Order in respect of M/s Parklight Investments Pvt. Ltd. in the matter of M/s Softrack Technology Exports Ltd.

WTM/RKA/ID6/ 37/2013 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: SHRI RAJEEV KUMAR AGARWAL, WHOLE TIME MEMBER ORDER UNDER SECTION 12(3) OF THE SEBI ACT READ WITH REGULATION 28(2) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (INTERMEDIARIES) REGULATIONS, 2008. In respect of M/s Parklight Investments Pvt. Ltd. in the matter of M/s Softrack Technology Exports Ltd. 1. SEBI conducted investigation in respect of the trading in the shares of M/s Softrack Technology Exports Limited (hereinafter referred to as "the company") for the period January 01, 2002 to July 31, 2002 (hereinafter referred to as "investigation period"). During the course of investigations, it was observed that M/s – Parklight Investment Pvt. Ltd., a member of the Bombay Stock Exchange Ltd. (hereinafter referred to as "BSE") having SEBI Registration No. (INB011037836) (hereinafter referred to as "the Noticee") as stock broker, in connivance with other stock brokers, certain sub-brokers and clients created false and misleading appearance of trading in the scrip of the company that were detrimental to the interest of investors and securities market.

2. Pursuant to the investigations, SEBI initiated proceedings against the Noticee under section 12(3) of SEBI Act, 1992 read with regulation 5(1) of SEBI (Procedure for Holding Enquiry and Imposing Penalty) Regulations, 2002 (hereinafter referred to as 'the Enquiry Proceedings Regulations') (since repealed). The Designated Authority (earlier known as 'Enquiry Officer') submitted his Report dated December 31, 2012 in terms of SEBI (Intermediaries) Regulations, 2008 (hereinafter referred to as "Intermediaries Regulations"). 3. In the Report, the Designated Authority (DA) found that the Noticee in connivance with its clients had facilitated the offloading of unlisted shares of the company in the market. The DA further found that the Noticee had acted in concert with the certain brokers, sub-brokers and clients and that there was a concerted effort on the part of the Noticee and its clients to create artificial volumes in the scrip of the company which led to a significant fall in the price of shares of the company during the investigation period. The DA found that the Noticee contravened the provisions of regulation 3, 4(b), 4(c), 6(a) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 (PFUTP Regulations, 1995) read with Regulation 3(a), (c), (d), 4(1), 4(2) (a) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market)

Regulations, 2003 (hereinafter referred to as "PFUTP Regulations, 2003") and clause A(1), A(2), A(3), A(4) and A(5) of the Code of Conduct for Stock brokers as specified in Schedule II under regulation 7 of SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 (hereinafter referred to as the "Brokers Regulations"). These provisions are reproduced hereunder: SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 1995 Regulation 3: Prohibition of certain dealings in securities No person shall buy, sell or otherwise deal in securities in a fraudulent manner. Regulation 4: Prohibition against Market Manipulation No person shall - (a) ………………………………. (b) indulge in any act, which is calculated to create a false or misleading appearance of trading on the securities market; (c) indulge in any act which results in reflection of prices of securities based on transactions that are not genuine trade transactions; Regulation 6. Prohibition on unfair trade practice relating to securities No person shall - (a) in the course of his business, knowingly engage in any act, or practice which would operate as a fraud upon any person in connection with the purchase or sale of, or any other dealing in, any securities; SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 Regulation 3: Prohibition of certain dealings in securities No person shall directly or indirectly— (a) buy, sell or otherwise deal in securities in a fraudulent manner; (c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange; (d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under.

Regulation 4: Prohibition of manipulative, fraudulent and unfair trade practices (1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities. (2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely:— (a) indulging in an act which creates false or misleading appearance of trading in the securities market; SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992

Regulation 7: Stock-Brokers to abide by Code of Conduct. The stock-broker holding a certificate shall at all times abide by the Code of Conduct as specified at Schedule II. Schedule II: Clause A: (1) INTEGRITY: A stock-broker, shall maintain high standards of integrity, promptitude and fairness in the conduct of all his business. (2) EXERCISE OF DUE SKILL AND CARE: A stock-broker, shall act with due skill, care and diligence in the conduct of all his business. (3) MANIPULATION: A stock-broker shall not indulge in manipulative, fraudulent or deceptive transactions or schemes or spread rumours with a view to distorting market equilibrium or making personal gains. (4) MALPRACTICES: A stock-broker shall not create false market either singly or in concert with others or indulge in any act detrimental to the investors interest or which leads to interference with the fair and smooth functioning of the market. A stock-broker shall not involve himself in excessive speculative business in the market beyond reasonable levels not commensurate with his financial soundness. (5) COMPLIANCE WITH STATUTORY REQUIREMENTS: A stock-broker shall abide by all the provisions of the Act and the rules, regulations issued by the Government, the Board and the Stock Exchange from time to time as may be applicable to him.

4. Based on his findings recorded in the Report, the DA recommended that the certificate of registration granted to the Noticee as a stock broker be suspended for a period of six months. After considering the Report, a show cause notice (SCN) dated January 11, 2013 was issued to the Noticee under regulation 28(1) of the Intermediaries Regulations calling upon it to show cause as to why action as recommended by DA should not be taken against it or a higher penalty as deemed fit by the Designated Member should not be imposed upon it. Despite the receipt of the SCN, the Noticee did not file any reply to the SCN. An opportunity of personal hearing was granted to the Noticee on April 16, 2013. Despite receipt of the notice in that regard, the Noticee neither responded to the same nor did it appear on the scheduled date, time and venue. 5. I note that as per the provisions of regulation 28(2) of the Intermediaries Regulations, the Noticee, if it so desired, could file its reply to the SCN within 21 days of the receipt of the SCN. The order may be passed after considering the reply if so received and providing it an 'opportunity of being heard'.

I note that in terms of section 12(3) of SEBI Act also an order in such proceedings can be passed after giving an opportunity of being heard to the concerned person. It is settled position that 'opportunity of being heard' does not necessarily mean an opportunity of personal hearing. The procedure of reasonable opportunity and principle of natural justice are aimed to uphold the rule of law and to assist the concerned persons to indicate their just rights. I, therefore, find that if the Noticee had been given reasonable opportunity to submit its reply in its defence; that would suffice for the purpose of the compliance of the provisions of section 12(3) of the SEBI Act read with the provisions of regulation 28(2) of the Intermediaries Regulations. I note that, in this case, the Noticee has not only being provided reasonable opportunity to file its reply to the SCN, but it has been also provided with an opportunity of personal hearing. However, despite receipt of relevant notices, the Noticee has failed to avail the opportunities. I find that, in this case, the procedure prescribed in section 12(3) of the SEBI Act read with regulation 28 (2) of the Intermediaries Regulations has been complied with.

I, further, find that it is the Noticee, which has failed to avail the opportunities of personal hearing. 6. I further note from the Report that the Noticee has been provided with sufficient opportunities before the DA also. The DA had issued the SCN under regulation 25 of the Intermediaries Regulations to the Noticee on July 28, 2008. After seeking time the Noticee filed its reply dated September 20, 2008 before the DA. Thereafter, it was provided with 7 opportunities of personal hearings before the DA during the period January 19, 2009 to December 19, 2012. During this period the Noticee had filed a proposal to settle the matter through a consent order which was rejected on August 06, 2009. The Noticee had availed one opportunity of personal hearing before the DA on May 04, 2010. While the DA was considering the case, the Noticee intimated its intention to file another proposal to settle the matter through consent order and requested to keep the matter in abeyance. The Noticee however, failed to avail 3 opportunities of personal hearings granted by DA thereafter and it also did not file any consent application as submitted by it.

I find that the Noticee had adopted dilatory and delaying tactics in the proceedings. I, therefore, find that no prejudice would be caused to the Noticee if the opportunity in addition to that prescribed in the regulations is not granted to the Noticee. I find that since reasonable opportunities have been provided to the Noticee in this case, there would not be any denial of principle of natural justice if the case is decided on the basis of the material available on record. I, therefore, proceed in the matter accordingly. 7. I have carefully considered the Report, the SCN issued pursuant thereto and other relevant materials that are available on record. Before dealing with the charges against the Noticee, it is necessary to briefly refer to the background of the case and facts found in the Report as following:- (a) The company had made preferential allotment of 1,00,00,000 equity shares to M/s Cybersoft Infocomm Ltd. on December 11, 2001 for consideration other than cash on swap basis. National Securities Depositories Limited vide its letter dated December 17, 2002 informed BSE that the company has dematerialized unlisted shares without obtaining in-principle approval from the BSE.

BSE vide its letter dated November 22, 2002 advised the company to furnish the details of the dematerialized shares. The company filed its application on December 22, 2001 to BSE for listing the shares allotted to M/s Cybersoft Infocomm Ltd. Since the company did not furnish the information, BSE vide letter dated December 28, 2002 issued a show cause notice to the company. The company did not reply to the said notice till January 27, 2003. Thereafter, BSE suspended trading in the securities of the company w.e.f. January 29, 2003. As a result of the foregoing, the listing of the preferential issue of the company of 100,00,000 equity shares of the company was rejected by the Listing Committee of the BSE. (b) Another preferential allotment of 2,00,00,000 equity shares of ₹ 10 each was made by the company to the shareholders of M/s Pushpam Infotech Ltd. on February 14, 2002 for consideration other than cash on swap basis. The company vide its letter dated March 22, 2002 filed listing application with BSE on January 08, 2003. BSE vide its letter dated February 04, 2003 informed the company about the listing formalities to be complied for the second issue to which the company did not give any reply.

The said shares are also not listed since the company did not complete the listing formalities. (c) Details of flow of unlisted share from said preferential allottees shows that one Mr. Gautam Jhaveri had received 2,51,94,855 shares of the company during the period from December 17, 2001 to August 31, 2002 through off market transaction. During this period, Gautam Jhaveri had not purchased any share through the stock exchange mechanism. Further, majority of the shares (around 2.29 crore shares) received by Mr. Gautam Jhaveri were sold in the market through various stock brokers including the Noticee. (d) The shares of the company were listed on BSE and ASE at the relevant time. The scrip of the company was traded only in BSE during the investigation period. The major stock brokers/sub brokers and their clients who had traded during the investigation period were observed as under:

Member Major Ultimate Gross Purchase Gross Sales Broker Sub- Client Shares % Shares % Broker Park light Ankit Jhaveri 285053 0.59 14927712 31.21 Investments Nrupesh C Shah 1988023 4.13 Pvt. Ltd. Yogesh 3454658 7.18 Bhavnagari Yash 274313 0.57 Corporation Total trading by broker 296023 0.62% 20691706 43.00% ASE Capital Vasudev Rajesh N Jhaveri 892000 1.85 Markets Gordhandas (R006) Dapki Jaswantlal Saumil 2003700 4.16 Vadilal Shah Bhavnagari (S11) Rajesh Nrupesh C Shah 31928 0.07 49982 0.10 Jhaveri Rajesh N Jhaveri 34948 38054 (Gautam Jhaveri)

Total trading by broker 518930 1.08% 3305629 6.87% P Suryakant Shree Ashish P Shah 10000 0.02 260500 0.54 Parshwa Fenil M Shah 1004011 2.09 1004976 2.09 Finance Kishore 0.00 1050000 2.18 (Prop: Corporation Piyush Trading account 1071504 2.23 1091952 2.27 Jhaveri**) Nrupesh C Shah 146314 0.30 812586 1.69 Total trading by broker 2529550 5.26% 4452659 9.25% ICICI Total 273 clients. 10827004 22.50% 6555277 13.62% Webtrade Total traded quantity 48116275 100% 48116275 100% (e) It was observed that only 36 lakh shares of the company were listed on BSE and ASE. However, the clients who had traded through the Noticee in the scrip of the company had sold 2,06,91,706 shares, amounting to many times of the total listed shares of the company i.e., 36,00,000 shares. The entire delivery obligations of sales of shares of the company by the Noticee were met from the DP account of Mr. Gautam Jhaveri. Further, the Noticee had sold 1,83,957 shares in the client code of M/s Rajesh N Jhaveri (proprietor Gautam Jhaveri) but contract notes were issued in the name of Ankit Jhaveri. Further, one of the clients of the Noticee, Mr. Ankit Jhaveri had sold around 1.47 crore shares of the company, however, he bought just 2.85 lakh shares.

Other major clients of the Noticee, Mr. Yogesh Bhavnagri, Mr. Nrupesh C. Shah and Yash Corporation did not buy any major quantity of shares while they had sold large number of shares through the Noticee. The shares of the company were illiquid. It was observed that the Noticee in connivance with the clients had facilitated the offloading of unlisted shares of the company in the market. (f) The total trading among the top ten stock brokers during investigation period was 1,93,56,451 shares which accounted for 40.22% of the total market volume. The selling of the shares of the company was concentrated among a few clients and stock brokers but the buying was scattered. The Noticee had a net sale position of 76.42% of the total market net quantity sold during the investigation period. ICICI Web Trade Ltd. had purchased 39,95,839 shares constituting 36.91% of its total purchase from the Noticee constituting 19.31% of the total sale of the Noticee. Such purchase was made by ICICI Web Trade Ltd. from the Noticee through large trades i.e., trades above 1,00,000 shares. These shares accounted for 8.30% of the total market volume.

Ankit Gautambhai Jhaveri who traded through the Noticee in the scrip of the company was the major seller in all these trades and the buying was scattered among the clients of ICICI Web Trade Ltd. (g) During the investigation period, the price of the scrip had opened at ₹ 1.80 on January 01, 2002, touched a high of ₹ 2.30 (intraday high) on January 07, 2002 and finally closed at ₹

0.40 on July 31, 2002. The average quantity of shares traded during the investigation period was 3,22,928 shares per day. During Patch I (the period between January 01, 2002 to January 23, 2002) the price of the scrip increased from ₹ 1.80 on January 01, 2002 to ₹ 2.3 on January 07, 2002 and then gradually fell down to ₹ 0.70 on January 23, 2002, which is a fall of 69% in 13 trading days. The average traded volume during the patch I was 77,176 shares. During Patch II (period between April 03, 2002 to April 11, 2002) the price of the scrip decreased from ₹ 0.70 on April 03, 2002 to ₹ 0.40 on April 11, 2002 which is 42.85% fall in 7 trading days. The average volume of shares traded during the Patch II were 2,41,134 shares. (h) It was observed that during Patch I, stock broker P. Suryakant was the major buyer constituting 17.16% of the total volume traded and during Patch II, the stock broker Balaji Equities Ltd. was the major buying stock broker, constituting 14.22% of the total volume traded during the respective period. However, the Noticee was the major seller during the Patch I and Patch II as well, constituting 33.27% and 82.2%, respectively of the total volume traded during the relevant period.

The Noticee had acted in concert with the brokers, sub-brokers and the clients and that there was a concerted effort on the part of the Noticee and its clients to create artificial volumes in the scrip of the company which led to a significant fall in the share price of the scrip of the company during the investigation period which was artificial and designed to create a false market. Only motive behind such transactions would have been to artificially rig the price of the shares of illiquid scrip. 8. I note that the Noticee has not submitted its reply to the SCN dated January 11, 2013 issued to it. Since the Noticee has not submitted its reply to the SCN and notice of hearing despite service thereof, it is inferred that it does not wish to avail the opportunity provided to defend itself. In this regard the Hon'ble SAT in its order dated December 8, 2006 in the matter of Classic Credit Ltd. v. Securities and Exchange Board of India held that "… that the appellants did not file any reply to the second show-cause notice. This being so, it has to be presumed that the charges alleged against them in the show-cause notice were admitted by them".

In the light of above order of Hon'ble SAT, I presume that the allegations against it in the SCN are admitted by it. 9. I note that in this case, the DA has found that only 36 lakh share of the company were listed on BSE and ASE. The company through its two preferential allotments on December 11, 2001 and February 14, 2002 had further issued and allotted total 3 crore shares. The applications filed by the company for listing for these shares were rejected by BSE for the reason as to the company had not completed the listing formalities. It is noted that out of these three crore shares, one Mr. Gautam Jhaveri had received 2,51,94,588 shares from the allottees in preferential allotments of the company. 10. I note that during the investigation period, the Noticee for its clients viz. Ankit Jhaveri, Nrupesh C Shah, Yogesh Bhavnagari and Yash Corporation had sold 2,06,91,706 shares and bought only 2,96,023 shares of the company, on BSE. From these facts it is found that the shares net sold by the Noticee for its clients in the market were more than five times of the total listed shares of the company.

Out of the total shares sold by the Noticee, it had sold 1,83,957 shares in the client code of one M/s Rajesh N Jhaveri (proprietor Gautam Jhaveri) but contract notes were issued in the name of another client, Ankit Jhaveri. I find that the Noticee is under an obligation to meet the delivery obligation for the shares sold by its clients from the shares collected from the respective clients. However, in the present matter, the Noticee willfully chose to meet the entire delivery obligation of 2,06,91,706 shares (arising out of the sale of shares of the company for its client), from the DP account of Mr. Gautam Jhaveri. The facts and circumstances as found by the DA strongly indicate that the Noticee was not only aware that the shares of the company were unlisted but and also it actively facilitated the offloading these unlisted shares in the market. I find that volume of the shares sold (i.e., more than 76% of the net delivery in the market) by the Noticee make it further clear that such trades could not have taken place without willful assistance and active participation of the Noticee.

In the facts and circumstances of the case I agree with the findings of the DA as recorded in the Report that the noticee in concert with its clients off loaded unlisted shares of company and thereby fraudulently dealt in the securities of the company. 11. The noticee, being a registered stock broker is under obligation to act with due skill, care and diligence in the conduct of all his business. The meaning of the expression “due diligence’’ given in Black's Law Dictionary, 6th edition at Page 457 as follows: “Such a measure of prudence, activity or assiduity, as is properly to be expected from, and ordinarily exercised by, a reasonable and prudent man under the particular circumstances; not measured by any absolute standard, but depending on the relative facts of the special case.”

12. The level of due skill and prudence expected from the Noticee is to be judged by the yardstick of knowledge, expertise and skill expected from a stock broker, which is defiantly higher than what is expected from a lay man. I am of the view that the facts that – i. only 36 lakh shares of the company were listed on stock exchanges, ii. the scrip of the company was illiquid, iii. during the investigation period, the Noticee for its clients had net sold were more than five times the total listed shares of the company and iv. during investigation period, the shares of the company sold and delivered by the Noticee constituted more than 76% of the net delivery in that scrip on BSE, should have enticed the suspicion of the Noticee that there was something amiss. Therefore, I find that the Noticee has failed to exercise due skill, care and diligence in its conduct, and have executed the trades as in the present matter to disturb the market equilibrium. 13. Shares sold through these non-genuine trades constituted for more than five times of total listed shares of the company. Therefore, these non-genuine trades created huge false appearance of trading in the market during investigation period.

The Noticee being a stock broker had full knowledge that these non-genuine trades in all probability will lead to fictitious volume and will lead to significant fall in the price of shares of the company. Considering the facts and circumstances of the matter, I agree with the finding of the DA that the Noticee had acted in concert with its the clients to create artificial volumes in the scrip of the company which lead to a significant fall in the share price of the scrip of the company during the investigation period. I find that the trades executed by the Noticee for its clients were fraudulent and not genuine. I am of the view that the trades as found in the Report of the DA pose serious threat to the market integrity and orderly development of the securities market. 14. In view of the above, I am convinced that the allegation of violation of regulation 3, 4(b), 4(c), 6(a) of the PFUTP Regulations, 1995 read with regulation and 13(2) of the PFUTP Regulations, 2003 and clause A(1), A(2), A(3), A(4) and A(5) of the Code of Conduct for Stock brokers as specified in Schedule II under regulation 7 of Brokers Regulations in respect of the Noticee stands established.

15. I find that SEBI through its regulatory orders in respect the Noticee on various occasions imposed monetary penalty, issued warning and suspended the Noticee's certificate of registration as stock broker. Therefore, I find that the Noticee is repeated defaulter. Considering the interest of the securities market I am in agreement with the recommendation of the DA. I am satisfied that it is necessary to secure the proper management of the noticee. I, therefore, in exercise of powers conferred upon me under section 19 read with section 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 suspend the certificate of registration of the Noticee i.e., M/s Parklight Investments Pvt. Ltd. having SEBI Registration No. (INB011037836) as a stock broker for a period of six months. 16. A copy of this Order shall also be served upon the Noticee, Bombay Stock Exchange for necessary action. 17. This Order shall come into force immediately on the expiry of 21 days from the date of this Order.

Date: September 13th, 2013 RAJEEV KUMAR AGARWAL Place: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA