Order in repect of Arun Kumar Dalmia, M/s Satya Securities Ltd and Basant Marketing Ltd in the matter of Granules India Ltd

For SEBI: Mr. G. Ramar, Deputy General Manager Mr. A. Vijayan, Manager Mr. Pradeep Kumar, Legal Officer ORDER Under Section 11(4) and 11B of the Securities and Exchange Board of India Act, 1992. 1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) conducted investigation into buying, selling and dealing into the scrip of Granules India Ltd. (hereinafter referred to as ‘GIL’) for the period of December 19, 2002 to January 23, 2003, 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 time of investigation the scrip of GIL were listed on the Bombay Stock Exchange (hereinafter referred to as ‘BSE’), Hyderabad Stock Exchange and Madras Stock Exchange.

2. The trading details and the statements of the persons who had traded in the scrip were collected and analyzed along with the data of the volumes contributed during the relevant period. During the period, the price of the scrip had increased from Rs.17.95 as on December 19, 2002, touched a high of Rs.52.90 (intra day high) as on January 17, 2003, and finally closed at Rs.39.70 as on January 17, 2003. The volume of the scrip had also increased from 450 shares as on December 20, 2002 to a high of 5,76,840 shares as on January 03, 2003. During the investigation period, the scrip was traded on 25 days and out of these on 15 days the total traded quantity of shares was more than 1 lakh shares.

3. Investigation inter alia revealed that GIL had allotted 14,02,524 shares on May 24, 2002 and 10,51,894 shares on June 14, 2002 aggregating to 24,54,418 shares at the rate of Rs.14.26 on preferential basis to Mr. C. Krishna Prasad (hereinafter referred to as ‘Prasad’), the promoter and Managing Director of GIL. The scrip of GIL was listed at BSE on December 19, 2002. In the initial days of its listing there was hardly any interest in the scrip. The investigations revealed that Prasad wanted to sell his holding in GIL. Therefore, he approached Mr. C.P. Khandelwal of Southern Shares & Stocks Ltd. (hereinafter referred to as ‘Khandelwal’), member, BSE for off-loading the shares. Khandelwal assured fair price to him and approached Mr. Arun Kumar Dalmia (hereinafter referred to as ‘Dalmia’), who agreed to arrange buyers for the shares, when the same are off loaded by Prasad.

4. On completion of the investigations, SEBI issued Show Cause Notice (hereinafter referred to as ‘SCN’) dated March 29, 2007, to Dalmia, Satya Securities Ltd. (hereinafter referred to as ‘Satya’) and Basant Marketing Pvt. Ltd (hereinafter referred to as ‘Basant’) (hereinafter all collectively referred to as ‘noticees’) under Section 11B and 11(4) of Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act’). The SCN alleged that Dalmia had arranged buyers in the scrip like Basant and Satya. Basant and Satya were found trading substantially in the scrip in order to create false and misleading appearance of trading on the securities market. It was alleged that the transactions entered by them were without the intention of transferring the beneficial ownership and caused fluctuation in the prices of the scrip. By doing this the noticees had aided and abetted in creation of artificial market in the scrip of GIL. The SCN, therefore, alleged that the acts of the noticees were in violation of Regulation 4 (a), (b), (c) and (d) of PFUTP Regulations. Accordingly, it called upon the noticees to show cause as to why suitable directions under Section 11B and 11(4) of SEBI Act read with SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003, including restraining them from buying, selling or dealing in securities should not be issued against them.

5. No reply was received from the noticees to the SCN. However, in compliance of principle of natural justice an opportunity of personal hearing was granted to the noticees on June 13, 2007, before the then Whole Time Member, which was availed by them. Pursuant to the change in appropriate authority, another opportunity of personal hearing was granted to the noticees on December 04, 2009, before me. However, the noticees failed to appear for the same. In the interest of justice another opportunity of personal hearing was granted to the noticees on January 08, 2010. On the date fixed Mr. Arun Kumar Dalmia appeared for himself and on behalf of Satya and Basant and made submission. He also requested for a time of ten days to file the written submissions/ reply on behalf of noticees, which was granted to him. I note that Satya and Basant have filed the written submissions/ replies vide their letters dated January 18, 2010, and the same have been taken on record.

6. During the conclusion of proceedings, it came to light that a few details relevant to the case have not been provided to the noticees. In compliance of the principles of natural justice these details were forwarded to noticees vide supplementary SCN dated April 08, 2010. Noticees were given twenty one days time to reply to the supplementary SCN. No reply was received from the noticees. In compliance of principle of natural justice an opportunity of personal hearing was granted to the noticees on June 18, 2010. The noticees failed to turn up for the hearing. In the interest of justice another opportunity of personal hearing was granted to the noticees on July 12, 2010. However, noticees requested for adjournment for this day. The request of the noticees was acceded to and another opportunity of personal hearing was granted to noticees on August 02, 2010. On the date fixed noticees appeared through Mr. Arun Kumar Dalmia and made submissions.

7. I have carefully considered the SCN, reply of Satya and Basant dated January 18, 2010. I note that there is no dis-agreement as regards the transactions entered by the noticees in the scrip of GIL. However, the contentions raised by Satya and Basant, in brief are:

- Satya and Basant are doing business independently. All transactions in GIL were made in normal course of business. - Had no link/ nexus with GIL. Khandelwal of Southern Shares & Stocks intimated the noticees about the merits of the company, GIL. - The offices of Pacific Corporation and Arun Kumar Dalmia are not located in the same building. - Off market transfers were done in order to facilitate an early pay out when large quantities are sold. - They had dealings with ASK Holdings in the normal course of business and same cannot be construed that they were dealing in collusion. - Had dealt in other securities as well.

8. Taking note of this, the issues that arises for consideration are:

a. Whether Dalmia had acted as facilitator in procuring buyers to the shares off loaded by C. Krishna Prasad? b. Whether Satya and Basant indulged in activities which were calculated to create false and misleading appearance of trading in the scrip of GIL? My findings on these issues are as under:

9. Whether Dalmia had acted as facilitator in procuring buyers to the shares off loaded by C. Krishna Prasad?

a. Mr. Prasad of GIL, wanted to offload his holdings in GIL in the market and for this reason he approached to Khandelwal. As per investigations, Khandelwal in turn approached Dalmia for arranging buyers. Further, Dalmia assured Khandelwal that he would arrange the buyers as and when the scrip is sold in the market.

b. I note that two of the related firms of Dalmia namely Satya and Basant being handled by his sons namely Harsh Dalmia and Rishab Dalmia respectively at the relevant point of time had traded in the scrip of GIL. It is seen that Dalmia during the personal hearing before me had submitted that his sons were working individually on his advise. I have seen that during the entire proceedings, Dalmia only has represented Satya and Basant. Taking note of these details it can be said that the affairs of Satya and Basant were being closely managed by Dalmia.

c. I note that Dalmia in his statement dated August 16, 2004, had submitted that they invested in the scrip on the advice of Mr. Khandelwal and after attending the investor meet as well as upon seeing the reviews of GIL. I note that the noticees during the complete proceedings have maintained the stand that they did not know the Managing Director of GIL. I note that Dalmia has time and again denied of having created any artificial liquidity and interest in the scrip and argued that the intention of Basant and Satya was to invest in the scrip. If this argument of Dalmia is considered in light of the data available on record, it is seen that Satya bought 1 lakh shares at about Rs.38 and sold the same at about Rs.47. By doing this Satya had netted off its purchases in the scrip within a few weeks time.

d. As per investigations, Dalmia was known to the major clients in the scrip of GIL like Satya, Basant, Pacific Corporation Services Pvt. Ltd. (hereinafter referred to as ‘Pacific’), Phulchand and Sons Investments Pvt. Ltd. (hereinafter referred to as ‘Phulchand’), ADD Investments. It is seen that Phulchand and ADD Investments were having some dealing with the noticees. Further, Pacific and Dalmia were said to exchange advices on investment opportunities during the relevant period. These details, shows that Dalmia was known to the above said entities. But the charge of procuring buyers by Dalmia in the scrip of GIL can not be proved with the material available on record. As regards Satya and Basant, I note that Dalmia has accepted the relationship with these.

e. Taking note of this, the charge against Dalmia of acting as facilitator in procuring the buyers to the shares off-loaded by Prasad cannot be proved with the material in hand.

10. Whether Satya and Basant indulged in activities which were calculated to create false and misleading appearance of trading in the scrip of GIL?

a. As discussed earlier Satya and Basant were among the major clients in the scrip of GIL. Their trading details in the scrip during the relevant period were as under: Name Broker/ sub-broker Bought Sold Net Satya Securities SPS Share Brokers Pvt. Ltd. 1,00,000 1,00,000 0 ASK Holdings Pvt. Ltd. (sub-broker) Basant Marketing Sanchay Fincom Ltd. 4,99,957 2,42,652 2,57,305

From above, it is seen that Satya had dealt through two brokers in the scrip and maintained nil net position.

b. It has been stated that Basant had traded in the scrip through broker Sanchay Fincom Ltd. and while trading in the scrip, it punched orders before the start of trading hours with an intention to establish the opening price of the scrip. Orders were also punched in by it before the beginning of post closing session to fix the price. It is seen that these orders of Basant were rejected by the exchange.

c. Further, it is also stated that Basant had executed various synchronized trades in the scrip during the relevant period. It is seen from the data available on record that these were only four trades. A perusal of these trades shows that these were in the nature of synchronization. However, it is not clear from the data on record that these had impacted the price of the scrip in some way. Further, it is seen that the trades given in the SCN were only the buy trades of which it appears that it had taken delivery. No further details like how these were aimed at creating artificial liquidity in the scrip of GIL is seen in the SCN. Such details are important while dealing with the charge of creating false and misleading appearance of trading. The details available on record are insufficient to establish the charges leveled against the noticees.

11. In view of the findings above, it is difficult to conclude that the noticees had played role in the creation of artificial volume in the scrip of GIL, during the investigation period. Considering all this, I am of the considered view that the noticees are entitled for a benefit of doubt in respect of alleged violation of Regulation 4 (a), (b), (c) and (d) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995. In view of the same, I do not consider this a fit case to impose any penalty against the noticees.

12. In the facts and circumstances of the case, 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 notices issued to Mr. Arun Kumar Dalmia [PAN: ADWPD 9035D], M/s. Basant Marketing Ltd. [PAN: AABCB 3077A] and Satya Securities Ltd. [PAN: AAECS 9414M] without imposing any penalty or direction.

DATE : AUGUST 27, 2010 PRASHANT SARAN PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA