Order in the scrip of M/S Mega Corporation Limited

1.1 Spurt in price and trading volume of certain companies often referred to as “mid cap” or “small cap” companies, in a short period of time have been engaging the attention of SEBI and the Stock Exchanges for some time. Such trading activity has been under the surveillance of SEBI and the stock exchanges to determine whether the trading volumes and price rise have been the result of unfair trade practices or market manipulation. One such company whose shares have shown a significant increase in price as well as trading volumes in a short period of time is Mega Corporation Ltd. (hereinafter referred to as “the Company”/ “MCL”), which was listed on BSE in February 1996.

1.2 The trading history of the shares of the company (after the stock spilt w.e.f. September 26, 2002) showed that while there was limited trading in the shares till December 2004 the volumes shot up dramatically from January 2005 onwards. After the stock spilt in August 2002, the shares of the company were traded in the range of Rs. 1.90 to Rs. 5.72 during the period September 2002 to December 2004, and the average monthly volume in the shares was around 15, 720 shares during the period September 2002 to December 2004, accounting for only around 0.016% of the total equity capital. The very low turnover ratio clearly demonstrated lack of wide spread investor interest in this shares till that time. Subsequently, during the period from January 2005 to September 16, 2005 the price of the scrip moved sharply from Rs. 5.25 to Rs. 41.10 representing a rise of around 683% accompanied by an equally sudden spurt in average monthly volume thousand times over the previous period to around 1,56,22,538 shares. The marked increase in price and trading volume during the months from January 2005 to March 2005 was not accompanied by any change in the economic fundamentals of the company.

1.3 In view of the circumstances under which the price and trading volumes of the shares of the company increased and the manner in which the persons connected to the promoters transacted in the shares of the company, warranted an immediate investigation by SEBI. Hence SEBI initiated investigation in the buying, selling and dealing of the scrip of the company.

2.1 The investigations find that the absence of wide spread investor interest in the share of the company since September 2002 to December 2004, coupled with the sudden increase in share price and volume since January 2005, the quantum jump in profit from the income generated from non-core business activity and from dealing in selected penny stocks by the company, together with a flurry of corporate announcements (such as entering into the business of worldwide outbound packaged tour, forex services, etc., in which the company had no apparent track record) and also managing a web of off-market deals to transfer of large quantities of shares by the entities connected to the company to a group of interconnected clients, who in turn dealt heavily in the market and thereby contributed to the sudden rise in trading volumes and the corresponding price rise, clearly indicate a careful premeditated plan by the promoters, to make personal gains at the expense of investors by enticing them to participate in the trading of the shares of the company and by possibly churning their own holdings.

2.2 On the basis of preliminary findings of investigation, SEBI passed an ad interim ex-parte order dated October 24, 2005 under section 11B, 11(4) (b) and 11D against 56 entities pending further investigation as under:

a) The promoters of the company viz., Crayons Global Finance Ltd., Himanshu Mehta, Vimi Investments and Finance Ltd., Kunal Lalani, Beena Mehta, R. N. Mehta, Hiten Mehta, Odyssey Corporation Ltd.,

Pooja Equisearch Pvt. Ltd. and Directors of the company Kunal Lalani, Himanshu Mehta, Surendra Chhalani, H. M. Lalani, N. K. Nayak, K. S. Venkataraman, S L Golchha and Sachin Mehra were directed not to buy, sell or deal in securities of Mega Corporation Ltd., directly or indirectly, till further orders and Mega Corporation Ltd. was directed not to issue any equity shares or any other instrument convertible into equity shares, in any manner, or not alter its capital structure in any manner, till further orders.

b) The clients viz. Ajit Suryavanshi, Ritedeal Trading Company Pvt. Ltd., Vishal Kumar Textiles P. Ltd., Amar Adhav, Dadasaheb Gavhane, Dattu Shitole, Rightstar Trading Company Pvt. Ltd., Deepak Narvekar, Deepak Todkar, Fine Line Mercantile Co. (P) Ltd., Ganesh Raut, Haresh Posnak, Jagdish Parab, Jay Shah, Jaydeep Mane, Jayesh Waghela, Kiran Dhanavade, Lokseh Kapoor, Mahesh Kokate, Premkumar Singh, Stockholm Mercantile Co. Pvt. Ltd., Rajkishore Singh, Ramdas Kshirsagar, Sharpline Trading Co. Pvt. Ltd., Topflag Exports Pvt. Ltd., Ranjan Mandal, Sandeep Kadam, Santosh Jagtap, Santosh Narvekar, Santosh Pawar, Umesh Choukekar, Vijay Suryavanshi, Vivekanand Patankar, Nirmal Jain, Mahendra Gopal Gorivale, Laxmans Singh Saijari and Patric Xess were directed not to buy, sell or deal in securities of Mega Corporation Ltd. directly or indirectly, till further orders.

c) The clients Vishal Kumar Textiles P. Ltd, Amar Adhav, Deepak Narvekar, Deepak Todkar, Ganesh Raut, Jay Shah, Jayesh Waghela, Stockholm Mercantile Co. Pvt. L, Rajkishore Singh, Sharpline Trading Co. Pvt. Ltd., Umesh Choukekar were directed not to buy, sell or deal in any securities, directly or indirectly till further orders.

d) The Stock Brokers viz. India Bulls Securities Ltd., Fortis Securities Ltd., Ruchiraj Shares and Stock Brokers (P) Ltd., who contributed significant volumes in the trading of shares of the company while dealing on behalf of the interconnected clients were directed not to buy, sell or deal in securities of Mega Corporation Ltd. on behalf of the promoters, directors and clients, directly or indirectly, till further orders.

e) The Depositories were directed not to give effect to any transfer of shares of Mega Corporation Ltd. lying in the beneficial owner accounts of the entities mentioned at paragraph 5.1(a) and (b) of the interim order.

f) The Depositories were directed not to give effect to any transfer of any securities lying in the beneficial accounts of the entities mentioned at paragraph 5.1 (c) of the interim order.

2.3 These entities were given opportunity for post decisional hearing to file their objections, if any, to the said Order within 15 days from the date of the Order.

2.4 Accordingly, the Company, its directors, promoters and clients filed their objections against the aforesaid order and requested for a personal hearing which was granted. The company, its Promoters and Directors attended a personal hearing on February 3, 2006 wherein Shri Kunal Lalani, Managing Director, Shri Himanshu Mehta, Director, Shri Surendra Chalani, Whole Time Director, Shri Mukesh singhal, Manager, Finance and Shri Jagdish Khanna, Chartered Accountant were present and made their submissions.

2.5 Subsequently, the aforesaid ad interim ex parte order passed under Section 11(4) (b) and 11B of the SEBI Act, 1992 was confirmed against all the persons mentioned hereinabove in Paragraph 2.2 vide order dated July 24, 2006.

2.6 Thereafter, MCL challenged the aforesaid order dated July 24, 2006 before the Hon’ble Securities Appellate Tribunal (SAT) in Appeal No. 134 of 2006. The matter came up for hearing on September 11, 2007 before the Hon’ble SAT wherein affidavit was filed by SEBI inter alia indicating the status of investigation and affirming that SEBI shall conclude the matter expeditiously after giving a fair hearing to the appellant.

2.7 Accordingly, SEBI completed the investigation and notice dated October 10, 2007 was issued to the company and its three whole time directors namely, Shri Kunal Lalani, Shri Himanshu Mehta and Shri Surendra Chhalani to show cause as to why suitable directions under Section 11, 11B and 11(4) of the SEBI Act, 1992 read with Regulation 11 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 2003 (hereinafter referred to as the PFUTP Regulations) including restraining them from accessing the capital market and prohibiting from buying, selling or dealing in the securities in any manner whatsoever for a particular period should not be issued. It was also interalia, alleged that the three directors were responsible for making announcements in a reckless manner, declaring inflated and manipulated financial results, providing different information to SEBI than what was provided to Exchange on its income from investments and facilitating manipulation in the scrip of MCL. It was alleged that the above acts were in violation of Regulations 3(a), (b), (c), (d) and 4(1), 4(2) (k) and 4(2) (r) of the PFUTP Regulations.

2.8 In response to the show cause notice, the company and its whole time directors vide letter dated October 26, 2007 submitted as under:

(i) The decision to deal in shares of small cap or mid cap rests with the management of the company. Such investment decisions fall within the realm of management and it would not be proper for any one to cast aspersions and attribute motives after the event to such decisions. The scrips of Laxmi Overseas Ltd., Karuna Cables Ltd. and IFSL Ltd. were identified as those belonging to emerging sector and were considered for acquisition/ trading strategies. (ii) There were three corporate announcements by the Company on April 7, 2005, April 20, 2005 and August 16, 2005. These announcements, interalia, pertain to “Mega Holidays” and “Mega Forex” line of business activities of the company. These announcements were made in terms of requirements of Clause 36 of the Listing Agreement. By making corporate announcements as required the company complied with the provision of Clause 36 of the Listing Agreement. The two announcements in April 2005 and one announcement in a gap of three months cannot by any stretch of imagination be termed as “flurry of announcements”. The corporate announcements made by the company do not reflect any unusual tone and tenor but are on the lines of similar announcements made by other companies. (iii) Company’s past track record performance, past liquidity and trading volume and company’s profit in trading in certain scrips branded as penny stocks were in different stages and events at different points of time and do not have any correlation or nexus with each other. Mere presence of certain shareholders in the general meeting of the company cannot by any stretch of imagination connect those shareholders to the directors/promoters of the company. The company and their directors submitted that they do not have any business connection or otherwise with individuals mentioned in the show cause notice who traded in their company’s shares.

2.9 An opportunity of hearing was granted to Mega Corporation and its Whole Time Directors on January 7, 2008. Shri Jagdish Khanna, Consultant, Shri Himanshu Mehta, Whole Time Director and Shri Mukesh Singhal, Manager appeared and reiterated the submissions made earlier in reply to the show cause notice.

3.1 I have carefully considered the facts and circumstances of the case, the material on record and the submissions made by the parties.

3.2 The annual results filed by the Company for the last four years are given below: Table 1: The annual results filed by the Company (Figures in Rs Cr.) Particulars March-05 March-04 March-03 March-02 Net Sales 14.02 3.45 - - Interest Earned, Operating Income - - 5.88 5.53 Other Income 0.04 0.88 1.30 1.86 Total Income 14.06 4.32 7.18 7.39 Interest Expanded * - - -0.03 -0.01 Operating Expenses - - -6.08 -6.12 Expenditure -2.83 -3.41 - - Operating Profit 11.23 0.91 1.07 1.25 Interest -0.02 -0.02 - - Gross Profit 11.20 0.89 - - Depreciation -0.73 -1.18 -1.46 -1.22 Profit before Tax 10.47 -0.29 -0.40 0.03 Tax -1.23 0.12 0.05 -0.09 Profit after Tax 9.24 -0.17 -0.35 -0.07 Net Profit 9.24 -0.17 -0.35 -0.07 Equity Capital 10.00 10.00 10.00 10.00 Reserves 11.14 1.89 2.06 2.41 EPS (in Rs) 0.92 -0.02 -0.04 - Nos. of Shares – Non Promoters 49704440 49495000 49495000 4863300 Percent of Shares – Non Promoters 49.7 49.5 49.5 48.63 * As given in BSE web-site

3.3 From the perusal of the financial statements of the company (a/a) for the years March 2002 to 2005, I observe that profit and loss of the company for the financial year 2004-05 showed that income from investments were Rs. 10.08 crore, accounting for around 72% of the total income of the company as compared to nil for the financial year ended 2003-04. It is significant to note that major part of the income for the year is from investments in ‘penny stocks’. The company wrote to BSE, vide its letter dated July 11, 2003 to make necessary change on BSE website to change its major business activities from “finance and investment” to “service based activities”. It is not known as to whether the company had made changes to its Memorandum of Association (MoA) as per the Companies Act, 1956 to reflect the change in its main business activity.

3.4 MCL submitted that the profit of Rs. 10.08 crore is on account of sale of shares of three companies i.e. Lakshmi Overseas Ltd., Karuna Cables Ltd. and IFSL Ltd. It is noted that MCL which incurred continuous losses in the previous 3 years, made huge investments in stocks. It is observed that there is no disclosure made by MCL regarding the above investments in its Annual Report or to the Stock Exchange. These shares were acquired and sold by MCL during the year 2004-05. From the subsequent correspondence with MCL, it was gathered that consideration for the above mentioned sale of shares was received during the financial year 2005-06 i.e. during the period from May 11, 2005 to September 15, 2005 but was accounted for in the previous year 2004-05.

3.5 MCL was asked by SEBI to submit further details of acquisition of the above shares. After long delay, finally, the company, vide letter dated February 13, 2006 submitted copies of contract notes, bills, client ledger, etc. issued by the broker M/s DPS Shares and Stock Brokers Pvt. Ltd.

(hereinafter referred to as “DPS”). The company informed that the shares purchased were kept in the broker’s pool account and did not provide the copy of demats accounts asked for. The company also did not provide the bank statement stating that the payments for purchases were adjusted against the receipt for sale.

3.6 The contract notes submitted by the company were sent to BSE for verification of the trade and confirmation of issuance of such contract notes / bills by the broker DPS. BSE, after verifying the trade data provided by the company with their records confirmed vide its letter dated March 8, 2006 that none of the transactions mentioned in the contract notes were executed by the broker on the BSE Online Trading System (BOLT). BSE also obtained further clarification from the broker DPS, who vide letter, dated March 21, 2006, denied issuing any such contract notes / bills and also denied having any such client. The above act of the company clearly suggests that the company reported huge profits in their annual results by manipulating their books of accounts to induce the investors into buying the shares of the company.

3.7 Vide letter dated January 4, 2007, the company was again advised to provide demat account statement of the company for the period from April 1, 2004 till January 4, 2007. The company did not provide demat account statement stating that the transactions made by the company were off market transactions and the company had not made any ‘material transactions’ after April 2005. I note that the reply of the company is contrary to their earlier information provided regarding the trading in the scrips of Karuna Cables Ltd., IFSL Ltd. and Lakshmi Overseas Ltd. through the broker DPS. The comments were sought from the company on providing such contrary information vide letter dated February 27, 2007. The company was also asked to provide bank account statements, copies of cheques received from DPS, demat account details and statement, etc. The company vide letter dated March 30, 2007 informed that trading in scrips of Karuna Cables Ltd., IFSL Ltd. and Lakshmi Overseas Ltd. through DPS were off market transactions. The company also provided bank account statement indicating deposit of cheques received from DPS and copies of some of the cheques and all payments made from this account to MCL were out of funds received from various agencies of MCL. As admitted, Mr. Sujal Shal and Mr. Pratik Shah, MCL were aware of the modus operandi of creating fraudulent bills for the benefit of capital gains.

3.8 MCL purchased more than 1% of the share capital of Karuna Cables Ltd. during June 2004 and of Lakshmi Overseas Industries Ltd. between April and May 2004 which they sold off in March 2005. A perusal of the shareholding patterns of Karuna Cables Ltd. as on June 30, 2004 and that of Lakshmi Overseas Industries Ltd. as on December 31, 2004 revealed that MCL does not appear in the list of shareholders holding more than 1% of the share capital.

3.9 The company provided demat account statement for the period April 1, 2005 to March 31, 2006. However, from the demat account statement I observe that there are no transactions in the aforesaid three scrips. The company informed that the orders were placed by Mr. Himanshu Mehta on its behalf and Mr. Pratik Shah used to accept the orders on behalf of DPS. The company also informed that they received proper contract notes / bills for these off market transactions. I note that MCL was initially trying to mislead SEBI by showing the transactions as if they were executed on BSE but later accepted them to be off market transactions. It may be noted in this regard that BSE vide letter dated March 8, 2006 confirmed that none of the transactions mentioned in the contract notes were executed by the broker on the BOLT system. BSE also obtained further clarification from the broker DPS, who vide letter, dated March 21, 2006, denied issuing any such contract notes / bills and also denied having any such client.

3.10 It was also observed that the balance sheet for the year 2004-05 filed by the company with the Exchange and the one submitted by the company to SEBI for the same year do not match. The balance sheet submitted by the company to the Stock Exchange did not contain the details of the investments. However, the balance sheet submitted at the time of personal hearing on February 6, 2006 contained the details of investments made by the company in various shares. The act of the company of submitting different versions of the balance sheet shows that MCL indulged in fudging of accounts.

3.11 Further, as per the details of investments provided in the balance sheet for the year 2004-05, MCL had more than 1% shareholding in the scrips viz., Tanu healthcare Ltd., Shukun Constructinos Ltd., Spicejet Ltd., Hinafil (I) Ltd., Empower Industries Ltd., Prraneta Industries Ltd. and IFSL Ltd. etc. The book value of these investments was shown at around Rs. 12 crore. However, as observed from the shareholding patterns of these companies, as on March 31, 2005, name of MCL does not appear in the list of shareholders holding more than 1% of the shares. Also, demat account statement of the company for the period April 1, 2005 to March 31, 2006 does not show any such investments.

3.12 The major corporate announcements of the company during the period April 2005 to September 2005 are as follows:

Table 2: Statement of corporate announcements made by the Company Date & time Major Announcements Thursday, Mega Corporation launches worldwide outbound packaged tour April 07, service provider 2005 Mega Corporation Ltd has announced that it is launching an 1:21:56 PM exclusive first of its kind 24 hours 'Mega Holidays', a worldwide outbound packaged tour service provider. Mega Holidays would cover regions across the world such as Alaska-Canadian Rockies, Honululu-USA, Russia-Scandinavia, South & East Africa, Australia-New Zealand, China, Far East, Europe etc. The company intends to operate across 25 cities in India through its marketing offices which are to be set up by the end of the year. By April 2005, the company will have 8 offices across India in Delhi, Jaipur, Chandigarh, Ludhiana, Bangalore, Chennai, Hyderabad and Kolkata. Mega Corp targets to achieve revenue of INR 1000 million in first year with Net Profit of INR 200 million. The packaged tour service is in exclusive collaboration with GEM Tours, which has over 15 years of experience in International Travel Industry and has operations across the Globe and is one of India's largest International Tour Operators. The company organizes Cruise Tours across all the continents and its tour programs spans 7-30 days, including travel, accommodation, food, sight seeing and taxes etc. Wednesday, Mega Corporation to enter forex service with launch of 'Mega April 20, Forex' 2005 Mega Corporation Ltd has on April 20, 2005 announced that it is 4:01:36 PM entering Forex service with the launch of "Mega Forex" brand. The Company has applied with RBI for the license to operate foreign exchange business. Combined with recent initiatives and proposed plans, the Company is all set to become full service Tourism Industry player. The Forex market, which is at $5-6 billion, is growing by at least 20% triggered by increasing international traffic. The growth in Forex business is likely to be faster than the pace of increase in traffic because spend levels of Indian going abroad is rising fast. Indians are rated among the top five spenders in markets like Singapore, Australia, New Zealand, Hong Kong, Dubai etc, especially the shopoholic holidaymakers. Outbound travel from India in 2004 was pegged at about 5.5 million, up 18%.

Date & time Major Announcements The Company expects to grab 5-10% market share in 1-2 year time span. The Company plans to start Forex business on a nationwide network. To begin with, there would be 4 branches in Mumbai, 6 in Delhi, 3 each in Bangalore and Chennai, 2 each in Hyderabad and Kolkata, 1 each in Pune, Ahmedabad, Kochi, Tiruananthpuram, Vizag. Thursday, Mega Corporation fixes Book Closure June 30, 2005 12:50:44 PM Tuesday, Mega Corporation Outcome of AGM August 16, Mega Corporation Ltd has informed BSE that the members at the 2005 20th Annual General Meeting (AGM) of the Company held on 7:02:34 PM July 16, 2005, inter alia, have accorded to the following: 1. Adoption of Balance Sheet of the Company as at March 31, 2005, the Profit & Loss Account of the Company for the year ended on that date and the reports of the Board of Directors and Auditors thereon. 2. Reappointment of Mr. Himanshu Mehta, Mr. Surendra Chhalani & Mr. Hulas Mal Lalani, as Directors of the Company, liable to retire by rotation. 3. Re-appointment of M/s Sipani & Associates, Chartered Accountants, as Auditors of the Company to hold office from the conclusion of this meeting till the conclusion of the next Annual General Meeting of the Company.

4. Appointment of Mr. Kunal Lalani as Managing Director of the Company for a period of 3 years w.e.f. June 30, 2005. 5. Increase in Authorised Share Capital from Rs 10,00,00,000/- to Rs 30,00,00,000/- by addition thereto 20,00,00,000 Equity Shares of Re 1/- each which shall rank Pari Passu in all respects with the existing Equity Shares of the Company and consequential amendment in Memorandum & Articles of Association of the Company. 6. Authority to the Board to issue, offer and allot equity Shares / Fully and / or Partly Convertible Bonds and / or Debentures / any securities convertible into Equity Shares, whether optionally or otherwise, with or without warrants convertible into equity shares and / or Depository Receipts and / or any other financial instruments / Securities convertible into equity shares ("Securities"), in India or abroad (i.e. in international markets) for Date & time Major Announcements an aggregate amount not exceeding Rs 5000 million, if any as may be determined by the Board by way of Public Issue through prospectus or through any other mode on preferential basis or private placement basis as the case may be at such time or times as the Board may think fit and whether, with or without premium as may be decided by the Board and on such terms

3.13 There were many announcements made by the company from April 2005 onwards about diversification of business activities. The ambitious new ventures included worldwide outbound packaged tour, forex service, etc. the company made a profit projection such as “Mega Corp targets to achieve revenue of INR 1000 million in first year with Net Profit of INR 200 million.”

3.14 MCL submitted that it made its corporate announcements in the normal course of business and with a view to comply with the requirements of the Listing Agreement. It emphasized that these were not hollow announcements but were supported by actual facts and underlying documents as proof and were approved by the Board of Directors. However, they have provided only a copy of application made to RBI regarding forex business and no other documentary proof regarding other business venture was provided.

3.15 From the analysis of the price movement subsequent to the two announcements made by MCL in the month of April 2005, it is noticed that these highly ambitious forward looking announcements and profit projections had a major impact on the price of the scrip as the price rose from Rs. 22.60 to Rs. 31.45 accounting for a rise of around 40% within a period of 8 trading days. This has to be seen against the background of continuous losses for three successive financial years ending March 02, 03 and 04 and a dubious profit for financial year 2004-05 based on income from the investment in penny stocks which was not reflected in the first statement submitted to BSE.

3.16 The company further informed that corporate announcements were made on April 7, 2005 on the basis of ‘opinion’ of the directors. The business plan was based on their exclusive agreement for the entire Indian Territory with a famous international company M/s Gem Tours and Travels Inc., New York for offering attractive holiday packages and they advertised all over India in leading newspapers and also received overwhelming response. The company did not submit any documents in support of their entering into agreement with Gem Tours and Travels.

3.17 Regarding forex services business, the company informed vide letters dated October 6, 2005 and February 3, 2007 that they had applied to RBI to operate foreign exchange business but till date no formal approval had been received by them from RBI. The company provided a copy of RBI acknowledgement for their application. We find that the application was submitted to RBI on September 14, 2005, whereas they had made announcement much earlier in April 2005. Thus, I note that the company made premature announcements which never materialized and could not justify the basis on which such a high revenue of Rs. 1000 million and profit projections of Rs. 200 million from new business activities were made on the back of its continuous loss making history. This was done to generate investors’ interest in the scrip and the prices of the scrip shot up from Rs. 22.60 to Rs. 31.45 after the aforesaid announcement as the scrip caught investors’ fancy.

3.18 Between January 01 and January 24, 2005, the scrip traded within the price range of Rs. 4 to 6, with an average volume of around 2000 shares per day. Total 24, 483 shares were transacted during this period. The price and volume spurt was observed in the scrip since January 25,

2005. The results of the company for the quarter ended December 2004 were declared by the company on January 28, 2005 and sudden spurt in volumes was observed on January 31, 2005. Average daily volume during the period from January 25, 2005 to September 16, 2005 was 744740 shares. The price of the scrip rose from Rs 4. 25 on January 25, 2005 to Rs. 43.85 on September 16, 2005.

3.19 From the analysis of the trade data and the trading by the clients of the top brokers during the period January 25, 2005 to September 16, 2005 revealed that some of the clients were connected to each other in terms of common address, common contact number or association though client companies. Amongst these, some clients, as given in the table below have shared the common address with the promoters. The details of such clients and their linkages are given below:

Table 3: Clients and their inter connectivity Client Name of Address as Contact number Connection Name broker per the through records of who, the broker client dealt in the scrip Kalpataru • Ajit Suryavanshi Chamber Gr appearing as Fortis Floor, Office common person in Securities No 5 Nanik respect of clients at Ltd. Matwani sr. no. 2 & 3. (Clg.no.3004Marg • Address of clients ) Mumbai 56546666 mentioned at Sr No. 1. Ajit Jagdari 1, 8, 9, 11, 22, 29, Suryavans Bhaiya 31 is same. hi Chawl, • Phone number of Ruchiraj Koldongri, clients mentioned at Shares and Sahar Road, Sr No. 1,2,4,6, 8, 9, Stock Andheri(E), 10, 11, 13, 16, 19, Brokers (P) Mumbai 20, 21, 23, 24, 25, Ltd. 26, 29, 30, 31, 32, (Clg.no.380) 56546666 and 33 are same.

Client Name of Address as Contact number Connection Name broker per the through records of who, the broker client dealt in the scrip B-Wing, Flat • Phone number of No.11, 2nd clients mentioned at Floor, Sr. No. 1,2,4,6, 8, 9, Monani 10, 11, 13, 16, 19, Appartment, 20, 21, 23, 24, 25, 2. Ritedeal Near 26, 29, 30, 31, 32, Trading Chandan and 33 are same. Company Galaxy Talkies, • Address of clients Pvt Ltd (Ajit Broking Juhu, mentioned at Sr No. Suryavans Ltd.(Clg.No. Mumbai - 2, 10 are same. hi) 513) 400 049 56546666 B-102, • Phone number of 3. Vishal Ruchiraj Padmavati clients mentioned at Kumar Shares and Palace, Sr No. 3, 4, 13, 16, Textiles P Stock Nanda 17, 24 is same. Ltd (Dir:Ajit Brokers (P) Patker Road, • Address of clients Suryavans Ltd. Vileparle (E), mentioned at Sr No. hi) (Clg.no.380) Mumbai 56546670 3, 7 are same. UTI Sani Dayas • Phone number of Securities Chawl clients mentioned at Ltd. Andheri East Sr No. 1,2,4,6, 8, 9, (Clg.no.767) Mumbai 56546670 10, 11, 13, 16, 19, Saroj Hiralal 20, 21, 23, 24, 25, Bldg 26, 29, 30, 31, 32, Koldongari and 33 are same. India Bulls Gali No 1 • Phone number of 4. Amar Securities Sahar Road clients mentioned at Adhav Ltd. Andheri(E) Sr No. 3, 4, 13, 16, (Clg.no.907) Mumbai 56546666 17, 24 is same.

Sadevbind Action Hiralal Chawl Financial Koldongri Services Andheri (India) Ltd. (East) (Clg.no.444) Mumbai A-12 • Received 20 lakh India Bulls Dhankar shares from 5. Securities Chawlmani promoter related Dadasaheb Ltd. Npadapanvel entity Crayon Gavhane (Clg.no.907) Navi Mumbai Advertising and Client Name of Address as Contact number Connection Name broker per the through records of who, the broker client dealt in the scrip then transferred 10 lakh shares to client mentioned at Sr. 1 (Ajit Suryavanshi) through off market deals. Room No 24 • Dattu Shitole Datt Krupa appearing as India Bulls Soc Plot No common person in Securities 44 Sec No 6 respect of clients at Ltd. New Panvel sr. no. 6 & 7. (Clg.no.907) Navi Mumbai 56546666 • Phone number of Dattu shitole-clients mentioned at room no. 24, Sr No. 1,2,4,6, 8, 9, dattkrupa soc 10, 11, 13, 16, 19, Joindre plot no. 44, 20, 21, 23, 24, 25, Capital sector no. 6, 26, 29, 30, 31, 32, Services Ltd. New panvel and 33 are same. (Clg.no.89) mumbai Wajhnagar K & A Panvel Securities Raigad 6. Dattu (P) Ltd. Mumbai- 022-5654678 Shitole (Clg.no.936) 400069 7. Dattu India Bulls B-102 55731000 • Dattu Shitole Shitole Securities Padmavati appearing as Rightstar Ltd. Palace, common person in Trading (Clg.no.907) Nanda respect of clients at Company Patkar Road, sr. no. 6 & 7. Pvt Ltd Vile Parle • Address of clients (East), mentioned at Sr No. Mumbai 3, 7 are same.

8. Deepak UTI R N 5 Ballu 56546666 or • Address of clients Narvekar Securities Bhaiya 56546669 mentioned at Sr No. Ltd. Chawl Lane 1, 8, 9, 11, 22, 29, (Clg.no.767) No 1 31 is same. Koldongri • Phone number of Sahar Road clients mentioned at Andheri East Sr No. 1,2,4,6, 8, 9, Mumbai.

Client Name of Address as Contact number Connection Name broker per the through records of who, the broker client dealt in the scrip No-5 Gr Flr 10, 11, 13, 16, 19, Kalpataru 20, 21, 23, 24, 25, Chambe 26, 29, 30, 31, 32, Nanik and 33 are same. India Bulls Motwani • Phone numbers of Securities Lane Opp clients mentioned at Ltd. HDFC Bank 022-56546666 Sr No. 8, 16, 27, 28 (Clg.no.907) Fort Mumbai are same. No-5gr Flr • Address of clients Kalpataru mentioned at Sr No. Chambe 1, 8, 9, 11, 22, 29, Nanik 31 is same. UTI Motwani • Phone numbers of Securities Lane Opp clients mentioned at Ltd. HDFC Bank 56546666 or Sr No. 9, 15, 22, 9. Deepak (Clg.no.767) Fort Mumbai 56546668 are same. Todkar No-5gr Flr • Phone number of Kalpataru clients mentioned at Chambe Sr No. 1,2,4,6, 8, 9, Nanik 10, 11, 13, 16, 19, India Bulls Motwani 20, 21, 23, 24, 25, Securities Lane Opp 26, 29, 30, 31, 32, Ltd. HDFC Bank 56546668 and 33 are same. (Clg.no.907) Fort Mumbai B/2, Flat • Ganesh Raut no.11 appearing as ,Monami common person in Apartment respect of clients at near sr. no. 10 & 11. Chandan • Address of clients Talkies, Juhu mentioned at Sr No. Mumbai 2, 10 are same. • Phone number of 10. Fine clients mentioned at Line Sr No. 1,2,4,6, 8, 9, Mercantile India Bulls 10, 11, 13, 16, 19, Co. (P) Ltd. Securities 20, 21, 23, 24, 25, (Dir:Ganes Ltd. 26, 29, 30, 31, 32, h Raut) (Clg.no.907) 56546666 and 33 are same.

Client Name of Address as Contact number Connection Name broker per the through records of who, the broker client dealt in the scrip No-5gr Flr • Ganesh Raut Kalpataru appearing as Chambe common person in Nanik respect of clients at India Bulls Motwani sr. no. 10 & 11. Securities Lane Opp • Address of clients Ltd. HDFC Bank mentioned at Sr No. (Clg.no.907) Fort Mumbai 56546666 1, 8, 9, 11, 22, 29, 11. Baburao 31 is same. Ganesh Pahilvan • Phone number of Raut Chawl, Lane clients mentioned at No.1/13, Sr No. 1,2,4,6, 8, 9, Sahar Road, The address 10, 11, 13, 16, 19, Galaxy Koldongri, updated in UCC 20, 21, 23, 24, 25, Broking Andheri database is the 26, 29, 30, 31, 32, Ltd.(Clg.No. (East), same that is and 33 are same. 513) Mumbai above. 118/8 Introduced by Vinod ,Majestic Khetan (Mistry Group 12. Haresh Peninsular Shopping observed in Betal Posnak Capital Centre, Global) Market Ltd. Girgaum, (Clg.no.156) Mumbai NNM Jay Shriram • Phone number of Securities Apts clients mentioned at 13. Jagdish (P) Kharegaon Sr No. 1,2,4,6, 8, 9, Parab Ltd.(Clg.no.5Kalwa West 56346666 10, 11, 13, 16, 19, 39) Thane) 20, 21, 23, 24, 25, 404jay 26, 29, 30, 31, 32, Sreeram and 33 are same. Appt • Phone number of Phakhadi clients mentioned at Kharegaon Sr No. 3, 4, 13, 16, India Bulls Kalwa 17, 24 is same. Securities (W)Mumbai Ltd. Pune Rd 9324055380 (Clg.no.907) Thane

Client Name of Address as Contact number Connection Name broker per the through records of who, the broker client dealt in the scrip Insight Jay Shriram Share Apts Brokers (P) Kharegaon Ltd.(Clg.no.9Kalwa West 46) Thane) 56546670 1134 • Found connected Girdharilal with promoters of No Khancho IFSL who had 14. Jay Khadia transferred IFSL Shah India Infoline Ahmedadbad shares to clients Securities 9824025952 mentioned at sr. Ltd. 3,6,7,8,11,13,16,21, (Clg.no.179) 23. A/5 • Phone number of Shivshakti clients mentioned at 15. Rahivanshi Sr No. 9, 15, 22, is Jaydeep India Bulls Sangh same. Mane Securities Sambhaji Ltd. Ngr Chembur (Clg.no.907) Mumbai 56546668 Room No 28 • Phone number of Bldg No1 clients mentioned at India Infoline Gautam Ngr Sr No. 1,2,4,6, 8, 9, Securities Dadasaheb 10, 11, 13, 16, 19, Ltd. Phal Ke Rd 20, 21, 23, 24, 25, (Clg.no.179) Mumbai 56546670 26, 29, 30, 31, 32, Gautamnaga and 33 are same. r, • Phone number of Dadashaebp clients mentioned at 16. Jayesh halkeraod, Sr No. 3, 4, 13, 16, Waghela Peninsular Roomno.28, 17, 24 is same. Capital Bldgno.1 • Phone numbers of Market Ltd. Dadar,Mumb clients mentioned at (Clg.no.156) ai 56546669 Sr No. 8, 16, 27, 28 Room No 28 are same. Bldg No1 India Bulls Gautam Ngr Securities Dadasaheb Ltd. Phal Ke Rd (Clg.no.907) Mumba 56546666

Client Name of Address as Contact number Connection Name broker per the through records of who, the broker client dealt in the scrip India Bulls Nagesh Wadi • Phone number of Securities Ghatla clients mentioned at 17. Kiran Ltd. Villagechemb Sr No. 3, 4, 13, 16, Dhanavade (Clg.no.907) ur Mumbai 56546670 17, 24 is same. Juhu • On April 13, 15 & Sameep, 19, 2005, Lokesh Juhu- Kapoor received Versova Link 10,49,990 shares, Road, 3,80,000 shares Andheri(W), and 1,95,000 Mumbai shares respectively Ruchiraj in the off market Shares and from Dadasaheb Stock Gavhane and Brokers (P) Sandeep K Pawar 18. Lokesh Ltd. (client mentioned at Kapoor (Clg.no.380) Sr. No. 5 & 30) 100 Saldhari • Phone number of Chawlkoldon clients mentioned at gari Saha R Sr No. 1,2,4,6, 8, 9, India Bulls Roadandheri 10, 11, 13, 16, 19, 19. Securities (E) Mumbai 20, 21, 23, 24, 25, Mahesh Ltd. 26, 29, 30, 31, 32, Kokate (Clg.no.907) 56546666 and 33 are same. C/O New • Phone number of Pushpa Bihar clients mentioned at Networth Bldg - 159 Sr No. 1,2,4,6, 8, 9, Stock Mumbai 10, 11, 13, 16, 19, 20. Broking 20, 21, 23, 24, 25, Premkuma Ltd.(Clg.No. 26, 29, 30, 31, 32, r Singh 197) 56546666 and 33 are same. C / 18 Asha • Rajkishore Singh Building Dixit appearing as Road common person in 21. Mumbai respect of clients at Stockholm sr. no. 21 & 22. Mercantile Joindre • Phone number of Co Pvt Ltd. Capital clients mentioned at (Rajkishore Services Ltd. Sr No. 1,2,4,6, 8, 9, Singh) (Clg.no.89) 56546666 10, 11, 13, 16, 19,

Client Name of Address as Contact number Connection Name broker per the through records of who, the broker client dealt in the scrip 20, 21, 23, 24, 25, 26, 29, 30, 31, 32, and 33 are same. No-5gr Flr • Rajkishore Singh Kalpataru appearing as Chambe common person in Nanik respect of clients at Motwani sr. no. 21 & 22. Lane Opp • Address of clients Hdfc Bank mentioned at Sr No. Fort Mumbai 1, 8, 9, 11, 22, 29, Fortis 31 is same. Securities • Phone numbers of 22. Ltd. clients mentioned at Rajkishore (Clg.no.3004 Sr No. 9, 15, 22, Singh ) 56546668 are same. B Wing Flat • Ramdas Kshirsagar No 2 2nd appearing as Floor common person in Monami respect of clients at Apartmennt sr. no. 23, 24 & 25. Juhu Mumbai • Phone number of 23. clients mentioned at Sharpline Insight Sr No. 1,2,4,6, 8, 9, Trading Co Share 10, 11, 13, 16, 19, Pvt Ltd Brokers (P) 20, 21, 23, 24, 25, (Ramdas Ltd.(Clg.no.9 26, 29, 30, 31, 32, Kshirsagar) 46) 56546666 and 33 are same. Networth Room No • Ramdas Kshirsagar 24. Stock 229 Geeta appearing as Ramdas Broking Nagar Navy common person in Kshirsagar Ltd.(Clg.No. Nagar respect of clients at 197) Mumbai 56546666

Client Name of Address as Contact number Connection Name broker per the through records of who, the broker client dealt in the scrip G Floor 229 sr. no. 23, 24 & 25. Geeta Nagr • Phone number of Navy Nagar clients mentioned at Colaba Sr No. 1,2,4,6, 8, 9, Mumbai 10, 11, 13, 16, 19, 20, 21, 23, 24, 25, 26, 29, 30, 31, 32, and 33 are same. UTI • Phone number of Securities clients mentioned at Ltd. Sr No. 3, 4, 13, 16, (Clg.no.767) 56546670 17, 24 is same. D-708 • Ramdas Kshirsagar Crystal appearing as Plazaandheri common person in Link Rd respect of clients at Oppfame sr. no. 23, 24 & 25. Adlabsandhe • Phone number of ri(W) Mumbai clients mentioned at 25. Topflag Sr No. 1,2,4,6, 8, 9, Exports Pvt India Bulls 10, 11, 13, 16, 19, Ltd Securities 20, 21, 23, 24, 25, (Ramdas Ltd. 26, 29, 30, 31, 32, Kshirsagar) (Clg.no.907) 56546666 and 33 are same. Flat 701 7th • Phone number of India Bulls Flr Blue clients mentioned at Securities Mountan Sr No. 1,2,4,6, 8, 9, Ltd. Bldg Andheri Telephone 10, 11, 13, 16, 19, (Clg.no.907) Mumbai no.56546666 20, 21, 23, 24, 25, 26. Ranjan C-32, Blue 26, 29, 30, 31, 32, Mandal Ruchiraj Mountail, Flat 33 are same. Shares and No.701, • Received shares in Stock Shastri off market from Brokers (P) Nagar, Santosh Pawar and Ltd. Andheri(W), Ajit Suryavanshi, (Clg.no.380) Mumbai -as above- India Infoline 16 A Hirji • Phone numbers of 27. Securities Bhoj Raj clients mentioned at Sandeep Ltd. Chawl Sr No. 8, 16, 27, 28 Kadam (Clg.no.179) Ghodap Deo 56546669 are same.

Client Name of Address as Contact number Connection Name broker per the through records of who, the broker client dealt in the scrip 1st Floor Room No 27 Mumbai Ruchiraj Mominpada, • Phone numbers of Shares and Dinkar clients mentioned at Stock Chawl, New Sr No. 8, 16, 27, 28 Brokers (P) Panvel, New are same. Ltd. Mumbai, • Received 11.20 (Clg.no.380) Mumbai 56546669 lakh shares from Santosh Dadasaheb 28. Jagtap Gavhane who had Santosh A/12,Mohin received the same Jagtap Plaza from promoter Ohankar related entity Chawl New Crayon Advertising. K & A Panvel Naige Securities D Mumbai- (P) Ltd. 400069 (Clg.no.936) Mumbai -as above- Kalptaru • Phone number of Chamber Gr clients mentioned at Floor Office Sr No. 1,2,4,6, 8, 9, India Bulls No 5 Nanik 10, 11, 13, 16, 19, Securities Motwani 20, 21, 23, 24, 25, Ltd. (Clg.no. Marg 26, 29, 30, 31, 32, 29. 907) Mumbai 56546666 and 33 are same. Santosh Kalptaru • Address of clients Narvekar Chamber Gr mentioned at Sr No. Fortis Floor Office 1, 8, 9, 11, 22, 29, Securities No 5 Nanik 31 is same. Ltd. Motwani (Clg.no.3004Marg ) Mumbai 56546666

Client Name of Address as Contact number Connection Name broker per the through records of who, the broker client dealt in the scrip 8devraj • Phone number of Jagmohan clients mentioned at Chawl Sr No. 1,2,4,6, 8, 9, Kaldongri Rd 10, 11, 13, 16, 19, India Bulls No 1sahar 20, 21, 23, 24, 25, Securities Rd 26, 29, 30, 31, 32, 30. Ltd. Andheri(E) and 33 are same. Santosh (Clg.no.907) Mumbai 56546666 Pawar Devraj Fortis Jagmohan Securities Chal Sahar Ltd. Road (Clg.no.3004Andheri East ) Mumbai No-5 Gr Flr • Phone number of Kalpataru clients mentioned at Chambe Sr No. 1,2,4,6, 8, 9, Nanik 10, 11, 13, 16, 19, Motwani Mg 20, 21, 23, 24, 25, Opp Hdfc 26, 29, 30, 31, 32, Bank Fort and 33 are same. India Bulls Mumbai • Address of clients Securities mentioned at Sr No. 31. Umesh Ltd. 1, 8, 9, 11, 22, 29, Choukekar (Clg.no.907) 56546666 31 is same. Room 4 • Phone number of Jagadhari clients mentioned at Yadav Chawl Sr No. 1,2,4,6, 8, 9, Koldongri 10, 11, 13, 16, 19, Sahar Road 20, 21, 23, 24, 25, CSL Stock Lane No1 26, 29, 30, 31, 32, 32. Vijay Broking (P) Andheri and 33 are same. Suryavans Ltd.(Clg.no.3(East) hi 23) Mumbai 56546666 Flat No E-5 • Phone number of 1st Flr Sai clients mentioned at India Bulls Wadi Vikas Sr No. 1,2,4,6, 8, 9, 33. Securities Soc Telligully 10, 11, 13, 16, 19, Vivekanan Ltd. N S Phadke 20, 21, 23, 24, 25, d Patankar (Clg.no.907) Rd Andheri 56546666 26, 29, 30, 31, 32,

Client Name of Address as Contact number Connection Name broker per the through records of who, the broker client dealt in the scrip (E) Mumbai and 33 are same.

3.20 Larger number of off market trades in the shares of the company was noticed during January to September, 2005. Entities connected with the company namely, Nirmal Jain, Laxman Saijari, Mahendra Gopal Gorivale, Patric Xess, Sanjiv Kathuria, Kamla Kathuria and Deepak Sharma purchased around 2,12,05,000 shares of the company on March 05, 2005 in physical form from the entities connected to the company and transferred 1.60 crore shares in the off market to aforesaid group of connected clients. Details of off-market transactions done by these clients have already been furnished as Annexure - VIII to the Show cause Notice. Nirmal Jain, Laxman Saijari, Mahendra Gopal Gorivale, Patric Xess were having the same address as that of Crayons Advertising Ltd.- the associate company of Mega Corporation Ltd.-evidencing a connection between them and MCL.

3.21 These persons received these shares in physical form from a group of related entities by way of common address viz. Goldgerg Finance Pvt. Ltd., Goldgerg Business Pvt. Ltd., Upasana Resources Pvt. Ltd., Weekend Resorts Pvt. Ltd., Gateway Electronics Pvt. Ltd., Sarvagya Commerce (I) Pvt. Ltd., Francoise Resources Pvt. Ltd. Bahadur Singh was observed to be authorized signatory for Upasana Resources Pvt. Ltd. and Francoise Resources Pvt. Ltd. in share transfer forms. Patric Xess, Bahadur Singh and Deepak Sharma were present as members in the meeting of MCL held on July 29, 2005 relating to declaration of the result on the voting by postal ballot on certain resolutions passed. Thus all aforesaid entities are connected to the company.

3.22 These entities, who received shares from the connected entities, then traded among themselves in the market. Details of such trading have already been furnished as Annexure - X to the Show Cause Notice. It is observed that the shares received in off-market were used to complete market obligations of the aforesaid group of connected clients. It is noticed that majority of connected clients dealing in the market have received and transferred shares in off market deals.

3.23 I find that most of the clients dealt through more than one broker and some of the clients had received shares directly or indirectly from the entities connected to the MCL. During the period March 18, 2005 to September 16, 2005, the buy orders far exceeded the sell orders and the group of connected clients accounted for 66.67% of the total valid buy orders and 43.15% of the valid sell orders. Hence, the buying and selling pressure was on account of above group of connected clients. Between March 18, 2005 and September 16, 2005, this group of connected clients purchased 513,26,549 shares and sold 465,34,294 accounting for 67.71% and 58.70% of gross purchases and gross sales respectively. Out of this, about 62.08% of gross purchases and 71.61% of gross sales of these connected clients were among themselves indicating circular trading which gives false appearance of high volumes to attract gullible investors. 1324 trades for 9328008 shares among these clients accounting for 26.04% of trades among themselves were synchronized i.e. time difference between buy and sell orders was less that 1 minute. These clients were also involved in 62 such trades among themselves with a total traded volume of 2972551 shares accounting for 3.49% of gross market traded quantity wherein buy and sell order rates and quantities were same and time difference between buy and sell orders was less than 1 minute. These connected clients were also observed to be involved in 243 trades which were executed at a price difference of 0.5% or more than the last traded price or last closing price.

3.24 From the above, I note that these connected clients through large off market deals amongst themselves and dealing through multiple brokers generated large artificial trading volumes. Around the same period large quantities of shares were also transferred to these interconnected clients by the entities connected to the company. By entering into trading among themselves, these entities brought about a sudden spurt in the volumes and price of the scrip. The entities connected with the promoters through a web of off market deals transferred shares amongst themselves in a bid to conceal the audit trail and then dealt in the stock market and were thus able to sustain an average of 67% of the trading volumes for the above period of nearly six months. The increase in volumes and the price was supported by a flurry of non - serious corporate announcements, future profit projections and announcement of manipulated financial results. These volumes induced the other investors to deal in the shares of the company.

3.25 Having regard to the nature of irregularities, facts and circumstances of the case and other material on record, I find that the company and its whole time directors made premature forward looking highly ambitious announcements which never materialized with a view to generate investors’ interest and spurt in volumes traded and increase in prices. A company which had poor track record of performance had sought to show high level of profitability from trading in “penny stocks”, the announcements of profit projections from ventures which were yet to begin were mischievously misleading and done with the sole purpose of generating public interest in the scrip in the market. Further, I find that the three whole time directors viz. Kunal Lalani (CMD), Himanshu Mehta, Surendra Chhalani (as per annual report for 2004-05) were responsible for making non - serious announcements, declaring inflated and manipulated financial results and providing misleading information to SEBI. The aforesaid acts of the company are in violation of Regulation 3(a), (b), (c) and (d) and Regulation 4(1), 4(2)(k) and 4(2)(r) of the SEBI (PFUTP) Regulations, 2003.

4.1 Now, therefore, I in exercise of powers conferred upon me under Section 11 and 11B read with Section 19 of the SEBI Act, 1992 further read with PFUTP Regulations 2003, hereby restrain Mega Corporation Limited (PAN - AAC-CM-9506-E) from accessing the capital market in any manner whatsoever for a period of one year (1 year) and Shri Kunal Lalani (PAN - AAG-PL-0992-C), Shri Himanshu Mehta (PAN - AAK-PM- 5750-F) and Shri Surendra Chhalani (PAN - ACI-PC-2863-K) Directors of the company are hereby restrained from buying, selling or otherwise dealing in securities, in any manner, for a period of one year (1 year).

4.2 This order shall come into force with immediate effect.

DATE: 28.2.2008 T. C. NAIR PLACE: MUMBAI WHOLE TIME DIRECTOR SECURITIES AND EXCHANGE BOARD OF INDIA