Order in respect of Keynote Corporate Services and Keynote Capitals in the matter of Emmbi Industries Limited

ORDER Under regulations 28(2) of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 in the matter of dealings in the shares of Emmbi Polyarns Limited (currently known as Emmbi Industries Ltd.) In respect of: (1) Keynote Corporate Services Limited (PAN: AAACK3234D) - SEBI Registration Number - INM000003606 (2) Keynote Capitals Limited (PAN: AAACK2618R) - SEBI Registration Number - INB011207152 1. M/s Emmbi Polyarns Limited (hereinafter referred to as "the company") had, during January/February, 2010, come out with an initial public offering (hereinafter referred to as “IPO”) of 95,74,000 equity shares of ₹10 each through 100% book building process. Keynote Corporate Services Limited (hereinafter referred to as "KCSL") was the Book Running Lead Manager (hereinafter referred to as “BRLM”) to the issue. Keynote Capital Limited (hereinafter referred to as "KCL"), a stock broker, was the Syndicate Member and KCSL and KCL both were the underwriters to the IPO. KCL is a 100% subsidiary of KCSL and Keynote Commodities Limited(KCOM) is 100% subsidiary of KCL. KCSL, KCL and KCOM are, thus, part of the same group. 2. The price band of the said book building was between ₹40 to ₹45 per equity share. The IPO opened on February 01, 2010, and closed on February 03, 2010 and finally, the allotment was done at the higher end of the band i.e., at ₹45. Trading in the shares commenced on both National Stock Exchange of India Limited (hereinafter referred to as "NSE") and the BSE Limited (hereinafter referred to as "BSE"), from February 24, 2010 and on that day, the price of the scrip opened at ₹45.5 on BSE and ₹46 on NSE. The closing price on that day was ₹28.65 and ₹28.75 on BSE and NSE, respectively. The price of the scrip on that day registered a fall of around 37% from the issue price. 3. Securities and Exchange Board of India (hereinafter referred to as "SEBI) conducted investigation in respect to the aforesaid IPO and pursuant to the investigations initiated proceedings in respect of KCSL and KCL under the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 (hereinafter referred to as 'Intermediaries Regulations'). The Designated Authority (hereinafter referred to as “DA”) appointed for this purpose

In the matter of dealings in the shares of Emmbi Polyarns Ltd.

submitted two Reports both dated July 31, 2013 in respect of KCSL and KCL and therein made inter alia the following observations: (i) On the first day of bidding period of the IPO i.e., on February 01, 2010, only 5.7% subscription (1800 shares @ ₹40; 150 shares @ ₹41; 300 shares @ ₹42 and 547,750 shares @ ₹45 and cut off) was received. Out of said 5.7 % subscription of the issue on this day, a Qualified Institutional Buyer (QIB) namely, India Max Investment Fund Ltd. (India Max), a sub-account of a Foreign Institutional Investor (FII) namely, Rahn & Bodmer for which KCL was the local advisor, had applied for 5.2% (4.99 lakhs shares). (ii) As per the offer document, under subscription if any, in the Qualified Institutional, Non Institutional and Retail portion was to be met with spill-over from any other category, at the sole discretion of the company in consultation with the BRLM. Under-subscription, if any, in the reservation for eligible employees shall be added back to the net issue and were to be considered for allotment only on a proportionate basis. Under subscription, if any, in any category in the net issue had to be met with spill-over from the reserved category.

(iii) On day 2 of the bidding period, the demand for shares was much higher compared to the previous day. On this day, India Max revised its earlier bid to 17,40,000 shares. Certain entities viz; Concept Communication Limited ('Concept'), Team India Managers Limited (Team India), Platinum Line Investment Trading Company Limited ('Platinum'), India Max, Anidhi Impex Private Limited ('Anidhi'), Mr. Jaswant Shah, Mahendra Jain HUF, Ms. Sheela Shah, Ms. Alka Jain, Mr. Gulu Watu and Mr. Lalit Kumar Sharma had together bid for a total of 70,17,150 shares constituting 73% of the issue. (iv) The IPO was closed on 3rd day of the bidding period i.e., on February 03, 2010 and the allotment was finalised at ₹45 per equity share. After considering cheque returns and technical rejections, the issue was subscribed to 86,57,700 shares i.e. 0.904 times (90.4%) of total 95,74,000 shares.The details of category wise allotment are as following: Table 1- Category wise allotment Category No. of shares Subscribed Numbe Spillover Shares allotted Reserved r of applica nts Shares % to Shares % Number % to % to total net total issue issue allotmen t QIBs 47,62,000 Upto 17,40,000 18.1 1 (31,12,975) 16,49,025 17.2 19 50%

Non- 14,28,600 Min 55,42,650 57.9 17 41,14,050 55,42,650 57.9 64 Institutional 15% Investors (NII) Retail 33,33,400 Min 13,25,100 13.8 2,498 (20,08,300) 13,25,100 13.8 15.3 Investors 35% Employees 50,000 Upto 49,950 0.5 23 (50) 49,950 0.5 0.6 0.01 Shortfall 90,975 1 1.1 TOTAL 95,74,000 86,57,700 90.4 86,57,700 (v) On February 24, 2010 i.e., the first day of listing of IPO, 6,14,82,682 shares were traded on NSE and 5,71,73,030 on BSE. The top 5 brokers on the buy side contributed approximately to a total of 18% and 30 % of the days' purchase volume on NSE and BSE, respectively whereas on the sell side, top 5 brokers contributed approximately to a total of 21% and 33 % of the days' sale volume on NSE and BSE, respectively. Details of which are as follows: Table 2 - The top 5 brokers BSE Buy side Sell side Sl. Broker name % to Sl. Broker name % to No. total No. total volume volume 1 Keynote Capitals Limited. 14.1 1 Keynote Capitals 17.2 Limited. 2. Genuine Stock Brokers 5.0 2. Genuine Stock Brokers 5.0 Private Limited. Private Limited 3. OPG Securities Private 4.6 3. OPG Securities Private 4.6 Limited Limited 4. Transglobal Securities Limited 3.6 4. Transglobal Securities 3.6 Limited 5. Marwadi Shares And Finance 3.5 5. Marwadi Shares And 3.4 Finance Total 30.8% Total 33.8%

Table 3 - The top 5 brokers NSE Buy side Sell side Sl. Broker name % to Sl. Broker name % to No. total No. total volume volume 1 Genuine Stock Brokers 4.3 1 Keynote capitals limited. 6.0 Private Limited

2. Transglobal Securities Limited 4.1 2. Genuine Stock Brokers 4.3 Private Limited 3. BP Equities Private Limited 3.2 3. Transglobal Securities 4.1 Limited 4. Maniput Investments Private 3.2 4. BP Equities Private 3.2 Limited Limited 5. Kalash Shares & Securities 3.2 5. Maniput Investments 3.2 Private Limited Pvt. Ltd. Total 18% Total 20.8% (vi) On February 24,2010, following subscribers sold their entire allotted shares and incurred substantial losses( except India Max Investment Fund Limited), details of which are as under: Table 4 – Major Sellers on the listing day Sr. Entity name Applied & % to total % to Quantity sold Profit/loss. no. allotted allotment total on the day of public listing offer 1 Team India 32.1 29.0 2,777,700 Managers Limited 2,777,700 (26,095,154.0) 2 India Max Investment fund 19.0 17.2 1,649,025 1,649,025 754,277.3 Limited (QIB) 3 Viniyoga Commercial Private 1,111,050 12.8 11.6 1,112,502 (8,818,656.8) Limited 4 Anidhi Impex 2.6 2.3 222,150 Private Limited 222,150 (3,291,133.1) 5 Samsab enterprises 1.3 1.2 111,000 Private Limited 111,000 (1,548,849.4) 6 Kavita Amit 1.3 1.2 111,000 Dhanki 111,000 (17,737.8) 7 Jayesh Shah 1.3 1.2 111,000 111,000 - 8 Jinal Capital 0.6 0.6 55,500 Services Pvt. Ltd. 55,500 8,913.3 9 Concept Communication 8.3 7.5 722,250 722,250 (10,294,441.8) Limited 10 Platinum Line investments & 2.6 2.3 222,150 222,150 324,598.8 Trading Company 11 IDBI Capital 0.3 0.3 30,000

Market Services 30,000 22,000.0 Limited 12 Keynote Capitals Limited 1.1 1.0 90,975 90,975 (1,396,223.8) (underwriter)

(vii) KCL is 100% subsidiary of KCSL and KCOM is 100% subsidiary of KCL. Thus, they all are part of the same group. These aforementioned entities who had placed bid constituting 73% of the issue are connected to the noticees on one way or the other. KCSL and KCL had common directors in some of these entities and also had advanced funds to them so as to induce/enable them to subscribe to the IPO. In the Reports, the DA has discussed the basis of some (4) of these entities.The basis of connection amongst some of these entities, allotment of shares to them in the IPO and sale of allotted shares by them on the first day of listing as observed in the Reports and findings of DA with regard to them are as follows:

a. Concept- Concept was a client of KCL. Concept held 29% (20,45,015 shares as on August 25, 2009) stake in the KCSL. Directors of Concept are connected to KCSL in the following manner:

Table 5- Relationship of Concept with KCSL Name of Directors of Concept Relation with KCSL Mr. Nirmal Suchanti Chairman of KCSL Mr. Vivek Suchanti Son of Nirmal Suchanti, Chairman of KCSL Mr. Pushpa Suchanti Wife of Nirmal Suchanti, Chairman of KCSL b. Concept had invested ₹3.25 crores in the IPO through its bank account with Axis Bank. The said bank account had credit balance of only ₹86.4 lakhs as on February 2, 2010. During February 03, 2010 to February 06, 2010, Concept received total ₹3.44 crores from KCL and other 8 entities. Out of this, Concept had received ₹2 crore from KCL and ₹ 1.25 crore from the company. With regard to the receipt of ₹1.25 crore from the company the DA has observed that the said amount was received by Concept towards the bills for advertising, promotion, etc. done in terms of a contract dated December 11, 2009. As regards transfer of ₹2 crore by KCL to Concept, the DA has observed that as on February 02,2010, Concept had a negative balance of ₹6.68 crores in the client ledger account with KCL. Even then, on February 03, 2010, KCL advanced ₹2 crores to Concept.

c. Concept was allotted with 7,22,250 shares in IPO and it sold its entire allotment on the day of listing (31,162 shares in BSE and 6,91,088 shares in NSE) and made a loss of 1.02 crore. d. DA has found that noticees were connected to Concept. The nature of transfer of money from KCL to Concept and very behaviour of Concept on the day of listing do not appear to be genuine. The DA has further found that Concept had no long term investment interest in shares of the company and the noticees were using Concept as a means for getting the IPO through, thereby using the application as a device for perpetrating fraud on the general public. e. Team India -One of the directors of Team India, Mr. Vineet Suchanti was a director of KCSL. Another director of Team India, Mr. Suraj Saraogi was director of KCOM and also the managing director of KCL.

f. Team India invested ₹12.49 crore in the IPO through its HDFC bank account. On February 02, 2010 when it placed its bid in the IPO, it had a balance of only ₹38.16 lakhs in its bank account. An amount of ₹12.3 crore was transferred by KCOM and an amount of ₹20 lakh was transferred by the company on February 02, 2010 (total ₹12.5 Cr) in the Team India’s HDFC bank account. With regard to the transfer of ₹20 lakh from the company to Team India, the DA has accepted the submission that the said amount was towards a part of fees for developing a franchisee model for one of the products of the company and the same was returned by Team India to the company due to litigation on termination of agreement. As regards transfer of the amount of ₹12.3 crore from KCOM, the DA has found that the same had actually come to Team India from KCL as shown in the following diagram:

g. On the day of listing, Team India sold the entire 27,77,700 shares allotted to it in the IPO and incurred a loss of ₹2.6 crores. h. DA has observed that during 2009-2010, apart from IPO in the instant case,Team India had invested only in the IPO of Thangamayi Jewellery Ltd. for which KCSL was the BRLM. According to the DA, the connection between the KCSL and KCL and Team India, fund transfer by KCL to it and selling of shares by it on the day of listing thereby making loss lead to the conclusion that the application made by Team India in the instant IPO was part of fraud perpetrated by the noticees to somehow bring the IPO through. i. Platinum-The IPO application form of Platinum contained email ID and the mobile number of Mr. Mehul M. Patel, who is also a director of the KCSL. At the time of the IPO, Mahesh J. Patel (father of Mr. Mehul M. Patel) and his family members (Mr. Mehul M Patel, Smt. Monica M Patel and Ms. Meghna M Patel) owned Platinum. Mahesh J. Patel and his family along with Mrs. Hansa J. Parekh, Mr. Jayant M. Parekh, Mr. Paresh N. Dhruv and Mrs. Bharti P. Dhruv also owned the broking firm, M. J. Patel Shares and Stock Brokers Ltd. (MJP). MJP holds 0.6 % stake in KCL. Further, it was observed that Platinum and KCL had granted inter-corporate advances to each other.

j. Platinum invested ₹99.96 lakhs in the IPO through its account with Bank of India. It was observed that Platinum had taken an advance of ₹1 crore from one, Vikas Berlia HUF on January, 28 2010 and on the same day it had advanced the said amount to MJP. On February 06, 2010, Platinum had received back the said amount from MJP and utilized the same towards the application money in the IPO. k. Platinum sold the entire allotment of 2,22,150 shares on NSE on the day of listing and had a profit of ₹3.24 lakhs.

l. The DA has found that Platinum was frequently taking loans and advancing loans to the entities like KCL, Anidhi and MJP. On this basis the DA has concluded that these entities are known to the KCSL and KCL. m. India Max was a sub-account of FII - Rahn & Bodmer for which KCL was the local advisor. India Max held 8% stake in KCSL and KCL was the broker/advisor to the sub-account. The sub-account sold 7,00,000 shares on BSE and 9,49,025 shares on NSE on the day of listing and made a profit of ₹7.54 lakhs.

(viii) Out of the above four entities, Concept and Team India are alleged to have got transferred funds from the noticees and that they played significant role in the IPO and trading on the first day of trading. (ix) Apart from the above, the DA has found that the KCL had transferred funds to Anidhi which in turn used the same to subscribe to the IPO as discussed below:

a. Anidhi invested ₹ 99,96,750 in the IPO through its ICICI Bank account. It received ₹1 crore from KCOM on February 05, 2010 which cleared its cheque towards subscription money on February 06, 2010. The said ICICI Bank account of Anidhi had zero balance as on February 04, 2010 i.e. even after the issue was closed. As per temporary advance book maintained by KCOM, as on February 04, 2010, Anidhi had to repay ₹1 crore to KCOM. However, on February 05, 2010 Anidhi was granted further loan of ₹1 crore by KCOM, out of which, ₹ 99,96,750 were invested by Anidhi in the IPO. KCOM did not have enough money to be lent to Anidhi and it was funded by KCL .Following diagram shows fund transfer from KCL to Anidhi via KCOM:- b. Anidhi was allotted 2,22,150 shares in the IPO. On the day of listing, Anidhi sold entire 2,22,150 shares allotted to it in the IPO and incurred a loss of ₹32.9 lakhs. c. The DA has found that since Anidhi had not participated in any other IPO except the instant one and it got funds from KCL through KCOM during the bid period shows that the money transferred by KCOM was used by Anidhi for subscribing to the IPO only. Since Anidhi had "nil balance" in its bank account at the time of making application in the IPO, it is clear that funds received from KCL through KCOM were used for subscribing to the shares in the IPO.

d. The DA has concluded that KCSL along with KCL( its100% subsidiary and the underwriter to the IPO) and KCOM ( 100% subsidiary of KCL) had an obvious interest in getting the issue through. (x) The DA has named other entities such as Mr.Gulu Watumal, Mr. Lalit Kr. Sharma (Director-Platinum), directors of Anidhi and their respective wives as 'related entities' and has observed that they made applications in the IPO in the following manner: a. Mr. Gulu Watumal a client of KCL who was identified in the KYC as a friend of Mr. Nirmal Suchanti, Chairman of KCSL applied for 2.32 % shares in the IPO but stopped realisation of the cheque after the issue was through.

b. Mr. Lalit Kr. Sharma, director of Platinum had applied for 2.32% of the IPO but had stopped realisation of the cheque after the issue was through. c. Two directors of Anidhi namely, Mr. Jaswant Shah and Mr. Mahendra Jain [who applied as Mahendra Jain HUF] and their respective wives [Ms. Sheela Shah and Ms. Alka Jain] had applied for total 9.28% shares in the IPO but they allowed their cheques to be dishonoured. (xi) The DA has observed that the price discovery and the 90% subscription are based on the bid received and it does not consider how many of the cheques were dishonoured later on. In this case, bids totaling ₹ 9,46,08,250 /- from 85 bidders who had bid at ₹ 45 were dishonoured due to insufficient balance/stop payment by the applicants. This constitutes around 21.96% of total IPO. Out of these the bids for total ₹8,99,70,750/ (95%) were of the applicants connected to the KCSL and KCL. 4. It has been observed that the noticees have not indicated the purpose for which the monies were transferred by KCL. While the DA has agreed with the submissions that there is no harm in informing and marketing IPO to the clients and the persons of acquaintance for the purposes of investment in IPO, he has observed that marketing of IPO and inducing connected/associated people/entities to participate in the IPO by funding their applications directly or indirectly are different matters.

The DA has found that, in this case, funding has been done by none other than the group entities of the BRLM to the IPO during the IPO. The transfer of money from KCL had happened during the IPO. Such funding and cornering of shares will defeat the very purpose of the IPO. In the instant case, the entities who had cornered 73% of the IPO offloaded their entire allotment on the day of listing. Hence, the DA has rejected the contention that there is no harm in funding and marketing the IPO. 5. The DA has observed that KCL and KCOM advanced monies to entities namely, Concept, Team India, Anidhi and Platinum who made large applications in the IPO. The large applications were also made by other 'related entities' such as Mr. Gulu Watumal, Mr. Lalit Kumar Sharma (director-Platinum), directors of Anidhi, namely, Mr. Jaswant Shah, Mahendra Jain HUF, Ms.Alka Jain, wife of Mr. Mahendra Jain and Ms. Sheela Shah wife of Mr. Jaswant Shah. Consequently, on day 2, the subscription figure of IPO was 0.9859 times. According to the DA the main aim of the noticees was to ensure success of the issue so that whatever application money were received from public could be retained.

If the issue failed, all the application money received would have to be refunded. These entities together with India Max bid for a total of 70,17,150 shares ( 73% of the issue). Once it was clear that the issue would succeed, some of the related applicants stopped payments of their cheques or allowed their cheques to bounce. At the final stage, there was devolvement of a small portion of the issue and KCL being the underwriter subscribed to 90,975 shares. The entities who subscribed in the IPO did not have investment interest in the shares of the company. Most of these applicants sold their shares on the day of listing and incurred losses ( except India Max which made profit of `7.42 crore). There was a fall of 37% from the issue price on the day of listing. 6. With regard to another allegation against KCL that it had misused funds from clients account as it had advanced loan of ` 2 crore to Concept, ` 50 lakh to Platinum and paid its underwriting obligation of `40.9 lakh from clients' account in violation of Circular No. SMD/SED/CIR/93/23321 dated November 18, 1993, the DA has rejected the submissions of KCL for want of documentary evidence.

However, the DA has given benefit of doubt to KCL with regard to allegation of violation of provisions of regulation 13 of the Underwriters Regulations read with Schedule III thereof since KCL had met with its underwriting obligations. 7. In view of the above findings, the DA has concluded that - (a) KCSL had actively participated in a scheme with the intention of securing minimum subscription to the issue which operated as fraud upon the investing public and has violated provisions of regulation 3(b), (c), (d) and 4(1) of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (hereinafter referred to as “PFUTP Regulations”) read with section 12A (b) of the Securities and Exchange Board of India Act, 1992 (hereinafter referred as “SEBI Act”) and clauses 1, 2, 11, 12, 32(a) and (b) of Code of Conduct for Merchant Bankers as given in Schedule III of regulation 13 of Securities and Exchange Board of India (Merchant Bankers) Regulations, 1992 (hereinafter referred to as “Merchant Banker Regulations”); and (b) KCL had actively participated in a scheme whereby it had directly and indirectly advanced monies to the entities and induced them to subscribe to the IPO of the company with the intention of securing the minimum subscription to the issue.

Further, KCL misused clients' funds deposited in their Axis Bank account number 004010200012647 and has violated the provisions of section 12A(b) of SEBI Act, regulations 3(b),(c),(d),4(1) and 4(2)(c) of PFUTP Regulations and SEBI Circular no. SMD/SED/CIR/93/23321 dated November 18, 1993. 8. In view of the above findings, the DA has recommended suspension of certificate of registration of KCSL for a period of one month and that of the KCL for a period of three months.

