Order in the matter of Aditya Infosoft Ltd.

WTM/RKA/IVD/ID-6/34 /2013 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: RAJEEV KUMAR AGARWAL, WHOLE TIME MEMBER ORDER Under sections 11 and 11B of the Securities and Exchange Board of India Act, 1992 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 against Mr. Anil Patel Promoter and Chairman and Managing Director of Aditya Infosoft Ltd. (AIL), Mr. Jasmin Patel (Director-AIL), Ms. Kokilaben Patel (Director-AIL) and Mr. Atul Shah (Proprietor of Charmi Investments Ltd.) In the matter of Aditya Infosoft Ltd. 1. Securities and Exchange Board of India ('SEBI') conducted an investigation in respect of the trading in the shares of M/s Aditya Infosoft Ltd. ('AIL' or 'the company') for the period December 03, 2003 to January 23, 2004 ('investigation period'). The investigation revealed that: a) AIL was incorporated on November 26, 1993 under the name 'Ankuj Chemicals Limited' and it had obtained the certificate of commencement of its business on December 23, 1993. Later, on June 14, 1994, it had changed its name to 'Ankuj Zinc-Ox Ltd.'.

Mr. Anil A. Patel and Mr. Madhusudhan Parekh were its promoters. During the investigation period its Board of Directors comprised of (a) Mr. Anil Patel (Promoter and Chairman and Managing Director), (b) Mr. Jasmin Patel (Director) and (c), Smt. Kokilaben Patel (Director). b) On April 20, 1995, the company had come out with an issue of total 32,11,600 shares at par out of which 16,20,000 shares were offered to Indian public for subscription. These shares of the company were listed on the Bombay Stock Exchange Ltd. ('BSE') with effect from July 05, 1995. The name of the company was changed from 'Ankuj Zinc-Ox Ltd.' to 'Aditya Infosoft Ltd.' with effect from July 07, 2000. The justification for the change of name as given to Registrar of Companies, Gujarat was that the company had incurred losses and it wanted to close its unprofitable business and carry on a profitable business of computer hardware and software. c) During the investigation period the scrip of AIL was illiquid one and it was not even traded for more than a month before the trading in the scrip resumed on December 04, 2003. The price of the scrip increased from ` 4.32 per share to ` 10.51 per share during the investigation period.

The price of the scrip was continuously hitting the upper circuit filter during the period December 10, 2003 to January 02, 2004 and lower circuit filter from January 05, 2004 to January 23, 2004. d) On January 17, 2004, AIL declared its unaudited financial results for the quarter ending December 31, 2003 showing many fold improvement in its performance. The results were disseminated on BSE website on January 19, 2004 and were published in the financial daily,

Business Line on January 20, 2004. In the notes to the accounts of the said quarterly financial results, AIL had stated that Share Incorporation Limited, a multinational company (MNC), will purchase 10 lakh shares of AIL at the rate of `16 to `18 per share. e) The above disclosures published by AIL in its quarterly financial results were false. AIL was not in function for the last 8 years from the investigation period. It had no staff and its registered office and corporate office were seized by banks and financial institutions. Admittedly, AIL had incurred heavy losses and its entire capital had eroded. Further, there was no such company in the name of Share Incorporation Limited in existence. Therefore, it was observed that the advertisement published by AIL with regard to its strategic stake sale to the said MNC was not only false but also a deliberate attempt to mislead the investors. f) AIL had also circulated numerous misleading information on its website www.adityainfosoft.com; for example, AIL's solution were based on more than 20 years of research, whereas it had ventured into software business only in the year 2000. According to Mr. Anil Patel, he didn't know anything about this information and the information was false.

He had even stated that he was hearing about the website for the first time. g) Mr. Anil Patel (Promoter and Chairman and Managing Director of AIL) had stated that one Mr. Atul Shah related to Charmi Investment Ltd. came to his office and made proposal of manipulating the share price of AIL. Mr. Atul Shah had told him to give 5 to 7 lakh shares and put a plan before AIL stating that the advertisement relating to handsome financial results of AIL and purchase of its shares by Share Incorporation Limited at the rate of `16 to `18 per share would be published in the newspaper. Mr. Atul Shah even gave Mr. Anil Patel the cost of the advertisement. In return, AIL was told to pay 60 paise per share if the shares were sold later. The false unaudited financial results were published by AIL in accordance with the plan of Mr. Atul Shah. Accordingly, the shares were transferred from the holdings of Mr. Anil Patel and his family members. Mr. Anil Patel had further stated that Mr. Atul Shah had not taken shares in his name but in the names of various other persons. Mr. Anil Patel could not recollect the names of all those persons but admitted that the shares were transferred to one person namely, Mr. Viral V. Mewada who was the employee of Mr. Atul Shah and who visited office of Mr. Anil Patel on several occasions. h) As confirmed by AIL vide its letter dated December 20, 2005, its shares were transferred through off market transfers to several persons with its approval as follows:-  2,10,000 shares were transferred to M. Viral V. Mewada and were dematerialised on September 13, 2003,  2,08,000 shares were transferred to Mr. Hari Ballabh Aggarwal and were dematerialised on September 02, 2003; and  2,08,000 shares were transferred to Mr. Kulwinder Singh Walia and Mr. Ramesh K. Patel each.

The 2,08,000 shares transferred to Mr. Hari Ballabh Aggarwal were transferred to the account of one Mr. Ramesh Jain. All these persons were given shares on behalf of Mr. Atul Shah.

i) The trading in the scrip resumed on December 04, 2003 with active participation of Parshwa Finance (Proprietor-Mr. Piyush Jhaveri) a sub-broker of P. Suryakant Share & Stock Brokers Pvt. Ltd. and the connected clients of Parshwa Finance. In the beginning, some of the shares transferred to the entities related/associated with Mr. Atul Shah were sold to Smt. Bela H. Kayastha (Smt. Bela)- wife of Mr. Piyush Jhaveri, Proprietor of Parshwa Finance through off market transactions by Mr. Dinesh Patel (another client of Parshwa Finance) who was connected / known to Mr. Viral V. Mewada. Thereafter, these shares were bought by Mr. Dinesh Patel from Smt. Bela through market transactions. All the trading was done amongst the inter-connected persons to create artificial / false market for the scrip. 2. The investigations found that issuance of advertisement with false announcements regarding purchase of shares of AIL by the non-existent Share Incorporation Ltd at the rate of `16 to `18 per share and false disclosures, in the unaudited financial results, showing substantial improvement in performance of the company was a ploy to create the euphoria in the market about the scrip.

Side-by-side artificial liquidity in the scrip of AIL was generated by Mr. Atul Shah with the help of Parshwa Finance acting in concert with Smt. Bela, Mr. Viral. V. Mewada and Mr. Dinesh Patel and when enough euphoria was created after declaration of false financial results and publishing of false advertisement; Mr. Ramesh Jain off-loaded the shares received by him through off-market transaction from Mr. Hari Ballabh Aggarwal who had received those shares from directors of AIL at the direction of Mr. Atul Shah. Mr. Atul Shah had also traded in the scrip through Parshwa Finance in the name of his proprietor ship concern, Charmi Investments Ltd. 3. Based on the findings of the investigations, a combined show cause notice (SCN) dated May 10, 2007 was issued to Mr. Atul Shah, AIL and its directors namely Mr. Anil Patel, Mr. Jasmin Patel and Ms. Kokilaben Patel (hereinafter collectively referred to as 'the Noticees' and individually by their respective names). It was alleged in the SCN that AIL and its directors acting in concert with Mr. Atul Shah had agreed to manipulate the price of the shares of AIL.

Further they had dealt in securities in a fraudulent manner and indulged in activities which were calculated to create false and misleading appearance of trading in securities market. Also, the Noticees had indulged in publication/report of false information through an advertisement. This circulation of false and misleading information and creation of artificial demand for the scrip had induced the innocent investors to purchase the shares at high prices. Therefore, it has been alleged that the Noticees have violated the provisions of regulations 3 (a), (b) and (c) and 4 (1) and 4 (2) (a), (f), (k) and (r) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (hereinafter referred to as 'PFUTP Regulations'). The SCN called upon the Noticees to show cause as to why suitable directions including directions restraining them from buying, selling or dealing in securities for a suitable period of time in any manner should not be issued against them under section 11(4) read with section 11B of the SEBI Act.

4. While Mr. Jasmin Patel and Ms. Kokilaben Patel have not filed their replies to the SCN, Mr. Anil Patel had filed his replies dated May 26, 2007 and September 01, 2009. He was provided an opportunity of personal hearing before the then Whole Time Member on March 03, 2010 which he had availed. Since the then Whole Time member had demitted the office, in observance of principles of natural justice, another opportunity of personal hearing was granted to Mr. Anil Patel, Ms. Kokilaben Patel and Mr. Jasmin Patel on June 11, 2013 and communicated to them vide notice dated May 20, 2013. While Mr. Anil Patel, vide his letter dated May 28, 2013, expressed his inability to remain present for the personal hearing due to poor health and the injury sustained during the journey for his cross-examination by Mr. Atul Shah and reiterated his submissions contained in his written reply, Ms. Kokilaben Patel and Mr. Jasmin Patel neither appeared for personal hearing nor did they file any reply despite service of the notice upon them. 5. Submissions of Mr. Anil Patel are inter alia as following : (a) AIL has been wound up pursuant to an order dated March 17, 2006 passed by Hon'ble Gujarat High Court and the Official Liquidator has also taken over the charge of AIL.

Thus, there is no existence of Board of Directors or any authority of AIL. (b) With regard to allegations and findings in the SCN, he has submitted that he had already stated the correct position in his statement recorded on December 16, 2005. (c) Because of the disclosure in the unaudited financial results of AIL as mentioned in the SCN, no shareholder or director or any other person has gained any benefit or sustained any loss. No public interest was adversely affected. Moreover, nobody has complained to SEBI against AIL about cheating and fraud. (d) He has requested to consider the matter sympathetically and mercifully and condone the irregularity and excuse him for whatever offences are said to have been committed, especially when nobody has suffered and AIL has been wound up. (e) He had cooperated with the proceedings despite being a senior citizen of 68 years with poor health. He had suffered physical injury during the journey to attend his cross examination on February 27, 2013. 6. Mr. Atul Shah, vide his letter dated May 17, 2007, while acknowledging the receipt of the SCN sought inspection of the documents including statements of Mr. Anil Patel referred to and relied upon by SEBI in the SCN.

He also expressed his desire to cross-examine Mr. Anil Patel. An opportunity of inspection of the documents was granted to him on October 21, 2008 which he failed to avail despite service of notice dated October 01, 2008 upon him. He was provided an opportunity of personal hearing before the then Whole Time Member of SEBI on January 27, 2009 and the same was communicated to him on December 02/23, 2008. However, vide his letter dated January 19, 2009 he asked for the copy of the SCN and other relevant documents and requested for the adjournment of the date of hearing. Vide letter dated February 06, 2009 SEBI provided him the copies of the SCN and other relevant documents as requested by him. As no reply was received from Mr. Atul Shah, another opportunity of personal hearing was granted to him on April 01, 2009 and the same was communicated to him vide letter dated March 17, 2009. Vide letter dated March 25, 2009, Mr. Atul Shah filed his reply to the SCN and again requested for cross-examination of Mr. Anil Patel. In his reply Mr. Atul Shah inter alia made following submissions:- (a) The SCN is vague in as much as it does not specifically elicit the violations which are alleged to have been committed by him.

The SCN is silent with regard to the legal requirements not complied with, the provisions of the law alleged to have been violated and the facts / material based on which the charges have been leveled. (b) The relevant material based on which the SCN has been issued and the allegations therein have been leveled have not been provided to him. Not providing the relevant material and the investigation report alongwith the SCN is in gross violation of principle of natural justice. (c) He was not associated or accountable for any of the alleged violations. (d) He has denied all the allegations made against him in the SCN. He has submitted that he was not aware of and not concerned with the alleged actions of AIL. He has contended that the statements of Mr. Anil Patel against him are totally incorrect and false. All the statements of Mr. Anil Patel that are the basis of allegation against him are denied by him. (e) Relying upon the statement of Mr. Anil Patel, he has submitted that if he did not take any share of AIL from Mr. Anil Patel then how could he be in a position to transfer the same to the related/associate entities?

(f) The statement of Mr. Anil Patel that he could not recollect the names of the persons, except Mr. Viral V. Mewada (who is Mr. Atul Shah's employee), to whom allegedly the shares were transferred by AIL and its directors through off-market transactions suggests that there were no various other persons whose names Mr. Anil Patel could have imagined and quoted. Therefore, the allegation against him is false. (g) He was not a party to the trades/transactions of other brokers and/or their clients or other individuals. He is neither concerned nor has the means to find out the inter relationship between other brokers, sub-brokers and their clients. He has denied that any option letters were issued to the said individuals on his behalf as alleged or otherwise. It is incorrect to state that these individuals/entities were related/associated to him, without substantiating the same. (h) With regard to his trades, he has submitted that the trades were executed with genuine investment purpose, believing in the future prospects of AIL and they do not lead to the conclusion that he had acted in connivance with some other entities and manipulated the price of the said scrip fraudulently.

In any event the SCN is silent on his trades in the shares of AIL. 7. Thereafter, Mr. Atul Shah entered into protracted correspondence with SEBI asking for opportunity to cross-examine Mr. Anil Patel. Vide his letter dated August 05, 2010, Mr. Atul

Shah informed that the relevant documents were not available with him and requested for all the relevant documents on which SEBI has relied upon or proposes to rely upon including (a) Investigation Report / SCN (b) Summons and notices (c) Letters and other correspondences. Vide letter dated September 02, 2010, SEBI provided the documents sought by Mr. Atul Shah to him including the SCN along with its annexures and other relevant letters and documents relied upon in the matter and he had acknowledged the receipt thereof vide his emails dated September 28, 2010 and October 08, 2010 and his letter dated October 08, 2010. Thereafter, Mr. Atul Shah continued the correspondences with regard to the cross-examination of Mr. Anil Patel. An opportunity of cross examination of Mr. Anil Patel was given to Mr. Atul Shah and the date with regard to the same was fixed on December 06, 2012. However, Mr. Atul Shah vide his letter dated December 02, 2012 sought adjournment of the date of cross-examination on medical ground. It was noted that though in his letter dated December 02, 2012 (received by SEBI on December 06, 2012), Mr. Atul Shah claimed to have enclosed a medical certificate, no such medical certificate was enclosed therewith.

However, in observance of the principles of natural justice another date for cross-examination was fixed on January 16, 2013 that was adjourned to February 27, 2013. While Mr. Anil Patel was present for his cross-examination on both the dates scheduled for his cross-examination, Mr. Atul Shah did not avail the opportunities in that regard despite service of notices upon him. Thereafter, another opportunity of personal hearing was granted to Mr. Atul Shah on April 04, 2013 which he failed to avail despite service of the notice of personal hearing. 8. In view of the above, I note that Mr. Atul Shah has failed to avail the various opportunities of inspection of documents, cross-examination and personal hearing granted to him from time to time despite services of relevant notices upon him. I note that despite poor health and injury Mr. Anil Patel presented himself for cross-examination on December 06, 2012 and February 27, 2013, however, Mr. Atul Shah evaded the opportunities in that regard despite services of notices upon him. Ms. Kokilaben Patel and Mr. Jasmin Patel are also not interested in filing their reply and availing the opportunities of personal hearing provided to them repeatedly.

I find that despite providing these Noticees reasonable and sufficient opportunities to defend themselves and willingness to accommodate them for that purpose on several occasions; they have failed to avail the opportunities. I find that since sufficient opportunities have been provided to all the Noticees there would not be any denial of principle of natural justice if the case is decided on the basis of the written replies and/or material available on record. I, therefore, proceed in the matter on the basis of the replies of the Noticees and relevant material available on record. 9. I have carefully considered the SCN, the replies of Mr. Atul Shah and Mr. Anil Patel and the relevant material available on record. I note that Mr. Atul Shah has made general denials without substantiating his claim by any documentary or circumstantial evidence. He has, however, raised certain contentions with respect to compliance of principles of natural justice in the proceedings. The first contention of Mr. Atul Shah, in this regard, is that he has not been provided with the documents relied upon in the SCN.

