ORDER UNDER SECTION 11B of the SEBI Act, 1992 read with Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 1995 AGAINST M/S VISHWAPRIYA FINANCIAL SERVICES AND SECURITIES LTD. IN THE CASES OF RAJESH EXPORTS LTD

Rajesh Exports Ltd. (REL) came out with a Public Issue of 20 lac equity shares of Rs. 10/- each for cash at a premium of Rs. 40/- per share aggregating Rs. 10 crores. Out of the said issue, the net offer to Resident Indian Public was of 18.5 lac shares aggregating Rs. 9.25 crores. The issue opened for public subscription on November 13, 1995 and closed on November 18, 1995. Investigations were initiated by SEBI into alleged irregularities in the Public Issue of REL. Investigations revealed that REL had made irregular allotments in the issue by allotting shares against applications received after the closure of the issue. Investigations also revealed that REL made available proceeds of the public issue for purchase of its own shares through a circuitous financing arrangement with Viswapriya Group.

Investigations also revealed that Tamilnadu Mercantile Bank, BVK Iyengar Road Branch, Bangalore had received 3800 applications for an aggregate of 31,20,000 shares of REL with Viswapriya Financial Services & Securities Ltd. (VFSL) as Power of Attorney holders for the applicants. These applications were accompanied with stockinvest instruments numbering 121933 to 125732. These stock invests were issued by Central Bank of India, Adyar, Chennai.

During the course of investigations with Central Bank of India, Adyar, Chennai, it was gathered that these stockinvests were issued on 5/12/95 and 6/12/95 to 3800 persons who had applied for stockinvests aggregating Rs. 3.90 crores through Prime Advance & Investors, their Power of Attorney holders. The stockinvests were issued against 2 FDRs taken in the name of Prime, which were opened on 1/12/95 and 5/12/95. With the issue having closed for subscription on 18/11/95, all these stockinvests were antedated and all applications accompanied by these stockinvests were received after the closure of the Issue. This aspect has been admitted by Central Bank of India in its reply to queries raised by SEBI during the course of investigations

Further investigations with Central Bank of India, Adyar, Chennai, brought out that REL opened a Current Account (No. 860) with the bank on 21/11/95 i.e. 3 days after the closure of the Issue. The address of REL in the Account Opening Form is shown as "Viswapriya", No. 2, I Cross Road, KB Nagar, Chennai-20, and is introduced by VFSL. On the same date, REL issued an irrevocable Power of

Attorney to Viswapriya Trading Services Ltd. (now known as Pentagon Trading Services), an associate of VFSL, to operate the Current Account with the bank. As per REL’s letter to the bank, dated 21/11/95, this PoA was irrevocable till REL discharged all its dues and obligations to VTSL and such discharge was intimated in writing to the bank by Viswapriya Trading Services Ltd. (VTSL). Again on 21/11/95, VTSL wrote to the bank seeking confirmation of bank’s recording of irrevocable PoA from REL to operate REL’s Current Account with the bank, to which the bank responded confirming recording of irrevocable PoA. As informed by the bank, 2278 of these stockinvests aggregating Rs. 1.139 crores were realised on 22/12/95.

Investigations have brought out that VFSL made applications after the closure of the Issue. This act of VFSL, led to irregular allotments in the issue of REL to the extent of 2,27,800 shares, at the cost of genuine applicants. Further, VFSL, by entering into the financing arrangement with REL, aided and abetted REL in making irregular allotment to applicants who had applied after the closure of the issue and purchase of its own shares from the proceeds of Public Issue in contravention of Companies Act, 1956. These acts of VFSL facilitated grey market operations and artificial benchmarking of the price. Thus, VFSL violated Regulation 4(e) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 and circumvented SEBI Guidelines and provisions of Companies Act, 1956.

A Show cause notice was issued to VFSL asking it to show cause why suitable directions under Section 11B of SEBI Act, 1992 read with Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995, including directions prohibiting access to the capital market and dealing in securities for a suitable period of time should not be issued against it for the above-mentioned violations.

VFSL replied to the show cause vide their letter dated 06/01/2001 stating that they have dispute with Central Bank of India, Adyar Branch and records of Central Bank cannot be relied upon. It was stated that VFSL was in no way responsible for the accuracy or correctness of the Banks internal records and cannot be crucified for the inaccuracies or errors therein.

Pursuant to the issue of show cause notice, personal hearing was granted to VFSL on 20/11/01 . The hearing was attended by Mr. R. Subramaniam – Director VFSL. VFSL stated that they had provided ‘bridge loans’ to the Company. However, no convincing explanation was given in respect to evidence of issue of stock invests after the closure of the public issue and financing arrangement with REL. During the hearing, the Chairman desired to know whether VFSL can prove the

genuineness of the applicants who had issued Power of Attorney to associate of VFSL for subscribing in the issue of REL and can these applicants be produced before SEBI. VFSL sought some time to reply to these queries and make arrangement if necessary to produce the applicants before the Chairman. He was given 30 days time for the same.

VFSL then instead of replying to the queries raised during the hearing, stated in its subsequent reply that VFSL was NBFC and could not be covered under the definition of person associated with securities market. In its letter dated 03/12/2001, VFSL contended that the show cause issued to them was ‘without jurisdiction as we are not a person connected with the securities market in respect of our role (as a lender to investors in shares of these companies) in these public issues.’ They have further contended that ‘ a lender cannot be held to be connected with the Securities markets merely for the reason that the lending was secured by collateral of shares.’ Another opportunity for personal hearing was granted to VFSL on 10/05/2002 for which they did not turn up. I therefore, proceed in the matter based on material and evidence available on record.

I have considered the findings of investigations, material and evidence available on record and submissions of VFSL made from time to time. I find that charges levelled in the show cause notice are substantiated. It is clear that VFSL abetted in arranging applications in the public issue of REL after the closure of the issue, which led to wrongful allotment at the cost of genuine investors. This also led to benchmarking of prices in the grey market.

I find that VFSL was involved in financing large number of issues and facilitating circumvention of requirement of minimum subscription by creating an illusion that issue received the required subscription.

It was also noticed that VFSL made an arrangement with the promoters of these companies pursuant to which finance was arranged to meet the requirement of minimum subscription and on allotment of shares to nominees of VFSL and listing of the issue at the exchanges, shares were purchased back by the promoters approaching Vishwpriya by using proceeds of public issue. The financier through this modus operandi got back the amount given as a loan under the garb of subscription with interest. This is against the very essence of public participation in the issue. This militates against the fairness and transparency of the securities market and also affects the integrity of the market. The contention of Vishwapriya that it is an NBFC and is not covered under the expression "persons connected or associated with securities market" is also not tenable in light of ratio of decision of Honourable Gujarat High Court in the case of Karnavati Fincap. The associate of Vishwapriya (Prime Advance), which applied in public issue of REL was allotted shares and these shares were sold back to promoters of REL and Vishwapriya was repaid (through Vishwapriya Trading Services) out of the public issue proceeds. In view of these facts, I hold that Vishwapriya is a person "associated/connected with securities market" and is subject to directions and actions under Section 11B and 11 of SEBI Act.

In light of the above violations by Vishwapriya, I am of the view that lot of harm has been caused to the integrity, fairness and transparency of the capital market. It is necessary that such activities which militate against the interest of investors and capital market, are curbed. I, therefore, in the interest of investors and healthy growth of capital market, in exercise of powers given to me under Section 4(3) read with Section 11B of SEBI Act and Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 direct that Vishwapriya Financial Services Ltd and its Director Mr.R.Subramaniam be prohibited from accessing the capital market and dealing in securities for a period of five years.

G. N. BAJPAI

CHAIRMAN

SECURITIES AND EXCHANGE BOARD OF INDIA

Date: 11^TH September 2002

Place: Mumbai