Order against Mrs. Leela Surana R and M/S. Surana Capital Market in the matter of Kwality Dairy India Limited

ORDER DIRECTIONS UNDER SECTIONS 11, 11(4) AND 11B OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992, AGAINST MRS. LEELA SURANA R AND M/S. SURANA CAPITAL MARKET IN THE MATTER OF KWALITY DAIRY INDIA LIMITED Date of Hearing: February 9, 2010 Appearance: For Mrs. Leela Surana R and M/s. Surana Capital Market: Mr. N. Rajkumar, Authorised Representative For the Securities and Exchange Board of India: Mrs. Medha Sonparote, Deputy General Manager Ms. Chhavi Sinha, Legal Officer

1. On noticing a sharp rise in the price and trading volume of Kwality Diary India Limited (hereinafter referred to as the Company) during the period October 2008 to November 2009, the Securities and Exchange Board of India (hereinafter referred to as SEBI) initiated an investigation into the dealings in the shares of the Company. On the basis of the preliminary findings of investigation, SEBI vide an ad interim ex-parte order (hereinafter referred to as the Order) dated December 1, 2009 inter alia directed Mrs. Leela Surana R. not to buy, sell or deal in securities in any manner, till further directions. M/s. Surana Capital Market was directed not to buy, sell or deal in the securities of the Company in any manner till further directions. M/s. Surana Capital Market was further directed not to buy, sell or deal in the securities in its own account in any manner till further directions. Thereafter, Mrs. Leela Surana R. and M/s. Surana Capital Market, vide separate letters dated December 7, 2009 inter alia contended that they had not indulged in fraudulent and unfair trade practices in the shares of the Company. Further, vide letter dated January 8, 2010, M/s. Surana Capital Market had stated that its trades in the shares of the Company were negligible. Mrs. Leela Surana R. also stated, vide letter dated January 8, 2010, that she had traded for only 1,54,918 shares of the Company. Further submissions were also made by Mrs. Leela Surana R. and M/s. Surana Capital Market, vide separate letters dated February 9, 2010. Their submissions are considered in the later part of this order. Subsequently, an opportunity of hearing was granted to Mrs. Leela Surana R. and M/s. Surana Capital Market on February 9, 2010, when Mr. N. Rajkumar, as authorized by them appeared and made submissions on their behalf.

2. I have considered the written as well as oral submissions made on behalf of Mrs. Leela Surana R and M/s. Surana Capital Market and other material available on record. In the facts and circumstances, the limited issue for consideration at present is whether the directions issued by SEBI against Mrs. Leela Surana R. and M/s. Surana Capital Market in the Order needs to be continued, modified or revoked. The circumstances which led to the passing of the Order and the prima facie role of the persons/entities who had dealt in the shares of the Company has been explained in the said Order. It was observed that the share price of the Company was in the range of Rs. 51.60/- to Rs 171.85/- during the period January 1, 2009 to June 6, 2009 (first patch, as observed in the Order). From, June 29, 2009 to September 23, 2009 (second patch, as observed in the Order), it was in the range of Rs. 139.15 to Rs. 615.25/-. Subsequently, the share price had increased from Rs. 595.65/- to Rs. 1114.45/- till November 11, 2009. Mrs. Leela Surana R. was found to be the top purchaser on net basis during the first patch.

The movement of shares in off market and through stock exchange transactions among the various entities of Mrs. Leela Surana R. group was given in detail in the Order. Number of off-market transfers and market transactions were observed in the first patch among various entities in the same/similar manner wherein Mrs. Leela Surana R. was found to have purchased shares of the Company initially from the market and then carried out off market transfers to various related entities. Details of such transactions were also mentioned in the Order. There were number of synchronized transactions in the shares of the Company during the relevant period, as mentioned in the Order. It was observed that during the first patch, the entities of Mrs. Leela Surana R. were routing orders through the trader id of one Mr. Dinesh Kumar Surana. It was further noted that Mr. Dinesh Kumar Surana with trade name M/s Surana Capital Market, is a member of Madras Stock Exchange Limited as well as sub-broker of MSE Financial Services Limited (subsidiary of Madras Stock Exchange Limited). Moreover, one of the addresses of Mrs. Leela Surana R is same as that of Surana Capital Markets.

All the clients are also having their demat accounts with Madras Stock Exchange Limited, depository participant of Central Depository Services (India) Limited. It was further observed that the clients had placed orders through the three trader ids belonging to Mr. Dinesh Kumar Surana and had entered into synchronized trading with each other by placing the buy-sell orders simultaneaously wherein the buy order time and sell order time had very little difference. Further, the trades had occurred when the buy and sell orders were placed from the location ids belonging to the sub-broker (M/s Surana Capital Market) at his office. It was also mentioned in the Order that the trader for Mrs. Leela Surana R. as well as for other clients was Mr. Dinesh Kumar Surana and that in most cases the difference between the bid-order and sell order was less than a second. These factual details are not in dispute. Mrs. Leela Surana R and M/s Surana Capital Market, vide letters dated February 9, 2010 inter alia requested to condone the lapses, if any. According to them, their contribution to the total traded volume was approximately 20% and that the share price had not moved exponentially.

They also stated there was no malafide intention while dealing in the shares of the Company and that the trades were genuine and not fictitious, as stated in the Order. They further stated that they had no knowledge that the off-market transactions may fall in the category of synchronized trading. They have also undertaken not to indulge in such nature of trading in future and requested SEBI to relieve from the subject matter with a ‘warning’.

3. Admittedly, the total traded volume of Mrs. Leela Surana R. was 1,54,918 shares. Approximately 1,35,888 shares were traded with the entities who had received shares in off-market transfer from her. Thus, approximately 87.70% of trading by Mrs. Leela Surana R was with related entities. Mrs. Leela Surana R and M/s Surana Capital Market have contended that the volume traded is negligible. I note that the percentage of her trading to total trading during each day of their trades were not negligible as contended by them. A perusal of their traded volume (as given in the Order) indicates that their contribution was approximately more than 5% at any point of time and was as high as 67.69%. Further, Mrs. Leena Surana R. had also transferred the shares of the Company in off market to the other entities in the group and then purchased the same again. Further, I also note that Mrs. Leela Surana R. and M/s Surana Capital Market was sharing the same address. The fact that the entities had entered into number of synchronized transactions which were consistent indicates a connection/nexus among them. Such activities may not be possible without a pre-determined plan. 4. Thus, prima facie by entering into circular and synchronized transactions, the entities had generated fictitious trades and created a false and misleading appearance of trading in the securities of the Company. The share price of the Company had also increased substantially during the period of their trades as stated in the Order. They had also carried out trading in such a manner that unsuspecting investors could have been lured into trading in the shares of the Company, as is evident from the increase in the volumes as mentioned in the Order. At this stage, the facts and circumstances of the case prima facie suggest the complicity of Mrs. Leela Surana R. and M/s Surana Capital Market in the matter. The available material on record justifies the continuation of the directions issued against them, vide Order dated December 1, 2009. The investigation in the matter is not yet concluded and the same is going on. Their alleged role or involvement in the manipulation would be reviewed after the conclusion of the investigation in the matter.

5. In view of the foregoing, in exercise of the powers conferred upon me under Sections 11, 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 read with Section 19 thereof, I, hereby confirm the directions issued against Mrs. Leela Surana R. and M/s Surana Capital Market, vide the ad-interim ex-parte order dated December 1, 2009 in the matter of alleged manipulative trading in the shares of Kwality Dairy India Limited.

DR. K.M. ABRAHAM WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA PLACE: MUMBAI Date: MARCH 25, 2010