Order in respect of Mr. Ashish P Shah and Mr.Anil K Shah in the matter of Accurate Exports Limited

WTM/KMA/IVD/411/07/2011 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: DR.K.M. ABRAHAM, WHOLE TIME MEMBER ORDER DIRECTIONS UNDER SECTIONS 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 RESPECT OF MR. ASHISH P. SHAH AND MR. ANIL K. SHAH THE MATTER OF ACCURATE EXPORTS LIMITED 1. The Securities and Exchange Board of India (hereinafter referred to as SEBI) had issued notices dated April 20, 2005 to Mr. Ashish P. Shah and Mr. Anil K.Shah advising them to show cause as to why action under Sections 11B and 11(4) of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the SEBI Act) should not be initiated against them in respect of the alleged violation of Regulation 6(a) of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 (hereinafter referred to as the PFUTP Regulations).

Brief facts as mentioned in the show cause notices (hereinafter referred to as the notice) are stated below: 2. The investigation conducted by SEBI in respect of the buying, selling and dealing in the shares of the Company observed that during the period from January 1, 2001 to March 31, 2002, the price of the scrip ranged between `2 to `0.10 at a time when substantial quantity of shares of the Company was offloaded through select stock brokers. It was further observed that the Company had issued 2 different notices dated April 3, 2001 signed by the Managing Director, Mr. Dinesh Sharma, calling for an Extra-Ordinary General Meeting (EGM) on April 30, 2001. The following proposals were made in the first notice: i. An increase in authorised capital from `25 crores to `156 crores, divided into 15.60 crore equity shares of `10 each ii. To issue 15.60 crore preferential shares on a swap basis in proportion to 10 shares of the Company for every one share held by the shareholders of Sanidhya Holiday Resorts and Estate Developers Limited and Tissue and Floritac India Limited. iii. Resolution to invest in the equity shares of Sanidhya Holiday Resorts and Estate Developers Limited and Tissue and Floritac India Limited on swap basis to acquire total shareholding in the said companies and iv.

Shifting of registered office of the Company from Ahmedabad to Vadodara. The proposals of the second notice are: i. Increase in authorised capital from `25.00 crores to `81.00 crores, divided into 8.10 crore equity shares of `10 each ii. To issue 6 crore preferential shares on a swap basis in proportion to 10 shares of the Company for every one share held by the shareholders of Sanidhya Holiday Resorts and Estate Developers Limited iii. Resolution to invest in the equity shares of Sanidhya Holiday Resorts and Estate Developers Limited on swap basis to acquire total shareholding in the said Company

3. However, it was observed from the certified true copy of the resolution passed in EGM held on April 30, 2001, as submitted by the Company to the Ahmedabad Stock Exchange Limited (ASE), the only resolution passed was regarding the shifting of office to Vadodara. Inspite of the resolution not being approved, the Company had made listing applications to ASE, one on May 11, 2001 (for listing of 6,00,00,000 equity shares) and the other one on September 11, 2001 for 7,50,00,000 equity shares. Subsequently, vide letters dated September 19, 2001 and September 24, 2001, the Company had written to ASE informing that the said allotments were null and void as various regulatory compliances under the SEBI Act and the Companies Act 1956 had not been met. However, substantial quantity of shares had been dematerialised and transferred to various entities during the period between the preferential allotment and the application for listing. The shares issued by the Company were subsequently dematerialized and transferred the same to certain other entities and they in turn, transferred the shares to other set of entities including Mr. Anil K. Shah (Proprietor – A. K. Investments) and Mr. Ashish P. Shah who offloaded the same in the market, without the shares being listed on the stock exchange. Thus, it was alleged that Mr. Anil K. Shah and Mr. Ashish P. Shah had violated Regulation 6(a) of the PFUTP Regulations and hence the notices. Since no reply was received from Mr. Ashish P Shah, a reminder was sent to him asking him to reply to the show cause notice. However, no reply was received from him till date. He had also failed to avail the opportunities of hearing given to him. Though, no reply was received from Mr. Anil K Shah, he appeared in a hearing before me. During the personal hearing, Mr. Anil K Shah was advised to submit his demat account statement for the relevant period. However, he has failed to furnish the same till date. The proceedings were kept pending for the conclusion of all other similar proceedings initiated by SEBI against various other entities.

4. I have considered the show cause notices, the submissions made on behalf of Mr. Anil K. Shah and other material available on record. No submissions were made on behalf of Mr. Ashish P. Shah. The facts of the case are mentioned in detail in the notice. The allegation against Mr. Anil K. Shah and Mr. Ashish P. Shah is that they had offloaded unlisted shares of the Company in the market. In the show cause notice issued to Mr. Ashish P. Shah, it is mentioned (in the table at page 3) that he had received 5 lakh shares each from one Darshan Jayantilal Dave and Jagdish Kantilal Prajapati. The notice has mentioned that “As a client you are found to have traded through the brokers M/s Parklight Investemnts, M/s P. Surayakant Share & Stock Brokers and M/s Equisearch Broking, purchasing 5,81,000 and selling 62,75,025 shares of AEL. The transaction details of the client, Ashish P Shah are shown in the following table:” The details of the transactions of Mr. Ashish P. Shah executed through the three stock brokers were mentioned in the notice. It was further mentioned in the notice “From your statement dated March 05, 2004 before SEBI, it was observed that you are said to have acted as a sub-broker for various clients, namely, Anil Shah, Rajesh C Talsania and Nrupresh C Shah through various brokers.” No submissions were made in this regard.

In the notice to Mr. Ashish P. Shah, it was alleged that he had acted as a sub broker for various clients including Mr. Nrupesh C. Shah. SEBI had initiated proceedings against Mr. Nrupesh C. Shah. In the notice (dated April 25, 2005) that was issued to Mr. Nrupesh C. Shah, it was inter alia alleged “….You were an employee of the member broker M/s Rajesh N Jhaveri and traded on behalf of its clients Ashish P Shah and Anil K Shah through the sub-broker M/s Rajesh N Jhaveri. You had received shares from Ashish P Shah and Anil K Shah in lieu of the loan taken from you and then sold them in the market”. The said proceeding was disposed of by SEBI, vide Order dated January 14, 2009 and held that the violation of Regulation 6(a) of the PFUTP Regulations could not be established against Mr. Nrupesh C. Shah. On a consideration of the facts and circumstances, I am unable to find Mr. Ashish P Shah guilty of the charge leveled against him for two reasons. Firstly, as per the notice, as stated above in this Order, Mr. Ashish P. Shah had received shares from Mr. Darshan Jayantilal Dave and Mr. Jagdish Kantilal Prajapati.

The charge is that Mr. Ashish P Shah along with others have colluded with various parties to offload shares which were fraudulently issued and dematerialized by the Company in excess of its authorized capital. In such a situation, to establish the charge against Mr. Ashish P Shah, it has to be proved that he either received it from the Company directly or indirectly. The notice does not specifically mention the same. It is also not clear from the notice whether Mr. Darshan Jayantilal Dave and Mr. Jagdish Kantilal Prajapati (the persons from whom Mr. Ashish P Shah received shares) had been the allottes in the fraudulent allotment made by the Company in excess of its authorized capital. Secondly, even if Mr. Darshan Jayantilal Dave and Mr. Jagdish Kantilal Prajapati are considered to be the allottees, they have been not charged by SEBI. Therefore, Mr. Ashish P Shah is entitled for a benefit of doubt. Therefore, alleging Mr. Ashish P Shah of colluding with them would not be proper in the interest of justice to hold him guilty of Regulation 6(a) of the PFUTP Regulations.

5. The allegation against Mr. Anil K. Shah in the notice is that he had received shares from the account of ‘Mr. Rajesh Talsania and other entities related to him’ and then traded those shares in the market. The notice also mentions that “It is also seen that you had traded on behalf of various clients as a sub broker”. However, no such details as to the receipt of shares either from Mr. Rajesh C. Talsania or others related to him were given in the notice. Further, in the proceeding against Mr. Rajesh C. Talsania, SEBI had afforded benefit of doubt for the reasons stated therein. Therefore, charging a person who received shares from Mr. Rajesh C. Talsania also has to be viewed on same lines. The notice at page 4 stated that as a client, Mr. Anil Kantilal Shah had traded through certain stock brokers, the details of which are given therein. The notice at one place mentioned that Mr. Anil Kantilal Shah had traded as a sub broker without any trade details and on the other hand provided the details of his trades as a client. Therefore, in the absence of material particulars, I am persuaded to afford a benefit of doubt to Mr. Anil Kantilal Shah in respect of the alleged violation.

6. 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 and 11B thereof and Regulation 11 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003, dispose of the show cause notices dated April 20, 2005 issued to Mr. Ashish P Shah and Mr. Anil Kantilal Shah in the matter of Accurate Exports Limited, without any directions.

DR. K. M. ABRAHAM WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA PLACE: MUMBAI DATE: JULY 19, 2011