Order in respect of Om Gayatri Securities in the matter of Somplast Leather Industries Limited

IN THE MATTER OF SOMPLAST LEATHER INDUSTRIES LIMITED In respect of M/s Om Gayatri Securities (Proprietor: Chirag Pujara)

Date of hearing: September 23, 2011 Appearances: For Noticees: Mr. Chirag Pujara, Proprietor Mr. J.J. Bhatt, Advocate For SEBI: Ms. Anju Mahendra, Presenting Officer Ms. Medha Sonparote, Deputy General Manager Ms. Anitha Anoop, Deputy Legal Adviser Mr. Pradeep Kumar, Assistant Legal Adviser Mr. Naveen Kumar, Manager ORDER Under Sections 11B and 11(4)(b) of the Securities and Exchange Board of India Act, 1992 read with Regulations 11 and 13(3) of the Securities And Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) conducted investigation into the dealings in the shares of Somplast Leather Industries Limited (hereinafter referred to as ‘Somplast’), for the period from January 02, 2002 to October 01, 2002 (hereinafter referred to as ‘investigation period’).

2. The price of the scrip of Somplast increased from `283 as on January 02, 2002 to `426 as on September 30, 2002, after touching a high of `482 as on September 13, 2002. The quantity traded followed an irregular pattern with the volume varying between 7,000 shares as on January 31, 2002 to only 5 shares as on May 30, 2002. The average trading volume during the investigation period was 1,328 shares per day. SEBI analyzed the trading details of the persons who had traded in the scrip along with the data of the volumes contributed and the same revealed that certain entities had indulged in synchronised/ structured deals and executed circular/ reversal of trades which created artificial volume and price rise in the scrip of Somplast.

3. On completion of the investigation, SEBI inter alia issued show cause notice dated September 23, 2005 (hereinafter referred to as ‘SCN’) under Section 11(4) (b) and 11B of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act’) read with Regulation 11 and 13(3) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 to M/s Om Gayatri Securities [Prop: Mr. Chirag Pujara] (hereinafter referred to as ‘noticee’) asking it to show cause as to why appropriate directions should not be issued against it.

4. No reply was received from the noticee. Pursuant to a reminder issued by SEBI to the noticee vide letter dated March 02, 2006, the noticee replied to the SCN vide its letter dated March 03, 2006 and requested for an opportunity of personal hearing. Accordingly, an opportunity of personal hearing was granted to the noticee on March 31, 2009. However, on the date fixed for the personal hearing, the noticee failed to turn up. Another opportunity of personal hearing was granted to the noticee on July 14, 2009. This hearing letter issued to the noticee returned undelivered. In the meantime, SEBI issued a press notification dated August 13, 2009 in ‘Hindustan Times’ intimating the noticee about the hearing.

Meanwhile, the noticee filed an application for the settlement of proceedings through a consent order. The application filed by the noticee was dealt in accordance with the SEBI Circular dated April 20, 2007. Subsequently, the proceedings initiated under the SCN were revived, as the application for consent was rejected by SEBI and an opportunity of personal hearing was further granted to the noticee on August 29, 2011. On the date fixed, the noticee failed to turn up for the personal hearing despite due intimation. Before proceeding further, another opportunity of personal hearing was granted to the noticee on October 14, 2011. The noticee sought an adjournment; vide his email dated October 13, 2011 as his advocate was not available on the scheduled date. The request of the noticee was granted and accordingly, the hearing was rescheduled to November 18, 2011. On this day, Mr. Chirag Pujara (proprietor of the noticee) and Mr. J.J. Bhatt, Advocate appeared before me and made submissions. Thereafter, the noticee filed the written submissions vide its letter dated November 24, 2011, which have been taken on record.

5. I have carefully considered the SCN, replies of the noticee, the written submissions and the material available on record. The submissions of the noticee are summarized below, in brief: - He was a retail investor and his volume during the investigation period (39 days) was 23,441shares (14,486 buy and 8,995 sell) in the range of `379 to `480. On 16 days out of the said 39 days, during the period of investigation he had not sold any share and had executed delivery based transactions. His trading decisions were independent. - Being a jobber, he got some news in the market and therefore he had taken the delivery and as the scrip was illiquid, he placed his orders when the counter parties were available. - Orders were placed over telephone and he had no idea about the counter parties to the trades. No prior meeting of minds between and among the concerned parties. - He further stated that for synchronization to take place, the trade has to be matched in respect of time, quantity and rate. - The trade and order log of the scrip has not been made available to him. In the absence of order log, the analysis become one sided and therefore it is misconstrued and misinterpreted. - Neither was he part of any group nor he did he enter into any off market trades. Further, since it was an illiquid scrip, the orders could have got matched. - There are finding in the Para 2.2a, 2.2d, 2.2e, and 2.2g of the SCN that the clients of the trading members were not connected to each other.

- There is considerable delay in the proceedings.

6. I note that the noticee has not denied its trades in the scrip of Somplast. The noticee has argued that the trade order log in the scrip has not been provided to it. I have seen that all the documents relied upon have been provided to the noticee. However, I note that no document, which has not been provided to the noticee, is being relied upon in the present proceedings. As regards, the submission of the noticee regarding delay in the proceedings, I note that neither has any time line been fixed for such cases nor can delay be a ground for exoneration. Thus, the issue that now arises for my consideration is: Whether the noticee had entered into synchronized/ circular/ reversal trades, which in turn created artificial volume and price rise in the scrip of Somplast?

7. Whether the noticee had entered into synchronized/ circular/ reversal trades which in turn created artificial volume and price rise in the scrip of Somplast?

a. The SCN has alleged a pattern of circular and reversal trading by the noticee, while trading in the scrip of Somplast. It is seen that the noticee during the investigation period was trading through brokers namely M/s Shripal B. Jain and Bonanza Stock Brokers Limited (hereinafter referred to as ‘Bonanza’).

b. Regarding the trades executed by the noticee in a circular manner, I note that the trading pattern of the noticee on three days during the investigation period has been found to be circular in nature. The trading by the noticee in the scrip of Somplast for the said three days has been summarized below for reference: Sett. Date Sell Client Sell Client Buy broker Buy Qty. % to the No. Client total volume 16 15/04/2002 Bharati Thakkar Sandeep Shripal Jain Noticee 1,100 65.11 Shripal Jain Noticee Crescent Finstock Sandeep 600 Shripal Jain Noticee Bharati Thakkar Sandeep 500 Crescent Finstock Sandeep Bharati Thakkar Sandeep 600 21 22/04/2002 Shripal Jain Noticee Sanchay Fincom Shree Shyam 350 27.45 Sanchay Fincom Shree Shyam Bharati Thakkar Sandeep 350 Bharati Thakkar Sandeep Shripal Jain Noticee 350

63 21/06/2002 Cresent Finstock Sandeep Shripal Jain Noticee 100 100 Shripal Jain Noticee Sanchay Fincom Shree Shyam 100 Sanchay Fincom Shree Shyam Cresent Finstock Sandeep 100 From the table above, I note that on April 15, 2002, the broker M/s Shripal B. Jain while trading on behalf of the noticee and brokers namely Crescent Finstock Limited and Bharti Thakkar India Securities Pvt. Limited trading on behalf of their common client, Sandeep J. Merchant had squared off their positions in a circular manner. The table reveals a clear pattern of circular trading wherein equal or nearly equal number of shares was rotated in a circular manner among the noticee and counterparties and the net position of each client remained nil which inter-alia contributed to the total volume traded in the scrip of Somplast. However, it is seen that there are only three instances of such trading and the counterparty has not been the same in all of the days.

c. As regards the pattern of reversal of trades by the noticee during the investigation period in the scrip of Somplast, I have seen the annexure to the SCN which shows the details of trading by the noticee. From the same, I note the instances of reversal of shares.

d. Taking note of the above discussion, now the issue that remains is whether the trades by the noticee can be said to be manipulative. From the data available on record, I note that important fields like time and price at which orders were placed/ trades were executed are missing. In absence of such details it cannot be said that the trades were synchronized. The details such as order/ trade time are important while dealing with the charge of creating false and misleading appearance of trading. Further, I note from the SCN that no connection has been found between the noticee and its counterparty clients namely Mr. Sandeep J. Merchant, M/s Shree Shyam Investment and Mr. Desai Prakash. The data also fails to show that the trades of the noticee had impacted the price of the scrip in a major way. Considering these, I note that the details available on record are insufficient to establish the charges leveled against the noticee.

8. In view of the findings above, it is difficult to conclude that the noticee had played any significant role in the creation of artificial volume in the scrip of Somplast, during the investigation period. Therefore, I am of the considered view that the noticee is entitled for a benefit of doubt in respect of an alleged violation of Regulation 4 (a), (b), (c) and (d) of the PFUTP Regulations.

9. In the facts and circumstances of the case, I, in exercise of the powers conferred upon me in terms of Section 19 of the Securities and Exchange Board of India Act, 1992, hereby dispose of the show cause notice issued to M/s Om Gayatri Securities (Proprietor: Mr. Chirag Pujara) (PAN: AASPP 3622R) without imposing any penalty.

DATE : MAY 10, 2012 PRASHANT SARAN PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA