Jyothi Resins & Adhesives Ltd., was listed in BSE, ASE and VSE. The price of the scrip rose from Rs.17.50 to Rs.140 in VSE and in BSE the price rose from Rs.15/- on 22.8.95 to Rs.181.50 on 6.10.95. The substantial jump in the closing price was during the period 18.9.95 to 6.10.95 when it moved from Rs.50.50. to Rs.181.50. The volumes have been steadily hovering around an average of Rs.5 lakh shares per day. There was no positive announcement in respect of the working of the company which could have warranted such huge rise in the price of the scrip after listing. In settlement No.15B of BSE (25.09.95 - 6.10.95) there was a short delivery of 4,51,400 shares. Part of the outstanding position was auctioned and rest was closed out. SEBI in order to prevent the manipulators from getting undue benefits instructed BSE to freeze the proceeds of auction and close-out amounting to Rs.4.18 crore. In the context of these developments and in view of the steep hike in the price of the scrip of Jyoti Resins & Adhesives Ltd., which seems to be artificially created, investigations were initiated by Securities and Exchange Board of India (hereinafter referred to as SEBI) into the affairs relating to buying, selling or dealing in the shares of M/s Jyothi Resins & Adhesives Ltd.

Investigations revealed that majority of the brokers had dealt, in this scrip, on behalf of one client called M/s.Udita Inverted Pvt Ltd. (UIPL). Investigations further revealed that UIPL is connected with the Promoters/Management of Jyoti Resins. The shares were cornered by UIPL from 14.8.95 onwards.

Sh.Sunil K. Patel, Director of UIPL appeared, before SEBI, along with ledger and list of 299 clients and their addresses on behalf of whom they had dealt in the scrip. However, he didn’t submit any further details about the payments received from clients. In order to verify genuineness of transactions summons were served to 39 top dealing clients of UIPL. There was no response to most of the summons and in some cases the summons returned unclaimed. In absence of any response from majority of clients of UIPL, final summons were sent asking them to confirm the purchases and give details of payments. Again, there was no response from majority of the clients. Thereupon the Investigation Team visited at the addresses of 72 clients and recorded their statements. As per these statements none of them have dealt in the shares of Jyothi Resins through UIPL or otherwise. In view of this UIPL was summoned once again. It was admitted by Sh. Patel that the list of 299 client given by him previously to the investigation team is bogus. Further, Sh.Patel has stated that majority of orders for purchase and sale of shares of Jyoti Resins & Adhesives Limited were given by Sh.Devendra Kantilal Dalal, Ahmedabad. Shri Patel submitted that Sh.Devendra Kantilal Dalal never informed them nor consulted them in respect of the orders placed for purchase / sale of shares of Jyoti Resins & Adhesives Limited. Sh.Patel submitted that UIPL has never received any delivery of shares from any of the brokers and sub-brokers nor they are aware as to who has received the delivery of shares. UIPL never asked Shri Devendra Kantilal Dalal as to who is receiving the delivery.

Investigations revealed that Shri Devendra Kantilal Dalal had manipulated the price of the scrip of M/s.Jyoti Resins Ltd. by purchasing and selling in the name of UIPL through different brokers. Thus, UIPL was acting as a front entity of Sh.Dalal. Shri Devendra Kantilal Dalal was a member of ASE and was declared a defaulter by the exchange in August 1989.

Khandwalla Finstock Pvt. Limited, Member-ASE, has purchased/sold 61,500 shares on behalf of UIPL. In the light of the above mentioned findings that UIPL was a front entity of Sh.Devendra Kantilal Dalal the broker is alleged to have indulged to have carried out transactions for Sri Dalal.., a defaulted member of ASE who manipulated the prices of the scrip of Jyoti Resins.

On completion of the investigations, an Enquiry Officer was appointed by SEBI vide order dated 5^th May 1997 under Regulation 28 of SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 to enquire into the prima facie violations committed by the broker.

The Enquiry Officer, thereafter, proceeded with the enquiry and issued a Show Cause Notice to the broker vide letter dated 23^rd December 1997 alleging that Khandwala Finstock Pvt Ltd., Member, ASE, had indulged in carrying out deceptive transactions by not disclosing Sh.Dalal as the client and abetted the market manipulators. Thus it was alleged that the broker had violated Regulation 7 of SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 for not abiding by the code of conduct specified in Schedule 2 of that Regulations. The broker replied to the Show Cause Notice vide letter 19^th January 1998. An opportunity of personal hearing was also given by the Enquiry Officer on 28^th January 1998, which was duly attended by Sh.Jayesh Khandwala, authorised representative. Another opportunity of personal hearing was give to the broker on 16^th May 2001 wherein Shri Vimal Khandwala, Authorised Representative attended and made submissions. The broker also made further submissions to the Enquiry Officer vide letter dated 24^th May 2001.

The Enquiry Officer, on completion of enquiry process, concluded that Broker was negligent in not taking adequate care in finding out the reality behind the apparent façade of the transaction. The Enquiry Officer concluded that the broker had violated the Code of Conduct (specified in Schedule 2) of the SEBI (Stock Brokers & Sub Brokers) Regulations, 1992 and recommended that a warning be issued to the broker.

Pursuant to the submission of Enquiry Report, a Show Cause Notice dated 25^th July 2001, under Regulation 29(1) of SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 was

issued enclosing a copy of the Enquiry Report. No reply to this Show Cause Notice was received from the broker An opportunity of personal hearing before Chairman SEBI was given to the broker on 20^th June 2002. However, the member failed to attend the hearing. The member had been provided enough opportunities to present their case, in the past and no further opportunity needs to be given. I have decided to proceed on the basis of the facts available on record.

I have carefully examined the enquiry report, submissions made orally as well as in writing by the broker, and other material on record etc. I find that Khandwala Finstock Pvt Ltd. had dealt for Sh.Devendra Kantilal Dalal, actually though albeit in the name of UIPL. I find that the investigation has brought out clearly that Sh.Dalal manipulated the prices in the scrip of Jyoti Resins Ltd. I find that the broker was negligent and did not verify the antecedents of his clients - UIPL - which was acting as a front/façade for Sh.Dalal. Considering the facts and circumstances in totality, I tend to agree with the recommendations of the Enquiry Officer. I am of the view that the broker be warned and directed to be more vigilant in future and exercise due skill, care and diligence in its dealings. I, also direct that Khandwala Finstock Pvt. Ltd. should ensure that similar event does not recur in future and all the Rules, Regulations, Guidelines, etc issued by SEBI are adhered to strictly. Khandwala Finstock Pvt Ltd., Member-ASE, is warned that a serious view would be taken of any violations are committed in future.

G.N.BAJPAI

CHAIRMAN

SECURITIES AND EXCHANGE BOARD OF INDIA

Place : Mumbai

Date :