Order against Vivenasri Financial Services Pvt. ltd. in the matter of Vision Technology India Ltd

WTM/PS/47/IVD/ID-3/OCT/2010 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER IN THE MATTER OF VISION TECHNOLOGY INDIA LTD. In respect of Vivenasri Financial Services Pvt. Ltd. ORDER Under Section 11(4)(b) and 11B of the Securities and Exchange Board of India Act, 1992 read with Regulation 11 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to the Securities Market), 2003

1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) conducted investigation into buying, selling and dealings in the shares of Vision Technology India Ltd. (hereinafter referred to as ‘VTIL’), for the period of October 12, 1999 to March 07, 2000, inter alia to ascertain whether there was any violation of the provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 (hereinafter referred to as ‘PFUTP Regulations’). During the period of investigation the scrip of VTIL was listed at Bombay Stock Exchange (hereinafter referred to as ‘BSE’), Madras Stock Exchange, Ahmedabad Stock Exchange, Jaipur Stock Exchange, and Bangalore Stock Exchange.

2. The trading details of the persons who had traded in the scrip were collected and analysed along with the data of volume contributed during the relevant period. During the investigation period, the price of the scrip at BSE increased from `4 as on October 12, 1999 to `650 as on March 07, 2000. It was found that before the period of investigation, there was no major price movement in the scrip.

3. Investigation inter alia revealed that Vivenasri Financial Service Ltd. (hereinafter referred to as ‘noticee’) while dealing through various brokers had acted in concert with Harsha Pranav Securities Ltd. (hereinafter referred to as ‘Harsha’) and emerged as a pre-dominant trader in the scrip.

4. On completion of the investigation, SEBI inter-alia issued Show Cause Notice dated September 18, 2003 (hereinafter referred to as ‘SCN’) to the noticee under Sections 11(4)(b) and 11B of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act’) read with Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003. The SCN alleged that noticee while trading through various brokers had acted in concert with Harsha and created artificial volumes in the scrip. The SCN, therefore alleged that the acts of noticee were in violation of the provisions of Regulations 4(a), (b) and (d) of PFUTP Regulations. Accordingly, it called upon the noticee to show cause as to why directions under Sections 11(4)(b) and 11B of SEBI Act including directions debarring/ prohibiting it from buying and selling in the securities for a specific period should not be issued.

5. Noticee vide its letter dated November 04, 2003, requested for extension of time for filing the reply to SCN. Noticee vide its letter dated January 24, 2003 sought inspection of documents. Accordingly, on December 19, 2003, Mr. Rajeev Kumar, authorized representative of noticee conducted inspection of documents. Before proceeding further an opportunity of personal hearing was granted to the noticee on January 21, 2004. On the date fixed Mr. Rajesh Kumar appeared for the noticee and made submissions. He also filed the written submissions dated January 28, 2004 on behalf of the noticee.

6. Due to change in appropriate authority another opportunity of personal hearing was granted to the noticee before me on March 19, 2010, in compliance of principles of natural justice. However, the hearing notice returned undelivered. Considering the circumstances, another opportunity of personal hearing was granted to the noticee on April 30, 2010. This time again the hearing notice issued to noticee returned undelivered and the matter was adjourned to June 14, 2010.

7. On this date also, the hearing notice issued to noticee returned undelivered. I note that SEBI has issued a press notification as a mode of substituted service on the noticee, with an advice that in absence of any reply, the matter would be proceeded ex-parte. I note that the stipulated period mentioned in the publication has expired. In view of this, I am compelled to proceed with the matter ex-parte, on the basis of material available on record, having complied with the principles of natural justice.

8. I have carefully considered the SCN, written submissions of the noticee dated January 21, 2004 and the material available on record. The contentions of the noticee in brief are: - Trading in the scrip was done based on the industry trades, technology and media boom. - Data in the scrip have not been provided. - Transfer of funds shown in the SCN were not frequent. - No intention of creating artificial volume of shares from the market. - Had not acted in concert with Harsha. - Acquired the membership of Hyderabad Stock Exchange.

9. At the outset, I note the contention raised by the noticee that it has not been supplied with the data and various documents. It is seen that all the relied upon documents have been provided to the noticee. However, I note that no document, which has not been provided to the noticee, is being relied upon in the present proceedings. Further, noticee vide its reply has sought cross examination of various persons. To this, I note that the findings in the investigation are supported by independent documents and not merely by the statement of persons. Hence, the request of noticee for cross-examination finds no merits for consideration. Having considered this, the issue arises for my consideration is: Whether noticee created artificial volume and increased the prices of the scrip of VTIL?

10. Whether noticee created artificial volume and increased the prices of the scrip of VTIL?

a. I note that noticee and Harsha were the main clients who had traded in the scrip of VTIL during the relevant period. It is seen that the noticee was trading in the scrip through seven brokers. I have seen the tables as brought out in the SCN. From the same, I note that Table 3 of SCN covers a period of October 11, 1999 to May 19, 2000 which is slightly more than the investigation period. Further, it is seen that Table 1 of SCN shows the details submitted by noticee.

From these tables, I note that the names of the brokers are different. It is seen that the SCN nowhere explains this mismatch. Taking note of this, I find that the data relating to trading details of noticee provided in the SCN is not complete and cannot be relied upon.

b. As regards the relationship between noticee and Harsha, I note that the director of noticee Mr. P.V. Murlikrishna, was the common director of Harsha at the relevant point of time. I observe from the bank account statement of noticee that the noticee and Harsha were having frequent fund transfer between them, instances of which have been shown in the SCN. Further, the acknowledgements of letters/ summons sent to noticee and Harsha were being received by the same person and the telephone numbers given in the acknowledgement were same. These facts point to the close relationship between noticee and Harsha.

The investigation has also revealed fund transfer between noticee and VTIL which hints links between noticee and management of VTIL. It is seen that noticee has not given any proper explanation for such fund transfers.

c. I have seen the instances from the order log as provided to the noticee and note that huge orders were entered in the system by noticee. However, on few occasions these were deleted subsequently. As regards the charges leveled against the noticee, that it alongwith Harsha had contributed about 20% of the total volume traded in the scrip at BSE. As per the details available on record, the total volume contributed by the noticee can be seen, however, the details falls short to show as to how this constituted 20% of the total market volume.

d. In light of this, I note that the trades of noticee have to be seen in the background of the charges leveled against it i.e. of creating artificial volume and increase in prices of the scrip of VTIL. Though, the volume contribution and trading pattern as seen from table above may be substantial, however, I find no details to show that how such pattern contributed to price rise in the scrip. There is no allegation that the noticee had indulged in synchronized/ reversal/ circular trades.

e. Further, the SCN while giving the details of the trades of noticee for respective settlement has failed to show as to how the said trades had resulted in volume creation. The volume generated by noticee for these settlements has been mentioned in SCN. However, the contribution of noticee for these settlements finds no mention in the SCN. The said details are vital when dealing with the charge of artificial volume creation.

11. Taking note of this, I find that the details given in SCN are insufficient to establish the charges leveled against the noticee. Considering the submissions of noticee and facts and circumstances of the case, I am of the considered view that the noticee is entitled for a benefit of doubt in respect of alleged violations of Regulation 4(a), (b) and (d) of PFUTP Regulations.

12. In the facts and circumstances of the matter, I, in exercise of the powers conferred upon me in terms of Section 19 of the Securities and Exchange Board of India Act, 1992, hereby dispose of the show cause notice issued to Vivenasri Financial Service Ltd. without imposing any penalty or direction.

DATE : 25/OCT/2010 PRASHANT SARAN PLACE : MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA