(1.) THESE appeals are directed against the order passed by SEBI on 29.11.2002. The Respondent held the Appellants guilty of violating certain provisions of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 (the FUTP Regulations) and debarred them from "accessing and being associated with the capital market for a period of five years" with effect from the date of the impugned order.
(2.) SEBI has stated the background leading to the adjudication and issuance of the impugned order as follows:
"Investigations were conducted by SEBI into the affairs relating to buying, selling, and dealing in the shares of M/s. Manu Finlease Ltd. (MFL) which entered the capital market with a public issue of 21,00,000 shares of Rs. 10/- each for cash at par. The issue remained open from 14.10.95 to 18.10.95. As per the prospectus dated 5.9.95 the directors of MFL were Shri AK Jindal, Shri PK Kapoor, Shri RK Aggarwal, Shri JK Garg & Smt. Ritu Garg. The Lead Manager to Public Issue was M/s. Doogar & Associates and the Registrar to the Issue was M/s. SPS Data Products Ltd. As per 3 day report filed on 21.10.95, the number/s of shares subscribed to were 51.959 lacs i.e. the issue was oversubscribed by 2.81 times. However, as per 78 days report filed on 5.1.96, the number of shares subscribed were 595.059 lakhs i.e. the issue was oversubscribed by 50.43 times. It was observed from the basis of allotment that the issue was subscribed mainly by way of stock invests accompanying big applications. The shares were listed at Delhi, Ahmedabad & Jaipur Stock Exchanges. As per the prospectus of MFL, Earning Per Share had reduced from Rs. 1.36 for the financial year 31.3.1994 to Rs. 1.07 for 31.3.1995. Thus, MFL did not appear to have any sound track record or profitability, which could justify over subscription by 50.43 times. Further, scrip opened at Rs. 48/- in January 96 at DSE and showed unusually high fluctuations touching Rs. 72/- in March 96.
In view of the above, an investigation was ordered into the affairs relating to buying, selling or dealing in the shares of MFL in terms of order dated 2.8.96. Investigations interalia showed various irregularities which are detailed below:-
A) Public Issue manipulation
1. Forgery in amount of stockinvests
There were 12 applications accompanied by stockinvests issued by Sangli Bank, Karol Bagh, New Delhi at Rs. 1 lac each. These stockinvests were fraudulently increased to Rs. 1 crore each. This implies that stockinvests of Rs. 12 lacs were used for making applications of Rs. 12 Crores. All these stockinvests were issued to Shri Prem Gupta, a director of Glory Securities Ltd. (an associate concern of MFL).
Similarly, there were 23 applications accompanied by stockinvests also issued by Sangli bank, wherein the amounts of stockinvests were increased by a multiple of 10. This implies that stockinvests worth Rs. 27.6 lacs were utilized for making applications worth Rs. 276 lacs. These include stockinvests issued to Shri Ashok Chawla, who had admittedly obtained these stockinvests on the asking of Shri SK Gupta. Shri SK Gupta arranged finance on behalf of Shri J.K. Garg and Shri A.K. Jindal, both Directors of MFL at the request of D.B. (India) Securities Ltd., member DSE (hereinafter referred to as DBISL). As admitted by Shri SK Gupta during the investigations, these stockinvests with blank application forms were delivered at the office of DBISL. Subsequently these blank application forms were filled up, matching the altered value of stock invests as application money.
2. Back dating of stockinvests and acceptance of late applications.
As mentioned earlier, 12 stockinvests were issued by Sangli Bank for Rs. 1 lac each to Shri Prem Gupta, which were increased to Rs.1 crore. All these stockinvests were issued on 19.11.95 i.e. much after the close of the issue on 18.10.95. These applications were accepted by Dena Bank, Rajendra Place, New Delhi after the closure of issue.
Dena Bank, Rajendra Place, New Delhi had also received late applications worth Rs.15 lacs along with stockinvests issued by Sangli Bank to Shri Ashok Chawla & Shri JB Gupta. Similarly, applications worth Rs.249 lacs were accepted late by Oriental Bank of Commerce, Ballabgarh. These applications were made with backdated stockinvests issued by Sangli Bank (which includes all applications except for one of Rs.50 lacs, with altered amount as mentioned in 1 above) to Shri Ashok Chawla & Shri Prem Gupta. However, it was revealed during investigations that the application money against these applications was collected by MFL by way of Demand Drafts and not through presentations of the related stockinvests.
As already mentioned that impugned stockinvests were issued to Shri Ashok Chawla, Shri Prem Gupta and Shri JB Gupta. Shri Ashok Chawla had obtained them at the request of Shri SK Gupta, who in turn arranged for them after being introduced by DBISL to MFL/directors. Shri Prem Gupta, director of Glory Securities Ltd. was an associate of MFL. Shri Prem Gupta was earlier an employee of Shri JB Gupta.
State Bank of Indore, Dadar (W), Mumbai issued 6 stockinvests of Rs.1 crore each used in the Public Issue of MFL which were issued to various individuals against the deposit of M/s. Krishna Texport and Capital Markets Ltd. (hereinafter referred to as KTCML). In terms of an agreement dated 7.10.1995, KTCML provided these stockinvests with each application for 10 lacs shares in the name of its nominees to another financier namely Shri Gopal Khadaria. Since all the applications were made on behalf of Shri Gopal Khadaria, a single application for 60 lacs should have been made instead of 6 multiple applications of 10 lac shares each, which were liable for rejection, being multiple applications.
As per the provisions of the prospectus of MFL at page 6 which provides that an applicant should submit only one application form (and not more than one) for the total number of equity shares required. It was also mentioned that multiple applications are liable for rejections. Thus, multiple share applications made by KTCML in the name of its nominees on behalf of Shri Gopal Khadaria should have been rejected. However, these multiple applications were accepted, which resulted in irregular allotment of 97,800 shares.
These shares were later delivered by Shri Gopal Khadaria to M/s. Nathji Enterprises P. Ltd., an associate concern of MFL. Shri Gopal Khadaria was introduced by M/s. DB India Securities Ltd. to the directors of MFL for the purpose of financing the Public Issue of MFL.
Multiple and late applications in the Public Issue of MFL were also made by way of 60 applications of 1000 shares each, aggregating to Rs.6 lacs issued by way of cheque from the current account of M/s. Swamy Foods P. Ltd ., another associate concern of MFL.
(3.) SAME stockinvest being used for various applications Multiple applications were received accompanied by photocopies of the same stockinvests resulting in the subscription of Rs.264 lacs.;