Order in respect of First Financial Services Limited [SAT Appeal No.282/2015]

WTM/RKA/ISD/31/2015 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER UNDER SECTION 11 AND 11B OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 - IN THE MATTER OF FIRST FINANCIAL SERVICES LIMITED. IN RESPECT OF FIRST FINANCIAL SERVICES LIMITED (PAN: AAACF1145J) Appearances: For First Financial Services Limited: (1) Mr. Vinay Chauhan, Advocate (2) Mr. Prashant Ingle, Advocate (3) Mr. Apurva Gupta, Advocate

1. Securities and Exchange Board of India (SEBI) examined the dealings in the scrip of First Financial Services Limited (hereinafter referred to as "First Financial or Company"), listed on the Bombay Stock Exchange Limited (BSE) based on the sharp rise in price/volume in the scrip. It was observed that during the period from May 15, 2012 to February 08, 2013 (Patch 1), the price of the scrip rose from ₹5/- to ₹263/-, i.e., an increase of 5160% (53 times) in 115 trading days when the average trading volume was only 26 shares per day. Thereafter, from February 11, 2013 to December 12, 2013 (Patch 2), the scrip was traded with an average volume of 41,252 shares per day and total volume of 86,21,776 shares in 209 trading days. As compared to Patch 1, in Patch 2 the average volume increased by 179256% (1793 times) and average price increased by 193%. 2. Upon preliminary examination, it was prima facie observed that First Financial and persons in charge of its affairs created a facade of preferential issue of equity shares of around `15.40 crores in order to provide fictitious long term capital gains ("LTCG") to preferential allottees so as to convert their unaccounted income into accounted one. It was observed that after the release of compulsory lock-in period, the preferential allottees were provided exit at an high price by the entities forming part of the First Financial Group and in the process First Financial Group and allottees misused securities market system to artificially increase volume and price of the scrip for making illegal gains and to convert ill-gotten gains into genuine one. 3. In the above backdrop, SEBI, vide an ad interim ex-parte order dated December 19, 2014

Order in respect of First Financial Services Limited (hereinafter referred to as “interim order”), restrained the company along with other 151 entities, (hereinafter referred to as "Noticees"), from accessing the securities market and further prohibited them from buying, selling or dealing in securities in any manner whatsoever, till further directions. 4. Pursuant to the interim order, vide its letter dated December 30, 2014, the company requested SEBI for copy of BSE inspection reports for the visits carried out by the exchange at all the addresses of the company. The request of the company was acceded to and the BSE Inspection report along with annexures were provided to the company vide letter dated January 29, 2015. In the meantime, the company filed its reply vide letter dated January 05, 2015. 5. While reply of the company was under consideration and personal hearing of the company was scheduled on February 24, 2015, the company filed an appeal before the Hon'ble Securities Appellate Tribunal ("the Hon'ble SAT") challenging the said interim order. The personal hearing in the matter was held on February 24, 2015 when Mr. Vinay Chauhan, Advocate appeared alongwith Mr. Prashant Ingle, Advocate and Mr. Apurva Gupta, Advocate. The company also furnished its further submissions vide its letter dated February 24, 2015. 6. The Hon'ble SAT, vide its order dated March 10, 2015, disposed off the said appeal by First Financial with the direction to SEBI to pass an appropriate order in respect of the company within six weeks from the date of the said order.

7. First Financial made the following submissions vide their letters dated January 05, 2015, February 24, 2015 and March 20, 2015 and made arguments on the same lines during the personal hearing on February 27, 2015. The replies/submission of First Financial are inter alia summarised as under: (1) There was no emergent situation or imminent danger, in the instant case, so as to exercise powers under section 11 and 11B of the Securities and Exchange Board of India Act, 1992 for passing interim order, denying the opportunity of hearing which is in gross violation of principles of natural justice. Exercise of such an arbitrary power is unwarranted and unjustified as nothing has been brought on record to justify the directions. (2) With respect to price movement in the scrip as alleged in the interim order, the company has denied the allegation that the price rise in the scrip was not supported by fundamentals as alleged. Price/volume movement in the scrip is a matter of record and company had no role to play in the trading done by various entities/persons as mentioned in the interim order.

There were no corporate announcements (save and except routine announcements) made by the company, which is normally resorted to in order to influence the price of the scrip. At no point of time either the stock exchange or SEBI had raised any alarm bells as to price movement in the scrip not being in consonance with its financials or fundamentals despite the price of the scrip rising sharply as alleged. Therefore, for the price rise in the scrip consequent to trading by others, with whom the company is not connected or related, no adverse inferences can be drawn against the company. (3) The company is a profit making company. Further, the company had given a dividend of `16,14,952/-(Rupees Sixteen Lakhs fourteen thousand nine hundred and fifty two only)during the Financial Year 2012-2013. (4) The company denied about the tarnished track record as alleged in the order and submitted that the alleged suspension of trading had taken place inter alia due to non compliance of the provisions of the Equity Listing Agreement. After seeing merit in the case of the company inter alia in terms of its functioning, compliances and business prospects, the stock exchange had revoked the suspension and it was pursuant to stock exchange direction that company had revised the preferential allotment price to `20/-.

(5) Complete information about the company and its business plans was provided, by way of detailed Information Memorandum to then proposed preferential allottees, who based on their assessment, decided to invest in the shares of the company. Therefore, SEBI based on its own subjective assessment, cannot brand the investment behavior of the preferential allottees as not being rational. (6) Further, the alleged preferential allotments had the approval of the shareholders and stock exchanges and nobody raised grievance about the same during the relevant period. After permitting the company to make preferential allotment, granting listing and trading permission for the shares issued in preferential allotment, the issuance of the same cannot be questioned. (7) No material has been brought on record to demonstrate any kind of nexus between First Financial, its directors/promoters and the preferential allottees or to substantiate that the preferential allotment of equity shares was under a prior arrangement between them. (8) The registered office of the company located at 2nd floor, Old No. 24, New No. 45,

Venkata Maistry Street, Mannady, Chennai - 60000l has been taken on rent from the director of the company viz. Mr. V. S. Sudhakar who is also running his own company (Carewell Enterprises) from part of the said premises. Further no employees were allegedly found at the said registered office as all the operations of the company are handled at corporate office at Mumbai. It is error on the part of BSE to conduct inspection of premises at 1513 and 1514, Maker Chamber V, 221, Nariman Point, Mumbai - 400 021 when vide letters dated November 02, 2014 and November 04, 2014, the company had already informed BSE to that its corporate office had shifted from the said address of Nariman point to A-109, First Floor, Sanpada Railway Station complex, Sanpada, Navi Mumbai – 400705. This has lead to incorrect observations and distorted conclusions being drawn against the company in the interim order. (9) The preferential allotment made by the company as well as trading in the scrip of the company is a matter of record. The company had no role whatsoever to play in the trading done by various entities/persons in the scrip as set out in the interim order.

Neither the company nor its directors/promoters have dealt in the shares of the company during the impugned examination period. (10) It cannot be alleged that company is connected to Mr. B. P. Jhunjhunwala merely because when the promoters of the company sold shares, some buyers had picked up the shares. Promoters of the company had sold shares in the open market on the platform of the exchanges much prior to the impugned patches. Further, based on the trading by Mr. B.P. Jhunjhunwala, it cannot be concluded that First Financial along with other entities "acting in connivance under a pre-planned arrangement had artificially increased the price during the lock-in period". Nothing has been brought on record in order to demonstrate any kind of alleged "pre arrangement" or basis for connecting us to the brokers or clients or Mr. B. P. Jhunjhunwala. (11) There is no such First Financial Group as the whole grouping is misleading and company has erroneously been lumped with others without any basis. Based on the alleged connections, acts of other persons/entities cannot be fastened on the company or any adverse inference drawn against First Financial.

(12) Based on Mr. Ashok Bothra being the director of other companies, viz. Global Infratech & Finance Ltd., Dynamic Portfolio Management & Services Ltd., Blue circle Services Ltd., First Financial cannot be connected to and no adverse inferences can be drawn against it. Significantly, impugned examination period itself commences from May 15,

2012, whereas Mr. Ashok Bothra had severed ties with the company as an independent director way back in July 2011. (13) First Financial cannot be connected to Global Infratech & Finance Ltd. on the basis that Mr. S. Krishna Rao is the director of Global Infratech & Finance Ltd. and its alleged actions cannot be saddled on to the company. Further, the company on November 11, 2013 made a payment of `200,000/- to Global Infratech & Finance Ltd. towards purchase of 1915 share of Vinmay Agro Pvt. Ltd. @ `100/- per share and 5,000 shares of Anugraha Jewellers Ltd @ `1.70/- per share in the ordinary course of business. Save and except the said purchase of these shares, company does not have any other link/connection with Global Infratech & Finance Ltd. (14) The company has denied any connection/relationship among or between the entities of First Financial Group (entities from Sl. No. 7 to 61 as mentioned in para 15 of the interim order). They are also not aware that concerned entities as stated in the said paras of the interim order are directors/shareholders in the respective companies and same is of no concern to them.

(15) Merely because Mr. S. Krishna Rao is the director/shareholder in other companies where Jhunjhunwala group is also director/shareholder, the company cannot be alleged to be connected with them. Based on some tenuous, flimsy and exceedingly remote connection of Mr. S. Krishna Rao with others as stated, it cannot be alleged that the counterparties are connected to the company. Further, out of the various entities set out (viz. Onesource Idea Pvt. Ltd., Onesource Tech Media Pvt. Ltd, Subham communication, Radhasoami Securities, Nandlal Vyapaar Pvt. Ltd., Chiraag Suppliers Pvt. Ltd., LRG Properties, BPJ Holding) the company had fund transactions with only Chiraag Suppliers Pvt. Ltd. and Nandlal Vyapaar Pvt. Ltd. wherein Mr. S. Krishna Rao was never the director. Based on the alleged relationship of preferential allottee with various other persons/entities, the company has been connected to all the said various other persons/entities, which is untenable and unsustainable. (16) The purported connections are farfetched, tenuous, flimsy and same cannot become the basis for drawing adverse inferences against the company.

The entire approach of determining the conclusion first and thereafter going backwards in order to resurrect and reinforce the predetermined conclusions is flawed and opposed to law and vitiates the entire proceedings.

(17) The company is not aware that First Financial Group entities had provided profitable exit to the preferential allottees and allottees have made gains. The decision to sell the shares, the timing of sale, the price at which the shares were sold, the quantum, etc. were all of preferential allottees in which the company had no role to play. Except as a company and allottees being shareholder, First Financial has no other connection with the preferential allottees. Based on the trading between preferential allottees and First Financial Group entities, no adverse inferences can be drawn against the company as trading by them was not on our behalf or at our behest. (18) There is no allegation that the company had made any profits in any manner by virtue of sale of shares by the preferential allottees or by trading of the alleged First Financial Group. Nothing is there on record to bring out any nexus between the company and others, i.e., sellers and buyers). Thus, the observations are bald, sweeping and in the air. Further no basis has been brought on record to show that "the entities of First Financial group bought most of the shares sold by the allottees except for mere say so”.

The observations sorely lack specificity as the names of allottees, the quantum of shares sold by them on different dates, etc., which we have allegedly bought from them by the buyers have not been spelt out or particularised. (19) The observation that First Financial could not have commanded the price as observed in Patch 2 is totally misplaced as what price a particular scrip would command is a very subjective issue and is contingent upon forces of demand and supply. Significantly, it may be noted that when the price of the scrip was increasing, nobody raised the issue that the scrip cannot command the price as is being erroneously done now. (20) It is denied that company was hand in glove with the preferential allottees or other entities and principle of price discovery was kept aside by the company and market lost its purpose. No details of the purported few instances/cases wherein buyers are related/connected entities of preferential allottees have been spelt out. Further, based on alleged buyers being related/connected to the preferential allottees, no adverse inference can be drawn and punitive directions issued against the company.

If at all any adverse inference is to be drawn, same has to be qua the allegedly connected buyers and preferential allottees alone. (21) Name of the alleged preferential allottee who is the director of Atash Transport has not been spelt out thereby severely incapacitating the company to give an effective reply. Further, while making allotment, the company is not required to obtain the details regarding the directorship, etc. of the allottees. Allegation is bald and sweeping and devoid of any particulars as to date of fund transaction, quantum of fund transaction, etc. (22) It is denied that the purpose mentioned by the company to raise funds through preferential allotment was just an eye-wash to the investor in general and was never done with any real intent. It may be noted that the funds raised by the Company have been profitably deployed by the company and the same is also evidenced by financials of the company wherein the Profit After Tax (PAT) of the company has increased from `32.22 lacs in the Financial Year 2011-12 to `47.93 lacs Financial Year 2012-13, i.e., an increase of around 48%.

(23) From the proceeds of the preferential allotment, the company had given short term loan to Ms. Bina Hemanshu Mehta (`2,42,00,000), Parikh group (4,36,80,000), Tirupati Developers Pvt. Ltd. (`5,00,000/-), Advent Developers Pvt. Ltd. (`40,00,000/-), Kuber Kamana Marble Pvt. Ltd. (`105,00,000), Chirag Suppliers Pvt. Ltd. (`50,00,000/-) and Lakshya Global Logistics (`48,00,000/-) which were repaid later on by these entities on multiple dates except for Advent Developers Pvt. Ltd. and Tirupati Developers Pvt. Ltd. In so far as fund transfer between First Financial and BLC Trading Agencies Pvt. Ltd. is concerned, First Financial had taken loan of `25,00,000/- from BLC Trading Agencies on August 22, 2012 and subsequently repaid the same. (24) The company in its reply stated that loan amount given to Ms. Bina Hemanshu Mehta and Parikh Group cannot be insinuated to have been supplied for the purpose of trading in the scrip of the company in the market as it is SEBI's own case that till February 8, 2013 the scrip price was increased by various entities by buying exceedingly meagre number of shares and the volumes in the scrip had increased only in the second patch, wherein various entities had indulged in heavy buying.

(25) Funds were also remitted to Marsh Steel Trading Limited (`100,00,000/-), Vision Steel Limited (`50,00,000/-) and Noble Express Services Pvt. Ltd. (`50,00,000/-) towards allotment of shares of the company which are borne out in company's annual report. The aforesaid transfer of funds has got nothing to do with the trading in the scrip of the company during the impugned examination period. Even there is no allegation that Marsh Steel Trading Ltd., Vision Steel Ltd. and Noble Express Services Pvt. Ltd. had transferred any funds to any of the alleged buyers as stated in the interim order. (26) From the proceeds of preferential allotment, the company had given an amount of `100,00,000/- during December 2011 and January 2012, as security deposit to Comfort Intech Ltd. towards lease of the commercial premises (at Ground Floor Block B, Premises no. 32, Camac Street, Kolkatta-17), for the purpose of running a Spa by the company and `30,00,000/- to Comfort Fincap Ltd. towards repayment of loan (out of total loan of `90, 00,000/-) taken in July 2011. Again from the proceeds of preferential allotment the company had given an amount of `2,48,36,757/- to Comfort Securities Ltd. towards purchase of various shares as First Financial had been trading through Comfort Securities in various scrips.

(27) It is denied that the funds were not retained in the company for expansion of its business or execute its future plans as envisaged in the special resolution passed under section 81(1A) of the Companies Act, 1956. (28) It is denied that the whole system of fund transfer looks as if the transferor and transferee are pre-determined as alleged. It may be appreciated that there was long time gap between the date of decision of the company to come out with preferential issue and the date of actual allotment of shares. Once preferential allottees had given their consent, the fructification of preferential allotment was almost a certainty and therefore the company had started planning the deployment of funds in future. Therefore, no adverse inference can be drawn based on the alleged immediate transfer of funds. (29) It is denied that the funds are being routed through various channels before reaching the end users who are basically the buyers in Patch 2 that provided exit to the preferential allottees as alleged. The allegation is exceedingly vague, sweeping, bald and in the air. It has not been spelt out what is so called "various channels", who are these so called "end users", who are these "buyers in Patch 2”.

As stated hereinbefore, utilization of every penny transferred by the company to other entities/persons set out in the in the interim order has been explained. (30) The finding in the interim order that “Singhal family members, namely, Mr. Brij Bhushan Singal, Mr. Neeraj Singal, Ms. Ritu Singal and Ms. Uma Singal (who were allotted 7,50,000 shares by First Financial at a cost price of `1.5 crore) indirectly received the funds back from First Financial in the name of investment by First Financial or otherwise" is based on incomplete facts and same is being denied. It may be noted that Marsh Steel Trading Ltd and Vision Steel Ltd. belongs to Sanjay Singhal Group. Further, belong to Brij Bhushan Singal group. It is common knowledge that consequent to dispute between the Singhal family, Singhal family members got divided into two separate and independent groups and they have also made disclosures to the stock exchanges in this regard. Therefore, to suggest that First Financial had routed the funds received from Singhal family members, back to Singhal Group company is incorrect and completely contrary to factual position on record.

Fist Financial is not aware that members of the Singhal family have been preferential allottees in such type of companies as alleged and the same is of no concern to the company. Further it is denied that any monies received by the company from preferential allottees were returned to them as alleged. No material particulars in support of the allegation have been spelt out. It is reiterated that sweeping generalisations have been made and adverse inferences have been drawn against the company, which is legally untenable and unsustainable. (31) No material particulars viz. who had received funds, who had transferred funds to the company, quantum of funds involved, dates of transfers, etc. have been spelt out, which has severely incapacitated the company from giving an effective reply in respect of the allegation that "entities who had received funds from First Financial after the preferential allotment had later transferred funds to First Financial". It is submitted that loans given to various entities as stated hereinbefore had been repaid by the entities. Based on the same no adverse inferences can be drawn against the company.

(32) Time period taken for alleged transfer of `11 crore with breakup of amounts given to each of the Comfort group entities has not been spelt out. Therefore, the company is totally handicapped to give an effective reply to the same. Further, it is denied that First Financial have received `4.10 crore from the Comfort group as the allegation is completely contrary to factual position on record that the company had received an amount of `53,197 /- on March 31, 2014 from Comfort Securities Ltd. towards sale of shares and an amount of `30,00,000/- (on March 06, 2014 and March 07, 2014) from Comfort Intech towards repayment of security deposit during the examination period. Apart from the aforesaid amounts, the company had not received any amount from the alleged Comfort group entities during the examination period. (33) First Financial had no other relationship with Anil Agarwal HUF, Suresh Khandalia and Manju Khandelia and Lakshya Global Logistics except for them being the preferential allottee and shareholder. The company had also given loan of `15 lacs to Jugal Chanderkant Thacker during February 2013, which was later on repaid on March 25, 2014. In so far as the fund transfer between Comfort Group with Lakshya Global Logistics and BLC Trading Agencies is concerned, the company is not aware of the same and is of no concern to the company.

The company had invested in the scrip of Splash Media in the ordinary course of business and at the relevant time the company was not aware that Mr. Nevatia is the director of Splash Media or the Comfort Group. Further, the company is not aware that Ransati Dealer Pvt. Ltd. and Prefer Absan Pvt. Ltd. are counterparties as buyers to preferential allottees and also they are appearing as counter parties in the bank statement of the Comfort Group. It is denied that the Comfort Group and its directors share a close relationship with First Financial as alleged. The company is not aware that Comfort Securities had been broker to majority of the top buyers during Patch 2. The company is not aware of the clients who traded in our scrip, why they traded and through which broker they traded and nothing has been brought on record to substantiate the same. It is denied that the Comfort Group has played a key role in the whole process of preferential allotment as alleged. In so far as preferential allotment is concerned, same was made by the company based on its decision in which the Comfort Group had no role to play.

(34) With respect to transfer of funds by First Financial to Chiraag Suppliers Pvt. Ltd (`50,000/-) and Nandlal Vyapaar Pvt. Ltd. (`50,000/-), the company submitted that the said funds were given to these entities as short term loan on March 22, 2012 that were subsequently repaid by these entities on various dates. Merely because two of the company’s erstwhile directors were holding shares in the above two private companies, no adverse inferences can be drawn. Neither the said two directors of our company had traded in the shares of our company nor the said two companies had traded in the shares of our company during the examination period. (35) With respect to the observation that the preferential allottees, First Financial and First Financial group entities are connected to each other, the company submitted that so far as company is concerned are totally misplaced. The company has denied that neither they are part of any First Financial Group or do they have any link/connection/nexus with any of the alleged persons/entities who have dealt in the shares of the company (as set out in the interim order) during the impugned Patches nor they have any role to play in the trading done by them or have any financial transactions with them.

No material/evidence has been brought on record to connect the company with other entities and to demonstrate even remotely as to how First Financial is acting in concert with others. (36) The preferential allotment made to the allottees was in the ordinary course after following the applicable regulations and seeking the requisite approvals from shareholders and stock exchanges and the same had no nexus with the trading done by various entities in the scrip including the preferential allottees. Therefore, for the trading done by the preferential allottees and the entities of First Financial Group, the company cannot be held liable and responsible in any manner, including for any alleged misuse of the stock exchange for getting alleged fictitious LTCG. (37) Further, nothing has been spelt out as to how it was of concern to us that the so called preferential allottees should convert their "unaccounted money" into "accounted one" and how we benefitted by the same. (38) The unconnected entities have been grouped together based on mere surmises and conjectures to draw adverse inferences without any basis.

Since the grouping is erroneous the whole edifice of the interim order falls. Based on the alleged acts of other entities, no adverse inference can be drawn against us and no liability can be saddled on us. Neither the company nor its directors/promoters have dealt in the shares of the company during the impugned examination period. (39) The company has not used the preferential allotment as a tool for implementation of the dubious plan, device and artifice as alleged. Further, the purported reasoning offered for making preferential allotment, etc. instead of secondary market buying, is self serving and does not advance the case against the company any further. (40) It is denied that prior to the trading in its scrip during the examination period, First Financial did not have any business or financial standing in the securities market as alleged. It is denied that company has used the securities market system to artificially increase volume and price of the scrip for making illegal gains to and to convert ill-gotten gains into genuine one as alleged. No details of the alleged "ill gotten gains" which have been converted into "genuine gains" have been spelt out.

Further, nothing is spelt out what "ill gotten gain" company has made. Clearly, the allegations are bald and sweeping. (41) First Financial denied that there is any case of money laundering or tax evasion. First Financial also denied to be either indulged in any fraudulent and unfair trade practices relating to the securities or have violated any provisions of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 2003 or provisions of the SEBI Act as alleged in the interim order so as to warrant any kind of punitive directions. (42) All the acts and transactions of the Company were bona fide and were in consonance with the applicable provisions of law, including SEBI Regulations. Had SEBI sought the requisite information from the company prior to passing of the said Order, no directions against the company would have been passed.

(43) With respect to the allegations that the acts and omissions of First Financial group and allottees as described in the interim order is inimical to the interests of participants in the securities market, company submitted that all its acts were bona fide and the same cannot be construed in any manner as inimical to the interests of participants in the securities market. It is denied having been involved in fraudulent, unfair and manipulative transactions that are based on incorrect and half baked facts. The company has been erroneously lumped with others and deprived of accessing and dealing in the securities market as continuance in the market would not in any manner shake the confidence of the investors in the market. (44) In light of the correct facts and circumstances of the matter, there is no case at all for conducting investigation against the company. Further, the interim order against the company, being based on incorrect facts, is devoid of jurisdiction, and ought to be withdrawn. The directions passed against us are unjustified, unwarranted and untenable. (45) As a result of the interim order, entire reputation of the company in financial and business circle has been totally destroyed.

The prohibition from accessing and dealing in the securities market directly or indirectly, in any manner whatsoever, till further directions, is an absolute direction, which has throttled our business and crippled our operations, which is not only prejudicial to the company but also to the shareholders/investors of the company. (46) The company has never ever received any notice from any regulatory body/authority including SEBI. As a result of the restraints/directions issued by SEBI the company unjustifiably suffered immensely and disproportionately. (47) The directions against the company be withdrawn and it be granted permission to liquidate the shares lying in their demat account as well as in the margin account with the stock broker to enable them to utilize the same towards meeting their day to day financial obligations, etc. and clear the debit balance with the broker. In addition to the same, the company also requested to withdraw the direction of suspending the scrip of the company, as issued to BSE. 8. I have carefully perused the documents available on record. I have carefully considered the allegations and the submissions of the company.

Before dealing with submissions of the company on merit, I deem it necessary to deal with their preliminary contention with regard to the violation of principle of natural justice. I note that there is no violation of principles of natural justice in the present matter while passing the interim order as contended by the company. The interim order has been passed on the basis of prima facie findings observed during the preliminary examination/inquiry undertaken by SEBI. The facts and circumstances necessitating issuance of directions by the interim order has been examined and dealt with in the said interim order. The interim order has also been issued in the nature of show cause notice affording the noticees a post decisional opportunity. In this regard, I deem it relevant to refer to few judgments of the Hon'ble SAT, the Hon'ble High Courts and the Hon'ble Supreme Court in the following paragraphs:- (a) It is relevant to mention the judgement of Hon'ble Bombay High Court in Anand Rathi & Others Vs. SEBI (2002 (2) BomCR 403 wherein it upheld the procedure of post decisional hearing in such matters and observed as under: "31.

It is thus clearly seen that pre decisional natural justice is not always necessary when ad-interim orders are made pending investigation or enquiry, unless so provided by the statute and rules of natural justice would be satisfied if the affected party is given post decisional hearing. It is not that natural justice is not attracted when the orders of suspension or like orders of interim nature are made. The distinction is that it is not always necessary to grant prior opportunity of hearing when ad-interim orders are made and principles of natural justice will be satisfied if post decisional hearing is given if demanded. 32. Thus, it is a settled position that while ex parte interim orders may always be made without a pre decisional opportunity or without the order itself providing for a post decisional opportunity, the principles of natural justice which are never excluded will be satisfied if a post decisional opportunity is given, if demanded." (b) Further, the Hon'ble High Court of Judicature for Rajasthan at Jaipur in the matter M/s. Avon Realcon Pvt. Ltd. & Ors Vs. Union of India & Ors (D.B.

Civil WP No. 5135/2010 Raj HC) has held that: “…Perusal of the provisions of Sections 11(4) & 11(B) shows that the Board is given powers to take few measures either pending investigation or enquiry or on its completion. The Second Proviso to Section 11, however, makes it clear that either before or after passing of the orders, intermediaries or persons concerned would be given opportunity of hearing. In the light of aforesaid, it cannot be said that there is absolute elimination of the principles of natural justice. Even if, the facts of this case are looked into, after passing the impugned order, petitioners were called upon to submit their objections within a period of 21 days. This is to provide opportunity of hearing to the petitioners before final decision is taken. Hence, in this case itself absolute elimination of principles of natural justice does not exist. The fact, however, remains as to whether post-decisional hearing can be a substitute for pre-decisional hearing. It is a settled law that unless a statutory provision either specifically or by necessary implication excludes the application of principles of natural justice, the requirement of giving reasonable opportunity exists before an order is made.

The case herein is that by statutory provision, principles of natural justice are adhered to after orders are passed. This is to achieve the object of SEBI Act. Interim orders are passed by the Court, Tribunal and Quasi Judicial Authority in given facts and circumstances of the case showing urgency or emergent situation. This cannot be said to be elimination of the principles of natural justice or if ex-parte orders are passed, then to say that objections thereupon would amount to post-decisional hearing. Second Proviso to Section 11 of the SEBI Act provides adequate safeguards for adhering to the principles of natural justice, which otherwise is a case herein also…" (c) In the matter of Karvy Stock Broking Ltd. Vs. SEBI. Appeal No.92 of 2006 the Hon’ble SAT held as under: "The introduction of sub section (4) in section 11 and various other provisions like section 11B is indicative of the legislative intent. These provisions are meant to arm the Board with authority so as to be able to effectively exercise power and achieve the declared objectives of the Act. ..………………………………………………………………………… We cannot lose sight of the fact that the Board has to regulate a speculative market and in such a market varied situations may arise all of which cannot be envisaged and there may be an urgent need to pass an order even when an inquiry or investigation is pending. ……………..

On an examination of the provisions as noticed above, we find that the legislative scheme is clear. The provisions of the Act are basically intended to protect the interests of the investors and to promote the market. However, the Act as initially enacted provided primarily for taking promotional or protective measures. The power to take preventive or punitive measures was implicit. ………….................……………………………………………… Now it has been expressly extended to taking even the preventive or punitive measures. Without doubt, these, too, are ultimately aimed at achieving the basic objectives of investor protection and promotion of the development and regulation of the securities market as contained in the preamble. ……………………………………………………………………………… In view of the above, we hold that the word ‘inquiry’ used in section 11(4) refers to the inquiries held under sections 11, 11B, also to the enquiry under the inquiry regulations framed under section 12(3) and also to the inquiry held under Chapter VIA and it is during the pendency of any of these inquiries that an interim order could be passed with a view to protect the interests of investors or in the interest of the market."

9. In view of the above, I find that the principles of natural justice have been duly complied with in this matter. I now proceed to deal with submissions of the company on merit. I have carefully considered the allegations in the interim order in respect of the company and their submissions. The limited issue to be considered in this order is as to whether, the directions issued vide the interim order need to be continued, revoked or modified in any manner. The facts and circumstances as prima facie observed in preliminary inquiry in this case need to be seen holistically taking into account the scheme artifice and device employed by the players.

10. With respect to the reply of the company regarding price rise in the scrip consequent to trading by others, I note that para 9 to 12 of the interim order clearly demonstrates the manner by which price of the scrip was jacked up by few entities from `5/- to `263/- in 115 instances with nominal trading volume of average 23 shares per day which cannot be treated as normal trading behaviour. I also find that when the price of the scrip was moving upward through first trade, shares were being supplied by the company related entity among others viz., Mr. B. P. Jhunjhunwala who had bought the entire holding of the erstwhile promoters of the company. During the relevant time, I find that there are huge buy orders in the system as compared to only few sell orders which clearly indicate that trading was done in such a fashion in order to create artificial demand in the scrip with an intent to manipulate the price. The submission of the company that there was no corporate announcements by the company which can be resorted to influence the price of the scrip is no way different from our finding at para 4 of the interim order which says "there was no material corporate announcement made by First Financial which could support such price rise in its scrip.

Thus, the sharp rise in the price of the scrip of First Financial during the Examination Period was not supported by its fundamentals or any other genuine factor." Thus the submission of the company in this regard has no substance at all. 11. As regard the contention of the company that pricing of a scrip is a subjective issue and contingent upon forces of demand and supply and at no point of time either the stock exchange or SEBI had raised any alarm bells as to price movement in the scrip, I note that it is a common knowledge that movement in the price of a scrip is driven by various factors. The steep price rise with meagre volume followed by sudden increase in volume at high price cannot be assumed as a normal market trend when the buyers and sellers of Patch-2 are known entities of company, i.e., preferential allottees as seller and entities of First Financial group as buyer. The time taken to arrive at such decision/ action is dependent on the complexity of the matter, its scale and modus operandi involved and other attendant circumstances. SEBI Act enables SEBI to pass orders in the interests of the investors and securities market either pending investigation or completion thereof.

The facts and circumstances of this case were fit for issuing direction by the interim order during pendency of the investigation in the matter. It also relevant to mention here that there was price rise of almost 155% in the scrip even later from August 2014 to December 2014. I, therefore, do not find any merit in the contention of the company in this regard. 12. The contention of the company that it is a profit making company as opposed to being a loss making company and had given a dividend of `16,14,952/- during the Financial Year 2012-13 has no relevance since nowhere in the interim order it is mentioned that company is a loss making company nor there is any discussion/dispute about the payment of dividend in the entire order. I, therefore, find the submission of the company to be misplaced. 13. The company has contended that after seeing merit in its case, inter alia, in terms of its functioning, compliances and business prospects, the stock exchange had revoked the suspension. I note that the scrip remained suspended for 11 years (i.e., from June 05, 2000 to July 08, 2011). Thus the reply of the company that it took 11 years for them to show their merit to stock exchange for revocation of suspension is far from reality and hard to be believed by anybody.

Again the submission of the company that preferential allotment price was revised to `20/- pursuant to stock exchange direction is half baked truth. I note that company vide email dated September 17, 2011 provided detailed calculation to BSE for arriving at `19.97/- and stated that the company is willing to increase the price in accordance with the pricing calculation given by it or such other method as suggested by BSE. I also note that in the absence of any pricing history in the scrip of First Financial as required for arriving at minimum issue price, BSE accepted the fair market value as minimum issue price furnished by the company. In view of the same, I do not find any merit in the submission of the company. 14. The company has contended that complete information about First Financial and its business plans was provided by way of a detailed Information Memorandum to then proposed preferential allottees, who based on their assessment, decided to invest in the shares of the company. I, however, note that company was unable to/has failed to provide sufficient material on record such as how the preferential allottees were arranged, communication between preferential allottees and the company, Information Memorandum, etc. in order to substantiate its said contention.

The poor fundamentals of the company and tarnished track record as mentioned in the interim order, in my opinion would not entail investments from rational investors unless the company and the preferential allottees are known to each other and there is prior arrangement between them for issue of shares. I, therefore, reject the contentions of the company in this regard. 15. The contention of the company that after giving permission to make preferential allotment, granting listing and trading permission for the shares issued in preferential allotment, the issuance of the same cannot be questioned, has no merit as preferential allotment is like any other corporate action/instrument which is allowed as per the extant regulations for raising funds by corporate bodies for the purpose of business requirements. However, the same become questionable/doubtful when it is used as tool for implementation of any dubious plan or mala fide intention as done in the instant case in the manner described in the interim order. I, therefore, find no materiality in the submission of the company that nobody raised grievance about preferential allotments made by the company during the relevant period and hence reject the same.

16. The company has contended that no material has been brought on record to demonstrate any kind of nexus or prior arrangement between the allottees and the company and its directors/promoters. I note that the company is unable to demonstrate or provide plausible reasons as to why any rational investor would like to invest in such a company who has neither any trading history nor have any financial or business presence/recognition in the market. In my view, the same can only be possible if there is nexus between allottees and company and its directors/promoters. In view of the same, I do not find any merit in this contention. 17. I note that non existence of the office of First Financial at its registered and corporate office addresses has been dealt in the interim order. I further note that a copy of the BSE's Visit report was provided to the company at its request. It is also noted that apart from what is mentioned in the interim order and BSE's visit report, the company has not submitted any additional material or evidence in support of its argument or denial with respect to the allegation in this regard.

I note that the contention of the company that there was an error on the part of BSE 's visit to address of Nariman Point that has led to incorrect observations and distorted conclusions being drawn against them has no bearing on the finding or outcome that "First Financial does not exist at the registered and corporate office addresses available as per BSE’s record, where it is listed". I note that the company has only picked the select lines of the BSE's visit report as well as of the interim order and reproduced the same in its own favour. In fact said finding is a conclusion based on BSE’s visit to all the addresses mentioned by the company to ensure/assure the existence of the company or otherwise. I find it strange that a listed company which is able to raise crores of rupees though preferential allotment does not have staff as well as premise of its own. I, therefore, do not find any merit in the submission/contention of the company and hence it is rejected.

18. First Financial has contended that its preferential allotment is a matter of record and it had no role to play in the trading done by various entities in the scrip and neither the company nor its directors have dealt in the shares of First Financial. I note that as mentioned in the interim order, key to the scheme of operations employed by the First Financial Group lies in the preferential allotment of shares made by First Financial. The modus operandi as discussed in the interim order could be possible only if First Financial and its promoter/directors, the preferential allottees and the entities of First Financial Group were hand in glove with each other.

19. First Financial has submitted that merely on the basis of shares being sold by the promoters of the company to Mr. B. P. Jhunjhunwala, no connection or link with Mr. B.P Jhunjhunwala can be alleged. I note that company has not provided any supportive documents or any material evidence in support of its argument or to prove that Mr. B. P. Jhunjhunwala is not connected to the company. Further, the interim order speaks out the manner in which the shares were bought by Mr. B. P. Jhunjhunwala and his family from the erstwhile promoters and sold in the market during Patch-1. The claim of the company that promoters of the company had sold shares in the open market on the platform of the exchanges is false and baseless because as per the RTA viz. Bigshare Services Pvt. Ltd. the shares sold/transferred by the erstwhile promoters (Mr. P. Natarajan, Mr. N. Nithya and Ms. N. Jayanthi) to Mr. B. P. Jhujhunwala and family were in physical form. The same is corroborated by the fact that shareholding disclosed by company in BSE for the quarter ending on December 2011 indicates that all the shares of the company were in physical form including promoters. I also find from the submission of erstwhile promoters during subsequent proceedings that shares were sold to Mr. B.P. Jhunjhunwala and his family under a memorandum of understanding (MoU) executed between both the parties on May 27, 2010 whereby acquirer (Mr. B.P. Jhunjhunwala and family) has agreed to purchase 21,76,650 equity shares (58.08% of the share capital of the company) comprising both promoter and non-promoter holding. Further, the contention of the company that based on the trading by Mr. B. P. Jhunjhunwala, it cannot be concluded that First Financial alongwith other entities “acting in connivance under a pre-planned arrangement had artificially increased the price during the lock-in period” does not hold good in view of the facts as discussed above. As far as basis of connection not being spelt out is concerned I note that, pending investigation, prima facie connection between the directors of First Financial and Mr. B.P Jhunjhunwala and family has already been highlighted in the interim order. In view of the same, I find no merit in the contention of the company.

20. The contention of the company that there is no such First Financial Group as the whole grouping is misleading and company have erroneously been lumped with others without any basis is devoid of any substance. In this regard, I note that the connections highlighted in the interim order and conclusions drawn based on these connections are pursuant to preliminary examination in the matter and material available in support. Pending investigation in the matter, I note that these prima facie connections of the First Financial Group alongwith their trading/dealing in the shares of First Financial and the circumstantial evidence as mentioned in the interim order lead to the prima facie inference that acts and omissions of the First Financial Group are fraudulent. 21. In my view, the connection between two entities can be established on the basis of common director. Further, the submission of the company that fund transfer between First Financial and Global Infratech as mentioned in the interim order was towards the purchase of 1915 shares of Vinmay Agro Pvt. Ltd. @ `100/- per share and 5,000 shares of Anugraha Jewellers Ltd. @ `1.70/- per share is not acceptable as such fund transfer itself indicates the connection. I, therefore, reject the contentions of the company in this regard.

22. I find that the contention of the company that it cannot be connected to Jhunjhunwala group and others as alleged in the interim order on the basis of connection of Mr. S. Krishna Rao with these entities is baseless and without any reason. Except for denial the company has not put forth any evidence in support of its argument. I note that not only the contention of the company are superficial and groundless but are also false which is evident from the company’s denial about the fund transfer between them and the companies of Jhunjhunwala group whereas the company’s own bank account (HDFC bank A/c no: ‘12842000000603’) indicate that funds has been transferred to Onesource Idea Pvt. Ltd., Onesource Tech Media Pvt. Ltd., BPJ Holding and Mala Jhunjhunwala. Apart from this, interim order has indicated additional grounds of connection between company, its director and Jhunjhunwala group such as common directorship and common shareholders that are based on filings by these companies with MCA which again proves how well the company, its director and Jhunjhunwala group are connected to each other.

I, therefore, find no merit in the contention of the company. 23. Apart from the above contentions, I find no substance or material in the submissions of First Financial with respect to connection with various entities as mentioned in the order. The company has neither given any plausible submission nor has brought any material on record to substantiate its reply. Mere denial of the connections or not being aware of the connections is not sufficient enough to be considered and has no bearing on the findings of the interim order. As far as submission of the company with respect to fund transfer to various entities is concerned, the same is being dealt at later part of this order. 24. The claim or contention of the company that they are not aware that entities of the First Financial group had provided profitable exit to the preferential allottees and no adverse inference can be drawn against them based on the trading between entities of First Financial group and preferential allottees has no merit and seems to be a farce in the backdrop that company has acted as a platform to the preferential allottees by issue of equity shares on preferential basis whereby the entities of First Financial group provided exit to these preferential allottees after lock-in so that the preferential allottees can claim LTCG for their unaccounted money as envisaged from the interim order.

This becomes more evident from various circumstantial factors like in spite of having poor track record and weak fundamentals company was able to garner crores of rupees through preferential allotment, immediate transfer of preferential money to various entities on the pretext of loan without utilising for the purpose for which it is raised, abnormal rise in price and volume of First Financial scrip during the relevant time, connections found with different entities, manner of trading between preferential allottees as seller and entities of First Financial Group as buyer, etc. In fact, I note that the basis of the interim order is about the modus operandi of the schemes, plan, device and artifice employed in the instant case by the company and its related entities including First Financial Group to benefit the allottees in a manner that is fraudulent and contravention of securities market regulations. In view of the same, I find no grounds in the submission of the First Financial that nothing is there on record to bring out any nexus between company and others (i.e. sellers and buyers).

Again, the company in its reply has contended that no basis has been brought on record to show that “the entities of First Financial group bought most of the shares sold by the allottees” except for mere say so. In this regard, I find that the company has raised a minor technical issue that trading details of First Financial group entities are not furnished/provided in the interim order which according to me is any way given in a summarized form in para 16 of the interim order. The said contention of the company does not negate the fact that entities of the First Financial Group have traded in the scrip of First Financial in the manner as described in the interim order. In order to substantiate my findings in this regard the trading details of the entities of First Financial Group is enclosed as Annexure. 25. With respect to the contention of the company that no details of the instances/cases wherein buyers are related/connected entities of the preferential allottees have been spelt out, I note that the said instances are mentioned at sl. no. 18, 19 and 55-57 under Table III of para 15 of the interim order.

In view of the same, I reject the contention of the company.

26. The company has contended that name of the alleged preferential allottee who is also the director of Atash Transport has not been spelt out thereby severely incapacitating the company to give an effective reply. I note that that the directors of Atash Transport were also directors of BLC Trading Agencies who had fund transfer with First Financial. Further, the said contention have no bearing on the directions of the interim order as this is an indication that entities trading in the scrip of first financial during the relevant time are directly or indirectly related to First Financial.

27. The company has contended that funds raised by it have been profitably deployed by the company and the same is also evidenced by financials of the company wherein PAT of the company has increased. I note that company has not provided any material/evidence to indicate how and where the funds are utilised and what are the outcomes of those utilisation. Further, regarding increase in PAT is concerned, how such increase is ascribed to deployment of proceeds of preferential allotment has not been brought out by First Financial. Also, the transfer of funds to various entities as mentioned in the interim order under the name of loan arrangement as stated by the company cannot be termed as profitable deployment of funds without any interest being levied. In view of the same, I note that the submissions of the company are from realty and cannot be accepted. 28. With regard to the contention of First Financial that funds given as loan to Ms. Bina Hemanshu Mehta and the Parikh group by the company cannot be insinuated to have been supplied for the purpose of trading in the scrip of the company in the market, I note that the above fund transfer is an indication of the link/connection/relationship between the parties as well as indication of the utilisation of the preferential allotment money as opposed to its disclosure under section 81(1A) of Companies Act 1956 to shareholders and general public with regard to purpose of fund raising.

Coming to loan part, I find no credibility in company's submission that fund has been given to Ms. Bina Hemanshu Mehta and Parikh group as loan since no loan agreement or any other similar document to that extent was provided by the company to demonstrate that fund given to Ms. Bina Hemanshu Mehta was under loan arrangement. Further from the ledger account provided by the company I note that no interest was being charged for the fund given to the parties under the pretext of loan. According to me, this type of arrangement can only happen if the lender and borrower are well known to each other and cannot be termed as mere business/commercial relationship. I also note that company had given similar submissions with respect to fund transfer to Lakshya Global Logistics, Chiraag suppliers Pvt. Ltd., Nandlal Vyapaar Pvt. Ltd., Tirupati Developers Pvt. Ltd., Advent Developers Pvt. Ltd. and Kuber Kamna Marbles Pvt. Ltd. where my findings remain the same as above. The contention of the company that Mr. S. Krishna Rao was never the director in Chiraag Suppliers Pvt. Ltd. and Nandlal Vyapaar Pvt. Ltd. is again false and baseless.

The annual returns filed by these respective companies with the MCA clearly indicate that apart from being a shareholder, Mr. S. Krishna Rao has served as a director in these companies. I, therefore, reject the contentions of the company. 29. The submission of the company that funds transferred to Marsh Steel Trading Ltd. (`1,00,00,000/-) Vision Steel Ltd. (`50,00,000/-) and Noble Express Services Pvt. Ltd.

(`50,00,000/-) was towards allotment of shares in these companies is reiteration of what is being mentioned in the interim order and thus there is no difference of opinion by the company. The rationale behind such finding in the interim order is to indicate the utilisation of fund received as proceeds of the preferential allotment instead of utilising for the purpose as mentioned in the resolution passed under section 81(1A) of the Companies Act, 1956. There is no allegation in the said para of the interim order specific to the said transactions that the preferential allotment money was routed to alleged buyers. However, in the context of modus operandi in the instant case as brought out in the interim order, it is a prima facie finding that “number of entities who were the preferential allotees in the present case, were regularly investing in companies for namesake and the money invested by them in these companies was being returned to them indirectly”. However, this is a matter of further investigation. Further, from the shareholding of Marsh Steel Trading Ltd. and Vision Steel Ltd. furnished by the company, I find few entities of First Financial group, namely, Minimum Shares and Securities Pvt. Ltd. and Blue Circle Services Ltd. are also shareholders among others including First Financial which again supports finding in the interim order that company has invested in connected/related companies.

I, therefore, find no substance and reject the submissions. 30. The submission of the company that fund transfer with the Comfort group and its director is either for security deposit towards lease of commercial premises at Kolkata for running the spa business of First Financial or for purchase of shares or for the purpose of loan is matter of detailed investigation. The fund transfers (i.e., transfer of `3,78,36,757/- to comfort group from company and transfer of `30,53,197/- from comfort group to company) per se, is an indication of the link/connection/relationship between the First Financial, the Comfort Group and its directors. Coming to the loan part, I find no credibility in company's submission that fund given as loan since no loan agreement or any other similar document to that extent was provided by the company to demonstrate that fund given to the Comfort Group and its director was under loan arrangement except for ledger account which is an internal record. As regards to the claim of the company that funds were given to Comfort Securities for purchase of shares of other companies in support of which the company has provided documents indicating utilisation of funds transferred to Comfort Securities vide letter dated March 20, 2015 is subject matter of detailed investigation.

According to me this type of fund arrangement can only happen if the transferor and transferee are well known to each other and cannot be termed as mere business/commercial relationship. The submissions/contention of the company have no bearing on the findings or observations of interim order. I further note that transfer of `11 crore to the Comfort Group entities and receipt of `4 crore from the Comfort Group, is a typographical error and being mentioned inadvertently instead of `3,78,36,757 and 30,53,197 respectively. The said change in figures will have no bearing on the finding/directions of the interim order. 31. I note that no material evidence was put forth by the company with respect to its submission that company had started planning deployment of funds once the preferential allottees gave their consent. As per the process/practice followed in any listed company, pursuant to the board approval for issue of equity shares on preferential basis, money is being collected from interested preferential allottees and thereafter allotment of shares to preferential alottees are being made.

Thus, in my view, consent of the preferential allottees is said/taken to be confirmed pursuant to their payment towards subscription. In the instant case, monies received from preferential allottees are immediately transferred to various entities in the manner as described in the interim order and hence not in support of the above submission of the company. Further, I do not find any material being furnished by the company to substantiate its denial that funds were not retained in the company for expansion of its business. I, therefore, find submissions of the company vague and far from realty. 32. First Financial has contended that details has not been specified with respect to the observation that funds are being routed through various channels before reaching the end users who are basically the buyers in Patch-2 that provided exit to the preferential allottees. In this regard, I note that the said observation is prima facie based on the transfer of preferential allotment monies by/from the company to various entities in the manner as mentioned in the interim order which again is not in accordance with the special resolution passed under section 81(1A) of the Companies Act, 1956. The same gets more relevant in the context of the modus operandi in the instant case as brought out in the interim order.

I further note that company asking about who are the "end users", "who are these buyers in Patch-2" is irrelevant from the backdrop that it is specifically set out in the interim order that buyers in Patch-2 are the First Financial Group entities whose details are provided in para 15 of the interim order. I, therefore, reject the submission of the company. 33. The company contended that routing of funds received from Singhal family members, back to Singhal Group Company is incorrect and completely contrary to the factual position on record. To this, I note that dispute of such nature if any is common in business families and same cannot be used as a valid argument for defence for the allegations mentioned in the interim order. Further, the dispute of any such kind has no bearing on the findings of the interim order. Again I find that the company itself in a way has invested money of member of one Singhal family into another which is not in support of its above argument. Thus, the contentions of the company are baseless and devoid of any substance in this regard.

34. I note that the observation in the interim order that entities who had received funds from First Financial after the preferential allotment had later transferred it to First Financial is derived from the bank statement of the company itself which cannot be vague, bald and sweeping as contended by the company. Further, the said observation is supported by the reply of the company at various occasions wherein it has stated that monies given on loan were repaid by the entities. In my view, company is at better position as compared to others for understanding each and every transaction in its bank statement. Thus, saying that they were being incapacitated to reply by not providing details is unacceptable and hence rejected. 35. The submission of the company that they had no other relationship with Anil Agarwal HUF, Mr. Suresh Khandelia and Ms. Manju Khandelia and Lakshya Global Logistics except for them being the preferential allottee is devoid of any substance. I find that except for the mere denial, no material evidence has been put forth by the company in support of its contention and to counter the findings in the interim order that clearly spell out the connection/relationship of these entities with First Financial apart from being preferential allottee.

I, therefore, find no merit in the contention of the company. 36. I note that company’s submission about fund transfer to Chiraag Suppliers Pvt. Ltd. and Nandlal Vyapaar Pvt. Ltd. has already been dealt with in the above paras. However, the submission of First Financial that neither the said two directors of the company nor the said two companies had traded in the shares of the company during the examination period is out of context as nothing of that sort is mentioned or alleged in the interim order with respect to these entities. 37. I note that as mentioned in the interim order and also discussed hereinabove, key to the scheme of operations employed by the First Financial Group lies in the preferential allotment of shares made by First Financial. I also find that preferential allotment was used as a tool for implementation of the dubious plan, device and artifice of the First Financial Group and the preferential allottees in the manner as mentioned in the interim order. Further, it is beyond doubt that preferential allotment is an essential and important act in the whole scheme and the need to make such preferential allotment to achieve the end objective of the scheme has been amply brought out in the interim order.

38. I note that the interim order has reasonably highlighted about the modus operandi wherein the company in nexus with the allottees was able to float equity shares on preferential basis and thereafter entities of the First Financial Group alongwith others and in concert with the preferential allottees misused the stock exchange mechanism to provide exit to preferential allottees at a high price in order to generate fictitious long term capital gain (LTCG). I further note that in some cases the interim order has explicitly brought the relations/connections/link among the company, the preferential allottees and the entities of First Financial Group whereas in others inter se connection has been mentioned. I note that the interim order has described the manner in which price and volume of the scrip were manipulated by entities of the First Financial Group, the preferential allottees and others that are fraudulent in terms of the PFUTP Regulations, 2003 and in contravention of various provisions of the SEBI Act, 1992. The company has not given any plausible reply or evidence except for general denial.

39. The facts in the instant case clearly reveal that the directors of First Financial had failed in their duty to exercise due care and diligence. Facts of the case indicate that directors of the company were responsible for bringing the scheme of preferential allotment of equity shares that was used as tool for implementation of the dubious plan, device and artifice of the First Financial Group and the preferential allottees. This scheme of preferential allotment has resulted into misuse of stock exchange system by the entities of the First Financial group, the preferential allottees and others in a manner that are fraudulent in terms of the PFUTP Regulations, 2003 as brought out in the interim order. Further, as specified in the interim order, the purported connections of these directors with the entities of the First Financial Group indicate that they are hand in glove with the entities of the First Financial Group. From this, I note that the whole scheme of operations starting from issue of equity shares on preferential basis to exit of preferential allottees at a very high price could not have been fructified without the involvement and co-operation of the directors of First Financial.

40. It is pertinent to mention that the whole time director of the company, Mr. Nirmal Singh Mertia, in a discussion with SEBI was unable to give satisfactory reply about the operations of the company, the various transactions appearing in the Annual Report of the company for the Financial Year 2011-2012 and 2012-13 and the bank statements of the company for which he was the authorized signatory, various entities appearing in the bank statement, etc. Therefore, the claim of the company that had SEBI sought the requisite information from it, no directions against the company would have been passed has no merit. 41. Before concluding, I deem it relevant here to deal with request of the company to allow them to liquidate shares worth of `6,13,62,910/- lying in its demat account as well as with its stock broker and clear the debit balance of the stock broker to the tune of `89,82,509/-. In this regard, I note that the shares of other companies held by First Financial, a listed company, are representing the interests of its shareholders in these assets. I find the request of the company to be reasonable as exposing the assets to any adverse movement in the prices of securities in the underlying portfolio may harm the interests of shareholders and is therefore, avoidable.

Considering the facts and circumstances of this case, I allow First Financial to liquidate the shares lying in its demat account. The shares owned/purchased by First Financial which are stated to be lying with the broker may be credited to their demat account and then liquidated. The liquidation of shares shall be in an orderly manner under the supervision of the exchanges so as not to disturb the market equilibrium. The sale proceeds shall be kept in separate escrow account with the stock exchanges and the amount lying therein shall not be utilised till investigation is complete in the matter. I further note that Comfort Securities being the stock broker of the company has been alleged in the interim order for their suspected role in the modus operandi/scheme of preferential allotment. In this background and pending investigation in the matter, I note that the request of the company to allow them to clear the debit balance of the broker from the above sale proceeds of the shares cannot be acceded. As regards request of First Financial to withdraw the suspension of trading in its scrip, I note that the suspension of trading is not subject matter of the interim order, and hence, the same is not be dealt herein.

42. The interim order has clearly brought out that First Financial, its directors, entities of the First Financial Group and the preferential allottees have acted in connivance for implementation of dubious plan, device and artifice that has led to the misuse of stock exchange mechanism to artificially increase price and volume of the scrip. The acts and deeds of these entities had the potential to induce gullible and genuine investors to trade in the scrip and harm them. The company has failed to give any plausible reasoning/explanation for its acts and omissions as dealt in the interim order and have not been able to make out a prima facie case for revocation of the interim order. I also note that investigation in the matter is in progress and appropriate decision, in accordance with law, would be taken after completion thereof. In this case it has, inter alia, been found that First Financial acting in concert, brought/cropped the scheme of preferential allotment of shares that indulged the preferential allottees and entities of first financial group in fraudulent and manipulative trading by way of trading amongst themselves, trading at prices above LTP, etc. thereby creating unnatural and artificial volumes in the scrip of First Financial and manipulated its price.

As prima facie found in the interim order, First Financial, in nexus with the preferential allottees and entities of First Financial Group, has acted under a pre-mediated plan and misused the stock exchange system to provide LTCG benefits to the preferential allottees that has not only eroded the market integrity but has also been detrimental to the interests of investors who might have been lured to invest in the scrip due to such manipulative and fraudulent trading in the scrip and price movement. I, therefore, do not find any reason to revoke or modify the directions of the ad interim ex parte order dated December 19, 2014 in the matter of First Financial except to the extent modified by direction in para 41 above.

43. Considering the above, I, therefore, in exercise of the powers conferred upon me under section 19, read with sections 11(1), 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 and sections 12A of the Securities Contracts (Regulation) Act, 1956, hereby confirm the directions contained in the ad interim ex parte order as against First Financial with modification as stated above. The replies/submissions of other entities covered in the ad interim ex parte order dated December 19, 2014 are being dealt with separately in separate order/s. 44. A copy of this order shall be served on all recognized stock exchanges and depositories to ensure compliance with above directions.

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DATE: APRIL 20th, 2015 RAJEEV KUMAR AGARWAL PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

Annexure Client PAN Name Scrip name Gr Buy Gr Sell Gr Buy Gr Sell Vol. Vol. Value (`) Value (`) AAACB2131L Blue Circle Services Limited First 36634 6000 10894278.10 1743600.00 Financial Services Ltd AAACD9125E Dynamic Portfolio First 15734 157340 3836980.00 1274454.00 Management & Services Ltd Financial Services Ltd AAACF4311Q Forever Flourishing Finance First 20000 20000 5926000.00 5000000.00 & Investment Pvt. Ltd. Financial Services Ltd AAACF4335Q Roshan Kumar Drolia First 44000 440000 12855500.00 3608000.00 Financial Services Ltd AAACL4269P Padma Impex Private First 1330537 161471 113604628.53 14140539.64 Limited Financial Services Ltd AAACL5784F Linton Consultantants First 30000 300000 8561750.00 2455500.00 Private Limited Financial Services Ltd AAACL5973G Life Line Marketing Pvt. Ltd. First 45500 455000 13447622.50 3685500.00 Financial Services Ltd AAACU3269L Ushita Trading And Agencies First 38636 386360 11322222.15 3112584.20 Limited Financial Services Ltd AAACW2314A Waltare Investment Pvt Ltd First 49000 490000 13950250.00 3944500.00 Financial Services Ltd AABCA4255H Global Infratech & Finance First 646000 0 18505999.25 0.00 Limited Financial Services Ltd AABCB0636K BSR Finance And First 45500 455000 12845700.00 3718004.55 Construction Ltd. Financial Services Ltd AABCB2575P Burlington Finance Limited First 17500 175000 5011350.00 1430000.00 Financial Services Ltd AABCB3052B Bazigar Trading Private First 58000 580000 16430925.00 4821919.10 Limited Financial Services Ltd AABCC0603M Parmanand Drolia First 40000 400000 11678250.00 3220000.00 Financial Services Ltd AABCE2412N Vivek Agarwal First 429000 2040000 49173435.70 16550500.00 Financial Services Ltd AABCG9640C Bimal Kumar Drolia First 42000 420000 12228000.00 3391500.00 Financial

Services Ltd AABCG9641D GRD Enclave Pvt. Ltd. First 23000 230000 6658500.00 1856000.00 Financial Services Ltd AABCH2251E Hari Om Suppliers Pvt. Ltd. First 63800 580000 18402780.00 4698000.00 Financial Services Ltd AABCJ6667L Jaihanuman Multi Agencies First 252377 252377 71338506.85 71416616.05 Private Limited Financial Services Ltd AABCM6864G Vijay Kumar Shah First 20000 0 5740000.00 0.00 Financial Services Ltd AABCR1974J Ritesh Commercial Holdings First 28100 281000 7857600.00 2273750.00 Limited Financial Services Ltd AABCR2457G Rajani Investment Private First 3063327 0 25186041.38 0.00 Limited Financial Services Ltd AABCR2488R R K Investment Private First 3275051 0 26902932.10 0.00 Limited Financial Services Ltd AABCR2904A R C Suppliers Private Limited First 34000 340000 9885500.00 2747300.10 Financial Services Ltd AABCR3482R Raina Vyapaar Private Ltd. First 94180 941800 27459160.00 7608871.05 Financial Services Ltd AABCT1134Q Tara Chand Agarwal First 119000 1190000 35209500.00 10021000.00 Financial Services Ltd AACCA3220D Amrit Sales Promotion Pvt. First 135500 1355000 37074232.50 11167000.00 Limited Financial Services Ltd AACCH8988B HS Tradecom Private First 219790 60190 63804199.05 17609307.50 Limited Financial Services Ltd AACCJ8342D Jayine Tradecom Private First 287151 287151 80594904.50 80530649.50 Limited Financial Services Ltd AACCK2399D Kripa Securities Pvt. Ltd. First 1958501 804670 80118198.23 43316440.12 Financial Services Ltd AACCM0579K Madsan Agencies Private First 35000 0 10253850.00 0.00 Limited Financial Services Ltd AACCM1042R Motorex Finance Pvt. Ltd. First 22000 0 6505250.00 0.00 Financial Services Ltd AACCM6582E Pride Distillery Private Ltd. First 4261022 430707 39610205.24 7599380.83 Financial

Services Ltd AACCN9567A Navdurga Investment First 511873 0 6362893.10 0.00 Consultants Private Limited Financial Services Ltd AADCG8045K Goldstar Tracom Private First 61000 610000 17509400.00 4941000.00 Limited Financial Services Ltd AADCK9346B Kalakar Commercial Private First 65800 579910 18921360.00 4695764.55 Limited Financial Services Ltd AADCM4316K Manimudra Vincom Private First 34900 349000 10003625.00 2860650.00 Limited Financial Services Ltd AADCN9427C Nityadhara Plaza Private First 447968 0 82475773.45 0.00 Limited Financial Services Ltd AADCR6224M Ritesh Projects Private First 11000 110000 3038500.00 891000.00 Financial Services Ltd AADCR7368C Ranisati Dealer Private First 65817 65817 18868958.15 11831314.50 Limited Financial Services Ltd AADCS5411K Symphony Merchant Pvt. First 8500 225000 2491700.00 1850000.00 Ltd. Financial Services Ltd AADCS9429B Shree Sudharshan Castings First 51000 44500 14767200.00 12816250.00 Pvt Ltd Financial Services Ltd AADHB8488A Bharat Bagri Bagri First 121 121 9474.70 32512.70 Financial Services Ltd AAECD4759L Dhanlakshmi Brokers Private First 365776 181152 104538681.55 52519278.50 Limited Financial Services Ltd AAECM0267A Pine Animation Limited First 136000 0 38808475.75 0.00 Financial Services Ltd AAECP2470J Prefer Abasan Privete First 55000 55000 16250687.80 14469120.50 Limited Financial Services Ltd AAECS0352C Stardox Vinimoy Private First 80500 805000 23287622.60 6511475.00 Limited Financial Services Ltd AAFFV5756K Value And Worth First 45000 450000 12393000.00 3657000.00 Financial Services Ltd AAGCM0970Q Minimum Shares And First 4276622 0 34884491.67 0.00 Securities Private Limited Financial Services Ltd AAHFM8098F Master Securities First 246001 0 54000374.25 0.00 Financial

Services Ltd AAJCS0595E Swarnapriya Vanijya Private First 60000 500000 17165900.00 4170000.00 Limited Financial Services Ltd AAJCS0597G Swarna Pushpa Vanijya First 65000 650000 18714250.00 5385000.00 Private Limited Financial Services Ltd AAJCS0680C Surbhika Vyapaar Private First 65000 485000 18621750.00 6362500.00 Limited Financial Services Ltd AAKCA4137B Astabhuja Construction First 591375 0 73793598.30 0.00 Private Limited Financial Services Ltd AAUPM6284E Nirmal Kumar Malhotra First 3056650 0 24680934.97 0.00 Financial Services Ltd AAWPC3158M Veena Mohanlal First 3088030 0 24942378.00 0.00 Chandiramani Financial Services Ltd ABLPA9728M Sumitra Devi Agrawal First 310 310 79245.75 84725.00 Financial Services Ltd ACTPV2787Q Shyam Kanheyalal Vyas First 1350 1350 354914.25 367880.00 Financial Services Ltd AFAPN8764M Prem Lata Nahar First 844 844 100054.05 227880.00 Financial Services Ltd AHKPD0543J Kirit Vasudeo Dave First 3830021 5000 36823448.91 41450.00 Financial Services Ltd ALGPS0859J Santosh Kumar Shah First 129500 2135000 37942856.25 17408500.00 Financial Services Ltd

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DATE: APRIL 20th, 2015 RAJEEV KUMAR AGARWAL PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA