Securities Appellate Tribunal
Sebi vs Shri Pratik Mafatlal Shah on 15 February, 2008
ORDER
G. Anantharaman, Member 1.1 A preliminary analysis into the buying, selling or dealing in the shares issued through Initial Public Offerings (IPOs) of various companies during the period 2003-2005, by Securities and Exchange Board of India (hereinafter referred to as SEBI) prima facie showed that, certain entities opened many demat accounts in fictitious/ benami names and the said entities had cornered/ acquired the shares of such companies allotted in the IPOs, by making applications in fictitious/ benami names with each of the applications being of small value so as to make it eligible for allotment under the retail category. The said demat accounts opened in fictitious/ benami names are hereinafter referred to as the afferent accounts. It was further revealed that, subsequent to the allotment of IPO shares, the fictitious/benami allottees had transferred the said shares to their principals who were prima facie identified by SEBI as key operators/ master account holders. The modus operandi as detailed above led to the prima facie view that the thousands of entities in whose names demat accounts and bank accounts had been opened and IPO applications made, were either benami (name lenders) or non existent.
1.2 In the above facts and circumstances, SEBI vide an ad interim ex parte order dated April 27, 2006 inter alia directed various key operators including Shri Pratik Mafatlal Shah (hereinafter referred to as Shri Shah) not to buy, sell or deal in the securities market including in IPOs, directly or indirectly till further directions as it was inter alia found that he had prima facie violated the provisions of Regulation 3 of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (for short the FUTP Regulations) and the provisions of Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines 2000 (for short DIP Guidelines). It was further directed to treat the said interim order as show cause notice against the entities named therein and an opportunity was also provided to the said entities to file their objections, if aggrieved.
2.1 Shri Shah vide letter dated July 11, 2006 inter alia stated that he had not violated the provisions of Securities and Exchange Board of India Act, 1992 (Act) or Regulations/Guidelines framed thereunder. He further stated that no opportunity of hearing was provided to him before passing the ad interim order dated April 27, 2006. According to him, he had acquired 15,595 shares of Suzlon Energy Ltd. (hereinafter referred to as the company) with an intention to make profits. He claimed that he had made the payments only after acquiring the shares of the company. He stated that he had acquired the shares of the company from the allottees who were desirous of immediately selling the shares and making the profits. According to him, there was no arrangement or agreement with anybody while acquiring the shares of the company. Shri Shah added that he had sold the shares of the company on or after the day of its listing through a registered stock broker. He also stated "I have acquired shares through the market and then paid for the same on acquisition." Shri Shah added that on receipt of the interim order he had obtained confirmation letters from the investors from whom he had purchased shares. According to him, the pre conditions to invoke the provisions of Section 11(4) (b) of the Act have not been complied with by SEBI before passing the interim order dated April 27, 2006. He further requested for an opportunity of hearing.
2.2 Shri Shah appeared before me on November 6, 2006 and made submissions on the basis of his reply dated July 11, 2006. Pursuant to the hearing, vide letter dated December 16, 2006, Shri Shah inter alia stated that he was an investor in securities and had invested in several scrips over a period of four years. He added that he used his own funds for making investment in the shares of the company. Subsequently, vide letter dated December 20, 2006, Shri Shah stated that he was an investor in securities for a period of two years. Shri Shah had also enclosed the copies of letters of purportedly made by the investors stating that they had not received any form of finance from Shri Shah.
3.1 I have perused the submissions of Shri Shah and other materials available on record. In the facts and circumstances, sole issue for consideration is, whether the directions issued by SEBI vide ad interim order dated April 27, 2006 need to be continued, revoked or modified in any manner in so far as it relates to Shri Shah.
3.2 Shri Shah in his reply inter alia contended that the provisions of Sections 11 (4) of the Act could not be invoked without initiating an investigation / enquiry. In this context, I note that the primary function and duty of SEBI is to protect the interests of the investors in securities and to regulate the securities market. The said duty is inter alia performed under Sections 11, 11B of the Act which is the very soul and heart of it. The provisions of the Act such as Sections 11B, 11(4) etc are meant to arm SEBI with authority so as to enable it effectively to exercise power and achieve the declared objectives of the Act. One cannot lose sight of the fact that SEBI has to regulate a speculative market and in such a market varied situations may arise, all of which cannot be envisaged and that there may be an urgent need to pass an order (without an opportunity of hearing), depending on exigencies. As regards his contention that initiation of investigation/ enquiry is a condition precedent for passing a direction under Section 11(4) of the Act, I note that the powers under Section 11(4) of the Act are in addition to and not in derogation of powers under Sections 11(1), (2), (2A) and (3) and 11B of the Act. SEBI being the regulator carries with it all the necessary powers expressed or implied which are essential to meet any exigencies, in order to protect the interest of investors. In such circumstances, the contention that the initiation of investigation/inquiry is a condition precedent for the issuance of direction under Section 11 (4) of the Act is difficult to accept. Further, SAT, in its order dated January 08, 2007 inter alia observed in the matter of Karvy Stock Broking Ltd. v. SEBI "If the prima facie facts disclose a case for proceeding further in the matter and depending upon the nature and gravity of the wrong doing, it would decide what measures it needs to take under Section 11 to protect the securities market and also the interests of the investors. If it feels that immediate preventive action is essential, it can "restrain persons from accessing the securities market and prohibit any person associated with securities market to buy, sell or deal in securities" with immediate effect"...." The SAT further observed in the case cited supra "The provisions of the Act are basically intended to protect the interests of the investors and to promote the market. However, the Act as initially enacted provided primarily for taking promotional or protective measures. The power to take preventive or punitive measures was implicit. Now it has been expressly extended to taking even the preventive or punitive measures.... "In view of the above, we hold that the word 'inquiry' used in Section 11(4) refers to the inquiries held under Sections 11, 11B, also to the enquiry under the inquiry regulations framed under Section 12(3) and also to the inquiry held under Chapter VIA and it is during the pendency of any of these inquiries that an interim order could be passed with a view to protect the interests of investors or in the interest of the market". It is also to be noted that SEBI , vide order dated January 20, 2006 ordered investigations in the matter of IPO irregularities and in the said order, the requirement for giving notice was waived in the interest of investors and securities market.
3.3 The IPO of the company opened on September 23, 2005 and closed on September 29, 2005 and its shares were listed on the stock exchanges on October 19, 2005. The issue price of the Company was Rs.510/- per share and the closing price of the said shares on the day of listing was Rs.692.85/- per share. The off market credits of shares of the company to the dematerialzed account of Shri Shah before or after the listing is not disputed. The details of such credit are given below.
Name of the alleged key operator Name of the Depository Participant Client ID Name of IPO Number of afferent accounts from which shares received by Shri Shah.
No of shares received by Shri Shah through off market transfers Shri Pratik Mafatlal Shah Goldmine Stocks Pvt Ltd 10068824 Suzlon Energy Ltd.
71015595 3.4 On a perusal of the list of demat account details of the investors (provided by Shri Shah), it appears that they had opened number of multiple accounts. The following account holders on the face of it appear to have multiple accounts prima facie opened by the same individuals through playing on the same names in different permutations and combinations.
1BHAVIK M SHAH BHAVIK M SHAH BHAVIK MAFATLAL BHAVIK MAFATLAL SHAH BHAVIK SHAH 2 MAFATLAL G SHAH MAFATLAL G SHAH MAFATLAL GULABCHAND MAFATLAL GULABCHAND MAFATLAL GULABCHAND SHAH MAFATLAL GULABCHAND SHAH MAFATLAL SHAH MAFATLAL SHAH 3 VINABEN M SHAH VINABEN MAFATLAL VINABEN MAFATLAL SHAH VINABEN MAFATLAL SHAH VINABEN SHAH 4 PRATIK MAFATLAL SHAH PRATIK M SHAH PRATIK MAFATLAL PRATIK MAFATLAL SHAH PRATIK SHAH 5 RENUKABEN J SHAH RENUKABEN J SHAH RENUKABEN JAYANTILAL SHAH RENUKABEN JAYANTILAL SHAH 6 SAURIN D SHAH SAURIN DILIPKUMAR SAURIN DILIPKUMAR SHAH SAURIN DILIPKUMAR SHAH SHAH SAURIN SHAH SAURIN D 7 SHAH DILIPKUMAR SHAH DILIPKUMAR S SHAH DILIPKUMAR S SHAH DILIPKUMAR SHANTI 8 SHAH SHANTILAL SHAH SHANTILAL C SHAH SHANTILAL C SHAH SHANTILAL CHHAGAN SHANTILAL C SHAH SHANTILAL C SHAH SHANTILAL C SHAH SHANTILAL CHHAGANLAL SHANTILAL CHHAGANLAL SHANTILAL CHHAGANLAL SHAH SHANTILAL CHHAGANLAL SHAH SHANTILAL CHHAGANLAL SHAH 9 SHUCHI D SHAH SHUCHI DILIPKUMAR SHUCHI DILIPKUMAR SHAH SHUCHI DILIPKUMAR SHAH SHAH SHUCHI SHAH SHUCHI D The persons at Sr. No. 4 appears to be one and the same i.e. Shri Shah. Some of the above mentioned demat account holders viz. BHAVIK M SHAH, MAFATLAL G SHAH and VINABEN M SHAH prima facie appear to be the family members of Shri Shah. Prima facie, Shri Shah himself had number of demat accounts in his name with different permutation and combination.
3.5 Such features of large number of accounts including multiple accounts of the same entity with the family members operating at tandem driven by a common intent in the same direction, at once uncommon and aberrant has to be viewed in the context of what was happening in the larger picture contemporaneously in cornering shares, though, prima facie, the prime movers may seek to cloak it ingeniously with the legitimacy of a normal business transaction. Such acts in unison both in terms of logistics and in terms of time is not an accident but one contrived, when especially the design fits into the larger profile of contemporaneous manoeuvres in cornering shares through means at once suspect and questionable, irrespective of whatever the entities may seek to explain away by crunching the sequences or recasting the same in a manner that is consistent with their own beguiling act.
3.6 Further, I note that, some of the demat accounts (out of 710 accounts) were commonly used by Shri Shah alongwith one Shri Deepak Shantilal Jain and Opee Stock - Link Ltd. Shri Deepak Shantilal Jain is a relative of one of the directors of Opee Stock - Link Ltd. It may be noted that SEBI vide ad interim order dated April 27, 2006 had also directed Shri Deepak Shantilal Jain and Opee Stock - Link Ltd. not to buy, sell or deal in the securities market including in IPOs, directly or indirectly till further directions. Subsequently, vide order dated February 8, 2008, SEBI confirmed aforesaid ad interim order against Shri Deepak Shantilal Jain and Opee Stock - Link Ltd. The details of demat accounts which were commonly used by Shri Shah, Shri Deepak Shantilal Jain and Opee Stock - Link Ltd. are as follows:
S No Demat Account ID DP Name Name of Account Holder Commonality IPO in which the demat account was used
1.
10066994 ASE Capital Markets Limited BHARAT P. SHAH Common Demat Account used by Shri Pratik M Shah and Opee Dwarikesh Sugar Industries Ltd. & Jet Airways (India) Ltd. (Opee) Ramkrishna Forgings Ltd. (Shri Pratik M Shah)
2. 11541179 Integrated Enterprises (India) Ltd.
GANERIWALA AJAY Common Demat Account used by Shri Pratik M Shah, Shri DS Jain and Opee Suzlon Energy Ltd. (Shri Pratik M Shah) Shringar Cinemas Ltd. (Opee) Shoppers Stop Ltd. (Shri DS Jain)
3. 11545593 Integrated Enterprises (India) Ltd.
GANERIWALA VIJAY Common Demat Account used by Shri Pratik M Shah, Shri DS Jain and Opee Jaiprakash Hydro-Power Ltd. & Shringar Cinemas Ltd. (Opee) Shoppers Stop Ltd. (Shri DS Jain) Suzlon Energy Ltd. (Shri Pratik M Shah)
4. 12935859 IDBI Bank Ltd RAMESH B SHAH Common Demat Account used by Shri Pratik M Shah and Shri DS Jain Infrastructure Development Finance Co. Ltd. (Shri DS Jain) Suzlon Energy Ltd. (Shri Pratik M Shah)
5. 14534679 Karvy Stock Broking Ltd.
BAREENBHAI MAHENDERA BHAI Common Demat Account used by Shri Pratik M Shah and Shri DS Jain Suzlon Energy Ltd. (Shri Pratik M Shah) Nectar Lifesciences Ltd. (Shri DS Jain)
6. 14534688 Karvy Stock Broking Ltd.
HETALDEVI BAREENBHAI Common Demat Account used by Shri Pratik M Shah and Shri DS Jain Nectar Lifesciences Ltd. (Shri DS Jain) Suzlon Energy Ltd.
(Shri Pratik M Shah)
7. 14534707 Karvy Stock Broking Ltd.
DEVSMEETADEVI MAHENDERABHAI Common Demat Account used by Shri Pratik M Shah and Shri DS Jain Nectar Lifesciences Ltd. (Shri DS Jain) Suzlon Energy Ltd.
(Shri Pratik M Shah) Shri Pratik M Shah - Shri Pratik Mafatlal Shah Shri DS Jain - Shri Deepak Shantilal Jain 3.7 Pursuant to the hearing, Shri Shah had submitted the copies of about 250 declarations (out of 710 demat accounts) purportedly made by the investors, to SEBI. Though, prima facie there were multiple demat accounts, the copy of each declaration submitted by Shri Shah was found to be with respect to a specific demat account. i.e. one declaration for one demat account. The contents of all such declarations are same and stereotyped and one of such declaration is extracted herein below:
Name Somchand Chunillal Address 38, Arbudgiri Soc Rambag Road A'bad - 5 Whomsoever it may concern I Mr./Ms Somchand Chunillal residing at the address mentioned above state that I have applied in the Initial Public Offer of Suzlon Energy Ltd. I have contracted Mr. Pratik Mafatlal Shah since I wanted to sell these shares.
It is further stated that I have not received any finances from Mr. Pratik Mafatlal Shah for making application in the Public issue of Suzlon Energy Ltd. It is further stated that I have not entered into any arrangement or agreement with Shri Pratik Mafatlal Shah regarding subscribing to the IPO of Suzlon Energy Ltd.
I have opened a Demat account with valid address and photograph and other documents as required by DP. The details of my Demat Account is as follow.
DP name Kalupur Bank DP ID 301321 Client ID 10103688 Name Somchand Chunilal.
Signature Date : 18/5/06 3.8 I note that there is no mention of the Permanent Account Numbers (PAN) of the investors in the said declaration. Further, Shri Shah himself had made such a declaration to the effect that he had applied in the IPO of the company. In the declaration of Shri Shah, it is further stated "....I have not received any finances from Mr. Pratik Mafatlal Shah for making application in the Public Issue of Suzlon Energy Ltd...." The said declaration is against his own written submissions dated December 20, 2006 wherein he had stated "I submit that I have not subscribed to the shares in the IPO of Suzlon". The demat transaction statement of Shri Shah [depository participant - Goldmine Stocks Pvt. Ltd. (Client Id No.10068824)], as submitted by him, inter alia reveals that he had received 16 shares of the company on October 14, 2005 under the category 'By Public Offer Credit Allotment Date'. In addition to the above, I note the following transfers of the shares of the company to the DP account [depository participant - Goldmine Stocks Pvt. Ltd. (Client Id No.10068824)] of Shri Shah.
Source DP Name Source Client ID Source Client Name Target DP Name Target Client Date of transfer No. of shares IDBI Bank Ltd 12447202 PRATIK MAFATLAL SHAH Goldmine* Shri Shah 10/19/2005 16 HDFC Bank Ltd.
17511916 PRATIK SHAH Goldmine* Shri Shah 10/20/2005 16 HDFC Bank Ltd.
17511924 PRATIK M SHAH Goldmine* Shri Shah 10/20/2005 16 HDFC Bank Ltd.
17511932 SHAH PRATIK M Goldmine* Shri Shah 10/20/2005 16 HDFC Bank Ltd.
17515731 PRATIK MAFATLAL Goldmine* Shri Shah 10/20/2005 16 * Goldmine Stocks Private Limited Prima facie, it is all the account of one and only Shri Shah.
3.9 Therefore, the submission that he had not applied in the IPO of the company is false and misleading. The contradictory versions of Shri Shah, as stated above, render his submissions unworthy of acceptance. Further, on a perusal of the declarations of Smt Bhanuben J Naveri and Shri Jitendra Ravani (submitted by Shri Shah), I note that their signature contained in the respective declaration is different from their demat account opening form submitted to the respective depository participants. Thus, presumably Shri Shah had faked the declaration of the said persons. The above instances create a prima facie doubt on the genuineness of such documents. Further, the afferent account holders are hardly seen in action excepting that their names and addresses helped to create and complete the paper work and documentation. I note that all such declarations are drafted and appear to have signed by one person, as an afterthought, to enable Shri Shah to wriggle out of the consequences. Therefore, all the exercise to reconstruct the case to invest it with the trappings of a commercial transaction is just an after thought to give a veneer of acceptability to unmitigated market abuse festering with all its enormity and gravity.
3.10 According to Shri Shah, the allottees approached him and sold the shares to him as they were desirous of making the profits. In his written submissions dated July 11, 2006 he stated "The various entities who are desirous of immediately selling the shares and making the profits had approached me because they know that I am an investor who buys shares and sell shares in the securities market." Shri Shah had not disputed the fact that he had received 15,595 shares of the company from the purported allottees before or after listing of the said shares. From the demat transaction statement of Shri Shah [depository participant - Goldmine Stocks Pvt. Ltd. (Client Id No.10068824)], as submitted by him, I note that he had received a meager 3,292 shares of the company before the date of listing i.e. October 19, 2005. Further, on the day of listing, Shri Shah had received a credit of 5,991 shares of the company and the rest of the shares were received by him after the date of listing. Thus, out of the 15,595 shares of the company, Shri Shah had received 12,303 shares on or after the date of listing. In this regard, it is worth mentioning that the closing price of the shares of the company on the date of listing was Rs.692.85/- per share as against the issue price of 510/- per share. Had an allottee sold the shares of the company on the date of listing or thereabout, he would have made more profits. Obviously, the investors were interested in making profits and it taxes one's credence, why should they sell the shares to Shri Shah on the date of listing or thereafter. They could have very well sold it in the open market and made huge profits. In the present case, as the majority of the off market transfers were done on the date of listing or thereafter, I cannot accept the contention that the investors sold the shares to Shri Shah for making profits. Therefore, the profit theory falls to the ground on preponderance of probabilities, since no genuine investor would opt to forsake the gains on listing which are more attractive and settle presumably for a pared gain. The touted plea that the alleged afferent account holders did so, for fear of losing on the first day runs counter to their projected desire to acquire the shares of the company, considering the huge application money involved and the price of the shares of the company on the date of listing. The abrupt turnaround as seen in the conduct of alleged investors to one of blasé resignation to settle for a paltry gain is certainly out of character. Definitely such an explanation is opposed to human probabilities and passes comprehension, while not fitting into any credible logic based on prudence. Further, his family members appear to have opened multiple demat accounts and the shares allotted to them in the IPO of the company were also transferred to the demat account of Shri Shah. The multiple accounts opened by Shri Shah and his family members through making use of their names in the same permutation and combination were part of the design to corner shares. The fact remains that the share price was at Rs.692.85/- at the end of first day of listing as against the issue price of Rs.510/-. The same pattern (increase in the share price at the date of listing) was noticed in all the 21 IPOs which were examined. Therefore, it would take extreme naiveté to subscribe to the theory as canvassed that the alleged investors were keen to transfer the shares for a notional gain, when they could have easily made windfall of profits to be gained on listing of the shares. Therefore, the weird proposition taxes one's credence while the profit / loss theory was meant to mask an egregious attempt to corner the shares which Shri Shah would not have got on his own, by any stretch of imagination. The whole case is about cornering of shares and the materials garnered on record coupled with the appreciation of the nuances of the game plan (seen in other cases as well) prima facie reveal that Shri Shah created documents to give a veneer of acceptability to an otherwise blatant case of cornering of shares for profits, which is not denied.
3.11 Further, Shri Shah through his written submissions (including the purported declaration) tried to show that the investors approached him as he was well experienced in the securities market. However, in the written submissions (dated December 18, 2006), it is explicitly stated that he was having an experience of only two years in the said field. Therefore, Shri Shah could not be said to have much experience at the time of transfers of the shares of the company to him. Prima facie it transpires that it is a case of name lending in opening multiple accounts for cornering shares.
3.12 I note that the purchase price in respect of shares of the company (from the allottees) was conspicuously absent in the submissions of Shri Shah. In the facts and circumstances, the only inference which can be drawn is that Shri Shah made use of number of demat accounts and thus cornered sufficiently large number of shares of the company which in the normal circumstances could not have obtained by him in the IPO allotment process. The similarity in opening various demat accounts (including multiple accounts), the off market transfers of the allotted shares before or after the listing of the shares of the company would fairly establish that there existed a well designed plan to corner IPO shares of the company to the detriment of the genuine retail investors for unfair gains. As per the demat transaction statement of Shri Shah (as submitted by him), he had received number of shares of the company even after the date of listing and upto November 29, 2005. The said transfer shows the pattern of accumulation of shares of the company by Shri Shah.
3.13 In the facts and circumstances of the present case, it is difficult to accept the plea that the off market transfers (to the demat account of Shri Shah) of the shares of the company took place without any modus designed to corner the IPO allotted shares. The prima facie existence of a dubious plan to corner the IPO allotted shares would be further strengthened by the fact that majority of the said allotted shares were transferred to the DP account of Shri Shah on or after the date of listing, when the price of the shares of the company was much higher than its allotment price. It is also unbelievable to accept the fact that the allottees transferred their shares or profits to a third party without some sort of understanding existing between them, especially when the price of the shares of the company took an upward trend on the date of listing. Upon perusal of Shri Shah's demat account statement for the period April 1, 2005 to March 31, 2006, I note that Shri Shah had received number of shares through off market transfers. It is seen that he has sold the said shares through CM CD Integrated Services Ltd. from October 20, 2005 onwards till December 7, 2005. On December 6, 2005 and January 25, 2006 he had transferred 502 shares and 6 shares of the company respective to demat account Goldmine Stocks Pvt. Ltd. (account no. 10068808) held in the name of Shri Bhavik Mafatlal Shah. From January 25, 2006 onwards there were nil shares (of the company) in his demat account.
3.14 Thus, it cannot be said that the role of Shri Shah was one of helping the investors in selling their shares. He has exercised control over the allotted shares as stated above. Whatever be the contentions / objections raised by Shri Shah, it is a fact that the allotted shares were transferred by various entities including the family members to his demat account during the period of listing. Further, demat accounts of various investors were commonly used by various people / entities as specified in para 3.6 which is again of a piece with the big picture in the IPO irregularity.
3.15 The entire episode starting from the common use of demat accounts, off market transfers before and after the listing etc. (as discussed earlier in this order) would prima facie establish the fact that the control over the allotted shares have remained only with Shri Shah. The said control itself would prima facie indicate that such afferent accounts were just conduits for receiving shares on allotment and retransmitting them back to Shri Shah upon allotment in a make - believe arrangement to induce the impression that there were beneficiaries behind those accounts which was just a myth.
3.16 The facts of the present case, prima facie indicate that even if the demat accounts existed in the name of the respective account holders, the circumstances shows that they acted as mere name lenders, as the allotted shares were credited to the account of Shri Shah after the allotment. The issue whether Shri Shah had financed the purported applicants in making their applications is not much relevant in the facts and circumstances of the present case, as Shri Shah had admittedly received off markets credits of such allotted shares before or after the listing of such shares, for making unfair gains. Thus, the entire sequence of events, prima facie shows that Shri Shah had made use of number of demat accounts for the purpose of cornering such shares to the detriment of the genuine retail investors. Thus, Shri Shah was prima facie unjust beneficiaries of the entire transactions.
3.17 Further, the conduct of a market participant has to be appraised in the overall context of the happenings in the market at the material point of time and the individual involvement can not be viewed in isolation, in a case specific straight jacket. The prima facie fact remains that the afferent accounts were pressed into service to corner shares for unfair advantage which no market practice can either bless or anoint. It is very difficult to unravel all the threads in the tangled skin of the abuse of the IPO allotment process, since the intentions of the players are shrouded in secrecy and stealth. There can be no direct evidence to fathom the same, but it has to be a matter of inference from the attendant circumstances of the case which prima facie establishes that there was cornering of the shares by certain players either on their own or in concert with others in an abuse of the IPO allotment process. The manner how it was executed through fictitious afferent accounts which were made use by Shri Shah to facilitate off - market transfers on allotment has all the ingredients of a devious design and the same definitely casts a reflection on the conduct of parties including Shri Shah which can by no stretch of imagination be regarded as a fair market practice. The receipt of such large number of shares through off market transfers before or after the listing, from various afferent accounts cannot be considered as a coincidence / normal market practice. Further, the main thrust of the case is whether there was cornering of shares to the detriment of common investors and all other theories are meant to obfuscate the core issue by imparting a different spin to the course of the case.
3.18 Thus, it prima facie appears that Shri Shah had made use of the dematerialized accounts of various persons who were merely name- lenders. Further, Shri Shah, as discussed in Table Chart at para 3.6 appears to have had access to 7 demat accounts which were also made use of by one Shri Deepak Shantilal Jain and Opee Stock Link Ltd. in cornering shares. In so far as that remains a fact on record, the prima facie construction would have to be one consistent with the general game plan as noticed in other cases as well in the over all picture of IPO irregularities as highlighted in the ad interim order dated April 27, 2006. Further, the confirmation given regarding the identity of some of the demat accounts is couched in the same format and language seeking to suggest that certain signatures have been obtained on a stereotyped programmed letter. In such a context, such confirmations prima facie appear to be self - serving declarations from an assortment of name lenders. Therefore, it stands to reason that the present transactions had been craftily structured as part of a pre meditated arrangement while facilitating the cornering of shares and sales subsequently without attracting scrutiny. The market is not a terra - incognita to persons opening demat accounts for IPO allotment with a design to sell in the market and presumably they know how to route their sales also as per approved market practices. In that view, it is opposed to normal human conduct that such persons chose to give a short shrift to practices and go through entities who are neither registered intermediaries nor an expert as in the case of Shri Shah who is just a small time trader. The coming together of such people is prima facie consistent only with a plan to corner shares and not otherwise. His versions appear to be a concoction.
3.19 Amidst such gaping holes in the version of Shri Shah, the prima facie finding should basically rest on the off market transfer of the shares from 710 demat accounts to the beneficial owner account of Shah and subsequent sale by him, when the rest of the trappings of the case appears to be a creation in after thought, designed to beguile cornering of shares in the cloak of a seeming business deal which in the given circumstances of the backdrop of IPO irregularities, is consistent with only a design to corner shares to the detriment of lay investors through a devious ways.
3.20 Proof of manipulation almost always depends on inferences drawn from a mass of factual details. Findings must be gathered from patterns, nature of the transactions etc. The evidence, direct or circumstantial, should be sufficient to raise a presumption in its favour with regard to the existence of a fact sought to be proved. As pointed out by Best in "Law of Evidence", the presumption of innocence is no doubt presumptio juris; but everyday practice shows that it may be successfully encountered by the presumption of guilt arising from circumstances, though it may be a presumption of fact. It is exceedingly difficult to prove facts which are especially within the knowledge of the parties proceeded against and in that view the findings would be inferential from the conduct of the parties. The legal proof in such circumstances partakes the character of a prudent man's estimate as to the probabilities of the case. The SAT has observed in the matter of Ketan Parekh v. SEBI:
...Whether a transaction has been executed with the intention to manipulate the market or defeat its mechanism will depend upon the intention of the parties which could be inferred from the attending circumstances because direct evidence in such cases may not be available....
3.21 In view of the above, it is apparently seen that Shri Shah had played a major role in cornering the shares and thereby prima facie violated inter alia the provisions of FUTP Regulations and DIP Guidelines. Shri Shah could not adduce anything convincing to rebut such a prima facie finding. On the other hand, the available records prima facie establish the role of Shri Shah in cornering the shares in IPO allotment to the detriment of the genuine retail investors for the purpose of making unjust enrichment. I am, therefore, convinced that there are reasonable grounds to confirm the ad interim order of Securities and Exchange Board of India dated April 27, 2006 against Shri Pratik Mafatlal Shah, 6, Sumangalam Flats, Satyanarayan Society, Sabarmati, Ahmedabad -380 005 having Permanent Account Number ADBPS7374M.
4.1 Therefore, in exercise of the powers delegated to me in terms of Section 19 read with Sections 11, 11B and 11(4) of the Securities and Exchange Board of India Act, 1992, I hereby confirm the ad interim order of Securities and Exchange Board of India dated April 27, 2006 against Shri Pratik Mafatlal Shah (Permanent Account Number ADBPS7374M).