In this regard, I note that the documents annexed with the SCN were provided to Mr. Atul Shah when the SCN was served upon him as admitted by him in his letter dated May 17, 2007. I further note that the documents annexed with the SCN, the other relevant documents referred to therein and other documents requested by Mr. Atul Shah had again been provided to him by SEBI vide letter dated February 06, 2009. I note that while in his reply dated March 25, 2009, Mr. Atul Shah has acknowledged the receipt of the letter dated February 06, 2009, he has again contented that he has not been provided with the relevant material based on which the SCN has been issued. I further note SEBI has not relied upon any other document than those referred to in the SCN. From the letters of Mr. Atul Shah including his reply dated March 25, 2009, it is established that he had received the SCN and the documents referred to and relied upon in the matter when he filed his reply dated March 25, 2009. However, in his reply he has denied the receipt of the documents relied upon in the SCN without specifying any document.

I find that all the documents referred to and relied upon in the SCN had been provided to Mr. Atul Shah when he filed his reply to the SCN and his contentions are without any foundation. I, therefore, do not agree with his contentions. 10. I further note that though Mr. Atul Shah has been provided with all the relevant documents, he kept on complaining that he had not received the relevant documents without specifying as to which documents are yet required by him. However, vide letter dated and September 02, 2010 SEBI had again provided him the copy of the SCN along with its annexures and other relevant letters and documents. Thus, he had sufficient opportunity to file additional replies, written or oral, after receipt of all relevant documents in September 2010, which he failed to avail. 11. The other contention of Mr. Atul Shah is that the investigation report had not been provided to him. In this regard, I note that the findings of the investigation report have been narrated in the SCN which is a self contained document containing all the allegations and charges against the Noticees.

In this regard, I note that in the case of M/s. Haryana Financial Corporation V/s. Kailashchand Ahuja [2008(9)SCC31] Hon'ble Supreme Court had observed that - "the theory of reasonable opportunity and principle of natural justice have been evolved to uphold the rule of law and to assist the individual to indicate his just rights. Whether, in fact, prejudice has been caused to an employee or not on account of denial to him of the report has to be considered on the facts and circumstances of each case. Even in cases where procedural requirements have been complied with, action cannot be ipso facto illegal or void, unless it is shown that non-observance has prejudicially affected the delinquent." 12. In the facts and circumstances discussed hereinabove, no prejudice has been caused to Mr. Atul Shah and other Noticees if the entire investigation report is not provided to them. I further note that the SCN clearly mentions the provisions of law alleged to have been violated by Noticee including Mr. Atul Shah and the basis of charges against them. I, therefore, do not find violation of principles of natural justice in this case as contended by Mr. Atul Shah and reject all his contentions in that regard.

13. In the facts and circumstances of the case as discussed above, I find that Mr. Atul Shah was adopting dilatory and delaying tactics and was deliberately keeping himself away from inspection of documents, cross-examination of Mr. Anil Patel and personal hearings. Thus, the question of any prejudice to him does not arise at all since the relevant documents have been provided to him thrice to enable him to submit his defence. In fact, in this case, it is Mr. Atul Shah, who had failed to avail the opportunities provided to him in these proceedings and has deliberately evaded the opportunities of inspection of documents, cross-examination of Mr. Anil Patel and personal hearings. I, therefore, find that the principles of natural justice have been complied with in these proceedings and the contentions of Mr. Atul Shah are without any foundation. I note that this position is also supported by the judgment of Hon'ble Securities Appellate Tribunal (SAT) in the case of Dipak J. Panchal Vs. SEBI in Appeal No. 198 of 2011 decided on November 12, 2012 wherein it has been held that :- "A person alleging breach of natural justice must show that prejudice has been caused to him as a result of inspection not having been granted or opportunity of hearing not being afforded.

It is, in fact, the appellants who failed to avail of this opportunity." 14. Having dealt with the preliminary objections of Mr. Atul Shah, I now proceed to deal with the merit of the case. The regulations alleged to have been violated by the Noticees are reproduced hereunder: PFUTP Regulations "3. Prohibition of certain dealings in securities No person shall directly or indirectly— (a) buy, sell or otherwise deal in securities in a fraudulent manner (b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made there under; (c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange; (d) ……………………………………………………………................................ 4. Prohibition of manipulative, fraudulent and unfair trade practices (1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities.

(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; …………………………………………………………………………………… (f) publishing or causing to publish or reporting or causing to report by a person dealing in securities any information which is not true or which he does not believe to be true prior to or in the course of dealing in securities; ………………………………………………………………………………………… (k) an advertisement that is misleading or that contains information in a distorted manner and which may influence the decision of the investors;. …………………………………………………………………………………… (r) planting false or misleading news which may induce sale or purchase of securities." 15. Mr. Anil Patel (promoter and Chairman and Managing Director of AIL) has not disputed the fact that the scrip of AIL was illiquid during the investigation period and it was not traded for more than a month before the trading in the scrip resumed on December 04, 2003 with active participation of Parshwa Finance in the trading for its connected clients including Smt. Bela wife of its proprietor Mr. Piyush Jhaveri and Mr. Dinesh Patel who was connected/known to Mr. Viral V. Mewada related/connected to Mr. Atul Shah as his employee.

He has admitted that before the trading in the scrip resumed on December 04, 2003 total 8,34,000 shares of AIL were transferred by Mr. Anil Patel and his family members as per the directions of Mr. Atul Shah to various persons including Mr. Viral V. Mewada, who was an employee of Mr. Atul Shah and who visited his office on several occasions. According to Mr. Anil Patel all these persons to whom these shares were so transferred received the shares on behalf of Mr. Atul Shah, however, he could not recollect the names of all these persons except Mr. Viral V. Mewada. I have also perused the letter dated December 20, 2005 of AIL, referred to and relied upon in the SCN, whereby it had confirmed that AIL had issued option letters dated August 20, 2003 to Mr. Viral V. Mewada, Mr. Hari Ballabh Aggarwal, Mr. Kulwinder Singh Walia and Mr. Ramesh K. Patel 'on behalf of Mr. Atul Shah'. From these option letters, I note that AIL had approved the request of transfer of 8,34,000 shares of AIL to Mr. Viral V. Mewada (2,10,000 shares), Mr. Hari Ballabh Aggarwal (2,08,000 shares), Mr. Kulwinder Singh Walia (2,08,000 shares)and Mr. Ramesh K. Patel (2,08,000 shares) and they were given option to dematerialize the shares transferred to them.

From these documents it can be safely inferred that Mr. Anil Patel and his family members had transferred 8,34,000 shares of the AIL, as per direction of Mr. Atul Shah, to the said four persons including Mr. Viral V. Mewada an employee of Mr. Atul Shah. 16. It is noted that before the investigation period, the scrip was last traded on October 21, 2003 and closing price of the scrip on that day was `4.54. The trading in the scrip of AIL resumed on December 04, 2003 after more than a month when Parshwa Finance, a sub -broker of P. Suryakant Shares and Stock Brokers Pvt. Ltd., its clients including Smt. Bela (wife of Shri Piyush Jhaveri, Proprietor of Parshwa Finance) started trading as alleged in the SCN. Parshwa Finance was trading in the scrip of AIL in a group including Smt. Bela, Mr. Ramesh Chandra Jain, Mr. Hari Ballabh Aggarwal, Mr. Viral V Mewada, Mr. Dinesh K Patel, Charmi Investments, etc. (Parshwa Group). Parshwa Finance and its clients were related/ connected/ associated to each other and were acting in concert. Parshwa Group created the artificial market in the scrip of AIL during the investigation period to mislead the investors by trading amongst themselves and transferring or circulating the shares amongst themselves to maintain the price of the scrip and to create artificial liquidity in the highly illiquid scrip of a non-performing company.

The shares were coming from Mr. Viral V Mewada who had received the shares from Mr. Anil Patel, Promoter and Chairman and Managing Director of AIL and his family members through off market transactions. The price of the scrip opened at `4.32 on December 04, 2003 and touched a high of `11 on January 5, 2004. During December 10, 2003 to January 02, 2004, the price of the scrip was continuously hitting upper circuit filter of 5%. Thereafter, the price of the scrip started falling from `10.27 (on January 5, 2004) to `6.85 (on January 16, 2004) almost hitting lower circuit filter every day. These facts are also not disputed by Mr. Anil Patel. 17. In this case, it has been established that the scrip in question was highly illiquid and was that of a non performing company. AIL was not in operation and not functional for last 8 years from the investigation period. Its registered as well as corporate office was seized by banks and financial institutions. It had incurred heavy losses and its entire capital was eroded. These facts are also admitted by Mr. Anil Patel. I, therefore, find that the trading in the scrip was not linked to the fundamentals of AIL and the price of the scrip was increased by establishing and maintaining its price by artificial trading of Parshwa Group.

18. When the price of the scrip started falling during first and second week of January 2004, AIL made disclosures in its quarterly financial results at BSE on January 19, 2004 and in its advertisement in the Business Line news paper on January 20, 2004. The disclosures in the said quarterly financial results highlighted the performance of AIL and emphasized on its improved sales and profitability inasmuch as it was announced that it had shown a sharp increase in the income from the software development from ` 8.85 lakh as on the quarter ending September 30, 2003 to `508.14 lakh as on quarter ending December 31, 2003 i.e. an increase of around 57.42 times. In view of the state of affairs of the company during the relevant period as discussed above, these disclosures highlighting improvement in profit of AIL were false. Mr. Anil Patel has also admitted that the results so published were false. 19. I note that in the notes to accounts of its above mentioned quarterly financial results AIL had stated as follows: " 1. …………………………………………………………………………………… 2. Globalising approach in company's policy has made the turn around of the company by all time high growth in turnover based on accrual basis.

3. The Share Incorporation a Multi-National Company will purchase 10 lacs Shares at a price of Rs. 16-Rs. 18 per share. 4. …………………………………………………………………………………"

20. It is admitted by Mr. Anil Patel that above disclosures in the quarterly financial results were false and that there was no such company by the name "Share Incorporation Ltd." I also note that transaction of purchase of shares of AIL as disclosed in the quarterly financial results and the advertisement had never taken place. I, therefore, find that the statements/disclosures in AIL's quarterly financial results of December 2003 published on BSE on January 19, 2004 and in the advertisement dated January 20, 2004 were false and misleading. I further note that AIL had disclosed, on its website www.adityainfosoft.com, that its solution were based on more than 20 years of research, whereas it had ventured into software business only in the year 2000. Mr. Anil Patel had stated during investigation that he was hearing about this website for the first time and admitted that the information on the said website was also false.

21. In this case it is established that the projected share price (`16 to `18 per share) for purported transactions with a non-existent entity was far above the market price of the scrip during the relevant period. I note that when AIL made the above mentioned false disclosures/ announcements, again its share price touched upper circuit filter of 5% on January 19 and January 20, 2004. The scrip price closed at ` 7.04 on January 23, 2004. In the facts and circumstances of this case, I find that these false disclosures/announcements in the quarterly financial results, advertisement and on purported website of AIL were a ploy to create artificial interest in the market about the scrip of AIL and to maintain it's artificially raised price. I further find that the said false and misleading disclosures/announcements made by AIL and its management had potential to influence the investment decision of the investors and induce them to buy or sell its shares. 22. In this regard, I note that the Hon’ble Securities Appellate Tribunal ("SAT") in matter of V. Natarajan vs. SEBI (Order dated June 29, 2011 in Appeal No.104 of 2011) has held that fraudulent or unfair trade practices in securities as prohibited by PFUTP Regulations include publishing any information which is not true or any advertisement that is misleading or contains information in a distorted manner.

The following observations made by the Hon’ble SAT in that case are worth mentioning: “… we are satisfied that the provisions of Regulations 3 and 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 were violated. These regulations, among others, prohibit any person from employing any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on an exchange. They also prohibit persons from engaging in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities that are listed on stock exchanges. These regulations also prohibit persons from indulging in a fraudulent or unfair trade practice in securities which includes publishing any information which is not true or which he does not believe to be true. Any advertisement that is misleading or contains information in a distorted manner which may influence the decision of the investors is also an unfair trade practice in securities which is prohibited.

The regulations also make it clear that planting false or misleading news which may induce the public for selling or purchasing securities would also come within the ambit of unfair trade practice in securities. …….”

23. It is noted that after creating the trading interest in the scrip by artificial buying and selling amongst themselves as discussed above, the entities in Parshwa Group did not trade in the scrip at all from January 06, 2004 to January 16, 2004 when scrip price fell from ` 9.76 to ` 6.85. Trading volumes during this period also declined sharply to the lowest of 100 shares on 4 days out of 8 trading days. Thus, it can be safely inferred that the higher scrip price during the investigation period was not sustainable without trading of those entities. I, therefore, find that artificial liquidity in the scrip of AIL was generated with the help of Parshwa Finance acting in concert with Ms. Bela ( wife of its proprietor), Mr. Viral V. Mewada (an employee of Mr. Atul Shah) and Mr. Dinesh Patel. Admittedly, Mr. Atul Shah (proprietor of Charmi Investments Ltd.) had also traded in the scrip of AIL through Parshwa Finance. 24. I note that when the false results were disseminated on January 19, 2004 on BSE and in the advertisement dated January 20, 2004, buying support in the scrip was given by the clients in Parshwa Group.

Parshwa Group became overtly active in selling the shares with effect from January 20, 2004. The shares were off-loaded by Mr. Ramesh Chandra Jain, a client of Parshwa Finance. The shares off-loaded by Mr. Ramesh Chandra Jain were earlier acquired by him on January 01, 2004 through off-market transaction from Mr. Hari Ballabh Agarwal to whom the shares were transferred by Mr. Anil Patel and his family members. 25. In view of the above facts and circumstances, I find that AIL and its promoter/directors employed a device or artifice to fraudulently manipulate its price and indulged in fraudulent, manipulative and unfair trade practices for off loading their illiquid shares in the market. The aforesaid facts clearly indicate that their acts and omissions were 'fraudulent' as defined in regulation 2(1)(c) of the PFUTP Regulations which reads as under:- Definition of ‘fraud” – Regulation 2(1) (c). (c)“fraud” includes any act, expression, omission or concealment committed whether in a deceitful manner or not by a person or by any other person with his connivance or by his agent while dealing in securities in order to induce another person or his agent to deal in securities, whether or not there is any wrongful gain or avoidance of any loss, and shall also include— (1) a knowing misrepresentation of the truth or concealment of material fact in order that another person may act to his detriment; (2) a suggestion as to a fact which is not true by one who does not believe it to be true; (3) an active concealment of a fact by a person having knowledge or belief of the fact; (4) a promise made without any intention of performing it; (5) a representation made in a reckless and careless manner whether it be true or false; (6) any such act or omission as any other law specifically declares to be fraudulent; (7) deceptive behaviour by a person depriving another of informed consent or full participation; (8) a false statement made without reasonable ground for believing it to be true; (9) the act of an issuer of securities giving out misinformation that affects the market price of the security, resulting in investors being effectively misled even though they did not rely on the statement itself or anything derived from it other than the market price.

And “fraudulent” shall be construed accordingly; …………………………………………………………………………………..”

26. Mr. Anil Patel has admitted all the above facts and his role in the case. Ms. Kokilaben Patel and Mr. Jasmin Patel have failed to file their reply to the SCN and to avail the opportunities of personal hearing provided to them repeatedly. I note that in the similar circumstances when the noticees chose not to reply to the show cause notice repeatedly, Hon'ble SAT in the case of Classic Credit Limited Vs. SEBI in Appeal no. 68/2003 decided on December 08, 2006 had held that :- "It is common ground between the parties that the appellants did not file any reply to the second show cause notice. This being so, it has to be presumed that the charges alleged against them in the show cause notice were admitted by them. They will be deemed to have admitted the fact that they were all controlled by Ketan Parekh and that they were acting in concert as per his directions and control while acquiring the shares of the target company." 27. In the facts and circumstances of the case, I find that that AIL and its Promoter and Chairman and Managing Director Mr. Anil Patel and other directors namely; Mr. Jasmin Patel and Ms. Kokilaben Patel had manipulated the price of the shares of AIL and had dealt in securities in a fraudulent manner and indulged in activities which were calculated to create false and misleading appearance of trading in securities market.

They had also indulged in publication/ report of false information through false and misleading disclosures/announcements as ploy to manipulate the price of the scrip. I, therefore, find that AIL, Mr. Anil Patel, Mr. Jasmin Patel and Ms. Kokilaben Patel have contravened the provisions of regulations 3 (a), (b) and (c) and 4 (1) and 4 (2) (a), (f), (k) and (r) of the PFUTP Regulations. 28. It is noted that while admitting his guilt, Mr. Anil Patel had stated about the role played by Mr. Atul Shah and his entire modus operandi in the manipulation as found in this case. According to Mr. Anil Patel the entire plan was orchestrated by Mr. Atul Shah as discussed herein above. Since the charges in the SCN against Mr. Atul Shah were based on the statement of Mr. Anil Patel dated December 16, 2005, letter of AIL dated December 20, 2005, he had been provided with copies thereof along with other documents relied upon in the SCN. Mr. Atul Shah had been also given opportunities of inspection of documents and cross-examination of Mr. Anil Patel. In this case, it is established that despite poor health and physical injury Mr. Anil Patel presented himself for cross-examination on December 06, 2012 and February 27, 2013. In the facts and circumstances of this case, I note that Mr. Atul Shah has denied and impeached the entire statement of Mr. Anil Patel.

In my view, in order to impeach the credibility of the statement of Mr. Anil Patel and test the correctness and veracity of Mr. Anil Patel's statement, Mr. Atul Shah must have availed the opportunity to cross-examine him. However, despite services of notices upon him in that regard, Mr. Atul Shah has deliberately evaded the opportunities to cross-examine Mr. Anil Patel. Therefore, Mr. Atul Shah cannot impeach or challenge the veracity of the statement of Mr. Anil Patel and mere denial of the statement cannot help Mr. Atul Shah. In view of these facts and circumstances, I find that the statement of Mr. Anil Patel is admissible and reliable. In this regard,

I note that Hon'ble Supreme Court in the case of Laxmibai (Dead) thr. L.Rs. and Anr. v. Bhagwantbuva (Dead) thr. L.Rs. and Ors.: AIR 2013 SC 1204 has held as under: ''Furthermore, there cannot be any dispute with respect to the settled legal proposition, that if a party wishes to raise any doubt as regards the correctness of the statement of a witness, the said witness must be given an opportunity to explain his statement by drawing his attention to that part of it, which has been objected to by the other party, as being untrue. Without this, it is not possible to impeach his credibility. Such a law has been advanced in view of the statutory provisions enshrined in Section 138 of the Evidence Act, 1872, which enable the opposite party to cross-examine a witness as regards information tendered in evidence by him during his initial examination in chief, and the scope of this provision stands enlarged by Section 146 of the Evidence Act, which permits a witness to be questioned, inter-alia, in order to test his veracity. Thereafter, the unchallenged part of his evidence is to be relied upon, for the reason that it is impossible for the witness to explain or elaborate upon any doubts as regards the same, in the absence of questions put to him with respect to the circumstances which indicate that the version of events provided by him, is not fit to be believed, and the witness himself, is unworthy of credit.

Thus, if a party intends to impeach a witness, he must provide adequate opportunity to the witness in the witness box, to give a full and proper explanation. The same is essential to ensure fair play and fairness in dealing with witnesses.'' 29. Further, since Mr. Atul Shah has deliberately evaded and declined to avail himself of the offered opportunities, it can be deemed that he has admitted the statement of Mr. Anil Patel because he believed that the statement could not or need not be disputed at all during cross-examination. It is perfectly settled position under the law of evidence that the opportunity of cross-examination is equivalent to actual cross-examination and failure to cross-examine a witness amounts to acceptance of the version of the witness. In this regard the Hon'ble High Court of Calcutta in Ashis Sen & Ors. vs. Arun Kumar Bose (MANU/WB/0437/2006) has also held as under- " …………. In our opinion, the law is that, "If a party has a right of cross-examination at a particular stage of the proceedings, and there is opportunity of exercising that right, it is equivalent to actual cross-examination.

If the opportunity is not availed of the inference is that the opposite party thought it would be futile to challenge the testimony."

30. I further note that even during the investigations when various information, explanation and evidences were sought from Mr. Atul Shah with regard to the statements made by Mr. Anil Patel against him, vide summons dated December 20, 2005 and January 09, 2006, he deliberately avoided and evaded those summons and did not furnish the required information, explanation and evidence even after seeking extension of time for the same. With regard to such non compliance of summons by Mr. Atul Shah, adjudication proceedings were initiated against him wherein a penalty of ` 10,00,000/- was imposed upon him vide its order dated July 27, 2010. Mr. Atul Shah had filed an appeal against the said order before the Hon'ble SAT, which he had later withdrawn. However, he failed to pay the penalty imposed by the said order for which SEBI reserves right to take action as per law.

31. I further find that conduct of Mr. Atul Shah, in this case, has not been fair. As already noted above, he has not at all cooperated during the investigation and also during these proceedings. I, therefore, am of the view that his contentions with regard to compliance of principles of natural justice and opportunity of cross-examination are without any foundation and he cannot demand further opportunities in the matter. In this regard, I note that the Hon'ble Supreme Court in Sahara India Real Estate Corporation Limited & Ors. vs. SEBI [2013(1) SCC 1] has held as under:- ''..........The rules of natural justice being founded on principles of fairness can be available only to a party which has itself been fair, and therefore, deserves to be treated fairly........... A person who has repulsed earlier opportunities (as the appellant-companies have), has no right to demand any further opportunity under the rules of natural justice. The appellant-companies cannot be heard to say, that though they had consciously kept all the facts secret, they should have all the same been given an opportunity under the rules of natural justice to disclose the secrets?

One would therefore, have no hesitation in concluding, that a party which has not been fair, cannot demand a right based on a rule founded on fairness.'' 32. In view of the above, an adverse inference against Mr. Atul Shah can be drawn and it can be safely inferred that the statement of Mr. Anil Patel is creditworthy and can be relied upon. I find that in addition to the statement of Mr. Anil Patel, another document i.e. letter from AIL dated December 20, 2005 clearly indicates that the shares were transferred by Mr. Anil Patel and his family members through off-market transactions to various entities including Mr. Viral V. Mewada (who was admittedly an employee of Mr. Atul Shah at the relevant time) on behalf of Mr. Atul Shah. Further, Charmi Investments (proprietor Mr. Atul Shah) had also indulged in the trades through Parshwa Finance as discussed hereinabove. These facts and circumstances further corroborate the statements of Mr. Anil Patel. I, therefore, find that the role of Mr. Atul Shah in his plan, device and artifice to manipulate the price of AIL as stated by Mr. Anil Patel is established and he has also contravened the provisions of regulations 3 (a), (b) and (c) and 4 (1) and 4 (2) (a), (f), (k) and (r) of the PFUTP Regulations.

33. It is worth mentioning that role of Parshwa Finance in the trading in the scrip of AIL as found above had also been established during enquiry against it. During the said enquiry it was inter alia found that Parshwa Finance was operating in concert in a group including Ms. Bela, Mr. Ramesh Chandra Jain, Mr. Hari Ballabh Aggarwal and its clients namely, Mr. Viral V Mewada, Mr. Dinesh K Patel, Charmi Investments (proprietor Mr. Atul Shah), Mr. Jayantilal A. Patel, Mr. Ashit R Shah, Mr. Nirav M. Shah, and Mr. Ketan S. Shah. Further Parshwa Finance and its clients were related/connected/ associated to each other and were acting in concert while trading in the scrip of AIL during the investigation period. It was also found that in almost all the trades done from December 04, 2003 to January 01, 2004, either the aforesaid clients of Parshwa Finance or Ms. Bela were parties to the trades. On many days the related clients of the Parshwa Finance were trading with each other or with Smt. Bela establishing and maintaining the price of the scrip. I note that based on such findings against and the Parshwa Finance and taking into account its past conduct and its manipulative trading in the scrip of M/s Shalibhadra Infosec Ltd. (SIL), its certificate of registration has been cancelled vide an order dated March 25, 2013. I further note that by an order dated May 11, 2011 Ms. Bela has been prohibited from dealing in the securities market in any manner for a period of six months.

Separate enforcement actions had been taken against other clients of Parshwa Finance by different orders passed by SEBI. 34. From the material available on record it is noted that AIL has been ordered to be wound-up by an order dated March 17, 2006 (Company Petition No.148 of 2005) passed by the Hon'ble High Court of Gujarat and the Official Liquidator has been appointed. In view of this, I dispose of the SCN dated May 10, 2007 against AIL without taking any enforcement action against it. I note that in terms of section 445(3) of the Companies Act, 1956 a winding up order and appointment of Official Liquidator operates as a discharge of all directors for the acts and omissions of the company. Such company is managed and represented by the Official Liquidator. Board of Directors cease to hold office from the date of winding up order and they are directors only for the purpose of filing the statement of affairs in aid of the winding up proceedings and they do not exist for any other purpose. I find that this position is applicable in case of liability of directors for the acts and omissions of the company that may entail financial liabilities and not in cases of personal civil obligations and liabilities of the directors as contemplated in the SCN.

35. I note that the transactions in question relate to the year 2003-2004. There is no material on record to quantify the gain to the Noticees or loss to the investors on account of the transactions and conduct of the Noticees in this case. However, it is trite to say that the fraudulent and manipulative actions of the promoters/directors, who owe fiduciary duty towards the shareholders of the company, definitely damage the integrity of the market. I am of the view, that the deviant behavior as found in this case cannot be exonerated merely on account of delay. I further note that the Noticees themselves have contributed substantially in time taken to complete the proceedings. Given the vital function of protecting investors and safeguarding the integrity of the securities market vested in SEBI and the commensurate powers given to it under the securities laws, it is necessary for SEBI to exercise these powers and deal with such behavior with appropriate enforcement actions which act as effective deterrence. One of the basic premise that underlies the integrity of securities market is that the participants conform to standards of transparency, good governance and ethical behavior prescribed in securities laws and do not resort to fraudulent activities.

In this case, the conduct of the Noticees as brought out above has been violative of this basic premise. Considering the facts and circumstances, seriousness of the violations and the mitigating factors in this case, I find that appropriate directions as described herein below would be commensurate with the contraventions by the Noticees.

36. Therefore, in order to protect the interest of investors and the integrity of the securities market, I, in exercise of the powers conferred upon me by virtue of section 19 read with sections 11(1), 11(4) and 11B of SEBI Act read with provisions of regulation 11 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 hereby restraint the Noticees i.e., Mr. Atul Shah (PAN:ALJPS4966M-proprietor Charmi Investment-), Mr. Anil Patel(PAN: AAMPP3264F),Mr. Jasmin Patel and Ms. Kokilaben Patel from accessing the securities market and also prohibit them from buying, selling, and otherwise dealing in securities market, directly or indirectly, in whatsoever manner for a period of three years from the date of this order. 37. A copy of this order shall also be served upon the Noticees, BSE and the Ahmedabad Stock Exchange Limited, for necessary action. 38. This order shall come into force with immediate effect.

DATE : August 26th, 2013 RAJEEV KUMAR AGARWAL PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA