Order against M/s. Shivalik Loha Mills Limited and its Directors

1. The Securities and Exchange Board of India (hereinafter referred to as SEBI) had issued, pursuant to an investigation into the buying, selling and otherwise dealing in the shares of Shivalik Loha Mills Limited (hereinafter referred to as the Company) for the period between August 1994 and December 1994 (hereinafter referred to as the investigation period), notices dated July 9, 2004 to the Company and its directors, Mr. Sunil Maria, Mr. Paroshatam Lal Maria, Mr. Naresh Kumar Maria, Mr. Kamal Kishore Maria, Mr. Satish Kumar Maria, Mr. Sham Sunder Maria, Mr. S.C. Khaneja and Mr. Tara Kumar Sinha, directing them to show cause as to why proceedings under Sections 11(1) read with 11B of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the SEBI Act) and Regulation 11 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade practices relating to Securities market) Regulations, 1995 (hereinafter referred to as the PFUTP Regulations) should not be initiated against them. I note that the proceeding initiated vide the aforesaid show cause notice against Mr. Tara Kumar Sinha was disposed off by SEBI, vide an Order dated December 5, 2006, without any directions, for the reasons stated therein. Further, the proceeding against Mr. S.C. Khaneja, Mrs. Rajni Khaneja and her firm M/s Rajni & Co. has been disposed off, vide consent order dated April 26, 2010 in terms of SEBI Circular dated April 20, 2007. Therefore, this Order would dispose of the proceedings against the Company and its directors, Mr. Sunil Maria, Mr. Paroshatam Lal Maria, Mr. Naresh Kumar Maria, Mr. Kamal Kishore Maria, Mr. Satish Kumar Maria and Mr. Sham Sunder Maria (the said persons are collectively referred to as the directors and respectively by their respective names).

2. I note from the records that, as no replies to the notices were received from the Company and the directors, SEBI granted various opportunities of hearing to them. Though, the Company and the directors had sought adjournment of the scheduled hearing, they had failed to furnish any reply to the notices issued to them. Subsequently, an opportunity of hearing was granted to the Company and its directors before me on January 2, 2009 and the same was communicated to them. In response, the Company and its directors, vide letter dated December 25, 2008, had inter alia sought for certain documents and submitted that Mr. Sunil Maria, Mr. Sham Sunder and Mr. Kamal Kishore had resigned from the directorship of the Company on June 30, 1999 and that Mr. Parshotam Lal, Mr. Satish Kumar and Mr. Naresh Kumar had resigned on April 5, 2004. The documents sought by them were furnished vide SEBI letter dated January 7, 2009 and the Company and its directors were also informed of a personal hearing fixed on January 30, 2009. Since, the Company and its directors had certain clarifications, the same was addressed by SEBI vide letter dated January 30, 2009. Though, they were afforded a hearing on February 18, 2009 (the hearing was originally scheduled on February 10, 2009 and the same was rescheduled to the said date), there was no response from the Company or its directors. The said letters were sent through registered post and the same were not returned undelivered. No reply has been received since then from the Company or its directors nor has any request been made for a further opportunity. In such circumstances, I find that no useful purpose would be served in affording further opportunities to the Company and its directors. Therefore, I proceed to consider the case on the basis of the material available on record including the correspondence of the Company/its directors.

3. I note that SEBI had conducted investigation into the affairs of buying, selling and otherwise dealing into the shares of the Company during the period August-December 1994, when the price of the scrip increased from `13/- to `54/-in the Ludhiana Stock Exchange Limited (hereinafter referred to as LSE). Pursuant to the findings of the said investigation, a show cause notice dated March 17, 1999 was issued to the Company and its directors. An opportunity of personal hearing was also afforded to them before the Chairman, SEBI on June 28, 2002, when it was submitted that SEBI had considered the trading of the shares of the Company at LSE and not in the Bombay Stock Exchange Limited (hereinafter referred to as the BSE) and that price discovery took place at BSE, the case was ordered to be reinvestigated taking into account the trading of the shares of the Company at BSE. The notice dated July 9, 2004 (hereinafter referred to as the notice) came to be issued to the Company and its directors on the basis of the findings of the reinvestigation and that of the previous investigation. The charges against the Company and its directors in the notice were grouped under the following heads:

a. Price rigging and siphoning of issue proceeds b. Liquidation of nominee holdings by the promoters of the Company at rigged prices c. Mis-statements and non-disclosures in prospectus and letter of offer 4. I would be dealing with the charges as stated above in seriatim. The first charge is that of price rigging and siphoning off issue proceeds. The notice had mentioned that there was an unusual price and volume movement in the shares of the Company during the investigation period at LSE. The following table provides the details of the price and volume rise:

High Low Volume Month (Rs.) (Rs.) (single sided)

August, 1994 21.00 13.00 48,700 September, 1994 16.25 12.50 99,500 October, 1994 27.75 11.75 5,88,800 November, 1994 59.00 25.50 10,09,900 December, 1994 54.00 29.50 9,44,700 (upto December 23, 1994 It was noticed that the share price had increased from a low of `11.75/- (on October 6, 1994) to a high of `59/- (on November 29, 1994) and there was a corresponding spurt in the traded volumes during the investigation period. A similar price and volume movement was observed at the Delhi Stock Exchange Limited (hereinafter referred to as the DSE) and BSE. Further, it was observed that the said price-volume increase happened before the filing of offer documents of the Company with SEBI during January, 1995. As per letter of offer dated December 06, 1995 the other companies promoted by the company were Shivalik woolen Mills Private Limited, Shivalik Steel Mills Limited, Shivalikwala Construction Company Limited and Northlink Motors Limited and Shivalikwala Steel Mills Limited were group companies of the company Shivalik Loha Mills Limited.

5. I note from the notice that the Company and the directors had contended (during the inquiry of the earlier proceedings pursuant to the findings of the first investigation) that price discovery of the shares of the Company had mainly taken place at BSE and that the other stock exchanges including LSE was merely following the said trend. With respect to the said contention, the notice had provided a comparative analysis of trade data of various stock exchanges where the scrip was listed. The following table, mentioned in the notice, is reproduced herein below:

PERIOD NUMBER OF DAYS TRADED LSE BSE DSE August, 1994 10 days 1 day 1 day September, 1994 18 days 1 day No trade October, 1994 18 days No trade 1 day November, 1994 20 days 9 days 12 days

December, 1994 16 days 17 days 8 days It was further mentioned in the notice that the shares of the Company started consistently traded at BSE only from November 14, 1994 onwards. Given the frequency of trades and the volumes at LSE, which is more when compared to that at BSE and DSE, and the fact that the trading at BSE was consistent only from November 1994 onwards, it has to be inferred that for the period - August 1994 to the middle of November 1994 when the share price increased from `11.75/- (on October 7, 1994) to `33/- (on November 11, 1994), LSE was the stock exchange where the price discovery was undisputedly taking place. I also noted that the notice had mentioned the contention of the Company and the directors that the price discovery took place at BSE as on most of the trading days the price at BSE was much higher than that at LSE and that they had stated that on November 12, 1994, the share price at BSE was `45/- as against `37/- at LSE. However, a perusal of the data furnished by BSE and LSE indicated that there was no trading in the shares of the Company at BSE and LSE on the said date. Therefore, the notice had concluded that the said details given by the Company and the directors turned out to be incorrect. The notice had also mentioned that, it clearly emerged that the shares of the Company were more actively traded at LSE during the period – August to November 1994, when the price was rising. Further, as detailed at Table 1 of the notice, no evidence of concentrated buying in the shares of the Company at BSE was apparent and that the available data did not suggest that the price discovery was being done at BSE, as contended by the promoters of the Company. The notice had also mentioned that the conclusion that the price discovery took place at LSE and not in the BSE or DSE, was further supported by the fact that the Company is based in Ludhiana with LSE as the regional stock exchange and that during 1994, when trading was not screen based and regional stock exchanges played an active role in the price discovery of scrips listed on them. For the aforesaid reasons, the contention of the Company and its directors regarding the price discovery was found to be unsubstantiated.

6. The notice had further mentioned that the trading at BSE was dispersed and not concentrated amongst few brokers during the period – July to December 1994 and that no single stock broker was having a buying concentration and taking deliveries in the shares of the Company. Further, the among the sellers, M/s. Integrated Master Securities (a proprietary concern of Mr. S. C. Khaneja, one of the directors of the Company) had purchased and sold 3,71,800 shares of the Company at BSE. Further, M/s. Rajni & Co. (a firm of the wife of Mr. S.C. Khaneja, a director of the Company) had offloaded shares belonging to the promoters.

7. The notice had mentioned that at LSE, the stock broker, M/s Sunil Gupta & Co. had a net buy of 2,30,900 shares of the Company was found to be the most significant buyer at LSE. Its net buying was approximately 5.13% of the floating stock of the Company and approximately 8.58% of the total volumes traded in the shares of the Company at LSE during the period – August to December, 1994. It was noticed that the said stock broker was operating from the same premises as that of the Company and its group concerns, in a building which was originally constructed and owned by the Company’s Group. The said stock broker was a consistent buyer in the scrip at LSE at progressively increasing prices. The said imputation was based on the details extracted from its scrip ledger and the same is reproduced herein below from the notice:

Rate per share Month No. of shares bought (`) August, 1994 52,800 12.00 to 26.00 September, 1994 1,21,800 12.50 to 16.00 October, 1994 3,08,500 11.75 to 29.25 November, 1994 1,13,300 22.00 to 57.00 December, 1994 40,900 33.00 to 47.00 The buying by the said stock broker during the months of October and November, 1994, when the price increase was most prominent, was approximately 52.39% and 11.22% respectively, of the total volumes traded in the shares of the Company at LSE. The notice had alleged that by contributing to the volumes, the stock broker had generated unusual buying pressure in the shares of the Company leading to an artificial rise in its prices and thereby induced their sale or purchase by others. Further, it was found from the client details submitted by the said stock broker in respect of the trading in the scrip for the period – August 1, 1994 to December 23, 1994, that Mr. Subhash Chander and Mr. Chander Mohan were the major contributors. It was further mentioned in the noticed that the stock broker had taken net delivery of 1,21,000 shares of the Company on behalf of Mr. Chander Mohan and 1,09,600 shares on behalf of Mr. Subhash Chander. Though the notice had mentioned the aforesaid facts, I would refrain to give a finding in respect of the volume contribution by the stock broker or its clients as none of them are before me in this proceeding. This proceeding is only in respect of the Company and its directors as mentioned above.

8. I note that the investigation (as mentioned in the notice) had found that the payments received by the aforesaid stock broker from Mr. Subhash Chander and Mr. Chander Mohan were in fact through cheques issued from the bank accounts of M/s. Vijay Singh Arya & Co. (proprietor of which is Mr. Gopal Kumar) and M/s. PAR Industries (Proprietor, Mr. Ram Kumar). It was noticed that both the said bank accounts were opened on May 28, 1994 and the said entities had a common addresse as 205, Kismat Complex, G.T. Road, Ludhiana. From the account opening forms and statement of accounts for the said bank accounts received from the State Bank of India, it was noticed that the said entities had been introduced by Shivalik Woollen Mills Private Limited, which had the same address as that of the Company. The said bank accounts showed substantial credits from the Company. From the prospectus of the Company dated April 9, 1994, it was noticed that the Company had entered into contracts with M/s. Vijay Singh Arya & Co. and M/s. PAR Industries for execution of civil works and supply of machinery, respectively. Further information and documents were obtained from the proprietors of M/s. Vijay Singh Arya & Co. and M/s. PAR Industries. Information was also obtained from the Company regarding its transactions with M/s Vijay Singh Arya & Co. and M/s. PAR Industries, contracts entered into with these concerns etc. The statements of Mr. Gopal Kumar, Proprietor of M/s Vijay Singh Arya & Co. and that of Mr. Ram Kumar, Proprietor, M/s. PAR Industries were also recorded. As per the statements of Mr. Gopal Kumar and Mr. Ram Kumar, the following information as mentioned in the notice is reproduced herein below:

a) Mr. Satish Kumar Maria, father of Mr. Gopal Kumar and Mr. Kamal Kishore Maria, father of Mr. Ram Kumar, were both directors in the Company. b) The business activities of M/s. Vijay Singh Arya & Co. was explained as trading in building materials and construction work and that of M/s. PAR Industries as trading and export of machinery. c) No books of accounts were maintained by the said entities up to February 1996. d) Both the entities had an office at 205, Kismat Complex, G.T. Road, Ludhiana taken on rent from Shivalikwala Construction Company. It was noticed that the said premises also had the office of M/s Sunil Gupta & Co. e) No labourers were employed or machinery owned by M/s. PAR Industries. Similarly, no machinery was owned by M/s. Vijay Singh Arya & Co. All machinery were taken on rent, labourers engaged on daily wages and material was purchased from various parties. f) M/s Vijay Singh Arya & Co. had entered into an agreement with the Company on December 1, 1993 which was revised in November 1994 for construction of the Company’s factory building towards which an amount of `77.80 lakhs was received from the Company during May 1994. The total bill of approximately `17 lakhs was made to the Company during February 1996 towards construction.

The advances so received were withdrawn in cash and substantial amounts expended out of these advances for purchase of the shares of the Company. g) Similarly, M/s. PAR Industries entered into an agreement with the Company on December 1, 1993 which was revised in November 1994 for the supply of machinery. An advance of `146.75 lakhs was received from the Company in 1994-95 and another `314.50 lakhs in 1995-96. The total bill of `36.57 lakhs was made to the Company in February, 1996 and the advances received were withdrawn in cash and substantial amounts were expended out of these advances for purchase of shares of the Company and loans to the members of the “Maria family”. As per the information provided by the Company, it was noticed that it had further awarded a contract for supply of plant and machinery to M/s. Vijay Singh Arya & Co. for `790.08 lakhs on January 22, 1996 to be financed out of the proceeds of the Rights Issue of the Company during December, 1995. The said contract was awarded in terms of the quotation of M/s Vijay Singh Arya & Co. dated August 21, 1995. It was also found from the Letter of Offer dated December 6, 1995 of the Company that the process of negotiations between the Company and M/s Vijay Singh Arya & Co. were not disclosed.

9. The notice had also mentioned the details of the amounts received by M/s. Vijay Singh Arya & Co. and M/s. PAR Industries from the Company. The same is reproduced below:

Funds transferred by the Company to M/s. Vijay Singh Arya & Co.

PERIOD DESCRIPTION AMOUNT (RS.) Financial Year 1994-95 Amount received 77,80,000 Less: Returned 45,65,000 Sub-total 32,15,000 Less: Transfer to Shivialikwala Steel 31,44,835 Mills Ltd. Balance as on 31.3.95 70,165 Financial Year 1995-96 Amount received 18,04,835 Sub-total 18,75,000 Less: Bill raised on SLML 16,77,138 Sub-total 2,97,362 Tax at Source 4,336 Balance as on 31.3.96 2,02,196 Funds transferred by the Company to M/s. PAR Industries

PERIOD DESCRIPTION AMOUNT (RS.) Financial Year 1994-95 Amount received 1,46,75,000 Less: Returned 35,55,000 Balance as on 31.3.95 1,11,20.000 Financial Year 1995-96 Amount received* 3,14,50,000 Sub-total 4,25,70,000 Less: Returned 5,00,000 Sub-total 4,20,70,000 Less: Bill raised on SLML 36,56,645 Balance as on 31.3.96 3,84,13,355 * Details of receipt and utilization not available.

The utilization and diversion of the funds received by the said two entities from the Company as mentioned in the notice is given below: It has been alleged that a substantial portion of the funds so obtained from the Company had been utilized by the said entities for the purchase of shares of the Company.

UTILIZATION OF FUNDS BY M/S. VIJAY SINGH ARYA & CO.

Amount Date Particulars Remarks (`) Possible used in 28.5.94 Cash withdrawn 73,50,000 Public Issue of SLML Investments in Payments out of 17.6.94 48,000 SLML (95 cheques) cash redeposited Investment in shares 15.7.94 2,00,000 - do -of SLML (400cheques @ Rs.500/- each) 7.9.94 to Payments to Sunil Gupta & 16,72,764 - do - Co. (A/c Subhash Chander) 4.11.94 Payment to Krishna 24.10.94 Alloys for purchase 5,62,600 - do -of 40,200 SLML shares UTILISATION OF FUNDS BY M/S. PAR INDUSTRIES

Amount Date Particulars Remarks (Rs.) Possible use in public 28.5.94 Cash withdrawn 79,90,000 issue of SLML 25.6.94 - do - 4,00,000 15.7.94 to - do - 2,55,000 6.7.94 Payments out of 10.6.94 -17.8.94 Loans to family members of 67,00,000 Maria cash redeposited 27.8.94 - do - 1,00,000 - do - 29.11.94 - do - 1,00,000 - do - 17.6.94 Investment in SLML shares 3,27,750 - do - 5.7.94 to - do - 3,64,000 - do - 7.7.94 Payment to VK Sharma for 26.7.94 5,00,000 - do -investment in SLML shares 8.11.94 to Payment to Sunil Gupta & 25,10,000 - do - Co. (A/c Chander Mohan) 24.11.94 Payment to Vijay Singh Arya 4.1.95 for purchase of 40,200 5,62,800 - do -shares of SLML 10. The notice had mentioned that M/s. Vijay Singh Arya & Co. made a payment of approximately `17 lakhs to M/s. Sunil Gupta & Co. (the stock broker in LSE) on behalf of Mr. Subhash Chander and that it was explained that the payment was made on the request of M/s Sunil Gupta & Co. and no security was obtained by them. The address and whereabouts of Mr. Subhash Chander were not known to Mr. Gopal Kumar, the proprietor of M/s. Vijay Arya & Co. The notice had also mentioned that in lieu of this payment, M/s. Vijay Singh Arya & Co. had received 1,10,100 shares of the Company from the aforesaid stock broker during November 1994 and that the same were subsequently sold to Northlink Fiscal & Capital Services Limited, a group concern of the Company, `29,72,700/-.

Similarly, M/s. PAR Industries had made a payment of approximately `25 lakhs to the said stock broker on behalf of Mr. Chander Mohan and that it was stated that the payment was made on the request of the stock broker and no security or guarantee was obtained by him. Like Mr. Gopla Kumar, the address or the whereabouts of Mr. Chander Mohan was not known to Mr. Ram Kumar, the proprietor of M/s. PAR Industries. The notice had also mentioned that, in lieu of the payment, M/s. PAR Industries had received 1,21,000 shares of the Company from the stock broker during November 1994 which were subsequently sold to Northlink Fiscal & Capital Services Limited for `33,88,000/-. Though, the stock broker, M/s Sunil Gupta & Co. denied having made any request to Mr. Ram Kumar, Proprietor, M/s. PAR Industries and Mr. Gopal Kumar, Proprietor, M/s. Vijay Singh Arya & Co. for receiving payments due from Mr. Chandner Mohan and Mr. Subhash Chander respectively, the facts and the records indicate that payments were made to the said stock broker from the accounts of M/s. PAR Industries and M/s. Vijay Singh Arya & Co. The notice had also mentioned that despite sufficient opportunities, both Mr. Gopal Kumar and Mr. Ram Kumar failed to furnish the copies of agreements with the Company dated December 1, 1993, the vouchers for purchase/sale of material and shares, copies of bank accounts maintained with the State Bank of Bikaner & Jaipur, confirmed copies of accounts with parties through whom purchase/sale of the shares of the Company were made.

Further, M/s. PAR Industries did not furnish the details of utilisation of `3,14,50,000/- received by it from the Company during 1995-96. I also find that neither the Company not its directors had filed their response to explain the transfer of funds from the Company to the accounts of M/s. PAR Industries and M/s. Vijay Singh Arya & Co. The said funds have been alleged to have been utilized fro the purposes of purchasing shares of the Company. The very pertinent fact is that the Company had transferred funds to the accounts of M/s. PAR Industries and M/s. Vijay Singh Arya & Co., which are the proprietorship concerns of the sons of the directors of the Company. In the absence of submission refuting the same with supporting documents, I cannot but find the Company and its directors liable for transferring funds to entities (which were owned by the sons of the directors of the Company) under the garb of payments towards various contracts awarded to them. Further, the nature of relationship with M/s. PAR Industries and M/s. Vijay Singh Arya & Co. has also been alleged to have not been disclosed in the prospectus of the Company.

The said entities had transferred funds allegedly for the purchase of shares by two other individuals forming part of the Maria family as alleged in the notice. Further, the payments made to the said two entities were surreptitiously used to purchase shares of the Company. The notice has mentioned that the stock broker, M/s. Sunil Gupta & Co. and its major clients were responsible for the alleged manipulation in the shares of the Company during the investigation period. The Company or its directors have failed to convince SEBI of the genuiness of their fund transfer to the aforesaid entities. The notice has alleged that funds were also utilised by M/s. PAR Industries and M/s. Vijay Singh Arya & Co. in making purchases of the Company’s shares from M/s. Sunil Gupta & Co. on behalf of their benamidars Mr. Chander Mohan and Mr. Subhash Chander, who were introduced as clients in the books of Sunil Gupta & Co. for this purpose. The purchase of shares by M/s. PAR Industries and M/s. Vijay Singh Arya & Co. from M/s. Sunil Gupta & Co. constituted the bulk of the buying at LSE during the period – August 1, 1994 to December 31, 1994 and was alleged to be responsible for an upward movement in the price of the scrip during this period.

Therefore, the Company and its directors who were responsible for the affairs of the Company during the relevant period are liable for aiding the manipulation. The notice had alleged that the Company had contravened Section 77 of the Companies Act, 1956. Section 77(1) thereof provides that no company limited by shares and no company limited by guarantee and having a share capital shall have power to buy its own shares. Section 77(2) provides that no public company, shall give, whether directly or indirectly, and whether by means of a loan, guarantee, the provision of security or otherwise, any financial assistance for the purpose of or in connection with a purchase or subscription made or to be made by any person or for any shares in the company or in its holding company. The Company by transferring funds to M/s. PAR Industries and M/s. Vijay Singh Arya & Co., which were utilized for purchasing shares of the Company through the stock broker, M/s. Sunil Gupta & Co., has contravened Section 77(2) of the Companies Act, 1956, for which the Company and its directors are to be held liable.

11. The next charge is that of liquidation of nominee holdings of the promoters at rigged prices. As stated above in this Order, the stock broker, M/s Sunil Gupta & Co. had sold substantial quantities of shares of the Company on behalf of various individuals during the period between August 1, 1994 and December 31, 1994. The quantities sold by it, as mentioned in the notice, is reproduced below:

Sl.No. Name of Client No. of shares 1. Bhupinder Singh 60,000 2. Chander Mohan 59,100 3. Subhash Chander 59,100 4. Dilbagh Rai 8,100 5. Gurbax Rai 59,700 6. Kaushal K. Mishra 60,000 7. Lakhvir Singh 25,500 8. M.K. Thakur 1,50,000 9. Rai Singh 58,900 10. Rajesh Kumar 25,500 11. Tarsem Lal 1,41,000 TOTAL 7,06,900 The notice has also mentioned that the shares were simultaneously purchased by members of the Maria family (the promoters of the Company), which has been tabulated below (the persons covered under this Order are highlighted in bold):

Sl.No Name of Client No. of Shares Buy Sell 1. Sunil Dutt Maria 1,35,300 2. Kamal Kishore 1,34,000 3. Naresh Kumar Maria 1,32,000 4. Parshottam Lal 94,000 5. Swarn Lata 75,500 6. Anjana Rani 68,400 7. Gopal Kumar 39,000 8. Sushma Rani 24,300

9. PAR Industrials 14,500 10. Aarti Maria 1,900 11. Suraj 2,000 12. Sunny 2,300 13. Shalima 2,000 14. Sarika Maria 1,800 7,17,000 10,000 It has been alleged that the aforesaid purchases and sale transactions were effected at prices prevailing during the period between August 1, 1994 to December 31, 1994 - at `22/- to `23/- and `56/- to `60/- per share. However, these deals were off-the-floor spot transactions, but the deliveries and payments of these transactions were effected during the period January 1, 1995 to March 31, 1995. The notice had mentioned that the addresses of the sellers were obtained from the stock broker during the course of investigation and that the addresses furnished by it appeared to be incorrect as all the enquiry letters sent at their addresses returned undelivered. Further, the payments made by the stock broker to the said persons were traced through the bank records and enquiries made with the bankers of those persons. The account opening forms, statement of accounts and details of transactions in the bank accounts of the said persons were also obtained. From the same, it emerged that all payments made by the stock broker to those clients aggregating to approximately `4 crores were simultaneously withdrawn in cash by self cheques. It is pertinent to note that the bank accounts of some of those clients had been introduced by the directors of the Company or their family members. The details of the bank accounts and the quantum of cash withdrawals as summarised in the notice is reproduced below:

NAME & ADDRESS OF BANK A/C REFERENCE INTRODUCER PAYMENT BY M/S. CASH WITHDRAWLS ACCOUNT HOLDER SUNIL GUPTA & CO. DATE AMOUNT DATE AMOUNT (RS) (RS) Rai Singh** A/c No. 10483/44 Shivalik Woolen 2.3.95 1000000 4.3.95 500000 Mills 881/113, Gali No.6, Partap Allahabad Bank 6.3.95 2545375 4.3.95 500000 Nagar, Indl. Area-B, Ludhiana Clock Tower 9.3.95 1500000 Ludhiana 9.3.95 1045000 *C-91, Phase-5, Focal Point Ludhiana Tarsem Lal A/c No. 28435 Staff Member 28.3.95 1220000 3.4.95 1500000

H.No. 1006, Gali No.7 Bank of Baroda 8.4.95 1451250 4.4.95 1170000 Arjan Dev Nagar Indl. Area B 22.4.95 2000000 10.4.95 2000000 Ludhiana Ludhiana 26.4.95 2230000 24.4.95 2230000 23.5.95 1000000 27.4.95 1000000 *H. No. 52, Street No.2, Guru 383000 24.5.95 385000 Arjan Dev Nagar, Ludhiana Rajesh Kumar A/c No. 28523 Tarsem Lal 25.04.95 568375 26.4.95 568000 3522, Dugri Road Bank of Baroda S/F 28435 Ludhiana Indl. Area B Ludhiana *H.No.3881, Mohalla Soodan Jagraon Lakhvir Singh A/c No. 28519 Tarsem Lal 25.04.95 564895 26.4.95 564000 Gali No. 6, Partap Nagar Bank of Baroda S/F 28435 Ludhiana Indl. Area B Ludhiana *37, Balmiki Nagar, Rajpura Road, Ludhiana Bhupender Singh A/c No. 12632 Kewal Krishan 10.3.95 387575 13.3.95 695000 V.P.O. Dandari Kalan State Bank of Patiala S/F 12511 10.3.95 310000 24.3.95 1000000 Ludhiana Ghumar Mandi 22.3.95 2841800 25.3.95 1000000 Ludhiana 25.3.95 840000 Gurbax Singh A/c No. 12621 Kawal Krishan 14.3.95 1581850 15.3.95 2000000 V.P.O. Dandari, Kalan State Bank of Patiala S/F 12511 14.3.95 1935625 15.3.95 1515000 Ludhiana Ghumar Mandi Ludhiana Kaushal Kumar Mishra A/c No. 12622 Kawal Krishan 02.03.95 1000000 4.3.95 500000 Katra Nauria State Bank of Patiala S/F 12511 06.03.95 2562500 4.3.95 500000 Ludhiana Ghumar Mandi 7.3.95 1062500 Ludhiana 7.3.95 1500000 *B-42, Focal Point, Ludhiana M K Thakur Allahabad Bank 9.5.95 2270000 Bank a/c not tracable 8, The Mall Road Clock Tower 11.5.95 1916900 Ludhiana Ludhiana 13.5.95 1989000 18.5.95 1989000 23.5.95 672600 Chander Mohan A/c No. 13957 Gulshan Kumar 21.3.95 2125000 25.3.95 800000 H.No. 33-B, Kitchlu Nagar State Bank of India 27.3.95 1325000 Ludhiana Kesar Ganj, Ludhiana 21.5.95 1451250 24.5.95 1452000 *B VIII, 81 Kothi Megh Singh, Ludhiana

Subhash Chander A/c No. 6143 Tarsem Lal 3.3.95 497700 9.3.95 920000 H. No. B IV/1958, Katra State Bank of Bikaner & 3.3.95 425000 11.3.95 1600000 Nauria, Ludhiana Jaipur, Dandi Swami 10.3.95 2620450 11.3.95 1020000 Chowk Ludhiana * Village Bhatoli, P.O. Bhormar, Hoshiarpur * Address as per Bank Account opening form. ** Same address as that of Sh. Jatinder Kumar, who dealt in SLML shares through Ashok Kapoor & Co. and was employed with Shivalik Maria Group. 12. SEBI, in order to ascertain the source of shares of the Company sold by these persons through the stock broker, M/s. Sunil Gupta & Co, had obtained the Copies of the bills issued by the stock broker to those persons giving the distinctive numbers of shares sold by them. Further, LSE was also requested to ascertain the original allottees and subsequent holders of the Company’s shares which had been sold by the persons. SEBI, found on a perusal of the details obtained from LSE, that of the 7,06,900 shares sold by the persons, 58,800 shares had been originally allotted to various members of the Maria family. It also came to light that a substantial quantity of the shares that were sold, had been allotted to various individuals who had given the same address, as given below:

NO. ADDRESS OFSHARE NO. OF SHARES ALLOTTED HOLDERS 87-C, Kitchlu Nagar, Ludhiana 37 4,400 H L 4 Jamalpur Colony, Ludhiana 16 7,600 C-49, Kitchlu Nagar, Ludhiana 178 18,400 883/110, Gali 6, Pratap Nagar, Ludhiana 214 20,500 B33, Kitchlu Nagar, Ludhiana* 173 17,300 BI, 1415/A, Ram Nagar, Ludhiana 81 8,100 33-A, Extn. Indl Area A, Ludhiana 55 5,500 284, Major Sham Singh Road, Ludhiana 145 14,500 50, Model Town, Ludhiana 188 18,800 H.No. 52, Gali 2, Guru Arjun Dev 10,800 100 Samrag Chowk, Ludhiana 43-J, Sarabha Nagar, Ludhiana 122 20,800 D117/A, Phase V, Focal Point, Ludhiana 71 7,100 HM-115, Focal Point Colony, Ludhiana 50 5,000 50 Model Gram, Ludhiana 57 5,700 2607, Kucha Chalan, Darya Ganj, N Delhi 18 31,400 1324, Vaidwara, Maliwara, Delhi 6 10,000 7/36-A, Darya Ganj, New Delhi 17 64,800 * address same address as that of Shri Chander Mohan who had sold shares

The notice had observed that a large number of apparently unconnected individual applicants had applied to the public issue of the Company from the same address, implying that some of these applicants could be the nominees of the promoters/directors, whose holdings in the Company were liquidated in cash through this process at the rigged prices. It was also alleged that the same had enabled the promoters to liquidate their nominee holding in the Company at rigged prices in cash.

13. I find that, on a test basis, for SEBI to ascertain what happened to the shares of the Company acquired by the members of the Maria family through M/s Sunil Gupta & Co., information was obtained on a test basis from two members of the Maria family viz., Mrs. Sushma Rani and Mr. Parshottam Lal Maria. The notice had mentioned the quantities purchased and sold by the said persons, the same is reproduced herein below for reference:

Smt.Sushma Rani Shri Parshottam Lal Particulars No. of shares Amount (Rs.) No. of shares Amount (Rs.) Opening Stock as on 1.4.94 34,000 35,400 Add : Purchases/Allotments Allotment in Public Issue 1,80,000 18,00,000 2,00,000 20,00,000 Purchase from Sunil Gupta 24,300 14,30,500 94,000 55,48,000 Sub-Total 2,04,300 32,30,500 2,94,000 75,48,000 Less: Sales Sale to Ashok Kapoor 1,28,500 12,85,000 Sale to Rajni & Co. 50,000 12,50,000 2,00,000 50,00,000 Sale to Northlink Fiscal & 23,500 6,80,000 94,000 25,56,500 Capital Services Ltd. Sale to Kewal Sharma 2,300 52,000 Sub-Total 2,04,300 32,67,000 2,94,000 75,56,500 Closing Stock as on 31.3.95 34,000 35,400 From the table, it has been observed that a. the allotment of 1,80,000 shares of the Company at par to Mrs. Sushma Rani, who is the wife of Mr. Naresh Kumar Maria, one of the directors of the Company, were disposed off through M/s Ashok Kapoor & Co. and M/s Rajni & Co. for a total gain of approximately `7,00,000/- and 24,300 shares purchased by Mrs. Sushma Rani from M/s. Sunil Gupta & Co. were sold through Northlink Fiscal & Capital Services Limited, which was a group entity for an approximate loss of `7,00,000/-. The net effect of the said transactions was that Mrs. Sushma Rani had made a modest gain of `36,500/- on the sale and purchase of the Company’s shares during the financial year 1994-95.

b. Similarly, 2,00,000 shares of the Company allotted at par to Mr. Parshottam Lal, director of the Company were disposed off through M/s Ashok Kapoor & Co. and M/s Rajni & Co. for a total gain of `30 lakhs. Further, 94,000 shares purchased from M/s Sunil Gupta & Co. were sold through Northlink Fiscal & Capital Services Limited for an approximate loss of `30 lakhs and the net effect of the aforesaid transactions was that Mr. Parshottam Lal was left with a modest gain of `8,500/- on the sale and purchase of shares of the Company during the financial year 1994-95. Based on the results of the two test cases taken up by SEBI, it has been observed in the notice that the Maria family had two-fold transactions in the shares of the Company, viz.

a) The disposal of their original allotment at par through M/s Rajni & Co. or M/s Ashok Kapoor & Co at rigged prices of `25/- to `28/- per share and earning a substantial gain. b) The benami shareholding was converted into ownership in the names of the members of the Maria family and routed through M/s Sunil Gupta & Co. at rigged prices of `56/- to `60/- per share by structured transactions. It was further observed that the funds expended for the said purchases were made available by M/s. PAR Industries and M/s. Vijay Singh Arya & Co. out of the proceeds of the public issue (as stated above in this Order, while dealing with the first charge) and Rights Issue and subsequently withdrawn in cash from the accounts in which the purported purchase consideration was credited. The shares which had by that time acquired a higher and fictitious “cost of acquisition” of `56 or `60/- per share were then “disposed” through Northlink Fiscal & Capital Services Limited, allegedly a group entity, at `25/- to `28/- per share to “arrange” a substantial loss to off-set the gain at (a) above. 14. The notice had also mentioned that information was also obtained from Northlink Fiscal & Capital Services Limited, regarding its transactions in the shares of the Company for the financial year 1994-95. It was noticed that Northlink Securities Private Limited is a subsidiary of Northlink Fiscal & Capital Services Limited, and is a member of LSE and a Group concern of the Company. It was found that Northlink Fiscal & Capital Services Limited had made net purchases of 11,85,000 shares of the Company and sold on net basis 5,15,600 shares during the financial year 1994-95. It was further noticed that the bulk of the purchases made by the said entity were made from the members of Maria family as shown in the table below:

Name of Family Member from whom shares were Sl.No. No. of Shares purchased by Notrthlink purchased 1. Smt. Swarna Lata 1,96,000 2. Smt. Anjana Rani 99,700 3. M/s M/s Par Industrials 1,38,200 4. M/s Vijay Singh Arya & Co. 1,49,100 5. Shri Naresh Kumar 2,00,000 6. Shri Parshottam Lal 94,000 7 Smt. Sushma Rani 23,500 8. Shri Sunil Dutt 1,19,000 9. Shri Kamal Kishore 1,34,000 Total 11,53,500 The aforesaid purchases of 11,53,500 shares were made by Northlink Fiscal & Capital Services Limited from the members of the Maria family at an average rate of `25/- to `28/- per share and were correspondingly sold to MSD Financial Services Limited, Sarojani Finance & Investment Private Limited, M/s Rajni & Co. and Benz Financial & Investment Private Limited. The notice had mentioned that, as per available information, the said entities disposed off the shares of the Company acquired from Northlink Fiscal & Capital Services Limited in the secondary market to the general investing public. The notice had also alleged that the shares of the Company sold by the members of the Maria family through Northlink Finance & Capital Services Limited and M/s Rajni & Co. were out of original allotments made during the public issue and that the said family were able to dispose of their original allotment of shares at par at the artificially increased prices of `25/- to `28/- per share.

The family members of the Maria family also off-loaded shares in the secondary market through Sarojani Financial & Investment Private Limited, of which the proprietor of M/s Rajni & Co. is a director. As already stated above, the gain arising out of the sale of those shares was off-set by the losses so “arranged” from the purchase of shares. In this manner, the members of the Maria family avoided possible capital gain tax liabilities. From the details and the tables provided in the notice, I find that the following directors have traded in the shares of the Company during the relevant period: Mr. Sunil Maria, Mr. Kamal Kishore Maria, Mr. Naresh Kumar Maria, Mr. Parshottam Lal Maria. Therefore, in the absence of any submissions on merits and refutation based on supporting documents, I am of the considered view that the observation regarding the family members of the Maria family would hold good as against the aforesaid directors also. While concluding my finding in respect of the first charge, the Company and its directors have been found to have aided in the manipulation.

15. The third charge against the Company and its directors is that the prospectus and the letter of offer contained certain mis-statements and non-disclosures. It is pertinent to note that the Company had issued a Prospectus dated April 9, 1994 (pertains to public issue) and a Letter of Offer dated December 6, 1995 (pertains to right issue) .The following alleged mis-statements and disclosures from the notice are given below:

A. MIS-STATEMENT AND NON-DISCLOSURES ABOUT CONSTRUCTION OF BUILDING IN THE PROSPECTUS:

a. At page 9 of the prospectus under the heading ‘Buildings/Civil Works’, it is stated that “the company has given the contract of civil construction to M/s Vijay Singh Arya & Co., Building Contractors, Ludhiana and Architectural work to M/s Habitat Architects, Ludhiana. The building work has been completed at a cost of Rs.73.50 lacs”. b. At page 7 under the heading ‘Assets’, the status of Building had been stated as “completed at a cost of Rs.73.50 lacs, being 11.7% of the project cost”. c. At page 10 under the heading ‘Schedule of Implementation’, the funds invested on Building were stated at Rs.73.50 lacs, and status described as “construction completed”. d. At a page 22 under the heading ‘Material Contracts’, the agreement for construction of civil work with M/s Vijay Singh Arya & Co., Ludhiana vide letter dated 1.12.93 was listed at Sl. No. 5.” From the said recital in the prospectus, it can be seen that the Company had entrusted the contract for civil construction to M/s Vijay Singh Arya & Co. The said entity is a proprietary concern with Mr. Gopal Kumar as its proprietor. Further, Mr. Gopal Kumar is the son Mr. Satish Kumar Maria (a director in the Company). This information being not disclosed in the prospectus makes the Company liable for incomplete disclosures. It has been observed by the investigation that:

i) M/s Vijay Singh Arya & Co. had informed that it had received payments from the Company on May 28, 1994 (on which date the payments were credited to its bank accounts by State Bank India, Civil Lines, Ludhiana). However, the said credit was found to be mis-stated in the prospectus of the Company as it was disclosed that an amount of `73.50 lacs had been invested towards the construction of building prior to April 9, 1994. ii) As per the audited accounts of the Company as on June 30, 1995, the schedule of fixed assets shows the Gross Block for Building as below:- Amount (Rs.) Particulars Cost as on 31.3.94 35,16,327.16 Addition 8,83,536.26 Sale NIL Cost as on 30.6.95 43,99,863.42 The expenditure on the construction of the building at `73.50 lacs as disclosed in the prospectus did not appear in the Building Account as on March 31, 1994 or during the period between April 1, 1994 to June 30, 1995 in the audited accounts. Further, as per the records of M/s Vijay Singh Arya & Co. the cumulative bills for `16,77,138/- was prepared by them in February and March, 1996 and also that the proprietor of M/s Vijay Singh Arya & Co. stated that the construction work was done by them during January, February and March, 1996. It was, thus, misstated in the prospectus that an amount of `73.50 lacs had been invested towards the construction of building prior to April 9, 1994.

iii) Further, the amounts advanced by the Company to M/s Vijay Singh Arya & Co. were entirely withdrawn in cash and subsequently deposited for being returned to the Company, transfer to M/s Shivialikwala Steel Mills Limited and for the acquisition of shares, as stated above. The only amount expended towards construction of building up to March 31, 1996 was `16,77,138/-. iv) Mr. Gopal Kumar, Proprietor of M/s Vijay Singh Arya & Co. had stated that the construction work by M/s Vijay Singh Arya & Co. for the Company was done during January, February and March, 1996 and that no machinery was owned by it and that all machinery have been taken on rent, labour on daily wages and material purchased from various parties. Thus, it is misstated in the prospectus that the construction of building had been completed prior to April 9, 1994 and also that the prior work experience of M/s Vijay Singh Arya & Co. in construction field was also not disclosed in the said prospectus.

B. MIS-STATEMENT AND NON-DISCLOSURES ABOUT PLANT & MACHINERY IN THE PROSPECTUS:

i. At page 10 of the prospectus under the heading ‘Plant & Machinery’, it is stated that “the company has already placed orders with M/s Par Industrials for supply of machinery and the delivery is to be effected by May, 1994. ii. At page 10 under the heading ‘Schedule of Implementation’, the funds invested on Plant & Machinery were stated at Rs.29.90 lacs, and status described as “orders placed”. iii. At a page 22 under the heading ‘Material Contracts’, the agreement for construction of civil work with M/s Par Industrials, Ludhiana vide letter dated 1.12.93 was listed at Sl. No. 7. It has been stated that the Company had entered into an agreement with M/s Par Industrials on December 1, 1993 for supply of machinery and an advance of 29.90 lacs was made prior to the signing of the prospectus on 9.4.94. From the available information, it however, emerged that - i) M/s PAR Industrials is the proprietorship of Shri Ram Kumar, S/o Shri Kamal Kishore, a Director of Company. This fact was confirmed by Shri Ram Kumar in his statement recorded u/s 11(3) of SEBI Act, 1992 on 26.8.96. In view of the requirements of Schedule II to the Companies Act, 1956 the relationship of company with M/s PAR Industrials warranted a disclosure in the Prospectus. ii) As per information submitted by M/s PAR Industrials and information obtained from their bankers State Bank of India, Civil Lines, Ludhiana, an amount of Rs. 29.90 lacs was received by them from SLML on 28.5.94 on which date these payments were credited to their bank accounts by State Bank India, Civil Lines, Ludhiana.

It has, thus, been misstated in the prospectus of SLML that an amount of Rs.29.90 lacs was advanced towards supply of machinery prior to 9.4.94. iii) As discussed earlier, the amounts advanced by company to M/s PAR Industries were withdrawn in cash and subsequently redeposited for loans to members of Maria family and acquisition of company’s shares. The only amount expended towards supply of machinery up to 31/3/96 was Rs. 36,56,645/-iv) A statement of Shri Ram Kumar, Proprietor of M/s PAR Industrials was recorded on 26.8.96. In response to a specific query, he stated that the machinery was supplied by M/s PAR Industries to company in Jan.-Feb., 1996. He also stated that no machinery was owned by it or labour employed and that it had no previous experience in supply/trading of machinery. All machineries have been taken on rent, labour on daily wages and material purchased from various parties.

Thus, it has been misstated in the prospectus that the advance to the supplier of machinery was made prior to April 9,1994 and the prior work experience of M/s PAR Industries in supply of machinery was also not disclosed in the said prospectus.

C. MISSTATEMENT ABOUT BUILDING AND PLANT & MACHINERY IN THE LETTER OF OFFER:

At page 24 of the Letter of Offer under the heading “Expenses proposed and Expenses actually incurred in respect of public issue of May, 1994”, the expenditure incurred on Building and Plant and Machinery was stated at Rs.79.51 lacs and Rs.290.08 lacs against the proposed expenditure of Rs.73.50 lacs and Rs.299.0 lacs respectively. In view of the aforesaid findings, the same constituted a mis-statement in Letter of Offer dated December 6, 1995.

D. MISSTATEMENT AND NON-DISCLOSURES ABOUT INCOME-TAX LIABILITIES IN THE PROSPECTUS AND LETTER OF OFFER:

i) As per information obtained from the income-tax authorities at Ludhiana, there was a search at the business premises of the Company and the business premises of all its associate business concerns and the residences of its directors on December 18, 1990. A seizure of valuables of the value of `7,76,286/- was made during the search. Books of accounts and other documents were also seized during this search. The fact of the search action by the income-tax authorities, seizure of valuables, books of accounts and documents were not disclosed in the Prospectus under the heading “Litigations, Default and Material Development” or under the heading “Risk Factors”. ii) At page 16 of the prospectus under the heading “Notes to Accounts”, it is stated that Contingent Liabilities not provided for included income-tax liabilities pending before appellant authority at `9,64,000/-. As informed by the income-tax authorities, the tax liabilities in the case of the Company as on May 30, 1994 were for `1,34,50,857/-. In the audited accounts of the Company for the year ending June 30, 1995, the income tax liabilities were disclosed at `134.51 lakhs for the previous year ending March 31, 1994. The fact that the income tax liabilities at `134.51 lakhs for the previous year ending on March 31, 1994 were disclosed in the audited accounts of the Company as on June 30, 1995 implied that the tax liabilities were quantified and ascertained prior to March 31, 1994 and should have been disclosed in the prospectus.

iii) At page 19 of the Letter of Offer under the heading “Notes to Accounts”, it was stated that Contingent Liabilities not provided for included income-tax liabilities pending before appellant authority at `134.51 lacs and that the case had been set aside by the competent authorities of the income-tax department. However, as per information obtained from the income-tax authorities at Ludhiana, the income-tax liabilities in the case of company as on December 18, 1995 were `65.55 lakhs. The income-tax liabilities were misstated in the Letter of Offer and the fact of the search action by the income-tax authorities, seizure of valuables, books of accounts and documents were not disclosed under the heading “Litigations, Default and Material Development” or under the heading “Risk Factors”. 16. After having noticed the misstatements and improper disclosures made by the Company, I find that in terms of Regulation 5 of the PFUTP Regulations 1995, “5. (1) No person shall make any statement, or disseminate any information which- (a) is misleading in a material particular; and (b) is likely to induce the sale or purchase of securities by any other person or is likely to have the effect of increasing or depressing the market price of securities, if when he makes the statement or disseminates the information- (i) he does not care whether the statement or information is true or false; or (ii) he knows, or ought reasonably to have known that the statement or information is misleading in any material particular. …. …..” These misleading statements made by Company in its Letter of offer dated December 6, 1995 have a bearing on the correctness of accounts and profitability of the company, which are relied upon by general investors to apply in the Rights Issue for purchasing the Company’s shares. The Company and its directors (who were in-charge and responsible for the affairs of the Company) have issued prospectus and letter of offer which is misleading and which had the potential to induce the sale or purchase of securities of the Company, in violation of Regulation 5 of the PFUTP Regulations. The said lapses also make the Company and its directors liable for action under Sections 63 and 68 of the Companies Act,

1956. The violations took place in the year 1994. Considering the case in its totality, I consider that the interest of justice would be served if the parties are penalized as ordered hereinbelow.

17. In view of the foregoing, I, in exercise of powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 read with Sections 11 and 11B thereof read with Regulations 11 and 13 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 hereby restrain Shivalik Loha Mills Limited (having its address at Anarkali Complex, 101, The Mall, Ludhiana- 141001) and its directors, Mr. Sunil Maria, Mr. Paroshatam Lal Maria, Mr. Naresh Kumar Maria, Mr. Kamal Kishore Maria, Mr. Satish Kumar Maria and Mr. Sham Sunder Maria from accessing the securities market and further prohibit them from buying, selling or otherwise dealing in securities, in any manner for a period of one month.

18. This Order shall come into force with immediate effect.

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