Order against Rikhav Securities Ltd. in the matter of IPO of Vaswani Industries Limited.

WTM/SR/IVD/ID – 2/ 43 /03/2015 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI CORAM: S. RAMAN, WHOLE TIME MEMBER ORDER Under Sections 11 and 11B of the Securities and Exchange Board of India Act, 1992 read with Regulation 11(1) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 in respect of Rikhav Securities Ltd. (PAN-AADCR3067Q) in the matter of IPO of Vaswani Industries Limited.

1. Securities and Exchange Board of India (hereinafter referred to as "SEBI"), vide an interim Order dated July 11, 2011, inter alia, prohibited Rikhav Securities Ltd. (hereinafter referred to as " Rikhav Securities"), who acted as a sub-syndicate member in the Initial Public Offer (IPO) of the company, Vaswani Industries Ltd. (hereinafter referred to as 'VIL'), from acting as a syndicate member/sub-syndicate member for any future issues till further directions. The said Order was passed on the basis of the prima facie findings that Rikhav Securities had inflated the bid book to a large extent in the IPO of VIL and thus appeared to have induced the investors in the Retail Individual Investor (RII) category to subscribe to the issue.

2. Before dealing with the specific charges alleged against Rikhav Securities, the factual background in the context of which charges have been levelled against it, may be mentioned. VIL came out with an IPO for 100 lac equity shares of face value of ` 10/- each at a premium of ` 39/- per share. The IPO of VIL was a book-built issue and bidding started on April 29, 2011 and closed on May 3, 2011. The level of subscription for Qualified Institutional Buyers (QIBs), on closure of bids, was at 0.16 times, and oversubscription levels of Non-institutional Investors (NIIs) and RIIs were at 11.29 times and 6.82 times respectively. Based on these figures the oversubscription in the issue was calculated at 4.16 times. However, after taking into consideration, the cheques returned, withdrawals and technical rejections, the oversubscription level fell to 1.28 times. The issue price was fixed at `49/- and the securities issued through the IPO were allotted to investors on May 10, 2011.

2.1 SEBI received several complaints from applicants pointing out large scale withdrawals/rejections in the issue, alleging that certain applications were submitted only to artificially inflate the subscriptions in QIB/NII/RII categories with a view to attract and mislead investors. Based on such complaints from applicants alleging deliberate huge withdrawals and rejections after the closure of the IPO of VIL, SEBI, vide Order dated May 26, 2011, inter alia directed detailed investigations in the matter. While the investigations were in progress, SEBI passed the aforesaid interim order dated July 11, 2011 inter alia against Rikhav Securities, who was a sub-syndicate member in respect of the IPO of VIL. The said Order also directed VIL to give withdrawal option to all the investors who were allotted shares in the NII and RII categories for such number of shares by which the allotment ratio was impacted due to withdrawals/rejections in the aforesaid categories.

2.2 The aforesaid interim Order dated July 11, 2011 was challenged before the Hon’ble Securities Appellate Tribunal (SAT) by Rikhav Securities. The Hon’ble SAT, vide its Order dated November 16, 2011, observed that SEBI Order qua Rikhav Securities was an ad-interim Order and directed SEBI to hear Rikhav Securities within the next two weeks. Accordingly, Rikhav Securities was granted an opportunity of personal hearing before SEBI and the aforesaid interim Order passed on July 11, 2011 against Rikhav Securities was confirmed by SEBI vide its Order dated January 11, 2012 till further orders in the matter. Rikhav Securities again filed an appeal before the SAT against the said confirmatory Order dated January 11, 2012 which was disposed of by SAT vide its Order dated August 14, 2012 with a direction to complete the investigation and issue a Show Cause Notice (SCN) to the appellant by December 13, 2012.

2.3 Subsequent to the aforesaid Order of the Hon'ble SAT, a SCN dated December 13, 2012 was issued to Rikhav Securities on the basis of findings made in the investigation calling upon them to show cause as to why appropriate action including directions restraining them from buying, selling or dealing in securities for a specified period should not be issued against them for the violation of the provisions of Section 12A(a), (b), and (c) of the SEBI Act, 1992 and Regulation 3(b) and 3(d), 4(1) and 4(2) (a) and (b) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as "PFUTP Regulations") and Clause 6(a) of Schedule XI of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (hereinafter referred to as "ICDR Regulations").

3. The main allegations levelled against Rikhav Securities in the SCN are stated below:

i. Rikhav Securities was one of the largest brokers/sub-syndicate members with respect to bidding in both NII and RII categories, and contributed to about 82% of the issue size. Withdrawals/rejections from its terminal were as high as 71% of the total issue size. The entire bidding (i.e. 100%) under the NII category and 77% of the bidding under the RII category, from the terminal of Rikhav Securities were withdrawn/rejected.

ii. Rikhav Securities had acted in concert with its group companies namely AHL Investment Consultants Pvt. Ltd. and Rikhav Brokers Pvt. Ltd. (presently known as 4G Solutions P. Ltd.) and placed large bids on behalf of them through its terminal under the NII category in order to inflate the bid book; to give a misleading appearance of bidding in the issue and to contribute towards discovering the price at the highest price band of `49/- per share. It is further alleged that the entire bids placed on behalf of the group companies were subsequently withdrawn.

iii. With respect to 232 bids i.e. 230 bids in the RII category for 903360 shares (9.03% of total issue size) and 2 bids in NII category for 8,16,240 shares (8.16% of total issue size) placed through Rikhav Securities, the cheques submitted along with the bids were not banked. Further, it was observed that the maximum number of such applications were placed on the last day of the bidding process during the final hours. It was therefore alleged that these bids were placed by Rikhav Securities only with a design to inflate the bid book to trap innocent investors in a manner that they would not be in a position to withdraw their bids and thus minimum subscription to the issue was ensured.

iv. Rikhav Securities, through its NBFC arm namely Total Holdings and Finvest Pvt. Ltd. had financed 187 clients of the RII category, without any formal agreement with the said clients. Of these 187 clients, 75 clients withdrew their applications subsequently. Similarly, Rikhav Securities' client under NII category, namely Manba Investments and Securities Pvt. Ltd. had also financed 70 clients, and the bids on behalf of the said clients were placed through the terminal of Rikhav Securities, contributing to 2,85,600 shares. It is alleged that stop payment instructions were issued by all the said clients without giving any plausible explanation for the withdrawal of their applications.

v. Rikhav Securities had placed large bids on behalf of its clients and then withdrew most of them. In view of this, Rikhav Securities is alleged to have artificially inflated the bid book and created a misleading appearance of apparently healthy subscription of the issue. It is also alleged that this modus operandi was adopted in order to generate retail investors' interest in the scrip.

4. In response to the SCN, Rikhav Securities filed its reply vide letters dated January 15, 2013 and February 04, 2013. Subsequently, an opportunity of personal hearing was granted to Rikhav Securities on June 13, 2013. During the course of the hearing, Rikhav Securities was directed to submit the details of applications bid by it during final four hours along with the details of withdrawals. Only a part of the information was submitted by the entity vide his letter dated June 13, 2013. The remaining part of the information was submitted by Rikhav Securities at the subsequent personal hearing, as detailed in the following paragraphs.

4.1 Subsequent to this, it came to my notice, that enquiry proceedings were also pending against Rikhav Securities in the IPO of VIL for similar violations. In view of this, the instant matter was kept in abeyance till the filing of Report by the Designated Authority (DA)as both the proceedings arise out of similar set of facts and the provisions violated are also similar. The DA filed his report on July 11, 2014 and the post enquiry SCN was issued on August 5, 2014. The entity filed its written submissions dated December 9, 2014 to the Report filed by DA, vide its letter dated December 10, 2014. Rikhav Securities also submitted the aforesaid copies of withdrawal letters of all the applicants (mentioned in Paragraph No. 4 above) along with the written submissions.

4.2 In view of the additional submissions and the documents submitted by Rikhav Securities, an opportunity for hearing was once again granted to the entity in the present proceeding on December 10, 2014, which was postponed to December 29, 2014 on the request made by the entity. The entity reiterated the submissions already made in their earlier reply dated June 13, 2013 and requested time to file additional reply and supporting documents.

4.3 Rikhav Securities vide letter dated January 1, 2015 and January 12, 2015 filed additional submissions and also furnished some documents supporting its contentions.

5. In its aforementioned letters and during the personal hearing held on June 13, 2013 as well as December 29, 2014, Rikhav Securities inter alia made the following submissions –

5.1 Submissions made by the entity on June 13, 2013- i. The role of Rikhav Securities, as a sub-syndicate member is limited and falls between the role of Syndicate member and sub-broker in the whole chain of IPO process. It was binding on Rikhav Securities under ICDR Regulations to bid the application as early as possible and is required to carry out the instructions of the applicant(s) scrupulously.

ii. Other than the bids of two group companies of Rikhav Securities namely, AHL Investment Consultants Private Ltd. and Rikhav Brokers Private Ltd., the remaining six bids under the NII category were received through the sub -brokers namely Nikita Manisha Shah and Rahul, who were in no way connected to Rikhav Securities. The contribution of the aforesaid group companies of Rikhav Securities amounted to 1.95% of the total applications bid in the IPO i.e. 4.18 crores, which is a very negligible percentage to induce other investors to apply in the IPO. The group companies withdrew their bids as there was no QIB subscription on first two days of the issue and that it remained undersubscribed even after the closure of the IPO. During the IPO of VIL, there was another good investment opportunity in the issue of Power Finance Ltd. In addition to this, negative news in the market and in various websites regarding the large withdrawals by investors etc. also contributed to the withdrawal of applications by the group companies.

iii. In respect of the allegation regarding the failure to bank the cheques, submitted along with the bids, Rikhav Securities contended that under RII category, 230 applications with cheques were received during 10 a.m. to 2 p.m. on the last day of bidding. As a routine practice, sub brokers who collect applications from the day issue opens, lodge the applications on the last day of the closing of the IPO and applicants put the closing date of the issue on the cheque. Thus, bidding was done during the last hours. Incidentally, since investors wanted to withdraw the applications, which were bid but not banked, they were instructed to give withdrawal letter for the same. This is a prevalent procedure and standard practice adopted by every sub-syndicate member for withdrawal of applications and Rikhav Securities also followed the same practice. Cheques were not banked since all the 230 applicants (RII) had requested in writing to Rikhav Securities for withdrawal of bids. Further, with regard to the non-submission of copies of withdrawal letters along with copies of cheques and application forms of the remaining 69 clients, it is submitted that those records were available with the sub brokers who deal with the applicants and it was never insisted by SEBI during investigation that they should lodge all the withdrawal letters.

iv. No connection was established between the issuer company-VIL, BRLM-Ashika Capital Ltd., NII applicants (Manba Group and other 4 individual applicants) and Rikhav Securities. Investigation by SEBI has given clean chit to the company in its Order dated July 11, 2011. If there were manipulation, the company should be the sole beneficiary.

v. At Para 14 of the SCN, it was stated that only 26 bids were submitted by Rikhav Securities during last two hours and that under no circumstances, bids in last two hours influence others. The bids put in the last 2 hours of bidding could not inflate the bid book or lure others to apply. Further, according to the details of timing of placement of bids, only 26 bids were submitted by Rikhav Securities during last two hours which indicated contradiction in the investigation by SEBI.

vi. In the instant case, as soon as NII and RII applicants discovered that QIB portion was heavily under subscribed, they rushed to withdraw. Thus, they were not misled to apply but were rather correctly led to withdraw.

vii. In the NII category, five sub -syndicate members, other than Rikhav Securities, namely Karvy Stock Broking Ltd., Ashika Stock Broking Ltd., Enam Securities Pvt. Ltd., Amit Jasani and Matalia Stock Broking Ltd. had 100% bids resulting into invalid applications. Similarly, comparing the ratio of invalid applications by Rikhav Securities in the RII category, Motilal Oswal Securities Ltd. had large number of invalid applications in absolute numbers and KIFS Securities Pvt. Ltd. had higher percentage of invalid applications.

viii. Withdrawal of the 75 applications (out of total 187 applications), financed by Rikhav Securities through its NBFC arm namely Total Holdings and Finvest Pvt. Ltd. were to the extent of about 40% only and withdrawals were at the option and decision of the respective applicants. The company had received about 7500 bids. Therefore, 187 bids could not inflate the order book in any meaningful way.

ix. It is a well settled law that when there is a charge of fraud, mens rea/intention is material. Under the facts and circumstances of the given case, no intention is evident.

x. Alleged contravention of Clause 6 (a) of Schedule XI of SEBI (ICDR) Regulations, 2009 is the obligation of BRLM/Syndicate member. It is a statutory obligation and not transferable and hence Rikhav Securities, as a sub-syndicate member, ought not to have been alleged to have contravened the same.

5.2 Submissions made by Rikhav Securities during the hearing held on December 29, 2014- i. Furnished the copies of withdrawal letters of all the 230 applicants (the cheques of whom were allegedly not banked by Rikhav Securities), who had placed bids under the retail category, ii. SEBI has not allowed inspection of certain documents, iii. SEBI denied opportunity to cross examine various applicants who bid through Rikhav Securities and their statements were recorded during investigation, iv. The two group companies of Rikhav Securities were having sufficient sources of funds at the relevant time and the same was communicated along with documentary evidence in the course of investigation.

v. Noticee has no prerogative to either accept or reject the application, if it is duly filled.

vi. No connection established between the Noticee and, •••• the issuer company, •••• Merchant Bankers,

•••• Syndicate members, •••• Other sub-syndicate members, •••• Client groups.

vii. As soon as the NII and RIIs learnt that the QIB portion in the IPO of Vaswani Industries Ltd. was undersubscribed (only 8,00,040 shares were subscribed under QIB category against 50,00,000 shares reserved for them in IPO), they rushed to withdraw their applications. This is a common trend in primary market, hence no fault can be attributed to Rikhav Securities.

5.3 In its written submissions dated December 9, 2014 and reply, vide letters dated January 1, 2015 and January 12, 2015, Rikhav Securities inter alia made the following additional submissions:

i. "We were being appointed as sub syndicate members (SSM) and used to enter into agreement with Syndicate Member (SM)

ii. The applications were even withdrawn from the Book Running Lead Manager (BRLM), viz. Ashika Capital, even though they were also Syndicate Member in the said IPO.

iii. The applications filed through us were genuine and bonafide. Withdrawal of applications were made in the interest of Investors /Clients.

iv. A copy of the bank statements of AHL & RBPL have been provided.

v. As regards application made by the group companies viz. Rikhav Brokers Pvt. Ltd and AHL investment Consultants Pvt. Ltd. it is submitted that the size of application amounted to only 1.95% of the total application received in the IPO of VIL and it is very miniscule percentage of applications to induce other investors to apply for the shares in the IPO of VIL. In these companies only directors were common and not shareholders. The said group companies whose applications were bid through us had enough funds at the time of bidding.

vi. They were only collecting agents for the SM and their role is merely to enter the bid details on the terminals wherein the connectivity is provided by the stock exchange.

vii. Regulation 28(3) & 102 read with Schedule XI of SEBI (ICDR) Regulations, 2009 (hereinafter referred to as ‘ICDR Regulations ‘) allows RII category of investors to revise their bids and it is his right to withdraw the application as and when he would like to.

viii. SSM has a ministerial role in the entire IPO operations and when other agencies have been let off, it is difficult to comprehend as to why we are being targeted.

ix. We have neither been provided with copy of the complaints received by SEBI nor provided with an opportunity to cross examine them despite repeatedly being sought by us.

x. The allegation that the bidding done by us in the last two hours have inflated the book is completely erroneous allegation. At the outset we state that in most of the IPO’s majority of bidding is done in the last few hours.

xi. As regards the adjudicating proceedings carried out for other entities in the scrip, the learned AO has held that bids of Noticees which were made only on the last day of IPO that too after 1.30 PM cannot influence other investors to bid in the said IPO. Further, para 24, 25 and 26 the Learned Adjudicating Officer has narrated the grounds and justification to arrive at a conclusion that the withdrawal of the bids by the Noticee therein cannot be considered to have placed in order to create misleading appearance of bids in the IPO by any act/practices/device/artifice and therefore, no contravention of provisions of SEBI Act and PFUTP Regulations is proved against them.

xii. Submitted that in most of the IPO’s the allotment is always done at the highest price.

xiii. In the IPO of VIL withdrawals took place at large through all SSM. The details of such withdrawal through other SSM is given.

xiv. In NII category other than Noticeee, other 5 Sub Synidicate members viz. Karvy Stock Broking Ltd., Ashika Stock Broking Ltd., Enam Securities Pvt. Ltd, Amit Jasani and Matalia Stock broking Ltd had 100% bids resulting into invalid applications. Further on an overall basis in NII category, 93% of the bids were invalid applications. So there was a pattern of invalid applications in NII category in the IPO of VIL.

xv. Similarly in RII category, in comparision to Noticee’s 943 invalid application for 37, 80,720 shares out of 1221 bids for 48,76,680 share (77.53%), 1361 application for 45,89,760 shares were invalid. Similarly, 281 bids for 9,97,560 shares (85.50%) were invalid out of 326 bids for 11,66,880 shares bided by KIFS Securities Pvt. Ltd (KIFS) and 191 bids for 7,56,840 shares (78.11) were invalid out of 243 bids for 9,69,000 shares bided by Shri Parasram Holdings Pvt. Ltd. So comparing ratio of Noticee’s invalid applications in RII category, KIFS and Shri Parasram Holdings Pvt. Ltd. had higher percentage of invalid applications.

xvi. The Sub –Syndicate member or their sub-agents are not required to obtain any certificate of registration with SEBI or any other authorities. In fact Sub-syndicate member is appointed by way of a Private arrangement /agreement between the Syndicate and the Sub-syndicate member.

xvii. As and when the withdrawals were taken place same was in the knowledge of SM/Ashika Capital and it is quite surprising to know despite being overall in charge of the issue process, they did not take any corrective steps.

xviii. SEBI has taken action against the entity for each of the activity that they have been carrying and not debarred all the operations of the entity for violations. In this regard, we would like to bring to your kind notice that Almondz was found guilty in two IPOs simultaneously, then also it was debarred from taking new assignments in the area of merchant banking only and not across their other area of operations.

xix. As per inspection report in respect of Rikhav Securities, there were no major discrepancies except few minor observations in Know your Client (KYC) forms. We submitted our reply to said inspection and pursuant we have not received any observation letter from SEBI.

xx. Further, it is SEBI own case that each activity of the intermediary should be separated by a Chinese wall and this aspect is usually verified by SEBI in its inspection of the intermediaries."

Consideration of Issues and Findings

6. I have considered the SCN issued by SEBI; the replies filed by Rikhav Securities along with the submissions made by its authorized representative during the course of the personal hearing before me; and other relevant materials available on record.

6.1. It is observed that the subscription level in the IPO of VIL declined from 4.16 times at the closure of the issue to 1.28 times after accounting for the withdrawals/rejections. Maximum withdrawals/rejections had taken place in the NII category for which the subscription levels fell from 11.29 times to 0.84 times and for RIIs from 6.82 times to 1.35 times. This indicates that there was a sudden withdrawal/rejection of the applications from certain terminals through which bids were placed. It is also noted that there was no specific news in the market to prompt such a large number of sudden withdrawals/rejections.

6.2. In this particular factual situation of the case, the issue under consideration is that whether the bidding of applications by Rikhav Securities on behalf of its applicants/investors including its own group companies and subsequent withdrawal thereof, were misleading in nature and were intended to artificially inflate the bid book or/and to create an interest for other investors/public to subscribe in the IPO of VIL. The basis for the aforesaid allegation against Rikhav Securities is mainly the following factors such as,

• Large scale bidding and withdrawals from the terminal of Rikhav Securities, • Placing of bids under NII Category on behalf of group companies and subsequent withdrawals, • "Not Banking" of cheques received along with the bids, • Financing and controlling of bids.

6.3. Before dealing with the aforesaid factors in seriatim, the relevant legal provisions, the contravention of which have been alleged in this case may be reproduced hereunder for reference purpose:-

SEBI Act, 1992 Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control.

12A. No person shall directly or indirectly— (a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of this Act or the rules or the regulations made thereunder; (b) employ any device, scheme or artifice to defraud in connection with issue or dealing in securities which are listed or proposed to be listed on a recognised stock exchange; (c) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person, in connection with the issue, dealing in securities which are listed or proposed to be listed on a recognised stock exchange, in contravention of the provisions of this Act or the rules or the regulations made thereunder; PFUTP Regulations, 2003 3. Prohibition of certain dealings in securities No person shall directly or indirectly— (b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made there under; (d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under.

4. Prohibition of manipulative, fraudulent and unfair trade practices (1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities. (2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely:— (a) indulging in an act which creates false or misleading appearance of trading in the securities market; (b) dealing in a security not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress or cause fluctuations in the price of such security for wrongful gain or avoidance of loss; SEBI (ICDR) Regulations, 2009 Schedule XI (6) Appointment of stock brokers as bidding/collection centres. (a) The book runner(s)/syndicate members shall appoint stock brokers who are members of the recognised stock exchange and registered with the Board, for the purpose of accepting bids, applications and placing orders with the issuer and ensure that the stock brokers so appointed are financially capable of honouring their commitments arising out of defaults of their clients/investors, if any; Large Scale Bidding and Withdrawals from the Terminal of Rikhav Securities 6.4.

It is alleged in the SCN that Rikhav Securities was one of the largest brokers with respect to total bidding in both NII and RII categories in the IPO of VIL and the percentage of withdrawals/rejections from its terminal was significantly higher than that of the other major brokers/sub-syndicate members to the issue.

6.4.1 From the SCN, it is observed that the day-wise pattern of bidding, (from the opening of the IPO on April 29, 2011 till closing on May 3, 2011), percentage of valid bids and percentage of invalid bids from the terminal of Rikhav Securities were as under:

Table BID DATE CATEG Total % of total Shares % of valid shares in Shares % of % of ORY bidding of in valid bids as % valid bids rejected invalid Invalid Rikhav to the bids to total as % to /withdr shares to bids to total bids of bids by the total bids awn total bid the the day broker on of the day shares by total the day the bids of broker the day in the IPO NII 2326320 24.59% 0 0.00% 0.00% 2326320 100 24.59% - 29/04/2011 RII - - - - - - -

Total 2326320 24.59% 0 0.00% 0.00% 2326320 100 24.59 NII 1020240 32.37% - - - 1020240 100 32.37 2/5/2011 RII 265320 8.42% 167400 63.09% 5.31% 97920 36.91 3.11 Total 1285560 40.79% 167400 13.02% 5.31% 1118160 86.98 35.48 RII 4611360 48.75% 928560 20.14% 3.22% 3682800 79.86 12.76 - 3/5/2011 NII - - - - - - - Total 4611360 48.75% 928560 20.14% 3.22% 3682800 79.86 12.76 Total 8223240 1095960 7127280 a) From the above, as borne out from the SCN, I note that on the first day of the issue i.e. on April 29, 2011, Rikhav Securities contributed to 24.59% of the total bidding of the day, and all the bids were placed in the NII category, which is 23.26% of the entire issue size. All these bids were rejected/ withdrawn post closure of bidding. b) On the second day, bids for 12,85,560 shares (inclusive of one NII application for 10,20,240 shares) were placed through Rikhav Securities, out of which, bids for 11,18,160 shares (86.98%) were rejected/withdrawn. It is pertinent to note that all these bids were placed at the maximum price band of `49/- on all the days of subscription. c) On the third day, bids for 46,11,360 shares were placed through Rikhav Securities, out of which, bids for 36,82,800 shares (79.86%) were withdrawn and all the bids were placed in the RII category.

6.4.2 It is noted that 24.74% of total withdrawals/rejections of bids in the issue of VIL are from the terminal of Rikhav Securities (as compared to the total withdrawals/rejections in the IPO).

6.4.3 Rikhav Securities, in its replies, contended that compared to the ratio of its invalid applications in the RII category, other sub-syndicate members had an even larger number of invalid applications both in absolute numbers as well as percentage of invalid applications. In this regard, it is noted that in respect of the other sub-syndicate members, their group companies had not placed bids in the IPO through them. Further, when the withdrawals/rejections of NII and RII categories are taken together, Rikhav Securities is the largest contributor to the withdrawals in the IPO i.e. 71,27,280 shares amounting to 24.74% of the total shares withdrawn/rejected in the IPO. Out of total 82,23,240 shares bid through the terminal of Rikhav Securities, 71,27,280 shares were withdrawn/rejected from its terminal and this constituted 86.67% of shares withdrawn/rejected from its terminal. It is noted that on all three days of the issue, the contribution of Rikhav Securities to the bids were significantly high.

6.4.4 Under these facts and circumstances, it is observed that the percentage of withdrawals/rejections from the terminal of Rikhav Securities is significantly higher than that of the other major brokers/ sub-syndicate members in the IPO, as discussed above.

Placing of Bids under NII category on behalf of group companies and subsequent withdrawals 6.5. Another allegation in the SCN is that Rikhav Securities had placed large bids through its terminal under the NII category on behalf of its group companies viz. AHL Investment Consultants Pvt. Ltd. and Rikhav Brokers Pvt. Ltd. in order to inflate the bid book; to give a misleading appearance of bidding in the issue and also to contribute towards discovering the price at the highest price band of `49/- per share.

6.5.1 The day-wise bidding details through Rikhav Securities indicate that on first day of bidding i.e. on April 29, 2011 under NII category, 24.59% of the total bids for the day were placed through Rikhav Securities which were fully withdrawn/invalid. Further, on second day of bidding i.e. on May 2, 2011, the total bids through Rikhav Securities contributed to 40.79% of total bids for the day, out of which 86.98% were withdrawn/invalid and on May 3, 2011, total bids placed through Rikhav Securities were 48.75% of the total bids for the day out of which 79.86% were withdrawn/invalid.

6.5.2 It is further observed that under the NII category, the total bids placed through the terminal of Rikhav Securities were for 33,46,560 shares on 2 days of bidding i.e. on 29.4.2011 and on 2.5.2011 by eight NII/HNI clients. The said eight NII/HNI clients included two associate/group companies of Rikhav Securities viz., Rikhav Brokers Pvt. Ltd. (Rikhav Brokers), presently known as 4G IT Solutions India (P) Ltd. and AHL Investment Consultants Pvt. Ltd. (AHL Investment). Other NII/HNI clients of Rikhav Securities were, Ms. Reeta Jain, Ms. Indira Jain, Manba Investments & Securities Pvt. Ltd., Manba Broking Services. Pvt. Ltd., Mr. Shahrukhkhan Sharfarazkhan and Mr. Vivek Agarwal. The details of the bids placed by the said entities has already been provided in the SCN.

6.5.3 It is observed from the SCN that the group companies of Rikhav Securities, viz. Rikhav Brokers and AHL Investments had common directors as that of Rikhav Securities. On the first day of issue, Rikhav

Brokers Pvt. Ltd. had placed a bid at 10:27:34 a.m. at a price of `49/- per share for 6,12,240 shares under NII/HNI category. This was the first bid placed on that day i.e the opening day of the issue. Subsequent to this, another group company of Rikhav Securities viz. AHL Investments placed bid for 2,04,000 shares at `49/-per share at 15:35:52 on the same day. The total contribution of the bids placed by the group companies of Rikhav Securities, viz. Rikhav Brokers Pvt. Ltd. and AHL Investments to the issue size was 8,16,240 shares i.e 8.16% of the issue size on the first day of bidding. All the cheques in respect of all the said entities were returned subsequently.

6.5.4 From the SCN, it is further observed that on the first day of issue, subsequent bids in the NII category were placed on behalf of Manba Investments and Securities Pvt. Ltd. and Manba Broking Services Pvt. Ltd. (hereinafter referred together as "Manba Group") through the terminal of Rikhav Securities. The combined bids of Manba group for 8,16,240 shares through the terminal of Rikhav Securities, contributed to 8.16% of the total issue size and alleged to have inflated the bid book to that extent. It is noted that the Manba Group, prior to their cheques being forwarded to the escrow banker, placed their withdrawal request with Rikhav Securities vide its letters dated May 4, 2011 stating that "due to some reason we do not want to apply for the same application and hence we request you not to do banking of the said application..". Therefore, the cheques issued by the Manba group were not banked. I find this explanation not convincing. The total bids of all the entities who had placed bids through the terminal of Rikhav Securities under the NII category on the first day of bidding formed 23.26% of the total issue size. Further, it is observed that every single bid placed in the NII category through the terminal of Rikhav Securities was withdrawn/rejected either due to the reason "Cheque returned" or due to the reason "not banked", i.e. there was 100% withdrawals of bids through the terminal of Rikhav Securities under NII category.

6.5.5 Rikhav Securities, in its reply dated January 15, 2013 submitted that no connection was established between Rikhav Securities and Manba group/other four individual applicants in the NII category. In this regard, it is noted from the SCN that in addition to the IPO financing of clients done by Rikhav Securities' NBFC arm, (viz. Total Holdings), Manba Investment and Securities Pvt. Ltd. also financed 70 clients, who had placed the bids through the terminal of Rikhav Securities, which together contributed to 2,85,600 shares. It is noteworthy that each and everyone of these applications, "stop payment" instructions were issued by the applicants.

6.5.6 I further note that Rikhav Securities in its reply dated January 15, 2013 has submitted that its Director, Mr. Hitesh Lakhani, in his statement recorded before SEBI on June 15, 2011 had provided reasons for the 100% withdrawal of the applications in the NII category. It was stated,

• “Secondary market falls about 4%, • From market information/gossip etc. we came to know that this will be listed on heavy discount, • Muthoot finance which was listed on May 6 was given good rating also goes below issue price during the market time, • Announcement of the Power Finance Ltd. IPO came & price had been declared so it was attractive than Vaswani IPO"

6.5.7 It is observed that there was no major adverse market information/news about VIL as contended by Rikhav Securities. As regards the influence of extraneous factors on the investors' decision to withdraw their applications, it is noted that IPO of VIL closed on May 3, 2011, whereas the date of issue of Muthoot Finance Ltd. was on April 18, 2011 and the listing was on May 6, 2011 and the Further Public Offer (FPO) of Power Finance Corporation Ltd. was scheduled subsequently on May 10, 2011, after the closure of the issue of VIL. However, huge withdrawals in the IPO of VIL were witnessed immediately upon the date of closure of the issue of VIL i.e. May 3, 2011, well before the occurrence of aforesaid events cited by Rikhav Securities. Hence, there appears to be no connection between the aforesaid events cited by Rikhav Securities. Considering the same, I am of the opinion that the reasons given by Rikhav Securities and its directors are not convincing.

6.5.8 Another major contention put forth by Rikhav Securities in its reply dated January 15, 2013 (Page 4, Para 7) is that "…as soon as NIIs/RIIs discovered that QIB portion was heavily undersubscribed, they rushed to withdraw". In this context, it is pertinent to note that the sole QIB bid by Adharshila Venture Capital Fund Ltd. was received on the last day of bidding (on 3/5/2011 at 12:37:16 hrs), hence, the under-subscription of QIB portion was known to all investors when the bids were placed by them on the first two days and also on the last day. Hence, I am unable to accept the reasoning given by Rikhav Securities for withdrawal of bids of its group companies that response from QIBs was not encouraging and there was negative news in the market etc. as the records show that the issue garnered good amount of subscription.

6.5.9 The facts and circumstances mentioned above coupled with the very act of placing the first and the subsequent bids on behalf of its own group companies by Rikhav Securities and subsequent withdrawal of all the applications bid by the group companies on the closure of issue, clearly indicate that the same was done with full prior intention to give a misleading appearance of bidding in the issue without actual inflow of funds from those applicants and without any real intention of investing in the IPO.

6.5.10 It is further observed that during the course of hearing held on June 13, 2013, Rikhav Securities stated that their group companies (AHL Investments and Rikhav Brokers) had enough funds in their accounts to honor the bid amount. However, they did not furnish any documents such as bank account statements to substantiate their claim during the course of investigation and also during the course of hearing held on June 13, 2013. Subsequently, Rikhav Securities, vide letter dated December 10, 2014 and January 1, 2015, (subsequent to the hearing held on December 29, 2014) inter alia furnished the following documents with regard to the availability of funds in the accounts of the said group companies at the time of bidding:

• Copy of the certificate issued by Bank of India certifying that cheque for an amount of `1,99,97,950/-got debited from the account of AHL Investments on May 12, 2011. The said cheque was stated to have been issued by AHL Investments for the subscribing to the IPO of Sanghvi Forging and Engineering Ltd. (Sanghvi Forging), which had opened on May 4, 2011. • Copy of demat statement of AHL Investment showing credit of shares of Sanghvi Forging, • Copy of ledger confirmation of M/s Shreeji Darshan Enterprises for the period from April, 01, 2011 to March 31, 2011, • Copies of the "Statement of available fund position" during the period from April 29, 2011 to May 06, 2011 of Rikhav Brokers and AHL Investments. • Copies of bank account statements of Rikhav Brokers Pvt. Ltd. and AHL Investments P. Ltd., • Copies of "Balance Confirmation Certificate" issued by the respective banks to Rikhav Brokers and AHL Investments, • Copy of Ledger Confirmation of Rikhav Brokers for the period from March 23, 2012 to March 31, 2012 showing the details of the account of Rikhav Brokers, as standing in the book of accounts of Total Holdings and Finvest Pvt. Limited (Total Holdings), • Copy of "Schedule of Terms" document executed between Total Holdings and Rikhav Brokers in pursuance of the provisions of the master loan agreement dated February 10, 2010 executed between Rikhav Brokers and Total Holdings (pursuant to the ICD of Rs. 5 crores from Rikhav Brokers toTotal Holdings).

6.5.11 On perusal of the said documents and bank account statements, following are observed:

• Even though the aforesaid "statement of available fund position" of Rikhav Brokers furnished by Rikhav Securities, shows that they had total funds of more than `5,40,48,016/- during April 29, 2011 to May 06, 2011, the bank account statements of Rikhav Brokers, however, indicate that the funds available in the bank accounts of Rikhav Brokers were only `1,86,48,016/-. The remaining amount included surplus Inter Corporate Deposit (ICD) of `3,54,00,000/- placed with their group company and NBFC arm, Total Holdings. In view of this, it is evident that Rikhav Securities was not having the required funds during the period of making application to IPO.

• In respect of the availability of funds in the bank account of AHL Investments, it is observed that they placed the bid through cheque drawn on Bank of India (Account no. 0050271100000014), amounting to `99,96,000/-. As per the bank statements furnished by AHL Investments, on May 05, 2011 it only had a balance of `2,88,056/-. Further, as per the HDFC bank account statements of AHL Investments, `1 crore was received on May 06, 2011 through RTGS from Shreeji Darshan Enterprises. The same was immediately debited and the closing balance in the said account was `36,199/-. This leads to the inescapable conclusion that as on May 06, 2011, AHL Investment did not have sufficient funds in their accounts during the period of making application to IPO.

• It is pertinent to note that as per the SEBI circular CFD/DIL/3/2010 dated April 22, 2010, which stipulates the indicative timelines for the various activities in the issue process, provides " Collecting banks to commence clearing of payment instruments on T+3 day [T=issue closure date]". In the instant matter the entity placing the bids did not have sufficient funds in their accounts till May 6, 2011.

• In view of the aforementioned facts and circumstances, it is clear that the group companies of Rikhav Securities did not have sufficient funds in their account during the time of bidding and also after placing the bids, i.e. till May 06, 2011.

6.5.12 In the facts and circumstances, it is observed that placing large bids by the group companies of Rikhav Securities through its own terminal under the NII category at the highest price of `49/- and subsequently withdrawing the applications/bids so placed coupled with the fact of non-availability of sufficient funds in the respective account at the time of bidding lead to the inescapable conclusion that the bids were placed with the pre-meditated fashion with an intention to artificially inflate the bid book and create a misleading appearance of bidding in the IPO of VIL. The aforesaid activities of Rikhav Securities were clearly intended to generate adequate interest of RIIs in the IPO.

6.5.13 The bids placed by NII and QIBs apparently indicated good response to the IPO and became a benchmark for the pricing of the issue. In this regard, it is noted that the bids were placed by Rikhav Securities at the highest price of `49/- and had withdrawn the bids within a span of two days after closure of the issue. It cannot be a mere coincidence that every single one of the NII clients including its own group companies who had placed bids through Rikhav Securities should withdraw their bids on closure of the issue. It is observed that the extent of subscription in any issue can be seen online on the exchange websites as well as the bidding terminals of the syndicate/sub-syndicate members. In this context, it is important to note Clause 12(g) of Schedule XI of SEBI (ICDR) Regulations, 2009, which says that "the bidding terminals shall contain an on-line graphical display of demand and bid prices updated at periodic intervals, not exceeding thirty minutes". This indicates that Rikhav Securities along with its group companies, had placed these bids through its terminal in a concerted manner solely with a view to project an exaggerated response to the issue. It is also clear that all along they deliberately did this with a prior intention to withdraw the application.

"Not Banking" of Cheques received along with the Bids 6.6. I note from the SCN that Rikhav Securities did not bank cheques received from 232 clients (230 RII clients and 2 NII clients of Manba group). Such applications, in respect of which cheques were not banked amount to a total of 17,19,600 shares and form 17.2% of the issue size. In this context, it is noted that Rikhav Securities, vide its reply letter dated January 15, 2013, stated that the aforesaid applications of 230 clients were received by Rikhav Securities during 10 a.m. to 2.00 p.m on the last day of the bidding and hence bidding in respect of those applications were done during the final hours. Further, it was also submitted by Rikhav Securities that on the same day those 230 applicants wanted to withdraw the applications. It is seen that the timing of placement of the bids of 230 clients of the RII category is as under:

Table III Date Bidding Time No. of RII applications 03-05-2011 14:00 to 15:00 76 03-05-2011 15:00 to 16:00 75 03-05-2011 16:00 to 17:00 23 03-05-2011 17:00 to 18:00 56 Total 230

6.6.1 As seen from the above table, even the bids placed by 56 applicants during the closure of the bidding hours, between 17:00 hrs – 18:00 hours, were withdrawn vide letters on the same day. It is difficult to comprehend why the applicants, whose bids were placed during the last one hour, had required Rikhav Securities to withdraw their applications. Rikhav Securities in its reply vide letter dated January 15, 2013 submitted that “a sub-syndicate member is duty bound carry out the instruction of the clients immediately”. However, the actions of Rikhav Securities is contrary to their submissions as it is seen that they had placed 79 of the bids only during the last two hours, as shown in the above table.

6.6.2 With regard to the allegation of "not banking" the cheques of 232 applicants/clients (230 RIIs and 2 NII/HNI clients), Rikhav Securities stated that the cheques of the aforesaid 232 clients were not banked as all the 232 applicants/clients requested to hold back their cheques. However, it is observed that Rikhav Securities could not furnish the copies of all the withdrawal letters of the aforesaid applicants/clients when asked to do so during the course of investigation. As regards the non-submission of the same, Rikhav Securities, in its reply vide letter dated January 15, 2013 contended that those records were available with the sub-brokers who deal with the applicants and it was never insisted by SEBI during investigation that it should lodge all the withdrawal letters with SEBI. In this context, it is noted that during the course of investigation, SEBI asked Rikhav Securities to clarify the reasons for not banking the cheques of the aforesaid 232 applicants/clients. Rikhav Securities was also advised to provide the full details such as names, address, bank account numbers, bank name, branch name, address etc. of the said applicants/clients, whose cheques were not banked. Mr. Hitesh Lakhani, Director of Rikhav Securities, on behalf of Rikhav Securities stated that all the said applicants/clients had requested for withdrawal of their applications. Mr. Hitesh Lakhani undertook that the copies of the application forms and withdrawal letters submitted by the aforesaid 230 applicants/clients would be submitted by December 3, 2012. It is observed that Mr. Hitesh Lakhani, vide letter dated December 3, 2012 to SEBI, while stating that "we would like to furnish you the below mentioned documents [withdrawal letters and application forms submitted by all the 232 applicants] as required by you for further investigation", submitted only the withdrawal letters for 163 clients and no explanation has been given for non-submission of the remaining requisite documents in respect of other clients. However, later, Rikhav Securities, vide their letter dated December 10, 2014 furnished the copies of the withdrawal letters of all the 232 applicants, after being called for a hearing on December 10, 2014 (which was later postponed to December 29, 2014).

6.6.3 Considering the facts that Rikhav Securities could produce the withdrawal letters, though after considerable delay and in the absence of any other material on record to prove that "not banking" of the aforesaid cheques in respect of the 232 applications were with the sole intention to inflate the bid book, I am inclined to give benefit of doubt in respect of the said charge against Rikhav Securities.

Financing of Bids by the NBFC Arm of Rikhav Securities and Controlling of Bids by Rikhav Securities 6.7. It is noted from the SCN that Rikhav Securities through its NBFC arm namely Total Holdings and Finvest Pvt. Ltd. (hereinafter referred to as "Total Holdings") had financed 187 clients belonging to the RII category and these 187 clients had placed their bids through Rikhav Securities and their bids amounted to 7,62,960 shares, details of which are as follows:

Table IV Status of retail bids No of bids No of shares bid Amount financed(`) Valid bids 112 4,56,960 2,23,91,040 Invalid/Withdrawn/rejected 75 3,06,000 1,49,94,000 bids Total 187 7,62,960 3,73,85,040

Further, day-wise break-up of the above, is as under:

Bid Date Total Withdrawals Valid No. of No. of No. of bids shares No. of bids shares No. of bids No. of shares 02-05-2011 50 204000 14 57120 36 146880 03-05-2011 137 558960 61 248880 76 310080 Total 187 762960 75 306000 112 456960 6.7.1 From the above, it is observed that out of 187 applications financed by Total Holdings, 75 applications for 3,06,000 shares were withdrawn. Rikhav Securities, vide its reply letter dated January 15, 2013 submitted that withdrawal of such 75 applications was only to the extent of about 40% of the total withdrawals from the terminal of Rikhav Securities and withdrawals were at the option and decision of the respective applicants. Further, it is stated that the NBFC provides finance to the investor by issuing cheques directly to the Escrow Account in the IPO and takes two post-dated cheques from the applicants, one for the repayment of the principal amount and the other for the payment of the interest. Further, when the client sells the shares, Rikhav Securities, as a stock broker, has access to the demat account of the respective client by way of the 'Specific Power of Attorney' executed by the client at the time of opening of the account.

6.7.2 From the SCN, it is noted that the method as detailed above indicates that the demat accounts of the said clients were under the control of Rikhav Securities as they held the Power of Attorney to operate the account and through its NBFC arm, Rikhav Securities had control of funds through post dated cheques of the clients. It is pertinent to note that Total Holdings did not enter into any formal agreement with its clients for the said funding. It is observed that even though Rikhav Securities furnished the copies of withdrawal letters sent by the aforesaid 75 applicants, they failed to submit the formal agreement entered with its clients for the said funding by their NBFC arm, viz. Total Holdings. In view of all the above, it is evident that the bids were placed in a concerted manner and Rikhav Securities had used the accounts of the clients funded by their NBFC arm to place bids in the IPO and then subsequently withdraw the bids.

6.8. Subsequent to the personal hearing before me, Rikhav Securities, vide letter dated June 13, 2013, submitted the details of the applications bid during last four hours of the closing date of the issue along with the details of withdrawals thereof, from its terminal. Details of the same are reproduced below: Table V Total RII applications Invalid/withdawan/rejected Time on 03/05/2011 No. of applications bid during the applications out of the hour applications bid during the hour

From 2:07 pm to 2:54 386 302 From 3.06 pm to 3:59 395 274 From 4:10 pm to 4:55 213 204 From 5:02 pm to 5:58 158 140 Total 1152 920 6.8.1 An analysis of the above table indicates that out of the total 1229 bids placed through the terminal of Rikhav Securities, 1152 applications were bid during the last four hours (i.e between 2:07pm and 05:58 pm). Interestingly, out of the said 1152 applications bid during the last four hours, 920 applications (80%) were withdrawn. Similarly, out of the 158 bids placed during the last one hour of bidding, 140 were withdrawn.

6.9. Further, in its reply, Rikhav Securities had also contended that it had a very limited role as a sub-syndicate member and had essentially only a clerical role to play in the whole process of IPO. It had executed the instructions of applicants/clients by placing and withdrawing bids. From the SCN, it is observed that in the appointment letter dated January 17, 2011 of Rikhav Securities as a sub-syndicate member to the Book Running Lead Manager, a specific clause states that Rikhav Securities would make good any defaults of its clients/investors. In view of the onerous responsibility cast upon the sub-syndicate members, the aforesaid contention put forth by Rikhav Securities is not tenable and I am of the view that Rikhav Securities' role in the whole process of IPO is not mechanical or clerical as contended in its reply.

6.10. Further, with regard to the contention put forth by Rikhav Securities in respect of the requirement of mens rea, it is observed that fraudulent or manipulative trade practices in securities market can be proved on the basis of "preponderance of probability" and not "beyond reasonable doubt" as held by the Hon'ble Securities Appellate Tribunal (SAT) in Kanchan Gaurav Raimalani v A.O., SEBI, Mumbai, decided on January 5, 2010 and Prashant J. Patel, Mumbai v. SEBI, decided on August 17, 2010. The Hon'ble SAT further observed that, proof of mens rea in manipulation cases need not be direct, but rather may be inferred from circumstantial evidence and is generally based on a course of conduct showing an intentional interference with the normal functioning of the securities market and not based on a solitary action.

6.10.1 It is noted that in the instant matter, the proof of manipulative intent is evident from the series of activities of Rikhav Securities, as discussed in the preceding paragraphs, and disclose a clear manipulative conduct, such as placing bids on behalf of Rikhav Securities' own group companies at highest price band and then withdrawing/cancelling the entire bids under the NII category; arranging the finance and controlling of bids placed by RII clients and subsequent withdrawal/rejection of a substantial portion of the bids, etc. It is noted that in the IPO of VIL, the oversubscription level on closure of bids was initially at a level of 4.16 times, however, after taking into account the withdrawals and technical rejections, the oversubscription level fell to 1.28 times. In these circumstances and applying the aforesaid principles, I am of the view that all the charges against Rikhav Securities are established.

6.10.2 In the instant IPO, the inference of there being a good demand for the issue, which was drawn by the investors was substantially negated by subsequent large-scale withdrawals and consequent drop in the subscription level from 4.16 times to 1.28 times. Had the genuine investors been aware of the true extent of the demand for the IPO, impending large-scale withdrawals and the consequent change in allotment ratio, they would have most certainly reevaluated their investment decision, equipped with the correct information. It is further noted from the available records, that on the listing date i.e. October 24, 2011, the price of the scrip at BSE which was subscribed at a price of ` 49/- per share, opened at ` 33.45 and closed at ` 17.75.

6.10.3 In order to protect the interests of investors who could have possibly been attracted by the apparent excess subscriptions in the IPO of VIL, SEBI vide the interim Order dated July 11, 2011, inter alia, directed the issuer company, VIL to give option for withdrawal to all investors who were allotted shares in the NII and RII categories for such number of shares by which the allotment ratio was impacted due to withdrawals/rejections in the aforesaid categories. In view of this, I have no hesitation to reject the contention put forth by Rikhav Securities that SEBI had given a clean chit to the company in its Order dated July 11, 2011. It is also noted that the Hon'ble SAT vide Order dated August 25, 2011 confirmed the said SEBI Order to the extent of giving withdrawal option to the investors in the RII category. From this, it is clear that the RIIs were lured into applying in the IPO, by the "good" response artificially created by the entities including Rikhav Securities.

6.11. Rikhav Securities, during the hearing held on December 29, 2014 submitted that SEBI has not given inspection of documents and has not allowed cross examination of various applicants who bid through Rikhav Securities and their statements were recorded during investigation. Rikhav Securities also requested for cross examination of the applicants who bid through Rikhav Securities. In this regard, it is observed from the available records, that Rikhav Securities was granted inspection of documents on November 07, 2014 and November 10, 2014 and all the materials relied upon by SEBI have been provided to the entity. Further, in respect of the contention that opportunity to cross examine was not given, it is observed that SEBI has not relied upon statements of any person or entity in the proceedings against Rikhav Securities. In view of this, I am of the opinion that the issue of cross-examination does not arise in the instant matter. It is also noted that ample opportunities have been granted to Rikhav Securities to adduce evidence in the matter. Most of the relevant documents such as the withdrawal letters of all the 230 applicants etc. have been furnished by Rikhav Securities only after receipt of the SCN in respect of the enquiry proceedings initiated against Rikhav Securities.

6.12. The authorized representative of Rikhav Securities, during the personal hearing before me on June 13, 2013, submitted a copy of Delhi High Court Ruling dated January 14, 2013 in SEBI Vs. A.P.L. Industries Ltd. I have carefully analysed the judgment and I find that the facts of the instant matter are different from the case quoted by Rikhav Securities. The issue under consideration in the referred case was refund of subscription in an issue, which did not attract minimum subscription net of application withdrawals. However, in the instant matter, the issue under consideration is whether Rikhav Securities as a sub-syndicate member to the IPO of VIL, by its various acts and omissions, inflated the bid book; created misleading appearance of vigorous bidding; contributed towards manipulating the price at the highest price band; placed large orders on behalf of the applicants initially and then withdrew/cancelled the bids thereby inducing innocent investors to subscribe to the issue. I am, therefore, of the view that the judgment quoted by Rikhav Securities is not relevant for deciding the instant issue and the same is of no help to Rikhav Securities.

7. In the facts and circumstances mentioned in the forgoing paragraphs, it is observed that the very act of placing bids on the first day of the issue, by its own group companies were evidently instrumental in inflating the bid book without actual inflow of funds from those applications and merely done with the sole intention to show a good response to the IPO from the very beginning, before bids were placed by other entities. This is further strengthened by the non-availability of funds in the accounts of their group companies viz. Rikhav Brokers and AHL Investments. I am also of the view that it cannot be a mere coincidence that everyone of the NII clients including its own group companies who had placed bids through Rikhav Securities chose to withdraw their bids on closure of the issue. Further, it is found that Rikhav Securities had arranged finance through its NBFC arm for 187 clients, who had placed bids under RII category, without any formal agreement, of which 75 applications were withdrawn subsequently. These methods adopted by Rikhav Securities were, undoubtedly with the fraudulent intention to inflate the bid book and withdraw at the last minute was nothing but a tactic to ensure that innocent investors did not withdraw their bids, thereby ensuring that the minimum subscription to the issue was attained. We also have to take note of the fact that VIL was directed by the Hon'ble SAT to offer withdrawal options to RIIs. In view of all the observations as detailed in the aforesaid Paragraph Nos. 6.4 to 6.8, I find that Rikhav Securities, a SEBI registered broker and sub-syndicate member to the public issue of the Company VIL, placed large bids through its terminal on the first day of issue under NII category in concert with its group companies to inflate the bid book; create misleading appearance of vigorous bidding; and to contribute towards manipulating the price at the highest price band.

7.1. Rikhav Securities has submitted that other sub-syndicate members, who also had 100% withdrawals from their terminals in NII categories in the IPO of VIL, have not been punished by SEBI. The issue before me is whether the bidding of applications by Rikhav Securities on behalf of its applicants/investors including its own group companies and subsequent withdrawal thereof, were misleading in nature and were intended to artificially inflate the bid book. The facts and circumstances as detailed in the forgoing paragraphs clearly establish the manipulative conduct on the part of Rikhav Securities.

8. In view of the aforesaid observations, I absolutely have no hesitation to say that Rikhav Securities has violated the provisions of Section 12A (a), (b) and (c) of the SEBI Act read with Regulations 3(b) and (d), Regulations 4(1) and 4(2)(a) and (b) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003.

8.1. Ensuring fair play by all market participants is one of the main objectives of securities market regulation. SEBI, as market regulator cannot be a mere spectator, it has to intervene to protect the integrity of securities market and the interests of investors. In this regard, it is also pertinent to note the observations by Hon'ble Supreme Court in its judgment dated April 26, 2013 in N. Narayanan v. Adjudicating Officer SEBI (Civil Appeal Nos.4112-4113 of 2013) that "SEBI, the market regulator, has to deal sternly with companies and their Directors indulging in manipulative and deceptive devices, ……….. etc. or else they will be failing in their duty to promote orderly and healthy growth of the Securities market. Economic offence, people of this country should know, is a serious crime which, if not properly dealt with, as it should be, will affect not only country’s economic growth, but also slow the inflow of foreign investment by genuine investors and also casts a slur on India’s securities market. Message should go that our country will not tolerate “market abuse” and that we are governed by the “Rule of Law”. Fraud, deceit, artificiality, SEBI should ensure, have no place in the securities market of this country and ‘market security’ is our motto".

8.2. Viewed in the light of the aforesaid observations of the Hon'ble Supreme Court, the conduct of Rikhav Securities was without doubt, detrimental to the safety and integrity of the securities market. The cogent and convincing trail of events as detailed in the preceding paragraphs conclusively establish the charges of manipulative and fraudulent activities on the part of Rikhav Securities. Such activities are not expected from an intermediary registered with SEBI. If such activities from a SEBI registered intermediary are allowed to continue, they will jeopardize and tarnish the image and pose a real threat to the very integrity of our securities market. In order to ensure that such kind of activities, do not continue or get repeated to the detriment of the investors, certain directions like restraining the entity from acting as syndicate/sub-syndicate member become absolutely necessary.

9. It is also relevant to note that Rikhav Securities, failed to furnish the relevant documents crucial in determining the case on merits such as the withdrawal letters and copies of application forms of the 232 applicants (as detailed in Paragraph No. 6.6.2), the bank account statement and other documents showing funds available in the bank account of their group companies, etc. during the course of investigation and also during the hearing held on June 13, 2013. It was only during the second hearing granted to Rikhav Securities i.e. on December 29, 2014, that they furnished some of the relevant documents/material such as the withdrawal letters of the aforesaid 232 applicants, the bank account statement and other documents of their group companies, etc.

10. I note that SEBI, vide the Interim Order dated July 11, 2011 (later confirmed through the Confirmatory Order on January 11, 2012), restrained Rikhav Securities from acting as a syndicate member/sub-syndicate member for all forthcoming issues, till further orders in the matter and it has already undergone the restraint for a period of approximately three years and seven months.

Order - 11. Considering all the facts and circumstances of the case and the aforesaid mitigating factors, I, in exercise of the powers conferred upon me by virtue of Section 19 read with Section 11 and 11B of the SEBI Act and Regulation 11(1) of the PFUTP Regulations, 2003, restrain Rikhav Securities Ltd. from acting as a syndicate/sub-syndicate member for a period of 4 years. The period of prohibition already undergone by Rikhav Securities in terms of SEBI Interim Order dated July 11, 2011, shall be set-off from the period of debarment as directed above.

12. This Order shall come into force with immediate effect.

Place: Mumbai S. RAMAN Date: March 13, 2015 WHOLE TIME MEMBER