Order in the matter of Cals Refineries Ltd, Confidence Petroleum, Bang Overseas, Shree Precoated and Temptation Foods Ltd. in respect of Rakhi Trading Pvt. Ltd. and Peanance Commercial Pvt. Ltd

WTM/PS/32/IVD/ID-4/OCT/2011 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 Rakhi Trading Pvt. Limited and Peanance Commercial Pvt. Limited Date of hearing: August 25, 2011 Appearances: For Noticees: Mr. Somasekhar Sunderesan, Advocate Mr. Vinay Chauhan, Advocate Mr. Paras Parekh, Advocate Mr. Bharat Merchant, Advocate Mr. Sourabh Bora, Director, Peanance Commercial Pvt. Limited Mr. Dinesh Pandey Authorized Representative, Rakhi Trading Pvt. Ltd. For SEBI: Ms. Doel Ghorai, Presenting Officer 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 the ‘SEBI’) during routine market surveillance, observed synchronized deals in scrips namely Cals Refineries Limited, Confidence Petroleum India Limited, Bang Overseas Limited, Shree Precoated Steels Limited (presently known as Ajmera Realty & Infra India Limited) and Temptation Foods Limited (hereinafter referred to as ‘Temptation’) (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 was 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 Rakhi Trading Pvt. Limited (hereinafter referred to as ‘Rakhi’) and Peanance Commercial Pvt. Limited (hereinafter referred to as ‘Peanance’) (hereinafter collectively referred to as the ‘noticees’ and individually by their respective names) from accessing the securities market and further prohibited them from buying, selling or dealing in the securities market, directly or indirectly, till further directions in this regard.

3. The said interim order also gave the noticees an opportunity to file objections, if any, to the order within fifteen days from the date of order. Rakhi and Peanance filed their objections to the interim order vide letters dated July 03, 2009 and July 05, 2009 respectively. Subsequently, an opportunity of personal hearing was granted to the noticees on July 07, 2009. After considering the objections and material available on record, SEBI passed an order dated March 09, 2010 confirming its earlier order dated June 04, 2009.

4. Thereafter, upon completion of the investigation, SEBI issued a common show cause notice dated February 23, 2011 (hereinafter referred to as ‘SCN’) to the noticees 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 their trading in one of the scrips i.e. Temptation.

SEBI had conducted the investigation relating to trading in the scrip of Temptation for the period of August 01, 2007 to February 28, 2009 on Bombay Stock Exchange Ltd. (hereinafter referred to as ‘BSE’). During this period, the price of the scrip increased from `95.95 as on August 1, 2007, and touched a high of `344.50 on June 19, 2008 and fell to `34.15 as on February 17, 2009. The total volume traded in the scrip of Temptation during the period of August, 2007 to February, 2009 was 2,30,68,520 shares.

The SCN alleged that the noticees had executed synchronized transactions and reversal of trades with the connected clients, which resulted in creation of the artificial volumes in the scrips of Temptation. The acts of the noticees 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 noticees to show cause as to why actions in terms of Sections 11, 11(4) and 11B of the SEBI Act, including debarring them from accessing the securities market and prohibiting them from buying, selling or otherwise dealing in securities for an appropriate period of time should not be initiated against them.

5. The noticees vide their respective letters, both dated April 21, 2011, replied to the SCN and sought an opportunity of personal hearing. Accordingly, an opportunity of personal hearing was granted to the noticees on June 03, 2011. However, the same was postponed on the request of the noticees to July 01, 2011 and further to August 25, 2011. On the rescheduled date for the personal hearing, Mr. Sourabh Bora, Director, Peanance, Mr. Dinesh Pandey Authorized Representative for Rakhi appeared along with Mr. Somasekhar Sunderesan, Advocate, Mr. Vinay Chauhan, Advocate, Mr. Paras Parekh, Advocate, Mr. Bharat Merchant, Advocate and made submissions. The noticees also sought seven days’ time for filing the written submissions, which was granted to them. The noticees vide letter dated September 07, 2011, forwarded the written submissions and the same has been taken on record.

6. The submissions of the noticees in brief are:

a. Trading by Rakhi and Peanance is for very negligible quantity of shares of Temptation. Their contribution of 0.43% of the total volume of 2.34 crore shares in the scrip of Temptation 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 six months. c. The SCN does not specify the definition of the ‘connected clients’. They have no relation/ connection with any of the entities referred to as connected clients. They are not connected with Beejay Investment and Financial Consultants Pvt. Limited, Mr. Sudhir Jain, Eversight Tradecomm Pvt. Limited. They never had any dealing/ financial transactions/ any other transaction with any of these entities. They did not know them at all in the past or in the present. Rakhi and Peanance are sister concerns and there is no violation of any law, if one sister concern gives funds to the other. These transactions have been duly entered in the books of account. d. Rakhi and Peanance have not executed any reversal of trades in the scrip of Temptation among themselves. e. They have traded on four days during the investigation period of 18 months and the trades were backed by delivery. f. Penance bought 1,00,000 shares on September 13, 2007 from open market on the screen of stock exchange.

The trade was not synchronized because of the huge difference between the order time and the quantities. g. Maruti Securities Limited had approached them for a loan of `12 crore which was given in March, 2007. The alleged `20 lakh given to Peanance is one of the repayments made by Maruti Securities Limited. h. In the last week of October, 2007, Rakhi had margin shortfall in respect of its trading account with its broker, India Bulls Securities Limited. Rakhi vide letter dated October 23, 2007 requested Peanance for a short term temporary loan of one lakh shares of Temptation for margin call. The request of Rakhi was acceded and the shares were duly transferred to Rakhi’s account. Further, the shares were transferred to India Bulls Securities Limited, towards the margin call. i. As the market was falling heavily in January/ February, 2008, India Bulls Securities Limited contended for further margin shortfall in the account of Rakhi and inter-alia sold off 76,815 shares out of the said 1,00,000 shares of Temptation. The said sale was forced by India Bulls Securities Limited to prevent/ mitigate its own distress at falling of market prices and shortfall of margins. j. The balance 23,185 shares were returned by Rakhi to Peanance on March 03, 2008. For the remaining 76,815 shares, a credit for the amount of sale consideration as per the contract notes of India Bulls Securities Limited was given to Peanance by Rakhi, so as to compensate Peanance for the same. k. Noticees have already suffered prohibition for two years.

As a result of the same, they have suffered huge losses and other problems.

7. 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 March 09, 2010, the SCN, reply to the SCN dated March 28, 2011, written submissions dated May 16, 2011 and all the material available on record.

8. I note that Peanance has not denied trading in the scrip of Temptation during the relevant period. Admittedly, the noticees are sister concerns, promoted by Mr. Parag Bora and Mr. Sourabh Bora. I have seen the trading details of Peanance and note that it bought 98,745 shares of Temptation on September 13, 2007. These trades contributed 93.95% of the total market volume on that day. Also, the majority of these trades matched with Beejay Investment & Financial Consultants Private Limited.

9. The value of this transaction was `2,25,67,208. Peanance received funds to the tune of `2,05,00,000 from Rakhi and the rest of `20,00,000 came from one Maruti Securities Limited in order to meet fund requirement. On an analysis of the fund trail as brought out in the SCN, I note that Maruti Securities Limited received `1,00,00,000 from one Chandra Financial Services Pvt. Limited on September 13, 2007, who in turn received the funds from Beejay Investment and Financial Consultants Pvt. Limited, the counterparty to the trades of Peanance. Peanance has submitted in its reply that the amount so received from Maruti Securities Limited was one of the repayments of the loan amount given to Maruti Securities Limited in March, 2007. The noticees have submitted the copies of request letter from Maruti Securities Limited for a loan of `12 Crore, copies of board resolutions, loan agreement dated March 26, 2007, etc., in support of this argument.

10. Later-on, Peanance transferred 1,00,000 shares of Temptation through off-market to Rakhi. I note that Peanance has accepted the fact of transferring 1,00,000 shares of Temptation to Rakhi through off-market transactions on October 23, 2007. It has been argued by the noticees that India Bulls Securities Limited had asked Rakhi to provide additional funds or securities in order to maintain sufficient margins requirements in its trading account. The noticees have submitted the copies of letters received from India Bulls Securities Limited, its ledger account statements and DIS slips, in its support.

11. The noticees have further submitted that the shares transferred in off-market had remained with India Bulls Securities Limited till January/ February, 2008, when the securities market started going down. India Bulls Securities Limited suo moto sold many of the securities kept by Rakhi including the shares of Temptation, due to continuous fall in stock prices. It has been submitted by the noticee that such sale of 76,815 shares of Temptation was done by India Bulls Securities Limited on February 12, 2008, February 27, 2008 and February 28, 2008, without any instructions from Rakhi. I note the argument of the noticees that the noticees had no role in such trades, as the same was being done by India Bulls Securities Limited in order to mitigate its own distress on shortfall of margins.

12. I note that the balance of 23,185 shares out of 1,00,000 shares of Temptation, which Rakhi took from Peanance were returned on March 03, 2008. For the remaining 76,815 shares, a credit for the amount of sale consideration as per the contract notes of India Bulls Securities Limited was given to Peanance by Rakhi, so as to compensate Peanance for the same. On the same day, Peanance sold 21,480 shares in the market. I note that the counterparty to Peanance for this sale was Sudhir Jain, the director of Beejay Investment and Financial Consultants Pvt. Limited. The trading details for this date have also been brought out below: Trade Buy Sell Time Date Rate Time Qty. Time Qty. RateClient Member Member Client Time Qty. RateDiff Name Name Name Name 3/3/2008 169 10:17:56 245010:17:55 2500169 Sudhir Jain Religare Indiabulls Saurabh 10:15:45 2500169 0:02:10 3/3/2008 169 10:18:08 5010:18:07 2500169 Sudhir Jain Religare Indiabulls Saurabh 10:15:45 2500169 0:02:22 3/3/2008 170 10:18:49 250010:18:17 2500170 Sudhir Jain Religare Indiabulls Saurabh 10:18:49 5000170 0:00:32 3/3/2008 169 10:18:56 245010:18:07 2500169 Sudhir Jain Religare Indiabulls Saurabh 10:18:49 5000170 0:00:42 3/3/2008 169 10:18:57 5010:18:56 1000178 Sudhir Jain Religare Indiabulls Saurabh 10:18:49 5000170 0:00:07 3/3/2008 170 10:19:46 250010:19:45 2500170 Sudhir Jain Religare Indiabulls Saurabh 10:19:31 2500170 0:00:14 3/3/2008 170 10:20:19 200010:20:00 2500170 Sudhir Jain Religare Indiabulls Saurabh 10:20:18 2500170 0:00:18 3/3/2008 170 10:20:30 50010:20:00 2500170 Sudhir Jain Religare Indiabulls Saurabh 10:20:29 2500170 0:00:29 3/3/2008 170 10:21:10 199010:21:09 5000170 Sudhir Jain Religare Indiabulls Saurabh 10:20:29 2500170 0:00:40 3/3/2008 170 10:21:40 250010:21:09 5000170 Sudhir Jain Religare Indiabulls Saurabh 10:21:40 2500170 0:00:31 3/3/2008 170 10:23:06 51010:21:09 5000170 Sudhir Jain Religare Indiabulls Saurabh 10:23:05 5000170 0:01:56 3/3/2008 170 10:23:06 100010:21:54 1000170 Sudhir Jain Religare Indiabulls Saurabh 10:23:05 5000170 0:01:11 3/3/2008 170 10:23:06 100010:22:10 1000170 Sudhir Jain Religare Indiabulls Saurabh 10:23:05 5000170 0:00:55 3/3/2008 169 12:37:19 177510:21:32 2500169 Sudhir Jain Religare Indiabulls Saurabh 10:23:05 5000170 0:01:33 3/3/2008 170 13:24:41 20013:24:40 200170 Sudhir Jain Religare Indiabulls Saurabh 12:37:38 980170 0:47:02 3/3/2008 170 13:24:58 513:24:57 5170 Sudhir Jain Religare Indiabulls Saurabh 12:37:38 980170 0:47:19

From the above, it is seen that the trades were matched with very little time difference and indicates synchronization in the logging in of the orders. The same contributed to 66.34% of the total market volume on that day.

13. Considering the discussion above, I note that the trades of Peanance have contributed significantly to the daily turnover in the scrip of Temptation. However, considering the number of days when the noticees have traded during the relevant period and the period of debarment already undergone by the noticees, I order as under:

14. 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 March 09, 2010 against Rakhi Trading Pvt. Limited [PAN: AACCR 6372B] and Peanance Commercial Pvt. Limited [PAN: AAACP 3605P] with immediate effect and also dispose of the SCN without any further direction.

DATE : 19/OCT/2011 PRASHANT SARAN PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA