(1.) SHRI Sanjay Chakraborty is a Chartered Accountant by profession and was a Promoter Director of Healol Finance Pvt. Ltd and was also the Proprietor of Mahalaxmi investments.
(2.) 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.
2.1 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.
2.2 The scrip of Hitek suddenly showed a spurt in volume and price rise 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.
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 Shri Sanjay Chakraborty as to why suitable directions under Section 11 and 11B of SEBI Act, 1992 including a direction to prohibit him from entering the capital market for a particular duration should not be passed on the following grounds:
3.1 Shri Sanjay Chakraborty received from the financiers shares of Hitek to be off loaded in the market. As the consideration for the sale of shares did not reach the promoters of Hitek and associates, Shri Sanjay Chakraborty along with promoters of Hitek coined a story of shares being lost under the presumption that the same would be treated by the company as bad delivery and thereby aided and abetted in creation of false market in the scrip and hindered true price discovery.
(3.) SHRI Sanjay Chakraborty did not reply to the above show cause notice. An opportunity of personal hearing was given to him on 18.1.2003. SHRI Sanjay Chakraborty failed to attend the hearing. Subsequently another opportunity of hearing was given on 27.2.2003. SHRI Sanjay Chakraborty attended the hearing on 27.2.03. He denied all the allegations contained in the showcause notice.
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 In the issue, the top 25 applications were made by stock invests, among them, nine applicants applying for 56,30,000 shares amounted to 99.09% of the total subscription. M/s. Healol Finance Pvt. Ltd. was one of the largest shareholder of the company holding 16,50,300 shares. SHRI Sanjay Chakraborty is the Director of M/s. Healol Finance Pvt. Ltd. The following are the nine applicants of the top 100 applicants :
4.3 The public issue was closed on earliest closing date on March 24, 1994 inspite of getting less than 0.5% subscription. Magadh Stock Exchange vide its letter dated June 6, 1994 approved compliance of listing formalities within 120 days from the closure of subscription, keeping in view the under subscription of the issue. None of the shares allotted to the nine applicants mentioned above were delivered to them by the Registrar to the issue. The shares allotted to these persons (56,30,000 shares) were collected by one SHRI Ramprasad Sinha, an employee of Hitek. All the above nine applicants had given authority letter authorizing SHRI Ramprasad Sinha to collect the share certificate from the Registrar. Further, all the above nine applicants had given irrevocable Power of Attorney in favour of SHRI Ramprasad Sinha which were registered with the company.
4.4 SHRI Ramprasad Sinha reported loss of 19,00,000 shares to the company. These shares were originally in the name of SHRI G.A. Jain, SHRI D.S. Jain and SHRI T.P. Dangi and were from the lot of shares, whereby these applicants had given irrevocable Power of Attorney to SHRI R.P. Sinha. The break up of the 19,00,000 shares in the name of original owners is as follows:
4.5 M/s. Mahalaxmi Investments also reported loss of 1 lac shares. SHRI Sanjay Chakraborty was the authorized signatory and the partner of M/s. Mahalaxmi Investments at the relevant time.
4.6 It is noted that the address of both SHRI R.P. Sinha and M/s. Mahalaxmi Investments is 10, Paramjyoti, Pestom Sagar, Plot No. 9, Road No. 4, Chembur, Bombay 400 089. The letters written, both by M/s. Mahalaxmi Investments and SHRI R.P. Sinha were dated April 3, 1995. The Affidavit and Indemnity and Guarantee of both SHRI R.P.Sinha and M/s. Mahalaxmi Investments were notarized by the same Notary, SHRI S.B. Sonavane (Patil). I, therefore hold that there was a nexus between M/s. Mahalaxmi Investments and SHRI R.P. Sinha.;