SECURITIES AND EXCHANGE BOARD OF INDIA
DIRECTIONS UNDER SECTION 11 AND 11B OF THE SEBI ACT, 1992 READ WITH REGULATION 11 OF SEBI (PROHIBITION OF FRAUDULENT AND UNFAIR TRADE PRACTICES RELATING TO THE SECURITIES MARKET) REGULATIONS, 2003, AGAINST M/S PHULCHAND SONS INVESTMENTS PRIVATE LIMITED IN THE MATTER OF DEALINGS IN THE SCRIP OF GLOBAL TRUST BANK.
WTM/GA/88/ISD/09/06
1.0 BACKGROUND
1.1 M/s Phulchand Sons Investments Private Limited (hereinafter referred to as Phulchand) is a company registered with Registrar of Companies, Maharashtra. The scrip of Global Trust Bank (hereinafter referred to as GTB) was listed in Bombay Stock Exchange Ltd. (hereinafter referred to as BSE) and National Stock Exchange of India Ltd. (hereinafter referred to as NSE).The scrip of GTB had witnessed significant price rise accompanied with rise in volumes at BSE and NSE during the financial year 2000-2001. Securities and Exchange Board of India (hereinafter referred to SEBI) conducted an investigation, inter alia under the provisions of the SEBI Act, 1992 read with SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 1995 (hereinafter referred to as the said Regulations) into the buying, selling and dealings in the scrip of GTB.
1.2 The investigation conducted by SEBI revealed that the price of the scrip of GTB at BSE had gone up from a low of Rs.57/- on October 11, 2000 to Rs.114.70/- on November 20, 2000, i.e. an increase of more than 100% in just 29 trading sessions. During the same period the price of the said scrip at NSE had gone up from a low of Rs.57.05/- to a high of Rs.114/-. It was observed that the average daily volumes in the scrip of GTB at BSE were below 38,000 during the period September 01, 2000 and October 10, 2000 and the same had increased to more than 7,70,000 during the period October 25, 2000 to November 23, 2000. The average daily volumes in the scrip of GTB at NSE during the above periods were 4,20,000 and 12,96,000 respectively.
1.3 During the course of Investigations, it was observed that there was significant concentration of trading among few stock brokers including Shri Ketan Parekh and common clients associated with Shri Ketan Parekh (hereinafter refereed to as KP entities). It was inter alia observed that some entities including Phulchand were used by KP entities for circular trading and parking of shares of GTB , creation of artificial market and volumes and building up of concentration in select scrips including GTB and circumvention of the provisions of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, etc.
1.4 In view of the above, SEBI vide an interim order dated December 31, 2002 directed 50 entities including Phulchand not to buy, sell or transfer, pledge or dispose off or deal in any other manner the shares of GTB till the completion of investigations. Subsequently, after affording a post decisional hearing, the above directions were revoked in respect of 14 entities including Phulchand, by SEBI vide order dated June 12, 2004.
2.0 SHOW CAUSE NOTICE AND THE PHULCHAND’S REPLY
2.1 A show cause notice dated June 30, 2004 was issued by SEBI to Phulchand under section 11 and 11B of SEBI Act, 1992 read with regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003 asking it to show cause as to why suitable directions should not be issued for the allegations detailed therein.
2.2 Phulchand vide letter dated August 20, 2004 inter alia submitted that he was not connected to Shri Ketan Parekh or any of KP entities in any manner whatsoever. It was further stated that a single sale transaction could not under any circumstance be termed as an act with the intention of violating the regulations of SEBI. It was also stated in the reply that he had never made any transactions of any nature with ‘Kensington Investments’ or any other entity named in the show cause notice save and except for Triumph International Finance Ltd, who was the stock broker of Phulchand. Phulchand also denied the allegation that he had acted in concert with Shri Ketan Parekh for the purpose of price rigging in the scrip of GTB. Also it was explained that he had transacted only once in the scrip of GTB and that the said shares were sold through his aforesaid stock broker. The common refrain in the reply was that he had not violated regulation 4(b) of the said Regulations.
2.3 Though, SEBI had given sufficient opportunity of personal hearing to Phulchand, he failed to avail the same.
3.0 CONSIDERATION OF ISSUES AND FINDINGS
3.1 I have carefully examined the findings of investigation conducted by SEBI in the scrip of GTB, show cause notice issued by SEBI, the reply of Phulchand and other materials available on record. I note that only one trade was executed by Phulchand in the scrip of GTB. I further note that there is no material on record to establish Phulchand’s connection either with Shri Ketan Parekh or with KP entities. I note that the only available link to connect Phulchand with KP entities is Triumph International Finance Ltd., a stock broker through whom Phulchand had made his transaction in the scrip of GTB and against whom the allegation of manipulation in the scrip of GTB was levelled by SEBI. In the absence of any sufficient evidence on record, any linkage with KP entities sought to be established on the basis of a solitary transaction through its broker, Triumph International Finance Ltd. (KP entity) would be extremely tenuous and hence insupportable.
3.2 Under the circumstances and in the absence of sufficient evidence , it is difficult to conclude, from the execution of the aforesaid single sale transaction, that Phulchand had aided and abetted Ketan Parekh entities in parking the shares of GTB, building up of concentrated positions and creating artificial volumes, giving misleading appearance of trades etc. Therefore, I hold that no sufficient evidence is available on record to hold that Phulchand has violated regulation 4(b) of the said Regulations. Similarly, there is no corroborative evidence against Phulchand to establish that he had created artificial volume and indulged in circular trades in the scrip of GTB.
3.3 In view of the above, I find that the evidence available against Phulchand is insufficient to hold it guilty of violating the said Regulations. I am, therefore, inclined to give a benefit of doubt to Phulchand.
4.0 ORDER
4.1 It is noted that SEBI ,vide interim order dated December 31, 2002 inter alia refrained Phulchand 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 Phulchand, by SEBI vide order dated June 12, 2004. Taking into account all the above aspects including the submissions made by Phulchand, the absence of sufficient evidence with respect to the alleged role of Phulchand in the price manipulation in the scrip of Global Trust Bank and his connection with Ketan Parekh entities and also the fact that the scrip 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 M/s.Phulchand Sons Investments Pvt. Ltd.
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 issued to M/s. Phulchand Sons Investments Pvt. Ltd. as above.
| PLACE: MUMBAI |
G.ANANTHARAMAN |
| DATE: 14/9/2006 |
WHOLE TIME MEMBER |
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SECURITIES AND EXCHANGE BOARD OF INDIA |