Order agasint Mr. Urvish Vora in the matter of Genus Commutrade Limited

WTM/KMA/IVD/52/03/2009 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: DR. K. M. ABRAHAM, WHOLE TIME MEMBER ORDER DIRECTIONS UNDER SECTIONS 11, 11B AND 11(4) 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 SECURITIES MARKET) REGULATIONS, 2003 AGAINST MR. URVISH RAMESH VORA IN THE MATTER OF GENUS COMMUTRADE LIMITED Date of Hearing: March 24, 2009 Appearance: For Mr. Urvish Ramesh Vora: Dr. Ashok Soni, Advocate For the Securities and Exchange Board of India: Mrs. Barnali Mukherjee, General Manager Mr. Vijayakrishnan G, Deputy Legal Adviser Mr. Naveen Sharma, Assistant General Manager Mr. T. Vinay Rajneesh, Legal Officer

1. It was noticed by the Securities and Exchange Board of India (hereinafter referred to as SEBI) that Genus Commutrade Limited (hereinafter referred to as the company) had issued advertisements in leading newspapers during July 2002, giving notice to the investors that the Board of Directors of the company would be meeting on July 18, 2002 to consider the possibilities of a buy back up to 18% of the equity of the company at a price of Rs.11/- per shares and allotment up to 36% of equity shares to Foreign Financial Institutions. It was observed that after the issuance of the advertisements, there was a marked increase in the trading in the shares of the company at the Bombay Stock Exchange Limited (hereinafter referred to as BSE). The shares of the company were also listed at the Ahmedabad Stock Exchange Limited (hereinafter referred to as ASE). It was prima facie observed that such advertisements had been issued in the absence of any legal compulsion on the part of the company. It was felt that such advertisements were published by the company/its directors prima facie to induce investors to trade in the shares of the company.

In order to ascertain the veracity of such advertisements and to find out the possible violations, if any, of the provisions of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as SEBI Act) and the Rules and Regulations framed thereunder by the company/any person dealing in the shares of the company, SEBI conducted an investigation into the buying, selling and dealing in the shares of the company for the period between May 01, 2002 and September 30, 2002. 2. Investigations conducted by SEBI revealed that the company issued advertisements in prominent business newspapers between July 08, 2002 and July 10, 2002 about the proposed board meeting to be held on July 18, 2002, inter alia, to consider the buy back of equity shares up to 18,23,310 shares (18% of equity) at a price of Rs 11/- per share and to allot upto 36% of equity shares, as stated above in this order. It was noted that no shares were allotted to the entities as advertised by the company. It was further observed that Mr. Hitesh R. Bhatt, Mr. Pritesh B. Shah, Mr. Kalpesh R. Sheth and Ms. Rinku J Shah were the directors of the company during the relevant period.

It was observed that the advertisements were published in the absence of any enabling provisions for buy back in the Articles of Association of the company. It was found that there was an increase in the trading volume in the shares of the company prior to the issuance of advertisements as well as subsequent to the issuance of the advertisements. Pursuant to the advertisement, the volume increased but the prices fell. Investigations further revealed that entities/individuals related to the company including Mr. Rajesh Kumar Vittalbhai Patel, Ms. Kirti R Patel etc. had transferred shares of the company off market to various persons including Mr. Urvish Ramesh Vora. It was also noticed that some of the transferees had offloaded substantial number of shares in the market pursuant to the advertisements, thereby making unfair gain. In view of the above, inter alia the company and its directors Mr. Hitesh R. Bhatt, Mr. Kalpesh R. Sheth, Mr. Pritesh Shah and Rinku J Shah were alleged to have contravened the provisions of clauses (a) & (b) of Regulation 5 (1) and Regulation 6 (a) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 (hereinafter referred to as PFUTP Regulations).

One of the directors, Mr. Pritesh B Shah along with other persons including Mr. Urvish Ramesh Vora (sold through the stock broker, Parklight Investment Private Limited) were found to have off-loaded the shares in the market on behalf of entities/individuals related to the company including Mr. Rajesh Kumar Vittalbhai Patel, Ms. Kirtiben Patel (wife of Mr. Rajesh Kumar Vittalbhai Patel), Mr. Paresh Patel (son of Mr. Rajesh Kumar Vittalbhai Patel) and Ms Hema Patel (daughter in law of Mr. Rajesh Kumar Vittalbhai Patel) and the same were prima facie in violation of the provisions of Regulations 3, 4 (a), (b), (c) and (d) and 6(a) of the PFUTP Regulations. 3. Accordingly, show cause notices dated October 14, 2005 were issued to various entities requiring them to show cause as to why suitable directions including directions of debarring them from dealing in securities for a specific period should not be passed against them under Sections 11, 11(4) and 11B of the SEBI Act for their alleged violations. SEBI also issued another supplementary show cause notice dated October 18, 2005 to Mr. Rajesh Kumar Vittalbhai Patel for transferring shares in violation of the SEBI order dated February 19, 2002, issued in the matter of Adeshwar Cotton Limited, by which SEBI directed him not to deal in securities in any particular manner for a period of one year with effect from March 01, 2002. 4. Subsequently, SEBI, vide order dated February 19, 2008, held that inter alia the company and other various entities/persons were guilty of violating the provisions of clauses (a) & (b) of Regulation 5 (1) and Regulation 6 (a) of the PFUTP Regulations.

In view of the violations committed by the said entities, SEBI restrained inter alia the company and other various entities/persons including Mr. Urvish Ramesh Vora from accessing the securities market for a period of two years. They were also prohibited from buying, selling or otherwise dealing or associating with the securities market in any manner whatsoever for a period of two years. Being aggrieved by the aforesaid order, Mr. Urvish Ramesh Vora filed an appeal before Hon’ble Securities Appellate Tribunal (SAT) in Appeal No. 48 of 2008. The Hon’ble SAT, while disposing the said appeal vide its order dated September 17, 2008, remanded the case back to the Board for a fresh enquiry. The Hon’ble SAT further observed that it would be open to the Board to proceed on the show cause notice already issued to Mr. Urvish Ramesh Vora or may issue a fresh show cause notice and proceed in accordance with law with an advice that the enquiry be completed before the end of March 2009. The Hon’ble SAT also granted liberty to SEBI to call upon Mr. Urvish Ramesh Vora to furnish further information/documents.

In the meanwhile, when the appeal was pending before the Hon’ble SAT, Mr. Urvish Ramesh Vora (hereinafter referred to as the noticee) applied for a consent order in terms of SEBI circular dated April 20, 2007. The said application was considered by SEBI in terms of the above circular and the High Powered Advisory Committee (HPAC) constituted by SEBI rejected the said application as the terms of consent, as proposed by the noticee were not acceptable. 5. Subsequently, SEBI advised the noticee to appear personally on November 17, 2008 with all supporting documents pertaining to the case. In response to the said notice, the noticee appeared before SEBI on the said date and stated that he had sold 10 lakh shares of the company after the shares were transferred to his account by Mr. Rajesh Kumar Vittalbhai Patel and his family members. It may be recalled that Mr. Rajesh Kumar Vittalbhai Patel was prohibited from accessing the securities market for a period of one year by an order of SEBI dated February 19, 2002 in the matter of Adeshwar Cotton Limited. As per the said order, Mr. Rajesh Kumar Vittalbhai Patel was not supposed to deal in securities in any manner for a period of one year with effect from March 01, 2002. Admittedly, the noticee received shares from Mr. Rajesh Kumar Vittalbhai and his family members on June 17, 2002, when such prohibitory order was in force.

6. As to the reason for receiving shares off-market from Mr. Rajesh Kumar Vittalbhai Patel and his family members, the noticee had stated that Mr. Rajesh Kumar Vittalbhai Patel owed him some money and in order to discharge the liability, the said shares were transferred to his demat account. The noticee also undertook to provide the supporting documents of the loan taken by Mr. Rajesh Kumar Vittalbhai Patel by November 27, 2008. The noticee was also required to submit the details as to how the sale proceeds were utilized along with his bank statements. As the noticee failed to submit the documents as undertaken by him, SEBI, vide letter dated December 2, 2008 extended the time upto December 10, 2008 for the production of said documents. Thereafter, the noticee vide letter dated December 10, 2008 informed that the relevant papers were misplaced due to the shifting of residence. However, the noticee submitted his demat account statement vide his letter stated above. As he failed to submit any supporting documents to justify the reasons given by him with respect to the receiving and selling of the shares of the company on behalf of a debarred person (Mr.

Rajesh Kumar Vittalbhai Patel), SEBI sought details from HDFC and Janakalyan Sahakari Bank Ltd where the noticee maintained bank accounts. On a perusal of the account statement maintained with Janakalyan

Bank, it is prima facie observed that the sale consideration of 10 lakh shares of the company was not received in his account maintained with the said bank. Thus, it was prima facie observed that the noticee had traded on behalf of the Mr. Rajesh Kumar Vittalbhai Patel and his family members as stated above in this order. Thus, the noticee had aided and abetted the company and its related persons/entities in the manipulation in the shares of the company thereby contravening prima facie, the provisions of Regulations 3, 4 (b) and 6(a) of PFUTP Regulations. 7. Thereafter, a notice dated February 04, 2009 was issued to the noticee calling upon him to show cause as to why directions under Sections 11B and 11(4) of the Act should not be passed against him, for the alleged violations as stated therein. The noticee was advised to make his submissions to the show cause notice within 21 days from the date of its receipt. In reply, Mr. Anindo Banerjee, as authorized by the noticee, vide letter dated February 25, 2009, requested SEBI to extend the time to file the reply till March 10, 2009. Subsequently, Dr. Ashok Soni, Advocate, replied to the notice, vide letter dated March 09, 2009 on behalf of the noticee.

It is inter alia submitted that the noticee proposed to file an affidavit in respect of his financial obligation to Mr. Rajesh Kumar Vittalbhai Patel. In the reply, the noticee denied all the charges levelled against him. He further stated that he had sold 8 lakh shares before the advertisements. He added that he had no knowledge that Mr. Rajesh Kumar Vittalbhai Patel was a banned entity while receiving the shares of the company. He further stated that he was not involved in any manipulation. Thereafter, an opportunity of personal hearing was granted to the noticee on March 24, 2009, when Dr. Ashok Soni, Advocate appeared on behalf of the noticee and reiterated the submissions made in the letter dated March 09, 2009. 8. I have examined the show cause notice, the oral as well as the written submissions made on behalf of the noticee and other material available on record. The issue to be decided is whether the noticee had contravened the relevant provisions of the PFUTP Regulations while dealing in the shares of the company, as alleged in the show cause notice dated February 4, 2009. 9. From the documents on record, I find that the company had in fact issued advertisements on July 8, 2002 in ‘Gujarat Samachar’, ‘Mumbai Samachar’ and ‘Sandesh’, on July 9, 2002 in ‘Business Standard’, ‘Financial Express’ and ‘Economic Times’ and on July 10, 2002 in ‘The Hindu Business Line’ regarding the board meeting to be convened on July 18, 2002 to consider the possibilities of a buy back and allotment of shares to the Foreign Financial Institutions.

10. As stated earlier, SEBI, vide order dated February 19, 2008 inter alia held the company liable for publishing such misleading advertisements. It was found that the motive for such advertisements was to offload the promoter stake in the company in an inflated market which would be created post issuance of such misleading advertisements. Accordingly, the company and its directors were found guilty of having violated the provisions of Regulations 5(1)(a) and (b) and Regulation 6 (a) of the PFUTP Regulations. I note that, vide order dated March 14, 2008 in Appeal No. 42 of 2008, the Hon’ble SAT has set aside the aforesaid order of SEBI in so far as Mr. Kalpesh Sheth is concerned for want of service of the show cause notice on him and the said matter was remanded back to SEBI for fresh consideration. It is thus conclusively established that the company had indulged in disseminating information in the form of advertisements which were misleading and which had the potential to induce purchase of the shares of the company by genuine investors. 11. The investigation conducted by SEBI found that the noticee had sold 10 lakh shares of the company during June 17,2002- July 13, 2002 after receiving the said shares in off-market from Mr. Rajesh Kumar Vittalbhai Patel (2,20,000 shares),Ms.Kirtiben Patel (3,00,000 shares), Mr. Paresh Patel (3,53000 shares)

and Ms. Hema Patel (127,000 shares). This fact is not disputed by the noticee. I note that Mr. Rajesh Kumar Vittalbhai Patel was acting as the promoter concern of the company during the relevant period. The receipt of 10 lakh shares of the company by the noticee from the family of Mr. Rajesh Kumar Vittalbhai Patel as stated above is not disputed. The said receipt of shares from the above four entities was further reflected in the demat account of the noticee maintained with the depository participant viz. H. Nyalchand Financial Services Limited (client code 10005485). The demat statement submitted by the noticee, vide letter dated December 10, 2008 indicate that a total of 10 lakh shares of the company were transferred from the account of the noticee to Parklight Investments Private Limited during June 17,2002-July 13, 2002. It further indicates that the noticee sold 10 lakh shares of the company through the aforesaid stock broker. Thus, the fact that the noticee had received 10 lakh shares of the company from the family of Mr. Rajesh Kumar Vittalbhai Patel and the same were subsequently sold by the noticee is established.

12. I note that Mr. Rajesh Kumar Vittalbhai Patel was a person debarred from associating with the securities market by an earlier order of SEBI. As per the said order, he was prohibited from dealing in securities in any manner, for a period of one year with effect from March 01, 2002. Thus, Mr. Rajesh Kumar Vittalbhai Patel was prohibited from dealing in securities during the time of transfer of shares of the company to the noticee. During recording of the statement of the noticee by SEBI on November 17, 2008, in respect of a query as to why he received shares from a debarred person, the noticee submitted that since Mr. Rajesh Kumar Vittalbhai Patel owed him some money, shares were transferred to his demat account, to discharge the liability. Though, the noticee stated that he would produce details in respect of such obligation by November 27,2008, he failed to do so. He was also asked to submit the details on the utilization on the proceeds on the sale of shares alongwith the bank statements. However, the notiee failed to submit the aforesaid documents as stated by him. I note that the noticee, vide letter dated December 10, 2008, submitted only his demat account statement evidencing the receipt of shares from Mr. Rajesh Kumar Vittalbhai Patel & others and subsequent selling of those shares.

In respect of other documents, the noticee informed that the papers are misplaced due to shifting of residence. This contention of the noticee is not acceptable. It may be noted that SEBI had issued the show cause notice (prior to the order dated February 19, 2008) in the year 2005. In the absence of any supporting document to show that Mr. Rajesh Kumar Vittalbhai Patel owed some money to the noticee, I am unable to accept the contention of the noticee, in this regard. 13. In the facts and circumstances, in order to further examine the specific role of the noticee in the case, as observed by the Hon’ble SAT, SEBI, vide separate letters dated December 15, 2008 sought the bank statements of the noticee maintained with Janakalyan Sahakari Bank Limited, Ghatkopar (East) Branch, Mumbai (a/c no. 437) and HDFC Bank, Ghatkopar (East) Branch, Mumbai (a/c nos. 00601850002110 and 01181000059902). However, HDFC Bank, vide letter dated December 26, 2008 informed SEBI that the account no. 00601850002110 was opened by the noticee on November 28, 2006. Subsequently, HDFC Bank, vide another letter dated December 29, 2008 also informed SEBI that the account no. 01181000059902 was opened by the noticee on December 22, 2005. As the aforesaid accounts were opened much after the impugned transactions, the same are irrelevant to the case.

In the absence of specific information about the banks where the noticee had maintained his accounts during the investigation period (2002), SEBI was left to examine the bank account of the noticee maintained with the Janakalyan Sahakari Bank Limited, Ghatkopar (East) Branch, Mumbai. The bank statement obtained by the SEBI from the aforesaid bank revealed that there were credit entries from the stock broker, M/s. Parklight Investment Private Limited on July 30,2002 to the tune of Rs.148707.46/- and on August 01,2002 to the tune of Rs.4277.78/-. The total credit from the said stock broker was Rs.1.52 lakhs, which is not in consonance with sale of 10 lakh shares when the market price was in the range of Rs.1.30/- to Rs.4.95/- during the period when shares were sold by the noticee through the said stock broker. Even assuming for argument sake that the noticee sold 10 lakh shares of the company through Parklight Investment Private Limited @ Rs. 1/- per share his account would have been credited with Rs. 10 lakh. Instead only an amount of Rs. 1.52 lakh was credited into the account of the noticee maintained with Janakalyan Sahakari Bank Limited, Ghatkopar (East) Branch by the stock broker.

In the absence of the noticee producing any supporting document to the effect that the sale consideration was credited in his other accounts, if any, the only inference would be that the said sale of 10 lakh shares of the company was ostensibly for Mr. Rajesh Kumar Vittalbhai Patel and others. This would also indicate that the noticee acted as a conduit for Mr. Rajesh Kumar Vittalbhai Patel. 14. I note that in his reply dated March 09, 2009, the noticee contended that at the time of receiving the shares of the company from Mr. Rajesh Kumar Vittalbhai Patel, the noticee was not aware that Mr. Rajesh Kumar Vittalbhai Patel was a debarred entity. This contention of the noticee is difficult to accept. I note from the statement of the noticee to SEBI (dated November 17, 2008) that he knew Mr. Rajesh Kumar Vittalbhai Patel. He also contended that he had financial dealings with Mr. Rajesh Kumar Vittalbhai Patel and accordingly, he had received shares from Mr. Rajesh Kumar Vittalbhai Patel and his family members. In these circumstances, one cannot accept the plea of the noticee that he was not aware of the order passed by SEBI against Mr. Rajesh Kumar Vittalbhai Patel prohibiting him from dealing in securities.

15. I note that the noticee further submitted that, out of 10 lakh shares of the company received (as stated above), he had sold 8 lakh shares prior to the advertisements made by the company and that no illegal gains were made by him. This contention is not correct, as I note from the demat account of the noticee that he had sold substantial number of shares of the company during the advertisement period (July 8 to July 10,2002) and thereafter. The pertinent issue is that the noticee had traded on behalf of prohibited person in the shares of a company wherein such prohibited person was acting as a promoter concern. This is more serious. The noticee also traded on behalf of his family members. The trades of the noticee in the shares of the company created artificial appearance of trading in securities market. He submitted himself to be party for manipulating the shares of the company. The noticee acted as a front entity of Mr. Rajesh Kumar Vittalbhai Patel and helped in offloading a substantial stake in the market. I also note that at the time of recording statement on November 17, 2008, the noticee admitted of giving wrong statement and inter alia stated that he knew Mr. Rajesh Kumar Vittalbhai Patel.

16. The noticee traded on behalf of Mr. Rajesh Kumar Vittalbhai Patel (a debarred entity). He also failed to submit the details/documents to substantiate his claim that Mr. Rajesh Kumar Vittalbhai Patel owed money to him and in order to realize the same, he had sold the shares. Further, the bank statement does not reflect receipt of the proceeds from sale of the above shares from the stock broker M/s. Parklight Investment Private Limited. 17. Further, I note that Hon’ble SAT, vide order dated December 17, 2008 in a similar matter in Gaurav Shah Vs Whole Time Member, SEBI inter alia observed “When the promoters of a company through their own front entities start manipulating their own scrip, the charge is more serious and those who act in concert with them are equally responsible” 18. It is therefore concluded that Mr. Urvish Ramesh Vora has, by trading on behalf of the promoter concern of the company namely Rajesh Kumar Vittalbhai Patel, Ms. Kirti Patel, Ms Hema Patel and Mr. Paresh Patel, aided and abetted the company and the company related entities in manipulation and thus, violated Regulation 3, 4(b) and 6(a) of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995. He had also traded on behalf of a debarred person.

19. Therefore, taking into consideration the overall facts and circumstances of the case, in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 and Section 11B of 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 Securities Market) Regulations, 2003, I hereby restrain Mr. Urvish Ramesh Vora (PAN - ADAPV6219R) from accessing the securities market for a period of two years. He is further prohibited from buying, selling or otherwise dealing or associating with the securities market in any manner whatsoever for a period of two years.

20. This order shall come into force with immediate effect.

K. M. ABRAHAM WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA Place: Mumbai Date: March 31, 2009