GENERAL MANAGER
INVESTIGATIONS DEPARTMENT
ID3
IVD/ID3/PKB/AA /HCL /90570/2007
April 05, 2007
Shri V K Jain
206, Abhinandan Apartment
Rana Sati Gate
Indore (MP)
Sub: Show Cause Notice under section 11 (4) read with section 11B of SEBI Act
1. An investigation was conducted by SEBI in the case of alleged price manipulation in the scrips of Priyans Saree Industries Ltd. (PSIL). The investigation revealed that, you, along with other entities were involved in the price manipulation in the scrip. The brief facts regarding the company and manner of price manipulation is as follows:
2. Priyans Saree Industries Ltd. (PSIL) is Indore based company. PSIL is listed at ASE and MPSE. However, both the exchanges have reported that the company is not complying with the listing conditions. In pursuance, trading in the scrip PSIL has been suspended by ASE w.e.f. July 24, 2003. Also, there was no trading in the shares of the company at MPSE during the period of investigation. As such, the scrip has been traded only at ASE.
3. During the course of inspection in the case of low cap stocks, SEBI officials had visited ASE on 07-01-2003. It was observed that the scrip of PSIL was infrequently traded at ASE. But the price of the scrip went up from Rs 112 on 27.03.2002 to Rs 350 on 18.07.2002. After this, there was a stock split from Rs 10 to Rs 2. Thereafter price went up to Rs 107.75 on 06.09.2002. The price of the scrip went up in 25 trading sessions during the period March 27-September 06, 2002 with thin volumes. Subsequently, ASE submitted that owing to abnormal trading pattern being viewed in the scrip of PSIL, it had suspended trading in the scrip from July 24, 2003. MPSE reported nil trading in this scrip during the period.
4. Under such circumstances, SEBI initiated investigations in the scrip of PSIL
5. The scrip of PSIL was infrequently traded at ASE. But the price of the scrip went up from Rs 112 on 27.03.2002 to Rs 350 on 18.07.2002. After this, there was a stock split from Rs 10 to Rs 2. Thereafter price went up to Rs 107.75 on 06.09.2002. The price of the scrip went up in 25 trading sessions during the period March 27-September 06, 2002 with thin volumes. As against this, the price of the scrip was Rs 103/- on 03.01.2003 and fell to Rs 3/- on 24.07.2003
on ASE, the day the scrip was suspended for trading. ASE reported total volume of 44600 during 01.03.2002 to 30.09.2002 and 1173310 during the period 01.01.2003 to 24.07.2003. Price Volume data is enclosed at Annexure A.
6. As per the information received from ASE, nine members had done trading in this scrip through 179 trades for a total volume of 44600 shares during the period of investigation, i.e. from 01.03.2002 to 30.09.2002. However, only three brokers, viz. Ratnakar Finstock Pvt Ltd., Neptune Securities Pvt Ltd. and Aagam Securities Pvt Ltd. were the major trades in the scrip contributing more than 80% of the volumes created in the scrip during the period of investigation.
7. Following member wise data of the top three members was also submitted by ASE:
|
Member
|
Total Value of the Member
|
%
|
|
Ratnakar Finstock Pvt Ltd
|
3704102
|
53.56
|
|
Neptune Securities Pvt Ltd
|
1638640
|
23.69
|
|
Aagam Securities Pvt Ltd
|
375129
|
5.42
|
|
Total
|
5717871
|
82.67
|
8. As per the trade log submitted by ASE (Annexure A) as also from the subsequent information received from the brokers/clients, following information w.r.t. the abnormal trading pattern in the scrip was collated:
|
Date
|
Seller
|
Buyer
|
Quantity
|
Nature of trade
|
|
|
Broker
|
Client
|
Broker
|
Client
|
|
|
|
|
|
|
|
|
|
|
|
27-Mar
|
Ratnakar
|
Neeta Soni
|
Neptune
|
Dilipbhai Soni
|
150
|
Crossed deals
|
|
Neptune
|
Dilipbhai Soni
|
Ratnakar
|
Neeta Soni
|
150
|
|
Ratnakar
|
Jignesh
|
Ratnakar
|
K K Fintrade
|
5000
|
Self trades
|
|
28-Mar
|
Ratnakar
|
V K Jain
|
Ratnakar
|
K K Fintrade
|
6950
|
Self trades
|
|
9-Apr
|
Aagam
|
Jignesh
|
Aagam
|
Himgiri
|
2500
|
Self trades
|
|
8-May
|
Neptune
|
Abhishek Khare
|
Ratnakar
|
V K Jain
|
800
|
Crossed deals
|
|
Ratnakar
|
V K Jain
|
Neptune
|
Abhishek Khare
|
800
|
|
Aagam
|
Jignesh
|
Aagam
|
Himgiri
|
3000
|
Self trades
|
|
28-May
|
Ratnakar
|
V K Jain
|
Neptune
|
Abhishek Khare
|
2850
|
Crossed deals
|
|
Neptune
|
Abhishek Khare
|
Ratnakar
|
V K Jain
|
2850
|
|
29-May
|
Neptune
|
Abhishek Khare
|
Ratnakar
|
V K Jain
|
1450
|
Crossed deals
|
|
Ratnakar
|
V K Jain
|
Neptune
|
Abhishek Khare
|
1450
|
|
3-Jun
|
Neptune
|
Abhishek Khare
|
Ratnakar
|
V K Jain
|
1500
|
Crossed deals
|
|
Ratnakar
|
V K Jain
|
Neptune
|
Abhishek Khare
|
1500
|
|
4-Jun
|
Neptune
|
Abhishek Khare
|
Ratnakar
|
V K Jain
|
800
|
Crossed deals
|
|
Ratnakar
|
V K Jain
|
Neptune
|
Abhishek Khare
|
800
|
|
6-Jun
|
Neptune
|
Abhishek Khare
|
Ratnakar
|
V K Jain
|
400
|
Crossed deals
|
|
Ratnakar
|
V K Jain
|
Neptune
|
Abhishek Khare
|
400
|
|
Aagam
|
Jignesh
|
Aagam
|
K K Fintrade
|
2300
|
Self trades
|
|
11-Jun
|
Neptune
|
Abhishek Khare
|
Ratnakar
|
V K Jain
|
600
|
Crossed deals
|
|
Ratnakar
|
V K Jain
|
Neptune
|
Abhishek Khare
|
600
|
|
28-Jun
|
Neptune
|
Abhishek Khare
|
Ratnakar
|
V K Jain
|
25
|
Crossed deals
|
|
Ratnakar
|
V K Jain
|
Neptune
|
Abhishek Khare
|
25
|
|
Ratnakar
|
Jignesh
|
Ratnakar
|
K K Fintrade
|
2000
|
Self trades
|
|
1-Jul
|
Ratnakar
|
V K Jain
|
Ratnakar
|
Dipak Patangia
|
25
|
Self trades
|
|
3-Jul
|
Ratnakar
|
Dipak Patangia
|
Ratnakar
|
V K Jain
|
25
|
Self trades
|
9. As is depicted in the above table, the top three members were involved in huge and continuous structured deals in the form of crossed deals and self trades. Later, when the information regarding their trades were called from the brokers, it was observed that client-wise also these trades were not very much diversified and were restricted to overall only four clients of these brokers. These four clients are you, Abhishek Khare, Jignesh Kantilal Shah and K K Fintrade Ltd.
10. Taking cue from information submitted by ASE, top three members were asked for information in this regard. Trading details received from the members is as follows:
|
Client
|
Buy
|
Sale
|
Gross
|
Net
|
% Volume
|
Broker
|
|
V K Jain
|
8450
|
15400
|
23850
|
-6950
|
26.74
|
Ratnakar
|
|
Abhishek Khare
|
8425
|
8425
|
16850
|
0
|
18.89
|
Neptune
|
|
K K Fintrade Ltd
|
13950
|
0
|
13950
|
13950
|
15.64
|
Ratnakar
|
|
Jignesh Kantilal Shah
|
0
|
7800
|
7800
|
-7800
|
8.74
|
Aagam
|
|
Jignesh Kantilal Shah
|
0
|
7000
|
7000
|
-7000
|
7.85
|
Ratnakar
|
|
Himgiri Dynamics Ltd
|
5500
|
0
|
5500
|
5500
|
6.17
|
Aagam
|
|
K K Fintrade Ltd
|
2300
|
0
|
2300
|
2300
|
2.58
|
Aagam
|
|
Soni Nita Dilip
|
150
|
150
|
300
|
0
|
0.34
|
Ratnakar
|
|
Dilipbhai Soni-HUF
|
150
|
150
|
300
|
0
|
0.34
|
Neptune
|
|
Dipak Patangiya
|
25
|
25
|
50
|
0
|
0.06
|
Ratnakar
|
|
Total
|
38950
|
38950
|
77900
|
0
|
87.33
|
|
11. From the table given above, those clients who traded more than 10% of the volumes in the scrip were short listed to cull out more information from them. On that basis, you, Abhishek Khare, K K Fintrade Ltd. and Jignesh Kantilal Shah were selected. Summons u/s 11C(3) and (5) were issued to these three brokers and their four clients including you for furnishing of information and for your personal appearance before the Investigating Authority. However, many entities including you avoided compliance with summons on one pretext or the other. The summons were even routed through your broker also, but they also met with the same fate. Till date have neither submitted any information/details as required from you nor have appeared in person before the Investigating Authority.
Devious Trading Pattern
12. From the information thus received from ASE, the brokers and a client, analysis of the trading in PSIL shares was done. Prima facie, the trading does not appear to be genuine. The trading is not supported by company’s fundamentals which are not good and the company in itself is non-compliant of the listing agreement entered into with the exchanges. Beside the company vide its letter dated June 07, 2005 has itself stated that there was no business operation in the company and the company has been facing extra paucity of funds from creditors including preferential creditor. It has been further stated by the company that on account of no business and acute financial crunch at the end of the company, there are no personnel to handle the legal compliance for and on behalf of the company.
13. Also, the trades are not diversified and are concentrated around three brokers only and that too among their four clients only including you. Moreover, as elaborated earlier, nearly 100% of the trades were structured either as self trades or as crossed deals and hence were made only to jack up the price of the scrip. The brokers/clients including you have successively put the orders at increasing rates and in the process have artificially jacked up the price of the scrip. At large, the three brokers and the clients including you have aided and abetted in making artificial price discovery which is very much against the sound market principles and practices.
Cartel of Brokers & Clients
14. To have the first hand information of all the dealings made during the period of investigation, statements on oath were recorded before the Investigating Authority. During his submissions on January 25, 2006, Mr.Ajay Jayantilal Shah, Director of Ratnakar Finstock Pvt. Ltd. (Annexure B) told the following:
“All these clients were introduced to us by Shri Shailesh Parekh. Shri Parekh is a relative of Shri Jignesh V Shah, Director of Aagam Securities, member ASE. All these clients were new to us and did not trade in any scrip other than PSIL.”
15. Quite similar revelation w.r.t. their clients was made by Shri Jignesh Rameshchandra Shah, Director of Neptune Securities Pvt. Ltd. during his submissions before the IA on January 25, 2006 (Annexure C):
“Dilip Soni was introduced to us by Shri Shailesh Parekh. Abhishek Khare was introduced to us by Dhirenbhai Shah. All these clients were new to us and did not trade in any scrip other than PSIL.”
16. Shri Shailesh Parekh also found mention during the submissions made by Shri Jignesh Kantilal Shah who is, as shown above, one of the major clients in the scrip and was trading as a client through Aagam Securities Pvt. Ltd. Following is the statement made by Shri Jignesh Kantilal Shah on January 24, 2006 (Annexure D):
“We were recommended about buying PSIL shares by Shri Shailesh Parekh, who is known to us. Shri Parekh introduced us to the three brokers Maheshwari Finvest P Ltd., Ratnakar Finstock Pvt. Ltd. and Aagam Securities Pvt. Ltd……………..We only sold the shares of PSIL during 2002. We off loaded total 14800 shares in 2002 through two brokers Ratnakar Finstock Pvt. Ltd. and Aagam Securities Pvt. Ltd. We were again recommended by Shri Shailesh Parekh for selling the shares.”
17. As such, Shri Shailesh Parekh appears to be a common entity who is alleged to have introduced/recommended/instigated the other entities to trade in the scrip of PSIL. Shri Shailesh Parekh, as has been alleged by Ratnakar Finstock Pvt. Ltd. is a relative of Shri Jignesh V Shah, Director of Aagam Securities Pvt. Ltd. Therefore, Shri Shailesh Parekh may be considered to be related entity of Aagam Securities Pvt. Ltd. Here it may be noted that, as described earlier, Aagam Securities Pvt. Ltd. did not cooperate in the investigation proceedings and despite issue of summons avoided furnishing the required information/personal appearance before the Investigating Authority.
Modus Operandi
18. The modus operandi in the whole case may now be described as under:
19. Aagam Securities Pvt. Ltd. (ASPL) formed a cartel of brokers and clients in order to manipulate the market and artificially jack up the prices. The cartel included Ratnakar Finstock Pvt. Ltd. (RFPL) and Neptune Securities Pvt. Ltd. (NSPL) as other brokers. ASPL through its related entity Shri Shailesh Parekh introduced some clients at RFPL and NSPL. Jignesh Kantilal Shah and K K Fintrade Ltd. were already clients at ASPL and K K Fintrade Ltd. were also introduced by ASPL at RFPL through its related entity Shri Shailesh Parekh. Thus Jignesh Kantilal Shah and K K Fintrade Ltd. were the common clients between ASPL and RFPL. Another major client, i.e. you were also introduced at RFPL by ASPL through its related entity Shri Shailesh Parekh. As told by RFPL, all these clients including you were new and did not trade in any scrip other than PSIL. Moreover, Shri Shailesh Prekh was also known to NSPL as he introduced one of the clients of NSPL. Shri Abhishek Khare was a major client in the scrip and he dealt as a client of NSPL. Therefore, ASPL used their association with Shri Shailesh Parekh to build a cartel of brokers and clients.
20. After forming such a cartel, which included you, in and around March 2002, the 3 brokers, viz. ASPL, RFPL and NSPL started creating artificial volumes in the scrip through abnormal structured deals in the form of circular trades between the 3 brokers or in the form of self trades between the clients of one of the 3 brokers themselves. The cartel in the process continuously put the orders at constantly increasing rates and thus not only created artificial volumes but also jacked up the price of the scrip of PSIL. Here it may be noted again that the
scrip of PSIL was not at all backed by any strong fundamentals and in fact was a non-compliant of the listing agreement of the exchanges.
VIOLATIONS MADE BY YOU
21. You had indulged in crossed deals and self trades and put such orders with the brokers as to enter into structured deals which were made only to jack up the price of the scrip. The orders were successively put at increasing rates and in the process have artificially jacked up the price of the scrip of PSIL.
22. Thus, it is alleged that you had dealt in securities in a fraudulent manner. It is also alleged that you had indulged in activities which were calculated to create a false and misleading appearance of trading on the securities market. Also, you had indulged in activities which resulted in reflection of prices of securities based on transactions which were not genuine trade transactions and had entered into purchase and sales of securities, without the intention of transferring of the beneficial ownership, but intended to operate only as a device to inflate and cause fluctuations in the price of the securities.
23. At large, the three brokers and you had aided and abetted in making artificial price discovery which is very much against the sound market principles and practices. Also, you did not cooperate with the investigation proceedings which further strengthen the charges against you. It is also alleged that you had engaged in acts which had operated as fraud in the dealing of securities.
24. You have, thus, violated the provisions of section 3, 4(a), (b), (c) and (d) and 6 (a) of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995.
25. In view of these violations, you are therefore called upon to show cause as to why suitable directions including issuing such directions restraining you from buying, selling or dealing in securities for a specified period should not be issued to you u/s 11(4) read with section 11B of the SEBI Act,1992 and regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003.
26. Your reply, supported by necessary documentary evidence which you may like to adduce in support, should reach the undersigned within 21 days from the date of receipt of this letter failing which it will be presumed that you have no explanations to offer in the said matter and SEBI would be constrained to pass such orders as per law.
Yours faithfully,
P K BINDLISH
Encls.:
- Price Volume data - Annexure A.
- Trade log submitted by ASE - Annexure A
- Submissions on January 25, 2006 by Mr.Ajay Jayantilal Shah, Director of Ratnakar Finstock Pvt. Ltd. - Annexure B
- Submissions on January 25, 2006 by Shri Jignesh Rameshchandra Shah, Director of Neptune Securities Pvt. Ltd. - Annexure C
- Submissions on January 24, 2006 by Shri Jignesh Kantilal Shah - Annexure D