SEBI Vs. KETAN V PAREKH
LAWS(SB)-2003-12-8
SECURITIES APPELLATE TRIBUNAL
Decided on December 12,2003

Appellant
VERSUS
Respondents

JUDGEMENT

G.N.Bajpai, - (1.) 0 Significant price rise and volumes were witne ssed in the scrip of Lupin Laboratories Ltd. during the period September-December 1999 on The Stock Exchange, Mumbai [hereinafter referred to as 'BSE'] and National Stock Exchange [hereinafter referred to as 'NSE']. Investigations were conducted by Securities and Exchange Board of India [hereinafter referred to as 'SEBI'] into the buying, selling and dealings in the scrip of Lupin Laboratories Ltd. and it was revealed that certain entities/individuals viz. Ketan Parekh, Classic Credit Ltd, Panther Fincap and Management Services Ltd and Saimangal Investrade Ltd had indulged in the price manipulation in the scrip of Lupin Laboratories. Therefore, a show cause notice dated March 27, 2002 ( hereinafter referred to as the first show cause notice) was issued to them asking to show cause as to why necessary direction under Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 should not be issued against them. 1.1 Investigations were conducted by SEBI in the wake of excessive volatility in the index movements of stock exchanges in India during mid February to mid March 2001 and apprehensions of possible attempts by certain entities to distort the true price discovery and manipulate the securities market. Investigations conducted for the period from April 01, 2000 to March 31, 2001 revealed that shares sold by entities viz., Classic Credit Ltd [hereinafter referred to as 'Classic'], Luminant Investment Pvt Ltd [hereinafter referred to as 'Luminant'] and Panther Fincap and Management Services Ltd [hereinafter referred to as 'Panther'] through Credit Suisse First Boston Securities (CSFB) and Dresdner Kleinworth Benson Securities (DKB) were bought either by the same entity i.e., Classic, Luminant and Panther or by other entities connected/controlled by Ketan V Parekh/Kartik Parekh., i.e., Saimangal Investrade Ltd [hereinafter referred to as 'Saimangal'], NH Securities Ltd (on its proprietary account), Classic Shares and Stock Brokers Ltd (proprietary account), Chitrakut Computers Private Ltd [hereinafter referred to as 'Chitrakut'], Classic Infin Ltd. [hereinafter referred to as 'Classic Infin'], and Panther Investrade Ltd through other brokers. Classic, Luminant, Panther, Saimangal, NH Securities Ltd, Classic Shares and Stock Brokers Ltd, Chitrakut, Classic Infin, and Panther Investrade Ltd were found to be either connected or controlled by Ketan Parekh and hereinafter are collectively referred to as 'KP Entities.' 1.2 Investigations revealed that KP Entities indulged in certain manipulative activities such as: 1. Synchronized Trades
(2.) Financing transactions given the semblance of purchase and sale of shares at the Exchanges. Circular Trading and creation of artificial volume
(3.) BENCHMARKING of the prices of certain scrips by executing non-genuine transactions which were detrimental to the integrity of the securities market and also violative of SEBI (Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995. Therefore, a show cause notice dated July 30, 2002 (hereinafter referred to as the 2nd show cause notice) was issued to Ketan Parekh, Kartik Parekh, Classic, Panther, Luminant, NH Securities Ltd (Proprietary account), Classic Shares & Stock Broker Ltd (Proprietary account), Chitrakut, Saimangal, Classic Infin and Panther Investrade asking them to show cause why suitable direction under regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 read with Section 11B of the SEBI Act, 1992 including a direction to prohibit from dealing in securities for a particular duration should not be passed against them. 2.0 Although none of the entities replied to the show cause notice despite several remi nders, Shri Ketan V Parekh is found to have replied to the Ist show cause notice. He is stated to be replying in two parts. However, the second part has not come forth. In the reply(Part I) dated 16th December, 2001, he stated that the analysis of price movement has been done on wrong premises by SEBI. 3.0 With respect to the entities covered by the First Show Cause Notice, hearing was granted on March 14, 2003. The entities had requested that since Shri Ketan Parekh was in judicial custody of Kolkatta Police and they require his presence during the hearing, the same may be adjourned. Hearing was accordingly rescheduled and held on a further date i.e., on April 30, 2003. Further adjournment was sought and finally hearing was conducted on June 25, 2003. Ms Prarthana Awasthi, Advocate attended the hearing on behalf of entities covered by the first show cause notice and made the submissions. 3.1 In so far as the second show cause notice is concerned, all the entities were advised to avail an opportunity of hearing before me on March 14, 2003, vide letter dated March 4, 2003. The entities had requested that since Shri Ketan Parekh was in judicial custody of Kolkatta Police and they required his presence during the hearing, the same might be adjourned. Hearing was accordingly rescheduled and held on a further date i.e., on April 30, 2003 vide letter dated March 27, 2003. The parties had, vide letter dated April 30, 2003 sought for adjournment since there were other proceedings against the broking entities of KP on the same date. Accordingly, further date of hearing was fixed on June 12, 2003 and the same was communicated vide letter dated May 28, 2003. However, parties again sought for adjournment vide their letter dated June 02, 2003. Finally, hearing was held on June 19, 2003. On the said date, Ms Prarthana Awasthi, Advocate attended the hearing on behalf of entities covered by the first show cause notice and made the submissions. Written Submissions by the entities covered in first show cause notice 3.2 Written submissions were forwarded by the entities covered by the first show cause notice during July 2003. In the written submissions submitted by Shri Ketan Parekh vide his letter dated July 2003, it was submitted that during the period of investigation he was a director on the Board of Classic, Panther, and Saimangal. He also stated that he had not acquired any shares in the scrip of Lupin Laboratories Ltd. and the transactions were carried out by investment companies, on whose Board he was a director. He also stated that there was no necessity for the prices of shares of all the companies in any one industry to be moving to the same extent as other scrips in such industry or sector. Also, he stated that abnormality in the price rise cannot be determined merely on comparison of price movements between select stocks in a particular industry. It was also his contention that mere association, as had been admitted by him during investigation, with the broking entities was insufficient to make him responsible for all the alleged actions of those companies, as figured in the show cause notice. He also denied any artificial price rise in the scrip during the period under consideration. It was submitted by him that although he had not placed any or der, placing large orders in the market is not per se illegal. 3.3 The written submissions made by Classic and Panther also contended that SEBI cannot state with ultimate authority whether the price of the scrip in the market is justifiable or not. It was also mentioned that the comparison of the price movement with those of other pharmaceutical industry was incorrect. In its written submissions, Classic had also mentioned that it did not act in concert with others to artificially manipulate the price and volume of the scrip and said that no action shall lie against them. Similar submissions were made by Panther. They also denied that their orders for purchase of sale placed with the brokers in the market had created any artificial demand for the shares or hampered with the free and fair discovery of price of the scrip in the market. Written Submissions by the entities covered in second show cause Notice. 3.4 Shri Kartik Parekh, in his written submissions contended that there are no acts mentioned in the show cause notice that had been attributed to him, for which he could be held liable and further the entities mentioned in the show cause notice had no connection with him. He denied all the imputations made in the show cause notice. Regarding the allegation of the transactions of Ketan Parekh through CSFB/DKB Securities being circular and fictitious trades creating artificial volume and artificial market in the scrips, it was submitted that since the same was carried out for the purpose of availing finance, there cannot be any other intention for carrying out such transactions. It was also stated that he had no connection with the transactions mentioned in the show cause notice. It was also submitted that the act of availing finance for the purpose of meeting obligations or for any other reason pertaining to the market is completely legal and permissible activity and hence no action was possible against him. Further, with respect to the allegation of nontransfer of beneficial ownership of the shares, he had cited Section 10(3) under Depositories Act, 1996 and said that when shares are transferred from the demat account of the seller to the demat account of the broker or buyer, it would mean that the beneficial ownership is also transferred and therefore, the same allegation was not sustainable. Again on the reference relating to the trades being synchronized and negotiated deals, the circular dated September 14, 1999 was quoted and it was stated that the relevant circular do not ban negotiated deals and it only states that such deals have to be executed on the screens of the exchange in the price and order matching mechanism of the exchanges. It was also submitted that certain orders placed by the entities covered by the relevant show cause notice through brokers had matched with the orders of other brokers, which was permitted by the exchange mechanism and hence it was incorrect to attribute intention of wrong doing to the same. Raising finance by the sale of shares in the market is neither wrong nor banned by SEBI was the main argument that had been put forward by Shri Kartik Parekh. He also reiterated his request for an opportunity for cross examination of those whose statements have been relied upon from CSFB/DKB. He also referred to the statements relied upon by SEBI where the persons who had made the same had said that they are not aware of the transactions being synchronized. 3.5 The allegation in the show cause notice about the transactions of shares in Nirma and others, not being real and were done under the cover of normal sale / purchase and the consideration being received on the same date of the transfer of shares to brokers were objected to by Shri Kartik Parekh in his written submissions. He submitted that pursuant to the objective of receiving finance, these entities had sold shares to CSFB/DKB in spot and had purchased or arranged to be purchased by others, shares in the market. All such sales and purchases were made in the actual transfer of beneficial ownership of shares and payment of due consideration and the transactions having actually occurred, the allegation that the financing transaction being carried out as regular sale and purchase would be incorrect, he said. The transactions were forming part of actual volume of the exc hange and hence the allegation of artificial volume being created lacked substance, according to Shri Kartik Parekh. Further, he also said that the required element of intention to artificially raise or depress the prices of securities and thereby inducing the sale or purchase of securities has not been alleged, proved or substantiated in the show cause notice, whereas there are allegations of transactions being carried out in violation of Regulation 4(a),(b),(c) and (d) of the Securities and Exchange Board of India Regulation 1995. All the allegations of violation of Regulation 4(a),(b),(c) and (d) of SEBI (Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 are denied by Shri Kartik Parekh, which according to him were inapplicable in his case. He alleged the show cause notice to be baseless and frivolous and further maintained that all the transactions referred in the same being legal. 3.6 The replies of entities, Classic, Panther, Luminant, Chitrakut, NH Securities Ltd., Classic Share and Stock Br oking Services Ltd., Saimangal, Classic Infin, Panther Investrade Ltd. were on similar lines as the reply by Shri Kartik Parekh and hence to avoid repetition of the submissions, the same have not been reproduced herein. 4.0 I have perused the findings of the investigation, and carefully examined the same as well as the show cause notices, replies to the notices, oral and written submissions of different individuals / entities. My findings are as under :- 1. Findings w.r.t first show cause notice 4.1 I find that the scrip of Lupin Laboratories Ltd. was quoted/transacted in the range of Rs.100/- to Rs.150/-during April to August, 1999. The average daily volumes for the scrip during the period April-August, 1999 were found to be to the extent of 10,000-15,000 shares per day on BSE and NSE. From the month of August 1999, the price of the scrip had started moving upwards which was found to have been accompanied with significant increase in the average daily volumes for the scrip in BSE and NSE. The price of the scrip during the period September- December 1999 was found to have increased from a range of Rs. 150/-to Rs.600/-. Likewise the average daily volumes in the scrip moved from 10,000- 15,000 shares per day to approx. 80,000-1,00,000 shares per day during this period. During January 2000 the scrip was shifted to compulsory rolling settlement mode (from January 10, 2000). The scrip after January 2000 showed a decline in price and reached to Rs.150/- during June 2000. The average daily volumes during this period were in the range of 10,000-15,000 shares per day. 4.2 A comparison of price movement in the scrip during August-December 1999 with the movement in BSE Sensex and NSE Nifty showed that price rise in the scrip was abnormal. It has been noticed from the analysis of price volume data that the price of the scrip had moved from Rs.175/- to Rs.600/- during September - December 1999. 4.3 A comparison of the price movement of the scrip of Lupin Laboratories Ltd. vis-�-vis the price movements of other scrips in the same industry (i.e. pharmaceutical industry) is tabulated below. PRICE MOVEMENT OF CERTAIN SELECT PHARMA STOCKS __________________________________________________________________ Date Ranbaxy Glaxo Novartis Lupin Cipla __________________________________________________________________ 01-Sep-99 1128.1 709 979 169.35 979.56 02-Sep-99 1099 701.4 981 161.15 984.51 03-Sep-99 1062.1 706 979.04 157.25 1002.96 06-Sep-99 1106.95 727 970.1 169.45 1083.19 07-Sep-99 1097.5 729.5 937.84 182.95 1081.89 08-Sep-99 1126 729.5 917.59 184.1 1078.2 09-Sep-99 1103.25 724 898.9 178.1 1085.44 10-Sep-99 1100 720.05 898.01 171.7 1094.4 14-Sep-99 1058 722 898.86 181.7 1181.93 15-Sep-99 1040.95 710.5 886.48 174.45 1191.96 16-Sep-99 1008 705 888.22 170 1164.92 17-Sep-99 1009 707.1 887.33 169.5 1177.2 20-Sep-99 999.75 729 905.53 167.9 1258.38 21-Sep-99 979 740 907.8 167.7 1359.04 22-Sep-99 1030 756.9 931.83 169.6 1467 23-Sep-99 1089.1 770 953.41 183.15 1555.2 24-Sep-99 1047 763 950.52 197.75 1548 27-Sep-99 1077.75 767 949.5 212.55 1521 28-Sep-99 1069.75 773.5 932.9 229.5 1454.4 29-Sep-99 1092 790 940.15 247.85 1469.25 30-Sep-99 1072.05 775 949.54 254.8 1421.64 01-Oct-99 1025 750 932.72 239.55 1355.4 04-Oct-99 989.05 746.5 930.05 234 1433.16 05-Oct-99 1009.5 744.4 930.05 241 1429.2 06-Oct-99 992.25 751 943.4 260.25 1430.28 07-Oct-99 1071.6 811.05 996.8 281.05 1544.69 08-Oct-99 1157.3 837.3 1001.25 303.5 1571.4 11-Oct-99 1161 855 1031.29 327.75 1697.09 12-Oct-99 1153 863 1044.86 353.95 1789.2 13-Oct-99 1215 897 1050.2 382.25 1760.4 14-Oct-99 1204 968 1075.97 395 1680.48 15-Oct-99 1107.7 925 1075.3 365.5 1594.8 18-Oct-99 1121.35 921 1148.1 394.7 1574.13 20-Oct-99 1123.4 893 1063.15 426.25 1722.35 21-Oct-99 1050 846 1061.32 417.4 1615 22-Oct-99 1016.2 800 1029.73 401.9 1542 25-Oct-99 989.4 774 996.8 369.75 1418.65 26-Oct-99 994 745 1003.83 377.05 1414 27-Oct-99 968 752 1001.25 358.35 1364 28-Oct-99 930 745 996.8 330.6 1305.4 29-Oct-99 869.95 739 1076.5 319.95 1300 01-Nov-99 800.4 725 1049.53 294.4 1239 02-Nov-99 864.4 773 1060.88 317.9 1338.1 03-Nov-99 841.15 732.2 1051.54 307.2 1245.5 04-Nov-99 908.4 707 1023.5 314.8 1266.25 05-Nov-99 954.15 710.05 1034.45 339.5 1281 07-Nov-99 962.5 729.75 1048.64 345.9 1310.25 09-Nov-99 971 716.4 1032.4 363.65 1304 11-Nov-99 980.2 745.5 1041.3 360.4 1302 12-Nov-99 993 737 1057.32 371.35 1280 15-Nov-99 979 740.45 1069.78 371.25 1262 16-Nov-99 970 740 1058.21 374.95 1362.95 17-Nov-99 942.95 743.15 1052.78 388.9 1355.05 18-Nov-99 929 742 1054.29 373.95 1388 19-Nov-99 920.6 734.05 1022.08 369.35 1388 22-Nov-99 931 736.6 1027.95 398.85 1464 24-Nov-99 976 745 1028.84 415 1452 25-Nov-99 988 746 1027.1 416.5 1434.95 26-Nov-99 990 743.1 1030.26 449.25 1467 29-Nov-99 979.5 757 1055.5 485.15 1540.55 30-Nov-99 992.5 788 1047.53 468 1626.4 01-Dec-99 1005 768.05 1056.92 458 1570 02-Dec-99 1083 770 1096.48 448 1580 03-Dec-99 1075 758.5 1183.7 452 1544.45 06-Dec-99 1092 769 1245.55 488.15 1546 07-Dec-99 1136 760 1195.27 527.15 1525 08-Dec-99 1045.15 740.5 1139.2 504 1456.25 09-Dec-99 1045 739.5 1130.3 496 1460 10-Dec-99 1004 738.4 1112.94 504 1460 13-Dec-99 999 737.6 1114.32 514 1359.15 14-Dec-99 977 707 1100.26 491 1385 15-Dec-99 940 703 1072.45 481.55 1340 16-Dec-99 980 716 1120.73 519.9 1429 17-Dec-99 935 703 1110.28 540 1481.15 20-Dec-99 957 758.95 1165.9 497 1570 21-Dec-99 945 728 1155.22 536.75 1530 22-Dec-99 953 727.75 1134.75 579.65 1479 23-Dec-99 956 734 1121.58 596 1470.7 24-Dec-99 928.95 719 1103.6 555 1373 27-Dec-99 923.5 722.1 1112.5 549 1350.3 28-Dec-99 927.85 730.5 1121.84 557.5 1416.75 29-Dec-99 932 733.85 1141.87 567 1400 30-Dec-99 923 730.75 1138.98 575 1390 __________________________________________________________________ From the above, it can be seen that, the price of the scrip of Ranbaxy Laboratories Ltd. moved from Rs. 1128/- on September 01, 1999 to Rs. 923/- on December 31, 1999, which showed a decrease of about 18% in the price of the scrip. Likewise, the price of the scrip of Glaxo moved from Rs. 709/- to Rs. 730/-which shows a rise of about 3%, the price of Novartis moved from Rs. 979/-to Rs.1 139/- i.e. a rise of about 16% and Cipla moved from Rs. 979/- to Rs. 1390/-, which showed a rise of about 43%. It is also seen that, the price rise in the scrip of Lupin Laboratories Ltd. during the aforesaid period from Rs. 170/- to Rs. 575/- which was a rise of about 239%. 4.4 The price rise in the scrip of Lupin Laboratories Ltd. during the aforesaid period was neither in consonance with the movement of market indices such as BSE Sensex and NSE-Nifty nor was it in tandem with the price movements of other scrips in the pharmaceutical industry like Ranbaxy, Glaxo, Novartis and Cipla. It was observed from the analysis of price volume data that price of the scrip of Lupin Laboratories Ltd. had moved from Rs. 175/- to Rs. 609/- during September- December 1999. In view of this, it was seen that, the price of the scrip of Lupin Laboratories Ltd had moved upwards substantially during a short span of time and this was accompanied with large volumes. 4.5 I find that the broking firms and entities / companies associated/connected with Ketan Parekh had transacted in the scrip of Lupin Laboratories during the period September 1999-February 2000 with a view to establish an artificial high price and artificial volumes/liquidity in the scrip. Analysis of Order Log and Trade Log had revealed that, these entities associated/connected with Ketan Parekh had entered orders in the scrip of Lupin Laboratories Ltd., on BSE and NSE, in order to create a higher price for the scrip. The analysis of volumes in the scrip shows that the transactions by these entities of Ketan Parekh had constituted a significant portion of the total transactions in the scrip during the aforesaid period. Investigations also revealed that, on various occasions, broking firms associated/connected with Ketan Parekh viz. NH Securities Ltd. and Classic Share and Stock Broking Services Ltd. had put orders for purchase of shares of Lupin Laboratories Ltd., which were above the prevailing market price for the scrip. It was also found that these orders established a higher rate for the scrip. Order Log and Trade Log analysis revealed such instances on many occasions during the period under consideration. 4.6 Classic Credit Ltd., an investment company connected with Shri Ketan Parekh, was found to have transacted in the scrip of Lupin Laboratories Ltd. in significant quantities in BSE and NSE through different brokers, as under :- ___________________________________________________________________________________ Name of the Exchange Name of the Broker Gross Gross Net Position Settlement No. Purchase Sale ___________________________________________________________________________________ BSE 30/99-2000 Milan Mahendra 0 22400 -22400 BSE 37/99-2000 Milan Mahendra 0 29931 -29931 BSE 39/99-2000 Milan Mahendra 0 10000 -10000 BSE 40/99-2000 Milan Mahendra 35000 3850 31150 BSE 30/99-2000 C.J.Dalal 60900 62800 -1900 BSE 32/99-2000 C.J.Dalal 5400 0 5400 BSE 33/99-2000 C.J.Dalal 5400 0 5400 BSE 34/99-2000 C.J.Dalal 9500 5100 4400 BSE 35/99-2000 C.J.Dalal 4400 4400 0 BSE 37/99-2000 C.J.Dalal 0 2931 -2931 BSE 38/99-2000 C.J.Dalal 10000 10000 0 BSE 39/99-2000 C.J.Dalal 7500 7500 0 BSE 40/99-2000 C.J.Dalal 10000 15000 -5000 BSE 42/99-2000 C.J.Dalal 0 10000 -10000 BSE 30/99-2000 Hem Securities Ltd. 0 25000 -25000 BSE 35/99-2000 Hem Securities Ltd. 12600 222100 -209500 BSE 37/99-2000 Hem Securities Ltd. 0 35000 -35000 BSE 39/99-2000 Hem Securities Ltd. 0 5000 -5000 BSE 40/99-2000 Hem Securities Ltd. 70000 22602 47398 BSE 42/99-2000 Hem Securities Ltd. 0 10000 -10000 BSE 29/99-2000 Triumph Securities 86300 0 86300 BSE 38/99-2000 Triumph Securities 0 21602 -21602 BSE 39/99-2000 Triumph Securities 0 7617 -7617 BSE 30/99-2000 Pravin V. Shah 0 25000 -25000 BSE 36/99-2000 Pravin V. Shah 0 66000 -66000 BSE 38/99-2000 Pravin V. Shah 6202 6202 0 BSE 42/99-2000 Pravin V. Shah 0 4735 -4735 ___________________________________ BSE Total 323202 634770 -316968 ___________________________________ NSE N/1999046 Classic Shares & Stock Broking 0 9600 -9600 NSE N/1999047 Classic Shares & Stock Broking 595005 0 595005 NSE N/1999051 Classic Shares & Stock Broking 241500 0 241500 NSE W/200026 Classic Shares & Stock Broking 5000 0 5000 NSE W/200032 Classic Shares & Stock Broking 27770 0 27770 NSE W/200035 Classic Shares & Stock Broking 16232 0 16232 NSE W/200036 Classic Shares & Stock Broking 60000 0 60000 NSE W/200040 Classic Shares & Stock Broking 12315 0 12315 NSE N/1999045 NH Securities Ltd. 0 455800 -455800 NSE N/1999046 NH Securities Ltd. 104700 0 104700 NSE N/1999048 NH Securities Ltd. 0 26118 -26118 NSE N/1999049 NH Securities Ltd. 0 5000 -5000 NSE N/1999050 NH Securities Ltd. 0 21600 -21600 NSE N/1999051 NH Securities Ltd. 0 38846 -38846 NSE N/1999052 NH Securities Ltd. 0 15225 -15225 NSE N/2000001 NH Securities Ltd. 0 34850 -34850 NSE N/1999043 Triumph International Finance India Ltd. 45000 0 45000 NSE N/1999047 Triumph International Finance India Ltd. 100000 65000 35000 NSE N/1999048 Triumph International Finance India Ltd. 0 15000 -15000 NSE N/1999049 Triumph International Finance India Ltd. 0 38788 -38788 NSE N/1999050 Triumph International Finance India Ltd. 51370 51370 0 NSE W/1999187 Triumph International Finance India Ltd. 0 241500 -241500 NSE F/2000030 Triumph International 90000 0 90000 Finance India Ltd. NSE F/2000034 Triumph International Finance India Ltd. 208007 0 208007 NSE S/1999025 Triumph International Finance India Ltd. 0 125000 -125000 26/11/1999 M.D. Doshi 300000 0 300000 ___________________________________ NSE Total 1856899 1143697 713202 ___________________________________ BSE and NSE Total 2180101 1778467 396234 Gross BSE and NSE ( Purchase + Sale) 3958568 ___________________________________________________________________________________ It is thus seen that Classic had transacted in the scrip of Lupin Laboratories Ltd. during the period under consideration in large quantities, in BSE and NSE, through different brokers. Classic, in all had purchased 3,23,202 shares and sold 6,34,700 shares resulting in a net sale position of 3,16,968 shares sold at BSE. Likewise, on NSE, Classic had purchased 18,56,899 shares and sold 11,43,697 shares and therefore had a net purchase position of 7,13,202 shares. The combined position of Classic at BSE and NSE was purchase of 21,80,101 shares and sale of 17,78,467 shares which resulted in a net purchase position of 3,96,234 shares and gross position of 39,58,568 shares transacted. 4.7 I find that Panther Fincap, another entity connected to Shri Ketan Parekh had transacted in the scrip of Lupin Laboratories Ltd. on BSE and NSE through Triumph Securities Limited and NH Securities, broking entities connected to Shri Ketan Parekh. The table below shows a summary of transactions entered into by Panther Fincap in the scrip of Lupin Laboratories Ltd. during the period under consideration. ___________________________________________________________________________________ Name of the Exchange Name of the Broker Gross Gross Net Position Settlement No. Purchase Sale ___________________________________________________________________________________ No 31/8/1999 N.A. 386900 0 386900 BSE 36/99-2000 Milan Mahendra 0 103489 -103489 BSE 36/99-2000 C.J. Dalal 0 100783 -100783 BSE 36/99-2000 Hem Securities Ltd. 0 71187 -71187 BSE 36/99-2000 Triumph Securities Ltd. 0 17500 -17500 NSE N1999047 NH Securities Ltd. 0 189315 -189315 ___________________________________________________________________________________ 4.8 Saimangal Investrade Ltd., another entity connected to Shri Ketan Parekh, had also sold the shares of Lupin Laboratories Ltd. in large quantities on NSE. These transactions were done through the broking concern associated/connected with Shri Ketan Parekh namely, NH Securities Ltd. The transactions by Saimangal Investrade Ltd. in the scrip of Lupin Laboratories Ltd. during the period August 1999 to December 1999 are shown in the table below: ___________________________________________________________________________________ Name of the Exchange Name of the Broker Gross Gross Net Position Settlement No. Purchase Sale ___________________________________________________________________________________ NSE N/1999041 NH Securities Ltd. 0 161500 -161500 NSE N/1999045 NH Securities Ltd. 0 303500 -303500 ___________________________________________________________________________________ 4.9 An analysis of order log and trade log was done with respect to certain days on which significant movement in price of the scrip was observed. The analysis revealed that Classic Credit Ltd. had entered orders for purchase of shares of Lupin Laboratories Ltd. with a view to establish a higher price for the scrip on certain occasions. The following are instances noticed upon such analysis: ________________________________________________________________________________ Date Name of Name of Time Qty. Order No. Rate *LTP Change the the Broker (Rs.) (Rs.) in Exchange Price (Rs.) ________________________________________________________________________________ 6/10/99 BSE Triumph 10:14:37 10000 372010160 250 245 5 Securities Ltd. 6/10/99 BSE Triumph 10:15:44 10000 372010161 255 250 5 Securities Ltd. 6/10/99 BSE Triumph 10:16:47 10000 372010162 260 255 5 Securities Ltd. 6/10/99 BSE Triumph 10:17:24 10000 372010166 260.1 260 0.1 Securities Ltd. 6/10/99 BSE Triumph 10:17:35 10000 372010167 260.2 260.1 0.1 Securities Ltd. 6/10/99 BSE Triumph 10:18:01 10000 372010169 260.25 260.2 0.05 Securities Ltd. 14/10/99 BSE C.J. Dalal 10:03:34 25000 85040040 411 382.25 Buyer (purchase) (closing and sale price on previous day) Seller both Classic 14/10/99 BSE Parvin V. Shah 10:03:34 25000 411 Credit Ltd. 14/10/99 BSE C.J. Dalal 15:12:51 30000 85040076 412.80 Buyer and Seller (purchase) both Classic Mahendra (sale) 14/10/99 BSE Milan Credit 15:12:52 40000 460120041 412.80 Ltd. 15/10/99 BSE C.J. Dalal 10:33:55 5000 85040083 365 Orders placed at increasing rates established a rate of Rs.390/- from Rs.365/- 15/10/99 BSE C.J. Dalal 10:40:49 5000 85040085 365 15/10/99 BSE C.J. Dalal 10:44:52 5000 85040087 365 15/10/99 BSE C.J. Dalal 11:05:33 5000 85040089 365 15/10/99 BSE C.J. Dalal 12:14:50 100000 85040102 366 15/10/99 BSE C.J. Dalal 12:15:54 50000 85040104 375 15/10/99 BSE C.J. Dalal 12:16:05 25000 85040105 385 15/10/99 BSE C.J. Dalal 12:16:20 25000 85040106 390 15/10/99 BSE C.J. Dalal 12:17:55 25000 85040110 400 11/11/99 BSE C.J. Dalal 14:05:18 25000 85040038 350 343 ________________________________________________________________________________ � From the above table , it can be seen that Classic Credit Ltd. on various days was instrumental in establishing an artificial higher price for the scrip of Lupin Laboratories Ltd. On October 6, 1999, Classic Credit Ltd. had placed consecutive buy order of large quantities at increasing rates. From the above table, it can be seen that these orders were placed during the period 10:15:44 to 10:51:34 in large quantities in the price range of Rs.250/- to Rs.260.25, when the market price in the scrip was Rs.245/-. These orders had thus established a price of Rs.260.25 in the scrip of Lupin Laboratories Ltd. on that day, which is the maximum permissible upper circuit price level of 8% above the closing price on the previous day. As a result of this, the scrip was traded only at the upper circuit price level of Rs.260.25 on that day. During the course of investigations, statement of Triumph Securities Ltd. ( Shri. Nimesh Dhedia ) was recorded. He was asked to state who had placed the aforesaid orders and what was the instruction in respect of the aforesaid order. It was replied that, the orders were placed on behalf of Classic Credit Ltd., for which, the persons who had placed orders were either Shri Ketan Parekh or Shri Kartik Parekh. � It is also seen that, on 14/10/99, Classic Credit Ltd. had placed an order for purchase of 25,000 shares of Lupin Laboratories Ltd. at the rate of Rs.411/-at 10:03:34 i.e. at the beginning of trading session through M/s. C.J. Dalal. At the same time, classic Cre dit ltd. placed an order for sale of 25,000 shares of Lupin Laboratories Ltd. through Pravin V. Shah Stock Broking P. Ltd. (member BSE). The closing price for the scrip on the previous day was Rs.382.25. The order for purchase and sale was entered and executed by Classic Credit Ltd. at the opening of trading session on 14/10/99 at a rate of Rs.411/-. With this transaction Classic Credit Ltd. established a price of Rs.411/-in the scrip of Lupin Laboratories Ltd. 8% higher than the closing price on the previous day which was Rs.382.25. On the same day, Classic Credit Ltd. had placed an order for 30,000 shares at 15:12:51 through C.J. Dalal at the rate of Rs.412.80 and an order for sale 40,000 shares at 15:12:52 through Milan Mahendra Securities P. Ltd. (member BSE). These orders were matched for a quantity of 22,400 shares and the remaining quantity of 7,600 shares was deleted by Classic Credit Ltd. This transaction had established a rate of Rs.412.80 in the scrip of Lupin Laboratories Ltd. on 14/10/99 which was the upper circuit level for the scrip i.e. at a rate of 8% above the closing price in the scrip on the pervious day. � On 15/10/99, it is seen that Classic Credit Ltd. had placed orders during 10:33:55 to 11:05:33 at a price of Rs.365/-for the scrip of Lupin Laboratories Ltd. and subsequently placed orders for purchase of shares of Lupin Laboratories Ltd. in large quantities at increasing range from Rs.366/- to Rs.390/- during 12:14:50 to 12:16:20. It was also seen that the orders placed at Rs.366/- for 1,00,000 shares and Rs.375/- for 50,000 shares was deleted for the remaining quantity and an order for purchase of 25,000 shares was placed at a rate of Rs.400/- at 12:17:55. These consecutive orders placed at increasingly higher rates and immedi ate deletion of the earlier orders placed for lower rates artificially established higher price of the scrip which moved from Rs.365/-to Rs.400/-. � On 11/11/99, Classic Credit Ltd. placed an order for purchase of 25,000 shares of Lupin Laboratories Ltd. at the rate of Rs.350/-at 14:05:18 through M/s. C.J. Dalal. The market price in the scrip at that time was Rs.343/- and this order established a rate of Rs.350/-for the scrip of Lupin Laboratories Ltd. It was also seen that this order was deleted by Classic Credit Ltd. for a quantity of 21,900 shares at 14:09:54. This shows that Classic Credit Ltd. was putting orders for purchase of shares of Lupin with a view to establish an artificial price for the scrip. 4.10 I find that NH Securities Ltd., one of the broking entities of KP, had also transacted in the scrip of Lupin Laboratories Ltd. in large quantities during the period under consideration. The transactions were mainly done on its own account and on behalf of clients namely, Classic, Panther and Saimangal. These entities/clients as stated above, were entities associated/connected with Ketan Parekh, who is also the Director and person in- charge of NH Securities Ltd. The transactions by the broker together with other broking firms associated/connecte d with Ketan Parekh constituted a significant portion of the total transactions in the scrip on NSE. 4.11 The orders were found to have been placed by NH Securities Ltd. on behalf of Classic. Both NH and Classic were found to have been managed, operated and controlled by Shri Ketan Parekh. The orders on behalf of Classic were placed by Ketan Parekh and the authorised person to do transactions on behalf of Classic and NH was stated to be Ketan Parekh himself. 4.12 NH Securities Ltd had entered orders for purchase of shares of Lupin Laboratories Ltd. on NSE with a view to establish a higher price for the scrip on certain occasions. On many such occasions, the client for whom they had traded was Classic Credit. The following illustrates such instances : _________________________________________________________________________________________ Date Time Qty. Order No. Rate *LTP Change Name of the (Rs.) (Rs.) in Price Client (Rs.) _________________________________________________________________________________________ 17/11/1999 11:37:26 25000 199911170260035 400 393.25 6.75 Classic Credit 17/11/1999 1:47:01 2200 199911170426167 400 394.5 5.5 Classic Credit 22/11/1999 2:21:55 25000 199911220438795 380 378 2 Classic Credit 22/11/1999 3:28:03 25000 199911220562016 372 366.3 5.7 Classic Credit 31/01/2000 10:34:34 5000 200001310145955 475 467 8 Classic Credit 31/01/2000 11:55:41 5000 200001301352529 490 475 15 Classic Credit 03/02/2000 10:18:46 2000 200002030087177 500 490 10 Classic Credit 03/02/2000 13:52:09 5000 200002030572680 500 495 5 Classic Credit 03/02/2000 13:52:16 5000 200002030572850 505 501 4 Classic Credit 03/02/2000 13:52:26 5000 200002030573104 510 505 5 Classic Credit 03/02/2000 13:52:43 5000 200002030573544 520 510 10 Classic Credit 03/02/2000 14:11:17 5000 200002030604128 530 520 10 Classic Credit 03/02/2000 14:11:36 5000 200002030604828 530.4 530 0.4 Classic Credit 08/02/2000 12:30:36 1993 200002084437542 500 489 11 Classic Credit 08/02/2000 14:47:43 5000 200002080683953 500 499 1 Classic Credit 09/02/2000 11:04:57 5000 200002090259895 520 510 10 Classic Credit 09/02/2000 11:05:04 5000 200002090262050 530 520 10 Classic Credit 09/02/2000 11:05:38 5000 200002090261870 540 530 10 Classic Credit 09/02/2000 11:06:22 5000 200002090263978 547.95 540 7.95 Classic Credit 21/02/2000 12:00:50 5000 200002210388469 485 470 15 Classic Credit _________________________________________________________________________________________ ( * LTP means Last Traded Price ) From the above table, it can be seen that NH Securities Ltd. had entered order for purchase of shares of Lupin Laboratories Ltd. at a rate which was higher than the prevailing rate/last traded price for the scrip. These buy orders in large quantities, swept the existing purchase orders at increasing rates and established a higher price for the scrip. On certain occasions these large orders caused the price to move up and touch the upper circuit price level for the scrip for the day. These instances are sufficient to show that the broker had been instrumental in establishing the higher price for the scrip. 4.13 Other brokers, Triumph International & Finance India Ltd. (member NSE), Classic Share & Stock Broking Services Ltd. (member NSE) and Triumph Securities Ltd. (member BSE), which were broking concerns associated/connected with Shri Ketan Parekh, had transacted in the scrip of Lupin Laboratories Ltd. on BSE and NSE, in large quantities. I find that the transactions by aforesaid entities had constituted a significant portion of the total transactions in the scrip on the exchanges. 4.14 Comparison of transactions by the aforesaid brokers associated/connected with Ketan Parekh vis-�-vis the total transactions in NSE in the scrip of Lupin Laboratories Ltd. during the period under consideration is tabulated below : ____________________________________________________________________________ Sett. No. Name of the broker % of Net % of Net % of gross sale vis buy vis traded vis-�- -�-vis -�-vis vis market mkt.net qty. market net gross qty. qty. ____________________________________________________________________________ 1999040 Triumph Intl. Finance 22.15 - 6.47 Milan Mahendra - 5.48 - 1999041 NH Securities - 39.03 10.85 1999042/43/44 under No Delivery 19999045( for 1999042 to 45) Triumph Intl. Finance 55.6 - 5.21 NH Securities - 42.73 14.97 1999046 NH Securities 60.07 - 5.47 Classic Share & Stock Broking Services Ltd. - 5.51 - 1999047 NH Securities - 55.63 4.5 Classic Share & Stock Broking Services Ltd. - 26.52 30.45 1999048 Triumph Intl. Finance 31.59 - 9.86 NH Securities - 15.28 - 1999049 Triumph Intl. Finance - 42.22 12.85 NH Securities - 3.35 - 1999050 Triumph Intl. Finance 5.38 - 7.81 NH Securities - 5.34 4.77 1999051 NH Securities - 20.59 5.49 1999052 NH Securities - 29.71 5.17 2000001 NH Securities - 26.24 6.5 Milan Mahendra - 6.78 - 2000002 Triumph Intl. Finance - 18.23 54.95 2000003 to 2000007 under No Delivery - - - 2000008 Triumph Intl. Finance 3.08 - - 2000011 Triumph Intl. Finance 1.26 - 0.62 2000013 Triumph Intl. Finance 3.33 - - 2000014 NH Securities 56.18 - 26.67 Triumph Intl. Finance - 6.51 3.09 2000015 NH Securities 76.82 - 32.44 2000020 NH Securities 61.02 - 23.34 2000022 Triumph Intl. Finance - 2.46 - 2000023 NH Securities 75.77 - 5.56 Triumph Intl. Finance - 18.39 85.19 2000024 NH Securities 29.11 - 7.06 2000025 Triumph Intl. Finance - 19.49 94.78 2000026 Classic Share & Stock Broking Services Ltd. 46.19 - 16.97 Triumph Intl. Finance 18.41 - 6.77 2000027 Triumph Intl. Finance 51.88 - 23.93 NH Securities 44.47 - 19.72 Milan Mahendra - 7.71 - 2000028 NH Securities 72.96 - 26.77 2000029 NH Securities 72.89 - 29.23 2000030 NH Securities 77.66 - 31.2 Triumph Intl. Finance - 16.51 9.89 2000031 NH Securities 53.61 - 23.19 Triumph Intl. Finance 20.29 - 8.78 2000032 Classic Share & Stock Broking Services Ltd. 79.03 - 23.24 NH Securities 5.69 - 18.41 Triumph Intl. Finance - 17.79 7.74 2000033 Triumph Intl. Finance 9.7 - 54.45 2000034 Triumph Intl. Finance 7.05 - 2.54 2000035 Classic Share & Stock Broking Services Ltd. 46.01 - 21.06 NH Securities 2.94 - - 2000036 Classic Share & Stock Broking Services Ltd. 77.79 - 34.11 2000038 NH Securities 37.28 - 16.27 Triumph Intl. Finance 15.06 - 6.58 2000039 Triumph Intl. Finance 4.13 - - 2000040 Classic Share & Stock Broking Services Ltd. 85.49 - 31.24 2000041 Classic Share & Stock Broking Services Ltd. 39.79 - 18.47 NH Securities 39.79 - 18.47 ____________________________________________________________________________ 4.15 Explanations were sought from the entities which were found to have entered the transactions. They were asked to state on whose behalf these orders had been placed and what were the instructions in respect of quantity, rate and time of these orders. Replies were received only from NH Securities Ltd. and Classic Share and Stock Broking Services Ltd. who contended that, all these orders had been placed on behalf of their client viz. Classic. Investigations had revealed that Classic, client of NH Securities Ltd. and Classic Share and Stock Broking Service Ltd., was an associate/group company of Shri.Ketan Parekh and all the three are operated and controlled by Ketan Parekh. The orders on behalf of Classic were placed by Ketan Parekh, who is the authorised person to do the transactions on behalf of Classic. I find that on certain occasions NH Securities was putting orders for purchase at higher rates at a gap of few seconds. For eg. orders for purchase at the rate of Rs.500/-., Rs.505/-, Rs.510/-, Rs.520/- were placed during a span of about one minute on 03/02/2000. Investigations had revealed that the floating stock in the scrip was very less since promoters were holding about 82.40% of the equity capital of the scrip. Therefore, continuous buy orders of NH Securities and Classic Share & Stock Broking Services Ltd., on behalf of these clients, had artificially raised the price of the scrip and had created an artificial demand for the scrip through continuous buy orders. It was therefore seen that both the demand and the supply side, which constitute the determination/formation of price in the market, had been disturbed by the aforesaid entities, with a view to establish an artificial market for the scrip. Therefore there had been no free and fair discovery of price for the scrip. 4.16 Various letters and summons were issued to the entities associated/connected with Ketan Parekh viz. Classic, Panther and Saimangal. However, there was no response. Summons were also issued to these entities asking them to furnish clarifications in respect of various facts brought out during the course of inve stigations. However, no reply was received from these entities. The directors of Panther are Shri Ketan Parekh, Shri Kartik Parekh, Shri Kirti Parekh and Shri Navinchandra Parekh. The operations and management of the company was done by Shri Ketan Parekh and his relative Shri Kartik Parekh. 4.17 Panther also did not respond to letter / summons issued by SEBI during investigation. From the details submitted by brokers of BSE & NSE, it was observed that Panther had sold around 4,82,274 shares of Lupin Laboratories Ltd. during November 1999. 4.18 As brought out above, the price rise in the scrip during the period September - December 1999 was artificial, which was accompanied with artificial volumes/liquidity in the scrip. I find that, the entities associated/connected with Shri. Ketan Parekh had acquired shares of Lupin Laboratories Ltd. in large quantities and had dealt heavily in the scrip during the period September - December 1999 on BSE and NSE. A majority of the transactions of these investment companies associated with Ketan Parekh were done through the broking concerns associated/connected with Shri. Ketan Parekh. The transactions by the aforesaid broking firms and investment companies associated/connected with Shri Ketan Parekh have constituted a significant portion of the total transactions done in the exchange. I find from the Order Log and Trade Log that these entities have entered orders for purchase of shares of Lupin Laboratories Ltd. at a rate which was higher than the price of the scrip at the time of entering the order. These orders which were for large quantities swept all the existing sale orders at lesser price and established a higher rate for the scrip. Repeated occurrence of such instances show that these entities were instrumental in creating an artificial higher price for the scrip. Likewise, these transactions in large quantities knowing fully well that floating stock was low and concentrated with promoters, created abnormal volumes for the scrip and created an artificial liquidity for the scrip. Price Manipulation 4.19 Therefore, entities connected to and controlled by Ketan Parekh, were found to have entered into transactions in the scrip of Lupin Laboratories during the period September - December 1999 with a view to manipulate prices and artificially establish high price in the scrip and create artificial volumes/liquidity in the scrip. The analysis of volumes in the scrip showed that the transactions by these entities of Ketan Parekh mainly Classic Credit Ltd., Panther Fincap and Saimangal constituted a significant portion of the total transactions in the scrip during the aforesaid period. Analysis of Order Log and Trade Log revealed that, these entities associated/connected with Ketan Parekh, had entered orders in the scrip of Lupin Laboratories Ltd. on BSE and NSE in order to create a higher price for the scrip. The common pattern observed in the case of these entities was that orders would be placed at prices higher than the last traded price and thereby establishing a higher price for the scrip. Simultaneously, price rise in the scrip had also been noted. Considering the large volume of the transactions entered into by KP entities, I am of the view that, artificial price rise has been caused by the entities connected to KP in the scrip of Lupin Laboratories. Regulation 4(a) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 prohibits entering into trades in any scrip, directly or indirectly with the intention of inflating the price. In the instant case, manipulative intent can be read into the trades entered by the KP entities, where orders were placed at prices higher than the last traded price coupled with large transactions causing price rise. These entities who had entered into manipulative trades in the scrip of Lupin Laboratories i.e., Classic Credit, Panther Fincap and Saimangal are entities connected to and controlled by Shri Ketan Parekh. All these entities are having directors who are close relatives of Shri Ketan Parekh and it had also been stated during the recording of the statement that such entities were operated by Shri Ketan Parekh. In regard to the above, I conclude that Classic Cre dit, Panther Fincap and Saimangal are guilty of violating Regulation 4(a) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 in respect of their dealings in the scrip of Lupin Laboratories. Although, violations are noted to have been committed by NH Securities, Classic Share and Stock Broker and Triumph Securities Ltd. with respect to the scrip of Lupin Laboratories, the entities being broking firms are proceeded separately under the SEBI(Procedure for Holding Enquiry and Imposing Penalties)Regulations, 2002. Findings w.r.t second show cause notice;


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