BEFORE THE ADJUDICATING OFFICER SECURITIES AND EXCHANGE BOARD OF INDIA [ADJUDICATION ORDER NO. IVD-ID9/RDB/AO/DRK-AKS/EAD3-494 -496 /38 - 40 /2014] __________________________________________________ UNDER SECTION 15 I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH RULE 5(1) OF SECURITIES AND EXCHANGE BOARD OF INDIA (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995 In respect of: BMD Exports Pvt. Ltd. Shri Jitendrabhai Ramanbhai Patel Shri Madhavlal Bechardas Patel 22-A,Suraksha Society Visnagar, Mehsana Gujarat - 384315 FACTS IN BRIEF 1. Securities and Exchange Board of India (hereinafter referred to as ‘ SEBI ’) conducted an investigation of the Initial Public Offer (hereinafter referred to as ‘IPO ’) of RDB Rasayans Ltd. (herein after referred to as ‘RDB ’) and its subsequent trading on and around the listing day as the scrip of RDB witnessed wide fluctuations in the price on Bombay Stock Exchange Ltd. (hereinafter referred to as ‘ BSE ’). RDB came out with an IPO of 45,00,000 equity shares of ` 10 per share at an issue price of ` 79 each and the issue was opened on 21.09.2011 and closed on 23.09.2011. The post issue equity share capital of the company is 1,77,14,800 shares. APPOINTMENT OF ADJUDICATING OFFICER 2. I was appointed as the Adjudicating Officer under Section 15 I of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act ’), read with Rule 3 of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as ‘ Adjudication Rules’ ) to Page 1 of 11 inquire into and adjudge under Sections 15 HA and 15 HB of the SEBI Act the violations of Sections 12A (a), (b) and (c) of the SEBI Act read with Regulations 3 (a), (b), (c), (d), 4 (1), 4 (2) (a), (d) and (e) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as ‘ PFUTP Regulations ’) alleged to have been committed by BMD Exports Pvt. Ltd. (hereinafter referred to as ‘BMD / noticee 1 ’), Shri Jitendrabhai Ramanbhai Patel (hereinafter referred to as ‘ JRP / noticee 2 ’) and Shri Madhavlal Bechardas Patel (hereinafter referred to as ‘ MBP / noticee 3 ’), Directors of noticee 1 and the same was communicated vide proceedings of the Whole Time Member appointing Adjudicating Officer dated 11.05.2013. SHOW CAUSE NOTICE, HEARING AND REPLY 3. Show Cause Notices No. A&E/EAD3/DRK-AKS/18578/2013, A&E/EAD3/DRK-AKS/18580/2013 and A&E/EAD3/DRK-AKS/18583/2013 dated 29.07.2013 (herein after referred to as ‘SCN’ ) were served on the noticees in terms of the provisions of Rule 4 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 requiring the noticees to show cause as to why an inquiry should not be held against the noticees and why penalty, if any, should not be imposed on the noticees under Sections 15 HA and 15 HB of the SEBI Act. In the said SCNs, it was alleged that part of the IPO proceeds was routed in a circuitous manner by RDB to noticee 1 in order to enable it to make payments to its stock broker on time i.e. as per T+2 settlement mechanism. 4. Vide personal hearing notices dated 23.08.2013, the noticees were granted an opportunity of hearing on 20.09.2013 at 11:00 am at SEBI Western Regional Office II, Ahmedabad. The said notices were served on the noticees through Speed Post Acknowledgement Due and proof of service is on record. Further the noticees were advised to submit their reply to the SCN on or before 13.09.2013. However the noticees failed to attend the scheduled hearing without providing any reasons. 5. Noticees vide their letter dated 14.09.2013 submitted that the reply submitted by them to WTM proceedings should be taken on record and treated as reply for the current adjudication proceedings also. Further the noticees requested for personal hearing in the matter. Noticees vide their reply dated 27.04.2012 submitted the following major reply towards WTM proceedings: Page 2 of 11 • All trades were done by them in the normal course of my trading business. The said trades are noticees own transactions and not for or at the behest of any 3 rd party or as a front entity as incorrectly assumed or otherwise. • Noticees general investment / business strategy adopted and implemented includes trading as well as short-term trading, day-trading, investment & arbitrage activities in the capital market. Noticees have huge business volumes of more than ` 100 crore per annum. • Noticees have also traded in the shares of more than 20 companies. • Noticees have regularly borrowed funds interalia from Sardhav Investment and Finance Pvt. Ltd. (hereinafter referred to as ' Sardhav ') and repaid the same, pursuant to an agreement dated 28/01/2011 between Sardhav and noticees. In fact there are almost regular financial transactions between noticees and Sardhav. Noticees have from time to time borrowed more than ` 6.5 crore from Sardhav and have also made repayments. Such loans are accounted for on a running account basis and the re-payments are made by them depending upon its excess liquidity, recall of funds by Sardhav etc. Noticees state that they are liable to pay interest on such loans at the agreed rate for the period for which the money is utilized by them. • For trading carried out by noticees on 7.10.2011, the pay-in date on BSE & NSE was 11.10.2011. Noticees did not have the required funds and therefore borrowed ` 1.45 crore from Sardhav on 10.10.2011 which was utilized to pay to ANS. • It is also pertinent to note that noticees trading in the shares of RDB on 7.10.2011 was only 75% of their total turnover of 7.10.2011. • Noticees have no connection or contact with RDB, or its Promoters, or its Directors. • Although the IPO of RDB was for only 45 lacs shares, the total turnover in the shares of RDB in NSE & BSE on 7.10.2011 was 3.50 crores shares. Therefore the volume of trading turnover was huge and at all time there was substantial depth and liquidity in the market. Huge quantities of orders were being placed throughout the day. 6. Noticees vide their aforesaid letter dated 14.09.2013 had also requested for inspection of relevant documents. Vide our letter dated 23.09.2013, noticees were informed that their request for inspection was forwarded to the concerned department and the noticees were advised to address further communication with respect to inspection to the concerned department. 7. It was noted from records that noticees had not carried out inspection in the matter for almost 5 months. Therefore, a final opportunity of hearing was granted to the noticees vide common hearing notice dated 10.02.2014 to attend the hearing on 24.02.2014 at 11:00 am at SEBI Bhavan, Mumbai. In the said notice it was mentioned that noticees have failed to carry out the inspection. Further it was also mentioned that if the noticees fail to attend the hearing the matter shall be proceeded based on the material made available Page 3 of 11 on record. Proof of service is available on record. The noticees again failed to attend the scheduled hearing without providing any reasons. 8. From the records it is noted that the noticees have not attended any of the personal hearings granted to them inspite of service of the notices as stated above. In the light of this fact, I am convinced that the Principles of Natural Justice have been complied with and I am compelled to pass an order against the noticees based on the material made available on record. It is also noted that inspite of providing opportunity, the noticees have failed to carry out the inspection in the matter as requested by them and have also failed to appear for the personal hearings granted to them in the current adjudication proceedings. CONSIDERATION OF EVIDENCE AND FINDINGS 9. I have taken into consideration the facts and circumstances of the case and the material made available on record. 10. It is observed from the IR that the scrip of RDB got listed on BSE on October 07, 2011. The listing day witnessed volumes to the tune of 3,50,09,187 shares which got traded through 2,04,524 trades. Thus, the number of shares traded on the first day of listing represents 1.98 times of the paid up capital of the company. Out of 3.50 Crore shares traded on the listing day only, 40,17,005 shares were the net delivered quantity. Thus, the delivery to trade percentage was just 11.48%. Further the deliverable quantity of 40,17,005 shares out of the 45 Lakh shares issued through IPO represents 89.27%. Thus, a large portion of the allottees of RDB IPO had sold their shares on the day of listing. 11. It is further observed from the IR that the scrip opened at a price of ` 85 at 09:15:04 am and was in the range of ` 72.90 to ` 93.15 till 13:18:07 and thereafter started falling sharply from 13:18:08 and reached its intraday low of ` 19.80 at 15:29:46 and closed at ` 26.50. Pre 13:18:07 total volume was 2,01,40,500 shares (57.53%) and post 13:18:08 total volume was 1,48,68,687 shares (42.47%).