Order against Harsha Pranav Securities Limited in the matter of Vision Technology India Ltd

WTM/PS/46/IVD/ID-3/OCT/2010 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER IN THE MATTER OF VISION TECHNOLOGY INDIA LTD. In respect of Harsha Pranav Securities Ltd. ORDER Under Section 11(4)(b) and 11B of the Securities and Exchange Board of India Act, 1992 read with Regulation 11 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to the Securities Market), 2003 1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) conducted investigation into buying, selling and dealings in the shares of Vision Technology India Ltd. (hereinafter referred to as ‘VTIL’), for the period of October 12, 1999 to March 07, 2000, inter alia to ascertain whether there was any violation of the provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 (hereinafter referred to as ‘PFUTP Regulations’). During the period of investigation the scrip of VTIL was listed at Bombay Stock Exchange (hereinafter referred to as ‘BSE’), Madras Stock Exchange, Ahmedabad Stock Exchange, Jaipur Stock Exchange and Bangalore Stock Exchange.

2. The trading details of the persons who had traded in the scrip were collected and analysed along with the data of volume contributed during the relevant period. During the investigation period, the price of the scrip at BSE increased from `4 as on October 12, 1999 to `650 as on March 07, 2000. It was found that before the period of investigation, there was no major price movement in the scrip.

3. Investigation inter alia revealed that Harsha Pranav Securities Ltd. (hereinafter referred to as ‘noticee’) while dealing through various brokers had acted in concert with Vivenasri Financial Service Ltd. (hereinafter referred to as ‘Vivenasri’) and emerged as a pre-dominant trader in the scrip. The noticee was found to have entered huge orders at the higher circuit limit most of which were the buy orders. Instances were also found where it entered huge order in the morning and removed the same in the afternoon/ before closing of the trading session. All this resulted in jacking up the prices of the scrip and artificial volumes in the scrip were also created.

4. On completion of the investigation, SEBI inter-alia issued Show Cause Notice dated September 18, 2003 (hereinafter referred to as ‘SCN’) to the noticee under Sections 11(4) (b) and 11B of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act’) read with Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003. The SCN alleged that noticee while trading through various brokers had acted in concert with Vivenasri and entered huge orders at higher circuit which jacked up the price of the scrip and also created artificial volumes in the scrip. The SCN, therefore alleged that the acts of noticee were in violation of the provisions of Regulations 4(a), (b) and (d) of PFUTP Regulations. Accordingly, it called upon the noticee to show cause as to why directions under Sections 11(4)(b) and 11B of SEBI Act including directions debarring/ prohibiting it from buying and selling in the securities for a specific period should not be issued.

5. Noticee vide its letter dated November 04, 2003, requested for extension of time for filing the reply to SCN. Before proceeding further an opportunity of personal hearing was granted to the noticee on January 21, 2004. In the mean time noticee vide its letter dated January 01, 2004, filed written submissions on behalf of the noticee. On the date fixed Mr. Rajesh Kumar appeared for the noticee and made submissions. He also filed the written submissions dated January 21, 2004 on behalf of the noticee.

6. Due to change in appropriate authority another opportunity of personal hearing was granted to the noticee before me on March 19, 2010, in compliance of principles of natural justice. However, the noticee failed to turn up for the personal hearing despite due intimation. Considering the circumstances another opportunity of personal hearing was granted to the noticee on April 30, 2010. This time the hearing notice issued to noticee returned undelivered and the matter was adjourned to June 14, 2010.

7. This time again, the hearing notice issued to noticee returned undelivered. I note that SEBI has issued a press notification as a mode of substituted service on the noticee, with an advice that in absence of any reply, the matter would be proceeded ex-parte. I note that the stipulated period mentioned in the publication has expired. 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.

8. I have carefully considered the SCN, written submissions of the noticee dated January 01, 2004 and January 21, 2004 and the material available on record. The contentions of the noticee in brief are:

- Trading in the scrip was done based on the industry trades, technology and media boom. - Data in the scrip have not been provided. - Only 4 instances of transfer of funds were there. - No intention of creating artificial volume of shares from the market. - Had not acted in concert with Vivenasri. - Relationship with Shailabhadra Securities was that of broker-client.

9. At the outset, I note the contention raised by the noticee that it has not been supplied with the data and various documents. It is seen that all the relied upon documents have been provided to the noticee. However, I note that no document, which has not been provided to the noticee, is being relied upon in the present proceedings. Further, noticee vide its reply has sought cross examination of various persons. To this, I note that the findings in the investigation are supported by independent documents and not merely by the statement of persons. Hence, the request of noticee for cross-examination finds no merits for consideration. Having considered this, the issue arises for my consideration is: Whether noticee created artificial volume and increased the prices of the scrip of VTIL?

10. Whether noticee created artificial volume and increased the prices of the scrip of VTIL? a. I note that noticee and Vivenasri were the main clients who had traded in the scrip of VTIL during the relevant period. It is seen that the noticee was trading in the scrip through four brokers. The details thereof has been brought out below for reference: TABLE - A Name of the Broker Sett. No. Purchase Sale Gross Net Pawan J. 38 0 25,000 25,000 -25,000 Choudhary 41 0 15,000 15,000 -15,000 42 7,000 7,000 14,000 0 43 16,500 5,300 21,800 11,200 44 4,500 4,500 9,000 0 47 2,800 1,000 3,800 1,800 NVS Brokerage Ltd. 42 9,400 5,100 14,500 4,300 43 30,600 45,400 76,000 -14,800 44 4,600 4,600 9,200 0 Lalkar Securities 43 19,000 11,500 30,500 7,500 Pvt. Ltd. 44 8,100 0 8,100 8,100 47 6,500 6,000 12,500 500 48 4,500 0 4,500 4,500 49 6,600 400 7,000 6,200 50 7,000 3,900 10,900 3,100 Krishna Agarwal 3,000

I note that the noticee has not disputed the figures of table A above. The contentions raised by the noticee are restricted to the production of documents collected during investigation and cross-examination of the brokers stated in Table A. Taking note of this, I am of the view that the details in Table A are the trades of noticee and it was having all resources at the time of replying to the SCN to counter the stated details, if any, as admittedly its main activity was investment in shares. Considering this, I find no merits in the argument of noticee asking for cross-examination of brokers as the table above has been compiled from the data received from the exchange and further the noticee has not raised any doubt on the figures as shown in the table above.

b. As regards the relationship between noticee and Vivenasri, I note that the director of noticee Mr. P.V. Murlikrishna, was the common director of Vivenasri at the relevant point of time. I observe from the Bank account statement of Vivenasri that the noticee and Vivenasri were having frequent fund transfer between them, instances of which have been shown in the SCN. Further, the acknowledgements of letters/ summons sent to noticee and Vivenasri were being received by the same person and the telephone numbers given in the acknowledgement were same. These facts point to the close relationship between the noticee and Vivenasri.

c. Further, I observe that the noticee was entering large orders in the scrip of VTIL during the relevant period, instances of which on sample basis have been brought out in the SCN. From the same, it is seen that on December 03, 1999, the noticee entered a buy order of 50,000 shares at 10:07:32. At 10:07:55, it deleted this order. A few other instances of such entering and deletion of orders by noticee have also been seen. From the same, I note that the noticee was entering large orders in the scrip of VTIL and later on deleting them on some occasions. I note the contention of the noticee that the table does not show the names of the brokers and sought cross examination of these brokers. I note that noticee has again not challenged the details of this table and has failed to explain the objective of such trading pattern where it is found first entering huge orders and later on deleting them. I agree that the SCN do not disclose the name of the brokers as stated in the table. However, this is of secondary importance as the dispute in the present case is the trading pattern of noticee and objective of following such patterns. It is seen that the reply/ written submission of the noticee do not touch this issue. Taking note of this, I am of the view that the details shown in the table are matter of record and as the noticee has not disputed their genuineness, these would be considered as reliable for drawing conclusions about trading pattern of the noticee.

d. In view of the above stated facts, I find that the pattern of entering orders by noticee is suspicious in nature. However, as regards the charges leveled against the noticee, that it alongwith Vivenasri had contributed about 20% of the total volume traded in the scrip at BSE. As per the details available on record, the total volume contributed by the noticee can be seen, however, the details falls short to show as to how this constituted 20% of the total market volume.

e. In light of this, I note that the trades of noticee have to be seen in the background of the charges leveled against it i.e. of creating artificial volume and increase in prices of the scrip of VTIL. Though, the volume contribution and trading pattern as seen from table above may be substantial, however, I find no details to show that how such pattern contributed to price rise in the scrip. There is no allegation that the noticee had indulged in synchronized/ reversal/ circular trades.

f. Further, the SCN while giving the details of the trades of noticee for respective settlement has failed to show as to how the said trades had resulted in volume creation. The volume generated by noticee for these settlements has been mentioned in SCN. However, the contribution of noticee for these settlements finds no mention in the SCN. The said details are vital when dealing with the charge of artificial volume creation.

11. Taking note of this, I find that the details given in SCN are insufficient to establish the charges leveled against the noticee. Considering the submissions of noticee and facts and circumstances of the case, I am of the considered view that the noticee is entitled for a benefit of doubt in respect of alleged violations of Regulation 4(a), (b) and (d) of PFUTP Regulations.

12. In the facts and circumstances of the matter, 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 to Harsha Pranav Securities Ltd. without imposing any penalty or direction.

DATE : 25/OCT/2010 PRASHANT SARAN PLACE : MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA