Order against CSI Technologies Ltd in the matter of Mascon Global Ltd

ORDER Under Section 11(4)(b) and 11B of the Securities and Exchange Board of India Act, 1992.

1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) conducted an investigation into the dealings in the shares of Mascon Global Limited (hereinafter referred to as ‘Mascon’ or ‘the company’) for the period of August, 1999 to March, 2000 and December, 2000 to March, 2001.

2. Investigation revealed that Mascon was a closely held company and prior to December, 2000, the scrip was highly illiquid. During the period of investigation, the scrip of Mascon had fallen from `420 to a low of `85. A sudden surge in the volumes of Mascon was noticed during December, 2000, largely on account of the off-loading of substantial number of shares by promoter group companies of Mascon namely Mascon Information Technologies Limited (hereinafter referred to as ‘MITL’) (formerly known as Martek Holdings Inc, USA) and CSI Technologies Limited (hereinafter referred to as ‘noticee’) to various entities related/ connected/ associated to Ketan Parekh namely Panther Investrade Limited, Panther Fincap and Management Services Limited, Classic Credit Limited, Saimangal Invest Trade Limited and Luminant Investments Pvt. Limited (hereinafter referred to as ‘Ketan Parekh related entities’) and certain Overseas Corporate Bodies (hereinafter referred to as OCB’s) namely, Kensington Investments Limited, European Investments Limited, Wakefield Holdings Limited and Brentfield Holdings Limited. It was only during the period of investigation, that the Ketan

Parekh related entities and the OCBs named above remained active in the scrip.

3. On completion of the investigation, SEBI, inter-alia issued show cause notice dated August 17, 2007 (hereinafter referred to as ‘SCN’) to the noticee under Sections 11B and 11(4)(b) of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act’). The SCN alleged that the noticee, a Maurititus based OCB, was allotted 7,20,000 shares of Mascon in the preferential allotment made by the company in April, 2000. The noticee off-loaded large number of shares of Mascon in the off-market, for which no payment was received by it. These shares were later-on used for creating artificial volume and price in the scrip of Mascon. It was further alleged that the noticee had knowingly aided and abetted entities/ OCBs related/ connected to Ketan Parekh to manipulate in the scrip. The SCN, therefore, alleged that the acts of noticee were in violation of the Regulation 4(b) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 1995 (hereinafter referred to as ‘PFUTP Regulations’). Accordingly, it called upon the noticee to show cause as to why suitable directions under Section 11(4) and 11B of the SEBI Act should not be issued.

4. The SCN issued to the noticee could not be delivered despite various attempts and the same was posted on the SEBI website. However, no response has been received from the noticee. Before proceeding further in the matter, an opportunity of personal hearing was granted to the noticee on January 28, 2009 and the notice of hearing also could not be delivered. A newspaper advertisement was also given regarding the SCN on August 13, 2009. I have seen that the principles of natural justice are sufficiently complied with. In view of 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.

5. Upon considering the material available on record, now I proceed with the matter. I note that Mascon was a closely held company and the floating stock in the scrip was thin. It is seen from the SCN that the noticee has been referred as promoter group company of Mascon. I note that the noticee is a Mauritius based OCB, which had furnished the registered office address of Mascon as their contact address in India. Further, the same address of Mascon has been given by the noticee in its demat account opening form. It is observed that the noticee was allotted 7,20,000 shares of Mascon in a preferential allotment made by the company in April, 2000. Later-on, the holding of the noticee was further increased by a bonus announcement by Mascon.

6. Further, the noticee on December 01, 2000, transferred 20,00,000 shares of Mascon to Kensington Investments Limited. Another 5,00,000 shares were transferred by the noticee on December 07, 2000 again to Kensington Investment Limited. Both these transactions were done in off-market and no payment details have been found for these, which gives an inference that the transfer of shares by the noticee was without any consideration. I find no reasonable explanation on record from the noticee for the off-market transfer of huge quantities of the shares of Mascon. I observe that, during the period when the shares were being transferred by the noticee, the trading in the scrip was witnessing abnormal volumes.

7. Having considered the above discussion, I am of the view that the off-market transfer of huge quantities of the shares of Mascon by the noticee without any consideration raises serious doubts on its transactions. However, I note that all OCBs were derecognized in India as eligible classes of investors vide Circular no. A.P. (DIR Series) Circular no. 14 dated September 16, 2003. Further, the OCBs 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 direction to the noticee as it is no longer active in Indian markets.

8. Under 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, hereby dispose of the show cause notice issued on August 17, 2007 to CSI Technologies Limited without further direction.

DATE : 11/AUGUST/2011 PRASHANT SARAN PLACE : MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA