Order against Shri S K Chadha, Managing Director KMF Ltd in the matter of Ashoka Refineries Ltd

1. M/s Ashoka Refinery Ltd (hereinafter referred to as the “ARL”) had come out with a public issue in February 1995 with the stated objective of dealing in vegetable oils. The purpose of the public issue inter alia as stated in the prospectus was to finance the expansion of ARL’s activities and to provide margin money for working capital requirements.

2. The shares of ARL were listed on the Bombay Stock Exchange and Madhya Pradesh Stock Exchange.

3. SEBI had received complaints against ARL from several investors alleging:

a. ARL deliberately delayed the transfer of shares so as to reduce the floating stock of the company. b. ARL’s refusal to transfer the said shares was done with an intention to place the complainants/investors in a short-seller position thereby forcing recovery of shortage from them in auction. c. Price manipulation in the scrip of ARL.

4. SEBI accordingly initiated an investigation into the said allegations by the investors. Furthermore, information and documents etc were called from ARL and their directors and their statements were also inter alia recorded. The finding of investigations revealed prima facie price manipulation in the scrip of ARL, mal-practices in acceptance of applications in the public issue of ARL, mal-practices in allotment, delay in transfer of shares, etc. Accordingly, proceedings were initiated against ARL and its directors, M/s KMF Ltd etc.

5. It was observed that M/s KMF Ltd was under liquidation. It was noted that Shri S K Chadha was the managing director of M/s KMF Ltd at the time when M/s KMF Ltd was managing the pre-issue and post-issue in respect of the public issue by ARL. Therefore, SEBI issued Show Cause Notice (“SCN”) dated July 2, 2004 to Shri S K Chadha, managing director of M/s KMF Ltd. The SCN was sent to the Delhi address of the M/s KMF Ltd viz. C-112, New Moti Nagar, New Delhi – 110015 and also to the address of Shri S K Chadha at BU-222, Pitampura, Delhi - 110034.

Further, in view of the liquidation proceeding against M/s KMF Ltd, the said SCN was also forwarded on July 2, 2004 vide letter no. IVD/ID3/PKB/BKG/14304/04 to the Official Liquidator appointed in the liquidation proceedings of M/s KMF Ltd for delivery to Shri S

K Chadha, managing director of M/s KMF Ltd. The said letter to the Official Liquidator was acknowledged as received by the Official Liquidator, DHC, New Delhi dated July 2004.

6. The findings of investigation in brief, as contained in the SCN dated inter alia July 2, 2004 alleged that M/s KMF Ltd, while acting as both pre-issue and post-issue lead manager, had made allotment in the public issue of ARL against applications without complete addresses, without mentioning cheque nos., failed to reject incomplete applications, etc.

7. Shri S K Chadha had not made any written reply to the said SCN dated July 2, 2004.

8. On October 4, 2004 & October 28, 2004 respectively, SEBI issued hearing notices to Shri S K Chadha, managing director of M/s KMF Ltd whereby he was granted an opportunity of personal hearing on October 19, 2004 & December 9, 2004 respectively. However, these hearings were adjourned.

9. Subsequently, on May 25, 2007 SEBI issued hearing notice to Shri S K Chadha, managing director of M/s KMF Ltd whereby he was granted an opportunity of personal hearing on June 22, 2007. The said notice was also posted on the SEBI website in accordance with SEBI (Manner of Service of Notice and Summons Issued by the Board) (Amendment) Regulations, 2007.

10. Shri S K Chadha did not appear for personal hearing before the WTM, SEBI on the said date. Shri S K Chadha had also not made any written submission before WTM, SEBI.

11. In view of the above, the Order is now being passed based on the material available on record. Accordingly, I have considered the following in passing this order:

(i) Findings of the Investigation Report in respect of noticee as contained in Show Cause Notice dated July 2, 2004; (ii) Show Cause Notice dated July 2, 2004.

12.1 I find that ARL had come out with a public issue in February 1995. I also find that M/s KMF Ltd had acted as both pre-issue and post-issue lead manager in the said public issue.

12.2 From the list of applicants and allottees in the said public issue of ARL received from M/s R & D Consultants Ltd, who were the Registrar to Issue, I find that 63 applications for 184900 shares were accepted by State Bank of Indore, Raipur Branch on the strength of one single cheque amounting to Rs. 18.94 Lakhs. Details of these applications are as under:

Applicant No. of Application Application Shares Amount No. Sangeeeta Gupta 5000 50000 4292133 Viresh Kumar Gupta 5000 50000 4987799 M K Gupta 5000 50000 4602816 Sanjeev Agrawal 5000 50000 4602815

Ragwendra Shrivastava 5000 50000 4987800 Abdul Khaligue Khan 5000 50000 4602842 Sangeeta Nathani 1000 10000 4987930 Girdhari Lal Patel 1500 15000 4602293 Rajesh Kaushik 500 5000 4602274 Mohan Prasad Pandey 1500 15000 4602294 Sangeeta Agrawal 1900 19000 4695095 Sarika Agrawal 1200 12000 4695094 Sunil Kumar Agrawal 500 5000 4987975 Attar Chand Jain 1000 10000 4695077 Balkrishna Agrawal 500 5000 4422387 Mukesh Agrawal 1000 10000 4422781 Narayan Prasad Tekrin 1000 10000 4701251 Ajay Puranik 1000 10000 4422347 Arvind Pande 1000 10000 4422397 Anand Prakash Garg 1000 10000 4695033 Kailash Agrawal 1000 10000 4701252 Pramod Kumar Chopra 2000 20000 4701249 Raj Kumar Rajpal 500 5000 4602524 Hariram Pritwani 500 5000 4602501 Arun Tamrakar 500 5000 4292112 D K Pandey 500 5000 4984041 Alok Naidu 1900 19000 4572044 Deepak Kalra 500 5000 4422371 Prem Lata Baid 1000 10000 4984493 Ummed Kumar Baid 2000 20000 4984495 Vijay Kumar Karve 1000 10000 4572049 Pramod Bhatt 500 5000 4186534 Seema Chhabra 2500 25000 4571602 Ajay Chhabra 2000 20000 4571601 Yashwant Agrawal 1900 19000 4695093 Ramesh Jain 9000 90000 4571603 Meena Jain 500 5000 4422379 Brijendra Kumar Gupta 2000 20000 4695099 Vineet Agrawal 2500 25000 4422809 Sharad Mahule 500 5000 4422378 Mr. Paritosh Chowbey 2000 20000 4602276 Ajay Saxena 2000 20000 4186530

Mrs. Sushma Bhatt 500 5000 4984548 Sanjiv Bhardwaj 2500 25000 4422350 Sushil Bhardwaj 2500 25000 4422349 S K Bhardwaj 2500 25000 4422348 Meena Bhardwaj 2500 25000 4422358 Ranju Bhardwaj 2500 25000 4422356 Ranu Bhardwaj 2500 25000 4422355 Happy Bhardwaj 2500 25000 4422354 Sandhya Bhardwaj 2500 25000 4422353 Swapna Bhardwaj 2500 25000 4422351 Sandipka Rani 2500 25000 4422352 Savitri Agrawal 9000 90000 4602282 Mamta Agrawal 9000 90000 4602281 Bhagwat Agrawal 9000 90000 4602280 Mahendra Agrawal 9000 90000 4602279 Pramod Joshi 10000 100000 4695096 Santosh Kumar Tiwari 5000 50000 4292131 Vijay Kumar Agrawal 5000 50000 4292139 Manak Lal Joshi 2500 25000 4292140 Smt. Asha Tiwari 5000 50000 4292135 Balkrishna Bora 5000 50000 4290604 Ram Kali Bai Agrawal 10000 100000 4393008 Sunita Devi Agrawal 10000 100000 4393006 Jyotsana Agrawal 5000 50000 4393003 Anamd Kr Agrawal 5000 50000 4393005 Ramesh Kr. Agrawal 5000 50000 4393004 Godavari Bai Agrawal 10000 100000 4393010 Jamuna Lal Agrawal 1500 15000 4292122 Prem Singh 10000 100000 4571610 P. Ramesh Rao 10000 100000 44571608

12.3 I find that all these applications were accompanied by only one cheque numbered 948056. Findings of investigations as contained in the SCN revealed that this cheque was issued from the cheque book which itself was issued by the State Bank of Indore to one of its clients M/s. Sunil Traders on March 22, 1995. The public issue closed for subscription on February 23, 1995. This clearly proves that the shares had been applied for much after the closure of the issue, as the cheque book itself was issued much after the public issue was closed. The shares that were allotted to these entities were wrongfully done at the cost of allotment to the genuine share applicants.

12.4 I also find from the findings of investigations as contained in the SCN that in most of the application forms, the acknowledgement slip was still intact and their were no Banker’s Stamp on these applications. Details of some of these forms are given below:

Applicant No. of Application Stock shares No. Invest Serial No. Mamta Agarwal 9000 70287 4602281 Bhagwant Agarwal 9000 70288 4602280 Pramod Joshi 10000 70290 4695096 Santosh Kumar Tiwari 5000 70291 4292131 Vijay Kumar Agarwal 5000 70292 4292139 Manak Lal Joshi 2500 70293 4292140 Asha Tiwari 5000 70294 4292135 Balkishan Bora 5000 70295 429060 Ramkali Bai Agrawal 10000 70296 4393008 Sunita Devi Agrawal 10000 70297 4393006 Jyotshna Agrawal 5000 70298 4393003 Anand Kumar Agrawal 5000 70299 4393005 Ramesh Kumar Agrawal 5000 70300 4393004 Gyarsi Lal Agrawal 5000 70301 4393002 Godavari Bai Agrawal 10000 70302 4393010 Jamunalal Singhania 1500 70303 4292122 Prem Singh 10000 70304 4571610 Jayanti Mishra 12000 70212 4290626 Ganesh Ram Gajnd 12000 70214 4290628

Amitesh Shukla 12000 70215 4290614 Ajay Kumar Chatre 12000 70216 4290613 Ashvini Kumar Thakur 12000 70217 4290612 Gopi Ram Sharma 12000 70218 4290611 Topeshwar Prasad Soni 12000 70219 4290610 Shekh Gaffar 12000 70220 4290609 Gyas Singh 12000 70221 4290608 Amar Math Sahu 12000 70222 4290607 Aslam Khan 12000 70223 4290606 Dev Narayan Patel 13500 70224 4290605 Lata Talmale 5000 70229 4602839 Raman Talmale 5000 70230 4292132 Kamaljeet Singh Juneja 5000 70231 4290603 Sangeeta Gupta 5000 70232 4292133 V K Gupta 5000 70233 4987799 M K Gupta 5000 70234 4602816 Sanjeev Agarwal 5000 70235 4602815 Sangeeta Nathani 1000 70238 4987930

12.5 I find from the findings of investigations as contained in the SCN that in most of the application forms, only ‘Raipur’ was mentioned as the address of the applicants. Therefore, the above clearly suggests that these applications were not routed through normal banking channels and the applications appeared to have been either deposited directly with the promoters and/or the Registrar to the issue.

12.6 From the above findings of investigations as contained in the SCN, I find that many applications with their acknowledgement slips intact were noticed. No allotment should have been made against these applications as it was duty bound on the part of M/s KMF Ltd to have rejected these applications at the time of allotment, instead it appeared that M/s KMF Ltd colluded with the Registrar to issue in processing these applications for allotment. I further find that Shri N B Shah, Director of R&D Consultants Ltd, had in his statement to SEBI on March 12, 2001 as referred to in the SCN, admitted that a mistake was made and that these applications should have been rejected and that applications with incomplete addresses, no mention of cheque nos. etc, have been considered for allotment. I find that the post issue lead manager is duty bound to reject applications with such inconsistencies.

13. In view of the above findings, I in exercise of powers conferred upon me under Section 11B of the SEBI Act, 1992 hereby direct as follows:

a. Shri S K Chadha, Managing Director of M/s KMF Ltd, shall not operate in the capital market as an intermediary or as a whole-time director or partner in an intermediary for a period of six months from the date of passing of this order.

b. The above order is without prejudice to any other proposed actions which the Board may consider initiating as may be deemed appropriate including initiation of prosecution proceedings under Section 24 of the SEBI Act.

PLACE: MUMBAI T C NAIR DATE: 12.01.2009 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA