DIVISION CHIEF
INVESTIGATIONS DEPARTMENT
IVD/SD/ID7/ /2004
March 19, 2004
To,
M/s. A. M. Johari & Co.,
102, Ground Floor,
24 B, Raja Bahadur Compound,
Ambalal Doshi Marg,
Mumbai - 400 023
Sub: Show cause notice for issuing directions under Section 11(4) read with Section 11 B of the Securities and Exchange Board of India Act, 1992, in the matter of dealing in the shares of M/s. Cyberspace Ltd.
1. SEBI noticed that there was an unusual movement in the shares of M/s. Cyberspace Ltd. There were media reports indicating some problem in relation to the scrip as also in the settlement relating to trades in the scrip. Subsequently, The Stock Exchange, Mumbai and National Stock Exchange withheld the payouts in the scrip for the settlement No. 242-246 and W 47-W50 respectively.
2. During the course of investigations it was observed that the scrip was trading at around Rs. 1200/- prior to split in September 2000 and the price was adjusted proportionally to Rs. 168/- on September 26, 2000. The price moved in the range of Rs. 190/- to Rs. 147/- till February 2001. Thereafter, M/s. Century Consultants Ltd., Member of BSE and NSE defaulted and the price of the scrip started crashing by 16% on daily basis. Upon being satisfied, on the basis of prima-facie evidences, Chairman SEBI vide order dated April 24, 2001, ordered an investigation into the matter. Prior notice under the relevant Regulations was dispensed with in the interest of investors. The said investigation was conducted for the time period from October 1999 to March 2001 and report was submitted to the Board. It was noticed in the investigation that the scrip of M/s. Cyberspace Ltd. had gone up substantially in the period from October 1999 to March 2000 and thereafter started attracting large volumes from September 2000/October 2000 till March 2001.
3. From the investigation report submitted to the Board, it is observed that you have purchased 5,67,862 shares and sold 8,09,536 shares on BSE during the period under consideration, with a view to creating artificial volumes in collusion with other related/linked entities.
4. The investigating team observed from the records that M/s. A. M. Johari & Company (hereinafter referred to as “you”) along with other associated/related/connected entities was mainly responsible for creating artificial volumes in the scrip. The records revealed that you were not only transacting yourself in the market for creating artificial volumes in the market but also providing finance to connected entities like Rosewood Tradelink Pvt. Ltd., Pradeepak Finance & Management Consultants Pvt. Ltd., Shivam Multi-Services Ltd., Shri Ramesh Shah, Shri Pratik Shah etc. The investigating team also observed that you have provided securities to various entities.
Shri Rajendra Mehta Director of Rosewood Tradelink Pvt. Ltd., Pradeepak Finance & Management Consultants Pvt. Ltd. and Shivam Multi-Services Ltd. have admitted that the funds used to come from the companies belonging to A. M. Johari viz. Tirupati Share Registry Ltd., A. M. Johari & Co. Ltd. Shri Arvind Johari, Director of your company used to give orders on behalf of the companies in which Shri Rajendra Mehta is a director. He has also stated that his companies were used as front entities by you.
Similarly, Shri Rohit Shah, Proprietor of Shreeji Investment in his statement has stated that he had joined your group company – M/s. Century Consultants Ltd. – as branch in charge in September 2000 and sometime in December 2000, he was asked to be proprietor of Shreeji Investments to deal in shares. Later on, your director – Shri Arvind Johari - asked him to sign blank cheques.
Shri Mahesh Mistry, Director of M/s. Delta Investment, who was employed with your group company – M/s. Century Consultants Ltd. – as back office staff, informed SEBI that he was not aware of any transactions in the scrip of M/s. Cyberspace Ltd. and that he was forced to sign blank cheques and various other documents.
Shri Arvind Nathani, Director of M/s. Sipra Education Career Foundation Pvt. Ltd., who was employed with your group company – M/s. Century Consultants Ltd. – as Trainee NSE Terminal operator, informed SEBI that he was not aware of any transactions in the scrip of M/s. Cyberspace Ltd. and that he was forced to sign blank cheques, account opening form of DP and various other documents.
Shri Chetan Patel, Director of M/s. Kamrao Plastique Ltd., who was employed with your group company – M/s. Century Consultants Ltd. since 1999, informed SEBI that he was not aware of any transactions in the scrip of M/s. Cyberspace Ltd. except the fact that he bought 10 shares of Cyberspace Ltd. in February 2001. He also informed that Shri Arvind Johari, Director of Century Consultants Ltd. used to trade for his firm. Further, he was asked to sign blank cheques and various other documents.
All the other entities who appeared before the investigating team stated that they had transacted in the shares of M/s. Cyberspace at the request/coercion of you/your director. It is seen that since the directors of these entities were employed with you/ your group company – M/s. Century Consultants Ltd. – you/your director was in a position to force/coerce them to sign the papers relating to transactions in the scrip of M/s. Cyberspace Ltd.
Shri Ramesh C. Shah in his statement before the investigating authority stated that Shri Johari, your director, used his and his son’s name to transact in the scrip of Cyberspace Ltd. and controlled all transactions through the brokers.
5. Central Bureau of Investigations (CBI) has also observed that you and certain other entities are related to each other and also appear to have given funds for trading in M/s. Cyberspace shares. Accordingly, CBI has frozen your/related entities pay-outs on respective exchanges.
6. The above establishes that you along with related/linked/associated entities have transacted in the scrip of M/s. Cyberspace with a view to creating artificial volumes and manipulating the price. It is observed from the records that you were rotating the shares in the market to create artificial volumes by using the names of various entities. You are responsible for creating false or misleading appearance of trading in the market and also entering into trades that are not genuine trade transactions. You, therefore, have violated provisions of Regulation 4 (a), 4 (b), 4 (c) and 4 (d) of SEBI (Prohibition of Fraudulent & Unfair Trade Practices relating to Securities Market) Regulations, 1995.
7. In view of the above, without prejudice to any action that may be initiated against you under the relevant provisions of the SEBI Act, 1992, you are hereby called upon to show cause as to why in the interest of the investors and orderly development of securities market, appropriate direction(s) as provided under Section 11 (4) read with Section 11 B of the SEBI Act, 1992 including restraining you from accessing the securities market and prohibiting you to buy, sell or deal in securities, should not be passed against you for the violations specified above.
8. You are advised to submit the reply within 15 days of receipt of this notice. If you fail to furnish reply, it would be presumed that there is no explanation to offer and SEBI would be free to take action as deemed fit under the provisions of the SEBI Act, 1992.
Yours faithfully,
SANJIV DUTT