Confirmatory Order in the matter of illiquid stock options in respect of Jai Annanya Investments Private Limited87/2018]

WTM/RKA/ISD/90/2016 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA ORDER Under sections 11(1), 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 in the matter of illiquid stock options pursuant to interim order dated August 20, 2015 in respect of Jai Annanya Investments Private Limited (PAN: AABCG0769Q) and on representation of Adventz Finance Private Limited.

1. Vide an ad interim ex-parte order dated August 20, 2015 (hereinafter referred to as “interim order”), 59 entities including Jai Annanya Investments Private Limited (hereinafter referred to as “Jai Annanya”) have been restrained from accessing the securities market and have been further prohibited them from buying, selling or dealing in securities in any manner whatsoever, till further directions. The said interim order is an ex parte order –cum-show cause notice and has provided these restrained entities to file their objections, if any, within 21 days and to avail opportunity of personal hearing, if they so desire. 2. Jai Annanya, vide its reply dated October 13, 2015 to the interim order, inter alia, submitted that :- i) The impugned order has been passed without realizing and understanding its business model and the extent of its exposure to the securities market. In the aforesaid reply it also submitted that it is a Non-Banking Financial Company (“NBFC”) registered with Reserve Bank of India and while acting as an NBFC, a majority of its investments / trading was done by utilizing the money borrowed from third parties and due to passage of the interim order it is paying/incurring huge interest on outstanding liability of ₹28.5 crore (as on September 30, 2015). Till date, it has never been questioned or held guilty for violations including SEBI. It is primarily engaged in the business of dealing in shares, securities and commodities, it has been carrying out trades in both the cash and F & O segment of NSE, BSE and commodity exchanges since its incorporation in the year 1993. ii) During the examination period, it had traded in a total of 45 scrips in the cash segment and 222 contracts of different companies and 2 contracts on the index in the F&O segment of the market. It had a total investment of INR 38.66 crore in the securities market and total open position of INR 7.83 crore in the F&O segment. iii) Due to the directions issued in impugned order, their complete business has come to a standstill and as a result it has suffered losses to the tune of INR 93.12 lakh. iv) The impugned order has been passed in complete disregard to the principles of natural justice. The order is ambiguous and vague and against the settled principles of law.

Order in the matter of Illiquid Stock Options v) The impugned order clearly indicates an excessive and improper exercise of the powers conferred upon SEBI under section 11 of the SEBI Act, 1992 as there was no emergent scenario prevailing at the time of the passing of the impugned order which warranted such a harsh direction. vi) The allegations levied are baseless, bald, sweeping, vague, unfounded, misconceived and speculative, based on assumptions, surmises and conjectures and are completely contrary to the factual position on record. vii) SEBI has not provided it with the documents referred to and relied upon for passing of the impugned order. For want of all the documents / material based on which the allegations have been levelled against it, it is not in a position to answer to the charges levelled against it. With regard to the issue of non-supply of the documents, Jai Annanya sought to reply upon judgments of Hon’ble Supreme Court, High Courts and SAT. viii) The vagueness and inconsistency in figures coupled with wrong usage of data made it impossible for Jai Annanya to tender complete and effective defence in the matter. ix) Further, the data provided in table 5 to 11 in the impugned order does not match with the figures and the calculations maintained by them in their books and thus the same makes the contents of these tables wrong and erroneous. x) SEBI has alleged that Jai Annanya had entered into a prior understanding with the loss making entities and they executed their transactions in consonance with others.

However, such serious allegations have been levied without providing a single shred of evidence. In this regard, Jai Annanya highlighted the following points. a) The details of their counter parties including their name, details of transactions matched have not been furnished. b) That the impugned order does not even discuss a single transaction, whether reversed or squared off, which led to profit generation for them and a loss for their counter party. c) That the impugned order does not provide any evidence/detail of the alleged understanding between them. xi) If only some of the profit making entities had the loss making entities as their counterparties then how can all the other profit-making entities be painted with the same brush and held guilty of having a prior understanding with the loss making entities. This clearly shows inconsistency in the observations of SEBI. xii) It has been alleged that counter orders were entered into within 60 seconds of the original order, but details like buy time and sell time have not been mentioned in the impugned Order. xiii) The impugned order alleges them of booking profits by entering into transactions within a pre-meditated mindset, but table 9 of the impugned order provides that only 61.1% or 1011 of 1654 orders resulted in trades and only 495 orders out of 1011 orders resulted into reversals.

If there was a prior understanding then all their orders should have resulted into trades and all their trades should have led to a reversal of the same. xiv) The strike prices at which such options contracts can be entered into are not determined by the individual investors, but are preloaded on the exchange platform. Every options contract has an "At the Money" strike price and a minimum of 5 “In the Money" and "Out of the Money" strike prices at any given time. The same can also extend to a maximum of 10 "In the Money" and "Out of the Money” strike prices also. The trades in question were also executed within these limits. xv) The impugned order does not provide any data of the prevailing intrinsic value at the time of transactions. xvi) The entities who have booked profits or losses lesser than 5 crore have admittedly not been debarred and are carrying on with such trading activity. xvii) The impugned order alleges Jai Annanya of committing fraud, but does not describe the act or omission committed by them. xviii) There is no justification for imposing a blanket ban which extends to restricting them from trading in the cash segment of the Securities market also. xix) The impugned order does in no manner restrict such deceptive trades from taking place.

Any market constituent can enter into such trades on the floor of exchange at such irrational prices as there is no restrictions on executing such transactions and thus the actions are definitely not preventive or remedial in nature qua the issue of preventing the use of exchange platform for such trades. It had also entered into similar transactions in the year 2013-14. xx) Jai Annanya’s case is covered under the order of SAT in the matter of Rakhi Trading Ltd. vs. SEBI. In the said order, the Hon’ble Tribunal in spite of the fact that parties had entered into synchronized and reversal contracts, which were executed at abnormal prices leading to favorable tax assessment for parties, found no illegality in the same and allowed the Appeal. The facts of the Rakhi Trading Pvt. Ltd. vs. SEBI are identical to the present matter and thus the passing of impugned order in spite of the legal position being already settled by the Hon'ble Securities Appellate Tribunal is clearly a blatant disregard to the judicial precedents and thus the same deserves to be set aside. xxi) In spite of Hon’ble Tribunal upholding the validity of such transactions, SEBI took no action to declare such transactions illegal.

Thus, restricting Jai Annanya now, when parties have been entering into such transactions for the past few years can in no circumstance be classified as a situation fit for use of emergent powers 3. Thereafter, inspection of all the records/documents which were relied upon by SEBI for the purpose of the interim order was provided to Jai Annanya on November 26, 2015 as requested by it.

4. Subsequently, vide its two separate letters both dated January 5, 2016, Jai Annanya further represented that – a) the inspection of documents sought by it was incomplete and inspection of balance documents may immediately be provided so as to enable it to present the entire set of facts and make comprehensive submissions. b) it is making preliminary submissions and seeking interim relief in the matter and requested that it may be allowed to :– (i) either sell its holding equivalent to the outstanding amount payable by it to its Inter-Corporate Deposit (“ICD”) holders or; in the alternative, (ii) to assign/transfer shares (equivalent to the outstanding amount)from its demat holding account to the ICD holders. c) This interim relief was sought on the following grounds and submissions :- (i) As stated in its reply dated October 13, 2015, Jai Annanya carries on its business with borrowed funds and as on that date it still had outstanding amount of approx. ₹29 crore to be paid to one of its ICD holders. (ii) After the SEBI order dated August 20, 2015 the ICD holders have been chasing it for payment of entire amount including interest and with a lot of difficulty it was able to pay a sum of `29 lakh in September 2015 and ` 25 lakh in November 2015. (iii) The ICD holders have issued a legal notice to it to for its failure to pay the principal and interest amount and they are pursuing with it on a regular basis.

(iv) It undertakes to not trade in the F&O segment till the investigation is completed by SEBI. If SEBI allows to discharge its debt in either of the aforesaid manners represented by it, it will not trade in the cash market and F&O segment till the investigation is completed by SEBI. 5. In its aforesaid letter dated January 05, 2016 sent to SEBI, Jai Annanya had claimed that it was enclosing “one of the recent letters of the ICD holders dated December 30, 2015.” However, no such letter was ever filed by Jai Annanya. In the said letter, it had also undertaken that – “We would like to place before you the statement of account from our ICD holders and our accounts duly certified by our Chartered Accountant.” Jai Annanya had, however, not given these documents. 6. It is relevant to mention that SEBI has passed several interim orders in similar cases against several entities based upon prima facie findings and pending investigations in those matters. In response to such interim orders several entities filed their replies praying for revocation of order and for certain common interim reliefs pending passing of confirmatory orders.

Considering the large number of entities covered in such orders (more than 1200), complexities involved in the issues such-as inter linkages of different tranches of alleged schemes, connection/relation amongst transacting parties in different tranche of scheme, etc.- the conclusion of the proceedings to pass confirmatory orders in each case had to take time after completing the procedure in compliance of principles of natural justice with regard to each of the involved entities. After considering the facts and circumstances brought out by these entities who had responded to interim orders, to avoid erosion of value of securities due to volatility, maintain some investment avenues in the Capital Market such as Mutual Fund and to address the need of funds for meeting the business/ any other exigencies, all these entities were granted certain common interim reliefs, including the follwoing :-  to sell the securities lying in their demat accounts as on the date of the respective interim order, other than the shares of the companies which are suspended from trading by the concerned stock exchange and keep the sale proceeds in an escrow account;  to utilize such sale proceeds for the purpose of investment in mutual fund units and fixed deposits.  to utilize 25% of their portfolio value for their business purposes and/or for meeting other exigencies subject to the condition that the balance portfolio value does not go below the profit/loss made by them.

7. Further, specific representation of any such entity was being separately decided on case to case basis and communicated to them separately during pendency of the proceedings for passing of confirmatory orders. It was also taken into account that such interim reliefs were reasonable and that the same may be granted expeditiously pending passing of the confirmatory order in respective cases which had to take time considering factors mentioned in above paras. Therefore, the decision to grant such interim reliefs were caused to be communicated by separate letters to respective entities and were to be subsumed in the confirmatory orders. 8. In the above background, Jai Annanya was also granted the common interim reliefs as aforesaid and the decision in that regard was caused to be communicated to it vide letter dated February 08, 2016 permitting it :- 1. to subscribe to units of the mutual funds including through SIP and redeem the units of the mutual funds so subscribed; 2. to avail the benefits of corporate actions like rights issue, bonus issue, stock split, dividend, etc. 3. to sell the securities lying in your demat accounts as on the date of the interim order, other than the shares of the companies which are suspended from trading by the concerned stock exchange, in orderly manner under the supervision of the stock exchanges so as not to disturb the market equilibrium and deposit the sale proceeds in an interest bearing escrow account with a nationalized bank.

4. the sale proceeds lying in the aforesaid escrow account shall be dealt with and utilised under the supervision of the concerned stock exchange as provided hereunder:- a. the sale proceeds may be kept in a fixed deposit with a nationalized bank or may be utilised for subscription to units of the mutual funds which shall always be held in the demat form and if such units are redeemed the proceeds thereof shall be credited to the aforesaid escrow account or may be utilised for subscription to the units of mutual funds; b. to utilise upto 25% of the value of your portfolio as on the date of the interim order for your business purposes and/or for meeting other exigencies Explanation: For the purposes of determining the portfolio value of the entities, the value of portfolio of securities lying in the demat account/s (individual and joint both) on the date of the interim order after excluding the value of shares that have been suspended from trading as on the date of the communication shall be considered. For NBFCs and stock brokers the value of portfolio shall exclude the value of clients' securities lying in their demat accounts.

5. The aforementioned window for sale of shares lying in respective portfolio shall be withdrawn if you execute any trade beyond those mentioned in point (3) above. The aforesaid reliefs shall be subject to the supervision of exchanges and depositories. The concerned depositories / exchanges may be contacted in this regard.” 9. It is relevant to mention that the above decision was taken considering the precedents followed in several cases in light of the principles and reasons held in judgment of Hon’ble SAT in certain cases, for example:- (a) In the matter of Mentor Capital Vs. SEBI– Order dated October 18,2011- “A prayer is made that the Board should permit the shares in regard to which the purchase is complete to come into the demat account of the appellant as set out in prayer 7(c) of the memorandum of appeal. The prayer appears to be reasonable and the same is granted. It is further pointed out that the appellant is also holding shares of a large number of companies by way of investment and in view of the falling market, the appellant may be allowed to dispose of those shares with a view to reduce their losses.

This prayer is also reasonable and hence granted. We, therefore, direct that the appellant may sell the shares which it is presently holding to safeguard against the erosion in the value of its portfolio. The details of the sales shall be furnished to the Board within 24 hours of the sale and the sale proceeds shall be kept in a separate escrow account. The appellant wants to utilize the sale proceeds to meet with its outstanding liabilities including government dues. It may in this regard approach the Board and seek its permission. If such an application is made to the Board, the same should be considered expeditiously within a reasonable time.” (b) In the matter of India Focus Cardinal Fund Vs. SEBI- Order dated November 21,2011- “Having regard to the nature of the disputes raised in this appeal and taking note of the fact that the ad interim order is adversely affecting the business of the appellant, we further direct the Board to conclude the investigations before the end of February, 2012. In the meanwhile, the appellant is allowed to sell all the securities held by it as enlisted in Exhibits ‘G’ and ‘J’ to the appeal and the sale proceeds therefrom shall be deposited in a fixed deposit with ICICI Bank earning interest.

The appellant shall not be allowed to withdraw monies from that account including interest without the prior permission of the Board. In case the appellant wants to utilize any or whole of the sale proceeds, it shall seek the permission of the Board in this regard which shall be considered expeditiously. The direction regarding sale of securities has been given with the consent of the parties in view of the falling market to avoid further erosion in the value of the portfolio held by the appellant. 10. After the aforesaid communication was sent to Jai Annanya, another letter dated February 2, 2016 was received from it on February 08, 2016 wherein it had, in furtherance of its reply dated October 13, 2015 and representation dated January 05,2016, again requested for interim relief as stated hereinabove and submitted that it had an outstanding loan of ₹30 crore (including interest) to one of its ICD holders who had been following up for payment of the entire amount and had also served a legal notice for default. By this letter, it requested for grant of the same partial interim reliefs as allowed to other entities i.e. to sell their holding and use the proceeds of sale for their business purpose.

However, Jai Annanya did not submit the details of the claimed ICD holders as undertaken by it and instead vide its letter dated March 01, 2016, it raised objections on authority and rationale of the interim reliefs given vide letter dated February 08, 2016.

11. Vide letter dated March 02, 2016, the request of inspection of additional documents made by Jai Annanya vide its aforesaid letters dated December 07, 2015 and January 05, 2016 was not acceded to and it was advised to note that the data relied upon in the interim order had already been provided to it during the opportunity of inspection granted on November 26, 2015. Thus, it was confirmed that SEBI was relying upon the data provided to it and accordingly principles of natural justice was complied with in that regard. 12. While the proceedings pursuant to the interim order were underway, another entity viz; Adventz Finance Private Limited (hereinafter referred to as “Adventz”), which is not a party in the interim order also made representations vide its letter dated March 28, 2016, inter alia, as under: (i) It is an NBFC primarily engaged in the business of investment in shares and providing loan to corporate for meeting their requirements. (ii) It had advanced ₹40 crore to Jai Annanya in two tranches in 2014 which was repayable by Jai Annanya within one year with interest at the rate of 12.50% per annum payable half yearly.

(iii) Jai Annanya has informed it that the monies borrowed from Adventz has been utilized in the purchase of shares which are currently in the demat account(s) which have been frozen due to the operation of the ex-parte interim order thus preventing liquidation and repayment. (iv) Limited interim reliefs had been issued to Jai Annanya vide letter dated February 8, 2016. However, the limited interim relief granting permission to Jai Annanya to utilize only 25% of the portfolio value as on the date of the interim order is proving insufficient to recover the outstanding amount from Jai Annanya. (v) It requested SEBI to take suitable steps including by way of modifying SEBI’s directions to secure its rights to recover the outstanding amount from Jai Annanya. 13. It is pertinent to note that, as claimed by Jai Annanya, without any proof, it had borrowed money from several ICD holders and, after the interim order, the ICD holders have been chasing it for payment of entire amount including interest. It has also claimed that as on September 30, 2015, it had an outstanding loan of ₹28.5 crore and as on January 05, 2016 it had outstanding amount of approx. ₹29 crore to be paid to one of its ICD holders.

It is only at this time, when Adventz wrote the letter dated March 28, 2016, it appeared that it was only Adventz who had provided funds by way of claimed loan to Jai Annanya and it came on record that Jai Annanya was keen to repay the claimed loan of only Adventz out of several ICD holders as claimed by it, by sale /transfer of its shares. At this stage also, the necessary evidence to substantiate its claim was not provided by Jai Annanya except for bald statements made by Adventz who is not a party to the interim order and thus, the request had to be disposed of at the time of passing of the confirmatory order in the matter after completing the proceedings in compliance of principles of natural justice. 14. While the proceedings qua Jai Annanya were in progress and notice of personal hearing had been issued to it vide an email on March 30, 2016 and decision on representation of Adventz dated March 28, 2016 was pending for want of necessary details/ evidence, Adventz informed on April 14, 2016 that it had filed an appeal before Hon’ble SAT in the matter. In response to the notice of personal hearing scheduled for April 27, 2016, Jai Annanya vide its letter dated April 22, 2016 submitted that it had filed an appeal before Hon’ble SAT on April 01, 2016 in the matter and requested for adjournment of date of personal hearing.

15. It is noted that Adventz, in the Appeal No. 90 of 2016 filed by it before the Hon’ble SAT, challenged the aforesaid letter dated February 08,2016 issued to Jai Annanya impugning the same as an order under section 15T of the SEBI Act and sought the following reliefs: a) That this Hon’ble Tribunal be pleased to modify the Impugned interim order (i.e. SEBI’s letter dated February 8, 2016) allowing the i.e. Jai Annanya to sell its holding to the extent of the loan amount payable to Adventz and utilize the entire sale proceeds in discharge of its liabilities to the Adventz; b) That this Hon’ble Tribunal be pleased to allow or otherwise direct SEBI to allow the Jai Annanya to assign the securities to Adventz to the extent of the loan amount payable (including interest) c) For such other and further appropriate orders as the nature and circumstances of the case may require.

16. In the appeal no. 97/2016 filed by Jai Annanya, it had also challenged the aforesaid letter dated February 08,2016 impugning the same as an order within the purview of section 15T of the SEBI Act and had sought the same reliefs as sought by Adventz and reproduced hereunder: a) That this Hon’ble Tribunal be pleased to direct SEBI to allow Jai Annanya to sell the securities lying in its demat account to the extent of the loan amount payable (including interest) to the ICD Holder (i.e. Adventz) and to utilize the entire sum in discharge of tis liability to the ICD Holder; or b) That this Hon’ble Tribunal be pleased to direct SEBI to allow Jai Annanya to assign the securities lying in its demat account to Adventz Finance Private Limited to the extent of the loan amount payable (including interest); c) For such other and further appropriate orders as the nature and circumstances of the case may require. 17. Hon’ble SAT while disposing of the aforesaid appeals, vide its separate orders dated May 6, 2016 observed the following :- “ 1. Counsel for SEBI states that the representation made by the Appellant in Appeal No.90 of 2016 on 28/3/2016 and representations made by the Appellant in Appeal No.97 of 2016 on 13/10/2015 and 5/1/2016 respectively would be considered and appropriate orders would be passed within a period of seven weeks from today.

Statement made by Counsel for SEBI is accepted. 2. In view of the aforesaid statement, Counsel for the Appellants in both the Appeals, do not press the Appeals. 3. Both the Appeals are disposed of in the above terms with no order as to costs.” 18. It is only after the aforesaid orders were passed by Hon’ble SAT, Jai Annanya, vide its letter dated May 23, 2016 requested for an opportunity of personal hearing and stated that it is enclosing the following documents : a) Certificate of Chartered Accountant for ICD of ₹40 / crore received from Adventz. b) Bank Account statements showing transactions with Adventz. c) Audited Balance Sheet of Jai Annanya for the year ending March 31, 2015. d) Ledger Account of Adventz. However, none of the aforesaid documents were enclosed with this letter dated May 23, 2016. 19. Adventz vide, its letter dated May 26, 2016, requested for an opportunity of personal hearing in the matter and submitted the following documents in support of its representation:- a) Letters dated May 16, 2014 and August 8, 2014 from Adventz. b) Certificate of Chartered Accountant for ICD of ₹ 40/crore to Jai Annanya. c) Audited Balance Sheet of Adventz for the year ending March 31, 2015 d) Ledger Account of Jai Annanya.

e) Bank Account statements showing transactions with Jai Annanya. 20. Vide the aforesaid letters, both Adventz and Jai Annanya sought to rely upon the order of Hon’ble SAT in the matter of Aditya Birla Finance Ltd. v/s. SEBI in Appeal No. 186 of 2011, order dated November 2, 2011( Aditya Birla case) wherein it was held by Hon’ble SAT that since there was no wrongdoing on the part of the lender, the demat account of the borrower should be unfrozen for the limited purpose of transfer of shares to the demat account of the lender and that the lender would be at complete liberty to sell the shares to the extent necessary to recover any outstanding loans. Vide its letter dated June 10, 2016, Jai Annanya further submitted that since the abovementioned order of Hon’ble SAT has not been challenged before any appellate authority, the underlying principle has been accepted by SEBI. 21. Pursuant to the aforesaid order dated May 06, 2016 of Hon’ble SAT, an opportunity of personal hearing was provided to it on June 21, 2016 as requested by it. It was prima facie observed that Jai Annanya was related/connected to Adventz and that Adventz had given financial assistance to Jai Annanya during May and August 2014 i.e. before the impugned transactions of Jai Annanya during December 2014. Further, both have requested for same interim reliefs in their appeals before Hon’ble SAT and in their aforesaid representations in that regard.

Considering the inter connected representations, the request of Adventz for personal hearing was also accepted and it was also provided an opportunity of personal hearing on the same date i.e. June 21, 2016 and requisite notices of personal hearings were sent to each of them on June 15, 2016. 22. In the meantime, since no clarity on the claimed loan transaction between Jai Annanya and Adventz could be brought out by them till this stage, vide emails dated June 15, 2016 to Adventz and June 16, 2016 to Jai Annanya, clarifications were sought from them. Vide email dated June 15,2016 Adventz was asked to provide the following : “1. Whether the loan was secured or unsecured? 2. If the loan was secured, what was the collateral? 3. If the loan was unsecured, what was the reason for the same? 4. Has your company advanced loans to Jai Annanya earlier? If yes, please provide the details. 5. The letter dated May 16, 2014 bears the same address for both Jai Annanya and Adventz Investments. Is your company related to Jai Annanya in any way? 6. Kindly provide details of Promoters (Name, PAN, % Shareholding, Change in holding) of your company (Adventz Finance Private Limited) for FY 2011 – 2016. 7. Kindly provide your bank account details (A/c No., Bank Name, Bank Branch).” 23. Vide email dated June 16,2016, Jai Annanya was asked to provide the following : 1. Whether the loan was secured or unsecured?

2. If the loan was secured, what was the collateral? 3. If the loan was unsecured, what was the reason for the same? 4. Has your company sought loans from Adventz Finance Private Limited earlier? If yes, please provide the details. 5. Kindly provide details of Promoters of Jai Annanya Investments Private Limited (Name, PAN, % Shareholding, Change in holding) for FY 2011 – 2016. 6. Kindly provide your bank account details (A/c No., Bank Name, Bank Branch). 24. In their respective responses dated June 18, 2016 and June 20, 2016, Adventz and Jai Annanya, respectively, claimed that these loans were of the nature of ICDs, which are generally given as unsecured loans as was done in this case. Adventz submitted that being an NBFC, it primarily lends to corporates in the nature of ICD - as unsecured loans. It also claimed that it had given unsecured loans of the nature of ICD to many other companies as on March 31, 2015. It further submitted that a loan amount of ₹40 crore was sanctioned to Jai Annanya in May 2014 which was advanced in two tranches i.e. loan of amount ₹25 crore advanced in May 2014 and remaining amount of `15 crore in August 2014. It also confirmed that it was for the first time such financing was provided by it to Jai Annanya.

25. On June 21, 2016, Mr. Jai Kishan Lakhwani, Advocate and Ms. Vaneesa Agarwal, Advocate for Jai Annanya and Adventz, respectively appeared and made submissions on their behalf on the lines of their replies/representations. Pursuant to the personal hearing Jai Annanya vide its letter dated June 22, 2016 further submitted that :- a) SEBI had failed to appreciate that Jai Annanya did not have any position in any alleged illiquid stock option as on the date of the interim order so nothing, which SEBI could have envisaged to prevent, was existing at that time. b) SEBI had failed to appreciate that Jai Annanya had last traded on March 31, 2015 in any alleged illiquid stock option. c) SEBI had failed to appreciate the fact that Jai Annanya had taken ICD of ₹40 crore from Adventz against which principal amount of ₹25 crore and interest of almost ₹ 30 crore was still outstanding. d) SEBI had failed to follow a rationale in allowing to utilize only 25% of the portfolio value as on the date of interim order. The partial relief order dated February 08, 2016 has been passed without application of mind as the same has been passed without considering the implications thereof on Jai Annanya and Adventz. e) The interim order has led to the attachment of funds borrowed by the noticee from ICD holders. f) SEBI has failed to justify as to how off market transfer of securities lying in the demat account of Jai Annanya to ICD holder would disturb the market equilibrium. g) SEBI has failed to establish any correlation between the alleged violation and the profit or loss made by Jai Annanya.

Hence the interim order suffers from non-application of mind and is a gross abuse of power by SEBI. h) SEBI has failed to appreciate that in the interest of justice Jai Annanya should have been allowed to atleast sell its holding equivalent to the outstanding loan or in alternative to assign the securities to the ICD holder in their demat account. By refusal to allow Jai Annanya squaring off their loan account, loss has been caused to Jai Annanya as well as ICD holder. i) Jai Annanya had been paying interest to Adventz after deduction of tax at source on the borrowed funds before the interim order and even after that Jai Annanya had been accruing the interest payable but is unable to deposit the tax deductible at source as per the requirement under the Income Tax Act due to the interim order. 26. In view of the oral and written submissions made, it was found that the request of the entities (made vide their representations under consideration) could not be acceded to. This decision of the undersigned was communicated to Jai Annanya and Adventz stating the reasons for the same by letters dated July 8, 2016 as per the past practice such as in the case of Aditya Birla Finance Ltd. (with reference to interim order in case of aforesaid Mentor Capital).

27. In the meanwhile, Adventz filed an Appeal no. 206 of 2016 again impugning the letter dated February 08, 2016 as an order and praying for the same relief as it had sought in its Appeal no. 90 of 2016. The said appeal was disposed of by Hon’ble SAT vide its order dated July 15, 2016 and the aforesaid communication dated July 08, 2016 was quashed. Thereafter, Jai Annanya, vide its letter dated July 16, 2016 again questioned authority of granting the common interim releifs and retaining the balance sales proceeds of the escrow account (75%) and the purpose thereof. It has also asked for reasons for -allowing the partial relief on February 08, 2016, allowing 25% of the sale proceeds to be utilized for business and other exigencies and retaining 75% in the escrow account and for not allowing off market transfers of securities to the claimed lender. It also sought confirmation as to whether uniform partial relief has been given to all the noticees in this matter. It also asked for a copy of the order of the Competent Authority and a copy of the file noting in connection with the communication dated July 08, 2016. 28. After the aforesaid order of Hon’ble SAT, SEBI filed a review petition in the matter which has been disposed of by Hon’ble SAT vide its order dated July 25, 2016 inter alia allowing SEBI to pass an appropriate order in accordance with law within one week after giving an opportunity of hearing to Adventz.

Pursuant to the said order of Hon’ble SAT an opportunity of hearing in the matter was granted on July 27, 2016, when Mr. Jai Kishan

Lakhwani, Advocate for Jai Annanya and Ms. Vaneesa Agarwal, Advocate for Adventz, appeared and reiterated their replies/submissions/ representations. The learned advocate of Jai Annanya made submissions with regard to the allegations in the interim order as well as its representations in respect of its specific interim relief. He denied all allegation in the interim order and reiterated the reply filed by Jai Annanya to the interim order –cum-show cause notice. He further submitted that rationale of allowing only 25% of the sale proceeds lying in the escrow account was unreasonable and prayed for permission to utilize the entire amount lying in the escrow account. He further extended this argument by submitting that the interim order is not intending for disgorgement of ill-gotten gains. It was emphasized by the learned advocate of Adventz that the case of Adventz is squarely covered by the order of Hon’ble SAT in Aditya Birla case. She further emphasized that Adventz is also willing to give an undertaking on the lines of that given in the said Aditya Birla case. 29. In terms of the orders of Hon’ble SAT dated July 25, 2016, I proceed to deal with the representation of Jai Annanya and Adventz with regard to their releifs as mentioned hereinabove.

As the communication dated July 08, 2016 has been quashed, I proceed to deal with the matter afresh in accordance with the aforesaid order of Hon’ble SAT. Further, since the proceedings qua Jai Annanya pursuant to the interim order are now concluded, the allegations in the interim order as against it are also being dealt with for the purpose of this order. 30. It is noted that Jai Annanya had filed its reply to the interim order vide its letter dated October 13, 2015 wherein it has raised preliminary objections as well as it has filed reply on allegations against it in the interim order. It is further noted that the inspection in the matter had been completed on November 26, 2015 and the request of Jai Annanya seeking inspection/copy of documents, that are not relied upon in the matter, had not been acceded to and it had been confirmed to it that the documents relied upon for passing the interim order have already been provided to it during inspection on November 26, 2015. It has also been provided sufficient opportunity of hearings and making oral/ written submissions which it has availed.

After availing personal hearing on June 21, 2016 it had filed post hearing submissions on the allegations as well as with regard to the representation made by it as aforesaid. In this matter, the proceedings pursuant to the interim order has been completed qua Jai Annanya in view of filing of its written /oral replies / submissions in the matter. Thus, the principles of natural justice has been complied with. 31. I have considered the replies/submissions of Jai Annanya and the representation made by it and Adventz. In the facts and circumstances of this case, I deem it appropriate to first dispose of the representations of Jai Annnaya and Adventz. As mentioned hereinabove, pending decision on the interim order, I had already granted same interim reliefs to Jai Annanya as granted to other entities who had filed replies/ representations and the same had been caused to be communicated to it vide letter dated February 08, 2016. In this case, Jai Annanya had not provided any supporting documents/details to substantiate its claims though it had undertaken to do so in its letter dated January 05, 2016. It had also not filed the documents as stated in its letter dated May 23, 2016. Jai Annanya even did not inform the name of the ICD holders from whom it had claimed to have availed the loan.

Though it had been claiming that it had availed the loans from several ICD holders, it could be noticed from the letter of Adventz dated March 28, 2016 that it was only the Adventz to whom Jai Annanya wanted to return the money from the sale proceeds kept in the escrow account.

32. When the aforesaid common interim reliefs were granted to it, Jai Annanya started questioning the authority, rationale and reasons for the grant thereof vide its letter dated March 01, 2016 and July 16, 2016 despite the fact that it had also desired to have the same partial interim relief vide its letter dated February 02, 2016. If it was so keen to avail the specific interim relief as requested by it, it should have substantiated its claim on the basis of necessary / relevant document instead of questioning the rationale and authority of reliefs already granted. In the facts and circumstances as mentioned hereinabove, asking for internal documents relating to grant/refusal of reliefs only indicates that it was attempting to avoid the real issue of production of relevant evidence for substantiating its claim of relief on account of its claimed transaction with Adventz. As regards the authority, rationale and reasons for the grant of interim relief, vide letter dated February 08, 2016, it is relevant to mention that they were granted in view of the facts and circumstances and reasons mentioned hereinabove. 33. Coming to the issue whether further reliefs as aforesaid can be granted, since both, Jai Annanya and Adventz, have requested for identical interim relief in their aforesaid representations and have made similar submissions, I proceed to dispose of their representations on the basis of common findings in the following paragraphs. 34. It is noted that, in its submissions dated June 18, 2016, Adventz claimed that it is not connected to Jai Annanya in any way. As noted hereinabove, Adventz and Jai Annanya have not brought on record any formal loan agreement between them with regard to the claimed loan. It is unusual that such loan to the tune of ` 40 crore could be granted by an unconnected NBFC to another NBFC, that too for the first time, before the alleged transactions of Jai Annanya without entering into any formal loan agreement.

35. Further, from the material provided by these entities and data as available on Exchange/ depositories /MCA websites it is noted that the claim of Adventz that it is unconnected to Jai Annanya is false. As such, Adventz and Jai Annanya are connected/related to each other on the basis of following factors- a) Biharilal Kanoongo (AFTPK0330F) is the current director of Adventz Investment Co Private Limited (Appointment Date - 17/03/2006) and Duke Commerce Limited (Appointment Date - 19/03/2014), both of which are the promoter entities of the Adventz. Further, he is also the current promoter of Jai Annanya. The details shared by Jai Annanya show that he is the promoter of Jai Annanya from before 31/03/2011. Therefore, Biharilal Kanoongo became the promoter of Jai Annanya while he was the director of one of the promoters of Adventz establishing a linkage between both the entities. b) Previously, he has held directorship position in Bright Tradelink Private Limited (22/11/2007 - 01/08/2015) which is the current promoter of Jai Annanya. c) Further, Biharilal Kanoongo was the director of Jai Annanya from 30 July 2009 to 01 August 2015. Therefore, he held directorship positions in Jai Annanya and also served as the director at one of the promoters of Adventz.

He was appointed as the director at Jai Annanya while he was serving as the director at one of the promoters of Adventz. d) Devendra Khemka (AESPK9414L) was the past director of Jai Annanya from 30 July 2009 to 12 August 2015 and he was also the director of Adventz Investment Company Private Limited (one of the promoters of Adventz) from 17/03/2006 - 07/09/2009. Presently, he is the director of Ricon Commerce Limited (Appointment Date - 19/03/2014), which is one of the promoters of Adventz. Therefore, he held directorship positions in Jai Annanya and one of the promoters of Adventz at the same time. He was appointed as the director at Jai Annanya while he was serving as the director at one of the promoters of Adventz and he was appointed the director at one of the promoters of Adventz (Ricon Commerce Limited) while he was the director at Jai Annanya. e) The address, email id and phone numbers of Adventz and Jai Annanya as per Exchange UCC have been observed to be the same for multiple records. The summary details are tabulated below: Common Address 31 B D Bagh South Hongkong House, First Floor, Kolkata 32 85 700001 Common Phone No. 9831262600 033- 22488891 Common Email Id corp@poddarheritage.com KHEMKA@PODDARHERITAGE.COM

Further, in the letter sanctioning the terms of the credit between Adventz and Jai Annanya, the address of both Adventz and Jai Annanya are the same. 36. In this case, it has been claimed by these two connected entities that a total amount of ₹40 crore was advanced by Adventz to Jai Annanya in two tranches i.e. amount ₹25 crore advanced in May 2014 and ₹15 crore in August 2014 as loan. Admittedly, both of these connected entities are NBFCs and it was for the first time such financing was provided by Adventz to Jai Annanya. Adventz has claimed that the monies provided by it had been utilized by Jai Annanya for the purchase of shares which are currently in its demat account (s) which have been frozen pursuant to the interim order. It is noted that while Adventz filed certain documents as stated above in May 2016 after the aforesaid order was passed by Hon’ble SAT, Jai Annanya, failed to file any such document as clamed in its letter dated May 23, 2016. I have perused those documents submitted by Adventz and note that the letters exchanged between Adventz and Jai Annanya during May 2014 and August 2014, their Ledger Accounts are their internal private records.

When seen along with the bank statements they confirm fund transfer from Adventz to Jai Annanya during May 2014 and August 2014 but they do not establish that such fund transfer was a loan transaction as claimed. The copy of balance sheet filed by Adventz only shows that Adventz had been in business of providing unsecured loan but it does not prove the claimed loan to Jai Annanya. It is only the Chartered Accountant’s certificate given by Adventz which says that an amount of ` 40 crore was given by it to Jai Annnaya as ICD. In any case, considering the connection/relation between Adventz and Jai Annanya (especially in the face of their claim that they are not connected) the transactions are not at arm’s length. Be as it may, even if the said financing was a loan transaction as claimed the said loan was unsecured and the shares lying in the aforesaid demat account of Jai Annanya are not the collateral/securities for the repayment thereof. 37. In this regard, both Adventz and Jai Annanya have sought to rely upon the order of Hon’ble SAT in Aditya Birla case. It has been claimed by the learned advocates of Adventz and Jai Annanya that the facts of this case are identical to those of Aditya Birla Case.

However, it is noted that the facts of the present case are different for the facts of aforesaid case for the following reasons: a. In Aditya Birla case there was a formal loan agreement between the lender and borrower parties. The loan was secured with pledge of shares purchased from the borrowed money and a deed of pledge was executed between the parties. In the instant case, no such loan agreements and pledge were created that too when the parties were entering in to the loan transactions for the first time prior to the transaction of Jai Annanya during December 2014. b. In the Aditya Birla case the shares lying in the demat account of the borrower were undisputedly purchased from the money given by the lender. In this case, there is no evidence that the sale proceeds in the escrow account are the sale proceeds of shares purchased from the funds provided by Adventz.

c. In the Aditya Birla case the borrower could only purchase those securities which was approved by the lender. The borrower had given an irrecoverable Power of Attorney in favour of lender to operate the demat account and the bank account. The borrower had to operate only through a designated demat account. The broker and depository participants were also approved by the lender. In fact the broker and depository participant was group company of the lender. It was established that the borrower had purchased the shares from the loan provided by the lender subject to such agreed terms. In the instant case, no such arrangements are available. d. In the Aditya Birla case the loan was given by the lender after the SEBI examination period. In the instant matter, the monies had been advanced in two tranches - in May and August 2014 i.e., during the period of examination i.e. Financial Year 2014-15. Further, as noted in Para 34 and Table 11 of the interim order, Jai Annanya had entered into alleged transactions from December 24, 2014 onwards i.e., after the money was so advanced by Adventz. 38. I, therefore, am of the view that the principle on which Hon’ble SAT had allowed the request in Aditya Birla case can not be applied in the instant case.

Hence, the undertaking as obtained on the lines of that given in Aditya Birla case will not be sufficient for grant of relief as asked for in view of the following :  In this matter, it has not been established that the financing by Adventz to Jai Annanya was formal loan transaction.  The fund transaction were not secured by the shares that were lying in portfolio of Jai Annanya and the same was between connected entities in close proximity of time alleged transaction of Jai Annanya during December 2014.  The interim order has been passed against Jai Annanya based on its alleged fraudulent dealings in securities being prima-facie in violation of SEBI Act, Rules and Regulations made thereunder and the investigation in the matter is going on.  Allowing appropriation /utilization of entire proceeds of shares which are not collateral for such financing may defeat the purpose of the interim order and it may lead to permission to the debarred parties to siphon off the securities which are kept frozen to another connected party during the pendency of the investigation.  The claimed transaction is separate independent transaction and the interim order is independent of any such private arrangement/transaction.  If Adventz and Jai Annanya had entered into the genuine lender-borrower arrangement, they were expected to evaluate their risks involved in such unsecured loan given for purchase of shares.

39. The investigation in the matter is yet to be completed and final findings on ill-gotten gain, if any, pursuant to alleged fraudulent activities are yet to be ascertained. Nevertheless the debarred entities can not be allowed to take away the sale proceeds for unjustifiable and unexplained reasons. 40. In this case, Jai Annanya had already been allowed relief, inter alia, to sell the securities lying in its demat account and keep the sale proceeds in an interest bearing account and utilize the proceeds for investment, business purposes and other exigencies in terms of letter dated February 8, 2016. 41. In view of these facts and circumstances, I am not convinced to accede to the requests of Adventz Finance Private Limited and Jai Annanya Investments Private Limited and their representations with regard to additional interim relief as aforesaid are disposed of accordingly. 42. Coming to the response of Jai Annanya to the allegations in the interim order I note that Jai Annanya has raised certain preliminary objection to the passing of the interim order. It has contended that the interim order has been passed in violation of the principles of natural justice as the mandatory requirement of providing an opportunity of hearing to it was done away with by SEBI before passing the interim order.

In this regard, I note that the interim order has been passed on the basis of prima facie findings observed during the preliminary examination/inquiry undertaken by SEBI. The facts, circumstances and the reasons necessitating issuance of directions by the interim order have been examined and dealt with in the said interim order. The interim order has also been issued in the nature of a show cause notice affording Jai Annanya a post decisional opportunity of hearing. I also note that the power of SEBI to pass interim orders flows from provisions of sections 11 and 11B of the SEBI Act which empower SEBI to pass appropriate directions in the interests of investors or securities market, pending investigation or inquiry or on completion of such investigation or inquiry. While passing such directions, it is not always necessary for SEBI to provide the entity with an opportunity of pre-decisional hearing. The law with regard to doing away with the requirement of pre-decisional hearing in certain situations is also well settled. The following findings of the Hon'ble Supreme Court of India in the matter of Liberty Oil Mills & Others Vs Union Of India & Other (1984) 3 SCC 465 are noteworthy:- "It may not even be necessary in some situations to issue such notices but it would be sufficient but obligatory to consider any representation that may be made by the aggrieved person and that would satisfy the requirements of procedural fairness and natural justice.

There can be no tape-measure of the extent of natural justice. It may and indeed it must vary from statute to statute, situation to situation and case to case. Again, it is necessary to say that pre-decisional natural justice is not usually contemplated when the decisions taken are of an interim nature pending investigation or enquiry. Ad-interim orders may always be made ex-parte and such orders may themselves provide for an opportunity to the aggrieved party to be heard at a later stage. Even if the interim orders do not make provision for such an opportunity, an aggrieved party has, nevertheless, always the right to make appropriate representation seeking a review of the order and asking the authority to rescind or modify the order. The principles of natural justice would be satisfied if the aggrieved party is given an opportunity at the request. " 43. Thus, considering the facts and circumstances of a particular case, an ad-interim ex-parte order may be passed by SEBI in the interests of investors or the securities market. It is pertinent to note that the interim order in the present case was passed under the provisions of sections 11(1), 11(4) and 11B of the SEBI Act.

The second proviso to section 11(4) clearly provides that "Provided further that the Board shall, either before or after passing such orders, give an opportunity of hearing to such intermediaries or persons concerned". Further, various Courts, while considering the aforesaid sections of the SEBI Act have also held that principles of natural justice will not be violated if an interim order is passed and a post-decisional hearing is provided to the affected entity. In this regard, the Hon'ble Bombay High Court in the matter of Anand Rathi & Others Vs. SEBI (2002) 2 Bom CR 403, has held as under: "It is thus clearly seen that pre decisional natural justice is not always necessary when ad-interim orders are made pending investigation or enquiry, unless so provided by the statute and rules of natural justice would be satisfied if the affected party is given post decisional hearing. It is not that natural justice is not attracted when the orders of suspension or like orders of interim nature are made. The distinction is that it is not always necessary to grant prior opportunity of hearing when ad-interim orders are made and principles of natural justice will be satisfied if post decisional hearing is given if demanded.

Thus, it is a settled position that while ex parte interim orders may always be made without a pre decisional opportunity or without the order itself providing for a post decisional opportunity, the principles of natural justice which are never excluded will be satisfied if a post decisional opportunity is given, if demanded." 44. Further, the Hon'ble High Court of Judicature of Rajasthan at Jaipur in the matter of M/s. Avon Realcon Pvt. Ltd. & Ors Vs. Union of India & Ors (D.B. Civil WP No. 5135/2010 Raj HC) has held that: “…Perusal of the provisions of Sections 11(4) & 11(B) shows that the Board is given powers to take few measures either pending investigation or enquiry or on its completion. The Second Proviso to Section 11, however, makes it clear that either before or after passing of the orders, intermediaries or persons concerned would be given opportunity of hearing. In the light of aforesaid, it cannot be said that there is absolute elimination of the principles of natural justice. Even if, the facts of this case are looked into, after passing the impugned order, petitioners were called upon to submit their objections within a period of 21 days.

This is to provide opportunity of hearing to the petitioners before final decision is taken. Hence, in this case itself absolute elimination of principles of natural justice does not exist. The fact, however, remains as to whether post-decisional hearing can be a substitute for pre-decisional hearing. It is a settled law that unless a statutory provision either specifically or by necessary implication excludes the application of principles of natural justice, the requirement of giving reasonable opportunity exists before an order is made. The case herein is that by statutory provision, principles of natural justice are adhered to after orders are passed. This is to achieve the object of SEBI Act. Interim orders are passed by the Court, Tribunal and Quasi Judicial Authority in given facts and circumstances of the case showing urgency or emergent situation. This cannot be said to be elimination of the principles of natural justice or if ex-parte orders are passed, then to say that objections thereupon would amount to post-decisional hearing. Second Proviso to Section 11 of the SEBI Act provides adequate safeguards for adhering to the principles of natural justice, which otherwise is a case herein also…" 45. In view of the above, I find that the interim order passed by SEBI was not in violation of the principles of natural justice since, reasons for passing the interim order have been clearly stated in the interim order and, in accordance with law, Jai Annanya was afforded a post-decisional opportunity to file its reply and avail the opportunity of personal hearing.

I, therefore, reject the contention of Jai Annanya in this regard. 46. Jai Annanya has further contended that there was no emergent scenario prevailing at the time of the passing of the interim order which warranted such a harsh action. In this regard, I note that the time taken to arrive at a decision/action, as in this case, is dependent on the complexity of the matter, its scale and modus operandi involved and other attendant circumstances. The power under sections 11 and 11B of the SEBI Act can be invoked at any stage i.e. either during pendency or on completion of inquiry or investigation. In the present case, the modus operandi where the entities were misusing the stock exchange mechanism came to light only in August 2015. The interim order clearly brings out the reasons and circumstances for issuance of ex-parte ad-interim directions. I, therefore, do not find merit in the contention of Jai Annanya in this regard. 47. Now coming to the submissions of Jai Annanya with regard to the allegation in the interim order, I note that Jai Annanya has raised an objection that the entities who have booked profits or losses lesser than ₹ 5 crore have not been debarred and are carrying on with such trading activity.

In this regard, I deem it important to mention that the interim order clearly mentions that detailed investigation in the matter is in progress. The fact that certain entities have been left out of the interim order does not signify that they are outside the scope of SEBI’s investigation or have been exonerated. At the stage of the interim order, directions were issued against entities considering their role/involvement in the scheme and the impact on the securities market as observed at this stage. I, therefore, am not inclined to agree with contention of Jai Annanya in this regard. 48. Another technical objection of Jai Annanya is that the interim order does not provide any data of the prevailing intrinsic value at the time of transactions. The Table 7 in the interim order reflects the extent of how far the trading prices so entered by the entity were from the theoretical intrinsic prices. Further, the data regarding trade related intrinsic values were provided during the inspection. I, therefore, do not find any merit in these contentions of Jai Annanya. 49. Jai Annanya has further contended that only 61.1% or 1011 of 1654 orders resulted in trades and only 495 orders out of 1011 orders resulted into reversals and if there was a prior understanding between Jai Annanya and other entities then all their orders should have resulted into trades and all their trades should have led to a reversal of the same.

In this regard, I note that the contention of the entity is drawn from table 9 and 10 of the interim order. The objective of table 10 in the interim order is to reflect how the orders had been entered for reversal trades. In terms of table 10, number of orders forming reversal trades were 495 out of which in a total number of 344 instances the time difference between placement of client orders and counterparty orders for reversal transactions was less than 60 seconds. Therefore, this data point regarding order entry times reflects that in cases of reversal trades, there may have been a meeting of minds outside the exchange platform to enter into synchronized trades. The trading pattern of Jai Annanya in the instant matter fail to justify any of the normal strategies of hedging / speculation / arbitrage. I, therefore, am not convinced with contentions of Jai Annanya in this regard. 50. Another contention of Jai Annanya is that the strike prices at which such options contracts can be entered into are not determined by the individual investors, but are preloaded on the exchange platform.

Further it has argued that all its trades have been executed within the range as permitted by the exchange. As brought out in the interim order, the trades in question were executed prima facie in fraudulent manner. As shown in table 8 of the interim order, in 136 out of 186 instances (i.e. 73% such instances), its trading accounted for 70- 100% of total turnover for the contract on those days. Thus, it reflects that the trading instruments were so selected that matching of orders could happen easily as there was hardly any market depth in those contracts. Such trading behavior as brought out adequately in the data tables provided in the interim order is apparently suspicious. Further, particulars of the transactions carried out by Jai Annanya as brought out in interim order adequately from tables 5 to table 11 points towards the abnormal trading behavior. I, therefore, reject the contentions of Jai Annanya in this regard. 51. Jai Annanya in its submissions has relied upon the order of Hon’ble SAT in Rakhi Trading Pvt. Ltd. Vs. SEBI and has stated that its case is covered by the said order.

In this regard it is noted that the facts of the present case are distinguishable for the facts of Rakhi Trading on grounds of the types of contracts and also the quantum of transactions executed by the appellant therein. 52. It is pertinent to mention that the case as prima facie found in the interim order involves a scheme, plan, device and artifice. The entities debarred thereby have been prima facie found to have used and employed a premeditated manipulative device or contrivance while dealing in securities market and indulged in non-genuine and deceptive transactions prohibited under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Related to Securities Market) Regulations, 2003 and the SEBI Act. The investigation in the entire scheme to find out the rationale of entities indulged in such suspicious / artificial trades including tracing the fund trail and the role of intermediaries allowing the alleged fictitious trades is going on. The investigation is also to cover the examination of other entities executing similar fictitious trades in the stock options segment.

I, therefore, do not find merit in the contentions of Jai Annanya in this regard. 53. I note that Jai Annanya, has failed to give any plausible reason/explanation for the prima facie finding as described in the interim order and for complete removal of restraint at this stage. I, therefore, do not agree for complete removal of restraint imposed by the interim order. 54. I, however, allow Jai Annanya to continue its NBFC business and to facilitate its NBFC activities further allow it -  to open and operate a new account tagged as ‘client margin account’;  to create pledge on client securities for the purpose of giving them loan, return these securities on repayment of the loan by the client and invoke the pledge in case of default by the client;  to sell clients’ securities from the ‘client margin account’ on account of default by the client to pay the margin money or repay the loan;  to re-pledge clients securities/mutual fund units from the ‘client margin account’ to raise funds in the normal course of its NBFC business; Subject to the following conditions:  No proprietary dealing or buy or sale of securities in proprietary capacity shall be made from ‘client margin account’.  In case of sale of securities from the ‘client margin account’, Jai Annanya shall satisfy the stock exchange / depository that the securities pertains to the client who has defaulted to pay the margin money or repay the loan amount.  Sale of client’s shares from the ‘client margin account’ shall be under the supervision of the stock exchange / depository.  Jai Annanya shall comply with requirements of the stock exchange / depository, if any, in this regard.  An audit trail may be maintained for each and every transaction in the said account.

55. Jai Annanya can approach SEBI for removal of any genuine difficulties with regard the reliefs in above para 54 for running its NBFC activity. 56. Considering the above, I, in exercise of the powers conferred upon me under section 19 of the SEBI Act, read with sections 11 and 11B thereof, hereby confirm the directions issued vide the ad interim ex parte order qua Jai Annanya subject to the interim relief(s) provided to it as mentioned in para 54 and communication dated February 08, 2016 as referred to in para 8 hereof. 57. This order shall continue to be in force till further directions.

58. A copy of this order shall be served on all recognized stock exchanges and depositories to ensure compliance with above directions.

- Sd/- Date: July 30th, 2016 RAJEEV KUMAR AGARWAL Place: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA