Order in respect of Mr. Ajit Kumar Jain, Kuvam Plast Private Limited and Manish Agarwal

WTM/RKA/ISD/02/2013 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: RAJEEV KUMAR AGARWAL, WHOLE TIME MEMBER ORDER Under Sections 11(1), 11(4) and 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 Securities market) Regulations, 2003. In the matter of Pipavav Defence and Offshore Eng. Limited, Parsvnath Developers Limited, Tulip Telecom Limited and Glodyne Technoserve Limited. In respect of Mr. Ajit Kumar Jain (PAN: ACNPJ9264G), Kuvam Plast Private Limited. (PAN: AADCK8653K) and Manish Agarwal (PAN: APLPA3819B). 1. Securities and Exchange Board of India ('SEBI'), being alerted by its surveillance systems, on July 26, 2012, noticed a downward movement in the prices of four scrips namely Pipavav Defence and Offshore Eng. Limited ('Pipavav'), Parsvnath Developers Limited ('Parsvnath'), Tulip Telecom Limited ('Tulip') and Glodyne Technoserve Limited ('Glodyne') as compared to their closing prices on July 25, 2012 at the National Stock Exchange of India ('NSE') and Bombay Stock Exchange Limited ('BSE').

It was also observed that the prices of the said four scrips had seen a sharp downward movement within the time from 09:15 to 09:49 on July 26, 2012. During 15 days prior to July 26, 2012, no corporate announcements/price sensitive information was disclosed to the stock exchanges by the aforesaid companies which could have impacted prices of their shares negatively. 2. In the above background, SEBI, vide an ad interim ex-parte order dated August 03, 2012 (interim order), amongst others restrained Mr. Ajit Kumar Jain (Mr. Ajit), Kuvam Plast Private Limited (Kuvam) and Mr. Manish Agarwal (Mr. Manish), (hereinafter collectively referred to as 'noticees’) from accessing the securities market and further prohibited them from buying, selling or dealing in securities in any manner whatsoever, till further direction. 3. Pursuant to the aforesaid interim order, Mr. Ajit, Kuvam and Mr. Manish made submissions/objections vide their letters dated September 04, 2012 and August 29, 2012, respectively. Opportunity of personal hearing was granted to the noticees on November 01, 2012 wherein they failed to appear and vide their letters dated October 30, 2012 and October 29, 2012, respectively, submitted that they are unable to appear before SEBI on the aforementioned date and submissions in their earlier letters to be taken on record in the matter.

In view of the same, I proceed to deal with the matters with respect to these noticees on the basis of material available on record and their written replies. 4. The noticees have contended that the interim order is vitiated by gross violation of principles of natural justice, as no opportunity was provided to them to explain their version and circumstances stated in the ad-interim order. They have submitted that an ad interim ex parte order is justified if the circumstances so warrant and nothing has been brought out in the interim order as to how the absence of the interim order would have adversely affected the integrity of the securities market or interests of the investors. The submissions made with regard to allegations in the interim order and documents furnished by the noticees are summarized in the following paragraphs. The submissions made and documents furnished by Mr. Ajit 5. Mr. Ajit has denied all the charges and allegations in the interim order. He has submitted that he has been trading in securities through various stock brokers and also has availed margin funding facilities from various NBFCs.

He had not placed any sell order with the broker M/s Nirmal Bang Securities Pvt Ltd. (‘NBSPL’) on July 26, 2012 and the trade attributable to him in the interim order i.e. 2,90,000 shares of Tulip (during the price fall patch) and 7,30,282 shares of Pipavav were not executed on his instruction and the same were unauthorised trades. He had availed margin funding facility from M/s Nirmal Bang Financial Services Pvt Ltd. (‘NBFSPL’). He apprehends that the broker, NBSPL, itself had executed the trades on account of margin shortfall in his account. He had not received any letter from NBFSPL about any call for margin shortfall in his account. In support of his submissions, Mr. Ajit has relied upon the copies of the e-mails dated August 08, 2012, August 11, 2012 written by him to the NBSPL raising objections regarding the said trades and denying the responsibility for the alleged trades mentioned in the interim order. He has also submitted copies of the e-mail dated August 13, 2012 from NBSPL in reply to his aforesaid mails and his email dated August 16, 2012 in reply to the said email of NBSPL.

With regard to alleged sale of 1,00,000 shares of Parsvnath, Mr. Ajit has submitted that those trades were unauthorized and had not been executed on his instruction or authorisation

6. With regard to his alleged relation with other entities mentioned in Para 17 and 18 of the interim order, Mr. Ajit has submitted that he is not related to any entity mentioned in ad-interim order except Kuvam wherein he is a director. He has admitted that the phone number 09831152460 belongs to him and is also used by him for the business of Kuvam. However, he has contended that the phone number 09832052577, on the basis of which his connection with Mr. Manish and M/s Milestone Shares and Stock Broking Pvt. Ltd. (Milestone) is alleged, does not belong to him.

The said phone number was wrongly incorporated in his KYC by NBSPL and on being aware of it; he got it corrected by NBSPL. He has further submitted he is not related to Divya Drishti Traders Pvt. Ltd/ Divya Drishti Merchants Pvt Ltd/ Wheelers Developers Pvt Ltd., the banned entities, with whom he is alleged to be connected through M/s Mukesh Trade & Finance Pvt. Ltd ('M/s Mukesh'), a NBFC. He has claimed that he is director in M/s Mukesh but the alleged phone no 022-22306695 does not belong to him or M/s Mukesh. This phone number was wrongly recorded by M/s Manoj Shaw & Co. (Company Secretary of M/s Mukesh) while preparing the Annual Return of M/s Mukesh for the Annual General Meeting held on September 30, 2011. In support of this claim he has filed a copy of the letter dated August 18, 2012 from M/s Manoj Shaw & Co. wherein it is stated that it had erroneously recorded the phone number 022-22306695 in M/s Mukesh's Annual Return. He has further submitted that he is not connected to M/s North Eastern Publishing and Advertising Company Ltd. ('M/s North Eastern') in any manner, whatsoever. He has contended that he is director in several companies having their registered office at '5, Gorkhy Terrace, Kolkotta - 700 007', which is also the office address of M/s North Eastern as alleged, and he is not a shareholder in any of these companies and is related to them in his professional capacity only. The submissions made and documents furnished by Kuvam

7. Kuvam has denied all the charges and allegation in the interim order. It has submitted that the alleged 17,799 shares of Parsvnath during the price fall patch were sold by its broker M/s Kaynet Finance Ltd.('Kaynet'), suo motto, in arbitrary manner and without any order, authorization, instruction or consent from it and the transaction was unauthorised trade by Kaynet. It has submitted a copy of the letter dated August 21, 2012 from 'Kaynet' stating that- "We also wish to inform you that against your debit balance of ` 33865360.05 on July 25, 2012 we have disposed off 17799 shares of Parsvnath at going market rate to recover our outstanding debit balance which you failed to honour". 8. With regard to its relation with other entities as mentioned in Para 17 & 18 of interim order, Kuvam has submitted that Mr. Ajit is one of its directors and the phone no. 09831152460 is used by him for official purposes of Kuvam. Its day to day working is managed by Mr. Ajit and another director Mrs. Sharmila Jain. It is not related to any other entity as alleged in the interim order, except Mr. Ajit.

As regards other factors for its alleged connection with other entities, it has reiterated the contentions of Mr. Ajit as mentioned above. The submissions made and documents furnished by Mr. Manish 9. Mr. Manish has also denied all the charges and allegations in the interim order. He has also submitted that he had also availed margin funding facilities from various NBFCs. He had not placed any sell order with the broker M/s Nirmal Bang Securities Pvt. Ltd. (‘NBSPL’) on July 26, 2012 and the trades alleged to be done by him i.e. 4,11,208 shares (1,11,208 shares in the identified price fall patch) of Parsvnath, 1,00,000 shares (in the identified price fall patch) of Tulip and 20,67,887 shares (3,51,152 shares in the identified price fall patch) of Pipavav were not executed on his instruction and the same were unauthorised trades. He had also availed margin funding facility from M/s Nirmal Bang Financial Services Pvt. Ltd. (‘NBFSPL’) and apprehends that the broker, NBSPL, itself had executed those trades on account of margin shortfall in his account. He had also not received any letter from NBFSPL about any call for margin shortfall in his account.

In support of his submissions, Mr. Manish has relied upon the copies of the e-mails dated July 31, 2012 and August 08, 2012 written by him to the NBSPL raising objections regarding the said trades and denying the responsibility for the alleged trades mentioned in ad-interim order. He has also submitted copies of the e-mail dated August 17, 2012 from NBSPL in reply to his aforesaid mails and his email dated August 20, 2012 in reply to the said email of NBSPL. 10. With regard to his relation/connection with other entities as mentioned in Para 17 and 18 of interim order, Mr. Manish has admitted that he is a director in M/s Flex Trade Pvt. Ltd. ('M/s Flex') and they share common office address at '2nd floor, Room No. 205, 13 Bipin Bihari Ganguly Street, Kolkotta- 700 012' and the phone number 033-22255077 belongs to M/s Flex and is also used by him. He has claimed that he is not related to any other entity mentioned in interim order, except M/s Flex. He has admitted that the phone number 09832052577 belongs to him but he is unaware as to how the same is being related to M/s Milestone and Mr. Ajit.

He has contended that he is director in several companies having their registered office at '5, Gorkhy Terrace, Kolkotta - 700 007', which is also the office address of M/s North Eastern as alleged and he is not a shareholder in any of these companies and is related to them in his professional capacity only. His trade in securities market is independent and he does not have any link/connection with any of the other entities mentioned in the interim order so far his trading is concerned. 11. I have carefully considered the allegations in the interim order against Mr. Ajit, Kuvam and Mr. Manish and their written submissions. As the subject matter in the interim order issued to the entities is identical and their submissions are also similar, I proceed to deal with issues involved in the matter by way of this common order. The limited issue to be considered in this order is to decide whether, based on the available material on record and after considering the submissions made by them, the directions issued by vide ad interim ex-parte order need to be continued, revoked or modified in any manner, in so far as it relates to the noticees.

12. Before dealing with submissions of the noticees on merit, I deal with the preliminary objection raised by the noticees that there were no emergent reasons/ urgency to pass the directions in interim order against them. In this regard, I note that section 11, 11(4) and 11 B of the SEBI Act, give ample power to pass ad interim ex parte orders as in the present case. It is settled position that the power under these sections are of wide amplitude and orders can be passed by Board either pending investigation or inquiry or on completion thereof. The conditions for such orders are that the order should have reasons and it should be in the interest of investors or securities market. In case of interim orders that are passed as preventive measure in emergent situations the post decisional hearing can be given after passing the interim order which becomes show cause notice for the purpose of post decisional hearing. In the present case, the interim order satisfies all these conditions including the principles of natural justice and hence, I do not find any merit in this contention of the noticees.

13. Admittedly, Mr. Ajit is related to both Kuvam and M/s Mukesh. Though with respect to his alleged relationship with Mr. Manish on the basis of common phone number 09832052577, Mr. Ajit has claimed that this number does not belong to him and on being aware of it, he had requested NBSPL to rectify its records. Mr. Manish has admitted that the phone number 09832052577 belongs to him but he has claimed that he is not aware that it belongs to Mr. Ajit. I note that Mr. Ajit has failed to substantiate his claim on the basis of any documentary evidence, which in all possibilities should be available with him, if he had taken steps to rectify the purported error in the records of NBSPL. From the Unique Client Code data available with the NSE it is noted that that the phone number 09832052577 belongs to Mr. Ajit and Mr. Manish both. I, therefore, find that Mr. Ajit has failed to substantiate that the phone number 9832052577 does not belong to him. It view of these facts, the only possible and reasonable inference can be that the said phone number is used by Mr. Ajit and Mr. Manish both. I, therefore, do not find any reason at this stage to differ from the prima facie findings in the interim order that Mr. Ajit and Mr. Manish are connected to each other.

14. Mr. Manish has also admitted that he is related/connected to M/s Flex. With respect to his alleged connection with M/s Cheminare Trade Comm. Pvt. Ltd. (Cheminare), Mr. Manish has denied this relationship as alleged in the interim order but he has failed to substantiate his denial on the basis of any plausible explanation and documentary evidence. I, therefore, do not find any reason at this stage to differ from the prima facie finding in the interim order that Mr. Manish, Cheminare and Mr. Umang Nemani are connected to each other. 15. With respect to the connection/relation of Mr. Ajit and Mr. Manish with M/s North Eastern, Mr. Ajit and Mr. Manish both have admitted that they are directors in various companies which have same address as that of M/s North Eastern i.e. '5, Gorkhy Terrace, Kolkotta - 700 007'. They have, however, claimed that they are not shareholders in any of those companies and are related to them only in their professional capacity. Further, they have not submitted any documentary evidence to substantiate these claims. In my view, these submissions are not sufficient to deny or disprove the factors on the basis of which connection/relation between Mr. Ajit and Mr. Manish with M/s North Eastern has been inferred in the interim order.

Further, their submissions that those companies are not engaged in the share trading business can also not help them to prove that they did not share common address with M/s North Eastern. 16. I note that Mr. Ajit and Mr. Manish both have not disputed the trades in their account in the respective scrips as described in the interim order. With regard to the alleged sale of shares in the respective scrips on July 26, 2012 both have claimed that orders for selling those shares on July 26, 2012 were executed by their broker NBSPL on its own. I have perused the copy of the e-mails written by Mr. Ajit and Mr. Manish to NBSPL on various dates and the reply of NBSPL to those mails, relied upon by them in support of their submissions. I note that Mr. Manish sent an e-mail to NBSPL on July 31, 2012 i.e. 5 days after the trades in question and only after NBSPL informed him that he would have to return the pay-out with respect to the alleged trades. In this e-mail Mr. Manish had claimed that the trades in question were executed by NBSPL without his authorisation or approval and he was told that the sell orders were placed by NBSPL due to margin shortfall.

Further, Mr. Ajit sent similar e-mail to NBSPL on August 08, 2012 i.e. after a gap of almost two weeks from July 26, 2012 and a week after the interim order was passed, claiming that the sell orders were not placed by him but they were placed by NBSPL. 17. From the replies of NBSPL dated August 13, 2012 and August 17, 2012 to Mr. Ajit and Mr. Manish, respectively I note that it has categorically confirmed :- (a) that all the alleged trades on July 26, 2012 were executed by Mr. Ajit and Mr. Manish themselves and that it has in its possession the voice logs of the trade confirmation given by Mr. Ajit and Mr. Manish as evidence; (b) that pay-out in respect of all the alleged transactions were effected to them on July 30, 2012 and they were informed about the same via SMS alerts; (c) that it had asked Mr. Ajit to come to NSE office in Kolkotta on July 27th and 28th, 2012 (at the request of BSE/NSE officials) to explain the transactions done on July 26, 2012 but he chose not to come on either of the dates; (d) that Mr. Manish attended a conference call with the officials of BSE and NSE on July 28, 2012 wherein a scrutiny was being conducted in relation to the trades in question wherein Mr. Manish had confirmed to the officials of the NSE and BSE that the trades were on his behest; (e) that it is also in possession of Mr. Ajit's and Mr. Manish's undertaking given to it in respect of all their trading activities in all scrips dealt with them as demanded by Exchanges (BSE & NSE) on July, 28, 2012, which they have forwarded to NSE & BSE on July 31, 2012. 18. I note that though Mr. Ajit and Mr. Mansih have, vide their identical e-mails dated August 16, 2012 and August 20, 2012, respectively sent to NBSPL, denied the above confirmation of NBSPL, they have failed to establish their claim by any evidence.

Their e-mails can not substantiate their submissions as they contain their own claims unsupported by any independent evidence. I, therefore, find that submissions of Mr. Ajit and Mr. Manish are after thought and do not appear to be correct. 19. I note that the allegation against Kuvam in the interim order is that it had sold 17,799 shares in the scrip Parsvnath on July 26, 2012 during the price fall patch. Kuvam has not disputed the said trades and has claimed that orders for selling of shares on July 26, 2012 were executed by its broker Kaynet on its own. I have perused the copy of the Kaynet's letter to Kuvam dated August 21, 2012, wherein it has been stated that the trades in Parsvnath were executed by Kaynet on account of debit balance of ` 33865360.05 in Kuvam's account on July 25, 2012. However, Kuvam has not proved this statement with any supporting documents such as statement of account of Kuvam with Kaynet, contract notes, bank statement etc., which in all probability should be in its possession. Further, Mr. Ajit who is a director in Kuvam has also traded in the scrip Parsvnath on July 26, 2012 as alleged in the interim order.

The similar pattern of trading by Kuvam and its director appears to be too much of a coincidence. I, therefore, find that Kuvam has failed to suggest any preponderance of probability in its favour. 20. As per the interim order, noticees had sold substantial quantity of shares of respective scrips during the identified price fall patch and were also among the top 10 net sellers in those scrips, leading to substantial price fall in the scrips. The interim order has also alleged that noticees were instrumental in pulling the price of the respective scrips down during the identified time period as they were placing sell orders below the best sale and buy price during the period. I find that noticees have not been able to show sufficient and plausible cause to draw any inference other than drawn in the interim order with regard to their trading in the respective scrips at this stage. I note that the role played by noticees is significant during the price fall period. Further, the trading pattern of noticees indicates towards their role in the manipulation of the respective scrips. I find that these entities are prima facie connected to each other as alleged in the interim order.

In the light of above facts and circumstances, I, therefore, am of the considered view that no intervention is called for, at this stage, in either vacating the interim directions or modifying it, with respect to noticees. 21. In view of the foregoing, I, in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 read with Sections 11(1), 11(4) and 11B thereof, hereby confirm the directions issued against Mr. Ajit Kumar Jain (PAN: ACNPJ9264G), Kuvam Plast Private Limited. (PAN: AADCK8653K) and Manish Agarwal (PAN: APLPA3819B) vide 'ad-interim ex-parte order ' dated August 03, 2012.

22. This Order shall remain in force till further directions.

DATE: January 11, 2013 RAJEEV KUMAR AGARWAL PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA