Order against Mr. Chetan Shah in the matter of RTS Power Corporation Limited

For Securities and Exchange Board of India: Mr. A. S. Mithwani, Deputy General Manager Mr. Vijayakrishnan G., Deputy Legal Adviser Mr. Balbir Singh, Manager Mr. T. Vinay Rajneesh, Legal Officer

1. Securities and Exchange Board of India (hereinafter referred to as SEBI), vide an ex-parte ad interim order dated June 5, 2009, in the matter of RTS Power Corporation Limited (hereinafter referred to as the company), for the reasons stated therein, inter alia, restrained Mr. Chetan Shah (hereinafter referred to as the noticee) from accessing the securities market and prohibited him from buying, selling or dealing in securities market, directly or indirectly, till further orders. Further, Bombay Stock Exchange Limited (hereinafter referred to as BSE), vide the said order, was directed to withhold the payout of February 11, 2009 of the noticee in a separate escrow account, till further orders. Thereafter, the noticee, vide letter dated June 13, 2009 submitted his objections and inter alia stated that:

a. he had not violated the provisions of 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). b. the trades executed by him on February 11, 2009 were through the screen based mechanism provided by the stock exchange and that the orders were placed at the prevalent market prices. c. he had not given any phone number in his ‘Know Your Client’ (KYC) forms and that uploading of the details in Unique Client Code (UCC) is in the domain of the stock broker. He is not aware of the phone number 9967577028 and how it appeared in his UCC. He does not know Mrs. Hetal Patel and the telephone number given by her in her KYC. e. he had never spoken to Mr. Mukesh Konde, Mr. Ashok Waje and Mr. Nitesh Jadhav.

2. As requested by the noticee, an opportunity of personal hearing was granted to him on July 23, 2009. However, the said hearing was rescheduled to August 25, 2009 as requested by the noticee, vide letter dated July 23, 2009. Mr. Vinay Chauhan, Advocate represented the noticee before me on August 25, 2009 and made submissions on the lines of the objections filed by the noticee. Subsequently, the noticee, vide letter dated August 31, 2009, filed written submissions in which he inter alia stated that: a) he had placed order at 12:25:01 for sale of 42,191 shares @ of Rs. 315.50/-, which was the ruling market price at that time. However this order did not materialize into trade as there were no buyers at that price. b) subsequently, at around 12:44:45 or thereabout, a buy order appeared on screen @ of Rs. 299.50/- at which the buyers were available. As he wanted to sell the shares, he modified the price of his sell order to Rs. 299.50/- at 12:54:40. The only reason for modification of price by him from Rs. 315.50/- to Rs. 299.50 was that there were no buyers available at the higher price. His sell order remained unexecuted in the system for around 10 minutes. Thereafter, at around 12:55:17 (i.e. after around 1 minute) his order resulted in trade and the last trade was executed at 13:07:30.

c) thereafter, after selling 42, 191 shares @ of Rs. 299.50/- he again bought 13,594 shares @ of Rs. 292.75/- between 15:51:10 to 15:56:08, since the shares were available at a price lower than his sale price.

3. In view of the above submissions, the noticee requested that the charges in the said ex-parte order and direction issued against him be lifted and further requested SEBI to issue a direction to BSE for lifting the directions regarding the withholding of his pay out.

4. I have considered the objections filed by the noticee, the oral as well as written submissions made on his behalf and other material available on record. The sole issue for consideration at present is whether, based on the available material on record and after considering the submissions made on behalf of the noticee, the directions issued by SEBI, vide the ad interim ex-parte order dated June 5, 2009 need to be continued, revoked, or modified in any manner, in so far as it relates to the noticee. Before proceeding further, I note that the noticee had filed an appeal before the Hon’ble Securities Appellate Tribunal (No.113/2009) against the said order which was subsequently withdrawn by him on August 7, 2009.

5. The circumstances which led to the passing of the ex-parte order dated June 5, 2009 against various persons/entities including the noticee and their prima facie role in the alleged market manipulation in the shares of the company on February 11, 2009, have been explained in detail in the said order. It is pertinent to note that, SEBI had received complaints from certain stock brokers informing that the clients namely, Mr. Mukesh G. Konde Mr. Ashok Narayan Waje and Mr. Nitesh Ashok Jadhav after buying substantial number of shares of the company on February 11, 2009 failed to fulfill their respective pay-in obligations. Their total obligation accounted for Rs. 9,14,49,113/-. Needless to say, such defaults are serious threat to the functioning of the securities market and as a market regulator, it is the duty of SEBI to interfere and take appropriate measures/actions including directions against the persons who were found involved in such transactions.

6. As already explained in the ex-parte order, substantial volume of shares of the company was traded in the month of February 2009, particularly on February 11. The said increase was not supported by any fundamentals of the company. The fact that the noticee had traded in the shares of the company on February 11, 2009 is undisputed before me. It was noted that most of the shares sold by the noticee were bought by Mr. Mukesh G. Konde, Mr. Ashok Narayan Waje and Mr. Nitesh Ashok Jadhav. The details of such trades were also provided in the ex-parte order. The preliminary investigation also revealed certain inter-linkages between the noticee, Mrs. Hetal Patel and Mr. Mukesh G. Konde (one of the defaulters) on the basis of the common phone number (99675 77028). It is to be noted that Mrs. Hetal Patel and the noticee were the counter parties to Mr. Mukesh G. Konde for his trades executed on February 11, 2009.

7. Thus, in brief, it is observed that: a. there was unusual substantial trading in the shares of the company on February 11, 2009. b. Mr. Mukesh G. Konde Mr. Ashok Narayan Waje and Mr. Nitesh Ashok Jadhav were amongst the major buyers on the said date, who defaulted in their payment obligations. c. the counter parties to the trades of the noticee (more than 95%) on February 11, 2009 were Mr. Mukesh G. Konde Mr. Ashok Narayan Waje and Mr. Nitesh Ashok Jadhav. d. The phone numbers of the noticee, Mr. Mukesh G. Konde and Mrs Hetal Patel were found to be the same.

8. The prima facie findings in respect of the involvement of the noticee are explained in detail in the ex-parte order. The investigation in the matter is not yet concluded and the same is still in progress. The investigation alone can bring out the role of the parties including the noticee in the alleged manipulation. Therefore, it is not appropriate at this stage to give conclusive findings in respect of the contentions raised by the noticee. The submissions of the noticee including the contention that he had not provided any phone number in ‘KYC’ form would be examined in detail in the ongoing investigation. The available material on record justifies the continuation of the directions passed against Mr. Chetan Shah under the ad interim ex-parte order dated June 5, 2009, till the completion of the investigation. Therefore, till the completion of such investigation, I do not consider it fit to interfere with the directions passed by SEBI vide order dated June 5, 2009. The role or involvement of the noticee in the alleged manipulation would be reviewed after the investigations are completed.

9. In view of the foregoing, I, in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 read with Sections 11B and 11(4) thereof, hereby confirm the directions issued vide the ad-interim ex-parte order dated June 5, 2009 in the matter of RTS Power Corporation Limited against Mr. Chetan Shah.

DR. K. M. ABRAHAM WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA PLACE: MUMBAI DATE: OCTOBER 26, 2009