DEPUTY GENERAL MANAGER
INVESTIGATION DEPARTMENT
IVD6/BM/NR/BICL/99251/2007
July 23, 2007
M/s Ramya Traders P.Ltd
16/1599, Ramamurthy Nagar
Nellore 524003
Sub: Notice to show cause under Section 11 and 11B of SEBI Act, 1992 read with Regulations 11 and 13 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 in the matter of Balaji Industrial Corporation Ltd.
- SEBI conducted investigations in the scrip of Balaji Industrial Corporation Ltd. (BICL) for the period 28th February 2000 to 28th August 2000 and March 26, 2001 to September 21, 2001 as unusual price movements was observed during these periods.
- BICL was promoted by Smt. Lalitha Sankar, Shri. S. B. Sankar, Shri A. Sankarnarayanan, Sri. G.S.Venkatraman and Sri, S.P.Swamy and was originally incorporated as Arun Ignots Pvt. Ltd. on March 13, 1984. The paid-up capital of BICL was Rs. 6,00,000 divided into 6000 equity shares of Rs. 100/- each. Initially it produced Torsteel and Structurals from mild steel scrap.
Shri Magunta Sudhakar Reddy and Shri P.V.Prasanna Reddy, promoters of Balaji Group joined the Board of Directors of the company on January 17, 1990 and the entire share holdings of the company were acquired by them and their associates from the original promoters at the rate of Rs. 10/- per share aggregating to Rs. 9.60 lakhs. Besides, a sum of Rs. 9.44 Lakhs was also paid to original promoters for transfer of management to the present promoters. The present promoters also contributed Rs. 22.73 Lakhs to the Company for the purpose of making payment to sundry creditors and repaying the loans received from the original promoters and their associates. The company was converted into a public limited company and a fresh certificate of incorporation was obtained on January 22, 1992. The name of the company was changed to Balaji Steel Corporation Ltd. on March 30, 1992. The company again changed its name to its present name after diversifying into other fields like shipping, liquor in September 1994. The Board of Directors of BICL as per Annual Report for 1999-2000 are M. Sreenivasulu Reddy (Chairman), S. V. Sudhakar Reddy (Managing Director), V.R. Mehta (Nominee of ICICI), M. S. Ganesh and K. Munivelu Mudaliar. Company’s registered office is situated at Chemudugunta Village, Venkatachalam Mandal – 524320, Nellore Dist., Andhra Pradesh and corporate office is situated at No. 9, Bazullah Road, T Nagar, Chennai. During the year 2000-2001, BICL increased its equity share capital from Rs. 35.68 crores to Rs. 43.98 crores on account of allotment of 8304000 equity shares on preferential basis.
3. BICL earned a profit of Rs.5.00 crore in 1999 which increased to Rs.12.65 crore for the year ended March 2000. However for the year ended March 2001, the company incurred a loss of Rs. 55.39 crore on equity capital of Rs. 43.98 crore and for the year ended March 2002, it incurred a loss of Rs 48.02 crore. During the quarter ended June 2000 it incurred a loss of Rs.23.34 crore and for September 2000 it made a small profit of Rs.2.64 crore.
4. Analysis of the Price Volume for for the period 28th February 2000 to 28th August, 2000 reveals as follows:
|
Exchange
|
No. of trading days
|
Open
|
High
|
Low
|
Close
|
Volume
|
|
BSE
|
120
|
Rs. 27.90 (28/02/00)
|
Rs. 152.25 (31/05/00)
|
Rs. 27.90 (28/02/00)
|
Rs. 123.00 (28/08/00)
|
2,70,400
|
|
Exchange
|
No. of trading days
|
Open
|
High
|
Low
|
Close
|
Volume
|
|
NSE
|
141
|
Rs. 29.20 (2/02/00)
|
Rs. 151.25 (31/05/00)
|
Rs. 25.00 (15/02/00)
|
Rs. 119.95 (29/08/00)
|
675800
|
Major Brokers and their Clients
BSE: The major brokers (Mukesh Babu Securities Ltd., Satco Sec. & Financial Services Ltd., Macy Securities Pvt. Ltd., Shivnarayan Nemani Share & Stock Brokers Pvt. Ltd., Darshaw & Company Ltd. and SVS Securities Pvt. Ltd.) in gross terms had bought 247800 shares (90.33%) and sold 168400 shares (61.39%) of the total traded quantity on BSE (270400 shares) during the period of investigation.
Investigation reveals that the major clients of the broker Macy Securities Pvt. Ltd., were the company related entities. Details are as given below:
|
Major clients
|
Purchase Qty
|
%
|
Sale Qty
|
%
|
|
Smruthi Agro Farms Pvt. Ltd
|
183100
|
65.11
|
7500
|
2.67
|
|
Vyshnavi Real Est. &
|
|
Property Developers P Ltd.
|
|
Kyvalya Agro Farms Pvt. Ltd
|
|
Total for BSE
|
270400
|
100
|
270400
|
100
|
NSE: The major member brokers (Venkatraman and Co., Ensource Sh & Sec P Ltd.( now Macy Shares and Stock Brokers Pvt. Ltd.), Shri Balrajeshwar Holding, Satco Sec and Fin Service and Indbank Merchant Banking) in gross terms had bought 583500 shares (86.34%) and sold 379500 shares (56.16%) of the total traded quantity on NSE (675800 shares) during the period of investigation. Investigation reveals that the major clients of the brokers Venkatraman and Co., and Ensource Sh & Sec P Ltd., were the company related entities. Details are as given below :
|
Member Name
|
Major clients
|
Purchase Qty
|
%
|
Sale Qty
|
%
|
|
Venkatraman and Co
|
Sudheer Real Estates Pvt. Ltd.
Unit Trust of India
|
205400
|
30.33
|
207400
|
30.62
|
|
Ensource Sh & Sec P Ltd
|
Kyvalya Agro Farms Pvt. Ltd.
Smruti Aaro Farms Pvt. Ltd.
|
272000
|
40.16
|
16000
|
2.36
|
|
Total for NSE
|
|
675800
|
|
675800
|
|
Apart from the above company related entities who traded majorly on BSE and NSE another company related entity Ramya Traders P Ltd., traded on MSE during the investigation period. Further the brokers Macy Securities Pvt. Ltd and Ensource Sh & Sec P Ltd are found to be connected as they have the same address and also one of the directors was common in both the companies.
MSE:
The major broker was Patterson & Co trading for 9,00,000 on 9 days during period February 28, 2000 to August 28, 2000. The buying client was UTI and selling clients were Ramya Trades pvt. Ltd (7,50,000 shares) and Sudheer Real Estates Pvt. Ltd(1,50,000 shares) who were related to the company. Apart from these trades, two trades involving 50 shares each took place on MSE. Total Gross Traded Quantity on MSE for the period under scrutiny was 900100 shares.
5. The relationship of the clients with BICL and with other entities are
brought out as below:
|
S. No.
|
Name of the Client
|
Relationship with BICL
|
Relationship with other entities
|
|
1.
|
Smruthi Agro Farms Pvt. Ltd. (now Skokie Traders Pvt. Ltd.)
|
· Invested in shares of Balaji Distilleries Ltd., BICL and Balaji Hotels & Enterprises Ltd. Balaji Distilleries Ltd., Balaji Hotels & Enterprises Ltd are group companies of BICL.
· As on 31.03.01, took unsecured loans amounting to Rs. 25 Crore from BICL.
· Smruthi Agro had pledged 9300 shares of Balaji Distilleries Ltd. and 10800 shares of BICL with IFCI for the loans availed by the Balaji Distilleries Ltd. and BICL from IFCI.
· Mr. P. V. Prasanna Reddy, one of the earlier directors of BICL, has the same address as Smruthi Agro Farms Ltd.
· Shri R Vishwanath was director of Smruthi Agro and was working as Executive Finance with BICL. He became a director of BICL in 2002.
|
· As on 31/03/04 Smruthi Agro was owing Rs. 7,75,,000 to Sudheer Real Estate Pvt. Ltd. a preferential allottee and one of the major sellers during the period of investigation.
·
|
|
2.
|
Kyvalya Agro Farms Pvt. Ltd. (now Kyvalya Traders Pvt. Ltd.)
|
· Invested in shares of Balaji Distilleries Ltd., BICL, Balaji Hotels & Enterprises Ltd. and Balaji Bio-tech Ltd.
· Kyvalya Agro Farms has pledged 61900 shares of Balaji Distilleries Ltd. and 48700 shares of Balaji Industrial Corporation Ltd. with IFCI Ltd. for the loans availed by the Balaji Distilleries Ltd. and BICL.
· The client had business relationship with BICL, Balaji Hotels Ltd., Sudheer Real Estate, Smruthi Agro farms Ltd. and Vyshnai Real estate & Property.
|
· From the bank statements of Kyvalya Traders Pvt. Ltd. it is seen that from the sale proceeds of the shares of BICL, an amount of Rs. 2,45,00,000/- was given to Raghava Enterprises Pvt. Ltd. (one of the preferential allottees).
· The correspondence address of Smruthi Agro Farms Pvt. Ltd. is also the same as that of Kyvalya Agro Farms.
· The address of Mr. V. Chandrasekhara Reddy, Director of Maldeep Investments Pvt. Ltd., one of the allottee to the preferential issue and stake holder in BICL is same as that of the correspondence address of Kyvalya Traders Pvt. Ltd. viz., 72, Mittal Chambers 7th Floor, Nariman Point.
|
|
3.
|
Vyshnavi Real Estate & Property Ltd.
|
· The client had taken unsecured loans from M Sreenivasalu Reddy who is director of BICL.
· It was observed that Vyshnavi Real Estate had substantial holding in BICL and other Balaji group companies VIZ., Balaji Hotels, Balaji Distilleries and Balaji Bio-Tech.
· The client had business relationship with BICL.
|
· The client had business relationship with Smruthi Agro Farms Ltd, Kyvalya Agro farms Ltd. and Sudheer Real Estate.
|
|
4.
|
Sudheer Real Estates Pvt. Ltd.
|
· Invested in shares of Balaji Distilleries Ltd., Balaji Hotels & Enterprises Ltd. and BICL.
· The Balance Sheet of Sudheer Real Estates as on March 31, 2000 & March 31, 2001 shows loans/advances given to Balaji Industrial Corp Ltd.
· The client had business relationship with BICL, Balaji Hotels Ltd., Balaji Distilleries Ltd.,
|
· The client had business relationship with Smruthi Agro Farms Pvt. Ltd. and Vyshnavi Real Estate & Property.
|
|
5.
|
Ramya Traders Pvt. Ltd.
|
· Gave loans/ advances to BICL during the year 2000.
· The client is a long term shareholder of BICL
|
· Mr. B Srinivasulu Reddy is a common director of Ramya Traders Pvt. Ltd., Sudheer Real Estates Pvt. Ltd. and Smruthi Agro Farms Pvt. Ltd.
|
6. Analysis of the trade and order log - Incremental trades
BSE:
Analysis was made for the trades where price was higher by 50 p or more than the previous trades. It was observed that in 293 occasions the trade price was higher by Rs0.50p or more than the previous trade price. These trades took place on 83 days out of total 120 trading days on the exchange. It is observed that on BSE the broker Macy’s Securities on behalf of its clients placed 64 buy orders at a higher price, ranging from Re0.50p to Rs.18.10, (compared to the last traded price) on 77 days for 36,900 shares which resulted in 222 trades. Out of these trades 181 trades were placed for the company related entities Smruti Agro and Kyvalya Agro for 31100 shares. During this period i.e. 28/2/2000 to 28/8/2000 the price of the scrip went up from Rs.28.50 to Rs.119. Further out of the 222 occasions in 208 occasions the buy order was placed first. On other occasions the clients of the broker were scattered. The details of buy order at BSE is given in Annexure 4.
NSE:
On 120 occasions, broker Ensource Shares & Securities Pvt. Ltd placed buy orders at prices higher than the last traded price ranging from Re.0.03 to Rs15.38 (difference between buy order price and LTP). These orders were placed on 46 trading days out of total 141 trading days and such trades were made for 41200 shares. As observed from Annexure 5 (list of buy orders as mentioned above), the major clients of this broker were Kyvalya Agro and Smruthi Agro who are found associated/related to the company. These trades were placed between February to May 2000 and the price during this period went up from Rs.27.50 to Rs.151.25.
Investigation revealed that the brokers on behalf of their clients had established the price of the scrip as the subsequent trades were following the price so placed by the brokers. The brokers and their clients (company associated/related entities) were therefore manipulating the price of the scrip.
Investigation reveals that when the price went up, the company related/associated entities started selling. On NSE, the entity, Sudheer Real Estate Pvt. Ltd sold 205000 shares (constituting 30% of the total trading) between June 14 to June 23, 2000 where the counter party buyer was UTI and the broker to these entities was Venkatraman & Co. The shares were sold at a price ranging from Rs127.50 to Rs.129.90.
MSE:
Investigation revealed that during June to July 2000, the company related entities Ramya Traders Pvt. Ltd and Sudheer Real Estates Pvt. Ltd sold 9,00,000 shares in MSE at price range of Rs.125 to Rs.128 through the broker Patterson & Co. and the counter party client was UTI. Apart from these trades there were no other trades on MSE except for 100 shares on 2 days.
7. Gains made by promoter related entities
The entities associated/related to the company have sold more than 30,00,000 shares and made a profit of about Rs.25 crore (buying shares at a range of Rs.29.50 to Rs148.62 and selling at a range of Rs115.18 to Rs130.24). The shares were sold mostly from their previous holding when the price was Rs.28 before the period of manipulation. The detailed calculation of the profit made is shown in Annexure 6. The major counter party buyer to these entities was UTI who bought 2460000 shares. Thus these company related/associated entities have jacked up the price of the shares by constantly buying at a higher price and selling at a profit at other exchanges and made an undue profit.
8. Investigation revealed that the entities associated/related to the company viz: Smruthi Agro Farms Ltd (Skokie Traders Pvt. Ltd.) Kyvalya Agro farms Ltd. (Kyvalya Traders Pvt. Ltd.), and Vyshnavi Real Estate & Property Ltd., bought 1,82,200 shares which constitute 67% of the total traded quantity during the period 28/2/2000 to 28/8/2000 on BSE. Macy’s Securities Pvt. Ltd was the broker to these entities. On NSE the entities Smruthi Agro and Kyvalya together bought 2,56,000 shares (38% of the total trading volume) and sold 5900 shares through the broker Ensource shares and Securities Pvt. Ltd. Investigation revealed that these brokers for their clients have placed orders at a higher price which increased the price of the scrip and also created volume. The counter parties to these entities were scattered. It is observed that when the price went up on NSE, Sudheer Real Estate Pvt. Ltd., (company associated/related entity) sold 205,000 shares (30% of the total trading) through the broker Venkatraman & Co., and on MSE Sudheer Real Estate and another company associated entity Ramya Traders Pvt. Ltd sold 9,00,000 shares through the broker Patterson & Co., and the counter party to these entities were UTI. Further, after the investigation period (i.e. 28/2/2000 to 28/8/2000), from September 5, 2000 to February 1, 2001 Ramya Traders Pvt. Ltd along with 12 other entities who are associated/related to the company sold 1956000 shares on MSE. As already stated earlier, these transaction resulted in a profit of Rs.25 crore to the entities associated/related to the company. It is thus observed that the associated/related entities of the company were instrumental in jacking up the price of the company in order to sell them at a higher price later and made undue profit from such transaction. Investigation also revealed that these entities traded in the scrip of BICL only and discontinued trading after the investigation period. Subsequent to the investigation period (i.e. 28/2/2000 to 28/8/2000), it has been observed that the price of the scrip had come down to Rs.70/- by March 2001. Hence, once the entities associated/related with the company stopped operating in the market, the price started falling. Further during the above period investigation i.e February 28, 2000 to August 28, 2000 when the price of the scrip went up, sensex was showing downward movement. It was observed that the sensex on February 28, 2000 was at 5740.69 which went down to 4396 as on August 28, 2000 touching a low of 3920 on May 22, 2000.
9. Investigation reveals that the entities associated/related to the company bought and sold shares of BICL which have influenced the price of the scrip and also created volume. Investigation further revealed that due to the trading of company associated/related entities, the price of the scrip went up from Rs. 27.90/- to Rs. 123/- during 28th February 2000 to 28th August 2000, as the buy orders were placed on a number of days at the higher price. When the price of the scrip started going up, few of the entities associated/related to the company started selling shares substantially on NSE and MSE.
10. In view of the facts mentioned above, you are directed to show cause as to why action should not be taken/ direction issued under Regulation 11 and 13 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 2003 read with Section 11 and 11B of the SEBI Act, 1992 for violating Regulation Regulation 4(a),(b) of SEBI(Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 read with regulation 13 of SEBI (FUTP) Regulation 2003.
11. Your explanation/ reply/supported by necessary documentary evidence, if any, should reach us within a period of 15 days from the date of receipt of this show cause notice, failing which action indicated above will be taken against you, without any further reference to you. You may also indicate in your reply whether you are desirous of availing personal hearing before SEBI before taking any action as above.
12. 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
Encl: Annexure 1 - Price Volume on NSE
Annexure 2 - Price Volume on BSE
Annexure 3 - Traded quantity on NSE and BSE
Annexure 4 - Details of buy order at BSE
Annexure 5- Details of buy order at NSE
Annexure 6- Detailed calculation of the profit