DEPUTY GENERAL MANAGER
INVESTIGATIONS DEPARTMENT
IVD/ID6/BM/NS/MG/ /2007
March 12, 2007
Mr Dattatray Sawant
Vinoba Bhave Nagar,
Vinzol
Ahmedabad
Sub: Show Cause Notice under Section 11B of SEBI Act,1992 read with Regulations 3, 5(1) and 6 read with regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 and corresponding provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 the case of M/s. Manna Glass Tech Industries Ltd.
1. Manna Glass Tech Industries Ltd is an Ahmedabad based company mainly engaged in the field of glass technology. Manna Glass Tech Industries Ltd was incorporated in the year 1995 by Amidhar Majmudar. The company came out with an initial public offer in June 1996. In the year 2000-01, the company made a preferential allotment to promoters and their friends.
2. The company issued advertisements in newspapers in the month of July 2002 to the effect that a meeting of its Board of directors was to be held in DAMAN on 9th July, 2002 to consider the Buy Back of up to 52,67,900(20% of Equity) shares of the company at a price of Rs. 10/-(At Par) Per Share. However, the company later informed the stock exchanges that the Board of directors had rejected the proposals of buyback of its shares. The details of publishing of advertisement by the company are given as follows.
|
Publication
|
Date
|
Amount paid to advertising agency (Rs.)
|
|
Gujrat Samachar (All Editions)
|
1/7/2002
|
53636
|
|
Sandesh ( All Editions)
|
1/7/2002
|
37950
|
|
Mumbai Samachar(Mumbai)
|
1/7/2002
|
13750
|
|
Economic Times( All Editions)
|
2/7/2002
|
107800
|
|
Financial Express( All Editions)
|
3/7/2002
|
19800
|
|
Business Standard( All other Editions)
|
3/7/2002
|
25718
|
|
Investor Guide -Colour
|
8/7/2002
|
8800
|
|
Total
|
|
2,71,034
|
3. It was seen that the company had published the advertisement on first three days of July, 2002 regarding proposed meetings on buyback of shares through an Ahmedabad based advertising agency “Garima Communications”. The copy of the advertisement is given as Annexure 1.
4. The advertisement appeared from July 1-4, 2002 in prominent business newspapers copy of which is attached as Annexure 1 had the following text- “Notice is hereby given that the board of Directors of the company will meet at DAMAN on 9th July, 2002 to consider the Buy Back of up to 52,67,900 (20% of Equity) shares of the company at a price of Rs. 10/-(At Par) Per Share”.
Also the words like “Buyback of shares” and “Rs. 10 per share” were given in bold font in the advertisement. It should be noted that, at the time of publication of advertisement, the shares of the company were trading around Rs. 1.25 to Rs 1.50. The buyback price was around 8 times of the trading price of the shares.
5. Mr Jayesh Mehta, Director-Manna Glass, admitted placing the said advertisement. He further stated that he had the idea of Buy-back of shares around 6-7 days prior to issuance of the advertisement in news papers as there were reserves in the company and directors were also interested in hiking their stake in the company by returning share capital to the existing shareholders. While justifying the proposed buyback price he stated that as face value of share was Rs.10/-, they fixed proposed buy-back price at Rs.10/- per share. Regarding publishing advertisement at proposal stage itself, he replied that as there was a short period to intimate shareholders, they published the same through news papers.
6. Regarding dropping the idea of buyback of shares, Shri Jayesh Mehta replied that the Board thought that the amount may be invested in production activity or for purchasing land rather than going for buy-back of shares, hence the board dropped the idea of buy-back of shares. In its board meeting on July 9, 2002, attended by all the directors, the board resolved that “to accommodate expansion plan of the company by planning back the accumulated profits into the business of the company, proposed buy-back plan & equity shares of the company and be hereby cancelled.”
7. The advertisement was made at the proposal stage itself and was not warranted by any Rules & Regulations. Also the company had not issued any such advertisement in the past. All these proposals were later rejected by board for which no advertisements were published. According to the company they issued the advertisement for the benefit of the investors. It is unbelievable that a company against whom SEBI had filed a petition in Court for deliberately delaying the dematerialization proceedings and where the Court advised SEBI to initiate penal prosecution process against the three whole-time directors would publish such advertisement for the benefit of the shareholders.
8. Perusal of the previous annual reports of the company brought out that the company had not spent any amount on advertisements in the past. As against Rs. 2.67 lacs spent for the buy back advertisement, the company had not spent anything in FY 2000-01. It is extremely unusual that a loss making company would increase its advertisement expense so much over the previous years for an unwarranted, non- stipulated advertisement on a corporate action which was itself in a proposal stage at that point of time. Therefore the intention behind the advertisements appears to deceive the investors by way of dissemination/issuing of false statements with knowledge that they cannot perform what they had stated in news papers.
9. Preferential allotment of 1,80,00,000 equity shares In FY 2000-01: It was found out that the company had made a preferential allotment of 1,80,00,000 equity shares at a premium of Rs. 7 per share above the par value of Rs. 10 per share to the promoters and their friends. Due to this preferential allotment the total number of outstanding shares have increased to 2,70,00,000 shares from 90,00,000 shares. One Mr. Gangaram Sharma on behalf of M/s Omega Avenues Ltd. (one of the preferential allottees) has submitted an affidavit to SEBI where he stated that he was in collusion with the promoters of Manna Glass Technology and was fraudulently allotted 11,50,000 equity shares in preferentially allotment. Copy of the same is enclosed as Annexure 2. As around 1.42 crore shares were offloaded into the market during the investigation period it can be concluded that shares allotted in the preferential allotment were also delivered into the market.
10. Unusual price-movement pattern was observed in the trading of equity shares of the company on BSE around the issuance of the advertisement. The price-volume graph of the scrip is attached as Annexure 3. On the basis of price-volume in the scrip the investigation period was divided into three time slots
|
|
Period
|
Avg. Share Price
|
Avg. Volume
|
|
Time Slot 1
|
May 1, 2002 to June 30, 2002
|
Rs. 0.75
|
109290
|
|
Time Slot 2
|
July 1, 2002 to July 10, 2002
|
Rs. 1.35
|
1806770
|
|
Time slot 3
|
July 12, 2002 to July 31, 2002
|
Rs. 0.56
|
214389
|
11. It was observed that in time slot 1 (two months period prior to issuance of advertisement) the average prices and volume in the scrip were Rs.0.75/- and 109290. The average volume increased to around 18 times during time slot 2 (the period between the advertisement and board meeting) compared to time slot 1 without substantial increase in the price of the scrip. This can be attributed to the heavy supply of the shares by the promoter related entities. Therefore prices didn’t increase during the period.
In time slot three the price- volume in the scrip came down heavily towards its normal level i.e. what it was in time slot 1.
12. From analysing trading details for the period June 1, 2002 to July 31, 2002 brokers Parklight Investment Pvt. Ltd., Prabhudas Lilladhar, P Suryakant, FMS Securities Ltd. and ASE capital markets Ltd. were short-listed on the basis of their net sales positions of 10 lakh or more shares in the market
|
Sr No.
|
Broker
|
Gross Buy
|
Gross Sell
|
Gross
|
Net Sales
|
|
1
|
Parklight Investment PVt. Ltd.
|
357604
|
2005215
|
2362819
|
1647911
|
|
2
|
P Suryakant
|
1072719
|
4552202
|
5624921
|
3479483
|
|
3
|
Prabhudas Lilladhar
|
257895
|
4112161
|
4370056
|
3854266
|
|
4
|
FMS Securities
|
46200
|
1116952
|
1163152
|
1070752
|
|
5
|
ASE Capital Markets Ltd.
|
387910
|
2442906
|
2830816
|
2054996
|
|
|
Total
|
21,22,328
|
1,42,29,436
|
1,63,51,764
|
1,21,07,408
|
13. From the exchange data it was observed that these 5 brokers have constituted 70% of the gross sells of the market during the period.
(a) Parklight Investment Pvt. Ltd.
From the details submitted by broker PIPL, it was observed that the broker mainly traded for its client Ankit Jhaveri. Shri Ankit Jhaveri sold total 17,95,663 shares and bought 22304 shares having a net sell position of 16,23,359 shares during the investigation period. The shares were delivered from the account of Rajesh Jhaveri on behalf of Shri Ankit Jhaveri. Following are the details of trades done by Shri Ankit Jhvari during the investigation period:
|
Date
|
Gross Buy
|
Gross sell
|
Net Sales
|
|
03.06.2002
|
NIL
|
52700
|
-52700
|
|
04.06.2002
|
NIL
|
13600
|
-13600
|
|
05.06.2002
|
NIL
|
13601
|
-13601
|
|
06.06.2002
|
NIL
|
5000
|
-5000
|
|
07.06.2002
|
NIL
|
25000
|
-25000
|
|
10.06.2002
|
NIL
|
10150
|
-10150
|
|
11.06.2002
|
NIL
|
100
|
-100
|
|
13.06.2002
|
NIL
|
25900
|
-25900
|
|
14.06.2002
|
NIL
|
600
|
-600
|
|
17.06.2002
|
NIL
|
18301
|
-18301
|
|
18.06.2002
|
NIL
|
20000
|
-20000
|
|
19.06.2002
|
NIL
|
4100
|
-4100
|
|
20.06.2002
|
NIL
|
24500
|
-24500
|
|
21.06.2002
|
NIL
|
10000
|
-10000
|
|
24.06.2002
|
NIL
|
48100
|
-48100
|
|
02.07.2002
|
NIL
|
10000
|
-10000
|
|
03.07.2002
|
NIL
|
20000
|
-20000
|
|
08.07.2002
|
1800
|
272499
|
-270699
|
|
09.07.2002
|
91240
|
585801
|
-494561
|
|
10.07.2002
|
114864
|
85700
|
29164
|
|
11.07.2002
|
14400
|
106700
|
-92300
|
|
12.07.2002
|
NIL
|
111760
|
-111760
|
|
15.07.2002
|
NIL
|
202551
|
-202551
|
|
19.07.2002
|
NIL
|
49000
|
-49000
|
|
30.07.2002
|
NIL
|
71000
|
-71000
|
|
31.07.2002
|
NIL
|
9000
|
-9000
|
|
Total
|
|
|
16,23,359
|
It was seen that client was selling the shares right from the start of the investigation period and continued selling till the end of investigation period. He sold 766096 shares i.e. around 50% of net sales, during time slot 2 i.e. the period after the advertisement and before the announcement of the outcome of board meeting.
(b) Prabhudas Lilladhar
The broker mainly dealt for its sub-broker Jyotish Bhogilal. From the client details submitted by sub-broker Jyotish Bhogilal it was observed that following clients traded through him:
|
Name of the client
|
Gross Buy
|
Gross sell
|
Net Sales
|
|
Vinod Desai
|
210095
|
2094650
|
1884555
|
|
Ashish P Shah
|
NIL
|
673300
|
673300
|
|
Shri Parshwa Finance
|
NIL
|
1325711
|
1325711
|
(i) Vinod Desai
Shri Vinod Desai sold total 20,94,650 shares and bought 2,10,095 shares having a net sell position of 18,84,555 shares during the investigation period. The shares were delivered from the account of Maulik Praffulchand (10146527-Pravin Ratilal), Atul B shah (10105220-Pravin Ratilal), Ashit Vora (10110927- Pravin Ratilal), Raju B Shah (10105447-Pravin Ratilal) and his own a/c(10039063-Khandwala Securities). Following table shows the trades done by Shri Vinod Desai during the investigation period:
|
Date
|
Gross Buy
|
Gross Sell
|
Qty.Rec.
|
Qty.Deli
|
Auc.Buy
|
Auc.Sell
|
|
25/6/02
|
52495
|
87500
|
52495
|
87500
|
|
|
|
26/6/02
|
9100
|
232100
|
3900
|
232100
|
5200
|
|
|
27/6/02
|
62200
|
185050
|
60700
|
185050
|
1500
|
|
|
1/7/2002
|
|
400000
|
|
400000
|
|
|
|
2/7/2002
|
86300
|
510000
|
44300
|
510000
|
42000
|
|
|
3/7/2002
|
|
680000
|
|
638000
|
|
42000
|
|
Total
|
2,10,095
|
20,94,650
|
|
|
|
|
From the trading details it was observed that the client sold 15,03,700 shares (i.e 80% of total net sales) during the time slot two i.e. the period after the advertisement and before the announcement of the outcome of board meeting.
(ii) Ashish P Shah
The client sold 6,76,000 shares on July 10 & July 11, 2002 The shares were. Delivered from his own a/c (10003169-Khandwala Securities)
|
Date
|
Gross buy
|
Gross sell
|
Net sale
|
|
10/7/2002
|
Nil
|
273000
|
273000
|
|
11/7/2002
|
Nil
|
400300
|
400300
|
|
Total
|
|
|
6,76,000
|
(iii) Shri Parshwa Finance
The client sold total 13,25,711 shares during the investigation period. The client sold the entire quantity of shares in time slot 3 i.e 20 days period after the board meeting. All the shares were delivered by from the account of Shri Piyush Jhaveri, proprietor Parshwa Finance. Following are the trading details of the client:
|
Date
|
Gross buy
|
Gross sell
|
Net sale
|
|
22/7/02
|
Nil
|
520000
|
520000
|
|
23/7/02
|
Nil
|
190000
|
190000
|
|
24/7/02
|
Nil
|
116599
|
116599
|
|
25/7/02
|
Nil
|
269212
|
269212
|
|
26/7/02
|
Nil
|
30100
|
30100
|
|
29/7/02
|
Nil
|
134500
|
134500
|
|
30/7/02
|
Nil
|
65300
|
65300
|
|
Total
|
NIL
|
13,25,711
|
13,25,711
|
(c) FMS Securities Ltd.
The broker traded for the client Harsha Jhaveri who is wife of Piyush Jhaveri proprietor Parshwa Finance. All the shares sold by Mrs. Harsha Jhaveri were delivered form the account of Shri Piyush Jhaveri (INXXXXXXXXXXXXXXX)
|
Name of the client
|
Gross Buy
|
Gross sell
|
Net Sales
|
Delivery
|
|
Harsha Jhaveri
|
Nil
|
1115952
|
1115952
|
From the A/C of Piyush Jhaveri
|
(d) P Suryakant
The broker traded for the sub-broker Parshwa Finance who in turn traded for the following clients:
|
Name of the client
|
Gross Buy
|
Gross sell
|
Net Sales
|
Delivery
|
|
Aashit H Vora
|
70718
|
1477287
|
1406569
|
From his own a/c (10110927- Pravin Ratiklal). Received shares from (10006264/7015-khandwala) and 300098944(SHCIL)
|
|
Rahul Patel
|
Nil
|
500000
|
500000
|
From his own a/c (30232659-SHCIL). Demated the shares just one day before the trading
|
|
Rabari Mukesh
|
Nil
|
426362
|
426362
|
By his own a/c (30232690-SHCIL) Demated the shares just one day before the trading
|
|
Rajesh B Shah
|
118807
|
782469
|
663662
|
From his own a/c (10040818-Khandwala) recived 5 lakh shares from Pratima Jhaveri on May 30, 2002
|
|
Amit Patel
|
Nil
|
400000
|
400000
|
From his own a/c (30232675-SHCIL). Demated the shares just one day before the trading
|
|
Rakesh N Seth
|
nil
|
162390
|
162390
|
From A/c of Santosh Gaikwad (10008379-Ase Caps)
|
(e) ASE Capital markets Ltd.
|
Name of the Sub-broker
|
Name of the client
|
Gross Buy
|
Gross sell
|
Net Sales
|
Delivery/0bservations
|
|
Archi Share & Stock (for client S
|
Pravin N Shah
|
200
|
1036500
|
1036300
|
All the shares were sold on from July 1 to July 4. All the shares came from the account of Santosh Gaikwad(IN302461-10008379) who in turn received these shares from the account of Shri Piyush Jhaveri
|
|
Rajesh N Jahveri
|
Rajesh N Jahveri
|
156982
|
705615
|
|
|
|
Vasudev Gordhan
|
Gautam N Jhaveri (Ms. Rajesh N Jhaveri)
|
NIL
|
300000
|
|
|
From the trading and delivery details, it was observed that the shares have been delivered from different accounts and all the top shareholders, who are also involved in all “Low Cap” companies, have offloaded the shares in the market during the investigation period. It was observed that none of the promoters and preferential allotees was appearing in the top shareholders as on May 31, 2002. Since the trading was negligible in the scrip before the investigation period it seems that the promoters and preferential allotees transferred their shares to the ultimate sellers in off market transactions who offloaded these shares to gullible investors.
From the above, it is seen that while major selling clients were having huge net sale positions in the scrip, their gross buy was very less.
14. From the details of brokers it is seen that shares delivered in the market had come from the friends and relatives of the promoters who had been fraudulently allotted 1800000 preferential shares in 2001.
15. The entire chain of events in respect of suspected preferential allotment to a related entity, the buy back of shares described by the company, the unwarranted advertisement, large moneys spent, reasons for the proposed corporate actions, reasons for the proposal being rejected, impact on the price /volume of the shares seemed highly suggestive of an orchestrated ploy on part of the promoters to create an artificial demand for the shares of the company and induce innocent public for purchasing shares so as to absorb sales by the promoter and related entities.
16. Therefore, Manna Glass Tech Industries Ltd. by publishing misleading advertisement violated Regulation 3, 5(1)(a) & (b) and 6(a) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities market) Regulations, 1995.
17. Mr. Jayesh B Mehta, Mr Ashok N. Chokshi and Mr Dattatray Sawant, Directors of M/s Manna Glass Tech Industries Ltd. also by publishing misleading advertisement violated Regulation 3, 5(1)(a) & (b) and 6(a) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities market) Regulations, 1995.
18. In view of the above, you are hereby called upon to show cause as to why actions under Section 11B of the SEBI Act, 1992 read with Regulation 11 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities market) Regulations, 1995 read with Regulation 13 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 and debarring you from accessing capital market in securities should not be taken against you.
19. This shall be without prejudice to the right of SEBI to initiate prosecution under Section 24 of 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.
20. Your explanation/reply should reach us within a period of 15 days from the date of receipt of this show cause notice, failing which suitable action 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 taking any action as above.
BARNALI MUKHERJEE