Order against Dr. Mahendra C. Shah in the matter of Karuna Cables Limited (Now Known As Globus Corporation Limited

1. The Securities and Exchange Board of India (hereinafter referred to as SEBI), vide an ad interim ex-parte Order dated June 24, 2010 (hereinafter referred to as the Order), in the matter of Karuna Cables Limited (now known as Globus Corporation Limited), had among other directions, restrained Dr. Mahendra C. Shah from accessing the securities market and prohibited him from buying, selling or dealing in the securities market, including in Initial Public Offerings, in any manner, either directly or indirectly till further directions. Dr. Mahendra C. Shah was also directed not to hold any managerial position (including directorship) or any other key position in any listed company in India or an intermediary registered with SEBI or with any securities market participant, in any capacity, till further directions. The facts which led to the passing of the said Order are as follows. SEBI issued a show cause notice dated October 16, 2007 in respect of an investigation conducted by it in relation to the dealings in the shares of Karuna Cables Limited, to the Company itself, its Managing Director, Dr. Mahendra C. Shah, Ceetee Trading and Leasing Private Limited (hereinafter referred to as Ceetee Trading) and its Director, Mr. Sanjay B. Shah in respect of the violations of the provisions of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as the PFUTP Regulations). Pursuant to the receipt of replies from the parties, SEBI afforded opportunities of personal hearing to them. On March 17, 2009, the parties were represented by Mr. Prakash K. Shah, advocate who made submissions. Dr. Mahendra C. Shah was also present during the hearing. Thereafter, SEBI, vide Order dated June 15, 2009, restrained the Company, Dr. Mahendra C. Shah, Ceetee Trading and Mr. Sanjay B. Shah from accessing the securities market and further prohibited them from buying, selling or dealing in the securities market, directly or indirectly, for a period of six months, for the reasons stated therein.

2. Subsequently, Mr. Sanjay B. Shah sought certain information under the provisions of Right to Information Act, 2005 (RTI Act) in respect of the proceedings which culminated in the passing of the Order dated June 15, 2009. In his appeal before the Appellate Authority in SEBI under the RTI Act, Mr. Sanjay B. Shah mentioned that he was one of the parties against whom SEBI had passed the Order dated June 15, 2009, and that, he never appeared before any authority or signed any statement or authorized any person to appear before SEBI on his behalf and never received any letter from SEBI in this regard. The Appellate Authority, vide Order dated January 8, 2010 directed the CPIO, SEBI to provide a copy of the authority letter which had authorized the advocate of Mr. Sanjay B. Shah to appear before SEBI. In view of the above claim that Mr. Sanjay B. Shah had not authorized anybody to appear on his behalf before SEBI and had not received any correspondence from SEBI in the matter, it was found necessary to ascertain the genuineness of the authority letters submitted on behalf of Mr. Sanjay B. Shah to SEBI.

Therefore, SEBI, vide letter dated March 29, 2010 advised Mr. Sanjay B. Shah to inter alia confirm whether he had authorized Mr. Prakash K. Shah, Advocate to appear in the hearings before SEBI in matter. In response, Mr. Sanjay B. Shah, vide letter dated March 30, 2010 informed SEBI that he had not authorized Mr. Prakash K. Shah, Advocate to appear on his behalf in the said matter. He also submitted that he was not known to Mr. Prakash K. Shah and had not signed any authority letter and confirmed that the signatures in the authority letters submitted to SEBI were not his. Mr. Sanjay B. Shah was also provided with an opportunity of hearing. On the said date, Mr. Sanjay B. Shah appeared before SEBI and inter alia requested forty five days time for filing his submissions on the allegations mentioned in the show cause notice dated October 16, 2007. Written statements were also given by Mr. Sanjay B. Shah confirming the stand taken by him in the appeal filed before the Appellate Authority under the RTI Act. He further submitted in writing to SEBI that the authority letters dated March 5, 2009 and March 14, 2009 were never issued by him and the signature on the said letters was not his and the same did not match with his signature present on his Permanent Account Number (PAN) Card.

He further stated that the said authority letters were never seen by him before and were made available for the first time through an application preferred by him under RTI Act. Therefore, the investigation in the matter of the Company with respect to Ceetee Trading and its director Mr. Sanjay B. Shah was reopened in order to ascertain the identity of persons who were in charge of Ceetee Trading during the relevant period. In view of the fact that Mr. Sanjay B. Shah had denied signing the authority letters submitted to SEBI, an opinion in the matter was sought by SEBI from the Office of the Government Examiner of Questioned Documents, Directorate of Forensic Science at Hyderabad. The Government Examiner of Questioned Documents, vide letter dated May 18, 2010 opined that there is no significant similarity between the questioned and the standard writings of Mr. Sanjay B. Shah. On a collective consideration of all those features, it had led to an opinion that there were different authors. In the Order, it was prima facie observed inter alia that:

i. Dr. Mahendra C Shah and his wife, Mrs Hasu M. Shah are in-charge of and responsible for the conduct of the business of Ceetee Trading during the relevant period when the manipulation in the matter of the Company. ii. Dr. Mahendra C. Shah with his wife Mrs. Hasu M. Shah were responsible for transferring the shares of the Company held by Ceetee

Trading to various entities/persons which were ultimately used for manipulating the shares of the Company during the relevant period. iii. Dr. Mahendra C. Shah had forged the signatures of Mr. Sanjay B. Shah in the authority letters dated March 5, 2009, March 14, 2009 and March 16, 2009 which were forwarded to SEBI.

It was also observed in the Order that Dr. Mahendra C. Shah and Mrs. Hasu M. Shah had used Ceetee Trading and the name of “Sanjay B. Shah” as fronts to carry out the manipulative acts in the shares of the Company.

3. Thereafter, Dr. Mahendra C. Shah and Mrs. Hasu M. Shah, vide letters dated August 23, 2010 filed their objections to the Order. As Mrs. Hasu M. Shah, had subsequently filed an application for passing of a consent order, the proceedings initiated against her is not covered in this Order. Dr. Mahendra M. Shah, in his reply stated that only section 11(4) (b) of SEBI Act and Regulation 11 (1) (c) of the PFUTP Regulations give SEBI power to suspend any office bearer of any stock exchange or self-regulatory organization from holding such position. He further submitted that a listed company is not an intermediary registered with SEBI and therefore he being a Managing Director of a listed company was outside purview of Section 11(4)(b) of SEBI Act and Regulation 11(1)(c) of PFUTP Regulations and therefore SEBI order debarring him from holding any managerial position (including directorship) or any other key position in any listed company in India was without jurisdiction. He further submitted that on this ground alone the order in respect of debarring him from any managerial position in a listed company deserved to be dropped. Dr. Mahendra M. Shah further whilst denying that he forged the authorization letters on behalf of Mr. Sanjay B. Shah has stated that the same was too isolated an incident to hold that he was involved with the day-to day operations of Ceetee Trading or that manipulative activities were done by him and make him liable for violation of Section 12A of SEBI act and Regulation 3 and 4 of PFUTP Regulations. He further contended that the finding that he had drafted the replies on behalf of Mr. Sanjay Shah was also based on conjectures and surmises. He further contended that the signing of Delivery Instruction Slip by Mrs. Hasu M.

Shah was the internal management of Ceetee Trading and did not in any manner make him the authority to act on behalf of Ceetee trading. He also submitted that the following two facts show and establish that the credentials of Mr. Sanjay B. Shah are doubtful and questionable and on the basis of the statement of such a person, SEBI should not have passed the order alleging him of forgery and violation of PFUTP Regulations:

a. Mr. Sanjay B Shah had attended the board meeting held on June 14, 2003 and had signed the minutes of the board meeting in his capacity as director of Ceetee Trading and b. Mr. Sanjay B Shah, vide his letter dated March 30, 2010, disputed his signature on the authority letters dated March 5, 2009 and March 14, 2009 and subsequently Mr. Sanjay B. Shah himself filed an affidavit with SEBI confirming execution of authorization letter in favour of Advocate Prakash Shah.

4. Dr. Mahendra M. Shah further submitted that in view of the subsequent affidavit of Mr. Sanjay B. Shah, inter alia affirming that he was not having requisite knowledge, to submit the reply to the show cause notice dated October 16, 2007, he had requested Dr. Mahendra C Shah to do the needful and when Dr. Mahendra C Shah suggested the name of Mr. Prakash K. Shah, he (Sanjay B. Shah) did not have any objection to Mr. Prakash K. Shah representing him (Sanjay B Shah) before SEBI, the entire edifice on which SEBI held him guilty of violating PFUTP Regulations is no longer sustainable and deserved to be dropped. Submissions were also made before me on behalf of Dr. Mahendra C. Shah on various dates. Dr. Mahendra C. Shah was also present at the time of the hearing. An opportunity of cross examination of the Government Examiner of Questioned Documents, Directorate of Forensic Science was also provided to Dr. Mahendra C. Shah.

5. I have considered the oral as well as written submissions made on behalf of Dr. Mahendra C Shah and other material available on record. The limited issue for consideration at this stage is whether, based on the available material on record and after considering the submissions made on behalf of Dr. Mahendra C. Shah, the directions issued vide the Order need to be continued, revoked or modified in any manner, in so far as it relates to these two entities. The circumstances which led to passing of the order have been mentioned in detail therein. As stated above in this Order, Mr. Sanjay B. Shah, pursuant to the passing of the Order dated June 15, 2009, stated that he was one of the parties against whom SEBI had passed the order dated June 15, 2009. However, according to him, he had never appeared before any authority, tribunals, never signed any statement or authorized any person to appear before SEBI on his behalf and never received any letter from SEBI in this regard. It is to be noted that the authorization letters allegedly executed by Mr. Sanjay B. Shah were examined by the Government Examiner of Questioned documents.

Subsequently, Mr. Sanjay B. Shah changed his version and also filed an affidavit in that regard. I have considered the submissions of Dr. Mahendra C. Shah made vide letters dated August 23, 2010, the oral submissions made during the hearing and other material available on record. Though, Mr. Sanjay B. Shah changed his stand through an affidavit, prima facie, I do not see any reason to reject the opinion of the handwriting expert obtained by SEBI in the matter. In reply to the interim order Dr. Mahendra C Shah submitted a report of Mr. Anil Kumar Mathur, Handwriting Expert and Forensic Examiner of Questioned Documents. Though, opportunities were provided to Dr. Mahendra C Shah to make available Mr. Anil Kumar Mathur for cross examination, he had failed to comply for one or the other reasons. Finally, Dr. Mahendra C Shah stated that he has decided not to examine Mr. Anil Kumar Mathur. The investigation in the matter of the Company prima facie revealed that Dr. Mahendra C Shah and Mrs. Hasu M Shah were in charge of and responsible for the conduct of the business of Ceetee Trading during the period from February 2005–September 2005 when the manipulation in the shares of the Company had taken place.

It was submitted by Dr. Mahendra C. Shah to revoke the interim directions issued against him as he was prohibited from buying, selling and dealing in securities by SEBI, vide Order dated June 24, 2010. Having regard to the fact that the investigation in the matter is completed, it would in the fitness of things to consider and finally decide the contentions of Dr. Mahendra M. Shah on the basis of the material collected during the said investigation. Therefore, SEBI shall make endeavour to conclude the proceedings at the earliest. All the contentions raised by the parties shall be decided finally when SEBI disposes of the matter, in accordance with law, pursuant to the show cause notice and an opportunity to make their submissions. In the interest of justice and taking into account the totality of the facts and circumstances of the case, I modify the Order dated June 24, 2010 (in so far as Dr. Mahendra C. Shah is concerned) as ordered hereinbelow:

6. In view of the foregoing, I, in exercise of powers conferred upon me under Section 19 of Securities and Exchange Board of India Act, 1992 read with Section 11, 11(4) and 11B thereof, hereby issue the following directions:

a. The directions issued at paragraph 17 of the Order dated June 24, 2010 wherein Dr. Mahendra C. Shah was restrained from accessing the securities market and prohibited them from buying, selling or dealing in the securities market, including in Initial Public Offerings, in any manner, either directly or indirectly is revoked. b. The directions issued at paragraph 18 of the Order dated June 24, 2010 wherein Dr. Mahendra C. Shah was directed not to hold any managerial position (including directorship) or any other key position in any listed company in India, or an intermediary registered with the Securities and Exchange Board of India or with any securities market participant, in any capacity, shall continue till further directions.

c. Copies of this Order shall be served on the National Stock Exchange of India Limited, Bombay Stock Exchange Limited, National Securities Depository Limited and the Central Depository Services (India) Limited, to enable them to take necessary steps for ensuring due compliance with this Order. 7. Considering the fact that the investigation in the matter is now completed, I direct the Securities and Exchange Board of India to issue a show cause notice to Dr. Mahendra C. Shah within one month from today and endeavour to complete the proceedings as expeditiously as possible, in accordance with law.

DR. K. M. ABRAHAM WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA PLACE: MUMBAI DATE: JULY 18, 2011