Order in the matter of Genomics Biotech Ltd. in respect of Mr. Vijay Jindal, Prabhat Fincap Pvt. Ltd., Neat Developers Ltd. and Troop Trac Exports Pvt. Ltd

In respect of Mr. Vijay Jhindal, Prabhat Fincap Pvt. Ltd., Neat Developers Ltd. and Troop Trac Exports Pvt. Ltd. Date of Hearing: November 20, 2009 and November 24, 2009

Appearances For Noticees: Mr. Vijay Jhindal, Mr. Rakesh Kumar Arora, Director, Prabhat Fincap Pvt. Ltd. Mr. Ashok Kumar Singh, Advocate, authorized representative, Neat Developers Ltd. None for Troop Trac Exports Pvt. Ltd. For SEBI: Mr. N. Murugan, Presenting Officer Ms. Medha Sonparote, Deputy General Manager Mr. Bhagwan Das, Manager Ms. Kshama Wagherkar, Assistant Legal Adviser ORDER Under Section 11 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’) conducted investigation into the buying, selling and dealing in the scrip of Genomics Biotech Ltd. (hereinafter referred to as ‘GBL’) for the period of July, 2001 to December, 2001, inter alia to ascertain any violation of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulation, 1995 (hereinafter referred to as ‘PFUTP Regulations’). During the relevant period the scrip of GBL was listed on Delhi Stock Exchange (hereinafter referred to as ‘DSE’) and Bombay Stock Exchange (hereinafter referred to as ‘BSE’).

2. Investigation by SEBI were initiated pursuant to the receipt of a letter from the Crime Branch, New Delhi dated April 24, 2003, seeking clarification in a FIR dated December 01, 2001. The basis of FIR was the complaint of Mr. Vivek Gupta S/o Mr. S.K. Gupta, Managing Director, GBL, made to the Hauz Khas, Police Station on November 07, 2001 against Mr. Vijay Jhindal, Mr. J.P. Madaan and others for cheating and misappropriation of amount to the tune of Rs.1 crore. The said complaint states that in order to raise funds, Vivek Gupta approached Vijay Jhindal who was dealing in the sale and purchase of shares. Vivek Gupta thereafter had entered into a Memorandum of Understanding (hereinafter referred to as ‘MoU’) with Vijay Jhindal on July 3, 2001, which was signed by Mr. J.P. Madaan, stated to be an employee of Vijay Jhindal. As per the terms of MoU, Vivek Gupta handed over slips of 20 lakh shares of GBL to Madaan on July 04, 2001 and Vijay Jhindal handed him a cheque dated July 05, 2001 for Rs.5 lakh. Further, as per the assurance, Vijay Jhindal was supposed to give Rs.20 lakh within 10 days of the transfer of the aforesaid shares i.e. on July 14, 2001. When Vivek Gupta approached Vijay Jhindal for the aforesaid payment after a lapse of 10 days of the transfer of shares, he refused to pay him. Vivek Gupta stated in his complaint that the shares were worth Rs.1 crore and Vijay Jhindal was supposed to sell them at Rs.7.15 per share. As per the terms of MoU, the sale proceeds of the said shares were to be shared by Mr. Madaan and Mr. Vivek Gupta in the ratio of 50:50.

3. The investigations revealed that the average daily volume in the scrip of GBL during the relevant period was 1,56,568 shares. During the year 2001, the highest price of the scrip was Rs.7.70 as on May 21, 2001 i.e. much before the date of MoU. However, on July 03, 2001, i.e. the date of signing of the MoU between Vivek Gupta and J.P. Madaan, the price of the scrip was Rs.3.30 only. The price of the scrip rose from Rs.3.25 as on July 04, 2001 to Rs.4.65 as on July 18, 2001. The price of the scrip then fell to Rs.1.65 by December 31, 2001. It was further revealed that entities associated with Vijay Jhindal (i.e. Rajat Stock Invest, Flare Finance (I) Ltd. and Cosmo Corporate

Services Ltd) transferred shares in the off-market to Troop Trac Exports Pvt. Ltd. (hereinafter referred to as ‘Troop’). Thereafter, Troop in association with Prabhat Fincap Pvt. Ltd. (hereinafter referred to as ‘Prabhat’) and Neat Developers Ltd. (hereinafter referred to as ‘Neat’) was found to have indulged into cross deals and reversal of trades in the market through the broker Integrated Master Securities Pvt. Ltd.

4. On completion of investigation, SEBI inter alia issued a common show cause notice dated October 31, 2007 (hereinafter referred to as ‘SCN’), to Vijay Jhindal, Prabhat, Neat and Troop (hereinafter all collectively referred to as ‘noticees’) under Sections 11, 11B and 11(4) of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act’) read with Regulation 11 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulation 2003. The SCN alleged that the entities associated with Vijay Jhindal had transferred shares in off market to certain entities, which in turn had indulged in cross deals and reversal of trades in the scrip of GBL in violation of the provisions of Regulation 3, 4(a), (b), (c), (d), (e), 5(a), (b) and 6 (a) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 (hereinafter referred to as ‘PFUTP Regulations’) read with corresponding provisions of Regulation 3(a), (b), (c), (d), 4(1), 4(2)(a), (b), (g), (f), (k) and (r) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003.

5. Prabhat vide its letter dated November 17, 2007 replied to the SCN. However, no reply was received from others. SCN issued to Vijay Jhindal and Troop were returned undelivered. Before proceeding further in the matter, an opportunity of personal hearing was granted to all the noticees on July 15, 2009. Again, the hearing notices were returned undelivered from Vijay Jhindal and Troop. To proceed with the matter, SEBI issued a press notification in the local and national daily newspapers intimating the entities therein about the SCN and hearing. SCN of Troop was also issued on the address available on the website of Ministry of Corporate Affairs. Another opportunity of personal hearing was given to the noticees on November 20, 2009, at Delhi. In the mean time Neat vide its letter dated November 19, 2009 replied to the SCN.

6. On the date fixed Vijay Jhindal appeared for himself and made oral submissions. He also sought three weeks time for filing his reply to the SCN, which was granted to him. Vijay Jhindal vide his letter dated December 14, 2009, filed reply to the SCN. On the date of hearing Prabhat appeared through its director Mr. Rakesh Kumar Arora and made submissions. Another opportunity of personal hearing was granted to Neat on December 24, 2009, as it had requested for adjournment and the same was attended by Mr. Ashok Kumar Singh, Advocate. I note that various attempts have been made to serve the SCN and hearing notices issued to Troop on the last known address and address available on the website of Ministry of Corporate Affairs. However, these were returned undelivered. Taking note of this, I am compelled to proceed with the matter ex-parte, on the basis of material available on record, having complied with the principles of natural justice as against Troop.

7. I have carefully considered the SCN, replies of the noticees who have replied to the SCN and material available on record. I note the conduct of Vijay Jhindal, who had refused to provide his present address at time of hearing and has claimed that he has come to the knowledge about the proceedings from the newspaper and SEBI website. The contentions of the noticees in their replies, in brief, are:

a. Vijay Jhindal vide its letter dated December 14, 2009: - SCN is based on a fake MoU. - Not associated with the entities namely Rajat Stock Invest Pvt. Ltd., Flare Finance (I) Ltd., Cosmo Corporate Services Ltd. - The allegations made in the SCN are in contempt of final order passed by the court of Metropolitan Magistrate, New Delhi.

b. Prabhat vide its letters dated November 17, 2007 and June 29, 2009: - Had no connection either with Vijay Jhindal, Vivek Gupta, S.K. Gupta or other entities named in the SCN. - Had no knowledge of the MoU. - Reversal if any was a mere co-incidence. - Transaction made in the scrip were without any intention of manipulation as the company operates with a very low base capital. - The transaction with Flare Finance (I) Ltd. were on spot delivery basis against which it had received full payments. - Trades were not from the same terminal as that of the counterparty. - There was normal gap between the buy and sell order time. - Had not made any substantial gain. c. Neat vide its letter dated November 19, 2009: - Complete log of transactions pertaining to investigation period has not been provided. - Had traded in the scrip prior to signing of MoU between Vijay Jhindal and Vivek Gupta and had not traded in the scrip after June 22, 2001. - The said 1,75,000 shares and 85,000 shares were transferred to Gogia Capital Services Ltd. and not to Stallone Trading Pvt. Ltd. and Crust Trading Pvt. Ltd. as stated in SCN. - Not connected to Vijay Jhindal and Vivek Gupta. - Time difference in buy and sell orders is quiet significant and such trades cannot be said to be reversal. - Beneficial interest in the scrip was duly transferred. - SCN should not have been issued for alleged violation of provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003.

8. I note that the MoU, as discussed earlier has not been executed between Vivek Gupta and Vijay Jhindal. The MoU refers to some shares but there is no indication that the shares referred to are those of GBL. Further, the said document does not bear any date. The parties to the MoU are referred by the initials viz. Sh. VG. and Sh. JP. There is also no reference to place of residence or any other characteristic that would establish the identity of the parties. Further, the same do not find any mention of Vijay Jhindal. Further, I note the contention raised by Neat that it has not been supplied with complete log of transactions. I observe that all relied upon documents have already been supplied to the noticee. However, I note that no document, which has not been provided to the noticee, is being relied upon in the present proceedings. Considering these, the issue arises for my consideration are:

a. Whether Vijay Jhindal had played any role in manipulation and fraudulent activities in the scrip of GBL? b. Whether Prabhat, Neat and Troop were instrumental in creating artificial volume in the scrip by indulging into cross deals and reversal trades? 9. Whether Vijay Jhindal had played any role in manipulation and fraudulent activities in the scrip of GBL? a. I note from the findings of investigation that the owner of Rajat Stock Invest Pvt. Ltd., Flare Finance (I) Ltd. and Cosmo Corporate Services Ltd. was Mr. Vijay Jhindal. This finding is based on the police complaint of Vivek Gupta dated November 07, 2001. Except this, I find no other independent evidence on record to show that Vijay Jhindal was the owner of Rajat Stock Invest Pvt. Ltd., Flare Finance (I) Ltd. and Cosmo Corporate Services Ltd. In absence of these, it is difficult to conclude that he was the owner of these entities.

b. As already discussed above, the MoU does not find any mention of Vijay Jhindal. I note from the submissions of Vijay Jhindal that the Crime Branch, Delhi has filed a cancellation report in the FIR of Vivek Gupta for the reasons that the MoU presented before it appeared to be void and illegal. I note that the said cancellation report was accepted by the Court of Metropolitan Magistrate, Delhi and the case was closed. In view of this, it is difficult to conclude that Vijay Jhindal was acting on the terms of MoU and had played any role in manipulation in the scrip of GBL.

c. In view of this, it can not be concluded that the shares transferred in off-market to Rajat Stock Invest Pvt. Ltd., Flare Finance (I) Ltd., Cosmo Corporate Services Ltd. were on the instance of Vijay Jhindal. 10. Whether Prabhat, Neat and Troop were instrumental in creating artificial volume in the scrip by indulging into cross deals and reversal trades? a. I note from the demat account statements of Prabhat, Neat and Troop as received from National Securities Depository Ltd. (hereinafter referred to as ‘NSDL’) for the period from March 31, 2001 to March 31, 2002, that during the relevant period of time huge chunk of shares of GBL were transferred to the said noticees. The flow of such shares has been brought out in the table below for reference: Table A: Details from the demat statements of noticees S. Date Qty. of Mode of Shares received Share received by No. shares transfer from 1. 03/07/2001 85,000 Off-market Neat Crust Trading 2. 03/07/2001 1,75,000 Off-market Neat Stallone Trading 3. 18/07/2001 6,50,000 Off-market Flare Finance Troop Trac 4. 03/08/2001 58,776 Off-market Prabhat Fincap Flare Finance 5. 14/08/2001 52,060 Off-market Prabhat Fincap Flare Finance 6. 28/08/2001 82,000 Off-market Prabhat Fincap Flare Finance 7. 08/09/2001 70,751 Off-market Prabhat Fincap Flare Finance 8. 10/09/2001 80,000 Off-market Troop Trac Cosmo Corporate

From the above table, I observe that all shares received by noticees were in off-market. The purpose of transferring and receiving of shares of GBL in off-market is not clear from the records.

b. The SCN alleges that after receiving shares in off-market Prabhat, Neat and Troop started trading in the scrip of GBL. I have seen the trading pattern of Prabhat, Neat and Troop and the details of reversal of trades between these entities as pointed out in the SCN. I note the argument of Neat that it has not traded in the scrip of GBL after June 22, 2001. On seeing the details of the trades, I find that Neat had executed trades during May 23, 2001 to June 19, 2001, however, the same is not covered in the investigation period. From records, I find no other instance of trading by Neat during the period of investigation. Considering this, the charge of creating artificial volume as against Neat is not made out and the same is liable to be dropped.

c. As regards the pattern of trades between Prabhat and Troop, which as per the SCN appeared to be synchronized and reversal in nature. I note that during the period of July 05, 2001 to November 08, 2001, about 351 trades for 3,13,908 shares in the scrip of GBL, were executed between Prabhat and Troop. I have seen the instances of trades where reversal has been alleged and observe from the details that the same are not exact and has happened after a gap of few days. From the available records, I find no pattern of trades for the said trades.

d. In view of the findings above, it is difficult to conclude that the said noticees had played role in the creation of artificial volume in the scrip of GBL during the investigation period. 11. From the discussion above, I do not find sufficient evidence on record to show that the noticees have entered into transactions in violation of Regulation 3, 4, 5 and 6 of PFUTP Regulations. Taking in view of this, I do not consider this a fit case to impose any penalty against the noticees.

12. In the facts and circumstances of the matter, I, in exercise of the powers conferred upon me in terms of Section 19 of the Securities and Exchange Board of India Act, 1992, hereby dispose of the show cause notices issued to Mr. Vijay Jhindal, Neat Developers Ltd. [PAN: AABCN 4743M], Prabhat Fincap Pvt. Ltd. and Troop Trac Exports Pvt. Ltd. without imposing any penalty or direction.

DATE : JULY 1, 2010 PRASHANT SARAN PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA