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TMI Blog2016 (1) TMI 1510X X X X Extracts X X X X X X X X Extracts X X X X ..... observed that certain entities had indulged in creating artificial volume by trading among themselves, in a synchronized manner and also carrying out off-market transfers among themselves for the purpose of meeting settlement obligations of another, thus contributing also to the price rise in these scrips. 3. In view of the above, in order to protect the interests of investors and to preserve the safety and integrity of the market, SEBI passed an interim order dated February 02, 2011 restraining 39 persons/entities including Mr. Bharat Shantilal Thakkar, Mr. Bipin Jayant Thaker, Mr. Kishore Chauhan, Mr. Bhavesh Pabari, Mr. Prem Mohanlal Parikh, Mr. Hemant Madhusudan Seth, Ms. Mala Hemant Seth, Mr. Ankit Sanchaniya, Mr. Amar Premchand Valmiki, Mr. Samir Sureshbhai Shah, Mr. Pandya Hardik M. and Mr. Bipinkumar Gandhi from accessing the securities market and further prohibited them from buying, selling or dealing in securities in any manner whatsoever, till further directions. 4. SEBI initiated an investigation relating to buying, selling or dealing in the shares of the scrip of GIL inter alia to ascertain the violation of the provisions of the Securities and Exchange Board of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nos. 4, 11, 20, 21, 24 8. Chirag Rajnikant Jariwala Same Tel. no. with entity at sl.no.16. Sl. no. 16 is his uncle. Business relations with sl. nos. 5, 6, 9, 16, 22, 30, 31. With entities at sl. nos. 16, 22. With entity at sl. no. 6 9. Kishore Chauhan Join a/c with entity at sl. no. 16 Entity at sl. no. 16 & 22 are witness for demat a/c. Business relations with entities at sl. nos. 5, 6, 8, 16, 19, 22, 30. With entities at sl. nos. 16, 19, 22. With entities at sl. nos. 16, 19, 22, 31. 10. Manish Suresh Joshi - - - 11. Samir Sureshbhai Shah Entity at sl. No. 7 is his father. Entities at sl. nos. 6, 13, 14, 21, 23, 25, 24 are his clients. Entities at sl. Nos. 4, 12, 15, 26, 17, are Paras Chaplot's friend. Entity at sl. no 11 came in touch with Paras Chaplot as a stock broker. - With Entities at sl. nos. 4, 7, 14, 21, 23, 24, 25, 26, 27 12. Manoj Bhandari - With entities sl. nos. 4, 11, 26. With entities at sl. nos. 4, 5, 16, 30, 9 13. Jignesh C. Shah Entity at sl. no. 26 introduced him for trading a/c. Entity at sl. No. 26 has off market transactions with entities at sl. No. 16 & 22. - - 14. Shalin Kiritkumar P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 4 entered into off market transactions with entity at sl. No. 16 & has fund movement with entity at sl. No. 26. - With entities at sl. nos. 4, 11, 7, 25. Pandya Yaminiben M Same address with entity at sl. No. 26. Knows entity at sl. No. 11 & entity sl. No. 26 is his relative. With entities at sl. nos. 26, 11, 31, With entities at sl. nos. 11, 23, 26, 26. Pandya Hardik M Having common Tel. no. with entity at sl. no. 11. Entity at sl. No. 11 is the promoter of Samir Shah & Co. and sl. No. 26 is one of its employees. Knows entity at sl. No. 11 & entity at sl. No. 25 is his relative. With entities at sl. nos. 12, 18, 4, 11, 17, 25, With entities at sl. nos. 11, 23, 25, 16, 22. 27. Bharatkumar Baldevbhai Parmar Having common Tel. no. with Rameshbhai Parmar. - With entities at sl. nos. 4, 11. 28. Mala Hemant Sheth Entity at sl. no. 28 is the wife of entity at sl. no. 22 and entity at sl. no. 29 is the nephew. With entities at sl. nos. 16, 19. With Entity at sl. no. 22. 29. Gaurang Ajit Seth Has common address & Tel. no. with entity at sl. no. 22. & entities at sl. no. 22 and 16 both directors of Rajnandi Yarns Pvt. Ltd. - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above mentioned 18 entities. v. It was further observed that certain the PP group entities i.e., Mr. Bhabesh Prakash Pabari, Mr. Prem Mohanlal Parikh, Mr. Hemant Madhusudan Sheth and Mr. Vivek Kishanpal Samant also indulged in self trades on the BSE (i.e. buy client as well as the sell client for a given trade was the same resulting in no change of beneficial ownership). vi. The price volume data analysis revealed that the shares of GIL were traded for 226 trading days during the investigation period on BSE. Out of 226 trading days, the PP group entities, including the above-mentioned 18 entities, traded among themselves on 90 days. It was observed that the volume of trades undertaken by the PP group entities contributed significantly to the daily market volume in the scrip on BSE during the investigation period. PP group entities contributed to 100% of the daily market volume on January 06, 2009 and February 12, 2009. Out of 90 trading days on which the PP group entities traded among themselves, on 44 trading days the trades executed by the PP group entities and contributed to more than 50% of the total market volume in the scrip. vii. Further, it was observed that out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and self trades, creation of artificial volume and price manipulation distorted the market equilibrium and were observed to be fraudulent in nature. Consequently, a Show Cause Notice dated September 19, 2014 (hereinafter referred to as "the SCN") was issued to the above mentioned 18 entities (hereinafter collectively referred to as "the Noticees") calling upon them to show cause as to why suitable directions under section 11B read with section 11(4) of the SEBI Act should not be issued against them for the alleged violation of the provisions of regulations 3 (a), (b), (c), (d), 4(1), 4(2) (a),(b) (e) and (g) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 ("PFUTP Regulations"). The provisions of the Regulations alleged to have been contravened by the Noticees are reproduced hereunder: Regulation 3. Prohibition of certain dealings in securities "3. No person shall directly or indirectly (a). buy, sell or otherwise deal in securities in a fraudulent manner; (b). use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vesh Pabari evidencing that they shared common address. b) Copies of his bank statement of Axis Bank Ltd. evidencing transactions with other noticees. c) His letter to SEBI dated 11.07.2012 wherein he had stated that he had business relations with certain other noticees. (ii) Mr. Hemant Madhusudan Seth had sought the following documents which were provided to him: a) Details of directors of Rajnadi YarnsPvt. Ltd. evidencing that he and Mr. Bhavesh Pabari were directors. b) Copies of his bank statement of Axis Bank Ltd. evidencing transactions with other noticees. c) His letter to SEBI dated 12.07.2012 wherein he had stated that he had business relations with certain other noticees. (iii) Ms. Mala Hemant Seth had sought the following documents which were provided to her: a) Copies of her bank statement of Axis Bank Ltd. evidencing transactions with other noticees. b) Her letter to SEBI dated 12.07.2012 wherein she had stated that she had business relations with certain other noticees. (iv) Mr. Bhavesh Pabari had sought the following documents which were provided to him: a) Copies of his bank statement of Axis Bank Ltd. evidencing transactions with ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trades undertaken in the scrip during the investigation period was miniscule * He did not undertake off market trades with any other remembers of the group (ii) Mr. Bipin Jayant Thaker vide his letter dated April 30, 2015 submitted his reply to the SCN and enclosed a copy of the appeal filed by him against the Order passed by AO in the same matter imposing a penalty of Rs.5,00,000/- on him. The noticee has submitted following in his reply: * In the same matter an order was passed by the AO imposing a penalty of Rs. 5,00,000/- on him. He is aggrieved by the said AO order and he is unable to pay the penalty due to the restrain order passed by SEBI. * He has already suffered a prohibition period for more than four years and does not have any financial means and capacity to take service of legal consultation and represent his case in the present proceedings. * It has been alleged that Mr. Chirag Jariwala introduced him to Arcadia Shares and Stock Brokers Ltd. However, from the KYC it may be seen that he was not the introducer but the witness to the said form. * He placed orders on the system of the stock exchange in the normal course of trading and did not execute sy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iv) Mr. Prem Mohanlal Parikh vide his letter dated April 30, 2015 submitted his reply to the SCN and enclosed a copy of the appeal filed by him against the AO Order passed in the same matter imposing a penalty of Rs. 5,00,000/- on him. He has submitted the following: * In the same matter an order was passed by the AO imposing a penalty of Rs. 5,00,000/- on him. He is aggrieved by the said order. He is unable to pay the penalty due to the restrain order passed by SEBI. * He has already suffered a prohibition period for more than four years and does not have any financial means and capacity to take service of legal consultation and represent his case in the present proceedings. * The noticee placed orders on the system of the stock exchange in the normal course of trading and did not execute synchronized trades. His trades were delivery based. * The noticee's contribution to the total trades undertaken in the scrip during the investigation period was miniscule * The noticee did not carry put any off market trades in the scrip and he did not have any fund movement with any other noticees. * He is not Bhavesh Pabari's cousin (v) Mr. Hemant Madhusudan Seth vide his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s case in the present proceedings. * Copies of trade logs and order logs were provided in CD format, which was voluminous and difficulty to short. The action proposed report was not enclosed with the documents provided. * She has accepted and acknowledged fund movement with some other noticees. Further, she accepted that she is the wife of Mr. Hemant Seth, however, she denies having any business/ professional connection with him and submits that she is living an independent life and is taking her own independent decisions. * She did not have business relationship with other Noticees as alleged and the documents shared with have failed to prove the alleged relationship. * She placed orders on the system of the stock exchange in the normal course of trading and did not execute synchronized trades. Her trades were delivery based. * Her contribution to the total trades undertaken in the scrip during the investigation period was miniscule (vii) Mr. Ankit Sanchaniya, vide his letter dated April 30, 2015 submitted his reply to the SCN and enclosed a copy of the appeal filed by him against the AO Order passed in the same matter imposing a penalty of Rs. 5,00,000/- on him. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trading accounts, the said introduction was sought by the broker S.P. Jain Securities Pvt. Ltd. which was a mere formality. * His fund movement with Mr. Ankti Sanchaniya was related to his cloth business. * He placed orders on the system of the stock exchange in the normal course of trading and did not execute synchronized trades. His trades were delivery based. * His contribution to the total trades undertaken in the scrip during the investigation period was miniscule. (ix) Mr. Amar Premchnad Valmiki vide letter dated July 27, 2015 submitted his reply to the SCN and asserted that his contribution was not even one percent of the total volume in the scrip of GIL and therefore was not significant. He further stated that he had not executed any off market trades with any of the entities mentioned in the table. Furthermore, no document was provided to him which could establish his connection with PP group, as alleged. (x) Mr. Samir Sureshbhai Shah, Mr. Jignesh C. Shah, Mr. Pandya Hardik M. and Mr. Shalin Kiritkumar Parikh vide letters dated October 13, 2014 and August 03, 2015 submitted common replies to the SCN, whereby they submitted that they are victims of fraud perp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut of the larger groups of entities were involved in the alleged violations in different scrips. As a result thereof, it was considered viable to issue six different SCNs in order to clearly bring out the role of each and every entity in respect of the alleged manipulation in the said five scrips. Thus, the rationale behind issuing six different SCNs was to ensure clarity and brevity in the SCNs. Considering the above, I don't find any merit in the above contentions of the Noticees. 11. The Noticees have made a common submission that the action proposed chart had not been provided to them and that the trade logs and order logs were provided in a CD format due to which the Noticees were unable to short / purify the data pertaining to them. I have perused the documents sought by the entities and the documents furnished to them. I note that all such relevant documents that were relied upon in the SCN have been duly provided to the Noticees. Further, due to the voluminous nature of the trade logs and order logs, the same were given through a compact disc. I find that to the contrary of the Noticees' submissions data provided in soft form in a CD is easier to short and to made sens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited the details of which are as under: Table 2 - Fund movement with Raj Nandi Yarns Private Limited Date Client Name Counterparty Client Name Total Quantity 15/02/2010 Kishor Balubhai Chauhan Raj Nandi Yarns Private Limited 24500 30/04/2010 Ankit R Sanchaniya Raj Nandi Yarns Private Limited 3000 30/04/2010 Prem Mohanlal Parikh Raj Nandi Yarns Private Limited 3000 15. It is noted that Mr. Bhavesh Pabari has business relation with Mr. Kishor Balubhai Chauhan. Moreover, Mr. Bhavesh Pabari and Mr. Kishor Balubhai Chauhan have joint accounts. It is also noted that Mr. Bhavesh Pabari is one of the witnesses for demat account of Mr. Kishor Balubhai Chauhan. Further, as shown in Table no. 1 above, Mr. Bhavesh Pabari and Mr. Hemant Madhusudan are connected with Mr. Kishor Balubhai Chauha, Mr. Ankit R Sanchaniya and Mr. Prem Mohanlal Parikh and other PP group entities through fund movements, of market transfer of shares and other factors. Therefore, the contention of Mr. Bhavesh Pabari and Mr. Hemant Madhusudan Seth that they had no role in the investment decisions of Rajnandi Yarns Private Limited cannot be accepted. 16. Another Noticee, Ms. Mala Hemant S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Noticees were also provided to the Noticees in the SCN in response whereof they have not provided any cogent explanation. In view of the above, I reject the contention of the Noticees in this regard. 19. Mr. Samir Sureshbhai Shah, Mr. Jignesh C. Shah, Mr. Pandya Hardik M. and Mr. Shalin Kiritkumar Parikh have submitted that one Mr. Chaplot had lured them so that in exchange of a fixed remuneration per month they had allowed Mr. Chaplot to use their trading and bank accounts. I note that it is admitted that these Noticees by their free will for a consideration had allowed Mr. Chaplot to use their account, I, therefore find that even if the contention of these noticees are accepted, they cannot plead innocent. I am of the view that in the present circumstances these Noticees cannot escape the consequence of any manipulation done through such accounts. 20. The Noticees have raised another common contention that the transactions carried out by them were genuine and bona fide and the quantities of their transactions were so minuscule that they could not have led to creation of artificial volume and price manipulation in the scrip of GIL. In this regard, I note that the SCN clearly bri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nism will depend upon the intention of the parties which could be inferred from the attending circumstances because direct evidence in such cases may not be available. The nature of the transaction executed, the frequency with which such transactions are undertaken, the value of the transactions, whether they involve circular trading and whether there is real change of beneficial ownership, the conditions then prevailing in the market are some of the factors which go to show the intention of the parties. This list of factors, in the very nature of things, cannot be exhaustive. Any one factor may or may not be decisive and it is from the cumulative effect of these that an inference will have to be drawn." 22. I also note that the Noticees executed multiple self trades wherein one or the other Noticee was on either side of the transaction thereby creating artificial volume in the scrip. The details of the self trades executed by the Noticees are as below: Table 4 - Self trades by the Noticees. Sl. No. Name of the entity Total buy Total sell Self trade qty % of Total Buy % Total Sell % of Market Volume No of Self trades 1. Bhabesh Prakash Pabari 395464 6831 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 42 5 0.75 2 -0.90 35 -0.15 12. Manoj Bhandari 35 9 3.05 3 -2.40 23 0.65 13. Jignesh C. Shah 1 0 0.00 0 0.00 1 0.00 14. Shalin Kiritkumar Parikh 1 0 0.00 1 -0.60 0 -0.60 15. Bipinkumar Gandhi 11 2 0.30 6 -0.45 3 -0.15 16. Bhavesh Pabari 446 184 130.90 104 -30.70 158 100.20 17. Anand Kalu Marathe 17 2 0.35 1 -0.80 13 -0.45 18. Rekha Bhandari 14 2 5.85 0 0.00 12 5.85 19. Prem Mohanlal Parikh 404 129 69.60 71 -28.50 204 41.10 20. Devendra Suresh Gupta 2 1 0.05 0 0.00 1 0.05 21. Nareshbhai Devabhai Patel 4 3 0.50 1 -0.05 0 0.45 22. Hemant Madhusudan Sheth 78 24 9.40 14 -3.55 40 5.85 23. Ashokkumar Bhikhalal Parmar 3 1 0.10 1 -0.10 1 0.00 24. Manisha Navneetlal Gandhi 14 6 1.40 1 -0.05 7 1.35 25. Pandya Yaminiben M 4 3 5.20 1 -3.50 0 1.70 26. Pandya Hardik M 20 5 3.25 0 0.00 15 3.25 27. Bharatkumar Baldevbhai Parmar 5 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i C 150000 25 Bipinkumar Ramniklal Gandhi Bhavesh Prakash Pabari D 150000 26 Bhavesh Prakash Pabari Prem Mohanlal Parikh C 3749 27 Kishor Balubhai Chauhan Prem Mohanlal Parikh C 6251 28 Prem Mohanlal Parikh Bhavesh Prakash Pabari D 3749 29 Prem Mohanlal Parikh Kishor Balubhai Chauhan D 6251 30 Ankit Rajendra Sanchaniya Hemant Madhusudan Sheth D 14000 31 Bhavesh Prakash Pabari Hemant Madhusudan Sheth D 1350 32 Hemant Madhusudan Sheth Bhavesh Prakash Pabari C 1350 33 Bhavesh Prakash Pabari Raj Nandi Yarns Private Limited D 105028 34 Raj Nandi Yarns Private Limited Bhavesh Prakash Pabari C 105028 35 Hemant Madhusudan Sheth Hemant Madhusudan Sheth C 11346 36 Hemant Madhusudan Sheth Mala Hemant Sheth . C 73579 37 Hemant Madhusudan Sheth Hemant Madhusudan Sheth D 11346 38 Mala Hemant Sheth . Hemant Madhusudan Sheth D 73579 39 Bhavesh Prakash Pabari Raj Nandi Yarns Private Limited C 5000 40 Hemant Madhusudan Sheth Raj Nandi Yarns Private Limited C 19150 41 Raj Nandi Yarns Private Limited Bhave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s market. 27. In view of the above, I find that the Noticees in the present proceedings were related / connected to each other and connived amongst themselves for execution of synchronized and self trades, creation of artificial volume and price manipulation which not only distorted market equilibrium but were also found to be fraudulent in nature. The Noticees have therefore violated the provisions of regulations 3 (a),(b),(c),(d), 4(1), 4(2) (a),(b) (e) and (g) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003. 28. The Noticees have submitted that based on the same set of facts and transactions as in the instant case monetary penalties were imposed against the Noticees by the adjudicating officer vide his separate order(s) and the Noticees have challenged the said order(s) before SAT. However, I am satisfied that the contraventions as found in this case are grave and have the potential to disturb the market integrity and disturb the fair, equitable and efficient functioning of the securities market. In the instant case, the proceedings under sections 11 and 11B of the SEBI Act have been initiated against the Notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtant to mention that some of the Noticees in the present proceedings, i.e., Mr. Bhavesh Pabari, Mr. Bipin Jayant Thaker, Mr. Prem Mohanlal Parikh, Mr. Hemant Madhusudan Seth, Ms. Mala Hemant Seth, Mr. Ankit Sanchaniya, Mr. Bhupesh Rathod, Mr. Bipinkumar Gandhi and Mr. Bharat Shantilal Thakkar against whom the allegations leveled in the SCN have been established, have already been restrained by SEBI vide order dated May 13, 2015 (in the matter of dealings in the shares of Goldstone Technologies Limited) from accessing the securities market and have been further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner for a period of 5 years. Further, in respect of Mr. Bhavesh Pabari, Mr. Bipin Jayant Thaker, Mr. Kishore Chauhan, Mr. Prem Mohanlal Parikh, Mr. Hemant Madhusudan Seth, Ms. Mala Hemant Seth, Mr. Ankit Sanchaniya and Mr. Bharat Shantilal Thakkar against whom the allegations leveled in the SCN have been established, have been also restrained by SEBI vide order dated June 29, 2015 (in the matter of dealings in the shares of LGS Global Limited) from accessing the securities marke ..... X X X X Extracts X X X X X X X X Extracts X X X X
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