Order in the matter of Mascon Global Ltd

WTM/PS/01/IVD/ID-3/APR/2010 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER IN THE MATTER OF MASCON GLOBAL LIMITED. Date of hearing: January 25, 2010 Appearances: For Noticee: Mr. K. Chandra, Chairman, Macon Global Ltd. Mr. S. Sivakumar, Company Secretary For SEBI: Mr. G. Ramar, Deputy General Manager Mr. Pradip Bhowmick, Assistant General Manager Mr. Pradeep Kumar, Legal Officer ORDER Under Section 11B and 11(4) of the Securities and Exchange Board of India Act, 1992. 1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) conducted an investigation into buying, selling and dealings in the shares of Mascon Global Ltd. (hereinafter referred to as ‘Mascon’) for the period of August 1999 to March 2000 and December, 2000 to March, 2001.

2. Investigation revealed that Mascon was a closely held company and prior to December, 2000, the scrip was highly illiquid. During the period of investigation, the scrip of Mascon had fallen from Rs.420/- to a low of Rs.85/-. A sudden surge in the volumes of Mascon was noticed during December, 2000, largely on account of the off-loading of substantial number of shares by promoter group company of Mascon namely Mascon Information Technologies Ltd. (hereinafter referred to as ‘MITL’) (formerly known as Martek Holdings Inc, USA) and CSI Technologies Ltd. to various entities related/ connected/ associated to Ketan Parekh namely Panther Investrade Ltd., Panther Fincap and Management Services Ltd., Classic Credit Ltd., Saimangal Invest Trade Ltd. and Luminant Investments Pvt. Ltd. and Overseas Corporate Bodies (hereinafter referred to as OCB’s) namely, Kensington Investments Ltd., European

Investments Ltd., Wakefield Holdings Ltd. and Brentfield Holdings Ltd. During the period under consideration only these Ketan Parekh related entities and the said OCB’s were active in the scrip. The movement of shares was analyzed and from this it was revealed that huge quantities of shares of Mascon were off-loaded by way of off market transfers from the account of MITL and CSI Technologies Ltd. This huge volumes in the shares were later-on used by the entities to indulge in rampant manipulation of price and volume in Mascon.

3. On completion of the investigations, SEBI inter-alia issued show cause notice dated August 17, 2007 (hereinafter referred to as ‘SCN’) to Mascon under Sections 11(4) and 11B of the SEBI Act, 1992. The SCN alleged that Mascon had aided and abetted Ketan Parekh related entities and OCB’s through its group entities in order to manipulate the scrip. It was further alleged that Mascon is responsible for the acts of MITL. The SCN, therefore, alleged that the acts of Mascon were in violation of the Regulations 4 (b) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 (hereinafter referred to as ‘PFUTP Regulations’) read with Regulation 13 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003. Accordingly, it called upon Mascon to show cause as to why suitable directions under Section 11(4) and 11B of SEBI Act should not be issued.

4. Mascon vide its letter dated October 31, 2007, replied to the SCN. An opportunity of personal hearing was granted to Mascon before me on January 25, 2010. On the date fixed Mr. K. Chandra, Chairman, Mascon and Mr. S. Sivakumar, Company Secretary appeared as authorized representative of Mascon and made submissions. During the course of hearing Mascon was asked to produce the present holdings of MITL, Mr. Nandu Thondavadi and Mr. K. Chandra in Mascon. For replying to the query, Mascon requested for seven days time, which was granted to it. Mascon filed its written submissions, vide its letter dated January 30, 2010. The submissions of Mascon in its reply, in brief, are:

• Share holding of Martek Holdings in Mascon – 0.39% of paid capital, • Share holding of Nandu Thondavai in Mascon – 0.47% of paid capital, • Share holding of Mr. K. Chandra – 6.3% of the paid up capital.

5. I have carefully considered the SCN, reply of Mascon dated October 31, 2007. The contentions raised by Mascon in its reply, in brief are: • Mascon had no interaction with any of the entities associated with Ketan Parekh • The SCN issued does not make any allegation against Mascon of any specific commission or omission. • The company had nothing to do with the either the alleged depression or off-loading of shares by MITL. • All shares of the company were dematerialized during December,1999 with Central Depositories Services Ltd. (hereinafter referred to as ‘CDSL’) and the company was not involved in any transfer of shares. • Mr. Nandu Thondavadi resigned from the Board of Mascon on October 27, 2007. • Mr. K. Chandra became the Chairman of Mascon with effect from June 07, 2001 and thereafter he became the Chief Executive Officer (hereinafter referred to as ‘CEO’) with effect from June 30, 2004. Since then the growth of Mascon was considerable. • The performance of the company is improving.

6. Upon consideration of the material available on record, the issue arises for my consideration is whether Mascon has aided and abetted the related entities of Ketan Parekh in their manipulative dealings by offloading shares of the company through its promoter group entities?

a. I note that Nandu Thondavadi was the promoter and the CEO of Mascon at the relevant point of time. It is not in dispute that MITL was a promoter group entity of Mascon and Nandu Thondavadi was one of its main promoter. I consider that MITL had made an open offer to acquire

9,60,000 shares of Mascon. Pursuant to the open offer, the holdings of MITL came approximately to 58.83% of the equity capital of Mascon along with Nandu Thondavadi who was holding around 25% stake in Mascon.

CSI Technologies Ltd. on the other hand was found sharing common address as that of Mascon and was also allotted substantial quantities of shares (7,20,000 share) in the preferential allotment of Mascon. This gives a clear inference that CSI Technologies Ltd. was having close connections with Mascon.

These facts show that Mascon was having close association with MITL and CSI Technologies Ltd. at the relevant point of time.

b. I note that MITL and CSI Technologies Ltd. during the period of December – February, 2001, sold huge quantities of shares of Mascon as tabled below: Table A Date Entity Shares transferred to Qty. Mode 01/12/2000 CSI Technologies Ltd. Kensington Investments 20,00,000 Off-market 07/12/2000 CSI Technologies Ltd. Kensington Investments 5,00,000 Off-market 30/01/2001 MITL Wakefield Holdings Ltd. 10,00,000 Off-market 31/01/2001 MITL Brentfield Holdings Ltd. 2,50,000 Off-market 01/02/2001 MITL Brentfield Holdings Ltd. 7,50,000 Off-market 23/02/2001 MITL HFCL 20,00,000 Pledge invoked

As seen from the table, MITL has off-loaded about 40,00,000 shares of Mascon to the associate entities of Ketan Parekh in off-market. I note that, the available record fails to show any consideration paid for such huge sale of shares in off-market. CSI Technologies Ltd. sold about 25,00,000 shares of Mascon to Kensington Investments in off-market. These shares in turn were sold by these entities in the market.

c. In view of the discussion above, the sudden surge in the volumes in the scrip of Mascon can be attributed to the off-loading of shares by MITL and CSI Technologies Ltd., the promoter group entities of Mascon. Further as per the available records, no consideration appears to have been received by the said entities for the off-loaded shares.

d. I note the contention of Mascon that Nandu Thondavadi, CEO of Mascon at the relevant point of time and one of the promoters of MITL, has resigned from the Board of Mascon and all its subsidiaries. Further, it has been submitted by Mascon that his resignation was accepted at the meeting of Board of Directors held on October 27, 2007. As nothing contrary is available on record, this submission of Mascon can be taken on record. Mascon vide its written submission dated January 30, 2010, has submitted the present share holding of MITL and Nandu Thondavadi which comes to 0.39% and 0.47% of the paid up capital of Mascon respectively. I note that this can not be said to be a controlling stake in a company.

e. As per the submissions of Mascon, I note that Mr. K. Chandra, became the Chairman of Mascon on June 07, 2001 and thereafter he also became the CEO of the company on June 30, 2004. I note that these are the submissions of Mascon not supported by any documents except to a copy of letter to BSE. However, as nothing contrary is on record, the same is being relied upon for proceeding further.

f. I note that Mr. K. Chandra, the present CEO of Mascon is holding 2,34,91,231 shares of the company which comes to 6.3% of the paid up capital of Mascon as reported vide its written submissions dated January 30, 2010. As regards the source of these shares, following is submitted: i. 10,00,000 shares - Secondary Market ii. 1,81,16,638 shares - Preferential issue of share warrants iii. 53,74,593 shares - ICICI Ltd.

g. Mascon has also contended that the condition of the company is improving in terms of business and growth. However, I note that the scrip is being traded at a low price. I further note the contention of Mascon that the sale of the scrip at the relevant point of time, in market or off-market was in demat mode and the company was not involved in any transfer of shares. In view of this, I find that there is no direct evidence of involvement of Mascon in the manipulation of scrip, at the relevant period of time.

h. From the above, I find no fault in the conduct of Mascon or its present management. I note that the record available, no where alleges that such off-loading of shares of the company was prompted by Mascon or it received some benefit out of it. In view of this, the charge framed against Mascon fails.

7. In view of the foregoing, I, in exercise of the powers conferred upon me under Section 11B and 11(4) of SEBI Act, 1992, hereby dispose of the show cause notice dated August 17, 2007, issued to Mascon Global Ltd. without any directions.

DATE : APRIL 07, 2010 PRASHANT SARAN PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA