Order in respect of Omega Avenues Ltd. in the matter of Somplast Industries Ltd

WTM/RKA/ID-1/25/2013 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: RAJEEV KUMAR AGARWAL, WHOLE TIME MEMBER ORDER Under Section 11(1), 11(4) (b) and 11B of the Securities and Exchange Board of India Act, 1992. In the matter of Somplast Leather Industries Limited in respect of M/s. Omega Avenues Limited 1. Securities and Exchange Board of India (hereinafter referred to as 'SEBI') conducted investigation into the preferential allotment of shares by M/s Somplast Leather Industries Limited (hereinafter referred to as 'Somplast') and the role of Somplast, its directors and allottees in the said preferential allotment. During the relevant period, the shares of Somplast were listed on Bombay Stock Exchange Ltd. (BSE) and Ahmedabad Stock Exchange Ltd. (ASE). 2. It was revealed during investigation that – a) In terms of resolution passed in its Extra Ordinary General Meeting held on May 4, 2000, Somplast made preferential allotment of 2.4 Crores equity shares at ₹10 per share on July 24, 2000 to 21 allottees as described below:- TABLE - 1 Sr. No. Name of the allottees Category No of shares 1 Yogini Vyas Promoter/director 12,00,000 2 Indocare Pharmaceuticals Ltd Non-promoter 12,00,000 3 Multi Media software Ltd Non-promoter 12,00,000 4. Shalin Resorts Ltd Non-promoter 12,00,000 5. Sarlee Fabric Exports Ltd. Non-promoter 12,00,000 6. Omega Avenues Ltd Non-promoter 12,00,000 7. Growth Agro Ind Ltd Non-promoter 12,00,000 8. Gujarat Fun’n Water Park Ltd Non-promoter 12,00,000 9. Sofitel Finstock Non-promoter 12,00,000 10. Manna Glass Tech Ind.

Ltd. Non-promoter 12,00,000 11. G. Bhavsar & Co Non-promoter 12,00,000 12. Manna Exports Non-promoter 12,00,000 13. Shree Corporation Non-promoter 12,00,000 14. Jayesh Mehta Promoter 12,00,000 15. Noopur Kansara Non-promoter 11,00,000 16. Ashok Chokshi Non-promoter 12,00,000 17. Indian Shelters Ltd Non-promoter 12,00,000 18. Gopal Pottedar Non-promoter 1,00,000 19. Dharmendra Barot Non-promoter 12,00,000 20. Gaurang Joshi Non-promoter 12,00,000 21. Tushar Majmudar Non-promoter 12,00,000 Total 2,40,00,000 b) It was observed that most of the above mentioned allottees did not have the capacity of their own to subscribe to the preferential issue of Somplast c) It was observed from the bank account of the relevant entities with Socio Co-operative Bank, Khamasa Branch that Somplast, M/s Cure Spects & Lasers Ltd. ("Cure Spects"), M/s G Bhavsar & Co. ("Bhavsar"), and M/s Indocare Pharmaceuticals ("Indocare") had transferred the funds to the abovementioned 21 entities routing the funds through the accounts of M/s Manapoule Machineries Pvt. Ltd., Manna Machineries Ltd. and Bhavsar. The funds so received by these 21 entities were utilised for applying in the preferential issue of Somplast.

Such fund flow is described in the following Table: TABLE - 2 Date of Name of entity A/c Nos. Op. Bal. in Name Dr. Amit Credit recd. Cheques Cl. Bal. in A/c. opening (Preferential for A/c. Shah related from entities issued by balance allottees) entities in entities who had in col. 5 and entities in Col.2 paid amt. to the paid to col.-2 for entities in entities in col. pref. issue column 6 2 for pref. to Somplast allotment. 1 2 3 4 5 6 7 8 22/5/2000 Yogini Vyas 15817 500 Cure Spects & Manapoule & (₹60 lakhs) 521(as on Lasers Ltd. G.Bhavsar 4/9/2001)closing bal 12/1/2000 Indo Care 9091 1000 Somplast Manapoule (₹60 lakhs) 1398 (as on Pharmaceuticals 13/12/2001) Ltd Closing bal 3/3/2000 Multi Media 9129 1000 G Bhavsar & Manapoule (₹60 lakhs) 1078(as on Software Ltd. Co., Somplast Machineries 28/9/2001) 27/3/2000 Shalin Resorts 8992 11,63,996 G Bhavsar & Manna (₹60 lakhs) 7255 (as on (operative Ltd (as on Co. Machineries 17/3/2001) since 1/1/2000) 14/6/1999) 28/5/1999 Sarlee Fabrics 8988 163420(as G. Bhavsar Manna ₹60 lakhs) 1188 Ltd on Machineries & 11/1/2000 Manapoule ) 3/1/2000 Omega Avenues 8989 1,78,172 Indocare Manna (₹60 lakh) 1212 (as on (operative (as on Pharmaceutical, Machineries 28/9/2001) since 3/1/2000) Somplast and G Closing bal 1/6/1999) Bhavsar 15/1/2000 Growth Agro 8981 2,85,178 Indocare Manna (₹60 lakh) 10216 (as on (operative Industries Ltd (as on Pharmaceutical, Machineries & 31/12/2001) since 15/1/2000 Somplast and G Manapoule Closing bal 19/5/1999) ) Bhavsar 12/1/2000 Gujarat Fun’ N 9087 1000 Indocare Manapoule 1861(as on Water Park Pharmaceutical ₹60 lakhs) 28/9/2001) and Somplast Closing bal 20/1/2000 Sofitel Finstock 9099 1000 Somplast Manapoule (₹60 lakhs) 774(as on Machineries 28/9/2001)

closing bal 11/1/2000 Manna Glass 9085 1000 Somplast and G Manapoule (₹60 lakhs) 1150(as on Tech-Ind Ltd Bhavsar 12/12/2001)closin g balance 20/1/2000 G. Bhavsar & 9098 1000 Somplast Manna (₹60 lakhs) 29,00,880 (as on Co Machineries 1/6/2000) 11/1/2000 Manna Exports 9084 1000 Somplast Manna Somplast 2410 (28/9/2001) Machineries) (₹60 lakhs) Closing bal 21/1/2000 Shree 9101 1000 Somplast Manapoule (₹60 lakhs) 760 (as on (operative Corporation Machineries 28/9/2001) since Closing bal 1/6/1999) 23/5/2000 Jayesh Mehta 15820 500 Cure Spects & G. Bhavsar & (₹60 lakhs) 521(as on Lasers Ltd Co 4/9/2001) closing bal 11/1/2000 Noopur Kansara 15671 500 Indocare Manna (₹55 lakhs) 10216(as on Pharmaceutical Machineries 31/12/2001) and Somplast Closing bal 20/1/2000 Ashok Chokshi 15678 500 Indocare Manna (₹60 lakhs) 412 (as on Pharmaceutical Machineries 31/8/2001) and Somplast Closing bal 12/1/2000 Indian Shelters 9090 1000 Cure Spects & Manapoule (₹60 lakhs) 860 (as on Ltd Laser 28/9/2000) Closing bal 23/5/2000 Gopal Pottedar 15819 500 Cure Spects & Manapoule (₹5 lakhs) 521( as on Lasers Ltd 9/11/2001) closing bal 6/3/2000 Dharmendra 15730 500 Cure Spects & Manapoule (₹60 lakhs) 517 (as on Barot Lasers Ltd Machineries 9/11/2001) closing bal 6/3/2000 Gaurang Joshi 15731 500 Cure Spects & Manapoule (₹60 lakhs) 693 (as on Lasers Ltd Machineries 5/10/2001) closing bal 11/1/2000 Tushar 15670 500 Cure Spects & Manapoule (₹60 lakhs) 742 (as on Majmudar Lasers Ltd 4/9/2001) closing bal d) Out of the total funds transferred to the allottees, Somplast contributed ₹487.49 Lacs, Cure Spects contributed ₹365 Lacs and Bhavsar contributed ₹120 Lacs.

e) Somplast, Cure Spects, Bhavsar and Indocare were observed to be connected to one Dr. Amit Shah, who was also controlling Somplast. Hence, it was observed that majority of the funds for subscribing to the shares in the preferential issue of Somplast had come from Dr. Amit Shah and companies connected to him.

3. In view of the above, it was alleged that Dr. Amit Shah, Somplast and its directors perpetrated a fraudulent scheme wherein they used their own and associate's funds to sponsor the preferential allotment. There was no genuine fund flow from the allottees to Somplast by the way of allotment money and the preferential issue did not bring any additional funds to Somplast.

4. In view of the above, it was alleged that the preferential allottees acted as front entities in the preferential allotment thereby aided Somplast and directors of Somplast in committing fraud upon the investors at large.

5. Based on the above observations of the investigation, a Show Cause Notice (SCN) dated November 24, 2011 was inter alia issued to the Omega Avenues Limited ('the noticee') who was one of the allottees in the preferential allotment of the Somplast. It was alleged in the SCN that the noticee violated the provisions of regulation 3 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 (PFUTP Regulations) read with regulation 13(2) and 3 and 4(1) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 and section 12A (a), (b) and (c) of SEBI Act. The noticee was also called upon to show cause as to why suitable directions including directions prohibiting it from accessing the capital market and from dealing in securities for a suitable period should not be issued against it under section 11B of the SEBI Act read with regulation 11 of PFUTP Regulations.

6. The noticee, vide its letters dated November 26, 2011 and December 16, 2011, replied to the SCN. An opportunity of personal hearing was given to the noticee before me on November 26, 2012. Mr. Vipul Joshi, Advocate and Mr. Alay Bhatt, Advocate appeared on behalf of the noticee and made submissions on the lines of replies on record. The noticee has inter alia submitted the following: a) It is denied that the noticee was connected or related to Dr. Amit Shah or Somplast or was aware of the alleged fraudulent schemes. b) It was non-functional during the period of preferential issue of Somplast and no business was carried out by it in the financial year 1997 to 2000. c) It is the victims of the fraud perpetuated by Somplast and others. During the relevant time, Mr. Rajesh Parikh and Ms. Rajani Patel were the actual and bonafide directors of the noticee. Two individuals namely Mr. Shankerlal Rajput and Ms. Kantanben Goriya had forged the signatures and filed Form 32 on May 24, 1999 to the Registrar of Companies (RoC) and provided their names as directors of the noticee in place of Mr. Rajesh Parikh and Ms. Rajani Patel, the actual and bonafide directors of the noticee. d) In support of the its submission that the signatures in form 32 filed with RoC were forged, vide its letter dated November 28, 2012, the noticee has submitted a copy of handwriting expert's opinion with the copy of form no. 32 and copy of balance sheet filed with RoC having forged signature.

The handwriting expert in his report dated November 03, 2004 has observed that the disputed signatures inter alia in copy of Form no. 32 are not of the authorized signatories of the noticee. e) The noticee never opened any bank account with the Socio Co-operative Bank Ltd. It was not aware of any fund flow between it and other entities as alleged in the SCN. The above said two bogus directors, Mr. Shankerlal Rajput and Ms. Kantanben Goriya had opened the bank account in question on June 01, 1999 and were operating the same. Mr. Shankerlal Rajput and Ms. Kantanben Goriya were responsible for receipts of money in the said account and making applications in the alleged preferential allotment. f) When the noticee came to know about the above fraud, vide letter dated August 29, 2000, September 09, 2000 and September 12, 2000, it informed the RoC, Gujarat, Income Tax Officer (Ahmedabad) and Central Bureau of Investigation (Gandhinagar), respectively, regarding the said fraud. Vide letter dated March 13, 2003 it also informed SEBI about the fraudulent transactions. g) It had filed a police complaint dated February 25, 2004 with the Addl.

Commissioner of Police at Ahmedabad. It has come to know from media that Mr. Shankerlal Rajput has been arrested by police. In this regard, it has relied upon the news paper report dated September 13, 2004 appearing in the Sandesh, Gujarat Edition, about the arrest of Mr. Shankerlal Rajput. h) SEBI vide its order dated February 01, 2006 had exonerated it in the matter of Manna Glass Tech Industries Ltd. after it had made the above submissions in that case.

7. I have carefully considered the SCN, the replies of the noticee and relevant material available on record. In this case the allegation against the noticee has been made on the basis of the fact that allotment money was received by it from Somplast, Dr. Amit Shah and their connected entities, and it had applied in the preferential allotment of Somplast using that money. The noticee has disputed this fact and has submitted that the bank account in question was not opened by it but by two individuals who fraudulently held them as its directors and opened the bank account and applied in preferential allotment of Somplast on receipt of monies in that account as alleged. I note that the noticee has taken necessary legal recourses at appropriate time and even before the SCN was issued to it. In the fact and circumstances of the case the subsequent steps taken by the noticee corroborate its submissions. Considering the facts and circumstances of the case, I find that preponderance of probability is in the noticee's favour. I, therefore, give benefit of doubt to the noticee and drop the charges against it.

8. The Show Cause Notice No. IVD/ID-1/MS/NK/SLIL/35888/2011 dated December 16, 2011 in respect of the noticee is disposed of accordingly.

Rajeev Kumar Agarwal Date: July 05, 2013 Whole Time Member Place: Mumbai Securities and Exchange Board of India