Order in the matter of Shree Rama Multi-Tech Ltd

Date of hearing : 03-09-2007 and 26-03-2008 Appearance of the parties : For the noticees : 1. Dr. Prakash Trivedi 2. Shri Hitesh Buch for Shri Rambhai D Patel 3. M/s. Kuldeep Jain, Jignesh Pandya, Hetal Thakore, Agnes Baradia and Jigna Joshi for Shree Rama Multi-tech Ltd. 4. No appearance for Shri Hansraj Kanji For Securities and Exchange Board of India: 1. Shri P. K. Bindlish, Chief General Manager 2. Shri Pradip Bhowmick, Manager 3. Smt. Kshama Wagherkar, Legal Officer ORDER DIRECTIONS ISSUED UNDER SECTIONS 11 AND 11B OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH REGULATION 11 OF THE SEBI (PROHIBITION OF FRAUDULENT AND UNFAIR TRADE PRACTICES RELATING TO SECURITIES MARKET) REGULATIONS, 2003 AGAINST SHREE RAMA MULTI-TECH LIMITED AND ITS DIRECTORS, SHRI RAMBHAI PATEL, DR. PRAKASH TRIVEDI AND SHRI HANSRAJ KANJI

1. This case has been referred to me pursuant to the order dated 01-08-2007 passed by the Hon’ble Securities Appellate Tribunal in Appeal No. 377 of 2004. The said order also disposed of Appeals Nos. 378 and 380 of 2004.

I note that the Whole Time Member, Securities and Exchange Board of India (‘SEBI’) had passed an order dated 06-09-2004 under Sections 11 and 11B of the SEBI Act, 1992 read with Regulations 11 and 13 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating To Securities Market) Regulations, 2003 against M/s. Shree Rama Multi-Tech Limited (hereinafter referred to as ‘SRMTL’) and its directors, Shri Vikram Patel, Shri Sharad Patel, Shri Prakash Patel, Shri Rambhai Patel, Shri Hansraj Kanji and Dr. Prakash Trivedi, restraining them from accessing the securities market and further prohibited them from buying, selling or dealing in securities, directly or indirectly, for a period of five years. The above said SEBI order was impugned before the Hon’ble SAT in Appeals Nos. 377 of 2004 (filed by SRMTL), 378 of 2004 (filed by S/Shri Vikram Patel, Sharad Patel and Prakash Patel) and 380 of 2004 (filed by S/Shri Rambhai Patel, Hansraj Kanji and Dr. Prakash Trivedi).

The Hon’ble SAT, while disposing of the said appeals had observed that there were some basic errors in the charges which require correction and that the whole matter qua the appellants requires reconsideration after obtaining further clarifications from them. In view of the above observation, the Hon’ble SAT without expressing any opinion had set-aside the impugned order and remanded the case to the Board (SEBI). It was also observed that the Board shall proceed to obtain a fresh reply, if any, from the appellants and on a consideration of the material that it already has or may collect during the course of enquiry shall pass a fresh order expeditiously in accordance with law but not later than 31-12-2007. The appellants were also directed to co-operate with the Board in this regard.

2. I note that in accordance with the directions of the Hon’ble SAT, the appellants were advised vide letter dated 31-08-2007 to appear before me for a personal hearing scheduled on 03-09-2007. I note that on the said date, SRMTL, Shri Rambhai Patel and Dr. Prakash Trivedi appeared before me through their authorized representatives and made their oral submissions. There were no representations for Shri Vikram Patel, Shri Sharad Patel, Shri Prakash Patel and Shri Hansraj Kanji. Subsequently, Shri Vikram Patel, Shri Sharad Patel, Shri Prakash Patel had filed their applications for ‘consent order’ in accordance with the scheme for ‘consent orders’. As Shri Hansraj Kanji had not appeared for hearing on 03-09-2007, another opportunity of hearing was afforded to him on 26-03- 2008, which was also not availed by him. I note that Shri Hansraj Kanji is presently residing in Japan. As no response was received from him, the hearing notice issued to him was uploaded in the SEBI website. In view of the above reasons, the orders could not be passed within the stipulated period. Further, three directors viz., Shri Vikram Patel, Shri Sharad Patel and Shri Prakash Patel have filed their consent applications during the month of August, 2007. In view of their filing applications for ‘consent order’, the proceedings against them were kept in abeyance. Further, since the proceedings against the three directors were kept in abeyance, I thought it fit to pass final orders against all the noticees together after concluding the consent proceedings against said three direcotrs. As I find that the consent proceedings against three directors, viz. Shri Vikram Patel, Shri Sharad Patel and Shri Prakash Patel are still pending and in order to avoid further delay in concluding the proceedings against the other noticees, I proceed to conclude the current proceedings against SRMTL, Shri Rambhai Patel, Dr. Prakash Trivedi and Shri Hansraj Kanji (ex-parte) by way of this order, on merits.

3. Before delving into the issues in the present case, I would first state the facts of the case in brief: SRMTL (or the ‘company’) is a company incorporated under the provisions of the Companies Act, 1956 and dealt in the manufacturing of laminated web material, lamitubes, flexible tubes etc. and was initially promoted by S/Shri Vikram Patel, Sharad Patel, Vimpsan Investments Pvt. Ltd. and Sanket Estates and Finance Pvt. Ltd. It is noted that Vimpsan Investments Pvt. Ltd. and Sanket Estates and Finance Pvt. Ltd. were the investment arms of Shri Vikram Patel and Shri Sharad Patel, promoters of SRMTL. From 1994 onwards SRMTL raised its capital from time to time and allotted shares to Foreign Institutional Investors like HSBC Pvt. Equity India Fund Ltd. (HPEIF), CDC Financial Services (Mauritius) Ltd. (CDCFSL), Nippon Investment and Finance Co. Ltd. (NIFCL) and South Asia Regional Fund, etc.

4. The company came out with a public issue to the tune of 80,55,750 equity shares and an offer for sale to existing major shareholders to the tune of 55,92,000 equity shares on 15-01-2000 through book building process. The total issue of equity shares was for Rs.1,36,47,750 crores of Rs.5/-each at a premium of Rs.115/- aggregating Rs.163.77 crores. The paid-up capital of the company after the public issue was Rs.26.50 crores divided into 5.3 crore equity shares of Rs.5/- each. Allotments were made to the associate entities of SRMTL in the aforesaid issue. The Lead Managers to the above public issue were Khandwala Securities Ltd. (hereinafter referred to as KSL), and IDBI. During the relevant time, the scrip of the company was listed at the National Stock Exchange (NSE), Bombay Stock Exchange (BSE) and the Ahmedabad Stock Exchange (ASE). At the NSE, the newly issued shares were listed, with the opening price close to the issue price of Rs.120/- in the month of March, 2000. After listing, price of the scrip came down to around Rs.50/- by May, 2000. The scrip, which was quoting around Rs.55/- on 1st June, 2000 with traded volume of 41,700 shares, gradually moved up to Rs.88.90/- as on 8th September, 2000 with a volume of 1,51,000 shares. The highest volume recorded was 2,69,600 shares on 20.06.2000 with the closing price Rs. 69.40. The net traded value from Settlement No. 36 to 37 between 30.08.00 and 06.09.00 increased by 142.0% and the number of shares traded by 116.0%. Later, the scrip came down to the level of Rs. 52 with a volume of 16,000 shares as on 13-10-2000. The price movement of the scrip at BSE and ASE was also in tandem with that at NSE.

5. Based on the above observations, SEBI initiated investigations into the dealings in the shares of SRMTL. The following were the main findings: a. Major concentration of dealings in the scrip was observed with the brokers, Khandwala Finance Ltd., (hereinafter referred to as KFL) at NSE and Jayantilal Khandwala and Sons Ltd., (hereinafter referred to as JKSL) at BSE. Their contribution towards gross and net volume was 39.74% and 78.66% respectively. Cross deals amounting to 4.26 lakh shares were observed in 148 trades by the above brokers. KFL was an associate entity of KSL, one of the lead managers to the issue. b. Related brokers, KFL and JKSL had long time association with SRMTL. Khandawala Securities Ltd. (KSL), an associate entity of KFL and JKSL, acted as lead manager to the public issue of SRMTL during January 2000. KFL was subsequently acquired by KSL. c. Common clients to the brokers, East West Polyart Ltd., Ideal Petro Products Ltd., Satellite Management Services Ltd., Shree Rama Polysynth (P) Ltd. and Shree Developers Pvt. Ltd. were associate entities of SRMTL. d. M/s. Global Finance (Global) had played the conduit for movement of funds for dealings in the shares of SRMTL appeared to be the investment arm of the main promoter of SRMTL e. Movement of funds from the accounts of SRMTL to the accounts of its associates under the garb of payment for materials and other capital goods was evidenced during the investigation. Also, the funds paid by Porecha Global Securities Ltd. (PGSL) for the transactions executed by it on behalf of the associates of SRMTL were routed through Global to reach SRMTL f. Movement of funds were observed during the relevant period between the account of SRMTL and above mentioned associate entities

6. On the basis of the findings of the investigations, it was alleged that the company had directly / indirectly financed the associate companies and others and that the company and its directors had aided and abetted the price manipulation in the scrip and therefore were alleged to have violated the provisions of Regulation 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995. In view of the said allegations, a show cause notice dated 14-10-2003 was issued to SRMTL and its directors requiring them to show cause as to why suitable directions including directions debarring/prohibiting them from buying and selling in securities for a specified period under section 11B and 11(4) of the SEBI Act, 1992 read with Regulations 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003, should not be issued. It was also mentioned that if they failed to submit any reply within the stipulated period of 15 days, then it would be presumed that they had no explanations to give in the matter and SEBI would be constrained to pass such orders specified in terms of the aforesaid Act and Regulations. I note that an interim reply was submitted by SRMTL on 28-11-03 and its directors S/Shri Vikram Patel, Sharad Patel, Prakash Patel, Rambhai Patel, Hansraj Kanji and Dr. Prakash Trivedi. SRMTL had sought inspection of documents, which was availed of on 21-01-2004 and 22-01-04. SRMTL and its Directors were given copies of the documents on 04.02.04. Subsequently, the detailed submissions were made by the company and its directors S/Shri Vikram Patel, Sharad Patel, Prakash Patel on 01-03-04. Thereafter, a personal hearing was granted to SRMTL and its directors by my predecessor on 22-03-04. After hearing the parties and taking into account the material available at hand, the Board vide its order dated 06-07-2004 had debarred the company and its directors for a period of 5 years. As earlier stated, the said order was challenged by the said entity / persons vide appeals before the Hon’ble SAT and the outcome of such appeals have been mentioned in Para 1 of this order.

7. I have perused the show cause notice dated 14-10-2004, the replies dated 28-11-03, 01-03-04 and 30-08-2007 of SRMTL, letter dated 22-08-2007 of Dr. Prakash Trivedi, letter dated 22-08-2007 of Shri Rambhai Patel and other material on record. After having perused the show cause notice, I find that the issue for determination would be to find whether the company (SRMTL) and its directors were responsible for aiding and abetting the associate entities in the price manipulation in the scrip of SRMTL, thereby violating the provisions of Regulation 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995.

8. I note that the investigations had found that East West Polyart Ltd. (East West), Satellite Management Services Ltd. (Satellite), Shree Rama Polysynth (P) Ltd. (Rama Polysynth), Shree Developers Pvt. Ltd. (Shree Developers) and Ideal Petro Products Ltd. (Ideal) (all collectively referred to ‘associate entities’) played a major role in the price manipulation of the scrip and that the entities are related / associated to each other. This relationship between the entities can be seen from the fact that one Shri Chandrakant C Patel was a director, common in all the above mentioned entities. Also, Shri Mahesh Patel was director in East West, Ideal and Satellite. Further, I observe that some of the entities were promoted by the directors of SRMTL. The names of the entities with which the directors of SRMTL were associated as signatories to Memorandum of Association are given table below:

Sr. Name of the Father’s / Husband’s Name of the entity in which No. person Name and Address appearing as a subscriber to MOA Prakash R S/o. of Rambhai Patel a) Ideal Petro Products Ltd. Patel Ram Niwas -1, b) East West Polyart Ltd. 1. Khanpur, Ahmedabad – 380 001 Asit Natubhai S/o. Natubhai Patel a) Ideal Petro Products Ltd. Patel Ram Niwas -1, b) Shree Rama Polysynthetic Pvt. 2. Khanpur, Ahmedabad – Ltd. 380 001 c) Satellite Management Services Pvt. Ltd. Sharad C Patel S/o. Chhotabhai a) Ideal Petro Products Ltd. Shankerbhai Patel b) Shree Rama Multi-tech Ltd. 3. Ram Niwas -1, c) Shree Developers P Ltd. Khanpur, Ahmedabad – 380 001 Natubhai S/o. Umedbhai Patel a) East West Polyart Ltd. Umedbhai Ram Niwas -1, b) Shree Developers Pvt. Ltd. 4. Patel Khanpur, Ahmedabad – 380 001

9. The investigations also found that all the above said entities were operating from Ram Niwas – 1, Khanpur, Ahmedabad – 380 001, which was the registered office address of SRMTL. Moreover, persons who were related to each other and sharing common addresses were the promoters of the above said entities. I further note that East West was a company promoted by the promoters of SRMTL and Shree Developers, another related entity was among the ten shareholders of SRMTL as on 28-01-2000. All the above would substantiate the allegation that the above entities and SRMTL were connected.

10. I note that with regard to such high value transactions with various associate entities, SRMTL has submitted that these payments were made mainly for the procurement of raw materials. Further, small amount of money was also spent on services received from the said entities. The explanations provided by SRMTL are as per the table below:

Name of the Amount (Rs. in Nature of the Remarks entity lakhs) transaction Value Paid Recd. East West 12516.87 13271.74 For procurement of Polyart Ltd. HDPE fabric. Granules, jobwork, deposits of material procurement etc. Ref. 700 Paid for capital Recd. Remarks goods purchase Money back 07.12.00 Satellite Nil 2.39 We avail a host of Management services from them Services P. Ltd. incl. office space, maintenance services etc. based on an arrangement for payment of monthly fee. Shree Rama 12972 12968 These are material Polysynth P. deposits, advance Ltd. for RM etc. which are required for us in the normal course of business. Ideal 9929 11481 For procurement of Petroproducts Granules, deposits Ltd. for material procurement etc.

From the above table, it is observed that SRMTL, during the year 1999- 2000 (year end – September), had paid around Rs. 37720.74 lakhs to its associate entities for procurement of raw materials. However, from the Annual Report of the company for the year 1999-2000, I observe that during the whole year, the company had incurred expenses on purchase of raw materials to the tune of Rs. 6617.66 lakhs. This huge difference in the amounts would create a very suspicion against SRMTL. To verify this claim of the company, I perused the ledgers of the company and find that there were repeated flows of money from the company to the associate entities and back to the company. From the ledger account of East West in the books of SRMTL, I find that during the period 01-06-2000 to 30-09- 2000 there were debits to the tune of Rs. 1,33,07,72,897.00 and credits to the tune of Rs. 1,29,88,75,022.50.

11. I note that further, in the case of Rama Polysynth, a huge amount of money was paid to the entity regularly at the very beginning of the month showing that the money was paid for material deposit and at the end of the month almost the same quantum of money had been credited in the company’s account against their material deposit. From the ledger account of Rama Polysynth in the books of SRMTL, I find that during the period 01-06-2000 to 30-09-2000 there were debits to the tune of Rs. 1,31,67,81,000.00 and credits to the tune of Rs. 1,29,72,29,991.00. I note that during the whole year, SRMTL had incurred expenses on purchase of raw materials to the tune of Rs. 66.18 crores only, whereas it has shown payments to the tune of Rs.130 crores to each of the above mentioned associate entities towards procurement of raw materials during the period June – September, 2000. The same manner of fund flow was found in the case of Ideal also. I find that such a fund flow from the company to the associate entities and back to the company is only a ploy to conceal their intent to aid and abet the entities in manipulating the price of the scrip.

12. I note that numerous high value transfers took place during the period June – September 2000 among the associate entities, Global Finance (Global) and PGSL. I further note that the investigations have found that the payments to the stock brokers for the trades in the scrip were made from the account of Global, which was controlled by Shri Asit Natubhai Patel, promoter of Ideal, Rama Polysynth and Satellite. Shri Asit Patel was a senior executive (Vice President, Marketing) in SRMTL and the nephew of Shri Vikram Patel, Chairman and Managing Director of SRMTL. Further, the proprietor of Global, Shri Asit N Patel was introduced to the Central

Bank of India (Ballard Estate Branch) by Shri Mahesh S Patel, director of East West, Ideal and Satellite. I note that Global was involved in the business of financing. Its networth for 2000-01 was Rs.24.35 lakhs, whereas its fund transfers were usually in crores of rupees. I note that the pay-outs received from the associate entities from their brokers were transferred to Global, which in turn transferred amounts to those entities who had to meet the pay-in obligations. I note that such instances have been indicated in the show cause notice dated 14-10-2004 issued to the entities, including the noticees in this order. I note that during one such instance, Satellite had received Rs.87,23,520/- on 16-08-2000 from PGSL, out of which Rs.87,22,500/- was transferred to Global vide a cheque. Likewise, Shree Developers had received Rs.2,57,47,770/- from PGSL and immediately the next day Rs.1,49,40,000/- was transferred to Global vide cheque. After receiving the above said funds, Global transferred Rs.1,78,40,000/- to East West through cheques. The investigations have found that East West then transferred Rs.71,00,000/- to SRMTL vide cheques and the balance amount was utilized by it for meeting its pay-in obligation with Khandwala Finance Ltd. I note that the payments for the dealings in the scrip of SRMTL had been made from the account maintained by Global which is being controlled by Shri Asit N Patel, a nephew of Shri Vikram Patel, CMD of SRMTL. I also note that from the information gathered from the Central Bank of India, Ballard Estate, Global operates from 152, Mittal Court, A Wing, 15th Floor, Nariman Point, Mumbai – 400 021 and that SRMTL was found to have a branch office/administrative office at the above address at which the letter addressed to Global had been acknowledged. From the above, it can be inferred that Global was acting as a conduit from where funds came in and went out to enable the associate entities to trade in the scrip in an unfair and fraudulent manner. I note that the said current account (Account No. 3391) of Global was maintained with the Central Bank of India, Ballard Estate Branch. Being in the median, Global was able to allow flow of funds to and from the entities, which facilitated the associate entities to buy/sell shares in a structured/synchronized manner so as to rig the price of the shares of the company.

13. I note that the associate entities have traded various brokers, the details of the same are as below:

a. Trading details of East West

Sr. Name of the Purchases Sales Gross Net No. Trading Member

Total position 1163811 1355576 2519387 -191765 1 Jayantilal Khandwala Sons, BSE 364027 662780 1026807 -298753 2 Khandwala Finance Ltd., NSE 797784 108006 905790 689778 3 M/s Porecha Global Sec. Ltd., BSE 2000 584790 586790 -582790 b. Trading details of Ideal

Sr. Name of the Purchases Sales Gross Net No. Trading Member Total position 20690 26305 46995 Jayantilal 20690 0 20690 20690 Khandwala Sons Khandwala Finance Ltd. 0 26305 26305 -26305 c. Trading details of Shree Developers

Sr. Name of the Purchases Sales Gross Net No. Trading Member

Total position 0 333100 333100 -333100 M/s Porecha Global Sec. Ltd. 0 333100 333100 -333100 (PGSL)

d. Trading details of Satellite

Sr. Name of the Purchases Sales Gross Net No. Trading Member Total position 101464 117000 218464 -15536 1 Jayantilal Khandwala Sons 27725 0 27725 27725 2 Khandwala Finance 73739 0 73739 73739 Ltd. 3 M/s Porecha Global 0 117000 117000 -117000 Sec. Ltd.

e. Trading details of Rama Polysynth Sr. Name of the Purchases Sales Gross Net No. Trading Member Total position 0 202690 202690 -202690 M/s Porecha Global Sec. Ltd. 0 202690 202690 -202690

I note that during the period June – September 2000, the associate entities had initially purchased huge quantities of the shares of the company. Further, they had also manipulated the price of the scrip by entering into numerous cross and structured deals among themselves at a price significantly higher than the prevailing market price. I find that the time differences between the buy order and the sell order in such cases were within seconds. After rigging the price, the associate entities off-loaded their stake to Unit Trust of India (UTI).

14. I note that the SEBI, after noticing such rampant manipulation in the scrip of SRMTL had passed independent orders under Sections 11 and 11B of the SEBI Act, 1992 read with Regulation 11 of the SEBI (Prohibition of Fraudulent and Unfair Practiced Relating to Securities Market) Regulations, 2003 against Global Finance, East West, Shree Developers, Ideal and Satellite, debarring the said entities from accessing the capital market and further prohibited them from buying, selling or otherwise dealing in securities for a specified period. I also note that the appeals filed before the Hon’ble SAT were dismissed on merits and the Tribunal had upheld the orders passed by SEBI against the above said entities.

15. From the above details, it can be inferred that the company was instrumental in the transfer of funds to the associate entities. The associate entities utilized the said funds to ramp up the price of the scrip of SRMTL as seen above. Having established that the funds had gone from the company, I have no hesitation in holding the company guilty of aiding and abetting the associate entities in their role in manipulations, thereby violating the provisions of Regulation 4 of the PFUTP Regulations, 1995 for which action has to necessarily follow. In view of the above, it would be in the interest of the capital market and the investors that such manipulative and fraudulent trade practices are contained and the company debarred from the market for a specified period.

16. With regard to the directors of SRMTL, as already mentioned above S/Shri Vikram Patel, Sharad Patel and Prakash Patel have filed their applications for a ‘consent order’ in accordance with the guidelines contained in the Circular dated 20-04-2007 on Consent Orders, and the proceedings against them have been kept in abeyance and suitable orders would be passed in due course. With respect to Shri Rambhai Patel, Dr. Prakash Trivedi and Hansraj Kanji, I note that Shri Hansraj Kanji has not appeared before me nor has submitted any reply now. In the absence of any fresh reply I have considered his reply dated 29-11-2003. The other two directors viz. Shri Rambhai Patel and Dr. Prakash Trivedi have submitted vide their letters dated 22-08-2007 and 29-11-2003 that they were appointed non-executive directors on the board of the company and that they were not responsible for the day to day functioning. They have also submitted that they were not in charge of or were responsible for the conduct of the business of the company and therefore, vicarious liability cannot be fixed on them. They have also cited various decisions of the Hon’ble Supreme Court and the SAT were it was held that the directors who are not responsible for day to day conduct of the business / affairs of a company cannot be held responsible for the offences by the company. In this regard, I find that the above mentioned persons were non-executive directors on board of the company as seen in the Annual Report of the company for the period 1999-2000. Further, the show cause notice issued to them did not specify their role in the manipulations. Thus, benefit of doubt is given to them and I hereby dispose of the show cause notice issued to them without any directions.

17. I note that the company had submitted that the allegation that SRMTL and its Directors have violated the provisions of Regulation 4 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to securities market) Regulations, 2003 is not correct as the said regulation is in fact a substantive provision and does not contain the procedure to be adopted regarding the offences under the regulations. In this connection, I observe that Regulation 4 of the PFUTP Regulations, 1995 is a substantive portion which prohibits market manipulation. The procedure for investigating such manipulations has been prescribed in the 1995 Regulations. After the repeal of the 1995 Regulations and coming into force of the 2003 Regulations, the investigation of any violation of Regulations 4, 5 and 6 of the 1995 Regulations have been saved by Regulation 13 (2) of the 2003 Regulations, which prescribes that the same be investigated and proceeded against in accordance with the procedure laid down in the 2003 Regulations.

18. I also note that the company has submitted that no motive has been established for the alleged manipulation of the price or for the creation of artificial markets of SRMTL by either the company or on the part of its directors. The ‘mens rea’ or the mental element in any offence would not be important to prove such offence as has been held by the Hon’ble Supreme Court in Chairman, SEBI vs. Shriram Mutual Fund and another1, where the Court has observed thus: “In our considered opinion, penalty is attracted as soon as the contravention of the statutory obligation as contemplated by the Act and the Regulation is established and hence the intention of the parties committing such violation becomes wholly irrelevant. A breach of civil obligation which attracts penalty in the nature of fine under the provisions of the Act and the Regulations would immediately attract the levy of penalty irrespective of the fact whether contravention must made by the defaulter with guilty intention or not. We also further held that unless the language of the statute indicates the need to establish the presence of mens rea, it is wholly unnecessary to ascertain whether such a violation was intentional or not. [Emphasis supplied]

Further, in SEBI vs. Cabot International Capital Corporation, 2005 (123) CC 841 (Bom), the Hon’ble Bombay High Court has observed thus:

“The SEBI Act and the Regulations are intended to regulate the Security Market and related aspects, the imposition of penalty, in the given facts and circumstances of the case, cannot be tested on the ground of "no mens rea no penalty". For breaches of provisions of SEBI Act and Regulations, according to us, which are civil in nature, mens rea is not essential. On particular facts and circumstances of the case, proper

1 2006 INDLAW SC 237 exercise or judicial discretion is a must, but not on a foundation that mens rea is an essential to impose penalty in each and every breach of provisions of the SEBI Act.(para 54) However, we are not in agreement with the appellate authority in respect of the reasoning given in regard to the necessity of mens rea being essential for imposing the penalty. According to us, mens rea is not essential for imposing civil penalties under the SEBI Act and Regulations." [Emphasis supplied]

Another submission of the company is that all the transactions have been entered into with the associates (including Global Finance) were in the nature of business transactions and do not constitute any transaction with an intent to influence the price of the scrip of SRMTL. The said submission has no ground today as the findings of the Board with respect to the price manipulation and fund flow have been upheld by the Hon’ble SAT, though the company was a not a party in those appeal filed by the associate entities. I note that the company has also submitted that here has been no codified definition of the terms “associated” and “interrelationship” as has been used time and again in the show cause notice. Also, there has been no nexus established with the other entities mentioned to be associated with SRMTL and that mere existence of relationship in the nature of cousins, nephews or the sharing of the same address by the companies can in no way go to prove the fact that, the companies are indeed related and are associated among themselves. I find that in a complex commercial transaction like that of securities, relationship / nexus has to be inferred from the trading pattern, common addresses or relationships between the persons. The inference is based on the circumstantial evidence available at hand.

19. Therefore, on the basis of the discussion above, I find that Shree Rama Multi-Tech Limited has contravened the provisions of Regulation 4 (a) and (e) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 read with Regulation 13 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003.

20. In view of the above, I, in exercise of the powers conferred upon me by virtue of Section 19 read with Sections 11 and 11B of the Securities and Exchange Board of India Act, 1992 read with Regulation 11 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003, hereby direct that Shree Rama Multi-Tech Limited be restrained from accessing the securities market and prohibited from buying, selling or dealing in securities, directly or indirectly, for a period of 5 years.

21. The period of debarment already undergone by the company shall be set-off from the period of debarment as directed herein above.

22. The show cause notice dated 14-10-2003 issued to M/s. Rambhai Patel, Hansraj Kanji and Dr. Prakash Trivedi stands disposed of without any directions.

23. The directions in this order shall come into force with immediate effect.

DATE: 06-06-2008 T. C. NAIR PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA