Order in the matter of Bank of Rajasthan Ltd

ORDER Under Sections 11, 11 (4) and 11B of Securities and Exchange Board of India Act, 1992

1. The Securities and Exchange Board of India (hereinafter referred to as SEBI) received a reference from the Reserve Bank of India (hereinafter referred to as RBI), wherein the following were observed during their annual financial inspection of the Bank of Rajasthan Limited (hereinafter referred to as BoR):

a. There was incorrect disclosure made by BoR regarding the shareholding pattern of the promoter group led by Mr. Pravin Kumar Tayal and others. b. Though, the promoters of BoR (controlled by the Tayal Group), reported certain reduction in their stake in BoR as mandated by RBI in its Guidelines dated February 28, 2005 on Ownership and Governance in Private Sector Banks, it appeared that they had increased their stake in BoR simultaneously through surrogate acquisition. c. There were inter-firm transfers of funds to the accounts of other corporate bodies who had purchased the stake in BoR. d. Most of those companies have contact details same as that of various Tayal group companies. e. Some of the directors were common in the said other corporate bodies and Tayal Group Companies.

2. RBI provided details of movement of funds from the Tayal group to certain domestic corporates which were termed as front companies of the Tayal group.

3. Upon receiving the aforesaid reference from RBI, SEBI conducted a preliminary examination of the dealings in the scrip of BoR and noticed that the promoter group of BoR had by way of their continuous disclosure, publicly announced that their stake had been coming down from 44.18% as at quarter ending June 2007 to 28.61% as at quarter ending December 2009. On the contrary, they had actually increased their shareholding as the holding of Yadav and Silvassa groups (as defined in the interim order) in BoR were made, by and large, through funds received from the promoter and Tayal groups. No disclosures related to such acquisition were made to the stock exchanges or to the public by any of the acquiring groups or by BoR at any time over this extended period. The artifice outlined above of disguising the ownership structure apparently also seems to have superficially resulted in compliance with the guidelines issued by RBI on ownership and governance.

4. Pursuant to the above, SEBI vide ad interim ex-parte order dated March 08, 2010 (hereinafter referred to as the ‘Interim Order’) restrained the following entities/persons from accessing the securities market and further prohibited them from buying, selling or dealing in securities in any manner whatsoever, with immediate effect, till further directions. Sr. Entity Permanent Account Number 1. 21st Century Entertainment Limited AAACZ1383L 2. Ahmednagar Investments Private Ltd AADCA9872E 3. Cumballa Hill Property Developers Pvt Ltd AAACC2276M 4. Cyber Infosystems And Technologies AABCC2176K Limited 5. Cyberinfo Zeeboomba Com Limited AABCC7400L 6. Giriganga Investments Private Limited AABCG8591L 7. Global Softech Limited AABCG1089R 8. Sumander Property Developers Pvt Ltd AAACS9998N

9. Eskay K'n’it ( India) Ltd AABCS 1363 G 10. Jaybharat Textiles & Real Estate Limited Not available 11. Jayshree Petrochemicals Private Limited AAACJ0934B 12. Krishna Knitwear Technologies Limited Not available 13. KSL & Industries Limited AAACK4722E 14. Megna Developers P Ltd AAECM7768A 15. Praneta Properties Pvt Ltd AAECP0073B 16. Praneta Realty Pvt Ltd AAECP0070C 17. Pravin Kumar Tayal AAEPT9210B 18. Navin Kumar Tayal AABPT2833K 19. Sanjay Kumar Tayal AAEPT9209L 20. Saurabh Pravin Tayal AABPT2950R 21. Aim Multitrade Company Pvt Ltd AAGCA6820M 22. Akshar Mercantile Pvt Ltd AAGCA5378L 23. Anoop Multitrade Private Limited AAGCA5306A 24. Anshul Mercantile Private Limited AAGCA5310E 25. Beta Trading Private Limited AADCB2320G 26. Colorshop Trading Company Private Ltd Not available 27. Everframe Trading Co P Ltd Not available 28. Geonet Trading Company Private Ltd Not available 29. Girish Chand Yadav ABKPY8316C 30. Highzone Trading Company Private Limited Not available 31. Hiren Trading Company Pvt Ltd AABCH9499Q 32. Infinite Mercantile Company Private Limited Not available 33. Inorbit Trading Company Pvt Ltd AABCI4237M 34. Laksh Mercantile Private Ltd AABCL3880B 35. Madan Multitrade Pvt Ltd AAFCM2183C 36. Maginot Trading Company Private Limited Not available 37. Montreal Trading Company P Ltd Not available 38. Newtree Mercantile Co P Ltd Not available 39. Niti Mercantile Company Private Ltd AACCN6445P 40. Palaash Construction Pvt Ltd AAECP3872G 41. Prajay Trading Company Private Limited AAECP4636J 42. Punit Mercantile Pvt Ltd AAECP3785G 43. Real Star Trading Company P Ltd Not available 44. Sangeeta J Sawant BOFPS1458J 45. Sarveshwara Trading Company Pvt Ltd AALCS1723J

46. Sea View Trading Company P Ltd Not available 47. Seaview Multitrade Company Private AALCS4105L Limited 48. Skyview Trading Company Private Ltd AALCS4103N 49. Starview Constructions Private Limited Not available 50. Starview Mercantile Co Pvt Ltd AAJCS3372B 51. Sulochana Mercantile Private Ltd AALCS4107J 52. Superfine Trading Company Private Limited Not available 53. Superhouse Trading Company Private Not available Limited 54. Topcare Constructions Private Limited Not available 55. Topcare Trading Company P Ltd Not available 56. Vinay Mercantile Pvt Ltd AACCV5597L 57. Watergate Mercantile Company P Ltd Not available 58. Acrow Constructions Pvt Ltd AAGCA2721D 59. Acrow Realcon Pvt Ltd AAGCA2721D 60. Ador Construction Private Limited AAGCA2386Q 61. Allcon Estate Private Limited AAGCA2387R 62. Alpha (India) Properties Ltd AAFCA8789C 63. Anil Kumar Dubey AIBPD9829P 64. Avera Engineering Private Limited AAGCA2682M 65. Avera Machinery Private Limited AAGCA2681J 66. Avera Properties Private Limited AAGCA2390G 67. Avery Procon Pvt Ltd AAGCA2559M 68. Avon Realcon Private Limited AAGCA4032P 69. Axon Realpro Private Limited AAGCA2391H 70. Axtel Properties Pvt Ltd AAGCA4033N 71. Badal Realty Private Ltd AADCB0972C 72. Bodal Conpro Private Ltd AADCB0973D 73. Capman Conpro Private Ltd AADCC0449B 74. Charms Holding Private Limited AACCC9761F 75. Conart Conpro Private Limited AADCC0517C 76. Cubex Constructions Pvt Ltd AADCC1068N 77. Dulron Procon Pvt Ltd AACCD5830E 78. Edc Securities Limited AAACE9165D 79. Elnet Conpro Private Limited AABCE7401P 80. Elpro Machinery Private Limited AABCE7495B 81. Envair Realty Private Limited AABCF7461R

82. Everlon Estate Private Limited AABCE7403R 83. Everlone Machinery Private Limited AABCE7494A 84. Expro Constructions Pvt Ltd AABCE7940B 85. Hanuman Cultivation Private Limited AACCH0995A 86. Hikal Pro-Estate Pvt Ltd AABCH8815L 87. Jyoti Harvesting Pvt Ltd AACCJ0622N 88. Kanishka Infrastructure Private Limited AADCK0691B 89. Omkar Cultivators Pvt Ltd AABCO0810A 90. Siddhi Cultivation Private Limited AAMCS3193B 91. Sukh-Suvidha Real Estate Ltd AAKCS1430P 92. Uday Plantation Private Limited AABCU0192M 93. Kanti C Patel AIGPC1538H 94. Kishore Patil ATMPP6578P 95. Mahendra Kumar Panchal AQNPP1369G 96. S M Azam AWYPS0941A 97. Subhash M Jambhale AGAPJ4974C 98. Vijay Upadhyay AARPU3795M 99. Vipin Kumar Bhatnagar AJCPK4281A 100. Nitish J Nayak ABAPN5330P

5. The investigation in the matter has been completed. The investigation has found different violations under SEBI (Prohibition and Fraudulent Unfair Trade Practices Relating to Securities Market) Regulations, 1995 and SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 against the aforesaid entities except the entities mentioned at Sr. No. 93 to 100. I have noted that the Investigation Authority has recommended initiation of adjudication proceedings against all the entities except the entities mentioned at Sr. No. 93 to 100 and revocation of Interim Order against all the aforesaid entities.

6. I have considered the findings in the investigation report. This is a matter where various directions were issued against a number of entities as stated above. Since, the investigation is now complete and in the interest of justice, I feel it appropriate to consider the matter as to whether the prohibitory directions issued under the Interim Order need to be continued or not.

7. The Investigating Authority has recommended revocation of directions passed against the entities mentioned in the Interim Order. Before considering the recommendation, certain factors as mentioned below need to be taken into account.

A. Factors to be considered for continuation of directions:

a. The continuance of the entity in the securities market is likely to be detrimental to the interest of investors and the securities market. b. There is substantive material on record to suggest that the entity was involved in similar manipulative activities in the past. c. Seriousness of the offence committed by the entity, as per the investigation. d. Continuous non-adherence to the law and the repeated nature of violations by the entity. e. To ensure effective implementation of disgorgement, if contemplated.

B Factors to be considered for revocation of the directions:

a. The findings of investigation does not substantiate prima facie charges levelled against the entity in the ad-interim ex-parte Order. b. The period of prohibition already undergone by the entity vis a vis the findings of investigations. c. The recommendation is to initiate adjudication proceedings which may result only in imposition of monetary penalty. d. There is nothing to suggest that revocation of interim directions would result in resumption of the undesirable activity for which the interim directions were already issued.

However, the aforesaid factors are not exhaustive and may vary depending on the facts and circumstances of each case and the findings of investigation thereof.

8. In this light, now I shall examine whether the nature of violations is such that the aforesaid entities should be kept away from securities market as their continued presence will be detrimental to the integrity of the market. Investigation report reveals that the aforesaid entities (Sr. No. 1 to 92) evolved an elaborate scheme by which their actual holding in a bank could be camouflaged and the banking sector regulator could be placated by conveying an impression that there is a continued effort on their part to reduce their holding to the desired level even while actually increasing their holding.

9. In this regard, the first question is whether the nature of offence in itself is material enough to warrant continuation of prohibitory directions issued vide Interim Order dated March 8, 2010. As a baseline, we have to assume that the requirements laid down by the banking sector regulator are in the best interests of the banks, economy and the bank customers. In such a condition, any attempt to circumvent the banking sector regulators’ requirements should be considered as a serious offence. So the first issue is whether the banking sector regulator considered the action of the entities to be very serious. Prima facie, it appears from the reference received from the RBI (mentioned in the paragraph 1 of the interim order dated March 8, 2010) that indeed such was the case. Yet going by the information publicly available, it appears that RBI has permitted BoR to be amalgamated with ICICI Bank under the provisions of Section 44A of Banking Regulation Act, 1949, which inter-alia states as under:

“If the scheme of amalgamation is approved by the requisite majority of share-holders in accordance with the provisions of this section it shall be submitted to the Reserve Bank for sanction and shall, if sanctioned by the Reserve Bank by an order in writing passed in this behalf, be binding on the banking companies concerned and also on all the share-holders thereof.”

It will also be instructive to look at the detail and seriousness with which such sanction of amalgamation scheme is done by Reserve Bank of India. RBI circular DBOD.No.PSBS.BC.89/16.13.100/2004-05 dated May 11, 2005 lays down detailed guidelines for such mergers/amalgamation. Therefore, it would be reasonable to assume that the RBI would have been fully satisfied as to the desirability of the merger. It would also be safe to presume that if the RBI itself had considered the conduct of the promoters extremely serious then either it would not have allowed the merger or would have done so with required caveats for the promoters.

The second issue to be examined is whether any such attempt at camouflaging the real level of share holding by promoters should be considered as a serious, very serious or fatal threat to the securities market. Again, as a baseline, the securities regulations are disclosure based and the securities market regulator does expect that all disclosures should be true and fair. I am of the opinion that such an offence would have been considered as very serious or fatal if the wrongful disclosures would have led genuine investors into trades that would eventually expose them to much greater risk. I have noted that there is no allegation as to any price or volume manipulation by the promoters. Therefore, I am of the opinion that purely from a securities market point of view, the severity of the offence could be considered not very grave.

10. The second question which needs to be examined is as to what is the probability that the entities will continue to indulge in their activities if they are permitted to operate in the securities market again. BoR has been amalgamated with ICICI Bank and the BoR shares have been swapped into ICICI Bank shares. The entities’ shareholding in the ICICI Bank share capital is learnt to be too small to attract the RBI guidelines on ownership and governance and provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 in respect of promoters or significant shareholders. There is no allegation that the entities indulged in any other kind of manipulation in the securities market. Therefore, it would be reasonable to assume that on the basis of the material available on record, there is no indication of a likelihood that the entities shall indulge again in wrongful disclosures of their holdings of which they have been charged with in the first place.

11. I have noted that these entities have been debarred for last 2 years. In the light of the above facts and after carefully examining the report of the investigation, I am of the considered view that there is no need to continue the directions issued against them vide interim order dated March 08, 2010. However adjudication proceedings shall be initiated against the entities mentioned at S.no 1 to 92 in Paragraph 4, for the prima facie violations as observed in the investigations.

12. Accordingly, I, in exercise of the powers conferred upon me under Section 19 of the SEBI Act read with Sections 11, 11(4) and 11B thereof, do hereby revoke the directions issued vide Interim Order dated March 08, 2010, against all the entities mentioned in paragraph 4, with immediate effect.

13. The Adjudicating Officer shall conclude the proceedings in accordance with the SEBI Act and SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, and pass an appropriate order on merits, at the earliest, uninfluenced by this order.

PRASHANT SARAN WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

PLACE: MUMBAI DATE: MARCH 26, 2012