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TMI Blog2014 (12) TMI 1419X X X X Extracts X X X X X X X X Extracts X X X X ..... nt as defined under regulation 2(1)(c) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 ( PFUTP Regulations ) and are in contravention of the provisions of regulations 3(a), (b), (c) and (d) and 4(1), 4(2)(a), (b), (e) and (g) thereof and section 12A(a), (b) and (c) of the SEBI Act, 1992. As directors of Radford during the relevant time (i.e. Prakash Bhawarlal Biyani, Manish Nareshchandra Shah, Rajesh Kumar Maheshwari and Nitin Shivratan Murarjka), being in control of the day to day affairs of Radford, had the knowledge of its acts and omissions. They were also under an obligation to ensure that acts and transactions of Radford were not in violation of any of the applicable provisions of SEBI Regulations or other applicable laws. Therefore, prima facie find that these directors were responsible for Radford s acts and omissions in this case. A detailed investigation of the entire scheme employed in this case is necessary to find out the role of any other entity therein including LTP contributors, Suspected entities, connection amongst the concerned entities and the ultimate owners of funds used for manipulating the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inafter referred to as "Radford"}, Securities and Exchange Board of India ("SEBI") undertook a preliminary inquiry in the dealings in the shares of Radford for the period January 28, 2013 to March 24, 2014 {hereinafter referred to as "the examination period"}. 2. On January 28, 2013, pursuant to a stock split, the face value of each share of ₹10/- was reduced to ₹2/- per share. Post stock-split, during the period January 29, 2013 to July 23, 2013 ("Patch I"), the price of the scrip of Radford opened at ₹49.20, rose to a high of ₹86.00 and closed at ₹74.95. During the period July 24, 2013 to March 24, 2014 ("Patch II"), the price of the scrip continuously fell from ₹74.10 to ₹4.89. An illustration of price/volume movement in the scrip of Radford during the examination period is given below: 3. The preliminary examination revealed that there was a pattern in which the shares of Radford were being traded. The modus operandi adopted by the traders in the scrip is as under : i. Firstly, shares were allotted on preferential basis in Pre-Patch I to entities connected/related directly or indirec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Annual Report of Radford for the FY 2012-2013 it is observed that for the FY ended 2012 the EPS was ₹0.01/- and for the FY ended March 31, 2013 EPS was ₹0.07/-. It was further noted that during the Pre-Patch I there was no material corporate announcement made by Radford which could support such price rise in its scrip. It is observed from the above facts that the price rise of 7442% during PrePatch I was not justified and aberrant. Also the movement was extremely aberrant vis-a-vis the movement of the stock market as the Sensex only moved from 17,645 to 20,103. 7. The sharp price rise in the scrip as discussed above was not supported by fundamentals of Radford or any other external factor. The price in the scrip increased prior to the expiry of the lock-in period on the shares held by the aforesaid allottees pursuant to preferential allotment and split. After the expiry of the lock-in period, the price and volume in the scrip increased substantially. Considering such pattern, the trading in the scrip in three patches as mentioned above was analyzed. The analysis of the trading during the patches was carried out with a focus on the following:- * The trading frequenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32 246.7 12.97 4 Rajat Share Broking Pvt Ltd AAACR2695B Shilpa Stock Broker Pvt.Ltd. 6 4.96 25.5 246.7 10.34 5 Rajesh Pravinkumar Jasani ACWPJ4705B Monarch Research & Brokerage Pvt.Ltd. 7 5.79 24.85 246.7 10.07 6 Bharat Bagri Bagri AADHB8488A Bcb Brokerage Pvt.Ltd. 16 13.22 17.86 246.7 7.24 7 Jayesh Narendra Kesharia AAEHJ1610D Bharti Thakkar India Securities Pvt.Ltd. 8 6.61 15.58 246.7 6.32 Total 91 75.21 204.3 246.7 82.81 11. It was also observed that most of these aforementioned entities had also traded and were instrumental in contributing to the price rise of other stocks. It was further observed that Taran Kumar Rungta, Prem Lata Nahar and Rajat Share Broking Pvt. Ltd are related /connected to Shilpa Stock Broker Pvt. Ltd and Bharat Bagri Bagri is related to BCB Brokerage Pvt. Ltd. through whom they have traded. Ms. Prem Lata Nahar is the Mother of Rakesh Nahar who is the owner/director of Shilpa Stock Broker Pvt. Ltd. and Bharat Bagri is the Promoter/ director of BCB Brokerage Pvt. Ltd and share common address with BCB Brokerage Pvt. Ltd. 12. The selection of scrips for trading, the trading pattern and connectivity with brokers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etails of counter parties for sale transactions by preferential allottees is given below: Table - IV: Details of counter parties for sale transactions Sr. No. Client Name Clnt Pan Net Buy in Patch I Vol of Net Buy in Patch I Shares purchase d from preferenti al allottes during post split period % of shares bought from preferential allottes to the Net Buy in Patch I 1 2 3 4 5 6 7=6/4*100 Radford Group 1 Amrusha Mercantile Private Limited AALCA0340D 3317965 5.69 2281121 68.75 2 Spice Merchants Private Limited AAPCS7492G 3287475 5.63 2422355 73.68 3 Shelter Sales Agency Private Limited Shelter Sales Agency Private Limited Shelter Sales Agency Private Limited AASCS1797F 3122146 5.35 2312395 74.06 4 Udbal Mercantile Private Limited AABCU2648C 2767601 4.74 1588720 57.40 5 Devakantha Trading Private Limited AADCD7044B 2475491 4.24 1705206 68.88 6 Winall Vinimay Private Limited Ltd AAACW8004B 2144989 3.68 1764206 82.25 7 Pine Animation Limited AAECM0267A 1858368 3.18 1081586 58.20 8 Limestone Properties Private Limited AACCL0133G 1764054 3.02 1357040 76.93 9 Runicha Merchants Private Limited AAECR0580M 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uspected Entities 1 Jayant Security & Financeltd AAACJ4848G 3430961 5.88 1535303 44.75 2 Trimurthi Finvest Ltd AAACT6383N 1051222 1.80 329978 31.39 3 Purvi Finvest Limited AABCP6564C 1077750 1.85 129253 11.99 4 East West Finvest India Limited AAACE6834D 1123353 1.92 224803 20.01 5 East West Finvest India Limited AADCE1236G 221250 0.38 72200 32.63 Total (II) 6904536 11.83 2291537 33.19 Grand Total (I+II) 40851126 70.01 27684200 67.77 16. It is observed that 46 allottees made a collective profit of ₹313.01 Crore on their total investment of ₹12.99 crore, a substantial return of approximately 2309 % on their investment in a period of 18 months (including the lock in period). It is evident from the above analysis of trading in Patch I that the entities of Radford Group & Suspected Entities provided a hugely profitable exit to the allottees, who also were related directly/indirectly to Radford. The profit/gain earned by the allottees during Patch I is given below:- Table V: Details of the trades carried out by allottees and profit calculation SrNo Client Name PAN Qty Allotted Qty Post Stock Split (Jan 29, 2013) Pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 500000 3 0 0 500000 500000 58.83 27916282 0 21 Kamal Indur Punwani AFFPP52 07G 100000 500000 3 0 0 500000 500000 79.31 38156782 0 22 Mayuri Darshan Bhanusha li AKJPB85 72F 100000 500000 3 0 0 500000 500000 72.34 34669719 0 23 Mohan Mittal APFPM0 496Q 150000 750000 3 0 0 750000 750000 79.86 57648728 0 24 Mohit Aggarwal ADSPA9 301K 150000 750000 3 0 0 750000 750000 76.29 54964382 0 25 Mukesh Mittal AJGPM2 125D 150000 750000 3 0 0 750000 750000 80.1 57826737 0 26 Naresh Nemchan d Shah ACRPS01 82J 400000 2000000 3 0 0 2000000 2000000 78.78 151568641 0 27 Neeraj Singal ANRPS7 986B 580000 2900000 3 0 0 2900000 2900000 79.61 222156517 0 28 Nishit Agarwal Beneficiar y Trust AABTN3 350K 200000 1000000 3 0 0 1000000 1000000 78.55 75549009 0 29 Pinky Agarwal ACGPA7 438L 200000 1000000 3 0 0 1000000 1000000 82.47 79471984 0 30 Pratik Agarwal Beneficiar y Trust AABTP7 516K 200000 1000000 3 0 0 1064874 1064874 79.01 76033232 0 31 Praveen Kumar Agarwal ACSPA4 725A 200000 1000000 3 0 0 1000000 500000 78.47 37735000 5000 00 32 Praveen Kumar Agarwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... significant price fall until and unless he was sure of the demand side absorbing the supply. In this peculiar case, the entities of Radford Group & Suspected Entities created the demand against the supply from the preferential allotters. In the whole process, the principle of price discovery was kept aside and the market lost its purpose. It is evident from the above analysis that the Radford Group & Suspected Entities provided a hugely profitable exit to the allottees. This could be only possible if the allottees, Radford Group & Suspected Entities and Radford and its promoter/ directors were hand in glove with each other. The said finding is also corroborated by the fact that in few instances/ cases, it is observed that the buyers are related /connected entities of preferential allottees. 18. From the facts stated above, it can be safely assumed that the entire modus operandi of allotting preference shares at a premium, announcing a stock split and then bringing in connected entities to provide exit was a scheme devised to rake in ill-gotten gains. 19. In Patch II, the price of the shares of Radford has decreased from ₹74.10 to ₹4.89, i.e. a fall of approximately 93 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umber of shares i.e. 91 lakh shares (455 lakh shares after split) were locked-in and non transferable / tradable, price of the scrip increased substantially to the extent of 7442% with a very small chunk of volume / purchases by certain entities; c) After the expiry of the lock-in period (i.e. in Patch I), the average volume increased astronomically to the extent of 505066% (5050 times). Such increase in volume was mainly on account of matched trading amongst Radford Group & Suspected Entities and allottees. d) 46 out of the 48 preferential allottees sold 91.43% shares allotted to them by Radford at the price increased on account of the aforesaid manipulative trading in Pre-Patch I. 24. From the above facts and circumstances it can reasonably be inferred that the preferential allottees acting in concert with Radford Group & Suspected Entities have misused the stock exchange system to generate fictitious LTCG. It is pertinent to note that LTCG is tax exempt. 25. In the facts and circumstances of this case, I am of the view that preferential allotment was used as a tool for implementation of the dubious plan, device and artifice of Radford Group & Suspected Entities and prefere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crip for making illegal gains to and to convert ill-gotten gains into genuine one. 27. I am of the considered view that the scheme, plan, device and artifice employed in this case, apart from being a possible case of money laundering or tax evasion which could be seen by the concerned law enforcement agencies separately, is prima facie also a fraud in the securities market inasmuch as it involves manipulative transactions in securities and misuse of the securities market. The manipulation in the traded volume and price of the scrip by a group of connected entities has the potential to induce gullible and genuine investors to trade in the scrip and harm them. As such the acts and omissions of Radford Group & Suspected Entities and allottees are 'fraudulent' as defined under regulation 2(1)(c) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 ('PFUTP Regulations') and are in contravention of the provisions of regulations 3(a), (b), (c) and (d) and 4(1), 4(2)(a), (b), (e) and (g) thereof and section 12A(a), (b) and (c) of the SEBI Act, 1992. The said regulations are reproduced hereunder:- SEBI ACT Prohibition of ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) indulging in an act which creates false or misleading appearance of trading in the securities market; (b) dealing in a security not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress or cause fluctuations in the price of such security for wrongful gain or avoidance of loss; (c)……………………………………………………………… (d)…………………………………………………… …………… (e)any act or omission amounting to manipulation of the price of a security; (f)…………………………………………………… ………………. (g) entering into a transaction in securities without intention of performing it or without intention of change of ownership of such security; &quo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grity of the market. 32. In view of the foregoing, in order to protect the interest of the investors and the integrity of the securities market, I, in exercise of the powers conferred upon me in terms of section 19 read with section 11(1), section 11 (4) and section 11B of the SEBI Act, 1992, pending inquiry/investigation and passing of final order in the matter, hereby restrain the following persons/entities from accessing the securities market and buying, selling or dealing in securities, either directly or indirectly, in any manner, till further directions:- Sr. No. Client Name Client PAN Company 1 Radford Global Ltd. AABCM5771E Directors of Radford Global Ltd. 2 Prakash Bhawarlal Biyani AJNPB0702E 3 Manish Nareshchandra Shah AELPS8560A 4 Rajesh Kumar Maheshwari ACJPM4653L 5 Nitin Shivratan Murarka AMBPM9321M Promoters of Radford Global Ltd. 6 Radford InvestmentServicesPvtLtd AACCG9982A Director of Radford Investment Services Pvt. Ltd. 7 Roshan Dwarkani ATXPD7040B 8 Suresh Kumar Saini BCXPS0818J Preferential Allottees 9 AachalchandBalar ABAPB8617M 10 PiyushKumarBalar AEMPB6394Q 11 AbhishekKumarBalar AATPB8811B 12 AfsarZaidi AADPZ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed AAECK3394G 75 Ladios Trading Private Limited AACCL3868N 76 Limestone Properties Private Limited AACCL0133G 77 Manimudra Vincom Private Limited AADCM4316K 78 Natural Housing Private Limited AADCN6251G 79 Pine Animation Limited AAECM0267A 80 Pyramid Trading And Finance Ltd AAACP2548R 81 Radison Properties Private Limited AAFCR2818B 82 Rangan Vincom Private Limited AAGCR1715E 83 Ridhi Vincom Pvt Ltd AAECR9858C 84 Runicha Merchants Private Limited AAECR0580M 85 Sanklap Vincom P Ltd AAMCS1711P 86 Scope Vyapar Private Limited AAICS6023N 87 Shelter Sales Agency Pvt Ltd # AASCS1797F 88 Shivkhori Construction Private Limited AAPCS7850L 89 Signet Vinimay Private Limited AAMCS1712Q 90 SKM Travels Private Limited AAICS0688K 91 Spice Merchants Private Limited AAPCS7492G 92 Symphony Merchant Pvt Ltd AADCS5411K 93 Topwell Properties Private Limited AADCT8403C 94 Udbal Mercantile Private Limited AABCU2648C 95 Vibgyor Financial Service Pvt Ltd AAACV8378B 96 Winall Vinimay Private Limited AAACW8004B Suspected Entities 97 Jayant Security & Financeltd AAACJ4848G 98 Trimurthi Finvest Ltd AAACT6383N 99 Purvi Finvest Limited ..... 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