CHIEF GENERAL MANAGER
INVESTIGATIONS DEPARTMENT
IVD/ID7/SD/ /2004
May 26, 2004
Shri Ashok Ramchandani
101, Fabiani Building,
2nd Street, Martin Road,
Bandra (W),
Mumbai - 400 050
Dear Sirs,
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. 186/- 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. Investigation report submitted to the board it is observed that M/s. Shivam Multi Services P. Ltd. (hereinafter referred to as ‘the Company’) have purchased 11,06,750 shares and sold 10,50,200 shares on BSE during the period under consideration, with a view to creating artificial volumes in collusion with M/s. Cyberspace Ltd./M/s. Century Consultants Ltd./its promoters and other related/linked entities.
4. The investigating team observed from the records that the major credit entries in the account maintained with DP of CDSL are off-market transfers from Kamal Infosys, a connected/related entity of M/s. Century Consultants Ltd. and its promoters. The other credit entries are for purchases made. The majority of the debit entries are transfers to a broker for sales made. From analysis of NSDL A/c., it appears that the majority of the credit entries are for purchases made. There are off-market transfers from Pradeepak Finance, Arihant Investments, Delta Investments, Country Informtech, Kamrao Plastique and Sipra Education. These entities have been found to be related/connected with M/s. Cyberspace/M/s. Century & its promoters and the Company. The major debit entries in the account are for sales made and transfers made to Vinod Gupta of M/s. Mangla Capital Services Ltd. The other off-market transfers are to Amit Inter-chemicals, Beneficiary A/c of Century Consultants and Nucleus Soft-Tel.
Some of the instances of transfer from and to entities controlled by/ connected/related to M/s. Century Consultants Ltd./ M/s. Cyberspace Ltd. and its promoters who have either received shares from the Company or given shares to it for meeting the delivery obligations are given hereinunder:
|
Settlement No
|
Name of the client
|
Deliverable Position
|
Name of the transferor
|
Qty Transferred
|
|
2001046
|
Shivam Multi Services P Ltd
|
167000
|
Delta Investments
|
21500
|
|
Country Informtech Services P Ltd
|
5400
|
|
Pradeepak Fin and Mgt Cons P Ltd
|
41000
|
|
2001046
|
Nucleus Soft Tel P Ltd
|
50350
|
Shivam Multi Services P Ltd
|
98523
|
5. The Company’s relationship/linkage with M/s. Cyberspace/M/s. Century Consultant Ltd., its promoters and other entities as per the Company’s own admission is given hereinunder:
- In the Company’s statement dated April 30, 2001 before SEBI, the Company has stated that it was acting as unregistered sub-broker to M/s. Century Consultants Ltd. since 1997. The Company also stated that it was transacting in the shares of M/s. Cyberspace on the request of Shri Johari of Century Consultants Ltd. The Company has accepted that it started trading in the shares of M/s. Cyberspace in July 2000 through various brokers of BSE and NSE on the direct request of Arvind Johari. Funding of approx. Rs. 1 crore was made by their group companies (A. M. Johari & Co., Tirupati Share Registry Ltd., Century Consultants Ltd. etc.). The activity of transacting in the shares of increased and the Company again received financing to the tune of one and half crores through his companies. In its admission before the investigating team, the Company has stated that Shri Johari requested the Company to continue transacting in the shares till middle of December 2000 since Shri Johari wanted to upgrade Cyberspace shares from B2 group to B1 group for which certain volume was required on BSE & NSE.
- The Company had also stated that these transactions of shares were undertaken by office staff of Century Consultants Ltd. at their premises on the direct instructions of Shri Johari on behalf of your companies and using these companies as front companies for the said purpose.
- The Company has also admitted that some time in December the office staff of Shri Johari started selling the shares on spot payment basis to mitigate liability against purchase of shares. The payments for the sales were credited in the Company’s account and sales proceeds were used to finance the purchases in the market. The fund flow of all the companies Pradeepak Finance, Rosewood Tradelink and Shivam Multi Services- were managed by Shri Johari and his staff.
- The Company has stated that in the initial stages funds used to come from the companies belonging to Shri Johari viz. Tirupati Share Registry Ltd., A. M. Johari & Company, Century Consultants Ltd. etc. The Company has also admitted the fact that shares used to come from group companies of Shri Johari such as Kamal Infosys Ltd., Tirupati Share Registry Ltd., Octopus Soft-tel Pvt. Ltd., Nucleus Soft-tel Ltd.
- The Company also admitted that Shri Johari had shown very rosy pictures about Cyberspace Ltd. and its future projects and it was the Company’s foolishness to allow him to do such transactions in which it was only loser and victim of his ultimate motives.
6. Central Bureau of Investigations (CBI) has also observed that the Company and other related entities mentioned in para 5 above are related with Century Consultants/Cyberspace and also appear to have received funds for trading in M/s. Cyberspace shares. Accordingly, CBI has frozen the Company’s pay-outs on the exchanges.
7. The above establishes that the Company along with its related/linked/associated entities have transacted in the scrip of M/s. Cyberspace with a view to creating artificial volumes and manipulating the price in collusion with M/s. Cyberspace/Century and its promoters. It is observed from the records that it was rotating the shares in the market to create artificial volumes. The Company is responsible for creating false or misleading appearance of trading in the market and also entering into trades that are not genuine trade transactions. It is alleged that the Company had 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.
8. 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.
9. You are advised to submit the reply along with documentary evidence, if any, within 15 days of receipt of this notice. If you fail to furnish reply, it would be presumed that you have no explanation to offer and SEBI would be free to take action as deemed fit in the matter.
Yours faithfully,
SANJIV DUTT
Encl: Copy of statement