Securities Appellate Tribunal
In Re: Ifsl Ltd. (Formerly Interlink ... vs Unknown on 16 June, 2006
ORDER
G. Anantharaman, Member 1.1 By an ad-interim ex-parte order dated 28.09.2005 the following directions were issued for the reasons stated therein:
(i) That the promoter of IFSL Ltd. viz. Sonal Fincap Pvt Ltd and directors of IFSL Ltd. viz. P.K. Singh, Ramdas Kshisagar, Mukesh Vora, Dilip Kulkarni, Rishi Vashist, N. Narendra and Rakesh Singhvi are hereby directed not to buy, sell or deal in securities of IFSL Ltd, directly or indirectly, till further directions in this regard and IFSL Ltd is further directed that it shall not issue any equity shares or any other instrument convertible into equity shares, in any manner, or shall not alter its capital structure in any manner, till further directions in this regard.
(ii) That the clients viz. New Leader Trading Co. (P) Ltd., Sharpline Trading Co Pvt Ltd., Right Star Trading Co.(P) Ltd., Stockholm Mercantile Co Pvt Ltd, White Moon Mercantile Co.(P) Ltd., Amar Adhav, Deepak Narvekar, Umesh Choukekar, Ganesh Raut, Deepak Todkar, Rajkishore Singh, Prakash Yadav, Jay Shah, Vishalkumar Textiles Pvt Ltd., and Jayesh Waghela are hereby directed not to buy, sell or deal in securities of IFSL LTD, directly or indirectly, till further directions in this regard.
(iii) That the Stock Brokers viz., Indiabulls Securities Ltd. (formerly Orbis Securities Pvt Ltd), Insight Share Brokers Pvt. Ltd., Fortis Securities Ltd, Joindre Capital Services Ltd., India Infoline Securities Pvt. Ltd., Ruchiraj Share Stock Broker, Penninsular Capital Market Ltd., Archi Shares & Stock Brokers Pvt. Ltd. are directed not to buy, sell or deal in securities of IFSL Ltd. on behalf of the promoters, directors and clients mentioned hereinabove, directly or indirectly, till further directions in this regard.
(iv) Further the entities/persons against whom the said directions were issued were given opportunity to file their objections, if any, to the order within 15 days from the date of the order and, if so desired, could avail themselves of an opportunity of personal hearing at the Securities and Exchange Board of India, Head Office, First Floor, Mittal Court B wing, Nariman Point, Mumbai 400 021 on a date and at a time to be fixed on a specific request, to be received in this behalf from the entities/persons within 15 days from the date of the said order.
2. IFSL and their directors/promoters viz. Shri Dilip Kulkarni, Dr. Mukesh Vora, Shri Rakesh Singhvi, Shri Rishi Vashisht, Sonal Fincap Pvt. Ltd., Shri Narendra Navlakha and Shri Prem Kumar Singh filed their objections to the ex-parte order. The other director of IFSL Ltd. viz. Ramdas Kshisagar, the clients viz. New Leader Trading Co. (P) Ltd., Sharpline Trading Co Pvt Ltd., Right Star Trading Co.(P) Ltd., Stockholm Mercantile Co Pvt Ltd, White Moon Mercantile Co.(P) Ltd., Amar Adhav, Deepak Narvekar, Umesh Choukekar, Ganesh Raut, Deepak Todkar, Rajkishore Singh, Prakash Yadav, Jay Shah, Vishalkumar Textiles Pvt Ltd., and Jayesh Waghela and the Stock Brokers viz., Indiabulls Securities Ltd. (formerly Orbis Securities Pvt Ltd), Insight Share Brokers Pvt. Ltd., Fortis Securities Ltd, Joindre Capital Services Ltd., India Infoline Securities Pvt. Ltd., Ruchiraj Share Stock Broker, Penninsular Capital Market Ltd., Archi Shares & Stock Brokers Pvt. Ltd. have neither submitted their replies nor requested for personal hearing in the matter.
a) Reply of IFSL IFSL vide letter dated October 11, 2005 stated that :
It had no knowledge of the trading done by promoters through off market trades as it was done without IFSL's involvement. It stated that it had no control over the transactions/trades executed on the floor of the exchange/off market deal done by its shareholders including promoters.
The disclosure about the holding of promoters was merely a human error. The various corporate announcements made by IFSL were in the normal and usual course of business and in terms of the provisions of clause 36(7) of Listing Agreement. Since all the announcements made by IFSL were based on actual facts and also supported by the current activities being carried out by IFSL in furtherance of the announcements made, there was no question of making succulent announcements as alleged.
The corporate announcements had hardly any impact on the price/volume of trading in IFSL's scrip. It stated that there was no material corporate announcement during the period from October 2004 to June 2005 but the price of the scrip went up from about Rs.60/- to Rs.260/-.
The trading volume in the company's scrip was substantial only in the month of August & September. This was mainly on account of increased bulk deals among FIIs/Institutional Investors, splitting of shares and the buoyant market. It is not the case that the price of IFSL's share started increasing all of a sudden during the period under investigation i.e. August 19, 2005 to September 13, 2005. It was already witnessing significant appreciation. Further during the said period, the Sensex and Nifty rose by 800 points and 100 points respectively. The price of IFSL's share was consistently rising since August 2004. There was no attempt by IFSL to show untrue or unrealistic profits with a view to influence the market.
b) Reply of Sonal Fincap Pvt. Ltd.
Sonal Fincap vide letter dated stated as under :
• They were shocked to receive such a directive of SEBI especially when they, as promoters remained with IFSL in its difficult times. They were a shareholder of IFSL for over a decade during which time IFSLs' business activities were at a very low level.
• Though they were a major shareholder holding about 16.88% of the capital, they did not have any representative on IFSL's Board. They were not involved in day to day business affairs and operations of IFSL and accordingly were dormant investors. They had hardly any interaction with IFSL and relied on the publicly available information of IFSL for knowing the developments and other projects of IFSL.
• In the course of the six months or so as referred, it was observed that there was movement and momentum in the IFSL scrip and it was noted that there was public interest too, as reflected in the volume of trading. They also heard various developments in IFSL through media from time to time.
• They observed that IFSL's share price had increased and was rising, which could be due to various factors. They took in-principle decision to dispose of their holding of equity shares in IFSL. Accordingly they checked with some market sources whether the market would absorb the large quantity of shares (which they were holding) if they sold in the market without any sharp fall in the price of the scrip.
• Stock market circle suggested that instead of selling shares out rightly in one lump, it would be better to dispose of shares through a few entities. Hence considering the operating realities of stock market they were constrained to transfer shares in off market deals to about 15 entities. The whole exercise had been a purely individual affair, only involving personal value judgment in light of information and market news available at that point of time.
• They were not attentive about the day to day amendment of law and had only minimal knowledge of law applicable to stock market transaction. The failure of reporting was unintentional and non deliberate. In the circumstances it was requested to consider their bonafides and submissions in this case, when they were being involved without any wrong doing on their part.
• They acted in good faith believing that their sale transactions were outside the purview, compass and ambit of SEBI regulations. They were under the bonafide belief that whenever a person acquired 5% or more, he was under an obligation to report to IFSL and Stock Exchanges. They were also under the impression that whenever a person acquires more than 15% of a company's equity he was required to make public offer. In this background they were not aware that even sale beyond a particular limit attracts SEBI's regulation. They had no intention to violate any provisions of Insider Trading / Takeover Code regulation or any provisions of any law for that matter.
c) Reply of Shri Dilip Kulkarni Shri Kulkarni vide letter dated October 10, 2005 submitted as under :
• He was appointed as a director on the Board of IFSL on June 10, 2005 and is the Chief Executive Officer (CEO) of IFSL. He was originally the CEO of M/s San Infra Trading Pvt. Ltd.
• On IFSL acquiring San Infra and San Infra becoming the Wholly Owned Subsidiary (WOS) of IFSL he was inducted as CEO of IFSL. He attended the Board Meetings of IFSL and participated effectively in the deliberations and discussions on matters placed at the Board Meetings and was involved in the day to day affairs of IFSL and was responsible for all the projects of IFSL and San Infra.
• The various corporate announcements made by IFSL were in the normal and usual course and in terms of the relevant provisions of the Listing Agreement. Shri Kulkarni and the Board had acted in good faith and in the best interests of IFSL.
• The various happenings relating to promoters sale of shares, spurt in share price, trading volume narrated in the order were not within his personal realm and he could really not be concerned about it.
• He had nothing to do with share price movement nor was he competent enough to comment upon it.
• The directors of IFSL are separate and distinct persons in law from IFSL. As far as he was concerned, he did not hold any shares of IFSL nor had he ever dealt/traded in the shares of IFSL. There was no co-relation between his acting as a director and the direction issued against him in the interim order.
• He was a professional independent director and acted in the best interest of IFSL. His bonafides and the restricted role played by him as a director/CEO during a short span of about 3 months may be considered and he may be relieved from Section 11B and 11(4)(b) proceedings at the earliest.
d) Reply of Dr. Mukesh Vora Dr Mukesh Vora vide letter dated October 10, 2005 submitted as under :
• He was appointed as a non-executive independent director in IFSL only on June 10, 2005 and was not involved in day to day affairs of IFSL and his involvement was confined to Board Meetings only.
• The various corporate announcements made by IFSL were in the normal and usual course and in terms of the relevant provisions of the Listing Agreement. Shri Vora and the Board had acted in good faith and in the best interests of IFSL.
• The various happenings relating to promoters sale of shares, spurt in share price, trading volume narrated in the order were not within his personal realm and he could really not be concerned about it. As an example, price discovery in IFSL's scrip took place on the market and was an outcome of various factors, forces and influences at macro level and micro level.
• The market operates in future and discounts future developments. Therefore, to draw adverse inference solely on uninspiring background of IFSL is totally misplaced and out of market realities or market perspective.
• It is pertinent to note that BSE put IFSL's scrip in T to T group with effect from October 4, 2004 at which time the share price was about Rs.64/- . Thereafter during the period fm October 2004 to April 2005 the price went up from Rs.64/- to Rs.239/-.
• As a non-executive independent director his role was limited and restricted for giving his views on bio-chemical systems which would help in implementing the project.
• Since the role played by him as a director during a short span of about three months was insignificant and had immaterial effect, he should be relieved from Section 11B and 11(4)(b) proceedings and should be discharged at the earliest.
e) Reply of Rakesh Singhvi Shri Rakesh Singhvi submitted vide letter dated October 12, 2005 that :
• He was an independent non executive director in IFSL during the period 15.4.05 to 5.5.05 and complied with the necessary legal formalities in connection with his appointment and resignation as a director.
• He did not have any Demat Account and had not traded in any kind of shares. He attended Board Meetings of IFSL and participated effectively in the deliberations and discussions on matters placed at the Board Meetings. However, he was not involved in the day to day affairs of IFSL.
• The directors of IFSL were separate and distinct in law from IFSL. He has already resigned as Director of IFSL. The SEBI order pertains to the period after his resignation as Director.
• He has not violated provisions of any law during his tenure with IFSL and therefore no action - penal or otherwise - is called for and be not taken against him.
• He was a professional independent director and acted in the best interest of IFSL. In the circumstances, his bonafides and restricted role played as a director during a short span of about 5 months may be considered.
• There was no wrong doing on his part. He requested to be relieved from Section 11B and 11(4)(b) proceedings and be discharged at the earliest. During his tenure as Director with IFSL he attended Board meetings and participated effectively in the deliberations and discussions on matters placed at the Board meetings. He was not involved in the day to day affairs of IFSL.
f) Reply of Rishi Vashisht Shri Rishi Vashisht submitted vide letter dated October 10, 2005 that :
• He was an independent non executive director in IFSL during the period 25.5.05 to 21.8.05 and complied with the necessary legal formalities in connection with his said appointment and resignation as a director.
• During his tenure as Director with IFSL he attended board meetings of IFSL and participated effectively in the deliberations and discussions on matters placed at the Board meetings. However, he was not involved in the day to day affairs of IFSL.
• He did not have any Demat Account and had not traded in the shares of IFSL. He has already resigned as Director of IFSL. He was a professional independent director and acted in the best interest of IFSL. In the circumstances, his bonafides and restricted role played as a director during a short span of about 3 months may be considered and be relieved from Section 11B and 11(4)(b) proceedings and discharge him at the earliest. . There was no wrong doing on his part.
g) Reply of Narendra Navlakha Shri Narendra Navlakha submitted vide letter dated October 10, 2005 that:
• In the interim order, the status of directors as on June 14, 2005 was taken and interalia included his name as Director of IFSL as on that date. He stated that he was appointed as Additional Director of IFSL as on 8th December, 2004 and continued to be director only till 5th May 2005, in his professional capacity (C.A.) and was not involved in day to day activity during the said period also.
• Vide letter dated 4th May 2005 he had submitted his resignation from the Board of Directors of Interlink Financial Services Limited, (now IFSL Limited) and the same was accepted by the Board of Directors in their meeting held on 5th May 2005. Necessary form 32 was filed with the office of Registrar of Companies, Madhya Pradesh on 26th August 2005.
• The order was issued on 28.9.05 whereas his Form No.32 was duly filed with ROC on 26.8.05. Thus, he was director of IFSL from 8th December 2004 to 5th May 2005 only and was not a director of IFSL on 14th June 2005, relevant date taken for the purpose of the order. All the transactions / events covered by the order were subsequent to submission of his resignation and accordingly he was neither aware of such events nor a party to the same.
• He was not aware of the proceedings of the meeting and major announcement made by IFSL from 9.5.05 to 27.9.05 since he was not a director of IFSL during that period.
• He was not aware of the trading of shares carried out by the promoters or their group companies nor a party to the trading of such shares or giving any misleading information to the investors. He was not a party involved in violation of Regulation 13(3) of SEBI (Prohibiton of Insider Trading) Regulations 1992 since the requirements were to be complied with during the period, when he was not a director.
• He was not a party to the mis-statement, if any, in the EGM notice as the same was issued after his resignation from the Board of IFSL and accordingly he was not aware of the facts mentioned in the order. Since he was not involved in any of the activities mentioned in the interim order, the impugned ad interim order be withdrawn against him with immediate effect.
• He was member of the Board of Directors purely in his professional capacity and his status was independent and non Executive Director.
h) Reply of Prem Kumar Singh • Shri Prem Kumar Singh (PK Singh) submitted vide letter dated October 9, 2005 that during his tenure as Director with IFSL, he attended board meetings of IFSL and participated effectively in the deliberations and discussions on matters placed at the Board meetings.
• He has resigned as Director of IFSL and has not violated any provisions of any law during his tenure with IFSL and therefore no action should be taken against him.
• He was a professional independent director and acted in the best interest of IFSL and requested to consider his bonafides and restricted role played as a director during a short span of about 5 months.
3. M/s. IFSL Ltd., Shri Dilip Kulkarni, CEO and Dr.Mukesh Vora, Independent Director requested for an opportunity of personal hearing and the same was granted to them on December 13, 2005. Shri Dilip Kulkarni and Dr Mukesh Vora attended the hearing in their individual capacities as CEO and Independent Director, on the above date.
3.1 IFSL, vide letter dated December 12, 2005 requested for inspection of documents and also requested to adjourn the hearing scheduled on December 13, 2005 by a month or so i.e. to a date during the third week of January, 2006. Accordingly, inspection of documents was granted to IFSL on 9th January 2006 and personal hearing was adjourned and held on January 24, 2006. None appeared on behalf of IFSL on the scheduled date. Instead, vide letter dated January 24, 2006 IFSL submitted that it has nothing more to add to what it has already submitted vide their earlier letters.
4. I have carefully considered the facts and circumstances of the case, the material available on record and the submissions made by the parties.
4.1 I have noted that during the financial year ended March 31, 2002, IFSL's accounts showed no profit or loss. The annual report for the year further revealed that what had been shown under the head "operating expenses" was largely the cost of purchase of shares and correspondingly the income was shown largely as the sale proceeds. For the financial year ending March 31, 2005, the net profit soared to Rs.6.66 crores. The attempt by IFSL to show higher profit was followed by an increase both in share price and trading volume as well as a spurt in off-market transactions by the promoters and subsequent transactions in the market by the clients to whom the promoters' shares were transferred. IFSL stated that as far as the transactions by the promoters were concerned, it had no role to play in the same. It contended that there was no law/reason under which IFSL could stop the promoters from sale of their shares. The explanation of IFSL appears to be not convincing. The provision of continual disclosures stipulated under Regulation 8(3) of SEBI(Substantial Acquisition of Shares and Takeovers) Regulations, 1997 requires that IFSL had to disclose annually, the changes, if any in the holdings of the promoters or persons having control over it. IFSL is expected to make continual disclosures regarding promoter holdings and hence preponderance of probabilities suggest that IFSL would be aware of the acquisition and disposal of shares by the promoters and persons having control of IFSL It is to be noted that manipulative trading is beneficial to both the promoters and the company as the value of the company is enhanced when there is an increase in its share price. In the light of the circumstances and considering the fact that .IFSL had also not made true disclosures to the Stock Exchanges, which prima facie lends credence to its involvement as already discussed, it is not possible to perceive IFSL in isolation from its promoters. .Hence, the argument of IFSL that it had no role to play in the transactions done by the promoters is not convincing.
4.2 The major corporate announcements of IFSL during the period May 9, 2005 to September 27, 2005 were as follows :
Date & time Major Announcements
May 09, 2005 1:21:13 PM A meeting of the Board of
Directors of IFSL will be
held on May 16, 2005, inter
alia, to consider split
up/subdivision of Equity
Shares.
June 03, 2005 1:38:28 PM: A meeting of the Board of
Directors of IFSL will be
held on June 10, 2005,
inter alia, to consider the
following:
1. The Acquisition of M/s
San-Infra Trd Pvt Ltd, a
solid waste to energy Power
Company. San-Infra proposes
to enter into a power
purchase agreement for
generation of power out of
waste material for the
state electricity board.
2. Appointment of a valuer
to value M/s San-Infra Trd
Pvt Ltd.
June 09, 2005 10:53:07 AM: The members of IFSL at the
Extra Ordinary General
Meeting (EGM) held on June
07, 2005, inter alia, have
approved the following:
1. Split of the equity
shares of the nominal value
of Rs 10/- each in the
capital of IFSL fully paid-
up into 10 (ten) equity
shares of Rs 1/- each fully
paid-up.
2. Alteration in the
capital clause V of the
Memorandum of Association
of IFSL.
3. Alteration of Article 3
of the Articles of
Association of IFSL.
4. Change of name from
'Interlink Financial
Services Ltd' to 'IFSL Ltd'
subject to the approval of
Central Government.
June 14, 2005 10:35:07 AM: The Board of Directors of
IFSL at its meeting held on
June 10, 2005, inter alia,
has :
1. Appointed M/s
Deloitte Haskins &
Sells as valuer to
value M/s. San Infra
Trd Pvt Ltd.
2. Acquisition of M/s
San Infra Trd Pvt.
Ltd, a power company
will be considered on
the basis of valuation
report to be submitted
by M/s. Deloitte
Haskins & Sells, the
valuers.
3. Appointment of
following persons as
Additional Directors:
a) Mr. Dilip Kulkarni
b) Mr. Mukesh Vora
June 29, 2005 6:36:15 PM IFSL Board recommends a
dividend of 10 % on the
Equity Shares.
July 05, 2005 1:28:20 PM: IFSL is in the process of
developing Rs 800 Million
Renewable Energy Power
Project with Kalyan
Dombiwali Municipal
Corporation. This will be
the prestigious power
project to be developed by
IFSL thus adding another
milestone in its rapid
expansion.
Today, IFSL is poised to
become India leading
private sector power
utility, with a reputation
for reliability. It will
soon have a presence in the
field the power business
system - generation
(Thermal, Hydro and Solar)
transmission and
distribution. The proposed
Power Station of IFSL is
located at Kalyan in the
state of Maharashtra.
IFSL besides undertaking
several projects in
generation and transmission
is exploring opportunities
for growth in all area of
the power value chain.
Thus, the organizational
transformation in
establishing IFSL as a
national player has begun
to take a clearly defined
shape. The ongoing process
involved in project
implementation in
generation including
efforts for reducing cost
and enhancing reliability
have started to yield
encouraging results. IFSL
will develop the said Power
Station through its wholly
owned subsidiary San Infra
Pvt Ltd.
July 19, 2005 1:13:48 PM IFSL in association with
M/s. ENTEC Biogas GMBH,
Austria has received a
letter of Intent to execute
1000 TPD MSW energy project
at Jakarta, Indonesia on
turnkey basis from M/s.
Metra Impex Co LLC, Dubai,
issued on behalf of M/s.
Indoenviro Waste Management
Co, Jakarta. Indoenviro
Waste Management Co is
promoted by BOSAWA and
KODEL group of Indonesia.
BOSAWA and KODEL group are
engaged in shipping and
conventional energy plants,
hydel electricity, cement,
fabrication and other
activities.
The plant is designed to
produce 12 MW Electricity
and 250 TPD Bio Fertilizer
after blending with other
green wastes. The order
value is around Rs 2250 mn.
The project construction
will start in October 2005
and it is expected that the
electricity generation will
start in the beginning of
the next fiscal.
Aug 19, 2005 The board of directors has
decided to issue of equity
shares on private placement
basis and further issue of
shares in the form of
Indian securities/ ADR /
GDR/FCCB/Convertible Bonds
or any other form of
securities convertible in
to equity shares upto US $
100 million.
Aug 29, 2005: i) IFSL LTD secures an 8
MW power project at
Kalyan:
ii) IFSL would gain Rs.
1600 million on the
Carbon Credit advantage
on the Kyoto protocol.
iii) Gross expected
revenue from the project
to be in the region of
Rs.4000 million over the
project life cycle etc.
Aug 31, 2005 The register of members &
share transfer Books of
IFSL will remain closed
from September 24, 2005 to
September 30, 2005 (both
days inclusive) for the
purpose of Payment of
Dividend and 19th Annual
General Meeting of IFSL to
be held on September 30,
2005.
Sept 27, 2005 11:19:45 AM IFSL Ltd has announced that
IFSL has signed a MoU with
FAHLKE Control Systems GMBH
for jointly executing a
1000 TPD Municipal Solid
Waste to Energy Project in
Canada. IFSL's share of the
project is valued at an
estimated at USD 37
million.
IFSL is one of the very few
participants in the waste-
to-energy space in India.
This sector has more than
1700 MW of potential
according to the Ministry
of Non conventional Energy
Sources (MNES). This
translates into a revenue
potential of almost Rs
50000 million. Besides, the
sale of carbon credits
under the Clean Development
Mechanism (CDM), this
sector also offers
significant revenue
potential.
Commenting on the
agreement, the Chief
Executive Officer of IFSL,
Mr. Dilip Kulkarni said,
"This agreement enables us
to extend our foot print
beyond India and Asia.,
where IFSL already enjoys a
significant presence. The
entry into Europe will pave
the way for similar
projects elsewhere in that
geography.
4.3 From the announcements made by IFSL, it is prima facie observed that IFSL's proposal to acquire M/s San-Infra Trd Pvt Ltd. at Andheri was contingent upon the acquisition of San-Infra (P) Ltd. Though, IFSL informed that they had acquired San-Infra (P) Ltd in an all cash deal, they failed to provide proof of such an acquisition and the corporate announcement seems to be misleading. Similarly, with regard to the announcements of power projects, it is prima facie observed that the said venture of IFSL was at a preliminary stage at the time of making the corporate announcement. Vide its announcement to BSE Ltd. on August 29, 2005, IFSL made projections inter-alia to indicate that gross expected revenue from the project would be in the region of Rs.4000 million over the project life cycle without highlighting the risk factors involved in such projects. Thus, the corporate announcements made by IFSL seems to be exaggerated and without sound factual basis which were intended to jack up the shares price.
4.4 In the meanwhile, the promoters of IFSL went on offloading their stake through off market transactions and thereby reduced their shareholding in IFSL. Sonal Fincap Private Ltd, the promoter of IFSL demated 1.35 crore shares and immediately thereafter entered into a series of off market deals. It is observed from the data gathered from the DP that by August 31, 2005 the holding of the promoter M/s Sonal Fincap Private Ltd was reduced to 4.49% and by September 26, 2005 the holding was further reduced to 1.6% of the total equity capital. Surprisingly, in the notice of 19th Annual General Meeting of IFSL held on September 30, 2005 addressed to the BSE, the promoter's holding was mentioned as 16.88%. The same is found to be factually incorrect and IFSL submitted in this regard that this was a mere human error. However, making a misstatement about the promoter's holding in IFSL cannot be ignored and passed off as mere human error.
4.5 The transactions of clients connected to the promoters accounted for around 33% of gross purchase and around 39% of gross sales of the volume of trades in the exchange. The net sales by these clients were 1.85 crore shares, which represented around 56% of market net quantity during the said period. Therefore, it is prima facie found that the announcements and these transactions were significant enough to induce investors to deal in the scrip and create large volume in the overall trading in the scrip.
4.6 It prime facie appears that the promoters of IFSL (Sonal Fincap) offloaded their holding to public and thereby benefited from the hyped up public interest in the market by misleading corporate announcements. It is also observed that the promoters offloaded their holding in smaller chunks through 15 entities during July-August 2005 to obviate the suspicion which would normally be excited in the event of offloading a huge chunk of shares all of a sudden. The explanation given by Sonal Fincap that they had only minimal knowledge of law applicable to stock market is highly naive and cannot be countenanced in the context of well orchestrated corporate announcements followed by offloading of the promoter holding though various entitles in small chunks when the prices were marginally high.
4.7 With regard to the involvement of Shri Kulkarni CEO of IFSL and ex- CEO of San Infra, it is prima facie found that Shri Kulkarni participated effectively in the deliberations and discussions on matters placed at the Board Meetings of IFSL and was responsible for all the projects of IFSL. This is evident from the fact that on September 27, 2005 Shri Kulkarni made announcement on the BSE website that, "IFSL signs MoU with German Company for turnkey projects in Canada and this agreement enables us to extend our foot print beyond India and Asia, where IFSL already enjoys a significant presence". This statement of the CEO of IFSL appears to be again misleading as till the date of the announcement, IFSL had not done any business other than buying and selling shares of domestic listed companies as well as shares in unquoted companies in India.
4.8 Similarly, it is prima facie found that independent non-executive directors namely, Dr Mukesh Vora, Rishi Vashisht and Prem Kumar Singh had participated effectively in the deliberations and discussions on matters placed at the Board Meetings. Therefore, their respective roles and involvement in the important matters placed before the Board required to be further examined. Narendra Navlakha submitted that he was appointed as Additional Director of IFSL on 8th December 2004 and continued to be Director till 5th May, 2005. Similarly, Rakesh Singhvi stated that he was appointed as an Additional Director of IFSL on April 15, 2005 and he discontinued the said post on May 5, 2005. In support of their contentions, they have furnished a copy of Form 32 which needs to be examined in the on-going investigation.
4.9 I observe that the interim order dated September 28, 2005 has not imposed any punishment but sought to prohibit the persons concerned temporarily from dealing only in the scrip of IFSL. As the preliminary evidence prima facie points to the involvement of the persons as described above, in the overall interest of investors and safety and integrity of the securities market, I feel that the interim order needs to be confirmed. It is further noted that Investigation proceedings are in progress to ascertain the role played by IFSL and its directors in the apprehended manipulations.
4.10 In this context, it is pertinent to quote Section 27 of the SEBI Act, 1992 which states that "where an offence under this Act has been committed by a company, every person who at the time the offence was committed was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly....:" In this regard, Honourable SAT in Rahul H Shah's case (2004) 55 SCL 416 (SAT) has observed that "no hard and fast rule exists whereby by it could be said as to when a director will be vicariously responsible for the acts of directors in charge of day to day affairs of company." However, even non-executive directors shall be made liable where Non-executive directors are commonly appointed so as to watch and keep a check on the whole time directors, to provide a view of an impartial outsider, to bring the benefit of their experience to the company, to act as a figure head (particularly in the case of a non-executive chairman), to add credibility to the company with the public and shareholders , though the inference has to be drawn from the facts and circumstances surrounding each case. In any event, there has to be a modicum of evidence linking the said directors with the manipulation and in its absence, complicity cannot be presumed. This aspect will be examined during the course of investigation. At this stage, the limited objective is whether there is a prima facie case for passing an interim order.
4.11 Urgency of the matter or public interest at times require flexibility in application of the rule as the circumstances of the case and the nature of the matter may warrant. Thus, putting temporary restrictions on the rights of market participants in the overall interest of the market and the investors would serve the interests of justice. It has to be kept in mind that SEBI is vested with statutory powers to regulate securities market with the object of ensuring investors protection, orderly and healthy growth of securities market so as to make SEBI's regulatory function over the capital market effective and meaningful. Further, in view of clear provisions of Section 11(4) read with Section 11B of SEBI Act, and in light of series of judgments of various High Courts, there can be no doubt that SEBI, in view of the exigencies of the matter has power to pass appropriate orders. For a prima facie case, it is necessary that the information which is available with the authority is more than a mere rumor, gossip or hunch and should be specific information, rather than vague information. In this case, there is adequate material to come to a prima facie finding as discussed above. I am, therefore, convinced that there are reasonable grounds in this matter to confirm the interim order.
5. In the light of the above, I have no hesitation in confirming the ad interim order dated 28th September 2005, with all the directions mentioned therein against all the persons in the interest of the investors and safety and integrity of the securities market.
5.1 This order shall come into force with immediate effect.