Order in respect of Shri Dilip Nabera, Mrs. Sadhna Nabera and Adhunik Finance Pvt. Ltd. in Sun Infoways Ltd

WTM/KMA/IVD/187/12/2009 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: DR. K. M. ABRAHAM, WHOLE TIME MEMBER ORDER UNDER SECTION 11B OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH REGULATION 11 OF SECURITIES AND EXCHANGE BOARD OF INDIA (PROHIBITION OF FRAUDULENT AND UNFAIR TRADE PRACTICES RELATING TO SECURITIES MARKET) REGULATIONS, 2003 IN RESPECT OF MR. DILIP NABERA, MRS. SADHANA NABERA AND ADHUNIK FINANCE PRIVATE LIMITED IN THE MATTER OF SUN INFOWAYS LIMITED 1. Pursuant to the significant price rise accompanied with rise in volumes in the shares of Sun Infoways Limited (hereinafter referred to as the company) during the period April 1, 2000 to November 1, 2000, Securities and Exchange Board of India (hereinafter referred to as SEBI) conducted an investigation into the buying and selling and dealings in the shares of the company for the period February 2000 to November 2000 (hereinafter referred to as the investigation period). During the investigation period, the share price of the company had increased from Rs. 10/- to Rs. 724/- on September 11, 2000. It was observed that the company was originally incorporated on June 29, 1994 as Best Mulyankan Consultants Private Limited promoted by Mr. Shrikant Vasant Joglekar and Mr. Sujit Shrikant Joglekar. Subsequently, the said company was converted into a public company and its name was changed to Best Mulyankan Consultants Limited on June 21, 1995. On March 7, 1996, the company came out with a public offer of equity shares and was listed on Bombay Stock Exchange Limited (hereinafter referred to as BSE) on May 16, 1996. Thereafter, the name of the company was changed to Sun Infoways Limited with effect from May 11, 2000.

The investigation conducted by SEBI inter alia found that Mr. Shrikant Vasant Joglekar and his family members had sold their stake in the company in January 2000 to Mr. Anil Pujari, Mr. Tanvir Zaki, Mr. Pravin Sonalkar, Ms. Hafeza Vohra, Mr. Rajan Tawate and Mr. Kuldeep Kumar Handoo for a total consideration of Rs.98,34,659/-. The investigation also observed that the company had agreed to merge with another company namely, Zap Infotech Private Limited (hereinafter referred to as ZAP) and in consideration of which, the company had issued 55,88,200 shares of Rs.10.00/- each at a premium of Rs.840/- per share to the promoters of ZAP. It was further revealed that the new promoters of the company and the promoters of Zap namely Mr. Arif Mithani and Mr. Abbas Mithani had valued ZAP exorbitantly and unrealistically and ultimately merged a bogus unlisted company (ZAP), with the company. It was alleged that, by the said merger, the new promoters of the company manipulated its books of accounts as also its share prices through issue of shares at an unrealistic consideration of Rs. 475/- crores whereas the annual accounts of ZAP for the year ending March 31, 2000 revealed that its total income was Rs.4.52 crores with a net profit of merely Rs.5 lakhs. It was also alleged that, after acquiring the shares of the company, the new acquirers/directors had traded heavily in the shares of the company through various related entities including Mr. Dilip Nabera, Mrs. Sadhna Nabera (wife of Mr. Dilip Nabera) and Adhunik Finance Private Limited. It was alleged that in that process, the promoters group increased the share price from Rs.10/- to Rs.700/-during period February 2000-September 2000. Mr. Dilip Nabera was the auditor of the company and had audited its financial results for the year ended on March 31, 2000. It was alleged that Mr. Dilip Nabera had dealt heavily in the shares of the company through himself, Mrs. Sadhana Nabera and associated entities including Adhunik Finance Private Limited. It was further alleged that Mr. Dilip Nabera had introduced certain entities to stock brokers/sub brokers, who were found to have traded in the shares of the company during the investigation period. It was alleged that Mr. Dilip Nabera had given a platform to the promoters/directors of Great Eastern Mercantile Private Limited namely Mr. Iqbal Rupani and Mr. Haider Ali

Rupani to offload shares in the market and to increase liquidity in the market ultimately leading to artificial price rise. In view of the above, it was alleged that Mr. Dilip Nabera, Mrs. Sadhana Nabera and Adhunik Finance Private Limited contravened the provisions of Regulations 3, 4(a), 4(b), 4(c), 4(d), 4(e) and 6(d) 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). 2. Accordingly, notices dated June 8, 2006 were issued by SEBI to various entities including Mr. Dilip Nabera, Mrs. Sadhna Nabera and Adhunik Finance Private Limited to show cause as to why appropriate action under Section 11 B of Securities and Exchange Board of India Act, 1992 including restraining them from accessing the securities market in any manner should not be taken against them for the alleged violations. Details with regard to the alleged violations committed by the aforesaid entities were mentioned in the said show cause notice. 3. Mr. Dilip Nabera, vide letter dated September 18, 2006 filed his submissions to the aforesaid show cause notice and stated that he was representing himself as the Karta of Dilip Nabera HUF. He stated that the said HUF was formed in 1990 and that he had started investment in his HUF account from 1997 onwards. The submissions made by Mr. Dilip Nabera in brief are as follows: i. That while he was functioning as an auditor of the company, his wife had sold only 500 shares of the company. That Dilip Nabera (HUF) had bought and sold 8,000 and 8,300 shares of the company respectively. According to him, the transactions of his HUF and his wife were separate and had nothing to do with his role as an auditor of the company. Mr. Dilip Nabera further stated that, if he really wanted to take the advantage of his status then his volume of trading would have been substantial and that he had not derived any gain or benefit from any price fluctuation. That Dilip Nabera (HUF) was still holding 7,100 shares of the company as on the date of the reply.

ii. That the transactions of his wife and Adhunik Finance Private Limited were of insignificant volume/value and that the same were delivery based. iii. That his introduction of Great Eastern Mercantile Private Limited and Act React Holding Private Limited to the concerned sub brokers was done in good faith and that he had not derived any benefit therefrom. That the correlation of his telephone number as his introduction of Great Eastern Mercantile Private Limited in the client member agreement form of Shreepati Holding and Finance Private Limited (sub broker) was misinterpreted. That the telephone number/address mentioned in the member client agreement below his signature was as per the requirement in the form. That he was not authorized to place orders on behalf of the said Great Eastern Mercantile Private Limited. iv. That he did not undertake any off market dealing or transactions in the shares of the company with any one. v. That he had not transacted in the shares of the company in violation of the provisions of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the SEBI Act) or the PFUTP Regulations. vi. That the powers under Sections 11(4) and 11B of the SEBI Act are not available for routine application. 4. Thereafter, Mr. Dilip Nabera, thereafter, vide letter dated July 13, 2009 inter alia stated that he had not introduced Act React Holdings Private Limited to JV Portfolio Limited. He stated that his trades were on behalf of Dilip Nabera (HUF) based on his commercial wisdom. In respect of sharing of premises by Dilip Nabera (HUF) and Adhunik Finance Private Limited, he stated that he was occupying only a part of the said premises. He contended that he was not aware of the finer details of the merger mentioned in the show cause notice. He stated that nowhere in the show cause notice it was alleged that the trades were structured in nature and that the trades were delivery based at the market price, which could not have influenced the price/volume, as alleged. He further contended that he had not violated the provisions of SEBI Act and the PFUTP Regulations as alleged in the show cause notice.

5. Mrs. Sadhana Nabera, vide letter dated January 3, 2008 inter alia stated that she had transacted in other scrips, including the company, in the ordinary course without the involvement or interference from any one including Mr. Dilip Nabera. Further, she stated that Mr. Dilip Nabera had no role to play, whether directly or indirectly, in respect of her investment decisions. She further stated that during the investigation period i.e. February 2000 to November 2000, she had bought 7,800 shares and sold 3,000 shares of the company which constituted 0.50% of the total volume, which was too insignificant to affect the price/volume in any manner. She also stated that she had no link/connection/nexus with the company/its promoters. Mrs. Sadhana Nabera contended that she had no role whatsoever to play in the alleged manipulative merger of ZAP with the company. She stated that she had dealt in the shares of the company through ISJ securities Private Limited (bought 5,000 shares), Shreepati Holding and Finance Private Limited (bought 2,800 shares) and through ISJ securities Private Limited (sold 1,500 shares). She claimed that the said trades were one time transactions. She also stated that she had not directly traded through JCL Securities Limited. Mrs. Sadhana Nabera claimed that she still continues to hold 2,000 shares as on the date of the reply. She also stated that the announcement regarding the merger came only in August 16, 2000, i.e. after two months of the purchase of 2,800 shares of the company. She further contended that no material available on record to indicate that she had indulged in manipulation. Thereafter, vide letter dated July 14, 2009, Mrs. Sadhana Nabera reiterated her earlier submissions.

6. Adhunik Finance Private Limited, vide letter dated January 10, 2008 inter alia stated that, it had transacted in various scrips including the company in the ordinary course of business without the involvement or interference of anybody including Mr. Dilip Nabera. It also denied having executed transactions on behalf of anybody including Mr. Anil Poojari, Mr. Kuldeep Handoo etc. It further stated that at the relevant time, Mr. Dilip Nabera was neither a shareholder nor a director or employee and that he had no role to play in its affairs. It further stated that, at the relevant point of time, it had traded in the shares of the company on behalf of its clients, acting as a sub broker of JCL Securities Limited. It further contended that it had not carried any proprietary trades. According to Adhunik Finance Private Limited, it had no link/connection/nexus with the company or its promoters. It stated that at the relevant time it was not aware as to whether Mr. Dilip Nabera was the auditor of the company or whether he had introduced certain clients to sub-brokers. As regards the allegation of sharing of room with Mr. Dilip Nabera, Adhunik Finance Private Limited stated that, it was occupying only a part of the said premises and had nothing to do with the other part which was allegedly being occupied by Mr. Dilip Nabera and his associates. Adhunik Finance Private Limited further stated that it had not violated the provisions of SEBI Act or PFUTP Regulations. Subsequently, vide letter dated July 15, 2009, Adhunik Finance Private Limited reiterated the above submissions.

7. Pursuant to the receipt of the replies, an opportunity of personal hearing was granted to Mr. Dilip Nabera, Mrs. Sadhana Nabera and Adhunik Finance Private Limited (hereinafter collectively referred to as the noticees and individually by their names) on July 1, 2009. The said hearing was adjourned as requested by the noticees. Thereafter, another opportunity was granted to the noticees on July 22, 2009. Mr. Vinay Chauhan, Advocate represented the noticees and made submissions on their behalf. The learned counsel contended that the noticees are not liable for a direction in terms of the show cause notice as the same was vague and not specific. The learned counsel stated that though, the show cause notice alleged that, after acquiring the shares of the company, the new acquirers/directors had traded heavily in the shares of the company through various related entities including the noticees, no further details had been provided to the noticees in support of the charges. According to him, though the show cause notice alleges “After acquiring the shares, the new acquirers/directors i.e Anil Pujari, Hozefa Vohra, Kuldeep Handoo etc. entered into large volume of trading in the scrip of SIL…... These transactions were put through in the name of clients viz…….Smt. Sadhana Nabera,……, Dilip Nabera ,……Adhunik Finance Pvt. Ltd….” it failed to substantiate the same. He further stated that some of the information mentioned in the show cause notice was contrary to the factual position. The learned counsel vehemently contended that the statements of people without giving a copy of the same and without affording an opportunity to cross examine them, cannot be relied upon by SEBI. The learned counsel argued at length on the lines of the reply filed by the noticees.

8. I have considered the show cause notice dated June 8, 2006 issued to the noticees, replies of the noticees, the submissions made by the learned counsel on behalf of the noticees and other material available on record. Before proceeding further, it is pertinent to mention that SEBI, disposed of the proceedings initiated against the company and various other entities, vide order dated March 3, 2008. In view of the above order, only the dealings of the noticees as mentioned under the show cause notice dated June 8, 2006 are being dealt with in the present proceedings.

9. It is alleged in the show cause notice that pursuant to the acquisition of the shares of the company, Mr. Anil Pujari, Mr. Hozefa Vohra, Mr. Kuldeep Handoo (new acquirers/directors of the company) etc. had traded heavily in the shares of the company through various related entities including Mr. Dilip Nabera, Mrs. Sadhna Nabera (wife of Mr. Dilip Nabera) and Adhunik Finance Private Limited and had increased the share price from Rs.10/- to Rs.700/-during period February 2000-September 2000. The allegation against Mr. Dilip Nabera is that he was seen to have dealt in the shares of the company inter alia through himself, Mrs. Sadhana Nabera and associated entities including Adhunik Finance Private Limited. In support of the said charge, the show cause notice (in Annexure 17) provided the details of trades executed by Adhunik Finance Private Limited. It was alleged that Adhunik Finance Private Limited had bought and sold 49,800 shares and 33,000 shares of the company, respectively, through the stock broker namely, JCL Securities Private Limited during the period of investigation. Similarly, it was alleged that Mrs. Sadhana Nabera had purchased 5,000 shares of the company on June 16, 2000 through the aforesaid stock broker (details were provided in Annexure 29 to the show cause notice). However, according to the learned counsel, no such details have been provided in the case of Mr. Dilip Nabera except that Mr. Dilip Nabera and his associates had also traded in the shares of the company in his HUF account.

10. The show cause notice alleged that Mr. Dilip Nabera had links with the company and its promoters and that the new acquirers/directors of the company had inter alia traded through Mr. Dilip Nabera, Mrs. Sadhana Nabera and Adhunik Finance Private Limited. It is the case of the noticees that they had no role/nexus with the company/promoters in so far as their trades in the shares of the company are concerned. Mr. Dilip Nabera contended that he cannot be regarded as an associate of the company and its promoters, as he had no business/commercial relationship with them. It was also submitted before me that he was not commercially connected with the other entities mentioned in the show cause notice and that he had not done any dealings in the shares of the company with the said entities. It is nobody’s case that Mr. Dilip Nabera was a promoter/director of the company. Admittedly, he was an auditor of the company during July 24, 2000 to October 16, 2000. Apart from this, the link which connects Mr. Dilip Nabera with the company/promoters is the admitted friendship he had with Mr. Kuldeep Handoo (one of the promoters of the company) for the last several years.

The learned counsel argued that Mr. Dilip Nabera cannot be held responsible for the manipulation only by virtue of his friendship with Mr. Kuldeep Handoo. He strenuously argued that the show cause notice failed to establish the alleged link between Mr. Dilip Nabera and the manipulative trades of Mr. Kuldeep Handoo and others. According to him, in the absence of such evidence, Mr. Dilip Nabera cannot be held liable for the manipulation, only because of the above mentioned friendship. The learned counsel contended that having friendship with Mr. Kuldeep Handoo (one of the persons involved in the manipulation) would not make Mr. Dilip Nabera also liable for the said manipulation, unless there is evidence or specific details which link him with the manipulative actions of Mr. Kuldeep Handoo or the entities controlled by him. Further, according to him, no sufficient evidence is brought out in the show cause notice to the effect that the trades of Mr. Dilip Nabera were at the behest of Mr. Kuldeep Handoo or anybody involved in the manipulation. Besides, the show cause notice is also silent about the financial or any other commercial transactions, if any, between Mr. Dilip Nabera and the company/promoters including Mr. Kuldeep Handoo.

I note that the show cause notice alleged that Mr. Dilip Nabera had introduced Act React Holdings Private Limited (promoter of which was Mr. Kuldeep Handoo) to J V Portfolio Private Limited. The learned counsel further argued that the said introduction by itself would not be sufficient to prove Mr. Dilip Nabera’s complicity in the manipulation. Mr. Dilip Nabera denied the said introduction and according to him, he had introduced the said entity to the sub-broker namely, Shreepati Holdings & Finance Private Limited. Even if, Mr. Dilip Nabera had introduced Act React Holdings Private Limited to J V Portfolio Private Limited, it would be difficult to conclude that Mr. Dilip Nabera was responsible for the fraudulent activities committed by Act React Holdings Private Limited, as the show cause notice stated “The director of JVPL stated that Sh. Kuldip Handoo was his regular client and has been trading through him for past four years. All the orders pertaining to Act React Holdings Private Limited and that of Shri Kuldip Handoo had been referred by Shri Kuldeep Handoo on telephone. It was also noticed during the investigation that the introduction of Shri Handoo was witnessed by the staffs of JVPL, i.e. by Suresh Parida, Satish Sharma and Deepak.

The way Sh. Kuldip Handoo and Act React Holdings have been entertained by this member gives enough scope to infer that JVPL was hand in glove with Kuldip Handoo”. Therefore, even according to the show cause notice, the trades of Act React Holdings Private Limited (through J V Portfolio Private Limited) cannot be attributed to Mr. Dilip Nabera, as the orders were admittedly placed by Mr. Kuldeep Handoo, himself. Further, it is alleged in the show cause notice that, Act React Holdings Private Limited had also traded in the shares of the company through the sub broker, Portfolio Equity Services, the proprietor of which was Mrs. Savita Bansali. It is relevant to quote the show cause notice in that regard: “Smt Savita Bhansali stated that the orders pertaining to Act React Holdings Private Limited was given mostly by Kuldip Handoo and on some occasions orders were given by Sunil Saxena, who is a director in Apoorv Fincap Ltd. which has also traded in the scrip“. Thus, according to me, the show cause notice would only lead to an inference that Mr. Dilip Nabera had introduced Act React Holdings Private Limited and there is no allegation in the show cause notice that he was placing the orders on behalf of the said entity as it was specifically mentioned that the orders were placed by Mr. Kuldeep Handoo.

Though, the show cause notice alleged that the promoters of the company entered into large volume of trading in the shares of the company through various people including Mr. Dilip Nabera, it failed to establish that Mr. Dilip Nabera was acting as a conduit for the transactions of the promoters of the company. Besides, the show cause notice could not establish that the transactions were matched.

11. The next issue to be decided is whether Mr. Dilip Nabera had any role in the transactions of Mrs. Sadhana Nabera and Adhunik Finance Private Limited and whether he had any manipulative intent while trading in the shares of the company, as alleged in the show cause notice. I note that the show cause notice is silent about the specific details of trades executed by Mr. Dilip Nabera. Though, the show cause notice does not categorically specify the details of trades executed by him, Mr. Dilip Nabera in his reply had stated that as on July 12, 2000, Mr. Dilip Nabera (HUF) was holding 10,700 shares of the company. He also stated that his wife, Mrs. Sadhana Nabera was holding 3,800 shares as on the said date. According to him, sufficient disclosures had been made in respect of the same to the company, at the time of his appointment as an auditor. As per his reply, Mr. Dilip Nabera (HUF) had bought and sold 8,000 shares and 8,300 shares of the company, respectively. He claimed that Dilip Nabera (HUF) was holding 7,100 shares as on the date of the reply. The learned counsel contended that the specific details such as the date of transactions, the price at which the said trades have been executed etc., were absent in the show cause notice in respect of the trades entered on behalf of Mr. Dilip Nabera.

According to him, the only place where the details of trades of Dilip Nabera HUF are mentioned is in Annexure 28 to the show cause notice. In the said annexure, I note that under the head “Client-wise position in the scrip of SIL as disclosed by Kanan Sheth, Director, Shreepati Holdings& Finance Pvt. Ltd.”, it is mentioned that Dilip Nabera HUF had bought and sold 10,900 and 700 shares respectively. The learned counsel drew my attention to the reply of Dilip Nabera HUF, wherein it is stated that Ms. Kanan Sheth was not an employee of Shreepati Holdings & Finance Private Limited during the period of transactions and that her statement was factually incorrect. Further, he argued that the statement of Ms. Kanan Sheth was not a part of the show cause notice and was also not subjected to cross examination. In short, the argument of the learned counsel is that the trade details of Mr. Dilip Nabera was solely on the basis of the information provided by Ms. Kanan Sheth, which was not corroborated by other sources. According to him, even if the details provided by Ms. Kanan Sheth were correct, the same are insufficient to conclude that Mr. Dilip Nabera was involved in the manipulation.

He also drew my attention to the fact that there is no allegation that the trades of Mr. Dilip Nabera were not genuine or not intended to effect the transfer the beneficial ownership. In this scenario, according to him, the show cause notice should have contained certain essential details such as the date of transactions, the price at which the said trades were executed, etc. He further stated that in the absence of such details, it would not be justified on the part of SEBI to hold Mr. Dilip Nabera guilty of manipulation. According to learned counsel, the show cause notice does not allege that the counter party client to the trades of Mr. Dilip Nabera was Mr. Kuldeep Handoo.

According to him, the preliminary requirements to indicate the involvement of a person in the manipulation is absent in the show cause notice.

12. Further, one of the allegations leveled against Mr. Dilip Nabera was that he had introduced certain entities (Act React Holdings Private Limited and Great Eastern Mercantile Private Limited) which had traded in the shares of the company during the investigation period through sub-brokers/stock broker. However, there is no proof to establish that he was placing orders on behalf of the said entities. On the basis of the statement of Ms. Kanan Sheth, it was alleged that the orders on behalf of Great Eastern Mercantile Private Limited was placed by Mr. Dilip Nabera to the sub broker, Shreepati Holdings & Finance Private Limited. However, the learned counsel contended that the said statement cannot be relied upon, as the same was not subjected to cross examination. He also submitted that she was not an employee of Shreepati Holdings & Finance Private Limited during the relevant period. The learned counsel argued that even otherwise, Mr. Dilip Nabera was not authorized to place orders on behalf of the said Great Eastern Merchandise Private Limited and that even in the show cause notice it is mentioned that the orders were placed by Mr. Kuldeep Handoo on behalf of Great Eastern Mercantile Private Limited. In the show cause notice, it was mentioned “The introduction of GEM was through Dilip Nabera and even the Telephone Number (2010488/523) mentioned at the client member agreement form of Shreepati Holdings & Finance Pvt. Ltd, belongs to Adhunik Finance Ltd., where the wife of Shri Dilip Nabera is a director. Moreover, the Nabera & Associates, CA also has office in the same room. It is, therefore, apparent that Dilip Nabera himself did all the transactions of GEM with an intention to manipulate the price of SIL”. The learned counsel submitted that the introduction of Great Eastern Merchandise Private Limited by Mr. Dilp Nabera was done in good faith and that he had not derived any benefit therefrom. According to him, the mentioning of the telephone number of Mr. Dilip Nabera in the client introduction form was misinterpreted, as the telephone number/address mentioned in the form below his signature was as per the requirement. Admittedly,

Mr. Dilip Nabera was the auditor of the company from July 24, 2000 to October 16, 2000 and that he is a close friend of Mr. Kuldeep Handoo, the promoter of the company. It is also not disputed that Mr. Dilip Nabera had introduced Great Eastern Mercantile Private Limited and Act React Holdings Private Limited, entities controlled by Mr. Kuldeep Handoo, which had indulged in the manipulation. Besides, Mr. Dilip Nabera had also traded in the shares of the company during the relevant period. Thus, it can be easily inferred from the cumulative facts that there is a close nexus between Mr. Dilip Nabera and Mr. Kuldeep Handoo. However, the show cause notice could not establish the involvement of Mr. Dilip Nabera in the manipulation. Considering the totality of the facts and circumstances of the case and the submissions made, I am of the view that Mr. Dilip Nabera is entitled for a benefit of doubt.

13. Further, it is also alleged that Mrs. Sadhana Nabera had dealt heavily in the shares of the company during the investigation period. Annexure 29 to the show cause notice indicates the purchase of 5,000 shares by her through JCL Securities Private Limited on June 16, 2000. Though, it stated so, Mrs. Sadhana Nabera in her reply contended that she had not directly dealt through the said stock broker and that she had bought 2,800 shares through the sub broker, Shreepati Holding and Finance Private Limited. She also denied the allegation that the said purchase was with the knowledge of the information regarding the merger of the company with ZAP. According to Mrs. Sadhana Nabera, she had purchased and sold only 7,800 and 3,000 shares respectively during the investigation period. It was also contended that the purchase of 500 shares by her during the above period was too insignificant and that it had nothing to do with Mr. Dilip Nabera, as an auditor of the company. In this regard, Mr. Dilip Nabera contended that, if he really wanted to take the advantage of his status (as an auditor of the company), then the volume of trading would have been substantial.

I note that, even as per the show cause notice, it was reported to the Bombay Stock Exchange Limited (BSE) that, the Board of the Directors of the company was considering the acquisition of ZAP in their meeting held on August 16, 2000. It was further reported in the BSE Bulletin on August 17, 2000, that the Memorandum of Understanding was approved. Moreover, the fact that she had purchased 5,000 shares of the company on June 16, 2000 directly through JCL Securities Private Limited is denied by her. According to her, she had bought 2,800 shares on June 16, 2000 through Shreepati Holding and Finance Private Limited. The show cause notice allegedly linked the trades of Mrs. Sadhana Nabera with the merger of the company with ZAP. In this regard, I note the order dated February 19, 2008 of the Hon’ble Securities Appellate Tribunal (SAT) in Appeal No.26/2007. The said appeal was filed by Mrs. Sadhana Nabera against the order dated November 6, 2006 passed by the Adjudicating Officer, SEBI. The Adjudicating Officer in his order inter alia found Mrs. Sadhana Nabera guilty of insider trading and had levied Rs.5 lakhs penalty on her.

While allowing the said appeal, the Hon’ble SAT observed, “…………..We are of the considerate opinion that Nabera as an auditor could not be expected, much less reasonably, to have access to the information of merger of Zap with the company which was a policy decision…..In view of the above, we are of the view that Nabera had no concern with the information pertaining to the merger of Zap with the company nor was it a part of his duty to have access to such information while performing his duties. No company would allow such sensitive information to reach the auditor till it has been made public.” The learned counsel further submitted that if their intention was really to manipulate and make profits, they would have substantially traded in the shares of the company. In the absence of sufficient evidence to link her in the fraudulent activities and in the absence of established connection in respect of the manipulation, Mrs. Sadhana Nabera is also entitled to benefit of doubt in the matter.

14. Coming to the role of Adhunik Finance Private Limited, it is an admitted fact that Mrs. Sadhana Nabera was one of the directors of the said entity. It is also brought on evidence that Mr. Dilip Nabera introduced the said entity to the stock broker. He further signed in the said agreement claiming to be a director/authorized signatory of the said entity. Admittedly, Adhunik Finance Private Limited and Dilip Nabera (HUF) were sharing the office premises. This would show that Mr. Dilip Nabera and his wife, Mrs. Sadhana Nabera had close nexus with Adhunik Finance Private Limited. The trade details of Adhunik Finance Private Limited in the shares of the company were provided to it alongwith the show cause notice. I note that Adhunik Finance Private Limited had dealt in the shares of the company during the settlement numbers 17/2000-01 to 28 (except 20 and 23). In the process it had bought 49,800 shares and sold 33,000 shares. This is not in dispute. The trade details in the shares of the company during the above settlements are mentioned below:

Sr. No. Sett. No /Dates Sett Low Sett High 17 10/00-01 (29/5/00 to 2/6/00) 158.00 191.65 18 11/00-01 (05/06/00 to 09/06/00) 199.30 233.05 19 12/00-01 (12/06/00 to 16/6/00) 242.35 283.35 21 14/00-01 (26/6/00 to 30/6/00 ) 310.00 358.50 22 15/00-01 (3/7/00 to 7/7/00) 269.70 317.40 24 17/00-01 (17/7/00 to 21/7/00) 341.45 399.25 25 18/00-01 (24/7/00 to 28/7/00) 398.60 485.60 26 19/00-01 (31/7/00 to 4/8/00) 490.00 590.60 27 20/00-01 (7/8/00 to 11/8/00) 457.85 575.00 28 21/00-01 (14/8/00 to 18/8/00) 452.00 537.00

15. According to the learned counsel, the trades of Adhunik Finance Private Limited were in the price range of the respective settlements and that the show cause notice does not allege the said entity created false or misleading appearance of trading in the shares of the company or that it had artificially raised the share price. He further contended that there was no allegation in the show cause notice to the effect that Adhunik Finance Private Limited was involved in synchronized trades/structured deals with the promoters of the company. He further argued that there was no allegation in the show cause notice that the trades of Adhunik Finance Private Limited had resulted in the establishment of higher share price of the company in the market. Further, Adhunik Finance Private Limited contended that its trades were in the ordinary course of business without the involvement of anybody including Mr. Dilip Nabera. The show cause notice is also silent about the relation of Adhunik Finance Private Limited either with the company or its promoters. It was alleged that the common strategy followed by all the persons acting in concert with Mr. Kuldip Handoo/Mr.

Dilip Nabera was to buy the scrip in the beginning of the manipulation and to offload it at a substantially higher price. The learned counsel submitted that the said allegation is incorrect even as per the show cause notice itself. As per the show cause notice, Adhunik Finance Private Limited bought 49,800 shares and sold only 33,000 shares. According to the learned counsel, in most of the settlements, the quantity of shares sold by Adhunik Finance Private Limited was lesser than its purchase and that if its intention was to profit, it would have sold the entire lot of shares purchased at a lower price, subsequently in an inflated market. In the show cause notice, it is alleged that most of the trades of the stock brokers, Shilpa Stock Broker Private Limited and IKM Investor Services Limited had matched and it appeared that the orders for Shilpa Stock Broker Private Limited were placed by Mr. Dilip Nabera for Adhunik Finance Private Limited. In this regard, the learned counsel contended that Mr. Dilip Nabera had not placed orders for Adhunik Finance Private Limited. It was further argued that no specific details such as order time, order rate etc. to show that the said trades were matched, were present in the show cause notice.

In respect of the allegation in the show cause notice that the trades which took place between the stock brokers, JCL Securities Limited and IKM Investor Services Limited wherein 80% of the instances, the clients were Nabera group and Kuldeep Handoo group, the learned counsel contended that nothing was there to prove that the said trades matched with each other and in violation of the provisions of PFUTP Regulations. It was the case of noticees that the show cause notice failed to provide the total volume traded in the shares of the company during the investigation period and how their trades had impacted the price-volume. Considering the totality of the facts and circumstances of the case, Adhunik Finance Private Limited in the manipulation, it is also entitled to benefit of doubt in the matter.

16. In view of the foregoing, in exercise of the powers conferred upon me under Section 19 read with Section 11B of the Securities and Exchange Board of India Act, 1992 hereby dispose of the proceedings initiated against Mr. Dilip Nabera, Mrs. Sadhana Nabera and Adhunik Finance Private Limited, vide show cause notice dated June 8, 2006 in the matter of Sun Infoways Limited, without any directions.

DR. K. M. ABRAHAM WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

Place: Mumbai Date: December 14, 2009