Order in the matter of Cyberscape Multimedia Limited

WTM/PS/27/IVD/ID-03/SEPT/2011 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER IN THE MATTER OF CYBERSCAPE MULTIMEDIA LIMITED In respect of Mr. Surendra Kumar Dugar, Mr. Kamal Kumar Dugar, Mr. Tulsi Kumar Dugar, Mr. Budhamal Dugar & Budhamal Dugar (HUF), BMD Financial Services Private Limited, BMD Estates Private Limited, Mahaveer Plaza Private Limited, Mr. Ashok Kumar Poddar Date of hearing: December 10, 2010 and February 04, 2011 Appearances For Noticees: Mr. Surendra Kumar Dugar Mr. Kamal Kumar Dugar Mr. Tulsi Kumar Dugar Mr. J.P. Rathi, Accountant Mr. Vinay Chauhan, Advocate Mr. Anuj Singh, Advocate for Mr. Ashok Kumar Poddar For SEBI: Mr. G. Ramar, General Manager Mr. Lamber Singh, Assistant General Manager Mr. Pradeep Kumar, Assistant Legal Adviser ORDER Under Sections 11 and 11B of the Securities Exchange Board of India Act, 1992 read with Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 2003 1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) conducted investigation into the dealings in the scrip of Cyberspace Multimedia Limited (hereinafter referred to as ‘Cyberspace’) for the period of September 18, 2000 to December 08, 2000. During this period, the price of the scrip of Cyberspace increased from `8 as on September 18, 2000 to `60 as on December 08, 2000. The scrip of Cyberspace during the investigation period was listed on Bangalore Stock Exchange (hereinafter referred to as ‘BgSE’), Bombay Stock Exchange (hereinafter referred to as ‘BSE’) and Calcutta Stock Exchange (hereinafter referred to as ‘CSE’).

2. The investigation prima facie revealed that the persons connected with the company, its directors, major shareholders and their affiliates had tried to manipulate the price of the scrip of Cyberspace. Further, on analysis of the order log, certain entities were found to have placed large buy-orders, majority of which were deleted after a few got executed. By adopting this methodology, the entities like Mr. Surendra Kumar Dugar, Mr. Kamal Kumar Dugar, Mr. Tulsi Kumar Dugar, Budhmall Dugar & Budhmall Dugar (HUF), BMD Financial Services Private Limited (hereinafter referred to as ‘BMD Financial’), BMD Estates Private Limited (hereinafter referred to as ‘BMD Estates’), Mahaveer Plaza Private Limited (hereinafter referred to as Mahaveer) and Mr. Ashok Kumar Poddar (hereinafter all collectively referred to as ‘noticees’) had tried to create buying interest in the scrip of Cyberspace.

3. On completion of the investigation, SEBI issued a common show cause notice (hereinafter referred to as ‘SCN’) dated August 10, 2004 to Mr. Surendra Kumar Dugar, Kamal Kumar Dugar, Tulsi Kumar Dugar, Budhmall Dugar & Budhmall Dugar (HUF),BMD Financial, BMD Estates and Mahaveer under Sections 11 and 11B of Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act’) read with Regulation 11 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003. The SCN dated August 10, 2004, alleged that the noticees namely Tulsi Kumar Dugar, Budhmall Dugar & Budhmall Dugar (HUF), BMD Financial, BMD Estates and Mahaveer were allotted the shares of Cyberspace in private placement prior to its public issue. After the public issue, the shares so allotted were offloaded in the market by these entities while trading in a manner so as to create buying interest in the scrip of Cyberspace. Surendra Kumar Dugar, while trading in the scrip, was found entering large buy orders which were subsequently deleted by him.

The SCN, therefore, alleged that the dealings of Surendra Kumar Dugar, Kamal Kumar Dugar, Tulsi Kumar Dugar, Budhmall Dugar & Budhmall Dugar (HUF), BMD Financial, BMD Estates and Mahaveer in the scrip of Cyberspace were in violation of Regulations 4 (a),(b),(c) and (d) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 (hereinafter referred to as ‘PFUTP Regulations’). Accordingly, the SCN called upon Surendra Kumar Dugar, Kamal Kumar Dugar, Tulsi Kumar Dugar, Budhmall Dugar & Budhmall Dugar (HUF), BMD Financial, BMD Estates and Mahaveer to show cause as to why appropriate action under Sections 11 and 11B of the SEBI Act, including restraining them from dealing in securities in any manner for a particular period should not be initiated against them. Surendra Kumar Dugar, Kamal Kumar Dugar, Tulsi Kumar Dugar, Budhmall Dugar & Budhmall Dugar (HUF), BMD Financial, BMD Estates and Mahaveer replied to the said SCN vide their separate letters and requested for a personal hearing.

4. A separate SCN dated August 25, 2004 was issued to Mr. Ashok Kumar Poddar under Sections 11 and 11B of the SEBI Act read with Regulation 11 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003. The SCN alleged that Ashok Kumar Poddar created artificial buying depth by placing huge buy orders in the scrip of Cyberspace and later on deleting them shortly. Such acts of Ashok Kumar Poddar were alleged to be in violation of Regulations 4 (a),(b),(c) and (d) of the PFUTP Regulations. Accordingly, the SCN called upon him to show cause as to why appropriate action under Sections 11 and 11B of the SEBI Act, including restraining him from dealing in securities in any manner for a particular period should not be initiated against him. No reply was received from Ashok Kumar Poddar.

5. Before proceeding further in the matter, an opportunity of personal hearing was granted to all the noticees on December 10, 2010 at Kolkata. On the date scheduled for hearing, the noticees namely Surendra Kumar Dugar, Kamal Kumar Dugar, Tulsi Kumar Dugar appeared before me along with their advocate Mr. Vinay Chauhan. Noticees namely Budhmall Dugar & Budhmall Dugar (HUF), BMD Financial, BMD Estates and Mahaveer appeared through Mr. J.P. Rathi, Accountant and Mr. Vinay Chauhan, Advocate. Oral submissions were made by them and they sought 10 days time to file the written submissions, which was duly granted.

6. Ashok Kumar Poddar, one among the noticees failed to appear on the date of hearing without prior intimation. In the interest of justice, another opportunity of personal hearing was granted to Ashok Kumar Poddar on February 04, 2011. On this date, Mr. Anuj Singh, Advocate appeared and filed a letter signed by Ashok Kumar Poddar which was taken on record. Mr. Anuj Singh further asked for certain documents during the personal hearing and sought an adjournment. The request of the representative of Ashok Kumar Poddar was declined on an assurance that SEBI is not relying on any document which has not been provided to him. Upon this, the advocate requested for three weeks’ time for filing the written submissions. The request of the noticee was acceded to and three weeks’ time was granted. However, no written submissions are received from Ashok Kumar Poddar until today.

7. I have carefully considered the SCNs issued, replies received from the noticees, written submissions received and the material available on record. The submissions of the noticees, in brief, are:

a. Surendra Kumar Dugar, Kamal Kumar Dugar, Tulsi Kumar Dugar vide their letters all dated November 29, 2004 and written submissions dated December 17, 2010 by Surendra Kumar Dugar and Tulsi Kumar Dugar made almost similar submissions: - Transacted in the ordinary course of business and the same has not resulted in artificial increase/ decrease in the price of the scrip. - Transactions were not entered with the aim of creating artificial volumes. - Surendra Kumar Dugar was doing jobbing with the objective of earning arbitrage. - Tulsi Kumar Dugar traded as client of Surendra Kumar Dugar in accordance with the rules, regulations and code of conduct prescribed by the Stock Exchange/ SEBI.

- The decision to purchase or sell the shares by Budhmall Dugar, BMD Financial, BMD Estates and Mahaveer were independent. - No connection with Ashok Kumar Poddar, Shraddha Stock Broking and S.P. Rakhecha & Co. - Though they are brothers their legal and tax implications are independent - Tulsi Kumar Dugar had sold majority of the shares allotted to him by way of private placement pre-IPO after the period of investigation period and at a loss. - Two simultaneous proceedings were initiated against them arising out of same set of facts. - Documents relied upon by SEBI have not been furnished to them in consonance with principles of natural justice and sought cross examination.

b. Budhmall Dugar, BMD Financial, BMD Estates and Mahaveer vide their letters dated September 15, 2004, September 14, 2004, September 15, 2004 respectively and written submissions all dated December 17, 2010: - The companies namely BMD Financial, BMD Estates and Mahaveer are separate legal entities. - The allotment of shares of Budhmall Dugar, BMD Financial, BMD Estate and Mahaveer was made in the normal course of business and payments were made. The fact of shareholding was also disclosed in the prospectus of the company, when it came out with the public issue in August, 2000. The shares allotted to them were not under any lock in and were free for sale. Since the price of the shares of Cyberspace was `52 in the market, they deemed it fit to sell them at the market rate. - Number of shares sold by Budhmall Dugar, BMD Financial, BMD Estates and Mahaveer constitutes only 2.80%, 3.04%, 3.10% and 2.11% respectively of the total equity capital of the Cyberspace. The transactions were delivery based. - BMD Financial, BMD Estates and Mahaveer have ceased to exist as these had amalgamated into Santosh Industries Limited.

- Documents relied upon by SEBI have not been furnished to them in consonance with principles of natural justice and sought cross examination.

c. Ashok Kumar Poddar vide his letter submitted on February 04, 2011 - All documents have not been provided. - The investigation pertains to very old transactions and most of the records pertaining to the relevant period are lying with various authorities in connection with the case before the Court of Metropolitan Magistrate at Calcutta.

8. I have noted the submissions of the noticees that they have not been supplied with various documents. It is seen that all the documents that have been relied upon are provided to the noticees. However, I note that no document, which has not been provided to the noticees, is being relied upon in the present proceedings. Having considered all these, the issue that arises for my consideration is: Whether the noticees had created buying interest in the scrip of Cyberspace?

9. Whether the noticees had created buying interest in the scrip of Cyberspace?

a. I note that the noticees namely Surendra Kumar Dugar, Kamal Kumar Dugar, Tulsi Kumar Dugar, Budhmall Dugar & Budhmall Dugar (HUF), BMD Financial, BMD Estates, Mahaveer were all related to each other. Five of the above noticees were allotted the shares of Cyberspace in the private placement before the public issue of Cyberspace. The details of their relationship and shares allotted to them in private placement and in public issue are as under: Name Relationship Shares allotted in Shares allotted private placement in public issue Surendra Kumar Brothers and sons of Mr. - 30,500 Dugar Budhmall Dugar. All three are brokers at CSE. Kamal Kumar Dugar - Tulsi Kumar Dugar 3,10,000 3,000

Budhmall Dugar & Father of Surendra Kumar Dugar, 3,10,000 3,000 Budhmall Dugar Kamal Kumar Dugar, Tulsi (HUF) Kumar Dugar BMD Financial Surendra, Kamal and Tulsi were 3,10,000 3,000 its directors BMD Estates Surendra, Kamal and Budhmal 3,10,000 3,000 Dugar were its directors Mahaveer One of the directors was Tulsi 2,50,000 3,000 Kumar Dugar b. I note that the noticees namely Budhmall Dugar & Budhmall Dugar (HUF), BMD Financial, BMD Estates, Mahaveer have admitted their selling of the shares of Cyberspace in the market and it has been argued by these that the said trades, were delivery based. I note that BMD Financial, BMD Estates and Mahaveer have been amalgamated into Santosh Industries Limited.

I have seen the trading details available on record and find that these only refers to the trading of Surendra Kumar Dugar as a broker. The available details do not show the details of the clients. In absence of such details, it is difficult to conclude that noticees namely Budhmall Dugar (HUF), BMD Financial, BMD Estate and Mahaveer while acting as clients had created buying interest in the scrip of Cyberspace.

c. I observe that simultaneous proceedings under Enquiry Regulations were initiated as against the noticees namely Surendra Kumar Dugar, Kamal Kumar Dugar and Tulsi Kumar Dugar for the trading in the scrip of Cyberspace. I note that during the period of investigation, Surendra Kumar Dugar was also trading on BSE through a trading terminal provided by a BSE broker namely Active Finstock Private Limited, stated to be under a Memorandum of Understanding between BSE and CSE. I have seen the trading details of noticees namely Surendra Kumar Dugar in the scrip of Cyberspace. The same has also been brought out below: Entity On CSE On BSE Bought Sold Net Bought Sold Net Surendra 1,83,449 3,38,479 (1,55,030) 7,16,069 6,65,379 50,690 Kumar Duggar Budhmall Dugar - 3,13,000 (3,13,000) - - - BMD Financial - 3,06,800 (3,06,800) - 6,000 (6,000) BMD Estates 340 3,20,340 (3,20,000) 7,000 - 7,000 Madhu Dugar - 30,500 30,500 - - - Mahaveer 2,336 1,57,915 (1,55,579) - 55,661 (55,661)

From the trading pattern of Surendra Kumar Dugar, it is observed that huge orders were placed by him which were deleted immediately and in this process a small quantity of the orders got executed. It is seen that such pattern of trading was continued by Surendra Kumar Dugar during the period of investigation. Surendra Kumar Dugar has submitted that he was doing jobbing and arbitrage transactions in the scrip and was trying to make profits from differences in the price between BSE and CSE. I note that the charge of misleading appearance has already been dealt with in the Enquiry proceedings, wherein Surendra Kumar Dugar has been found guilty of violating the provisions of Regulation 4(a) and (b) of the PFUTP Regulations and Clause A (3), (4) and (5) of the Code of Conduct specified under Schedule II of the SEBI (Stock Brokers and Sub-Broker) Regulations, 1992. In view of the same the present SCN in so far as it relates to Surendra Kumar Dugar is liable to be disposed of without any action.

d. I observe that Kamal Kumar Dugar was a major trader in the scrip on CSE who had bought 19,99,185 shares and sold 19,79,685 shares of Cyberspace during the period of investigation. He also appeared as the counter party to most of the trades of Surendra Kumar Dugar and other identified brokers of CSE viz., Ashok Kumar Poddar, Shraddha Stock Broking and S.P. Rackhecha & Co. I have seen the trading details of Kamal Kumar Dugar as available on record. The available details fails to prove that the trades of Kamal Kumar Dugar were aimed at creating buying interest in the scrip of Cyberspace. Therefore, I am inclined to give the benefit of doubt to him.

e. The noticee namely Tulsi Kumar Dugar while trading in the scrip of Cyberspace had bought 3,000 shares on CSE for Surendar Kumar Dugar and sold 20,000 shares on his self account on CSE. From the available data, it is seen that no linkage can be drawn between the trading of Tulsi Kumar Dugar and Surendra Kumar Dugar & Co. I also note that the noticee had sold most of its shares allotted to him after the period of investigation. Having seen this, I am of the considered view that the charge as against Tulsi Kumar Dugar of creating buying interest in the scrip cannot be proved.

f. I have seen the trading details of Ashok Kumar Poddar who has appeared as the counter party to most of the trades of Surendra Kumar Dugar at BSE during the period of October 31, 2000 and November 01, 2000. I note that Ashok Kumar Poddar was a broker at CSE and was also trading at BSE through the terminal provided to him by Kamal Kumar Jalan, Member, BSE.

I note that Ashok Kumar Poddar was placing huge buy orders and later on deleting them immediately at BSE. One instance of such pattern has been taken on a sample basis for the trading of October 06, 2000 and has been brought out below for reference:

Member Trade Buy/ Type Price Qty. Avg. Qty. A/U/D Cacl Date and time Code ID Sell 36 9 B L 13 100000 100000A 30 2000-10-06:10:48:45 36 9 B L 13.30 100000 100000A 30 2000-10-06:10:50:03 36 9 B L 13.50 100000 100000A 30 2000-10-06:10:50:32 36 9 B L 0 100000 100000D 30 2000-10-06:10:51:39 36 9 B L 0 98470 98470D 30 2000-10-06:10:51:41 36 9 B L 0 96399 96399D 30 2000-10-06:10:51:43 36 9 B L 13 200000 200000A 30 2000-10-06:10:52:37 36 9 B L 13.75 200000 200000A 30 2000-10-06:10:55:14 36 9 B L 0 195000 195000D 30 2000-10-06:10:56:34 36 9 B L 0 200000 200000D 30 2000-10-06:10:56:39 36 9 B L 13.50 25000 25000A 30 2000-10-06:10:57:34 36 9 B L 13 25000 25000A 30 2000-10-06:11:00:05 36 9 B L 13.70 100000 100000A 30 2000-10-06:12:44:18 36 9 B L 13.75 200000 200000A 30 2000-10-06:12:45:37 36 9 B L 14 200000 200000A 30 2000-10-06:12:46:07 36 9 B L 0 99500 99500D 30 2000-10-06:12:47:28 36 9 B L 0 198450 198450D 30 2000-10-06:12:47:30 36 9 B L 0 189350 189350D 30 2000-10-06:12:47:31 36 9 S L 14.50 35000 50000U 30 2000-10-06:12:48:31 36 9 B L 13.75 200000 200000A 30 2000-10-06:12:48:54 36 9 B L 14 200000 200000A 30 2000-10-06:12:51:18 36 9 B L 14.25 200000 200000A 30 2000-10-06:12:55:08 36 9 B L 0 189800 189800D 30 2000-10-06:12:58:39 36 9 B L 0 185900 185900D 30 2000-10-06:12:58:40 361 9 B L 14.50 100000 100000A 30 2000-10-06:12:59:48 361 9 B L 14.50 100000 100000A 30 2000-10-06:13:01:36 36 9 B L 14.50 200000 200000A 30 2000-10-06:13:16:14 36 9 B L 0 200000 200000D 30 2000-10-06:13:18:33 361 9 B L 14.50 200000 200000A 30 2000-10-06:13:18:50 361 9 B L 14.50 100000 100000A 30 2000-10-06:13:25:24

36 9 B L 14.50 200000 200000A 30 2000-10-06:14:00:01

From the above, it is noted that on October 06, 2000, the noticee, Ashok Kumar Poddar had entered three orders for 1,00,000 shares each between 10:48:45 to 10:50:32 and immediately thereafter from 10:51:39 to 10:51:43, he deleted 3 pending orders for the shares ranging from 96,399 to 1,00,000 from each of the said orders. Further, Ashok Kumar Poddar entered an order for 2,00,000 shares just within a time span of one minute from them,. Again at 10:55:14, he entered an order of 2,00,000 shares and immediately after one minute i.e. 10:56:34 to 10:56:39 the remaining order of 1,95,000 shares and 2,00,000 shares respectively were deleted. From the above extract, it can be seen that Ashok Kumar Poddar placed buy orders for 27,50,000 shares and deleted orders for 17,52,869 shares.

From the above and other similar instances of the pattern of trading of Ashok Kumar Poddar, it is observed that he placed orders at high price and deleted these immediately. Such pattern has been repeated by him over a long period of time during the investigation and an apparent explanation for this could be that he wanted to create an impression in the market that the scrip is in rapid movement.

10. Having considered the above, I note that, the trading pattern of Ashok Kumar Poddar had disturbed the market equilibrium, therefore, I find Ashok Kumar Poddar guilty of violating the provisions of Regulation 4(b) of PFUTP Regulations read with Regulation 13(2) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003.

As regards, the noticees namely Budhmall Dugar & Budhmall Dugar (HUF), BMD Financial, BMD Estate and Mahaveer, Kamal Kumar Dugar and Tulsi Kumar Dugar, I note that the material available on record could not sufficiently prove the allegation leveled against of creating buying interest in the scrip of Cyberspace.

11. Under the facts and circumstances of the case, I, in exercise of the powers conferred upon me in terms of Section 19 of the Securities and Exchange Board of India Act, 1992, do hereby issue the following directions:

a. Dispose of the show cause notice dated August 10, 2004 issued to Mr. Surendra Kumar Dugar [PAN: ACXPD 5222E], Mr. Kamal Kumar Dugar [PAN: ADEPD 5604J], Mr. Tulsi Kumar Dugar [PAN: ADEPD 9380P], Budhmall Dugar & Budhmall Dugar (HUF) [PAN: AACHB 3237J], BMD Financial Services Private Limited, BMD Estates Private Limited and Mahaveer Plaza Private Limited without imposing any directions.

b. Warn Ashok Kumar Poddar [PAN: AFTPP 2389D] to be cautious in his future dealings.

DATE : 23/SEPT/2011 PRASHANT SARAN PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA