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WTM/RKA/EFD/DRA II/ 53 /2015

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA

ORDER

Under section 11B read with section 11(4) of the Securities and Exchange Board of India Act, 1992 in respect of:

Sl. No.

Name of the Entity

PAN

1.

Mr. Bhavesh Pabari

AKGPP8679N

2.

Mr. Bipin Jayant Thaker

ABYPT4984H

3.

Mr. Kishore Chauhan

AFPPC9703G

4.

Mr. Prem Mohanlal Parikh

ALHPP3489N

5.

Mr. Hemant Madhusudan Seth

ANOPS8607E

6.

Ms. Mala Hemant Seth

AZXPS0694J

7.

Mr. Ankit Sanchaniya

BLNPS3316L

8.

Mr. Bharat Shantilal Thakkar

AAZPT9542R

In the matter of dealings in the shares of LGS Global Limited

Appearances:

Mr. Bhavesh Pabari in Person.

1. LGS Global Limited (hereinafter referred to as "LGS") is a company listed on Bombay Stock Exchange Limited ("BSE"). Securities and Exchange Board of India ("SEBI"') initiated investigation into the trading in certain scrips including LGS pursuant to detection of a huge rise in the traded volumes and/or price of the shares of these companies during the years 2008, 2009 and 2010.

2. Upon analysis of the trading activity in the scrips, it was prima facie observed that certain entities had indulged in creating artificial volume by trading in a synchronized manner carrying out off-market transfers among themselves for the purpose of meeting settlement obligations of another and thus contributing to the price rise in these scrips.

3. In view of the above, in order to protect the interests of investors and to preserve the safety and integrity of the market, SEBI passed an interim order dated February 02, 2011 (“interim order”) restraining 39 persons/entities including Mr. Bhavesh Pabari, Mr. Bipin Jayant Thaker, Mr. Kishore Chauhan, Mr. Prem Mohanlal Parikh, Mr. Hemant Madhusudan Seth, Ms. Mala Hemant Seth, Mr. Ankit Sanchaniya and Mr. Bharat Shantilal Thakkar from accessing the securities market, and further prohibited them from buying,

selling or dealing in securities in any manner whatsoever, till further directions. The said interim order was later confirmed by SEBI vide order dated July 08, 2011(‘confirmatory order’).

4. SEBI initiated an investigation relating to buying, selling or dealing in the shares of the scrip of LGS to inter alia ascertain the violation of the provisions of the Securities and Exchange Board of India Act, 1992 ("SEBI Act") and the Rules and Regulations made thereunder. The period of investigation was taken as February 10, 2009 to May 07, 2010 (hereinafter referred to as "investigation period"). Investigation inter alia revealed that

i. Certain connected/related entities had traded significantly in the scrip of LGS during 2008, 2009 and 2010. The relationship/connection between the entities was determined based on at least one of the following parameters:

(a)

Similarities in the particulars/details in the KYC documents such as common telephone number, addresses, e-mail addresses, etc.

(b)

Trading activity in terms of buy/sell among the group and the frequency and off-market transfers between them

(c)

Fund transfers between the members of the group.

ii. On the basis of the said criteria, one group was identified as the "Pabari-Parikh" group ("PP group"). The members of the PP group and the basis of relationship/connection amongst them are as follows:

Table 1: Relationship among the PP group entities

Sl.

Client Name

KYC Relation

 

Fund

Share movement

No.

 

Movement

through

 

off

market

 

transaction

 

1. Bhupesh

Introduced entities at sl. nos. 11, 10, 9, 7 for trading a/c and knows sl. No. 14.

With entity at sl. No. 16.

-

Rathod

 

2. Ketan

Babulal

-

-

With

entity

at

sl.

Shah

no.10.

 

3. Bharat

Shantilal

Entity

at

sl.

no.

9

is

his

With entities at sl. nos. 9, 10, 16.

With

entity

at

sl.

Thakkar

nephew.

 

no. 9.

Same address with sl. no.9.

Entity

at

sl.

no.

9

is

his

 

nominee. Joint a/c with entity at sl. no. 9. Business relations with entities at sl. nos. 4, 6, 7, 10, 11, 16, 17.

 

4. Bipin

Jayant

Same Tel. no. with entity at

With

entity

With entities at sl.

 

Thaker

sl. no. 9. Business relations with entities at sl. nos. 3, 6, 7, 9, 10, 11, 16, 17.

at sl. no. 9.

nos. 12,

6,

9,

10,

11.

5.

Bharat

G

Same address & Tel. no. as entity at sl. no. 8 who has share movement with entity at Sl. no. 9. Entity at sl. No. 6 is nephew of entity at sl. no. 9 and shares same Tel. no. with entity at sl. no. 9.

 

-

Vaghela

With entity at sl. no. 6.

6.

Chirag Rajnikant

Same Tel. no. with entity at

With entities

With

entity

at

sl.

Jariwala

sl.no.9.

no. 4.

