Deputy General Manager
Investigation Department
IVD/ID8/BM/SS/SYPCL//2007
July 24, 2007
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1. Shri Gaurang Patel
B Wing, 303, Gaurav Tower,
Prabat Chowk, Ghatlodiya,
Ahemdabad-382 4861.
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2. Shri Shivprasad Yadav
Sai Nagar, 90 FT Road, Behind
Building No. 5, Ghatkopar (E),
Mumbai-400 075
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3. Ms. Parul Shah
502, Adeshwar Park,
Near Gokulam Dairy, Surat,
(Gujarat)-390 005
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4. Shri Rajesh J Panchal
6th, Kumbharwada, 48-Noormanzil,
2nd Floor, Room No. 77, Girgaum,
Mumbai-400 004
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5. Shri Samir M Shah
Cherish Home, Devidarshan
Apartment, Building No. 5, Ground
Floor, Flat No. 4, Near Viva
College, Virar (W)-401 303
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6. Shri Harish Amritlal Mehta
B-3, Kusum Kunj, Gokhale Road,
Dahanukar Wadi, Kandivali (W),
Mumbai-400 067
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Sub: Show Cause Notice under Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 2003 read with Section 11, 11B and 11(4) of the SEBI Act, 1992.
Securities & Exchange Board of India (SEBI) conducted investigation into the scrip of Shree Yaax Pharma & Cosmetics Limited (hereinafter referred as SYPCL) to ascertain price and market manipulation during the period of June 11, 2004 to August 10, 2004.
The Company was incorporated as SYPCL on March 9, 1995 for manufacture and sale of drugs and pharmaceuticals. It was promoted by Dr. Yogesh Dave, Dr. Jitendra Rajgor, Dr. Mrs. Parul Y. Dave and Dr. Anant C. Patel. It came out with a public issue of 42,50,000 shares of Rs. 10 each at par in November 1995 and the shares of the company were listed on the BSE on February 28, 1996. In December 2001, the company allotted 2,00,00,000 equity shares of Rs. 10/- each at par for consideration other than cash to the existing share holders of M/s Jainisam Investment Private Limited on preferential basis towards acquisition of 100% equity of M/s Jainisam Investment Private Limited by the company.
Performance of the company indicates that during the year 2003 company earned a profit of only 1.84 lakhs but during the year 2004 it incurred a loss of 7.03 lakhs on equity capital of Rs. 24.41 crore. The company did not submit its annual report for the year 2005 to the BSE till the end of investigation. Performance of the company is enclosed in Annexure-I.
It was observed from the shareholding pattern of the company that promoters’ holding as on March 2005 was 12.29% by holding 30,00,000 shares and holding of public was 2,14,13,100 shares (87.71%). As 2,00,00,000 shares issued by the company on preferential basis to the shareholders of Jainisam Investment Private Limited in 2001 were not listed, hence the listed capital of the company was 44,13,100 shares only. Shareholding pattern of the company is enclosed in Annexure-II.
During the period of investigation the scrip of SYPCL was listed at ASE, MSE and BSE but during the period of investigation i.e. June 11, 2004 to August 10, 2004 it got traded at BSE only. During the period of investigation the scrip opened at Rs. 6.00 on June 11, 2004 and increased to Rs. 10.20 on June 22, 2004. Thereafter, it started falling and on August 10, 2004 it closed at Rs. 1.02 and during the said period the scrip got traded for 43 days for 1,44,19,987 shares. Upon comparison of sensex and price of SYPCL it was observed that scrip showed reverse trends to the market as when sensex was falling scrip was going up and when the sensex started increasing, scrip witnessed fall. Price volume data of scrip and sensex movement during the period of investigation are enclosed in Annexure-III & IV.
The following corporate announcements were announced by the company alongwith the results declared by it for the quarter of June 2004.
1. Company Plans to open new R&D Center for Ayurvedic & Herbal Medicine in near future to avail of Tax Benefits available to Bio Tech Companies engaged in R & D Activities, as approved in the Finance Bill 2004
2. Bagged an order worth Rs 360 million from Salt Trading Corporation and Semi Government Corporation of Nepal for Export of Urea.
3. Company is in the final stages of Negotiation with M/s Domes International Inc, USA for processing and Marketing in SAARC Countries.
4. Company has acquired Iron Ore Mine in Karnataka on Lease Basis looking to growing opportunities in global scenario.
5. Tied up with Collatelly Solutions to acquire Intellectual property Rights (IPR) for X Comm, US Patent Technology that enables bridging of Tele Communication Infrastructure.
Summons were issued to the company SYPCL to find the authenticity and implementation of the same. Shri Shailesh Patel, Managing Director of the company appeared on behalf of the company to record the statement after repeated reminders. At the time of recording the statement Shri Patel stated that except the announcement made under point no. 1 and 5 all other actions have been implemented and in support of his claim he submitted some documents. However it was observed from the documents that the papers relating to the order for export of urea and negotiation with Domes International was relating to 2002 and there was no agreements/information for acquisition of any iron ore mines. Further, it was also observed that no progress was made by company in this regard. Upon analysis of the documents submitted by the company it was observed that none of the above announcements made were implemented. The MD of the company was summoned subsequently to clarify the discrepancy found in his submission however he did not appear inspite of repeated reminders. Thus, the company and the MD made false statements/submitted false documents to misguide the investigation. Statements recorded from Shri Shailesh Patel are enclosed as Annexure-V.
The company was also asked to submit the details of current promoters and directors, market/off market transactions executed by the promoters/directors during the period of January 01, 2004 to September 30, 2004, details of their shareholdings, loans advances/given etc. It was observed from the reply given by the company that none of the promoters and directors have executed off market/market transaction in the scrip during the given period. But during the course of recording statement Shri Patel confirmed that the shareholders who were holding major shares in the company had purchased the shares from the earlier promoters during 2002 and were thus shown in the promoters group. However Shri Patel did not submit the details of the bank account, demat account statement of the promoters, details of shares sold through market/off market as these were required to confirm the relationship of the major shareholders and the promoters. Investigation revealed that these major shareholders have sold around 27,29,000 shares in the off market which through some layers of entities have ultimately gone in the market in the hands of gullible investors. Thus the reply given by the company regarding market/off market transaction of the promoters was also found to be incorrect.
Thus the company SYPCL and its management had given false information on the promoters of the company and their dealings in the share. Further they have also given misleading statement/made false announcements as detailed above which had resulted in creating false market and misled the general investors.
The following entities who were included in the promoter category or connected to the company as per the statement given by Shri Shailesh Patel were found to be offloading the shares of SYPCL. The details of which are as below:
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S. No.
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Shareholders
(Promoter Group)
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First Transferee
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No. of Shares Transferred
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Second Transferee
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Sold in the market during the period of investigation by the ultimate clients
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1.
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Shri Dharamraj Vala
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Shri Haresh D Vora
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200000
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Chaitanya P Route (Transferred directly to the pool account of Ruchiraj Share & Stock Brokers Limited)
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Shri Chaitanya Route sold 13,51,881 shares received from different entities
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Shri Pradeep Babel
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200000
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Shri Pankaj V Maru
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200000
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2.
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Shri Kirit Pandya
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Shri Yadav Shivprasad Manikprasad
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200000
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Shri Prashant Narvekar
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Shri Prashant Narvekar sold 6,05,000 shares received from different entities
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Shri Harish Amritlal Mehta
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200000
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Chaitanya P Route (Transferred directly to the pool account of Ruchiraj Share & Stock Brokers Limited)
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Sold in the market (Mentioned in serial no. 1)
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Ms. Varsha Atul Bhayani
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188900
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Shri Vikas Naranvar
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Shri Vikas Narnavar sold 2,98,350 shares received from off market transferees
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3.
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Bharati Jitendra Shah
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Ms. Parul Shah
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100000
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Shri Prasad Tandel
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Shri Prasad Tandel sold 2,41,500 shares received from off market transferees
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Shri Jitendra Shah
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400000
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4.
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Shri Jitendra Shah
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Ms. Parul Shah
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430000
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Shri Sayeed Mustafa (200000 shares)
Shri Prashant Narvekar (200000 shares)
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Shri Sayyed N Mustafa sold 1,57,792 shares received from off market transferees
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5.
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Kajol Impex Limited
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Shri Chitanya P Route
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400000
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Sold in the market (Mentioned in serial no. 1)
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6.
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Shri Umit V Patel
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Shri Rajesh Panchal
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240000
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Shri Prashant Narvekar
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Sold in the market (Mentioned in serial no. 2)
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Shri Samir M Shah
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200000
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Transferred 330000 shares to Chaitanya Route
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Sold in the market (Mentioned in serial no. 1)
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7.
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Shri Gaurang Patel
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200000
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These entities were summoned to appear and submit the details of their transactions, market and off-market, demat statement, copy of bank statement etc. and their replies are as below:
Shri Dharamraj Valla was holding 6,40,256 shares as on June 18, 2004 and transferred 6,00,000 shares in the off market to above entities which were ultimately sold in the market by Shri Chaitanya Route. Summons were issued to Shri Dharamraj Valla to submit his shareholding details, off market transactions, copy of demat statement and bank statement etc. In response to second summon he requested one month time to submit the details but no reply was received from him even after issuing further reminders. Shri Dharamraj Valla did not submit information/documents and did not cooperate with the investigation proceedings.
From the demat statement of Shri Kirit Pandya it was observed that he was holding 5,89,000 shares as on June 18, 2004 and transferred his total holding in the off market to different entities given in the above table which were ultimately sold in the market by Shri Chaitanya Route, Shri Prashant Narvekar and Shri Vikas Narnavar. Summons were issued to Kirit Pandya to submit the details of his off market trading and reason thereof, connection with the transferees/sellers, relationship with the promoters/directors of the company, copy of demat statement and bank statement etc. In response to summons once he replied asking for 2 weeks time to appear in person and submit the details but he did not turn up or submit any detail even after being given repeated reminders.
Shri Jitendra Shah appeared on his own behalf and on behalf of his wife and stated that one Shri Hemrajsinh Vagehla transferred 10,00,000 shares in physical form of SYPCL in the name of Shri Jitendra Shah on April 15, 2002 and subsequently these shares were converted into demat mode. Shri Jitendra Shah also added that he was employee in the firm of Hemraj Vaghela till 2003 and so as per the instruction of Shri Hemrajsinh Vaghela, he transferred said 10,00,000 shares to several entities in June 2004 but no payment was effected for the above transactions. He further confirmed that their demat accounts were utilized by Hemraj Vaghela with their consent. Investigation revealed that 5,00,000 shares transferred by Jitendra Shah to the demat account of his wife was sold in the market through the clients Shri Prasad Tandel, Shri Sayed Mustafa and Shri Prashant Narvekar. Statement of Shri Jitendra Shah is enclosed as Annexure-VI.
Kajol Impex Limited was holding 4,38,575 shares of SYPCL as on June 22, 2004. It was observed from the demat statement that it transferred 4,00,000 shares in off market transaction to Shri Chaitanya Route. It was summoned to submit the details of its shareholding, off market transactions, copy of bank statement and demat statement etc. The entity sought for extension twice but did not submit the details inspite of repeated opportunities.
Shri Umit V Patel transferred 2,00,000 shares to Shri Samir M Shah and 2,40,000 shares to Shri Rajesh Panchal. Later on these shares were sold in the market through the connected clients Shri Prashant Narvekar and Shri Chaitanya Route. In view of the above Shri Umit Patel was summoned to furnish the details of share holding, demat, bank account statement, details of off market/market transactions etc. but he did not appear and submit the details.
It was observed from the BSE report that Shri Gaurang Patel was director of the company SYPCL. As on June 30, 2004 he was holding 2,19,225 shares of the company and out of that he transferred 2,00,000 shares in an off market transaction to Shri Sameer Shah on July 09, 2004. Therefore, he was summoned to appear in person and submit the details. He stated that he was appointed as additional director of the company SYPCL on May 06, 2002 and he resigned on August 01, 2003. This was also confirmed by the company in course of investigation. He further stated that he had pledged the above 2,00,000 shares with Shri Sameer Shah for Rs. 3.75 lakh and received the consideration in cash as he was in need of money however he could not produce any documents in support of the same. He also stated that till date he has not returned borrowed amount to Shri Sameer Shah. Investigation has revealed that these 2,00,000 shares were sold in the market through the client Shri Chaitanya P Route.
Shri Sameer M Shah received 2,00,000 shares from Shri Gaurang Patel and 2,00,000 shares from Shri Umit Patel and out of that he transferred 3,30,000 shares to the client Shri Chaitanya Route and 50,000 shares to Shri Sayyed Mustafa which were subsequently sold in the market. Hence, Shri Samir M Shah was summoned thrice to submit the details and the same was acknowledged by him but he did not furnish any details and did not co-operate with the investigation proceedings.
It was observed from the demat account statement that Ms. Parul Shah received 1,00,000 shares from Ms. Bharati Jitendra Shah and 4,30,000 from Shri Jitendra Shah in off market transactions. Out of these 5,30,000 shares she transferred 1,00,000 shares to Shri Prasad Tandel, 2,00,000 shares to Shri Sayyed Mustafa and 2,00,000 shares to Shri Prashant Narvekar.
Demat account analysis of Shri Rajesh Panchal revealed that he received 2,40,000 shares from Shri Umit V Patel and transferred to Shri Prashant Narverkar. Shri Prashant Narvekar sold these shares in the market. Shri Rajesh Panchal was summoned to appear and furnish the detail of directorships held by him, detail of off market transactions, relationship with company SYPCL and its promoters and directors, bank and demat statements, details of his shareholding in the company SYPCL, etc but did not reply and did not co-operate with the investigation proceedings inspite of acknowledging the summons.
Shri Harish Amritlal Mehta received 2,00,000 shares from Shri Kirit Pandya and transferred to Shri Chaitanya P Route who in turn sold these shares in the market. Shri Harish Amritlal Mehta was summoned to furnish the details of his shareholding in the company SYPCL, his relationship with the company SYPCL and its promoters and directors, off market transactions, bank and demat statements etc but he did not furnish the same and did not co-operate with the investigation proceedings
Shri Haresh D Vora received 2,00,000 shares from Shri Dharamraj Vala on June 18, 2004 and the same shares were transferred by him on July 22, 2004 to the pool account of Ruchiraj Share & Stock Broker Private Limited which were sold in the name of Shri Chaitanya P Route. Shri Vora stated that he received shares by mistake of DP and he returned the same to DP only. But the contention given by him is unacceptable as the shares have not gone back to the account of Shri Dharamraj Vala. Shri Pankaj V Maru stated that his demat account was utilized by Shri Yatin Shah and Shri Yatin Shah executed the transactions in his account. Shri Shivprasad Yadav submitted that he authorized his friend Shri Atul Bhayani to trade in the market. Shri Atul Bhayani, appeared on behalf of Varsha Atul Bhayani, and submitted that his wife Varsha Atul Bhayani was having joint demat account with him and their demat accounts were utilized by Shri Yatin Shah to execute the transactions. Analysis of demat account shows that shares came in their account from Kirit Pandya. Shri Pradeep Babel submitted that he received 2,00,000 shares in his account by the mistake of DP and as per the request of DP he returned the same to DP. However, it has been observed that he received 2,00,000 shares from Shri Dharamraj Vala and transferred to the pool account of Ruchiraj which were sold in the market in the name of Shri Chaitanya Route. Hence these entities were also found to be connected/related to the promoter group entities and also to the ultimate clients through off market transactions as observed from their demat accounts.
Investigation revealed that the promoter connected entities and major shareholders transferred shares of SYPCL in off market transactions to the ultimate clients viz. Chaitanya P Route, Prashant Narvekar, Vikas Narnaver, Prasad Tandel and Sayyed N Mustafa. These ultimate clients alongwith M/s Girigopal Investments who was found to be connected to Shri Chaitanya P Route traded substantially in the scrip. The trading of these clients created huge volumes in the scrip in the market which also affected the price, which had hardly any liquidity before their trading. This created investors interest and thereafter when these clients started selling in the market buyers were found scattered. Further, these clients executed matched deals and created artificial volume and influenced the price of the scrip. The clients Chaitanya P Route and M/s Girigopal Investments were also found to be connected and executed cross deals and created artificial volume which impacted the price of the scrip. The above six clients have executed 16,085 trades among themselves for 30,58,652 shares which contributed 10.60% of the total volume in the scrip of SYPCL. During the investigation period these clients have bought 53,96,148 shares and sold 79,52,725 shares i.e. 37.42% and 55.15% of the total market volume.
Thus, from the above, it is evident that the noticees viz. Shri Dharamraj Valla, Shri Kirit Pandya, Shri Jitendra Shah, Ms. Bharti Jitendra Shah, Kajol Impex Limited, Shri Umit V Patel, Shri Gaurang Patel, Shri Sameer M Shah, Ms. Parul Shah, Shri Rajesh Panchal, Shri Haresh D Vora, Shri Pankaj V Maru, Shri Shivprasad Manikprasad Yadav, Varsha Atul Bhayani, Shri Pradeep Babel and Shri Harish Amritlal Mehta aided and abetted the ultimate clients by transferring the shares in off market and used these clients as frontline to create artificial market and offloaded their holding in the scrip of SYPCL in the market.
Thus, the company SYPCL and its Managing Director Shri Shailesh Patel have violated Regulation 4 (1) (2) (e) and (r) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 2003 by announcing misleading and false corporate announcements in the quarterly results of June 2004.
The noticees (s. no. 3 to 18) have violated Regulation 4 (1) (2) (a) and (e) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 2003 by aiding and abetting creation of artificial volume by transferring shares through off market transactions to the ultimate clients who traded substantially in the market and offloaded the shares to the gullible investors.
You are therefore called upon to show cause as to why action under Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations 2003 read with Section 11, 11B and 11(4) of the SEBI Act, 1992 including restraining you from accessing the capital market and prohibiting from buying, selling or dealing in the securities in any manner or whatsoever for a particular period should not be imposed.
This is without prejudice to SEBI’s right to initiate prosecution under section 24 of SEBI Act, 1992 or any other action as it may deem fit in terms of the provisions of the said Act or the Rules or Regulations framed thereunder.
Your reply may be furnished within 21 days of receipt of this notice, failing which, it would be presumed that you have no explanation/submission to offer and SEBI may take action as deemed fit under the SEBI Act, 1992 and Regulations framed thereunder. While replying, please also indicate whether you would prefer personal hearing before the Board.
“Vide Circular no. EFD/ED/Cir-1/2007 dated April 20, 2007 (available at www.sebi.gov.in), SEBI has come out with guidelines for passing of consent orders. If you wish to avail the consent process, you may apply in the prescribed form given in the said Circular. Your application should be forwarded to the address mentioned in the said Circular under intimation to the undersigned.”
Barnali Mukherjee
Enclosures:
- Annexure-I
- Annexure-II
- Annexure-III
- Annexure-IV
- Annexure-V
- Annexure-VI