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TMI Blog2010 (7) TMI 1179X X X X Extracts X X X X X X X X Extracts X X X X ..... es and the issue price was finalized at ₹ 39/- per share. 45 per cent of the issue size (28.85 lac shares) were required to be subscribed by Qualified Institutional Buyer(s) (QIB). Only one QIB, namely, Venus Capital Management Inc. and its two sub accounts, namely, Vacuf Ltd. and ITF Mauritius (individually referred to hereinafter as Venus, Vacuf and ITF respectively and collectively as QIB) subscribed for 43.67 lac shares in the QIB category and received allotment of the entire quota of 28.85 lac shares. The shares of the company were listed on the Bombay Stock Exchange Ltd. and the National Stock Exchange of India Ltd. (for short BSE and NSE respectively) on December 29, 2006 which was the first day of trading on the stock exchanges and the next day of trading was January 2, 2007. On the day of listing, the shares of the company opened at ₹ 39/- on NSE and ₹ 40/- on BSE and closed at ₹ 130.90/- on NSE and ₹ 128.80/- on BSE. The total traded quantity on the first day of trading was around 7 crore shares on NSE and around 6.11 crore shares on BSE. Spurt in price, traded quantity and the delivery percentage on the first day of listing aroused suspicion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is alleged that because of the similar trading pattern adopted by these 21 entities, they acted in concert with each other and cornered the shares from the QIB by devising a scheme whereby the latter was given an exit route to offload the shares at a predetermined price on the listing day. This scheme, according to the show cause notice, was meant to prevent a fall in the price of the scrip that accompanies such large sales. Investigations revealed that all the 21 noticees were connected to each other, some of them through financial dealings while others through family relations or business links. The manner in which each of the noticees was connected to the other(s) is given in Annexures 1 and 2 to the show cause notice. The noticees allegedly had a design to suck out the liquidity of the shares of the company from the market thereby creating an artificial scarcity of shares. The noticees are said to have executed structured trades with Venus, Vacuf and ITF though the appellants are shown to have executed such trades only with Venus and Vacuf. Some of the details of the structured trades were furnished to the noticees in the show cause notice though the details were not compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the orders placed by the other persons/entities with my brokers. (b)I placed the order to purchase shares of Nissan Copper Limited with brokers Limited at a price of ₹ 30/- per share at 10:10:14 am even as per the tables in paragraph 23. (c)I intended to purchase the shares since I was enthusiastic about the prospects of the company i.e. Nissan Copper Limited and could not gather sufficient number of shares in the IPO. I had also anticipated that he price of the scrip would rise in the course of the day or in a couple of days and hence wanted to invest substantially in the scrip. (d)As my orders remained unexecuted for around 30 minutes and therefore, I modified the orders by increasing the price to ₹ 46.50 per share at 10:35:53 and my modified order for shares allegedly matched with the sell order placed by Vacuf Limited. (e)My trading behavior is consistent with normal trading behavior of any investor who foresees a short term profit opportunity in a newly listed share. (f)It is pertinent to note that the orders and modifications of the orders were made in accordance with the rules, regulations and bye-laws of the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the buyers and further deny that I have cornered any shares or that I was part of any scheme intended to provide an exit to the Flls or to such out liquidity or to create an artificial market for the shares. Similar is the reply filed by the other appellants. On a consideration of the reply filed by the appellant and taking note of the facts as they emerged from the record and the written and oral submissions of the appellant and the material collected during the investigations and the enquiry, the whole time member found that the appellant who formed a part of the connected buyers had dealt in the shares of the company in a fraudulent manner. Referring to one buy order of the appellant for the purchase of 70,000 shares of the company on NSE on the first day of listing and considering the fact that the same had been modified subsequently which resulted in several trades with Vacuf, he found that there was fine synchronization of order placement and modification even though it involved a QIB and from this he concluded that the appellant was a part of the connected buyers and that the connected buyers arranged QIB subscription for the IPO with the assurance of an exit. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,779,023.05 4,615,072.15 BSE 1/2/2007 Smitaben Shah Nissan Copper 50,000 7,785,849.95 155.72 50,000 130.18 6,609,034.40 - 1,276,815.55 NSE Nissan Copper 70,000 10,814,138.15 154.49 70,000 103.24 7,226,800.00 - 3,587,338.15 BSE As can be seen from the chart reproduced above that the appellant purchased 70,000 shares on NSE on the first day of trading and sold those shares on that very day and squared off her position like any other day trader. She did day trading not only on NSE but also on BSE on the first day and bought and sold 70,000 shares on that exchange as well. Again, she traded on the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alleged connected buyers were the only ones who had similar trading pattern or whether there were other buy and sell orders as well on the trading screen which showed a similar pattern of modification of orders. This information could come only from the trade and order logs which were not supplied to the appellant. It was legitimate for her to know how many other orders were there on the screen and at what rate and how many of those orders were 8modified and to what extent and how many of those resulted in trades. If this information had been favourable to her it could have changed the fate of the case. The learned counsel for the respondent Board contended that the trade and order logs pertaining to the two days of trades were voluminous and, therefore, it was not feasible to furnish the same to the appellant. We cannot accept this plea. If the records asked for were voluminous, the appellant should have been allowed inspection and since they were in the electronic form, she could have been furnished with a soft copy at her own expense. We may hasten to add that trade and order logs asked for by the appellant are on the records of the stock exchanges as well as with the Board and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e connection of each noticee with the other is given in Annexures 1 2 to the show cause notice and they have all been described as connected buyers which term, according to the Board, means that they jointly designed and executed trades and acted in tandem. It is also the case of the Board that the appellants before us had a similar trading pattern even though it involved a QIB and its two sub accounts and from this it has concluded that the appellants were part of the connected buyers. The appellant in her reply has emphatically denied that she had any connection with any other noticee save and except that she is the sister-in-law of one Dhiren Vora featuring among the 21 noticees. She has denied that she was a part of the Dhiren Vora group or any other group and it is her case that she placed orders on the two exchanges through her broker in the normal course of business and acting on her own. She also states that she was not aware or concerned with the orders placed by the other persons/entities through her broker. According to her she wanted to purchase the shares as she was enthusiastic about the prospects of the company and that she had anticipated that the price of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to in Annexure 1. Dhiren Vora was summoned to appear before the investigating officer on May 22, 2007 and he made a statement on his own behalf and on behalf of Sonal U. Vora, Uday Vora, Sonali Dhiren Vora, M/s. Deep Infrastructure (P) Ltd. and M/s. Parklight Securities Ltd. In his answer to the very first question he stated that he was making the statement on behalf of Vora group. From this fact one can assume that the persons/entities on whose behalf Dhiren Vora made the statement constituted the so called Vora group . There is no other material on the record to show who all were the members of the Vora group. If this is the Vora group, none of the appellants figure therein and Dhiren Vora did not represent them. As already noticed, the only connection of Smitaben Shah with the persons mentioned in Annexure 1 is that she is related to Dhiren Vora. This relationship by itself cannot lead us to conclude that she was a part of the connected buyers . Apart from Smitaben Shah, the names of the other three appellants also figure in Annexure 2. Their so called connection with each other or with the other entities as shown in the Annexure is even more tenuous to hold them as part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng with the other appellants had purchased shares through the same broker M/s. Religare Securities Limited and that is why they have been artificially grouped together. This is borne out from the allegation made in the show cause notice as well. This leaves us with an impression that there has been non application of mind while establishing the connectivity between the appellants and the other noticees or between themselves. Having examined the connections of the appellants with the other entities referred to in Annexure 2, we are satisfied that the Board has failed to establish any link worth the name between these entities while they dealt in the scrip of the company. It is surprising that a conclusion about connectivity between the buyers including the appellants has been drawn on the basis of such jumbled up data and tortuous relationship without even recording the statement of any of the appellants particularly when Dhiren Vora is not owning up any of the appellants as part of his so called group. We cannot lose sight of the fact that a serious charge like fraudulent trading cannot be established on the basis of these tenuous and farfetched connections. In this view of the mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding pattern of other four appellants and he, too, has been dubbed as a connected buyer only because he traded through the same broker. We find no material on the record which could show that Mahesh Gandhi was in any way connected with any of the connected buyers. Thus, the grouping of the appellants together as connected buyers which the learned counsel for the Board argued so assiduously fails on all counts. It follows that the appellants acted on their own while dealing in the shares of the company and the charge levelled against them that they acted in tandem to provide an exit to the QIB falls flat. 11. Before we conclude, we may deal with two peripheral issues that have been raised in the show cause notice and which were argued before us though no findings have been recorded on those issues in the impugned order. It is alleged that to disguise their trades the appellants entered the orders at the beginning of the day at unrealistic prices so that the orders did not result into trades and at an appointed time updated the price to match the sell order of the QIB. As already noticed above, the original order was placed at the rate of ₹ 30 per share which was subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge levelled in paragraph 32 of the show cause notice. It is alleged that when the QIB offloaded 28.85 lac shares on the first day of trading, these were cornered by the connected buyers including the appellants through similar trading pattern and they had a design to suck out liquidity of the shares of the company from the market thereby creating an artificial scarcity of shares and the insinuation is that this prevented the fall of the price of the scrip inspite of large scale offloading of shares by the QIB. The learned counsel for the Board very emphatically argued that the appellants alongwith the other connected buyers had 15placed orders for the purchase of large quantities of shares and those having matched with the sell order(s) of the QIB resulted in sucking out liquidity and creating artificial scarcity in the market. This allegation is also without any basis. We have already held that the appellants were not connected buyers and that they were trading on their own in the market. This apart, we are also of the view that the appellants were not sucking out liquidity from the market because all of them were day traders and the quantity of shares purchased by them had been s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed shares even from non QIBs who were also in the market to sell. We have already noticed that Tejas Patel purchased 1,65,000 shares on NSE out of which only 70,000 shares came from the QIB. It is obvious that he purchased larger quantity of shares from non QIB sellers who were also in the market to sell. Similar is the case with Deven Patel. He, too, purchased 1,05,000 shares out of which only 70,000 shares came from the QIB and the remaining came from others. This is indicative of the fact that all purchases were made through the trading system and not that they were premeditated with a prior understanding with the QIB as alleged. If there had been such a prior understanding these two appellants would have picked up all their shares from the QIB only. 13. The learned counsel for the Board then argued that the appellants had manipulated the price of the scrip through structured and synchronized trades. We cannot agree with him on this issue as well. There is no such charge laid in the show cause notice and rightly so because of the following observations made by the whole time member in the ad-interim ex-parte order wherein he had absolved the day traders of manipulating ..... X X X X Extracts X X X X X X X X Extracts X X X X
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