RAJEEV KUMAR AGARWAL - (1.) SECURITIES and Exchange Board of India (hereinafter referred to as "SEBI') investigated into the unusual price movement in the scrip of SG Capital Services Ltd. (hereinafter referred to as "SGCSL") during 1996. The investigation, inter alia, revealed that -
(2.) "(a) There was an unusual upward price movement in the share price of SGCSL from Rs. 10/ -on February 29, 1996 to Rs. 42/ - on April 19, 1996. The share price declined to Rs. 22.50/ -on April 30, 1996 and again increased to Rs. 43.50/ - on May 29, 1996. Thereafter, the share price hovered around Rs. 40/ - till June 24, 1996. (b) On June 24, 1996 there was an auction at unusually high price of Rs. 50.75/ -. Thereafter, share price declined to Rs. 30/ - on the next trading day, i.e., June 27, 1996. The scrip was put under spot by Ludhiana Stock Exchange Limited(LSE) with effect from August 12, 1996. The price of the scrip further declined thereafter to Rs. 7/ - on October 1, 1996. (c) It was observed that Century Fiscal Services Ltd. (hereinafter referred to as "Century") was among the top trading members in the scrip at LSE during the period March 21, 1996 to April 19, 1996. Century had mainly traded for its client Majestic Builders Ltd. (now known as Lancer Enterprises limited and hereinafter referred to as "Majestic"). Majestic had built large position in the scrip, which was carried forward over many settlements by it through Century though carry forward was not allowed on LSE. The trading of Majestic vis   -vis total trading in the scrip at LSE which ranged from 19.56% to 89.23% is described in the following Table: (d) Majestic had taken delivery of 82,400 shares in respect of transactions conduced till 19.04.1996, out of the floating stock of 10,78,000 shares of SGCSL, i.e., 7.64%. All these factors caused the upward price movement in the scrip. (e) It was observed that the purchases made by Majestic had reduced the floating stock in the shares of SGCSL available in the market. As a result there were many short sellers who were forced to go for auction that happened at unusually high price and for which shares were provided by Majestic. (f) On June 21, 1996 and June 24, 1996, auctions of 39,400 shares of SGCSL were conducted at LSE. The auction price was unusually high at around Rs. 50/ - when the previous market price was Rs. 39/ -. Out of total 39,400 shares in auction, 39,000 shares were provided to the bidding members by Century who in turn got these shares from Majestic. (g) On June 26, 1996 and June 27, 1996 payments were received from the bidding members against the shares of SGCSL provided to them for auction. Century in turn made a payment of Rs. 5 lacs to Majestic and Rs. 8 lacs to Tinna Exports Ltd. (now known as "S.G. Global Exports Ltd.") on June 27, 1996 after sale of shares in aforesaid auction. (h) Majestic was the associate concern of SGSCL and was acting in concert with SGCSL and its promoter Shri Sanjiv Gupta in manipulation of the price of the scrip. S.G. Global Exports Ltd. (SGGEL - formerly known as Tinna Exports Ltd.) is an associate company of SGCSL/its directors. Majestic had linkages with SGCSL/its associate companies/its promoters and it was an associate/front company of SGCSL/its promoters. Further, Majestic was a shell company. These finding were based on the following facts and circumstances - (i) From the information received from Century it was noted that the correspondence address of Majestic is 131, Model Gram, Ludhiana which as per M/s. SR Uppal & Co., member, LSE is also the address of Tinna Exports Ltd. (ii) As per prospectus of Tinna Exports Ltd., its registered office was at 18, Sampuran Lodge, South Model Gram, Ludhiana. From the information obtained from Registrar of Companies, Jalandhar, registered office of Majestic was at 18, Sampuran Lodge, South Model Gram, Ludhiana. This address of Tinna Exports Ltd. and Majestic, is the residential address of the promoter of SGCSL, namely Shri Sanjiv Gupta and his father Shri O.P. Gupta. (iii) From the bank statement of Century it was noted that it had received Rs. 7,00,000 from Majestic on April 23, 1996 and had given back Rs. 5,00,000 to it on June 26, 1996. These transactions were made by Majestic through its current account No. 756 with State Bank of India, LSE Branch, Ludhiana. As per the account opening form for this account the registered office address of Majestic was 18, Sampuran Lodge, Model Gram, Ludhiana. Further, this bank account of Majestic was introduced by a director of SGCSL, namely Shri Sanjiv Gupta. (iv) It was further noted that the aforesaid amount of Rs. 7,00,000 transferred by Majestic to Century on April 23, 1996 were earlier received by it on the same date from M/s. Exalt Fincap P. Ltd. (Rs. 5,50,000/ -) and M/s. Diwakshi Investment P. Ltd.(Rs. 1,50,000/ -). (v) On receipt of Rs. 5,00,000/ - from Century on June 26, 1996, Majestic transferred the same to M/s. Exalt Fincap P. Ltd. on same date. (vi) From the aforesaid bank account of Majestic it was noted that except for the above two transactions three were no major transactions therein and the said account was closed on April 23, 1997. It was inferred that the said account was opened by Majestic for undertaking the aforementioned transactions in the scrip of SGCSL. (vii) The bank account of Diwakshi Investments P Ltd. with the State Bank of India was opened by its director Ms. Rachna Gupta having residence at 18, Sampuran Colony, Model Gram, Ludhiana. Ms. Rachna Gupta, wife of Shri Sanjiv Gupta, promoter/Managing Director of SGCSL, was the director of M/s. Tinna Exports Ltd. Further, the bank account of M/s. Diwakshi Investments P. Ltd. was introduced by SG & Co, member of LSE. As per prospectus of SGCSL, Mr. Sanjiv Gupta was also supervising the activity of SG & Co. (viii) Bank account No. "746" of Exalt Fincap P. Ltd. was introduced by a person signing as "Gupta" having account No. "30077". This person had also introduced the bank accounts of Majestic (as director of SGCSL) and of Diwakshi Investments P Ltd. (as representative of M/s. SG & Co.). A perusal of distribution schedule of SGCSL showed that this signature of "Gupta" was that of Shri Sanjiv Gupta. These facts clearly indicate that Shri Sanjiv Gupta had introduced the said bank account of Exalt Fincap P. Ltd. (ix) SGGEL (Tinna Exports Ltd.) had advanced Rs. 8,00,000 to Century on May 06, 1996 which was returned to it on June 27, 1996 after auction of shares of SGCSL at unusually high price. (i) No plausible reasons have been given for the funds given by the associate companies of SGCSL, namely, Exalt Fincap P. Ltd. and Diwakshi Investments P Ltd. to Majestic. The funds given by them were utilised by Majestic to acquire the shares of SGCSL through Century. As mentioned above, only Rs. 5,00,000/ - were given back by Majestic to Exalt Fincap P. Ltd. on June 26, 1996 after receipt of the said amount from Century on the same date and a large portion is still receivable from Majestic by those associate companies of SGCSL. Such financial dealings would not be prudent unless the same is between associates/group companies or the companies acting in concert. This fact further substantiates the finding that Majestic was an associate of SGCSL/its promoter/directors. (j) No reason at all has been given as to why Tinna Exports Ltd. (an associate of SGCSL/its directors) gave Rs. 8,00,000 to Century on May 06, 1996. As observed during investigations after receipt of the fund from the aforesaid associate companies, Majestic made large scale acquisitions of the shares of SGCSL through Century. In fact the share price of SGCSL moved from Rs. 26 on May 09, 1996 to Rs. 40 on June 20, 1996. Century returned the said Rs. 8,00,000 to Tinna Exports Ltd. on June 27, 1996 i.e. only after auction of the shares of SGCSL at LSE at unusually high auction price of Rs. 50.75 on June 24, 1996. (k) Majestic was making large scale acquisition of shares of SGCSL and its transactions were instrument in unusually upward price movement in the scrip. There were many short sellers who were forced to go for auction which happened at unusually high price and to whom shares were provided by Century acting at behest of Majestic. The funds so provided were utilised to make large purchases and reduce the floating stock of the shares of SGCSL. In view of the low available floating stock of SGCSL, the buyers enforced auctions of the shares at unusually high price. Almost all the shares of SGCSL for which auctions at unusually high price were conducted were delivered by Majestic acting at the behest of SGCSL/its directors. (l) It has been alleged that SGCSL/its directors/SGGEL had financed the transactions of Majestic for the purpose of manipulation of the price of shares of SGCSL. Further, Majestic had indulged in market manipulation by entering into the transactions in shares of SGCSL with the intention of artificially raising its share prices and thereby inducing the sale and purchase of securities by other persons." In view of the above, SEBI issued 3 separate show cause notices (SCNs) all dated June 14, 2004 under section 11B of the Securities and Exchange Board of India Act, 1992 (the SEBI Act) read with regulation 11 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995(the PFUTP Regulations, 1995). The details of the SCNs are given in the following Table: The aforesaid entities are hereinafter referred to as "the noticees" or by their respective name.
(3.) BY the respective SCNs, the noticees were called upon to show cause as to why proceedings under section 11B of the SEBI Act, 1992 read with regulation 12 of the PFUTP Regulations, 1995 should not be initiated against them, inter alia, debarring them from associating with the capital market related activities, dealing in securities, accessing the capital market and in any capacity whatsoever associating with any of the intermediaries in the capital market for appropriate period.;