Order in the matter of Karuna Cables Limited and Others
- Order No.WTM/KMA/82/IVD/06/2009
Ratio decidendi
The rule this decision rests on
Where the investigation has not established that a person participated in the manipulation of a company's shares, and that person has not been shown to have dealt in the shares through off-market transactions, the regulator may give that person the benefit of doubt and revoke interim directions restraining dealings in the securities. Non-executive independent directors who had no role in the company's day-to-day affairs, who did not play any role in the findings on which the interim directions were based, and whose role in the manipulation the investigation could not conclusively establish, are entitled to the benefit of doubt and are not to remain subject to directions restraining dealings in the company's shares. Promoters and others against whom there is no material establishing their role in the manipulation, and who were not involved in off-market transactions in the shares during the investigation period, are entitled to the benefit of doubt, and directions against them are not to be continued. Where a person explains that shares standing in their name were received as security for a loan, supports that explanation with documentary material, and no incriminating evidence on record shows their role in the manipulation, that person is entitled to the benefit of doubt. Proceedings against a person who has died become infructuous.
Written by Miss Lucy from the judgment below, not taken from a headnote.
Judgment
As delivered
1. Securities and Exchange Board of India (hereinafter referred to as SEBI) noticed sharp price variation in the shares of Karuna Cables Limited (hereinafter referred to as the company) at the Bombay Stock Exchange Limited (hereinafter referred to as BSE) and the National Stock Exchange of India Limited (hereinafter referred to as NSE) during the period between February 10, 2005 (Rs. 21.80) and September 16, 2005 (Rs.160.40), mostly in intermittent spells. It was also observed that, between July 08, 2005 and September 16, 2005, the share price increased from Rs.40.15 to Rs. 160.40. Thereafter, SEBI initiated an investigation in the matter and on the basis of the preliminary findings, pending investigation and passing of final order, SEBI, vide an ex-parte ad-interim order dated November 29, 2005, issued various directions, as stated in the said order. In terms of the said order, various persons including Mrs. Hasu M. Shah, Mr. Mit Shah, Mr. Akshat Shah, Mr. Kirti Shah, Mr. Jaswant C. Shah, Mr. C.V.V Prasad, Mr. N.S Ranganath, Mr. Pavankumar Sanwarmal, N. G. Builders & Developers, Mr. Narendrapal Gupta, Mrs. Manju Gupta and Mr. Vijay Bhagwandas Shah were directed not to buy, sell or deal in the securities of the company directly or indirectly till further directions. The entities/persons mentioned in the said interim order were given an opportunity for filing their objections. Subsequently, Mr. Pavankumar Sanwarmal and Mr. N S Ranganath (non-executive independent directors of the company) filed their objections. Mrs. Hasu M. Shah, Mr. Mit Shah, Mr. Akshat Shah, Mr. Kirti Shah, Mr. Jaswant C. Shah, Mr. C.V.V Prasad, N. G. Builders & Developers, Mr. Narendrapal Gupta, Mrs. Manju Gupta and Mr. Vijay Bhagwandas Shah neither submitted their replies nor requested for personal hearing in the matter. Thereafter, SEBI vide order dated July 25, 2006 confirmed the directions against all the persons/entities mentioned in the ad interim ex parte order dated November 29, 2005.
2. The investigation in the matter is completed and the proceedings initiated against the company, its Managing Director viz. Mr. Mahendra C. Shah, Ceetee Trading and Leasing Private Limited and its Director Mr. Sanjay B. Shah have been disposed of by SEBI, vide order dated June 15, 2009. They were inter alia directed not to buy, sell or deal in securities in any manner either directly or indirectly for a period of six months. SEBI also initiated adjudication proceedings against various clients including two stock brokers in respect of their dealings in the shares of the company.
3. I have considered the objections filed by Mr. Pavankumar Sanwarmal and Mr. N. S Ranganath (non-executive independent directors of the company) and other material available on record.
4. Mr. Pavankumar Sanwarmal, vide letter dated December 26, 2005 stated the following: a) He was appointed as Non-executive Independent Director of the company on 29.11.2004 and he was not its promoter. However, he was included as a member of the Audit Committee of the company.
b) He was not connected with the day-to-day working of the company. c) He had not played any role as far as the findings in the interim order were concerned. d) He was holding 1,25,000 shares of the face value of Rs.2/- each of the company. e) He had not sold or dealt in the shares of the company.
5. Mr. N. S. Ranganath replied that he had not played any role as far as the findings of interim order were concerned. He also stated that he was included as Chairman of the Investor Grievance committee and Member of the Audit Committee of the company subsequent to his appointment on July 1, 2003. He was holding 25,000 shares of the company in physical form which he had purchased during the year August 2003 and did not have any Demat Account.
6. The main contention of Mr. Pavankumar Sanwarmal and Mr. N. S. Ranganath is that they were appointed as the non executive directors of the company and did not have any role in the day to day affairs of the company. I find that Mr. C.V.V. Prasad was also a non executive director of the company. He did not file his objections to the ad interim order dated November 29, 2005. I also note that the aforesaid persons were not involved in off market transactions in the shares of the company. Further, I find that the investigation carried out by SEBI could not conclusively establish the role of the aforesaid persons in the manipulation in the shares of the company.
7. In respect of the promoters of the company namely, Mrs. Hasu M. Shah, Mr. Mit Shah, Mr. Akshat Shah, Mr. Kirti C. Shah, Mr. Jaswant C. Shah, I note that Mrs. Hasu M. Shah Mr. Kirti C. Shah and Mr. Jaswant C. Shah were not involved in any off market transactions in the shares of the company during the investigation period. Further, there is no material to support their role in respect of the manipulation. Similarly, I note that the documents collected during investigation were not sufficient to establish the part of Mr. Mit Shah and Mr. Akshat Shah in the manipulation.
8. With respect to the allegations against Mrs. Manju Gupta and Mr. Narendrapal Gupta and N.G. Builders & Developers, I note that during the course of investigation, the aforesaid persons informed informed that the shares transferred to Mr. Bipin Shah and Mrs. Bhavana Bipin Shah were earlier received by them as a security against a loan of Rs.20 lakh taken by Sunbeam Capital Services Private Limited. I also note that, in support of their claim, they had also produced a copy of the loan request letter of Sunbeam Capital Services Private Limited, demat account statements and bank account statements. No incriminating evidence against the aforesaid persons are available on record to show their role in the manipulation.
9. Considering the facts and circumstances of the case and the material available on record, I am inclined to give Mrs. Hasu M. Shah, Mr. Mit Shah, Mr. Akshat Shah, Mr. Kirti Shah, Mr. Jaswant C. Shah, Mr. C.V.V Prasad, Mr. N.S Ranganath, Mr. Pavankumar Sanwarmal, N. G. Builders & Developers, Mr. Narendrapal Gupta, Mrs. Manju Gupta the benefit of doubt in respect of the manipulation in the shares of the company. In view of the foregoing, I do not find it appropriate to continue with the directions passed by SEBI, vide order dated November 29, 2005, which was subsequently confirmed, vide order dated July 25, 2006 against Mrs. Hasu M. Shah, Mr. Mit Shah, Mr. Akshat Shah, Mr. Kirti Shah, Mr. Jaswant C. Shah, Mr. C.V.V. Prasad, Mr. N.S Ranganath, Mr. Pavankumar Sanwarmal, N. G. Builders & Developers, Mr. Narendrapal Gupta and Mrs. Manju Gupta.
10. In view of the foregoing, I, in exercise of powers conferred upon me under Section 11 and 11B read with Section 19 of the Securities and Exchange Board of India Act, 1992 further read with Regulation 11 of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003, hereby revoke the directions issued by Securities and Exchange Board of India vide orders dated November 29, 2005 and July 25, 2006 in so far as Mrs. Hasu M. Shah, Mr. Mit Shah, Mr. Akshat Shah, Mr. Kirti C. Shah, Mr. Jaswant C. Shah, Mr. C.V.V. Prasad, Mr. N.S. Ranganath, Mr. Pavankumar Sanwarmal, N. G. Builders & Developers, Mr. Narendrapal Gupta and Mrs. Manju Gupta are concerned.
11. The proceedings against Mr. Vijay Bhagwandas Shah become infructuous owing to his demise.
12. This order shall come into force with immediate effect.
DR. K. M. ABRAHAM WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA
PLACE: MUMBAI DATE: JUNE 15, 2009
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