Entity at sl. no. 9 is his uncle. Business relations with entities at sl. nos. 3, 4, 7, 9, 11, 16, 17.

at sl. nos. 9, 11, 5.

7.

Kishore

Joint a/c with entity at sl. no. 9. Entities at Sl. nos. 9 & 11 are witness for demat a/c. Business relations with entities at sl. nos. 3, 4, 6, 9, 10, 11, 16.

With entities at sl. nos. 9, 10, 11.

 

Chauhan

With entities at sl. nos. 9, 10, 11, 17.

8.

Bipinkumar

-

-

With

entity

at

sl.

Gandhi

no. 9.

9.

Bhavesh Pabari

Entity at sl. no. 3 is his uncle & entity at sl. no. 17 is his brother in law. Entity at sl. no. 10 is cousin of entity at sl. no. 9. Entities at sl. nos. 9 & 11 both directors of Rajnandi Yarns Pvt. Ltd. Share common Tel. no. with entities at sl. nos. 16, 17, 4.

-

With entities at sl. nos. 10, 11, 3, 4, 16, 17, 8.

Entity

at

sl.

no.

1

introduced him for trading a/c. Business relations with entities at sl. nos. 4, 6, 7, 10, 11, 14, 16.

10.

Prem

Mohanlal

Entity

at

sl.

no.

10

is

With entities at sl. nos. 9, 11, 7.

With entities at sl. nos. 9, 11, 7, 3, 4, 12, 16, 17.

Parikh

cousin of entity at sl. no.9.

Common

email

with

entities at sl. 16, 10 & 17.

     
   

Entity

at

sl.

no.

11

is

   

nominee

of

entity

at

sl.

no.10.

Business

relations with

entities at sl. nos. 3, 4, 6, 7,

9, 11, 16, 17.

 

11.

Hemant

Entities at Sl. nos. 9 & 11 both directors of Rajnandi Yarns Pvt. Ltd. Same email with entity at sl. no. 17. Business relations with entities at 1, 3, 10, 16, 17, 4, 6, 7 & sl. no. 14 is his wife & sl. no. 15 is his nephew.

With entities

With entities at sl.

Madhusudan

Sheth

at sl. nos. 9, 10, 7.

nos. 9, 10, 7, 14, 16, 17, 12, 4.

12.

Jigar

Praful

-

-

With entities at sl. nos. 4, 10, 11, 16.

Ghoghari

13.

Vipul

Hiralal

-

With

With

entity

at

sl.

Shah

Kaushik

no.9.

Rajnikant

Mehta

who

has

off-

market

transaction

with

entity

at sl. No. 9.

14.

Mala

Hemant

Entity

at

sl.

no. 14

is the

With entities at sl. nos. 9,

With

entity

at

sl.

Sheth

wife of entity at sl. no. 11

no. 11,

and entity at sl. the nephew.

no.

15

is

10.

15.

Gaurang

Ajit

Has common address & Tel. no. with entity at sl. no. 11 & entities at sl. no. 11 and 9 both directors of Rajnandi Yarns Pvt. Ltd.

-

-

Seth

16.

Ankit

Same Tel. no. with entity at sl. no. 10 and also shares Tel. no. with entity at sl. no. 9 who is the nominee for his a/c. Business relations with entities at sl. nos.3, 4, 6, 7, 9, 10, 11, 17.

With entities

With entities at sl.

Sanchaniya

at sl. nos. 9,

nos. 9, 10, 11,

6,

10.

12, 17.

17.

Vivek Kishanpal

Entity

at

sl.

no.

9

is the

With entity at sl. no. 11.

With entities at sl.

Samant

brother in law

&

shares

nos. 9, 11, 6, 7, 10,

common Tel. no. & entity at sl.no. 9 is the nominee of sl. no. 17 for trading a/c

 

16.

& bank a/c. Shares email with entity at sl. no. 11. Shares email with entity
& bank a/c. Shares email with entity at sl. no. 11. Shares email with entity

& bank a/c. Shares email with entity at sl. no. 11. Shares email with entity at sl. no. 10.

& bank a/c. Shares email with entity at sl. no. 11. Shares email with entity at
& bank a/c. Shares email with entity at sl. no. 11. Shares email with entity at

iii. On BSE, the PP group entities including the above mentioned 8 entities i.e. Mr. Bhavesh Pabari, Mr. Bipin Jayant Thaker, Mr. Kishore Chauhan, Mr. Prem Mohanlal Parikh, Mr. Hemant Madhusudan Seth, Ms. Mala Hemant Seth, Mr. Ankit Sanchaniya and Mr. Bharat Shantilal Thakkar traded in 71,94,984 shares constituting 35.37% of the total market volume in the scrip traded during the period under investigation.

iv. Several of the trades were synchronised amongst above mentioned 8 entities in the scrip of LGS during the investigation period. It was also observed that out of the total trading of 71,94,984 shares within these entities, the buy and sell orders with respect to 33,92,951 shares accounting for 16.68% of the market volume were placed within a span of one minute. These 33,92,951 shares constituted 33.13% of the total purchases and 38.45% of the total sales of the above mentioned 8 entities. Out of these 33,92,951 shares, the buy and sell orders with respect to 5,98,895 shares accounting for 2.94% of the total market volume, were placed in such a manner that the difference between placement of orders by buyer and seller was within one minute with the order rate as well as order quantity of buy side and sell side was the same. These 5,98,895 shares constitute 5.85% of the total purchases and 6.79% of the total sales of the above mentioned 8 entities.

v. It was further observed that the PP group entities also indulged in self trades on the BSE (i.e. buy client as well as the 8sell client for a given trade was the same resulting in no change of beneficial ownership). In all these self trades mentioned above, the buy and sell stock brokers were also same.

vi. The price volume data analysis revealed that the shares of LGS were traded for 301 trading days during the investigation period on BSE. Out of 301 trading days, the PP group entities, including the above-mentioned 8 entities, traded among themselves on 145 days. It was observed that the volume of trades undertaken by the PP group entities contributed significantly to the daily market volume in the scrip on BSE during the investigation period ranging from 0.90% on March 08, 2010 to 95.07% on April 09, 2010. Out of 145 trading days on which the PP group entities traded among themselves, on 68 trading days the trades executed by the PP group entities contributed to more than 50% of the total market volume in the scrip.

vii. Further, it was observed that out of 145 trading days in which the PP group entities traded amongst themselves, on 125 trading days the PP group entities, the above- mentioned 8 entities executed synchronised trades i.e. trades in which both buy and sell orders were placed within a time difference of one minute. It was observed that the synchronised trades executed by PP group entities, including the 8 above-mentioned

entities, contributed significantly to the daily market volume, ranging from 0.30% on August 31, 2009 to 88.88% on February 15, 2010. Out of 125 trading days, on 11 trading days PP group entities, including the 8 above-mentioned entities, contributed to more than 50% of the total market volume through synchronised trades.

viii. Out of 58,054 trades during the investigation period, the PP group entities, including the above-mentioned 8 entities, entered into 12,901 buy transactions. Further, it was observed that out of 12,901 trades 3,157 trades took place at a price less than LTP

(contributing a gross fall in price by 1008.80), 5,894 trades took place at a price equal to LTP and 3,850 trades at a price greater than LTP (contributing a gross increasing in

price by 1630.25).

ix. It was observed that during the period under investigation, the price of the scrip of

LGS opened at 25.75 and touched a high of 139.40, i.e. an increase of 113.65 in a span of less than 3 months.

5. The afore discussed actions on part of the above mentioned 8 entities i.e. execution of synchronized and self trades, creation of artificial volume and price manipulation distorted the market equilibrium and were also found to be fraudulent in nature. Consequently, a Show Cause Notice dated September 30, 2014 was issued to the above mentioned 8 entities (hereinafter collectively referred to as "the Noticees") calling upon them to show cause as to why suitable directions under section 11B read with section 11(4) of the SEBI Act should not be issued against them for the alleged violation of the provisions of regulations 3 (a), (b), (c), (d), 4(1), 4(2) (a),(b) (e) and (g) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 ("PFUTP Regulations"). The provisions of the Regulations alleged to have been contravened by the Noticees are reproduced hereunder:

Regulation 3. Prohibition of certain dealings in securities

“3. No person shall directly or indirectly (a). buy, sell or otherwise deal in securities in a fraudulent manner; (b). use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made there under; (c). employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange; (d). engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under.

Regulation 4. Prohibition of manipulative, fraudulent and unfair trade practices

4. (1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities.

(2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves

fraud and may include all or any of the following, namely:

(a)

indulging in an act which creates false or misleading appearance of trading in the securities market;

(b)

dealing in a security not intended to effect transfer of beneficial ownership but intended to operate

only as a device to inflate, depress or cause fluctuations in the price of such security for wrongful gain or

avoidance of loss;

(c)

(d)

(e) any act or omission amounting to manipulation of the price of a security;

(f)

(g)

entering into a transaction in securities without intention of performing it or without intention of

change of ownership of such security;”

6. Vide separate letters dated October 15, 2014, Mr. Bhavesh Pabari and Mr. Bharat Shantilal Thakkar sought copies of certain documents which were provided to them vide letters dated December 15, 2014. Vide separate letters dated October 17, 2014, Mr. Bipin Jayant Thaker, Mr. Hemant Madhusudan Seth, Ms. Mala Hemant Seth and Mr. Ankit Sanchaniya sought copies of certain documents which were provided to them vide letters dated December 15, 2014. Vide letter dated October 18, 2014, Mr. Prem Mohanlal Parikh sought copies of certain documents which were provided to him vide letter dated December 15,

2014.

7. All the Noticees except Mr. Kishore Chauhan and Mr. Ankit Sanchaniya filed their replies to the SCN vide separate letters. As regards, Mr. Kishore Chauhan, it has been brought to my notice that during the adjudication proceedings in the same matter, one Ms. Rupal K. Chauhan, claiming to be wife of Mr. Kishore Chauhan, has informed SEBI that Mr. Kishore Chauhan had passed away on May 29, 2013 and had enclosed a certified copy of the death certificate as issued by the Department of Health and Family Welfare, Government of Gujarat, in support thereof. The replies of the Noticees are summarized as under:

i. Mr. Bhavesh Pabari vide his letter dated February 17, 2015 submitted the following:

That he had requested a copy of all the material / documents relied upon by SEBI in the matter such as a copy of the complains, copy of KYC forms, details of alleged fund transfers, details of trades executed by him, copies of trade logs, order logs etc. but he was not provided with the same.

He sought an opportunity to cross-examine any person whose statement has been relied upon by SEBI.

Since proceedings were issued against him by the Adjudicating Officer and a Show Cause Notice was issued to him therein, he had already submitted his reply before the Adjudicating Officer.

Hard copies of trade logs and Order logs were provided in CD format and there was difficulty to purify the data which was in whole. The action proposed report was not enclosed with the documents provided.

There is no denial that he was not a director in Rajnandi Yarns Private Limited but the decision of investment of Rajnandi Yarns Private Limited was taken in company board meeting and not at an individual level.

He does not have any business relationship with other Noticees involved.

The documents furnished have failed to provide any documentary evidence to prove the relationship.

A penalty of 5,00,000/- was imposed on the Noticee by the Adjudicating Officer which has been appealed against in SAT and the Noticee is aggrieved by the Interim Order and the Confirmatory order passed against him making him unable to have any financial means and capacity to take service of legal consultation and represent his case in the present proceedings.

It is alleged in the SCN that he and Mr. Bharat Thakkar shared common address. But on a perusal of the KYC is may be noticed that the address of Mr. Bharat Thakkar is on the 3 rd floor flat no. 32 and that of the noticee is 1 st floor flat no. 6.

ii. Mr. Bipin Jayant Thaker vide letter dated February 18, 2015 submitted the following:

Since proceedings were issued against him by the Adjudicating Officer and a Show Cause Notice was issued to him therein, he had already submitted his reply before the Adjudicating Officer.

The action proposed report was not enclosed with the documents provided.

A penalty of 5,00,000/- was imposed on him by the Adjudicating Officer which has been appealed against in SAT and he is aggrieved by the Interim Order and the Confirmatory order passed against him making him unable to have any financial means and capacity to take service of legal consultation and represent his case in the present proceedings.

In the SCN it has been stated that Mr. Chirag Jariwala introduced him to Arcadia Shares and Stock Brokers Ltd. However, from the KYC it is seen that he is not the introducer but the witness to the said form.

iii. Mr. Prem Mohanlal Parikh vide letter dated February 17, 2015 submitted the following:

Since proceedings were issued against him by the Adjudicating Officer and a Show Cause Notice was issued to him therein, he had already submitted his reply before the Adjudicating Officer.

The action proposed report was not enclosed with the documents provided.

A penalty of 5,00,000/- was imposed on him by the Adjudicating Officer which has been appealed against in SAT and he is aggrieved by the Interim Order and the Confirmatory order passed against him making him unable to have any financial means and capacity to take service of legal consultation and represent his case in the present proceedings.

iv. Mr. Hemant Madhusudan Seth vide letter dated February 18, 2015 submitted the following:

Since proceedings were issued against him by the Adjudicating Officer and a Show Cause Notice was issued to him therein, he had already submitted his reply before the Adjudicating Officer.

Hard copies of trade logs and Order logs were provided in CD format and there was difficulty to purify the data which was in whole. The action proposed report was not enclosed with the documents provided.

Though he has not denied that he was not a director in Rajnandi Yarns Private Limited, but the decision of investment of Rajnandi Yarns Private Limited, was taken in company board meeting ant not at an individual level.

The documents furnished have failed to provide any documentary evidence to prove the relationship.

A penalty of 5,00,000/- was imposed on him by the Adjudicating Officer which has been appealed against in SAT and he is aggrieved by the Interim Order and the Confirmatory order passed against him making him unable to have any financial means and capacity to take service of legal consultation and represent his case in the present proceedings.

v. Ms. Mala Hemant Seth vide letter dated January 31, 2015 submitted the following:

Since proceedings were issued against her by the Adjudicating Officer and a Show Cause Notice was issued to her therein, she had already submitted her reply before the Adjudicating Officer.

Hard copies of trade logs and Order logs were provided in CD format and there was difficulty to purify the data which was in whole. The action proposed report was not enclosed with the documents provided.

Though she had fund movement with some other entities of the PP group she did not form a part of the said group.

She has no business relationship with other Noticees and documents furnished along with the SCN have failed to provide any documentary evidence to prove the relationship.

While it is true that she is the wife of Mr. Hemant Madhusudan Seth, she did not have any business/ professional connection with him and she is living an independent life and is taking her own independent decisions.

A penalty of 5,00,000/- was imposed on her by the Adjudicating Officer which has been appealed against in SAT and she is aggrieved by the Interim Order and the Confirmatory order passed against her making her unable to have any financial means and capacity to take service of legal consultation and represent his case in the present proceedings.

vi. Mr. Bharat Shantilal Thakkar vide letter dated February 18, 2015 submitted the following:

Since proceedings were issued against him by the Adjudicating Officer and a Show Cause Notice was issued to him therein, he had already submitted his reply before the Adjudicating Officer.

The action proposed report was not enclosed with the documents provided.

A penalty of 5,00,000/- was imposed on him by the Adjudicating Officer which has been appealed against in SAT and he is aggrieved by the Interim Order and the Confirmatory order passed against him making him unable to have any financial means and capacity to take service of legal consultation and represent his case in the present proceedings.

It is alleged in the SCN that Mr. Bavesh Pabari and Mr. Bharat Shantilal Thakkar shared common address. But on a perusal of the KYC is may be noticed that his address is on the 3 rd floor flat no. 32 and that of Mr. Bhavesh Pabari is 1 st floor flat no. 6.

8. In addition to the aforesaid submissions, the Noticees have made a common submission that their Memoranda of Appeal filed before Securities Appellate Tribunal may also be taken on record and the submissions made therein shall also be considered as their submissions in response to the SCN in the present proceedings. I note that the Noticees have inter alia made the following common submissions in their respective appeal memorandum:

a) The Adjudicating Officer's order is based on a totally erroneous and untenable assumptions and interpretation of the law and in violation of basic principles of natural justice.

b) All documents which were relied upon in the show cause notice issued by the Adjudicating Officer was not provided to them

c) No relationship between the Noticees m and the remaining entities of the PP group has been established.

d) The trades executed by the Noticees were genuine and bona fide and they received consideration of the same.

e) Their quantities of the shares purchased and sold by the Noticees were miniscule and therefore the same could not have had any impact on the creation of artificial volume and price manipulation in the scrip of LGS.

9. An opportunity of personal hearing was granted to the Noticees on February 26, 2015. None of the Noticees appeared for the hearing except Mr. Bhavesh Pabari who appeared and made his submissions in line with his reply. Since the hearing notice issued to Mr. Ankit Sanchaniya was returned undelivered, a second opportunity of hearing was granted to him on May 05, 2015. However, he did not appear for the hearing.

10. I have considered the allegations levelled against the Noticees in the SCN, replies made by the Noticees in response thereto and other material on record. At the outset, I find that in the present proceedings, the principles of natural justice have been duly followed as all the Noticees were given an opportunity to file their replies/written submissions and also with opportunities of hearing. The Noticees (who did not appear for the hearing) have mentioned in their replies that they are not in a position to attend personal hearing and present their case before me. Further the SCN does not rely upon the statement of any person for the purpose of the allegations levelled against the Noticees therein. Therefore the question of providing an opportunity to cross-examine any person whose statement has been relied upon, does not arise. I now proceed to deal with the present proceedings on merit on the basis of the replies/written submissions of the Noticees on record.

11. The Noticees have made a common submission that the action proposed chart had not been provided to them and that the trade logs and order logs were provided in a CD format due to which the Noticees were unable to purify the data pertaining to them. I have perused the documents sought by the entities and the documents furnished to them. I note that all such relevant documents that were relied upon in the Show Cause Notice have been duly provided to the Noticees. Further, due to the voluminous nature of the trade logs and order logs, the same were given through a compact disc. I, therefore, am of the view that the relevant documents/material which was relied upon in the SCN in the present proceedings has been provided to the Noticees. In view thereof, I reject the submissions of the Noticees in this regard.

12. Mr. Bhavesh Pabari and Mr. Hemant Madhusudan Seth have contended that though they

were directors in Rajnandi Yarns Private Limited, the decision regarding investment of Rajnandi Yarns Private Limited was taken in company's board meeting and not at an individual level. In this regard I note that several off market transactions have been entered into between the PP group entities including the Noticees and Rajnandi Yarns Private Limited the details of which are as under:

Table 2 - Fund movement with Raj Nandi Yarns Private Limited

Date

Client Name

Counterparty Client Name

Total

Quantity

10/02/2010

Chirag Jariwala

Raj Nandi Yarns Private Limited

25000

15/02/2010

Kishore Chauhan

Raj Nandi Yarns Private Limited

195000

18/08/2010

Bharat Shnatilal Thakkar

Raj Nandi Yarns Private Limited

25000

13. It is noted that Mr. Bhavesh Pabari is the nephew of Mr. Bharat Shantilal Thakkar with whom Rajnadi Yarns Ltd. has fund movements. Moreover, Mr. Bhavesh Pabari and Mr. Bharat Shantilal Thakkar also have fund movements among themselves. It is also noted that Mr. Chirag Jariwala is the nephew of Mr. Bhavesh Pabari and has fund movements with him. Even Mr. Kishore Chauhan had fund movement with Mr. Bhavesh Pabari. Further, as shown in Table 1 above, Mr. Hemant Madhusudan Seth was connected to Mr. Bhavesh Pabari and other PP group entities through fund movements, of market transfer of shares and other factors. Therefore, the contention of Mr. Bhavesh Pabari and Mr. Hemant Madhusudan Seth that they had no role in the investment decisions of Rajnandi Yarns Private Limited cannot be accepted.

14. Another Noticee, Ms. Mala Hemant Seth has accepted fund movement with certain Noticees. She has further stated that while it is true that she is the wife of Mr. Hemant Madhusudan Seth, she denies having any business/ professional connection with him and submits that she is living an independent life and is taking her own independent decisions. I note that Ms. Mala Hemant Seth also has fund movements and off market transactions with Mr. Bhavesh Pabari and Mr. Prem Mohanlal Parikh. Vide her letter dated July 8, 2012; a copy of which has been provided to her, it has been admitted by Ms. Mala Hemant Seth that the transaction in the securities market in her name were handled by her husband Mr. Hemant Madhusudan Seth. I, therefore, do not find any merit in her submission noted above.

15. With respect to the submissions made by Mr. Bipin Jayant Thaker, I note that vide letter dated July 11, 2012 submitted by the Mr. Bipin Jayant Thaker to SEBI, he has accepted that Mr. Bhavesh Pabari was his nephew.

16.

I note that the details of the relationship amongst the Noticees, their trade logs and their off market transactions have been sufficiently detailed and were also furnished to the Noticees along with the SCN. Such relations and transactions have not been disputed.

17. Further, Mr. Bhavesh Pabari has submitted that he and Mr. Bharat Shantilal Thakkar do not share a common address since their flat numbers are different. In this regard, I note that as per their own admission, they live in the same building but on different floors.(i.e. 1 st and 3 rd ). Also it is not disputed that Mr. Bhavesh Pabari is the nephew of Mr. Bharat Shantilal Thakkar. Thus, even if the technical argument is accepted that they were residing on different floors of the same building, the connection between them shown in the SCN cannot be disputed.

18. The Noticees have made a common contention that they were not related to each other. In this regard, I note that the relationship / connection among the PP group entities as illustrated in the SCN has been established on the basis of a multiplicity of factors including family relationship, common address, bank account details, fund movements share transfers in off-market etc. Other than a general denial, the Noticees have not produced any satisfactory material/documents to dispute the inferences regarding their inter-se relationship brought out in SCN. In my view, it cannot be a mere coincidence that the Noticees while trading in the scrip of LGS ended up trading amongst each other only and collectively contributed to more than 50% of the total traded volume during the investigation period. Further, the details of the synchronized and self trades among the Noticees were also provided to the Noticees in the SCN in response whereof they have not provided any cogent explanation. In this regard, It is pertinent to note that the Hon'ble SAT has, in many cases such as Classic Credit Ltd. vs. SEBI (SAT Appeal no. 68/2003, Order dated December 8, 2006), Classic Credit Ltd. vs. SEBI (SAT Appeal no. 76/ 2003, Order dated January 9, 2007) and Veronica Financial Services Ltd. vs. SEBI (SAT Order dated August 24, 2012), held that connection/relations can be established on the basis of such factors. In view of the above, I reject the contention of the Noticees in this regard.

19. The Noticees have raised another common contention that the transactions carried out by them were genuine and bona fide and the quantities of their transactions were so minuscule that they could not have led to creation of artificial volume and price manipulation in the scrip of LGS. In this regard, I note that the SCN clearly brings out that there have been number of transactions among the Noticees which were synchronized with the orders with identical rates placed within a span of less than one minute. The particulars of the synchronised trades carried out by the Noticees are as under:

Table 3 - Synchronized trades by the Noticees.

Sl.

Client

Synchronised

% of synchronised trades to total buy by client

% of

Synchronised

% of synchronised trades to total sell by client

% of

No.

Name

buy trade

Market

sell trade

Market

Volume

Volume

1

Bharat

120195

10.21

0.59

77632

6.58

0.38

Shantilal

Thakkar

2

Bipin Jayant

49386

7.61

0.24

23177

4.12

0.11

Thaker

3

Kishore

69500

7.44

0.34

54997

7.62

0.27

Chauhan

4

Bhavesh

28149

4.02

0.14

24734

3.60

0.12

Pabari

5

Prem

57062

6.34

0.28

73036

11.63

0.36

Mohanlal

Parikh

6

Hemant

108777

3.67

0.53

213521

8.22

1.05

Madhusudan

Sheth

7

Mala

0

0.00

0.00

8500

2.65

0.04

Hemant

Sheth

8

Ankit

28101

3.08

0.14

36150

4.13

0.18

Sanchaniya

20. Placing of the sell orders with same counterparties for same quantity of shares at the same price within nil or negligible time difference repeatedly over a period of time is a clear indication that those trades of the Noticees were synchronised/structured. In this regard, the following observations of the Hon’ble SAT in its order dated July 14, 2006 in the matter of Ketan Parekh vs. Securities and Exchange Board of India, are worth mentioning:

“ A synchronised transaction will, however, be illegal or violative of the Regulations if it is

executed with a view to manipulate the market or if it results in circular trading or is dubious in nature and is executed with a view to avoid regulatory detection or does not involve change of beneficial

ownership or is executed to create false volumes resulting in upsetting the market equilibrium. Any transaction executed with the intention to defeat the market mechanism whether negotiated or not would be illegal. 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. The nature of the transaction executed, the frequency with which such transactions are undertaken, the value of the transactions, whether they involve circular trading and whether there is real change of beneficial

ownership, the conditions then prevailing in the market are some of the factors which go to show the intention of the parties. This list of factors, in the very nature of things, cannot be exhaustive. Any one factor may or may not be decisive and it is from the cumulative effect of these that an inference will have to be drawn.”

21. I also note that the Noticees executed multiple self trades wherein one or the other Noticee was on either side of the transaction thereby creating artificial volume in the scrip. The details of the self trades executed by the Noticees are as below:

Table 4 - Self trades by the Noticees.

Sl. No.

Client Name

Total

Total

Self

% of

%

% of

No of

Buy

Sale

trade

Total

Tota

Mark

Self

qty

Buy

l

et

trades

Sale

Volu

me

1.

Bharat Shantilal

1176987

1179456

23264

1.98

1.97

0.11

22

Thakkar

2.

Bipin Jayant

648777

562659

26898

4.15

4.78

0.13

26

Thaker

3.

Kishore Chauhan

934416

722216

1000

0.11

0.14

0.00

1

4.

Bhavesh Pabari

700032

686402

28860

4.12

4.20

0.14

9

5.

Prem Mohanlal

900352

627742

79563

8.84

12.67

0.39

18

Parikh

6.

Hemant

2960225

2599035

484619

16.37

18.65

2.38

138

Madhusudan

Sheth

7.

Mala Hemant

320268

320756

8725

2.72

2.72

0.04

2

Sheth

8.

Ankit Sanchaniya

912651

875458

43410

4.76

4.96

0.21

9

22. The above self-trades clearly did not involve change in beneficial ownership of traded shares and were, therefore, illegal. It is relevant to mention that with regard to the nature and effect of self-trades the Hon’ble SAT, in the matter of M/s. Jayantilal Khandwala & Sons Pvt. Ltd. vs. SEBI (Appeal no. 24 of 2011 decided on June 8, 2011), has held that : “one cannot buy and sell shares from himself. Such transactions are obviously fictitious and meant only to create false volumes on the trading screen of the exchange.

23. It is also important to note that in all these self trades mentioned above, the buy and sell stock brokers were also the same. The detail of the self trades undertaken by stock brokers is placed below:

Table 5 - Stock brokers through whom the Noticees executed self trades.

Buy and Sell Stock Broker Name

Client Name

Total Traded

No. of Trades

Qty

Arcadia Share & Stock Brokers Pvt. Ltd.

Ankit Rajendra Sanchaniya

3762

2

Bharat Shantilal Thakkar

12154

19

 

Bhavesh Pabari

110

2

Bipin Jayant Thaker

1499

2

Hemant Madhusudan Sheth

200

1

Kishore Chauhan

1000

1

Fairwealth Securities Pvt. Ltd.

Ankit Rajendra Sanchaniya

500

1

24. It is also noted that during the period under investigation, the price of the scrip of LGS

opened at 25.75 and touched a high of 139.40, i.e. an increase of 113.65. Further, on 42 trading days and 380 occasions a new high price was discovered. Out of 380 occasions, on 162 occasions (on 19 days of 42 days), all of the Noticees except Mr. Prem

Mohanlal Parikh contributed to an increase in the price to 49.55 (out of 113.65).

25. In addition to the above, the PP group entities including the Noticees had indulged in off-market transfer of 11,90,750 shares of LGS amongst themselves (during the period January 01, 2009 and January 31, 2011) which further corroborated the connection among them. The details of the off market transactions undertaken by the Noticees are as under:

Table 6- Off-market transactions by the Noticees.

Sr.

Name

No.

of

No.

of

No

of

No. of

No

shares

instances

shares

instan

transferred

received

ces

to

group

form group

members

members

 

1. Bharat Thakkar

2500

1

57144

4

 

2. Bipin Thaker

57601

3

0

0

 

3. Kishore

201000

2

0

0

Chauhan

 

4. Prem Parikh

19500

2

0

0

 

5. Hemant Seth

179100

5

40000

1

 

6. Ankit

28000

2

147601

3

Sanchanya

 

7. Bhavesh Pabari

0

0

71600

4

26. This large scale trading amongst the PP group entities, which included the Noticees, all of which were synchronized and did not result in change in ownership created an artificial demand in the scrip of LGS and led to a price rise which was misleading and disadvantageous to the genuine investors in the securities market.

27. In view of the above, I find that the Noticees in the present proceedings were related / connected to each other and connived amongst themselves for execution of synchronized and self trades, creation of artificial volume and price manipulation which not only distorted market equilibrium but were also found to be fraudulent in nature. The Noticees have therefore violated the provisions of regulations 3 (a),(b),(c),(d), 4(1), 4(2) (a),(b) (e) and (g) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003.

28. The Noticees have submitted that based on the same set of facts and transactions as in the instant case monetary penalties were imposed against the Noticees by the adjudicating officer vide his separate order(s) and the Noticees have challenged the said order(s) before SAT. However, I am satisfied that the contraventions as found in this case are grave and have the potential to disturb the market integrity and disturb the fair, equitable and efficient functioning of the securities market. In the instant case, the proceedings under sections 11 and 11B of the SEBI Act have been initiated against the Noticees in addition to the adjudication proceedings against them as the charges against the entities are grave and have larger implications on the safety and integrity of the securities market. In my view, for the serious contraventions as found in the instant case, monetary penalty alone would not be sufficient to safeguard the market integrity. In this regard, the following observations of the Hon’ble SAT in the order dated December 02, 2010, in Appeal no. 70 of 2010 Yashraj Containeurs Ltd. v. SEBI are worth mentioning:

we cannot resist observing that in view of the serious allegations made against the appellants which

stand established during the course of the adjudication proceedings, the Securities and Exchange Board of India (for short the Board) should not have been content with initiating only adjudication proceedings against the appellants in which only a monetary penalty could be levied. This is a fit case where the Board should have considered initiating proceedings under Sections 11 and 11B of the Securities and Exchange Board of India Act, 1992 for issuing appropriate directions against the appellants to protect the integrity of the market and the interests of the investors

This is, indeed a very serious market illegality/irregularity and, in our view, imposing a monetary penalty alone on the company and its promoters will not meet the ends of justice. We are constrained to make these observations because the lenient view taken by the Board does not, in our opinion, protect the integrity of the market and not even the interest of the investors which is its primary duty. This kind of a lenient view will not be a deterrent for others and would send a wrong signal that the delinquent could continue with their nefarious activities by paying a monetary penalty.

29. I note that vide the interim order dated February 02, 2011, SEBI had restrained, inter alia, the Noticees herein from accessing the securities market and further prohibited them from buying, selling or dealing in securities in any manner whatsoever, till further directions.

The directions in the interim order qua these Noticees are still in force. I also note from the material on record that Mr. Kishore Chauhan has passed away on May 29, 2013 and therefore, these proceedings against him have abated and the SCN dated November 30, 2014 as against him is disposed off accordingly.

30. It is important to mention that the Noticees in the present proceedings, against whom the allegations levelled in the SCN have been established, have already been restrained by SEBI vide order dated May 13, 2015 (in the matter of dealings in the shares of Goldstone Technologies Limited) from accessing the securities market and have been further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner for a period of 5 years. It is noteworthy that the said restraint has been imposed on the Noticees for indulging in fraudulent and manipulative acts in violation of the PFUTP Regulations as has been found in the present case. In my view, repeated fraudulent acts and delinquent behaviour of the erring Noticees does not bode well for the integrity, orderly development and smooth functioning of the securities market. It, therefore, becomes incumbent to deal with contraventions, digression and demeanour of the erring Noticees sternly and take appropriate actions for effective deterrence.

31. In view of the above and considering the repetitive nature of the default by the Noticees, I, in order to protect the interest of investors and the integrity of the securities market, in exercise of the powers conferred upon me under section 19 of the Securities and Exchange Board of India Act, 1992 read with sections 11 and 11B thereof and regulation 11 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 hereby restrain the following entities from accessing the securities market and further prohibit them from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner, whatsoever, for the period as mentioned in the table below:

Sl. No.

Name of the Noticees

PAN

Period

1.

Mr. Bhavesh Pabari

AKGPP8679N

6

Years

2.

Mr. Bipin Jayant Thaker

ABYPT4984H

6

Years

3.

Mr. Prem Mohanlal Parikh

ALHPP3489N

6

Years

4.

Mr. Hemant Madhusudan Seth

ANOPS8607E

6

Years

5.

Ms. Mala Hemant Seth

AZXPS0694J

6

Years

6.

Mr. Ankit Sanchaniya

BLNPS3316L

6

Years

7.

Mr. Bharat Shantilal Thakkar

AAZPT9542R

6

Years

32. The period of prohibition already undergone by the Noticees pursuant to the interim order

dated February 02, 2011, shall be taken into account for the purpose of computing the period of prohibition imposed in this order. Further, it is clarified that the restraint/prohibition imposed on the Noticees hereinabove shall run concurrently with the restraint/prohibition imposed by SEBI vide order dated May 13, 2015 in the matter of dealings in the shares of Goldstone Technologies Limited.

33. This order shall come into force with immediate effect. A copy of this order shall be served on all recognized stock exchanges and depositories to ensure that the direction given in the above paragraph are complied with.

DATE: June 29 th , 2015 PLACE: MUMBAI

Sd/-

RAJEEV KUMAR AGARWAL WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA