Adjudication Order No. Sp/Ao - 5/2010]
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BEFORE THE ADJUDICATING OFFICER SECURITIES AND EXCHANGE BOARD OF INDIA [ADJUDICATION ORDER NO. SP/AO - 5/2010] __________________________________________________ UNDER SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995 In Respect of NIKETA B. DAVE (431-432, Devkripa Bungalows, Opposite Primary School, Gota Gam, Ahmedabad-382 481) DEENKAR B. SHRIMALI (431-432, Devkripa Bungalows, Opposite Primary School, Gota Gam, Ahmedabad-382 481) PRATIK R. SHAH (12, Naresh Park, Shantinagar, Usmanpura, Ahmedabad-380 013) DHRUMAL K. VAIDYA (U/84, Satellite Complex, Opposite Mansi Tower, Satellite, Ahmedabad-380 015) LALIT K. RATHOD (246/9, Baimani Ni Chali, Intwada, Saraspur, Ahmedabad-380 018) SARANG CHEMICALS LIMITED (403, Sanjay Apartment, Opp. C N Vidyalaya, Polytechnic Road, Ahmedabad-380 015) ___________________________________________________________________________ FACTS OF THE CASE IN BRIEF 1. An investigation was initiated by Bombay Stock Exchange Limited (hereinafter referred to as ‘BSE’) in the trading of the scrip of Sarang Chemicals Limited (hereinafter referred to as ‘SCL’) during the period from August 1, 2005 to October 4, 2005 wherein it was observed that the price of the scrip increased from Rs.5.31 on August 01, 2005 to Rs.17.49 on September 13, 2005. Subsequently, the price decreased from Rs.15.75 on September 14, 2005 to Rs.8.53 on September 26, 2006. BSE also observed that the company also made various favorable announcements during this period and that certain company related entities were dealing in the scrip of SCL and purchased 1.34% and sold 23.33% of the entire market Page 1 of 16 volume during the above period. In view of the above, BSE vide letter dated March 8, 2006 referred the matter to SEBI for consideration. 2. SEBI conducted investigation into the trading in the scrip of SCL during the period from August 1, 2005 to October 4, 2005 (hereinafter referred to as ‘investigation period’). It was observed that during the investigation period, SCL made five corporate announcements which were alleged false / misleading as a result of which a price rise was observed during the patch period from August 01, 2005 to September 13, 2005 wherein the price increased from Rs.5.31 to Rs.17.49. It was also observed that the company disclosed false/misleading financial results to the Stock Exchanges and in the Annual Reports. 3. As per the investigation, it was observed that the company filed wrong/inconsistent shareholding with the stock exchanges. In the Annual Report (2004-05) the promoters of the company were shown to be holding 20,64,900 shares representing 29.52% of the total shareholding of the company whereas investigation brought out that as per BSE website, the promoter group of SCL was shown as having nil for the year ending March 31, 2005. Again, in the Annual Report, the total shareholding of the company was shown as 69,94,800 shares whereas as per BSE website under financial results, the non promoters shareholding was shown as 6,96,48,000 shares for the year ending March 31, 2005. It was further brought out that SCL also submitted the quarterly results for September 2005 and December 2005 to the Exchange on March 21, 2006 after a delay of 2-5 months. 4. Further, investigation revealed that in the Annual report for the FY 2004-05, SCL had mentioned that the share transfer work of the company was handled by its Registrar & Transfer Agent (RTA), M/s. Sharex India Pvt. Ltd. However it was observed that the company itself was handling the physical shares (in house) whereas it’s RTA, Sharex Dynamic (India) Pvt. Ltd. was handling the work of electronic connectivity. Hence, it seems that SCL had not complied with the requirement to appoint a common agency as required under the SEBI (Depositories and Participants) Regulations. 5. It was also observed during the course of investigation from the shareholding pattern of the top 50 shareholders of the company (as on June 30, 2005) that a number of entities, viz. Lakshya Securities and Credit Holdings Ltd, Anand Trivedi, Ashok Hiralal Shah, Shah Pravin Kantilal, Hiralal Popatlal Shah and Robinson Worldwide Trade Limited were holding more than 5% of the total shareholding of SCL and the change in their holding exceeded 2% of the total shareholding during the investigation period. It has been alleged that they were, therefore, required to disclose to SCL under Regulation 13(3) of the PIT Regulations and SCL was required to disclose the same to the stock exchanges under Regulation 13(6) of the said Regulations. In addition to the above, it was alleged that the shareholding of Robinson Worldwide Trade Ltd increased to more than 5 % of the paid up capital of the company on August 3, 2005 & September 6, 2005 and to more than 10 % on August 23, 2005 and hence, Robinson Worldwide Trade Ltd was required to disclose to SCL and to the stock exchanges under Regulation 7(1) of the SAST Regulations and SCL in turn to the stock exchanges under Regulation 7 (3) of the said Regulations. It was brought out that BSE in its report stated that no disclosures were made by SCL under the PIT and SAST Regulations during the investigation period. 6. It was, therefore, alleged that Niketa B. Dave, Deenkar B. Shrimali, Pratik R. Shah, Dhrumal K. Vaidya, Lalit K. Rathod and SCL (hereinafter collectively referred to as “Noticees”) have violated Regulations 3(c), (d) and 4(1), 4(2)(e), 4(2)(r) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003, Section 21 of the Page 2 of 16 Securities Contracts (Regulation) Act, 1956 read with Clause 35 and Clause 41 of the Listing Agreement, Regulation 53A of SEBI (Depositories and Participants) Regulations, 1996 and SEBI Circular no. D&CC/FITTC/CIR-15/2002 dated December 27, 2002, Regulation 7(3) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and Regulation 13(6) of the SEBI (Prohibition of Insider Trading) Regulations, 1992 and consequently, liable for monetary penalty under Section 15 HA and Section 15A (b) of the SEBI Act, 1992, Section 23A(a) of SCRA, 1956 and Section 19G of Depositories Act, 1996. APPOINTMENT OF ADJUDICATING OFFICER 7. I was appointed as Adjudicating Officer vide order dated July 27, 2009 under section 15I of the SEBI Act read with rule 3 of SEBI (Procedure for Holding Inquiry and Imposing Penalty by Adjudicating Officer) Rules, 1995 (hereinafter referred to as the ‘Rules’) to inquire into and adjudge under Section 15HA and Section 15A(b) of the SEBI Act, 1992, Section 23A(a) of SCRA, 1956 and Section 19G of Depositories Act, 1996. SHOW CAUSE NOTICE, REPLY AND PERSONAL HEARING Niketa B. Dave 8. In terms of the provisions of Rule 4 of the Rules, a Show Cause Notice No. AO- 4/SP/SCL/190882/2010 dated January 13, 2010 (“SCN”) was issued to the Niketa B. Dave to show cause as to why an inquiry should not be held against Niketa B. Dave and penalty be not imposed under Section 15HA and Section 15A(b) of the SEBI Act, 1992, Section 23A(a) of SCRA, 1956 and Section 19G of Depositories Act, 1996 for the alleged violations specified in the said SCN. The SCN was sent through Western Regional Office (WRO), SEBI. The SCN could not be served by hand delivery and hence, the same was duly served by way of affixture at the last known address of Niketa B. Dave in terms of the provisions of Rule 4(1) read with Rule 7 of the Rules. The report with regard to service of the SCN signed by two witnesses is on record. However, no reply was received from Niketa B. Dave. 9. Considering the facts of the case, it was decided to conduct an inquiry in the matter and the Niketa B. Dave was granted an opportunity of personal hearing and was accordingly advised to attend the hearing on March 04, 2010. However, Niketa B. Dave did not attend the hearing. Niketa B. Dave vide letter dated February 24, 2010 communicated her decision to avail the consent proceedings. However, thereafter no intimation of having filed the consent application with SEBI was received by me. Niketa B. Dave was therefore given another opportunity of hearing on March 22, 2010 vide letter dated March 09, 2010 sent through Western Regional Office (WRO), SEBI. The said Hearing Notice could not be served by hand delivery and hence, the same was duly served by way of affixture at the last known address of Niketa B. Dave in terms of the provisions of Rule 4(3) read with Rule 7 of the Rules. The report with regard to service of the Hearing Notice signed by two witnesses is on record. Niketa B. Dave did not appear for the hearing and even failed to submit any kind of reply to the show cause notice and the hearing notices issued by me. Deenkar B. Shrimali 10. In terms of the provisions of Rule 4 of the Rules, a Show Cause Notice No. AO- 4/SP/SCL/190882/2010 dated January 13, 2010 (“SCN”) was issued to the Deenkar B. Shrimali to show cause as to why an inquiry should not be held against the him and penalty be not imposed under Section 15HA and Section 15A(b) of the SEBI Act, 1992, Section Page 3 of 16 23A(a) of SCRA, 1956 and Section 19G of Depositories Act, 1996 for the alleged violations specified in the said SCN.