Order in the matter of ATN International Ltd. in respect of Mr. Siddharth Srivastava

WTM/PS/37/IVD/ID-3/AUG/2010 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER IN THE MATTER OF ATN INTERNATIONAL LTD. In respect of Mr. Siddharth Srivastava Date of hearing: August 10, 2010 Appearances For Noticees: Mr. Vinay Chauhan, Advocate Mr. Hari Kohli For SEBI: Mr. Rajeev Rastogi, Presenting Officer Mr. G. Ramar, General Manager Mr. Pradeep Kumar, Legal Officer ORDER Under Sections 11B and 11(4) of the Securities and Exchange Board of India Act, 1992 read with Regulation 11 and Regulation 13 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003.

1. This case has been referred to me pursuant to the order dated May 10, 2010, passed by the Hon’ble Securities Appellate Tribunal (hereinafter referred to as ‘SAT’) in Appeal No. 36 of 2010. I note that Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) passed an ex-parte order dated December 02, 2009, under Section 11B of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act’) against Mr. Siddharth Srivastava (hereinafter referred to as ‘noticee’), in the matter of ATN International Ltd. (hereinafter referred to as ‘ATN’). Vide this order, noticee was prohibited from buying, selling or dealing in securities in any manner, or accessing the securities market directly or indirectly in any manner whatsoever for a period of two years.

2. The said SEBI order was impugned before the Hon’ble SAT in Appeal No. 36 of 2010. The Hon’ble SAT, while disposing of the said appeal observed as under:

“The case of the appellant is that he did not receive the show cause notice as he had by then shifted to Bombay. There is nothing on record to show that the appellant actually received the show cause notice and therefore, the impugned order holding him guilty of the charges leveled in the show cause notice cannot but be set aside. Accordingly, we allow the appeal, set aside the impugned order and remand the case to the whole time member with a direction to pass an appropriate order in accordance with the law after affording an opportunity of hearing to the appellant. Since the appellant has now received the show cause notice he shall file his reply thereto on or before May 31, 2010. The whole time member will then proceed to hold the enquiry in accordance with law and pass an appropriate order at the earliest but not later than August 31, 2010. We are fixing this time schedule because the matter is already quite old.” 3. Noticee thereafter failed to file any reply to the show cause notice dated January 24, 2007, by the date fixed by Hon’ble SAT. In the meantime, a Miscellaneous Application bearing number 48 of 2010 was filed by noticee before the Hon’ble SAT for seeking extension of time for filing the reply. Hon’ble SAT after considering the facts on record, allowed the application vide its order dated June 08, 2010 and extended the time for filing reply by June 15, 2010, subject to payment of cost. Thereafter, noticee has filed reply to the show cause notice vide his letter dated June 09, 2010 and requested for an opportunity of personal hearing.

4. Accordingly an opportunity of personal hearing was granted to the noticee on July 05, 2010. However, noticee vide his letter dated July 01, 2010 requested for adjournment of hearing due to his unavailability on July 05, 2010. The request of noticee was acceded to and the hearing was adjourned to July 26, 2010. On the date fixed Mr. S.M. Kamtam, Advocate appeared for the noticee and requested for an adjournment for four weeks citing the reason of filing an appeal before Hon’ble Supreme Court of India. I note that the Advocate appearing for noticee on this date was not carrying any proper authorization. However, in the interest of justice another opportunity of personal hearing was granted to the noticee on August 02, 2010. In the meantime, SEBI vide letter dated July 26, 2010, forwarded some relevant documents with the proceedings in the present case to the noticee. On the date fixed for hearing i.e. August 02, 2010, again Mr. S.M. Kamtam, Advocate appeared for the noticee without any proper authorization and filed an application for an adjournment for four weeks citing the reason of filing appeal before Hon’ble Supreme Court of India. Considering the circumstances in the case and meeting with the interest of justice, one last opportunity of personal hearing was granted to the noticee on August 10, 2010. On this date, Mr. Vinay Chauhan, Advocate and Mr. Hari Kohli appeared for the personal hearing and addressed oral arguments limited to the quantum of penalty.

5. I note that SEBI conducted an investigation on receipt of information of delivery of fake shares of ATN in the market. The investigation was conducted for the period of May 19, 1999 to December 30, 1999. During the period of investigation, the scrip of ATN was listed on Bombay Stock Exchange (hereinafter referred to as ‘BSE’), National Stock Exchange (hereinafter referred to as ‘NSE’), Calcutta Stock Exchange, Ahmedabad Stock Exchange, Delhi Stock Exchange and Jaipur Stock Exchange.

6. Investigation revealed, significant increase in the price and volume of the scrip during the relevant period. At NSE, the price of the scrip increased from Rs.2.50 as on May 19, 1999 to Rs.63.15 as on December 30, 1999. The price of the scrip fluctuated from a low of Rs.2.10 as on June 15, 1999 and attained a maximum price of Rs.88.05 as on December 24, 1999. Similarly it was seen that the quantity traded also varied from a low of 300 shares as on July 01, 1999 to a high of 19,48,500 shares on December 15, 1999. It was inter alia revealed that one Mr. Siddharth Srivastava got some shares of ATN printed without informing the Registrar and Share Transfer Agent (hereinafter referred to as ‘RTA’) and delivered the same in the market.

7. I have carefully considered the SCN, reply of noticee and material available on record. The contentions of the noticee in brief are:

- Was on the board of ATN and resigned on October 30, 2002. - On becoming director, he was given one crore shares of ATN by its promoters on account of his association with the company. These shares were held by 3 corporate entities owned by Mr. Santosh Kumar Jain, Managing Director, ATN. - Had sold these shares to Nisha Investments Pvt. Ltd. and Sainath Marketing Pvt. Ltd., entities belonging to Mr. Paresh Shah to discharge the financial obligation. - Had asked his staff Mr. Mahesh Jain to get 7 jumbo share certificates of one lakh each split into marketable lots of 100 each. Mahesh Jain got these shares split into marketable lots of 100 each. - He was authorized by ATN to affix signatures on jumbo shares, hence similarly affixed signatures on 7 lakh shares which were split into marketable lots of 100 denominations. - Shares entrusted to Paresh Shah were sold in market by him, some of these shares were returned as bad delivery as the RTA did not effect transfer of those shares. - When this was brought to his notice, he requested Santosh Kumar Jain to transfer the requisite number of shares to Paresh Shah and accordingly the delivery of shares was made good. - This was on account of sheer inadvertence on the part of Mahesh Jain and did not result in any financial loss to any shareholder of the company.

8. Taking note of the submissions made by noticee, it may stated that no new fact has been brought on record by the noticee, to prove his innocence in the present matter. I note that the arguments taken in the reply of noticee have already been considered in the earlier order of SEBI dated December 02, 2009. However, as this order of SEBI was remanded back by Hon’ble SAT, I am considering the matter a fresh in order to meet with the ends of justice.

The issue to be decided in the matter is: Whether the noticee has violated the provisions of Regulation 3 and 6(a) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 (hereinafter referred to as ‘PFUTP Regulations’)? My findings on this issue are as under:

9. Whether the noticee has violated the provisions of Regulation 3 and 6(a) of PFUTP Regulations?

a. I note from the findings of the investigation, that certain share certificates delivered by noticee and apparently arising out of a financing deal were not treated as genuine by the RTA. The noticee, who was also a Director of ATN, got the shares of ATN printed without informing the RTA and delivered the same to Nisha Investments Pvt. Ltd. and Sainath Marketing Pvt. Ltd. as consideration of a financial deal.

b. To this, the noticee has contended that on becoming director of ATN, he was given one crore shares of ATN. These shares were given at the initial stage of his association with ATN, in lieu of goodwill and technical expertise which he would bring to the business. Further, it has been submitted that the said shares were originally held by three corporate entities, owned by Santosh Kumar Jain, Managing Director, ATN. However, I note that these are mere submissions not supported by any documentary proof to prove such transfer of shares of ATN. I note that the share certificates attached with the reply of noticee are of one lakh shares each and the same do not bear the name of the noticee. Considering this, it cannot be said that these jumbo share certificates were held by the noticee.

c. The submission of noticee that he sold some shares to Nisha Investments Pvt. Ltd. and Sainath Marketing Pvt. Ltd. both companies belonging to Mr. Paresh Shah. As the shares were in jumbo lot, noticee asked one of his then employee, Mr. Mahesh Jain to get the seven jumbo share certificates of 1 lakh each splitted in marketable lots of 100 each. However, Mahesh Jain got the fresh share certificates printed at Mumbai itself without informing or sending them to RTA at Kolkata. Noticee being the authorized person to affix his signatures on jumbo shares, he affixed his signatures on the splitted share certificates also. To this submission, I note the fact that the shares were not held in the name of noticee and procedurally he was not entitled to deal with these shares in any manner leave aside any splitting. To proceed further, I note that noticee has not produced any document to show that he was the authorized person by ATN to affix his signature on any shares.

d. The noticee has further said that these shares, delivered by noticee were sold in the market by Paresh Shah, the shares were returned as bad delivery as the RTA at Kolkata did not effect transfer of these shares. I note that these shares were adjudged as fake by RTA. Upon being intimated of the same, noticee asked Santosh Kumar Jain to transfer demated shares in the account of Paresh Shah to make good the bad deliveries. I observe that the splitting of the share certificates, printing and handing over to Paresh Shah without informing the RTA amounts to printing and circulating fake shares in the market. From the declaration of noticee dated February 07, 2000, I note that he gave 5,10,000 shares to Paresh Shah, destroyed 1,00,000 shares and surrendered the balance unsold shares to the company for cancellation. I do not find any cogent reason in the submission made by the noticee that he destroyed 1,00,000 shares of ATN. No prudent person and especially one who is the director of a listed company would destroy substantial number of shares. It points out to the fact that the noticee was aware that the shares were fake and he had no reason to continue holding such shares.

e. Further, the role of Mahesh Jain as revealed by noticee time and again could not be verified as whereabouts have not been provided by the noticee. Noticee could neither produce Mahesh Jain nor could he give any evidence in support of his submissions regarding Mahesh Jain having got printed the said share certificates. I note that, even if the submissions of the noticee are believed Mahesh Jain was only acting as per the directions of noticee.

f. Taking note of the facts of the case, I hold noticee guilty of circulating fake shares in the market and therefore guilty of violating the provisions of Regulations 3 and 6(a) of PFUTP Regulations and causing loss to investors although later on the said fake shares were replaced by genuine shares. It is established that the noticee had indulged in issuing of fake share certificate in the market

10. Now therefore, on the basis of above discussion, I in exercise of the powers conferred upon me under Sections 19, read with Sections 11B and 11(4) of the Securities and Exchange Board of India Act, 1992 read with Regulations 11 and 13 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003, I do hereby prohibit Mr. Siddharth Srivastava [PAN: AAWPS 1640N] from buying, selling or dealing in securities in any manner, or accessing the securities market directly or indirectly in any manner whatsoever for a period of two years.

11. The period of debarment already undergone by Mr. Siddharth Srivastava shall be set-off from the period of debarment as directed herein above.

12. This order shall come into force with immediate effect.

DATE : AUGUST 24, 2010 PRASHANT SARAN PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA