R. MOHAN
GENERAL MANAGER
INVESTIGATION DEPARTMENT
Email: mohanr@sebi.gov.in
IES/IVD6/RM/AN/NUNO/ 18860/2004
August 25, 2004
Numero Uno Credit Capital & Invest. P Ltd.
2, Laxmi Bhavan,
260, Sion, Matunga (E),
Mumbai- 400022.
Sub: Notice to show cause under section 11 & 11B of SEBI Act read with Regulation 3, 5(1)(a) & (b), 4(b), 6(a) and 12 of SEBI (Prohibition Of Fraudulent And Unfair Trade Practices Relating To Securities Market) Regulations, 1995 in the case of Numero Uno Projects Ltd.
Dear Sir,
Securities And Exchange Board Of India conducted investigations in the scrip of Numero Uno Projects Ltd. (NUPL) for the period from June to July, 2002.
1) The findings of the investigation suggest that the promoters associated entities namely AVDH Investments & Capital Pvt. Ltd, Numero Uno Credit Capital & Investment P Ltd, Numero Uno Securities P Ltd. of the company sold a large quantity of shares of captioned company around the time of the advertisement.
2) It was brought out that promoter’s associated entities have sold a substantial quantity of shares, a total of 14,30,000 shares of the company, through sub broker – Harvic Management Services Ltd. during a period from April 1, 2002 to August 2002 as given in annexure 1.
3) Promoters of NUPL transferred 1430000 shares to the beneficiary account /demat account of Harvic i.e. 13095635 (SCHIL) from the four promoter associated entities i.e. AVDH Investments & Capital Pvt. Ltd, Numero Uno Credit Capital & Investment P Ltd and Numero Uno Securities P Ltd.
4) During the course of investigation, it was also seen that in turn, Harvic transferred a total of 196000 shares (out of 1430000 shares received by it from the promoters) from its demat account (A/c no 13095635/SCHIL) to the demat account of two of its associated entities - namely to Havemore Financial and Shri Kerul Shah (stated to be an employee of Harvic). Investigation also revealed that these two related entities of Harvic and third entity – Danhem Holding as well as Harvic then sold the total 14,30,000 shares of the company belonging to the promoters. The details of sales of the promoters is shown in annexure 2.
5) It is also noticed that a major portion of the promoter sales have taken place around the time of the advertisement i.e. from the issuance of the advertisement of proposal of buyback to the time the stock exchanges were stated to have been informed (on July 15,2002 that too after market hours) – June 29,2002 to July 16, 2002. A total of 12,40,000 shares were sold during the period the company disseminated information on proposed buy-back of shares to general public till communication to stock exchanges of the rejection /deferring of the proposal by the Board of directors of the company. Additionally, another 1,90,000 shares were sold on the very next day itself i.e. 16/7/2002. It is pertinent to note that the public at large was not informed directly of the decision of the Board of directors meeting to defer the buy back proposal immediately after the meeting held on 11/7/2002. Promoters offloaded 14,30,000 shares during this period through its associated entities. This comprised as high as around 88% of the total sales of the promoters (16,30,000 shares sold from April to August 2002). The shareholding of the promoters decreased sharply as a result of their offloading from 23,18,975 shares (49.5%) to 8,88,975 shares (19.5%). It is pertinent to note that the findings of investigation seem to suggest that during the said period the promoters were in possession of price sensitive information of “outcome of the Board meeting” to the extent that they knew all along that the Board of directors would reject the proposal, indeed the proposal was not meant to be accepted in the first place.
6) It was also observed during the course of investigation that the company had written off certain bad debts (as high as Rs. 2.19 Crores on a paid up capital of Rs. 4.68 cr) in the year 2001-02. This is seen in the Annual Report of the company for the year 2001-02 which for the first time shows the bad debts. It appears that the promoters having realised the sinking financial health of the company desired to divest their shareholding in the company. Promoters have also admitted in the course of investigation that they were short of funds. As discussed earlier, the shares were very thinly traded at levels of Rs. 1-3 per share. The deteriorating financial health when reflected in the annual report would further depress the stock price. Hence, to salvage their shareholding value and sell their shareholding, the promoters orchestrated the plan to sell their shareholding before the information became public. They made advertisement of proposed buy back, created interest in the shares and sold large quantity of shares in the market through its associated entities namely AVDH Investments & Capital Pvt. Ltd, Numero Uno Credit Capital & Investment P Ltd, Numero Uno Securities P Ltd.
The findings of the investigation as detailed above suggest the prima facie violations of the Regulations 3, 5(1)(a) & (b), 4(b) and 6(a) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995, by all of you.
In view of the above, you are called upon to show cause as to why the directions including a direction to buy back all the shares at a price at which offloaded in the market during a period of advertisement be issued against all of you under section 11 & 11B of SEBI Act, 1992 read with Regulation 12 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995.
Your reply, if any, along with documentary evidence should reach us within 21 days of the date of receipt of this notice. While replying you may also indicate whether you desire to be personally heard in this case. In case no reply is received from you, within the above specified period, it shall be presumed that you have no further explanations/submissions to offer in this regard and action may be initiated as per law.
Yours sincerely
R. MOHAN
Enclosures :-
1. Annexure 1. and 2.
2. A copy of Advertisement.
3. A copy of Transaction Details.
4. A copy of Letter from B M Gandhi
5. A copy of Letter from NUPL
6. A copy of Deposition of Shri Ramachandran Menon
7. A copy of Agenda of BOD meeting.