Securities Appellate Tribunal
In Re: Ghcl Ltd. vs Unknown on 21 August, 2007
ORDER
G. Anantharaman, Member
1. Background:
1.1 As a part of SEBI's surveillance function, price and volume movement of the shares traded at BSE and NSE are being monitored under Integrated Market Surveillance System (IMSS). Based on certain pre-decided parameters built in the IMS System, an alert for the trades in the scrip of GHCL Ltd. (GHCL) was generated. A preliminary examination of the alert and the trading activities in the scrip of GHCL revealed certain abnormal dealings in the shares of GHCL by certain entities related to the promoter group along with Jalco group entities warranting emergency measures to protect the interest of the investors.
1.2 By an ex-parte interim order dated April 25, 2007, directions were passed against certain entities including the following six promoter group entities inter alia directing not buy, sell or deal in the shares of GHCL., directly or indirectly, pending inquiry and passing of final order, for the detailed reasons mentioned in the said order;
1 Antarctica Investment Pvt. Ltd.
2 Carissa Investments Pvt. Ltd.
3 Comosum Investment Pvt. Ltd.
4 Altar Investment Pvt. Ltd.
5 ILAC Investment Pvt. Ltd.
6 Dalmia Housing Finance Ltd.
The above entities were given 15 days to file their objections, if any, to the said ex-parte interim order.
1.3 Aggrieved by the aforesaid Order, six promoter group entities preferred an appeal before the Hon'ble Securities Appellate Tribunal. The Hon'ble Tribunal inter alia observed that "since the investigations in the matter have just commenced and the respondent Board has been alerted regarding the abnormal trading in the scrip of GHCL Ltd., we are not inclined to interfere at this stage of the proceedings". The Hon'ble Tribunal further directed them to file their objections, if any, before SEBI as early as possible and in case these are filed within the next ten days, SEBI shall consider the same and pass an appropriate order thereon in accordance with law within the next ten days. Subsequently, on an application made by SEBI, the Hon'ble Tribunal has extended the time till August 21, 2007.
1.4 The six entities have filed their objections through their Advocates & Solicitors Khaitan & Jayakar, vide letter dated July 26, 2007 and also sought a personal hearing.
2. Reply of the six entities:
In the above letter, the following submissions were made on behalf of the six promoter group entities:
All the six Promoter Companies are investment companies.
Trading by three of the Promoters (i.e. ILAC, Altar anq Dalmia) is "NIL". In case of Antartica there is merely a purchase of 500 shares over the entire investigation period of five months. The trading by the other two Promoters, i.e. Comosum and Carrisa, was minuscule with Comosum having only purchased 6000 shares i.e. 0.0029% of the total market volume. Carrisa was having maximum gross trading of only 0.14% of the total market volume, of which half of that are not even alleged to be by synchronized trades.
As regards Carissa Investment P Ltd., it acquired 1,16,00,000 number of shares from Gujarat Industrial Investment Corporation Limited (GIIC) in May' 2005 @ 51 Rs. per share for the purpose of long-term investment. The said purchase was funded by loan against share facility by certain NBFCs, which is a common practice followed in the market. In order to shift the debit from one NBFC to another NBFC, the shares were sold from one broker to another. This resulted in the shares being transferred from D-Mat account of Carissa with one broker to D-Mat account of Carissa with another broker.
All the transactions were genuine trade transactions of which delivery was duly made. Further, there is nothing in the transactions to suggest creation of false market or distortion of prices like financing transactions or circular trading etc. There was no undue profit or gain to any of the Promoters since three of the Promoters i.e., Altar Investment, ILAC Investment and Dalmia Housing Finance never traded in the shares of GHCL and two of the Promoters, viz., Comosum Investment and Antarctica Investment only purchased shares and sold nothing and there was only a minuscule change in the price of GHCL share. Therefore in the circumstances no profit or gain was made by any of the Promoter Companies.
There is no association or linkage between the Jalco entities and promoter companies of GHCL excepting that these entities share the common office and that few of the directors thereof are common. Merely on the basis of such commonality, concerted action by the entities cannot be asserted, more importantly when there was no trading at all or minuscule trading ranging from 0.4 to 48% of the total market volume on the part of these entities.
All the said promoter companies gave a correspondence address (H. No. 40, Pocket 6, Chittaranjan Park, New Delhi) which was the office address of the statutory auditor Mr. Sanjay Jalan, of the promoter companies for the sake of operational convenience, though the registered offices of the majority of the promoter companies are situated at different places.
Most of the directors which are said to be common are not directly involved with the management of the promoter companies.
3. Personal Hearing:
3.1 As requested by the six promoter group entities, an opportunity for personal hearing was given to them on August 03, 2007. The six promoter group entities were represented by Khaitan & Jayakar, Advocates & Solicitors and reiterated their earlier submissions.
3.2 During the personal hearing the promoter entities were shown copies of Form 20B filed with ROC signed by the Directors of said entities wherein the email id is given as [email protected] which seeks to suggest that the promoter entities are part of the Jalco group. In response to this, the Advocates vide letter dated August 7, 2007 clarified that the clients' statutory auditor's office address was shown as one of the addresses of their clients so that he could track the investment, receipt of shares, delivery of shares etc. and maintain the required records. Apparently, the said auditor was also the Chartered Accountant for some of the Jalco Group Companies which were also apparently investment companies. The said statutory auditor had informed their clients that for the sake of his own convenience, whenever he was the Auditor/CA for any company he used to give requisite email id being [email protected], so that he could conveniently and at one email id alone, receive all requisite e-mails in respect of all such companies wherever he was the Auditor/CA.
4. Findings:
4.1 I have carefully considered the materials on record including the oral and written submissions of the six entities.
4.2 The entities have contended that only 6 entities out of the 14 entities against which order has been passed are promoter group entities. Out of the six promoter group entities three entities have not traded in the shares of GHCL. Out of the remaining three, two have executed minuscule trades. The ex-parte interim order against the three promoter group entities who had not traded in the shares of GHCL was based on the prima facie view that the said three, identified prima facie as belonging to Jalco Group sharing common address, might act in concert with Jalco Group as per common course of action involving common modus operandi.
4.3 It has been contended that the promoter entities did not have any relation with the Jalco group and that the only common thing between the promoter entities and the Jalco group was the address and the email id [email protected] given in the returns submitted to ROC. The said contention does not take in to account the fact that the statutory auditor of the promoter companies, Shri Sanjay Jalan is also the Chartered Accountant of the other Jalco group companies mentioned above. It is pertinent to mention here that a Chartered Accountant of a company is an "insider" for both the promoter group entities as well as the Jalco group entities as per the SEBI Insider Trading Regulations. Further three directors are common between the promoter group entities and Jalco group, though they were claimed to be non- executive by the promoter group companies. The Form 20B filed with ROC by the Directors of the promoter companies indicating their correspondence email id in the name of "Jalco group" and the related details prima facie support the finding that they were forming part of the Jalco group though it is now being denied by the promoter group entities. In any event, the ongoing investigation has to go into the issue of "inter se relationship" in depth.
4.4 It has been submitted that Carrisa Investment Pvt. Ltd. purchased from one broker and sold through another broker for shifting of debit from one NBFC to another NBFC i.e. from one demat account of one broker to demat account of another. If the intention was just to transfer the shares for loan, it could have been easily done through off-market transactions through demat accounts, instead of passing these transactions through the market. It was opposed to normal conduct in the market.
4.5 It has been contended that the Carrisa Investment Pvt. Ltd. was having maximum gross trading of only 0.14% of the total market volume, of which half of it are not even alleged to be by synchronized trades. I do not agree with the said contention as it has been observed that Carrisa Investment Pvt. Ltd. was buyer as well as seller to itself in few transactions through different set of brokers. Such transactions though minuscule in the overall analysis appears to create artificial volume to the market in the shares.
4.6 It has been contended that there was nothing in the transactions to suggest creation of false market or distortion of prices like financing transactions or circular trading etc. More importantly there have been no undue profits or gains to any of the promoter group entity to suggest any ulterior motive. The said contention is apparently not justifiable in view of the fact that the price at which these shares were acquired by Carissa Investment Pvt. Ltd. and the price at which it had sold to itself were different. These self-trades, wherein the buyers and the sellers are same, adds artificial volume to the extent of its traded quantity.
4.7 A regulatory agency like SEBI, entrusted with the duty to protect the interest of its investors must have the capacity to move quickly to curb further mischief and to take action that, in its opinion, is necessary to instill and maintain public confidence in the integrity of capital markets. The ex-parte interim directions were in not any way of punishment or penalty but only by way of an emergency measure, pending detailed investigation into the whole matter.
5. Order:
5.1 Based on the clarifications and the averments of the six promoter group entities during the personal hearing and thereafter and without prejudice to the ongoing investigation, I am of the prima facie view that there is no need to continue the directions given vide ex-parte interim order dated April 25, 2007 against the aforesaid six promoter group entities.
5.2 The findings arrived in this Order are based on the materials available on record and the various submissions and averments made by six promoter group entities. Issues, if any, arising out of the aforesaid will be looked into by the ongoing investigation and an appropriate view may be taken after completion of investigation in the matter.
5.3 The above direction shall take effect immediately and shall be in force until further orders.