SECURITIES AND EXCHANGE BOARD OF INDIA
CORAM: V.K COPRA, WHOLE TIME MEMBER
WTM/VKC/ ID8/11/09/06
UNDER SECTIONS 11B AND 11(4) OF SECURITIES AND EXCHANGE BOARDOF INDIA ACT, 1992 IN THE MATTER OF
MILLENNIUM CYBERTECH LTD.
DATE OF HEARING 18.09.2006
APPEARANCES
FOR COMPANIES/ BROKERS: Ex-Parte
FOR SEBI
- Mrs Barnali Mukherjee, DGM, SEBI
- Shri Vir Sahab Singh , Manager, SEBI
- Mohamed Rahaz. P.M, Legal Officer, SEBI
Order
1.1 By an ad interim ex-parte order dated January 24, 2006, under Section 11B and 11(4) of the Securities and Exchange Board of India Act, 1992, pending investigation and passing of final order, the following ad-interim directions were issued against the company M/s Millennium Cybertech Ltd (herein after referred to in short as “the company MCL”), Promoters of the company MCL viz Cornhill Trading Company Limited, Cute Production Private Limited and Stardom Trading Company Limited, four Private Corporate Bodies, twenty five clients and seven brokers on the basis of a preliminary finding of an investigation conducted by Securities and Exchange Board of India (SEBI) after observing a sharp raise in price
and volume of the scrip of the company MCL during the short period June 1, 2005 to September 30, 2005.
1.2 Directions in the ad-interim order dated January 24, 2006
a) That the company MCL is hereby directed that it shall not issue any equity shares or any other instrument convertible into equity shares, in any manner, or shall not alter its capital structure in any manner, till further directions in this regard.
b) that the promoters of the company MCL viz, CornHill Trading Company Ltd., Cute Productions Pvt. Ltd. and Stardom Trading Company Pvt. Ltd. are hereby directed not to buy, sell or deal in securities of the company MCL Cybertech Ltd directly or indirectly, till further directions in this regard.
c) That the Private Corporate Bodies, who are the shareholders of company MCL viz, Ampu Traders Pvt. Ltd., Rajput Textiles Ltd., Jupiter Securities & Properties Pvt. Ltd. and Camcon Engineers Ltd. are hereby directed not to buy, sell or deal in securities of the company MCL directly or indirectly, till further directions in this regard.
d) The clients Amar Adhav, Umesh Choukekar, Deepak Todkar, Deepak Narvekar, New Leader Trading Co Pvt. Ltd., Fineline Mercantile Co. Pvt. Ltd., Rightstar Trading Co. Ltd., Santosh Pawar, Rajkishore Singh, Sharpline Trading co. Pvt. Ltd., Interlink Financial Services Ltd., Ritedeal Trading Co. Pvt. Ltd., Stockholm Mercantile Co. Pvt. Ltd., Sandeep Kadam and Jayesh Waghela, in any securities, directly or indirectly, till further directions in this regard.
e) The clients - Shree Ambey Textiles Pvt. Ltd. and Goldcity Exports Pvt. Ltd. are hereby directed not to buy, sell or deal in securities of the company MCL directly or indirectly, till further directions in this regard.
f) The clients Harish Sujan, Ghanshyam Sujan, Neel Sujan, Ramsudhakaran Menon, Shantha Bai, Bernard D’Souza, Rajendra Adukia and Abhayraj Rampher Shukla are hereby directed not to buy sell or deal in securities of the company MCL directly or indirectly, till further directions in this regard.
g) That the stock brokers viz. Indiabulls Securities Ltd., Jaypee Capital Services Ltd., Fortis Securities Ltd., Vijay Bhagwandas and Company, Insight Share Brokers Pvt. Ltd. and Joindre Capital Services Ltd. are hereby directed not to buy, sell or deal in securities of the company MCL directly or indirectly, for the entities mentioned under para (b), para (c), para (d), para (e) and para (f) till further directions in this regard.
h) Further, a separate order has been issued against the stock broker Galaxy vide order no. WTM/GA/MIRSD/46/1/06 dated January 24, 2006 for the alleged involvement in penny stocks as a whole.
i) The Depositories, NSDL and CDSL shall not give effect to any transfer of shares of the company MCL lying in the beneficial owner accounts of the entities mentioned in para (b), para (c), para (d), para (e) and para (f) till further directions in this regard.
1.3 In the said interim order, 15 days time had been given to the said entities/persons to file their objections, if any, to the said interim order and to avail themselves of an opportunity of personal hearing, if they so desire, at the SEBI, Head Office, First Floor, Mittal Court B Wing, Nariman point, Mumbai.
2.0 Objection of the company MCL against the ad-interim Order dated January 24, 2006 and personal hearing
2.1. The company MCL submitted its written objection dated March 16, 2006 and requested for a personal hearing in the matter. Hence the matter against the company MCL has been taken up to decide as to whether the aforesaid ad-interim order against MCL can be vacated or not. The other entities/persons neither filed any objection nor requested for a personal hearing.
2.2 As requested by the company MCL, opportunity of personal hearing was granted and letter dated August 18, 2006 to that effect was sent to the company informing the date of hearing fixed on August 30, 2006 at 10.30 before me. The said letter was also faxed to the company MCL on August 18, 2006 also. The acknowledgement card of the said letter returned stating “left”. The same letter was also sent at Registered office of MCL at Indore and that also returned undelivered. However, on the date of hearing i.e August 30, 2006, the company MCL faxed a letter to SEBI office at Mumbai, whereby requested extension of 10 days time for hearing stating that the officials who are looking after the matter are not able to attend the hearing as they are on leave due to religious festivals. The said request for extension of time had been granted and SEBI issued a letter dated September 04, 2006 to the company MCL informing the next date for hearing fixed on September 11, 2006 at 10.30 am before me. The said letter was also e-mailed to the company MCL in its e-mail address – millenniumcybertech@rediffmail.com on September 06, 2006 and also sent at its registered office at Indore.
2.3 The company MCL vide its letter dated September 08, 2006 again sought extension of time stating the reason “unavoidable circumstances” and also intimated their new office address as M/s Millennium Cybertech Limited, 15, Ramvihar, 1st Floor, Rakadia Lane, Borivali (West), Mumbai – 400 093. The said request of extension was also granted as a final opportunity and fixed the date of hearing on September 18, 2006 at 11 a.m. The said date of hearing was communicated to the company MCL in its new address vide letter dated September 12, 2006 and by e-mail at the aforementioned e-mail address wherein it was specifically informed that no further opportunity will be granted and in case they fail to appear, the matter will be heard as ex-parte. However, the company did not attend the hearing on September 18, 2006.
2.4 I note that the company MCL is directed that it shall not issue any equity shares or any other instrument convertible into equity shares, in any manner, or shall not alter its capital structure in any manner, till further directions in this regard.
2.5 As stated above, the company MCL filed its objection dated March 16, 2006 whereby the company MCL inter alia stated the following
· The company MCL have no idea as to why it has been roped in the said order since the entities/persons and their trading methodology and market forces being the reason for increase in the price of the company’s scrip and added that the company is a separate and independent legal entity and has nothing to do with transactions, if any, of the promoters and other parties.
· The rise or fall or fluctuation – volatile or otherwise – in price was the outcome of many factors, forces & influences constantly and simultaneously operating on the market at macro & micro level and the same is being monitored by the stock exchange. Hence, company stated that it is not proper to comment on these market – centric activities.
· Buy and sell the company’s shares by the promoters, private corporate bodies and investors are their individual decisions and beyond the control or concern of the company.
· Regarding split of par value of shares is revealed to BSE in terms of listing agreement entered between the company and BSE as per clause 31 of the Listing Agreement and not an announcement. Further the company MCL has not made any announcement, which would lure the investors to buy its scrip.
· It is stated that the financial result are the out come of the company’s performance. If the movement of shares was not in tandem with the result, the same can be commented upon/explained by the investors trading in the company’s scrip and the company had nothing to do with the price movement of its scrip
· The company has not violated any Regulations of SEBI. It is also stated that the company is not aware of the parties who have undertaken the illegal deals and the said individual’s own and personal transaction in the company’s scrip has nothing to do with the company and the company is nowhere concerned with the transaction of such strangers.
· The company stated that there was also a consolidated filing of disclosure under Regulation 7(3) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and Regulation 13(6) Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 for he shares sold by promoters and person acting in concert with them.
3.0. Consideration of issue
3.1 As stated above, MCL did not attend the hearing. Therefore I am proceeding in the matter on the basis of the materials before me.
3.2. The company MCL was registered as Private Limited Company named Brahma Capital & Securities Ltd. and was incorporated in the year 1986. As per the publicly available information, the company was doing the business of Financial Services & Hire Purchase, Leasing till September 1999. In the year 1999, the company changed its name as Millennium Cybertech Ltd. In the year 1999-2000, the company reportedly diversified its business from Finance to Web-Development & Web-Hosting Services.
3.3. The scrip of the company MCL at BSE opened at Rs. 65.50 on June 01, 2005 and increased to Rs. 242 on September 20, 2005, (around 269.47% increase in 86 trading days). The average daily volumes traded in the scrip were 34,532 shares and total shares traded during this period were 28,45,995 shares. The highest volume of 2,13,000 shares was observed on August 31, 2005 and the lowest volume of 135 shares was traded on September 22, 2005. The company went through a share split on September 30, 2005. The equity shares of face value of Rs. 10/- each were split into ten equity shares of Re 1/- each.
3.4 It is pertinent to note that pursuant to the stock split (on September 30, 2005); there was a huge spurt in traded volumes. Further, from the list of top 25 shareholders of the company, it also appears that the promoters of the company as well as interconnected clients have undertaken substantial transactions in the shares of the company for the period October 2005 to December 2005.
3.5. Regarding the aforesaid stock split and consequent huge spurt in traded volume, the company MCL stated in its objection that value of shares is revealed to BSE in terms of listing agreement entered between the company and BSE as per clause 31 of the Listing Agreement. Further, it is stated that the company MCL has not made any announcement, which would lure the investors to buy its scrip. In that regard, I note that the company MCL, on July 04, 2005 announced that on July 8, 2005 Board of Directors (BODs) shall meet to consider stock split and convene the EGM for the same. On July 8, 2005 it was informed that BODs of the company has approved stock split and an EGM for the same shall be held on Aug 8, 2005. On August 10, 2005 it was informed that EGM held on Aug 8, 2005 has approved split of equity shares. On September 19, 2005, it informed BSE that the Register of Members & Share Transfer Books of the Company will remain closed from October 08, 2005 to October 14, 2005 (both days inclusive) for the purpose of Annual General Meeting of the company to be held on September 30, 2005 and for split of equity shares of the company.
3.6. I note that sudden increase in the price of the scrip since June 2005, along with the off loading of promoters own holding through market as well as off- market transactions to a group of interconnected clients, who in turn dealt heavily in the market clearly indicates well thought out plan and scheme by promoters to induce investors to participate in the trading of the shares of the company, thereby facilitating sale of their stake to such unsuspecting investors. The promoters took advantage of the price rise and off-loaded their shares in the market there by making gains in the process at the cost of lay investors who would have been lured into trading in the shares of the company on the price and the volume rises. This is also brought out by the volume comparison before and after the stock split. The average volume traded 20 days prior to the stock split was 41,657 shares, highest traded volume being 2,06,589, on September 13, 2005, whereas, the average shares traded 20 days after the stock split was 1,59,943 shares, the highest traded volume being 5,30,882 shares.
3.7 I note that detailed investigations are already ongoing in respect of the trading in the shares of the company MCL. Further, the preliminary finding of investigation found that pursuant to the stock split (on September 30, 2005); there was a huge spurt in traded volumes. In the said investigation, the reason behind the said stock split and its effect are important issue among other issues. Hence, the real issue pertains to stock split in investigation is its effect in artificially raising the volume and price of the scrip and consequent undue advantages to the company, promoters and other connected entities/person.
3.8. Further, the company MCL is a small cap company whose financial performance has consistently been lackluster through five quarters ended September 30, 2005. Its share price which was ruling around Rs. 18 and Rs. 23 during the period June 2004 to March 2005 suddenly rose at the level of Rs. 66 during the end of May 2005. The share price suddenly exhibited a spurt which took the price from around Rs. 65 to Rs. 240 between June 1, 2005 and September 30, 2005. The rise in the share price was also accompanied by an increase in the trading volumes.
3.9 The sales of the company MCL have been relatively moving within a narrow range of Rs. 94 lakhs to Rs. 98 lakhs between the quarters ending June 2005 and September 2005. The unaudited quarterly results also indicate that the company MCL had shown a meager profit which was around Rs 20 lakhs for the quarters ended September 2004 and December 2004 and which declined sharply to Rs 2 lakhs and then increased to only Rs 13 lakhs to Rs. 18 lakhs in the subsequent quarters. The continued lackluster performance of the company in 5 consecutive quarters ending September 30, 2005 hardly justified the aforesaid sharp increase of price in the scrip the company MCL.
3.10 The company MCL in its reply stated that the financial result are the out come of the company’s performance. If the movement of shares was not in tandem with the result, the same can be commented upon/explained by the investors trading in the company’s scrip and the company had nothing to do with the price movement of its scrip. This stand of the company is not correct. I note that the share prices are currently hovering around one rupee. The sudden transient spurt in the share price, without a backup of commensurate financial performance and absence of any positive corporate announcements makes the rise appear artificial. The manner in which the volumes was sought to be created as elucidated in the ad-interim order dated January 24, 2006 further fortifies this conclusion. Further, the investigation is still going on in the matter and it is not the right time to come to a final conclusion that the company MCL had not done anything with the price movement.
3.11The shareholding pattern filed by the company with BSE Ltd. for the quarters ended September 2004, March 2005 and September 2005 (Shareholding for the quarter ended December 2004 and June 2005 was not filed with BSE), shows that the shareholding of the promoters viz, Cute Productions Pvt. Ltd. and Stardom Trading Company Pvt Ltd. has been decreasing continuously between September 2004 to September, 2005. The Preliminary investigation shows that a part of this decrease has been through off loading from the market and partly through off market transactions to various entities.
3.12The promoters of the company have offloaded a total of 10,00,000 shares (around 20% of the equity of the company) during the period of the price rise. This clearly shows that creating of the artificial market was for the sole purpose of enabling promoters to off load their share holdings and make patently unfair gains at the cost of the investors who may have been lured to these shares noticing sudden rise in the price and trade volumes. The artifice employed by the promoters appears to have been a standard one followed in the case of several small cap companies viz IFSL Ltd, Mega Corporation Ltd. and Karuna Cables Ltd. against which SEBI has already passed orders. It has all the ingredients of a penny stock manipulation in all its sordidness.
3.13I don’t find any merit on the company’s stand that the transactions of promoters are independent and company has nothing to do with the said transaction. As I noted supra, the investigation is going on and it is up to the investigating authority to lift the corporate veil of the company to prove the wrong committed by the company. Hence meticulous investigation is required to ascertain the role played by the company MCL in aiding and abetting the promoters and other entities/ persons to create artificial price and volume. Apart from the above, I am of the view that if the company MCL is permitted to issue any equity shares or any other instrument convertible into equity shares, in any manner, or allowed to alter its capital structure in any manner at this point of time, it will definitely affect the investigation and the company by taking advantage of the same, will gain undue benefits.
3.14I also note that the preliminary investigation also found that the company has also violated provisions of various regulations of SEBI through non disclosure of reduction in the shareholding of promoters through market/off- market transactions. As brought out, promoters were holding more than 5% of the shares of the company MCL. Regulation 13(3) of Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 and amendments thereto states that any person, who holds more than 5% shares of voting rights in any listed company shall disclose to the company the number of shares or voting rights, even if such change results in shareholding falling below 5%, if there has been change in such shareholdings from the last disclosure made under sub regulation 13(1) or under sub-regulation 13(3); and such change exceeds 2% of total shareholding or voting rights in the company; the company shall then disclose such information to all the stock exchanges where it is listed”. The company has not filed any such disclosures regarding change in shareholding of the promoter entity M/s Cute Production Pvt Ltd to BSE. Thus material information regarding change in the promoter shareholding especially that they are off- loading shares was not informed to the public at large by the company.
3.15With regard to the aforesaid main charge against the company MCL via non disclosure of reduction in the shareholding of promoters through market/off-market transactions attributes violation of Regulation 13(1), (3) & (6) of Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 as stated above. The company MCL submitted that there was also a consolidated filing of disclosure under 7(3) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and Regulation 13(6) Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 for the shares sold by promoters and person acting in concert with them. There is no other explanation in the objection regarding the reason for non disclosure.
3.16I note the company has not filed any such disclosure regarding change in shareholding of the promoters to BSE. It is mandatory under Regulation 13(1), (3) & (6) of Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992. The said disclosure is highly relevant in the instant matter especially on the ground that the promoters have off-loaded the shares and the same was not informed by the company to the public at large. Hence, the company MCL has violated Regulation 13(1), (3) & (6) of Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992.
3.17At this stage, the limited objective is whether there is a prima facie case for vacating the ad-interim order dated January 24, 2006 against the company MCL. Considering the above facts and circumstance, I don’t find any reasons to vacate the interim order restraining the company to issue any equity shares or any other instrument convertible into equity shares, in any manner, or to alter its capital structure in any manner, pending investigation.
3.18Thus, putting temporary restrictions on alteration of the company’s capital structure in any manner or its rights to issue any equity shares or any other instrument convertible into equity, in the overall interest of the market and the investors would serve the interests of justice. It is pertinent to note that SEBI is vested with statutory powers to protect the interest of investors in securities and to promote the development of, and to regulate, the securities market. Further, SEBI is having all the powers to pass restraint order to prevent the detrimental affairs of any entity in securities market under Section 11(4) read with Section 11B of SEBI Act. In the instant case, there is adequate material to come to a prima facie finding against the company as discussed above. Further, the investigation is still going in the matter. I am, therefore, convinced that there are reasonable grounds in this matter to confirm the interim order.
4.0 Order
4.1 In the light of the above, in exercise of the powers conferred upon me in terms of Section 19 read with Section 11(4)(b) and Section 11B of the SEBI Act, I have no hesitation in confirming the ad interim ex-parte order dated January 24, 2006, against the company M/s Millennium Cybertech Ltd in the interest of investors safety and integrity of the securities market.
4.2 This order shall come into force with immediate effect.
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Mumbai
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V. K. CHOPRA
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September 26, 2006
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WHOLE TIME MEMBER
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SECURITIES AND EXCHANGE BOARD OF INDIA
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