9. After considering the Reports, two separate show cause notices, both dated August 19, 2013 (SCNs), under regulation 28(1) of the Intermediaries Regulations, were issued to KCSL and KCL (hereinafter collectively referred to as "the noticees" and individually by their respective name) (enclosing therewith a copy of the respective Reports), calling them upon to show cause as to why action as recommended by the DA or as deemed fit by the Designated Member should not be taken against them. As requested by the noticees, inspection of documents was granted on December 05, 2013. 10. The noticees vide their letter dated January 27, 2014 made their preliminary submission in the matter.Thereafter, opportunities of personal hearing were granted to the noticees on February 06, 2014 when authorised representative of the noticees appeared and made preliminary submissions on the line of reply on record, and liberty was granted to file detailed reply to the SCN on or before February 13, 2014. The noticees vide their letters both dated February 13, 2014 filed replies to the SCNs denying all the allegations leveled therein.

Another opportunity of hearing was granted to the noticee on March 18, 2014 to which the noticees made a request for an adjournment. The request of the noticees were acceded to and they were given another opportunity of hearing on April 15, 2014 when Mr. Somasekhar Sundaresan, Advocate and others appeared on behalf of the noticees and made submissions on the line of reply on record. The noticees also filed their written submissions dated May 02, 2014. 11. In the meanwhile the noticees had applied for settlement of present proceeding by consent order but the said consent proposal was rejected by SEBI and the same was informed the noticees' Advocate, Mr. Somasekhar Sundaresan vide e-mail dated August 28, 2014. Thereafter, the noticees were given one more opportunity of hearing on April 07, 2015 to which the noticees vide their letter dated April 06, 2015 requested SEBI to proceed further on the basis of submission made earlier and material available on record. While the matter was under consideration, the noticee filed additional submissions vide its letter dated February 22, 2016 reiterating its earlier replies and filed few documents in support of its replies.

The replies / written submissions made by noticees are as follows: (i) The Investigation Report which forms the basis of the Report has not been given to the noticees despite repeated requests for the same. Request for inspection of documents was also not considered by SEBI. Therefore, present proceedings have been undertaken without compliance with the requirements of the principles of natural justice and fair play. (ii) SCNs state that the IPO was subscribed by 1.5 times on the second day of the IPO. However, DA for the first time recorded that at the end of 2nd day of the IPO, the IPO was subscribed only 0.9859 times. The noticees contended that there is a severe irregularity in terms of recording the basic facts and therefore, the entire Report is untenable. (iii) Income Tax Department (ITD) has initiated proceedings on the referrals received from SEBI in the matter. Referring the summons issued by ITD, seeking certain details in respect of transaction of the nature mentioned in SCNs, the noticees have contended that contrary to the allegation herein, ITD had appreciated that the application in the IPO were made by the respective applicants out of their own volition and not on the behest of the noticees.

(iv) Concept is a client of KCL. As its stock broker, it was trading on behalf of Concept. Concept and KCL often extend advances to each other. The allegation that it advanced ₹2 crores to Concept when Concept had a negative balance of ₹6.68 crores in its margin account, is incorrect. In fact in the other deposit ledger account of Concept maintained by KCL there was a credit balance of ₹20 crores to Concept’s account. In this regard it has relied upon party ledger for the period 01.04.2008 to 31.03.2009 and 01.04.2009 to 31.03.2010, deposit account statement for the period 01.04.2008 to 31.03.2009 and 01.04.2009 to 31.03.2010, and copy of its balance sheet as on 31.03.2009 and 31.03.2010 Noticees have contended that vide the impugned transition, KCL was repaying one of the advances made by Concept to it. (v) Merely because the Managing Director of KCL and a director of KCSL are the directors of Team India, it cannot be said that Team India is an associate of the noticees. (vi) The funds transferred to KCOM by KCL were made under regular course of business. Such transfer of funds was common between these two because of being group companies.

Further, at the time of transfer of such fund from KCL to KCOM, the account of KCOM was in credit to the tune of approx ₹17 crore. The noticees do not have any role to play in the decision making of Team India. Funds were transferred by KCOM to Team India and not by the noticees. The noticees cannot be put to blame for activities of KCOM. (vii) The noticees had not advanced any monies to Anidhi, rather KCOM had advanced monies to Anidhi. The noticees do not have any connection with Anidhi and they do not monitor or regulate financial transactions entered into between KCOM and other third parties. (viii) Mr. Mehul Patel was an independent director of KCSL. Merely by virtue of an independent director being on the board of Platinum and KCSL, it cannot be said that the companies are associates. Further, just because there were frequent financial transactions between KCL and Platinum, it cannot be said that Platinum and KCL were a part of the alleged scheme. The unrelated transactions between noticees and Paltinum in due course cannot be relied upon to create such an association. In this regard, the DA should have considered the ledger account and the fund flow between the noticees and Platinum before drawing any adverse inference.

(ix) Mr. Gulu Watumal was a client of KCL and that there was no other connection between him and KCL. Further, it is common practice for employees or management of intermediaries to act as 'introducers' for individual clients even in cases that the individual client is simply a 'far-of' acquaintance. It was further submitted that without any other connection and just because Mr. Nirmal Suchanti, Chairman of KCSL has acted as introducer of Mr. Gulu Watumal in his KYC, it cannot be concluded that the noticees are associate of Mr. Gulu Watumal and vice versa. (x) Only on the basis of the fact that India Max was an advisory client of KCL, it cannot be concluded that India Max was connected to KCL. Decision to invest in the IPO was taken independently by India Max pursuant to report of SMC Capital and investment decision of India Max was not controlled by KCL. (xi) KCL denied the allegation that it misused clients' fund for its own benefit. It has submitted that the allegation in the SCN in this respect has arisen out of an incorrect and over-simplistic appreciation of events. KCL, as a stock broker was entitled to receive brokerage for trades undertaken by it for its clients.

There had been instance where brokerage receivable by KCL from a client was credited to the clients' account from where it is transferred to KCL's own account. This process is indeed in compliance with the provisions of the SEBI Circular no. SMD/SED/CIR/93/23321 dated November 18, 1993, which at Paragraph 1(C)(ii) states that no money shall be paid into clients account other than "a cheque or draft received by the Member representing in part money belonging to the client and in part money due to the Member". Such funds ,therefore, although lying in the separately maintained client account, actually does belong to KCL. KCL had issued cheques for meeting its payment obligations because of such accumulated funds that belonged to KCL. Indeed, the most appropriate manner of making such payments could have been transferring such amounts to KCL's own account and issuing cheques from such accounts. However, KCL can affirm and submit that the fund utilized pursuant to the cheques issued by KCL were only funds belonging to KCL. It is confirmed by KCL that no funds belonging to its clients have been utilized by KCL for meeting its own obligations.

This is further apparent from the fact that none of KCL's clients have complained about its funds being misused by KCL for meeting KCL's obligations. KCL has relied upon Hon'ble SAT order dated March 18, 2010 in the matter of Consortium Securities Pvt. Ltd. vs. SEBI (Appeal No. 200 of 2009) and contended that entity can use the amount of brokerage for normal business from the clients' account however, it should not be in excess of the amount due. It is further submitted that it is merely a technical glitch, if any, in terms of violation of the said SEBI Circular. The SEBI November Circular does therefore, require that brokers do not make payments for transactions in which the member is taking a position as a principle from the client account. However, it is submitted that in the instant case, where the payment made is that of fund belonging to KCL and not of any other client, the breach of the SEBI November Circular by KCL if any, could only be termed as technical or venial. (xii) Further, the allegation that the IPO was heading towards a poor response on the first day of opening is incorrect as investors do not invest heavily on the first day of the IPO and wait till third day when IPO becomes common market phenomenon.

(xiii) There are various transactions between KCL and KCOM from time to time in light of the fact that the two companies are run by the same group. Such fund transfer per se are does not establish any mala fide on the part of the noticees. (xiv) The noticees have not indulged in fraud or manipulation of the IPO. All the entities alleged in the Report are independent and professionally managed and there is no evidence that the noticees funded any entity with intent to ensure subscription of the IPO. There is no restriction on providing funds to an entity for the purpose of making applications in an IPO more so when the said entity’s account is in credit in the books of the providing entity. In the present case the fund transfers subject matter of the SCNs were just a repayment made by the noticees to the other associated entities. (xv) Further, there is nothing wrong in marketing the IPO to known associates. In terms of Red Herring Prospectus dated January 20, 2010 filed by the issuer company, the associates of the merchant banker handling the IPO are lawfully entitled to make application for allotment to the IPO.

The decision to invest ultimately rests in the clients/persons of acquaintance. The entities in this case took their own independent and professional decision to subscribe in the IPO and sell the shares allotted to them. The noticees did not have any role in their investment decisions and The Reports do not allege so. The charge of enabling or those entities to subscribe in the IPO has not been established on the basis of any evidence. The Reports are replete with findings which are entirely on the realm of conjecture and surmise, which are insufficient to sustain a charge of fraud under the PFUTP Regulations. The Reports are silent as to how the noticees have perpetrated fraud on public as they nowhere even allege that the noticees induced public to invest in the IPO.The noticees placed reliance in this regard on the judgments passed by Hon’ble Supreme Court in the matter of Ashish Batham v. State of Madhya Pradesh and Sharad Birdhichand Sarda v. State of Maharashtra AIR 1984 SC 1622 and judgement passed by Hon’ble SAT in Videocon International vs. SEBI and Nirmal Bang Securities Pvt. Ltd. vs. SEBI.

(xvi) The noticees did not derive any illegal benefit or gain by allegedly saving the IPO. 12. I have considered the SCNs and submissions made by the noticees and other material available on record. I note that separate SCNs were issued to KCL and KCSL. Considering that the matter has commenced based on same facts and circumstances, findings of the DA are based on same facts and that the allegations on facts are same against both the noticees, I am of the view that the instant case is a fit case to pass a common order in terms of regulation 29 of the Intermediaries Regulations in respect of both the SCNs. 13. Before dealing with submissions of the noticees on merit, I deem it necessary to deal with the preliminary contentions raised by the noticees. I note that as requested by the noticees, inspection of documents relied upon in the present proceedings was granted on December 05, 2013, I therefore, find that there is no merit in the submissions of the noticees that their request for inspection of documents was not considered. I further note that relevant extracts of the Investigation Report have been shared with the noticees in the form of show cause notice issued by the DA, therefore, the fact that Investigation Report has not been shared with the noticees does not prejudice the interest of the noticees in any way.

Furthermore, I note that all the relevent documents which have been relied upon in the present proceedings have been shared with the noticees. I, therefore, am of the view that fair and enough opportunity have been provided to the noticees to defend themselves against the allegations made during the present proceedings and no prejudice has been caused to them. 14. With regard to contention that subscription in IPO was not 1.5 times but only 0.9859 times of total subscription (86,57,700 shares), I note that considering the submissions of the noticees in this regard, the DA in his Report, has considered only the bids of 27,77,700 shares @ ₹45 and has accepted the subscription level as 0.9859 times of total subscription (86,57,700 shares). Accordingly, there is no error in the SCNs in these proceedings. 15. The noticees have further submitted that ITD in its proceedings has considered the same transactions as transaction of each individual, however, SEBI is alleging the same transactions as on the behest of the noticees. However, they have not furnished any documentary evidence in support of this submission.

16. Having dealt with the preliminary submissions of the noticees, I proceed to deal with the merits of the case. From the SCNs, I note that charge against KSCL (BRLM) is that it had 'actively participated in a scheme with the intention of securing minimum subscription to the issue which operated as fraud upon the investing public.' The charge against KCL in respect of IPO is that it had KCL has been charged that it had "actively participated in a scheme whereby it has directly and indirectly advanced money to entities and induced them to subscribe to the IPO of the company with the intention of securing the minimum subscription to the issue." 17. I further note that aforesaid charges and findings have been arrived at on the following basis - (a) connection / relation amongst KCL, KCSL, KCOM and Concept, Team India, Platinum and India Max; (b) acquaintance of noticees about Anidhi (c) relation between Mr.Gulu Watumal and KCL as broker -client; between noticees and Mr. Lalit Kr. Sharma through Platinum; and between noticees and Mr. Jaswant Shah and Mr. Mahendra Jain and their respective wives, Ms. Sheela Shah and Ms. Alka Jain] through Anidhi; (d) financing transactions between Concept, Team India and Anidhi and KCL/KCOM and between Platinum and MJP during the period when the IPO was open for subscription; (e) stop payments and allowing the bouncing of their cheques by some of the 'related entities'; and (f) sale of allotted shares by those subscribers on the first day of listing of shares issued in IPO.

18. As regards alleged connection amongst KCL, KCSL, KCOM it is undisputed fact that KCL is 100% subsidiary of KCSL and KCOM is 100% subsidiary of KCL. Thus, all these three entities are connected with each other on this basis of holding-subsidiary relationship. Chairman of KCSL Mr. Nirmal Suchanti, his wife Ms. Pushpa Suchanti and his son Mr. Vivek Suchanti were the directors of Concept which was holding 29% stake in KCL and was its client at the relevant time. It is admitted fact that MD of KCL, Mr. Suraj Saraogi was also director of Team India and KCOM. Further, Mr. Vineet Suchanti, director of KCSL was also a director of Team India. These facts clearly suggest connection of noticees with Concept and Team India. Apart from this fact, admittedly, there has been financing transactions between KCL and Concept directly and KCL and Team India via KCOM which further establishes the connection of the noticees with Concept and Team India. 19. With regard to Platinum it is noted that the IPO application form of Platinum contained email ID and the mobile number of Mr. Mehul M. Patel, a common independent director of KCSL as well as Platinum.

Further, at the relevant time, Platinum was owned by Mr. Mahesh J. Patel father of Mr. Mehul M. Patel and his family members (Mr. Mehul M Patel, Smt. Monica M. Patel and Ms. Meghna M Patel) owned Platinum. Mr. Mahesh J. Patel and his family along with Mrs. Hansa J. Parekh, Mr. Jayant M. Parekh, Mr. Paresh N. Dhruv and Mrs. Bharti P. Dhruv also owned the broking firm MJP which holds 0.6 % stake in KCL. Admittedly, Platinum and KCL had granted inter-corporate advances to each other and that Platinum was frequently taking loans and advancing loans to KCL and MJP. In my view, these facts suggest connection amongst noticees and Platinum, though it is not associate of the noticees as submitted by them. The findings in the Report that Platinum was frequently taking loans and advancing loans to KCL and thus both are known to the noticees suggest that they had regular financial transactions with Platinum. Admittedly, KCL was advisor of the sub-account India Max. However, this relation in itself is not sufficient to a conclude that subscription by India Max was induced by the noticees with intention to defraud public.

20. In the SCNs there is no specific allegation that Anidhi is connected or related with the noticees except for a general statement that Platinum was frequently taking loans and advancing loans to the entities like KCL, Anidhi and MJP which indicates that these entities are known to the noticees. In my view, merely noticees having knowledge about Anidhi is not sufficient to bring home the charge. Premeditated meeting of minds for concerted action of defrauding public must be inferred and established on the basis of higher degree of probability. I note from the SCNs that, apart from this basis, there is no allegation that noticees financed Platinum during the bidding period. Further, the allegation with respect to subscription by Anidhi is solely based on the financing transactions between Anidhi and KCOM which is dealt with in later paragraphs. 21. As regards relation between noticees and other applicants, it is noted that Mr.Gulu Watumal was a client of KCL, a stock broker. Such broker-client relationship per se cannot lead to a conclusion that the client had been induced by the stock broker to make application in the IPO.

The Chairman of BRLM shown as friend of Mr. Gulu Watumal also in itself cannot suggest the same. I further note that except for a general statement that "These entities are connected to the KCSL and KCL on one way or the other." the SCNs do not mention specific factors which can form basis of connection of the noticees with directors of Anidhi viz; Mr. Jaswant Shah and Mr. Mahendra Jain and their respective wives viz; Ms. Sheela Shah and Ms. Alka Jain. Mr. However, the manner of subscription by Anidhi from the finance provided by KCL it can be inferred that the subscription by by its directors and their respective wives was part of the plan in this case. Mr. Lalit Kr. Sharma is director of Platinum an entity known and connected to KCL. Further, the material discussed elsewhere in Reports indicate acquaintance of these entities with noticees. 22. In my view, connection/relation or acquaintance amongst these entities alone cannot lead to the conclusion of involvement of the noticees acting in concert with them unless such concerted action is alleged and their connivance or collusion in any fraudulent scheme or device is shown on the basis of a higher degree of preponderance of probability which can be determined on the basis of a mass of facts and circumstances relevant in the case.

23. It is noted that the financing of `2 crore by KCL to Concept on February 03, 2010 is undisputed. It is also undisputed fact that Concept was allotted 7,22,250 shares in IPO and it sold its entire allotment on the day of listing (31,162 shares in BSE and 6,91,088 shares in NSE) and made a loss of 1.02 crore, which indicates that Concept had no long term investment interest in Emmbi shares. However, KCL has claimed that the financing between KCL and its client Concept was in normal course of financing transaction in the regular course of business. According to it, on the relevant date, Concept had a positive credit balance in the accounts of KCL. It had admitted that one ledger account had a negative balance of ₹6.68 crore as alleged. But another ledger account had a credit balance of ₹20 crores, thereby creating a positive balance of ₹11.32 crores even after the ₹2 crores were transferred by KCL to Concept. It has further contended that Concept had taken its own independent and professional investment decision in subscribing to the IPO and sale of shares allotted to it.

24. I note from the documents submitted by KCL that it has long standing financial transactions with Concept and in its another ledger account there was credit balance of ₹20 crore to Concept's account. Be as it may, the fact remains that Concept did not have full subscription amount on the day on which it placed its bids and the amount to the extent of ₹2 crore was received by it from KCL. It is noted that Concept had invested ₹3.25 crores in the IPO through its bank account with Axis Bank, which had a credit balance of only ₹86.4 lakhs on the relevant date. As per the Reports, Concept had received total ₹3.44 crores from KCL and other 8 entities from February 03, 2010 to February 06, 2010. Thus, apart from ₹2 crores which it received from KCL, Concept had received ₹1.44 crores from 8 other entities. It has been found in the Reports that Concept had received ₹ 1.25 crore from the company which was genuine financing for legitimate business purpose of advertising, promotion, etc. Thus, it is clear that during the relevant period Concept had total ₹ 2.114 crores as its own funds. The Reports are unclear as to how noticees induced Concept to subscribe in the IPO and used its application therein as device for perpetrating fraud on general public particularly when it was having substantial unquestionable and genuine monies of its own in its account to the tune of ₹ 2.114 crores. However, the fact that financing ₹2 crore just before the allotment of shares in the IPO to Concept indicate that by such financing, the noticees were assisting and enabling Concept to subscribe to the shares of the company. 25. As discussed hereinabove, the noticees, KCOM and Team India are connected entities. With regard to financing transaction between KCOM and Team India, the noticee have contended that funds transferred by KCOM to Team India cannot be attributed on them. The noticees have also submitted that the funds transferred to KCOM by KCL were made under regular course of business. In this regard, it is undisputed fact that on February 02,

2010 when it placed its bid in the IPO, Team India had a balance of ₹38.16 lakhs in its bank account but had invested ₹12.49 crore in the IPO. An amount of ₹12.3 crore was transferred by KCOM and an amount of ₹20 lakh was transferred by the company (total ₹12.5 Cr) in the Team India’s said HDFC bank account. I note that the said amount of ₹12.3 crore transferred by KCOM to Team India had actually come from KCL on February 02, 2010 i.e., the day on which Team India placed its bid in the IPO and the noticees have not disputed this fact on the basis of any evidence. However, since Team India was having only ₹58.16 lakhs (₹38.16 lakhs credit balance and ₹20 lakhs received from the company as return of fees as found in the Reports) on the day it placed bids for significant allotment of 27,77,700 shares and its major part of subscription money (₹12.3 crore ) was funded by KCL via KCOM it is established that by such financing by KCL via KCOM, the noticees were assisting and enabling Team India to subscribe to the shares in the IPO. However, there is no material on record to establish the allegation that the noticees induced Team India to subscribe in the IPO.

26. The noticees have contended that they had not advanced any monies to Anidhi, rather KCOM had advanced monies to Anidhi. The noticees have also submitted that they do not have any connection with Anidhi and they do not monitor or regulate financial transactions entered into between KCOM. It has been established in the enquiry that KCOM did not have enough money to lend to Team India and Anidhi at the relevant time. It is noted that KCL transferred total of ₹13.33 crore to KCOM on February 02/05, 2010 who in turn transferred ₹12.3 crore to Team India and ₹1 crore to Anidhi on February 05, 2010. It is undisputed fact that Anidhi had applied for the subscription of shares in the IPO worth ₹ 99.9 lakh through its a/c no. 034805003633 with ICICI Bank when its bank account had "nil" balance as on February 04, 2010 i.e., even after the issue had closed. The fact that Anidhi did not have funds at the time of placing its bids in the IPO; KCL being underwriter to the IPO financed via KCOM approximately the same amount that was required to meet the subscription amount for the bids of Anidhi and that Anidhi had not subscribed to any other IPO during the period 2009-10 clearly indicate that funds received from KCL via KCOM were used for subscribing to the shares in the IPO by Anidhi.

I, therefore, agree with the findings of the DA that the noticees had an obvious interest in getting the IPO through. 27. With regard to the subscription by Platinum, it is noted from the SCNs that prior to placing its bid for shares worth ₹99.96 lakhs, Platinum had taken an advance of ₹1 crore from one, Vikas Berlia HUF on January, 28 2010 and transferred the same amount to MJP. On February 06, 2010, MJP transferred back the same amount to Platinum which it utilized for bidding in the IPO. I note that finding in the Reports are that Platinum was frequently taking loans and advancing loans to the entities like KCL, Anidhi and MJP and thus Platinum was known to the noticees. I find that there is no material to suggest that KCL or KCSL financed the subscription by Platinum. The merely allegation of connection of Platinum with the noticees cannot lead to the inference as drawn in the SCNs. Thus, it cannot be concluded on requisite degree of preponderance of probability that noticees induced Platinum to participate in the IPO as part of any scheme or device to perpetrate a fraud on public.

Considering these facts, I give benefit of doubt to the noticees in this regard. 28. It is undisputed fact that on first day of bidding period, India Max, a sub-account for which KCL was a local had bid for 4.99 lac shares in the IPO. On this day, total bidding was for 5.7% of the issue. Thus, India Max had bid for 5.2% of the issue on first day of bidding period. On second day, India Max revised its bids to 17.40 lac shares. It is noted that the SCNs have not charged noticees for financing or inducing India Max to subscribe. 29. It is undisputed that Mr. Gulu Watumal was a client of KCL who was identified in his KYC document as a friend of Mr. Nirmal Suchanti, Chairman of KCSL. Mr. Gulu Watumal had applied for 2.32% of the IPO but stopped realization of the cheque after the issue was through. Similarly, Mr. Lalit Kr Sharma, director of Platinum applied for 2.32% of the IPO but stopped realization of the cheque after the issue was through. Two directors of Anidhi (Mr. Jaswant Shah and Mr. Mahendra Jain [applied as Mahendra Jain HUF]) and their respective wives (Ms. Alka Jain and Ms. Sheela Shah), as well had applied for 9.28% of the IPO but allowed their cheques to be dishonoured for want of funds.

30. On account of these acts the common investors were allured to place bids in the IPO. This is demonstrated by the fact that on the first day bids only for 5.7% of the total offer size were received. It is only after bids from connected/related entities to the noticees as discussed hereinabove were received on second day, bids percentage had neared the minimum subscription requirement of 90% of the subscription in the IPO. Further, on third day, bids from general investors, which constituted 21.76% of total offering IPO, were received. Consequent to rejection/bouncing of cheques of other subscribers, the major portion of bids made on third day by the general investors was accepted in the IPO.

31. It is undisputed fact that all the aforesaid allottees viz; sold their allotted shares on February 24,2010 i.e., first day of commencement of trading in the shares of the company. All of them except India Max and Platinum have incurred substantial loss on their investments. 32. The noticees have contended that generally the investors do not invest heavily on the first day of the IPO and wait till third day when IPO becomes common market phenomenon.

Be as it may, following facts and circumstances of this case when seen in the totality, cannot be mere a coincidence:- (a) The respective noticees were the underwriters, syndicate member and BRLM of the issue and had taken devolvement obligation in case of under subscription of the IPO. (b) The IPO was getting poor response from public on the first say of opening of the bid. On this day, out of the total bidding of 5.7% of the issue, India Max, a sub-account for which KCL was a local advisor subscribed to 5.2% ( 4.99 lac shares). On second day, India Max revised its bids to 17.40 lac shares. Concept, Team India and Anidhi placed bids for large number of shares. (c) At the time of placing their bids in the IPO, Concept, Team India and Anidhi did not have sufficient funds to pay the entire consideration for their subscription and their subscription amounts were met from the funds received from KCL, the underwriter/Syndicate- ₹2 crore to Concept directly on February 03, 2010; ₹12.3 crore to Team India and entire subscription amount of Anidhi on February 05, 2010 via KCOM, just before the allotment of shares in the IPO to them.

(d) Anidhi had not subscribed to any other IPO during the period 2009-10 and Team India had subscribed in only one IPO other than the instant one during the relevant period. (e) On the third day of bidding period, bids for 20,83,050 shares were received which constitutes approximately 21.76% of total public offering in IPO. Later, cheques worth around 21.96% shares of total public offering in IPO were not appropriated for the reason of insufficient funds/stop payment and therefore, corresponding bids were rejected. Interestingly the percentage on shares for which bids were rejected was similar to day three subscription. (f) All most all the related/connected entities of the noticee sold their total subscription on the first day of the listing and incurred loss. Thus, they did not have long term interest in the shares of the company. 33. It is admitted fact that the noticess being underwriters/syndicate members are legally entitled to market the IPO for ensuring subscription. The lending and borrowing for the purpose of subscription is also legal. Admittedly, there is no harm in informing and marketing the IPO to the clients and acquaintances for the purpose of investment.

However, considering the facts and circumstances discussed hereinabove, the involvement of noticees by arranging and enabling connected/related entities to invest in the IPO by funding their applications goes beyond the scope of mere marketing of the IPO in discharge of role of a BRLM /underwriter/ Syndicate Member. On the basis of preponderance of probability it is established that the noticees funded its connected/related entities and made them offer bids in the IPO to ensure that the IPO is subscribed which was eventually proceeding for under-subscription thereby arising the devolvement obligation of the noticees or failure of IPO giving rise to refund of subscription monies. 34. However, it is settled position that in order to allege fraud the SCNs should bring home the charge of "fraud" on the basis of higher degree of probabilities if not on the basis of evidence beyond doubt. Merely, probablising or endeavoring to prove the fact on the basis of preponderance of probability and incomplete circumstantial evidence is not sufficient to establish a serious charge of fraudulent transaction.

Having regard to the gravity of the wrong doing higher must be the preponderance of probabilities in establishing such charges. In this regard, I note that in the matter of Mousam Singha Roy v. State of West Bengal (2003) 12 SCC 377, Hon'ble Supreme Court held as under:- "It is also a settled principle of criminal jurisprudence that the more serious the offence, the stricter the degree of proof, since a higher degree of assurance is required to convict the accused. This principle applies to civil cases as well where the charge is to be established not beyond reasonable doubt but on the preponderance of probabilities. The measure of proof in civil or criminal cases is not an absolute standard and within each standard there are degrees of probability." 35. In this regard, the following observations of Hon'ble Securities Appellate Tribunal (SAT) in the matter of Ess Ess Intermediaries Vs. SEBI (Order dated June 19, 2013) are also worth mentioning in the context of this charge in the SCN- "Thus, a perusal of the above stated provisions of Regulation 4 and its sub-regulations reveals that the allegation of fraud can be levelled against a person/entity only for good reasons and on the basis of clear and unambiguous evidence.

Such an allegation of fraud may shake the very foundation of the business of the entity in question and may adversely affect the same. Therefore, the onerous task of proving such a serious allegation lies on the person levelling such accusation on the basis of preponderance of probability." 36. In this case, the charge of fraud has been leveled based on the circumstantial evidences. The Reports level a specific charge that the noticees induced Concept, Team India and Anidhi to participate in the IPO by funding their applications directly/indirectly. As found hereinabove, inducement of these entities by the noticees to subscribe in the IPO could not be established on required degree of probability. The charge is unclear and ambiguous as at some places the SCNs seek to allege, without reasonable basis, the intention to defraud public and at other places it has been specifically alleged that the "main aim of the noticees was to ensure success of the IPO so that whatever application money received from the public could be retained. If the issue failed, all application money received would have to be refunded." and KCL is that the "main aim of the noticees was to ensure success of the IPO so that whatever application money received from the public could be retained.

If the issue failed, all application money received would have to be refunded." The instant case is not the one wherein the money paid by the subscribers have been diverted back to the noticees. The charge with regard to fraud on public is further vague in various respects inasmuch with regard to the financing of a part of the subscription of Concept the allegation is that the noticees 'used Concept as a means for getting the IPO through, thereby using the application as a device for perpetrating fraud on the general public.', however, with regard to the subscription of Team India the allegation is 'the application made by Team India in this IPO was part of the fraud perpetrated by Keynote Group(noticees) to somehow bring the IPO through.' It is further noted that with regard to the financing of entire subscription of Anidhi in the same manner as in the case of Team India there is no allegation of fraud and the only allegation is that with regard to subscription by Anidhi the noticees "had an obvious interest in getting the issue through.' Further, with regard to subscription of Platinum and India Max, there is no charge except that they are known/connected to the noticees.

37. In the aforesaid facts and circumstances of this case and taking into account the findings in the Reports, I find that charge of fraud committed by the noticees in respect of IPO has not been made out on the basis of unambiguous findings and evidence. I, further note that in the SCNs, there is no allegation of noticees having any role in price movement or indulging in fraudulent and manipulative trading in shares of the company on the first day of listing. I, therefore, give benefit of doubt to the noticees with regard to charge of inducing its connected entities and defrauding public. 38. However, it is also clear that the noticees were assisting and enabling Concept, Team India and Anidhi to subscribe to the shares of the company. Had the connected / related and/or known entities not placed bids for large subscriptions on second day of bidding period, in all probability, the IPO would have been under subscribed leading to devolvement of the underwriting obligations of the noitcees or it would have failed arising the refund obligation of the company. Thus, as found by the DA, it is established the main aim of the noticees was to ensure success of the IPO.

In the facts and circumstances of this case, I find that the noticees employed an unfair and manipulative device to avoid their underwriting obligations to ensure full subscription of the IPO. In the facts and circumstances of this case, I am of the view that the device adopted to arrange subscription in the manner as found in this case by financing connected entities has potential to pose threat to the market integrity and interferes with fair and smooth bidding process for soliciting demand to the IPO and is thus manipulative and unfair as prohibited in regulations 3(b), 4 (1) and 4(2)(c) of the PFUTP Regulations. Further, the noticees showed disregard to statutory code of conduct applicable to them as found in the Reports. 39. Another allegation against KCL is that it had, from the clients' account, advanced loan of `2 crore to Concept, ` 50 lakh to Platinum and paid its underwriting obligation of `40.9 lakh in violation of Circular No. SMD/SED/CIR/93/23321 dated November 18, 1993. With regard to this allegation KCL has contended that clause 1(C)(iv) of the said circular allows the stock broker to deposit in the clients' account a cheque or demand draft received by him towards part money belonging to the client and in part due to the stock brokers.

Accordingly, it had kept brokerage for trades undertaken by it on behalf of the clients in the clients' account. As per the said circular, it was legal for KCL to keep its brokerage in the clients' account. The noticee has claimed it had issued cheques as alleged in the SCN from the clients' account since it had its own accumulated funds in the clients' accounts. It is further noted from the Report and the SCN to KCL that this allegation is independent of other charges as discussed hereinabove. It is admitted position that the KCL had used monies from the clients' account for its own purposes. I note that in terms of clause 1(C) of the Circular No. SMD/SED/CIR/93/23321 dated November 18, 1993, inter alia following monies of the member can be paid into the clients' account - (i) the monies belonging to the member that are necessary for the purpose of opening / maintaining clients' account. (ii) the monies belonging to the client and in part due to the member. 40. In terms of clause 1(D), the member is authorised to draw monies from the client account under the clients' authority and also the monies belonging to the member in terms of aforesaid clause 1(C).

In this case, KCL has submitted that there is no complaint from its clients in this regard, at the same time, there is no authority of the clients brought on record so as to authorise KCL to utilise clients' account in terms of clause 1(D). The KCL has claimed that the monies utilised by it out of the clients' account belonged to it. However, it has not substantiated its claim in this regard on the basis of any documentary evidence. In this regard, I have also perused the order dated March 18, 2010 passed by Hon'ble SAT in the matter of Consortium Securities Pvt. Ltd. Vs. SEBI and relied upon by KCL. I note that in that case, Hon'ble SAT had set aside the penalty of censure imposed by SEBI on similar default and had observed that - "..........Looking at the whole issue from a practical point of view, we find that the clients' usually give a composite cheque to the broker which includes the price of the security along with the brokerage and such cheques are deposited in the clients' accounts. Ideally the broker should take out the amount form the clients' accounts and transfer it to his business account but brokers usually continue using money from the clients' account without segregating the same.

If the broker were to draw the money from the clients' account in excess of what is due in the case, that would clearly amount to misuse of clients' account. In the instant case, the chartered accountants who constituted the inspection team have certified that the appellant had never drawn funds from the clients' account in excess to the funds due to it. This clearly establishes that the appellant did not misuse the clients' funds. There is no denying of the fact that the object of the Circular dated November 18, 1993 is to ensure that there is no misuse of investor funds by a broker and this purpose remains secured in the present case." 41. In this case, there is no material to confirm that utilisation of the funds by KCL from clients' account was never in excess to the funds due to it from the clients'. Considering the facts and circumstances of this case, I warn KCL to be careful in dealing with the accounts of the clients. 42. It is noted that there is no material to establish that the noticees made any financial gain out of the financing transactions as found hereinabove. Further, all the subscribers who were financed by the noitcees, directly or indirectly, and got allotment in the IPO had incurred losses on account of sale of shares allotted to them.

I further note that the charges against KCL, Stock Broker has been established with regard to its activities of underwriter as per regulation 3(2) of Underwriter Regulations, while doing underwriting business. In my view, suspension as recommended would be disproportionate considering the entire facts and circumstances of this case and established charge. Considering the same, I am of the view that prohibiting Keynote Corporate Services Limited from taking up new assignment as Merchant Banker for a period of one month and prohibiting Keynote Capital Limited from taking up any new assignment as Underwriter for a period of one month, will be commensurate with the violations as found above in present matter. 43. I, therefore, in exercise of powers conferred upon me under section 19 read with section 12(3) of the Securities and Exchange Board of India Act, 1992, read with regulation 28(2) of the SEBI (Intermediaries) Regulations, 2008, hereby prohibit:

(i) Keynote Corporate Services Limited from taking up new assignment as Merchant Banker for or a period of one month.

(ii) Keynote Capital Limited from taking up any new assignment as Underwriter for a period of one month. 44. This Order shall come into force immediately on the expiry of 21 days from the date of this Order.

Sd/- Date: April 6th, 2016 RAJEEV KUMAR AGARWAL Place: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA