(1.) M/s. Hitek Industries (Bihar) Ltd. (hereinafter referred to as Hitek) was incorporated as a Private Limited company on March 15, 1983 under the Companies Act, 1956 and was converted into a Public Limited Company on August 12, 1983. The Company came out with a public issue in 1984 which was followed by a rights issue in 1986. Subsequently, the company came out with another public issue on March 21, 1994.
1.1 Hitek informed the Stock Exchange, Mumbai (BSE) vide its letter dated December 13, 1995 that it received letters from some of their shareholders that they lost around 20 lakh share certificates and requested BSE to prohibit trading in the said shares. BSE vide their notice No. 160/96 dated January 6, 1996 declared that these 20 lacs shares would be considered as bad deliveries in the market.
1.2 The scrip of Hitek suddenly showed a spurt in volume and price during December 1995 and January 1996. The scrip witnessed a price rise from Rs.11.50 to 29.28 from Settlement 10 to 28 in December, 1995 and January, 1996. The price tumbled to Rs.8.20 on January 11, 1996. The scrip was suspended indefinitely by BSE on January 12, 1996, after the company informed the BSE of its intention to issue duplicate shares in view of the letter of the share holders regarding loss of the share certificates.
(2.) Vide order dated May 21, 1996, an investigation into the affairs of the dealings in the shares of public issue of Hitek was initiated by SEBI. A show cause notice dated October 16, 2002 was issued to Hitek to showcause as to why suitable directions under Section 11 and 11B of SEBI Act, 1992 including a direction to prohibit Hitek from entering the capital market for a particular duration should not be passed on the following grounds:
2.1 The issuer company cornered stock at the time of public issue, through financing arrangement this created an artificial scarcity of floating stock in the market which facilitated rigging the price of shares. The said act of Hitek is detrimental to the interests of the investors in capital market.
2.2 Hitek through financing arrangement aided and abetted in cornering shares which had led to artificial scarcity of floating stock in the market. As a result of which there was a spurt in the share price. Hitek refused the transfer of shares which were reported to be lost without any valid grounds though neither status quo was ordered by the court nor any police complaint was lodged.
2.3 Hitek acquired its own shares through Shri R.P. Sinha, by means of 'Power of Attorney'. The said act of Hitek is in violation of Section 77 of Companies Act, 1956.
2.4 The issue is undersubscribed if the shares allegedly got subscribed through the financial arrangement are excluded. The public issue of Hitek was for 63,00,000 equity shares of Rs.10/- each for cash at par, aggregating to Rs. 6.30 crores. The amount of subscription allegedly received was Rs. 5.70 crores approximately. Thus the issue was subscribed to the extent of approximately 0.9 times. As per the top 25 applications an amount of Rs. 5.68 crores was mobilized through the financing arrangement. If the subscription received through the financing arrangement is excluded, the subscription received by the issue is well below the minimum 90% required as per SEBI guidelines issued on June 18, 1992 and Section 69, read with Clause 5 of Schedule II of Companies Act, 1956 and terms and conditions of the prospectus.
2.5 Hitek proceeded with the allotment of shares before the realization of stock invests which is not in conformity with the provisions of Section 69, Section 73 of Companies Act, 1956 and guidelines for disclosure and investor protection issued by SEBI on June 11, 1992.
Hitek did not reply to the above show cause notice. However, Shri P.P. Verma, MD & Promoter of Hitek vide letter dated 2.11.02 gave his reply, on the company's letter head, to the show cause notice dated 16.10.02 issued to him on similar grounds. During personal hearing Shri P P Verma represented company as well as for himself. Therefore, the submissions made by Shri P P Verma are also considered for the company. Shri P P Verma made the following submissions:
3.1 Regarding the public issue, the details of subscription received through cash and stock invests were submitted to Magadh Stock Exchange. The stock exchange after going through the submitted documents authorized dealing in the said shares and the company acted accordingly.
3.2 Regarding the market manipulation, the company was in no way involved in such dealings. The sharp fluctuation in prices led the stock exchange to stop the trading in shares, leading to great harm to the company's previous and present shareholders.
3.3 Regarding the reported loss of shares and the subsequent non transfer of lost shares, the company has only followed the laid down procedures and the court ruling in this regard.
(3.) AN opportunity of personal hearing was given to Hitek twice on 18.1.2003 and on 27.2.2003. On both the occasions none representing Hitek attended the hearing. Subsequently, on request, another opportunity of hearing was given on 14.3.03. Shri P P Verma, promoter and MD of Hitek attended the hearing. I have carefully examined the facts and circumstances of the case. I have also carefully considered the submissions made by Shri P P Verma before me during the personal hearing on 14.3.03 and also in his letter dated November 2, 2002. The findings are as under:
4.1 The company came out with a public issue on March 21, 1994 for 63,00,000 equity shares of Rs.10/- each for cash at par. The full amount of Rs.10/- per share was to be paid at the time of application. Out of this, 7,50,000 equity shares of Rs.10/- each at par was reserved for preferential allotment to NRI's/ persons of Indian origin residing abroad on a repatriation basis, 7,50,000 equity shares of Rs. 10/- each at par were reserved for preferential allotment to FIIs on repatriation basis and 12,60,000 equity shares of Rs.10/- each at par reserved for preferential allotment to Indian Mutual Funds on a competitive basis. Thus the net offer to the Indian public was 35,40,000 equity shares of Rs.10/- each at par. The paid up capital after the public issue was 99,30,648 equity shares of Rs.10/- each aggregating to Rs. 9,93,06,480. The public issue opened on March 21, 1994 and closed on the earliest closing date i.e. March 24, 1994.
4.2 M/s. Vatsa Finance Ltd. (now M/s. Vatsa Corporation Ltd.) acted as Lead Managers to the issue and M/s. Sriven Corporate Services Pvt. Ltd. acted as the Registrars to the Issue.
4.3 As per the 7 days post monitoring report, the provisional collection figures given by the Registrars to Issue was Rs. 4,22,000/- . As per the 30 days post monitoring report, a total of 14 application have been received and the collection amount given by the Registrar was Rs. 70,000/-. As per the 45 days post monitoring report, a total of 60 applications had been received and the collection amount received by the registrar was Rs. 3,27,000/-.
4.4 The Magadh Stock Exchange Association Ltd. vide its letter dated June 6, 1994 permitted the company for compliance of the listing formalities before 120 days from the closure of subscription list, keeping in view the undersubscription of the issue.
4.5 As per the basis of allotment report submitted by the Lead Manager to the Magadh Stock Exchange Association Ltd. on July 22, 1994, the issue was subscribed to the extent of 90.25% of which 99.09% of the shares were through stock invest applications. A total of 123 applications were received applying for Rs. 5,68,17,000/- worth of subscription. Of this, 25 applications were made through stock invests, amounting to Rs. 5,63,00,000/- worth of subscription.;