(1.) 0 BACKGROUND
1.1 On observing sudden spurt in the trading volumes in the scrip of M/s Zodiac Clothing Company Ltd. (Zodiac) National Stock Exchange (NSE) conducted investigations into the trading in the scrip from July 05, 2000 to August 22, 2000 and submitted its report to SEBI on January 10, 2001. It was observed in the NSE report that M/s. Vivenasri Financial Services Ltd. (hereinafter VFSL), having its registered office at 4/9, Kubera towers, Narayanguda, Hyderabad-500 029, was the major net seller and M/s. Harsh Pranav Securities Pvt. Ltd. (hereinafter referred to as HPSPL) and M/s. Newfin Financial Services Pvt. Ltd. (hereinafter referred to as NFSPL) were major net buyers during the said period. It was also observed that these clients were associated with each another.
1.2 NSE conducted another investigations into the trading in the scrip of Zodiac for the period October 25, 2000 to February 27, 2001. In its report submitted to SEBI on April 30, 2002 , NSE observed that the three clients M/s. Vivenasri Financial Services Ltd. (VFSL), M/s. Newfin Financial Services Pvt. Ltd. (NFSPL) and M/s. Harsh Pranav Securities Pvt. Ltd. (HPSPL) were the major traders in the scrip during the said period and they have executed structured deals and cross deals within themselves.
(2.) 0 INVESTIGATION BY SEBI
2.1 In light of the findings of the aforesaid investigations conducted by NSE, Securities And Exchange Board of India (hereinafter referred to as the SEBI) conducted its own investigation into the affairs related to buying, selling and dealings in the shares of Zodiac for alleged market manipulation in the scrip during July 05, 2000 to February 27, 2001.
Indings OF INVESTIGATION BY SEBI
3.1 During the period from July 05, 2000 to February 27, 2001 (hereinafter referred to as the "relevant period") the scrip Zodiac clocked a volume of 4,05,551 shares on BSE and 14,55,151 shares on NSE.
3.2 During the said period, the closing price of the scrip touched a low of Rs. 68.60 on August 04, 2000 and a high of Rs. 95.00 on September 12, 2000 on BSE whereas at NSE the scrip touched the lowest price of Rs. 67.40 on August 08, 2000 and a high of Rs. 96.15 on September 06, 2000.
3.3 On the basis of the trading details obtained from VFSL, it is observed that VFSL has done trading in the scrip of Zodiac on NSE and BSE during the relevant period. The details of the trading done by VFSL are as under :
3.4 As per the findings of the investigations conducted by SEBI, VFSL had entered in to following Off Market Deals with its group companies NFSPL and HPSPL :
3.5 From the above, it is observed during the relevant period VFSL bought 1,89,175 shares and 4,11,120 shares of zodiac on BSE and NSE respectively & sold 2,06,550 shares and 13,27,907 shares of zodiac on BSE and NSE respectively. As a result of these transactions, VFSL was a net market seller of 9,74,542 shares of zodiac. Apart form this, VFSL had net purchase position of 9,14,092 in off market deals with NFSL and HPSPL. This indicates that, considering the market and off market transactions, VFSL was a net buyer of 60,450 shares.
3.6 From the details gathered during the investigations, it was found that VFSL, along with NFSPL and HPSPL had common directors and are thus associate entities and therefore stated hereinabove as one group.
3.7 The details of the trades entered in to by VFSL, NFSPL and HPSPL as a group, are as under :
3.8 It was observed that the total market volume traded on NSE and BSE in the scrip during the relevant period was 18,60,702 shares (4,05,551 shares on BSE and 14,55,151 shares on NSE). It was further found that VFSL along with NFSPL and HPSPL had purchased on BSE and NSE a total number of 17,96,093 shares which account for 96.53% of shares traded on BSE and NSE and sold 17,00,507 shares of the said scrip which account for 91.39% shares traded on BSE and NSE.
3.9 From the order log-trade log details in the scrip of Zodiac, it is observed that VFSL had executed structured deals on NSE and BSE and cross deal on NSE where the counter party client was always one of your group company namely NFSPL or HPSPL. It was further observed that on July 11, 2000 on BSE, VFSL had purchased 12,000 shares @ Rs. 75.54 of Zodiac by way of structured deal. The counter party was NFSPL who had sold through Integrated Master Securities Ltd. (Member BSE) as under :
It may be mentioned here that "Y" is the client code of VFSL and "N024" is the client code of NFSPL.
b) On July 12, 2000, VFSL sold 60000 shares of Zodiac on NSE, which was the total volume of the said shares on NSE on that date, through B R Khandahar Share & Stock Brokers P Ltd. (member NSE) out of which 59500 shares were purchased by HPSPL by way of 6 Structured deals @ Rs. 74.5 to 76.00 through the Broker as shown below.
It may be mentioned here that 9216 was the client code of HPSPL and 19902 was the client code of VFSL.
c) VSFL was found to have entered in to following cross deals with its group company NFSPL:
On 10th November 2000, 25100 shares of Zodiac were traded on NSE. Out of which VFSL sold 24910 shares of the said scrip through Shailabhadra Securities Ltd. (member NSE) and NFSPL bought these shares through Shailabhadra Securities Ltd by way of cross deal @ Rs. 79.00 - Rs. 81.00 as shown below:
It was observed in the SEBI investigation report that the aforesaid trades of VFSL which were executed with its group companies viz. NFSPL and HPSPL by way of structured and cross deal had hampered the true price discovery mechanism of the market price of the said scrip.
3.10 Apart form the above VFSL was found to had entered in to following Circular Tradings with its group companies viz. NFSPL and HPSPL :
a) Circular Trading done between VFSL, NFSPL and HPSPL during SN 48 of NSE.
(i) During the settlement no 48 (from November 23 to November 28, 2000), a total no. of 59,443 shares of Zodiac were traded at NSE. Out of this, 49,006 shares were traded on November 23, 2000 and 10,300 shares on November 28, 2000. While on November 24, and 27, 2000 only 12 and 125 shares were traded.
NFSPL received 34930 shares from Shalibhadra Securities Ltd. (hereinafter referred to as SSL) on November 22, 200or the purchases done during the SN 46 of NSE. On November 23, 2000 VFSL purchased 34,900 shares from NFSPL in off market transaction. In the demat statement of NFSPL 34,900 shares are debited by HDFC Bank Ltd. for client Id 10466221 which is the client Id of VFSL. This finding was confirmed form the perusal of the demat statement of VSFL and NFSPL.
(ii) HPSPL received 7050 shares from SSL on November 22, 200or the purchases done during the SN 46 of NSE. On November 23, 2000 VFSL purchased 7,000 shares @ Rs. 78.0rom HPSPL in off market transaction. In the demat statement of HPSPL, 7,000 shares are debited by HDFC Bank Ltd. for client Id 10466221 which is the client Id is of your company. This finding was confirmed from the perusal of the demat statement of VSFL and HPSPL.
(iii) On November 23, 2000, VFSL sold 25,000 shares through Integrated Master Securities Ltd. (hereinafter referred to as IMSL) on NSE. Another 15,000 shares were sold and purchased on November 23, 2000 by VFSL through SSL. On November 23, 2000, NFSPL purchased 8100 shares @ Rs. 78.72 through Sony Securities Ltd. on NSE. HPSPL purchased 17,000 shares @ Rs. 79.59 through SSL on NSE on the same date.
(iv) From the demat statement of VFSL, it is observed that 25000 shares are debited on November 23, 200or SN 48 of NSE by IMSL. From the demat statement of NFSPL it was observed that 8100 shares are credited by Sony Securities on December 18, 200or SN 48 of NSE and on December 20, 2000 NFSPL sold 8100 shares to VFSL (Client Id 10466221) in off market transaction. From the demat statement of HPSPL it was observed that 8100 shares are credited by SSL on December 06, 200or SN 48 of NSE. Further, on December 07, 2000 HPSPL sold 17075 shares @ Rs. 78.00 to VFSL (Client Id 10466221) in off market transaction.
(v) From the demat account of VFSL it is observed that it had received 17,075 shares on December 07, 200rom HDFC Bank Ltd. client Id. 12482988 (client Id of HPSPL ) and 8100 shares on December 20, 200rom HDFC Bank Ltd. client Id. 10464234 ( Client Id of NFSPL ).
b) Circular Trading done between VFSL and NFSPL during SN 45 of NSE.
(i) During the settlement no 45 (from November 01 to November 07, 2000), a total no. of 41,720 shares were traded at NSE. Out of this, 30200 shares were traded on November 01, 2000 and 9,700 shares on November 02, 2000.
On November 01, 2000 your company purchased 39400 shares at the rate of Rs. 75.3rom NFSPL (client demat Id 10466221) in off market transaction. VSFL sold 30000 shares on November 01, 2000 and 9400 shares on November 02, 2000 at an average rate of Rs. 73.68 through IMSL. These very shares were purchased by NFSPL through SSL.
(ii) From the demat statement of NFSPL maintained in HDFC, it is observed that the 39,400 shares purchased by NFSPL from VFSL during SN 34 of NSE were received by NFSPL on November 15, 2000 ( 38,000 shares ) and on November 17, 200 ( 1,400 shares ) through SSL. These shares were however, again purchased by VFSL in off market deal - 38,000 shares on November 16, 2000 and 1,400 shares on November 17, 2000 at average rate of Rs. 76.40
3.11 VFSL was thus found to be a party to the irregular trades as aforesaid which were not intended to effect the transfer of beneficial ownership but were intended to operate only as a device to cause fluctuations in the market. These trades were not genuine trade transactions and hence it was noted that VFSL created a false and misleading appearance of trading in the scrip in violation of the provisions of Regulation 4 (a), (b), (c) and (d) of the SEBI (SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to securities market) Regulations, 1995 (hereinafter referred to as the "said Regulations").
(3.) 0 SHOW CAUSE NOTICE
4.1 On the basis of the aforesaid finding of the Investigations conducted by SEBI, a detailed show cause notice dated April 28, 2003, was issued to M/s. Vivenari Financial Services Ltd.
4.2 Vide said show cause notice VFSL was directed to show cause as to why appropriate direction under Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to securities market) Regulations, 1995 Regulations read with Section 11(4) and 11B of the Securities and Exchange Board of India Act, 1992, including restraining VFSL from accessing the securities market and prohibit it from buying, selling or dealing in the securities market in any manner whatsoever for a particular period should not be passed.;