Order in respect of Dhanlaxmi Cotex Limited in the matter of Soundcraft Industries Limited.

Under Sections 11 and 11B of SEBI Act, 1992 read with Regulation 11 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 1995 read with Regulation 13 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 2003 in respect of Dhanlaxmi Cotex Limited (PAN:AABCD2387H) in the matter of Soundcraft Industries Limited. 1. Soundcraft Industries Ltd. (hereinafter referred to as "SIL") is a public limited company. The shares of SIL are listed in Bombay Stock Exchange Limited (“BSE”) and the National Stock Exchange of India Limited (“NSE”). Mr. Rajkumar Chainrai Basantani (hereinafter referred to as “Rajkumar Basantani”) is the Chairman cum Managing Director of SIL and is also an individual trading member of NSE. He was also one of the Directors of Kolar Sharex Pvt. Ltd., Member, BSE. On noticing sharp fluctuations in the price and volume in the scrip at both BSE and NSE during the period July 2, 2001 to January 2, 2002 (hereinafter referred to as "investigation period"), Securities and Exchange Board of India (hereinafter referred to as "SEBI") initiated investigation into buying, selling and dealings in the scrip of SIL.

2. Investigation revealed that a handful of brokers and clients including Dhanlaxmi Cotex Ltd. (hereinafter referred to as "the Noticee") created false and misleading appearance of trading in the shares of SIL, both at NSE and BSE, so as to establish and maintain the price of the scrip of SIL at a specific level through structured and circular/reversed trades, during the investigation period. The creation of volume was artificial as only a set of a few brokers and clients were involved throughout the trading in this scrip during the investigation period. It was further revealed that the whole scheme of manipulation in the scrip of SIL during the investigation period had been engineered and perpetrated by Mr. Rajkumar Chainrai Basantani (Chairman cum Managing Director of SIL) (hereinafter referred to as "Rajkumar

Basantani") to maintain the price of the scrip at a specific level. SIL had passed three resolutions during 2001 for the preferential allotment of shares and it could not allot the shares as the negotiations with some financial institutions for subscription of shares of SIL were not successful. It was alleged that the aforesaid group of clients including the Noticee and the brokers including M R Share Broking Pvt. Ltd. (“M R Share Broking”) and V.R.M. Share Broking Pvt. Ltd. (“V.R.M. Share Broking”), who are related and connected among themselves aided and abetted Rajkumar Basantani in the creation of artificial volumes with the objective to maintain the price of the scrip at a specific level. Rajkumar Basantani along with the brokers and clients including the Noticee contributed 96% and 85% of the trading in the scrip at BSE and NSE respectively.

3. On completion of the investigation, a show cause notice (SCN) dated August 31, 2005 was issued to the Noticee to show cause as to why suitable directions including directions restraining it from accessing the capital market and prohibiting from buying, selling or dealing in securities for a specified period should not be issued for alleged violation of the provisions of Regulation 4 (a), (b), (c) & (d) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 (hereinafter referred to as "PFUTP Regulations, 1995"). Pursuant to this, an opportunity of personal hearing was also granted to the Noticee on November 22, 2006. After considering the written as well as oral submissions made by the Noticee, SEBI, vide Order dated January 09, 2009, debarred the Noticee from accessing the securities market and prohibited it from buying, selling or dealing in securities, either directly or indirectly for a period of six months, in view of its role in the manipulation of the scrip of SIL "by creating artificial volume and price discovery in the scrip of SIL".

4. Noticee challenged the aforesaid order before the Hon'ble Securities Appellate Tribunal (SAT). SAT, vide its order dated July 08, 2009 remanded the matter back to SEBI for fresh decision in accordance with law. SAT also directed SEBI to provide the complete information regarding trade and order log to the Noticee. Vide the aforesaid Order, SAT also observed, "whatever has been observed hereinabove is only for the purpose of remanding the cases back to the Board and no observation made should be taken as an expression of our views on the merits of the issues involved in the appeals. The Board shall examine all issues without being influenced by any of the observations made by us hereinabove to look into this aspect."

5. Pursuant to this, a Show Cause Notice (SCN) dated February 17, 2012 was issued to the Noticee to show cause as to why suitable directions including directions restraining it from accessing the capital market and prohibiting it from buying, selling or dealing in securities for a specified period should not be issued against the Noticee for the alleged violation of Regulation 4(a), (b), (c) and (d) of PFUTP Regulations, 1995. All the material relied upon by SEBI against the Noticee were also furnished to them along with the said SCN.

5.1 The allegations levelled against the Noticee in the aforesaid SCN dated February 17, 2012 were as follows:

i. A group of brokers and clients including the Noticee, connected and related to Rajkumar Basantani contributed trades (both buy and sell) almost 96% of the trading in the scrip at BSE and nearly 84.57% of the trading at NSE during the investigation period. The Noticee had traded through the brokers, viz. V R M Share Broking Private Limited at NSE and M R Share Broking Pvt. Ltd. at BSE.

ii. At BSE, during the period August 1, 2001 to September 28, 2001, the total volume traded in SIL shares was 2,01,963. A total of 1,92,932 shares were traded among these clients including the Noticee in circular/reversal pattern, which adds up to about 95.52% of the total volumes for the said period. The Noticee traded through the stock broker, M.R. Share Broking Pvt. Ltd. and their contribution was the second highest to the volume in the scrip of SIL at BSE.

iii. At NSE, the group of clients including the Noticee were alleged to have indulged in 1852 structured trades amongst themselves and created gross trading volume of 3,61,200 shares (20.22% of total gross market volume) in the scrip during the investigation period. The Noticee was involved in 197 structured deals, which resulted in the creation of artificial volume of 40,175 shares. It is further alleged that out of the said 197 structured deals, the counterparty in 90 structured deals was Jaitra Estate Developers P. Ltd., one of the clients of Rajkumar Basantani, who is the main perpetrator of the whole scheme of manipulation. The said group including the Noticee also traded among themselves through circular and reversal trades, thereby creating volume of 6,23,161 shares (69.78% of the total market volume).

iv. It is alleged that the Noticee along with related entities at both NSE and BSE entered into structured trades and/or circular/reversal trades among themselves with the intention to create artificial volumes.

v. SIL had passed three resolutions during 2001 for the preferential allotment of shares and they could not allot the shares as the negotiations with some financial institutions for subscription of shares of SIL were not successful. It is alleged that the aforesaid group of clients including the Noticee and the brokers, who are related and connected among themselves and with Rajkumar Basantani, (M.D. of SIL) aided and abetted Rajkumar Basantani in perpetrating the creation of artificial volumes with the objective to keep the price of the scrip at a specific level depicting attractiveness for price and liquidity in terms of volumes.

vi. The connection alleged in the SCN is that M R Share Broking Pvt. Ltd., Member BSE, V.R.M. Share Broking Pvt. Ltd., Member NSE and the Noticee are sister concerns. The three entities have a common director, viz. Mr.Ramautar Jhawar.

5.2 Noticee vide letter dated March 12, 2012 sought certain documents/information from SEBI. In response, SEBI vide its letter dated April 10, 2012, informed the Noticee that all the documents relied upon by SEBI in the SCN had already been provided to it.

5.3 Noticee, vide letters dated April 30, 2012 and May 16, 2012 sought complete copy of trade log and order log. In response, SEBI vide letters dated May 09, 2012 and July 19, 2012 informed that all the information in relation to their trades were already provided to them. Noticee was also advised to file their reply to the SCN.

5.4 Thereafter, Noticee, vide letter dated July 23, 2012 submitted their reply. An opportunity of hearing was granted to Noticee on June 19, 2013. During the hearing Noticee reiterated the submissions made on the aforesaid reply and also submitted that SEBI had not furnished complete copy of order log and trade log. Subsequent to the hearing,

Noticee vide letter dated June 21, 2013 again sought for the relevant information pertaining to trade log and order log. It is however, observed that all the documents including the trade log and order log which were relevant in respect of the violations alleged against the Noticee in the SCN were already provided to them along with the SCN.

5.5 Another opportunity of hearing was granted to the Noticee on January 07, 2015, which was postponed to February 04, 2015 at the request made by the Noticee. During the hearing held on February 04, 2015, the entity reiterated the submissions made by them in their reply dated July 23, 2012. The entity also filed their additional reply vide letter dated February 10, 2015.

5.6 Noticee, in their replies, vide letters dated July 23, 2012 and February 10, 2015 and also during the hearing held on February 4, 2015, inter alia made the following submissions:

a. Noticee is neither connected nor associated with any of the entities who are mentioned in the SCN nor it has entered into any kind of structured/circular or manipulative/dubious trades in the scrip of SIL so as to create artificial volumes. b. The SCN does not establish any connection between the Noticee and the other entities. c. SEBI in its Orders passed in respect of the entities M.R. Share Broking P. Ltd. and V.R.M. Share Broking P. Ltd.(sister concerns of the Noticee) observed "The factors do not suggest any connection of Dhanlaxmi Cotex with any other clients or stock brokers mentioned in the Report" d. They were involved in jobbing transaction. They were taking short positions in the market in the morning and purchasing the shares at evening. Thus, he was squaring of his position. Further, Noticee was involved in purchase of other shares during the same period. e. As they were taking short position in the market, there was selling pressure in the market due to which price of scrip may go down, however there was allegation that Noticee was involved in maintaining the price. f. There was no artificial volume created in the scrip as the deliveries have been taken /given on the net position. Further, total trading done by Noticee in the investigation period was also merely 8.73% of the total quantity traded in the market, thus the allegation of creating artificial volume cannot stand. g. Noticee has not been provided relevant information/ documents such as Investigation report, trade log and order log for entire Investigation period and order book position before and after each trade etc. h. In a screen based trading, as a client they are not aware with whom they traded in the market. Thus, they were not aware about the counterparty broker and client. i. It is denied that Noticee is a Basantani related entity as specified in SCN and that they had indulged in structured deals and attempted to create market volume. j. Only one of the alleged three resolutions for preferential allotment of shares were passed during the period of investigation. k. With only limited number of clients interested in particular scrip, the probability of matching trades is too high.

Consideration of Issues and Findings-

6. I have carefully considered the investigation report, SCN issued to the Noticee along with the documents contained therein, the oral and written submissions of the Noticee and all other relevant materials available on record. In light of the same, I shall now proceed to deal with the charges alleged against the Noticee in the SCN.

The relevant legal provisions, the contravention of which have been alleged in this case are reproduced hereunder:-

PFUTP Regulations, 1995 “Prohibition against Market Manipulation 4. No person shall - (a) effect, take part in, or enter into, either directly or indirectly, transactions in securities, with the intention of artificially raising or depressing the prices of securities and thereby inducing the sale or purchase of securities by any person; (b) indulge in any act, which is calculated to create a false or misleading appearance of trading on the securities market; (c) indulge in any act which results in reflection of prices of securities based on transactions that are not genuine trade transactions; (d) enter into a purchase or sale of any securities, not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress, or cause fluctuations in the market price of securities;

6.1 From the SCN, it is noted that at NSE, the price decreased from ` 505.40 on July 2, 2001 to ` 428.00 on January 2, 2002, i.e. a fall of 15.31% and the traded volume decreased from 15,215 to 235 i.e. a fall of 98.46%. At BSE, the price of SIL shares decreased from ` 506.50 on July 2, 2001 to ` 429.05 on January 2, 2002 i.e a fall of 15.29% and the traded volume decreased from 15150 to 2010, i.e. a drop of 86.73%. The analysis of the trades in the scrip of SIL at both NSE and BSE revealed that there was a constant endeavour by certain entities including brokers and clients allegedly connected and related to the Chairman cum Managing Director of SIL, viz. Basantani, to keep the price of the scrip at a specific level indicating attractiveness for price and liquidity in terms of volumes during the investigation period.

6.2 The details of the trades executed at both NSE and BSE, by the entities including the Noticee, allegedly connected amongst themselves have been provided in Table No 1 and 2 at Paragraphs Nos. 8 and 9 of the SCN respectively. The details of the connected clients and the brokers, who traded at NSE and BSE are as under: At NSE-

Serial Name of the Client Name of the Broker No. 1. Bharat H Jain (Sub Client Code- B005) H Nyalchand Financial Services Ltd. 2 Ashmita R Shah (Sub Client Code- A0008) H Nyalchand Financial Services Ltd. 3 Bharat H Jain Mekaster Securities Pvt. Ltd. 4 Jaitra Estate Developers Pvt. Ltd. Rajkumar Chainrai Basantani 5 Panna Agrofine Pvt. Ltd. Rajkumar Chainrai Basantani

AMS Finance & Securities Ltd. R K Global Shares & Securities Ltd. Dhanlaxmi Cotex Ltd. V.R.M. Share Broking Pvt. Ltd.

At BSE-

Serial Name of the Client Name of the Broker No. 1. Born Free Finance Pvt. Ltd. Kolar Sharex Pvt. Ltd. 2 Panna Agrofine Pvt. Ltd. Kolar Sharex Pvt. Ltd. 3 Dhanlaxmi Cotex Ltd. M R Share Broking Pvt. Ltd. 4 Ashmita R Shah Park Light Investment Pvt. Ltd. 5 Bharat H Jain Park Light Investment Pvt. Ltd. 6 Sparkling Securities Churiwala Securities Pvt. Ltd. 7 Jain Investment (Ramila Jain) AMS Stock Management

6.3 The connection amongst the entities as explained in Paragraph No. 10 of the SCN is as under:

a) Rajkumar Basantani, the director of the broking firm Kolar Sharex Pvt. Ltd. is also the Chairman cum Managing Director of SIL. He is also a broker at NSE in his individual capacity. b) The old registered office address of Jaitra Estate Developers P. Ltd. is the same as the office address of Rajkumar Chainrai Basantani. Panna Agrofine and Jaitra Estate Developers P. Ltd. have a common director, Nitin Sawant. Further, Ramesh Verma, director of Jaitra Estate Developers P. Ltd. is a dealer with Rajkumar Basantani at NSE. c) Ramila B Jain, director of Jain Investment, is the wife of Bharat H Jain. Bharat H Jain is also the introducer of Asmita R Shah. Bharat H Jain has for long been a registered client with Rajkumar Chainrai Basantani at NSE. d) H Nyalchand Financial Services Ltd., Member NSE and Park Light Investment Pvt. Ltd., Member BSE are related entities. The Director of H Nyalchand, Mr.Dhiren Vora is the brother of Mr. Uday Vora, director of Park Light Investment Pvt. Ltd.

e) M R Share Broking Pvt. Ltd., Member BSE, VRM Share Broking Pvt. Ltd., Member NSE and the Noticee are sister concerns. The three entities have a common director, Mr. Ramautar Jhawar. f) Mr. Vinod Bagri is the Director of AMS Stock Management. His wife, Mrs. Alka Bagri is erstwhile director of AMS Finance & Securities Ltd. Further, Mr. Vinod Bagri’s brother-in-law, Mr. Brij Mohan Binani is the Director of AMS Finance & Securities Ltd. Mr. R K Bagchandka, Director of R K Global, is introducer of AMS Finance to RK Global.

The aforesaid group of entities including the brokers and clients are hereinafter collectively referred to as "connected entities" and individually by their respective names.

6.4 It is observed from the SCN that the aforesaid connected entities contributed (both buy and sell) almost 96% of the trading in the scrip at BSE and nearly 84.57% of the trading at NSE during the investigation period. The Noticee had traded both in NSE and BSE, during the investigation period through the brokers, viz. V.R.M. Share Broking at NSE and M.R. Share Broking at BSE. As per Table 1, provided in the SCN, the Noticee has contributed to 21.33% of the total gross market volume in the scrip at BSE and 8.73% of the total gross market volume at NSE during the investigation period. It is observed that the Noticee has not disputed the aforesaid trades.

Structured Trades-

6.5 It is further observed from Annexure 3 to the SCN, which provides the details of structured deals executed by the connected entities including the Noticee, at NSE that in all the structured deals, sell and buy orders have been placed by the entities either simultaneously or within the time period of less than 60 seconds. The prices at which the buy and sell orders were placed were also identical. The summary of the structured deals executed by the connected entities at NSE are provided in Table 3 at Paragraph No. 11 of the SCN.

6.6 From the summary of structured deals provided in the SCN, it is observed that out of the total 1852 structured deals (which created gross trading volume of 3,61,200 shares, i.e. 20.22% of the total gross market volume in the scrip) executed by the connected entities at NSE, the Noticee, through the broker, V.R.M. Share Broking has indulged in 197 structured deals, which resulted in creation of artificial volume of 40,175 shares. It is observed that out of the said 197 structured deals, 90 structured deals (13,678 shares) were directly with the client of Rajkumar Basantani, viz. Jaitra Estate Developers P. Ltd.

Circular/reversal Trades-

6.7 From the instances of circular/reversal trades alleged to have been executed by the Noticee in NSE and BSE, as provided in the SCN, it is observed that- i. At NSE, on July 2, 2001, the Noticee bought 1750 shares from Jaitra Estate Developers P. Ltd. (one of the connected entities and client of Rajkumar Basantani) and sold 1845 shares to AMS Finance (another of the connected entities). On July 20, 2001, the Noticee bought 1200 shares from Bharat H. Jain and 400 shares from Jaitra Estate Developers P. Ltd. and sold 1530 shares to AMS Finance, 10 shares to Bharat H. Jain & Asmita R. Shah and 60 shares to Jaitra Estate Developers P. Ltd. ii. At BSE, on August 16, 2001, the Noticee sold 1500 shares to Born Free Finance Pvt. Ltd and squared off its transaction as it bought 300 shares from Jain Investment, 950 shares from Sparkling Securities and 250 shares from Born Free Finance Pvt. Ltd.

6.8 The SCN alleges that the aforesaid structured and circular/reversal transactions executed by the connected entities including the Noticee were with prior meeting of minds and not intended to effect transfer of beneficial ownership of shares of SIL. The aforesaid transactions resulted in false and misleading appearance of trading in the scrip of SIL at NSE and BSE. It is alleged that Noticee, through the related brokers M.R. Share Broking and V.R.M. Share Broking, along with the connected entities created artificial volume and involved in structured deals and circular trades with connected entities at NSE and BSE. On the basis of the connection alleged in the SCN, it is alleged that the aforesaid trades executed by the Noticee along with the connected entities have aided and abetted Rajkumar Basantani (Chairman and MD of SIL) to establish and maintain the price of the scrip of SIL at a specific level.

6.9 It is noted that the Noticee has not disputed the aforesaid transactions alleged to have been executed by them. Noticee, however, in their reply vide letter dated February 10, 2015 contended that all the trades were genuine jobbing transactions. They contended that nothing has been brought on record to establish any connection between them and other entities. The SCN did not contain any material to prove connection between the Noticee and the Rajkumar Basantani.

6.10 I have examined the details of the connection as given in the SCN. As per the SCN "M. R. Share Broking Pvt. Ltd., Member BSE, V.R.M. Share Broking Pvt. Ltd., Member NSE and Dhanlaxmi Cotex Ltd. are sister concerns. The three entities have a common director, viz. Mr. Ramautar Jhawar". The fact of having a common director has not been refuted by the Noticee. Apart from this, there is nothing on record to suggest any connection or relation between the Noticee and other connected entities, who were counterparties to the alleged structured deals and circular/reversal trades executed by the Noticee. The said factors do not suggest any connection/relation between the Noticee and the Rajkumar Basantani, who is the alleged perpetrator of the entire scheme of manipulation in the scrip of SIL. I also note that SEBI, vide separate Orders dated December 20, 2013 disposed of the SCN issued against them by giving benefit of doubt to the aforesaid stock brokers, viz. M.R. Share Broking and V.R.M. Share Broking, through whom the Noticee executed the trades in NSE and BSE during the investigation period. It was observed that the link between the entities and Rajkumar Basantani has not been firmly established.

6.11 From the relationship as alleged in SCN, I observe that even though there is connection between the Noticee and its brokers through a common director, there is no material available to buttress the case of relationship between Noticee and other connected entities allegedly formed by Rajkumar Basantani. Apart from a statement to the effect that they are related, SCN also fails to establish any inter-se connection between the connected entities and also their connection with Rajkumar Basantani. It is also observed that the SCN issued to the Noticee does not specify that Noticee had traded in the scrip above the last traded price or had attempted to affect the price in any manner. It is however, noted that there was decrease in price of scrip during investigation period. Therefore, the evidence available on record does not conclusively substantiate the allegation in the SCN regarding circular/reversed and structured trades, being executed to maintain price at a particular level.

7. I am, therefore of the considered view that in the absence of sufficient evidence/material to prove that there was a meeting of minds between the Noticee and other connected entities and involvement of the Noticee in aiding and abetting Rajkumar Basantani in the creation of artificial volume with the objective to fix the price of the scrips of SIL during the investigation period, the charges levelled against the Noticee in the SCN dated February 17, 2012 have not been conclusively established. I also note that the investigation period with regard to the trades in the scrip at NSE and BSE is between July 02, 2001 to January 02, 2002 and considerable time has elapsed since the initiation of these proceedings against the Noticee. Considering the above facts and circumstances, I am inclined to give the benefit of the doubt to the Noticee in respect of the charges alleged therein. However, I find that the Noticee has participated in the circular trades as well as structured deals in the scrip of SIL on many occasions as have been discussed in the preceding paragraphs, which eventually resulted in the creation of volume in the scrip of SIL.

8. I therefore, in exercise of the powers conferred upon me under Section 19 read with Sections 11 and 11B of the SEBI Act and Regulation 11 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 read with Regulation 13(3) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003, hereby warn the Noticee herein, viz. Dhanlaxmi Cotex Ltd. (PAN AABCD2387H) to be cautious in its future dealings and exercise due care and diligence in the conduct of its dealings as a securities market participant. Any future instance of violation of SEBI Act, Rules and Regulations framed there under shall be dealt with stringently.

Place: Mumbai S. RAMAN Date: April 21, 2015 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA