Confirmation Order in the matter of S.J Corporation Ltd

1. On noticing unusual price movement in the shares of S J Corporation Limited (hereinafter referred to as the Company) for the period between March 18, 2008 and October 1, 2009 (hereinafter referred to as the investigation period), the Securities and Exchange Board of India (hereinafter referred to as SEBI) had initiated an investigation into the same. Further, on the basis of the preliminary findings of the said investigation, SEBI, had vide an ex-parte ad-interim Order dated February 5, 2010 (hereinafter referred to as the Order) restrained Mr. Savjibhai D. Patel, Ms. Usha S Patel, Shyam Star Gems Limited, Mr. Ramesh D. Patel, Ramesh D. Patel HUF, Ms. Dharmishtha R Patel, Ms. Reshma Patel, Shamo Investments Private Limited, Mr. Jayesh Shamjibhai Patel, Ms. Urvashi Patel, Mr. Bhavesh Patel, Ms. Hetal Patel, Ms. Jagruti Patel, Ms. Manjula Patel, Ms. Pragna Patel and Ms. Rasila Patel from buying, selling or dealing in the shares of the Company, either directly or indirectly, in any manner, till further directions. Thereafter, the aforesaid persons/entities filed their respective objections to the Order as mentioned below:

a. Mr. Savjibhai D. Patel and Mrs. Usha S. Patel-vide separate letters dated February 24, 2010 b. Shyam Star Gems Limited-vide letter dated February 26, 2010 c. Mr. Jayesh Shamjibhai Patel-vide letter dated March 26,2010 d. Ms. Urvashi Patel, Mr. Bhavesh Patel, Ms. Hetal Patel, Ms. Jagruti Patel, Ms. Manjula Patel, Ms. Pragna Patel and Ms. Rasila Patel, vide separate letters dated March 30,2010 e. Mr. Ramesh D. Patel, Ramesh D. Patel HUF and Shamo Investments Private Limited-vide separate letters dated May 22, 2010 f. Ms. Dharmishtha R. Patel and Ms. Reshma Patel-vide separate letters dated May 24, 2010

The aforesaid persons/entities are hereinafter collectively referred to as the entities and individually by their respective names. Thereafter, an opportunity of hearing was granted to the entities on June 30, 2010, when Mr. Zal Andhyarujina, Advocate appeared on behalf of Mr. Ramesh D. Patel, Ramesh D. Patel HUF, Ms. Dharmishtha R. Patel, Ms. Reshma Patel and Shamo Investments Private Limited and made submissions. Mr. Joby Mathew, Advocate made submissions on behalf of Mr. Bhavesh Patel, Ms. Hetal Patel, Ms. Jagruti Patel, Ms. Manjula Patel, Ms. Pragna Patel and Ms. Rasila Patel. Mr. Balveer Singh Choudhary made submissions on behalf of Mr. Savjibhai D. Patel and Mrs. Usha S. Patel. Mr. Ankit Lohia and Mr. Nimesh Doshi appeared and made submissions on behalf of Mr. Jayesh Shamjibhai Patel, Ms. Urvashi Patel and Shyam Star gems Limited.

2. The limited issue for consideration at this stage is to determine whether the ex-parte interim directions issued against the entities vide the Order needs to be reviewed in the light of their submissions and documents or not. The preliminary findings in the matter had indicated that the activities of the entities had created artificial price rise and volumes in the shares of the Company. They were prima facie found to have contravened the provisions of Regulations 3(c) and 4(2)(a), (b) and (g) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as the PFUTP Regulations), while dealing in the shares of the Company during the relevant period.

3. Mr. Savjibhai D. Patel had submitted that: a. Though Mr. Ramesh Patel, Ms. Dharmishtha Patel and Ms. Reshma Patel were his relatives, he contended that he does not have any business relation with them. Admitted that he is the promoter of Shyam Star Gems Limited. b. During the relevant period (March 18, 2009 to October 1, 2009), he had never traded in the secondary market as he had acquired shares of the Company along with his wife Mrs. Usha S. Patel through share purchase agreement entered with the erstwhile promoters of the Company and acquisition made through open offer as per the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 1997 (hereinafter referred to as the Takeover Regulations).. He denied having bought/sold shares of the Company through some entities. c. As regards the price rise in the shares of the Company, it was submitted that he had no role to play in the same as he had not traded in a single share, either directly or indirectly. d. According to him, it has been erroneously concluded that Mr. Ramesh D. Patel, Ms. Dharmishtha Patel and Ms. Reshma Patel belong to the promoters. e. He denied having any role in the price rise in the shares of the Company and in Shyam Star Gems Limited. f. The increase in earning per share (EPS) of the Company as on March 31, 2009 as compared to March 31, 2008 is due to the manufacturing activity and exports, which enabled the Company to reach the export turnover of `22.28 crores in 2008- 09. According to him, as far as the decrease of EPS of Shyam Star Gems Limited was concerned, the same was a matter of record. g. As regards the declaration of dividends by the Company and Shyam Star Gems Limited, it was submitted that the same were decided by the respective board of directors of the said companies and not by the promoters. h. With respect to the corporate announcements made by the Company, it was submitted that the same were matters on record and had no comments to offer. i. He submitted that he acquired 1,48,000 equity shares of the company which aggregated to 74% of the total paid up capital of the Company. j. He denied any connection/relationship with Ms. Rasila Patel, Ms Pragna Patel, Mr. Bhavesh Patel, Ms. Jagruti Patel, Ms. Manjula Patel and Ms. Hetal Patel.

He also denied connection with the buy side clients as mentioned in the tables. “Relationship amongst buy clients who traded in the scrip in Period 11”. Though, in respect of Ramesh D. Patel/Ramesh D. Patel HUF, Dharmishtha Patel, while admitting that they are related, had denied any business relationship with them. k. He further denied, connection with entities (as named in Para 31 of the Order) who failed to meet their delivery obligations while trading in the shares of the Company. l. According to him, Shyam Star Gems Limited had bought ten shares in normal course of business and contended that such a miniscule trade could not have impacted the market price in any manner. m. It was submitted, as regards the observation in paragraph 39 of the order that in the current trading mechanism the investor has no means to know the identity of the counterparty involved in the transaction hence it cannot be concluded that Shyam Star Gems Limited had matched the transaction with the related party.

4. While making similar submissions as that of Mr. Savjibhai D. Patel, Mrs. Usha Patel, inter alia submitted that she was not in the board of the Company and also in Shyam Star Gems Limited. However, she admitted that she was one of the promoters of Shyam Star Gems Limited along with her husband (Mr. Savjibhai D. Patel). She submitted that she holds 6,99,000 equity shares (34.95% of the equity capital) of the Company and 7,37,500 equity shares (10.62%) in Shyam Star Gems Limited in her individual capacity. While acknowledging the relationship with Mr. Ramesh Patel, Ms. Dharmishtha Patel and Ms. Reshma Patel, she submitted that such relation cannot be the basis to allege that she was connected to Mr. Ramesh D. Patel and his entities for the purpose of cornering the shares of the Company. She further stated that she did not buy or sell shares of the Company during the relevant period. According to her, the increase in the price of the Company was totally market driven and denied violating the provisions of the PFUTP Regulations.

5. Ms. Dharmishtha R. Patel had stated that all the shares held by her were purchased before the investigation period and that she remained invested in the shares of the Company as a long term investor. According to her, till date (as on date of the reply) she was holding 4.95% (99050 shares) of the share capital of the Company. Ms. Dharmishtha R. Patel admitted that she was one of the directors in Shamo Investments Private Limited. As regards the transfer of 4,450 shares to her from Mr. Sushilchandra Dhananjaya Desai and Ms. Surbhi Dhananjaya Desai, it was submitted that the same were the return of shares lent to them. She submitted that the said transaction was an independent transaction and no negative inferences can be drawn against her for the same. According to her, she had lent shares and that the off-market purchases alleged in the Order was nothing but the return of shares by those individuals. Ms. Dharmishtha R. Patel had contended that she had not traded for a single day during the period-January 28, 2009 to August 27, 2009. According to her, as she intended to invest in the shares of the Company, she had placed orders for buying shares but failed to get them as the scrip was very illiquid.

She submitted that if any person intends to acquire shares of an infrequently traded company, he/she would have to place orders at prices higher than the last traded price so that he could get the shares of that particular company. Ms. Dharmishtha R. Patel has contended that merely because she had placed orders for the purchase of scrip at a price higher than the last traded price and that too around 9:55 am, does not by itself lead to a conclusion that she was a part of the alleged manipulation and submitted that the same could be very well inferred from the fact that, all her 13 buy orders expired. Ms. Dharmishtha R. Patel also brought my attention to the decision of the Hon’ble Securities Appellate Tribunal in the matter of Vikas Ganeshmal Bengani vs SEBI (Appeal No.225 of 2009; decided on February 25, 2010). According to her, no negative inferences could be drawn against her and the transactions merely on the basis of their timing. Further she submitted that, SEBI has wrongly come to the conclusion that since there were no deletions and the orders were allowed to expire indicates that the persons buying the shares wanted to create an impression of buying pressure in the scrip.

It is her submission that all her trades were executed on her own independent transactions and were based on her volition. She further submitted that nowhere from the table in paragraph 24 of the Order, it can be concluded that the purpose of those trades was to indulge in “fraudulent and manipulative techniques” and that all her 13 buy orders placed in the normal course, got expired due to illiquidity in the scrip. With respect to the alleged gains, it was submitted that the average sell price is only indicative value and not the actual gains earned by her and that the calculation of the gains provided in paragraph 36 of the Order was incorrect as the quantity taken into consideration is post split while the rate taken into consideration is pre-split. According to her, the increase and decrease in the price of the scrip is market driven and submitted that she had not sold her holding in the Company till date. She denied being part of the promoter related entities or that the shares were bought with the intention of rigging the price prior to the stock split of the Company and offloading the same in the post split period.

According to her, such conclusions were devoid of any evidence and liable to be quashed.

6. The following were the submissions made by Mr. Ramesh D. Patel and Ramesh D. Patel HUF: a. That he had invested in the company on October 2007 and continues to be a shareholder of the Company holding 97,895 shares of the company aggregating to 4.89%, while his Hindu Undivided Family (Pamesh D. Patel HUF) is holding 2300 shares aggregating to 0.12%. According to him, his shareholding from December 2008 till September 2009 has changed only to the extent of 1.26% (i.e. from 3.63% to 4.89%). It is stated that though he is the brother-in-law of one of the promoters of the Company, merely on the basis of his distant relation with the promoter, it cannot be observed that his holding was in direct/indirect control of the promoter. It is submitted that his investments in the Company were independent and based on his volition. b. During the span of six trading days i.e. from March 18, 2008 to August 18, 2008, he had traded only on a day, buying 2,500 shares of the Company for a long term investment. During Period I (March 18, 2008 to January 27, 2009), he had traded on single day and had purchased 2,500 shares and is holding those shares till date. c. No adverse observations could be made simply on the basis that he was related to Ms. Dharmishtha Patel and Ms. Reshma Patel. d. That he does not fall within the category ‘person action in concert’ and therefore his holding in the individual capacity cannot be clubbed with the holdings of the promoters of the Company. e. He had traded in 14 instances out of the total of 52 trading instances in the instant period.

f. According to him, simply because there were a few trades that led to the increase in share price, it cannot be said to be manipulative. g. The order quantity is generally placed by a buyer based upon the pending order book position and that in case there are less number of sellers for lesser quantity of shares, the corresponding buy order put in by a person is also for the lesser quantity. h. He does not fall amongst the top 20 buyers and sellers as per the details provided in Annexure B (to the order) for the period-August 28, 2009 to October 01, 2009. i. That the purchase of 50 shares by Shamo Investments Private Limited was a genuine investment by the company and no negative inferences could be drawn against him and the said company for the same. j. With regard to the observations made in para 23 of the show cause notice, it was submitted that he had traded on 11 days out of the 40 trading days in the scrip of the Company and 18 shares out of the 429 shares of the Company. k. Merely because an investor placed orders for the purchase of a scrip at a price higher than the last traded price and that too between 9:55 am and 9:56 am does not itself lead to a conclusion that he was a part of the alleged manipulation. l. That SEBI has wrongly come to the conclusion that since there were no deletions and the orders were allowed to expire indicates that the persons buying the shares wanted to create an impression of buying pressure in the scrip. m. With regard to observation in paragraph 26(a) and (b), it was submitted that since the scrip did not trade after February 11, 2009 and since Mr. Ramesh Patel wanted to buy more shares and there were no sellers available in the market, he had placed the orders at upper circuit price.

On February 18, 2009, he had placed orders and was lucky to get 10 shares from Mr. Kirtibhai Anghan and Mr. Dharnendra Ashok Mehta. That his orders remain unexecuted till the end of day which clearly showed his bonafide intention to buy shares and that the orders remained unexecuted because of lack of sellers. With regard to observations in para 26(c), it was submitted that the orders placed from February 18, 2009 to March 05, 2009 at the upper circuit price and their automatically being cancelled, clearly established his bonafide intention of buying more shares. n. It was further submitted that the orders placed by himself, his HUF and by Shamo Investments Private Limited were clear indicators of his genuine interest of buying the shares of the Company. According to him, the increase in price was incidental to his act of buying shares since there were no sellers at lower price. o. His HUF and the company (Shamo Investments Private Limited) had sold only 644 shares out of the total 26070 shares sold during Period III. In the post split period, he along with his related entities had sold only 645 shares out of 49,960 shares. p. Mr. Ramesh Patel further submitted that his holding in the scrip had increased from 3.63% to 4.90% till September 2009 and even after that it has reduced only 0.01% only, while the holding of the HUF has reduced from 0.125% to 0.115%. q. That it was wrongly stated that he was a part of the promoter related entities and the shares were bought by with the intention of rigging the price prior to the stock split of the Company and offloading the shares in the post split period.

That even it he was considered to be part of the promoter related entity, it would be pertinent to note that it had sold only 4,354 shares in the post split period i.e. only 0.24% which was very miniscule in nature.

7. Shamo Investments Private Limited had submitted that it had invested in the Company on October 24, 2007 and continues to be a shareholder in the Company holding 0.15% (of the equity capital). It further stated that, its shareholding from October 2007 till March 2010 has changed only to the extent 0.03% (from 0.12% to 0.15%). It submitted that it had traded only on 3 instances out of the total 52 trading instances from January 28, 2009 to August 27, 2009. It is the contention of Shamo Investments Private Limited that it had invested in the shares of the Company even before the acquisition by the current promoters and that it is still holding 3101 shares of the Company. It has been contended that the same were its independent investments without any link/association with the promoters as alleged. It has been further contended that simply because it was holding shares of a company which were later acquired by the relatives of its promoters, its holding cannot be clubbed with that of the promoters of the Company and according to it, the same does not amount to an alluding factor to the unusual nature of trading in the shares of the Company as alleged in the Order.

Shamo Investments Private Limited has further submitted that during the span of six trading days (from March 18, 2008 to August 18, 2008) it had traded only on a day buying 50 shares of the Company as a long term investment. It has also contended that it was holding less than 1% of the share capital of the Company and that its investment in the Company is genuine and legitimate in nature. It has contended that no adverse observations can be made against it simply on the basis of the distant relation its promoters had with one of the promoter of the Company. The said entity has also contended that it does not fall within the scope of the expression ‘person acting in concert’ as defined in Regulation 2(e) of the Takeover Regulations or fall under the definition of “their associates”, and therefore, the finding that at the end of September 2009 quarter, approximately 89% of shareholding in the Company was directly or indirectly under the control of the promoters including its holding were under the control of the promoters, is not correct. The entity further contended that the net change in its holding in the Company since December 2008 till October 2009 or as per the data annexed to the Order for the period-August 28, 2009 to October 01, 2009, constitutes a miniscule 0.02%, which would establish that it was not involved in manipulating the scrip.

Further, according to the said entity, merely being one of the top twenty sellers would not establish the charge of manipulation against it. The entity has admitted that it shared address and telephone numbers with Mr. Ramesh D. Patel (its Promoter) and Ramesh D. Patel H.U.F. (where the Karta is its promoter) and denied any connection with the promoters or any of their related entities, except that its promoters are a distant relatives of one of the promoters of the Company. It has been contended that the Order does not show any linkage with any other third party (alleged buy side third party entities). As regards the observations made in the Order in paragraph 22 (point no. 3), it was submitted that, during Period I i.e. from March 18, 2008 to January 27, 2009, it had traded only on a day and purchased 50 shares of the Company in the market. As regards the observations made in paragraph 23 of the Order, it was submitted that it had traded on two days out of the 40 trading days in the scrip and for 7 shares out of the 429 shares of the Company. The entity has submitted that merely because an investor placed orders for the purchase of a scrip at a price higher than the last traded price and that too between 9:55 am and 9:56 am does not itself lead to a conclusion that it was a part of the alleged manipulation and brought my attention to an Order of the Hon’ble Securities Appellate Tribunal in the matter of Vikas Ganeshmal Bengani vs. SEBI.

It was also submitted that SEBI wrongly concluded that since there were no deletions and the orders were allowed to expire, thus indicated that the persons buying the shares wanted to create an impression of buying pressure in the scrip. According to it, the non deletion of its orders indicated that it was really interested in buying the shares. It is submitted that all its trades were honoured by it and had purchased those shares by paying full consideration for the same. According to it, as per the data available, it had carried out merely 3 trades out of 52 trades as provided in Annexure A of the said Order and that all the said transactions were duly completed. Shamo Investments Private Limited had submitted that the order placed from February 04, 2009 to February 11, 2009 at the upper circuit price and their automatically being cancelled, clearly establishes its bonafide intention of buying more shares. It had contended that if its intention was to manipulate the scrip, it could have arranged for sellers for miniscule quantities on all days in order to establish a higher price and would have not left the orders to remain unexecuted.

As regards the allegation of placing the orders from the same location id, it was submitted that Mr. Jayesh Shyamjibhai Patel and Ms. Urvashi Patel were known to its promoters and that they have opened trading accounts with the stock broker, India Advantage Securities Limited and that it must have been a matter of co-incidence that all the clients were allotted a common dealer who had executed transactions for all the clients from the same location id. In this regard, it was further contended that the allotment of a location id and the dealer are the prerogatives of a stock broker and a client has no role or control over the same. As regards the observations made in paragraphs 32 and 33, it is submitted that during the Period III, it had sold only 459 shares out of the total 26070 shares sold during the said period. It denied having entered into transaction with any of the related entities and contended that all its transactions were in the normal course of business. It further denied that its trades lured any investor to trade in the shares of the company. With regard to the calculation of the notional gain, it was submitted that the same was incorrect since the quantity taken into consideration was post stock split, whereas the rate was that of the pre-split.

With regard to the observations made in paragraph 37 of the said order, it was submitted that SEBI has wrongly stated that it was a part of the promoter related entity and the shares were bought by it with the intention of rigging the price prior to the stock split of the Company and offloading the shares in the post split period.

8. Ms. Reshma R. Patel had submitted that all her holding in the Company were received from her mother, Ms. Dharmishtha Patel as a gift. She also submitted that she remained invested in the shares as a long term investor after receiving shares from her mother and that till date she is holding 4.93% of the shares of the Company. Ms. Reshma R. Patel had provided the details of the receipt of shares from her mother in her reply. She had admitted that she is distantly related to the current promoters of the Company. Ms. Reshma R. Patel had stated that she did not trade even for a single share of the Company during the entire investigation period and contended that the calculations as shown in paragraph 36 of the Order were misleading. She had further contended that as her holding in the Company increased from 3% to 4.93%, the allegation that she was part of a “pump and dump” strategy was baseless and denied contravening the provisions of Regulations 3(c) and 4(2)(a), (b) & (g) of the PFUTP Regulations.

9. Ms. Rasila Patel, Mr. Bhavesh Patel, Ms. Manjula Patel, Ms. Jagruti Patel, Ms. Pragna Patel and Ms. Hetal Patel had filed a common reply in the matter. They had inter alia submitted that: a. They are a family of investors in the securities market b. The main charge against them in the Order was they had acted together with and were part of the game plan of the promoters of the Company in allegedly manipulating the price of the scrip and creating artificial volumes. According to them, the Order does not provide any details of their connection with the promoters. c. They along with other members of the family also held 2,790 shares of the Company. They had not considered the performance of the scrip in terms of price and not on the basis of any fundamental analysis of the scrip and exited whenever a favourable opportunity presented itself. They further stated that they were investing in the scrip since January 2008 and when the price started moving upward during March 2008, they had purchased shares of the Company during March and April 2008. d. They denied that their orders created an artificial market or led to an increase in the share price during the investigation period e. That they had purchased shares of the Company during Period I and as the Order observed that the price rise was not significant, it was clear from the Order itself that their purchases did not lead to any significant price rise f. They had sold shares only on 6 days in September 2009 during Period III and that their sale was only a minor part of their holding and did not impact the price or volume even during the days they had traded g. They denied having acted together with the promoters or that they were connected/related to the promoters of the company h. They also denied having attempted to create liquidity by the stock split and then attract greater volumes i. They had collectively bought 2,240 shares in Period I and sold 3,550 shares in Period II and contended that SEBI had not disclosed how and in what manner it had come to a finding that their trades constituted 36% of the total traded volumes for Period I j. Since they placed orders with the same stock broker, it would be expected that all their orders would be executed from the same place k. They are not aware of the identity of the persons whose sell orders matched with their buy orders on the BOLT l. They sold a small portion of the shares held by them (some were purchased prior to the investigation period) during Period III when the price of the scrip after stock split had gone up to attractive levels m. They denied having increased the share price in the “pre-split” period through any strategy of bid orders or structured/pre-arranged trades and that no allegation of synchronized or structured trades had been made in the Order

10. Shyam Star Gems Limited had submitted that it was a company listed on the Bombay Stock Exchange Limited and was engaged in the business of “import and export of rough and polished diamond and was also into manufacturing and export of jewellery. It was stated that all its decisions including investments in other companies were being taken unanimously by its board of directors. According to the said company, Mr. Savjibhai D. Patel was one of its executive directors. It was also submitted that the investment decision of buying shares of the Company were taken by its board of directors wherein interested directors have not participated in the resolution and had purchased ten equity shares of the Company only because the Company was in the same line of business as it is in and having common promoters. Shyam Star Gems Limited denied having any connection with the other entities except for Mr. Savjibhai D. Patel and Mrs. Usha S. Patel, who were its promoters. It was contended that simply because one of the directors and promoters on its board includes Mr. Savjibhai D. Patel, it cannot be clubbed with the promoter related entity or be termed as promoter associated entity and that no adverse conclusion could be drawn against it simply on the basis that Mr. Savjibhai D. Patel is a promoter of the Company. It further contended that only because of Mr. Savjibhai D. Patel and Ms. Usha S. Patel, it cannot be alleged that it is connected with other entities for the purpose of cornering shares. It was also contended that its purchase of ten shares of the Company during the relevant period could not have impacted the market price in any manner. It was submitted that the restriction imposed on Shyam Star Gems Limited would affect all the directors in its board and that the other companies wherein they are the directors also would be affected as they would be restricted to further issue capital under the SEBI ICDR Regulations. It denied having contravened the PFUTP Regulations and submitted that they had not made any disproportionate gain or gained unfair advantage.

11. Mr. Jayesh Shamjibhai Patel had made the following submissions: a. He denied having connection with any of the entities except with Ms. Urvashi Patel. b. It was contended that just because Jayesh S. Patel HUF had entered into a loan transaction with Mr. Ramesh D. Patel, it cannot be alleged to have connections with the promoter related entities for the purposes of purchase/sale of shares of the Company. c. That he had dealt in the shares of the Company in the ordinary course of trading without any knowledge of manipulation and that the price rise during the relevant period was totally market driven. d. That he had traded for a total of 3910 shares (post split) which is 0.19% of the total paid up capital and that such a miniscule trade could not have impacted the market price. That he had invested in the shares of the Company as he wanted some portion of his portfolio in the diamond market. e. He contended that the use of common trade and order log location id does not indicate that he was a connected entity for the purpose of transactions in the scrip. He further contended that he was not aware of the location id from where the trades for Ramesh D. Patel HUF, Shamo Investments Private Limited.

f. He submitted that Jayesh S. Patel HUF had entered into loan transaction with Mr. Ramesh D. Patel for which an interest @ 12% which is reflected in the ledger statement. It has been contended that except for the said financial transaction, there was no other dealings or connection with Mr. Ramesh D. Patel or with the promoters/directors/management of the Company. g. He denied the alleged violations of the PFUTP Regulations.

Ms. Urvashi Patel while making similar submissions as that of Mr. Jayesh Patel had stated that she had traded for 4,050 shares (post stock split) which was 0.18% of the total paid up capital of the capital and contended that the said quantity could not have impacted the market price of the scrip. She further submitted that she still holds 3,561 shares of the Company.

12. I have examined the submissions of the entities. As stated in the Order, SEBI had initiated an investigation into the matter of unusual price rise in the shares of the Company and for the said purpose, had examined the trading for the period between March 18, 2008 and October 1, 2009. It is noticed that the share price had sharply increased from ` 392 on March 18, 2008 to ` 3464.60 on August 27, 2009. It was also noticed that the Company had gone ahead with a stock split in the ration 1:10 on August 28, 2009. Post the stock split also the share price had moved up from `363.75 on August 31, 2009 (the next trading day after the stock split) to `816/- on September 30, 2009. The closing price of the scrip was `778.10/- on October 1, 2009. It had also come to light that Mr. Savjibhai D. Patel and Ms. Usha S. Patel were holding 148000 shares of the Company constituting 74% of the share capital. It is pertinent to note that prior to the stock split, the Company had an equity capital of 2,00,000 shares. Out of the remaining 52,000 shares, 41,055 shares were held by persons who were holding more than 1% holding in the Company.

Mr. Ramesh D. Patel, Mr. Dharmishtha Patel and Ms. Reshma Patel were holding more than 1% of the total capital of the Company. The preliminary findings alleged that approximately 89% of the shareholding in the Company was directly or indirectly under the control of promoters. Further, the fact that the Company did not carry out any business activity, the absence of trading during the year ended March 31, 2008, the profits for the year ended March 31, 2009, the doubtful cash outflows for 2008-09, the Company not paying the entire amount of purchase to its four suppliers, led SEBI to come to an inference that the same were book entries. The details of the same have been given in the order. In addition to the same, the financials of the Company did not appear to support the unusual price rise of the Company. In this regard, Mr. Savjibhai D. Patel had submitted that the increase of earnings per share (EPS) of the Company as on March 31, 2009 as compared to March 31, 2008 was due to the manufacturing activity and exports, which enabled the Company to reach the export turnover of ` 22.28 crores in 2008-09.

As far as the decrease of EPS of Shyam Star Gems Limited (promoted by Mr. Savjibhai D. Patel and Mrs. Usha S. Patel, who are the promoters of the Company also) was concerned, he did not make any substantive submission but instead stated that the same was a matter of record. Mr. Savjibhai D. Patel did not counter the statements regarding its balance sheets, profit and loss accounts for the relevant period and also the allegation that the financial statements appear to be mere book entries. The investigation initiated by SEBI would probe into the same to come to a conclusive finding in respect of the same.

13. The Order has observed that Mr. Ramesh D. Patel, Ms. Dharmishtha Patel and Ms. Reshma Patel, on the basis of their holding in the Company, that they belonged to the category “Persons holding more than 1% of shareholding”. According to the preliminary findings, Mr. Ramesh D. Patel was holding 4.90%; Ms. Dharmishtha Patel was holding 4.95% and that Ms. Reshma Patel was holding 4.93%, for the quarters ended March 2009, June 2009 and September 2009. The aforesaid persons have not contested the same. In this regard, Ms. Reshma R. Patel had submitted that she had received shares from her mother, Ms. Dharmishtha Patel as a gift and continues to hold them. As regards the corporate announcements made by the Company, it was observed in the Order that the Company had come with various announcements regarding the splitting of shares and issue of bonus shares, the details thereof were mentioned in the Order. It was also observed that as the promoters and associates held around 89% of the Company, the said corporate announcements would prima facie benefit them. The said promoters instead of making submissions in respect of the said observation have been evasive by stating that the same was a matter of record. As noted in the Order, the investigation in the matter would examine how the board of the Company had decided the same, the source of funds and the manner of expenditure to ascertain whether the Company was actually in operation or not.

14. The price-volume analysis for the following periods were mentioned in the Order: a. March 18, 2008 to January 27, 2009 – Period I b. January 28, 2009 to August 27, 2009 – Period II c. August 28, 2009 to October 1, 2009 – Period III

During Period I, the price had increased by 25.77% with average daily volumes of 29 shares. There was no trading in the shares of the Company from August 19, 2008 till January 27, 2009. In Period II, the share price rose significantly over very low volumes. The price had moved up from ` 517 (January 28, 2009) to ` 3465 (August 27, 2009), an increase by approximately 570%. It is very important to note that the said increase happened when the average daily volumes were only 3 shares. Pursuant to the stock split, the share price increased from ` 363 (on August 28, 2009) to ` 816 (on September 20, 2009). It was alleged in the Order that in Period III, there was a possible attempt to raise the share price, create liquidity by coming out with the stock split and thereby attracting large volumes.

15. During Period I, the scrip was traded for 6 days where 6,151 shares were transacted in 19 trades. Ms. Rasila Patel, Mr. Bhavesh Patel, Ms. Manjula Patel, Ms. Jagruti Patel, Ms. Pragna Patel and Ms. Hetal Patel were found to have traded and collectively purchased 2,240 shares during the said period. The said trades accounted for 36% of the total trades. It was observed that the said persons shared common addresses and were dealing through a common stock broker. It was observed that the said persons had executed their trades from the same location during Period I. In this regard, it has been submitted that since orders were placed with the same stock broker, it could be expected that all their orders were placed from the same place. It was further noticed that on March 18, 2008, the aforesaid persons had executed 6 trades and the counterparties for such trades were found to be related persons as stated in the Order. The Order had also observed that on July 30, 2008, Mr. Ramesh D. Patel bought 2,500 shares from Mr. Sushilchandra Dhananjaya Desai and Ms. Surbhi Dhananjaya Desai. With respect to the same, Mr. Ramesh D Patel had contended that the same was a genuine transaction wherein he was interested in purchasing the shares of the Company.

It was further seen that on April 9, 2009, Mr. Sushilchandra Dhananjaya Desai and Ms. Surbhi Dhananjaya Desai had together transferred 4450 shares of the Company through off-market to Mrs. Dharmishta Patel, wife of Ramesh D Patel. As regards the transfer of 4,450 shares to her from Mr. Sushilchandra Dhananjaya Desai and Ms. Surbhi Dhananjaya Desai, it was submitted that the same were the return of shares lent to them. She submitted that the said transaction was an independent transaction and no negative inferences can be drawn against her for the same. According to her, she had lent shares and the off-market purchases alleged in the Order was nothing but the return of shares by those individuals. However, when the said facts are seen together, it appears that the trade of Mr. Ramesh D Patel and the off-market receipt of shares by Ms. Dharmishtha Patel were from known persons. It is also pertinent to note that the purchase of 2500 shares by Mr. Ramesh D Patel was around 41% of the shares traded during the relevant period. Even if one were to believe the claim of Ms. Dharmishtha Patel that the receipt of 4450 shares in off-market was the return of those shares lent by her to the individuals, no document in support of the claimed transaction were annexed to her reply.

The facts of the case and the nature of the trades would prima facie indicate that the aforesaid trades do not appear to be bonafide. The findings of the investigation would bring out the clear nature of the transactions. The share price had risen from `392 to `493 in only 19 trading days. Ms. Rasila Patel, Mr. Bhavesh Patel, Ms. Manjula Patel, Ms. Jagruti Patel, Ms.

Pragna Patel, Ms. Hetal Patel and Mr. Ramesh D Patel had together contributed around 76% of the total trading in the shares of the Company. Thus, it leads to a logical inference that their collective trades could have impacted the share price artificially during the relevant period.

16. During Period II (January 28, 2009 to August 27, 2009), the shares of the Company were traded in 52 trades involving 429 shares. However, in contrast to such volumes, the price of the scrip witnessed a steep rise from `517.15/- to `3464.60/-. The preliminary findings brought out that Mr. Ramesh D. Patel, Ramesh D. Patel HUF, Shamo Investments Private Limited, Ms. Dharnmishtha Patel, Mr. Jayesh Shamjibhai Patel, Ms. Urvashi Patel and Shyam Star Gems Limited had placed orders in the very first minute of the market opening (between 9:55:01 and 9:56:00). A total of 280 orders were placed in such manner out of which only 31 trades were executed. Every buy order was placed at the upper circuit filter level. Shyam Star Gems Limited was found to have placed a buy order for 100 shares of the Company. Trade was executed for only ten shares and the counter party was found to be Mr. Ramesh D. Patel. The Order had observed that when the said initial trade was made at a higher price, the entities of the group indulged in placing orders at 5% upper circuit filter level to take the price up. The Order had also mentioned that on various dates (February 16, 17 & 18, 2009; June 4 & 30, 2009; July 1 & 2, 2009; August 11, 2009), Mr. Ramesh D. Patel and Ramesh D. Patel HUF had placed orders at the upper circuit filter level.

Shamo Investments Private Limited had also placed buy orders on February 4 & 11, 2009 at prices at the upper circuit filter level. The same was the case with Ms. Dharmishtha Patel also when she had entered buy orders during the period January 28, 2009 to August 27, 2009 at the upper circuit filter levels. The manner of placement of orders by Mr. Jayesh Shamjibhai Patel and his wife Ms. Urvashi Patel were also no less different. It is very surprising to note that when buyers would always want the lowest price available in the market, the aforesaid persons/entities have placed orders at higher prices than the previous day’s closing price. The said persons have brought my attention to the Order of the Hon’ble SAT in the matter of Vikas Ganeshmal Bengani vs. SEBI, wherein it has been held that “……Merely because an investor like the appellant placed orders for the purchase of a scrip at a price higher than the last traded price does not by itself lead to the conclusion that he was manipulating the price of the scrip”. The persons have contended that they had placed orders for the purchase of shares at a higher price as the scrip was illiquid.

From the preliminary findings, it has been prima facie observed that the fundamentals of the Company were not strong enough to support such exorbitant price rise. Further, it has been observed in the Order that in most of the months, the number of buy orders placed by the said persons constituted more than 50% of the total buy orders placed from January 2009. The investigation in the matter would reveal whether the aforesaid persons were in collusion with the counterparties and the stock brokers. The findings in Order were only prima facie and not conclusive and on completion of the on going investigation, it would make it clear whether the trades of the parties were genuine or not. Therefore, in the absence of the same, it would be premature, at this stage, to conclude whether their intention was bonafide or otherwise. The facts and circumstances prima facie suggested their complicity and therefore the Order was passed to prevent further damage to the securities market. Further, the entities were restrained from dealing only in the shares of the Company and that the Order did not impose a total restraint on their trading in the securities market.

17. The Order had mentioned that after a long gap of five months (after August 18, 2008), the first and the only trade on January 28, 2009 was between Mr. Ramesh D. Patel and Shyam Star Gems Limited, at a price which hit the upper circuit filter. It was also observed that Mr. Ramesh D. Patel, his HUF and Shamo Investments Private Limited (promoted by Mr. Ramesh D. Patel) had executed 16 trades for a total volume for 45 shares and were instrumental in increasing the share price by `994.35/-. Further, Ms. Urvashi Patel and Mr. Jayesh Shamjibhai Patel were alleged to have contributed to a price rise of `460.20/- in 14 trades with a total volume of only 151 shares. Further, out of the 40 trading days, the first trade for 23 days was made by a promoter related entity, thereby establishing a new high price each time. It is pertinent to note that every first trade hit the maximum 5% price circuit. It was also noticed that out of the total 52 trades during Period II, 31 trades were executed by Shyam Star Gems Limited (for 10 shares), Shamo Investments Private Limited (for 7 shares), Mr. Ramesh D. Patel (for 11 shares), Mr. Jayesh Shamjibhai Patel (for 146 shares), Ms. Urvashi Patel (for 5 shares) and Ramesh D. Patel HUF (for 27 shares).

18. It is seen that Mr. Savjibhai D. Patel is related to Ms. Usha Patel (his wife), Mr. Ramesh D. Patel (brother-in-law), Ramesh D. Patel HUF, Ms. Dharmishtha Patel (wife of Mr. Ramesh D. Patel) and Ms. Reshma Patel (daughter of Ms. Dharmishtha Patel). Shamo Investments Private Limited has been promoted by Mr. Ramesh D. Patel and Ms. Dharmishtha Patel. Further, Mr. Savjibhai D. Patel is the brother of Ms. Dharmishtha Patel. As stated in the Order, Shyam Star Gems Limited has also been promoted by Mr. Savjibhai D. Patel. Admittedly, Ms. Rasila Patel, Mr. Bhavesh Patel, Ms. Manjula Patel, Ms. Jagruti Patel, Ms. Pragna Patel, Ms. Hetal Patel and Mr. Ramesh D Patel are members of the same family. Mr. Jayesh Shamjibhai Patel and Ms. Urvashi Patel are also related with each other, as husband and wife. It has been brought out that they had financial transactions with Mr. Ramesh D. Patel. It has been contended that the same was a loan transaction and has been supported by copies of ledger accounts. The said documents shall be examined by the ongoing investigation in the matter. Mr. Savjibhai Patel and Ms. Usha Patel had taken a contention that they did not trade even for a single share during the investigation period, and therefore did not have any role to play in the same. Though, they may have not traded themselves, the preliminary findings points that the trading were done by connected persons/entities. Further, the said persons hold substantial shares of the Company. Any price rise in the shares of the Company would benefit them. They have also contended that Mr. Ramesh D Patel, Ms. Dharmishtha Patel and Ms. Reshma Patel do not belong to the promoters. Admittedly, the said persons are related to the promoters, Mr. Savjibhai Patel and Ms. Usha S. Patel of the Company.

19. The preliminary findings had noticed that the Company had restructured its capital by a stock split in the ratio 1:10 on August 28, 2009. A share of face value of `10/- was split into 10 shares of face value of `1. The analysis of the trading in the scrip during the period August 28, 2009 to October 1, 2009 revealed that the scrip started trading after the stock split on August 31, 2009 and opened at a price `363.75/-. Thereafter, the share price started to rise steadily and increased to `816/- on September 30, 2009. It was further observed that the entities who had purchased the shares during Period I & II were seen to be selling during the period post split. The majority of the trading was prima facie by the promoter related person/entities in the scrip. The preliminary findings had observed that once the share price was artificially increased, the Company came up with a stock split and that a large number of new investors then started trading in the scrip. It was also prima facie found that the sellers are those who are related or associated with the promoters and were seen to have off-loaded shares at highly inflated prices. The Order had also alleged that in the ‘pre-split’ period the promoter related entities increased the share price through a strategy of bid orders and structures/pre-arranged trades and during the ‘post split’ period, when new investors entered the market, the promoter related entities started placing sell orders with nominal volume of shares. Further, the promoter related entities had sold the shares of the Company to the new clients who had entered the market post the stock split after being lured into trading in the shares of the Company by the artificial market prima facie created by the promoter related entities.

20. The unusual price rise of the Company as stated in the Order, the poor financials of the Company, placement of buy orders at prices in the upper circuit filter or above the previous day’s closing price on regular basis, low volumes accompanying such price rise, the promoter group prima facie holding around 84% of the Company’s share capital, new investors being lured into trading in the scrip, do not convince me at this stage to revoke the interim directions issued against the entities. The same would however be reviewed on completion of the investigation in the matter. It would be in the interest of justice to complete the investigation in the matter as expeditiously as possible and thereafter complete the proceedings at the earliest.

21. In view of the foregoing, I, in exercise of powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 read with Sections 11, 11(4) and 11B thereof, hereby confirm the directions issued against Mr. Savjibhai D. Patel, Ms. Usha S. Patel, Shyam Star Gems Limited, Mr. Ramesh D. Patel, Ramesh D. Patel HUF, Ms. Dharmishtha R. Patel, Ms. Reshma Patel, Shamo Investments Private Limited, Mr. Jayesh Shamjibhai Patel, Ms. Urvashi Patel, Mr. Bhavesh Patel, Ms. Hetal Patel, Ms. Jagruti Patel, Ms. Manjula Patel, Ms. Pragna Patel and Ms. Rasila Patel, vide the ad interim ex-parte Order dated February 5, 2010, in the matter of S J Corporation Limited.

22. The Investigating Authority of the Securities and Exchange Board of India shall complete the on-going investigation initiated in the matter, before March 31, 2011.

DR. K. M. ABRAHAM WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

PLACE: MUMBAI DATE: DECEMBER 24, 2010