ORDER
G.N. Bajpai, Chairman
1. Whereas there were allegations of price manipulation in the scrip of M/s Mandu Industries Ltd. (hereinafter referred to as ‘MIL’), Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) had ordered an investigation into the alleged price manipulation vide Chairman’s order dated January 7, 1998 and order dated September 30, 1998.
2. MIL having its registered office at 147-151A, Sector F, Industrial Area, Sanwer Road, Indore 452003 came out with a public issue of 5362500 equity shares of Rs.10/- each for cash at par on April 22, 1996. As per the prospectus, the company was promoted by Shri Madhusudan Jain and Shri Himmatlal Kakrecha. Shri Madanlal Jain was the Chief Executive Office of MIL and admittedly brother of Mr. Himmatlal Kakrecha, Promoter of MIL and Mr. Basantilal Kakrecha, Chairman of MIL.
3. The investigations revealed that –
The scrip got listed at the abnormal price of Rs.62.50 on the first trade entered at BSE on July 05, 1996. The exchange imposed special margins and also reduced the filter limit during the period.
The promoters and directors of MIL created false market in the shares of MIL by making sales and purchases through the counters of various brokers with a view to induce interest in the scrip.
Shri Madanlal Jain had apparently acted in concert with the promoters and had entered into deals with a view to creating false market by making sales and purchases through the counters of various brokers with a view to benefit.
4. That Shri Madanlal Jain was involved in creating a false market in the shares of MIL was apparently evident from the following: –
As per the statement recorded on oath, Shri Madanlal Jain had stated that Shreyas Securities & Finance Ltd. (SSFL), member – MPSE had arranged subscription in the public issue of MIL through their investors and they wanted to sell the shares in the market.
5. In statement recorded on oath, Shri Madhusudan Jain, Managing Director of MIL and nephew of Shri Madanlal Jain had mentioned that the dealings of SSFL could be the possible reason for the rise in the price of MIL shares.
6. The public issue of MIL got subscribed with the help of SSFL by extending inter corporate deposit in advance of public issue to SSFL by MIL.
7. After the scrip was listed, in association with SSFL and promoters of MIL, friends and relatives, Shri Madanlal Jain started to transact in the scrip. SSFL traded in MIL through three brokers namely M/s. M K Poladia (BSE member), M/s. Saurashtra Capital Services Pvt. Ltd.(BSE member) and Arihant Fincap Ltd.(NSE member). The transactions at the counters of M/s M. K. Poladia and M/s Saurashtra Capital Services Pvt. Ltd. were routed through sub-brokers namely Neeraj Investment and Allied Shares & Securities, respectively.
8. Shri Madanlal Jain had admitted to have purchased 25,200 shares of MIL at Rs.43.85 on March 9, 1997 from SSFL in an off-market deal, when the market price for the share was around Rs.63 to Rs.75. Further, Shri Madanlal Jain did not pay any money for purchase of these shares nor did he lodge these shares with the company for transfer in his name. The shares were purchased by Shri Madanlal Jain in the name of J K Suppliers of which he was the proprietor. Shri Madanlal Jain sold the said shares through Noveau Shares & Securities Pvt. Ltd. as a client by the name of J.K. Suppliers on May 5, 1997 and May 6, 1997 and had received cheque numbers 937112 and 937113 drawn on Canara Bank, NSE Branch issued by Nouveau Shares amounting to Rs.12,87,594 and Rs.2,00,000 respectively.
9. Shares were also bought and sold through various brokers by Betala and Belli families, known to Shri Madanlal Jain.
10. In the context of offloading MIL shares in the open market, Shri Basantilal Kakrecha approached Mr. Yogesh Tiwari and also Shri Sanjay Talathi in Mr. Yogesh Tiwari’s office at Andheri, Mumbai. Shri Basantilal Kakrecha also met Shri Sanjay Talati from time to time in places like Hotel Centaur, his daughter’s residence etc. Shri Sanjay Talati agreed to sell the shares of MIL provided they were transferred in his name and that the sale proceeds would be paid in cash after deducting his commission of 3%. Accordingly, approximately 50,000 shares of MIL were sold by Shri Sanjay Talati.
11. The documents received and the statements recorded reveal that Shri Madanlal Jain’s nephew Mr. Madhusudan Jain who was also the Managing Director of MIL had entered into structured deals (buying and selling within a group of persons) with Smt. Sushila Nuwal and Mr. Vaibhav Nuwal to create a false market in the scrip of MIL and to manipulate the price. Shri Madhusudan Jain used to place orders for both buying and selling on behalf of Nuwals as well as Swarnim Caplease (P) Ltd. Shri Madusudan Jain is the son in law of one of the directors of D S Sancheti Securities and Financial Services Ltd. (DSSSFSL) and used to sit in front of the NSE terminal and direct them (DSSSFSL) to execute the orders of MIL. After thus having manipulated the price, Shri Madhusudan Jain had sold 23000 shares held by him in the name of Swarnim Caplease Private Ltd. and realized approximately Rs.14.40 lakhs.
12. In addition, Nuwal family who are known to Shri Madanlal Jain’s family and associated with the project of MIL had also dealt in the shares of MIL and the orders on behalf of Nuwals were reportedly executed by Shri Madanlal Jain’s nephew, Mr. Madhusudan Jain.
13. Thus, after creating market for the shares of MIL through various brokers, Shri Madanlal Jain and his family members and associates offloaded shares in the market, either directly or through third parties.
14. The transactions on NSE in the shares of MIL through Shri Madanlal Jain and his various associates can be summed as follows:
Figures are for settlement No. 6 to 19 (1997) of NSE.
Entities associated with Promoters of MIL Gross Purchase Gross Sell Net Transaction
Shreyas Securities 10,800 11,400 -600
Nuwal Family 1,88,000 2,19,600 -31,600
J. K. Suppliers, (Prop. Shri Madanlal Jain) 0 25,100 -25,100
Swarnim Caplease, (Director, Shri Madhusudan Jain) 43,400 66,600 -23,200
Total 2,42,200 3,22,700 -80,500
Gross Trading 5,64,900
15. Thus, gross exposure of Shri Madanlal Jain and his close associates in MIL during aforementioned period was to the extent of 5,64,900 shares, with a net sell position of 80,500 shares. The trading pattern of the entities mentioned above indicated that there was a concerted action in earlier settlements to create volume and increase the price and thereafter, to offload shares in just 2 settlements when the price had been brought to a certain level. This was borne out by the fact that out of total net delivery of approximately 1,07,000 shares at NSE through settlements 6 to 19, delivery of 79,900 shares (constituting almost 75% of total deliveries) came only in 2 settlements namely settlement nos. 18 and 19 and were effected by Shri Madanlal Jain and persons closely connected with him, as shown below:
Net quantity Delivered by the Promoters/Persons connected with them
Settlement No. Name of the Promoters and Persons connected with them Total Quantity Delivered
Vaibhav Nuwal Sushila Nuwal Swarnim Caplease J K Suppliers
18 24,400 Nil 25,100 49,500
19 7,200 23,200 Nil 30,400
Total 31,600 23,200 25,100 79,900
Avg. Realisation 33,74,400 14,38,400 14,55,800 62,68,600
16. The above is in addition to 50,000 shares reportedly offloaded through Shri Sanjay Talati in BSE/NSE on behalf of promoters and their associates.
17. It was, therefore, alleged that Shri Madanlal Jain had created false market by making sales and purchases through the counters of various brokers with a view to inducing interest in the scrip and to benefit, thereby violating Regulation 4 of SEBI (Prohibition of Fraudulent And Unfair Trade Practices Relating to Securities Markets) Regulations, 1995.
18. After completion of investigations, a show cause notice No. IES/ID3/UN/26156/01 dated 30.3.01 was sent to Shri Madanlal Jain on 4.4.01 at his residential address namely 205, Anup Nagar, A B Road, Indore 452008 which was returned undelivered. Subsequently, the copy of show cause notice was sent to Noveau Shares & Securities Ltd. (Shri Madanlal Jain’s broker) for delivering it to him vide letter No. IES/ID3/UN/27461/01 dated 24.4.01. However, Noveau Shares & Securities Ltd. replied back stating that they could not get the current address of Shri Madanlal Jain from the persons who had introduced the client to them. Simultaneously, letter No. IES/ID3/UN/26458/01 dated 24.4.01 was sent to Shri Ashok Jain, Power of Attorney holder of Shri Madanlal Jain requesting him to provide us the current postal address of Shri Madanlal Jain. However, no reply was received from Shri Ashok Jain.
19. Subsequently, Shri Madanlal Jain’s current address was obtained from Shri Madhusudan Jain and show cause notice No. IES/ID3/UN/JJ/12416/02 dated 8.7.02 was served on Shri Madanlal Jain.
20. Shri Madanlal Jain replied vide his letter dated 29.7.02, a gist of which is given below:
i. Shri Madanlal Jain admitted that MIL had advanced inter-corporate deposits to SSFL but the same was repaid in full by SSFL approximately 3 to 4 months before the opening of the public issue of MIL.
ii. He admitted to have transacted through SSFL.
iii. He admitted to have bought 25200 shares and sold them to make profits.
iv. He denied that Betala and Belli families had traded at his instance.
v. He denied having any knowledge of Shri Sanjay Talati.
vi. He denied having knowledge of Shri Madusudan Jain’s dealings with DSSSFSL.
vii. He denied having any knowledge of the transactions by his niece.
viii. He denied having violated any Regulations of SEBI.
21. Vide letter No. IES/ID3/UN/JJ/15369/2002 dated 13.8.02, Shri Madanlal Jain was given an opportunity to appear in person before Chairman, SEBI on 31.8.02. Shri Madanlal Jain failed to appear on the said date.
22. I have gone through records of proceeding, the investigation report, correspondence with Shri Madanlal Jain and his reply.
23. It is noted that Shri Madanlal Jain is closely related to the promoters of MIL and was the Chief Executive Officer of MIL. Shri Madanlal Jain claims that the transactions took place when he had ceased to be the Chief Executive Officer of MIL and that he had no knowledge of the transactions by others. I note that almost the entire dealings in the scrip had taken place within close family/friend circle of the promoters. Shri Madhusudan Jain and Shri Basantilal Kakrecha are Shri Madanlal Jain’s close relatives and business associates. Shri Narendra Belli was also his business associate. Therefore, I do not accept Shri Madanlal Jain’s claim that he was unaware of the happenings. Though he denies any association with SSFL, the very fact that SSFL has sold to Shri Madanlal Jain 25200 shares of MIL at Rs.43.85 when the market price was around Rs.63 to Rs.75 and delivered the shares to Shri Madanlal Jain without even receiving the consideration or sale proceeds of around Rs.10 lacs, showed the close relationship or understanding between the two. Otherwise, nothing could explain why SSFL would sell the shares to Shri Madanlal Jain at a discount to the ruling market price. There is thus enough evidence to show that Shri Madanlal Jain in connivance with close friends, associates and family members who are promoters of MIL created false market by making sales and purchases through the counters of various brokers with a view to inducing interest in the scrip. Once this purpose had been achieved and the price brought to an intended level, it is only Shri Madanlal Jain and his family members/associates who had off loaded the shares of MIL in the market at considerable profit to themselves. Shri Madanlal Jain had himself admitted to have made a profit of Rs.4-5 lacs in the instant case.
24. In the light of above facts, it is clear that Shri Madanlal Jain violated the provisions of Regulation 4(a) to 4(d) of SEBI (Prohibition of Fraudulent And Unfair Trade Practices Relating to Securities Markets) Regulations, 1995. Shri Madanlal Jain’s action is undesirable and detrimental to the orderly development of the capital market and is against the interest of genuine investors and needs to be curbed.
25. Therefore, in the interest of investors and healthy development of securities market, in exercise of the powers conferred on me under Section 4(3) read with Section 11B of Securities and Exchange Board of India Act, 1992 and ith Section 11 & 12 of SEBI (Prohibition of Fraudulent And Unfair Trade Practices Relating to Securities Markets) Regulations, 1995 and Section 11B of Securities and Exchange Board of India Act, 1992, I, G N Bajpai, direct that Shri Madanlal Jain S/o Motilal Jain residing at 372, AE, Scheme No. 74C, Indore 452010, be hereby prohibited from dealing in securities market in any capacity for a period of two years with effect from 25th November, 2002.