Securities Appellate Tribunal
Sebi vs Ketan V. Parekh, Kartik K. Parekh, ... on 12 December, 2003
ORDER
G.N. Bajpai, Chairman 1.0 Significant price rise and volumes were witne ssed in the scrip of Lupin Laboratories Ltd. during the period September-December 1999 on The Stock Exchange, Mumbai [hereinafter referred to as 'BSE'] and National Stock Exchange [hereinafter referred to as 'NSE']. Investigations were conducted by Securities and Exchange Board of India [hereinafter referred to as 'SEBI'] into the buying, selling and dealings in the scrip of Lupin Laboratories Ltd. and it was revealed that certain entities/individuals viz. Ketan Parekh, Classic Credit Ltd, Panther Fincap and Management Services Ltd and Saimangal Investrade Ltd had indulged in the price manipulation in the scrip of Lupin Laboratories. Therefore, a show cause notice dated March 27, 2002 ( hereinafter referred to as the first show cause notice) was issued to them asking to show cause as to why necessary direction under Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 should not be issued against them.
1.1 Investigations were conducted by SEBI in the wake of excessive volatility in the index movements of stock exchanges in India during mid February to mid March 2001 and apprehensions of possible attempts by certain entities to distort the true price discovery and manipulate the securities market. Investigations conducted for the period from April 01, 2000 to March 31, 2001 revealed that shares sold by entities viz., Classic Credit Ltd [hereinafter referred to as 'Classic'], Luminant Investment Pvt Ltd [hereinafter referred to as 'Luminant'] and Panther Fincap and Management Services Ltd [hereinafter referred to as 'Panther'] through Credit Suisse First Boston Securities (CSFB) and Dresdner Kleinworth Benson Securities (DKB) were bought either by the same entity i.e., Classic, Luminant and Panther or by other entities connected/controlled by Ketan V Parekh/Kartik Parekh., i.e., Saimangal Investrade Ltd [hereinafter referred to as 'Saimangal'], NH Securities Ltd (on its proprietary account), Classic Shares and Stock Brokers Ltd (proprietary account), Chitrakut Computers Private Ltd [hereinafter referred to as 'Chitrakut'], Classic Infin Ltd. [hereinafter referred to as 'Classic Infin'], and Panther Investrade Ltd through other brokers. Classic, Luminant, Panther, Saimangal, NH Securities Ltd, Classic Shares and Stock Brokers Ltd, Chitrakut, Classic Infin, and Panther Investrade Ltd were found to be either connected or controlled by Ketan Parekh and hereinafter are collectively referred to as 'KP Entities.' 1.2 Investigations revealed that KP Entities indulged in certain manipulative activities such as:
1. Synchronized Trades
2. Financing transactions given the semblance of purchase and sale of shares at the Exchanges.
3. Circular Trading and creation of artificial volume
4. Benchmarking of the prices of certain scrips by executing non-genuine transactions which were detrimental to the integrity of the securities market and also violative of SEBI (Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995. Therefore, a show cause notice dated July 30, 2002 (hereinafter referred to as the 2nd show cause notice) was issued to Ketan Parekh, Kartik Parekh, Classic, Panther, Luminant, NH Securities Ltd (Proprietary account), Classic Shares & Stock Broker Ltd (Proprietary account), Chitrakut, Saimangal, Classic Infin and Panther Investrade asking them to show cause why suitable direction under regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 read with Section 11B of the SEBI Act, 1992 including a direction to prohibit from dealing in securities for a particular duration should not be passed against them.
2.0 Although none of the entities replied to the show cause notice despite several remi nders, Shri Ketan V Parekh is found to have replied to the Ist show cause notice. He is stated to be replying in two parts. However, the second part has not come forth. In the reply(Part I) dated 16th December, 2001, he stated that the analysis of price movement has been done on wrong premises by SEBI.
3.0 With respect to the entities covered by the First Show Cause Notice, hearing was granted on March 14, 2003. The entities had requested that since Shri Ketan Parekh was in judicial custody of Kolkatta Police and they require his presence during the hearing, the same may be adjourned. Hearing was accordingly rescheduled and held on a further date i.e., on April 30, 2003. Further adjournment was sought and finally hearing was conducted on June 25, 2003. Ms Prarthana Awasthi, Advocate attended the hearing on behalf of entities covered by the first show cause notice and made the submissions.
3.1 In so far as the second show cause notice is concerned, all the entities were advised to avail an opportunity of hearing before me on March 14, 2003, vide letter dated March 4, 2003. The entities had requested that since Shri Ketan Parekh was in judicial custody of Kolkatta Police and they required his presence during the hearing, the same might be adjourned. Hearing was accordingly rescheduled and held on a further date i.e., on April 30, 2003 vide letter dated March 27, 2003. The parties had, vide letter dated April 30, 2003 sought for adjournment since there were other proceedings against the broking entities of KP on the same date. Accordingly, further date of hearing was fixed on June 12, 2003 and the same was communicated vide letter dated May 28, 2003. However, parties again sought for adjournment vide their letter dated June 02, 2003. Finally, hearing was held on June 19, 2003. On the said date, Ms Prarthana Awasthi, Advocate attended the hearing on behalf of entities covered by the first show cause notice and made the submissions. Written Submissions by the entities covered in first show cause notice 3.2 Written submissions were forwarded by the entities covered by the first show cause notice during July 2003. In the written submissions submitted by Shri Ketan Parekh vide his letter dated July 2003, it was submitted that during the period of investigation he was a director on the Board of Classic, Panther, and Saimangal. He also stated that he had not acquired any shares in the scrip of Lupin Laboratories Ltd. and the transactions were carried out by investment companies, on whose Board he was a director. He also stated that there was no necessity for the prices of shares of all the companies in any one industry to be moving to the same extent as other scrips in such industry or sector. Also, he stated that abnormality in the price rise cannot be determined merely on comparison of price movements between select stocks in a particular industry. It was also his contention that mere association, as had been admitted by him during investigation, with the broking entities was insufficient to make him responsible for all the alleged actions of those companies, as figured in the show cause notice. He also denied any artificial price rise in the scrip during the period under consideration. It was submitted by him that although he had not placed any or der, placing large orders in the market is not per se illegal.
3.3 The written submissions made by Classic and Panther also contended that SEBI cannot state with ultimate authority whether the price of the scrip in the market is justifiable or not. It was also mentioned that the comparison of the price movement with those of other pharmaceutical industry was incorrect. In its written submissions, Classic had also mentioned that it did not act in concert with others to artificially manipulate the price and volume of the scrip and said that no action shall lie against them. Similar submissions were made by Panther. They also denied that their orders for purchase of sale placed with the brokers in the market had created any artificial demand for the shares or hampered with the free and fair discovery of price of the scrip in the market. Written Submissions by the entities covered in second show cause Notice.
3.4 Shri Kartik Parekh, in his written submissions contended that there are no acts mentioned in the show cause notice that had been attributed to him, for which he could be held liable and further the entities mentioned in the show cause notice had no connection with him. He denied all the imputations made in the show cause notice. Regarding the allegation of the transactions of Ketan Parekh through CSFB/DKB Securities being circular and fictitious trades creating artificial volume and artificial market in the scrips, it was submitted that since the same was carried out for the purpose of availing finance, there cannot be any other intention for carrying out such transactions. It was also stated that he had no connection with the transactions mentioned in the show cause notice. It was also submitted that the act of availing finance for the purpose of meeting obligations or for any other reason pertaining to the market is completely legal and permissible activity and hence no action was possible against him. Further, with respect to the allegation of nontransfer of beneficial ownership of the shares, he had cited Section 10(3) under Depositories Act, 1996 and said that when shares are transferred from the demat account of the seller to the demat account of the broker or buyer, it would mean that the beneficial ownership is also transferred and therefore, the same allegation was not sustainable. Again on the reference relating to the trades being synchronized and negotiated deals, the circular dated September 14, 1999 was quoted and it was stated that the relevant circular do not ban negotiated deals and it only states that such deals have to be executed on the screens of the exchange in the price and order matching mechanism of the exchanges. It was also submitted that certain orders placed by the entities covered by the relevant show cause notice through brokers had matched with the orders of other brokers, which was permitted by the exchange mechanism and hence it was incorrect to attribute intention of wrong doing to the same. Raising finance by the sale of shares in the market is neither wrong nor banned by SEBI was the main argument that had been put forward by Shri Kartik Parekh. He also reiterated his request for an opportunity for cross examination of those whose statements have been relied upon from CSFB/DKB. He also referred to the statements relied upon by SEBI where the persons who had made the same had said that they are not aware of the transactions being synchronized.
3.5 The allegation in the show cause notice about the transactions of shares in Nirma and others, not being real and were done under the cover of normal sale / purchase and the consideration being received on the same date of the transfer of shares to brokers were objected to by Shri Kartik Parekh in his written submissions. He submitted that pursuant to the objective of receiving finance, these entities had sold shares to CSFB/DKB in spot and had purchased or arranged to be purchased by others, shares in the market. All such sales and purchases were made in the actual transfer of beneficial ownership of shares and payment of due consideration and the transactions having actually occurred, the allegation that the financing transaction being carried out as regular sale and purchase would be incorrect, he said. The transactions were forming part of actual volume of the exc hange and hence the allegation of artificial volume being created lacked substance, according to Shri Kartik Parekh. Further, he also said that the required element of intention to artificially raise or depress the prices of securities and thereby inducing the sale or purchase of securities has not been alleged, proved or substantiated in the show cause notice, whereas there are allegations of transactions being carried out in violation of Regulation 4(a),(b),(c) and (d) of the Securities and Exchange Board of India Regulation 1995. All the allegations of violation of Regulation 4(a),(b),(c) and (d) of SEBI (Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 are denied by Shri Kartik Parekh, which according to him were inapplicable in his case. He alleged the show cause notice to be baseless and frivolous and further maintained that all the transactions referred in the same being legal.
3.6 The replies of entities, Classic, Panther, Luminant, Chitrakut, NH Securities Ltd., Classic Share and Stock Br oking Services Ltd., Saimangal, Classic Infin, Panther Investrade Ltd. were on similar lines as the reply by Shri Kartik Parekh and hence to avoid repetition of the submissions, the same have not been reproduced herein.
4.0 I have perused the findings of the investigation, and carefully examined the same as well as the show cause notices, replies to the notices, oral and written submissions of different individuals / entities. My findings are as under :-
1. Findings w.r.t first show cause notice 4.1 I find that the scrip of Lupin Laboratories Ltd. was quoted/transacted in the range of Rs.100/- to Rs.150/-during April to August, 1999. The average daily volumes for the scrip during the period April-August, 1999 were found to be to the extent of 10,000-15,000 shares per day on BSE and NSE. From the month of August 1999, the price of the scrip had started moving upwards which was found to have been accompanied with significant increase in the average daily volumes for the scrip in BSE and NSE. The price of the scrip during the period September- December 1999 was found to have increased from a range of Rs. 150/-to Rs.600/-. Likewise the average daily volumes in the scrip moved from 10,000- 15,000 shares per day to approx. 80,000-1,00,000 shares per day during this period. During January 2000 the scrip was shifted to compulsory rolling settlement mode (from January 10, 2000). The scrip after January 2000 showed a decline in price and reached to Rs.150/- during June 2000. The average daily volumes during this period were in the range of 10,000-15,000 shares per day.
4.2 A comparison of price movement in the scrip during August-December 1999 with the movement in BSE Sensex and NSE Nifty showed that price rise in the scrip was abnormal. It has been noticed from the analysis of price volume data that the price of the scrip had moved from Rs.175/- to Rs.600/- during September - December 1999.
4.3 A comparison of the price movement of the scrip of Lupin Laboratories Ltd. vis--vis the price movements of other scrips in the same industry (i.e. pharmaceutical industry) is tabulated below.
PRICE MOVEMENT OF CERTAIN SELECT PHARMA STOCKS __________________________________________________________________ Date Ranbaxy Glaxo Novartis Lupin Cipla __________________________________________________________________ 01-Sep-99 1128.1 709 979 169.35 979.56 02-Sep-99 1099 701.4 981 161.15 984.51 03-Sep-99 1062.1 706 979.04 157.25 1002.96 06-Sep-99 1106.95 727 970.1 169.45 1083.19 07-Sep-99 1097.5 729.5 937.84 182.95 1081.89 08-Sep-99 1126 729.5 917.59 184.1 1078.2 09-Sep-99 1103.25 724 898.9 178.1 1085.44 10-Sep-99 1100 720.05 898.01 171.7 1094.4 14-Sep-99 1058 722 898.86 181.7 1181.93 15-Sep-99 1040.95 710.5 886.48 174.45 1191.96 16-Sep-99 1008 705 888.22 170 1164.92 17-Sep-99 1009 707.1 887.33 169.5 1177.2 20-Sep-99 999.75 729 905.53 167.9 1258.38 21-Sep-99 979 740 907.8 167.7 1359.04 22-Sep-99 1030 756.9 931.83 169.6 1467 23-Sep-99 1089.1 770 953.41 183.15 1555.2 24-Sep-99 1047 763 950.52 197.75 1548 27-Sep-99 1077.75 767 949.5 212.55 1521 28-Sep-99 1069.75 773.5 932.9 229.5 1454.4 29-Sep-99 1092 790 940.15 247.85 1469.25 30-Sep-99 1072.05 775 949.54 254.8 1421.64 01-Oct-99 1025 750 932.72 239.55 1355.4 04-Oct-99 989.05 746.5 930.05 234 1433.16 05-Oct-99 1009.5 744.4 930.05 241 1429.2 06-Oct-99 992.25 751 943.4 260.25 1430.28 07-Oct-99 1071.6 811.05 996.8 281.05 1544.69 08-Oct-99 1157.3 837.3 1001.25 303.5 1571.4 11-Oct-99 1161 855 1031.29 327.75 1697.09 12-Oct-99 1153 863 1044.86 353.95 1789.2 13-Oct-99 1215 897 1050.2 382.25 1760.4 14-Oct-99 1204 968 1075.97 395 1680.48 15-Oct-99 1107.7 925 1075.3 365.5 1594.8 18-Oct-99 1121.35 921 1148.1 394.7 1574.13 20-Oct-99 1123.4 893 1063.15 426.25 1722.35 21-Oct-99 1050 846 1061.32 417.4 1615 22-Oct-99 1016.2 800 1029.73 401.9 1542 25-Oct-99 989.4 774 996.8 369.75 1418.65 26-Oct-99 994 745 1003.83 377.05 1414 27-Oct-99 968 752 1001.25 358.35 1364 28-Oct-99 930 745 996.8 330.6 1305.4 29-Oct-99 869.95 739 1076.5 319.95 1300 01-Nov-99 800.4 725 1049.53 294.4 1239 02-Nov-99 864.4 773 1060.88 317.9 1338.1 03-Nov-99 841.15 732.2 1051.54 307.2 1245.5 04-Nov-99 908.4 707 1023.5 314.8 1266.25 05-Nov-99 954.15 710.05 1034.45 339.5 1281 07-Nov-99 962.5 729.75 1048.64 345.9 1310.25 09-Nov-99 971 716.4 1032.4 363.65 1304 11-Nov-99 980.2 745.5 1041.3 360.4 1302 12-Nov-99 993 737 1057.32 371.35 1280 15-Nov-99 979 740.45 1069.78 371.25 1262 16-Nov-99 970 740 1058.21 374.95 1362.95 17-Nov-99 942.95 743.15 1052.78 388.9 1355.05 18-Nov-99 929 742 1054.29 373.95 1388 19-Nov-99 920.6 734.05 1022.08 369.35 1388 22-Nov-99 931 736.6 1027.95 398.85 1464 24-Nov-99 976 745 1028.84 415 1452 25-Nov-99 988 746 1027.1 416.5 1434.95 26-Nov-99 990 743.1 1030.26 449.25 1467 29-Nov-99 979.5 757 1055.5 485.15 1540.55 30-Nov-99 992.5 788 1047.53 468 1626.4 01-Dec-99 1005 768.05 1056.92 458 1570 02-Dec-99 1083 770 1096.48 448 1580 03-Dec-99 1075 758.5 1183.7 452 1544.45 06-Dec-99 1092 769 1245.55 488.15 1546 07-Dec-99 1136 760 1195.27 527.15 1525 08-Dec-99 1045.15 740.5 1139.2 504 1456.25 09-Dec-99 1045 739.5 1130.3 496 1460 10-Dec-99 1004 738.4 1112.94 504 1460 13-Dec-99 999 737.6 1114.32 514 1359.15 14-Dec-99 977 707 1100.26 491 1385 15-Dec-99 940 703 1072.45 481.55 1340 16-Dec-99 980 716 1120.73 519.9 1429 17-Dec-99 935 703 1110.28 540 1481.15 20-Dec-99 957 758.95 1165.9 497 1570 21-Dec-99 945 728 1155.22 536.75 1530 22-Dec-99 953 727.75 1134.75 579.65 1479 23-Dec-99 956 734 1121.58 596 1470.7 24-Dec-99 928.95 719 1103.6 555 1373 27-Dec-99 923.5 722.1 1112.5 549 1350.3 28-Dec-99 927.85 730.5 1121.84 557.5 1416.75 29-Dec-99 932 733.85 1141.87 567 1400 30-Dec-99 923 730.75 1138.98 575 1390 __________________________________________________________________ From the above, it can be seen that, the price of the scrip of Ranbaxy Laboratories Ltd. moved from Rs. 1128/- on September 01, 1999 to Rs. 923/- on December 31, 1999, which showed a decrease of about 18% in the price of the scrip. Likewise, the price of the scrip of Glaxo moved from Rs. 709/- to Rs. 730/-which shows a rise of about 3%, the price of Novartis moved from Rs. 979/-to Rs.1 139/- i.e. a rise of about 16% and Cipla moved from Rs. 979/- to Rs. 1390/-, which showed a rise of about 43%. It is also seen that, the price rise in the scrip of Lupin Laboratories Ltd. during the aforesaid period from Rs. 170/- to Rs. 575/- which was a rise of about 239%.
4.4 The price rise in the scrip of Lupin Laboratories Ltd. during the aforesaid period was neither in consonance with the movement of market indices such as BSE Sensex and NSE-Nifty nor was it in tandem with the price movements of other scrips in the pharmaceutical industry like Ranbaxy, Glaxo, Novartis and Cipla. It was observed from the analysis of price volume data that price of the scrip of Lupin Laboratories Ltd. had moved from Rs. 175/- to Rs. 609/- during September- December 1999. In view of this, it was seen that, the price of the scrip of Lupin Laboratories Ltd had moved upwards substantially during a short span of time and this was accompanied with large volumes.
4.5 I find that the broking firms and entities / companies associated/connected with Ketan Parekh had transacted in the scrip of Lupin Laboratories during the period September 1999-February 2000 with a view to establish an artificial high price and artificial volumes/liquidity in the scrip. Analysis of Order Log and Trade Log had revealed that, these entities associated/connected with Ketan Parekh had entered orders in the scrip of Lupin Laboratories Ltd., on BSE and NSE, in order to create a higher price for the scrip. The analysis of volumes in the scrip shows that the transactions by these entities of Ketan Parekh had constituted a significant portion of the total transactions in the scrip during the aforesaid period. Investigations also revealed that, on various occasions, broking firms associated/connected with Ketan Parekh viz. NH Securities Ltd. and Classic Share and Stock Broking Services Ltd. had put orders for purchase of shares of Lupin Laboratories Ltd., which were above the prevailing market price for the scrip. It was also found that these orders established a higher rate for the scrip. Order Log and Trade Log analysis revealed such instances on many occasions during the period under consideration.
4.6 Classic Credit Ltd., an investment company connected with Shri Ketan Parekh, was found to have transacted in the scrip of Lupin Laboratories Ltd. in significant quantities in BSE and NSE through different brokers, as under :-
___________________________________________________________________________________ Name of the Exchange Name of the Broker Gross Gross Net Position Settlement No. Purchase Sale ___________________________________________________________________________________ BSE 30/99-2000 Milan Mahendra 0 22400 -22400 BSE 37/99-2000 Milan Mahendra 0 29931 -29931 BSE 39/99-2000 Milan Mahendra 0 10000 -10000 BSE 40/99-2000 Milan Mahendra 35000 3850 31150 BSE 30/99-2000 C.J.Dalal 60900 62800 -1900 BSE 32/99-2000 C.J.Dalal 5400 0 5400 BSE 33/99-2000 C.J.Dalal 5400 0 5400 BSE 34/99-2000 C.J.Dalal 9500 5100 4400 BSE 35/99-2000 C.J.Dalal 4400 4400 0 BSE 37/99-2000 C.J.Dalal 0 2931 -2931 BSE 38/99-2000 C.J.Dalal 10000 10000 0 BSE 39/99-2000 C.J.Dalal 7500 7500 0 BSE 40/99-2000 C.J.Dalal 10000 15000 -5000 BSE 42/99-2000 C.J.Dalal 0 10000 -10000 BSE 30/99-2000 Hem Securities Ltd. 0 25000 -25000 BSE 35/99-2000 Hem Securities Ltd. 12600 222100 -209500 BSE 37/99-2000 Hem Securities Ltd. 0 35000 -35000 BSE 39/99-2000 Hem Securities Ltd. 0 5000 -5000 BSE 40/99-2000 Hem Securities Ltd. 70000 22602 47398 BSE 42/99-2000 Hem Securities Ltd. 0 10000 -10000 BSE 29/99-2000 Triumph Securities 86300 0 86300 BSE 38/99-2000 Triumph Securities 0 21602 -21602 BSE 39/99-2000 Triumph Securities 0 7617 -7617 BSE 30/99-2000 Pravin V. Shah 0 25000 -25000 BSE 36/99-2000 Pravin V. Shah 0 66000 -66000 BSE 38/99-2000 Pravin V. Shah 6202 6202 0 BSE 42/99-2000 Pravin V. Shah 0 4735 -4735 ___________________________________ BSE Total 323202 634770 -316968 ___________________________________ NSE N/1999046 Classic Shares & Stock Broking 0 9600 -9600 NSE N/1999047 Classic Shares & Stock Broking 595005 0 595005 NSE N/1999051 Classic Shares & Stock Broking 241500 0 241500 NSE W/200026 Classic Shares & Stock Broking 5000 0 5000 NSE W/200032 Classic Shares & Stock Broking 27770 0 27770 NSE W/200035 Classic Shares & Stock Broking 16232 0 16232 NSE W/200036 Classic Shares & Stock Broking 60000 0 60000 NSE W/200040 Classic Shares & Stock Broking 12315 0 12315 NSE N/1999045 NH Securities Ltd. 0 455800 -455800 NSE N/1999046 NH Securities Ltd. 104700 0 104700 NSE N/1999048 NH Securities Ltd. 0 26118 -26118 NSE N/1999049 NH Securities Ltd. 0 5000 -5000 NSE N/1999050 NH Securities Ltd. 0 21600 -21600 NSE N/1999051 NH Securities Ltd. 0 38846 -38846 NSE N/1999052 NH Securities Ltd. 0 15225 -15225 NSE N/2000001 NH Securities Ltd. 0 34850 -34850 NSE N/1999043 Triumph International Finance India Ltd. 45000 0 45000 NSE N/1999047 Triumph International Finance India Ltd. 100000 65000 35000 NSE N/1999048 Triumph International Finance India Ltd. 0 15000 -15000 NSE N/1999049 Triumph International Finance India Ltd. 0 38788 -38788 NSE N/1999050 Triumph International Finance India Ltd. 51370 51370 0 NSE W/1999187 Triumph International Finance India Ltd. 0 241500 -241500 NSE F/2000030 Triumph International 90000 0 90000 Finance India Ltd.
NSE F/2000034 Triumph International Finance India Ltd. 208007 0 208007 NSE S/1999025 Triumph International Finance India Ltd. 0 125000 -125000 26/11/1999 M.D. Doshi 300000 0 300000 ___________________________________ NSE Total 1856899 1143697 713202 ___________________________________ BSE and NSE Total 2180101 1778467 396234 Gross BSE and NSE ( Purchase + Sale) 3958568
___________________________________________________________________________________ It is thus seen that Classic had transacted in the scrip of Lupin Laboratories Ltd. during the period under consideration in large quantities, in BSE and NSE, through different brokers. Classic, in all had purchased 3,23,202 shares and sold 6,34,700 shares resulting in a net sale position of 3,16,968 shares sold at BSE. Likewise, on NSE, Classic had purchased 18,56,899 shares and sold 11,43,697 shares and therefore had a net purchase position of 7,13,202 shares. The combined position of Classic at BSE and NSE was purchase of 21,80,101 shares and sale of 17,78,467 shares which resulted in a net purchase position of 3,96,234 shares and gross position of 39,58,568 shares transacted. 4.7 I find that Panther Fincap, another entity connected to Shri Ketan Parekh had transacted in the scrip of Lupin Laboratories Ltd. on BSE and NSE through Triumph Securities Limited and NH Securities, broking entities connected to Shri Ketan Parekh. The table below shows a summary of transactions entered into by Panther Fincap in the scrip of Lupin Laboratories Ltd. during the period under consideration.
___________________________________________________________________________________ Name of the Exchange Name of the Broker Gross Gross Net Position Settlement No. Purchase Sale ___________________________________________________________________________________ No 31/8/1999 N.A. 386900 0 386900 BSE 36/99-2000 Milan Mahendra 0 103489 -103489 BSE 36/99-2000 C.J. Dalal 0 100783 -100783 BSE 36/99-2000 Hem Securities Ltd. 0 71187 -71187 BSE 36/99-2000 Triumph Securities Ltd. 0 17500 -17500 NSE N1999047 NH Securities Ltd. 0 189315 -189315 ___________________________________________________________________________________ 4.8 Saimangal Investrade Ltd., another entity connected to Shri Ketan Parekh, had also sold the shares of Lupin Laboratories Ltd. in large quantities on NSE. These transactions were done through the broking concern associated/connected with Shri Ketan Parekh namely, NH Securities Ltd. The transactions by Saimangal Investrade Ltd. in the scrip of Lupin Laboratories Ltd. during the period August 1999 to December 1999 are shown in the table below:
___________________________________________________________________________________ Name of the Exchange Name of the Broker Gross Gross Net Position Settlement No. Purchase Sale ___________________________________________________________________________________ NSE N/1999041 NH Securities Ltd. 0 161500 -161500 NSE N/1999045 NH Securities Ltd. 0 303500 -303500 ___________________________________________________________________________________ 4.9 An analysis of order log and trade log was done with respect to certain days on which significant movement in price of the scrip was observed. The analysis revealed that Classic Credit Ltd. had entered orders for purchase of shares of Lupin Laboratories Ltd. with a view to establish a higher price for the scrip on certain occasions. The following are instances noticed upon such analysis:
________________________________________________________________________________ Date Name of Name of Time Qty. Order No. Rate *LTP Change the the Broker (Rs.) (Rs.) in Exchange Price (Rs.) ________________________________________________________________________________ 6/10/99 BSE Triumph 10:14:37 10000 372010160 250 245 5 Securities Ltd.
6/10/99 BSE Triumph 10:15:44 10000 372010161 255 250 5 Securities Ltd. 6/10/99 BSE Triumph 10:16:47 10000 372010162 260 255 5 Securities Ltd. 6/10/99 BSE Triumph 10:17:24 10000 372010166 260.1 260 0.1 Securities Ltd. 6/10/99 BSE Triumph 10:17:35 10000 372010167 260.2 260.1 0.1 Securities Ltd. 6/10/99 BSE Triumph 10:18:01 10000 372010169 260.25 260.2 0.05 Securities Ltd. 14/10/99 BSE C.J. Dalal 10:03:34 25000 85040040 411 382.25
Buyer (purchase) (closing and sale price on previous day) Seller both Classic 14/10/99 BSE Parvin V. Shah 10:03:34 25000 411 Credit Ltd.
14/10/99 BSE C.J. Dalal 15:12:51 30000 85040076 412.80 Buyer and Seller (purchase) both Classic Mahendra (sale) 14/10/99 BSE Milan Credit 15:12:52 40000 460120041 412.80 Ltd. 15/10/99 BSE C.J. Dalal 10:33:55 5000 85040083 365
Orders placed at increasing rates established a rate of Rs.390/- from Rs.365/-
15/10/99 BSE C.J. Dalal 10:40:49 5000 85040085 365 15/10/99 BSE C.J. Dalal 10:44:52 5000 85040087 365 15/10/99 BSE C.J. Dalal 11:05:33 5000 85040089 365 15/10/99 BSE C.J. Dalal 12:14:50 100000 85040102 366 15/10/99 BSE C.J. Dalal 12:15:54 50000 85040104 375 15/10/99 BSE C.J. Dalal 12:16:05 25000 85040105 385 15/10/99 BSE C.J. Dalal 12:16:20 25000 85040106 390 15/10/99 BSE C.J. Dalal 12:17:55 25000 85040110 400 11/11/99 BSE C.J. Dalal 14:05:18 25000 85040038 350 343
________________________________________________________________________________ From the above table , it can be seen that Classic Credit Ltd. on various days was instrumental in establishing an artificial higher price for the scrip of Lupin Laboratories Ltd. On October 6, 1999, Classic Credit Ltd. had placed consecutive buy order of large quantities at increasing rates. From the above table, it can be seen that these orders were placed during the period 10:15:44 to 10:51:34 in large quantities in the price range of Rs.250/- to Rs.260.25, when the market price in the scrip was Rs.245/-. These orders had thus established a price of Rs.260.25 in the scrip of Lupin Laboratories Ltd. on that day, which is the maximum permissible upper circuit price level of 8% above the closing price on the previous day. As a result of this, the scrip was traded only at the upper circuit price level of Rs.260.25 on that day. During the course of investigations, statement of Triumph Securities Ltd. ( Shri. Nimesh Dhedia ) was recorded. He was asked to state who had placed the aforesaid orders and what was the instruction in respect of the aforesaid order. It was replied that, the orders were placed on behalf of Classic Credit Ltd., for which, the persons who had placed orders were either Shri Ketan Parekh or Shri Kartik Parekh.
It is also seen that, on 14/10/99, Classic Credit Ltd. had placed an order for purchase of 25,000 shares of Lupin Laboratories Ltd. at the rate of Rs.411/-at 10:03:34 i.e. at the beginning of trading session through M/s. C.J. Dalal. At the same time, classic Cre dit ltd. placed an order for sale of 25,000 shares of Lupin Laboratories Ltd. through Pravin V. Shah Stock Broking P. Ltd. (member BSE). The closing price for the scrip on the previous day was Rs.382.25. The order for purchase and sale was entered and executed by Classic Credit Ltd. at the opening of trading session on 14/10/99 at a rate of Rs.411/-. With this transaction Classic Credit Ltd. established a price of Rs.411/-in the scrip of Lupin Laboratories Ltd. 8% higher than the closing price on the previous day which was Rs.382.25. On the same day, Classic Credit Ltd. had placed an order for 30,000 shares at 15:12:51 through C.J. Dalal at the rate of Rs.412.80 and an order for sale 40,000 shares at 15:12:52 through Milan Mahendra Securities P. Ltd. (member BSE). These orders were matched for a quantity of 22,400 shares and the remaining quantity of 7,600 shares was deleted by Classic Credit Ltd. This transaction had established a rate of Rs.412.80 in the scrip of Lupin Laboratories Ltd. on 14/10/99 which was the upper circuit level for the scrip i.e. at a rate of 8% above the closing price in the scrip on the pervious day.
On 15/10/99, it is seen that Classic Credit Ltd. had placed orders during 10:33:55 to 11:05:33 at a price of Rs.365/-for the scrip of Lupin Laboratories Ltd. and subsequently placed orders for purchase of shares of Lupin Laboratories Ltd. in large quantities at increasing range from Rs.366/- to Rs.390/- during 12:14:50 to 12:16:20. It was also seen that the orders placed at Rs.366/- for 1,00,000 shares and Rs.375/- for 50,000 shares was deleted for the remaining quantity and an order for purchase of 25,000 shares was placed at a rate of Rs.400/- at 12:17:55. These consecutive orders placed at increasingly higher rates and immedi ate deletion of the earlier orders placed for lower rates artificially established higher price of the scrip which moved from Rs.365/-to Rs.400/-.
On 11/11/99, Classic Credit Ltd. placed an order for purchase of 25,000 shares of Lupin Laboratories Ltd. at the rate of Rs.350/-at 14:05:18 through M/s. C.J. Dalal. The market price in the scrip at that time was Rs.343/- and this order established a rate of Rs.350/-for the scrip of Lupin Laboratories Ltd. It was also seen that this order was deleted by Classic Credit Ltd. for a quantity of 21,900 shares at 14:09:54. This shows that Classic Credit Ltd. was putting orders for purchase of shares of Lupin with a view to establish an artificial price for the scrip.
4.10 I find that NH Securities Ltd., one of the broking entities of KP, had also transacted in the scrip of Lupin Laboratories Ltd. in large quantities during the period under consideration. The transactions were mainly done on its own account and on behalf of clients namely, Classic, Panther and Saimangal. These entities/clients as stated above, were entities associated/connected with Ketan Parekh, who is also the Director and person in- charge of NH Securities Ltd. The transactions by the broker together with other broking firms associated/connecte d with Ketan Parekh constituted a significant portion of the total transactions in the scrip on NSE.
4.11 The orders were found to have been placed by NH Securities Ltd. on behalf of Classic. Both NH and Classic were found to have been managed, operated and controlled by Shri Ketan Parekh. The orders on behalf of Classic were placed by Ketan Parekh and the authorised person to do transactions on behalf of Classic and NH was stated to be Ketan Parekh himself.
4.12 NH Securities Ltd had entered orders for purchase of shares of Lupin Laboratories Ltd. on NSE with a view to establish a higher price for the scrip on certain occasions. On many such occasions, the client for whom they had traded was Classic Credit. The following illustrates such instances :
_________________________________________________________________________________________ Date Time Qty. Order No. Rate *LTP Change Name of the (Rs.) (Rs.) in Price Client (Rs.) _________________________________________________________________________________________ 17/11/1999 11:37:26 25000 199911170260035 400 393.25 6.75 Classic Credit 17/11/1999 1:47:01 2200 199911170426167 400 394.5 5.5 Classic Credit 22/11/1999 2:21:55 25000 199911220438795 380 378 2 Classic Credit 22/11/1999 3:28:03 25000 199911220562016 372 366.3 5.7 Classic Credit 31/01/2000 10:34:34 5000 200001310145955 475 467 8 Classic Credit 31/01/2000 11:55:41 5000 200001301352529 490 475 15 Classic Credit 03/02/2000 10:18:46 2000 200002030087177 500 490 10 Classic Credit 03/02/2000 13:52:09 5000 200002030572680 500 495 5 Classic Credit 03/02/2000 13:52:16 5000 200002030572850 505 501 4 Classic Credit 03/02/2000 13:52:26 5000 200002030573104 510 505 5 Classic Credit 03/02/2000 13:52:43 5000 200002030573544 520 510 10 Classic Credit 03/02/2000 14:11:17 5000 200002030604128 530 520 10 Classic Credit 03/02/2000 14:11:36 5000 200002030604828 530.4 530 0.4 Classic Credit 08/02/2000 12:30:36 1993 200002084437542 500 489 11 Classic Credit 08/02/2000 14:47:43 5000 200002080683953 500 499 1 Classic Credit 09/02/2000 11:04:57 5000 200002090259895 520 510 10 Classic Credit 09/02/2000 11:05:04 5000 200002090262050 530 520 10 Classic Credit 09/02/2000 11:05:38 5000 200002090261870 540 530 10 Classic Credit 09/02/2000 11:06:22 5000 200002090263978 547.95 540 7.95 Classic Credit 21/02/2000 12:00:50 5000 200002210388469 485 470 15 Classic Credit _________________________________________________________________________________________ ( * LTP means Last Traded Price ) From the above table, it can be seen that NH Securities Ltd. had entered order for purchase of shares of Lupin Laboratories Ltd. at a rate which was higher than the prevailing rate/last traded price for the scrip. These buy orders in large quantities, swept the existing purchase orders at increasing rates and established a higher price for the scrip. On certain occasions these large orders caused the price to move up and touch the upper circuit price level for the scrip for the day. These instances are sufficient to show that the broker had been instrumental in establishing the higher price for the scrip.
4.13 Other brokers, Triumph International & Finance India Ltd. (member NSE), Classic Share & Stock Broking Services Ltd. (member NSE) and Triumph Securities Ltd. (member BSE), which were broking concerns associated/connected with Shri Ketan Parekh, had transacted in the scrip of Lupin Laboratories Ltd. on BSE and NSE, in large quantities. I find that the transactions by aforesaid entities had constituted a significant portion of the total transactions in the scrip on the exchanges.
4.14 Comparison of transactions by the aforesaid brokers associated/connected with Ketan Parekh vis--vis the total transactions in NSE in the scrip of Lupin Laboratories Ltd. during the period under consideration is tabulated below :
____________________________________________________________________________ Sett. No. Name of the broker % of Net % of Net % of gross sale vis buy vis traded vis--
--vis --vis vis market mkt.net qty. market net gross qty. qty.
____________________________________________________________________________ 1999040 Triumph Intl. Finance 22.15 - 6.47 Milan Mahendra - 5.48 -
1999041 NH Securities - 39.03 10.85
1999042/43/44 under No Delivery
19999045(
for
1999042
to 45) Triumph Intl. Finance 55.6 - 5.21
NH Securities - 42.73 14.97
1999046 NH Securities 60.07 - 5.47
Classic Share & Stock
Broking Services Ltd. - 5.51 -
1999047 NH Securities - 55.63 4.5
Classic Share & Stock
Broking Services Ltd. - 26.52 30.45
1999048 Triumph Intl. Finance 31.59 - 9.86
NH Securities - 15.28 -
1999049 Triumph Intl. Finance - 42.22 12.85
NH Securities - 3.35 -
1999050 Triumph Intl. Finance 5.38 - 7.81
NH Securities - 5.34 4.77
1999051 NH Securities - 20.59 5.49
1999052 NH Securities - 29.71 5.17
2000001 NH Securities - 26.24 6.5
Milan Mahendra - 6.78 -
2000002 Triumph Intl. Finance - 18.23 54.95
2000003 to 2000007 under No Delivery - - -
2000008 Triumph Intl. Finance 3.08 - -
2000011 Triumph Intl. Finance 1.26 - 0.62
2000013 Triumph Intl. Finance 3.33 - -
2000014 NH Securities 56.18 - 26.67
Triumph Intl. Finance - 6.51 3.09
2000015 NH Securities 76.82 - 32.44
2000020 NH Securities 61.02 - 23.34
2000022 Triumph Intl. Finance - 2.46 -
2000023 NH Securities 75.77 - 5.56
Triumph Intl. Finance - 18.39 85.19
2000024 NH Securities 29.11 - 7.06
2000025 Triumph Intl. Finance - 19.49 94.78
2000026 Classic Share & Stock
Broking Services Ltd. 46.19 - 16.97
Triumph Intl. Finance 18.41 - 6.77
2000027 Triumph Intl. Finance 51.88 - 23.93
NH Securities 44.47 - 19.72
Milan Mahendra - 7.71 -
2000028 NH Securities 72.96 - 26.77
2000029 NH Securities 72.89 - 29.23
2000030 NH Securities 77.66 - 31.2
Triumph Intl. Finance - 16.51 9.89
2000031 NH Securities 53.61 - 23.19
Triumph Intl. Finance 20.29 - 8.78
2000032 Classic Share & Stock
Broking Services Ltd. 79.03 - 23.24
NH Securities 5.69 - 18.41
Triumph Intl. Finance - 17.79 7.74
2000033 Triumph Intl. Finance 9.7 - 54.45
2000034 Triumph Intl. Finance 7.05 - 2.54
2000035 Classic Share & Stock
Broking Services Ltd. 46.01 - 21.06
NH Securities 2.94 - -
2000036 Classic Share & Stock
Broking Services Ltd. 77.79 - 34.11
2000038 NH Securities 37.28 - 16.27
Triumph Intl. Finance 15.06 - 6.58
2000039 Triumph Intl. Finance 4.13 - -
2000040 Classic Share & Stock
Broking Services Ltd. 85.49 - 31.24
2000041 Classic Share & Stock
Broking Services Ltd. 39.79 - 18.47
NH Securities 39.79 - 18.47
____________________________________________________________________________ 4.15 Explanations were sought from the entities which were found to have entered the transactions. They were asked to state on whose behalf these orders had been placed and what were the instructions in respect of quantity, rate and time of these orders. Replies were received only from NH Securities Ltd. and Classic Share and Stock Broking Services Ltd. who contended that, all these orders had been placed on behalf of their client viz. Classic. Investigations had revealed that Classic, client of NH Securities Ltd. and Classic Share and Stock Broking Service Ltd., was an associate/group company of Shri.Ketan Parekh and all the three are operated and controlled by Ketan Parekh. The orders on behalf of Classic were placed by Ketan Parekh, who is the authorised person to do the transactions on behalf of Classic. I find that on certain occasions NH Securities was putting orders for purchase at higher rates at a gap of few seconds. For eg. orders for purchase at the rate of Rs.500/-., Rs.505/-, Rs.510/-, Rs.520/- were placed during a span of about one minute on 03/02/2000. Investigations had revealed that the floating stock in the scrip was very less since promoters were holding about 82.40% of the equity capital of the scrip. Therefore, continuous buy orders of NH Securities and Classic Share & Stock Broking Services Ltd., on behalf of these clients, had artificially raised the price of the scrip and had created an artificial demand for the scrip through continuous buy orders. It was therefore seen that both the demand and the supply side, which constitute the determination/formation of price in the market, had been disturbed by the aforesaid entities, with a view to establish an artificial market for the scrip. Therefore there had been no free and fair discovery of price for the scrip.
4.16 Various letters and summons were issued to the entities associated/connected with Ketan Parekh viz. Classic, Panther and Saimangal. However, there was no response. Summons were also issued to these entities asking them to furnish clarifications in respect of various facts brought out during the course of inve stigations. However, no reply was received from these entities. The directors of Panther are Shri Ketan Parekh, Shri Kartik Parekh, Shri Kirti Parekh and Shri Navinchandra Parekh. The operations and management of the company was done by Shri Ketan Parekh and his relative Shri Kartik Parekh.
4.17 Panther also did not respond to letter / summons issued by SEBI during investigation. From the details submitted by brokers of BSE & NSE, it was observed that Panther had sold around 4,82,274 shares of Lupin Laboratories Ltd. during November 1999.
4.18 As brought out above, the price rise in the scrip during the period September - December 1999 was artificial, which was accompanied with artificial volumes/liquidity in the scrip. I find that, the entities associated/connected with Shri. Ketan Parekh had acquired shares of Lupin Laboratories Ltd. in large quantities and had dealt heavily in the scrip during the period September - December 1999 on BSE and NSE. A majority of the transactions of these investment companies associated with Ketan Parekh were done through the broking concerns associated/connected with Shri. Ketan Parekh. The transactions by the aforesaid broking firms and investment companies associated/connected with Shri Ketan Parekh have constituted a significant portion of the total transactions done in the exchange. I find from the Order Log and Trade Log that these entities have entered orders for purchase of shares of Lupin Laboratories Ltd. at a rate which was higher than the price of the scrip at the time of entering the order. These orders which were for large quantities swept all the existing sale orders at lesser price and established a higher rate for the scrip. Repeated occurrence of such instances show that these entities were instrumental in creating an artificial higher price for the scrip. Likewise, these transactions in large quantities knowing fully well that floating stock was low and concentrated with promoters, created abnormal volumes for the scrip and created an artificial liquidity for the scrip. Price Manipulation 4.19 Therefore, entities connected to and controlled by Ketan Parekh, were found to have entered into transactions in the scrip of Lupin Laboratories during the period September - December 1999 with a view to manipulate prices and artificially establish high price in the scrip and create artificial volumes/liquidity in the scrip. The analysis of volumes in the scrip showed that the transactions by these entities of Ketan Parekh mainly Classic Credit Ltd., Panther Fincap and Saimangal constituted a significant portion of the total transactions in the scrip during the aforesaid period. Analysis of Order Log and Trade Log revealed that, these entities associated/connected with Ketan Parekh, had entered orders in the scrip of Lupin Laboratories Ltd. on BSE and NSE in order to create a higher price for the scrip. The common pattern observed in the case of these entities was that orders would be placed at prices higher than the last traded price and thereby establishing a higher price for the scrip. Simultaneously, price rise in the scrip had also been noted. Considering the large volume of the transactions entered into by KP entities, I am of the view that, artificial price rise has been caused by the entities connected to KP in the scrip of Lupin Laboratories. Regulation 4(a) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 prohibits entering into trades in any scrip, directly or indirectly with the intention of inflating the price. In the instant case, manipulative intent can be read into the trades entered by the KP entities, where orders were placed at prices higher than the last traded price coupled with large transactions causing price rise. These entities who had entered into manipulative trades in the scrip of Lupin Laboratories i.e., Classic Credit, Panther Fincap and Saimangal are entities connected to and controlled by Shri Ketan Parekh. All these entities are having directors who are close relatives of Shri Ketan Parekh and it had also been stated during the recording of the statement that such entities were operated by Shri Ketan Parekh. In regard to the above, I conclude that Classic Cre dit, Panther Fincap and Saimangal are guilty of violating Regulation 4(a) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 in respect of their dealings in the scrip of Lupin Laboratories. Although, violations are noted to have been committed by NH Securities, Classic Share and Stock Broker and Triumph Securities Ltd. with respect to the scrip of Lupin Laboratories, the entities being broking firms are proceeded separately under the SEBI(Procedure for Holding Enquiry and Imposing Penalties)Regulations, 2002. Findings w.r.t second show cause notice 5.1 One of the major objections raised by the all the KP Entities were that they cannot be termed as KP Entities since their shareholding pattern was different from each other and there was nothing to suggest that they were connected to each other. However, I find from the records available with SEBI that a statement to the effect that they were all either connected or controlled by Ketan Parekh, was made by Ketan V Parekh during the investigation carried out by SEBI. The following details bring out that all these entities were controlled by/belonged to Ketan Parekh/Kartik Parekh:
___________________________________________________________________________________ Name of the entity Address Director ___________________________________________________________________________________
1. Classic 5th Floor Manek Mahal 90 Kiritkumar N. Parekh Veer Nariman Road, Mumbai Kartik K. Parekh Ketan V. Parekh
2. Panther Fincap & Management Services Ltd. Kiritkumar N. Parekh 9, Bhupeen Chambers, Gr. Floor Kartik K. Parekh Dalal Street, Mumbai Ketan V. Parekh
3. Luminant Investments (P) Ltd. Ketan V. Parekh 1st Floor, Radha Bhavan Nagindas Arun J. Shah Master Road, Fort, Mumbai
4. Classic Share and Stock Broking Services Ltd. Kiritkumar N. Parekh 121, Radha Bhavan 1st Floor Kartik K. Parekh Nagindas Master Road Mumbai
5. NH Securities (P) Ltd. Vinaychandra N. Parekh 9, Bhupeen Chambers, Dalal Street, (father of Ketan Parekh) Fort, Mumbai Navinchandra N. Parekh Kiritkumar N. Parekh (father of Kartik Parekh)
6. Saimangal Investrade Ltd. Ketan V. Parekh 1st Floor, Radha Bhavan Kartik K. Parekh Nagindas Master Road, Fort, Mumbai
7. Chitrakut Computers (P) Ltd. Kiritkumar N. Parekh 9, Dalal Street, Bhupen Chambers Ketan V. Parekh Gr. Floor, Mumbai
8. Classic Infin Limited Ketan V. Parekh 5th Floor Manek Mahal Karthik K. Parekh 90, Veer N. ariman Road, Mumbai
9. Panther Investrade Ltd. Kiritkumar N. Parekh 121, Radha Bhavan 1st Floor Kartik K. Parekh Nagindas Master Road Mumbai ___________________________________________________________________________________ All the above entities except for Classic Shares and Stock Broker and Panther Investrade have Shri Ketan Parekh as their director. In Classic Shares and Stock Broker and Panther Investrade, Shri Kartik Parekh is a director. I find that other directors in all other entities are closely related to Shri Ketan Parekh or Shri Kartik Parekh. Shri Vinay Chandra Parekh is the father of Shri Ketan Parekh. It is also known that Shri Kartik Parekh and Shri Ketan Parekh are cousin brothers. In view of the above, all these entities are connected and associated and collectively referred to as "KP e ntities".
5.2 I find that transactions of KP entities through Credit Suisse First Boston Securities [hereinafter referred to as 'CSFB Securities'] and Dresdner- Kleinworth & Benson Securities [hereinafter referred to as 'DKB Securities'] are in the nature of circular and fictitious trades which had resulted in creation of artificial volume and artificial markets in the scrips. It is also seen that KP entities were facilitated by CSFB Securities and DKB Securities to receive finance against the delivery of shares without waiting for pay-out at the exchange and the deals were so structured so as to give them a semblance of actual "sale and purchase" of shares at the recognized stock exchanges. Transactions made by Classic, Luminant and Panther through CSFB Securities and DKB Securities were found to be non-genuine since there was no change in the beneficial ownership of shares i.e. the shares were merely rotating from one KP entity to same or other KP entity. These trades were merely circular trades and undertaken to create artificial volumes and artificial markets in certain scrips.
5.3 Classic and Panther were also found to have indulged in similar circular trades even through the proprietary account of CSFB Securities, thereby creating artificial volumes and artificial markets in certain scrips. The details gathered during the course of investigation for the period from April 01, 2000 to March 31, 2001 revealed that Classic, Luminant and Panther had executed only sale transactions through CSFB Securities at NSE and BSE in respect of certain scrips such as Adani Exports, Global Trust Bank, Mukta Arts, Nirma, DSQ Bio Tech, Tips Ind, HFCL, Global Tele-system, Zee Tele, Jaiprakash Industries, Cadila Healthcare, Lupin Lab, Shonkh Tech, Mascon Global etc. Classic, Luminant and Panther had received the sale consideration from CSFB Securities, on the date of sale transactions itself, without waiting for pay-out of funds from the exchange.
5.4 The aggregate sales done by Classic, Luminant and Panther through CSFB Securities for the period during April 01, 2000-March 31, 2001 were Rs. 5644 crores (NSE: Rs. 2462 + BSE: Rs. 3182), which is summarized below:
TRADING BY CLASSIC BSE NSE Scrip Name Qty Value (Crores) Qty Value (Crores) ADANI EXPORTS 1474000
6.11 91.21 APTECH LTD 220000 12.21 DSQ BIOTECH 600000 5.66 GLOBAL TELESYSTEM 1748000 199.43 244100 25.92 GLOBAL TRUST BANK 3250000 24.96 3500000 30.42 HIMACHAL FUTURISTIC 8395000 1,114.84 3033000 411.64 NIRMA LTD 15500 11.83 SATYAM COMPUTERS 147500 4.40 SHONKH TECHNOLOGY 1500000 44.51 SILVERLINE INDUSTRIES 750000 27.13 DSQ SOFTWARE 180000 12.65 ZEE TELE FILMS 6500000 273.55 5440000 206.51 1,727.21 775.75 Total Value (BSE+NSE) 2,502.96 TRADING BY LUMINANT INVESTMENT PRIVATE LTD BSE NSE Scrip Name Qty Value (Crores) Qty Value (Crores) ADANI EXPORTS 1830000 137.07 3851000 292.01 AFTEK INFOSYSTEM 23000 1.68 CADILLA HEALTH 2180000 34.17 520000 7.64 DSQ BIOTECH 560000 8.52 1310000 22.02 DSQ SOFTWARE 20000 0.67 250000 9.59 GLOBAL TELESYSTEM 470000 32.72 394000 26.49 GLOBAL TRUST BANK 1500000 12.19 HIMACHAL FUTURISTIC 325000 32.77 2239000 208.01 JAIPRAKASH INDUSTRIES 199000 1.51 380000 2.83 LUPIN LABS 200000 29 BSE NSE Scrip Name Qty Value (Crores) Qty Value (Crores) 4.46 MASCON GLOBAL 7600000 249.97 MUKTA ARTS 100000 2.53 NIRMA LTD 250000 16.40 432000 30.75 SHONKH TECHNOLOGY 14438000 409.61 SILVERLINE INDUSTRIES 1395000 30.42 SSI 41000 4.76 TIPS INDUSTRIES 415000 7.94 680000 12.45 ZEE TELE FILMS 2630000 71.53 310000 700.88 1,042.53 1,329.08 Total aggregate sale value in crores (BSE+NSE) 2,371.60 TRADING BY PANTHER FINCAP & MANAGEMENT SERVICES LTD BSE NSE Scrip Name Qty Value (Crores) Qty Value (Crores) ADANI EXPORTS 130000 8.58 954000 69.77 DSQ BIOTECH 2775000 40.44 GLOBAL 70000 TELESYSTEM 7.92 GLOBAL TRUST BANK 1200000 11.88 1735000 13.83 HIMACHAL FUTURISTIC 2047199 209.07 1700000 201.07 MASCON GLOBAL 3000000 85.25 30 BSE NSE Scrip Name Qty Value (Crores) Qty Value (Crores) NIRMA 52000 3.94 SHONKH TECHNOLOGY 1495000 42.90 ZEE TELEFILMS 200000 14.68 800000 61.02 412.8 357.55 Total aggregate sale value in crores (BSE+NSE) 770.35 5.5 Analysis of order log and trade log of transaction made by Classic, Luminant and Panther through CSFB Securities revealed that entire quantity or almost entire quantity of sell order of Classic, Luminant and Panther put through CSFB Securities matched almost every time with buy orders of only select group of brokers such as, Triumph Securities Ltd, Triumph International Finance Ltd, Classic Shares & Stock Brokers Ltd, NH Securities Ltd, Chadravadan J. Dalal, Milan Mahendra Securities, Hem Securities Ltd, Latin Manharlal Securities Ltd, Visaria Securities Ltd, Woodstock, Vyomit Shares, Keynote Capitals, Mukesh Babu etc. Details of buying client obtained from the buying brokers revealed that entire sell quantity or almost entire quantity of sale orders of Classic, Luminant and Panther put through CSFB Securities got matched with the buy orders of same selling KP entity or other KP entity viz. Chitrakut, NH Securities Ltd (Proprietary account), Classic Shares & Stock Broker Ltd (Proprietary account) and Saimangal put through these select brokers. It is also seen that entire quantity or almost entire quantity of sale order of Classic, Luminant and Panther put through CSFB Securities matched every time with the buy orders of only select group of brokers such as, Triumph Securities, Triumph International Finance, Classic Shares & Stock Brokers, NH Securities, C. J. Dalal, Milan Mahendra, Hem Securities, Latin Manharlal, Visaria Securities, Woodstock, Vyomit Shares, Keynote Capitals etc., even when there are more than few thousand brokers spread over more than 300 cities. It is also seen that that buy and sell orders were put at the same time or almost at the same time i.e. within a gap of few seconds of putting in of buy / sell order. This trading pattern indicated that these orders were synchronized and were put with prior understanding with a view to ensure that sell order of one KP entity put through CSFB Securities matched with the buy orders of same selling KP entity or other set of KP entity.
5.6 The representative s of CSFB, while being examined during the investigation had confirmed on oath that all sale transactions executed by them on behalf of Ketan Parekh entities were synchronized trades and that Mr. Kartik Parekh or sometimes Ketan Parekh was coordinating these buy and sell orders. The buyer was arranged by Ketan Parekh or Kartik Parekh. Hence, by synchronizing the buy and sell orders, the shares sold by one of the KP entities through CSFB Securities were again purchased back by same selling KP entity or other KP entity through other select brokers, thus these trades involved no change in beneficial ownership, which resulted in circular trading.
5.7 I find that Classic, Luminant and Panther received sale consideration from CSFB Securities on the date of sale transactions itself, without waiting for pay-out of funds from the exchange. In the normal course, the entities would have received sale consideration from CSFB Securities on the pay-out date of the exchange. It was also revealed that rate of brokerage paid by Classic, Luminant and Panther to CSFB Securities for these sale transactions varied on each occasion. The analysis of varying rate of brokerage paid showed that the same was related to the number of days between date when payment was received by the KP entity from CSFB Securities and date such entity would had received sale consideration on pay-out day. It was revealed that longer the number of days between the date when payment was received by KP entity from CSFB Securities and the date when KP entity would have received sale consideration on pay-out day, higher was the rate of brokerage paid. This aspect was confirmed by CSFB on oath and they were providing immediate payment facility to Classic, Luminant and Panther who had sold the securities through them. CSFB also confirmed on oath that basically the varying rate of brokerage charged from Classic, Luminant and Panther was on account of the risk involved in getting payment for the sale executed through CSFB and that longer the gap between the date when the payment was made to Classic, Luminant and Panther and date when payment was received by CSFB Securities from the exchange after pay-out, higher rate of brokerage was charged.
5.8 I find that there were around 97 such instances (54 instances in BSE and 43 instances in NSE) where Classic, Luminant and Panther had executed only sale transactions through CSFB Securities at NSE and BSE. In all these instances, it was noticed that trades were executed in the manner mentioned above. Classic, Luminant and Panther had put around 400 sell orders through CSFB Securities, which invariably matched, with buy orders of same KP entity or other set of KP entities put through other brokers. Two such instances are referred in detail, as under:-
I. On 12-Feb-01, Luminant had placed sell order through CSFB Securities for sale of 2,20,000 shares of Adani Exports @ Rs. 854.00 in the physical segment of BSE.
Order log and trade log show that sell order placed in respect of Luminant for sale of 2,20,000 shares of Adani Exports matched with buy orders of Panther placed through other brokers. These "matched" buy and sell orders are as discussed below:
Luminant placed sell order through CSFB Securities for sale of 100000 shares of Adani Exports @ Rs.854 at time 12:16:24. This sell order was matched with the buy order of Panther placed through broker Milan Mahendra Securities at time 12:16:24 for 100000 shares @ Rs.854. The buy and sell orders were placed at the same time.
Luminant then placed second sell order through CSFB Securities for sale of 120000 shares of Adani Exports @ Rs.854 at time 12:16:42. This sell order was matched with the buy order of Panther, placed through broker Hem Securities at time 12:16:42 for 120000 shares @ Rs.854. The buy and sell orders were placed at the same time. The above details show that buy and sell orders were put at the same time or almost at the same time, there was almost exact matching in the order quantity and the order rate. The shares sold by Luminant through CSFB were again purchased back by Panther through other brokers. CSFB Securities had confirmed on oath that this sale transaction executed by them on behalf of Luminant was a synchronized trade, and that Shri Kartik Parekh or sometimes Shri Ketan Parekh was coordinating these buy and sell orders. Luminant had received the payment from CSFB Securities on the date of transaction itself for shares sold without waiting for pay-out of funds from the exchange. In the normal course, Luminant would have received sale consideration from CSFB Securities on the pay-out date of the exchange. There was a gap of 11 days between the date when payment was made to Luminant and the date when Luminant ought to have received from the exchange on payout day. It is also seen that the rate of brokerage charged by CSFB Securities for this transaction was 1.24 %. CSFB Securities had confirmed on oath that the basis of brokerage in this case was, basically the risk involved in getting the payment for the sale executed through CSFB i.e. the longer the gap between the date of payment made to Luminant and date when Luminant would had received sale consideration pay-out day, higher will be the rate of brokerage. The sell transaction of Luminant through CSFB Securities constituted 85.48 % of the total quantity traded in the scrip of Adani Exports in the physical segment at the Exchange on that day which is a very high percentage of deliverable quantity. There was no change in the beneficial ownership of shares as such, (i.e. shares were sold by Luminant, one of the KP entities through CSFB Securities were again purchased back by Panther, another KP entity, through other brokers through synchronized deals at the market). This transaction created a false/ misleading appearance of trading and created artificial market in the scrip. II. On 12-Feb-01, Luminant placed an order through CSFB Securities for sale of 543000 shares of Shonkh Tech @ Rs. 305.50 in the Physical segment of BSE. Order log and trade log show that sell orders of Luminant placed through CSFB Securities for sale of 543000 shares of Shonkh Tech matched with buy orders of Classic placed through Triumph Securities Ltd. These "matched" buy and sell orders are as discussed below:
Luminant placed an order through CSFB Securities for sale of 200000 shares of Shonkh @ Rs.305.50 at time 10:45:52. This sell order got matched with the buy order of Classic placed through broker Triumph Securities Ltd at time 10:45:51 for 200000 shares @ Rs.305.50. The buy and sell orders were placed within a space of one second.
Luminant then placed second sell order through CSFB Securities for sale of 200000 shares of Shonkh @ Rs.305.50 at time 10:46:04. This sell order got matched with the buy order of Classic placed through broker Triumph Securities Ltd at time 10:46:01 for 200000 shares @ Rs.305.50. The buy and sell orders were placed within a space of three seconds.
Luminant then placed third sell order through CSFB Securities for sale of 143000 shares of Shonkh @ Rs.307.50 at time 10:46:24. This sell order got matched with the buy order of Classic placed through broker Triumph Securities Ltd at time 10:46:23 for 143000 shares @ Rs.305.50. The buy and sell orders were placed within a space of one second.
The above details show that buy and sell orders were put at the same time or almost at the same time, there was almost exact matching in the order quantity and the order rate. The shares sold by Luminant through CSFB Securities were again purchased back by Classic through Triumph Securities. CSFB Securities confirmed on oath that this sale transaction executed by them on behalf of Luminant was a synchronized trade, and that Shri Kartik Parekh or sometimes Shri Ketan Parekh was coordinating these buy and sell orders. On 12-Feb-01, i.e. date of transaction itself, Luminant received payment from CSFB Securities for the shares sold without waiting for pay-out of funds from the exchange. In the normal course, Luminant would have received sale consideration from CSFB Securities on the pay-out date of the exchange. The difference of days between the date when payment was made to Luminant and the date when the amount was to be Luminant on the pay-out day, was 11 days. It is also seen that the rate of brokerage charged by CSFB Securities for this transaction was 1.25 %. CSFB Securities confirmed on oath that the basis of brokerage in this case was, the risk involved in getting the payment for the sale executed through CSFB Securities i.e. the longer the gap between the date of payment made to Luminant and date when payment received from the exchange on pay-out day, higher will be the rate of brokerage. The sell transaction of Luminant through CSFB Securities constituted 82.71% of the total quantity traded in the scrip of Shonkh Tech in the Physical Segment at the Exchange on that day, which is a very high percentage of deliverable quantity. There was no change in the beneficial ownership of shares as such, (i.e. shares sold by Luminant, one of the KP entities through CSFB Securities were again purchased back by Classic, another KP entity, through Triumph Securities Ltd through synchronized deals at the market). This transaction is found to have created a false /misleading appearance of trading and created artificial market in the scrip.
5.9 The above two instances show that buy orders of KP entities placed through other select brokers and sell orders of KP entity placed through CSFB Securities were put at the same time or almost at the same time, there was almost exact matching in the order quantity and the order rate, which indicated that these orders were synchronized and were put with prior understanding to get matched. This was also confirmed from the statement of CSFB Securities that sale transactions executed by them on behalf of KP entities were synchronized trades and that Shri. Kartik Parekh or sometimes Shri Ketan Parekh was co-ordinating these buy and sell orders. Hence, by synchronizing the orders, shares sold by KP entities through CSFB Securities were again purchased back by KP entities through other brokers, thus these trades involved no change in beneficial ownership and thus KP entities indulged in circular trading. The shares did not change hands as such and were merely rotating from one entity connected with Shri Ketan Parekh to other entity of / connected with Shri Ketan Parekh. The sell transaction of KP entities constituted a very high percentage of the total quantity traded in the scrip in the Physical Segment at the Exchange on the date of selling. There was no change in the beneficial ownership of shares effectively (i.e. shares were sold by the KP entity through CSFB Securities were again purchased back by the same /different KP entity through other brokers through synchronized deals at the market). Transactions of KP entities had created a false/misleading appearance of trading and created artificial market in certain scrips. Further, it was seen that varying rate of brokerage was charged from KP entities, which clearly indicates that dealings of Classic, Luminant and Panther through CSFB Securities was for receiving finance from CSFB Securities against delivery of shares. On the date of transaction itself, Classic, Luminant and Panther received payment from CSFB Securities for the shares sold without waiting for pay-out of funds from the exchange. In the normal course, Luminant would have received sale consideration from CSFB Securities on the payout date of the exchange. It is seen that longer the gap between the date when the payment was made to selling KP entity and date when the selling KP entity would have received sale consideration from exchange on the pay-out day, higher was the rate of brokerage paid which was confirmed by CSFB Securities. The above examples are only illustrative.
5.10 I find from order log and trade log of sell transactions made by Classic, Luminant and Panther through CSFB Securities at BSE and NSE along with counter party members and buying client showing similar trading pattern of synchronization, circular trade and non-genuine trades creating artificial market in various scrips.
5.11 I further find that Classic and Panther had indulged in similar circular trades even through CSFB's proprietary account. The modus operandi was that KP entities would first purchase the shares from CSFB proprietary account by synchronizing trades. Then, on the same day after a short gap, Classic and Panther were found to have sold these very shares to CSFB proprietary account, through CSFB Securities by way of cross deals. It is also seen that Classic and Panther had also received sale consideration from CSFB Securities on the date of transactions itself. Analysis showed that matched sell orders of the CSFB proprietary account and buy orders of KP entities were put at the same time or almost at the same time and, there was almost exact matching in the order quantity and the same buy and sell rate. It was admitted by CSFB Securities that Shri Ketan Parekh / Shri Kartik Parekh had arranged the buyer of the shares sold by the proprietary account at the exchange and it was a synchronized trade. The representative of CSFB proprietary account also stated that they had the knowledge that whatever quantity was being put for sale would be picked up instantly. Once the shares are purchased from CSFB proprietary account through synchronized trades, KP entities viz. Classic and Panther then sold the same quantity of shares that were purchased earlier, to CSFB proprietary account via cross deal through CSFB Securities. Classic and Panther then received the sale consideration from CSFB Securities on the date of transaction itself. In short, KP entities could through synchronized trades purchase back the entire or almost entire quantity of shares which were sold to CSFB Proprietary account by same/different KP entity. In all such cases, the price at which KP entity purchased the shares from CSFB proprietary account was invariably higher than the price at which KP entity sold the shares to CSFB proprietary account via cross deal through CSFB Securities. Hence, by entering into these structured deals, the shares did not go out of the control of the KP entities and through circular trades, shares sold by KP entity to CSFB proprietary account were again purchased back through this mechanism. CSFB proprietary account was assured of payment for shares sold by them at the exchange as the payment was guaranteed by the settlement guarantee fund of the exchange, if KP entity or their brokers failed to pay. Thus, settlement system of the exchange was put to risk. I find that there are 49 such instances where KP entities had first purchased the shares from CSFB proprietary account through synchronized trades. Then, on the same day after a short gap, Classic and Panther had sold these very shares to CSFB proprietary account, through CSFB Securities by way of cross deals. Two such instances are as under:-
I. On 09/08/00, Classic purchased 105000 shares of Nirma @ Rs. 780 from CSFB proprietary account in the normal segment of NSE through synchronized trades. After a small gap of time, Classic then sells the same quantity of shares i.e. 105000 shares of Nirma @ Rs. 762 to CSFB proprietary account in the rolling segment of BSE as cross deal.
This transaction was structured in two steps. First, sell order placed by CSFB Securities on behalf of CSFB proprietary account for sale of 105000 shares of Nirma was matched with buy orders of Classic placed through member Triumph International Finance Ltd. These "matched" buy and sell orders are as discussed below: It is pertinent to note the proximity in timing of in-putting of buy and sell orders, same rate for buy and sell and almost same quantity in these orders, which ensured that the shares sold by CSFB proprietary account were purchased by Ketan Parekh entities.
1. On 09-Aug-00 CSFB Prop A/c placed an order for sale of 50000 shares of Nirma through CSFB Securities @ Rs. 780.00 at time 14:44:27. This sale order got matched with the buy order of Classic, which was placed through broker Triumph International for 50000 shares @ Rs. 780.00 at time 14:44:27. The buy and sell orders were placed at the same time.
2. On 09-Aug-00 CSFB Prop A/c then placed second order for sale of 50000 shares of Nirma through CSFB Securities @ Rs. 780.00 at time 14:44:37. This sale order was matched with the buy order of Classic, which was placed through broker Triumph for 50000 shares @ Rs. 780.00 at time 14:44:37. The buy and sell orders were placed at the same time.
3. On 09-Aug-00 CSFB Prop A/c placed third order for sale of 5000 shares of Nirma through CSFB Securities @ Rs. 780.00 at time 14:44:47. This sale order was matched with the buy order of Classic, which was placed through broker Triumph for 5000 shares @ Rs. 780.00 at time 14:44:47. The buy and sell orders were placed at the same time.
The above details show that buy and sell orders were put at the same time or almost at the same time, there was almost exact matching in the order quantity and the same buy and sell rate, which indicated that these orders were synchronized and were put with prior understanding to ensure that the shares sold by CSFB proprietary account were purchased by Ketan Parekh entities. Through above-mentioned "matched" orders, sale of 105000 shares of Nirma @ Rs. 780 was executed by time 14:44:47, out of which all 105000 shares matched with buy orders of KP entity. It was admitted by CSFB Securities that Ketan Parekh / Karthik Parekh had arranged the buyer of the shares sold by the proprietary account at the exchange and it was a synchronized trade. The representative of CSFB proprietary account also stated that they had the knowledge that whatever quantity was being put for sale would be picked up instantly. Subsequently, at time 15:08:09 on the same day, Classic had then sold 105000 shares of Nirma @ Rs. 762 in BSE to CSFB proprietary account through cross deal. The purchase price is much less than the sale price. Hence, shares sold by Ketan Parekh entity i.e. Classic, were again purchased back by Classic through this mechanism. This show that KP entity indulged in circular trade wherein same KP entity i.e. Classic is the selling client and Classic is again the buying client. Classic had transferred 105000 shares of Nirma shares to demat account of CSFB Securities on 09/08/00 and on the same day itself, Classic received sale considerations from CSFB Securities. It is also seen that Classic first purchased the shares at NSE in Normal segment while sold the shares in the Rolling segment at BSE through cross deal. Purchase price (Rs 780) was much higher than the sale price (Rs. 762) i.e. (Price difference: Rs.18 per share). This price difference apparently represents the interest for the period between the date when the sale consideration was received by Classic on 09-Aug -00 i.e. the day of transaction and the date when the sale consideration was to be received by Classic on the pay-out day. In order to pay the interest to CSFB Securities for receipt of sale consideration on the date of transactions itself, Classic artificially benchmarked price at the lower rate in the rolling segment.
5.12 The above details show that the said transaction was financing transactions but had been given the color of sale and purchase of shares. Classic was found to have receive d the sale consideration on the date of transaction itself. The buy transaction of Classic constituted 96% of the total quantity traded in the scrip of Nirma at the Exchange on that day. This volume constituted a very high percentage of delivery in the scrip on this day. As there is no change in the beneficial ownership of shares as such, (i.e., shares were sold by one KP entity to CSFB Prop a/c and were again purchased back by same KP entity from CSFB Prop a/c through synchronized deals at the market), this transactions was not genuine sale and purchase transaction and had the effect of creating artificial volume. II. On 10/08/00, Panther purchased 85000 shares of Adani Exports @ Rs. 735 from CSFB proprietary account in the normal segment of NSE through synchronized trades. After a small gap of time, Classic has sold 85000 shares of Adani Exports @ Rs. 719 to CSFB proprietary account in the rolling segment of BSE through cross deal.
This transaction was structured in two steps. First, sell order placed by CSFB Securities on behalf of CSFB proprietary account for sale of 85000 shares of Adani Exports matched with buy order of Panther placed through member, Classic Shares & Stock Brokers Ltd (CSSB). These "matched" buy and sell orders are as discussed below. The proximity in timing of in - putting of buy and sell orders, same rate for buy and sell and almost same quantity in these orders which ensured that the shares sold by CSFB proprietary account were purchased by Ketan Parekh entity.
1. On 10-Aug-00 CSFB Prop A/c placed an order for sale of 50000 shares of Adani Exp through CSFB Securities @ Rs. 735.00 at time 12:03:19. This sale order was matched with the buy order of Panther, which was placed through broker CSSB for 50000 shares @ Rs. 735.00 at time 12:03:19. The buy and sell orders were placed at the same time.
2. On 10-Aug-00 CSFB Prop A/c then placed second order for sale of 35000 shares of Adani Exp through CSFB Securities @ Rs. 735.00 at time 12:03:39. This sale order was matched with the buy order of Panther, which was placed through broker CSSB for 35000 shares @ Rs. 735.00 at time 12:03:38. The buy and sell orders were placed within a space of 1 second.
5.13 The above details show that buy and sell orders were put at the same time or almost at the same time, there was almost exact matching in the order quantity and the same buy and sell rate, which indicated that these orders were synchronized and were put with prior understanding to ensure that the shares sold by CSFB proprietary account were purchased by Ketan Parekh entities. Through above-mentioned "matched" orders, sale of 85000 shares of Adani Exports @ Rs. 735 was executed by time 12:03:39, of which all 85000 shares were matched with buy orders of Panther, a Ketan Parekh entity. It was admitted by CSFB Securities that Ketan Parekh / Karthik Parekh arranged the buyer of the shares sold by the proprietary account at the exchange and it was a synchronized trade. The representative CSFB proprietary account also stated that they had the knowledge that whatever quantity was being put for sale would be picked up instantly. Subsequently, at time 12:21:32 on the same day, Classic had then sold 85000 shares of Adani Exports @ Rs. 719 in BSE to CSFB proprietary account through cross deal. It is pertinent to note that the purchase price is much less than the sale price. Shares sold by KP entity i.e. Classic was again purchased back by another KP entity - Panther through this mechanism. This show that Ketan Parekh entities indulged in circular trade wherein one set of KP entity i.e. Classic was the selling client and other set of entity i.e. Panther was the buying client. Classic has transferred 85000 shares of Adani Expo shares to demat account of CSFB Securities on 10/08/00 and on the same day itself, Classic has received sale consideration from CSFB Securities. It is also seen that Classic had purchased 85000 shares of Adani Exports @ Rs. 735 in the normal segment of NSE and subsequently had sold 85000 shares of Adani Exports @ 719 in the rolling segment of BSE through cross deal. Purchase price (Rs. 735) is higher than the sale price (Rs. 719) i.e. (Price difference: Rs. 16 per share). This price difference apparently represents the interest for period between the date when the payment was received by Classic on 10-Aug- 00 i.e. the da te of transaction and the date when Classic would have received the sale consideration from the exchange on the pay-out day. In order to pay the interest to CSFB Securities for receipt of sale consideration on the date of transactions itself, Classic is found to have artificially benchmarked the price at the lower rate in the rolling segment.
5.14 The above details show that the said transaction was financing transactions but given the color of sale and purchase of shares. The buy transaction of Panther constituted 93.85% of the total quantity traded at the Exchange in the scrip of Adani Exports on that day. This volume constituted a very high percentage of delivery in the scrip on this day. As there is no change in the be neficial ownership of shares as such, (i.e. shares were sold by one KP entity to CSFB Securities Proprietary Account and were again purchased back by other KP entities from CSFB Securities Proprietary Account through synchronized deals at the market), this transactions was not genuine sale and purchase transaction and had the effect of creating artificial volume.
5.15 The examples above clearly show that transactions of KP entities created a false/misleading appearance of trading and created artificial market in certain scrips. The above examples are only illustrative. I find that there are 51 such instances where CSFB Securities proprietary account first sold these shares at the exchange which were purchased by entities connected with Ketan Parekh by synchronizing the trades and then on the same day after a short gap, Classic and Panther is found to have sold these very shares to CSFB Securities proprietary account by way of cross deals.
5.16 The details of trade logs and order logs of such synchronized, circular trades and non-genuine trades executed in the manner as mentioned above between KP entities and CSFB Securities proprietary account were also examined. It was seen that KP entity first purchased the shares from CSFB Securities proprietary account at either NSE or BSE in Normal segment through synchronized trades. Subsequently after a small gap, KP entity had sold these shares to CSFB Securities proprietary account through cross deal in the Rolling segment at either BSE or NSE at price less than the price at which it had purchased these shares earlier from CSFB Securities proprietary account. Thus, artificial volume were created and financing trades were carried out as regular purchase and sale of shares at the exchange.
FINDINGS IN THE CASE OF TRADES EXECUTED BY KP ENTITES THROUGH DKB SECURITIES 5.17 I find that trades of Classic and Panther through DKB Securities were similar to those observed in the case of CSFB Securities i.e. trades of KP entities executed through DKB Securities were synchronized and were put with the prior understanding with the counter party broker to ensure that orders put by KP entities through DKB Securities matched with buy order of same/other KP entity put through select buying brokers. Transactions of KP entities were in the nature of circular and fictitious trades which created artificial volume and artificial markets in the scrips. It also facilitated KP entities to receive finance against the delivery of shares without waiting for pay-out at the exchange and were so structured to give them a semblance of actual "sale and purchase" of shares at the recognized stock exchanges.
5.18 The cumulative value of sales made by Classic and Panther through DKB Securities at BSE and NSE during the period from August, 2000 to March, 2001 aggregated to Rs. 2022.79 crore (NSE: Rs.1349.11 crore + BSE: Rs. 673.68 crore), which is summarized below:
Trading by Classic Credit Limited at NSE _________________________________________________________________ Scrip Name Sold Qty Value (Rs. in Crores) _________________________________________________________________ DSQ BIO TECH 27,75,000 51.31 DSQ SOFTWARE 2,75,000 11.05 GLOBAL TELE. 10,15,000 106.30 HFCL 58,96,500 753.59 SILVERLINE 4,50,000 13.74 ZEE TELEFILM 83,25,000 207.69 _________ Grand Total (Rs. in crores) 1,143.68 ========= _________________________________________________________________ Trading by Classic Credit Limited at BSE _________________________________________________________________ Scrip Name Sold Qty Value (Rs. in Crores) _________________________________________________________________ DSQ BIO TECH 75,000 1.05 GLOBAL TELE. 2,75,000 18.48 HFCL 20,81,000 249.81 MASCON GLOBAL 5,00,000 16.62 SHONKH TECH 5,00,000 11.75 TIPS INDUS. 1,00,000 2.56 ZEE TELEFILM 80,95,000 243.39 _________ Grand Total (Rs. in crores) 543.65 ========= _________________________________________________________________ Trading by Panther Fincap & Management Services Ltd. at NSE _________________________________________________________________ Scrip Name Sold Qty Value (Rs. in Crores) _________________________________________________________________ DSQ BIO TECH 7,95,000 15.26 GLOBAL TELE. 2,56,000 27.18 HFCL 14,15,000 163.00 _________ Grand Total (Rs. in crores) 205.43 ========= _________________________________________________________________ Trading by Panther Fincap & Management Services Ltd. at BSE _________________________________________________________________ Scrip Name Sold Qty Value (Rs. in Crores) _________________________________________________________________ DSQ BIO TECH 6,00,000 11.38 GLOBAL TELE. 70,000 5.58 HFCL 3,65,000 50.56 ZEE TELEFILM 25,30,000 62.50 _________ Grand Total (Rs. in crores) 130.03 ========= _________________________________________________________________ 5.19 I find that sell orders of KP entities put through the DKB Securities uncannily matched invariably with the buy orders of certain select brokers. These brokers in turn were dealing for KP entities. There was almost exact matching in time of inputting of the orders by buying client and selling client, the order quantity and the order rate, which indicated that these orders were synchronized and were put with prior understanding with a view to ensure that sell orders of KP entities matched with the buy order of other set of KP entities / same set of KP entities namely Classic, Luminant, Panther, Chitrakut, Classic Infin, Panther Investrade Ltd., NH Securities Ltd (NH Securities-proprietary account) and Classic Share s & Stock Brokers Ltd (Classic Shares-- proprietary account). In short, modus operandi used here was exactly similar to what has been described in detail earlier for CSFB Securities.
5.20 Representative of DKB Securities had stated on oath that either Mr. Kartik Parekh or Ketan Parekh used to give sale orders specifying the number of shares to be put for sale in an order and the rate. DKB Securities had also admitted that Mr. Kartik Parekh told them that if they put the order at the specific price and quantity given by him, the order would be executed. It is seen from the order log and trade, during the period from August 2000 to March 2001, KP entities had put around 470 sell orders (380 order at NSE + 95 order at BSE) through DKB Securities which invariably got matched with buy orders of same selling KP entity or other set of KP entities. This matching between buy orders and sell orders were noticed on each occasion even when there are more than a few thousand brokers spread over more than 300 cities. This trade pattern is found to be exactly similar to that described in the case of CSFB Securities.
5.21 Investigation similarly brought out that Classic and Panther received sale considerations from the DKB Securities on the date of transactions itself, without waiting for pay-out of funds from the exchange. In the normal course, KP entity would have received sale consideration from DKB Securities on the pay-out date of the exchange. It was also revealed that rate of brokerage paid by Classic and Panther to DKB Securities for these sale transactions varied on each occasion. The analysis of varying rate of brokerage paid revealed that rate of brokerage paid was related to the number of days between date when payment was received by KP entity from DKB Securities and date when KP entity would had received sale consideration on pay-out day. It was revealed that longer the number of days between the date when payment was received by KP entity from DKB Securities and the date when KP entity would have received sale consideration on pay-out day, higher was rate of brokerage paid. DKB Securities confirmed this aspect.
5.22 I find that there were around 61 such instances (23 instances in BSE and 39 instances in NSE) where Classic, Luminant and Panther had conducted only sale transactions through CSFB Securities at NSE and BSE. In these entire instances, it was noticed that trades were executed in the manner mentioned above. KP entities had put around 473 sell orders (380 order at NSE + 93 order at BSE) through DKB Securities which invariably got matched with buy orders of same selling KP entity or other KP entities One such instance is as under:-
I. On 01-Feb-01, Classic had sold 500,000 shares of Shonkh Tech @ Rs. 235.00 on through DKB Securities in the Physical segment of BSE. Order log and trade log show that sell order placed by DKB Securities on behalf of Classic for sale of 500000 shares of Shonkh Tech matched with buy order of Panther placed through other select brokers. These "matched" buy and sell orders are as discussed below. It is pertinent to note the proximity in timing of in - putting of buy and sell orders, same rate for buy and sell and almost same quantity in these orders, which ensured that the shares sold by Classic were purchased back by Panther, a KP entity, therefore this trade, involved no change in beneficial ownership of shares.
1. On 01-Feb-01, Classic placed an order for sale of 250000 shares of Shonkh Tech through DKB Securities @ Rs. 235.00 at time 13:23:24. This sale order was matched with the buy order of Panther, which was placed through broker Latin Manharlal Securities for 250000 shares @ Rs. 235.00 at time 13:23:24. The buy and sell orders were placed at the same time.
2. On 01-Feb-01, Classic placed second order for sale of 250000 shares of Shonkh through DKB Securities @ Rs. 235.00 at time 13:23:35.
This sale order was matched with the buy order of Panther, which was placed through broker Vyomit for 250000 shares @ Rs. 235.00 at time 13:23:35. The buy and sell orders were placed at the same time. 5.23 The above details show that buy and sell orders were put at the same time or almost at the same time, there was almost exact matching in the order quantity and the same buy and sell rate. The shares sold by Classic through DKB Securities were again purchased back by Panther through other brokers. On 01-Feb-01, i.e. date of transaction itself, Classic received sale consideration from DKB Securities. In the normal course, KP entity would have received sale consideration from DKB Securities on the pay-out date of the exchange. The difference in the number of days between the date when sale consideration was received by Classic and the date when the amount was to be received by Classic on the pay-out day, was 8 days. The rate of brokerage paid by Classic for this transaction was 0.80%. Sell transaction of DKB Securities constituted 42.81 % of the total quantity traded in the scrip of Shonkh Tech in the Physical Segment at the Exchange on February 1, 2001. This volume constituted a very high percentage of deliverable quantity. As there is no change in the ownership of shares as such, (i.e. shares were sold by one KP entity through DKB Securities were again purchased back by other KP entity through other brokers through synchronized deals at the market), these transactions were not genuine sale and purchase transaction and had the effect of creating artificial volume. The above example is only illustrative.
5.24 The details of order log and trade log of synchronized, circular and nongenuine transactions creating artificial market by Classic and Panther through DKB Securities at BSE and NSE were also examined. I find as follows:
1. Synchronized Trades:
5.25. The order log/ trade log reveal that there was almost perfect matching of entire sell orders put by Classic, Luminant and Panther through CSFB Securities and DKB Securities with the buy orders put by same/ different KP entity through other selected buying broker. Details of matched sell orders of KP entities placed through CSFB Securities and DKB Securities and buy orders of KP entities placed through other select brokers shows that these orders were put at the same time or almost at the same time, there was almost exact matching in the order quantity and the order rate, which indicated that these orders were synchronized and were put with prior understanding to get matched. Classic, Luminant and Panther had put almost 400 sale orders through CSFB Securities, which invariably matched on almost each occasion with the buy orders put by same KP entity or other KP entities through select brokers.
5.26 Like-wise, KP entities had put around all 473 sell orders (380 orders at NSE + 93 orders at BSE) through DKB Securities which invariably got matched with buy orders of same selling KP entity or other KP entities. This happened despite there being more than a few thousand brokers spread over more than 300 cities across the country. This cannot be explained based on coincidence or theory of probability, which is a scientifically accepted mathematical position. Likewise around (400) orders were observed in respect of trades between KP entities and CSFB proprietary account wherein trade s matched for almost exact quantity of shares sold on each occasion between CSFB proprietary account and same or other KP entity which were acting as buying client of other select brokers. This fact along with the admission of CSFB Securities and DKB Securities clearly shows that KP entities were putting sell order through CSFB Securities and DKB Securities and buy orders through other brokers at a pre-meditated time, price and quantity, so as to ensure that the sale order of KP entity placed through CSFB Securities and DKB Securities matches with the buy order of same KP entity or other KP entity placed through selected buying broker. The terms of transactions therefore, seem to have been already negotiated between the parties. Thus, there was almost perfect matching of sell orders put by Classic, Luminant and Panther through CSFB Securities and DKB Securities with the buy orders put by same/ different KP entity through other selected buying broker. Such synchronization of trades effectively excluded other general investors from the said sale offer of KP entities and ensured exact matching of price and quantity of the sell offer put in by KP entity with the buy order of same/other KP entity put through other select buying broker, by punching in the trade (sale order) at a premeditated/mutually decided time with the buying broker. Shri Ketan Parekh and Kartik Parekh through these above mentioned entities which are connected/controlled by Ketan Parekh/Kartik Parekh undertaken these synchronized, circular and non-genuine trades with a view to create artificial volumes and artificial markets in certain scrips.
5.27 Entering into such synchronized trades is a misuse of the stock exchange mechanism and tampers with the free, fair and transparent price discovery system of the stock exchange. Such practices where transactions are put in with a premeditated understanding distort and interfere in the price discovery mechanism of the stock exchange and leads to the creation of a false market.
2. Financing transaction given the semblance of purchase and sale of share at Exchange 5.28 I find that transactions made by Classic, Luminant and Panther through CSFB Securities and DKB Securities, the shares were merely rotating from one Ketan Parekh Group entity (KP entity) to same or other KP entities. These trades were merely circular trades and thus created artificial volumes and artificial markets in certain scrips. KP entities indulged in similar circular trades even through proprietary account of CSFB Securities, thereby creating artificial volumes and artificial markets in certain scrips. These trades were non-genuine and involved no change in the beneficial ownership of shares.
5.29 Similarly, I find that financing of trades of KP entities were being routed through CSFB proprietary account. KP entities were found to have purchased the shares from CSFB proprietary account at either NSE or BSE in Normal segment. Then, on the same day after a short gap, Classic and Panther was seen to have sold these very shares to CSFB proprietary account, through CSFB Securities by way of cross deals. Once the shares were purchased from CSFB Securities proprietary account through synchronized trades, KP entities viz. Classic and Panther then sold the same quantity of shares that were purchased earlier, to CSFB proprietary account via cross deal through CSFB Securities. Classic and Panther then received the sale consideration from CSFB Securities on the date of transaction itself. In short, KP entities through synchronized trades purchase d back the entire or almost entire quantity of shares which were sold to CSFB Proprietary Account by same/different KP entity. For instance, on October 30, 2000, Classic had sold 10,00,000 shares of Global Trust Bank (GTB) to CSFB proprietary account via cross deals through CSFB Securities. On the same day, Panther had purchased back 9,99,750 shares out of 10,00,000 shares from CSFB proprietary account through synchronized trades and the remaining quantity of shares had matched with other brokers i.e. Panther could purchase back around 99.97% quantity of shares from CSFB proprietary account. Classic had received the sale consideration from CSFB Securities on the date of transaction itself for sale of 10,00,000 shares of GTB to CSFB proprietary account via cross deal. In order to ensure delivery of shares back to KP entity, purported buy transactions were executed by KP entities wherein KP entities purchased the shares from CSFB proprietary account at either NSE or BSE in Normal segment through synchronized trades. This ensured that in the event of KP entities de faulting in honoring payment obligations at the stock exchange, the settlement guarantee fund would make good the default of KP entities. It is seen that the price at which KP entity had purchased the shares from CSFB proprietary account was invariably higher than the price at which KP entity had sold to CSFB proprietary account. This price difference (between sale and purchase) represented the interest paid to CSFB Securities for the sale consideration received by KP entity on the date of transaction itself. This was confirmed from statement of CSFB Securities who stated that all immediate payment transactions take place at a discount to prevailing market price and the price difference is attributable to the risk attached to the time lag between the transaction date (when the payment was made for the purchase of shares) and receipt of money from the exchange. CSFB has also admitted that buy and sell order were coordinated by Shri. Ketan Parekh. This fact shows that KP entities had been putting sell order through CSFB Securities and DKB Securities and buy orders through other brokers at a pre-determined time, price and quantity, so as to ensure that the sale orders of KP entity placed through CSFB Securities and DKB Securities matches with the buy orders of same KP entity or other KP entity placed through selected buying broker and shares remained in control of Shri Ketan Parekh. These transactions were financing transaction against the delivery of shares, but were given the semblance of sale and purchase of shares at the stock exchange.
5.30 In the instances where shares sold by KP entities through CSFB Securities and DKB Securities were again purchased back by the same/different KP entity through another broker and receipt of sale consideration on the date of transaction and the basis for varying rate of brokerage paid by KP entities to CSFB Securities and DKB Securities, indicates unequivocally that dealing of KP entities through CSFB Securities and DKB Securities was for purpose of receiving finance from CSFB Securities and DKB Securities against the delivery of shares. Further, trading pattern shows beyond doubt that synchronized and circular trades were put to create artificial and misleading appearance of trading in the scrips. In order to ensure the repayment of finance to CSFB Securities and DKB Securities and delivery of shares back to KP entities, purported sell and buy transactions were executed by KP entity through CSFB Securities and DKB Securities and through other selected brokers through the trading and settlement mechanism of the stock exchange. The two instances of CSFB proprietary trades given above brings out the modus operandi used by KP entity, where shares sold by KP entities to CSFB proprietary account were again purchased back by KP entities.
5.31 From the above, it is clear that transactions of Classic, Luminant and Panther through CSFB Securities and DKB Securities were financing transactions but were done as purchase and sale of shares in the market and in all these transactions shares were merely being passed from one KP entity to same or another KP entities. KP entity even used CSFB proprietary account for receiving finance and executing such non genuine transactions, which actually was a cover up for receiving finance, to make use of the stock exchange system. This ensured that in the eventuality of Ketan Parekh entities defaulting on making payments to the buying brokers, CSFB Securities and DKB Securities would have got the money out of settlement guarantee fund of the exchange. Shri Ketan Parekh and Kartik Parekh through these above mentioned entities which are connected/controlled by Ketan Parekh/Kartik Parekh had undertaken these financing, circular and fictitious trades with a view to create artificial volumes and artificial markets in certain scrips. By entering into these financing, circular and fictitious trades, the above mentioned persons/entities had put the trading and settlement system of the stock exchange at risk. These acts of persons/entities were in violation of the provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995.
3. Circular Trading and creation of artificial volume 5.32 I find that Classic, Luminant and Panther entities have put around 400 sale orders through CSFB Securities in respect of scrips, which included scrips namely--Adani Exports, Mukta Arts, Nirma DSQ Bio Tech, Tips Ind, Jaiprakash Industries, Cadila Healthcare, Lupin Lab, Shonkh Tech, Mascon Global etc. These synchronised trades created large artificial volumes especially in the scrips like Adani Exports, Shonkh Tech, Mascon Global, Nirma, DSQ Biotech, etc. which are otherwise not very liquid stocks.
5.33 The table given below shows that if these circular transactions are excluded from the volumes traded at the exchanges on the given day, then there are hardly any genuine volumes i.e. the large part of the liquidity on the given day in the scrip was on account of circular transactions of KP entities.
_______________________________________________________________________________________ Scrip Exch Selling KP Trade Date Sell Qty Total traded % of trades entity by KP qty in the of Ketan entity exchange Parekh entities to total traded qty in Exchange _______________________________________________________________________________________
1. ADANI EXPO BSE Luminant 01-Jan-01 160000 162750 98.31
2. ADANI EXPO BSE Luminant 03-Jan-01 249990 264639 94.46
3. ADANI EXPO NSE Luminant 03-Jan-01 250000 259142 96.47
4. ADANI EXPO NSE Luminant 10-Jan-01 307000 383941 79.96
5. ADANI EXPO NSE Luminant 11-Jan-01 249975 482261 51.83
6. ADANI EXPO BSE Luminant 15-Jan-01 200000 205500 97.32
7. ADANI EXPO NSE Luminant 18-Jan-01 400000 565300 70.76
8. ADANI EXPO NSE Luminant 25-Jan-01 199900 465619 42.93
9. ADANI EXPO BSE Luminant 29-Jan-01 200000 253739 78.82
10. ADANI EXPO NSE Luminant 31-Jan-01 400000 616967 64.83
11. ADANI EXPO BSE Luminant 05-Feb-01 500000 507305 98.56
12. ADANI EXPO NSE Luminant 07-Feb-01 299980 567649 52.85
13. ADANI EXPO NSE Luminant 09-Feb-01 149999 370029 40.54
14. ADANI EXPO BSE Luminant 12-Feb-01 220000 257383 85.48
15. ADANI EXPO NSE Luminant 14-Feb-01 360000 521604 69.02
16. ADANI EXPO NSE Luminant 15-Feb-01 44000 129839 33.89
17. ADANI EXPO NSE Luminant 16-Feb-01 500000 728831 68.60
18. ADANI EXPO NSE Luminant 22-Feb-01 520000 1280655 40.60
19. ADANI EXPO NSE Luminant 23-Feb-01 120000 458047 26.20
20. ADANI EXPO BSE Luminant 27-Feb-01 300000 849960 35.30
21. ADANI EXPO NSE Panther 28-Feb-01 210694 806715 26.12
22. CADILA BSE Luminant 02-Jan-01 548645 567790 96.63
23. CADILA BSE Luminant 15-Jan-01 541000 554912 97.49
24. CADILA BSE Luminant 29-Jan-01 540600 571527 94.59
25. CADILA BSE Luminant 12-Feb-01 547800 620453 88.29
26. CADILA NSE Luminant 23-Feb-01 520000 566561 91.78
27. GTB NSE Luminant 03-Jan-01 249940 1282591 19.49
28. GTB NSE Luminant 23-Feb-01 1250000 1317284 94.89
29. GTB NSE Panther 02-Mar-01 1200000 1859772 64.52
30. JPIND NSE Luminant 15-Feb-01 377902 3657923 10.33
31. LUPIN LAB BSE Luminant 01-Jan-01 200000 200383 99.81
32. MASCON GL BSE Luminant 24-Jan-01 999900 1013512 98.66
33. MASCON GL BSE Luminant 09-Feb-01 1000000 1001675 99.83
34. MASCON GL BSE Luminant 12-Feb-01 1000000 2009841 49.76
35. MASCON GL BSE Luminant 20-Feb-01 1000000 1004958 99.51
36. MASCON GL BSE Luminant 23-Feb-01 2000000 2003043 99.85
37. MASCON GL BSE Panther 01-Mar-01 1000000 1015333 98.49
38. MASCON GL BSE Panther 02-Mar-01 1999500 2031354 98.43
39. NIRMA NSE Luminant 03-Jan-01 255000 367100 69.46
40. NIRMA NSE Luminant 19-Jan-01 62000 75336 82.30
41. NIRMA BSE Luminant 12-Feb-01 250000 286241 87.34
42. NIRMA NSE Luminant 28-Feb-01 115000 132718 86.65
43. SHONKH TECH BSE Classic 23-Nov-00 494850 503650 98.25
44. SHONKH TECH BSE Luminant 19-Jan-01 617550 837950 73.70
45. SHONKH TECH BSE Luminant 22-Jan-01 650000 824850 78.80
46. SHONKH TECH BSE Luminant 29-Jan-01 505000 753650 67.01
47. SHONKH TECH BSE Luminant 30-Jan-01 550000 1561900 35.21
48. SHONKH TECH BSE Luminant 31-Jan-01 550000 1836750 29.94
49. SHONKH TECH BSE Luminant 01-Feb-01 500000 1167950 42.81
50. SHONKH TECH BSE Luminant 05-Feb-01 1795650 2104700 85.32
51. SHONKH TECH BSE Luminant 06-Feb-01 749650 1321300 56.74
52. SHONKH TECH BSE Luminant 12-Feb-01 543000 656500 82.71
53. SHONKH TECH BSE Luminant 16-Feb-01 850000 890450 95.46
54. SHONKH TECH BSE Luminant 19-Feb-01 999900 1048750 95.34
55. SHONKH TECH BSE Luminant 20-Feb-01 2000000 2026450 98.69
56. SHONKH TECH BSE Luminant 22-Feb-01 500000 551600 90.65
57. SHONKH TECH BSE Luminant 26-Feb-01 200000 723700 27.64
58. SHONKH TECH BSE Luminant 27-Feb-01 2658500 2798100 95.01
59. SHONKH TECH BSE Panther 02-Mar-01 1000000 2155700 46.39
60. TIPS NSE Luminant 18-Jan-01 283318 516655 54.84
61. TIPS NSE Luminant 31-Jan-01 184498 370029 49.86
62. TIPS BSE Luminant 12-Feb-01 415000 583269 71.15
63. TIPS NSE Luminant 15-Feb-01 140000 374095 37.42
64. TIPS NSE Luminant 23-Feb-01 70000 516916 13.54 _______________________________________________________________________________________ The above table gives instances where volumes were artificially created in the illiquid scrips such as Shonkh Tech, Mascon global, Nirma, Tips, Adani Exports, Cadila, etc. through circular trading.
5.34 As mentioned above, KP entity even used CSFB proprietary account for receiving finance and executing such non genuine transactions, which actually was a cover up for funding, to make use of the stock exchange system. The table given below shows that large volumes were created by KP entities through these circular transactions using proprietary account of CSFB Securities. This is evident from the percentage of trades of buy transactions of KP entity in the first part where KP entity had purchased shares from CSFB proprietary account through synchronised trades, vis a vis total volumes traded at the exchange.
_________________________________________________________________________________________ Exch Segment Trade Date Scrip Name Rate Quantity Total Traded % to Qty for traded the day qty _________________________________________________________________________________________
1. NSE Normal 09-Aug-00 Nirma 780 105000 109206 96.14
2. NSE Normal 10-Aug-00 Adani Exp 735 85000 90566 93.85
3. NSE Normal 10-Aug-00 Nirma 782 50000 72968 68.52
4. NSE Normal 25-Oct-00 DSQ Bio 64.7 1000000 2508915 39.85
5. BSE Normal 27-Oct-00 Adani Exp 660 439000 446881 98.23
6. NSE Rolling 30-Oct-00 GTB 70 1000000 2040600 49.00
7. NSE Rolling 31-Oct-00 GTB 72 2250000 2788230 80.69
8. NSE Normal 01-Nov-00 Adani Exp 675 130000 141245 92.03
9. BSE Normal 06-Nov-00 DSQ Bio 96.47 600000 794237 75.54
10. BSE Rolling 07-Nov-00 GTB 95 2500000 5338044 46.83
11. NSE Rolling 09-Nov-00 GTB 90.25 1000000 1327541 75.32
12. BSE Normal 13-Nov-00 Adani Exp 640 39000 43512 89.63
13. BSE Rolling 13-Nov-00 GTB 91.75 535000 574132 93.18
14. BSE Normal 13-Nov-00 Nirma 775 52000 53483 97.22
15. BSE Normal 14-Nov-00 Adani Exp 674.99 450000 454276 99.05
16. BSE Normal 21-Nov-00 Adani Exp 674.8 500000 503635 99.27
17. NSE Rolling 22-Nov-00 GTB 99.95 1200000 1632542 73.50
18. NSE Normal 24-Nov-00 DSQ Bio 193.68 1575000 4413122 35.68
19. BSE Normal 27-Nov-00 Adani Exp 669.63 490000 495110 98.96 _________________________________________________________________________________________ 5.35 During the period from August, 2000 to March, 2001, transaction of KP entities through DKB Securities created false/misleading appearance in the certain scrips such as DSQ Bio-Tech, Shonkh Tech, Mascon etc. which is as given below:
_________________________________________________________________________________________ Exch Trade Date Selling KP Scrip Name Selling Total Traded Percent of entity quantity by Qty in the selling KP entity scrip at the quantity of exchange on KP entity the day of to the selling by KP total entity traded quantity in the scrip _________________________________________________________________________________________ BSE 02/01/2001 Classic SHONKH TECH 500,000 1167950 42.81 BSE 12/26/2000 Classic TIPS INDUS. 100,000 409208 24.44 BSE 11/20/2000 Panther DSQ BIO TECH LT 400,000 1230046 32.52 BSE 12/04/2000 Panther DSQ BIO TECH LT 200,000 608463 32.87 NSE 12/07/2000 Panther DSQ BIO TECH LT 500,000 1337557 37.38 NSE 01/03/2001 Classic DSQ BIO TECH LT 1000,000 3793853 26.36 _________________________________________________________________________________________ 5.36 The above details shows as an illustration that if these circular transactions are excluded from the volumes traded at the exchanges on the given day, then there are hardly any genuine volumes i.e. the large part of the liquidity on the given day in the scrip was on account of circular transactions of KP entities. These trades could have induced the general investing public to transact in these scrips on the above mentioned days due to false appearance trading activity which actually was largely on account of circular trades of KP entity.
5.37 I find from the above that Shri Ketan Parekh and Kartik Parekh through these above mentioned entities which are connected/controlled by Ketan Parekh/Kartik Parekh undertaken these financing, circular and fictitious trades with a view to create artificial volumes and artificial markets in certain scrips. These acts of above mentioned persons/entities were in violations of the provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995.
4. Benchmarking of price of scrip based on non-genuine transaction.
5.38 I find from the Order log and trade log that the shares sold by KP entities through CSFB Securities and DKB Securities were again purchased back by same / other KP entities through other brokers. Similarly, by using CSFB proprietary account, shares were sold by one KP entity to CSFB proprietary account and were again purchased back by same/other KP entities from CSFB proprietary account through synchronised deals. Trades of KP entities have involved no change in beneficial ownership of shares i.e. shares were rotating from one KP entity to same/different KP entities and thus trades executed by Ketan Parekh entities were fictitious trades and were not genuine trades. They created artificial volumes & false market and gave misleading appearance of trading in select scrips. 5.39 These purported sale of transactions of CSFB Securities on behalf of KP entities constituted a substantial portion of the total quantity traded in the scrip at the Exchange on the day of the transaction. For example, on Feb 23, 2001, Luminant had sold 2000000 shares of Mascon Global through CSFB Securities which represented 99.85% of the total traded volume in the scrip of Mascon Global on that day at BSE. Similarly, on January 1, 2001, sale transaction of Luminant through CSFB Securities in Lupin Lab constituted more than 99.81% of total traded volume in the scrip of Lupin Lab on that day at BSE. On February 1, 2001, sale transactions of Luminant in the scrip of Shonkh Tech constituted 42.81% of total traded volume in that scrip on that day at BSE. On January 29, 2001, sale transaction of Luminant in the scrip of Cadila Healthcare constituted 94.66% of total traded volume in the scrip on that day at BSE. On February 16, 2001, sale transactions of Luminant in Adani Exports constituted 68.60% of total traded volume in the scrip on that day at NSE. I find that like-wise, purported sale transactions of KP entities through DKB Securities constituted a substantial portion of the total quantity traded in the scrip at the Exchange on the day of transaction. For example, on February 1, 2001, sale trade of Classic the scrip of Shonkh Tech constituted 42.81% of total traded volume in the scrip on that day at BSE. On December 26, 2000, Classic had sold 100000 shares of Tips Industries which constituted 24.44% of total traded volume in the scrip on that day at BSE. Similarly, on Feb 01, 2001, Classic had sold 500000 shares of Mascon Global through DKB Securities at BSE, which represented 16.83% of the total traded volume in the scrip of Mascon Global on that day at BSE. In view of such large volume, price of scrip on these days was established based on the synchronised, circular and non-genuine trades by above mentioned entities. Shri Ketan Parekh and Kartik Parekh through the above mentioned entities which are connected to /controlled by Ketan Parekh/Kartik Parekh had undertaken and indulged in these financing, circular and fictitious trades with a view to create artificial volumes and artificial markets. These acts of above mentioned persons/entities were in violations of the provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995.
6.1 The submissions made by 'KP entities' w.r.t the charges under the first show cause notice are baseless, irrelevant and not tenable according to me. Their contentions are:-
a. SEBI cannot sit in judgment about the abnormality of price rise in a particular scrip in the market b. That there is no similar trend in other scrips in the same industry I am concerned with the allegations of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 committed by the KP entities as mentioned in the show cause notices. To establish the charge of entering into trades with manipulative intent, there cannot be more reasonable and convincing evidence as in the instant case . One needs to consider the following two things in cases involving allegation of market manipulation :
(1.) whether the traded volume was sufficient to have impact on the market, and ;
(2.) whether alleged transactions were effected with the motive of manipulating the market.
In so far as the volume of trades indulged into by the entities connected with Ketan Parekh is concerned, the same is evident from the table given at para 5.33 above. It can be seen that total volumes of KP entities as compared to the market volume were very large and trading volume represented 98% or 99% of total market volume on many days. And as far as "motive" is concerned, the same is also evident from the trading pattern adopted by KP entities as discussed in detail in preceding paras. In the matter of Carole L. Haynes, decided by the Administrative Law Judge of U.S. Securities Exchange Commission, on November 24, 1995, it was held that the proof of 'scienter' in manipulation cases need not be direct, but rather may be inferred from circumstantial evidence, including evidence of price movement, trading activity and other factors. "Proof of a manipulation almost always depends on inferences drawn from a mass of factual data. Findings must be gleaned from patterns of behaviour, from apparent irregularities and from trading data. When all of these are considered together, they can emerge as ingredients in a manipulative scheme designed to tamper with free market forces." I find that all the entities connected to Shri Ketan Parekh had acted in concert constantly buying and selling of shares without change in the beneficial ownership, and synchronizing the trades with a predetermined plan to oust other market participants which is established from the facts stated in the preceding paragraphs. It is the contention of Shri Ketan Parekh that he himself had not indulged in any of the alleged transactions. The same is not sustainable in the light of the fact that Shri Ketan Parekh is connected to all such entities in one way or the other and for the reason that the entities were acting on his behalf and under his instructions. All the entities had either Shri Ketan Parekh or Shri Kartik Parekh or their close relatives as directors. It is very clear that Shri Ketan Parekh was the controlling mind of all these entities who had acted in concert in order to perpetrate the violations. The common pattern observed in the case of these entities was that orders were placed at prices higher than the last traded price thereby establishing a higher price for the scrip. Simultaneously, price rise in the scrip also had been noted. Considering the large volume of the transactions entered into by KP entities, I am of the view that, artificial price rise has been caused by the entities connected to KP in the scrip of Lupin Laboratories. Regulation 4(a) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 prohibits entering into trades in any scrip, directly or indirectly with the intention of inflating the price. In the instant case, manipulative intent is manifest in the pattern of trades entered by the KP entities, where orders were placed at prices higher than the last traded price coupled with large transactions causing price rise . In view of the above, I find Classic Credit, Panther Fincap and Saimangal guilty of violating Regulation 4(a) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 in respect of their dealings in the scrip of Lupin Laboratories.
6.2 As far as second show cause notice is concerned, although Shri Kartik Parekh and other entities have raised the contention that they are not connected, I find that with respect to the Investment companies connected to Ketan Parekh, all of them either have Ketan Parekh as its director or all are having family members of Ketan Parekh as directors in such companies. Detailed finding in respect of their connection is given at para 5.1 above. Also, in the statements taken on oath during investigation, it was revealed that Shri Ketan Parekh was the authorized person to give instructions as to transactions entered by all these entities. I find that all the entities are connected with each other and Shri Ketan Parekh is the person acting through all these entities keeping them as front entities. As observed earlier, Shri Kartik Parekh also had acted through these entities. Furthermore, it has been submitted by the authorized representative s of the CSFB Securities and DKB Securities that the transactions had been entered into by the entities at the instance of Shri Ketan Parekh or his relative Shri Kartik Parekh.
6.3 Another contention put forth is that their intentions were only to obtain finance by way of entering into the trades in question, and financing per se is not bad in law. According to me, all the KP entities had been acting in concert and misusing the exchange mechanism for the purpose of raising finance. These transactions entered into by them were not genuine and had resulted in creation of the artificial volumes in the scrip. The pattern of transactions entered into by the connected entities in the instant case have already been discussed in the paragraphs above. Although shares had changed hands in the course of alleged transactions, I find that they were rotating within a group, all the members of such group being individuals/entities who are connected/associated with Ketan Parekh. In this regard, I go a little ahead of what is stated before me. Although, the separate acts of individual entities, as they claim, may not have resulted in any aberration of law, I find that the entities which were otherwise also connected with each other have acted in concert. When the corporate personality is being blatantly used as a cloak for fraud or improper conduct, and where the protection of public interest is of paramount importance, it is necessary to lift the corporate veil so as to pass an appropriate order rendering justice. This power of the adjudicating authority has been accepted by the Courts and a specific instance of the same can be found in the decision of the Hon. Supreme Court in Delhi Development Authority Vs. Skipper Construction Pvt. Ltd. and Another [(1996) 4 SCC 662].
6.4 I am convinced that all the KP entities have been acting under instructions from Shri Ketan Parekh/Shri Kartik Parekh and had acted in order to perpetrate the manipulative intent of Shri Ketan Parekh/Shri Kartik Parekh. The fact that the transactions had continued for a considerable period of time, that similar pattern of trades had been used and the proximity of placing sell / buy orders between the entities, all go to prove that the trades were synchronized with manipulative intent, and was the result of pre-meditated arrangement on the part of the entities. This, I find, is reasonable and convincing evidence to indict the culpability of the delinquents in the instant case. Furthermore, it has been submitted by the authorized representative s of the brokers that the transactions had been entered into by the entities at the instance of Shri Ketan Parekh or his relative Shri Kartik Parekh.
6.5 The reference by the KP entities in their reply about the circular relating to negotiated deals is also misplaced in the sense that the violations committed by the entities covered hereunder are with respect to the provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995. In the disguise of normal trade transactions, shares were churned out continuously, passing through a similar set of persons/entities, which again affected the price discovery mechanism at the exchange. This action of theirs had create d a false and misleading appearance in so far as ordinary investors were concerned. It is the duty of the regulator to see that the securities market is a safe place for all the investors and there is sufficient room for all and no one is misguided as a result of such non-genuine transactions.
6.6 I am of the considered view that the activities described above indulged into by the individuals/entities in the instant case are violative of Regulation 4(b), (c) and (d) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995. Proof for violation of Regulation 4(b) requires indulging in any act, which was calculated to create a false and misleading appearance of trading on the Securities Market. In the instant case, Ketan Parekh, Kartik Parekh and all the KP entities, have indulged in activities which were carried out for no other reason but for creation of false and misleading appearance of trading in the Securities Market. Admittedly, the intention of Ketan Parekh and the entities through which he had employed, in conducting the transactions described above , was to carry out financing transactions. This is sufficient to conclude that the ulterior motive of Ketan Parekh and these entities was responsible for creation of artificial volumes by misusing the stock exchange mechanism, thereby misleading the investors in order to make undue gains. Violation of Regulation 4(c) of the aforestated regulation require indulging in any act which had resulted in the reflection of prices of securities based on transactions that were not genuine trade transactions. Here also, the non-genuine trade transactions carried out by Shri Ketan Parekh through his entities had resulted in the reflection of prices of securities based on transactions which were not genuine trade transactions. I have also noted that such transactions were done by them in securities which were otherwise not very liquid such as Shonkh Technologies, Mascon Global etc. The shares had been continuously passing through entities who were connected to and controlled by Shri Ketan Parekh himself, which means that there has been no effective transfer of beneficial ownership and the transactions were intended to operate as a device to inflate the market price of the securities in violation of Regulation 4(d) of the aforesaid regulation.
6.7 In respect of their request for cross-examination, it is a well settled principle of law that where prejudice is caused to the party by way of the denial for cross-examination by the authority, the same will be in bre ach of principles of natural justice. If the statement given by CSFB/DKB representative was the only evidence that was used against him, the request was to be accepted. However, there are the order logs and trade logs to show that trades were synchronized. The conclusion to the effect that trades were synchronized is not based on the statement given by CSFB/DKB representative. It was also observed by the Hon'ble Securities Tribunal in the matter of Bang Securities (Appeals Nos: 54,55,56,57 of 2002), that intention required for proving violation of Regulation 4 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 is implicit in a synchronized trading. The details of trades which constitutes synchronized trades have been mentioned at paragraph 5 above. Therefore, I am not conceding to the request for cross-examination .
6.8 According to me, the entities connected to and controlled by Ketan Parekh, if allowed to continue with their operations in the securities market, could pose constant threat to the integrity of the securities market and endanger the investors' interests. Two of the registered intermediaries, i.e., N H Securities and Classic Shares & Stock Broker Ltd, while entered into proprietary trades, have also indulged in manipulative transactions, as had been noted at paras 5.5 and 5.19 above. There are other actions of violations noted against these intermediaries and proceedings are underway. Enquiry had been conducted into the violations and statutory penalties would follow separately in respect of the same.
6.9 An order dated April 04, 2001 had been passed against Mr Ketan Parekh, Mr Kartik Parekh and broking firms which were controlled by and connected with him such for their prima-facie involvement in market manipulation debarring them from undertaking any fresh business as a stock broker or merchant banker till further orders. This order was subsequently confirmed vide order dated June 21, 2001, after the post decisional hearing. Another order dated 6th June 2003 was passed against M/s Triumph Securities, M/s Classic Shares & Stockbroking Services Ltd., M/s Classic Credit Ltd., M/s Luminant Investment Pvt. Ltd., M/s KNP Securities Ltd., Panther Fincap & Management Services, M/s Panther Investrade and M/s N.H. Securities under Section 11B of SEBI Act, directing them not to buy, sell, or transfer, pledge or dispose off or deal in any other manner the shares of Global Trust Bank till investigations are completed, having noticed their roles in the pr ice manipulation in the scrip of Global Trust Bank. 6.10 Therefore, in exercise of the powers conferred upon me by Section 4(3) read with Section 11B and Sec 11(4)(b) of the SEBI Act, 1992, and Regulation 11 read with Regulation 13 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003, I hereby prohibit Shri Ketan V. Parekh, Kartik K. Parekh, Classic Credit Ltd., Panther Fincap and Management Services Ltd., Luminant Investment Ltd., Chitrakut Computers Pvt. Ltd., Saimangal Investrade Ltd., Classic Infin and Panther Investrade Ltd. from buying, selling or dealing in securities in any manner directly or indirectly and also debar them from associating with the securities market, for a period of fourteen years.
6.11 It is also clarified that the instant order does not preclude the actions taken or any other proceeding pending/to be taken in future by SEBI against the individuals/entities covered in this order.
6.12 This order shall come into force with immediate effect.