Order against Shri Amal Parikh in the matter of Color Chips (I) Ltd

1. The Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) received complaints about the role of promoters, directors and the top officials of M/s. Color Chip India Limited (hereinafter referred to as ‘CCIL’ or ‘the noticee’) that they have sold major quantity of shares that were registered in the names of various investors. After receiving observations relating to the same from BSE, SEBI conducted independent investigations into the affairs of CCIL, the investigation period being from January 2000 to March 2000.

2. The facts in brief are that CCIL was originally incorporated as Rusoday Mutual Funds Limited on March 23, 1990 and it obtained certificate of commencement of business on March 23, 1990. Subsequently, it obtained fresh certificate of incorporation on change of name to Rusoday Finance Limited on June 04, 1996, Global Fiscals Limited on June 06, 1996, Arham Fiscals Limited on April 28, 1997 and CCIL on January 05, 2000. The company was listed on the Hyderabad Stock Exchange on August 25, 1997, at Bombay Stock Exchange (hereinafter BSE) on September 01, 1997 and at National Stock Exchange (hereinafter NSE) on September 03, 1997. Initially CCIL was known as Color Chips Animation Park Limited (hereinafter CCAPL) and after the acquisition of Arham Fiscals Limited it was named CCIL. The Board of Directors of the company included Shri. Uttam P. Kumar, Dr. P. Pitamber, Shri R.S Sudish and Shri Y Suryanarayana. In an Extra Ordinary General Meeting held on January 3, 2000 a special resolution was passed under Regulation 12 of SEBI (SAST), Regulations, 1997 by the members allowing for the acquisition of control and management by Shri Uttam P Kumar. Pursuant to this resolution, Shri Uttam Kumar acquired the control and management of the company.

3. CCAPL had entered into an agreement on January 17, 2000 with Piyush Finance & Inv. P.Ltd, Sumitra securities Ltd and others to acquire 36, 00,000 fully paid up equity shares for cash at an average rate of Rs. 5.92 from the promoters of the company. As per SEBI (SAST) Regulations, 1997, the acquirer company CCAPL made an announcement of open offer on January 20, 2000 to acquire 13,69,000 fully paid up equity shares at par value and 6, 51, 100 partly paid up equity shares at a price proportionate to the amount paid up on the shares. It was forming total of 20,21,000 shares representing 20% of the subscribed capital and the opening date of the open offer was February 23, 2000 and closing date of the offer was March 23, 2000. On the date of public announcement (i.e. January 20, 2000) by the CCAPL and as on February 10, 2000, i.e. the date of the Letter of Offer there were only 13,69,900 fully paid up equity shares, so there was less floating stock in the market

4. It has been observed from the BSE reports that the first trade in the scrip was at Rs. 57 on January 20, 2000 and on the same day it increased upto Rs. 290 and closed at Rs. 216.30. The lowest price recorded on this day was Rs. 50 and total quantity traded was 2, 30,800 shares. The trading quantity during the entire investigation period was 23, 00, 900 shares.

5. A Memorandum of Understanding (MOU) was signed on September 25, 1999 between Shri Sudish and Shri Suryanarayana on one hand and Shri Uttam Kumar & Shri Peetamber on the other for the raise of finances & increase in the scale of operations of CCIL. According to the MOU Shri Uttam Kumar was the managing Director of the said project of raising finances. They had agreed to set up the project either by way of incorporating a new company or by way of acquisition of an existing company and also agreed that CCAPL shall either go for an initial public offer and/or take over an existing listed company for the said project.

6. It was observed that the two directors approached Shri B K Sharma –a known equity and financial consultant in Hyderabad to raise the necessary funds in the last week of September/ First week of October 1999. It was stated by Shri Suryanarayana that Shri B K Sharma had advised CCAPL to go for an IPO and start collecting money by way of private placements. Subsequently, Shri B K Sharma advised the CCAPL and the money was collected from various investors for the same to go for reverse merger of a listed existing company and to refund the monies collected by way of private placement.

7. On the said advice of Shri B K Sharma a company named Arham Fiscals Ltd was identified and CCAPL acquired 36 lakhs shares from the promoters of the said company. The shares were acquired at an average price of Rs.5.92. It was stated by Shri Suryanarayan that the difference in the pricing was due to the negotiations with the different promoters of Arham Fiscals Ltd. The acquirers of Arham Fiscal Ltd i.e. CCAPL along with Shri B K Sharma had acquired more than 36 lakhs shares that they had officially declared, from the promoters and existing shareholders of Arham Fiscal Ltd. They acquired the additional shares in the names of front companies like Kruthika Portfolios and various individuals related to the acquirers.

8. Shri B K Sharma and Shri Suryanarayana both had denied their relations with Kruthika Portfolio and had put the blames on each other. So it can be observed that they both were associated with Kruthika Portfolio and all were functioning in concerted manner. Kruthika Portfolio was a client of M/s Ohm Stock Broking P Ltd and Ohm Stock Broking P Ltd stated that orders on behalf of Kruthika Portfolio were placed by B K Sharma. Shri Amal Parikh, Director of Ohm stock Broking Pvt. Ltd. has stated that he had known Shri B K Sharma for more than 6 years. He had bought shares from Shri Chanderiah and that Shri Chanderiah had been introduced to him by Shri B K Sharma. B K Sharma had approached Amal Parikh and had offered the shares of CCAPL the payment of which was made to CCAPL. However the payment was returned to them by Shri Sharma with a request to make payments to Shri Chanderiah for the shares of CCIL.

9. The investigations had alleged that Ohm Stock Broking P Ltd was aware of the nefarious designs of Shri B K Sharma all along and colluded with him. It was also alleged that it did not exercise due diligence, especially with regard to verifying the authenticity of the clients and that it had aided and abetted Shri B K Sharma in manipulating the price of CCIL. In view of this, a show cause notice was issued to Shri Amal Parikh for his alleged dealing in the scrip of CCIL.

10. A show cause notice dated 24-06-2004 was issued under Sections 11 (4) and 11B of the SEBI Act, 1992 to Shri Amal Parikh. The show cause notice required the noticee to show cause as to why suitable directions under Section 11(4) read with section 11B of SEBI Act, 1992 including directions debarring the entity from the capital market/dealing in securities for a suitable period of time may not be issued against him for the alleged violations.

11. The noticee replied to the show cause notice vide his letter dated July 19, 2004. In his reply, the noticee had submitted that there was no evidence to establish that the entity was in any way, directly or indirectly, connected to the alleged manipulations and that mere business acquaintance with Shri B K Sharma does not prove the violations specified in the Show Cause Notice. He also submitted that he was only one of the investors in the shares of CCIL on being approached by Shri. B K Sharma and it was only a strategic investment opportunity. It was further submitted that the foundation of the alleged charge in the notice primarily emanates from the single transaction being the sale of 2 lakh shares of CCIL by Kruthika through Ohm, acting as a broker for Kruthika, on January 20, 2000, which shares were purchased by two mutual funds. It was also submitted that there is no evidence on record to state the connection of his participation in the said transaction and that he was not even a member of CCIL on January 20, 2000.

12. The noticee was afforded an opportunity of personal hearing on 08-02- 2007, when he was represented by Shri Joby Mathew, Advocate. Pursuant to the personal hearing I note that the noticee has also submitted his written submissions dated 23-02-2007.

13. I have considered the allegations in the show cause notice issued to the noticee, the reply and the written submissions of the noticee and other material on record.

14. I note that the show cause notice issued to the noticee alleged that OSBPL had served as effective partners for the managementb of CCIL and Shri B K Sharma and that the noticee was approached by Shri B K Sharma and offered some shares of CCAPL and payment had been made to CCAPL by the noticee as advised by Shri B K Sharma but the money was returned by Shri B K Sharma with a request to make the payments favouring Shri Chanderiah for shares of CCIL. The show cause also alleged that OSBPL was aware of the nefarious designs of Shri B K Sharma all along and had colluded with him. It further alleged that no due diligence, especially with regard to verifying the authenticity of the clients was done by them. The show cause also alleged that OSBPL had aided and abetted Shri B K Sharma in manipulating the price of CCIL.

15. I note that vide order dated 23.08.2007, ref. no. WTM/TCN/55/ID3/08/2007 no penalty was levied against the broker, M/s. Ohm Stock Brokers Pvt. Ltd., (SEBI Registration No. INB 011057339) for their dealing in the scrip of CCIL. The above referred order observes that it was not possible for OSBPL to gauge the reasoning behind such order placed by its client. The order further observes that OSBPL was in picture only for two transactions for a total of two lakh shares, that too, to institutional buyers which could not have raised any alarm in its mind. The order directed no penalty on OSBPL as OSBPL had ensured compliance of the requisite procedures and also the completion of the transaction appropriately by obtaining delivery of the shares to be sold in advance from its client, and making the payment in favour of KPL by cheque. Also, there has been no personal benefit that accrued to OSBPL out of the transactions for its client and no such allegation has also been made against it, to this effect.

16. Though the investigations have alleged that the noticee had known Shri B K Sharma, I find that this could be only in the nature of business acquaintances. I find that mere purchase of the shares of CCIL, price of which was manipulated, it cannot be said that the noticee was aiding or abetting anybody involved in it. I also find that the noticee did not make any personal gains.

17. I, therefore in exercise of the powers conferred upon me under Section 19 of the SEBI Act, 1992 and Sections 11(4) and 11B of the SEBI Act, 1992, I hereby dispose of the show cause notice issued to Shri Amal Parikh without any directions in the matter of M/s. Color Chip India Limited.

DATE: July 18, 2008 T.C. NAIR PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA