Order in the matter of Cals Refineries, Confidence Petroleum, Bang Overseas, Shree Precoated and Temptation Foods in respect of VSB Investments P. Ltd

WTM/PS/JAN/IVD/ID-4/57/2012 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER In the matter of Cals Refineries Limited, Confidence Petroleum India Limited, Bang Overseas Limited, Shree Precoated Steels Limited (now known as Ajmera Realty & Infra India Limited) and Temptation Foods Limited. In respect of VSB Investments Pvt. Limited Date of hearing: December 23, 2011 Appearances: For Noticees: Mr. Vinay Chauhan, Advocate Mr. Narendra Goushal For SEBI: Mr. A.S. Mithwani, Deputy General Manager Mr. Siddhesh Lotlikar, Assistant General Manager Ms. Pradeep Kumar, Assistant Legal Adviser ORDER Under Sections 11, 11(4) and 11 B 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. 1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) during routine market surveillance, observed synchronized deals in the scrips of Cals Refineries Limited (hereinafter referred to as ‘Cals’), Confidence Petroleum India Limited (hereinafter referred to as ‘Confidence’), Bang Overseas Limited, Shree Precoated Steels Limited (presently known as Ajmera Realty & Infra India Limited) and Temptation Foods Limited (hereinafter collectively referred to as ‘five scrips’). On examination of the trade data relating to the five scrips, inter-linkages between certain entities dealing in the five scrips were noticed in the form of off-market transactions as well as synchronized deals on the market. These entities having inter-linkages are collectively referred to as the ‘connected clients’. The connected clients were found to be having large trading concentration in the five scrips and a substantial portion of their trading amongst themselves in synchronized nature was found to have contributed to the increase in the market volume. The preliminary investigation also revealed instances where delivery obligations of one connected client were fulfilled by the off-market borrowing of the shares from another connected client, and thereafter the borrower was seen to have bought back the shares from the market and returned the same to the lender through off-market transfer.

2. Pursuant to the preliminary investigation, SEBI vide an ad interim ex-parte order dated June 04, 2009 issued under Sections 11, 11B and 11(4) of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act’), restrained inter-alia VSB Investments Pvt. Ltd. (hereinafter referred to as ‘VSB’/ ‘noticee’) from accessing the securities market and further prohibited it from buying, selling or dealing in the securities market, directly or indirectly, till further directions.

3. The said interim order also gave the noticee an opportunity to file objections, if any, to the order within fifteen days from the date of order. VSB filed its objections to the interim order vide letter dated June 19, 2009. Subsequently, an opportunity of personal hearing was granted to the noticee on July 21, 2009. After considering the objections and material available on record, SEBI passed an order dated January 25, 2010 confirming its earlier order dated June 04, 2009.

4. Thereafter, upon completion of the investigation, SEBI issued a notice dated July 25, 2011 (hereinafter referred to as ‘SCN’) to VSB under Sections 11, 11(4) and 11B of the SEBI Act read with Regulation 11 of SEBI (Prohibition of Fraudulent Unfair Trade Practices relating to Securities Market) Regulations, 2003 (hereinafter referred to as ‘PFUTP Regulations’) with respect to its trading in the scrips of Confidence and Cals.

5. SEBI had conducted the investigation relating to trading in the scrip of Cals for the period June 1, 2008 to February 28, 2009 and in the scrip of Confidence for the period January 1, 2008 to February 28, 2009 (hereinafter referred to as the ‘investigation period’) on Bombay Stock Exchange Ltd. (hereinafter referred to as ‘BSE’).

6. The SCN alleged that the noticee had executed synchronized transactions with connected clients, which resulted in the creation of artificial volumes in the scrips of Confidence and Cals. The acts of the noticee were thus alleged to be in violation of Regulation 3(a), 4(2) (a) and (g) of the PFUTP Regulations. Accordingly, the SCN called upon the noticee to show cause as to why directions in terms of Sections 11, 11(4) and 11B of the SEBI Act, including debarring it from accessing the securities market and prohibiting it from buying, selling or otherwise dealing in securities for an appropriate period of time, should not be issued against it.

7. The noticee, vide letter dated August 12, 2011 replied to the SCN and sought an opportunity of personal hearing. Accordingly, an opportunity of personal hearing was granted to the noticees on November 25, 2011. However, the same was postponed to December 23, 2011, when Mr. Vinay Chauhan, and Mr. Narendra Goushal, the authorized representatives of the noticee, appeared before me and made submissions.

8. The submissions of the noticee in brief are: a. Trading by the noticee in the scrip of Confidence and Cals was for a negligible quantity of shares. Its contribution of 1.96% of the total market volume in the scrip of Confidence and 0.23% of the total market volume in the scrip of Cals cannot create misleading appearance of trading in the market. b. The transactions were delivery based and the shares were held in the demat account for 2-3 months. c. The SCN does not specify the definition of the ‘connected clients’. VSB has no relation/ connection with any of the entities referred to as connected clients. d. VSB has not executed any synchronized trades/ reversal of trades in the scrips of Confidence and Cals. e. VSB traded in the scrip of Confidence for a single day and also in the scrip of Cals for a single day in the entire investigation period.

f. In January 2008, after a market crash, VSB had a margin shortfall in respect of its trading account with its broker, ILFS Investsmart Financial Services Ltd. In view of this, VSB requested Kundan Leasing and Finvest P. Ltd. (Kundan) to lend 30 lakh shares of Confidence, and it was in this background that VSB received the shares by way of an off market transfer. Further, the shares were transferred to the margin account of ILFS Investsmart Financial Services Ltd. g. However, since the value of its stocks kept eroding due to the continuous market fall, the shares lying in the account of ILFS Investsmart Financial Services Ltd. were sold from February 8, 2008 onwards.

9. I have carefully considered the ad interim order passed by SEBI dated June 04, 2009, the objections filed by the noticees, the confirmatory order of SEBI dated January 25, 2010, the SCN, reply to the SCN dated August 12, 2011, and all the material available on record.

10. I note that the noticee sold 30,00,000 shares of Confidence during the investigation period. The noticee had received these shares from Kundan in off market transactions. The noticee has submitted that it had borrowed these shares from Kundan to meet its margin requirements.

11. On March 14, 2008 the noticee sold 11,78,442 shares of Confidence(i.e. 32.36% of the total market volume of 36,41,115 shares). The noticee sold 9,99,525 shares to Maruti Securities Ltd. (Maruti) of which 7,20,558 shares were executed through 16 synchronized orders. Instances of synchronization are given hereunder:

C P CP CP CP Trade Trade Trade Order Order Order Client Time Qty Rate Client Trade Order Order Order Date Rate Time Time Qty Rate Name Diff Diff Diff Name Qty Time Qty Rate 14-Mar-08 11.85 15:17:47 15:17:47 50000 11.85 MARUTI VSB 38700 15:17:31 50000 11.85 00:00:16 0 0.00 14-Mar-08 11.85 15:17:49 15:17:47 50000 11.85 MARUTI VSB 11300 15:17:49 50000 11.85 00:00:02 0 0.00 14-Mar-08 11.85 15:17:56 15:17:55 50000 11.85 MARUTI VSB 38700 15:17:49 50000 11.85 00:00:06 0 0.00 14-Mar-08 11.85 15:17:59 15:17:55 50000 11.85 MARUTI VSB 11300 15:17:58 50000 11.85 00:00:03 0 0.00

14-Mar-08 11.85 15:18:15 15:18:14 50000 11.85 MARUTI VSB 37700 15:17:58 50000 11.85 00:00:16 0 0.00 14-Mar-08 11.85 15:18:15 15:18:14 50000 11.85 MARUTI VSB 12300 15:18:11 50000 11.85 00:00:03 0 0.00 14-Mar-08 11.85 15:18:30 15:18:29 50000 11.85 MARUTI VSB 37700 15:18:11 50000 11.85 00:00:18 0 0.00 14-Mar-08 11.85 15:18:30 15:18:29 50000 11.85 MARUTI VSB 12300 15:18:23 50000 11.85 00:00:06 0 0.00 14-Mar-08 11.85 15:18:41 15:18:41 50000 11.85 MARUTI VSB 37700 15:18:23 50000 11.85 00:00:18 0 0.00 14-Mar-08 11.85 15:18:53 15:18:41 50000 11.85 MARUTI VSB 12300 15:18:53 50000 11.85 00:00:12 0 0.00 14-Mar-08 11.85 15:18:59 15:18:58 50000 11.85 MARUTI VSB 37650 15:18:53 50000 11.85 00:00:05 0 0.00 14-Mar-08 11.85 15:19:00 15:18:58 50000 11.85 MARUTI VSB 12350 15:19:00 50000 11.85 00:00:02 0 0.00 14-Mar-08 11.85 15:19:16 15:19:16 50000 11.85 MARUTI VSB 37650 15:19:00 50000 11.85 00:00:16 0 0.00 14-Mar-08 11.85 15:19:16 15:19:16 50000 11.85 MARUTI VSB 12350 15:19:14 50000 11.85 00:00:02 0 0.00 14-Mar-08 11.85 15:19:34 15:19:34 50000 11.85 MARUTI VSB 37650 15:19:14 50000 11.85 00:00:20 0 0.00 14-Mar-08 11.85 15:19:34 15:19:34 50000 11.85 MARUTI VSB 12350 15:19:22 50000 11.85 00:00:12 0 0.00 14-Mar-08 11.85 15:20:02 15:20:02 50000 11.85 MARUTI VSB 37650 15:19:22 50000 11.85 00:00:40 0 0.00 14-Mar-08 11.85 15:17:47 15:17:47 50000 11.85 MARUTI VSB 25694 15:17:31 50000 11.85 00:00:16 0 0.00 14-Mar-08 11.85 15:17:49 15:17:47 50000 11.85 MARUTI VSB 25689 15:17:49 50000 11.85 00:00:02 0 0.00

12. From the above table, it is clear that there were several instances where the price and quantity of the sell order placed by the noticee were exactly matched with the price and quantity of the buy orders placed by the counterparty client, Maruti. I also note that the time difference between the placing of the orders depicted in the table above was less than a minute, and on instances as less as two (2) seconds.

13. I note from the ad interim ex-parte order dated June 04, 2009 and the SCN that Kundan and Maruti were known and thus connected to each other. Kundan, Chandra Financial Services P. Ltd., Jay Investrade P. Ltd., HSM Financial Services P. Ltd. and Shanti Financial Services P. Ltd. (‘Shanti’) along with their common directors namely Harsh Shirish Maniar and Jay Shirish Maniar, forming part of the ‘Maniar Group’, had a common address at Achal Bhuvan, 3rd Floor, 21 Modi Street, Fort, Mumbai. Further, the noticee, had financial dealings and off-market transfer of shares with Maniar Group and Maruti, who are connected with each other.

14. The noticee has further submitted that the shares transferred in off-market had remained with ILFS Investsmart Financial Services Ltd. till February, 2008, when the securities market started falling. ILFS Investsmart Financial Services Ltd. then sold the shares of Confidence lying with it, over which VSB had no control. I note the argument of the noticee that it had no role in such trades, as the same was being done by ILFS Investsmart Financial Services

Ltd. in order to mitigate its own distress on shortfall of margins. However, the noticee has not submitted any document to corroborate this submission. While I note that there was a shortfall in the margin, there is nothing on record to show that the broker, ILFS Investsmart Financial Services Ltd had suo moto sold the shares, without the instructions of the noticee in this regard. In the absence of such corroborative proof, one cannot rely on the mere ipse dixit of the noticee.

15. However, even with respect to the trading of the noticee in the scrip of Cals, the noticee bought 20,00,000 shares on June 30, 2008 (i.e. 91.78% of the total market volume on that day). I note that the counter party client for 10,08,294 shares of Cals was Maruti. Further, I observe from the trade – order logs annexed to the SCN that the rate of the buy order and the sell order were closely matched. The time difference between the placing of the orders in a few instances was a little over two minutes. As the trades are executed on the floor of the exchange on a price-time priority of orders, one cannot rule out the possibility of manipulative deals in illiquid scrips even where the orders are not matched to the second.

16. Considering the discussion above, I note that the trades of VSB have contributed to the creation of artificial volume in the scrip of Cals and Confidence in violation of Regulation 3(a) and 4(2)(a) of the PFUTP Regulations. However, the noticee has been restrained from accessing the securities market and prohibited from buying, selling or dealing in the securities market since June 4, 2009. The noticee has thus undergone debarment from securities market for more than two (2) years and seven (7) months. I find that the period of debarment already undergone by the noticee is proportionate to the violations committed by the noticee. In view of the same, I order as under:

17. In view of the foregoing, I, in exercise of the powers conferred upon me under Section 19 of the SEBI Act read with Sections 11, 11B and 11(4) thereof, do hereby revoke the interim directions issued vide ad interim ex-parte order dated June 04, 2009 and confirmatory order dated January 25, 2010 against VSB Investments Pvt. Limited with immediate effect and also dispose of the SCN without any further direction.

DATE: JANUARY 18, 2012 PRASHANT SARAN PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA