Order in the matter of Issuance of Shares by Vaswani Industries Limited

1. Pursuant to the receipt of various complaints from investors, regarding deliberate huge withdrawals/rejections after the closure of the Initial Public Offer (hereinafter referred to as “IPO”) of Vaswani Industries Limited (hereinafter referred to as the Company), alleging that they were misled by the subscription levels in the said issue before its closure, the Securities and Exchange Board of India (hereinafter referred to as “SEBI”), on the basis of a preliminary examination, vide Order dated May 26, 2011 had issued the following directions: “a. A detailed investigation shall be initiated in the matter. Vaswani Industries Ltd., its Promoters, Directors and the intermediaries connected with the issue are directed to fully co-operate in the aforesaid investigation. b. The investigation shall be expeditiously completed within a period of thirty days from the date of this Order, so that a decision on the listing application by the stock exchanges can be taken within the statutory time limit provided under the Companies Act. c. In the meantime, the Bankers to the Issue shall place the amount in the public issue account in an interest earning account.”

2. A brief background of the matter which led to the passing of the said Order are as follows: The Book Running Lead Manager (hereinafter referred to as “the BRLM”), Ashika Capital Limited had filed the Draft Red Herring Prospectus of the Company with SEBI on September 29, 2010. The issue opened on April 29, 2011 and closed on May 3, 2011. The Company made an offer of 10,000,000 equity shares in a price band of `45/- to `49/-. As on the date of the closure of the issue, the Company had received bids in the following manner: i. Bids for 8,00,040 shares from Qualified Institutional Buyers (hereinafter referred to as “QIBs”), ii. Bids for 16,935,240 shares from Non-Institutional Investors (hereinafter referred to as “NIIs”) and iii. Bids for 23,887,440 shares from Retail Individual Investors (hereinafter referred to as “RIIs”). The Issue was subscribed to the extent of 4.16 times after removing multiple and duplicate bids and before technical rejections. The level of subscription in the issue was at 0.16 times (QIBs), 11.29 times (NIIs) and 6.82 times (RIIs). After considering the „Cheque Returns‟ and „Technical Rejections‟ instances, the subscription to the issue dropped to 1.28 times. The Company has registered its prospectus dated May 6, 2011 with the Registrar of Companies, Madhya Pradesh & Chhattisgarh. The issue price was fixed at `49 and the securities issued through the IPO have been allotted to investors on May 10, 2011. In the meantime, SEBI received various complaints as mentioned in paragraph 1 above, and pursuant to conducting a preliminary examination, SEBI passed the Order dated May 26, 2011. The findings of investigation conducted by SEBI, so far, are given in the following paragraphs.

3. The details of the bids received in the IPO of the Company are given below: Exchange Wise Bid Registered Exchange Bids Bids Quantity National Stock Exchange of India Limited (NSE) 4,501 23,030,640 Bombay Stock Exchange Limited (BSE) 2,186 15,774,360 NSE-ASBA* 507 2,395,320 BSE-ASBA* 349 654,600 Total (A) 7,543 41,854,920

Exchange Wise Bid Registered Exchange Bids Bids Quantity Bids thru Exchange 7,543 41,854,920 Invalid Bids Multiple 53 237,360 Invalid Bids Duplicate 2 240 LESS TOTAL (B) 55 237,600 Bids not Banked (C ) 666 6,392,040 Bids Banked [ D = (A-B) - ( C ) ] 6,822 35,225,280 Bids NOT registered. - Applications banked Rejected under Application Banked, Bid not Registered 5 5,040 Add: ( E ) 5 5,040 Total Banking Applications (F) =( D + E ) 6,827 35,230,320 Application Cheque Returns 2,785 20,734,560 Difference in Quantity(Book Vs Bank schedule - Less considered as per schedule) 0 31,800 TOTAL (G ) 2,785 20,766,360 Net Appl. before Rejections (H) = (F) - (G) 4,042 14,463,960 Technical Rejections / Withdrawal 358 1,671,360 Multiple Rejections 4 8,400 LESS TOTAL (I ) 362 1,679,760 Valid Applications for allotment (H- I) 3,680 12,784,200 *Application Supported by Blocked Amounts An analysis of rejections/withdrawals indicate that upon closure of the issue, certain applicants have adopted various methodologies for withdrawing their bids, viz., giving stop payment instructions, amount invested exceeding the funding arrangement with the bank, ensuring their cheque is returned due to insufficient funds etc. As a result, 69.26% (almost 3 times of the issue size) of the total applications received was not considered for allotment. This is in marked deviation from the normal behaviour associated with public offers, and seemed to be very unusual. Prima facie, it raises serious doubts about the genuineness of the intention of such applicants.

REJECTIONS IN THE NII CATEGORY Reason No Shares % to total shares as % to total Amount (`) bid under NII bidding (NII + retail) Stop Payment 38,32,560 22.64 9.40 18,77,95,440 Other Banking rejections 66,38,280 39.21 16.27 32,52,81,600 Not banked 41,01,960 24.23 10.06 20,09,96,040

Insufficient funds 4,92,360 2.91 1.21 2,41,25,640 Withdrawal 6,06,000 3.58 1.49 2,96,94,000 Technical rejections 0 0.00 0.00 0 Total NII Rejections 1,56,71,160 92.56 38.42 76,78,92,720

REJECTIONS IN THE RII CATEGORY Reason Shares % to total shares as % to total Amount (`) bid in RII category bidding (NII + RII) Stop Payment 45,74,880 19.17 11.22 22,41,69,160 Other Banking rejections 28,21,680 11.83 6.92 13,88,36,548 Not banked 22,90,080 9.60 5.61 11,22,13,920 Insufficient funds 23,74,800 9.95 5.82 11,66,70,920 Withdrawal 10,05,120 4.21 2.46 4,92,50,880 Technical rejections 68,640 0.29 0.17 33,23,400 Total Retail Rejections 1,31,35,200 55.05 32.20 64,44,64,828

It can be seen from the above analysis that a significant portion of the rejections in the aforesaid categories were consequent to stop payment instructions by the applicants, cheques supporting such applications were not presented or encashed, other banking rejections, etc. Such large numbers of applications were evidently instrumental in inflating the bid book without actual inflow of funds from those applications.

4. The details of the bidding and the withdrawals/rejections at the top bidding centers are as follows:

A. ANALYSIS OF BIDS IN THE NII CATEGORY

Name ALL BIDS VALID BIDS INVALID/REJECTED No. No. of % of Valid No. Vali No. of % of % of % of total of shares bid total of shares d shares rejection rejection invalid bids bids app. to the within NII (NII+RII) recd.(s total bids category hares) of the broker Karvy Stock Broking Ltd 10 43,68,240 10.50 0 0 43,68,240 100.00 27.87 15.16 Rikhav Securities Ltd 8 33,46,560 8.05 0 0 33,46,560 100.00 21.35 11.62 Ashika Stock Broking Ltd 5 18,36,480 4.42 0 0 18,36,480 100.00 11.72 6.38 Enam Securities Pvt Ltd 8 15,01,560 3.61 0 0 15,01,560 100.00 9.58 5.21 KGR Securities Pvt. Ltd. 14 14,05,560 3.38 10,17,960 2 3,87,600 27.58 2.47 1.35 Motilal Oswal Securities Ltd 23 12,81,240 3.08 1,09,080 4 11,72,160 91.49 7.48 4.07 Amit Jasani 6 12,24,000 2.94 0 0 12,24,000 100.00 7.81 4.25 Matalia Stock Broking Ltd 63 7,64,400 1.84 0 0 7,64,400 100.00 4.88% 2.65

TOTAL OF ABOVE NII BIDS 137 1,57,28,040 37.82 11,27,040 6 1,46,01,000 93.17 50.69 TOTAL OF ALL NII BIDS 145 1,69,30,800 40.71 12,59,640 8 1,56,71,160 100.00 54.40 Note: The application in the above cases, except Enam Securities Private Limited have been put through a single terminal.

NII category contributed to 40.71% of the total bids out of which 93.17% of the bids that were put through the above mentioned eight sub-syndicate members have been withdrawn/rejected. Further, in respect of six out of these eight sub-syndicate members, 100% of their bids in NII category have been withdrawn/ rejected. In respect of other two sub syndicate members, most of the bids through them were withdrawn/ rejected. B. ANALYSIS OF BIDS IN THE RII CATEGORY Name ALL BIDS VALID BIDS INVALID/REJECTED No. of No. of % of total Valid No. Valid No. of % of % of % of total bids shares bid bids of shares No. of shares rejectio rejection invalid received app n to within RII (NII+ RII) (shares) the category total bids of the broker Motilal Oswal Securities Ltd 2,378 79,09,920 19.02 33,20,160 1017 45,89,760 58.03 34.94 15.93 Rikhav Securities Ltd 1,221 48,76,680 11.73 10,95,960 278 37,80,720 77.53 28.78 13.12 KIFS Securities Pvt. Ltd 326 11,66,880 2.81 1,69,320 45 9,97,560 85.49 7.59 3.46 Ratnakar Securities Pvt Ltd 275 10,85,280 2.61 5,99,760 149 4,85,520 44.74 3.70 1.69 SS Corporate Securities Limited 310 10,83,600 2.61 8,43,480 228 2,40,120 22.16 1.83 0.83 Shri Parasram Holding Pvt Ltd 243 9,69,000 2.33 2,12,160 52 7,56,840 78.11 5.76 2.6% TOTAL OF ABOVE RII BIDS 4,753 1,70,91,360 41.09 62,40,840 1769 1,08,50,520 82.61 37.67 TOTAL OF ALL 1,07,24,52 RII BIDS 7,347 2,38,59,720 57.37 0 3671 1,31,35,200 100.00 45.60 Note: The applications in the above cases have been put through one or two terminals.

The above table indicates that out of the total bids received in the issue, 57.37% were in the RII category. Further, 82.61% of bids received from the above mentioned six sub-syndicate members have been withdrawn/ rejected.

5. The summary of bids received in the NII and RII category indicate a concentration from a few sub-syndicate members and majority of such bids were subsequently withdrawn/cancelled. Upon closure of the issue, the Registrar to the Issue (hereinafter referred to as the “RTI”) received 294 applications for 16,11,120 shares for withdrawal. The analysis of the withdrawal requests received by the RTI reveals a particular pattern, where it is observed that they were in exactly uniform formats with very similar details, despite the fact that the investors are scattered across the country. This leads to an inference that all such applications were made and withdrawn apparently as a part of a pre-meditated plan, and at the instruction of some operator or that all such applicants had acted in a concerted manner with a common objective both while making the applications and withdrawing the same.

6. It is also seen that 666 applications for 63,92,040 shares (63.92% of issue size) have been entered in the system but the cheques in support of such applications have not been encashed. The two sub-syndicate members, namely, Karvy Stock Broking Limited and Rikhav Securities Limited (who are also stock brokers registered with SEBI) contributed to 81.29% of such cases. As a practice, the applications received from investors are punched in the system by the sub-syndicate members and cheques are sent to the Bankers to the Issue (hereinafter referred to as BTIs) for encashment. However, the requests from applicants for withdrawal of their bids are communicated only to the RTIs. In respect of the above mentioned 666 instances, instead of encashing the cheques in the normal course, it appears that the respective sub-syndicate members have held back the cheques without presenting the same for encashment, which prima-facie suggests that they apparently knew about the impending withdrawals, so that the applicants do not have to wait through the normal period for the refund had the cheques been actually encashed.

BIDDING BY BAJAJ CONSULTANTS PRIVATE LIMITED AND ITS GROUP ENTITIES

7. In the NII category, an entity namely, Bajaj Consultants Private Limited and its group entities (some of them being SEBI registered intermediaries) have together applied for around 43,00,000 shares amounting to about 43% of the IPO issue size. All such bids (the details of which are given below in the table) were made on the last day of the bidding period, but were rejected during the allotment due to reasons like un-encashed cheques supporting such applications or stop payment instructions.

Name Bid Date Bid Time Shares Amount (`) Bajaj Commodities Trading Pvt ltd 03-05-2011 13:30:10 1,02,120 50,03,880 Bajaj Share and Stock Brokers P Ltd 03-05-2011 13:30:11 4,08,240 2,00,03,760 Vinodkumar Bajaj & Company HUF 03-05-2011 14:47:45 6,12,360 3,00,05,640 Bajaj Consultants Pvt Ltd 03-05-2011 13:30:11 8,16,360 4,00,01,640 Bajaj Retail India Ventures Pvt Ltd 03-05-2011 14:47:43 6,12,360 3,00,05,640 Bajco Consultants Pvt Ltd 03-05-2011 13:30:08 3,06,240 1,50,05,760 Rajkamal Ramniwas Bajaj 03-05-2011 13:30:08 5,10,240 2,50,01,760 Ramniwas Bajaj & Company HUF 03-05-2011 14:47:44 6,12,360 3,00,05,640 Vinodkumar Ramniwas Bajaj 03-05-2011 13:30:09 3,06,240 1,50,05,760 Total 42,86,520 21,00,39,480

During the course of investigation, Bajaj Consultants Private Limited stated that it had withdrawn its bids based on information from the BRLM that the QIB portion was undersubscribed and that the same was information available live on the stock exchange websites. This submission cannot be accepted on the face of it as it is revealed that there has not been any significant increase in the levels of QIB subscription between the closure of second day and the closure of the last day of the bidding period. On the other hand, the QIB portion was subscribed only around the second half of the last day of the IPO, which was around the same time when Bajaj consultants Private Limited and its group entities had also placed their bids. Therefore, Bajaj consultants Private Limited and its group entities clearly had the knowledge about the poor response to the QIB subscriptions at the time of their bidding. Despite the same, they preferred to place their bids in the IPO and informed the RTI (vide letters dated May 4, 2011, i.e. the next day of the issue closure), not to deposit the cheques. Due to the bidding by Bajaj consultants Private Limited and its group entities, the bid book was inflated by around 10% of the total bids received in the issue till the closure of the bidding on the last day. I also note that one of the group entities viz. Bajaj Share and Stock Brokers Private Limited is a SEBI registered intermediary. Being a registered entity, it ought to have shown greater responsibility in dealing in shares in such circumstances. Therefore, at this stage, I cannot but prima facie hold that the bidding by Bajaj consultants Private Limited and its group entities in the IPO of the Company was not in the bonafide interest of the genuine investors in the securities market.

ROLE OF RIKHAV SECURITIES LIMITED IN THE BIDDING PROCESS

8. A total of 186 applications (87 from the NII category, 99 from the RII category) were received on the first day of the bidding period. Out of this, only one application in the NII category was valid. All the applications received in the RII category were considered valid for allotment. It was further found that seven applications in the NII category for 23,26,320 shares (23.26% of total issue size) were bid through Rikhav Securities Limited on the first day and all of them were withdrawn subsequently. Out of this, one application for 6,12,240 shares (6.12% of total issue size) was made by Rikhav Brokers Private Limited (group entity) and this was the first bid received in the IPO. On the same day, AHL Investment Consultants Private Limited, another group entity of Rikhav Securities Limited had made an application for 2,04,000 shares. It is pertinent to note that, as per the statement of Rikhav Securities Limited, none of their group entities have ever bid in the NII category in any of the prior public issues. It is also seen that Mr. Alpesh Lakhani, brother of Hitesh H. Lakhani (Director, Rikhav Securities Limited) had bid for 2,04,000 shares through the terminal of Mr. Amit Jesani which was withdrawn subsequently. Though, Mr. Alpesh Lakhani holds a trading account with Rikhav Securities Limited and resides in close proximity to the office of Rikhav Securities Limited, he still chose to put in the application through some other stock broker possibly to make it look like a transaction unconnected to Rikhav Securities Limited. On the second day of the bidding period, one Vivek Agarwal placed a bid for 10,20,240 shares (10.20% of total issue size) through the terminal of Rikhav Securities Limited, which was withdrawn subsequently. On the third and the last day of the bidding period, 1,154 bids were placed through the terminal of Rikhav Securities Limited in the RII category out of which 919 bids were not considered for allotment due to reasons like cheque return, cheque not encashed, withdrawal instruction by the applicant, etc.

9. It is also seen that Rikhav Securities Limited had financed 187 clients belonging to the RII category for placing bids for 7,62,960 shares through its NBFC arm, Total Holdings and Finvest Private Limited. The amount financed was about `3.74 Cr. However, nearly 50% bids (made through such financial arrangement) for 3,06,000 shares have been withdrawn subsequently. From the funding activity carried out by the group company of Rikhav Securities Limited, the submissions of Rikhav Securities Limited during the course of investigation and the statements of some of its clients, the following appears to be the modus operandi: The NBFC arm which is the group entity of the Rikhav Securities Limited issues cheques on behalf of the client to Rikhav Securities Limited for the purpose of bidding in the IPO. Shares are allotted to the clients and are credited to their respective demat accounts. The demat accounts of the clients are under the control of the stock broker, Rikhav Securities Limited, by way of a power of attorney. Refunds or sale proceeds would be automatically taken back from the bank accounts of the clients to the NBFCs‟ bank accounts. For this purpose the client gives standing instructions to the banks to transfer amount lying in his account immediately to the lender‟s (i.e the NBFC) account. The NBFC arm charges a sum for this financing arrangement. The profit earned/loss made by the client out of listing would be settled separately between the client and the financier, either by way of cash or cheque. According to the client and the stock broker, viz., Rikhav Securities Limited, all such transactions takes place on mutual understanding and that there are no written agreements for this purpose.

It would broadly suggest that the stock broker along with its NBFC arm had apparently complete control over these bids although such bids have been entered in the names of respective clients.

10. Similarly, it is also seen that 70 applications for 2,85,600 shares that were put through Rikhav Securities Private Limited were financed by Manba Investment & Securities Private Limited. The said entity along with its group entity, Manba Broking services Private Limited, have also placed bids through Rikhav Securities Private Limited for approximately 8,16,000 shares under NII category. All these applications eventually culminated as either “not banked”/“payment stopped”.

11. From the above, it is noted that Rikhav Securities Limited, by:

i. placing large orders on behalf of the applicants during the first two days and then withdrawing/cancelling those bids, ii. allowing large number of NIIs to place high bids and then withdrawing/cancelling the bids, iii. arranging the financing and controlling the large number of bids placed by RII clients and then cancelling/withdrawing has prima facie inflated the bid book to a large extent and thus appears to have induced the investors to subscribe to the issue.

12. The analysis of the bid book also indicates a similar pattern of continuously numbered cheques being received on behalf of several clients and submitted to stock brokers for bidding through their terminals. This would further suggest that such funding arrangements may be widely prevalent in the IPO of the company and that the entire bidding process might be controlled by few operators.

ROLE OF ASHIKA STOCK BROKING LIMITED

13. It was further noted that five applications in the NII category for 18,36,480 shares (18.36% of total issue size) were bid through Ashika Stock Broking Limited (group company of the BRLM/Syndicate Member to the issue). Out of the same, one application for 12,24,000 shares (the largest number of shares received from a single application in the IPO) was made by Mr. Man Mohan Damani. All those bids put through Ashika Stock Broking Limited were withdrawn subsequently. The role of Ashika Capital Limited, the sole BRLM to the issue as well as the sole syndicate member to the issue, also needs further examination, as one of its group entities (Ashika Stock Broking Limited) is also involved placing large bids in a similar manner and then withdrawing the same after the closure of the bid book. Furthermore, it needs to be examined whether it had any role in encouraging the sub-syndicate members in not depositing the cheques enclosed with the application. This becomes all the more necessary considering the fact there was no news/development in public domain, which could have precipitated such huge withdrawals.

14. The investigation in the matter has so far, prima facie revealed a concerted effort by certain operators with the help of few investors to abuse the bidding process and show an artificially inflated bid book. The aforesaid acts are prima facie in contravention of Regulations 3 and 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003. The process of bidding in shares of the issuer company by Rikhav Securities Limited, as explained above, prima facie indicates that the said stock broker has made attempts to abuse the bidding process. Therefore, till further directions, allowing it to act as a syndicate member/sub-syndicate member is clearly not in the interest of investors and the securities market in general.

15. The concentration of bidding from few centers and its subsequent withdrawal from these centers as explained above, prima facie indicates that the process of bidding in shares of the issuer company is abused. It is noted that Ashika Capital Limited, the sole BRLM to the issue is also the sole syndicate member to the issue. It has further appointed several sub-syndicate members across the country to facilitate the bidding process. There is a concentration of bidding and withdrawals at a few terminals of certain sub-syndicate members. In this context, the role of Ashika Capital Limited, the syndicate member to the issue and other sub-syndicate members, more particularly, Rikhav Securities Limited, Ashika Stock Broking Limited, Motilal Oswal Securities Limited, Karvy Stock Broking Limited and Enam Securities Private Limited in the bidding process also needs to be examined in detail.

16. The investigation, so far, does not prima facie suggest any involvement of the issuer in the bidding process. However, as it is observed from the above, the issue apparently got fully subscribed due to the alleged artificial demand created by the few market operators and therefore, it cannot be ignored that unwittingly, one of the beneficiary of this alleged manipulative process, directly or indirectly, is the issuer company itself. In view of such findings and in the interest of justice, SEBI issued a notice dated July 5, 2011 to the Company and Ashika Capital Limited informing that SEBI is contemplating the following directions:

a. The allotment made in the IPO of the Company is voidable at the option of the investors. The Company shall give option to all the applicants to whom the shares have been allotted to withdraw their applications/bids. b. On closure of the withdrawal option, if the subscription level remains above minimum subscription level, the shares of the Company shall be listed on the stock exchanges. However, if it falls below the minimum subscription level, the sole syndicate member-cum-BRLM, Ashika Capital Limited, may consider underwriting the issue and purchase the shares of the issuer company to the extent it makes the issuer company eligible for listing, subject to compliance with the other requirements of the Companies Act, 1956, ICDR Regulations and other listing requirements. c. In the event the Company fails to provide the withdrawal option within the given time frame, the allotment shall be considered null and void and lead manager to the issue shall take the necessary steps to ensure that the allotment of shares is annulled and money is to be refunded back to the investors.

The Company was advised to offer its submissions in the personal hearing originally scheduled on July 6, 2011, which was rescheduled to July 8, 2011 on the request of the Company. On the said date, Mr. R.S. Loona, Advocate, represented the Company and made submissions. Written submissions dated July 8, 2011 werealso filed. Mr. Ravi Vaswani, the Managing Director of the Company was also present in the hearing. Ashika Capital Limited, the BRLM, was represented by Mr. Vinay Chauhan, who made submissions. Written submissions dated July 7, 2011 were received from Ashika Capital Limited subsequently.

17. Mr. R.S. Loona, the learned counsel submitted that the aforesaid notice does not satisfy the essential ingredients of a show cause notice as the same did not contain the provisions of law which are violated or under what provisions of law the directions as contemplated therein are proposed to be issued. It was submitted that there was no averment in the said notice as to how the Company is related to those entities that had abused the process in its IPO and urged that SEBI should take stern action against those entities. It is the contention that the Company should not be penalized for the unlawful acts of others when the Company is equally an aggrieved party from the alleged acts. As regards the proposed direction of making the allotment voidable at the option of the investors, the learned counsel drew my attention to the observation in SEBI Order dated May 26, 2011 that “withdrawal option generally precedes allotment whereas in instant case, allotment has already been completed by the time SEBI was informed of the matter” to submit that the allotment of shares was already completed on May 10, 2011, the excess share application had been returned, a Return of Allotment was already filed on May 18, 2011 and that in the facts and circumstances of the case, giving any withdrawal option post allotment does not arise. According to the learned counsel, in terms of Section 71 of the Companies Act, 1956, an allotment made by a company to an applicant could be voidable at the instance of the applicant only under two circumstances i.e. (i) an allotment made without ensuring the minimum subscription under Section 69 or (ii) an allotment is made without issue of prospectus under Section 70; and submitted that the instant case would not fall in any of the aforesaid circumstances. The learned counsel submitted that the proposed direction pre-supposes that SEBI has found serious irregularities in the IPO of the Company for which the promoters, the Company or the BRLM are responsible and contended that the notice does not make any allegation to that effect. It was also contended that Section 69 of the Companies Act, 1956, does not get attracted, as the same is applicable only during subscription and not after allotment. He further contended that the said provision is being made applicable on closure of withdrawal option.

18. With respect to the proposed direction that the BRLM/sole syndicate member to consider underwriting the issue and purchase the shares to that extent, if the subscription level falls below the minimum level, the counsel submitted that the said proposed direction is not legally tenable as the sole syndicate member is under no obligation to underwrite the Company‟s IPO post allotment. It was also submitted that if the option for withdrawal of application is given to the allottees, then compliance with Regulation 26(4) of the SEBI (ICDR) Regulations, which requiring having atleast 1000 allottees, may not be satisfied. On one of the contemplated actions, viz., declaring the allotment null and void and refunding money back to investors, the learned counsel submitted that SEBI does not have any power to declare the allotment as null and void and that an allotment can be made void under Section 73 of the Companies Act, 1956 only if listing permission is not granted by the stock exchange before the expiry of ten weeks from the date of closing of the subscription list. The learned counsel also submitted that since no irregularity has been found on the part of the Company, its promoters or the BRLM, it would be unfair to pass any directions that may hurt the Company or frustrate its efforts to raise money from the stock market for the Company‟s operations. Ashika Capital Limited, vide its letter dated July 7, 2011 had made similar submissions as that of the Company in respect of the proposed direction to the underwriter to consider underwriting. Additionally, the said entity has contended that it was not clear under which provision of law the said obligation is proposed to be fastened on it.

19. I have given very careful consideration to the submissions and contentions of the learned counsel for the Company. At this stage in the proceedings, I find myself confronted with a difficult challenge. I have two choices to select from. The first choice is to allow listing of the shares on the ground that the issuer so far, has not been found involved in the vitiation of the processes for the public offering as observed by the investigation, and therefore it would be unreasonable to disallow the listing. The second choice is to allow listing and expose the investors who have been allotted shares, to inordinate risks, on the basis of the artificially generated and evidently bogus interest in the scrip. These investors then could even find their shares reduced to little or no value at all. That will be indeed unfortunate for these investors who would be made to suffer for no fault of theirs. On the other hand, if listing is disallowed, then the issuer foregoes the opportunity of raising capital in the present attempt. But, since there is no imputation of wrongdoing attached to the issuer, at this stage of the investigation, the issuer, without any damage to its reputation or stature, can take recourse to the market for raising capital, if it chooses to do so. This alone seems to be a reasonable compromise that serves the expediency of justice to the investors and at the same time reflects concern for the issuer, who at this stage of the investigation stands free of any charge of violating the laws and regulations applicable to it.

20. On the argument raised by the learned counsel on behalf of the Company that the Show Cause Notice does not embody any charges or sections of law and is in violation of the principles of natural justice, and could even cast aspersions on the Company itself, I took the opportunity to assure the learned counsel and representatives of the Company, that at this stage of the investigation there is absolutely no imputation on the bonafides of the Company and that I shall record this fact explicitly in the order herein. I explained to the learned counsel during the hearing, that the purpose sought to be achieved through the Show Cause Notice was primarily to elicit the views of the Company in enabling me to arrive at a disposal of the case in regard to the issue of listing, which would accommodate the concerns of both the investors and the issuers alike. Therefore, I sought the views and suggestions on the nature of directions that could be issued keeping in mind the paramount interest of such investors in the Company on one side and the interest of the Company in its fund raising in the present attempt on the other side. The question was posed to the Company in order to get insights from them as to how they might propose to safeguard the interest of the investors in their public offer, who, after all, will be their own shareholders. The learned counsel for the Company and the BRLM offered two distinct alternatives. They suggested that SEBI could either allow listing and suspend trading till SEBI completes investigation or in the alternative, require the Company to give a withdrawal option to RIIs only in respect of the excess shares that were credited to them owing to withdrawal/rejections in the NII category.

21. I note here that the Company has itself given thought to how best the interests of investors who could have possibly been beguiled by the excess subscriptions should be protected. After a careful consideration of the implications of the two options put forward by the Company, I am of the view that a decision on the lines put forward in the second option seemed to be more practical and could well be one that takes care of the interests of both the investor and the issuer company, to the extent feasible under the given circumstances. Pursuant to hearing, the Company, vide letter dated July 8, 2011 has inter alia made the following proposal:

i. Considering the grievance of RIIs that they have been allotted much more number of shares than what they had expected at the time of bidding due to large withdrawal of NII applications post the closure of the bidding period, RIIs would get an option to withdraw 15,00,348 shares which were the additional share allotted to them on account of NII withdrawals. The Company would refund the money to those investors who exercise the option to withdraw.

ii. If the subscription level falls below the minimum level of subscription as required by law due to such withdrawals, the Sole Syndicate member cum BRLM (Ashika Capital Limited) shall purchase or arrange purchase through any investor(s) identified by it of such number of shares so as to ensure that the subscription does not fall below the minimum level of subscription (An undertaking to that effect has been given by Ashika Capital Limited). Non compliance of such condition shall result in refund of entire subscription money to the investors.

iii. Concerned stock exchanges may be directed to grant listing permission though the trading in the Company‟s shares may not be allowed until the obligations undertaken above by the Company and Ashika Capital Limited are complied with.

22. I have considered the submissions and the contents of the said letter. The issuer company while considering the impact of the rejections has considered only withdrawals made in the NII category. However, I note that besides the withdrawal by NIIs, concerted withdrawals by RIIs are also significant and the same has also impacted the subsequent allotment ratio. The modus of withdrawal in the retail category is similar to that observed in the NII Category. The same has been mentioned in the tables at paragraph 3 above. Since, the withdrawals in the both the categories (NII and RII) are similar, I do not see any justification in considering only the withdrawals in the NII category, as suggested by the Company and the BRLM. In the interest of justice it would be fair on the part of SEBI to consider the withdrawals by both NII and RII categories for deciding the withdrawal option. Therefore, I am of the view that the Company shall take into account the withdrawals made in both the RII and NII categories while computing the number of shares on which the withdrawal option is to be given.

23. SEBI received 535 complaints, wherein the complainants had initially requested that the listing of the securities issued by the Company in its IPO should not be permitted. Thereafter, about 174 complainants have subsequently written to SEBI seeking listing of the securities. Some of them had initially requested ban on listing itself. I note that majority of the complainants felt duped by the abuse of the system outlined above and had therefore urged SEBI to disallow the listing of the shares of the Company.

24. I also note that the alleged abuse of the bidding system has not only induced the investors to subscribe to the issue but also suddenly and substantially changed their computation of the amount to be invested in the issuer company. For example, considering the subscription level at the time of issue closure, an investor who subscribed for 4080 shares, would have got an allotment of 1110 shares, taking into account the principle of proportionate allotment (in case of over subscriptions) prescribed in the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009. However, subsequently due to these large withdrawals, he obtained an allotment of 3020 shares. Clearly, he could not have envisaged this in the first place. Had the investor been aware of the concerted withdrawals and the consequent change in allotment ratio, he would have in all probability re-evaluated his investment decision, and assessed the risk to reward ratio on his investment, armed with the correct information. The learned counsel is right in contending that the Company had complied with all the requirements of a public issue specified under the Companies Act, 1956. However, in terms of Section 11A(2) of the Securities and Exchange Board of India Act, 1992, SEBI may, without prejudice to the provisions of Section 21 of the Securities Contracts (Regulation) Act, 1956, specify the requirements for listing and transfer of securities and other matters incidental thereto. Therefore, in respect of issue of capital and other matters incidental thereto, SEBI, as a regulator is empowered to issue directions in respect of matters of listing of securities. This is a rare and peculiar case, where SEBI had noticed enormous withdrawals/rejections of applications made in the NII and RII category in the IPO of the Company. Though, at this stage, the Company has not been found to be involved in the abuse of the IPO process, it is to be borne in mind that investors have been induced to invest in the shares of the Company in its IPO after noticing the inflated bid book, as detailed in the paragraphs above.

25. The central consideration, in my view, is that there is more than reasonable possibility that investors including the complainants before SEBI have been beguiled by the artificial trends in the subscription. Needless to say, the trend in subscription is a recognized signal and a vital piece of information available and made use by retail investors in particular in investing in a public offer. In this case, the inference drawn by the investors in particular the retail investors clearly have been belied by subsequent developments viz. the withdrawals of subscriptions. In the light of the above and in the interest of investors who were misled due to the high subscription level in the IPO, which was subsequently found to be bogus and untrue, and in the interest of justice, I am of the view that the aforesaid course of action developed in furtherance of an option suggested by the Company itself would be in the best interest of the investors and of the issuer as well.

26. In view of the foregoing, I, in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 read with Sections 11, 11(1), 11(4), 11B and 11D thereof and Regulation 107 of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, pending investigations, hereby issue the following directions:

i. The issuer company, Vaswani Industries Limited shall give withdrawal option to all the investors who have been allotted shares in the non-institutional investors‟ category and the retail individual investors‟ category for such number of shares by which the allotment ratio was impacted due to withdrawals/rejections in the aforesaid categories. For the said purpose, the Book Running Lead Manager, Ashika Capital Limited shall carry out the revised computation in consultation with the Bombay Stock Exchange Limited and publish the revised share allocation through advertisements in newspapers including the newspapers in which the issue advertisements were made, giving the withdrawal option to the investors in the non-institutional investors category and retail individual investors category. All the operational issues in respect of the withdrawal option shall be elaborated by the Company and the Book Running Lead Manager in such advertisement. The withdrawal option shall be kept open for a period of ten days from the date of publication of such advertisements.

ii. In the event of refund/withdrawal on the exercise of the withdrawal option by an investor, the Company may deduct the expenses incurred in connection with its initial public offer, to be certified by the merchant banker and the same shall be appropriately apportioned from the subscription amounts due to the investors. However, the maximum expense so deducted from any investor in exercise of the withdrawal option shall not exceed 1% of the amount invested by any investor. iii. The Book Running Lead Manager, Ashika Capital Limited shall open a separate escrow demat account for crediting such shares (which were earlier credited to the demat accounts of the investors in the allotment made by the Company) that are offered by those investors who apply in the aforesaid withdrawal option. iv. Those investors who apply in the withdrawal option shall enclose a Delivery Instruction Slip for the purposes of transferring such number of shares as may be decided in the revised share allocation and the same shall be credited to a separate escrow demat account, to be opened as directed above. v. The depositories shall permit the transfer of such shares of the Company from the demat accounts of such clients for credit into the escrow account and also for subsequent transfers from the said escrow account. vi. The Company and its Book Running Lead Manager, Ashika Capital Limited shall cancel those shares, which have not been underwritten or taken by other investors identified by the lead manager. vii. On closure of the withdrawal option, if the subscription level after such withdrawals falls below the minimum level of subscription as required by law, the Sole Syndicate member cum Book Running Lead Manager, Ashika Capital Limited, may purchase or arrange purchase through any investor(s) identified by it of such number of shares so as to ensure that the subscription does not fall below the minimum level of subscription.

Non-compliance of such condition shall result in refund of entire subscription money to the investors and cancellation of all the shares so allotted by the Company. viii. The concerned stock exchanges are advised to ensure compliance of the aforesaid directions issued to the Vaswani Industries Limited and its Book Running Lead Manager, Ashika Capital Limited before granting listing and trading permission. ix. In the event of the Company failing to provide withdrawal option within the given time frame, as directed herein above, the Book Running Lead Manager to the issue, Ashika Capital Limited shall take necessary steps to ensure that the allotment of shares is cancelled and money is refunded to investors within seven days of such failure. x. Rikhav Securities Limited is prohibited to act as a syndicate member/sub-syndicate member for all forthcoming issues, for the reasons stated above, till further directions. xi. Bajaj Consultants Private Limited and its group entities, namely, Bajaj Commodities Trading Private Limited, Bajaj Share and Stock Brokers Private Limited, Vinodkumar Bajaj & Company HUF, Bajaj Consultants Private Limited, Bajaj Retail India Ventures Private Limited, Bajco Consultants Private Limited, Mr. Rajkamal Ramniwas Bajaj, Ramniwas Bajaj & Company and Mr. Vinodkumar Ramniwas Bajaj are directed to cease and desist from bidding in an objectionable manner observed above, till further directions. xii. The ongoing investigation shall inter alia examine in detail the role of the intermediaries involved in the Initial Public Offer of Vaswani Industries Limited.

27. These directions shall not, at this stage of the investigations, be construed to cast any adverse imputation to the Company in any manner whatsoever.

28. Having regard to the facts and circumstances of the case, the findings that have emerged from the investigation conducted so far and also the need to continue the said investigation for probing into various other issues as directed hereinabove, the Order dated May 26, 2011 of the Securities and Exchange Board of India in the matter shall stand modified to the extent ordered hereinabove.

DR. K. M. ABRAHAM WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

PLACE: MUMBAI DATE: JULY 11, 2011