Order in the matter of Genomics Biotech Ltd. in respect of Rajat Stock Invest Pvt. Ltd., Flare Finance (India) Ltd. and Cosmo Corporate Services Ltd

WTM/PS/14/IVD/ID-1/MAY/2010 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: MR. PRASHANT SARAN, WHOLE TIME MEMBER IN THE MATTER OF GENOMICS BIOTECH LTD. In respect of Rajat Stock Invest Pvt. Ltd., Flare Finance (India) Ltd. and Cosmo Corporate Services Ltd. 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 of the scrip 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 some clarification in a FIR dated December 01, 2001.

3. 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 7, 2001 against Mr. Vijay Jhindal, Mr. J.P. Madan 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.

Madan, 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 Madan on July 4, 2001 and Vijay Jhindal handed him a cheque dated July 5, 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. Madan and Mr. Vivek Gupta in the ratio of 50:50.

4. 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.7.7 as on May 21, 2001 i.e. much before the date of MoU. However, on July 3, 2001, i.e. the date of signing of the MoU between Vivek Gupta and J.P. Madan, the price of the scrip was Rs.3.3 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. Investigation also revealed that entities namely Rajat Stock Invest Pvt. Ltd., Flare Finance Pvt. Ltd. and Cosmo Corporate Services Ltd. (hereinafter collectively referred to as ‘noticees’) were associated with Vijay Jhindal and found transferring shares in the off-market to certain persons.

5. On completion of investigation, SEBI inter alia issued separate show cause notices (hereinafter referred to as ‘SCN’) all dated February 05, 2009, to the 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 noticees had acted in accordance with the scheme of MoU, signed between Vivek Gupta and Vijay Jhindal in violation of the provisions of Regulation 3, 4(a), 4(b), 4(c), 4(d), 4(e), 5(a), 5(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), 3(b), 3(c), 3(d), 4(1), 4(2)(a), 4(2)(b), 4(2)(g), 4(2)(f), 4(2)(k) and 4(2)(r) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003.

6. The SCNs issued to the noticees were returned undelivered. Pursuant to this, before proceeding further in the matter, an opportunity of personal hearing was granted to all the noticees before me. I note that the attempts were made to serve the SCN and hearing notices on their last known address and addresses available on the website of Ministry of Corporate Affairs. However, these were returned undelivered. To proceed with the matter, SEBI also issued a press notification in the local and national daily newspapers intimating the entities therein about the SCN and hearing. Inspite of the press notification, no one appeared on the date of hearing on November 20, 2009. 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.

7. I have carefully considered the SCN and material available on record. I note that the said MoU has not been executed between Vivek Gupta and Vijay Jindal. 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 MoU are referred to by initials viz. Sh. VG, and Sh. JP. There is no reference to place of residence or any other characteristic that would establish the identity of the parties. Further, the same do not even find any mention of Vijay Jindal. Considering this, the issue arises for my consideration is: Whether the noticees were related/ connected to Vijay Jindal and created artificial volume in the market?

8. Whether the noticees were related/ connected to Vijay Jindal and created artificial volume in the market?

a. I note from the findings of investigation that the owner of noticees was Mr. Vijay Jindal. 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 Jindal was the owner of noticees. In absence of these, it is difficult to conclude that the noticees were related to Vijay Jindal.

b. Further, the MoU said to have been entered by Vivek Gupta, do not find any mention of noticees, viz., Rajat Stock Invest Pvt. Ltd, Flare Finance (I) Ltd. and Cosmo Corporate Services Ltd. I have seen the demat account statements of noticees as received from National Securities Depository Ltd. (hereinafter referred to as ‘NSDL’) for the period from March 31, 2001 to March 31, 2002 and note that during the relevant period of time huge chunk of shares of GBL were transferred to noticees from the entities stated to be connected to Vivek Gupta. The flow of shares has been brought out in the table below for ready 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. 04/07/2001 3,00,000 Off-market Crust Trading Rajat Stock 2. 04/07/2001 5,00,000 Off-market Stallone Trading Rajat Stock 3. 04/07/2001 7,00,000 Off-market Crust Trading Flare Finance 4. 04/07/2001 5,00,000 Off-market Crust Trading Cosmo Corporate 5. 18/07/2001 6,50,000 Off-market Flare Finance Troop Trac 6. 03/08/2001 58,776 Off-market Prabhat Fincap Flare Finance 7. 14/08/2001 52,060 Off-market Prabhat Fincap Flare Finance 8. 28/08/2001 82,000 Off-market Prabhat Fincap Flare Finance 9. 08/09/2001 70,751 Off-market Prabhat Fincap Flare Finance 10. 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. It is also not clear that the entities namely Crust Trading Pvt. Ltd. and Stallone Trading Pvt. Ltd. were the related entities of Vivek Gupta.

c. In view of the findings above, it is difficult to conclude that the noticees had played role in the creation of artificial volume in the scrip of GBL during the investigation period.

9. From the above discussion, 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.

10. 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 Rajat Stock Invest Pvt. Ltd, Flare Finance (I) Ltd. and Cosmo Corporate Services Ltd. without imposing any penalty or direction.

DATE : 21/MAY/2010 PRASHANT SARAN PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA