ORDER
G. Anantharaman, Member
1. BACKGROUND\
1.1 Investigations conducted by Securities and Exchange Board of India (hereinafter referred to as SEBI) in the wake of excessive volatility during the period from April 01, 2000 to March 31, 2001 revealed that entities connected/associated with Shri Ketan Parekh (hereinafter referred to as the KP entities) had indulged in certain manipulative activities such as, synchronized trades, circular trading and creation of artificial volume of the prices of certain scrips of the companies including that of DSQ Software Ltd., Global Telesystems Ltd., Zee Telefilms Ltd., Himachal Futuristic Communication Ltd., Ranbaxy Laboratories Ltd., Aftek Infosys Ltd., Global Trust Bank against the interest of the investors in the securities market. The KP entities through certain stock brokers executed trades which were in the nature of circular and fictitious trades and the same had resulted in creation of artificial volume and artificial markets in the aforesaid scrips. The said transactions made by the KP entities were found to be non-genuine as there was no change in the beneficial ownership of shares i.e. the shares were merely rotating from one KP entity to same or other KP entity and were found to be circular trades undertaken to create artificial volumes and artificial markets in the said scrips.
1.2 In view of the above, SEBI vide order dated December 12, 2003, prohibited the KP entities from buying, selling or dealing in securities in any manner directly or indirectly and also debarred them from associating with the securities market, for a period of fourteen years.
1.3 The aforesaid order of SEBI was challenged before the Hon’ble Securities Appellate Tribunal (SAT) and SAT vide its order dated July 14, 2006 had inter alia observed that “We have, therefore, no hesitation to hold that if Ketan Parekh and his entities are allowed to continue with their operations they would pose a serious threat to the integrity of the securities market and endanger the interests of the investors.”
1.4 The aforesaid investigation conducted by SEBI further found that there were movements of shares and funds between the some of the aforesaid companies (mentioned at para 1.1) and KP entities. Such funds and shares were used by KP entities for the purpose of manipulating the securities market and for making payment at the time of settlements in the stock exchanges. It was also found that some of the said companies or their promoters were also trading in the securities market in the same shares which were manipulated by KP entities.
1.5 The investigation conducted by SEBI revealed that Vidyut Investments Ltd. (VIL) a 100% subsidiary of Ranbaxy Laboratories Ltd. (RLL) and registered with Reserve Bank of India (RBI) as a Non Banking Finance Company (NBFC) had financed the dealings of KP entities, namely M/s. V. N. Parekh Securities Pvt. Ltd. (VNPS), M/s. Classic Credit Ltd. (CCL) and M/s. Panther Fincap & Management Services Ltd. (PFMSL). Shri Ketan Parekh was found to be the director of M/s Classic Credit Ltd and M/s Panther Fincap & Management Services Ltd. along with his relatives. Similarly, the relatives of Shri Ketan Parekh namely Shri Navinchandra Parekh, Shri Kirtikumar Parekh, Shri Vinaychandra Parekh, Shri Kartik Parekh and Shri Jayant Parekh were the directors/shareholders of V N Parekh Securities Pvt. Ltd.
1.6 It was found that a sum of Rs.351 crores was financed by VIL to the KP group in two portions i.e Rs.106 crores during January to October, 1999 and Rs.245 crores during November, 1999 to December, 2000. The funds were made available by VIL to the KP entities against security of shares of various listed companies which were manipulated by KP entities such as Global Trust Bank, Aftek Infosys Ltd., Himachal Futuristic Communications Ltd., DSQ Software Ltd. etc.
1.7 The aforesaid funding by VIL had facilitated KP entities to manipulate the securities market and the shares price of the aforesaid companies had witnessed a significant rise accompanied with rise in volumes in the stock exchanges, where the said shares were listed. Further, it was also found that VIL had significantly traded in the shares of the aforesaid companies during the period of investigation, on its own account. The majority of such transactions were made through the stock brokers associated/connected with Shri Ketan Parekh. In the facts and circumstances, it has been alleged that VIL had aided and abetted KP entities in the manipulation and therefore prima facie violated the provisions of Regulation 4 (a), (b), (c), (d) & (e) of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 1995 (FUTP Regulations).
1.8 Accordingly, SEBI had issued show cause notices dated February 5, 2003, June 30, 2004 and December 31, 2004 to VIL asking it to show cause as to why suitable directions should not be issued against it for the alleged violation of the aforesaid provisions. The said show cause notices were issued in respect of its dealing with KP entities in the shares of Ranbaxy Laboratories Ltd., Aftek Infosys Ltd., Global Trust Bank. SEBI had also issued a show cause notice dated March 13, 2003 inter alia against VIL for the alleged violation of the provisions of regulating 10 of the Takeover Regulations. SEBI also initiated adjudication proceedings in respect of the said violations.
1.9 More or less similar submissions were made by VIL in respect of the above show cause notices. The common refrain of such submissions is as under:
• They are RBI registered NBFC and are engaged in the business of granting loans and advances and other activities of a finance company. In the course of their business activities, they have provided financing facilities to several entities. In mid 1998, they had agreed to extend the line of credit to PFMSL, and later to PSPL and CCL, under the agreement executed. This was done by means of secured loans and the security as per the agreement was equity shares of listed Indian companies acceptable to them.
• The transactions entered into by them with Ketan Parekh entities in relation to the alleged price manipulation of the Aftek shares were confined to their bonafide commercial lending transactions.
• It was expressly agreed as per the loan agreement between Vidyut and the KP group brokers that a 50% of margin of security would be retained by Vidyut.
• Loans were taken for periods of 1-17 days on the lines of credit. Interest rates were negotiated between the parties. Security against the loan was shares of around 36 listed companies.
• Since the facility was of the nature of revolving credit, the borrowers allowed them to keep shares for a long term in their DP account and during the period they did not acquire any beneficial interest in these securities. The only interest they acquired in those shares was as a pledgee with limited right to dispose off the shares only upon occurrence of a default under the facility agreements.
• They further stated that they, merely on account of being the lenders to Ketan Parekh (KP) entities, could not be hold liable for the alleged manipulation done by KP group. At the relevant time the credit worthiness of these entities and their standing integrity were considered to be quite high. Even nationalised banks were lending to these entities. Further, they had no knowledge, awareness that Ketan Parekh group was involved in alleged manipulative trade practices.
• Only the registered ownership of such shares was transferred to them by way of security, as a protective measure as a security holder, and that at no point of time did they hold such shares beneficially on their own account. Accordingly, two lakh twenty five thousand and six hundred (2,25,600) shares of Aftek held by them as on December 15, 1999, were held as security in their depository account for the lines of credit extended by them to CCL and PFMSL. In respect of the period commencing from 26.2.2000 to 27.12.2001, they did not hold more than five thousand (5,000) shares of Aftek in their own account as beneficial owners of the shares.
• On termination of the secured credit facility, and subject to repayment of credit, the registered ownership of the shares was to be re-transferred by way of release of security.
• They had no knowledge of and/or control whatsoever over the end use of the funds advanced by them to CCL and PFMSL under the secured credit facilities.
• At no point of time did they require CCL and/or PFMSL to create security over Aftek shares in particular. As per the terms of the secured credit facilities, CCL and PFMSL were entitled to submit shares of any listed company as security. In addition to Aftek shares, CCL and PFMSL created security in their favour over shares of other companies as well and the Aftek shares comprised a part of the total security created by CCL and PFMSL.
• They permitted CCL and PFMSL to only draw down the facilities to the extent of half of the value of the shares deposited with them as security, at any point of time. As they worked on margins related to market price of the securities, there was no question of their raising the market price of the securities.
• The extension of credit facilities to CCL and PFMSL was a genuine bona fide commercial lending transaction and was not intended in any manner whatsoever to assist, directly or indirectly, in manipulation of the price of Aftek shares on the stock exchanges.
• Their trading was part of the normal trading activity in which they were involved. These were not alleged to be of any kind of manipulative transactions. They had traded through both Ketan Parekh group of brokers and non-KP brokers during the relevant time.
• Abetment has not been defined in SEBI act. As per Indian penal code (S 107) the three ingredients of abetment are-
1. Instigate a person to do a thing
2. Engages with one or more other person or persons in any conspiracy for doing that thing, if an illegal omission takes place in pursuance of that conspiracy, and in order to the doing of that thing
3. Intentionally aids in any act of illegal omission, the doing of that thing.
• VIL stated that its case did not fit into any of the ingredients of abetment and further submitted that the said allegation was without any basis in fact or in law. In view of the foregoing, it was submitted that the allegation that it had contravened Regulation 4 of the SEBI Regulations was entirely without any basis whatsoever in fact and in law.
2. PERSONAL HEARING:
2.1 Taking into account the similarity of charges leveled against VIL, a common opportunity of hearing was granted to VIL in respect of the above show cause notices and the matter was finally heard on February 14, 2006. Shri Ciccu Mukhopadhyaya, Shri Pranav Sharma advocates, Amarchand & Mangaldas and Shri G S Jolly of VIL appeared before me and made submissions on behalf VIL ( in respect of all the show cause notices), reiterating the replies filed on behalf of VIL. They inter alia submitted that VIL had not violated Regulation 4 of the FUTP Regulations and sought for the discharge of the show cause notices. Further, vide letter dated March 14, 2006 they submitted common written submissions. In the said written submissions it was inter alia stated that the relationship of VIL with the KP entities was merely that of a borrower and lender and that the shares held by VIL received from the said entities were held in its depositories account merely by way of securities. It was inter alia clarified that the mere providing of financial assistance against securities could not be said to be in violation of the provisions of FUTP Regulations. It was further claimed that there was no material on record to show that VIL had common intention and participated along with KP entities in the alleged violations of the FUTP Regulations.
3. CONSIDERATION OF ISSUES AND FINDINGS
3.1 I have carefully examined the findings of Investigations, show cause notices, the reply and the oral as well as written submissions of VIL. I find from the show cause notices that VIL had funded KP group who indulged in manipulation in the scrips of DSQ Software Ltd., Global Telesystems Ltd., Himachal Futuristic Communications Ltd., Aftek Infosys and Zee Telefilms, Ranbaxy Laboratories Ltd. and Global Trust Bank and that VIL also traded through the stock broking entities associated with Ketan Parekh Group.
3.2 At the outset, VIL has contended that the violations alleged in the scrip of AIL related to and arose from the set of facts and circumstances in respect of the alleged contravention of Takeover Regulations which order was challenged by it before the Hon’ble SAT. In this regard, I have noted that the findings against VIL in that order was non disclosures and acquisition of shares beyond threshold limits in terms of Takeover Regulations for which a separate show cause notice dated March 13, 2003 under section 11 B was also issued, whereas the show cause notices (February 5, 2003, June 30, 2004 and December 31, 2004) pertained to aiding and abetting of KP entities in market manipulation. Therefore, the said show cause notices set out different allegations in the context of FUTP Regulations and there was no bar to proceed separately. However, I note that SAT has set aside the order of the adjudicating officer in respect of the violations of regulation 10 of the Takeover Regulations. I also note that the full text of the order is still awaited. Further, I am of the view that the above order in any way would not vitiate the present proceedings because the persons acting in concert in Takeover Regulations matter with mathematical precision to establish control or acquisition of shares beyond the threshold limit whereas in the context of FUTP Regulations, the determinant is the impact on the market, not the number in terms of percentage of control or acquisition of shares per se. Therefore, the concept of PAC has to be understood differently in different contexts.
3.3 VIL had funded entities associated/connected with Ketan Parekh group namely V N Parekh Securities Pvt. Ltd., Classic Credit Ltd and Panther Fincap & Management Services Ltd. to the extent of Rs.106 crores during the period January 1999 to October 1999 and Rs.245 crores during the period November 1999 to December 2000 totaling to Rs.351 crores during the period from January 1999 to December 2000. VIL had funded the entities associated/connected with KP group mostly on short term basis i.e. for a week or so during the investigation period.
3.4 The details of the payments made by VIL to and from KP group during the period January 01, 1999 to October 31,1999 are given below:
Sr.No.
Name of the Broker/
Associate
Cheque No.
Date
Bank
Paid (Rs.)
Received (Rs.)
Nature of Payment
633364
24-Mar-99
ABN Amro Bank
5,00,00,000
Loan Paid
465085
30-Mar-99
ABN Amro Bank
5,00,00,000
Repayment
Sub Total
5,00,00,000
5,00,00,000
497611
28-Oct-99
ABN Amro Bank
25,00,00,000
Under line of Credit
497612
28-Oct-99
ABN Amro Bank
25,00,00,000
Under line of Credit
371902
29-Oct-99
Global Trust Bank Ltd.
25,00,00,000
Repayment
371903
29-Oct-99
Global Trust Bank Ltd.
25,00,00,000
Repayment
Sub Total
50,00,00,000
50,00,00,000
634678
29-Jan-99
ABN Amro Bank
11,00,00,000
Under line of Credit
184287
04-Feb-99
ABN Amro Bank
11,00,00,000
Repayment
634691
05-Feb-99
ABN Amro Bank
15,00,00,000
Under line of Credit
231247
18-Feb-99
Global Trust Bank Ltd.
15,00,00,000
Repayment
634707
23-Feb-99
ABN Amro Bank
4,00,00,000
Under line of Credit
634706
23-Feb-99
ABN Amro Bank
21,00,00,000
Under line of Credit
225806
11-Mar-99
Global Trust Bank Ltd.
3,00,00,000
Repayment
184291
11-Mar-99
ABN Amro Bank
9,00,00,000
Repayment
225869
12-Mar-99
Global Trust Bank Ltd.
12,00,00,000
Repayment
155505
12-Mar-99
Global Trust Bank Ltd.
1,00,00,000
Repayment
Sub Total
51,00,00,000
51,00,00,000
Grand Total
1,06,00,00,000
1,06,00,00,000
3.5. The details of the payments made by VIL to and from KP group during the period November 01, 1999 to December 31, 2000 are given below:
Sr.No.
Name of the Broker/
Associate
Cheque No.
Date
Bank
Paid (Rs.)
Received (Rs.)
Nature of Payment
497631
22-Dec-99
ABN Amro Bank
20,00,00,000
Under line of Credit
497632
22-Dec-99
ABN Amro Bank
20,00,00,000
Under line of Credit
497633
22-Dec-99
ABN Amro Bank
15,00,00,000
Under line of Credit
433272
27-Dec-99
Global Trust Bank Ltd
20,00,00,000
Repayment
433282
29-Dec-99
Global Trust Bank Ltd
20,00,00,000
Repayment
433283
29-Dec-99
Global Trust Bank Ltd
15,00,00,000
Repayment
023001
6-Apr-00
Citibank
25,00,00,000
Line of Credit
662285
25-Apr-00
Global Trust Bank Ltd
5,00,00,000
Repayment
679327
9-Jun-00
Global Trust Bank Ltd
5,00,00,000
Repayment
679347
21-Jun-00
Global Trust Bank Ltd
12,50,00,000
Repayment
755979
19-Jul-00
Global Trust Bank Ltd
2,50,00,000
Repayment
869669
29-Sep-00
ABN Amro Bank
15,00,00,000
Under line of Credit
869670
29-Sep-00
ABN Amro Bank
15,00,00,000
Under line of Credit
825773
23-Oct-00
Global Trust Bank Ltd
10,00,00,000
Repayment
825774
23-Oct-00
Global Trust Bank Ltd
10,00,00,000
Repayment
825775
23-Oct-00
Global Trust Bank Ltd
10,00,00,000
Repayment
869680
27-Oct-00
ABN Amro Bank
15,00,00,000
Under line of Credit
869681
30-Oct-00
ABN Amro Bank
15,00,00,000
Under line of Credit
417903
30-Nov-00
ABN Amro Bank
2,50,00,000
Repayment
707874
8-Dec-00
Global Trust Bank Ltd
7,50,00,000
Repayment
Sub Total
1,40,00,00,000
1,20,00,000
497620
30-Nov-99
ABN Amro Bank
20,00,00,000
Under line of Credit
409702
1-Dec-99
Global Trust Bank Ltd.
20,00,00,000
Repayment
315282
6-Apr-00
Std. Ghd. Grindlays
20,00,00,000
Under line of Credit
076693
6-Apr-00
ABN Amro Bank
5,00,00,000
Under line of Credit
676187
25-Apr-00
Global Trust Bank Ltd.
5,00,00,000
Repayment
711833
9-Jun-00
5,00,00,000
Repayment
667471
21-Jun-00
Global Trust Bank Ltd.
12,50,00,000
Repayment
764652
19-Jul-00
Global Trust Bank Ltd.
2,50,00,000
Repayment
869667
28-Sep-00
ABN Amro Bank
15,00,00,000
Under line of Credit
869668
28-Sep-00
ABN Amro Bank
15,00,00,000
Under line of Credit
825620
11-Oct-00
Global Trust Bank Ltd.
10,00,00,000
Repayment
825621
11-Oct-00
Global Trust Bank Ltd.
10,00,00,000
Repayment
825622
11-Oct-00
Global Trust Bank Ltd.
10,00,00,000
Repayment
869673
13-Oct-00
ABN Amro Bank
10,00,00,000
Under line of Credit
869674
13-Oct-00
ABN Amro Bank
10,00,00,000
Under line of Credit
869675
13-Oct-00
ABN Amro Bank
10,00,00,000
Under line of Credit
865494
29-Nov-00
Global Trust Bank Ltd
10,00,00,000
Repayment
Sub Total
1,05,00,00,000
85,00,00,000
Grand Total
2,45,00,00,000
2,05,00,00,000
3.6 I note that VIL had extended short-term loans/line of credit to broking entities like VN Parekh Securities Pvt. Ltd. and other entities like Panther Fincap & Management Services Ltd. and Classic Credit Ltd. which were associated/connected to the KP group. In the statement recorded, the representatives of VIL stated that against the lending of funds, securities were taken in the form of securities of listed companies, including Global Telesystems Ltd., AIL, Himachal Futuristic Communications Ltd., DSQ Software Ltd., which were manipulated by KP Group. It was also observed that VIL had also traded in its own account in significant quantities in the scrips of DSQ Software Ltd., Global Telesystems Ltd., Himachal Futuristic Communications Ltd., AIL and Zee Telefilms Ltd. during the period January – December 1999 which were manipulated by KP group. Pursuant to the hearing, VIL submitted the trades done by it through KP brokers vis–vis Non-KP Brokers as also the trading in the scrips allegedly manipulated by KP group. The trading details were submitted vide letter dated April 21, 2006.
3.7 The analysis of trading details as submitted by them is given below.
A. Trades done through KP Group of brokers vis–vis non-KP brokers:
During the investigation period VIL had dealt in various scrips through the brokers belonging to KP group as also through other brokers. The details of trades done through the KP group brokers are given below.
PURCHASE
SALE
AMOUNT (RS.)
AMOUNT (RS.)
KNP securities pvt. Ltd.
5,093,054,235
5,278,942,425
N H Securities Ltd
301,014,695
147,338,703
Triumph international fin. India ltd.
1,078,359,886
0
Triumph international fin. India ltd.
0
138,721,665
Triumph securities ltd.
0
209,357,008
V N Parekh securities pvt. Ltd.
4,396,172,200
5,948,804,760
GRAND TOTAL
10,868,601,016
11,723,164,561
At the same time VIL had also dealt through brokers other than KP group. The details are as follows.
PURCHASES
SALES
AMOUNT(RS.)
AMOUNT (RS.)
DINESH KUMAR SINGHANIA & CO.
518,958,211
0
FORTIS SEC. LTD.
486,109,030
403,018,477
FORTIS SECURITIES LIMITED.
264,634,322
252,935,233
INDSEC SECURITIES & FINANCE LTD.
22,341,261
65,235,000
INDSEC SHARES & STOCK BR. LTD.
0
181,834
NDA SECURITIES LTD.
115,687,430
53,619,738
NDA SHARE BROKERS LTD.
242,685,585
280,940,399
PUBLIC ISSUE
7,238,000
0
Grand Total
16,576,53,840
10,559,30,681
VIL had purchased shares of Rs.1086.86/- crores and sold shares of Rs.1172.32/- crores through KP Brokers whereas it made purchases for Rs.165.76 crores and sold for Rs.105.59 crores through non- KP Brokers. From the above it is seen that majority of their dealings were through KP group.
B. VIL’s dealings through KP Brokers vis–vis Non-KP Brokers in the scrips allegedly manipulated by KP as per SCN
It is alleged that KP Group had manipulated the scrips of DSQ Software, Global Telesystems, Aftek Infosys, Zee Telefilms and Himachal Futuristic Ltd. (HFCL). The details of trades done by VIL through KP group of brokers in these scrips are as follows.
Vidyuts dealing
through KP Brokers
Purchase
Sale
Name of the Scrip
Name of the Broker
Qty.
Amount (Rs.)
Qty.
Amount (Rs.)
KNP Securities Pvt.
Ltd.
1,318,000
581,818,950
921,200
341,300,000
N H Securities Ltd
0
0
200,000
101,100,000
V N Parekh Securities
Pvt. Ltd.
741,200
277,700,000
938,000
424,355,000
Total
2,059,200
859,518,950
2,059,200
866,755,000
KNP securities pvt.
Ltd.
1,956,000
169,040,000
1,874,600
261,790,900
N H securities ltd
1,895,000
301,014,695
0
0
Triumph internation
fin. India ltd.
905,000
140,533,604
0
0
V N parekh securities
pvt. Ltd.
556,000
50,040,000
3,437,400
408,234,600
Total
5,312,000
660,628,299
5,312,000
670,025,500
KNP securities pvt.
ltd.
1,675,000
300,017,500
2,064,400
348,708,300
Triumph International
fin. India ltd.
282,500
68,857,771
0
0
Triumph securities ltd.
0
0
921,100
209,357,008
V N Parekh securities pvt. ltd.
2,881,000
491,814,275
1,553,000
220,921,250
Total
4,838,500
860,689,546
4,538,500
778,986,558
KNP SECURITIES PVT. LTD.
10,000
6,350,000
0
0
V N parekh securities pvt. ltd.
0
0
10,000
6,920,000
TOTAL
10,000
6,350,000
10,000
6,920,000
TOTAL
12,219,700
2,387,186,795
11,919,700
2,322,687,058
C. The details of trades done by VIL in the above mentioned scrips through non-KP brokers are given as follows.
VIDYUTS DEALING
THROUGH NON KP BROKERS
Purchase
Sale
Name of the Scrip
Name of the Broker
Qty.
Amount (Rs.)
Qty.
Amount (Rs.)
DSQ -Total
FORTIS SEC. LTD.
31,200
9,199,444
15,600
4,997,460
FORTIS SEC. LTD
124,300
78,154,409
92,100
59,175,771
INDSEC SECURITIES & FINANCE LTD.
0
0
300,000
65,235,000
Total
124,300
78,154,409
392,100
124,410,771
FORTIS SECURITIES LIMITED
55,570
41,085,526
55,285
46,236,631
NDA SECURITIES LTD.
2,600
11,861,947
500
2,432,393
Total
67602
100360041
67117
104794294
Grant Total
223102
187,713,894
4,74,817
234,202,525
3.8 I find that the trades done by VIL (for all the scrips in the entire period as well as in the scrips allegedly manipulated by Ketan Parekh) through KP brokers are considerably higher than that of their trades through Non-KP brokers. Considering the large funding made by VIL to KP group, taking as security the scrips allegedly manipulated by KP group and their simultaneous trading in these scrips, the same points to aiding and abetting of KP Group by VIL in the manipulation.
3.9 I observe that 2,25,000 shares, which is around 4% of the equity of the company AIL were held by VIL as on 15/12/99. During the course of investigation, it was brought out that as on 30/12/98, 15/12/99 and 29/12/2000, VIL was holding Nil, 225000 shares (3.93% of the paid up capital of AIL) and 98000 shares (1.93% of the paid up capital of AIL ) respectively.
3.10 VIL entered into the following transactions in the shares of AIL:
Date
Purchase qty
Sell qty
26-Feb-00
5000
01-Apr-00
98000
01-Apr-00
50000
03-Apr-00
98000
03-Apr-00
50000
05-Jul-00
27810
05-Jul-00
22190
06-Jul-00
31500
06-Jul-00
66500
06-Sep-00
66500
07-Sep-00
31500
08-Sep-00
27810
14-Sep-00
22190
28-Dec-00
5000
Total
301000
301000
3.11 The entries in the demat account of VIL are securities received and released relating to money lent to Ketan Parekh entities or inter account /demat transfers. It is pertinent to note that these entries show movement of shares which actually belong to Ketan Parekh entities but are held in the name of VIL. These shares were held in the depositary account of VIL. The cumulative demat statement which reflects this is as given below.
(a) DP: Indsec Fin. Ltd, Client ID No. 10000869
Date
Particulars
Credit *
Debit*
Balance*
27-Dec-99
5010817
By INDSEC SEC.
FIN. LTD. / 10000375
135,500
27-Dec-99
5010818
By INDSEC SEC.
FIN. LTD. / 10000650
12,500
148,000
04-Jan-00
5011171
To CM KNP SECURITIES PVT LTD ,PHYSICAL / 9900041
30,000
118,000
12-Jan-00
5011562
To CM KNP SECURITIES PVT LTD ,PHYSICAL / 9900042
15,000
103,000
20-Jan-00
525
BY DEMATERIALISATION
225,600
328,600
22-Mar-00
5015601
By INDSEC SEC.
FIN. LTD. / 10000650
22,651
351,251
23-Mar-00
5015653
By INDSEC SEC.
FIN. LTD. / 10000650
50,100
401,351
25-Mar-00
5015837
By GLOBAL TRUST BANK LTD. / 10034996
5,000
406,351
06-Apr-00
5016576
To CM VN PAREKH SECURITIES P.L ,PHYSICAL /
0001001
148,000
258,351
06-Apr-00
5016637
By CM TRIUMPH SECURITIES LTD ,PHYSICAL / 0001001
148,000
406,351
22-May-00
5019452
To CM VN PAREKH SECURITIES P.L ,PHYSICAL /
0001008
137,000
269,351
22-May-00
5019492
To CM CLASSIC SHR STK SRV.LTD ,PHYSICAL / 2000020
148,000
121,351
22-May-00
5019494
To CM KNP SECURITIES PVT LTD ,PHYSICAL / 0001008
90,000
31,351
27-Jun-00
5021588
To INDSEC SEC.
FIN. LTD. / 10000650
26,351
5,000
20-Jul-00
5022955
By INDSEC SEC.
FIN. LTD. / 10000650
100,000
105,000
24-Jul-00
5023129
By INDSEC SEC.
FIN. LTD. / 10000391
47,000
152,000
26-Jul-00
5023286
By INDSEC SEC.
FIN. LTD. / 10000650
25,000
177,000
02-Aug-00
5023685
By INDSEC SEC.
FIN. LTD. / 10000391
8,500
185,500
06-Sep-00
5027823
By INDSEC SEC.
FIN. LTD. / 10000391
25,000
210,500
22-Sep-00
5030603
By INDSEC SEC.
FIN. LTD. / 10000650
1,000
211,500
26-Sep-00
5031169
By INDSEC SEC.
FIN. LTD. / 10000650
1,200
212,700
09-Oct-00
5032924
By CM NH SECURITIES PVT LTD ,Rolling Odd Lot /
2000176
1,800
214,500
09-Oct-00
5033049
To INDSEC SEC.
FIN. LTD. / 10000650
1,500
213,000
24-Nov-00
5039893
To INDSEC SEC.
FIN. LTD. / 10000650
100,000
113,000
05-Dec-00
5041889
To INDSEC SEC.
FIN. LTD. / 10000650
80,000
33,000
05-Dec-00
5041914
By INDSEC SEC.
FIN. LTD. / 10000650
5,000
38,000
15-Dec-00
5044194
By INDSEC SEC.
FIN. LTD. / 10000650
60,000
98,000
28-Dec-00
5047001
To CM FORTIS SECURITIES LTD ,Rolling Odd Lot /
2000248
5,000
93,000
17-Apr-01
5069570
To FORTIS SECURITIES LTD / 10001032
93,000
0
Pending Demat
10-Dec-99
525
By Dematerialisation request
225,600
225,600
20-Jan-00
525
To Dematerialisation request confirmation
225,600
0
*: No. of shares
(b) DP : Fortis Securities Ltd, Client ID No. 10001032
Date
Particulars
Credit *
Debit*
Balance*
02-Feb-2001
4527
By CM FORTIS SECURITIES LTD ,ROLLING ODD LOT /
2001013
5,000
5,000
17-Apr-2001
14701
By INDSEC SEC.
FIN. LTD. / 10000869
93,000
93,000
*: No. of shares
3.12 I find from the above demat statements of VIL, that there was movement of shares reflecting not only purchases and sales of shares by VIL but also shares received from / given to KP group. It is noticed from the above that there were off market transfers from / to two KP group namely Panther Investrade Ltd. and Classic Credit Ltd. (client IDs 10000375 and 10000650 respectively).
3.13 VIL also informed SEBI that against its lending money to KP group it received securities of companies including that of AIL. Thus, shares in the demat account of VIL actually belonged to KP group but were held in the name of VIL. The following are details of shares received from /given to KP group.
Date
Particulars
Credit *
Debit*
27-Dec-99
5010817
By INDSEC SEC.
FIN. LTD. / 10000375
135,500
27-Dec-99
5010818
By INDSEC SEC.
FIN. LTD. / 10000650
12,500
22-Mar-00
5015601
By INDSEC SEC.
FIN. LTD. / 10000650
22,651
23-Mar-00
5015653
By INDSEC SEC.
FIN. LTD. / 10000650
50,100
27-Jun-00
5021588
To INDSEC SEC.
FIN. LTD. / 10000650
26,351
20-Jul-00
5022955
By INDSEC SEC.
FIN. LTD. / 10000650
100,000
24-Jul-00
5023129
By INDSEC SEC.
FIN. LTD. / 10000391
47,000
26-Jul-00
5023286
By INDSEC SEC.
FIN. LTD. / 10000650
25,000
02-Aug-00
5023685
By INDSEC SEC.
FIN. LTD. / 10000391
8,500
06-Sep-00
5027823
By INDSEC SEC.
FIN. LTD. / 10000391
25,000
22-Sep-00
5030603
By INDSEC SEC.
FIN. LTD. / 10000650
1,000
26-Sep-00
5031169
By INDSEC SEC.
FIN. LTD. / 10000650
1,200
09-Oct-00
5033049
To INDSEC SEC.
FIN. LTD. / 10000650
1,500
24-Nov-00
5039893
To INDSEC SEC.
FIN. LTD. / 10000650
100,000
05-Dec-00
5041889
To INDSEC SEC.
FIN. LTD. / 10000650
80,000
05-Dec-00
5041914
By INDSEC SEC.
FIN. LTD. / 10000650
5,000
15-Dec-00
5044194
By INDSEC SEC.
FIN. LTD. / 10000650
60,000
* : No of shares
3.14 Thus, VIL held shares of KP entities in its name. However, the shares actually belonged to KP entities. I have also noted that, VIL vide letter dated June 10, 1998 addressed to PFMSL informed that the beneficial ownership of shares provided to VIL by way of security would vest with PFMSL with all rights unless there was a default. I find that the shares were transferred through off market deals. Further, they can not be taken as given by KP entities to VIL as security since there was no recording of pledge in the Depositories. In the circumstances, it can reasonably be inferred that VIL enabled and facilitated parking of shares with it by KP entities and this was done so as to avoid detection of concentration of shares in the hands of KP group.
3.15 It is observed that the market manipulation by KP group was facilitated by lack of the floating stock in the market at that time. There was lack of floating stock because of the following reasons (i) Shares were sent by investors for demat since shares were to be traded in compulsory demat (ii) The no delivery period for the shares was fixed from 15/11/99 – 3/12/99; (iii) Other major shareholders of the company had not sent shares for demat in this period and (iv) There was concentration of shareholding in the hands of promoters of the company, KP group and VIL.
3.16 The squeezing out of floating stock as indicated above facilitated KP group in market manipulation. Investigations also brought out that at this time KP group indulged in large purchase and sale transactions which led to increase in price to higher levels on low volumes. KP Group thus, disturbed the market equilibrium and created artificial market and price rigging in the shares of various scrips. The transactions by these entities in the shares of AIL were undertaken with an intention to artificially raise the price and / or cause price fluctuations of the shares and as a result induced other investors to trade in the scrip.
3.17 I find that VIL has funded huge amount of loans to KP entities who were indulging in market manipulations. It is obvious that such funds will be ploughed into the market having regard to Shri Ketan Parekh’s penchant for market. Further, VIL had also taken proprietary positions in various scrips. On a cumulative view of the entire role of VIL, I am convinced that its role is not that of a mere lender. On the basis of the pattern of funding and subsequent trading by KP entities as well as by VIL, it can fairly be concluded that VIL has aided and abetted in market manipulation.
3.18 In the case of trading in the shares of GTB, VIL has contended that it was not a party to the manipulation indulged in by KP group. It has been alleged that VIL had indulged in Stock Lending without the prior approval of SEBI or without going through the approved intermediaries. VIL had sold 49,00,000 shares of GTB on 27.12.2000 without actually having shares in their account. It had stated that the shares bought by VIL earlier during the year had been loaned to PFMSL and CCL and they were directly delivered by the two to the counter party broker. I note on the basis of details submitted to investigating officer that 25,00,000 shares each were loaned to PFMSL and CCL on 15.11.2000 and 04.12.2000 respectively. VIL had further stated that they were not aware of the SEBI Stock Lending Scheme which provides that share lending and borrowing can be resorted through approved intermediaries only. It is clear from above that VIL, had lent the shares of GTB to Classic Credit Ltd. and Panther Fincap & Management Services Ltd. without going through the approved intermediaries which is in violation of SEBI Stock Lending Scheme. VIL had admitted that it used to provide funds on interest basis while shares in the demat account were received as collaterals/securities for loans given to entities connected to Ketan Parekh and other entities.
3.19 I have observed that VIL had purchased 49,00,000 shares on 7.11.2000 which comprised of 25,00,000 shares through Triumph Securities Ltd and 24,00,000 shares through Indsec Securities & Finance Ltd. and these were lent to PFMSL and CCL. Subsequently, on 27.12.2000, the above said shares were sold by VIL through Triumph International Finance Ltd to three Nirma Group entities. Nirma group had stated that it was approached by Mr. Dharmesh Doshi of Triumph International Finance Ltd. offering block of shares. It was alleged that the said shares of GTB, which were purchased by VIL and later sold as above, were used by the Ketan Parekh entities, in manipulating the market with large volumes in transactions in the scrip of GTB. VIL had submitted in its common written submissions that it had not violated Regulation 4 of FUTP Regulations nor did it knowingly facilitate manipulative trade practices by the KP entities. Purchase and sale of shares through TIFIL, a KP entity in the manner and circumstances as detailed above demonstrate the involvement of VIL in the whole scheme of KP entities which coupled with the admitted fact that VIL loaned the above shares to KP entities adversely exposes the role of VIL in market manipulation by KP entities.
3.20 It is alleged that VIL was associated with Ketan Parekh group and had been used to park the shares of Global Trust Bank so as to create artificial market and that the 49,00,000 shares of GTB held by VIL were actually parked by KP promoted entities with it and shown as having been lent to them by VIL. It is also alleged that the shares of various scrips shown by VIL as security against the loan given to KP entities also appear to have been parked with it again to circumvent the violation of SEBI Takeover code by the KP entities. It transpires that the shares of Global Trust Bank were purchased by VIL for KP group for the purpose of creating artificial market and to aid and abet KP to hide the identity of actual purchaser. In its written submissions, VIL submitted that the relationship between VIL and KP group was that of lender and borrower only and it held the securities (equity shares) only as security for the said credit facilities, which is not convincing in the light of its overall role.
3.21 Further, I have noted that KP group of entities were involved in price manipulations in the scrip of RLL as per the investigations. VIL is part of the promoter group entities of RLL and also funded the KP group. It was observed that the price of RLL was in the range of Rs.270/- during the beginning of January 1999. Thereafter, the price started moving upward and reached Rs.320/- by end January 1999, Rs.650/- by end March, 1999 and Rs.700/- during May, 1999. After a brief hiatus at Rs.600/- in June 1999, the upward trend resumed and the scrip reached Rs.1,200/- during October, 1999. Effectively, the price of RLL moved from Rs.267/- on 01.01.99 to Rs.1,215/- on 13.10.99. The price rise was also accompanied by a significant increase in volumes of RLL.
3.22 Manipulation is often predicated upon the extent to which the market was dominated by the person. Manipulation connotes a deceptive conduct designed to deceive or defraud investors by controlling or artificially affecting the price of securities. At its core, manipulation is the interference with free forces of supply and demand. By impeding the natural interplay of market forces, the manipulator misleads the investor by masking the true value of the stock. Through interference with the market, a manipulator may affect a price increase by artificially either constricting supply or increasing demand.
3.23 There are certain types of manipulations which are easier to prove because guilt may be imputed from the fact of the transaction itself, for instance, fictitious accounts, matched orders, wash sales, dissemination of false literature. Wash sales refer to creating the false appearance of activity when no economic activity in fact exists. These trades are often resorted to for shifting positions, giving a false impression of increased volume and activity and price manipulation.
3.24 There is no scale to measure manipulative transactions. Proof of manipulation almost always depends on inferences drawn from a mass of factual details. Findings must be gleaned from patterns of behavior, from apparent irregularities, and from trading data. When all of these are considered together, they can emerge as ingredients in a manipulative scheme designed to tamper with free market forces. Some evidences of manipulation are price leadership, domination and control of the market, collapse of market after ceasing of activity, reduction in the floating supply of the security, parking of shares, accumulating inventory of shares, etc.
3.25 It is a matter of record that Ketan Parekh entities have been held liable for market manipulation under FUTP Regulations as confirmed by SAT’s order dated July 14, 2006. If that is so, the entities who have dealt with Shri Ketan Parekh et al in some capacity or other in the scrips he traded for rigging the market would have definitely had a role in market manipulation. Market dynamics is replete with interplay of forces, though the size of the market and scale of operations in market may overshadow them. There is no gainsaying the fact that such interplay of forces accounts for the kinesis of the market under the overlay of voluminous trade and order logs. The influence of such interplay in the market cannot be discounted merely on a scale of numbers because its influence can either be subtle or overly aggressive depending upon the level of support to the prime mover, as in the cases of Ketan Parekh and related entities. In so far as the market does not move on the principle of autokinesis or self-propulsion and in so far as several activities, like lending of money and shares to the prime mover, trading in the shares which formed the basket of the prime mover and parking of shares with themselves under the guise of “pledge” to frustrate the detection of concentration with the prime mover etc., as noticed in the instant case, constitute necessary adjuncts to the manipulative assemblage, it would be reasonable to presume that cumulatively such activities had an impact on the market as was evident from the market itself at the material point of time in the instant case, notwithstanding the assertions to the contrary. Therefore, such activities adjudged in the broadspread of the market on real time impact cannot be dismissed as of no consequence on the plea that the entity was not aware of the intentions of Ketan Parekh et al while dealing with them. A mere denial on self serving assertion cannot displace the presumption of fact arising from inferences drawn from a mass of factual details which are incontrovertible. The circumstances are telltale and the presumption based upon them should prevail, more so where intentions are shrouded in secrecy or within the special or peculiar knowledge of persons concerned. Several circumstances of a determinative character coupled with the inference arising from the conduct of the parties in a major market manipulation which could not simply be the handiwork of Ketan Parekh alone could reasonably lead to conclusion that the others were also responsible in varying measures. The evidence, direct or circumstantial, should be sufficient to raise a presumption in its favour with regard to the existence of a fact sought to be proved. As pointed out by Best in “Law of Evidence”, the presumption of innocence is no doubt presumptio juris; but everyday practice shows that it may be successfully encountered by the presumption of guilt arising from circumstances, though it may be a presumption of fact. Since it is exceedingly difficult to prove facts which are especially within the knowledge of parties concerned, the legal proof in such circumstances partakes the character of a prudent man’s estimate as to the probabilities of the case.
3.26 Black’s Law Dictionary defines ‘aid and abet’ as to assist or facilitate the commission of a crime or to promote its accomplishment. As per Law Lexicon (P. Ramanatha Aiyar’s) ‘Aid and Abet’ is that kind of connection with the commission of a crime which at common law, rendered the person guilty as a principal in the second degree. It consisted in being present at the time and place and doing some act to render aid to the actual perpetrator of the crime though without taking a direct share in its commission. It may be intentional or unintentional. A man may unwittingly encourage another in fact by his presence, by misinterpreted words or gestures or by his silence or non interference or he may encourage intentionally by expressions, gestures or actions intended to signify approval. In the later case he aids and abets. If a person was voluntarily and purposely present witnessing the commission of a crime and offered no opposition to it, though he might reasonably be expected to prevent it and had the power so to do or atleast to express his dissent, might under some circumstances, afford cogent evidence upon which it is justified in finding that he willfully encouraged and so aided and abetted. In the instant case, the role of VIL as brought out above indicates that VIL was aware that KP entities were indulging in manipulations. Any prudent person can suspect manipulation from the way the scrips traded by KP entities were abnormally rising with artificial volumes. Therefore, based on the circumstances, it can reasonably be inferred that VIL had aided and abetted KP entities.
3.27 SAT has observed in their order dated July 14, 2006 while disposing off the appeal of Ketan Parekh, “in the very nature of things a stock exchange is not meant for financing transactions. If one needs money, the shares could be sold in the market which provides liquidity but you cant raise short term finances through the circuitous methods as resorted to by Ketan Parekh”.
3.28 Given the fact that there was enormity of market manipulation by Shri Ketan Parekh and his related entities in certain scrips and that Shri Ketan Parekh and his related entities could not have manipulated the market to such huge proportions alone, it stands to reason that the entities who had direct dealings with KP entities can’t escape their responsibility on the plea that they were not aware of Shri Ketan Parekh’s manipulative intentions in the market. There can be no direct evidence in the context of market operations as to whether there was a constructive knowledge on the part of the entities on manipulation while dealing with Shri Ketan Parekh and his entities. Proof of manipulation always is drawn from a mass of details and accordingly, it is purely inferential on the materials available in a given case. Further such a proof has to be a prudent man’s estimate as to the probabilities of the case, in the absence of recorded contemporaneous material evidences like communications through e- mail, telephone or other forms of correspondences etc. Accordingly, presumption plays a critical role in coming to a finding as to the involvement or otherwise of a market participant in any large scale manipulation. For instance, while trading, a lip service can be paid to a screen based trading system while agreement is reached beforehand between brokers to effect the transaction. Anonymity can be a cloak to cover anastomosis of interest. Therefore, the hackneyed plea based on intentions in the market place can not pass muster in all circumstances, more so when such intentions are in the special / peculiar knowledge of the parties to the transactions.
3.29 It is exceedingly difficult to prove facts which are especially within the knowledge of the parties proceeded against and in that view the findings would be inferential from the conduct of the parties. Given the fact that there were enormous manipulations in the market by Shri Ketan Parekh and his associated entities in certain scrips, that the shares of the said scrips were given to VIL as collateral under the guise of pledge for loans given by VIL, that VIL traded in the said scrips as well which definitely had an impact on the market coupled with the fact that such activities happened during the period when Shri Ketan Parekh and his entities were manipulating the market make it evident that the same can not be just acts of coincidence but were necessary adjuncts to the artificial build up of the market which Shri Ketan Parekh and his entities were engaged in. While appraising the conduct of any market participants, the same has to be viewed in the overall context of the happenings in the market at the material point of time and can not be viewed in isolation. Also any suggestion attributing innocence to the parties involved in such transactions would give rise to an untenable situation where Shri Ketan Parekh and his entities alone would be responsible for the manipulation and none else.
3.30 The contention that Ketan Parekh was a well known person in business at that time and therefore there could be no circumstances warranting any suspicion of his motives cannot cut much ice, for the reasons stated already. Looking from its overall role in various scrips , huge funding to various KP entities, taking proprietary positions in the scrips where KP entities indulging in manipulation, the inexorable inference would be that VIL was aware of the goings-on.
3.31 The standard of proof required in a proceeding of this nature is at variance with the standard of proof required in criminal cases. It is sufficient if the preponderance of probabilities suggests towards the indulgence of the delinquent in the misconduct. The strict rules of Evidence Act and proof beyond reasonable doubt are not applicable to a proceeding of this nature [Gulabchand vs Kudilal (AIR, 1966, SC 1734), National Housing Bank Vs ANZ Grindlays Bank (1998 (2) LJ 153)]. Therefore, the decision would rest only on what is probable in the materiality of circumstances, rather than on strict proof. In this connection it is relevant to note Hon’ble Supreme Courts decision in Collector of Customs v/s D. Bhoormull (AIR 1974 SC 859), wherein it was held that:
…The prosecution or the department is not required to prove its case with mathematical precision to a demonstrable degree; for, in all human affairs absolute certainty is a myth, and- as Prof. Brett felicitously puts it – “all exactness is a fake”. El Dorado of absolute proof being unattainable, the law, accepts for it probability as a working substitute in this work-a-day world. The law does not require the prosecution to prove the impossible. All that it requires is the establishment of such a degree of probability that a prudent man may, on its basis, believe in the existence of the fact in issue. Thus, legal proof is not necessarily perfect proof; often it is nothing more than a prudent man’s estimate as to the probabilities of the case.
…Since it is exceedingly difficult, if not absolutely impossible, for the prosecution to prove facts which are especially within the knowledge of the opponent or the accused, it is not obliged to prove them as part of its primary burden.
3.32 A cumulative view of the aforesaid findings, therefore, persuades me to the conclusion regarding the complicity of VIL in the market manipulation indulged in by KP entities. Accordingly, VIL had aided and abetted KP group in building up of concentrated positions, parking of shares, creation of artificial volumes, and putting financial transactions under the colour of purchase and sale of shares. The conduct of VIL is violative of Regulation 4 (a) to (e) of FUTP Regulations.
3.33 I have noted that vide an interim order dated December 31, 2002, SEBI had directed 50 entities including VIL not to buy, sell or transfer, pledge or dispose off or deal in any other manner in the shares of GTB, either directly or indirectly till the completion of investigations. After affording a post decisional hearing, the above directions were revoked in respect of 14 entities including VIL by SEBI, vide order dated June 12, 2004. As the order dated December 31, 2002 was an ex-parte ad-interim order and the order dated June 12, 2004 was only confirmatory in nature, it was explicitly mentioned in the said order dated June 12, 2004 that “the revocation of the ex-parte ad interim order shall not in any way be construed as exonerating the said entities”. I have further noted that the said interim order was in operation for over 17 months pending investigations and the fact that the promoters of GTB were restrained from dealing in the shares of GTB for a period of 18 months vide SEBI Order dated 23.03.2004. Also it is a matter of common knowledge that the scrip of GTB is not currently traded after its merger with Oriental Bank of Commerce.
3.34 I have also noted that adjudication proceedings were initiated against VIL for violation of regulation 7 of the Takeover Regulations by not disclosing their acquisition in the shares of AIL. The adjudicating officer, vide order dated July 30, 2002 had imposed a penalty of Rs. Three lakhs on VIL. VIL had remitted the said penalty vide letter dated September 10, 2002.
4. Order
4.1 In view of the above, I, in exercise of the powers conferred upon me in terms of section 19 read with section 11 and 11B of the SEBI Act, 1992, and Regulation 10 of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 direct Vidyut Investments Ltd not to buy, sell or deal in securities for a period of two years, excepting for the shares pledged with it in its capacity as Non Banking Finance Company (other than the shares pledged by Shri Ketan Parekh and his entities) till the date of this order,
4.2 This Order shall come into force with immediate effect.