti Rajkumar - Major selling client
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22
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Sh.Rajesh Durgalal - Major selling client
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23
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Cavelier Securities Ltd. – Major selling client
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24
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Sh. Girdhar Karu - Major selling client
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25
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Sh. Mahesh Mistry - Major selling client
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26
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Adam Comsof Ltd. - Major selling client
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Sr. No.
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Name of the Entity
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27
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Structure Hsg. & Fin. P. Ltd. - Major selling client
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28
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Million Investrade Ltd. - Major selling client
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29
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Mastermind Mercantile Co-op Ltd. - Major selling client
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30
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Jugnu Securities P. Ltd. - Major selling client
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31
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Albeli Trading Co. P. Ltd. - Major selling client
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32
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Sh. Kiran Bansal - Major selling client
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33
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Steel Traders P Ltd. - Major selling client
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34
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M/s Shree Satyanand Investments (Shyam Sunder Jhunjhunwala) - Major selling client
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35
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M/s Subhlaxmi (Ramkishore Jhujhunwala) - Major selling client
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36
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Sh Nirmal N Kotecha - Major selling client
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37
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Suvik Finvest & Cons P Ltd. - Major selling client
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38
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Sh. Vikas Seth – Director, Kolar Biotech Ltd.
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39
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Sh. R.K.Maheswari – Director, Kolar Biotech Ltd.
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40
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Sh. Aspi B. Bhesania – Director, Kolar Biotech Ltd.
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41
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Sh. Babu Basan – Director, Soundcraft Industries Ltd.
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42
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Sh. Vishnu Basan – Director, Soundcraft Industries Ltd
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43
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Sh. Ramesh Verma – Director, Soundcraft Industries Ltd
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44
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Sh. Raja Yadav – Director,
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45
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Sh. Umesh R. Khariwala – Director, Kolar Biotech Ltd.
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46
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Sh. Nooman Usmani – Director
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47
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* Sh. Pushpa Mahadik – Director, Kolar Biotech Ltd.
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48
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* Sh. Prithvijit Debnath – Director, Kolar Biotech Ltd.
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49
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* Sh. Anil Bhaskar Tambe – Director, Kolar Biotech Ltd.
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50
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* Sh. Jayendra Pragji Thakkar – Director, Kolar Biotech Ltd.
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51
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Sindhu Securities Pvt. Ltd.
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52
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Sh Nitin Namdev, Director, Structure Hsg. & Fin. P. Ltd. major selling client
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53
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Sh. Mahesh Ramdas Adsul, Director,Adsul Trading Pvt. Ltd., major selling client
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54
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Sh.Hiralal Yadav, Director, Million Investrade Ltd. major selling client
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55
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Sh. Vithal Patil, Director, Mastermind Mercantile Co-op Ltd. , . major selling client
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56
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Sh Janba Chowgule, Director, Albeli Trading Co. P. Ltd. , major selling client
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57
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Rajkumar C. Basantani, Member, NSE
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58
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Kolar Sharex Pvt. Ltd., Member , BSE
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* resigned on the next day of appointment in June 2003
Post decisional hearings are being given to these entities before me during October 18th ,2004. These entities may appear through any of their representatives for the hearing and make submissions in respect of this order and show cause as to why the above order should not be continued and or an appropriate order should not be passed under the provision of the SEBI Act and the Rules & Regulations made there under.
This order comes into effect forthwith
-sd-
G.N. BAJPAI
CHAIRMAN
SECURITIES AND EXCHANGE BOARD OF INDIA