In the matter of DSQ Biotech Limited and Mascon Global Limited

WTM/PS/41/IVD/ID-3/SEPT/2010 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER IN THE MATTERS OF DSQ BIOTECH LTD. AND MASCON GLOBAL LTD. In respect of: N.H. Securities Ltd., Classic Share and Stock Broking Services Ltd., Luminant Investments Pvt. Ltd., Panther Fincap and Management Services Ltd., Triumph Securities Ltd., Classic Credit Ltd., Saimangal Invest Trade Ltd., Kensington Investments Ltd., European Investments Ltd., Wakefield Holdings Ltd. and Brentfield Holdings Ltd. Date of hearings: March 9, 2010 and March 10, 2010 Appearances For Noticees: Mr. R. Krishnan, Advocate for N.H. Securities Ltd., Classic Share and Stock Broking Services Ltd., Luminant Investments Pvt. Ltd., Panther Fincap and Management Services Ltd., Classic Credit Ltd., Saimangal Invest Trade Ltd. and Triumph Securities Ltd. None for others. For SEBI: Mr. G. Ramar, Deputy General Manager Mr. N. Sunil, Assistant General Manager Mr. Jagannath Das, Manager Mr. Pradeep Kumar, Legal Officer ORDER Under Section 11(4)(b) and 11B of Securities and Exchange Board of India Act, 1992 1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) conducted investigations into the buying, selling and dealings in the shares of Mascon Global Ltd. (hereinafter referred to as ‘Mascon’) (for the periods of August, 1999 to March, 2000 and December, 2000 to March, 2001) and DSQ Biotech Ltd. (hereinafter referred as ‘DSQ’) (for the period of December, 1999 to January, 2001). The trading details of the person who had traded in these scrips were collected and analyzed along with the data of volumes traded during the relevant period.

2. Investigation in the scrip of Mascon revealed that it was a closely held company and prior to December, 2000, the scrip was highly illiquid. The closing price of the scrip as on December 04, 2000 was `483.35 which came down to `84 as on March 30, 2001. A sudden surge in the volumes of Mascon was also noticed during December, 2000 to March, 2001, largely on account of the off-loading of substantial number of shares by promoter group company of Mascon namely Mascon Information Technologies Ltd. and CSI Technologies Ltd. to various entities related/ connected/ associated to Ketan Parekh namely Panther Investrade Ltd., Panther Fincap and Management Services Ltd. (hereinafter referred to as ‘Panther’), Classic Credit Ltd. (hereinafter referred to as ‘Classic’), Saimangal Invest Trade Ltd. (hereinafter referred to as ‘Saimangal’), Luminant Investments Pvt. Ltd. (hereinafter referred to as ‘Luminant’) and Overseas Corporate Bodies (hereinafter referred to as OCB’s) namely, Kensington Investments Ltd. (hereinafter referred to as ‘Kensington’), European Investments Ltd. (hereinafter referred to as ‘European’), Wakefield Holdings Ltd. (hereinafter referred to as ‘Wakefield’) and Brentfield Holdings Ltd. (hereinafter referred to as ‘Brentfield’).

During the period under consideration only these Ketan Parekh related entities and the said OCB’s were active in the scrip. The analysis of movement of shares revealed that huge quantities of shares of Mascon were off-loaded by way of off-market transfers from the account of MITL and CSI Technologies Ltd. This huge volume in the shares was later-on used by the entities to indulge in rampant manipulation of price and volume in the scrip of Mascon.

3. Investigations in the scrip of DSQ revealed that it had increased its share capital by making a preferential issue of 80,30,000 equity shares priced at `275 (with face value of `10 and a premium of `265) during March, 2000 to its four related entities as under:

Table-A Sr. Name No. of shares %age of expanded No. paid up capital 1. Deutsche Bank Custodial Ltd. (FII 1 ) 22,00,000 9.77% 2. Society Generale, Paris (France) (FII) 11,00,000 4.88% 3. A.J. Finance Ltd. (OCB) 30,00,000 13.33% 4. Greenfield Investment Ltd. (OCB) 17,30,000 7.69% These particular shares were partly paid up upto the extent of 10%, paid at the time of the allotment. It was revealed by the investigations that the rest of 90% did not come into the company and was managed to be shown to have been credited to the company by fictitious bank entries through three Indian companies’ viz. Continental Filaments, Athena Software and Uniforge Steel (all belonging to DSQ Group). Further, two of these companies namely Continental Filaments and Uniforge Steel were bought by the DSQ Group in March, 2000 itself.

These shares were dematerialized on the instruction of DSQ, into the accounts of Greenfield Investment Ltd. and A.J. Finance Ltd. which were then subsequently transferred to the demat account of DSQ Holdings Ltd. and were offloaded in the market through various brokers at National Stock Exchange (hereinafter referred to ‘NSE’) and Bombay Stock Exchange (hereinafter referred to ‘BSE’). It was also found that these shares were used to satisfy the settlement obligations of various other DSQ group entities in the market by availing of financing through the market as these entities were provided the amount to the extent of the sale proceeds by their brokers on the date of the trade itself i.e. in advance of the pay out of the exchange.

The price of the scrip of DSQ at BSE had fallen from `223.30 as on July 17, 2000 to `58.55 as on October 19, 2000. Thereafter, the price of the scrip started rising from `60.80 as on October 21, 2000 and reached to the price of `183.50 as on November 17, 2000. During this period, volumes in the scrip also showed much volatility i.e. a high of 21,44,548 shares as on December 13, 2000 and a low of 48,442 shares October 04, 2000. At NSE also price

1 Foreign Institutional Investors variation was noticed as the price of the scrip had touched a high of `246 as on December 13, 2000 and a low of `58.50 as on October 19, 2000. The volumes traded touched a high of 66,69,885 shares on January 04, 2001 and a low of 1,35,030 shares as on September 27, 2000.

During the relevant period, DSQ Holdings Ltd. appeared as one of the major selling counterparties for the trades made by the associated entities. For these trades orders were put simultaneously or within close proximity of each other for same price and quantity. These orders were found to be in the nature of synchronized trades and were put with a view to match with prior understanding. At NSE during the period September, 2000 to January, 2001, possible structured deals and cross deals were found to have been executed between the brokers, which accounted for about 7.24% of the gross traded quantity in the scrip. At BSE during the period December, 1999 to April, 2000, synchronized trades were found to have entered by 12 brokers on behalf of related entities to the DSQ group, which accounted to 68.29% of the market volume. Further, the percentage of these trades to the particular day’s trading was to the extent of 21% - 100%. Further, the brokers connived with the DSQ group to trade and offload unlisted preferential shares into the market.

4. Respective investigations in the scrips as stated above revealed that entities namely N.H. Securities Ltd., Classic Share and Stock Broking Services Ltd., Luminant, Panther, Classic, Saimangal, Kensington, European, Wakefield, Brentfield and Triumph Securities Ltd. were prima facie directly/ indirectly related/ connected to Mr. Ketan Parekh (hereinafter referred to as ‘KP related entities’) and were found to be involved in market manipulation activities in the aforesaid scrips in violation of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 (hereinafter referred to as ‘PFUTP Regulations’).

It was revealed that the modus operandi adopted by these entities in manipulating the scrips of Mascon and DSQ, was, by and large, the same and Ketan Parekh was alleged to be the mastermind behind all their acts of omission and commissions. In view of this, I am considering the show cause notices (hereinafter referred to as ‘SCN’) issued to N.H. Securities Ltd., Classic Share and Stock Broking Services Ltd., Luminant, Panther, Classic, Saimangal, Kensington, European, Wakefield, Brentfield and Triumph Securities Ltd. and passing a common order in the matters.

5. On completion of the investigation in the matter of Mascon, SEBI inter-alia issued SCN dated August 16, 2007, to Panther, Classic, Saimangal, Luminant, Kensington, European, Wakefield and Brentfield under Sections 11(4)(b) and 11B of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act’). The SCN alleged that the said entities had entered into various synchronized deals with the members of Ketan Parekh group/ associates in the scrip of Mascon and executed fictitious trades in the scrip. The shares were being rotated among the said entities without actual change in beneficial ownership and thereby artificial demand in the scrip was created. The SCN dated August 16, 2007, therefore alleged that the acts of Panther, Classic, Saimangal, Luminant, Kensington, European, Wakefield and Brentfield were in violation of Regulation 4(b) and (d) of PFUTP Regulations.

SCN was also issued to Triumph Securities Ltd. in the scrip of Mascon on August 17, 2007, under Sections 11(4)(b) and 11B of SEBI Act as its certificate of registration as a stock broker was cancelled vide SEBI order dated March 08, 2004. The SCN had alleged that Triumph Securities Ltd. had placed synchronized orders and executed cross trades for its connected/ associated entities. Such trading of Triumph Securities Ltd. created artificial volume in the scrip of Mascon as the same was not intended to effect the transfer of beneficial ownership. The SCN dated August 17, 2007, therefore alleged that the acts of Triumph Securities Ltd. were in violation of Regulation 4(b) and (d) of PFUTP Regulations.

No reply was received from Panther, Classic, Saimangal, Luminant, European and Triumph Securities Ltd. Entities namely Kensington, Wakefield and Brentfield replied to the SCN dated August 16, 2007, vide their respective letters all dated October 01, 2007 and requested for an opportunity of personal hearing. The contentions of Kensington, Wakefield and Brentfield in their replies are more or less similar, in brief, these are:

- Vide SEBI order dated May 16, 2002, there was a finding that Triumph International Finance (I) Ltd. has committed fraud on OCB’s including them. - They do not have any office/ permanent establishment in India. - They are owned by Mr. R.C. Chandran and his wife Ms. Meena Chandran. - Were not controlled by Ketan Parekh. - Neither Ketan Parekh nor the entities controlled by him have any shareholding in them. - Their purchases and sales were based on investment consideration. - Transactions entered by them were genuine resulting in transfer of beneficial ownership. - Had not sold shares via pre-negotiated structured deals.

6. As regards the matter of DSQ, on completion of investigation, SEBI inter alia issued separate SCNs all dated October 28, 2005, to Luminant, Panther, N.H. Securities Ltd. and Classic Share & Stock Broking Services Ltd. under Sections 11(4)(b) and 11B of SEBI Act. The SCNs, alleged that the acts of these entities were in violation of Regulation 4 (b), (c) and (d) of PFUTP Regulations. Accordingly, the SCNs called upon these entities to show cause as to why suitable directions under Sections 11(4)(b) and 11B of SEBI Act read with Regulations 11 and 13 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003, including restraining them from accessing the capital market should not be issued against them.

Panther, Luminant, N.H. Securities Ltd. and Classic Share & Stock Broking Services Ltd. replied to the SCN dated October 28, 2005, vide their respective letters and requested for an opportunity of personal hearing. The contentions of these in brief are:

i. Luminant vide its letter dated December 05, 2005. • Alleged transactions were genuine trades. Shares duly delivered as per the settlement obligations of the stock exchanges. • Is a separate legal entity. Some directors on its Board might be common with the Board of other entities, yet this does not make it an associate of other entities. • No one person representing it could be aware of all transactions carried on during the period. • Have not been provided with complete data and other information. Sought cross examination of persons whose statements have been relied upon. • Sale proceeds received were used for the purposes of business dealings and operations. • Had done only two sell trades in the scrip of DSQ. These by itself do not have the capacity to create structured deals. • Have been debarred from associating with the securities market for a period of fourteen years vide order dated December 12, 2003.

ii. Panther vide its letter dated December 02, 2005. • Alleged transactions were genuine trades. Shares duly delivered as per the settlement obligations of the stock exchanges. • Was not related to Classic Credit and Luminant. Is a separate legal entity. Some directors on the Board might be common with the Board of other entities, yet this does not make it an associate of other entities. • The onus is on the broker to execute the trade order for which is communicated by the client. • While trading in the scrip of DSQ had never defaulted on pay-in and/ or pay-out obligations.

• The broker offered it to remit the sale proceeds on the very same day of transaction which it accepted as being in the business of investment. • Negotiated deals are considered to be legal and permitted. • The nature of transactions were the limit order purchases and it became imperative for the broker to execute the trades if only the price and quantity ordered by us would match. • Had borrowed funds from HEM Securities on short term finance for enhancing its position in market. • Have not been provided with complete data and other information. Sought cross examination of persons whose statements have been relied upon. • Sale proceeds received from the sell trades of DSQ were used for the purposes of business dealings and operations. • Have been debarred from associating with the securities market for a period of fourteen years vide order dated December 12, 2003.

iii. Classic Share & Stock Broking Services Ltd. vide its letter dated November 30, 2005. • Is a separate legal entity. Some directors on the Board might be common with the Board of other entities, yet this does not make it an associate of other entities. Had no relation with Triumph International Finance Ltd., N.H. Securities Ltd., Panther. • Trading volume stated is minimal. • All transactions were done through the screen based mechanism of exchange. Had diligently carried out the instructions of the client. Was not concerned with the trading strategy of its client as its duty was to execute orders placed by its clients and ensure that the statutory and regulatory obligation are complied with. Were neither answerable nor accountable for the activities of the clients who transacted through it.

• Had two trading terminals at the relevant point of time and had not allotted any particular terminal to any client. • Its clients had never defaulted in pay-in and pay-out obligations of stock exchanges. • Squaring off transactions were allowed and permissible under law. • Had no related entity active in securities market during the relevant period. • Do not seem any wrong/ illegality in paying the sale proceeds before declaration of the same by the exchange. • Have not been provided with complete data and other information. Sought cross examination of persons whose statements have been relied upon.

iv. N.H. Securities Ltd. vide its letter dated December 01, 2005. • Is a separate legal entity. Some directors on the Board might be common with the Board of other entities, yet this does not make it an associate of other entities. Had no relation with Triumph International Finance Ltd., Classic Share & Stock Broking Services Ltd., Panther. • Had diligently carried out the instructions of the client. Panther had never defaulted in its obligation at exchange. • The dealing in the scrip of DSQ were purely a business activity and in no way concerned with the activity of company per se. • Its client had disclosed the fact that they are trading through other broker. • Have not been provided with complete data and other information. Sought cross examination of persons whose statements have been relied upon.

7. Before proceeding further in the matters opportunity of personal hearing was granted to all the entities named in the scrip of Mascon i.e. Panther, Classic, Saimangal, Luminant, Triumph Securities Ltd. on March 09, 2010 and Kensington, European, Wakefield and Brentfield on March 10, 2010. On the date fixed Mr. R. Krishnan, Advocate, appeared on behalf of Panther, Classic, Saimangal, Luminant and Triumph Securities Ltd.

Mr. R. Krishnan placed orders of Hon’ble Company Law Board dated December 23, 2008, on record in the matters of Panther, Saimangal and Triumph Securities Ltd. I have seen the orders of Hon’ble Company Law Board and note that the same restrains the directors of the company to functions as directors. Mr. Krishnan also placed on record the order of Hon’ble Calcutta High Court dated July 07, 2005, in the matter of Classic. I note that as considerable time has elapsed from the date of alleged violation by these entities and the matter has already been delayed for long, I find no merit in keeping these proceedings further pending anymore. Considering this, I am proceeding in the matter of Triumph Securities, Panther, Saimangal and Classic on the basis of material available on record.

I note that Kensington, European, Wakefield and Brentfield have not turned up for the hearing. Further, no communication has been received from these OCB’s. Considering this, I am compelled to proceed with the matter ex-parte on the basis of material available on record, having complied with the principles of natural justice.

8. Opportunity of personal hearing was also granted to Panther, Luminant, N.H. Securities Ltd. and Classic Share & Stock Broking Services Ltd. on March 09, 2010, in the matter of DSQ. On the date fixed Mr. R. Krishnan, Advocate, appeared on behalf of Panther, Luminant, N.H. Securities Ltd. and Classic Share & Stock Broking Services Ltd. and made oral submissions. Mr. Krishnan placed order of Hon’ble Company Law Board dated December 23, 2008, on record in the matter of Panther. I have seen the order of Hon’ble Company Law Board and note that the same restrains the directors of the company to functions as directors. I note that as considerable time has elapsed from the date of alleged violation by Panther and the matter has already been delayed for long, I find no merit in keeping these proceedings further pending anymore. Considering this, I am proceeding in the matter on the basis of material available on record.

9. I have carefully considered the SCN, replies to the SCNs wherever received and the material available on record. Having considered these, before proceeding further in the matter, I wish to deal with some of the common preliminary issues raised by the entities. It has been argued by Panther, Luminant, N.H. Securities Ltd. and Classic Share and Stock Broking Services Ltd. that all relied upon documents have not been provided to them. To this, I observe that all relied upon documents have already been supplied to these entities. However, I note that no document, which has not been provided to them, is being relied upon in the present proceedings.

As regards the contention that Panther, Luminant, N.H. Securities Ltd. and Classic Share and Stock Broking Ltd. were not related and had no links with Ketan Parekh, my observations are as under:

a. Most of these entities have argued that their shareholding pattern is different from each other and nothing is available on record to show that these were connected to each other. I note that Panther, Classic, Saimangal, Luminant and Triumph Securities Ltd. were directly related to Ketan Parekh and were being commonly referred as Ketan Parekh entities at the relevant point of time as noted in the SEBI order dated December 12, 2003.

b. The available records shows that in the statement dated July 20, 2001, made by Ketan Parekh, he himself has admitted that he is connected in one way or the other with all the said entities. In this regard, I place my reliance upon the SEBI order dated December 12, 2003 and Hon’ble Securities Appellate Tribunal (hereinafter referred to as ‘SAT’) Order dated July 14, 2006, in the matter of KP entities wherein after detailed examination, both the authorities have held that Panther, Classic, Saimangal, Luminant and Triumph Securities Ltd. can be termed as ‘KP related entities’. These findings can be treated as confirmed by the Hon’ble Supreme Court in view of the dismissal of the appeal filed by Ketan Parekh and others challenging the order of Hon’ble SAT. In view of the aforesaid, there is no dispute regarding the close association of these entities with Ketan Parekh. Their close association is further confirmed by the fact that these corporate entities were either having the common directors or the common addresses. Further, vide SEBI order dated March 31, 2004, it has been discussed in detail that these were having nexus with Ketan Parekh and were also controlled by him. The findings of this order were also confirmed by Hon’ble SAT vide order dated May 04, 2007.

c. Taking note of this, no doubt remains as regards the relationship of these entities among themselves and their close association with Ketan Parekh.

10. Having considered this, now, first I will deal with the scrip of Mascon. I note that Panther, Classic, Saimangal and Luminant had placed huge sell orders while trading in the scrip of Mascon through brokers namely Credit Swiss First Boston (India) Ltd., Triumph Securities Ltd., etc. and corresponding buy orders were placed by the related entities.

I note that the Panther was found executing fictitious trades in the scrip of Mascon by appearing on both sides of trade in a synchronized manner. It is observed that such trades of Panther had created an artificial volume to the tune of 29,99,500 shares in the scrip of Mascon. I have also seen the instances of trades where the KP related entities were found matching orders on the screen of exchange with a time difference of only a few seconds. It is seen that 90% of the transaction entered during the period of December, 2000 to March, 2001, in the scrip of Mascon, had got matched within 10 seconds of each other. All these details go on to show that the transaction were pre-arranged and concentrated in the hands of KP related entities and OCB’s.

I note that entities namely Panther, Classic, Saimangal, Luminant, Kensington, European, Wakefield and Brentfield had together bought 2,34,21,159 shares and sold 2,48,56,403 shares in the scrip of Mascon. From the trade details, it appears that the buy and sell orders were entered from the same office premises. However, in absence of any reply/ explanation from Panther, Classic, Saimangal, Luminant and European it cannot be conclusively decided.

11. As regards the scrip of DSQ, it is seen that Panther was appearing in the list of persons acting in concert with the company as on March 31, 2001. During the relevant period, Panther was found trading in the scrip of DSQ through seven brokers at BSE and had a gross purchase of 17,99,800 shares i.e. about 10.5% of the total market volume and gross sales of 10,22,279 forming about 6% of the total volume.

a. Panther while trading in the scrip of DSQ had executed various synchronized trades to the extent of 99.19%. The table below gives a wholesome picture of the same: Table – A Name of the Members at Sett. Gross Purchase Gross Sales Total (`) Matched Other BSE No. Trades s Qty. Rate (`) Qty. Rate(`) Milan Mahendra Sec Pvt. Ltd. 24 22,279 210 22,279 22,279 Milan Mahendra Sec Pvt. Ltd. 29 1,50,000 106.8 1,50,000 1,50,000 Woodstock Sec Pvt. Ltd. 29 2,00,000 98.25 2,00,000 2,00,000 Hem Sec 29 2,00,000 106.8 2,00,000 2,00,000 Chandravadan J. Dalal 29 1,50,000 106.5 1,50,000 1,49,900 100 Pravin V. Shah Stock 29 1,00,000 106.5 1,00,000 99,500 500 Triumph Sec Ltd. 29 3,99,800 98.15 3,99,800 3,99,800 Pravin V. Shah Stock 33 2,00,000 96.4 2,00,000 2,00,000 Hem Sec 33 2,00,000 96.75 2,00,000 2,00,000 Milan Mahendra Sec Pvt. Ltd. 33 2,00,000 96.74 2,00,000 1,99,970 30 Credit Suisse First Boston DR- 1,000,000 63.4 10,00,000 10,00,000 147 Total 17,99,800 1,022,279 28,22,079 27,99,170 22,909

I have seen the instances of such transactions stated to be synchronized by Panther in the scrip of DSQ as brought out in the SCN:

Table – B BUY SELL Executed Execut Date Member Client Order Qty Rate Mem Client Order Qty Rate Time ed rate Time (`) ber time (`) (`) 09/10/00 HEM Panther 15:58:19 1,00,000 106.5 DKB Hulda 15:58:20 1,00,000 106.5 15:58:20 106.5 09/10/00 HEM Panther 15:58:36 1,00,000 106.5 DKB Hulda 15:58:36 1,00,000 106.5 15:58:37 106.5 06/11/00 HEM Panther 14:34:03 2,00,000 96.5 CSFB Prop. 14:34:02 2,00,000 96.5 14:34:03 96.5 At 10/10/00 Triumph Panther 14:48:18 4,00,000 98 UTI DSQ 14:48:22 4,00,000 98 14:48:22 98 NSE Sec. Hodlings matched 399800 10/10/00 Woodsto Panther 14:49:07 2,00,000 98 UTI DSQ 14:49:08 2,00,000 98 14:49:09 98 ck Sec Holdings 09/10/00 Chandra Panther 15:53:41 1,00,000 106.5 UTI DSQ 15:53:44 1,00,000 106.5 15:53:44 106.5 vadan Sec. Holdings matched Dalal 99900 09/10/00 Milan Panther 16:00:11 50,000 106.5 UTI DSQ 15:59:42 450 106.5 16:00:12 106.5 Mahindr Sec. Holdings 16:00:12 49,550 a 09/10/00 Milan Panther 15:59:42 50,000 106.5 DKB Hulda 15:59:19 500 106.5 At Mahindr 15:59:42 49,500 BSE 06/11/00 HEM Panther 14:34:03 2,00,000 96.5 CSFB Prop. 14:34:02 2,00,000 96.5 14:34:03 96.5 06/11/00 Milan Panther 14:34:18 2,00,000 96.5 CSFB Prop. 14:34:19 1,99,970 96.5 14:34:19 96.5 Mahindr 06/11/00 Pravin Panther 14:34:51 2,00,000 96.4 CSFB Prop. 14:34:51 2,00,000 96.4 14:34:51 96.4 V. Shah

From the table above, it is seen that the Panther was matching its orders by putting consecutive buy orders through separate brokers. I note that the order time had been matched to the seconds. It has been observed from the above table and other instances of synchronized trades as seen in the SCN, that there was almost exact matching of the quantity, rate and also proximity in the time of inputting buy and sell orders. From these details, it becomes is clear that these orders were synchronized and were entered into the system with a view to match these with other orders entered with prior understanding. Such trades of Panther were not genuine and surely entered for some manipulative purposes.

b. It is also seen that Panther while trading in the scrip of DSQ had received advance amount to the extent of the sale proceeds due to it for its sales consideration from the brokers. A few instances of the same have been brought out below for reference:

Table – C

Broker Transaction Trade Market Trade Amt. Date of Exchange Date Qty. Rate (`) (`) Payment Settlementdate Dresdner Kleinwort Benson 20/11/2000 4,00,000 190.25 7,53,48,000 20/11/2000 02/12/2000 Securities India Ltd. (at BSE) Dresdner Kleinwort Benson 04/12/2000 2,00,000 188.60 3,73,46,000 04/12/2000 16/12/2000 Securities India Ltd. (at BSE) Dresdner Kleinwort Benson 07/12/2000 5,00,000 186.25 9,21,95,000 07/12/2000 20/12/2000 Securities India Ltd. (at NSE) Dresdner Kleinwort Benson 13/12/2000 1,50,000 238.25 3,53,61,000 13/12/2000 27/12/2000 Securities India Ltd. (at NSE)

It is an admitted fact that Panther had received advance payment from its brokers to the extent of its sale proceeds, while the settlement obligation at the exchange was discharged later on by the brokers. The payment for such trades were made to Panther either on the date of transaction or on the immediate next date of transaction without waiting for pay-out of funds from the exchange. A perusal of these transactions shows that Panther was getting immediate finance while trading on stock exchange mechanism. The pattern adopted here appears to be a special arrangement between Panther and its brokers. In this arrangement brokers provided sale proceeds of the shares received from the clients in advance and in result the client has made use of this advance for pay-in obligation of the same shares through the counter party broker.

I observe that by adopting this mechanism, Panther in connivance with its brokers had given colour of a legitimate transaction on the stock exchange and made the transactions liable for clearing and settlement by the exchange on one side and on the other hand Panther got immediate finance upto the extent of the sales proceeds on the immediate day of delivery of shares for further use. It is noted that in the ordinary course of settlement the proceeds of the sales would be payable by the broker to the client on receiving the pay out declared by the exchange, while on the buy side the payment for the buy position has to be made before the pay-in which in the present case has preceded the pay out. This pattern clearly suggests that Panther had availed finance from its brokers while trading in the scrip of DSQ. I note that BSE vide its circular no. 5638/96 dated October 01, 1996, advised the brokers that funding/ financing transactions are not being considered genuine transactions between the brokers and mentioned that such transactions would also fall within the ambit of fictitious transactions. It was further advised that serious view shall be taken against those members who were found to be involved in such transactions. Further, BSE vide its subsequent notice no. 80626/2001 dated March 17, 2001, once again advised its members, not to enter into such transactions and has warned the members concerned of strict disciplinary action in case of any such violation, besides, annulment of such transactions and non availability of Trade Guarantee Fund cover etc. Taking note of this it can be said that Panther had received finance from its brokers in clear violation of the above directives of BSE.

12. I note that Luminant while trading in the scrip of DSQ through broker Credit Swiss First Boston (India) Securities Pvt. Ltd. had also received payment for the sale transactions on the very same day. The table below shows the instances of such receipt of payments: Table – D S. Date of Client Qty. Date of delivery to Date of money No. transactions broker released 1. 29/12/2000 Luminant 5,10,000 29/12/2000 29/12/2000 2. 01/01/2001 Luminant 5,50,000 01/01/2001 01/01/2001

Having seen this, it is clear that Luminant had received immediate payments for its trades in the market, which is against the sound market practices as discussed above. I note that Luminant had not provided any details about its trading objective and other details before the investigating authority in the matter.

13. I note that the brokers N.H. Securities Ltd. and Classic Share and Stock Broking Services Ltd. were the registered brokers of NSE at the relevant point of time. However, vide SEBI order dated March 31, 2004, their registration was cancelled. Hence, the present proceedings have been initiated against these under Sections 11B and 11(4)(b) of the SEBI Act.

It is seen that a common charge has been leveled against both these brokers that they had not sought to know the trading strategy/ objective of their clients while trading in the scrip of DSQ as part of the due diligence and in compliance with the member-client agreement. These brokers have placed a common argument that their client Panther was an old client and had never in past defaulted in its obligations. By doing this, I note that N.H. Securities Ltd. and Classic Share and Stock Broking Services Ltd. had downplayed the importance and requirements of KYC by not satisfying themselves about the genuineness and the financial soundness of their client and its investment objectives. I have seen the specific clause in the ‘Member Client Agreement’ which reads as under:

“Whereas the MEMBER has satisfied and shall continuously satisfy himself about the genuineness and financial soundness of the CLIENT and investment objectives relevant to the services to be provided”

A reading of this clause clearly refers that the requirement is continuous and necessary. I note that the noticee had not sought to know the objective of its client’s inspite of the fact that it was aware of the relationship between the clients and the scrip in which they were trading.

It is seen that both these brokers had heavily traded in the scrip of DSQ in their proprietary account and had always squared up the trades. I also note that these brokers themselves were not able to tell about their own trading strategy in the scrip.

Further, entity namely Classic Share and Stock Broking Services Ltd. had entered various structured/ synchronized trades in the scrip of DSQ. The instances thereof have been brought out below for reference:

Table – E Trade Trade Trade Trade Buy Sell Time date time price(`) Qty. Diff. Order Order Broker Client Order Order Broker Client Time Price(`) Time Price(`) 4/10/2000 11:13:33 136.50 99,600 11:13:33 136.50 Classic Share Own 11:13:32 136.50 Prabhudas DSQ 0 and Stock Lilladher Holdings 4/10/2000 11:13:49 136.50 400 11:13:33 136.50 Classic Share Own 11:13:49 136.50 Prabhudas DSQ 0 and Stock Lilladher Holdings 4/10/2000 11:13:49 136.50 99,600 11:13:49 136.50 Classic Share Own 11:13:49 136.50 Prabhudas DSQ 0 and Stock Lilladher Holdings 4/10/2000 11:14:00 136.50 400 11:13:49 136.50 Classic Share Own 11:14:00 136.50 Prabhudas DSQ 0 and Stock Lilladher Holdings 4/10/2000 11:14:01 136.50 99,600 11:14:01 136.50 Classic Share Own 11:14:00 136.50 Prabhudas DSQ 0 and Stock Lilladher Holdings 4/10/2000 11:14:09 136.50 400 11:14:01 136.50 Classic Share Own 11:14:09 136.50 Prabhudas DSQ 0 and Stock Lilladher Holdings 4/10/2000 11:14:10 136.50 74,600 11:14:10 136.50 Classic Share Own 11:14:09 136.50 Prabhudas DSQ 0 and Stock Lilladher Holdings 4/10/2000 13:01:46 137.75 20,000 13:01:45 137.75 Classic Share Own 13:01:46 137.75 Prabhudas DSQ 0 and Stock Lilladher Holdings 25/10/2000 10:35:55 64.70 98069 10:35:55 64.70 Classic Share Own 10:35:55 64.70 Credit Suisse Own 0:00:00 and Stock 25/10/2000 10:36:05 64.70 1866 10:35:55 64.70 Classic Share Own 10:36:05 64.70 Credit Suisse Own 0:00:10 and Stock 25/10/2000 10:36:05 64.70 10000 10:36:04 64.70 Classic Share Own 10:36:05 64.70 Credit Suisse Own 0:00:01 and Stock 25/10/2000 10:36:26 64.70 86634 10:36:26 64.70 Classic Share Own 10:36:05 64.70 Credit Suisse Own 0:00:21 and Stock 25/10/2000 10:36:44 64.70 2701 10:36:26 64.70 Classic Share Own 10:36:44 64.70 Credit Suisse Own 0:00:18 and Stock 25/10/2000 10:36:44 64.70 97199 10:36:44 64.70 Classic Share Own 10:36:44 64.70 Credit Suisse Own 0:00:00 and Stock 25/10/2000 10:36:51 64.70 2701 10:36:44 64.70 Classic Share Own 10:36:51 64.70 Credit Suisse Own 0:00:07 and Stock 25/10/2000 10:36:51 64.70 97199 10:36:51 64.70 Classic Share Panther 10:36:51 64.70 Credit Suisse Own 0:00:00 and Stock 25/10/2000 10:37:01 64.70 2701 10:36:51 64.70 Classic Share Own 10:37:01 64.70 Credit Suisse Own 0:00:10 and Stock 25/10/2000 10:37:01 64.70 97299 10:37:00 64.70 Classic Share Panther 10:37:01 64.70 Credit Suisse Own 0:00:01 and Stock 25/10/2000 10:37:08 64.70 2501 10:37:00 64.7 Classic Share Own 10:37:08 64.70 Credit Suisse Own 0:00:08 and Stock 25/10/2000 10:37:08 64.70 97499 10:37:08 64.7 Classic Share Panther/ 10:37:08 64.70 Credit Suisse Own 0:00:00 and Stock Own 25/10/2000 10:37:20 64.70 2301 10:37:08 64.7 Classic Share Own 10:37:20 64.70 Credit Suisse Own 0:00:12 and Stock 25/10/2000 10:37:21 64.70 97388 10:37:21 64.7 Classic Share Own 10:37:20 64.70 Credit Suisse Own 0:00:01 and Stock 25/10/2000 10:37:27 64.70 2612 10:37:21 64.7 Classic Share Own 10:37:27 64.70 Credit Suisse Own 0:00:06 and Stock 25/10/2000 10:37:27 64.70 95388 10:37:26 64.7 Classic Share Own 10:37:27 64.70 Credit Suisse Own 0:00:01 and Stock 25/10/2000 10:37:32 64.70 4412 10:37:26 64.7 Classic Share Own 10:37:32 64.70 Credit Suisse Own 0:00:06 and Stock 25/10/2000 10:37:33 64.70 95473 10:37:33 64.7 Classic Share Own 10:37:32 64.70 Credit Suisse Own 0:00:01 and Stock 25/10/2000 10:37:42 64.70 3952 10:37:33 64.7 Classic Share Own 10:37:42 64.70 Credit Suisse Own 0:00:09 and Stock 25/10/2000 10:37:45 64.70 94598 10:37:45 64.7 Classic Share Own 10:37:42 64.70 Credit Suisse Own 0:00:03 and Stock

From the table above, it is seen that Classic Share and Stock Broking Services Ltd. while trading in its own account had synchronized its order in the scrip of DSQ. These orders were entered with prior understanding/ arrangement between the buying and selling side. These trades cannot be termed as mere coincidence that every time, Classic Share and Stock Broking Services Ltd. managed to sell to/ buy from the same counterparty client and/ or related/ associated client. Thus, it is inferred that these transactions were not genuine sale-purchase transaction and had the effect of creating artificial volume in the shares of DSQ. I note that such artificial trades generate interest of genuine investors who trade in the scrip seeing the activity in the scrip. I note that this is serious market irregularity which tends to disturb the market equilibrium. In these trades there was no change in beneficial as the buying and selling clients were belonging to the same group. This is in clear violation of Regulation 4(b), (c) and (d) of PFUTP Regulations.

While trading in this fashion, I note that Classic Share and Stock Broking Services Ltd. and N.H. Securities Ltd. had misused the screen based trading system. In view of the findings stated above, I note that these brokers have failed to exercise due skill, care and diligence which are expected from a prudent stock broker who has a duty not only towards its client but also towards the securities market.

14. Taking into consideration of the above discussion, I am of the view that the trades in the scrip of Mascon were with some prior understanding between the buying and selling brokers/ clients. I note that Triumph Securities Ltd. had acted in concert with KP related entities for creation of artificial market in the scrip of Mascon. The trades entered by Triumph Securities Ltd. were in synchronized manner. I also note that Triumph Securities Ltd. had executed various cross trades in the scrip of Mascon and thereby created huge volumes in the scrip. I have also seen the credit facility mechanism of KP related entities and note that the same is against the sound market practice. In view of this, it can be said that Panther, Classic, Saimangal, Luminant had misused the screen based trading mechanism by creation of false/ artificial market in the scrip of Mascon.

15. As discussed above in the scrip of DSQ, instant liquidity was availed by the entities for the sales made by them in the market. Further the trades were synchronized to the extent that the shares were picked up by some other related entity on the other side of the trade. It can be said that by adopting this method of trading there was no change in the beneficial ownership and the shares remained within the group of associated/ related entities. Immediate funds were made available to the selling entities, instead of waiting for the payout date from the exchange. Such financing transactions were given the colour of purchase and sell transactions on the stock exchanges. I note that this has clearly resulted in the abuse of the trading and settlement mechanism of the stock exchanges.

16. In the facts and circumstances of the case, I, in exercise of the powers conferred upon me in terms of Section 19 of the Securities and Exchange Board of India Act, 1992, do hereby issue the following directions:

a. Panther Fincap and Management Services Ltd. [PAN: AAACP 3045P], Luminant Investment Pvt. Ltd. [PAN: AAACL 0834A], Classic Credit Ltd. [PAN: AABCC 4018N] and Saimangal Investrade Ltd. [PAN: AABCS 4255R] be restrained from buying, selling or dealing in securities and from associating with securities market in any manner whatsoever for a period of fourteen years.

b. Triumph Securities Ltd. [PAN: AAACT 2152P], N.H. Securities Ltd. [PAN: AAACS 7140Q] [SEBI Reg. no. INB 230643938] and Classic Share and Stock Broking Services Ltd. [SEBI Reg. no. INB 230597033] be restrained from buying, selling or dealing in securities and from associating with securities market in any manner whatsoever for a period of five years.

c. As all OCB’s were derecognized in India as eligible classes of investor vide Reserve Bank of India Circular No. A.P. (DIR Series) Circular No. 14 dated September 16, 2003. Further, the OCB’s were derecognized vide Reserve

Bank of India Circular No. 44/2003 dated December 12, 2003. Having seen this, I note that no useful purpose will be served by issuing any directions at this stage to Kensington Investments Ltd., European Investments Ltd., Wakefield Holdings Ltd. and Brentfield Holdings Ltd. as these are no longer active in the Indian markets. However, if there is any change in the policy of Reserve Bank of India regarding OCBs, SEBI shall be free to initiate action against these for allegations made herein.

17. It is clarified that so far as the entities namely Classic Credit Ltd., Panther Fincap and Management Services Ltd., Luminant Investments Pvt. Ltd. and Saimangal Investrade Ltd. which were covered under the SEBI Order dated December 12, 2003 and November 12, 2007, this order shall run concurrently and shall be deemed to be effective from December 12, 2003. As regards entities namely Triumph Securities Ltd. and N.H. Securities Ltd. which were covered under the SEBI Order dated November 12, 2007, this order shall run concurrently and shall be deemed to be effective from November 12, 2007.

18. As regards Classic Share and Stock Broking Services Ltd. the Order shall come into effect from the date of this order.

DATE : 23/9/2010 PRASHANT SARAN PLACE : MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA