Appeal No.124/2004 &

 Appeal No.155/2004


Date of Hearing


Date of Decision





In the matter of:


1. Mr. Sanjay Jhalani

Appellants – Represented by

2. Infoquest Software Exports Ltd.,

Mr. J. J. Bhatt, Advocate





Whole Time Member, Securities & Exchange Board of India

Respondent – Represented by Mr. Kumar Desai, Advocate.





          Justice Kumar Rajaratnam, Presiding Officer


Per:  Justice Kumar Rajaratnam, Presiding Officer



1.       The appellants challenge the order dated 9th of July, 2004 passed by the Respondent.    By the said impugned order the appellants were injuncted from accessing  the securities market for a period of two years.

2.       Since both the appeals arose out of a common order by consent a common order is passed in these appeals.  

3.       The facts very briefly are as follows:

          M/s. Infoquest Software Exports Ltd., (hereinafter referred to as “the company”) came out with a public issue of 43,18,800 equity shares of Rs.10/- each for cash at par aggregating to Rs.431.88 lacs.  The public issue opened on 15th of April, 1996 and closed on 18th of April, 1996.  The shares came to be listed at the Stock Exchanges at Bombay, Ahmedabad, Jaipur and Madhya Pradesh. 

4.       The Respondent received complaints from investors stating that the share prices of the company  were rigged and that valid applications for the IPO were rejected by the company.

5.       The Chairman, SEBI, by order dated 28th of June, 1996 ordered investigations into the alleged irregularities in the IPO of the company.  After investigation show cause notice was issued as to why action should not be taken against the appellants and others for violation of regulation 3 and 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995.

6.       The Respondent on the basis of the investigation and on the basis of the reply to the show cause notice arrived at the finding that the appellants and others colluded with one D. K. Shah.  The method adopted was that the promoters of the company entered into agreement to enable third parties to buy shares with buy back by the company.  It also appears that for this purpose interest was to be paid to the financier  Mr. D. K. Shah.  Mr. Shah, when examined, confessed that he had financed the public issue of the company to the extent of Rs.9 crores.  He confirmed that the financing of the issue was done by them at the behest of Divya Jyoti Securities Ltd.,  In addition to this Mr. Shah was above to garner about Rs.57 lacs for which he received interest at the rate of 36%.  It was further stated by Mr. shah that the public issue of the company was financed to the extent of Rs.9 crores at the behest of Divya Jyoti Securities Ltd.,  It was also determined at the enquiry  that there was nexus between the promoters of the company and Divya Jyoti Securities Ltd.,  The impugned order makes a reference to this aspect of the matter which clinches the issue and reads as follows at paragraph 4.25:


             I.      “The bank account of M/s. Top Cassettes, in which Shri Sanjay Jalani, the director of ISEL is one of the Directors, maintained at Dena Bank, Indore, was introduced by M/s. Divya Jyoti Industries Ltd., a group concern of Divya Jyoti Securities Ltd.,

           II.      Perusal of account opening forms of Top Cassettes and Divya Jyoti Securities Ltd., maintained at Dena Bank, Navlakha Branch, reveals that the account number of Top Cassettes is 2120 and that of Divya Jyoti Securities Ltd., is 2121.  The aforesaid Bank accounts were opened on the same day and introduced by the same person.  The handwriting on the Bank account opening form, especially in the address and the Telephone number column, appears to be the same for both the account.  Telephone number 434506 appears in both the account opening forms and both the accounts have been verified by the same officer of the Bank, which indicate that the account was opened at the same point of time.

        III.      The office of Top Cassettes belong to Deep Trivedi, Director of Divya Jyoti Securities Ltd., and the Telephone number of Top Cassettes and Divya Jyoti Securities Ltd., is common.

        IV.      Shri Rajesh Jhaveri, another financier in ISEL, had stated on oath that an amount of Rs.62.21 lacs was paid by him, to Shri D. K. shah, for the services rendered by Shri Shah, towards financing the public issue of ISEL.  As submitted by Shri Jhaveri, this amount was paid by him, on behalf of Deep Trivedi.   The said amount  was later received by him, by way of two drafts issued by Dena Bank, D.D. No.805203, dated May 31, 1996 and D.D. No.805238, dated June 5, 1996, amounting to Rs.30 lacs each.  (The balance  was yet to be received)  The D.D. No.805203, was issued to the Divya Jyoti Securities Ltd and D.D. No.805238  was issued to the debit of account held by Top Cassettes Ltd.,

          V.      There is a payment of Rs.30,00,000/- made by Divya Jyoti Securities Ltd. Towards the purchase of Infoquest shares from Top Cassettes Ltd.,

        VI.      Perusal of account of Top Cassettes maintained at Dena Bank, Navlakha Chouraha it appears that Top Cassettes have given financial assistance to Divya Jyoti Industries Ltd., who in turn has passed on to Divya Jyoti Securities Ltd.  Shri Deep Trivedi of Divya Jyoti Securities Ltd has used this money for buying the shares of ISEL and Top Cassettes Ltd., The above observations lead me to believe that there was a connection between M/s. Divya Jyoti Securities Ltd., and Shri Sanjay Jhalani/ISEL.

4.2.6  I have also noted that ISEL had made payments to Divya Jyoti        Securities Ltd., on April 5, and April 9, 1996 i.e. just prior to  the opening of the public issue of the company.  The perusal of      record of  ISEL reveal that the company has given money to  Divya Jyoti Securities Ltd., to the extent of Rs.1,61,30,000,  from May 22, 1996 to June 1996.  The money was in turn           given to Divya Jyoti Securities Ltd., who, in turn, utilized this         money for purchase of ISEL shares, during the said period, in          Grey Market as well as in Secondary Market.

4.2.7  Shri Sanjay Jhalani director of  ISEL, was asked to explain the       payments made by ISEL to Divya Jyoti Securities Ltd., on       various date, immediately before and after the public issue of      ISEL.  In reply Shri Sanjay Jhalani had stated that the          payments were made for purchase of shares from secondary       market for a good investment opportunity, after taking prior  consent from the company, as he is too busy with the new    project and has no time for investing the funds which are lying   idle.  Shri Sanjay Jalani denied knowing anything about Shri      Deep Trivedi of Divya Jyoti Securities Ltd., “operating” in the           market.

4.2.8  Shri Jhalani was also asked during the investigation,   whether      he was aware that the 100 applicants in the public issue of    ISEL from Mumbai and Ahmedabad (namely Shah family, Jatia         family Acharya family, Dalal family, Thakkar family, Mehta    family)had applied on the basis of financing arrangement with      Shri Munna (D. K. Shah) of Ahmedabad and that the aforesaid    entities have applied after the closure of the issue, through pre-          dated stock invests. In reply Shri Jhalani has stated that none       of the Promoters of ISEL knew the above applicants and they  have never dealt with them.

4.2.9  Shri Jhalani was asked to produce information in respect to  ledger, cash book, Bank book and dealings in the shares of   ISEL under summons.  However, the same was not produced.   Summons were also issued to Top Cassettes, having Shri      Sanjay Jhalani as Director, as it was observed during   investigations that some of the monies paid to Divya Jyoti           Securities Ltd., were from the account of Top Cassettes.  The          summons issued to Top Cassettes also was unattended.

4.2.10.On perusal of the account of Top Cassettes, a company on   which Shri Sanjay Jhalani is a Director, maintained at Dena     Bank, Navlakha Chouraha, it appears that Top Cassettes had    given financial assistance to Divya Jyoti Industries  Ltd., who in     turn, had passed on to  Divya Jyoti Securities Ltd., Shri Deep   Trivedi of Divya Jyoti Securities Ltd., had used this money for   buying the shares of Infoquest Software Exports Ltd., and Top        Cassettes Ltd.,  In reply to the same, Shri Sanjay Jhalani has     stated that the aforesaid transfer of  funds was merely a short         term lending deal between Infoquest and Divya Jyoti Industries            Ltd.,

4.2.11         I find  that Divya Jyoti Securities Ltd., had dealt actively        in the shares of ISEL, both in the grey market, before listing of   the shares and also in the secondary market.  A lot of their        trading in ISEL’s shares was done through Dev Stock Brokings       and  Rajesh N. Jhaveri.”


7.       We have carefully perused the impugned order passed by the Respondent.  We find that there was a serious attempt to hike up the price of the scrip of the company.  The scrip of the company when listed rose from Rs.10/- per share to Rs.50/- per share and on 2 trading days went upto Rs.64/- per share.  Due to this volatility BSE had imposed a special margin of Rs.15/- on 18th of June, 1996 which was subsequently revised to Rs.40/-on 28-6-1996.  From the impugned order it is clear that 50% of the subscription collected was cornered by just 100 applicants and a mirage created of over subscription of 10 times was because of the activities of the financier D. K. Shah and the  promoters of the company.  In these circumstances the order passed by the Respondent cannot be faulted. 

8.       Learned Senior Counsel for the appellants raised certain important issues which require to be answered by the  Tribunal.

          The alleged irregularities in the public issue of the company was in April, 1996.  Shares were listed on 9/6/1996.

          The Chairman of SEBI ordered investigation on 28/6/1996.

   The Investigating Officer recorded the statement of the appellant on 16/6/1997 and 2/9/1997.  In fact SEBI issued N.O.C. dated 20/4/1998 for release of the 10% deposit.  The investigation was for the year 1996 and the impugned order was passed on 9th July, 2004 after a lapse of 8 years.  Even the statement of the appellants was recorded in 1997.  It was submitted that this delay was totally uncalled for and the appellant was under the impression that even in the year 1998 he was exonerated.  The affidavit was filed by the Respondent trying to explain away the delay.  According to the affidavit filed by the Respondent one Mr. N. Parekh was appointed as the Investigating authority by order dated 31st October, 1996.  Thereafter one Mr. R. K. Kakkar took over the investigation.  It was submitted that Mr. Kakkar was on deputation from Income-tax Department and he was repatriated in August-September, 2002.  By that time then investigation was completed.  The entire reason for the delay is set out at paragraph 6 of the affidavit which reads as follows:

          “6.     I further submit that in continuation of the earlier order,                dated  28th June, 1996, ordering investigations and                       appointing Shri N. Parekh as the Investigating Authority,           an order dated 31st October, 1996 was passed by the                       Chairman, SEBI appointing Shri C. M. Mehra, Joint                       Chief of Investigation, as an investigating Authority in                           the matter, as Shri N. Parekh  was no longer looking after                   the investigation work.  Thereafter Shri R. K. Kakkar, the                division chief was investigating the matter under the                       supervision of Shri C. M. Mehra.  I further submit that                Shri  Mehra and Shri R. K. Kakkar, who were on                              deputation from Customs and Income Tax were both                       repatriated to their parent organization during August-                            September, 2002.  Since the investigation was completed

                   by then, Mr. Kuriachan was appointed as the officer in                   his place to do the follow up work.  I submit that since                         there were change in officers several times the entire                       proceedings have taken a longer period and the separate                proceedings for the violation of SEBI(Prohibition of                          Fraudulent and Unfair Trade Practices in the securities                market) could culminate into a show cause notice only in                 the year June, 2003.”


It is rather curious that no satisfactory explanation has been given for the inordinate delay of 8 years in completing the investigation. It is also not denied that other co-delinquents have been given lesser penalty in proportion for the same misconduct.   Learned Counsel for the appellant relied on the Judgement of the Supreme Court reported in 1997 6 SCC page 71 in Mohamad Kavi Mohamad Amin v/s. Fatmabai Ibrahim – Page 72, para 2.  The Supreme Court pronounced that it is settled position by several Judgements of the Supreme Court that wherever a power is vested in a statutory authority without prescribing any time-limit, such power should be exercised within a reasonable time.


9.       I am  not inclined to interfere with the impugned order on the question of violation of the regulation but would reduce the penalty for the inordinate delay in the enquiry and also on the basis of parity.  It is common ground that the merchant banker was exonerated and the Registrar  was suspended for 3 months.  All these happened in 1998 and when investigation was completed in 1998, no reason has been given as to why the impugned order was passed belatedly in 2004.


10.     I make it clear that investigation, show cause notice and the order should be passed as expeditiously as possible.  Merely because there are changes in the staff it cannot be a reason for undue delay in passing orders.


11.     Others who acted in concert were given lesser penalties and there should be some parity even with respect of penalties as stated in para nine. 


12.     However, in the facts and circumstances of the case, the appellants having  suffered the inordinate delay of 9 years in passing the impugned order and also taking into account that the impugned order has been in force without it being stayed for 9 months and also taking into account that the incident relates to the year 1996 it would be appropriate to modify the period of suspension from the securities market.

            Accordingly I confirm the order of the Respondent and to meet the ends of Justice  modify the period of suspension from the securities market  from 2 years to 9 months.


No order as to costs.


                        Justice Kumar Rajaratnam
                                            Presiding Officer




Place: Mumbai

Date:  March  18, 2005.