Order against Ms. Viral Doshi in the matter of Pyramid Saimira Theatre Ltd

For Securities and Exchange Board of India: Dr. Pradnya Saravade, Officer on Special Duty Ms. Anita Kenkare, General Manager Mr. Vijayakrishnan G, Deputy Legal Adviser Mr. T. Vinay Rajneesh, Legal Officer

1. The Securities and Exchange Board of India (hereinafter referred to as SEBI), vide an ex-parte ad interim order dated April 23, 2009, in the matter of Pyramid Saimira Theatre Limited (hereinafter referred to as PSTL), inter alia directed Ms. Viral Doshi not to buy, sell or deal in the securities market including in Initial Public Offerings (IPOs) directly or indirectly, till further directions as she was prima facie found to have played a key role in facilitating Mr. Nirmal Kotecha in carrying out suspicious banking transactions, carrying out and disguising his manipulative intent and gaining advantage from the forgery. The entities/persons against whom the said order was passed were advised that they may file their objections, if any, within thirty days from the date of the said order and, if they so desire, avail of an opportunity of personal hearing.

2. Thereafter, Ms. Viral Doshi, vide letter dated May 15, 2009, had filed her objections to the said order and inter alia submitted as follows:

a. That the directions issued by the said order had resulted in deprivation of her right to carry on legitimate investment activities in securities market; b. That not even a prima facie case has been made out to warrant the issuance of such an ex-parte order of serious consequence against her and that the imminent urgency has not been explained to support the order. She further stated that the order should demonstrate that the situation was emergent warranting an ad interim order in her case; c. That funds transferred by her to Mr. Shailesh Jayantilal Shah have been linked to the actions of Mr. Nirmal Kotecha, without appreciating the possibility of other use of the said funds and without providing any evidence to show that the funds were directly or indirectly used for transactions/abnormal designs in the securities market; d. That the order issued at this juncture is neither preventive, remedial nor curative, since she had never dealt in the scrip of PSTL or any other share for the period under investigation. e. That the power to issue directions under section 11, 11 (B) and section 11 (4) of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the Act) have to be exercised judiciously, that it is well settled that a discretionary power is not to be invoked arbitrarily devoid of justification; That an order under

Section 11B of the Act can be issued “after causing or causing to be made an enquiry”; f. That the said order is in total disregard to the mandatory provision in Section 11 (4) of the Act, wherein SEBI shall either before or after passing such orders give opportunity of hearing to such intermediaries or persons concerned; g. That she is neither a SEBI registered intermediary nor a person associated with the securities market in terms of Section 12 of the Act and hence do not come within any of the category of persons specified therein; h. That the trade practices in respect of bank transactions are outside the purview of the 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) and therefore the directions based on the prima facie view that she has violated the provisions of the PFUTP Regulations is untenable; i. That she did not have any trading account leaving aside having any trading in the securities market during the relevant period; j. That the order has not made a single finding showing what the suspicious banking transactions were and no details regarding the same have been furnished in the order. No allegation/averment/observation/finding or whisper thereof has been made by SEBI that the money withdrawn by her has been directly or indirectly been put in the securities market; k. That the power to look into suspicious banking transactions does not fall within the purview of SEBI; l. That it has not been shown in the order as to what loss would have been caused to the securities market, if she was allowed to continue trading in the market or how the interest of the investor would be affected if she was not debarred with immediate effect; m. That an order of this nature, which is based merely on surmise and conjectures, would adversely affect her and would besmirch her impeccable reputation and would also result in irreparable damage to her and to her standing in the society circles.

3. In view of her submissions/objections, Ms. Viral Doshi has requested that the said order to the extent it applied to her, be reconsidered and the directions against her be withdrawn. She had also requested that an opportunity of personal hearing be given to her. Accordingly, an opportunity of personal hearing was given to her on July 01, 2009. In the meanwhile, Ms. Viral Doshi filed an appeal against the ad interim ex-parte order dated April 23, 2009 in Appeal No. 87 of 2009 before the Hon’ble Securities Appellate Tribunal. The Hon’ble Tribunal, vide order dated June 22, 2009 disposed of the said appeal with an observation “Counsel for the parties are agreed that our order dated June 17, 2009 disposing off Appeals no. 86 and 88 of 2009 shall govern this case as well. In view of what learned counsel have stated, we pass the same order in this case as in Appeal no. 88 of 2009. The appeal stands disposed of accordingly. It will be appreciated if the whole time member passes the final order expeditiously but not later than July 31, 2009”.

4. I have considered the objections filed by Ms. Viral Doshi, the oral submissions made by Mr. Shyam Mehta, learned counsel who appeared on her behalf and other material available on record. In the facts and circumstances, the limited issue for consideration at this juncture is, whether based on the available materials on record and after considering the submissions made by Ms. Viral Doshi, the directions issued by SEBI vide ad interim ex parte order dated April 23, 2009 need to be continued, revoked or modified in any manner, in so far as it relates to Ms. Viral Doshi.

5. Before, considering the issue, I would like to mention in brief, the circumstances which led to the passing of the ex parte order dated April 23, 2009 against various persons/entities including Ms. Viral Doshi - i. SEBI, while investigating the case of forged letters dated December 19, 2008 purported to be issued by SEBI to Mr. P. S. Saminathan (Chairman and Managing Director, PSTL) and Mr. Nirmal Kotecha (who was a person acting in concert with the promoters of PSTL and was a major shareholder in the said company), found that Mr. Nirmal Kotecha had offloaded substantial number of shares of PSTL on December 22, 2008 at artificially inflated prices. It was found that one of the forged letters (purported to be issued by SEBI) dated December 19, 2008 was sent to Mr. P. S. Saminathan, directing him to make an open offer under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as SAST Regulations) for acquiring additional stake of 20% at a price not less than Rs.250/- within 14 days. Another forged letter (also purported to be issued by SEBI) dated December 19, 2008 was addressed to Mr. Nirmal Kotecha, seeking certain details about his acquisitions in PSTL, his relationship with Mr. P. S. Saminathan and Mr. N.C.Ravichandran (promoter/shareholder of PSTL), the agreement entered into with Mr. P.S. Saminathan, if any, for the interse transfer of shares, copies of his bank accounts and demat statements for the period January 2007 till December 2008, advances made to PSTL, if any and the details of his networth certificate and Income Tax Returns for the period 2006-97 and 2007-08, which were to be furnished within a period of fourteen days.

ii. The contents of the forged letter issued to Mr. P.S. Saminathan were given wide publicity by media reports on December 21, 2008 (Sunday) and December 22, 2008 (Monday) stating that SEBI had ordered Mr. P.S. Saminathan, one of the promoters of PSTL to make an open offer (as stated above), for allegedly violating creeping acquisition norms. The closing share price of PSTL on December 19, 2008 was Rs.75.45/- at National Stock Exchange of India Limited (hereinafter referred to as NSE). The share price of PSTL shot up to Rs.83/- at NSE and Rs.82.90/- at Bombay Stock Exchange Limited (hereinafter referred to as BSE), on December 22, 2008, when the markets opened up. In the meanwhile, PSTL informed (in the morning on December 22, 2008) BSE and NSE, that it had not received any communication from SEBI as published in the media with respect to the open offer (as mentioned in the forged letter). Subsequently, PSTL claimed to have received the said letter (forged letter purported to be issued by SEBI) at around 10.30 a.m. on December 22, 2008. Thereafter, Mr. P.S. Saminathan informed BSE and NSE about the receipt of the letter from SEBI. It was revealed by the courier company (Blue Dart) that they were instructed by the ‘sender’ to deliver the forged letter (though dated December 19, 2008) to PSTL only on December 22, 2008 (Monday). With respect to the letter issued to Mr. Nirmal Kotecha, it was claimed by Mr. Nirmal Kotecha that the purported letter was received at his residence by his wife on Saturday (December 20, 2008) through courier and that his wife was unable to recollect the name of the courier service. The preliminary analysis of the case by SEBI prima facie inter alia revealed the following:

a) That one Amol Kokane had lent his name for facilitating Mr. Nirmal Kotecha to carry out his fraudulent, abusive, manipulative and illegal activities, detrimental to the interests of investors and to the integrity of the securities market;

b) That the bank trail of the high value funds transferred to Mr.Amol Kokane’s account, from where they were transferred to the stock market, has revealed that these funds have been received from various entities/ persons who appear to be connected to each other, and in whose bank accounts, funds appear to have been circulated through a large network of their connected accounts, in a complex pattern and without any ostensible and bonafide business purpose;

c) That the investigation prima facie also revealed frequent high value cash withdrawals and cash deposits, by limiting individual cash withdrawals and deposits to below Rupees ten lacs in some of these accounts;

d) that there were fund transfers from and between Mr. Nirmal Kotecha and his close relatives (his mother, wife) and related/associated entities/persons etc. and that the same modus operandi (withdrawing high value cash by keeping individual cash withdrawals below Rupees 10 lacs that prima facie appeared in some of the connected persons/ entities accounts from where high value funds were transferred to Mr. Amol Kokane’s account and from where these funds were transferred to the stock market) prima facie also appeared to have adopted in the transfer of funds into and out of Shri Nirmal Kotecha’s account, as well as the accounts of his immediate relatives/ his related entities;

e) that there were purchases made by related/ associated persons of Mr. Nirmal Kotecha in the PSTL scrip just prior to the publication of the news about the forged SEBI open offer letter that was sent to Mr. P S

Saminathan on December 19, 2008 and again sale of substantial number of shares of PSTL just prior to the announcement by Mr. P.S. Saminathan denying the open offer, on the morning of December 22, 2008 by these related/ associated persons;

f) that Mr. Nirmal Kotecha was a major seller in the PSTL scrip on December 22, 2008, having sold 15,05,862 shares on market at an average price of Rs. 75.85 per share on that day. It was further seen that out of the same, he sold 6,69,611 shares on BSE and NSE at an average rate of Rs. 80.92 per share on December 22, 2008, before Mr. P.S. Saminathan denied receipt of the purported SEBI letter that morning;

g) that Mr. Nirmal Kotecha, Mr. Rakesh Sharma and Mr. Rajesh Unnikrishnan prima facie appeared to have jointly played a key role in an arrangement contrived to defraud investors in the market by disseminating the false information contained in the forged letter to the media and by trying to mislead the media into believing in the authenticity of the information that was circulated to them.

iii. The above preliminary findings led to a prima facie inference that Mr. Nirmal Kotecha had played a key role in the forgery, dissemination of the information contained in the forged letter to the media, and misleading the media to believe in the authenticity of the information that was circulated to them. Besides, it was prima facie found that there were entities/ persons, related/associated with Mr.Nirmal Kotecha, including Ms. Viral Doshi, who had played a key role in facilitating Mr. Nirmal Kotecha in carrying out suspicious banking transactions, disguising his manipulative intent and gaining advantage from the forgery.

iv. In view of the grave emergency that had arisen because of the forged letter (purported to have been issued by SEBI) which was sent to a promoter of PSTL and which was given wide media publicity and taking into consideration the fraudulent, abusive, manipulative and illegal activities committed by certain entities/persons to the detriment of the genuine investors and adversely affecting the integrity of securities market, it became necessary for SEBI as a regulator to immediately intervene in order to restore the confidence of the investors and to stop further harm to the securities market and the investors. It prima facie appeared that the said manipulative conduct had resulted in substantial losses to investors, who were left holding stocks with little or no value. It also prima facie emerged that Mr. Nirmal Kotecha was one of the major beneficiaries of the said manipulation and had masterminded the forgery. Therefore, with a view to protect the interest of investors and securities market from further damage, pending investigation and passing of final order and invoking powers under the Act, SEBI vide the said interim order had passed certain directions in the matter. One of the directions was restraining Ms. Viral Doshi from buying, selling or dealing in the securities market including in IPOs, directly or indirectly, till further directions.

6. Coming to the facts of the present proceeding, the prima facie finding in respect of Ms. Viral Doshi as per the ex-parte order dated April 23, 2009, among other issues, were: a) that an amount of Rs. 10,00,000/- was transferred from Mr. Nirmal Kotecha’s account to his wife Ms. Viral Doshi’s account on September 25, 2008, and from here these funds, in turn, were transferred to one Shailesh Jayantilal Shah’s account on the very same day;

b) that this amount of Rs. 10,00,000/- was returned to Ms. Viral Doshi’s account by Mr. Shailesh Jayantilal Shah in three tranches of Rs.4,00,000/-, Rs. 5,00,000/-, and Rs. 1,00,000/-, on December 26, 27 and 31, 2008 respectively; c) that from Ms. Viral Doshi’s account this amount of Rs. 10,00,000/-was further transferred to the account of one Darshan Trading Company on December 31, 2008. d) Further, that on December 31, 2008, Mr. Kotecha has transferred Rs. 5,00,000/- from his account to his wife Ms. Viral Doshi’s account, and again on the very same day, credited back Rs. 1,90,000 in two tranches of Rs. 95,000 each back to his account;

7. In reply, Ms. Viral Doshi has vide her reply dated May 15, 2009 stated as follows: a. That on September 25, 2008, she had received Rs. 10,00,000/-from her husband in order to transfer the same to the account of Mr. Shailesh Jayantilal Shah. That Mr. Shailesh Jayantilal Shah had requested her husband for a loan of Rs. 10,00,000/- for a very short term for the education of his nephew Mr. D.R. Shah, who had got admission at the University of Exeter for Master of Science in Finance. She has stated that since Mr. Nirmal Kotecha did not know Mr. Shailesh Jayantilal Shah very well, except that he was acting as a sub-broker for him for his account with JM Financial Services Private Limited, Mr. Nirmal Kotecha wanted to show to Mr. Shailesh Jayantilal Shah that he was arranging the money from some one else, with a reason that Mr. Shailesh Jayantilal Shah should pay back the funds immediately as and when he can arrange the money;

b. That Mr. Nirmal Kotecha transferred Rs. 10,00,000/- to her bank account, which was in turn, transferred by her to the bank account of Mr. Shailesh Jayantilal Shah; c. That thereafter Mr. Shailesh Jayantilal Shah had repaid the said loan of Rs. 10,00,000/- back in three tranches of Rs. 4,00,000/-, Rs. 5,00,000/- and Rs. 1,00,000/- each on December 26, 27 and 31, 2008. That the said account of Rs. 10,00,000/- was, in turn, transferred by her to the account of Mr. Nirmal Kotecha; d. That no amount of Rs. 10,00,000/- was transferred from her account to the account of M/s. Darshan Trading Company as stated in the order; e. That an amount of Rs. 5,00,000/- was transferred to her account from the account of Mr. Nirmal Kotecha on December 31, 2008. That the said transfer was a normal transaction wherein Mr. Nirmal Kotecha had given her a loan of Rs. 5,00,000/- for savings in her name; f. That on the same day she had also transferred Rs. 1,90,000 /-in two tranches of Rs. 95,000 each to the account of Mr. Nirmal Kotecha, however, the said transfers were also usual transfers, which were made by her as repayment of loan to the account of Mr. Nirmal Kotecha; g. That the transactions carried out in her bank account were normal banking transactions and had nothing to do with the securities market; h. That in absence of material to show that the said money was utilized for carrying out transactions in securities market, no negative inferences can be drawn against her for withdrawal and use of the money received from legitimate sources i. That her husband is separate and distinct entity in the eyes of law and he is taxed separately and all transactions carried out by him are independent of her.

8. Before dealing with the submissions of Ms. Viral Doshi in respect of her banking transactions, it may be appreciated that the ad interim ex-parte order dated April 23, 2009 in the matter of PSTL was issued to prevent a total failure of the regulatory apparatus, thereby exposing investors to greater risks. The investigation in the matter of PSTL, prima facie has revealed a widely distributed network of persons/entities that had joined hands in breaching market integrity. The investigation in this case has been atypical in that the discovery of this network brings more sharply into light the fragility of the market system, and the risks of it being derailed by a few hundred persons/ entities colluding for this purpose. It has prima facie emerged that Mr. Nirmal Kotecha had transferred monies to the tune of Rs. 1,25,00,000/- (including self withdrawal) in lots of Rs.25,00,000/- each to the accounts of his relatives (Ms. Veena Kotecha, Mr. Manilal Kotecha. etc.) and his associate companies. (M/s. Nirman Management Services Private Limited, M/s. Nishwet Management Services Private Limited etc.). It was followed by individual cash withdrawal below Rs.10,00,000/- by the concerned persons/entities. Almost the entire money withdrawn by the said person/entities was given back to Mr. Nirmal Kotecha. Further, as has been explained in the said ex-parte order, the same modus operandi prima facie also appeared in some of the connected persons/ entities accounts, from where the money was directly or indirectly transferred to Mr. Amol Kokane’s account, and ultimately found its way into the stock market through the stock broker, India Capital Markets Private Limited. Vide the said ex-parte order, it was prima facie found that Mr. Amol Kokane had facilitated Mr. Nirmal Kotecha in carrying out fraudulent, manipulative and illegal activities, detrimental to the interests of investors and to the integrity of the securities market.

9. The fact that Ms. Viral Doshi had received Rs. 10,00,000/- in her bank account from her husband Mr. Nirmal Kotecha on September 25, 2008 is not disputed. According to Ms. Viral Doshi, the same was made in order to transfer the said amount to the account of Mr. Shailesh Jayantilal Shah. She also stated that Mr. Shailesh Jayantilal Shah had requested her husband for a loan of Rs. 10,00,000/- for a very short term for the education of his nephew Mr. D.R. Shah, who had got admission at the University of Exeter for Master of Science in Finance. During the time of hearing, the learned counsel appeared on behalf of Ms. Viral Doshi submitted a copy of the University of Exeter letter dated August 13, 2008 addressed to one D. Shah, C/o. The Chopras, 1006, Chiranjiv Tower, 43, Nehru Place, New Delhi–110019 India confirming the formal offer for the Master of Science in Finance and Management program starting on October 06, 2008. Besides, a copy of the pay order for £5112/- issued by HDFC Surendranagar Branch in favour of University of Exeter was also submitted at the time of hearing. In this regard, I note that, Mr. Shailesh Jayantilal Shah in his objections (dated May 12, 2009) to the ex parte order dated April 23, 2009 inter alia stated that: a) His nephew Mr. D.R.

Shah had sought admission at University of Exeter for Master of Science in Finance and Management Course and was required to pay the fees of about Rs. 10,00,000/-; b) That he was also required to meet the expenses of his accommodation, living expenses etc.; c) That since he was short of cash, he had requested Mr. Nirmal Kotecha to give him a temporary loan of Rs. 10,00,000/-; d) That to accommodate him on the said count Mr. Nirmal Kotecha organized a loan of Rs. 10,00,000/- immediately and that ,the funds were transferred to his account maintained with HDFC Bank, Surendranagar on September 25, 2008; e) That he had purchased pounds worth Rs. 6,67,966/- out of the said amount on September 29, 2008; That the said pounds were utilized for payment of fees to the University of Exeter and part of the pounds were utilized for crediting the same to the Forex Card for meeting the personal expenses of his nephew Mr. D.R. Shah. He too has annexed the copy of letter received from University of Exeter dated August 13, 2008 (mentioned above in this order), the copies of receipts of payments made to University of Exeter and copy of pay order of £5112/- issued by HDFC Bank in favour of University of Exeter; f) That he had transferred an amount of Rs. 3,00,000/- on October 18, 2008 to his account with State Bank of India at Surendranagar, Gujarat and retransferred an amount of Rs. 1,20,000/- back to HDFC Bank account and the said funds were utilized for purchase of pounds which were required for purpose of payments to the University of Exeter and for the expenses; g) That he had also retransferred an amount of Rs, 1,42,000/- on November 28, 2008 which was utlilised by him for office expenses; h) The balance amount of Rs, 70,000/- was also utilized in routine office expenses and some personal expenses; i) That the entire amount of Rs. 10,00,000/- was utilized in the above manner and not a single rupee out of the said Rs. 10,00,000/- was invested in the share market or diverted to the share market; j) That the amount of Rs. 4,00,000 repaid by him to Ms. Viral Doshi on December 26, 2008 was received by him for sub-brokerage from M/s. JM Financial Services Private Limited on about December 03, 2008 and was lying in his account maintained with Bank of Baroda, Dhrangadhra branch, Gujarat; k) That an amount of Rs. 5,00,000/- was received from one of his associate concern M/s. Tejas Cotton Co. and the same was repaid again to Ms. Viral Doshi on December 27, 2008; l) That another amount of Rs. 1,00,000/- was also similarly received from M/s. Tejas Cotton Co. and similarly repaid to Ms. Viral Doshi on December 31, 2008; m) That the borrowed amount of Rs. 10,00,000/- was repaid accordingly and the said amount was a friendly loan without any interest.

I note that the receipt of Rs.10,00,000/- from Mr. Shailesh Jayantilal Shah in three tranches of Rs. Rs. 4,00,000, Rs. 5,00,000 and Rs. 1,00,000 respectively on December 26,2008, December 27,2008 and December 31, 2008 is admitted by Ms Viral Doshi.

10. An analysis of the submissions made by Ms. Viral Doshi together with the submissions made by Mr. Shailesh Jayantlal Shah with respect to their banking transactions throws light on the following facts:

i) Ms. Viral Doshi in her reply has claimed that her husband Mr. Nirmal Kotecha did not know Mr. Shailesh Jayantilal Shah very well, except that he was acting as a sub-broker for Mr. Nirmal Kotecha for his account with M/s. JM Financial Services Private Limited, According to her, the reason for transferring money through her account (to the account of Mr. Shailesh Jayantilal Shah) was to show that Mr. Nirmal Kotecha was arranging the money through someone else. However, I note that Mr. Shailesh Jayantilal Shah in his objections has stated that Mr. Nirmal Kotecha organized to give him a loan of Rs. 10,00,000/- as a friendly loan without any interest. The fact that Mr. Nirmal Kotecha extended a friendly loan of Rs. 10,00,000/- to Mr. Shailesh Jayantilal Shah through his wife Ms. Viral Doshi for a period extending to more than three months, and that too, without charging any interest, prima facie points towards the closeness and the trust that Mr. Nirmal Kotecha shared with Mr. Shailesh Jayantilal Shah; More pertinently, the case of Ms Viral Doshi is that Mr. Nirmal Kotecha was not much acquainted with Mr. Shailesh Jayantilal Shah. In the normal course, it is difficult to accept the plea that one would give a loan (to the tune of Rs.10,00,000/-) to a person not well known to him and that too without any security and interest.

ii) The case of Ms. Viral Doshi is that an amount of Rs. 10,00,000/- was transferred from her account to Mr. Shailesh Jayantilal Shah’s HDFC Bank, Surendranagar branch account, for funding Mr. D.R. Shah’s expenses for his education at University of Exeter, his accommodation and living expenses etc., However, the actual expenses (as claimed by Mr. Shailesh Jayantilal Shah) was only Rs. 6,17,966/- (i.e. Rs. 4,43,466/-towards pay order issued to University of Exeter on September 29, 2008 and Rs. 1,74,500/- towards forex plus card on September 29, 2008). It is further seen that an amount of Rs. 1,14,450/- was also used on November 07, 2008 for reload of the forex plus card for his nephew. However, no proper explanation appears to have been provided with regards to the manner in which balance amount of Rs. 2,67,584/- has been spent. Though Mr. Shailesh Jayantilal Shah has submitted that the same was utilized for routine office and personal expenses, no evidence has been produced supporting the said claim;

iii) As regards the repayment to Ms. Viral Doshi, she has submitted that Mr. Shailesh Jayantilal Shah had repaid the said loan of Rs. 10,00,000/-back in three tranches of Rs. 4,00,000/-, Rs. 5,00,000 and Rs. 1,00,000/-each on December 26, 27 and 31, 2008 and that the same, in turn, was transferred by her, to the account of Mr. Nirmal Kotecha. Mr. Shailesh Jayantilal Shah has submitted that repayments have been done from the funds available in his Bank of Baroda, Dhrangadhra branch account. The Bank of Baroda, Dhrangadhra branch account of Mr. Shailesh Jayantilal Shah reveals that immediately after receipt of Rs. 10,00,000/- from Ms. Viral Doshi on September 25, 2008 in his HDFC Bank account maintained with Surendranagar branch, he had received a sum of Rs. 10,00,000/- on October 17, 2008, Rs. 2,75,000/- on November 10, 2008 and Rs. 1,75,000/- on November 14, 2008 in his account maintained in the Dhrangadhra branch, Bank of Baroda, account from JM Financial Services Private Limited. It is further seen that out of the same, an amount of Rs. 5,50,000/- was transferred back to M/s. JM Financial Services Private Limited on December 02, 2008 and an amount of Rs. 4,00,000/- was received from JM Financial Services Private Limited on December 03, 2008.

11. Thus, I find that that the funds transferred by Ms. Viral Doshi to HDFC Bank, Surendranagar branch account of Mr. Shailesh Jayantilal Shah, were partly further transferred to his account maintained with the State Bank of India branch and again partly retransferred back to HDFC Bank account and ultimately repaid to Ms. Viral Doshi from Bank of Baroda, Dhrangadhra branch account. The said account of Mr. Shailesh Jayantilal Shah (Bank of Baroda, Dhrangadhra branch account) shows high value inflow and outflow of funds from and to JM Financial Services Private Limited. Mr. Shailesh Jayantilal Shah has been trading in the stock market through JM Financial Services Private

Limited among other stock brokers, and also acting as its sub-broker for Mr. Nirmal Kotecha during the period. Taking into consideration all of the above facts and the fact that money is fungible, I prima facie find that Ms. Viral Doshi played a key role in facilitating Mr. Nirmal Kotecha in carrying out suspicious banking transactions, carrying out and disguising his manipulative intent and gaining advantage from the forgery. The said prima facie finding is further strengthened by the fact that there were high value credits from Mr. Nirmal Kotecha observed in Ms. Viral Doshi’s account maintained with HDFC Bank, Matunga, which were not adequately explained. A perusal of the bank account statement of Ms. Viral Doshi for the period September 2008 to March 2009, reveals that most of the credits were by or to accounts of Mr. Nirmal Kotecha or entities in which he had a dominant interest. It strengthens the prima facie inference in the interim order that the bank account of Ms. Viral Doshi was nothing but an instrument in the hands of her husband Mr. Nirmal Kotecha. Besides, Mr. Nirmal Rohitbhai Shah, the other nephew of Mr. Shailesh Jayantilal Shah and brother of Mr. Mr. D.R. Shah, was found to be in close touch with Mr. Nirmal Kotecha and appears to have been looking after Mr. Shailesh Jayantilal Shah’s entire business dealings including his sub-brokership with J.M. Financial Services Private Limited. Mr. Nirmal Rohitbhai Shah is a partner in M/s U Plus Securities, which is a sub-broker of Motilal Oswal Securities Limited.

12. Besides, the ex-parte order dated April 23, 2009, also observed the following : a) that Mr. Shailesh Jayantilal Shah had bought 8,336 PSTL shares (net) from December 16, 2008 to December 19, 2008 at an average price of Rs. 69.67 per share; b) that on December 22, 2008, he sold 32,000 shares (between 9:57:20 and 10:35:32) at an average price of Rs. 79.18 per share, before the announcement denying the open offer was made by Mr. P.S Saminathan; c) that on the same day, he bought 28,700 shares after the said sale, out of which 21,557 shares matched with Mr. Nirmal Kotecha’s sales on the same day at an average price of Rs. 77.50 per share.

13. In respect of the said transactions, Mr. Shilesh Jayantilal Shah in his objections stated that: a) his purchase and sale of shares of PSTL from December 16 to 22, 2008 had nothing to do with the open offer or the announcement denying thereof, and that, he had traded in the shares of PSTL even prior to December 16, 2008; b) that he had inadvertently sold 32,000 shares between 9:35 a.m. and 10:35 a.m. on December 22, 2008, instead of selling 3,200 shares, and, hence, repurchased 28,700 shares, which matched with Mr. Nirmal Kotecha’s sales, since he was one of the main sellers.

14. A perusal of the trade log, however, revealed that there were altogether 8 sell orders that resulted in the trades for sale of 32,000 shares of PSTL by Mr. Shilesh Jayantilal Shah on National stock Exchange of India Limited (NSE). The sell orders were for a total volume of 32,000 shares. Details of the said sell orders are as given below: Sl. No. Order no. Order quantity Order time Actual traded volume 1. 2008122266749000 5000 9:57:20 5000 2. 2008122266755198 5000 9:57:36 5000 3. 2008122267102179 5000 10:17:20 5000 4. 2008122267184844 1000 10:22:56 1000 5. 2008122267207413 1000 10:24:35 1000 6. 2008122267262167 5000 10:28:39 5000

7. 2008122267322800 5000 10:33:20 5000 8. 2008122267344712 5000 10:35:00 5000

From the above table, I find that there were 8 different sell orders entered at different point of time and it was not a single sell order and hence prima facie unlikely to have been a result of an inadvertent act.

15. Taking into consideration, the closeness and the trust that Mr. Nirmal Kotecha shared with Mr. Nirmal Rohitbhai Shah, the fact that Mr. Shailesh Jayantilal Shah was the sub-broker of Mr. Nirmal Kotecha for JM Financial Services Private Limited and the manner of trades done by Mr. Shailesh Jayantilal Shah in the shares of PSTL just prior to the forgery coming to light I do not find the above explanation given by Ms. Viral Doshi that money was transferred through her account as if the same was arranged through some one else, is not convincing. In view of the above, the admitted banking transactions of Ms. Viral Doshi are prima facie suspicious in the given facts and circumstances. On the other hand, SEBI had all the reasons to prima facie believe that Mr. Nirmal Kotecha carried out manipulative transactions in the securities market through Mr. Shailesh Jayantilal Shah, detrimental to the interest of the investors and to the integrity of the securities market, as stated in the ex parte order dated April 23, 2009, and, for achieving the said objective, he may have made use of the bank account of his wife, Ms. Viral Doshi.

16. As mentioned above, funds were largely transferred from Mr. Nirmal Kotecha’s account to Ms. Viral Doshi’s account. These facts further strengthens the prima facie view of SEBI that Ms. Viral Doshi facilitated her husband Mr. Nirmal Kotecha Kotecha in carrying out suspicious banking transactions, carrying out and disguising his manipulative intent and gaining advantage from the forgery. Ms. Viral Doshi has contended that transactions carried out in her bank account were normal banking transactions and had nothing to do with the securities market, that except for the aforesaid bank transactions there was no allegation in the entire order to draw any inference against her and no negative inference could be drawn against her solely on the basis that she is related to a person against whom various allegations have been alleged in the order. I cannot accept the plea of Ms. Viral Doshi that she was implicated in the order, for the reason that she is the wife of Mr. Nirmal Kotecha. The suspicious nature and timing of the banking transactions seen in the account of Ms. Viral Doshi, as indicated above, would prima facie indicate her role in the scheme of the things.

On the basis of the available material on record, as the investigation in the matter is ongoing, I can only prima facie conclude that Ms. Viral Doshi would have facilitated Mr. Nirmal Kotecha in his manipulative scheme. In view of the above, the plea that Ms. Viral Doshi had prima facie not violated the provisions of Regulation 3 and 4 of PFUTP Regulations does not hold good. The manner of fund transfers to her account by Mr. Nirmal Kotecha and the subsequent transfers to persons associated with Mr. Nirmal Kotecha before and during the period when the alleged manipulation had taken place casts doubts on her bonafides in this regard. In the facts and circumstances, as brought out in the ex parte order and also in this order, I would not have any hesitation to hold that Ms. Viral Doshi may have prima facie aided Mr. Nirmal Kotecha in allowing him to use his bank account as a conduit for routing of funds for his ulterior motives. In view of the above, it would be prudent on the part of the investigations to further investigate into the money trail of the funds transferred by Ms. Viral Doshi.

In order to appreciate the gravity of the situation, it is necessary to have a holistic picture of the fund transfers done by Mr. Nirmal Kotecha and by related/associate persons/ entities at his behest, in the scheme of things.

17. I would now proceed to deal with the other submissions of Ms. Viral Doshi. She has contended that not even a prima facie case has been made against her to warrant the issuance of such an ex-parte order of serious consequences to her. I can only reject the said contention outright, in view of the findings made above in this order. Besides, the prima facie case against her which warranted the issuance of the ex-parte order had been explained in the said order. The only inference which can be drawn from the sequence of events narrated above is that Ms. Viral Doshi aided Mr. Nirmal Kotecha. She has further contended that the imminent urgency has not been explained to support the ex-parte order. As pointed out earlier, the ex-parte order dated April 23, 2009 has already made a prima facie case against Ms. Viral Doshi. The immediate need for passing of such an ex-parte order was explained in detail in the interim order. One of the objectives of SEBI is to protect the interests of investors in securities and considering the large public participation in the securities market, investors’ confidence in market integrity can only be sustained by ensuring that they are adequately protected. To achieve the said objective, SEBI had to urgently intervene whenever such market irregularities happen to stop or prevent such manipulators from causing damage or to prevent further harm. Considering the unusual scheme adopted to manipulate the market in the present case, SEBI was justified in passing the said ex-parte order. Therefore, the said contentions of Ms. Viral Doshi are without any merit.

18. Ms. Viral Doshi has also argued that the interim order was in total disregard to the mandatory provision of Section 11 (4) of the Act that SEBI shall either before or after passing such orders give opportunity of hearing to such intermediaries or persons concerned. There is no merit in this contention. Needless to say, SEBI has to regulate and ensure orderly transactions in the market, and to deal with exigencies and requirements in the market. It has been empowered with the duty to protect the investors’ interest. The interim directions issued in the present matter have been issued invoking the powers of Sections 11, 11(4)(b) and 11B of the Act and Regulation 11 of the PFUTP Regulations. The said directions in the matter have been issued pending investigations and passing of a final order. Further, in accordance with the Proviso to Section 11(4) of the Act, an opportunity of hearing has been afforded to Ms. Viral Doshi after passing of the ex parte order. Section 11(4) empowers SEBI to take any of the measures stated therein, either pending investigation or inquiry or on completion of such investigation or inquiry. Therefore, SEBI is statutorily authorized to pass such interim orders and to afford a post-decisional hearing, as was done in this case. Further, she has contended that ‘investigation’ and ‘enquiry’ are two separate proceedings under the SEBI Act and not one and the same seems to be misconceived. In this regard, I note the following observation of the Hon’ble Securities Appellate Tribunal in the matter of Karvy Stock Broking Limited vs. SEBI:

“As is clear from the language of sub section (4) the measures that the Board may take or the orders that it may pass would be “either pending investigation or enquiry or on completion of such investigation or enquiry”. The word ‘investigation’ as used in section 11(4) has not been defined. It obviously refers to the investigation as ordered under section 11-C of the Act because sections 11-C and 11(4) were introduced simultaneously in the year 2002 when Parliament found that the Board prior to their introduction did not have statutory power to investigate. The word ‘inquiry’ too has not been defined in the Act though it finds mention in Sections 11, 11B, 11D and 15I. Under section 12(3) of the Act also, the Board holds an inquiry under the inquiry regulations for imposing major or minor penalties including the penalty of suspension or cancellation of a certificate of registration. It is, thus, clear that an inquiry is held under sections 11, 11B and 11D, it is also held under section

12(3) and also under section 15I. Having regard to the scheme of the Act, the rules and regulations made thereunder we are clearly of the view that even though the inquiries contemplated by the Act may be held under different set of provisions, their object is one and the same viz. to help the Board to promote the development of and to regulate the securities market and protect the interests of investors. The inquiry under section 11 of the Act is held by the Board to find out what measures it needs to take to protect the interests of the investors and what steps it needs to take to promote the development of and to regulate the securities market…………….

As already observed, the Board also causes an inquiry to be made by an inquiry officer under the inquiry regulations and/or by an adjudicating officer under Chapter VIA. It is during the pendency of any of these inquiries or on their completion that the Board may pass appropriate order – interim or final. This is clear from the language of section 11(4).”

19. It is further contended that the power to issue directions conferred under Section 11B of the Act is restricted to persons referred to in Section 12 or to any company in respect of any matters specified in Section 11A. According to Mrs. Viral Doshi, she is neither a SEBI registered intermediary nor a person associated with the securities market in terms of Section 12, she does not come within any of the category of persons specified in Section 11B. This is a tenuous plea that does not merit consideration. The expression “person associated with the securities market” specified in Section 11B of the Act is very wide in its connotation. Any person who has any association either directly or indirectly with the securities market shall be a person associated with the securities market. In this regard, the observation of the Hon’ble Gujarat High

Court (vide order dated May 06, 1995) in the matter of Karnavati Fincap Limited needs to be noted: “In ordinary meaning, the persons associated with the securities market would include all and sundry who have something to do with the securities market. It is to be noted that the securities market in the sense is not confined to stock exchanges only. The words "persons associated with the securities market" are of much wider import than intermediaries. "Persons associated with" denotes a person having connection or having intercourse with the other; in the present case that "other" with whom a person is to have connection or intercourse is the securities market".

20. As seen above, the conduct of Ms. Viral Doshi in receiving funds from her husband Mr. Nirmal Kotecha and transferring the same to Mr. Shailesh Jayantilal Shah, who was acting as a sub-broker (of JM Financial Services Private Limited) for Mr. Nirmal Kotecha, his inability to properly explain the manner in which balance amount of Rs. 2,67,584/-, out of Rs. 10,00,000/- (that were transferred by Ms. Viral Doshi to him) was spent, purchases of shares of PSTL by Mr. Shailesh Jayantilal Shah just prior to the forgery and sale immediately on opening of the market after the news of the purported issue of the letter by SEBI became public, but, before its denial by Mr. Saminathan, matching of subsequent purchases on December 22, 2008 with Mr. Nirmal Kotecha’s sales and returning of funds back to Ms. Viral Doshi’s account on December 26, 27 and 31, 2008, his nephew Mr. Nirmal Rohitbhai Shah’s closeness to Mr. Nirmal Kotecha and the role Mr. Nirmal Kotecha has played in perpetrating the fraud and manipulation in the securities market, does not justify any revocation of the ad interim directions passed against Ms. Viral Doshi as she prima facie appears to have accommodated and aided Mr. Nirmal Kotecha who has prima facie played a key role in the forgery which resulted in the manipulation of the share price of PSTL. While judging the conduct of parties alleged to be involved in a market manipulation, the case has to be seen in its whole and individual conduct cannot be viewed in isolation. Furthermore, when multiple entities are linked together in a well orchestrated scheme of manipulation, it would give rise to an absurd situation if one or two entities central to this plot alone would be held responsible for the manipulation.

21. Taken the peculiar way in which a letter was forged and purported to be sent by SEBI to Mr. P. S. Saminathan directing him to make an open offer, publicizing the contents of the forged letter in the media, would itself indicate that the case is very serious indeed. Further, as the investigations in the matter are on going, it would be just and reasonable to continue with the ex-parte directions passed against Ms. Viral Doshi till the completion of the investigations. While, doing so, I, place reliance in the following observation of the Hon’ble Securities Appellate Tribunal in the matter of Ketan Parekh [Appeal No. 2 of 2004, decided on July 14, 2006] - “Whether a transaction has been executed with the intention to manipulate the market or defeat its mechanism will depend upon the intention of the parties which could be inferred from the attending circumstances because direct evidence in such cases may not be available. The nature of the transaction executed, the frequency with which such transactions are undertaken, the value of the transactions, whether they involve circular trading and whether there is real change of beneficial ownership, the conditions then prevailing in the market are some of the factors which go to show the intention of the parties. This list of factors, in the very nature of things, cannot be exhaustive. Any one factor may or may not be decisive and it is from the cumulative effect of these that an inference will have to be drawn.” [Bold supplied]

22. The modus operandi adopted by the alleged manipulators in the present case is one of its kind. They planned their action so meticulously that each one involved in the series of entire events in the said manipulation had a specific independent/combined role to play. The investigation conducted by SEBI so far prima facie revealed that Mr. Nirmal Kotecha Kotecha was one of the major beneficiaries of the said manipulation and has masterminded the forgery. One of the forged letters was in the nature of a direction from SEBI to Mr. P.S. Saminathan to make an open offer at the rate of Rs.250/- per share. The market price of the shares of PSTL on December 19, 2008 (the date of the forged letters) was very low at Rs. 75.45/- as compared to the price of Rs.250/-per share. This indicates that the letters may have been forged only in order to manipulate the market price of the shares of PSTL. The very nature of such forgery would indicate the manipulative intent of the parties involved therein. It is also brought out in evidence that the said forged letter (sent to Mr.P. S. Saminathan) was couriered to him on December 20, 2008 (Saturday) with a specific instruction to deliver it only on December 22, 2008 (Monday).

Those who anchored the entire episode also ensured that the news about such letters were published to the media on Saturday and Sunday so that on Monday, when the market opened up, there would be a substantial increase in share price of PSTL. Thus, the alleged manipulators ensured that the forged letter to Mr. P.S. Saminathan delivered only on the next trading day (Monday) after having time for themselves to sufficiently publicise the contents of the forged letter through the media so as to attract investor interest. Needless to say, when such a price sensitive information (open offer @ Rs.250/-) is made public, the unsuspecting investors may purchase shares in the hope that they can offer such shares in the open offer and reap benefits. These investors would not be aware of what was actually happening in such a situation, as had transpired in the present matter. Mr. Nirmal Kotecha, prima facie exploited the lack of information of such genuine investors. Prima facie, Mr. Nirmal Kotecha and others not only undermined the faith of investors but also tried to mislead the Regulator by forging letters as stated above in this order.

It is also brought out by the investigation that Mr. Nirmal Kotecha sold substantial shares of PSTL on December 22, 2008. More pertinently, he sold substantial shares before 10.30 a.m. on the said date before the denial made by Mr. P. S. Saminathan in respect of the receipt of the forged letter. As a Regulator of the securities market, it is the endeavour of SEBI to prevent market manipulation and to act proactively and ensure that the damage is controlled and stop further damage, whenever any manipulations happen. In his plan of execution, Mr. Nirmal Kotecha appears to have made use of various entities/persons including his close relatives (grandfather, mother and wife), his companies/associate entities (Kotecha Capital Services Private Limited/Nirman Management Services Private Limited/Nishwet Management Services Private Limited) and persons like Mr. Rakesh Sharma, Mr. Rajesh Unnikrishnan, Mr. Amol Kokane etc. Prima facie, the specific role of those individuals had been designed by Mr. Nirmal Kotecha and he appears to have steered the scheme of things to achieve his desired objective of manipulation.

For banking transactions, Mr. Nirmal Kotecha appears to have made use of the bank accounts of his grandfather, mother, wife and others and prima facie appears to have utilized their accounts for channeling the funds obviously with their active involvement. Further, it is evidently seen from his bank account of Ms. Viral Doshi that the transactions in the account were largely from Mr. Nirmal Kotecha as has been explained above. This prima facie arouses suspicion. She might have not been directly involved in the other events in the manipulation. But, that by itself will not absolve him of his responsibility, given the whole picture. There are other persons/ entities who appeared to have played their role in various capacities such as publicizing the contents of the forged SEBI letter, routing funds, offloading substantial shares at an artificial inflated price on December 22, 2008 etc. In a case like this, individual acts cannot be isolated from the case; rather the focus should be on the case in its entirety and identifying the ultimate goal of the manipulators. Otherwise, it may lead to an unacceptable situation where every player may take a plea that his or her role did not extend to any overt act which ultimately resulted in the alleged manipulation.

Therefore, at this stage, where the investigation in the matter is in progress, I do not find this a fit case to revoke the ad interim directions till the completion of investigation. I am convinced that the interim order against Ms. Viral Doshi needs to continue. Her role or involvement in the whole manipulation will, needless to say, be reviewed again after the investigation is over.

23. In view of the foregoing, I, in exercise of the powers conferred upon me in terms of Section 19 of the Securities and Exchange Board of India Act, 1992 read with Sections 11, 11B and 11(4) of the Securities and Exchange Board of India Act, 1992, hereby confirm the ex-parte interim order dated April 23, 2009 in the matter of Pyramid Saimira Theatre Limited, against Ms. Viral Doshi.

DR. K. M. ABRAHAM WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA Place: Mumbai Date: July 31, 2009