Order against M/s Vision Organics Ltd, Shri J. H. Shah and Smt Nayana J. Shah in the matter of Vision Organics Ltd

1.1. Vision Organics Limited (hereinafter referred to as “VOL”/ “the company”) is a public limited company engaged in manufacturing of PVC Plasticizers.

The registered office of VOL is located at Vadodara. At the relevant time the shares of VOL were listed on Vadodara Stock Exchange, the Bombay Stock Exchange Limited and the National Stock Exchange of India Limited (hereinafter referred to as “VSE”, “BSE” and “NSE” respectively).

1.2. Upon receiving a complaint regarding the irregularities in the subscription of Initial Public Offer (IPO) of VOL, Securities and Exchange Board of India (hereinafter referred to as SEBI), advised BSE and NSE to conduct preliminary investigations into the matter. Accordingly, both BSE and NSE submitted investigation reports to SEBI after conducting investigations. After analyzing the same, SEBI initiated a formal investigation in the matter.

1.3. The aforementioned investigations revealed that VOL had come out with a public issue of 36.25 lakh shares of Rs. 10/- each at a premium of Rs. 30 per share in the year 2000. Since VOL realized that it would not be able to reach the 90% minimum subscription level to make the public issue successful, it approached one Shri Ketan Shah and family to subscribe to the issue with the understanding that the shares allotted to Shri Ketan Shah and family will be repurchased with a commission. By this modus operandi VOL made the issue successful by artificial means.

1.4. The investigations thus concluded that VOL, its promoters/directors namely Shri J H Shah and Smt. Nayana J Shah (hereinafter referred to as “noticees”) have violated the provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations (hereinafter referred to as PFUTP Regulations).

1.5. On the basis of the findings of the investigation, a show cause notice dated September 29, 2004 was issued to the noticees. After examining their reply to the said show cause notice and also hearing them in person,

SEBI, having found them guilty, passed an order dated January 24, 2006, debarring them from accessing the securities market for a period of 3 years.

1.6. This order of SEBI was challenged by the noticees before the Hon’ble Securities Appellate Tribunal (SAT) vide Appeal No. 81 of 2006. Hon’ble SAT, vide its order dated October 25, 2007, set aside the aforementioned order of SEBI and remanded the case to SEBI directing it to consider the entire material afresh and pass an order in accordance with law after affording an opportunity of hearing to the appellants.

1.7. In compliance with the aforementioned direction of SAT, a fresh show cause notice dated February 14, 2008 was issued to the noticees referring all the relied upon material and alleging the violation of the provisions of Regulations 3 and 6 (a) of PFUTP Regulations 1995 by the noticees.

1.8. The noticees replied to the aforementioned show cause notice vide letter dated March 14, 2008 and inter alia submited the following:

a) Shri Ketan Shah is a Baroda based broker and his business is to buy/sell/subscribe shares for himself and his investors. b) The noticees have never had any kind of financial arrangements with Shri Ketan Shah. c) Shri Ketan Shah had subscribed to the IPO as any other subscriber. d) It is wrong on the part of SEBI to state that the noticees had done some financial arrangements with Shri Ketan Shah for reaching the required minimum subscription of 90% as infact IPO was subscribed more than 100%.

e) There is no prudent evidence to show that the noticees have made payments to Shri Ketan Shah which was ultimately transferred into the accounts of VOL. f) The allegations of flow of fund are incorrect and as per the statement of Accounts of VOL, cheque for 2,63,50,000/- was issued for payments of raw materials to M/s Sahil Impex Pvt. Ltd (hereinafter referred to as Sahil) in the name of one Ms Leena Dave. In support of this contention VOL submitted the copies of Bills / Purchase Order and Balance Sheet. g) 16,41,100 shares of Shri. Ketan Shah and family was forfeited which resulted in a loss of Rs 1.64 crore to them. This fact was conveniently overlooked by SEBI.

1.9. Accordingly, in adherence to the Principles of Natural Justice, personal hearing was granted to the noticees on May 15, 2008 when Shri J H Shah appeared and made submissions on behalf of the noticees. During personal hearing, Shri J H Shah recapitulated most of the submissions already on record.

1.10. I have carefully perused the Investigation Reports, show cause notices issued to the noticees, replies to the said show cause notices and other material on record.

1.11. I note that VOL had come out with a Public Issue of 36.25 lakh shares of Rs.10/- each at a premium of Rs.30/- per share in the year 2000. I further note that VOL was not in a position to get the 90% minimum subscription level to make the IPO successful. Therefore, VOL made an arrangement with one Shri Ketan Shah & family to subscribe to the issue with an understanding that the shares allotted to them will be purchased back with commission. As per the said understanding, Shri Ketan Shah and family applied for 23,25,000 partly paid shares and the same were allotted to them. The shares allotted to Shri Ketan Shah and family constituted 64.15% of the total of partly paid shares allotted to public in the Public Issue of 36,25,000 shares. By this arrangement with Shri Ketan Shah and family, VOL could reach the 90% minimum subscription level and managed to make the public issue successful.

1.12. The allotment of the issue was completed on November 04, 2000. The shares were allotted to the family members of Shri Ketan Shah as shown in the table below:

Name Relationship Shares Allotted (Post Issue)

Bhailal Shah Father of Ketan Shah 4,94,800 Binal Shah Wife of Ketan Shah 4,94,800 Ketan Shah Self 4,94,800 Ketan Shah (HUF) HUF 2,47,400 Falguni Shah Wife of Rahul Shah 1,48,400 Rahul Shah Brother of Rahul Shah 1,48,400 Chandra Shah Mother of Ketan Shah 1,48,400 Pramila Shah Grandmother of Ketan 1,48,400 Shah Total 23,25,400

1.13. I note that on the completion of the allotment Shri Ketan Shah and family received the money back in a circuitous manner from the account of VOL. I further note that the fund was routed from the VOL account to the account of Shri Ketan Shah and family in a planned manner. The modus operandi of these transactions will be well understood from the following description:

Vision Equity Issue Account (Account no. 87CA4002826) with Bank of Punjab Ltd, which was the banker to issue, had received subscription amount of Rs.14,76,000. HDFC Bank Ltd, another banker to the issue also received subscription amount of Rs.1,43,39,214 which was later transferred to Vision Equity Issue Account with Bank of Punjab. The total subscription amount in Vision Equity Issue Account with Bank of Punjab was Rs. 1,58,15,214. Out of this, an amount of Rs.1,55,15,214 was transferred to the account of VOL with Bank of Punjab (Account no.87CA4002825).

Thereafter, a Pay Order of Rs. 2,63,50,000/- dated 22/11/2000 was issued by Bank of Punjab Ltd. from the account of VOL (Account no. 87CA4002825) in favour of HDFC Bank Ltd which was deposited in the account of one Smt. Leena Dave. (Account No. 0331300060794). Smt. Leena Dave in turn issued cheques in favour of three persons namely, Smt Jyoti Relwani, Smt Shilpa Dave and Smt Varsha Trivedi for Rs.87,75,000, Rs.87,95,000 and Rs.87,85,000 respectively. Apart from the above, Smt Varsha Trivedi also received Rs 35,00,000 transferred from another account (Account no. 3331010672748). So in total, Smt Varsha Trivedi received Rs 1,22,85,000 in her account. It is pertinent to take note here that Smt Varsha Trivedi, Smt Jyoti Relwani and Smt Shilpa Dave are related to the employees of VOL and their relationship is shown in the table below:

Name Relation Designation in VOL

Jyoti Relwani Wife of S. P. Finance Manager Relwani Shilpa Dave Wife of P. S. Dave Personal Manager

Varsha Trivedi Wife of Nilesh Account Clerk (Director of VOL) Trivedi

Smt Jyoti Relwani, Smt. Shilpa Dave and Smt. Varsha Trivedi in turn transferred the aforementioned amounts to Shri Ketan Shah and family. They channeled the money in following manner.

Out of Rs 87,75,000 received by Smt Jyoti Relwani in her account with HDFC Bank Ltd, Baroda (Account no. 0331000041756), an amount of Rs 36,68,861 was transferred to Shri Ketan Shah and family directly and Rs 38,30,000 was transferred through M/s Philoden Agrochem Pvt Ltd, a company in which Shri Dilip Thakkar was a director. Apart from the above, there was also a cheque of Rs 12,75,000 issued on 27/11/2000. The details of the above mentioned transactions are as under:

Transferred From Transferred To Amount in Rs Smt Jyoti Relwani (Account Binal Shah (Cheque no. 11,18,861 no. 0331000041756 with 401503) HDFC Bank Ltd) Ketan Shah – HUF 25,50,000 (Cheque no. 401502) Philoden Agrochem Pvt 38,30,000 Ltd (Cheque no. 401504) Cheque no. 401501 12, 75,000 Total 87, 73,861

Out of Rs 87,95,000 received by Smt Shilpa Dave in her account with HDFC Bank Ltd, Baroda (Account no. 0331300060812), Rs 18,85,563 was transferred to Shri Ketan Shah and family directly and Rs 38,50,000 was transferred through Philoden Agrochem Pvt Ltd. Apart from the above, Rs 30,60,000 was transferred to 2 other top allotees namely Shri Nirav Shah and Shri Subhash Shah. The details of the transactions are as under:

Transferred From Transferred To Amount in Rs Smt Shilpa Dave (Account Bhailal Shah (Cheque 10,20,000 no. 0331300060812 with no. 399130) HDFC Bank Ltd) Ketan Shah (Cheque no. 1,48,424 399129) Binal Shah (Cheque no. 7,17,139 399128) Philoden Agrochem Pvt 38,50,000 Ltd (Cheque no. 399132 & 399131) Nirav Shah (Cheque no. 15,30,000 399126) Subhash Shah (Cheque 15,30,000 no. 399127) Total 87,95,563

Out of Rs 1,22,85,000 received by Smt Varsha Trivedi in her account with HDFC Bank Ltd, Baroda (Account no. 0331000041677), Rs 84,51,576 was transferred to Shri Ketan Shah and family directly and Rs 38,30,000 was transferred through Philoden Agrochem Pvt Ltd. The details of the transactions are as under:

Transferred From Transferred To Amount in Rs Smt Varsha Trivedi Ketan Shah (Cheque 49,51,576 (Account no. no. 401301) 0331000041677 with HDFC Bank Ltd)

Ketan Shah & Co 35,00,000 (Cheque no. 401303) Philoden Agrochem Pvt 38,30,000 Ltd (Cheque no. 401302) Total 1,22,81,576

The amount received by M/s Philoden Agrochem Pvt Ltd from Smt Jyoti Relwani, Smt Shilpa Dave and Smt Varsha Trivedi. (Rs 1,15,10,000/-) in its account with Unnati Co-Operative Bank Ltd, Baroda( Account no. 0000677) was also transferred to Shri Ketan Shah and family subsequently. The details of the transactions are as under:

Transferred From Transferred To Amount in Rs Philoden Agrochem Pvt Ltd Premila Shah (Cheque 15,00,000 (Account no. 0000677 with Unnati no. 61854) Co – Operative Bank Ltd) Rahul Shah (Cheque no. 15,00,000 61852) Binal Shah (Cheque 32,00,000 nos. 61855 and 61856) Chandra Shah (Cheque 15,00,000 no. 61853)

Falguni Shah(Cheque 15,00,000 no. 61851) Bhailal Shah(Cheque 23,10,000 no. 61857) Total 1,15,10,000

All the cheques mentioned above were signed by Shri Dilip Thakkar as director of Philoden Agrochem Pvt Ltd. It is important to note that the bank account of Philoden Agrochem Pvt Ltd was opened with Unnati Co-Operative Bank on 16/11/2000 and after the abovementioned transactions were completed in the month of November and December, 2000 the account became defunct.

The flow of funds from the account of VOL to Shri Ketan Shah and family is graphically depicted below:

Vision Equity Issue Ketan Shah & family (Bank of Punjab) Shilpa (HDFC Bank & Dave, Unnati Coop Bank Jyoti Ltd) Relwani & Varsha VOL Leena Trivedi (Bank of Dave (HDFC Punjab) (HDFC Philoden (Unnati Bank) Bank Coop Bank Ltd)

1.14 Apart from the flow of fund from VOL to Shri Ketan Shah and family, there was also flow of shares from Shri Ketan Shah and family to VOL. From the statement of transactions provided by the depository (NSDL), the copy of which was given to the noticees herein, it is clear that partly paid shares were transferred from the accounts of Shri Ketan Shah and family to the entities associated with VOL. The following table shows the details of such transactions.

SI Name of the Entity from No. of Partly Name of the Entity to No. of No whom shares Paid Shares Whom Shares Shares transferred (DP Name / Received in Transferred (DP Transferred Client ID ) the IPO Name / Client ID) 1. Bhailal Shah (Karvy 4,94,800 Shilpa Dave (HDFC 99,000 Stock Broking Ltd Bank Ltd/15068566) /10323017) Ketan Bhailal Shah 3,95,800 (HDFC Bank Ltd/15114889) Total 4,94,800

2. Binal Shah (Karvy Stock 4,94,800 Jyoti Relwani (HDFC 1,08,900 Broking Ltd/10725734) Bank Ltd/15068269) Shilpa Dave (HDFC 69,800 Bank Ltd/15068566)

Ketan Bhailal Shah 3,16,100 (HDFC Bank Ltd/15114889) Total 4,94,800

3. Ketan Shah (Karvy Stock 4,94,800 Varsha Trivedi (HDFC 4,80,400 Broking Ltd/10247796) Bank Ltd/15069253) Shilpa Dave (HDFC 14,400 Bank Ltd/15068566) Total 4,94,800 4. Ketan Shah – HUF 2,47,400 Jyoti Relwani (HDFC 2,47,400 (Karvy Stock Broking Bank Ltd/15068269) Ltd/11228708)

5. Falguni Shah (Karvy 1,48,400 Ketan Bhailal Shah 1,48,400 Stock Broking (HDFC Bank Ltd/10901887) Ltd/15114889)

6. Rahul Shah (Karvy 1,48,400 Ketan Bhailal Shah 1,48,400 Stock Broking (HDFC Bank Ltd/10725759) Ltd/15114889)

7. Chandra Shah (Karvy 1,48,400 Ketan Bhailal Shah 1,48,400 Stock Broking (HDFC Bank Ltd/10725726) Ltd/15114889)

1.15 From the above table, it is noted that in total 10,19,900 partly paid shares were transferred from the demat accounts of Shri Ketan Shah and family to the demat accounts of Smt Jyoti Relwani, Smt Shilpa Dave and Smt Varsha Trivedi and 11,57,100 partly paid shares were transferred from the demat accounts of Shri Ketan Shah and family to another demat account of Shri Ketan Shah with HDFC Bank Ltd (Client ID - 15114889).

It is further observed from the statement of transaction of Shri Ketan Shah that as on 29/01/2001, Shri Ketan Shah had 16,41,100 partly paid shares in his demat account with HDFC Bank Ltd (Client ID - 15114889).

1.16 I further find that the company called for the call money of Rs. 30 per share on allotment. However, the response to the call was poor. Thereafter, on October 27, 2001 the company passed a Board Resolution forfeiting 24,93,780 partly paid shares, which constituted 69% of the shares allotted to the public. The partly paid shares forfeited by the company also include 16,41,100 shares held by Shri Ketan Shah in his demat account with HDFC Bank Ltd (Client ID – 15114889) as referred to in the previous paragraph.

1.17 Interestingly, the aforementioned forfeited shares were subsequently reissued by VOL mainly to its own employees who were related to Smt Jyoti Relwani and Smt. Varsha Trivedi on various dates as shown in the table below:

Name of the No. of shares Date of Reissue Shareholder Sonia S. Relwani 40,800 28/12/2001 N. G. Trivedi 2,67,500 28/03/2002 S. P. Relwani 3,00,000 28/03/2002 N. G. Trivedi 3,75,500 26/04/2002 S. P. Relwani 4,13,000 26/04/2002 N. G. Trivedi 3,65,000 31/05/2002 S. P. Relwani 3,12,000 31/05/2002 N. G. Trivedi 2,34,980 07/06/2002 S. P. Relwani 1,85,000 07/06/2002 Total 24,93,780

1.18 Thus it is clear from the above table that the company, in a pre-planned manner arranged a financier (Shri ketan Shah and family) to make its IPO successful. Shri Ketan Shah and family put Rs 2,32,54,000 into the Public Issue and once the Public Issue was successful and the allotment of partly paid shares was done, they received an amount of Rs 2,55,16,000 back from the company which includes their commission. The partly paid shares allotted to Shri Ketan Shah and family were either transferred to the demat account of Smt Jyoti Relwani, Smt Shilpa Dave and Smt Varsha Trivedi or to the demat account of Shri Ketan Shah himself. The shares transferred to the demat account of Shri Ketan Shah and family was ultimately forfeited by the company for non-paymeny of call money.

1.19 I have carefully examined the replies filed by VOL to the show cause notices issued by SEBI. One of the main contentions of VOL is that the cheque of Rs. 2,63,50,000/- was issued to Smt. Leena Dave as per the directions of M/s Sahil Impex Limited for the supply of raw materials. VOL has been asked to produce documentary evidence to show that the cheque was issued at the instance of Sahil Impex Limited. VOL could not produce any such documentary evidence for the issuance of cheque. Furthermore the invoices forwarded by VOL were not matching with the amount of cheque issued to Smt. Leena Dave. Interesting to add, none of these documents were certified by a Chartered Accountant as suggested by SEBI. During the personal hearing before me, Shri J H Shah was not in a position to explain the logic why such a cheque of substantial amount was issued to Smt Leena Dave, a third person.

1.20 With regard to the argument of the noticees that IPO was more than 100% subscribed, I note that it was not SEBI’s case that IPO was subscribed to 90% only. Instead, in the show cause notice it was alleged that by arranging the finance from Shri Ketan Shah and family VOL managed to reach the minimum subscription level of 90% to make the IPO successful. The flow of fund and shares as depicted in paragraphs 1.13, 1.14 and 1.15 supra clearly establish the arrangement between VOL and Shri Ketan Shah and family. Moreover, Shri Ketan Shah and family received their money back prior to the forfeiture of shares by VOL. So there was no loss caused to Shri Ketan Shah and family on account of the forfeiture of the shares.

1.21 From the aforesaid acts of omission and commission by the noticees and in the absence of valid and reasonable defence for the same, I am of the view that the noticees herein, in fraudulent manner got the issue of VOL subscribed by adopting the unfair practices in violation of the provisions of Regulation 3 and 6 (a) of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 (1995 Regulations) which read as follows:

“3. Prohibition of certain dealings in securities. - No person shall buy, sell, or otherwise deal in securities in a fraudulent manner.

6 Prohibition on unfair trade practices relating to securities: - No person shall:- (a) in the course of his business, knowingly engage in any act, or practice which would operate as fraud upon any person in connection with the purchase or the sale of, any other dealing in, any securities.”

It is pertinent to note here that pursuant to the repeal of 1995 Regulations, the corresponding provisions are contained in Regulations 3 and 4 of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003.

1.22 Having gone through the chronology of events and facts and circumstances of the case, the arguments of the noticees and the material on record I am satisfied that the charges alleged are proved against the noticees making them liable for appropriate enforcement action by SEBI in the interest and proper functioning of the securities market.

1.23 I also note that the SEBI order dated January 24, 2006 debarring the noticees herein for a period of 3 years was set aside by SAT vide order dated October 25, 2007 and by that time the noticees herein had already undergone restrain approximately for a period of one year and nine months. Therefore, I, in exercise of powers conferred upon me under sections 11 and 11 B of the SEBI Act, 1992 read with Section 19 of the SEBI Act, 1992 and Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 further read with relevant provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003, hereby restrain Vision Organics Limited, its promoters/Directors Shri J H Shah and Smt Nayana J Shah from accessing the securities market and prohibit them form buying, selling or dealing in securities market for a period of three years.

1.24 It is clarified that the restrain already undergone by the noticees pursuant to SEBI’s aforementioned order dated January 24, 2006 shall be reduced while computing the period of restrain being imposed vide this order.

1.25 This order shall come into force with immediate effect.

Date: 20.6.2008 T.C. Nair Mumbai Whole Time Member Securities and Exchange Board of India