DEPUTY GENERAL MANAGER
INVESTIGATIONS DEPARTMENT
IVD6/BM/SIL/ /2006
June 12, 2006
M/s. Rujul Finance Ltd.
505, Anand Manraj -II,
Behind Femina Town,
C.G. Road,
Ahmedabad.
Sub: Issuance of show cause notice under Section 11 (4) (b), read with Sections 11, and 11B of SEBI Act, 1992 and Regulation 11 and 13 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 2003 in the case of Shalibhadra Infosec Ltd.
1. Investigations have been conducted by SEBI in connection with the scrip Shalibhadra Infosec Limited (hereinafter referred to as ‘the company’). Investigations revealed that the company acquired another company (M/s. Jaisha Holdings Limited, hereinafter referred to as ‘JHL’) during January 2002. The said acquisition was made by issuing 3 crore shares of the company for 10 lakh shares of JHL (i.e. a swap ratio of 30:1) on preferential basis to the shareholders of JHL. Prior to this acquisition, issued and listed shares of the company were 50 lakhs. The valuation report submitted by the company for making this acquisition was not satisfactory. Investigations have also revealed that the company has issued and dematerialized shares in spite of not receiving ‘in-principle’ approval for listing on the stock exchanges. Further, the company had issued advertisements in news papers projecting a glossy picture of the financial performance by the company and stating that the board of directors of the company are considering a buy back of the shares of the company at Rs. 10/- per share (A copy of the advertisement is given in Annexure 1). During the period of the said advertisement, the shares of the company were being traded at around Rs. 1/- on the exchanges (Price Volume movement of the company during the period May 2, 2002 to August 30, 2002 is given in Annexure 2). Later, the Chairman of the company Shri Raju B Shah, Manager of the company Shri Atul B Shah and other promoter associated entities have created artificial volumes in the scrip of the company in the secondary market and off-loaded more than 1 crore unlisted shares of the company through various entities in the secondary market.
Charge 1: You assisted the promoters of the company in offloading unlisted shares of the company in the secondary market in violation of Regulation 6(a) read with Regulation 3 of SEBI (Prohibition of Fraudulent and Unfair Trade practices relating to securities market) Regulations, 1995.
2. Investigation revealed that you are related to the promoters of the company. The relationship between you and the promoters of the company/ other promoter associated entities is given below:
|
S. No.
|
Name of the Entity
|
Related to the Entity
|
Nature of Connection
|
-
|
Rujul Finance Ltd.
|
Charmi Investments
|
Has the same address as that of Charmi Investments
|
-
|
Ashish P. Shah
|
Maheshbhai M. Shah
|
Nrupesh C. Shah has signed as introducer in the know your client forms of both these persons submitted to Prabhudas Liladher
|
3. Investigation also revealed that you offloaded the shares of the company in the secondary market. Details of your trading in the scrip of the company are given below:
|
S. No.
|
Name of Client
|
Name of Broker
|
Name of Sub Broker
|
Date
|
Purchase Qty.
|
Sales Qty.
|
Net
|
|
1
|
Rujul Finance Limited (Director Jigen Rasiklal Vora)
|
P. Suryakant Share & Stock Brokers Pvt. Ltd.
|
Shri Parshwa Finance
|
14-Aug-02
|
|
10000
|
-10000
|
|
ASE Capital Markets Ltd.
|
Pravin Ratilal Sharedalal
|
14-Jun-02
|
|
46606
|
-46606
|
|
17-Jun-02
|
|
53394
|
-53394
|
|
18-Jun-02
|
|
35000
|
-35000
|
|
19-Jun-02
|
|
5000
|
-5000
|
|
21-Jun-02
|
|
45000
|
-45000
|
|
24-Jun-02
|
|
10000
|
-10000
|
|
25-Jun-02
|
|
35000
|
-35000
|
|
26-Jun-02
|
|
11500
|
-11500
|
|
2-Jul-02
|
25000
|
|
25000
|
|
10-Jul-02
|
|
5000
|
-5000
|
|
11-Jul-02
|
|
5000
|
-5000
|
|
15-Jul-02
|
|
5000
|
-5000
|
|
16-Jul-02
|
|
10000
|
-10000
|
|
2-Aug-02
|
|
10000
|
-10000
|
|
5-Aug-02
|
|
10000
|
-10000
|
|
6-Aug-02
|
|
20000
|
-20000
|
|
7-Aug-02
|
|
10000
|
-10000
|
|
8-Aug-02
|
|
2049
|
-2049
|
|
9-Aug-02
|
|
5000
|
-5000
|
|
12-Aug-02
|
|
7051
|
-7051
|
|
13-Aug-02
|
|
25000
|
-25000
|
|
16-Aug-02
|
|
12000
|
-12000
|
|
19-Aug-02
|
|
10000
|
-10000
|
|
20-Aug-02
|
|
6800
|
-6800
|
|
|
Total
|
|
|
|
25000
|
394400
|
-369400
|
|
2
|
Ashish P. Shah
|
Prabudas Liladhar
|
Jyotish Bhogilal Stock Brokers Pvt. Ltd.
|
6-Aug-02
|
|
14000
|
-14000
|
|
12-Aug-02
|
|
115000
|
-115000
|
|
13-Aug-02
|
100
|
100100
|
-100000
|
|
14-Aug-02
|
|
25000
|
-25000
|
|
ASE Capital Markets
|
Arth Stock Broking Pvt. Ltd.
|
24-Jun-02
|
|
51000
|
-51000
|
|
25-Jun-02
|
|
50000
|
-50000
|
|
26-Jun-02
|
1500
|
12500
|
-11000
|
|
27-Jun-02
|
|
5000
|
-5000
|
|
Parklight Investment Pvt. Ltd.
|
|
7-Jun-02
|
|
15000
|
-15000
|
|
|
Total
|
|
|
|
1600
|
387600
|
-386000
|
The quantity of shares offloaded by you is given in the following table:
|
S. No
|
Entity
|
No. of Shares offloaded
|
No. of shares held before preferential allotment
|
No. of unlisted shares offloaded
|
|
1.
|
Rujul Finance Ltd.
|
369400
|
175700
|
193700
|
|
2.
|
Ashish P. Shah
|
386000
|
0
|
386000
|
From the above, it is seen that Rujul Finance Ltd. had offloaded 1,93,700 unlisted shares of the company in the secondary market (as only 1,75,700 shares were held by Rujul Finance prior to preferential allotment and the entity did not buy the additional shares offloaded by it from the market also) and Shri Ashish P. Shah had offloaded 3,86,000 unlisted shares of the company in the secondary market (as no shares of the company were held by Shri Ashish P. Shah prior to preferential allotment and he did not buy the shares offloaded by him from the market also). Further, investigation revealed that you were part of the promoter related entities who have together offloaded more than 1 crore unlisted shares of the company in the secondary market between May 2002 and August 2002. It is noteworthy that prior to the acquisition of two companies as stated above, issued and listed shares of the company were 50 lakhs only, whereas, a total of over 1 crore shares were offloaded by the promoter related entities in the secondary market between May 2002 and August 2002. Hence, it is clear that the shares offloaded by the promoter related entities, including you, were unlisted shares of the company. By offloading irregularly allotted and unlisted shares of the company in the secondary market, you have engaged in an act which operated as fraud on the buyers of these shares in the secondary market, and thus, you have violated Regulation 6(a) read with Regulation 3 of SEBI (Prohibition of Fraudulent and Unfair Trade practices relating to securities market) Regulations, 1995.
4. In view of the facts mentioned above, you are hereby called upon to show cause as to why suitable directions under Section 11 read with Section 11B of the SEBI Act, 1992 and Regulation 11 and 13 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 2003 should not be issued against you.
5. This is without prejudice to SEBI’s right to initiated prosecution under Section 24 of the SEBI Act, 1992 or any other action as it may deem fit in terms of the provision of the said Act or the Rules and Regulations framed there under.
6. You explanation/ reply 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 attending for personal hearing before SEBI before taking any action as above.
BARNALI MUKHERJEE
Encl: a/a