Order in respect of Kalpesh K Chawalla and others in the matter of IQMS Software LimitedSAT Appeal No.155/2016]

WTM/RKA/EFD/ 19 /2016 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA ORDER Under Section 11 and Section 11B of the Securities and Exchange Board of India Act, 1992 read with Regulation 11 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 1995 and Regulation 13(2) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 2003 in respect of: 1. Kalpesh K Chawalla 2. Danhem Holdings & Investments Pvt. Ltd. 3. Hemnag D Jangla 4. Darshan P. Desai 5. Goldsmith Equifin Pvt. Ltd. 6. Himanshu Chawalla, 7. Harvic Management Services (I) Ltd. 8. Havmore Financial Services (I) Ltd. 9. Jignesh N. Shah 10. Raj Investments. In the matter of IQMS Software Ltd. Appearances for the Noticees: 1. Pankaj A. Desai for Darshan P. Desai 2. Ms. Rinku S Valanju, Advocate for Jignesh Shah and Raj Investments. 3. Hemag Jangla for himself and Danhem Holdings & Investments Pvt. Ltd. and Harvic Management Services (I) Ltd 4. Kalpesh Chawalla for himself and Havmore Financial Services (I) Ltd., Goldsmith Equifin Pvt. Ltd 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")

Order in respect of Kalpesh K Chawalla & Others in the matter of IQMS Software Ltd conducted an investigation into the dealings 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"). 2) 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. 3) During the investigation period, the price of the scrip increased from ₹19 per share to ₹41.80 per share. The volume per day during this period was approximately 38,000 shares. The total volume during the investigation period was 8,77,758 shares. The scrip was trading at 45 paisa per share at the time of conclusion of the investigation during December 2003. The unusual rise in the price of the scrip was not found to be backed by the economic fundamentals of IQMS. 4) It was observed that the price rise in the scrip was due to trades executed by entities that were the original allottees in the IPO of IQMS. During the investigation period, these entities had traded amongst each other on a number of occasions and a majority of these transactions were reversed on the same day.

Further these entices were found to be related to each other in the manner described in the subsequent paragraphs. a) Kalpesh K Chawalla and Hemang Jangla were the directors in Harvic Management Services (I) Ltd., Havmore Financial Services (I) Ltd., Havmore Stock Broking Pvt. Ltd., Aroma Fashions Ltd. and Danhem Holdings and Investments Pvt. Ltd. Kalpesh K Chawalla and his relative Himanshu Chawalla were the directors.in Goldmist Equifin Pvt Ltd. All these entities had 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 were taken jointly by Kalpesh K Chawalla and Hemang Jangla. Thus, all the above named entities were a part of a Group (“the Harvic Group”). Funds were transferred frequently from one group Company to another. b) As per the Client Introduction form, Pankaj Desai had introduced Hemang Jangla as a client to Geojit Securities Ltd. c) Kalpesh K Chawalla and Ashish Ganatra, representative of Sai Investcorp are known to each other. Sai Investcorp/ Ashish Ganatra and Mayekar Investment Pvt. Ltd. / Pankaj Desai share a sub – broker – client relationship. d) Pankaj Desai group funded in the IPO of IQMS by way of its company Mayekar Investments Pvt. Ltd funding for 4,01,300 shares. Darshan P Desai is a nephew of Pankaj A. Desai. This group consists of Mayekar Investments Pvt. Ltd and Shagufta Investment Pvt. Ltd. Besides the members of family of Pankaj Desai. Pankaj Desai was a director along with his father Anantrai Desai in Mayekar Investments Pvt. Ltd and his wife Kirtida Desai in Shagufta Invesbrokerents Pvt. Ltd. Thus, these two entities are related to each other. e) Pankaj Desai is related to Hemang Jangla as brought out in the Client Introduction form given to Geojit Securities Ltd. Pankaj Desai introduced Hemang Jangla as a client.

So, both the individuals are known to each other. f) Darshan P. Desai and Sumit P. Desai who traded in the scrip are nephews of Pankaj Desai. Kalpesh K Chawalla and Ashish Ganatra representative of Sai Investcorp are known to each other. It has been admitted by Shitanshu Vora, representative of Bipin R Vora that Ashish Ganatra introduced Kalpesh K Chawalla to Bipin R Vora and had requested the latter to execute orders placed by the former on behalf of Sai Investcorp. Therefore, Kalpesh K Chawalla and Sai Investcorp are related to each other. Sai Investcorp and Mayekar Investments Pvt. Ltd. whose director is Pankaj Desai share a sub-broker-client relationship. Therefore, Pankaj Desai and Sai Investcorp are known to each other. 2. Based on the investigation, it was alleged that premeditated reversals of trades were done by the clients namely, Danhem Holdings and Investments Pvt. Ltd., Harvic Management Services (I) Ltd., Havmore Financial Services (I) Ltd., Aroma Fashions Ltd., Goldmist Equifin Pvt Ltd, Sai Invest Corp Pvt. Ltd., Darshan P. Desai, Jignesh N. Shah, Raj Investments, Satish Mehta, Deepak Mehta and Nikunj Mehta through their respective brokers at progressively higher prices in the illiquid scrip of IQMS, which resulted in the increase of price of the scrip from ₹19 to ₹41.80 during the investigation period.

It was further alleged that the aforementioned clients acted in concert with each other to create a false market or misleading appearance of trading and that their transactions were not genuine but were done with the intention not to effect transfer of beneficial ownership and to operate as a device to inflate or cause fluctuation in the market price of the scrip. Such act of aforementioned clients along with their directors namely Kalpesh Chawallla, Hemang Jangala and Himanshu Chawalla were alleged to be in violation of regulation 4(b), 4(c) and 4(d) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 1995 (“PFUTP Regulations, 1995”) read with regulation 13(2) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003 (“PFUTP Regulations, 2003”). 3. In view of the above, SEBI issued two separate Show Cause Notices each dated June 29, 2009 (hereinafter referred to as “SCN”) one to Raj Investments and the other to 12 entities namely, Danhem Holdings & Investments Pvt. Ltd., Kalpesh K Chawalla, Hemnag D Jangla, Darsha P. Desai, Goldsmith Equifin Pvt. Ltd., Himanshu Chawalla, Harvic Management Services (I) Ltd., Havmore Financial Services (I) Ltd., Jignesh N. Shah, Satish Mehta, Deepak Mehta and Nikunj Mehta calling upon them to show cause as to why appropriate directions under sections 11(4) and 11B of the 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.

4. The SCN issued against (Late) Satish Mehta, Deepak Mehta and Nikunj Mehta has already been was disposed off vide order dated October 03, 2013. Thus, these proceedings are pending against the remaining entities namely, Danhem Holdings & Investments Pvt. Ltd., Kalpesh K Chawalla, Hemnag D Jangla, Darshan P. Desai, Goldsmith Equifin Pvt. Ltd., Himanshu Chawalla, Harvic Management Services (I) Ltd., Havmore Financial Services (I) Ltd., Jignesh N. Shah and Raj Investments who shall hereinafter collectively be referred to as “the Noticees” and individually by their respective names. 5. Jignesh Shah and Raj Investments availed the opportunity of personal hearing on April 01, 2015 and subsequently filed their written submissions on April 15, 2015. Submissions of Jignesh Shah and Raj Investments are, inter alia, as uder: I. Submissions of Jignesh Shah: a) The power to issue directions under section 11(4) and 11(B) is a drastic power having serious civil consequences and ramifications to the repute and livelihood of those to whom the same are issued. Said power is not available for routine and retrospective application and cannot be used for penal action.

It is exceptional, extraordinary and discretionary power and SEBI has to justify the need for invocation of the said power clearly after about 15 years from the alleged cause of action. b) SCN itself must set out the circumstances requiring such drastic use of power belatedly. It is also required to state clearly as to how in the absence of the proposed action, the integrity of the securities market would not be maintained. In the instant case nothing has been brought on record in justification of such a delayed action. No prima facie case has also been made to warrant the issuance of a direction of serious consequences against me. c) The SCN dated June 29, 2009 issued for the investigation period 14.11.2000 to 15.12.2000 i.e. the SCN is issued 9 years after the period under investigation. The personal hearing took place after about 5 years in April 2015 and hence the proceedings has lost its faith. d) Since last 11 years, he has not carried out a single transaction in the stock market and hence the direction under section 11B cannot be issued against him as held in Libord Securities vs SEBI in Appeal no. 24 of 2008. As per the said judgment the direction debarring him from accessing the capital market cannot be issued as he is no longer a threat to the securities market and he is not active in the market.

Hence issuing directions against him after about 15 years from the impugned transactions and more so when he is not active in the market for more than 11 years will not have any validity or sanctity. e) All his trades were independent and he is not connected to any group entity as alleged directly or indirectly. Further, no connection has been set out in the SCN with any of the alleged group entities viz. Danhem Holdings and Investments Pvt. Ltd., Kalpesh Chawallla, Hemang Jangala, Harvic Management Services (I) Ltd., Havmore Financial Services (I) Ltd., Aroma Fashions Ltd., Goldmist Equifin Pvt Ltd, Himanshu Chawalla, Darshan P. Desai, Jignesh N. Shah, Satish Mehta, Deepak Mehta and Nikunj Mehta. f) He had carried out transactions in the scrip of IQMS on 19 days. Out of the said transactions, his transactions for 5 days only have been considered as objectionable. His transactions were mainly of intra-day nature. He purchased 51000 shares in 19 days out of which only 13000 shares (purchase of 5 days) are alleged to have been purchased where group entities were counterparties, He sold 50700 shares in 18 days out of which 12800 shares (sale of 5 days) ware alleged to have been sold where group entities were counterparties.

There were multiple counterparties to his transactions and therefore the same cannot be treated as reversal trades. Had he been the connected party his transaction would have matched with the alleged group entities. However on 14 days his transactions have not matched with any alleged group entities.

g) His name does not appear in the para of SCN wherein the connection among the other Noticees has been set out. h) He is not connected to any of the alleged group entities as he is not connected to any of the promoter group entities and neither the same has been alleged nor his connection to any of the group entities have not been established. He is not common director. He has no fund transfer with alleged group entities. He has not executed any off-market transactions and all his transactions have been in the open market. No commonality vz. common address, common phone number, e-mail id, common introducer, common broker of whatsoever nature have attributed between him and the other alleged group entities. i) It is an admitted position that he has not played any role in the IPO funding and no allegation regarding the same has been set out in the SCN against him. No connection of his has been established with the other Noticees in the SCN for establishing the charge of reversal. j) There is no material on record to show that false and misleading appearance in trading was given to the investors by him in connivance with the other Noticees by executing the impugned transactions.

He has been wrongly lumped, bunched and clubbed with the alleged group entities without any cogent evidence. Hence the allegation levied against him are baseless. k) He has not acted in concert with the alleged group entities for creating false market or misleading appearance of trading in the market. The transactions are genuine and were not done with an intention to inflate or cause fluctuation in the marker price of the securities. Further no self-trades have been alleged against him. II. The submissions for Raj Investments were similar to that of Jignesh Shah. The additional submissions n behalf of Raj Investments are as under: a) The SCN is misconceived and misconstrued and is therefore bad in law. b) The Noticee was a partnership firm and partnership has been dissolved since 7 years. The income tax department has also been informed about the same and the PAN card of the Noticee has also been surrendered to the relevant authority. c) The Noticee is no longer existing and hence directions debarring the Noticee form accessing the capital market will not serve any purpose as Noticee is no longer a threat to the securities market. d) The Noticee had traded through the broker Lalkar Securities.

The erstwhile managing partner Jignesh Shah's trades through Networth Stock Broking Ltd. have been wrongly attributed to the Noticees (para 6 and Annexure -II to the SCN)

e) The Noticee’s trades through lalkar Securities have not been alleged for setting out the charge of reversal trade against the Noticee. The trading data provided is that of the trades of Jignesh Shah vide broker Networth Stock broking Pvt. Ltd. (para 8 and Annexure -II of SCN). f) That at para 15 page 5 of the SCN it is alleged that "...these trades were executed with a view to influence the price as well to create volume." but no such trades of the Noticee have been set out or dealt with in the SCN. g) There is no charge of IPO funding and no allegation regarding the same has been set out against the noticee in the SCN. h) Mitigating factors are that there are no off market dealing in the said scrip by the noticee; They are not connected with any company/director/promoter; they have not violated any substantive provision of law; They are not guilty of conduct which is contumacious or dishonest or acted in conscious disregard of law; They have not acted in defiance of law; they have not viewed the regulatory proceedings in a nonchalant manner and admitted there are no self-trades/ reversal trades/ synchronized trades are attributed to them. i) The finding are therefore de hors consideration of the fact that none to their trades have been set out to be in violation of the SEBI Act, 1992. There is no concrete material to suggest that they acted in collusion or in concert with any one.

None of their trades have been alleged to have resulted in creation of artificial volume in the said scrip or misled anyone or artificially increased the price. There are no correct appreciation of material that has been relied upon and SCN is therefore misconceived qua the Noticee. III. Darshan P. Desai filed his reply to the SCN vide letter dated December 23, 2013 and also availed the opportunity of personal hearing on December 24, 2014. Submissions of Darshan P. Desai are, inter alia, as funder: a) The delay of 14 years in reopening the file has not been explained rendering the SCN invalid and the proceeding vitiated. b) 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. SEBI is requested to consider his above preliminary objections in the matter. c) He is a very small investor and he is not involved in the above proceedings because he bought very small quantity of shares that too through his broker, Geojit Securities ltd. It was a normal transaction and he fulfilled all the statutory obligations.

d) He is not connected with Company's promoters and directors and other people like Networth, Bipin Vora, Jignesh Shah and Sai Invest Corp lt. He has no involvement in trading of shares with them. He did not know these parties and did not have any trading relation with them in previous time and now. His transactions were independent and he did not buy at the behest of or on the suggestion of any other entity. e) He has drawn SEBI’s attention to the judgment of Hon'ble Supreme Court on the points of delay in Champabhai's case (2004) (1) Mh L.J. wherein it was observed that " when no time limit is prescribed, for exercise of power under a statue it does not mean that it could be exercised". The legal position is settled, that when suo moto powers are vested in an authority, the same need to be exercised within a reasonable time. IV. Danhem Holdings and Investments Pvt. Ltd., Kalpesh Chawallla, Hemang Jangala, Harvic Management Services (I) Ltd., Havmore Financial Services (I) Ltd. and Goldmist Equifin Pvt Ltd filed their replies to the SCN vide letters dated July 08, 2015 and also availed the opportunity of personal hearing on July 30, 2015. Their submission are, inter alia, as under: a) Kalpesh K. Chawalla informed that Himanshu Chawalla had expired on August 04, 2011. He had also enclosed a copy of the death certificate of Himanshu Chawalla. b) That this is a 14 year old matter so it is very much difficult for them to recall the exact matter and arrange all documents regarding the same.

They do not have any 14 year old record. c) There are many scrips in the market whose price doubles in a very short time and goes upward and downward. There is nothing new or questionable if a scrip’s price became double. A euphoria for software shares was going on at the relevant point of time because of which the scrip’s price doubled in one month. They were not involved in the increase the rate of IQMS. d) It is a very common practice for any investors and it is absolutely legal to square off positions without delivery. The scrip was in the B group at that point of time and in that group, they could buy or sell in T+3 settlement and any investor could square-off his position in same settlement. Their intention was not to increase the price on November 14, 2000. e) Danhem Holdings and Investment Pvt. Ltd had account in S.S. K.I. and delivery is given by Goldmist Equfin Pvt. Ltd in Danhem. f) The fact that Pankaj Desai introduced Heman Jangla is not a point to prove that we have done synchronized trading.

g) Ashish Ganatra is also doing trading on his own only. He is known to Kalpesh. He knew that kalpesh was having the shares so when he traded in the shares and fell short of the stock, he requested Kalpesh for delivery of shares. Therefore, from Goldmist, they arranged the delivery, and later he gave the shares back to them. This is not a matched trade in any manner. Kalpesh did not call and tell him to trade. He gave a wrong statement that Kalpesh Chawalla had given the instructions. h) They never synchronized with each other for trade. It is also a coincidence and delivery given by Goldmist was not a match but was an adjustment of delivery from one account to other. i) They did not know Ruchiraj and the transaction with it was a routine one. j) Darshan Desai is also an allottee in the IPO so there is no connection between him and them. The fact that he introduced us does not mean that we have done with any synchronized trade. k) Hemang Jangla or any one never instructed others in trading so we disagree with the charges in your notice. l) Jignesh Shah of the Net worth brokers was also doing trade on his own and we had never given instruction to them.

He traded on his own and made some 8 to 10 thousand rupees profit on all transactions. We have never invested in Sai investcorp or Jignesh Shah. l) They never misled any one or never did any wrong practice. m) Harvic, Havmore, Golmist, Havmore Stock Broking, Aroma Fashions ltd., Danhem Holding are their companies. They have never done any transaction to mislead the public. n) Sai Investcrp was doing its own trading and requested us to give delivery and that's why we had given delivery to him. 6. I have considered the allegations against the Noticees, their replies/submissions in the matter and the material on record. I note from the material on record that Himanshu Chawalla had passed away on August 04, 2011 and therefore, these proceedings against him have abated and the show cause notice dated June 29, 2009 as against him is disposed off accordingly. 7. It has been submitted on behalf of Raj Investments that it was a partnership firm and has been dissolved since 7 years. It is also submitted that the income tax department has been informed about the same and its PAN card has also been surrendered to the relevant authority.

In this regard, I note from the material on record that Raj Investments has not submitted a dissolution certificate or any other documentary evidence in support of the claim that it has been dissolved. Further, even if the said claim of Raj Investments is accepted, Jignesh Shah, being the managing partner of Raj Investments will continue to be responsible for the acts committed by Raj Investments as a partnership firm. 8. A common contention raised by the Noticees is that the power to issue directions under section 11(4) and 11(B) is an exceptional, extraordinary and discretionary power and SEBI has to justify the need for invocation of the said power. In this regard, it is important to mention that it is a settled position that section 11 and 11(B) are unambiguous with respect to scope and ambit of SEBI's jurisdiction, and power to issue directions. It is also a settled position that both the sections are interconnected and co-extensive and are enabling provisions for the purpose of protection of interests of investors in securities and the securities market. Further, the power conferred under those sections is of widest possible amplitude.

In this regard, I deem it relevant to refer to the judgment of the Hon'ble SAT in the matter of Bank of Baroda Limited v. SEBI (2000) 26 SCL 532, wherein it was held that : “Section 11 and 11B are interconnected and co-extensive as both these sections are mainly focused on investor protection. On a careful perusal of the said section 11 it could be seen that the SEBI has been in no uncertain terms mandated to protect the interest of the investors in securities by such measures as it thinks fit. Of course those measures are subject to the provisions of the Act. The expression 'measure' has not been defined in the Act. So we have to go by its generally understood meaning. According to Corpus Juris Secundum measure means 'anything desired or done with a view to the accomplishment of a purpose, a plan or course of action intended to obtain some object, any course of action proposed or adopted by a Government'.” 9. In the matter of Anand Rathi & Others Vs. SEBI (2002 (2) Bom CR 403), the Hon'ble Bombay High Court has explained the powers of SEBI to pass orders under sections 11 and 11B of the SEBI Act as under:- “While considering the question as to whether the SEBI has authority of law under Sections 11 and 11B to order interim suspension, we have to bear in mind that SEBI is invested with statutory powers to regulate securities market with the object of ensuring investors protection, orderly and healthy growth of securities market so as to make SEBI's control, over the capital market to be effective and meaningful.

It cannot be gainsaid that SEBI has to regulate speculative market and in case of speculative market varied situations may arise and looking into the exigencies and requirements, it has been entrusted with the duty and functions to take such measures as it thinks fit. Section 11B is an enabling provision enacted to empower the SEBI Board to regulate securities market in order to protect the interest of the investors. Such an enabling provision must be so construed as to subserve the purpose for which it has been enacted. It is well settled principle of statutory construction that it is the duty of the Court to further Parliament's aim of providing of a remedy for the mischief against which enactment is directed and the Court should prefer construction which will suppress the mischief and advance remedy and avoid evasions for the continuance of the mischief.” 10. The following observations of Hon’ble SAT in the matter of Libord Finance Ltd. vs SEBI (SAT Order dated March 31, 2008) are also noteworthy: “If the nature of the misconduct is such which is likely to affect adversely the securities market or the interest of the investors in general, it is open to the Board to issue under Section 11B such directions as may be necessary to protect the integrity of the market or the interests of the investors including a direction to restrain the delinquent from accessing the capital market.

When such directions are issued, the object is not to punish the delinquent but to protect and safeguard the market and the interest of the investors which is the primary duty cast on the Board under the Act. The directions may result in penal consequences to the entity to whom those are issued but that would be only incidental. The purpose or the basis of the order or the directions would nevertheless be to protect the securities market and the interest of the investors.” 11. Section 11(1) of the SEBI Act casts the duty on SEBI to protect the interests of the investors, promote development of and regulate the securities market, by such measures as it thinks fit. Apart from this plenary power, section 11(2) of the SEBI Act enumerates illustrative list of measures that may be provided for by SEBI in order to achieve its objective. One of the measures enumerated in 11(2)(e) is "prohibiting fraudulent and unfair trade practices relating to securities markets". From the provisions of section 11, it is clear that the purpose of section 11(2)(e) of the SEBI Act is to prohibit all fraudulent and unfair trade practices relating to the securities market and the Board may take any 'measures' in order to achieve this purpose.

In the present case, the Noticees have been charged with violation of provisions of the PFUTP Regulations. In light of the above observations of Hon’ble Court and SAT and the above findings, in order to prohibit the fraudulent and unfair trade practices as brought out in the SCN, SEBI will be justified in issuing the directions under section 11(4) and 11B of the SEBI Act. In view of the above, I reject the contentions of the Noticees in this regard. 12. 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 issuance of directions by SEBI after such a long delay will have no effect. 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.” 13. 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 trade details of the Noticees were also provided to them along with the SCN in the form of annexures. 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 the connection among them that has been brought out in the SCN. It is also pertinent 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. 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. 14. For the purpose of dealing with other submissions of the Noticees, I find it important to highlight the following facts and circumstances brought out in the SCN: a) Admittedly, Danhem Holdings and Investments Pvt. Ltd., Kalpesh Chawallla, Hemang Jangala, Harvic Management Services (I) Ltd., Havmore Financial Services (I) Ltd., Aroma Fashions Ltd., Goldmist Equifin Pvt Ltd, Himanshu Chawalla (all belonging to the Harvic group) were connected to each other. I note that at the relevant point of time, Kalpesh K Chawalla and Hemang Jangla were directors in all the above entities except Goldmist Equifin Pvt Ltd wherein Kalpesh K Chawalla and his father Himanshu Chawalla were the directors.

I further note that Deepak Mehta, in his statement given during investigation on December 11, 2003, had admitted his connection with Hemang Jangla through a family relation. b) I note that Shitanshu Vora, a representative of Bipin R Vora in his statement given during investigation on June 16, 2003, had admitted that one Ashish Ganatra introduced Kalpesh K Chawalla to Bipin R Vora to execute orders placed by Kalpesh K Chawalla on behalf of Sai Investcorp. In order to identify such trades. Ashish had asked them to put specific codes like “S104H”. These trades were executed on receiving the orders from Kalpesh Chawalla directly and immediately on execution the confirmation was reported to Ashish of Sai Investcorp. Ashish was aware of all these transactions. c) I further note that Ashish Ganatra, the above mentioned representative of Sai Investcorp Pvt. Ltd. in his statement given during investigation on June 11, 2003, had admitted that he is the sub broker of Bipin R. Vora. Kalpesh Chawalla communicated directly with Broker, Bipin R. Vora for execution of trades and the broker would execute the trade under his account.

For net deliverable position the delivery of shares was received from the account of Goldmist which belonged to Kalpesh Chawalla. Thus, Sai Investcorp Pvt. Ltd was connected to and part of Harvic group. d) I note that Harvic had mainly dealt through B M Gandhi which traded in all the 5 Settlements during the investigation period. The directors of Harvic were Kalpesh K Chawalla and Hemang Jangla. In all these transactions, there was minimum net delivery obligation due to reversal of most of the trades. B.M.Gandhi had traded on behalf of Harvic only. Harvic was also one of the major allottees in the public issue of IQMS. e) I also note that for all the net purchases made by Harvic, the shares from the pay-out were retained in the pool account of B.M.Gandhi and were used for subsequent sales in the next settlement. Further, for the sales effected by the client, the delivery had been received into the pool account of B.M.Gandhi from the demat account of third party namely Goldmist maintained with Geojit and not from the account of Harvic. I note that Goldmist was also one of the original allottees of shares in the public issue of IQMS. f) I note that B.M.

Gandhi carried out 23 trades for 4,900 shares on December 1, 2000 in which the shares were rotated among the same clients through Bipin R Vora and B M Gandhi. At 11:56:30 AM Bipin Vora had purchased 2000 shares for Sai Investcorp for which the counter party selling client was Harvic through B M Gandhi. Again at 11:58:11 AM Bipin Vora had purchased 900 shares for Sai Investcorp for which the counter party selling client was Harvic through B M Gandhi. At 12:05:11 PM part of these transactions were reversed where Bipin Vora sold 1000 shares for Sai Investcorp and the counter party client had bought these shares through B M Gandhi. At 12:08:23 PM, 500 shares were traded wherein Bipin Vora had sold for Sai Investcorp and B M Gandhi had bought for Harvic. 500 shares were traded at 12:17:28 PM where Bipin Vora had sold for Sai Investcorp and B M Gandhi has bought for Harvic. Further, for the shares sold by Sai investcorp, delivery was received from the demat account of a third party Goldmist and not from the demat account of Sai Investcorp. g) I note that 32 trades for 8,100 shares were executed on December 12, 2000 in which the shares were rotated among the same clients through two trading members Bipin Vora and B M Gandhi.

Sai Investcorp purchased 300 shares at 10:08:17 AM through Bipin Vora from selling client Harvic through trading member B M Gandhi. Again Sai Investcorp sold at 01:17:05 PM through Bipin Vora, 300 shares to Harvic through buying broker B M Gandhi. At 03:01:16 PM part of these transactions were reversed where Sai Investcorp bought 6500 shares through Bipin Vora and Harvic sold these shares through B M Gandhi. Goldmist delivered the shares on behalf of Sai Investcorp (for its net deliverable position arising out of sale transactions) which indicates that they were known to each other. h) Further, on November 23, 2000, 20 trades for 4,500 shares were executed in which the shares were rotated among the same clients through Bipin Vora and B M Gandhi. Sai Investcorp purchased 1500 shares at 09:59:05 AM through Bipin Vora where counter party selling client was Harvic through B M Gandhi. Again Sai Investcorp had sold 3000 shares at 02:56:51 PM through Bipin Vora to counter party client Harvic through B M Gandhi. i) In majority of the trades executed by B M Gandhi for Harvic, the counter party clients were related clients.

When initially B M Gandhi was selling (for Harvic) the counter party clients were – Darshan P Desai through Geojit, Sai Investcorp through Bipin Vora and Mayekar Investments Pvt. Ltd. through Ramanlal D Shah. Subsequently, B M Gandhi had started buying for Harvic and the counter party selling clients were Deepak Mehta through SSKI Securities, Deepak Sanghani through Ruchiraj and Raj Investment through Lalkar Securities Pvt. Ltd. I note that Kalpesh Chawalla in his statement given during investigation on June 16, 2003, had admitted that Deepak Sanghani lives in the same building and he knows him for the last 20 years. Further, the address of Deepak Sanghani given to the broker as well as to DP was the address of Kalpesh Chawalla. Further Darshan Desai and Sumit Desai were related to Pankaj desai who was known to Hemang Jangla and they used to share market information and there was mutual giving and taking of securities, whenever the need arose. Thus, Deepak Sanghani, Darshan Desai and Sumit Desai are connected to Harvic Group. j) I note that Havmore Financial Services (I) Ltd dealt mostly through Ramanlal D. Shah.

Ramanlal D Shah had traded for three clients – Sagar V Shah, Havmore and Mayekar. Both

Mayekar and Havmore were original allottees of shares in the public issue of IQMS. The directors of Havemore were Kalpesh K Chawalla and Hemang D Jangla. k) I note that for the trading done by Ramanlal D Shah, net delivery position arose only for Havmore. However the shares to be delivered for the net delivery position was received from the demat account of third party Goldmist maintained with Geojit and not from the demat account of Havmore. l) I note that shares were rotated among a group of clients known to each other by Ramanlal D Shah and Ruchiraj in 11 trades consisting of 1,500 shares executed on November 22, 2000. Initially at 11:24:40 AM Havmore bought 500 shares through Ramanlal D Shah from the counter party selling client Deepak Sanghani through Ruchiraj. Subsequently these trades were reversed and the shares bought by Havmore through Ramanlal D Shah were sold to Deepak Sanghani on the same day at 3:14:28 PM. Further, similar reversals of transactions took place on December 4, 2000 where transactions were reversed between Ramanlal D Shah for client Havmore on one side and Ruchiraj for client Deepak Sanghani. m) Goldmist had dealt with Rajchandra.

From the trade details of Rajchandra, it is noted that it had traded for two clients and two sub-brokers – Hubli Dharwad Stock Trading House and Echem Brokers (I) Pvt. Ltd. The client of Hubli Dharwad Stock Trading House was P.R. Kamat and the client of Echem Brokers was Goldmist. From the details of trades executed by Rajchandra it is noted that 23 trades for 4,000 shares were executed on November 27, 2000 in which the shares were rotated by Rajchandra among a group of clients known to each other i.e. Geojit, Ruchiraj and B M Gandhi. Initially at 10:04:06 AM and 10:04:17 AM, Rajchandra had bought 2000 shares for Goldmist for which the counter party selling client was Darshan P Desai through Geojit. Subsequently, these trades were reversed and the shares bought by Goldmist through Rajchandra were sold to three different related clients on the same day. Goldmist sold 750 shares at 12:56:15 PM to Deepak Sanghani who bought it through Ruchiraj at 01:04:47 PM 1000 shares were sold by Goldmist to Darshan P Desai who bought it through Geojit and at 3:23:26 PM 250 shares were sold by Goldmist to the client Harvic who bought them through B M Gandhi.

Similar reversal of transactions took place on November 30, 2000 when transactions were reversed between Rajchandra for Goldmist and SSKI for client Deepak Sanghani. n) On November 20, 2000. Goldmist initially sold 4,800 shares at 9:59:12 AM and 10:01:14 AM through Rajchandra to the two counter party clients namely Sai Investcorp who bought them through Bipin Vora and Darshan P Desai who bought them through Geojit. Subsequently, Goldmist bought 1000 shares at 11:00:03 AM through Rajchandra from the counter party selling client, Havmore through selling broker Ramanlal D Shah. Again

Goldmist continued buying 1000 shares at 1:55:15 PM and 1:59:42 PM through Rajchandra from the counter party selling clients Deepak Sanghani who sold through Ruchiraj and Harvic who sold through B M Gandhi. o) On December 8, 2000, initially at 10:16:49 AM, Rajchandra sold 12,300 shares for Goldmist where the counter party client was Sai Investcorp through Bipin Vora. Subsequently, Rajchandra had started buying at various times during the day and reversed the sale positions with clients known to each other. p) I note that Geojit traded mainly for two clients namely Darshan P Desai and Sumit P Desai. Darshan and Sumit P Desai are brothers and nephews of Pankaj A. Desai. The counter party clients with whom Darshan traded were all parties who were known to each other. The delivery for settlement no. 38 for the sale made by Sumit Desai came from the third party demat account of Goldmist. Thus, Darshan, Sumit P Desai and Goldmist were known to each other. q) Further, 15 trades for 3,100 shares were executed on December 13, 2000 in which the shares were rotated among the same clients through Geojit and Bipin R Vora.

At 11:37:48 AM Darshan sold through Geojit 1,800 shares to Sai Investcorp whch bought it through Bipin R Vora. Subsequently, at 2:06:55 PM Darshan purchased 300 shares through Geojit from the selling client Sai Investcorp who sold through Bipin R. Vora. In this way, Geojit and Bipin R Vora matched trades for their clients and later reversed part or more of their positions on the same day. Similar reversals of transactions took place on December 12, 2000 when transactions were reversed between Geojit for client Darshan and Rajendra for client its Goldmist. r) It is noted that on November 27, 2000, initially at 10:04 AM Darshan was selling through Geojit for the counter party client Goldmist. Immediately at 10:05 AM. Darshan started buying through Geojit from the counter party selling client Harvic who sold through B M Gandhi. Again at 10:16 AM Darshan through trading member Geojit sold to Deepak Sanghani who made the purchase through Ruchiraj s) Raj Investments had mostly traded through the trading member Lalkar Securities Pvt. Ltd. Raj Investments was a partnership firm in which Jignesh N. Shah was the managing partner.

The first signatory to the client agreement form of Raj Investments was that of Jignesh N Shah who was the client of Networth Stock Broking Limited. Though the partnership firm Raj Investment had not executed many transactions, a series of orders were put in by Jignesh Shah which were matched by other clients namely, Deepak Sanghani, Goldmist, Sal Investcorp, Darshan Desal, Harvic, Havmore etc who are known to each other. These trades were executed with a view to influence the price as well to create volumes. t) Jignesh N Shah had mostly traded through the trading member Networth Stock Broking Limited. 42 trades for 10,000 shares were executed on November 15, 2000 in which the shares were rotated among a group of clients known to each other through the brokers namely Networth. Bipin R Vora and Geojit. Initially, from 11:30:19 AM till 11:52:20 AM. Jignesh N Shah bought through Networth 2000 shares from the selling client Darshan P Desai who sold through Geojit. Again at 11:52:20 AM and 11:57:30 AM jignesh N Shah bought 3000 shares through Networth from the counter party selling client Sai Investcorp through the selling broker Bipin R Vora.

Subsequently, these trades were reversed and the shares bought by Jignesh N Shah through his broker Networth was sold to the same counter party clients on the same day in the following manner. u) 20 trades for 4,000 shares were executed on December 12, 2000 in which the shares were rotated among a group of clients known to each other by the trading members. Initially, Jignesh N Shah at 10:07:44 AM bought through Networth from the counter party selling client Harvic who sold through its broker B M Gandhi. Subsequently, these trades were reversed and 1800 shares out of the 2000 shares bought by Jignesh N Shah through Networth was sold to the same counter party client on the same day at 12:35:07 PM. v) Similar reversals of transactions took place on several dates. On November 29, 2000 transactions were matched and reversed between Networth for client Jignesh N Shah on one side and B M Gandhi for client Harvic being the counter party. On December 13, 2000 transactions were matched and reversed between Networth for client Jignesh N Shah on one side and SKSE Securities Limited for client Milan Vora being the counter party.

On December 15, 2000 transactions were matched and reversed between Networth for client Jignesh N Shah on one side and Bipin R Vora for client Sai Investcorp being the counter party. w) Jignesh N Shah alternatively bought and sold through Networth on November 24, 2000. Wherein the counter party clients are known to each other. Initially Jignesh N Shah had sold 2,000 shares through Networth to the counter party clients A D Investments, Darshan P Desai and Goldmist. Subsequently, Jignesh N Shah bought 2,000 shares through Networth on the same day from the counter party clients Sai Investcorp and Harvic. Similarly, for the trades executed on the other trading days, in majority of the trades the counter party clients were all known to each other. x) 25 trades for 5,000 shares were rotated among the same clients through two trading members namely Geojit and Networth on November 15,2000. Darshan sold 500 shares at 11:30:19 AM trough Geojit to the counter party buying client jignesh N Shah through buying member Networth. Again Darshan sold at 11:32:54 AM 1500 shares through Geojit to the buying counter party client Jignesh N Shah who bought through Networth.

Subsequently, at 1:11:10 PM Darshan purchased 1000 shares through Geojit from the counter party selling client Jignesh N Shah who sold through Networth. Again at 2:50:23 PM Darshan purchased 2000 shares through Geojit for which the counter party selling client was Jignesh N Shah. In this way Darshan matched trades with other counter party clients and later reversed part or more of their positions on the same day. y) Most of the clients who have traded in the scrip during the investigation period were the original allottees in the public issue. 15. The Noticees have raised a common contention that they are not connected / related with each other and do not belong to any group. They have also contended that their decisions to trade in the scrip of IQMS were independent of each other and should not be seen in conjunction with any group. They have further contended that even otherwise, their individual trading in comparison to the total trading in the scrip during the investigation period is miniscule and could not have led to any manipulation in the scrip as alleged in the SCN. In this regard, I note that none of the Noticees have disputed the trades carried out by them as mentioned in the SCN.

Further, other than a general denial the Noticees have not submitted any material to refute the connection amongst them as brought out in the SCN. Also, none of the Noticees have disputed the statements of various entities which have been mentioned in the SCN and on the basis whereof, connections have been established among entities and allegations have been levelled on them. It is pertinent to note that the connection/relationship among the Noticees in the SCN has been brought out on the basis of multiple factors such as family relationship, common directorship, fund transfers, repeated reversal transactions, providing delivery for third parties, introducing entities as clients to brokers, statements recorded during investigation, etc. In the present case, one or more of these factors were present with regard to the Noticees and when seen along with the pattern of transactions which took place between the Noticees, it becomes clear that the transactions were executed under a pre-meditated plan/scheme among the Noticees. As regards the contribution of the Noticees as a percentage of the total transactions executed during the investigation period, it is important to consider the contribution of all the Noticees who acted as a group and executed the impugned trades, and not individually which may appear to be small.

In view of the above, I do not find any merit in the contentions of the Noticees in this regard.

16. I note that the Noticees in their replies have denied their role in the manipulation alleged in the SCN. However, none of the Noticees has disputed the transactions mentioned in the SCN which were in the nature of matched trades, cross deals and reversals. It is clear from the records that all the cross deals, matched trades and reversals in trade were done by the Noticees through the respective brokers at progressively higher prices in the illiquid scrip of IQMS. In my view, placing of buy/sell orders with same counterparties for same quantity of shares at the same price repeatedly over a period of time is a clear indication that those trades of the Noticees were synchronized/ structured. In this regard, the following observations of the Hon’ble SAT in its order dated July 14, 2006 in the matter of Ketan Parekh vs. Securities and Exchange Board of India, is worth mentioning: “.......... A synchronised transaction will, however, be illegal or violative of the Regulations if it is executed with a view to manipulate the market or if it results in circular trading or is dubious in nature and is executed with a view to avoid regulatory detection or does not involve change of beneficial ownership or is executed to create false volumes resulting in upsetting the market equilibrium.

Any transaction executed with the intention to defeat the market mechanism whether negotiated or not would be illegal. Whether a transaction has been executed with the intention to manipulate the market or defeat its mechanism will depend upon the intention of the parties which could be inferred from the attending circumstances because direct evidence in such cases may not be available. The nature of the transaction executed, the frequency with which such transactions are undertaken, the value of the transactions, whether they involve circular trading and whether there is real change of beneficial ownership, the conditions then prevailing in the market are some of the factors which go to show the intention of the parties. This list of factors, in the very nature of things, cannot be exhaustive. Any one factor may or may not be decisive and it is from the cumulative effect of these that an inference will have to be drawn.” 17. I note that in the present case, the premeditated reversal trades created a misleading appearance of liquidity in the market and such reversals at progressively higher prices by the Noticees during the period November 14, 2000 – December 15, 2000 resulted in the price of the scrip increasing from ₹.

19 to ₹. 41.80. 18. In view of the facts and circumstances of this case discussed hereinabove, I do not find any material to differ from the allegations and charges in the SCN and find that the Noticees have violated regulation 4 (b), (c) and (d) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 read with regulation 13(2) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003.

19. I am of the considered view that such fraudulent 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. 20. Considering the facts and circumstances of this case and the abovementioned mitigating factor, I, in exercise of powers conferred upon me under section 19 read with section 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 and regulation 11 of the PFUTP Regulations, 1995 read with regulation 13 of the PFUTP Regulations, 2003 hereby restrain Danhem Holdings & Investments Pvt. Ltd., Kalpesh K Chawalla, Hemnag D Jangla, Darshan P. Desai, Goldsmith Equifin Pvt. Ltd., Harvic Management Services (I) Ltd., Havmore Financial Services (I) Ltd., Raj Investments and Jignesh N. Shah from accessing the securities market and prohibit them from buying, selling or otherwise dealing in securities, directly or indirectly, in any manner, whatsoever, for a period of three years from the date of this order. 21. 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