Order against Pinac Stock Brokers Private Limited in the matter of IPO of Tijaria Polypipes Limited

WTM/PS/IVD/ID-2/17/OCT/2012 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER ORDER Under sections 11(1), 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 against Pinac Stock Brokers Private Limited (PAN - AADCP3224D) In the matter of IPO of Tijaria Polypipes Limited

1. Tijaria Polypipes Limited (hereafter referred to as “TPL”) is a company incorporated under the Companies Act, 1956. TPL came out with an Initial Public Offering (“IPO”) of 1,00,00,000 equity shares of face value of Rs. 10/- each, issued at a premium of Rs. 50/- per equity share, to raise Rs.60 crore to fund its proposed expansion and for its diversification plans. The said issue, which opened on September 27, 2011 and closed on September 29, 2011, was reportedly subscribed by 1.2 times. TPL allotted 71,64,406 shares in the retail investors’ category which constituted 71.64% of the public issue. The shares of the said company were listed on the Bombay Stock Exchange of India Limited (BSE) and the National Stock Exchange of India Limited (NSE).

2. On noticing a steep fall in the share price of TPL on the first day of trading/listing, i.e., on October 14, 2011, the Securities and Exchange Board of India (hereinafter referred to as "SEBI") conducted an investigation. The preliminary findings of the said investigation, prima facie revealed that TPL had diverted substantial part of the IPO proceeds, through layered transactions, to certain entities who had allegedly provided an exit to the retail allottees/Qualified Institutional Buyers (QIBs) of their shares allotted in the IPO, in order to offset their losses in doing so. Pinac Stock Brokers Private Limited ("Pinac") was found to be one such entity which had allegedly provided exit to QIBs and /or retail allottees in the IPO. It incurred losses by purchasing shares from the allottees at prices which were higher (approx. Rs.62/-) than the issue price (Rs.60/-) and selling the shares at very low price (approx. Rs.29/-). The losses, which were incurred, were partly recouped by funds from TPL, routed through various entities.

3. The preliminary investigation also observed that TPL had diverted part of IPO proceeds purportedly to pay back Inter-Corporate Deposit ("ICDs") as well as to place purchase orders which it claimed were the reasons for the alleged layering/transfer of funds to various entities. In view of the prima facie observations of the said investigation, SEBI vide an ad-interim ex-parte Order dated December 28, 2011 (hereinafter referred to as "the Interim Order") issued directions against TPL and certain others. Pinac, which was prima facie found to have violated the provisions of section 12A of the SEBI Act, 1992, regulations 3, 4(1), 4(2) (a) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 while dealing in the shares of TPL, was prohibited from buying, selling or dealing in any securities, in any manner whatsoever, till further directions.

4. Pursuant to the Interim Order, written submissions were made vide letter dated March 07, 2012, on behalf of Pinac. In the personal hearing held on March 09, 2012, the entity was represented by its authorized representative, Mr. Anish Kharadia, who made submissions. The submissions, inter alia, made by Pinac are as follows :

a. The allegation against Pinac is that it gave safe exit, at a premium, to 485 retail allottees on NSE (13,37,145 shares) out of the purchase of 15,00,000 shares and 88 retail allottees on BSE (2,42,616 shares) out of the purchase of 3,00,000 shares. However, nothing is borne out from the entire Interim Order as to who used the entities to indulge in such activity. b. There is no nexus between Pinac and the original retail allottees with respect to the structured trades between them and that nexus between the parties is an essential ingredient to establish fraud on account of such trades. c. Reliance is placed on the trades of Pinac on the first day of trading, i.e., on October 14, 2011. If entities other than the allottees do not trade on the first day of listing, how would trades happen and the fair price of securities be discovered. d. There was no order modification or updation by Pinac and therefore all the buy orders were market price orders. The trades happened on the anonymous trading system. e. The main allegation against Pinac is that it received funds through layers from TPL out of IPO proceeds. The trades were done on October 14, 2011 and the alleged funding is done on or after October 18, 2011. Funds are required at the time of settlement of trade on October 18, 2011 and not at the time of execution of order on October 14, 2011. Therefore, it failed to understand what prompted or on what basis, the investigation came to a conclusion that trades of Pinac executed on October 14, 2011 are braced up with the alleged financial transactions between TPL and third parties.

f. The volume of trades of Pinac (29,888 shares on BSE and 7,83,304 shares on NSE) as compared with the huge volume of trading by Mr. Jivraj Zala, is very miniscule and absolutely insignificant. g. Parklight Securities Limited (“Parklight”) is a registered sub-broker. It had borrowed Rs.3.41 (crore) and Rs.1.5 (crore) from Nihita Financial Services Private Limited ("Nihita") and Mr. Dharamsi Desai, respectively and had also borrowed from other parties during the same time to fund Ms. Lopa and Pinac, to enable them to fulfill their settlement obligations. h. Pinac had incurred a loss of Rs.1,06,74,845/- on BSE and Rs.5,05,21,554.85/- on NSE aggregating to Rs.6,11,96,399.85/-. The losses of Ms. Lopa and Pinac, together, is Rs.9.37 crore against which the allegation is that Parklight received funds and funded Rs.2.30 crore and Rs.70 lakhs to Pinac. The financial transactions between TPL and the alleged parties and that between the alleged parties and Parklight and the financial transactions between Parklight and Ms. Lopa, Pinac and Volga International Limited ("Volga") has no correlation with the loss incurred by Ms. Lopa, Pinac and Volga. i. Pinac had purchased in the highest range price and sold at lowest range price. It cannot be alleged that Pinac had created artificial volume or is a party to the steep fall in the price.

Pinac had denied contravening the provisions of law alleged in the Interim Order and requested SEBI to revoke the Interim Order and permit it to deal in securities.

5. I have considered the submissions made by Pinac and other material available on record. The limited issue for my consideration in this Order is to decide, at this stage, whether the directions issued against the said entity vide the Interim Order needs to be confirmed, vacated or modified in any manner.

6. I note that the preliminary investigation has prima facie observed that TPL had diverted a predominant portion of its IPO proceeds, through layered transactions, to certain entities in order to recoup their losses sustained in providing exit to retail and/or QIBs of the shares allotted to them in the IPO. Pinac was one such entity which provided exit to the allottees in the IPO through trades in BSE and NSE. Investigation in the matter has revealed that in NSE, Pinac bought 13,37,145 shares from 485 allottees (2,757 shares from each allottee) and in BSE, bought 2,45,373 shares from 89 allottees. Further, on the NSE, Pinac bought a total of 15,00,000 shares at an average price of Rs.62.99/- per share and sold shares at an average price of Rs.29.31/- per share. On BSE, Pinac had purchased

3,00,000 shares at an average price of Rs.62.99/- per share and sold shares at an average price of Rs.27.41/- per share. In view of such trades, Pinac sustained losses to the tune of Rs.6,11,96,399/- (for trades at both NSE and BSE).

7. I also note that as per the Income Tax Returns, Pinac did not have any income for the assessment years 2009-2010, 2010-2011 and 2011-2012. Therefore, its income does not support the trades and the exposure it had taken in the securities market. Further, the entity has made huge losses, as stated above. Pinac has itself admitted that it had purchased at a higher price and sold at a lower price. I also note that funds to the tune of Rs.75 lakhs were received on October 19, 2011 through layered transactions (through Parklight) from TPL in order to recoup the losses sustained by Pinac. The manner of receipt of funds, through layered transactions, had been explained in the Interim Order. It is noted that the directors/promoters of Pinac, namely, Ms. Sujal J. Jhaveri and Mr. Rupak K. Shah are also the directors in Parklight. Further, Pinac had allegedly indulged in synchronized/structured deals, while trading in the shares of TPL. I also note that though Pinac has stated that it traded on October 14, 2011 and that the alleged funding was done on or after October 18, 2011, it has not denied the receipt of funds from Parklight. On the other hand, it has submitted that Parklight borrowed funds from Nihita and Mr. Dharamsi Desai for the purposes of satisfying the settlement obligations arising out of Pinac's trades. However, the same is not convincing when I consider such submissions against the facts and circumstances of this case. Pinac has not brought out, in a convincing manner, as to how or why Parklight was concerned in satisfying the trade obligations of Pinac, when as per the income details (as per the IT Returns), Pinac did not have any income.

8. I find that the submissions made by Pinac do not justify the manner of its trading, thereby providing exit to the allottees in the IPO, the receipt of funds indirectly from TPL through layered transactions for recouping the losses and the alleged structured/synchronized trades indulged in by Pinac. I am therefore of the considered view that no intervention is called for in either vacating the interim directions or modifying it, with respect to Pinac. I, further note that the investigation in the matter has been completed and proceedings under sections 11(4) and 11B of the SEBI Act, 1992 and adjudication proceedings under sections 15HA and 15HB of the SEBI Act, 1992 have been approved to be initiated against Pinac.

9. For the above reasons, 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 11(1), 11(4) and 11B thereof, hereby confirm the directions issued vide the ad interim ex-parte Order dated December 28, 2011 in the matter of IPO of Tijaria Polypipes Limited, against Pinac Stock Brokers Private Limited (PAN - AADCP3224D).

10. This Order shall be in force till further directions.

Date : 31/OCT/2012 PRASHANT SARAN Place : Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA