Order in the matter of Pine Animation Ltd[SAT Appeal No.:91/2017235/2017]234/2017]

WTM/RKA/ISD/81/2016 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER UNDER SECTIONS 11 AND 11B OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992, IN THE MATTER OF PINE ANIMATION LIMITED IN RESPECT OF S. No. Name PAN Category 1 Archana Saluja AANPS2300L Preferential Allotee 2 Amit Singh BABPS7447D Exit Provider 3 Anjali Suppliers Private Limited AAJCA1784D Exit Provider 4 Antaryami Traders Private Limited AALCA7880J Exit Provider 5 Blue Horizon Commosales Private Limited AAFCB0211J Exit Provider 6 Cheroot Vanijya Pvt. Ltd. AAECC9285A Exit Provider 7 Devatma Distributors Private Limited AADCD7140G Exit Provider 8 Dhlriti Traders Private Limited AAECD8235D Exit Provider 9 Dhyaneshwar Dealers Private Limited AAECD8010E Exit Provider 10 Dove Suppliers Private Limited AADCD7017J Exit Provider 11 Dreamvalley Trading Private Limited AADCD0633J Exit Provider 12 Esha Securities Limited AAACE2862P Exit Provider 13 Goldensight Traders Private Limited AAFCG4773J Exit Provider 14 Helot Properties Private Limited AACCH8885R Exit Provider 15 Indrawati Nirman Private Limited AADCI5139E Exit Provider 16 Kapeeshwar Vintrade Pvt Ltd AAECK7329P Exit Provider 17 Navdurga Investment Consultants Pvt Ltd AACCN9567A Exit Provider 18 Orchid Solution Private Limited AABCO2236J Exit Provider 19 Overload Financial Advisory Pvt. Ltd. AABCO6950F Exit Provider 20 Padma Impex Private Limited AAACL4269P Exit Provider 21 Ramya Mercantile Pvt Ltd AAGCR6009M Exit Provider 22 Rangoli Distributors Private Ltd AAECR2312K Exit Provider 23 Reachsmart Dealtrade Pvt. Ltd. AAFCR9881C Exit Provider 24 Sebika Commodities Private Limited AARCS9144H Exit Provider 25 Spark Commodeal Private Limited AAOCS2216D Exit Provider 26 Swarnprakash Traders Pvt Ltd AATCS6718D Exit Provider Order in the matter of Pine Animation Limited

1. Pursuant to detection of a huge rise in the traded volume and price of the shares of Pine Animation Limited {formerly known as Four K Animation Limited and hereinafter referred to as "Pine"} on Bombay Stock Exchange Limited ("BSE") during the period from May 22, 2013 to January 30, 2015 (hereinafter referred to as "Examination Period"), Securities and Exchange Board of India ("SEBI") undertook a preliminary inquiry in the dealings in the said scrip.

2. Upon preliminary examination, it was prima facie observed that Pine and persons in charge of its affairs created a facade of preferential issue of equity shares of around ₹24.7 crore in order to provide fictitious long term capital gains ("LTCG") to Pine’s preferential allotees and Promoter related entities (i.e. entities to whom Pine’s promoters transferred their shares in physical form) so as to convert their unaccounted income into accounted one. It was observed that after the release of compulsory lock-in period, the preferential allotees and the Promoter related entities were provided exit at a high price by the entities related/connected amongst themselves and with Pine (hereinafter referred to as "Exit Providers"). In the process Exit Providers and allotees artificially increased the volume of the scrip and misused securities market system for making illegal gains and to convert ill-gotten gains into genuine one to avail fictitious long term capital gains. The modus operandi used by these entities is as under:

a) On December 13, 2012, Pine made a preferential allotment of 1,50,00,000 equity shares at the price of ₹ 10 per share (hereinafter referred to as the "1st preferential allotment") to 49 entities. b) Thereafter, the promoters namely, First Entertainment Private Limited and Unique image Production Pvt. Ltd. who were holding shares in the physical form, transferred their entire holdings i.e. 9, 27,400 shares to 6 entities, who in turn transferred the shares to 62 entities (the total of 68 entities, hereinafter referred to as "Promoter related entities") during the period from December 28, 2012 to February 05, 2013. 49 of the Promoter related entities subsequently sold 54.76% of the shares received from the promoters. c) Subsequently, on March 15, 2013, Pine made another preferential allotment of 97,00,000 equity shares at the price of ₹ 10 per share (hereinafter referred to as the "2nd preferential allotment") to 48 entities who included 5 entities who were allotted shares in the 1st preferential allotment. d) In total, Pine allotted 2,47,00,000 equity shares to 92 entities. The equity shares allotted on preferential basis to aforesaid allottees were locked-in for a period of one year i.e. up to December 12, 2013 and March 14, 2014, respectively in terms of Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009. Thus, the shares held by 49 entities who were allotted shares in the 1st preferential allotment and shares held by 48 entities (including 5 entities who were allotted shares in the 1st preferential allotment) who were allotted shares in the 2nd preferential allotment were not tradable till December 12, 2013 and March 14, 2014 respectively. e) On May 20, 2013, the equity shares of Pine were split in the ratio 1:10 and thereafter between May 22, 2013 to June 19, 2013 ("Patch 1"), the price of the scrip increased from ₹ 472 (unadjusted and ₹ 47.2 adjusted to share split) on May 22, 2013 to ₹ 1006 (unadjusted and ₹ 100.6 adjusted to share split) on June 19, 2013 i.e. an increase by approximately 113%. f) Between June 20, 2013 and December 16, 2013, ("Patch 2") the scrip was traded only on 13 trading days and the price moved from ₹ 1006 (unadjusted and ₹ 100.6 adjusted to share split) to ₹ 910 (unadjusted and ₹ 91 adjusted to share split). g) Thereafter, there was a huge increase in the traded volume during the period December 17, 2013 to January 30, 2015 ("Patch 3") and the entities connected / related, directly or indirectly, to Pine, started providing hugely profitable exit to the preferential allotees and Promoter related entities. h) Such sharp rise in price and volume of the scrip was not supported by any acceptable market factor such as fundamentals, trading history, corporate announcements, etc as discussed in the interim order but was on account of non-genuine and manipulative trading in the scrip by certain entities.

3. In this backdrop, SEBI, vide an ad interim ex-parte order dated May 08, 2015 (hereinafter referred to as “interim order ”), restrained Pine along with other 177 entities, including 26 entities mentioned above (hereinafter referred to as "Noticees"), from accessing the securities market and further prohibited them from buying, selling or dealing in securities in any manner whatsoever, till further directions. 4. SEBI, in para 45 of the Interim order, advised the entities including the Noticees that they may file their objections, if any, within twenty one days from the date of the order and, if they so desire, may avail themselves of an opportunity of personal hearing before SEBI, on a date and time to be fixed on a specific request, received from them. 5. I note that though the copy of the Interim order was served to the Noticees except to Anjali Suppliers Private Limited, Dhlriti Traders Private Limited and Padma Impex

Private Limited, either through courier or through their respective brokers, but the Noticees have failed to submit their reply till date. Advertisements were published in Times of India and NavBharat Times (Mumbai Edition) on February 27, 2016 for Dhlriti Traders Private Limited and Padma Impex Private Limited and in the Telegraph and Sanmarg (Kolkata Edition) for Anjali Suppliers Private Limited on February 27, 2016 intimating them about the interim order and the date of personal hearing. Moreover, with respect to Esha Securities Limited, I find that the company is under liquidation. The interim order also advised the Noticees to request for an opportunity of hearing, if required. Further, none of the Noticees have sought an opportunity of hearing till date nor availed of the opportunity of hearing provided to them. I note that although more than thirteen months have elapsed since the interim order has been passed, the Noticees chose not to submit any reply or seek an opportunity of personal hearing. Therefore, in my opinion, an ample time has been provided to the Noticees to respond to the interim order and to seek an opportunity of personal hearing, and hence, I am constrained to proceed with the matter on the basis of the material available on record.

6. I have considered the allegations levelled against the Noticees and have perused the documents available on record. I note that in the instant case, the directions issued against the Noticees are interim in nature and have been issued on the basis of prima facie findings. SEBI had issued directions vide the interim order in the matter in order to protect the interests of investors in the securities market. Detailed investigation in the matter is still in progress. Thus, the issue for consideration at this stage is whether the interim directions, issued against the Noticees vide the interim order, need to be confirmed, vacated or modified in any manner, during pendency of investigation in the matter. 7. The facts and circumstances of the instant case as brought out in the interim order prima facie show the modus operandi employed by the company, its directors, its promoters, Preferential Allottees, Promoter related entities and Exit Providers, wherein the company, in nexus with the preferential allottees made façade of preferential allotment and the Promoters of the company transferred their holding to the entities belonging to Promoter related entities.

After the expiry of the lock-in period, Exit Providers provided the exit opportunity to preferential allottees and Promoter related entities by buying the shares of Pine at artificially increased prices. In the whole process, entities of Exit Providers provided a hugely profitable exit to the preferential allottees and Promoter related entities. Hence, preferential allottees and Promoter related entities with the aid of the Exit Providers misused the stock exchange mechanism to exit at a high price in order to book illegitimate gains with no payment of taxes as LTCG is tax exempt. Further, the interim order discusses the manner by which preferential allottees and Promoter related entities sold their shares pursuant to abnormal increase in price in a manipulative way and made huge illegitimate profit in the whole event. 8. The interim order has also brought out the connection / relationship of the exit providers with the company and other entities involved in the entire scheme illustrated therein. As regards the preferential allottees, it is noted that it is a settled position of law that preferential allotment of shares is an issue of shares by an issuer to select person or group of persons on a private placement basis unlike a public issue where funds are raised by inviting subscriptions from public in general.

It is also a matter of common knowledge that a preferential allotment is made to the persons/entities on a one-to-one basis who are acquainted/familiar with the company and/or its promoters/directors. A company will, in no case, make a preferential allotment to a stranger who just approaches it for allotment of its shares. A preferential allotment is always for the purposes of meeting fund requirements of the concerned company and involves a covert, manifested and planned actions by the concerned parties, i.e.- (a) the company to identify select persons/group of persons who are known to it or its promoters/directors for investing in its share capital, (b) select persons/ group of persons (preferential allottees) exercise due diligence and then finance the fund requirements of the company and subscribe to its shares issued on preferential basis; (c) the company allots shares to the preferential alottes. 9. It is a well-accepted position that a preferential allotment signifies that the allottees agree with the issuer on one-to-one basis to finance its fund requirements and is not an open to all investment opportunity.

Such financing pre-supposes nexus and prior understanding amongst the issuer, its promoters/directors and the allottees. A stranger cannot just make investment in a preferential allotment merely on the basis of an advice without having nexus, directly or indirectly, and prior understanding with the company. 10. I note that investigation in the matter is in progress and appropriate decision, in accordance with law, would be taken after completion thereof. As prima facie found in the interim order, Pine, its promoters, its directors, preferential allottees, Promoter related entities and Exit Providers have acted in connivance for implementation of dubious plan, device and artifice that has led to the misuse of stock exchange mechanism to artificially increase price and volume of the scrip to provide illegitimate gains to the preferential allottees and Promoter related entities in order to claim LTCG benefits that has not only eroded the market integrity but has also been detrimental to the interests of investors who might have been lured to invest in the scrip due to such manipulative and fraudulent trading in the scrip and price movement.

I, therefore, do not find any reason to revoke or modify the directions of the ad interim ex parte order dated May 08, 2015 in the matter of Pine Animation Limited against the Noticees. 11. I, therefore, in exercise of the powers conferred upon me under section 19 of the SEBI Act, read with sections 11(1), 11(4) and 11B thereof, hereby confirm the directions issued vide the ad interim ex-parte order dated May 08, 2015 against the following entities:

S. No. Name PAN 1 Archana Saluja AANPS2300L 2 Amit Singh BABPS7447D 3 Anjali Suppliers Private Limited AAJCA1784D 4 Antaryami Traders Private Limited AALCA7880J 5 Blue Horizon Commosales Private Limited AAFCB0211J 6 Cheroot Vanijya Pvt. Ltd. AAECC9285A 7 Devatma Distributors Private Limited AADCD7140G 8 Dhlriti Traders Private Limited AAECD8235D 9 Dhyaneshwar Dealers Private Limited AAECD8010E 10 Dove Suppliers Private Limited AADCD7017J 11 Dreamvalley Trading Private Limited AADCD0633J 12 Esha Securities Limited AAACE2862P 13 Goldensight Traders Private Limited AAFCG4773J 14 Helot Properties Private Limited AACCH8885R 15 Indrawati Nirman Private Limited AADCI5139E 16 Kapeeshwar Vintrade Pvt Ltd AAECK7329P 17 Navdurga Investment Consultants Pvt Ltd AACCN9567A 18 Orchid Solution Private Limited AABCO2236J 19 Overload Financial Advisory Pvt. Ltd. AABCO6950F 20 Padma Impex Private Limited AAACL4269P 21 Ramya Mercantile Pvt Ltd AAGCR6009M 22 Rangoli Distributors Private Ltd AAECR2312K 23 Reachsmart Dealtrade Pvt. Ltd. AAFCR9881C 24 Sebika Commodities Private Limited AARCS9144H 25 Spark Commodeal Private Limited AAOCS2216D 26 Swarnprakash Traders Pvt Ltd AATCS6718D

12. Accordingly, the directions issued vide para 42 of the ad interim ex-parte order dated May 08, 2015 shall remain in force till further directions.

13. A copy of this order shall be served on all recognized stock exchanges and depositories to ensure compliance with above directions.

Sd/-

DATE: July 5th, 2016 RAJEEV KUMAR AGARWAL PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA