Confirmatory Order in the matter of Kamalakshi Finance Corporation Ltd

WTM/RKA/ISD/114/2016 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER UNDER SECTION 11 AND 11B OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 IN THE MATTER OF KAMALAKSHI FINANCE CORPORATION LTD (CURRENTLY KNOWN AS GROMO TRADE & CONSULTANCY LTD) 1. Pursuant to detection of a huge rise in the traded volume and price of the shares of Kamalakshi Finance Corp. Ltd. (“KFCL”), currently known as Gromo Trade & Consultancy Ltd on Bombay Stock Exchange Limited ("BSE") during the period from January 15, 2014 to December 26, 2014 (hereinafter referred to as "Examination Period"), Securities and Exchange Board of India ("SEBI") undertook a preliminary inquiry in the dealings in the said scrip. 2. Upon preliminary examination, it was prima facie observed that KFCL and persons in charge of its affairs created a facade of preferential issue of equity shares of around ₹41 crore in order to provide fictitious long term capital gains ("LTCG") to KFCL’s preferential allotees so as to convert their unaccounted income into accounted one. It was observed that within a short period after the 1st preferential allotment (made on November 09, 2013), a significant increase in the price of the scrip took place which continued during the period of lock in of the shares allotted to the preferential allottees. Further, two more preferential allotments were made (on February 17, 2014 and June 24, 2014) while price in the scrip was increasing continuously. It was also observed that trading in the scrip of KFCL occurred rarely and the increase in the price during the period after the 1st preferential allotment (with a very low average daily volume) was found to be substantial and abnormal. The modus operandi used by these entities is summarized as under:

a) As on September 30, 2013, KFCL had a share capital of ₹5,00,000 comprising 50,000 equity shares of ₹10 each. b) It was observed that KFCL made 3 preferential allotments, i.e., 82,90,000 equity shares to 42 entities at the price of ₹12 per share in November 09, 2013; 1,48,50,000 equity shares to 49 entities at the price of ₹13 per share on February 17, 2014 and; 52,00,000 equity shares to 46 entities at the price of ₹25 per share on June 24, 2014, thereby allotting 2,83,40, 000 equity shares in total to 137 persons/entities. c) During the examination period from January 15, 2014 to December 26, 2014, the price of the scrip of KFCL rose from ₹10.20 to ₹ 489, i.e. an increase by approximately 48

Order in the matter of Kamalakshi Finance Corporation Ltd times in 150 trading days. During the entire examination period, the total traded volume in KFCL was only 1385 shares as against total 2,83,90,000 subscribed shares and average trading volume was only 2 - 4 trades per day. d) The sharp rise in the price of the scrip of KFCL during the examination period was not supported by fundamentals of KFCL and its financials or any other genuine factor. Further, there was no material corporate announcement made by KFCL which could support such price rise in its scrip. e) A group of entities connected amongst each other and also connected to KFCL, along with certain suspected entities had contributed to the price rise in the scrip when substantial number of shares, were locked-in and non-transferable/tradable. 3. In this backdrop, SEBI, vide an ad interim ex-parte order dated February 20, 2015 (hereinafter referred to as “interim order”), restrained below mentioned 33 entities including KFCL/its directors and promoters along with 22 other entities (hereafter collectively referred to as "Noticees" and individually by their respective names) from accessing the securities market and further prohibited them from buying, selling or dealing in securities in any manner whatsoever, till further directions: - Table 1: Entities against whom SEBI issued directions vide the interim order.

1 Client Name Client PAN Referred as Kamalakshi Finance Corporation Company/Directors/ 1 Limited AAACK1804B Promoters 2 Dheeraj Shah ARWPS1458D 3 Paresh Shah AWWPS6699H 4 Sheetal Dheeraj Shah BPFPS4170G 5 Heetal Kumar J Shah AIMPS2740R 6 Naresh Suresh Gurav AOWPG1458E 7 Chandresh Upadhyay ABKPU3443N 8 Arvindkumar Upadyay AASPU5859K 9 Suneel Upadhyay Kumar AAXPU1010F 10 Praful Arvindbhai Solanki ALJPS3430J 11 Mrs. Sonal Neeraj Virani AFUPN2004C 12 Jayprakash Dhanraj Bohra AACPB3214B Kamalakshi group 13 Chandadevi Agrawal ABGPA4839A 14 Giridhari Kumar Agarwal * AAGPA5881R 15 Ankit Mahendra Kachhara BMOPK4328N 16 Vipul Amratlal Doshi AEEPD3118A

17 Yogesh Vitthal Jadhav AKHPJ5994R Samskara Sales Agency Private 18 Limited AATCS7717A Gulmohar Dealcom Private 19 Limited AADCG9091K 20 Wakil Rajbhar AOSPR9100E 21 Sapna Ramdas Jatwal APNPJ7211C 22 Girish Rajkumar Goel BDLPG2634K 23 Vijay Mahavir Tibrewal ACZPT5384R 24 Kavita Vijay Tibrewal ADHPT3452F 25 Prem Lata Nahar AFAPN8764M Suspected 26 Hasmukhbhai Dhanabhai Gohil ARNPG7530M persons/entities Chandrapalsinh Mohansinh 27 Rathod AZGPR9023D 28 Jugalkishor Ramchandra Parmar ASIPP9432F 29 Sabirbhai Sattarbhai Bhathiyara AUCPB9000F 30 Pankajkumar Jugalkishor Parmar ATYPP6409M 31 Shirin Sabirbhai Bhatiyara BGIPB9055R 32 Vipul Rajendrabhai Gandhi AKZPG3383R 33 Daulat Laxmilal Chandraliya AAAPC7685H

* Vide corrigendum on September 02, 2015 to the interim order, it was clarified that Bimal Agrawal (PAN: AAGPA5881R) mentioned in the Order shall be read as Mr. Giridhari Kumar Agarwal, (PAN: AAGPA5881R). 4. Pursuant to the interim order, replies from majority of the Noticees were received. Opportunities of personal hearing in the matter were also provided to all the Noticees on August 04 and August 05, 2015 but only 8 out of the 33 Noticees attended the hearing. Another opportunity of personal hearing in the matter was given on December 08, 2015 when only 2 Noticees appeared. At the request of the Company and its directors/promoters (entities at Sr no .1 to 11 in Table No. 1) another opportunity of hearing was provided to them on January 19, 2015 but they sought exemption from personal hearing and requested that their written submissions may be considered for the purpose of these proceedings. However, subsequently, the Company, vide a letter dated August 3, 2016 requested for grant of another opportunity of personal hearing which was provided to it on August 24, 2016. On the said date, the representative on behalf of the Company appeared and submitted that the Company’s submissions already filed on record may be considered. I note that 12 entities (entities at at Sr nos 17, 18, 19, 20, 21, 22, 26, 27, 28, 29, 30 and 31 in Table 1) did not respond either to the interim order or to the notices for personal hearing.

5. 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 entities involved. 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. 6. After considering the facts and circumstances brought out by these entities who had responded to interim orders; in order 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, they were granted certain common interim reliefs.

The decision in the regard was caused to be communicated to them vide separate letters dated January 15, 2016 permitting them:- 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 a interest bearing escrow account with a nationalised 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 nationalised 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 any noticee 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. “ 7. It is noted that proceedings for passing of confirmatory order pending investigation in the matter are now complete and the confirmatory order in the matter qua the Noticees herein needs to be passed considering their replies/ submissions and relevant material available on record. Common replies of Company and its Directors/Promoters 8. The replies/submissions of the Company and its Directors/Promoters vide their letters dated July 22, 25, 27 and 28, 2015 and August 13 and 17, 2015 were, inter alia, as under: a) The fluctuations in the share prices of the Company depend upon the market forces and there is no role of the company in it. b) The interim order is in gross violation of principles of natural justice and no opportunity was provided to them to explain their version and circumstances although some details were called from them which were provided promptly. c) SEBI has erroneously clubbed them with other entities and they had no role to play in the trading done by them and they do not have any financial transactions with them. d) The preferential allotments made by KFCL to the allottees were in the ordinary course and were done with a bonafide intent.

KFCL had utilized the proceeds arising out of the issues in a fair and transparent manner and had not indulged in illegal acts pertaining to the preferential issue. The details about the same were in public domain and nobody had raised any grievance about the same during the relevant period. e) KFCL had come out with the preferential issues, of which the information was available on public domain, which might have influenced the price rise. They have no connection with the persons/entities which were trading in the scrip of KFCL. The scrip of KFCL is listed on the stock exchange and its trading done by the public investors cannot be controlled or monitored.

f) KFCL had come out with the preferential issues for future prospects and with the object of fulfilling the additional fund requirements for capital expenditure including acquisition of companies / business, funding long term working capital requirements, marketing, setting up of offices abroad and for other approved corporate purposes. The detailed business plans of the company were stated in the Information Memorandum for the preferential issue. Looking at such business plans of the Company, the investors might have invested in the scrip of the Company. g) SEBI has created an imaginary group combining "Kamalakshi group and suspected entities". It is incorrect that allottees had a nexus with KFCL and its directors/promoters and the issue of the shares was under a prior arrangement between them. Specific submissions of the directors of KFCL h) Sheetal Dheraj Shah submitted that she was appointed as Non-executive Non-independent Director on 1st October, 2013 and resigned from the Board on 28th November, 2014. Further, she was just a director in KFCL and was never designated as Independent Director.

It has come to her notice from the said order that she was designated as Independent Director in the Annual Report 2013-14. Pursuant to the order, she had checked with KFCL, regarding this and KFCL had informed that the word “independent” crept in the corporate governance report by typographical mistake; however on the main page her designation was correctly mentioned. She did not have any role to play in the utilization of funds received in the preferential allotments. i) Heetal Kumar J Shah and Naresh Suresh Gaurav submitted that they were appointed as independent Directors on 15th May, 2014 and resigned from the Board within six months of their appointment i.e. on 28th November, 2014. The 1st preferential issue came out 6 months before their appointment as directors and the 2nd issue came nearly 2 months before their appointment as directors of KFCL. The 3rd issue came out on 24th June, 2014, however, they were not present in the Board Meeting of KFCL wherein the decision to allot the shares on preferential basis was taken. Since they were Independent Directors, they were not involved in the day to day affairs of KFCL and had no role to play in the utilization of funds received in the preferential allotment. j) Chandresh Upadhyay has submitted that he was appointed as independent Director on 5th September, 2012 and resigned from the Board on 15th May, 2014 (prior to the passing of the interim order).

With regard to the 1st and 2nd preferential issue, he has submitted that he was not present in the Board meeting of KFCL when the decision to make the preferential allotments was taken. Since he is a Non-Executive Director, he is not involved in day to day affairs of KFCL and had no role to play in the utilization of funds received in the preferential allotment. k) Arvindkumar Upadhyay submitted that he was appointed as independent director on 14th October, 2011 and resigned from the Board on 15th May, 2014 i.e. prior to the interim order. l) Suneel Upadhyay Kumar submitted that he was appointed as Non-Executive Director on 11th November, 2011 and resigned from the Board on 15th May, 2014 (before the interim order). During the Board meeting with regard to 2nd preferential allotment, he was not present. Since he was a Non-Executive Director, he was not involved in day to day affairs of KFCL and had no role to play in the utilization of funds received in the preferential allotment. m) Praful Arvindbhai Solanki submitted that he was appointed as an Independent Director on 28th November, 2014 and all the 3 preferential allotments had come before his appointment as director of KFCL. n) Sonal Virani Neeraj submitted that she was appointed as Independent Director on 28th November, 2014 and all the 3 preferential allotments had come before his appointment as director of KFCL.

Hence she was not part of any Board meeting or any other meeting with regards to the 3 preferential allotments. Since she was an Independent Director, she was not involved in day to day affairs of KFCL. 9. 11 entities belonging to the Kamalakshi group and suspected group submitted their replies. Their common replies/submissions are, inter alia, as under: - a) They have not violated any of the provisions of SEBI Act/Regulations as alleged. b) No pre-decisional opportunity of personal hearing was granted to them which is in violation of principles of natural justice. c) They do not have any nexus with any preferential allottee /member/ director/ promoters of KFCL and therefore they are not connected/related to them. d) The buy orders placed by them were placed in the normal course of trading. e) Their trading volume in the scrip of KFCL as compared to the total turnover is very miniscule. f) They did not apply for nor were allotted any shares under any preferential allotments. Therefore, they would not have earned or will earn any kind of financial gain, LTCG etc. g) They had mere intention of investment just like in any other scrip.

10. Specific replies/submissions of Kamalakshi group and suspected group a) Vipul Amratlal Doshi-  As per the copy of the letter of Romy Realty Private Ltd submitted during the personal hearing, one staff member had mentioned wrong client id, 1201120000023787, in the instruction slip and the shares were transferred to the wrong client id (of Mr Doshi). b) Ankit M Kachhara-  As there is always upper circuit every day, the buy orders should be above the last traded price otherwise order will not be executed. That is why buy orders were placed above the last traded price.  He doesn't know how his address is being used by 2 persons (Vishal Tibrewala and Vinod Tibrewala) who were directors of the Company, Forming & Fabrication Solutions Private Ltd. c) Jayprakash Dhanraj Bohra-  In January 2014, one Mr Ramnarauan C Bohra, who hails from his native place Falaudi (Rajasthan) had informed him that Mr Ramnarayan had some financial transactions with one Mr Kushal Jain, who had delivered him 1050 shares of KFCL together with transfer deeds duly singed by him. The said Mr Ramnarayan was in urgent need of money. Therefore he offered to sell the said 1050 shares to Mr Jayprakash who had paid ₹10,500 for the shares standing in the name of Mr. Kushal Jain. On March 20, 2014, 1050 shares were dematerialised. The said Mr. Kushal Jain was not one of the preferential allotees. The shares held by him were out of the 50000 shares originally allotted by KFCL.  Subsequently, between April 17, 2014 and January 22, 2015, as and when the buyers were available, he sold the said 1050 shares of KFCL.  As regards his off-market transaction with KFCL in the scrip of Ojas Asset Construction Company Ltd. He submitted that he bought these shares on the recommendation of Mr Ramnarauan C Bohra who represented to him that once the scrip is listed, it will fetch a very good price. Thus, at the instance of Mr Ramnarauan C Bohr, he transferred ₹ 60,000 to the account of KFCL and KFCL in turn transferred 6000 shares of Ojas Asset Construction Company Ltd. In his demat account on June 23, 2014. The said 6000 shares are still held in his demat account.  He did not have any direct connection with the promoters/directors of KFCL. He did not belong to the Kamalakshi Group.

 Al the transactions sin the scrip of KFCL were done carried out at the then prevailing market prices. At no point of time, he placed a sell order in the absence of any buyer.  The price of the scrip witnessed a rise even after the period of examination. d) Kavita Vijay Tribrewal & Vijay Mahavir Tribrewal-  They submitted that they do not have any business contact or any off market trading relations with Risa International Ltd, Neeta R Chandak, Olympia Multi Trading P Ltd, Tilak Finance Ltd, Romy Realty Ltd, Rupak Developers (P) Ltd, Shri Vijay Kumar Nandlal or Moryo.  The purchase was only because of the upward movement of the scrip an nothing else. e) Giridhari Kumar Agarwal-  The trades were executed from his HUF account and not from his individual account as alleged in the interim order f) Daulat L Chandraliya-  He is engaged in the business of sale and purchase of securities as a trader as well as an investor. As permitted under the BSE Regulations, he as an investor had placed orders for purchase of shares of KFCL into the trading terminal. He submitted that his demat account statement in respect of the scrip of KFCL does not show any off market debit or credit.  He has denied that he has done any off market transactions with Vikas Tantia.

Further he has denied any relationship with Mr Vipul Rajendrabhai Gandhi. g) Prem Lata Nahar-  She has not entered into any off market transaction in the scrip.  During the investigation period of nearly one year from January to December 2014, she has carried out transactions only on 5 days i.e. of buying in all 10 shares on 4 days in June 2014 and thereafter selling it in August 2014 precisely on August 25, 2014 (single day), hence her role, participation and involvement in the scrip is very negligible. h) Vipul Rajendrabhai Gandhi-  He did not apply for nor was allotted any shares under any of the said preferential allotments made in the years 2013 and 2014. Therefore, in no way he would have earned or will earn any kind of financial gain, LTCG etc.  He had bought 50 shares of KFCL with mere intention of investment just like any other scrip. He holds the shares till date and therefore he has not booked any profits or gains.  There was no intention of misusing stock exchange mechanism and indulge in price manipulation leading to artificial increase in the price in order to create any bogus non-taxable ( LTCG) profits.

11. I have considered the allegations levelled against the Noticees in the interim order, their submissions in response thereof and other material available on record. It is relevant to mention that SEBI has passed several interim orders in cases similar to the present matter against several entities based upon prima facie findings and pending investigations in these matters. After these interim orders were passed, several requests were received from many entities against whom these interim orders have been passed seeking certain common interim reliefs pending passing of confirmatory orders and making out prima facie case relating to restraints imposed by respective interim orders. Considering the large number of entities covered in such interim orders, complexities involved in the issues such-as inter-linkages of different tranches of alleged schemes, connection/relation amongst transacting parties in different tranche of schemes, allegations being based upon a gamut of circumstantial evidence, 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.

Considering the facts and circumstances brought out by these entities in their representations, the balance of convenience was found to be in favour of granting certain common interim reliefs in the facts and circumstances of these cases. At the same time, it was also noted that the entities who had filed their replies to the respective interim order but have not made requests for such interim reliefs were placed in the same circumstances as the entities who had requested for interim reliefs. Therefore, all these entities were granted certain common interim reliefs except with regard to utilization of sale proceeds to be kept in the escrow account. 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. 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 above factors. Therefore, the decision to grant such interim reliefs were caused to be communicated by separate letters to respective entities form January 2016 onwards.

12. I note that in the instant case, the directions issued against the Noticees are interim in nature and have been issued on the basis of prima facie findings. SEBI had issued directions vide the interim order in the matter in order to protect the interests of investors in the securities market. Detailed investigation in the matter is still in progress. Thus, the issue for consideration at this stage is whether the interim directions, issued against the Noticees vide the interim order, need to be confirmed, vacated or modified in any manner, during pendency of investigation in the matter. 13. The Noticees have raised a common contention that the interim order has been passed in disregard of the principles of natural justice as no opportunity of hearing was provided to them 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 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 the Noticees post decisional opportunities of hearing. I also note that the power of SEBI to pass interim orders flows from 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. " 14. 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." 15. 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…" 16. In view of the above, I find that the interim order passed by SEBI was not in disregard 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 the settled law, the Noticees were afforded a post-decisional opportunity to file their replies and avail personal hearing.

I, therefore, reject the contention of the Noticees in this regard. 17. The Noticees have also contended that there was no urgency which required SEBI to pass an interim order in the matter and the directions, if any, could have been issued against them after providing them an opportunity to explain their version and circumstances. In this regard, I note that 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. 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. In the present case, the modus operandi where suspected entities were misusing the stock exchange mechanism came to light only in February 2015. The interim order clearly brings out the reasons and circumstances for issuance of ex-parte ad-interim directions. I, therefore, do not find any merit in the contention of the Noticees in this regard. 18. The Noticees have made another common submission that they are not connected / related with each other, they do not belong to any group and SEBI has created an imaginary group combining "Kamalakshi group and suspected entities".

They have also contended that their decision to trade in the scrip of KFCL was an independent one and should not be seen in conjunction with any group. They have further contended that even otherwise, their individual trading is miniscule and could not have led to any manipulation in the scrip as alleged in the interim order. In this regard, it is noted that during the examination period, the Kamalakshi group along with the suspected entities had bought 691 shares (approximately 50% of the total buy volume) and sold 1286 shares (approximately 93% of the total sell volume) which constitute the major portion of the total trade volume during the said period. It is important to note that the relationship / connection among the Kamalakshi group and suspected entities as illustrated in the interim order has been established on the basis of a multiplicity of factors including common address, common phone numbers, common email address, common directors, bank account details, fund movements, share transfers in off-market, family relationship, etc. Other than a general denial, the Noticees have not produced any satisfactory material/documents to dispute the inferences regarding their inter-se relationship brought out in the interim order.

Thus, even though the contribution of certain entities to volume in the scrip of KFCL may appear to be less in comparison to the total volume during the examination period, their contribution / role as a group was instrumental in the price rise in the scrip of KFCL and in the entire scheme detailed in the interim order. Further, the particulars related to the transactions of Kamalakshi group and suspected entities such as LTP contribution, volume contribution, etc. were also provided in the interim order in response whereof they have not provided any cogent explanation. In view of these facts and circumstances, I find that the Noticees are connected to each other and were a part of the group as mentioned in the interim order. 19. KFCL has contended that the preferential allotments made by it to the allottees was in the ordinary course and it had utilized the proceeds arising out of the issue in a fair and transparent manner and had not indulged into illegal acts. In this regard, it is noted that the balance sheet of KFCL for the year 2013-14 showed that KFCL had no fixed assets and no capital work in progress.

Further its annual report indicated that it was basically into dealing or trading in shares or securities which did not match with the objectives for which the preferential allotments were made. As mentioned in the interim order, a major amount of the proceeds of the preferential allotments was extended as loans and advances, (i.e. 68.31%, 96.04% and 25.86% of the total issue proceeds during the preferential allotments made in the months of November 2013, February 2014 and June, 2014, respectively) thereby indicating that the proceeds were not even used for the purposes for which the preferential allotments were made. The above discussed facts and circumstances indicate that the preferential allotments were not made by KFCL in its ordinary course of business but were rather made as a part of the entire scheme which has been discussed elaborately in the interim order. In view of the above, I do not find any merit in the contention of KFCL in this regard. 20. The Noticees have raised another contention that they did not have any role in the manipulation of the price of the scrip of KFCL or in the entire plan described in the interim order.

They have further contended that there is no material to prove that their acts were “fraudulent” and that they violated the provisions mentioned in the interim order. In this regard, I note that the facts and circumstances of the instant case discussed hereinabove and in the interim order indicate beyond doubt that preferential allotment is an essential and important act in the whole scheme of things and the need to make such preferential allotment to achieve the end objective of the scheme has been amply brought out in the interim order. The interim order has reasonably highlighted the modus operandi wherein the company in nexus with the preferential allotees was trying to make a facade of preferential allotment ostensibly to raise money and thereafter the preferential allotees with the aid of the entities of Kamalakshi Group could have misused the stock exchange mechanism to exit at a high price in order to book illegitimate gains with no payment of taxes as LTCG is tax exempt. Further, preferential allotees could have sold their shares pursuant to abnormal increase in price in a manipulative way and made huge illegitimate profit in the whole process.

In view of this background and facts and circumstances, I find that the acts of the Noticees discussed in the interim order are prima facie fraudulent and in contravention of the provisions of securities laws mentioned therein. I, therefore, reject the contentions of the Noticee in this regard.

21. Having dealt with the common submission of the Noticees, I now proceed to deal with individual / category-wise submissions of various entities. 22. KFCL has also submitted that the news of preferential issue was in public domain which might have influenced the price rise and therefore neither KFCL nor any of its promoters/directors were aware of why the price of the scrip of KFCL rose. In this regard, I note that as mentioned in interim order, the company had marginal profits for the financial year ("FY") 2011-12, FY 2012-13 and FY 2013-14 and the earning per share ("EPS") for the said financial years was very low, i.e. ₹1.94, ₹0.67 and ₹ - 0.13, respectively. The balance sheet of KFCL for the year 2013-14 showed that KFCL had no fixed assets and no capital work in progress. Further, during the examination period, no material corporate announcement was made by KFCL which could support the price rise in the scrip as mentioned in the interim order. Thus, the sharp rise in the price of the scrip of KFCL during the examination period was not supported by its fundamentals or any other genuine factor.

Further, I note that related entities mentioned as Kamalakshi group and suspected entities, who are also related to KFCL, traded significantly in the scrip during the period of examination and the price of the scrip of KFCL rose sharply only after they started trading in the scrip of KFCL. In these facts and circumstances, I find that the sharp rise in the price of the scrip of KFCL was solely because of the active trading by the Kamalakshi group and suspected entities under the fraudulent scheme that has been explained in the interim order. I, therefore, reject the contention of KFCL in this regard. 23. Two directors of KFCL (Praful Arvindbhai Solanki and Sonal Virani Neeraj) have submitted that they had resigned from the Board prior to the interim order. In this regard, it is noted from the record that these 2 directors were appointed as directors of the company on 28th November, 2014, i.e., 6 months after the 3rd preferential allotment and in the last month of the examination period. In view of the above, I, in exercise of the powers conferred upon me under section 19, read with sections 11(1), 11(4) and 11B of the SEBI Act, hereby revoke the directions against the aforesaid 2 directors contained in the interim order.

24. Certain directors of KFCL have raised a common contention that they were not directors during 1 or 2 out of the 3 preferential allotments of KFCL and were not present in the board meetings wherein the decision of preferential allotment was taken. Some directors have also contended that they were non-executive directors and had no role to play in the utilisation of funds received in the preferential allotment. I note that all these directors, against whom directions have been passed vide the interim order (except for Praful Arvindbhai Solanki and Sonal Virani Neeraj), were undisputedly directors of KFCL at the time of at least one preferential allotment. Subsequently, Kamalakshi group and suspected entities (who were related to KFCL/its directors) manipulated the price and volume of the scrip of KFCL by indulging in non-genuine trading amongst themselves. In addition to the above, the interim order also points out the failure of the directors of KFCL in respect of compliance with the listing agreement. I note that though a company is a separate legal entity, it cannot act by itself, but only through its directors who are expected to exercise their powers on behalf of the company with utmost care, skill and diligence.

Hon'ble Supreme Court, while describing what is the duty of a director of a company, held in Official Liquidator v. P.A. Tendolkar (1973) 1 SCC 602 as under: "A Director may be shown to be so placed and to have been so closely and so long associated personally with the management of the Company that he will be deemed to be not merely cognizant of but liable for fraud in the conduct of the business of a Company even though no specific act of dishonesty is proved against him personally. He cannot shut his eyes to what must be obvious to everyone who examines the affairs of the Company even superficially. If he does so he could be held liable for dereliction of duties undertaken by him and compelled to make good the losses incurred by the Company due to his neglect even if he is not shown to be guilty of participating in the commission of fraud. It is enough if his negligence is of such a character as to enable frauds to be committed and losses thereby incurred by the Company. " 25. Further, I note that there is no dispute as to the fact that the scrip of KFCL was illiquid and the fundamentals of KFCL were also very poor.

The basis of relationship of KFCL/its directors with other Kamalakshi Group and suspected entities have also been detailed in the interim order and no cogent documentary evidence has been submitted by any of the directors to dispute the said basis of relationship. In these circumstances, there appears to be a prima facie role of the directors of KFCL behind the sale/purchase of shares of KFCL by those entities. Thus, the above contention of the directors cannot be accepted. The facts in the instant case reveal that the directors of KFCL had failed to ensure that the acts and transactions of KFCL were not in violation of any of the applicable provisions of SEBI Regulations or other applicable. In view of the above, I prima facie find that the directors of KFCL were either directly or indirectly involved in the acts and omissions of KFCL and in creation of artificial volume and price rise in the scrip of KFCL through Kamalakshi Group and suspected entities during the examination period. 26. It is mentioned in the interim order that Mr Vipul Amratlal Doshi had off market transactions with Romy Realty Private Ltd, related to KFCL and Moryo Industries Ltd. In response thereto, Mr Vipul Amratlal Doshi has submitted that a staff member of Romy Realty Private Ltd had wrongly mentioned the client id of Mr Doshi.

He has also a submitted a letter from Romy Realty Private Ltd confirming the same. In this regard, I note that the off-market transaction under question was carried out on June 30, 2014, whereas the clarificatory letter which has been relied upon by Mr. Vipul Amratlal Doshi was sent by Romy Realty Private Ltd. to its broker on March 25, 2015, which was after the date when interim order in the matter was passed. From this fact, it appears that the said clarificatory letter was sent by Romy Realty Private Ltd as an afterthought and possibly at the behest of Mr Vipul Amratlal Doshi. Had the punching of wrong client ID been a genuine mistake, the clarification from Romy Realty Private Ltd. to its broker would have been proximate in time to the actual transaction date i.e. June 30, 2014. In view of the above, I reject the contention of Mr Vipul Amratlal Doshi in this regard. 27. Mr Jayaprakash Dhanraj Bohra has submitted that he had received 1050 shares from one Mr Kushal Jain by paying ₹10,500. In this regard, it is important to note that Mr Jayaprakash Dhanraj Bohra has not contested his relation with the company in terms of the off market transaction with KFCL in the scrip of Ojas Asset Reconstruction Company Ltd. It is further noted that he is the person who sold the most number of shares during the examination period (i.e.

685 shares). He was also instrumental in controlling the sell side of the transactions as he sold shares on 59 trading days with miniscule daily sales of 1, 2, 5, 10 shares. In view of the above facts, the role of Mr Jayaprakash Dhanraj Bohra in the entire scheme detailed in the interim order cannot be ruled out. 28. Mr Ankit Manhendra Kachhara has contended that his address is not the same as that of the 2 directors of the Company, Forming & Fabrication Solutions Private Ltd. and that he didn't know how his address was being used by these directors. In this regard, I note that the address of Vishal Tibrewala and Vinod Tibrewala (the two directors of Forming & Fabrication Solutions Private Ltd.) as shown on the MCA 21 portal of Ministry of Corporate Affairs is “6, J B Nagar, Andheri East, Mumbai-59”. As noted from the submissions of Mr Ankit Manhendra Kachhara, his address is “6 / 11A, Ridhi Sifhi Appt, Kanti Nagar, J B Nagar, Andheri East, Mumbai-59”. Thus, his address appears to be similar to the address of the aforesaid 2 directors noted from the MCA 21 portal. This fact prima facie indicates that he was connected to the above named two directors of Forming & Fabrication Solutions Private Ltd. to whose director loan was extended by KFCL.

In these facts and circumstances, the above submission of Mr Ankit Manhendra Kachhara is not tenable. 29. Mr Giridhari Kumar Agarwal has contended that the trades were executed from his HUF account and not from his individual account as alleged in the interim order. In this regard, I note that the trades have been executed by Giridhari Kumar Agrawal in a number of scrips since 2012 and as per the KYC details, the account was opened in 2005. In the present case, the PAN against which the trades under consideration were executed belonged to Giridhari Kumar Agrawal and not to Giridhari Kumar Agrawal HUF. In view of the above, I do not find any merit in the submissions of Mr Giridhari Kumar Agrawal in this regard. 30. Kavita Vijay Tribrewal and Vijay Mahavir Tribrewal have submitted that they do not have any business contact or any off market trading relations with Risa International Ltd, Neeta R Chandak, Olympia Multi Trading P Ltd, Tilak Finance Ltd, Romy Realty Ltd, Rupak Developers (P) Ltd, Shri Vijay Kumar Nandlal or Moryo. In this regard, I note that Vijay Mahavir Tribrewal in his reply dated August 4, 2015 has admitted that he had received 300 shares of Risa International Ltd. in physical form from a co-passenger which he subsequently transferred to a demat account mentioned by the said co-passenger.

I note that the said transaction is the same transaction which has been noted in the interim order. Thus, the off-market transaction in the scrip of Risa International Ltd. has been admitted by Vijay Mahavir Tribrewal. Kavita Vijay Tribrewal in her submissions admitted that she is the wife of Vijay Mahavir Tribrewal, who used to look after transactions in securities on her behalf. Further, Kavita Vijay Tribrewal and Vijay Mahavir Tribrewal have not submitted any other documentary evidence to support their submission noted above. In view of the above, I do not find any merit in the submission of Kavita Vijay Tribrewal and Vijay Mahavir Tribrewal in this regard and reject the same. 31. Mr. Daulat L Chandraliya has contended that he did not have any off market transaction with Mr. Vikas Tantia as alleged in the interim order. He also denied his relationship with Mr. Vipul Rajendrabhai Gandhi. In this regard, I note from the record that on June 4, 2014, Mr. Daulat L Chandraliya transferred 100 shares of Lux Industries Ltd. in off-market to Mr. Vikas Tantia. Thus, Mr. Daulat L Chandraliya’s submission that he did not have any off-market dealing with Mr. Vikas Tantia cannot be accepted.

It is noted here that an off-market dealing between two entities presupposes a prior relationship / understanding between them. I also note that as mentioned in the interim order Mr. Vipul Rajendrabhai Gandhi also had off market dealings with Mr. Vikas Tantia which has not been disputed by him. Thus, the prima facie inference drawn in the interim order that the aforesaid three entities were connected/ related to each other and other Kamalakshi group & suspected entities cannot be refuted. 32. The above facts and circumstances indicate that KFCL and other Noticees were acting in concert towards a common objective that has been brought out in the interim order. Considering the background of KFCL, investment in a company having such poor and meagre fundamentals cannot prima facie be termed as a rational investment behaviour. Such investments, as in this case, normally could be made if the allottees had a nexus with KFCL and its directors/promoters and the issue of these shares was under a prior arrangement between them. This is further substantiated by the fact that in some cases funds received as part of the proceeds of preferential allotment were immediately transferred by KFCL to various entities on the same day or next day and were never utilized by KFCL for expansion of its business or for execution of its plans as envisaged in the special resolution in respect of the aforesaid preferential allotment.

In my view, the preferential allotment was being used as a tool for implementation of the dubious plan, device and artifice of KFCL, entities connected/ related to it and the preferential allottees. The facts and circumstances of this case, in my view, strongly indicate that the issue of these shares were under a prior arrangement between them for the ulterior motive or the end objective of the scheme that has been brought out explicitly in the interim order. 33. I, however, find that, at this stage, the Noticees (except Praful Arvindbhai Solanki and Sonal Virani Neeraj) have failed to give any plausible reasoning/explanation for their acts and omissions as described in the interim order and have not been able to make out a prima facie case for revocation of the interim order. I, therefore, in this case, reject the prayers of the said Noticees for setting aside the interim order or for complete removal of restraint imposed by it. 34. I find it important to mention that the interim order clearly mentions that detailed investigation in the matter is in progress. At the stage of the interim order, directions were issued against entities whose role / involvement in the entire scheme was prima facie observed in light of the facts and circumstances at that stage.

It is pertinent to clarify that appropriate action in accordance with the provisions of law will be initiated against every entity (including the preferential allotees) who has a role in the plan, scheme, design employed in this case. 35. The purpose of the interim order was to restrain/prevent the Noticee from indulging in similar activities of misuse of the stock exchange mechanism for purposes other than genuine trading. In this case more than 18 months have elapsed since the interim order and the Noticees have been restrained from buying, selling or dealing in all securities, either directly or indirectly in any manner till further directions. This is a special type of case where several entities have been restrained on the basis of prima facie findings. The investigation in the matter is going on and finality to the prima facie findings can be arrived at only on completion thereof. The facts of this case are complex and entail examination of various transactions in shares under investigation.

36. Having dealt with the contentions of the noticees as aforesaid, I note that majority of them have raised concern over challenges in running their activities on account of ban and consequent freezing of their demat accounts. Many of these entities have pleaded for removal of the restraint imposed vide the interim order or atleast allow them partial relief of permitting trading in securities other than those involved in this case. It is worth mentioning that the case in hand is peculiar as large number of entities have been restrained and the ongoing investigation in the matter may take time in completion. I have been conscious that the restraint order should not cause disproportionate hardship or avoidable loss to the portfolio of the noticees. That is why several relaxations, such as allowing investment in mutual fund units, permission to liquidate existing portfolio and keep the proceeds in escrow account and even utilize 25% of the proceeds for meeting exigencies, etc. have been made in the past. Now at this stage, considering the facts and circumstances of this case and submissions/oral arguments made before me, I deem it appropriate to make further relaxations so as to address the issues of the personal and business exigencies or other liquidity problems.

37. Considering the above, I, in exercise of the powers conferred upon me under section 19 of the SEBI Act, read with sections 11(1), 11(4) and 11B thereof, hereby confirm the directions issued vide the ad interim ex parte order dated February 20, 2015 against the Noticees (except 2 directors, namely, Praful Arvindbhai Solanki and Sonal Virani Neeraj) except that they can:- (a) enter into delivery based transactions in cash segment in the securities covered in NSE Nifty 500 Index scrips and/ or S&P BSE 500 scrips; (b) subscribe to units of the mutual funds including through SIP and redeem the units of the mutual funds so subscribed; (c) deal in Debt/Government Securities; (d) invest in ETF; (e) avail the benefits of corporate actions like rights issue, bonus issue, stock split, dividend, etc.; (f) tender the shares lying in their demat account in any open offer/delisting offer under the relevant regulations of SEBI; 38. Further considering business and personal exigencies and liquidity problems submitted by the restrained entities, I allow them further relaxations/reliefs as under:- (a) They are permitted to sell the securities lying in their 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.

(b) They may deal with or utilize the sale proceeds lying in the aforesaid escrow account under the supervision of the concerned stock exchange provided as under:- i) the sale proceeds may be utilised for investments permitted in paragraph 37;

ii) upto 25% of the value of the portfolio as on the date of the interim order or the amount* in excess of the profit made /loss incurred or value of shares purchased to give exit, whichever is higher, may be utilized for business purposes and/or for meeting any other exigencies or address liquidity problems, etc. * The amount will include the value of portfolio in the demat account 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. (c) The aforesaid reliefs shall be subject to the supervision of exchanges and depositories. The stock exchanges may use the existing mechanism available for implementing the similar interim relief earlier granted to some of the entities. 39. It is, however, clarified that the aforesaid exceptions/relaxation/reliefs shall be available (a) To the aforesaid Noticees except those who have not replied to the interim order as mentioned in paragraph 4 above. (b) The common interim reliefs already granted in the matter earlier are subsumed in the aforesaid general relaxations/reliefs. The specific reliefs granted if any, to any of the Noticees shall remain in operation. 40. The directions issued against Praful Arvindbhai Solanki and Sonal Virani Neeraj vide the interim order dated February 20, 2015 stand revoked. 41. This order is without prejudice to any enforcement action that SEBI may deem necessary against the aforesaid Noticees on completion of the investigation in the matter. 42. This order shall continue to be in force till further directions. A copy of this order shall be served on all recognized stock exchanges and depositories to ensure compliance with above directions.

Sd/-

DATE: August 25th, 2016 RAJEEV KUMAR AGARWAL PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA