Order in respect of IQMS Software Limited and others

WTM/RKA/EFD/ 18 /2016 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA ORDER Under section 11(4) and section 11B of the Securities and Exchange Board of India Act, 1992 in respect of: 1. IQMS Software Limited, 2. K. V. N. Vijaya Simha, 3. K Vijaya Kumar, 4. K.J.V. Nageswar, 5. J. Satya Suryanarayana, 6. T. Sivaramprasad 7. M. Gopala Krishna Chowdary, 8. Ram Raju V Indukuri, 9. Uma Maheshwar Rao Koneru, 10. Vemulpalli Prasad 11. Kamineni Shridhar 12. Gummadi Srinivas and 13. G. Venkataramana In the matter of IQMS Software Ltd. (Now Known as Firstobject Technologies Limited) 1. IQMS Software Ltd. (hereinafter referred to as "IQMS/Company" and now known as Firstobject Technologies Limited)) is a public limited company incorporated on March 03, 2000 having its registered office at Hyderabad. Securities and Exchange Board of India ("SEBI") conducted an investigation into the alleged irregular transactions in the scrip of IQMS for the period November 14, 2000 to December 15, 2000 (hereinafter referred to as “the investigation period”) to ascertain whether any provisions of the Securities and Exchange Board of India Act, 1992 ("SEBI Act") and Rules and Regulations made there under have been violated. The investigation, inter alia, revealed as under: 1) IQMS was incorporated as a public limited company to carry out the business of designing and developing software systems, products and solutions. At the relevant time, the shares of IQMS were listed on Bombay Stock Exchange Limited (hereinafter referred to as "BSE") and Hyderabad Stock Exchange Limited (hereinafter referred to as "HSE").

Order in the matter of IQMS Software Ltd

2) K V N Vijaya Simha (Managing Director), K Vijaya Kumar (Executive Director), K J V Nageswar, J Satya Suryanarayana, T Sivaramprasad, M. Gopala Krishna Chowdary, Rama Raju V Indukuri, Uma Maheshwar Rao Koneru, Vernulpalli Prasad, Kamineni Shridhar, G. Venkataramana and Gummadi Srinivas, were the promoter-directors of the company as per the prospectus. 3) IQMS came out with an initial public offer (“IPO”) of 45,00,000 Equity Shares of ₹10 each for cash at par aggregating to ₹450 Lakh. The issue opened on September 28, 2000 and closed on October 3, 2000. M/s Fedex Securities Ltd., Mumbai was the Lead Manager to the issue. M/s Bigshare Services Pvt. Ltd. Mumbai acted as the Registrar to issue (“RTI”) and share transfer agent (“STA”) of IQMS. The Bank of Madura Ltd. (now taken over by the ICICI Bank), D.N. Road, Mumbai and the Federal Bank Ltd. Fort, Mumbai were the Bankers to issue. IQMS received 2647 applications for 44,69,900 shares out of which 55 applications for 35,400 shares were rejected as invalid. Thus, in all 2592 applications for 44,34,500 shares were found to be valid and the allotment of shares was made accordingly.

4) In the above said public issue, Kalpesh K Chawalla, Hemang Jangla Group and Pankaj A Desai Group applied for shares through 34 applications. They were allotted 10,07,200 shares in the IPO which constituted 22.71 % of the total shares allotted. 5) Based on the investigation, it was alleged that that IQMS got its public issue subscribed by the said two groups by 22.71 % using the funds of IQMS in order to circumvent the provisions of section 69 of the Companies Act, 1956 as well as the SEBI (Disclosure and Investor Protection) Guidelines, 2000 (hereinafter referred to as “DIP Guidelines”) so as to avoid refund of the subscription amount falling below the minimum level of 90%. It is alleged that IQMS by getting its public issue subscribed by the said two groups by 22.71% using the funds of IQMS has violated 6.3.8.1 of DIP Guidelines, 2000. It is also alleged that the initial share application money of ₹5 per share was to be paid by October 3, 2000 (the last date of the issue) and the balance call money of ₹ 5 per share was to be paid within 12 months, which was not paid. However, IQMS neither took necessary steps to make the shares fully paid up within 12 months from the date of allotment nor forfeited the share application money received through the public issue, thereby violating the provisions of the Clause 8.6.2 of DIP Guidelines.

2. In view of the above, SEBI issued a combined Show Cause Notice dated June 29, 2009 (hereinafter referred to as “SCN”) to IQMS and its promoters/directors (hereinafter collectively referred to as “the Noticees” and individually by their respective names) calling upon them to show cause as to why appropriate directions under sections 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 (“SEBI Act”) including restraining them from accessing the securities market and prohibiting them from buying, selling or otherwise dealing in securities, for an appropriate period of time, should not be issued. 3. SCN issued to K V N Vijaya Simha, M Gopala Krishna Chowdary, Rama Raju V Indukuri, Vernulpalli Prasad, Kamineni Shridhar, Gummadi Srinivas and G. Venkataramana was returned undelivered. The SCN to aforementioned noticees was served through publication in newspapers on April 15, 2014. The SCN was also published on the SEBI website. 4. K. Vijaya Kumar, T. Siva Ram Prasad and K .J. Nageshwar vide their letter (received by SEBI on September 16, 2013) and J. Satya Suryanarayana vide letter dated September 09, 2013 replied to the SCN.

All these directors made similar submissions, inter alia, stating the following: a) They had received the SCN and the enclosed annexure alongwith the letter dated July 12, 2013. They did not receive any notice in 2009 as alleged in the said letter dated July 12, 2013. b) The notice is served after a very long delay of 13 years. Neither the witnesses who are essential for deciding this matter nor the documents that are required to be produced will be available after such a long lapse of time. The matter pertains to year 2000 and SEBI has not taken action till 2013. They shall be put to great prejudice in replying to the charges leveled against them, they cannot produce witnesses who are concerned in the matter nor can they produce the documents that may be essential for the defense. c) The SCN is common to 13 entities and their exact role have not been spelt out clearly for the violation of SEBI Act, Rules and Regulations by each of them. The allegations are totally vague and confusing and there is no mention of the evidence on which such allegation are based. It is a settled legal position that any person against whom any action is proposed to be taken by statutory authority acting in Quasi-Judicial manner, must be provided with all the necessary oral or documentary evidence on the basis of which such allegations have been made.

In this regard he relied upon the observation of the Hon'ble Supreme Court in Canara bank & Ors V Debasis Das & Ors. (2003) 4 CC 557. d) They are being denied the due opportunity to defend themselves with facts and evidences due to the humungous lapse of time of nearly 13 years. By any stretch of imagination, they are not required, either by law or by practice, to keep record for such a long time. e) The enclosed annexures to SCN are not at all readable. They are all worn out papers. They are denied the opportunity to defend themselves on that count.

f) They denied the allegation that the Company has caused Kalpesh Chawalla or Hemang Jangla or Pankaj Desai to subscribe to the shares of IQMS Software ltd. Even from the extracts of the SCN, it is clear that the company and its directors had no role in the alleged fraudulent subscription by the above-mentioned persons. g) They denied the charge that the Company had allegedly used its funds to get the IPO subscribed. The SCN has not given any reasons or cause to make such allegation. Even a cursory glance at the chronological occurrences of events repudiated such allegations. h) From the averments in the SCN, they are unable to identify their role in the entire subscription to IPO by the said persons. The SCN enumerates the acts of some outsiders other than the Noticees. i) It does not bring out any role played in the alleged violation of the clause 6.3.8.1 and 6.13.1.7 of the DIP Guidelines. j) The Company received subscription for more than 90% of the issued amount on the date of the closure of the issue. There was no failure in the level of subscription below 90%. k) The calls were structured in such manner that the entire subscription money is called within 12 months.

The Company did not choose to forfeit the shares in view of the worst prevailing stock markets then. All the shares were fully paid-up subsequently. There is no compulsion on the Company’s part that the shares must be forfeited in the event of non-receipt of the calls. In view of the above, the allegation that he violated the provisions of Clause 8.6.2 of DIP Guidelines, 2000 is misconceived and misconstrued and is therefore bad in law. l) There is no use of the Company’s funds to get its IPO subscribed. 5. Kamineni Shridhar vide letter December 09, 2013 replied to the SCN stating that he did not receive the SCN dated June 29, 2009 prior to December 07, 2013. He also submitted that he has never been a director of IQMS at any point of time. He also enclosed the names of the companies issued by the Ministry of corporate Affairs in which he is a Director. In view of the same, he submitted that no further action is required to be taken at his end on the SCN, which has been issued to the directors of IQMS. 6. IQMS on receipt of SCN had filed a consent application on January 20, 2013 for settlement of enforcement proceedings.

The said consent application was rejected by SEBI and he same was communicated to IQMS on November 25, 2013. In the meantime, IQMS vide a letter received by SEBI on October 28, 2013 replied to the SCN, inter alia, as follows:

1) SCN pertains to the issues related to the Year 2000. It was sent to the company’s address as it was in the Year 2000 and the company could not receive the same. In between 2000 and 2009 there were lot many structural changes including the change of office address of the company. 2) The Company’s Promoters and Directors as mentioned in the notice and their resignations and exit from the company are as tabulated here under:-

S. No Name of the Promoter / Year in which Resigned Director from Board 1 K. V. N. Vijaya Simha 2007 - 08 2 K. Vijay Kumar 2005 – 06 3 K. J. V. Nageshwar 2002 - 03 4 J. Satya Suryanarayana 2010 - 11 5 T. Sivaramaprasad 2005 - 06 6 G. Venkata Ramana 2002 - 03 7 V. Prasad 2002 - 03 8 M.G.K Choudhary 2005 - 06

3) The SCN was issued to the above promoters / directors. However, except one, J. Satya Suryanarayana, all the others had left / resigned from the Board prior to 2005 – 06. Whereas J. Satya Suryanarayan was the only one person who remained on the Board till 2010 – 11. It appears that the entire alleged cause of action against him has become time barred. Hence he is filing reply without prejudice to his right and contentions and under protest. SEBI is precluded from reigniting the cause of action in any manner whatsoever. 4) Along with the above mentioned directors the SCN was also issued to the company at an address relevant to that of the Year 2000 and company was not in receipt of the same. However on a check on www.watchoutinvestors.com the said SCN was appearing along with the company name. Hence company immediately took the decision to represent the matter with facts and seek Consent Terms. 5) As explained in the above table, when all other Directors / Promoters of the company left, the only director left out, i.e. J. Satya Surya Narayana, along with other independent directors in the year 2007 – 08 took the initiative of restructuring the company and in the process the company identified incubators / strategic investors with its products strength in Enterprise Resource Planning area and expanded the operations in IT/ ITES, Products and KPO Services. 6) Through a capital reduction and merger with court order dated 12th July, 2011 of Hon’ble High Court of Andhra Pradesh, the company is currently in the hands of New Promoters /

Directors. Pursuant to the Composite Scheme of Arrangement approved by the Final Order of the Hon’ble High Court, J. Satya Suryanaraya has also left the Board. 7) The New Promoters / Directors of the company and the Key Management Persons pursuant to Merger are as given below: a) Dr. Vivek Hebbar, Chairman & Director b) Sriram Kumar, Managing Director c) N. Shiva, Director d) P. Sailesh, Director, e) N. Iyer, Director f) Rajan V Pillai 8) Key Management Persons of the company are: Sriram Kumar, Managing Director and Ms. Jini Joy, Company Secretary 9) As per SCN that the company came out with an IPO in the year 2000.It is also alleged that the company Directors and Promoters (Then) have transferred the funds to the tune of ₹ 50,36,000/- to some of the subscribers to the issue. Whereas the facts of the matter are as follows: Reasoning Issue Size in Price Applications Total % age Number of Received shares ISSUE FOR 4500000 10 NA 450 100% TOTAL 4469900 10 2647 446.99 99.3% RECEIVED REJECTIONS 35400 10 55 3.54 0.8% NET 4434500 10 2592 443.45 98.54% ACCEPTANCE

10) The issue received a response to the tune of 98.54% of the total issue size and thus met with “Minimum Subscription of 90% requirement under DIP Guidelines. Here the subscription is not just 90% rather it is 98.54%. 11) The wide number of application i.e. 2592 gives a wide geographical spread of investors subscribed for the public issue. 12) Whereas the Contentious Issue as per show cause notice is, few individuals who in group subscribed for 34 + 8 = 42 applications and subscribed a quantum of ₹ 50,36,000/- 13) How these group of investors internally funded among themselves is not in the purview of the company. 14) The alleged group of subscribers who subscribed ₹ 50,36,000/- have taken back ₹ 49,99,000/-. It is not clear that when these subscribers are shareholders and when they have marketable securities with them post issue, why they have taken back the money and for what reasons the then Promoters / Directors paid the money. 15) The transfers to those subscribers for brevity’s sake have taken place post issue, but not during pre-issue. Thus company did not transfer any money prior to the issue for subscription of the issue, rather as per the show cause notice the company paid money to some of those subscribers post issue.

16) Company is an Artificial Legal Person managed by People. It is also a Perpetual Entity. Since 2010 company also diversified into E-Education and has been doing yeomen service in the education field by making education available to all at affordable rates. The company’s name now stands as “Firstobject Technologies Limited”. Company’s turnaround has been recognized by leading independent agencies and company was awarded “CANON INTERNATIONAL” Turnaround Company of the Year Award in February, 2012 17) Company also got the following Awards: 1) Wisitex Siksha Ratna – ICT Education in March, 2012. 2) All India Business Development Awards June, 2011. 3) Best IT / ITE’s Award Company from Kakinada Region in Sept, 2011. 4) Indian Leadership Award for Dr. Vivek Hebbar from All India Achievers Foundation, July 2011. 18) Company paid dividends to shareholders for the years 2009, 2010 & 2011.Company today has got a very high caliber Board and they are directing the company in a right directions. Company currently employs 150 people in all its locations at Mumbai, Hyderabad, Kakinada and Vizag.

The new promoters pursuant to merger are highly committed and have good credentials. 19) The SCN was Primarily Meant for the Actions of the then promoters and directors numbering around 12. Company’s name was added in the Notice besides the 12 names of the then promoters & directors. 20) Company as an Artificial Legal Person has done no wrong as it has no-eyes, ears or hands as a Natural Person, but the mistakes done (Without prejudice) as alleged in SCN pertains to the wrong acts of the then directors & promoters. 21) The new Promoters & Directors are not a party to any of those acts of the period in 2000. Directly or indirectly they have “no role”, excepting that they are carrying the company in growth path and Working Hard for Wealth Maximization of Shareholders. 22) The current matter did not come to the notice of the Current Promoters till December 2012 that too when a well-wisher of the company informed the presence of a Show Cause Notice on www.watchoutinvestors.com website.

23) On perusal of the Show Cause Notice it is evident that Company did not gain any in pecuniary terms for the acts of the then directors as alleged in Show Cause Notice. 24) Delay in the matter for about 13 years till date and 9 years up to the period of Show Cause Notice indicates that the matter is a TIME Barred matter. 25) As per the Principles of Natural Justice and Equity of Law, The then Promoters need to be questioned or Interrogated, If necessary. 26) As the Company name was included in the List of Noticees in the Show Cause Notice, though no culpability of the company was established or narrated as Obiter Dicta in the show cause notice, mere mentioning of the Company’s name is impacting the company’s reputation and hence the consent terms are filed by the company for removing the Company name only from the list of Noticees under Show Cause Notice issued by SEBI. 7. Opportunities of personal hearing in the matter were given to the Noticees on several dates i.e. December 23, 2014, December 24, 2014, April 01, 2015 and July 30, 2015. All the Noticees except IQMS failed to appear for the hearing.

I note that K. Vijaya Kumar, T. Siva Ram Prasad, K .J. Nageshwar and J. Satya Suryanarayana filed their replies to the SCN but failed to appear for personal hearing on any of the scheduled dates. Further, even after the SCN was published in newspapers on April 15, 2014 and was also hosted on the SEBI website, K V N Vijaya Simha, M Gopala Krishna Chowdary, Rama Raju V Indukuri, Vernulpalli Prasad, Gummadi Srinivas, G. Venkataramana and Uma Maheswara Rao Koneru have failed to appear for the hearing. 8. It is pertinent to note that as per the details provided by the depositories, the SCN was served upon one Uma Maheswara Rao Koneru (having PAN – ASJPK0993P) on the address at “2-95, Chinaparupudi, post- Peda Parupudi Mandal, Krishna District, Andhra Padesh – 521245”. Subsequently, the entity was provided an opportunity of personal hearing when it was represented by KVSA Chowdary who submitted that Uma Maheswara Rao was never a director in IQMS and that SEBI has mistaken him for some other person. Pursuant thereto, Uma Maheswara Rao filed an Affidavit declaring that he is 83 years old and bed ridden.

He also stated that he is not a director of IQMS and has no relatives, directors, employee working in IQMS. He further submitted that he has never heard the name of the company, IQMS Software Ltd. and never purchased its shares. 9. Considering the above facts, I am of the view that sufficient opportunities to file reply / appear for personal hearing have been provided to the Noticees, and except for those Noticees, whose replies have been noted above, all other Noticees have failed to file reply / appear for personal hearing. I, therefore, proceed with the matter on the basis of material brought on record.

10. I have considered the allegations against the Noticees, their replies/submissions in the matter and the material on record. 11. I note from the material on record that Uma Maheswara Rao Koneru having PAN – ASJPK0993P and the address - “2-95, Chinaparupudi, post- Peda Parupudi Mandal, Krishna District, Andhra Padesh – 521245” is a different person from “Uma Maheswara Rao Koneru” to whom the SCN was issued and the communication by SEBI was sent to him mistakenly because of the same name. Therefore, it is clarified that Uma Maheswara Rao Koneru having PAN – ASJPK0993P and the above address is not a part of these proceedings. At the same time, it is also clarified that the person named Uma Maheswara Rao Koneru, who had signed the prospectus of IQMS in the capacity of a director of IQMS is a Noticee in these proceedings and the outcome of these proceedings shall be applicable on him. 12. I note that despite service of the SCN and notice of personal hearing upon K V N Vijaya Simha, M Gopala Krishna Chowdary, Rama Raju V Indukuri, Vernulpalli Prasad, Gummadi Srinivas, G. Venkataramana and Uma Maheswara Rao Koneru, they have deliberately avoided to reply to the SCN and have willfully failed to attend the personal hearing in the matter.

Since these Noticees have not filed any reply in their defense and in absence of any material to differ with the charges and allegations made in the SCN, it can be safely presumed that they admit all the charges and allegations made in the SCN. In this regard, I rely upon the findings of the Hon’ble SAT in the matter of Classic Credit Limited Vs. SEBI (Appeal No. 68 of 2003 order dated December 8, 2006, published on January 8, 2007) regarding the significance of filing the reply to the SCN, in which it stated that “The appellant did not file any reply to the second show cause notice. This being so, it has to be presumed that the charges alleged against them in the show cause notice were admitted by them”. I, therefore, do not find any reason to differ from the charges and allegations made in the SCN and I hold that all the charges against K V N Vijaya Simha, M Gopala Krishna Chowdary, Rama Raju V Indukuri, Vernulpalli Prasad, Gummadi Srinivas, G. Venkataramana and Uma Maheswara Rao Koneru are established on this ground alone. 13. Kamineni Shridhar in his reply dated December 09, 2013 submitted that he has never been a director of IQMS at any point of time and that he did not receive the SCN dated June 29, 2009 prior to December 07, 2013. In this regard, I note from the material brought on record that Kamineni Shridhar had signed the prospectus of IQMS in the capacity of a director of IQMS.

In view thereof, I am unable to accept the submission of Kamineni Shridhar that he was never a director of IQMS.

14. The Noticees have raised a common contention that the transactions in question pertain to the year 2000 and because of the substantial delay in these proceedings, they are not in a position to file a proper reply to the SCN as they do not have the relevant records with them. They have further submitted that the documents provided along with the SCN were vague ad unclear. In this regard, I note from the record that the SCN in the matter was issued in the year 2009. Thereafter, several attempts were made by SEBI to serve the SCN on the Noticees but on several occasions the SCN were returned undelivered. Substituted means of service were also adopted in the matter to serve the SCN on the Noticees and subsequently replies were received from some of the Noticees and opportunities of hearing were given to them. While it is noted that there has been a delay, at the same time it needs to be seen whether the delay in the present matter is fatal. In this regard, I find it important to refer to the following observations of Hon’ble SAT in its order dated April 16, 2012 in the matter of Rajesh N. Jhaveri v. Securities and Exchange Board of India (Appeal No. 49 OF 2012) “We have considered this issue.

Admittedly, the delay alleged by the appellant’s learned counsel has not resulted in any prejudice to him. …. As long as it is not on record that any prejudice has been caused to the appellant because of the delay, the ground taken by the appellant’s learned counsel cannot be entertained.” 15. In the present case, it is not in dispute that the SCN contained the relevant facts on the basis of which the allegations have been levelled against the Noticees. Further the relevant documents pertinent to the Noticees were also provided to them along with the SCN in the form of annexures. It is also appropriate to note that on receipt of the SCN (even after the delay), none of the Noticees sought any documents from SEBI for the purpose of filing a detailed reply in the matter. While the SCN along with the annexures was provided to the Noticees, none of them have disputed the transactions mentioned therein. Also, other than a general denial, none of them have given any reasonable justification to refute their role in the matter and the connections that have been brought out in the SCN. In these facts and circumstances, I do not find that any prejudice has been caused to the Noticees on account of the delay in these proceedings.

In view of the above, I reject the contention of the Noticees in this regard.

16. I note that IQMS came out with the IPO of 45,00,000 Equity Shares of ₹ 10/- each for cash at par aggregating to ₹ 450 lakh. IQMS received 2647 applications for 44, 69,900 shares out of which 55 applications for 35, 400 shares were rejected as invalid. Thus an allotment of 44,34,500 shares were made for 2592 valid applications.

17. The shareholding pattern of the company after the public issue was as under:

Category of Shareholder No. of Shares % of total no. of shares a) Foreign Holdings NIL NIL b)Govt./ Govt. Sponsored Financial Institution NIL NIL c) Bodies Corporate in the same group/ affiliated 573200 4.93 d) Bodies Corporate not in the same group/ affiliated 1555900 13.37 e) Directors and their relatives 2000000 17.79 f)Other top 50 shareholders 7505400 64.51 TOTAL 11634500 100%

18. In the above said public issue, Kalpesh K Chawalla - Hemang Jangla Group and Pankaj A Desai Group applied for shares through 34 applications. I note that they were connected to each other in the following manner: a) Kalpesh Chawalla and Hemang Jangla had frequent money transfers between them as reflected in their bank accounts. b) Both of them are directors in M/s Harvic Management Services (I) Ltd., M/s Havmore Financial Services (I) Ltd., M/s Havmore Stock Broking Pvt. Ltd., Aroma Fashions Ltd. and M/s Danhem Holdings and Investments Pvt. Ltd. All these entities have the same office address i.e. 302, Ruby Monarch Arcade, Saki – Vihar Road, Andheri (E), Mumbai. The investment/trading decisions on behalf of all the above entities are said to be taken jointly by Kalpesh K Chawalla and Hemang Jangla. Kalpesh K Chawalla and his relative Himanshu Chawalla are the directors.in M/s Goldmist Equifin Pvt Ltd. Thus, all the above referred entities are part of a Group. Funds were transferred frequently from one group Company to another. c) As per the Client Introduction form, Pankaj Desai has introduced Hemang Jangla as a client to Geojit Securities Ltd. d) Darshan P Desai is nephew of Pankaj A. Desai. e) M/s Sai Investcorp and M/s Mayekar Investments Pvt. Ltd. whose director is Pankaj Desai share a sub-broker-client relationship.

19. I note that Kalpesh Chawalla - Hemang Jangla group and Pakaj A Desai group applied for shares through 34 application forms and were allotted 10,07,200 shares in the IPO. This constituted 22.71 % of the total shares allotted. It is noted that all these 34 share application forms which bore the broker's stamp and code of Kalpesh Chawalla, were running in continuous serial numbers from 4954152 to 4954188 except serial numbers 4954160, 49541761 and 4954182. Hiren who was then working for Kalpesh Chawalla had filled the columns in the share applications relating to 'name and address of the applicant', 'bank particulars for refund', etc., while the columns relating to 'number of equity shares applied for' and 'amount paid' in all the share application forms were filled by Hemang Jangla. All the 34 share application forms were deposited with the Bankers to the Issue on the last day of public issue which was October 3, 2000. 20. I note out of the 34 application forms submitted by the two groups that the first 26 applicants applying for 6,05,900 shares had been funded by two entities - Havemore Financial Services Ltd. and Harvic Management Services Ltd. which in turn received funds from the bank account of Sibar Media & Entertainment Ltd. operated by Hemang Jangla.

Kalpesh Chawalla and Hemang Jangla were directors in both Havemore and Harvic. Out of these 26 applicants, 17 individuals belonged to families of Kalpesh Chawalla and Hemang Jangla, 6 companies had common directors from either group, and the remaining 3 entities namely, Yogana Forgings ltd., Asahi Pre Fab Pvt. Ltd. and Asahi Constn. & Housing Finance Ltd. were connected to Kalpesh Chawalla as his clients. 21. Kalpesh Chawalla - Hemang Jangla and Pankaj A Desai Groups subscribed in the IPO of IQMS to the tune of following amounts:

Sl. No. Particulars of Group Amount of Remarks Subscription (₹ ) 1. Kalpesh K Chawalla - - Hemang 30,29,500 ( 605900 shares @ ₹ Jangla group 5/- each) 2. Pankaj A Desai group 20,06,500 ( 401300 shares @ ₹5/- each) TOTAL 50,36,000 (1007200 shares @ ₹ 5/- each) 22. I note that IQMS transferred ₹ 1,51,080 on November 15, 2000 in SB A/c. 3730 of Kalpesh Chawalla maintained with Janakalayan Sahakari Bank, Sakinaka Branch towards payment of brokerage made by IQMS to Kalpesh Chawalla @1.5%. I further note from the copy of the statement of current account no. 2286 that IQMS, immediately after listing permission was granted on November 14, 2000, transferred on November 15, 2000, funds amounting to ₹ 49,99,000 ( ₹ 15,00,000 + ₹ 34,99,000) from the Public Issue Account with Bank of Madura to IQMS’ current account no. 2286 in JSB, Sakinaka Branch, Mumbai. From the said IQMS’ current account, the following payments were made on November 17, 2000:

Amt. ( ₹ ) Paid / Transferred to Remarks 10,00,000 Mayekat Investments pvt. Ltd. Credited to a/c 1511 with SBS, Mandvi Br., Mumbai 5,99,000 Harvic Mgmt. Services (I) Ltd. Credited to C/A 1671 with JSB, Sakinaka Br., Mumbai 16,00,000 Aroma Fashions Ltd. Credited to C/A 1898 with JSB, Sakinaka Br., Mumbai 18,00,000 Kalpesh Chawalla Credited to SB A/c. 3730 with JSB, Sakinaka Br., Mumbai 49,99,000 TOTAL 23. Kalpesh Chawalla in his statement dated November 11, 2003 mentioned that after getting the money from the public issue, IQMS returned the money to him. 24. I note that Pankaj A. Desai applied for 4,01,300 shares through 8 applications (the remaining applications out of the 34 referred above) in the names of 6 individual members of Desai family and 2 group companies. An initial money of ₹ 5/- per share aggregating to ₹ 20,06,500/- was paid by the applicants. 7 applicants utilized the funds given by Mayekar Investments Pvt. Ltd. (wherein Pankaj A. Desai was a director), for application money and the funds for one applicant (Kirtida P. Desai) were invested from sale proceeds of some shares received from Sai Investcorp. The said finance arrangement by Pankaj A Desai was worked out orally with him by Kalpesh chawalla and Hemang Jangala on behalf of IQMS for an interest @ 2% p.m. If the money was repaid to him within one month, and if not paid, at 1.5% p.m. thereafter for the remaining period. Kalpesh Chawalla and Hemang Jangla had given 14 lakh fully paid up shares of IQMS, as security for the said finance, after getting them transferred in October 2000 in the names of Pankaj Desai's family members. 25. I note from the statements of Pankaj Desai dated October 23, 2003, November 13, 2003, November 21, 2003 and December 3, 2003 that the repayment of the principal and interest to Pankaj Desai was done by IQMS and Kalpesh chawalla and Hemang Jangla in the following manner. a) IQMS paid a sum of ₹ 10 lakhs in the account of Mayekar Investment Pvt. Ltd. in November 2000.

b) Out of 14 lakh shares, Pankaj Desai sold about 2.5 lakh shares at an average rate of ₹ 1.25 each and another 4.25 lakh shares at an average price of ₹ 1.10 each and thus recovered about ₹ 7.8 lakhs; c) 6 lakh shares were transferred on December 8, 2001 by Pankaj Desai group to three demat accounts of relatives of K. V. N. Vijaya Simha bearing demat account nos. 20381804, 20385970 and 20386850 maintained with Stock Holding Corporation of India Ltd., Hyderabad at the instructions of Hemang Jangla. Subsequently, Kalpesh Chawalla and Hemang Jangla gave another 3 lakh shares to Pankaj Desai in August 2002 towards full and final settlement of the financing. The remaining approx 4.25 lakh shares were retained by Pankaj Desai against the amount of about ₹ 4.2 lakh inclusive of interest about ₹ 2 lakhs, then due to Pankaj Desai. 26. I note that the aforesaid paid up shares in the custody of Kalpesh Chawalla and Hemang Jangla which were given to Pankaj Desai as security, were in fact received by Kalpesh Chawalla and Hemang Jangla in yet another irregular private placement before the public issue as brought out hereunder. a) From the statement of K.J.V.

Nageswar dated November 12, 2003 and K. V. N. Vijaya Simha dated November 14, 2003 it is noted that after its incorporation in March 2000, before the public issue, IQMS was in dire need of funds of about ₹ 10 to ₹ 15 crore for the complete development and implementation of its ambitious Remote Office Network (RON) software project. Therefore, the Noticees had decided to go for a private placement followed by a public issue so that they could raise funds for the project. Regarding this issue, P V V Satyanarayana a Chartered Accountant based at Hyderabad and one of the promoters of Sibar Group of companies was contacted by Noticees in the first week of April 2000. Around the middle of April 2000, P.V.V. Satyanarayana had introduced K. V. N. Vijaya Simha and J. Satya Suryanarayana to Hemang Jangla and Kalpesh Chawalla at the Centaur Hotel in Mumbai. IQMS had opened a Bank account (CA 2286) on April 18, 2000 in Janakalyan Sahakari Bank where Kalpesh Chawalla and Hemang Jangla groups were having their accounts, on the advice of Hemang Jangla and Kalpesh Chawalla. IQMS had opened the said account with the introduction given by Hemang Jangla in his capacity as Director of Harvic Management Services Ltd wherein Kalpesh Chawalla was holding the directorship showing that Kalpesh Chawalla and Hemang Jangla knew the promoter directors of IQMS before the account was opened in Mumbai.

At the time of opening the account of IQMS C/A 2286 in April 2000, K. V. N. Vijaya Simha and J. Satya Suryanarayana were jointly authorized to operate the said account. However, the Board of Directors consisting of the Noticees on November 3, 2000 passed a resolution authorizing Darshan Desai who is a nephew of Pankaj A. Desai to operate the account singly with effect from November 3, 2000. Copy of the minutes of the said meeting of the Board of Directors was furnished to the Bank on November 13, 2000. b) Similarly another bank account was opened by IQMS in Western Coop Bank, Marol Naka branch, Andheri (E), Mumbai which was authorized to be operated by a Mahendra K. Shah who was known to Kalpesh Chawalla and Hemang Jangla. c) I note that Hemang Jangla and Kalpesh Chawalla had arranged 30 applications for 30 lakh fully paid up shares for private placement around May 25, 2000 for the purpose of private placement with IQMS aggregating to ₹ 3 crore. Each such application was for 1 lakh shares at the rate of ₹ 10 per share amounting to ₹ 10 lakh. All these 30 applicants arranged by Kalpesh Chawalla and Hemang Jangla were having their bank accounts in Janakalyan Sahakari Bank.

These shares were collected by Hemang Jangla from IQMS instead of being dispatched to the respective applicants. After the closing of the public issue, around October 4, 2000 Kerun Shah, a representative of Hemang Jangla brought share certificates totaling 30 lakh shares along with a list of names in whose name the said shares were to be transferred. Thereafter after receiving the transfer deeds in tranches from Hemang Jangla, said 30 lakh fully paid shares were transferred to the family members/ companies of Hemang Jangla, Kalpesh Chawalla and Pankaj A Desai groups in the month of September /October 2000. From the chart showing the allotment under private placement and subsequent transfers, it is noted that these paid up shares in the custody of Kalpesh Chawalla and Hemang Jangla were given to Pankaj Desai as security when Pankaj Desai financed in the Public Issue. 27. From the above mentioned facts, it is clear that even prior to the IPO, IQMS and its directors named above had association/connection with Kalpesh Chawalla and Hemang Jangla, Pankaj Desai and their related entities. Further, from the manner in which the share applications were made by Kalpesh Chawalla - Hemang Jangla Group and the Pankaj Desai Group and the transfer of funds from IQMS to these groups, it is clear that the applications were made under a pre-meditated plan between IQMS, its promoters/directors and Kalpesh Chawalla - Hemang Jangla Group and Pankaj Desai Group.

In view thereof, I find that the Noticees in order to attain the minimum subscription of 90% in the IPO of IQMS caused Kalpesh Chawalla - Hemang Jangla group and Pankaj Desai group to subscribe for 1007200 shares of IQMS constituting 22.71 % of the total shares, through 34 applicants. Thereafter, the funds were returned by IQMS to the above said groups thereby giving an appearance that the subscription received the minimum subscription as prescribed under DIP Guidelines. 28. The Noticees have submitted that IPO of IQMS received a response to the tune of 98.54% of the total issue size and thus met with “Minimum Subscription of 90% requirement under DIP Guidelines. In this regard, I note that the alleged contribution made by the Kalpesh Chawala – Hemang Jangla and Pankaj Desai Group is to the tune of 22.71 %. Even if the argument of the Noticees that the response to the issue was to the tune of 98.54% is accepted, the response to the issue form genuine investors would be 75.83% which was much below the minimum 90% required under the DIP Guidelines. I note that the facts and circumstances discussed hereinabove clearly show that Kalpesh Chawala – Hemang Jangla group and the Pankaj Desai Group were connected to IQMS and its directors.

Several fund transfers directly and indirectly between the aforesaid groups and IQMS / its directors have also been noted above. Considering the above, I do not find any merit in the contention of the Noticees in this regard. 29. In view of the foregoing, I find that IQMS got its public issue subscribed by the said two groups by 22.71% using the funds of IQMS in order to circumvent the provisions of section 69 of the Companies Act, 1956 as well as clause 6.3.8.1 of DIP Guidelines so as to avoid refund of the subscription amount falling below the minimum level of 90%. Therefore, I find that IQMS has violated section 69 of the Companies Act, 1956 and clause 6.3.8.1 of DIP Guidelines. 30. The Noticees have contended that there was no violation of Clause 8.6.2 of DIP Guidelines and there is no compulsion on the Company’s part that the shares must be forfeited in the event of non-receipt of the calls. In this regard, I note that in the present case, there is no dispute as to the fact that the shares allotted to the allottees were not fully paid within a period of 12 months. It is clear from the language of clause 8.6.2 that in the event when the allottee fails to pay the entire subscription money within 12 months, the subscription money already paid by them may be forfeited.

The rationale of worst prevailing stock market given by the Noticees cannot be accepted when the Noticees have failed to show that they have made efforts to get the shares fully paid up. Further, even if there was no compulsion on the company to forfeit the subscription money given by the allottees, the decision to not do so was detrimental to the inters of the company and also in violation of the spirit behind the provisions of clause 8.6.2. In view of the above, I find that the Noticees were in violation of the provisions of clause 8.6.2 of the DIP Guidelines.

31. In addition to the acts/omissions of the directors of IQMS mentioned above, I note that K V N Vijaya Simha, K Vijaya Kumar, K J V Nageswar, J Satya Suryanarayana, T Sivaramprasad, M. Gopala Krishna Chowdary, Rama Raju V Indukuri, Uma Maheshwar Rao Koneru, Vernulpalli Prasad, Kamineni Shridhar, G. Venkataramana and Gummadi Srinivas were the directors of IQMS at the relevant point of time and authorized the issuance of prospectus whereby IQMS allotted the equity shares. The directors of IQMS at the relevant time, being in control of the affairs of IQMS, were under an obligation to ensure that acts/omissions and transactions of IQMS were in compliance with all the applicable provisions of the Companies Act, 1956/2013, SEBI Act/ Regulations/Guidelines and other applicable laws. In my view, the above named directors of IQMS at the time of the are also "officers in default" as defined under section 5 of the Companies Act, 1956 and section 2(60) of the Companies Act, 2013. I, therefore, find that in that capacity also, the above named directors of IQMS are responsible for the acts/omissions and transactions of IQMS in this case.

32. I am of the considered view that such activities pose prudential threat to the market integrity and orderly development of securities market. I, however, note that the transaction in question had taken place long back i.e. in the year 2000. While delay in itself cannot be a ground for exonerating the Noticees, it can be treated as a mitigating factor. 33. I note from the record that pursuant to a capital reduction and merger with court order dated 12th July, 2011 of Hon’ble High Court of Andhra Pradesh, the entire management of the company i.e. IQMS (now known as Firstobject Technologies Limited) has changed and none of the directors who were there at the time of IPO of IQMS are there in the company. The record also shows that under the current management, the company has witnessed reasonable progress. It is also important to mention that any direction against the company will have an impact of the price of the scrip which will affect the interests of the current public shareholders, who as per the shareholding pattern of September, 2015 are more than 14,000 in number. It is also important to note that the consequence of violation of section 69 of the Companies Act, 1956 and clause 6.3.8.1 of DIP Guidelines is that the company shall forthwith refund the entire subscription amount received by it along with interest in accordance with section 73 of the Companies Act, 1956. However, in the present case, the company has been listed since its IPO and a substantial time period has elapsed since then.

During this time, the shares allotted to the original allottees would also have changed hands. Further, the company has also undergone a scheme of capital reduction and merger. Therefore, in my view, a direction to the company to refund the application money to the allottees along with interest may not be practical. Taking into account the above facts and circumstances, I find that the following directions would be in the interest of shareholders and also commensurate with the violations found in this case. 34. Considering the above, I, in exercise of the powers conferred upon me by virtue of section 19 read with sections 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 read with clause 17.1 of SEBI (Disclosure and Investor Protection) Guidelines, 2000 and regulation 111 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 hereby issue the following directions: i. K. V. N. Vijaya Simha, K Vijaya Kumar, M. Gopala Krishna Chowdary, Ram Raju V Indukuri, Uma Maheshwar Rao Koneru, Vemulpalli Prasad, K.J.V. Nageswar, J. Satya Suryanarayana, T. Sivaramprasad, Kamineni Shridhar, Gummadi Srinivas and G. Venkataramana are restrained from accessing the securities market and further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner for the period of three years; ii.

The company i.e. IQMS Software Ltd. (now known as Firstobject Technologies Limited) is hereby warned and advised not to indulge into activities / transactions of the nature discussed hereinabove and to be cautious while dealing in the securities market in future. 35. The order shall come into force with immediate effect. A copy of the order shall be served on the Noticees and the stock exchanges for ensuring due compliance with the above directions.

Sd/-

DATE: January 15th, 2016 RAJEEV KUMAR AGARWAL PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA