Order against Shah group in the matter of Pyramid Saimira Theatre Ltd[SAT Appeal No.132/2017]

DIRECTIONS UNDER SECTIONS 11, 11(4) AND 11B OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 AGAINST MR. RAJESH JAYANTILAL SHAH, MR. SHAILESH JAYANTILAL SHAH, MR. NIRMAL ROHITBHAI SHAH, MRS. BINABEN SHAILESH KUMAR, MRS. RITABEN ROHITKUMAR SHAH AND MRS. MANISHABEN RAJESHKUMAR SHAH IN THE MATTER OF PYRAMID SAIMIRA THEATRE LIMITED

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 Mr. Rajesh Jayantilal Shah, Mr. Shailesh Jayantilal Shah, Mr. Nirmal Rohitbhai Shah, Mrs. Binaben Shaileshkumar, Mrs. Ritaben Rohitkumar Shah and Mrs. Manishaben Rajeshkumar Shah (all the aforesaid persons shall henceforth be referred to as the noticees collectively and individually by their respective names) not to buy, sell or deal in the securities market including in Initial Public Offerings (IPOs) directly or indirectly, till further directions. Mr. Nirmal Rohitbhai Shah, vide letter dated May 12, 2009, on behalf of himself, Mrs. Binaben Shaileshkumar, Mrs. Ritaben Rohitkumar Shah and Mrs. Manishaben Rajeshkumar Shah, inter alia stated that he was doing sub broking business and was assisting his parents, uncles and aunts in trading and investment activities. He stated that none of his family members had received any amount of Mr. Nirmal Kotecha and that they had not assisted him in any manner. He further stated that apart from their family transactions, all the transactions in the shares of PSTL were undertaken through the firms of the sub-broker. Further, vide letter dated June 1, 2009, Mr. Nirmal Rohitbhai Shah requested to revoke the directions issued against him.

2. Mr. Shailesh Jayantilal Shah, vide letter dated May 12, 2009 inter alia stated that he was a registered sub broker affiliated to J.M. Financial Services Private Limited. It was stated that he had met Mr. Nirmal Kotecha in a religious ceremony at Rajkot and thereafter, Mr. Nirmal Kotecha had become his client. He contended that the loan of Rs.10,00,000/- was requested from Mr. Nirmal Kotecha to pay the fees for his nephew, Mr. D.R. Shah, who had been admitted to the University of Exeter. While acknowledging the receipt of Rs.10,00,000/- from Mr. Viral Doshi, he submitted that he was not aware that the same was transferred to the account of Mrs. Viral Doshi from that of Mr. Nirmal Kotecha’s bank account. Mr. Shailesh Jayantilal Shah submitted that British Pounds (£) were purchased out of Rs.6,67,966/- to pay the fees for his nephew. He also stated that he had transferred Rs.3,00,000/- on October 18, 2008 to his account maintained with the State Bank of India (Surendranagar Branch). According to Mr. Shailesh Jayantilal Shah, during November, 2008 he had transferred Rs.1,20,000/- from his account maintained with the State Bank of India account to his account in the HDFC Bank, which was finally used for the purchase of pounds.

He further stated that Rs.1,42,000/- was transferred on November 28, 2008 and used for office expenses and that the balance amount of Rs.70,000/- was also utilized in routine office expenses and personal expenses. He claimed that Rs. 10,00,000/- was repaid to Mrs. Viral Doshi in three tranches of Rs.4,00,000/-, Rs.5,00,000/- and Rs.1,00,000/- on December 26, 2008, December 27, 2008 and December 31, 2008, respectively. With regard to the repayment, Mr. Shailesh Jayantilal Shah submitted that Rs.4,00,000/- paid on December 26, 2008 to Mrs. Viral Doshi was from the amount earned as sub brokerage from J.M. Financial Services Private Limited. It was further stated that Rs.5,00,000/- and Rs.1,00,000/-was transferred to Mrs. Viral Doshi on December 27, 2008 and December 31, 2008 respectively, the said amounts being received from one of their associate, M/s. Tejas Cotton Co. With respect to the cash deposits seen in his bank account, Mr. Shailesh Jayantilal Shah submitted that all such deposits were legitimate and accounted for. He further contended that his transactions were not concerned with the purchase and sale of shares of PSTL by Mr. Nirmal Kotecha.

In respect of his trading in the shares of PSTL, Mr. Shailesh Jayantilal Shah had submitted that he had been trading in various scrips including that of PSTL. He claimed that his purchase and sale of shares of PSTL from December 16, 2008 to December 22, 2008 had nothing to do with the open offer or the announcement denying the same. Mr. Shailesh Jayantilal Shah further stated that on December 22, 2008, instead of selling 3200 shares, he had inadvertently sold 32,000 shares between 9:57 am and 10:35 am through the stock broker, Motilal Oswal Securities Limited. Mr. Shailesh Jayantilal Shah claimed that, after realizing the mistake, he had started purchasing the shares from 10:50 am to 11:00 am and had purchased a total of 28700 shares. Mr. Shailesh Jayantilal Shah further stated that when he was purchasing, his buy orders matched with the sell orders of Mr. Nirmal Kotecha as he was the main seller. He denied structuring his deals with Mr. Nirmal Kotecha. Mr. Shailesh Jayantilal Shah further stated that if his intention was malafide, he would not have purchased 28,700 shares immediately.

He further denied playing any role in facilitating Mr. Nirmal Kotecha in carrying out or disguising his manipulative intent. Thereafter, Mr. Shailesh Jayantilal Shah vide letter dated June 1, 2009 requested that the directions passed vide the interim order be revoked.

3. Mr. Rajesh Jayantilal Shah, vide letter dated May 12, 2009 inter alia stated that he was trading through his brother, Mr. Shailesh Jayantilal Shah, a sub-broker. He also submitted that his nephew, Mr. Nirmal Rohitbhai Shah is also a sub broker and was assisting their family in trading in various scrips. He submitted that he was trading in various scrips including that of PSTL. He denied having contact with Mr. Nirmal Kotecha or other promoters of PSTL. He submitted that he and his family members have a common ancestral home at Dhrangadhra, Gujarat where his father, Mr. Jayantilal Ratilal Shah was staying. He submitted that he not only sold shares of PSTL but had also purchased the same on December 22, 2008 and that no malafides can be ascribed to that. He submitted that his net sell was in respect of 49,000 shares which was less than 0.5% of the total market volume on December 22,

2008. He contended that in the absence of his nexus with Mr. Nirmal Kotecha, there is no question of his having abetted Mr. Nirmal Kotecha in disguising his manipulative trading or gaining undue profits. Mr. Rajesh Jayantilal Shah made further submissions vide letters dated June 1, 2009, June 30, 2009, July 20, 2009 and November 19, 2009. Mr. Rajesh Jayantilal Shah vide letter dated June 30, 2009 inter alia submitted that the transactions carried on by them (Shah Group as mentioned in Para 28 of the interim order) where in ordinary course of share trading activity and within their financial capacity and resources. It was submitted that they had met all the obligations in respect of their trading. Mr. Rajesh Jayantilal Shah, vide letter dated November 19, 2009 submitted that he and his family members started buying the shares of PSTL based on the research reports of leading broking houses and analysts. He submitted that, as on March 31, 2008, his holding in the shares of PSTL was nearly 1,80,000 shares at a cost of Rs.400/- per share. Mr. Rajesh Jayantilal Shah also furnished his trading details in the shares of PSTL for the period December 15, 2008 to December 22, 2008. He further stated that his trading in the shares of PSTL was like that of any prudent investor and nothing unusual or abnormal was intended to be done. He submitted that it was not in dispute that he played any role in the circulation of the alleged forged letter and the media reports.

4. Thereafter, an opportunity of hearing was granted to the noticees on August 4, 2009. Mr. Prakash Shah, advocate represented the noticees on the said date and made submissions on the lines of the replies made by them. Mr. Rajesh Jayantilal Shah and Mr. Nirmal Rohitbhai Shah were also present during the hearing.

5. I have considered the objections filed by the noticees, the submissions made on their behalf during the personal hearing 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 the noticees, 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 the noticees. The ex-parte order dated April 23, 2009 has already made a prima facie case against the noticees.

6. At the outset, I note that Mr. Shailesh Jayantilal Shah in his objections has stated that Mr. Nirmal Kotecha offered to give him Rs. 10,00,000/- as a friendly loan without any interest. Such a friendly loan from Mr. Nirmal Kotecha (through his wife Mrs. Viral Doshi) to Mr. Shailesh Jayantilal Shah for a period extending to more than three months without charging any interest, prima facie shows that both of them had a very close and cordial relationship. The claim of Mr. Shailesh Jayantilal Shah is that he had borrowed Rs. 10,00,000/- for the educational expenses of his nephew. However, I note from the bank statement of Mr. Shailesh Jayantilal Shah (A/c No. 05191070009739 maintained with the HDFC Bank, Surendranagar branch) that the actual expenses 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). However, in his objections, Mr. Shailesh Jayantilal Shah stated that he had purchased pounds worth Rs.6,67,966/-. Having claimed to have borrowed Rs. 10,00,000/-, it is surprising to note that he had spent only Rs. 6,17,966/- out of the said amount. I also note that the amount claimed to have been transferred to the account of Mrs. Viral Doshi in three tranches as mentioned above, was subsequently transferred by the latter to the account of Mr. Nirmal Kotecha. Immediately after the receipt of Rs. 10,00,000/- from Ms. Viral Doshi on September 25, 2008, Mr. Shailesh Jayantilal Shah 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 JM Financial Services Private Limited on December 2, 2008 and an amount of Rs. 4,00,000/- was received from JM Financial Services Private Limited on December 3, 2008.

7. The 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. Admittedly, Mr. Shailesh Jayantilal Shah has been trading in the stock market through JM Financial Services Private Limited and is also a sub-broker (affiliated to JM Financial Services Private Limited ) in turn trading for Mr. Nirmal Kotecha during the period Thus, admittedly, Mr. Shailesh Jayantilal Shah was trading for Mr. Nirmal Kotecha. Besides, he also had other financial transactions with Mr. Nirmal Kotecha. It is very pertinent to note that a huge sum of money was advanced by Mr. Nirmal Kotecha to Mr. Shailesh Jayantilal Shah without charging interest and without any documents. The same would further fortify the view that both of them shared a very close relationship. The preliminary findings in the matter led to a prima facie inference that Mr. Nirmal Kotecha 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 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. Taking into consideration all of the above facts and given the fungible nature of money, I prima facie find that Mr. Shailesh Jayantilal Shah 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. It is pertinent that the noticees are family members who shared the same address and had traded during the period December 15, 2008 to December 23, 2008 in the shares of PSTL. Mr. Rajesh Jayantilal Shah, in particular was found to be one of the top five net sellers on December 22, 2008 till 10.28.04 a.m. i.e. prior to the denial by PSTL of the letter purportedly issued by SEBI. He had sold 49,000 shares on December 22, 2008 at an average rate of Rs. 82.87 per share through trading member J M Financial Services Private Limited, prior to the said denial.

From the trading pattern of the noticees, it prima facie, emerges that they had abetted Mr.

Nirmal Kotecha in disguising his manipulative trading and gaining undue profits. The preliminary findings of the case also indicated 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 that 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.

8. A perusal of the order log with respect to the sell trades in the name of Mr. Shailesh Jayantilal Shah on December 22, 2008 revealed that there were altogether 8 sell orders that resulted in the trades for sale of 32,000 shares of PSTL by Mr. Shailesh 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 eight 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.

9. Besides, Mr. Nirmal Rohitbhai Shah (nephew of Mr. Shailesh Jayantilal Shah and brother of 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. As observed in the ex-parte order, from the trading pattern of the noticees, it prima facie, emerges that they had abetted Mr. Nirmal Kotecha in disguising his manipulative trading and gaining undue profits. Mr. Rajesh Jayantilal Shah, Ms. Binaben Shaileshkumar Shah, Mr. Nirmal Rohitbhai Shah, Mrs. Ritaben Rohitkumar Shah, Mrs. Manishaben Rajeshkumar Shah had traded in the shares of PSTL. The details of their trades have been mentioned in Annexure G to the said order.

10. The preliminary findings of the case revealed that there were fund transactions involving Mr. Nirmal Kotecha, Mrs. Viral Doshi and Mr. Shailesh Jayantilal Shah, the same having been discussed in this Order also. The fact that the orders of Mr. Shailesh Jayantilal Shah matching with that of Mr. Nirmal Kotecha, the other family members (the other notices) trading in the securities market in the shares of PSTL during the relevant period, Mr. Shailesh Jayantilal Shah acting as the sub-broker for Mr. Nirmal Kotecha, would prima facie indicate their complicity in the manipulation. The prima facie findings in respect of the involvement of the noticees have been explained in the ex-parte order. I note that the investigation in the matter is not yet concluded and the same is in progress. The investigation alone can bring out the specific role of the parties including the noticees in the alleged fraud and manipulation. The noticees have not given convincing explanations for me to revoke or modify the directions issued against them in the interim order. Further, it would not be appropriate at this stage to give conclusive findings in respect of the contentions raised by the noticees. At present, the available material on record justifies the continuation of the directions passed against the noticees, vide the ad interim ex-parte order dated April 23, 2009, till the completion of the investigation. Therefore, till the completion of such investigation, I do not consider it fit to interfere with the directions passed by SEBI, vide the said ex-parte order. The role or involvement of the noticees in the alleged manipulation would be reviewed after the investigations are completed.

11. 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.

12. In view of the foregoing, I, in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 read with Sections 11, 11B and 11(4) thereof hereby confirm the ex-parte interim order dated April 23, 2009 in the matter of Pyramid Saimira Theatre Limited, against Mr. Rajesh Jayantilal Shah, Mr. Shailesh Jayantilal Shah, Mr. Nirmal Rohitbhai Shah, Mrs. Binaben Shaileshkumar, Mrs. Ritaben Rohitkumar Shah and Mrs. Manishaben Rajeshkumar Shah.

DR. K. M. ABRAHAM WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA Place: Mumbai Date: December 14, 2009