Order in respect of Rajesh Jhaveri Stock Brokers Pvt. Ltd.

WTM/RKA/EFD/DRA2/31/2016 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER Under regulation 13(2) of the SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 read with 28(2) and regulation 38 of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008: In respect of Rajesh Jhaveri Stock Brokers Pvt. Ltd. (RJSBPL) 1. Sawaca Communications Ltd. (hereinafter referred to as “Sawaca”) is a company having its shares listed at Bombay Stock Exchange Limited (BSE) and Ahmedabad Stock Exchange (ASE). During the period October 1999 to March 2000, a significant price rise accompanied with significant increase in volume was observed in the scrip of Sawaca. In view of the volatility in the price of the scrip of Sawaca, SEBI initiated investigation in the trading in the scrip of Sawaca for the period October 1999 to March 2000 (hereinafter referred to as “the investigation period”). 2. The investigation inter alia revealed that: (a) The price of the scrip of Sawaca at BSE during the period October 01, 1999 to March 31, 2000 ranged between ` 19.35 and `106. Prior to September 15, 1999, the trading in the scrip of Sawaca was more or less infrequent and the volumes started picking up from October 1999.

(b) Sawaca in its meeting held on January 05, 2000 had allotted 50,00,000 shares @ `10/-each on a preferential basis to various entities. Mr. Rajesh N. Jhaveri was one of the allottees in the preferential allotment made by Sawaca and was one of the promoters of Sawaca. (c) The bank statement of Sawaca in respect of the preferential allotment indicated that there was inflow of `4.76 crore and `4.71 crore was debited from the company's account on the same day. Mr. Mahendra A. Shah who was the Managing Director of Sawaca during the investigation period had resorted to creating artificial volumes through Harvic Management Services Ltd. and Mayekar Investment Pvt. Ltd. and at the same time offloaded the shares through RNJ and others. RNJ was a broker of ASE and had traded in the scrip as an unregistered sub-broker. (d) RNJ traded in the scrip and influenced the price and also created artificial/ false appearance of market in the scrip. RNJ also actively aided and abetted the entities connected with Sawaca in offloading the shares in the market and creating false volume in the scrip.

Order in respect of Rajesh Jhaveri Stock Brokers Pvt. Ltd.

(e) RNJ had two cards at ASE, one in his individual name viz M/s Rajesh N Jhaveri (RNJ) with Code-0123 and the other in the name of a corporate body namely viz Rajesh Jhaveri Stock Brokers Pvt. Ltd (RJSBPL) with code 0106. 3. Pursuant to the investigations, enquiry proceedings were initiated against RNJ and RJSBPL in respect of both the dealer cards. The enquiry proceedings with respect to RNJ has already been disposed of by a consent order number CO/IVD3/1052/36/2008 dated September 04, 2008. The instant order deals with the enquiry proceedings with respect to RJSBPL. 4. With respect to RJSPL the Enquiry Officer vide his Report dated October 27, 2004 inquired into the allegation that RNJ, member of ASE had apparently- (a) acted as an unregistered sub-broker and thereby violated section 12 of the SEBI Act; (b) failed to exercise due skill, care and diligence and thereby violated the code of conduct specified for stock brokers in regulation 7 of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992. (Stock Brokers Regulations); (c) actively aided and abetted the client in creation of false market in the scrip and thereby violated regulation 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 (PFUTP Regulations).

5. After completing the enquiry, the Enquiry Officer inter alia found there was no entity called RNJ registered as broker with SEBI. Gautam N. Jhaveri was a registered broker with a trade name M/s. Gautam N. Jhaveri. It was using the trade name RNJ. M/s. Gautam N. Jhaveri and RNJ were one and the same person. One RNJ is registered with SEBI as a sub-broker affiliated to ASE Capital Markets Limited (ACML), a subsidiary of ASE. RNJ became a registered sub-broker in February 2001. 6. The Enquiry Officer further found that "there is no charge in the investigation report against the RJSBPL, except that Rajesh N. Jhaveri is behind RNJ and RJSBPL. It is not alleged that RJSBPL traded in SCL (Sawaca). It is RNJ which has allegedly manipulated the price of SCL (Sawaca)". In view of the same the Enquiry Officer concluded that there was no direct involvement of RJSBPL in the alleged price manipulation in the scrip. However, according to the Enquiry Officer, Mr. Rajesh N. Jhaveri was the person behind RJSBPL and RNJ. Therefore, the Enquiry Officer recommended that Mr. Rajesh N. Jhaveri be debarred from carrying out activities as intermediary in the intermediary firm or any other company or other market related institution for a period of 5 years.

In addition, SEBI may considering debarring from dealing in securities market for a period of 5 years under the SEBI Act. 7. After considering the Report, a Show Cause Notice ("SCN") no. IVD/ID- 3/PKB/JJS/SBM/30894/2005 dated January 05, 2005 was issued to Mr. Rajesh N.

Jhaveri under Regulation 13(2) of the then applicable SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (Enquiry Proceedings Regulations). Mr. Rajesh N. Jhaveri had, vide his letter dated January 31, 2005, filed reply to the SCN. Subsequently, an opportunity of personal hearing was granted to Mr. Rajesh N. Jhaveri on April 23, 2015 and hearing notice dated March 31, 2015 was issued to him. Mr. Rajesh N. Jhaveri, vide his letter dated April 09, 2015 requested for the copy of the SCN and his earlier reply and the same was mailed to him on April 17, 2015. After seeking adjournment of hearings, Mr. Rajesh N. Jhaveri appeared for hearing on July 29,2015 when Mr. Deepak Shah appeared on his behalf and reiterating his earlier reply he sought further time which was granted and another date of hearing was fixed in the matter on August 20, 2015. Mr. Rajesh N. Jhaveri sought another adjournment and the hearing was accordingly rescheduled to November 05, 2015. However, neither did he appear nor did he file any written reply pursuant to the notice in that regard.

I am convinced that the principles of natural justice have been complied with in this case and the case can be proceeded with on the basis of material available on record. 8. I note that in his reply, Mr. Rajesh N. Jhaveri has inter alia submitted as follows- (a) He has nothing to do with RNJ as it is a sole proprietary concern of Mr. Gautam Jhaveri. M/s. Rajesh N Jhaveri is the trade name used by Shri Gautam N Jhaveri because earlier Mr. Gautam N Jhaveri along with Mr. Jayendra K Doshi was carrying on business in partnership in the name and style of M/s. Rajesh N Jhaveri. However, subsequently on retirement of Mr. Jayendra K Doshi as partner of M/s. Rajesh N Jhaveri the said firm has been dissolved and as per the understanding between Mr. Gautam N Jhaveri and Mr. Jayendra K Doshi, Mr. gautam N Jhaveri continued to use trade name of M/s. Rajesh N Jhaveri after such dissolution. (b) There was no investigation conducted so far as RJSBPL, a private limited company wherein Mr. Rajesh N. Jhaveri is whole-time director, is concerned. Straightaway an enquiry notice was issued to RJSBPL. Mr. Rajesh N Jhaveri was never issued any notice in respect of any enquiry against himself.

It is specifically and categorically seen that at no point of time any charges were leveled against Mr. Rajesh N Jhaveri and resultantly there was no question of calling upon him to explain and /or clarify his conduct, actions and/or any kind of participation in any transaction in question. (c) It has been stated that "Shri Rajesh N Jhaveri has two cards at ASE, one in his individual name viz. Rajesh N Jhaveri – Code 0123 and other membership in the name of corporate body i.e. M/s. Rajesh Jhaveri Stock Brokers Pvt. Ltd. – Code No. 0106". (d) Relying upon written confirmation from ACML and ASE Mr. Rajesh N Jhaveri, has submitted that RNJ is a trade name used by Mr. Gautam Jhaveri He was not the proprietor of the concern RNJ. The firm is owned by Mr. Gautam N Jhaveri. Further, he has no card in his ownership at ASE. The card bearing code No. 0123 is owned by M/s. Rajesh N Jhaveri (RNJ), which is the sole proprietary concern of Mr. Gautam N Jhaveri. It, therefore, establishes the fact that clearing Code 0123 belongs to Shri Gautam N. Jhaveri who is the sole proprietor of M/s Rajesh N Jhaveri.

(e) RNJ also received a show cause notice in the instant matter for which consent application was filed by the firm. The same was accepted and consent order was passed by SEBI in 2008. 9. I have carefully considered the SCN and the reply of the noticee. The limited question for determination in these proceedings is that whether Mr. Rajesh N. Jhaveri had any role in the price manipulation in the scrip during the investigation period. I note that the basis of recommendation of the Enquiry Officer against Mr. Rajesh N. Jhaveri is that he was the person behind RJSBPL and RNJ and the trades were engineered in such a fashion that none-RJSBPL, RNJ, M/s. Gautam N. Jhaveri-can be held responsible. Admittedly, RJSBPL has not been found to be involved in the alleged price manipulation. Further, there is no allegation or charge that RJSBPL failed to exercise due diligence and care or that it acted as unregistered sub -broker. In fact the Enquiry Officer has exonerated RJSBPL from all charges and allegations. 10. In this regard, I find that the vicarious liability on Mr. Rajesh N. Jhaveri, if at all he was the person behind RNJ and RJSBPL, can be fixed only if RJSBPL and RNJ are found to be involved in the price manipulation.

As regards the involvement of RNJ (Code 0123) in the alleged price manipulation and other charges mentioned in the Report, the separate proceedings were initiated and disposed of by consent order dated September 04, 2008 on the settlement terms of payment of `1,00,000/- (Rupees one lakh only) as settlement charges and voluntary suspension of certificate of registration for a period of one year. Thus, nothing survives as against Mr. Rajesh N. Jhaveri with regard to the allegations and role of RNJ. 11. It is noted that the allegation relate to period 1999-2000. From the confirmation letters of ACML and ASE relied upon by Mr. Rajesh N. Jhaveri it is noted that RNJ was granted permission to form partnership with Shari Jayendra K Joshi on May 31, 1990. Mr. Rajesh N. Jhaveri had resigned from RNJ with effect from February 11, 1995. Mr. Rajesh N. Jhaveri had corporatized his individual code to form RJSBPL on January 05, 1996. Further, RJSPBL is inactive since March 08, 2001. Since the charge against Mr. Rajesh N. Jhaveri has not been made out in the facts and circumstances as found in the Report, I do not deem it necessary to take any action against Mr. Rajesh N. Jhaveri in terms of the Enquiry Proceedings Regulations read with Intermediaries Regulations.

The SCN dated January 12, 2005 is accordingly disposed of.

Sd/- Date: March 09th, 2016 RAJEEV KUMAR AGARWAL Place: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA