Order in respect of Tulsi Kumar Dugar in the matter of Cyberscape Multimedia Ltd

IN THE MATTER OF CYBERSCAPE MULTIMEDIA LIMITED In respect of Tulsi Kumar Dugar & Co. (SEBI Registration No. INB 3883119) Date of hearing: December 10, 2010 Appearances For Noticees: Mr. Tulsi Kumar Dugar Mr. Vinay Chauhan, Advocate For SEBI: Mr. G. Ramar, General Manager Mr. Lamber Singh, Assistant General Manager Mr. Pradeep Kumar, Assistant Legal Adviser ORDER Under Regulation 28 (2) of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) conducted an investigation into the buying, selling and dealing in the scrip of Cyberspace Multimedia Limited (hereinafter referred to as ‘Cyberspace’) for the period September 18, 2000 to December 08, 2000. During this period, the price of the scrip of Cyberspace increased from `8 on September 18, 2000 to `60 on December 8, 2000. The scrip of Cyberspace during the relevant period was listed on Bangalore Stock Exchange (hereinafter referred to as ‘BgSE’), Bombay Stock Exchange (hereinafter referred to as ‘BSE’) and Calcutta Stock Exchange (hereinafter referred to as ‘CSE’).

2. The investigation prima facie revealed that certain persons connected with the company, its directors, major shareholders and their affiliates had tried to manipulate the price of the scrip. The brokers of CSE were found trading on BSE through the brokers of BSE. It was further revealed that some clients have placed large buy-orders majority of which were deleted after a few part got executed. By adopting this methodology, the entities had tried to create buying depth in the scrip which attracted other investors in the scrip.

3. Tulsi Kumar Dugar & Co. (hereinafter referred to as ‘noticee’), registered with SEBI as a stock broker, bearing registration no. INB 3883119, member of CSE was allotted 3,10,000 shares of Cyberspace by way of private placement prior to Initial Public Offer (hereinafter referred to as ‘IPO’). Further, the proprietor of the noticee was also the director of the company BMD Financial Services Pvt. Limited, who was alloted 3,10,000 shares of Cyberspace. The noticee was also found to have acted as a client of his brother, Surendra Kumar Dugar, a stock broker at CSE. The noticee, together with Mr. Surendra Kumar Dugar and Mr. Ashok Kumar Poddar was found to have created artificial buying depth in the market and enable the persons/ entities of the family of proprietor of the noticee to off-load the shares allotted to them in the private placement prior to IPO.

4. Based on the findings of the investigations, SEBI vide order dated November 07, 2003 read with subsequent order dated December 28, 2004, appointed an Enquiry Officer under Regulation 5(1) of SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (hereinafter referred to as ‘Enquiry Regulations’), to enquire into the alleged violation of the provisions of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act’), SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 (hereinafter referred to as ‘PFUTP Regulations’) and Regulation 7 read with Clause A (1), (2), (3), and (4) of the Code of Conduct specified under Schedule II of the SEBI (Stock Brokers and Sub-Broker) Regulations, 1992 (hereinafter referred to as ‘Broker Regulations’). The Enquiry Officer submitted his report dated March 31, 2005 in terms of Regulation 13(1) of the Enquiry Regulations recommending thereby dropping of the proceedings as against the noticee.

5. Subsequently, a Show Cause Notice (hereinafter referred to as ‘SCN’) dated September 28, 2010, under Regulation 13(2) of the Enquiry Regulations was issued by SEBI to the noticee, intimating that SEBI is not in agreement with the penalty as recommended by the Enquiry Officer since the same is not commensurate with the alleged violations committed by it and desires to impose a higher penalty. The noticee was asked to show cause as to why the penalty higher than that recommended by the Enquiry Officer should not be imposed on it. The noticee was advised to reply to the SCN, together with the documents that it may choose to rely upon in support of his reply within twenty one days from the receipt thereof. It was also informed that in case of failure, it would be presumed that it had no explanation to offer and SEBI shall be free to take such action in the manner as it deemed fit. A copy of the Enquiry Report was also forwarded to the noticee along with the said SCN.

6. The noticee replied to the SCN vide its letters dated October 18, 2010 and November 02, 2010 and sought an opportunity of personal hearing. Mr. Kamal Kumar Dugar, proprietor of the noticee and Mr. Vinay Chauhan, Advocate, appeared before me on December 10, 2010 and reiterated the submissions made vide letter November 02, 2010, along with other submissions. Thereafter, the noticee vide its letter dated December 17, 2010 sent its written submissions, which were also taken on record. The submission of the noticee in brief are as under: a. All trading in the scrip was genuine and independent. No reasons have been specified as to the nature/ cause of disagreement with the findings of Enquiry Report. b. It had transacted in the subject and in other scrips in the ordinary course of business and had not facilitated anybody in offloading the shares. c. Had sold majority of the shares post the investigation period and at a loss. d. Nothing on record to show that it was involved in the sales carried out by other entities in any manner. e. The data provided is incomplete and lacks material particulars. No material to show that it had contributed to the misleading volume and price rise in the scrip. f. The impugned transaction pertains to year 2000 and the SCN has been forwarded after a lapse of almost six years.

7. I have carefully considered the Enquiry Report, the SCN issued to the noticee and the reply received from it. The noticee has submitted that the data provided to it is incomplete. It is seen that all the details that have been relied upon are 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. Having considered all these, the issues that arise for my consideration is: Whether the noticee has indulged in acts which were in violation of Regulation 4 of PFUTP Regulations and Regulation 7 read with Clause A (1),(2),(3) and (4) of the Code of Conduct specified under Schedule II of the Broker Regulations?

8. Whether the noticee has indulged in acts which were in violation of Regulation 4 of PFUTP Regulations and Regulations 7 read with Clause A (1),(2),(3) and (4) of the Code of Conduct specified under Schedule II of the Broker Regulations?

a. I note that the proprietor of the noticee and the entities related to him were allotted shares by Cyberspace in the private placement before the IPO of Cyberspace, the details thereof are as under: Name of allottees Relationship with the noticee No. of shares allotted Tulsi Kumar Dugar Proprietor of noticee 3,10,000 Budhmall Dugar & Father of Mr. Tulsi Kumar Dugar 3,10,000 Budhmall Dugar (HUF) BMD Financial One of the directors is Tulsi Kumar Dugar 3,10,000 Services Pvt. Limited BMD Estates Pvt. One of the directors is Budhmal Dugar father 3,10,000 Limited of Tulsi Kumar Dugar Mahaveer Plaza Pvt. One of the directors is Tulsi Kumar Dugar 2,50,000 Limited In addition to the above, the noticee was allotted another 3,000 shares of Cyberspace in its IPO.

b. I note that the noticee had traded both on CSE and BSE. At BSE, it is seen that the noticee had traded in the scrip of Cyberspace through Surendra Kumar Dugar & Co. (proprietary concern of the brother of Mr. Tulsi Kumar Dugar) as a client and sold 18,865 shares through it. It has been argued by the noticee that the transactions entered as a client were for operational convenience. Further, a client of the noticee namely Ms. Madhu Dugar, wife of Mr. Kamal Kumar Dugar (brother of proprietor of the noticee and a broker at CSE) had also traded in the scrip. The noticee has submitted that her trading was in the normal course of business.

c. It is important to note that Mr. Tulsi Kumar Dugar, Mr. Surendra Kumar Dugar and Mr. Kamal Kumar Dugar are brothers and all are brokers at CSE. It was submitted by the noticee that he became client of Surendra Kumar Dugar for operational convenience. However, this reason is not satisfactory.

d. I have seen the instances of trading of the noticee from the available record in the scrip of Cyberspace and note that the same does not show as to how the trades were manipulative in nature. I note the finding of Enquiry Officer that the available data is not sufficient to connect the trading of the noticee to the trading of Surendra Kumar Dugar & Co. I also note that the noticee had sold most of its shares allotted to it, after the period of investigation. Having seen this, I am of the considered view that the charge as against the noticee of creating artificial market in the scrip so as to enable the entities/ family related to the proprietor of the noticee to off-load 12,23,880 shares out of 14,90,000 shares allotted to them in the private placement prior to IPO cannot sustain.

9. I note that pursuant to the notification of the SEBI (Intermediaries) Regulations, 2008, the Enquiry Regulations have been repealed and in terms of Regulation 38(2) of the SEBI (Intermediaries) Regulations, 2008, notwithstanding such repeal, any enquiry commenced under the Enquiry Regulations, shall be deemed to have been commenced under the corresponding provisions of SEBI (Intermediaries) Regulations, 2008.

10. In the facts and circumstances of the matter, I, in exercise of the powers conferred upon me in terms of Section 19 of the Securities and Exchange Board of India Act, 1992 read with Regulation 28(2) of Securities and Exchange Board of India (Intermediaries) Regulations, 2008, hereby dispose of the Enquiry proceedings against Tulsi Kumar Dugar & Co. (SEBI registration no. INB 3883119) without imposing any penalty or direction.

DATE : 23/AUG/2011 PRASHANT SARAN PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA