Order in respect of Vandana Securities Pvt. Ltd. and Anr

WTM/RKA/IVD/NRO/151/2014 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA ORDER UNDER SECTION 11(1), 11(4) (b) AND 11B OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 IN RESPECT OF VANDANA SECURITIES PVT. LTD. AND ITS DIRECTOR MR. I. C. JINDAL IN THE MATTER OF SHAMKEN MULTIFAB LIMITED.

1. Securities and Exchange Board of India (hereinafter referred to as “SEBI’) investigated into the unusual price movement in the scrip of Shamken Multifab Limited (hereinafter referred to as “SML” or the company) following an unusual sharp rise in price from ₹6/- on February 23, 2000 to ₹25.55/- on July 20, 2000 accompanied with an unusual rise in net traded quantity, from average traded volume of 9,800 shares in the period May-June 2000 to 92,400 shares during the period June 21, 2000 to July 18, 2000. 2. The investigation inter alia revealed that – (a). There was a price movement in the share price of SML from ₹6/- on February 23, 2000 to ₹25.55/- on July 20, 2000. The analysis of trading has been carried out in two different trading periods, i.e., February 23, 2000 to June 20, 2000 and June 21, 2000 to July 18, 2000. (b). Trading in the scrip of SML was largely concentrated with two stock brokers, namely, Maheshwari Technical & Financial Services Ltd. (hereinafter referred to as “Maheshwari”) and Adroit Financial Services Ltd. (hereinafter referred to as “Adroit”) who had entered into large number of cross and structured deals. These brokers were mainly trading for a common client namely Vandana Securities Ltd. (hereinafter referred to as “Vandana”), who was acting as unregistered sub-broker. Adroit had also traded for its clients, namely, Ms. Sonali Bansal, M/s Shiv Vani Associates and Mr. Moti Ram. The affairs of firm M/s Shiv Vani Associates and trades of Ms. Sonali Bansal were handled by one Mr. Amit Bansal (husband of Ms. Sonali Bansal and brother of Mr. Manish Bansal). (c). Vandana was mainly trading for Prasneeta and M/s. Dhanvarsha Investments (hereinafter referred to as “Dhanvarsha”). Prasneta and Dhanvarsha were linked to each other. The proprietor of Dhanvarsha, namely, Mr. Jeev Narain Mishra is an employee of director of Prasneeta. Both Dhanvarsha and Prasneeta had admitted that they were Order in respect of Vandana Securities Pvt. Ltd. and Anr.

trading for SML group. They have also stated that they were introduced to SML group by Mr. P. K. Agarwal who is a Chartered Accountant and also a friend of Mr. Praveen Juneja, director of SML. (d). Mr. P. K. Agarwal reportedly played an instrumental role in managing the share price manipulation for SML. It has been contended by Mr. I. C. Jindal of Vandana that Mr. P. K. Agarwal used to place orders on behalf of Dhanvarsha and Prasneeta. (e). The entire trading in the shares by these clients was for various promoter group concerns of SML. SML has admitted that their promoter group concerns had acquired shares from Dhanvarsha. Fund flow trail has also shown that Dhanvarsha and Prasneeta had received money from SML group concerns for the purpose of trading in the scrip of SML. SML had also given funds to these entities for acquiring its own shares. It is clear that SML attempted to influence price rise of its scrip by trading effected through front entities. Dhanvarsha, Prasneeta and Vandana who did not have certificate of registration from SEBI to deal in securities. (f). Further, by creating false market in the scrip, the entities, i.e., stock brokers/Vandana/ Dhanvarsha/Prasneeta/Mr.

P. K. Agarwal/SML and its group concerns also apparently have attempted to induce general public to deal in the scrip. Probably, the motive could be to exit from the scrip (after booking profit) once general public had been lured into it. 3. In view of the above, a common show cause notice ("SCN") dated August 31, 2004 was issued under section 11B of the Securities and Exchange Board of India Act, 1992 ("SEBI Act") read with regulation 12 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 ("the PFUTP Regulations, 1995") read with regulation 11 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 ("the PFUTP Regulations, 2003") by SEBI to Vandana and Mr. I.C. Jindal (hereinafter collectively referred to as “the noticees” or by individually by their respective names) calling upon them to show cause as to why directions under section 11B of the SEBI Act, 1992 including, inter-alia, directions of restraining him from accessing the securities market and prohibiting them from buying, selling and dealing in securities, should not be issued against him.

In the SCN issued to the noticees it was, inter alia, alleged that– (a). Two brokers of NSE namely Maheshwari and Adroit accounted for approximately 95% of the total net traded quantity during the relevant period and that both the aforesaid brokers had mainly traded on behalf of their common client, namely, Vandana. (b). Vandana acting in the capacity of an unregistered sub-broker had traded on behalf of Dhanvarsha and Prasneeta. The proprietor/directors of both these entities were linked to one Mr. P. K. Agarwal, Chartered Accountant, who is admittedly a close friend of Mr. Pravin Juneja, Director of SML. (c). The promoter group companies of SML were the final clients and had purchased the shares through Dhanvarsha and Prasneeta, apparently with a view to create artificial market and rig the share price. (d). The flow of transactions that created the artificial market and made possible the sharp rise in price in SML were as under: Maheshwari SML group P K Agarwal group Vandana Adroit (e). SML group consists of SML and its group companies, namely, Shamken Multifab Ltd., Lotus Garments P Ltd., Right Credit and Sec Pvt. Ltd., Shamken Spinners Ltd., Kotwan Traders P. Ltd., Angel Textiles P. Ltd. and Sohit Investments P. Ltd. (f).

The P. K. Aggarwal group consists of Dhanvarsha (Proprietor Mr. Jeev Narain Mishra) and Prasneeta. (g). Vandana has traded mainly for the following clients during the period February 23, 2000to June 20, 2000.

Name of client Buy Sell Gross Net Dhanvarsha 105000 1300 106300 103700 Prasneeta 590200 225700 815900 364500 Total 695200 227000 922200 468200 (h). The gross buying by these clients of Vandana was 6,95,200 shares, which was 53.08% of the total buying of 13,09,600 shares of SML at NSE. The net buying by them was 4,68,200 shares, which was 68.50% of the net total buying of 6,83,500 shares of SML at NSE. (i). Vandana further informed that during the period from June 21, 2000 to July 18, 2000, all the trading was done for Dhanvarsh, which had purchased 3,39,000 shares and sold 2,28,800 shares resulting in net buy of 1,10,200 shares. The gross buying by Dhanvarsha through Vandana was 89.30% of the total trading of 3,79,600 shares. (j). The director of Vandana, Mr. I. C. Jindal, in his statements recorded on October 18, 2001, November 28, 2001 and July 09, 2003 stated that Mr. P. K. Agarwal, used to place all the orders for purchase and sales of SML shares on behalf of these entities. Mr. I. C. Jindal however stated that no contract notes/bills were issued to clients, only a statement of account was used to settle account with clients.

(k). One of the clients of Adroit was Mr. Moti Ram who was introduced by Mr. I. C. Jindal. The letter sent by SEBI to the available address of Mr. Moti Ram was returned undelivered. When Mr. I.C. Jindal was asked to explain the trading by Mr. Moti Ram, he stated that a buy order for 10,200 shares was actually placed by him but wrongly shown in the name of Mr. Moti Ram by the broker, Adroit. Mr. I.C. Jindal also claimed that payment for this purchase had been made by him. (l). Mr. I.C. Jindal's contention that Mr. Moti Ram was wrongly shown as a client by Adroit is apparently not acceptable as the broker has no incentive for creation of a fresh account in the name of Mr. Moti Ram. Moreover, as per Adroit, Mr. Moti Ram had executed only one trade which was placed by Mr. I.C. Jindal and delivery was also taken by him. However, Mr. I.C. Jindal had an incentive to camouflage his trading. Incidentally, as informed by Mr. Ajay Gupta of Adroit, Mr. Moti Ram is the brother of Mr. I.C. Jindal. It seems that the name of Mr. Moti Ram was misused by Mr. I.C. Jindal. (m). The other clients of Adroit dealing in the scrip of SML, namely, Ms. Sonali Bansal and M/s. Shiv Vani Associates (Proprietor – Mr. Manish Bansal) were introduced to Adroit by Mr. I. C. Jindal.

Mr. Amit Bansal, who is husband of Ms. Sonali Bansal and brother of Mr. Manish Bansal, was placing orders and receiving deliveries for Ms. Sonali Bansal and M/s. Shiv Vani Associates. (n). As admitted by Mr. Manish Bansal, the orders in SML were received from Mr. I. C. Jindal. Numerous structured deals and cross deals placed by Vandana through two brokers corroborate the suspicion that it was indulging in creation of false market.

Sett. No. No. of cross deals Quantity of Market Gross % of cross deals shares to Market Gross Cross Deals through Maheshwari 2000027N 52 22000 213600 10.00 2000028N 120 51900 211600 24.53 2000029N 46 22400 278200 8.05 Cross Deals through Adroit 2000027N 62 34100 213600 15.96 2000028N 89 45100 211600 21.31 2000029N 65 44200 278200 15.89 (o). Some of the instances of cross deals done by Vandana are given below:

Some instances of cross deals through Maheshwari

Date Trade No. Price Quantity Buying and Buying and (₹) selling broker selling client 30/06/2000 200006300410402 18.75 1500 Maheshwari Vandana 03/07/2000 200007030029830 18.40 100 Maheshwari Vandana 03/07/2000 200007030409624 19.85 500 Maheshwari Vandana 04/07/2000 200007040201646 19.85 500 Maheshwari Vandana 05/07/2000 200007050288853 20.10 1200 Maheshwari Vandana 06/07/2000 200007060301855 20.30 1000 Maheshwari Vandana

Some instances of Cross deals through Adroit

Date Trade No. Price Quantity Buying and Buying and (₹) selling broker selling client 29/06/2000 200006290174079 18.55 200 Adroit Vandana 29/06/2000 200006290251515 19.00 1000 Adroit Vandana 03/07/2000 200007030153843 19.35 800 Adroit Vandana 03/07/2000 200007030434711 19.75 2900 Adroit Vandana 03/07/2000 200007050557398 20.65 2500 Adroit Vandana (p). The settlement wise details of synchronized trades are show below:-

Sett. No. No. Average Quantity of Buying member Selling Member Market % to of traded shares Gross Market Deals price Gross (₹) 2000026N 7 18.90 4800 Adroit Maheshwari 55800 8.60 23 18.53 6300 Maheshwari Adroit 11.29 2000027N 32 19.04 24200 Adroit Maheshwari 213600 11.33 67 19.43 34000 Maheshwari Adroit 15.92 2000028N 63 19.41 37600 Adroit Maheshwari 211600 17.77 50 20.26 28400 Maheshwari Adroit 13.42 2000029N 42 23.19 32300 Adroit Maheshwari 278200 11.61 79 21.41 50200 Maheshwari Adroit 18.04 Total 363 217800 (q). It emerges from the above that Vandana had apart from dealing as unregistered sub-broker also actively participated in price manipulation of the scrip. (r). By being instrumental in attempt to create artificial market in the scrip, influencing the price, misusing the name of Mr. Moti Ram for dealing in securities, executing numerous cross deals and structured deals through the aforesaid two brokers, it was alleged that the noticees have violated provisions of regulation 4(a), (b) and (c) of the PFUTP Regulations, 1995 read with regulation 4(2)(a) and (e) of the PFUTP Regulations, 2003. Further, by dealing as unregistered sub-broker, Vandana has also violated rule 3 of the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Rules, 1992 (the Stock Brokers Rules) (since rescinded) read with section 12(1) of the SEBI Act, 1992. 4. Vide its letter dated September 14, 2004, the noticees filed their reply to the SCN whereby they, inter alia, made the following submissions: (a).

Vandana is the company making purchase/sale of securities and Mr. I.C. Jindal look after all sale/purchase transactions of the company. (b). Mr. P. K. Agarwal approached Mr. I.C. Jindal and asked for purchase/sale of shares of SML and offered to pay brokerage on such transactions. (c). The said offer of Mr. P K Agarwal was accepted so that the noticees earn some brokerage. (d). The noticees were not aware that prior to starting such transactions, a certificate of registration is required to be obtained from SEBI. (e). Mr. I.C. Jindal was working with Adroit and Maheshwari as a client. (f). As soon as Mr. I.C. Jindal came to know about this fact he applied to SEBI for registration as sub-broker, but his application was rejected. (g). As the noticees were working with both Adroit and Maheshwari as a client, during the course of transactions, the noticees innocently executed the work of Mr. P. K. Agarwal, as a result both the stock brokers discontinued business with the noticees when they came to know of this fact. (h). Mr. P. K. Agarwal never disclosed the identity of Mr. Pravin Juneja to the noticees.

(i). The noticees were unaware of this fact that the promoter group companies of SML were the final clients behind these purchases. (j). The noticees never assessed that such purchase/sale in the shares was with a view to create any artificial market or to rig share price as mentioned in the SCN. (k). Mr. P K Agarwal used to place orders for purchase and sale of SML and a statement of account was used to be given to settle account with him. (l). The noticees never intended to manipulate the prices of shares. The noticees used to place orders to the above said stock brokers as and when instructed by Mr. P. K. Agarwal with the intention to earn the brokerage only. (m). All the transaction entered in the name of Mr. Moti Ram belongs to the noticees. Mr. Moti Ram might have placed some order on behalf of the noticees and told his name to them at the time of confirmation of sauda. Adroit has opened a separate account in the name of Mr. Moti Ram and later on transfer the account in the account of the noticees. (n). The noticees and not Mr. Moti Ram had purchased 10200 shares of SML from Adroit as the shares were ordered and paid by the noticees.

Further, the noticees had taken delivery of the said shares. (o). Mr. Moti Ram is the brother of Mr. I.C. Jindal and he had never lived in Delhi or traded in the capital market. The noticees never misused the name of Mr. Moti Ram. (p). Mr. I.C Jindal introduced Ms. Sonali Bansal and M/s. Shiv Vani Associates to Adroit during the course of business. Mr. I.C. Jindal had known Ms. Sonali Bansal and Mr. Manish Bansal and they wanted to deal in shares. (q). Mr. I.C. Jindal had introduced Ms. Sonali Bansal and Mr. Manish Bansal in the normal course of business to Adroit. M/s. Shiv Vani Associates dealt in number of shares, other than SML with Adroit during the period of business with them. (r). The noticees do not have any knowledge of cross deals and structured deals as has been alleged in the SCN. The noticees have placed the orders as and when ordered by Mr. P. K. Agarwal on the terminals of any of the above said stock brokers available at that particular time. (s). Mr. I.C. Jindal had placed all the orders on telephone to Adroit. All confirmations received from Adroit as well as Maheshwari were being duly confirmed to Mr. P. K. Agarwal.

(t). The noticees never intended to create any false market or to rig price or to cheat public. (u). The share price of SML remained stable at almost at its highest rates for a long time even after the noticees discontinued trading in this share. 5. An opportunity of personal hearing was granted to the noticees before the then Whole Time Member of SEBI on November 7, 2008 and December 12, 2008. Vandana had appeared on December 12, 2008. However, no order was passed in the matter. Following the principles of natural justice further opportunities were granted to them before me. However, the notices issued in this regard were returned undelivered from the last known address of the noticees. The notices were, therefore, uploaded on SEBI website. However, no response of the Noticees have been received. 6. I have considered the SCN and other material on record. I note that the Noticees have made their written submissions but have not utilized the opportunities given for personal hearing. I conclude that they do not have to submit anything beyond what has been submitted by them in their written submissions.

I, therefore, proceed to decide the matter on merits considering such written submissions made by the Noticees. 7. Before dealing with allegations and charges, I deem it necessary to refer to the provisions alleged to have been violated by the Noticees in this case. Those provisions are reproduced as under:- SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 " 4. No person shall - (a) effect, take part in, or enter into, either directly or indirectly, transactions in securities,with the intention of artificially raising or depressing the prices of securities and thereby inducing the sale or purchase of securities by any person; (b) indulge in any act, which is calculated to create a false or misleading appearance oftrading on the securities market; (c) indulge in any act which results in reflection of prices of securities based on transactions that are not genuine trade transactions; " SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 " 4. Prohibition of manipulative, fraudulent and unfair trade practices (2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely:- (a) indulging in an act which creates false or misleading appearance of trading in the securities market; (e) any act or omission amounting to manipulation of the price of a security;"

SEBI Act, 1992 "12. (1) No stock broker, sub-broker, share transfer agent, banker to an issue, trustee of trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser and such other intermediary who may be associated with securities market shall buy, sell or deal in securities except under, and in accordance with, the conditions of a certificate of registration obtained from the Board in accordance with the regulations made under this Act."

SEBI (Stock Brokers and Sub-Brokers) Rules, 1992 "3. No stock-broker or sub-broker shall buy, sell, deal in securities, unless he holds a certificate granted by the Board under the Regulations:

Provided that such person may continue to buy, sell or deal in securities if he has made an application for such registration till the disposal of such application."

8. In this case, it is noted from the SCNs that there was a price rise in the scrip of SML from ₹6/-on February 23, 2000 to ₹25.55/- on July 20, 2000. Two stock brokers, viz., Maheshwari and Adroit had entered into cross deals and structured deals in the scrip of SML and through such transactions they had directly/indirectly influenced the price of the scrip. I further note that SML and its group concerns including Shamken Spinners Ltd. were the ultimate clients of the said brokers. These two stock brokers were mainly trading for a common client viz., Vandana, who was mainly trading for Dhanvarsha and Prasneeta. Gross buying and net buying by these two clients constituted 53.08% and 35.75% respectively of the total buying at NSE. It is further noted that clients of Adroit were Vandana, Ms. Sonali Bansal, Shiv Vani Associates and Mr. Moti Ram. Mr. I. C. Jindal had introduced Ms. Sonali Bansal, Shiv Vani Associates and Mr. Moti Ram for dealing in the shares of SML. Mr. I.C. Jindal is brother-in-law of Mr. Amit Bansal, the brother of Mr. Manish Bansal (husband of Ms. Sonali Bansal). 9. I note that cross deals through Maheshwari and Adroit constituted 13.69% and 17.11% of the gross traded quantity for the market in the scrip of SML.

Further, during the period from June 21, 2000 to July 18, 2000, 363 structured deals amounting to 2,17,800 shares were executed by Maheshwari and Adroit on behalf of Vandana which constituted 28.69% of the gross traded quantity at NSE in SML shares. 10. The noticees have submitted that shares of SML were purchased/sold for Mr. P. K. Agarwal so as to earn some brokerage. I note that payments were received by Vandana from Dhanvarsha. Vandana also received cheques from SML and its directors on behalf of Prasneeta. I further note Vandana had received cheques from Shamken Spinners Ltd. duly signed by Mr. Pravin Juneja. Hence, the contention of the noticees that they innocently executed the work of Mr. P. K. Agarwal who never disclosed the identity of Mr. Pravin Juneja and that they were unaware of this fact that the promoter group companies of SML were the final clients behind these purchases does not hold true. 11. I note that several payments have been made by Shamken Spinners Ltd. to Prasneeta, Dhanvarsha and Vandana. Further, Shamken Spinners Ltd. has bought 2,66,920 shares of SML from Prasneeta who had purchased through Vandana during March-May 2000. In this regard, Shamken Spinners Ltd. had made a payment of ₹49.21 lacs to Prasneeta.

Similarly, Shamken Spinners Ltd. had made payments to Vandana at the instance of Dhanvarsha. In view of these facts and circumstances, I find that the noticees had traded through the stock brokers

Maheshwari and Adroit on behalf of Dhanvarsha and Prasneeta who were, in turn, trading on behalf of SML group. Further, these trades of the noticees had resulted in cross deals and structured deals and had directly / indirectly influenced the share price of SML. Such transactions executed by the noticees are not genuine and were meant to create artificial volumes in the market transactions, as held by the Hon'ble Securities Appellate Tribunal (the Hon’ble SAT) in its order dated August 05, 2011 in Appeal no. 113/2011 - in the matter of GIR Marketing & Trading Co. Pvt. Ltd. vs SEBI as under: “......As already observed, the seven appellants had a common broker and, therefore, the trades executed by them were cross deals. Cross deals per se are not illegal but the common broker executing the buy and sell orders is not expected to match those orders by putting in orders for the same quantity, at the same price and at the same time. The learned counsel appearing for the respondent Board has placed before us a chart depicting the trades executed by the appellants on the Calcutta Stock Exchange.

We find from the chart that in most of the cases the buy and sell orders had been put into the system for the same price, same quantity and at the same time. In other words, it was the common broker who by manipulation was matching the trades on behalf of the appellants and did not allow the price order mechanism of the exchange to match the trades. Proceedings were initiated against the broker as well and a statement of its representative was recorded. He stated that the buy and sell orders had been placed on the specific instructions of the clients who were the appellants. Having regard to the trading pattern of the appellants and the manner in which the trades had been matched, we are satisfied that the trades executed by them were non genuine which were meant to create artificial volumes in the market. We are also satisfied that the appellants have violated Regulations 3 and 4 of the aforesaid Regulations which prohibit persons from directly or indirectly buying, selling or otherwise dealing in securities in a fraudulent manner. These regulations also prohibit persons from indulging in fraudulent or unfair trade practices in securities.

In this view of the matter, no fault can be found with the findings recorded by the adjudicating officer. 12. The other clients Mr. Moti Ram, M/s. ShivVani Associates, Ms. Sonali Bansal / Mr. Amit Bansal, Mr. Kalu Ram Agarwal and Mr. Pavan Mishra were name lenders and were used by Mr. I. C. Jindal. Shamken Multifab Ltd. and its group concerns including Shamken Spinners Ltd. were the ultimate clients of the said brokers. 13. Considering the above facts and circumstances of this case, I do not find any material to differ from the allegations and charges leveled in the SCN and find that the noticees were instrumental in creating artificial market in the scrip, influencing the price, misusing the name of Mr. Moti Ram for dealing in securities, executing numerous cross deals and structured deals through Maheshwari and Adroit and thereby have violated the provisions of regulation 4(a), (b) and (c) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market)

Regulations, 1995 read with Regulation 4 (2) (a) and (e) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003. Further, by dealing as unregistered sub-broker, Vandana has violated rule 3 of the SEBI (Stock Brokers and Sub- Brokers) Rules, 1992 read with section 12(1) of the SEBI Act, 1992. 14. I am of the considered view that such fraudulent activities pose prudential threat to the market integrity and orderly development of securities market. I, however, note that the transaction in question had taken place long back in the year 2000. Further, the SCN that had been issued in the year 2004 does not clearly bring out the magnitude of contribution of Noticees in the alleged price and market manipulation in the scrip of SML. 15. Considering the fact and circumstances of this case and the abovementioned mitigating factors, I, in exercise of powers conferred upon me under section 19 read with section 11(4) and 11B of the Securities and Exchange Board of India Act, 1992, regulation 11 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 read with regulation 13 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 hereby restrain Vandana Securities Pvt. Ltd. and its director Mr. I.C. Jindal from accessing the securities market and prohibit them from buying, selling or otherwise dealing in securities, directly or indirectly, in any manner, whatsoever, for a period of one year from the date of this order. 16. This order shall come into force with immediate effect. A copy of the order shall be served on the Noticees and the stock exchanges for ensuring due compliance with the above directions.

Sd/-

DATE: DECEMBER 9th, 2014 RAJEEV KUMAR AGARWAL PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA