TCN/ 111 /ISD/03/07 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA Coram: Dr. T. C.

NAIR, Whole Time Member In the matter of IPO INVESTIGATIONS Against Shri Hasmukhlal N. Vora Date of hearing: February 23, 2007 Appearance: For Noticee: Shri Saleh Doctor, Senior Advocate Shri Vinay Chauhan, Advocate Shri Sanjiv Dutt, Chief General Manager Shri B.J. Dilip, Asstt. General Manager Ms. Kshama J. Chavan, Legal Officer ORDER (UNDER SECTIONS 11 AND 11 B OF SEBI ACT, 1992) 1.0 1.1 Background Securities and Exchange Board of India (hereinafter referred to as SEBI), as a part of ongoing surveillance activity, had initiated a probe and advised Bombay Stock Exchange Limited (hereinafter referred to as BSE) and National Stock Exchange (hereinafter referred to as NSE) to look into the dealings in the shares issued through Initial Public Offerings (IPOs) before the shares were listed on the Stock Exchanges. SEBI had also received from Investors / Investors Associations, certain complaints and requests for

For SEBI:

investigation relating to irregularity in IPOs. SEBI appointed an

Investigating Authority under Section 11C of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as SEBI Act) and the Investigating Authority thereafter, carried out a detailed investigation by calling for data from various entities such as Depository Participants, Banks, Issuer Companies, the

Depositories and the Registrars to the Issues etc. During the investigation, it was found that large numbers of multiple dematerialized accounts with common addresses were opened in the name of benami or fictitious entities and/or persons by a few operators who have played major role in cornering the shares meant for retail investors.

1.2

The investigations revealed that certain persons/ entities had made applications in the retail category through the medium of thousands of fictitious / benami IPO applicants with each of the application being for small value so as to be eligible for allotment under the retail category. Subsequent to the receipt of IPO allotment it was suspected that these fictitious / benami allottees had transferred shares to their principals who in turn were suspected to have transferred the shares to the financiers who had originally made available the funds for executing the game-plan.

1.3

On the basis of data obtained from National Securities Depository Ltd.(hereinafter referred to as NSDL) and Central Depository Services (India) Ltd. (hereinafter referred to as CDSL), it was suspected that 24 key operators had made off-market transfers to various entities during the pre-listing period. These entities who
2

received shares through off-market transfers from the 24 key operators would have provided finance to the key operators which was used for cornering the retail portion of the IPO shares. Since the financiers had received the shares from the key operators it was suspected that these financiers were the ultimate beneficiaries of the IPO abuse committed by the key operators. As observed in the cases of Yes Bank and IDFC, it would be seen that many of the financiers sold the shares immediately on listing and commencement of trading on the stock exchanges thereby profiting from the higher listing price as compared to the issue price. Even in a few cases where the financiers may not have actually sold the shares in the market, made notional gains from the higher listing price. 1.4 It was suspected that Shri Hasmukhlal N. Vora (hereinafter referred to as Shri Hasmukh) as one of the financiers to the Key ex

Operators and was among the ultimate beneficiaries as per the

parte interim order dated April 27, 2006 (hereinafter referred to as the order or ex-parte order). It is stated that Shri Hasmukh has received shares from the key operators, Ms. Roopalben Naresbhai Panchal (hereinafter referred to as Ms. Roopal). The details of transactions and the preliminary estimate of profits made by Shri Hasmukh are as under:
Name Of Receiving Demat A/Ct Holder Date of Transaction

DP Name

Client ID

Client Name

Company Name

DP Name

Client ID

No. of Shares

Karvy Stock Broking Ltd Karvy Stock

11920868 11920868

Roopalben Nareshbhai Panchal Roopalben Nareshbhai

IDFC Ltd. IL&FS Investsmart

Hasmukhlal N. Vora Hasmukhlal N. Vora

H.Nyalc hand Fin. Ser.Ltd H.Nyalc hand

10026782 10026782

555000 23400

8/9/ 2005 7/25/2005

DP Name

Client ID

Client Name

Company Name

Name Of Receiving Demat A/Ct Holder

DP Name

Client ID

No. of Shares

Date of Transaction

Broking Limited Karvy Stock Broking Limited

Panchal Nectar Lifesciences Ltd

11920868

Roopalben Nareshbhai Panchal

Hasmukhlal N. Vora

Fin. Ser.Ltd H.Nyalc hand Fin. Ser.Ltd

10026782

52500

7/18/2005

1.5

It was further suspected that Ms. Roopal had made off-market transfers during the pre-listing period to various entities mentioned in the ad interim ex parte order. SEBI worked out a preliminary estimate of the notional profits made by the above financiers of Ms. Roopal by comparing the closing price (on NSE) on the first day of listing in respect of each of the above IPOs with the issue price of the respective IPOs. The calculations with reference to Shri Hasmukh are as under:

Company Name IDFC Ltd.

Name Of No. of Shares the financier

Hasmukhlal 555000 N. Vora IL&FS Hasmukhlal 23400 Investsmart N. Vora Nectar Hasmukhlal 52500 Lifesciences N. Vora Ltd

Close price on the date of listing 69.50 185.15 260.10

Issue Price (Rs.) 34.00 125.00 240.00

Diff. in Price (Rs.) 35.50 60.15

Gain (Rs.)

19,702,500.00 1,407,510.00 20.10 1,055,250.00

The linkages between entities related to Shri Hasmukh and other financiers and key operators have been brought out at para 11 of the ex-parte interim order. One of the addresses of Shri Hasmukh is 20, Basant Bahar, Near Purshottam Nagar Bus stand, Bopal,

Ahmedabad - 380058. Saryuben H. Vora has also the same address as above and Saryuben H. Vora is a director in Zenet Software
4

Limited (Zenet), Tauras Infosys Limited (Tauras) and Excell Multitech Limited (Excell), which have been identified as financiers in the ad interim ex-parte order. Further, the above three companies as well as Sujal Leasing & Finance Pvt. Ltd. and Seer Finlease Pvt. Ltd. have their offices at H. N. House, Near Old High Court Railway Crossing, Navrangpura, Ahmedabad 380 009 or 303, Anand Chambers, Near Old High Court Railway Crossing, Navrangpura, Ahmedabad 380 009. In the ad interim ex- parte order, it was stated that the office at 303, Anand Chambers belongs to Hasmukh Nyalchand. Shri Dhiren Vora and Shri Uday Vora are the sons of Shri Hasmukh and are the Directors of H. Nyalchand Pvt. Ltd., and Parklight Securities Limited (Parklight), respectively. M/s. H. Nyalchand Pvt. Ltd., is a DP with which Zenet, Tauras, Excell, Sujal Leasing & Finance Pvt. Ltd and Seer Finlease Pvt. Ltd., have their Demat Accounts. A summary of the said linkages are given below. 1.6 In CDSL, Purshottam Budhwani has made off-market transfers of IPO shares to various entities namely Puloma Dushyant Dalal & Dushyant Natwarlal Dalal, Rasila Natwarlal & Natwarlal

Thakordas, Natwarlal Thakordas & Dushyant Natwarlal Dalal, Nimisha Purswani, Kadakia, Rajkumar Jain, Balvinder Niranjan Gurmukhsingh Girdharilal,

Jayprakash

Girdharilal,

Gurmukhdas Rameshkumar Giyamalani, Mehta Bansilal and Magnum Equity Services Limited. It is also seen that in NSDL, SEIPL had made off-market transfers of IDFC shares to Puloma Dushyant Dalal & Dushyant Natwarlal Dalal in NSDL thus showing that SEIPL and Purshottam Budhwani had made off-market

transfers to a common set of entities. Further, in NSDL, Ms Roopal and SEIPL have made off-market transfers to common sets of entities such as Zenet, Seer Finlease Pvt. Ltd., Excell, Tauras, etc. Upon examination of Ms Roopals bank account statement with Bharat Overseas Bank Ltd. (BHOB) Worli Branch, it is seen that Ms Roopal had brought in margin money for IPO finance to the tune of Rs 22.03 crore which correlates with the margin money for 4,663 applications. Upon examination of the source of funds of Ms. Roopal for the margin money brought in by her, the following entities appear to have provided her finance for making the above applications:
Name of the entity Amount transferred (Rs.) 9,50,00,000 3,30,00,000 4,60,00,000 2,65,00,000 20,05,00,000 Date Transfer 20.06.05 20.06.05 20.06.05 20.06.05 of Amount given as margin money to BHOB, Worli Branch Rs 22,03,50,375 (which includes Rs 20,05,00,000)

Seer Finlease Pvt. Ltd Tauraus Infosys Ltd Excell Multitech Ltd Zenet Software Ltd Total amount

1.7

SEBI obtained the bank account statements for the period May October, 2005 and the account opening forms in respect of the following entities which were identified in the SEBI orders in the cases of Yes Bank and IDFC and having their accounts with HDFC Bank:

Sr. Name No. 1.

Address

Name of the Bank and Branch

Bank Account No. Current 0062340000028

Hasmukhlal 20, BASANT BAHAR, N. Vora NR. PURSHOTTAM NAGAR BUS STAND, BOPAL, AHMEDABAD 380058

2.

Seer Finlease Pvt. Ltd.

3.

Excell Multitech Ltd.

4.

Zenet Software Ltd.

HDFC BANK LTD HDFC HOUSE, NR. MITHAKALI SIX ROAD, NAVRANGPURA, AHMEDABAD 380009 H.N. HOUSE, 2ND HDFC BANK LTD FLOOR,, NR. OLD HIGH HDFC HOUSE,, COURT RLY CROSSING, NR. NAVRANGPURA,, MITHAKHALI AHM 380009 SIX ROAD,, NAVRANGPURA, AHMEDABAD 380009 3RD FLOOR, H. N. HDFC BANK LTD HOUSE,, NR. OLD HDFC HOUSE,, HIGH COURT NR. RAILWAY CROSSING,, MITHAKHALI NAVRANGPURA,380009 SIX ROAD,, NAVRANGPURA, AHMEDABAD 380009 3RD FLOOR, H. N. HDFC HOUSE, HOUSE,, NR. OLD NR. MITHAKALI HIGH COURT SIX ROAD, RAILWAY CROSSING,, NAVRANGPURA, NAVRANGPURA, AHMEDABAD, 380009 380009 3RD FLOOR, H. N. HOUSE,, NR. OLD HIGH COURT RAILWAY CROSSING,, NAVRANGPURA,, 380009

Current 0060340005966

Current 0062340000347

Current 0062340000330

5.

Tauras Infosys Ltd.

HDFC HOUSE, Current NR. MITHAKALI 0062340000357 SIX ROAD, NAVRANGPURA, AHMEDABAD, 380009

1.8

The above period was chosen based on the dates of the IPOs of YES Bank Ltd. and IDFC Ltd. SEBI examined the bank account

statements of the above entities relating to fund transfers to the bank account of Ms. Roopal. Client Account Opening forms were also
7

scrutinized vis--vis the name of the introducer, address etc. The details of funds received by Ms. Roopal from the HDFC Bank accounts of the identified entities are summarized below.
Through of Amount in lakh (Rs.) 16.08.05 55.00 Zenet Parklight Date Trxn 17.08.05 17.08.05 112.05 100.00 Zenet Nyalchand Zenet Nyalchand (broker of NSE) Source of original Remarks funds BSE Additional --Base Capital (ABC) Release NSE ABC Release --NSE Payout The fund transfer is on account of payout to Zenet No payout was due to Seer No payout was due to Seer No payout was due to Seer The fund transfer is on account of payout to Seer ---

17.08.05

74.57

Seer

Parklight

BSE Payout

17.08.05

479.73

Seer Nyalchand Seer Nyalchand

NSE Payout

18.08.05

70.00

NSE Payout

24.08.05

105.41

Seer Parklight BSE Payout (broker of BSE)

07.07.05

33.50

24.08.05

42.27

Excell BSE ABC Release Parklight (broker of BSE) Excell NSE Payout Nyalchand (broker of NSE)

27.06.05

480.00

HasmukhHUF DhirenVora Nyalchand

NSE Payout

The fund transfer is on account of payout to Excell The fund transfer from Nyalchand to Dhiren Vora to the extent of Rs. 175 lacs

Date Trxn

Through of Amount in lakh (Rs.)

Source of original Remarks funds is on account of payout No payout was due to Rajesh Patel The fund transfer of Rs.141.67 lakhs from Nyalchand to Hasmukh Vora is on account of payout The fund transfer of Rs.44.58 lakhs is on account of payout to Excell Shah have transferred Rs.20.00 lakhs to Parklight. No payout was due to Sujal Leasing The fund transfer is on account of payout to Dhiren Vora The fund transfer is on account of payout to Hasmukh Vora ---

27.06.05

196.90

27.06.05

206.25

HasmukhHUF Rajesh Patel Nyalchand HasmukhHUF HasmukhVora Nyalchand (broker of NSE)

NSE Payout

NSE Payout

Hasmukh HUF NSE Payout Hasmukh Vora Nyalchand

27.06.05

48.65

28.06.05

56.40

HasmukhHUF --Hasmukh Vora Parklight H S Shah, N S Shah and Mittal Shah HasmukhHUF NSE Payout Sujal Leasing Nyalchand HasmukhHUF NSE Payout DhirenVora Nyalchand (broker of NSE) HasmukhHUF HasmukhVora Nyalchand (broker of NSE) NSE Payout

28.06.05

250.00

07.07.05

200.00

HasmukhHUF --ZealousTrading Khandwala Integrated Fin. Serv. Ltd.

Through of Amount in lakh (Rs.) 07.07.05 50.00 HasmukhHUF Parklight 07.07.05 215.66 HasmukhHUF Nyalchand Date Trxn

Source of original Remarks funds BSE ABC Release HDFC MF Credit --The redemption pertains to short term parking of funds in the HDFC Cash Management Fund. ---

07.07.05

10.00

07.07.05

35.00

07.07.05

46.50

HasmukhHUF --TaurusInfo Sput nik Steels Pvt. Ltd. HasmukhHUF BSE ABC Release SonalVora Parklight HasmukhHUF BSE Payout ParklightSec GirdhariBhatiaInani Commodities Pvt. Ltd. Inani Securities Ltd.

---

HasmukhHUF ParklightSec Gir dhariBhatia Inani Commodities

---

Inani Securities transferred Rs. 25 lacs to Inani Commodities which in turn transferred the same to Girdhari Bhatia. The fund transfer to the extent of Rs. 6.78 lacs is on account of payout to Girdhari Bhatia Girdhari Bhatia received Rs. 24 lacs from Inani Commodities which in turn had received

10

Date Trxn

Through of Amount in lakh (Rs.)

Source of original Remarks funds the funds through redemption of units of JM Mutual Fund. ---

08.07.05

300.00

06.07.05 07.07.05 07.07.05 07.07.05 30.08.05 07.07.05 07.07.05

150.00 100.00 118.75 437.50 500.00 437.50 437.50

HasmukhHUF TaurusInfo Lok Prakashan Excell SputnikSt eels Pvt. Ltd. Excell ShrutiSha h Excell Shreyans Shah Excell Lokpraka shan Excell Lokpraka shan Taurus Lokprak ashan Zenet Lokpraka shan Zenet BahubaliS hah Zenet Lokpraka shan Taurus Info

---

---------------

-------------

08.07.05 30.08.05 20.06.05

218.75 500.00 330.00

-------

----The redemption pertains to short term parking of funds in the HDFC Cash Management Fund. The redemption pertains to short term parking of funds in the HDFC Cash Management

24.05.05

35.91

Seer

---

11

Date Trxn

Through of Amount in lakh (Rs.) 950.00 Seer

Source of original Remarks funds Fund. The redemption pertains to short term parking of funds in the HDFC Cash Management Fund. The redemption pertains to short term parking of funds in the HDFC Cash Management Fund. The redemption pertains to short term parking of funds in the HDFC Cash Management Fund. The redemption pertains to short term parking of funds in the HDFC Cash Management Fund.

20.06.05

---

20.06.05

460.00

Excell

---

20.06.05

265.00

Zenet

---

28.06.05

380.00

HasmukhHUF

---

1.9

It can be seen from the above table that in most of the cases the original source of funds were either BSE/NSE additional base capital release or BSE/NSE payout or redemption of funds in the

12

HDFC Cash Management Fund. The summary of funds received by the identified above entities are below. (i) Zenet had received Rs. 1688.30 lakh from Parklight, Nyalchand, Lokprakashan, Bahubali Shah and redemption of funds in the HDFC Cash Management Fund, all put together. (ii) Seer Finlease had received Rs. 1715.62 lakh from Parklight, Nyalchand and redemption of funds in the HDFC Cash Management Fund, all put together. (iii) Excell Multitech had received Rs. 1842.02 lakh from Parklight, Nyalchand, Sputnik Steels Pvt. Ltd., Shruti Shah, Shreyans Shah, Lokprakashan and redemption of funds in the HDFC Cash Management Fund, all put together. (iv) Tauras had received Rs.767.50 lakh from Lokprakashan and redemption of funds in the HDFC Cash Management Fund, both put together. (v) Hasmukh HUF had received in all Rs. 2475.36 lakh from various sets of entities viz. Dhiren Vora, Rajesh Patel, Hasmukh Vora, Sujal Leasing & Finance Pvt. Ltd, Zealous Trading, Tauras, Sonal Vora, Girdhari Bhatia-Inani

Commodities Pvt. Ltd. and redemption of funds in the HDFC Cash Management Fund. The original sources of the funds in most of the instances were Parklight (a BSE broker) or Nyalchand (a NSE broker) or Sputnik Steels Pvt. Ltd. or Lokprakashan or H S Shah, N S Shah and Mittal Shah or Khandwala Integrated Fin. Ser. Ltd. or Inani Securities Ltd. or Inani Commodities.
13

1.10

Shri Hasmukh had received large amount of funds from Zenet, Tauras and Excell and has also given large amount of funds to the above entities as shown under:
From a/c. no. Transferor Zenet Software Ltd. Tauras Infosys Ltd. Zenet Software Ltd. Tauras Infosys Ltd. Tauras Infosys Ltd. Excell Multitech Ltd. To a/c. no. Transferee Date Amount (Rs.)

0062340000330 0062340000357

Hasmukhlal 0062340000028 N Vora 14/10/05 39,800,000.00 Hasmukhlal 0062340000028 N Vora 08/07/05 30,000,000.00 Hasmukhlal 0062340000028 N Vora 07/10/05 22,000,000.00 Hasmukhlal 0062340000028 N Vora 22/09/05 21,690,000.00 Hasmukhlal 0062340000028 N Vora 29/09/05 21,000,000.00

0062340000330 0062340000357 0062340000357

Hasmukhlal 13/10/05 20,000,000.00 0062340000347 0062340000028 N Vora Zenet Hasmukhlal Software 0062340000028 N Vora 0062340000330 Ltd. 09/08/05 19,378,000.00 Hasmukhlal Tauras 0062340000028 N Vora 0062340000357 Infosys Ltd. 12/07/05 19,000,000.00 Zenet Software Hasmukhlal 0062340000330 Ltd. 0062340000028 N Vora 09/07/05 19,000,000.00 Zenet Software Hasmukhlal 0062340000330 Ltd. 0062340000028 N Vora 20/09/05 15,100,000.00 Zenet Software Hasmukhlal 22/09/05 14,200,000.00 0062340000028 N Vora 0062340000330 Ltd. Zenet Software Hasmukhlal 21/10/05 14,200,000.00 0062340000330 Ltd. 0062340000028 N Vora Excell Multitech Hasmukhlal 0062340000347 Ltd. 0062340000028 N Vora 01/10/05 13,800,000.00 14

Hasmukhlal Tauras 0062340000028 N Vora 0062340000357 Infosys Ltd. 29/08/05 Zenet Software Hasmukhlal 0062340000330 Ltd. 0062340000028 N Vora 13/10/05 Zenet Hasmukhlal Software 0062340000028 N Vora 0062340000330 Ltd. 23/09/05 Zenet Hasmukhlal Software 29/07/05 0062340000330 Ltd. 0062340000028 N Vora Zenet Software Hasmukhlal 0062340000330 Ltd. 0062340000028 N Vora 22/09/05 Excell Hasmukhlal Multitech 23/09/05 0062340000347 Ltd. 0062340000028 N Vora

13,200,000.00

10,050,000.00

10,000,000.00

10,000,000.00

10,000,000.00

10,000,000.00

1.11

The client account opening forms of the identified entities having their bank accounts with HDFC Bank were examined (except in the cases of Purshottam Budhwani and Manojdev Seksaria) and the details are below:
Type of Account No. Account Current 0062340000330 Account Current Account 0062340000357 Bank and Branch HDFC Navrangpura, Ahmedabad HDFC Navrangpura, Ahmedabad HDFC Navrangpura, Ahmedabad HDFC Navrangpura, Ahmedabad HDFC Bank, Branch HDFC Introducer G.

Name Zenet Software Ltd. Taurus Infosys

Bank, Nimesh Gandhi Bank, Nimesh Gandhi

G.

Seer Finlease Current Ltd. Account Excell Multitech Ltd. Jay Shah Current Account

0060340005966

Bank, Uday H. Vora

0062340000347

Bank, Nimesh Gandhi

G.

Savings Account Shilpa Rajan Current

5062000001288 0482100000451

ASE ST Investments Bank, No Name of 15

Name Dapki Welvet Financial Advisors Ltd Kelan A.Doshi

Type of Account No. Account Account Current 0602320009328 Account P Savings Account 0061300039845

Bank and Branch Ahmedabad HDFC Bank, Fort

Introducer Introducer No Name of Introducer

HDFC Bank, No Name of Navrangpura, Introducer Ahmedabad

As per the client account opening forms of Zenet, Excell and Tauras, these companies have the same set of directors viz. Saryuben Vora, Rajesh Patel, Kirtiben Patel and Vishal Patel and have been introduced to HDFC Bank by the same person namely, Shri Nimesh G. Gandhi. As per the client account opening form of Seer Finlease Ltd, Sonal Vora and Saryuben Vora are the authorized signatories for the account maintained by the company. As per the client account opening form of Welvet Financial Advisors Pvt. Ltd, Hasmukh K Modi is the authorized signatory for the account maintained by the company. 1.12 Shri Hasmukh, HUF had received in all Rs. 2475.36 lakh from Shri

various sets of entities viz. Dhiren Vora, Rajesh Patel,

Hasmukh, Sujal Leasing & Finance Pvt. Ltd, Zealous Trading, Tauras Infor, Sonal Vora, Girdhari Bhatia-Inani Commodities Pvt. Ltd. and by way of redemption of funds in the HDFC Cash Management Fund. The original sources of the funds in most of the instances were Parklight (a BSE broker) or Nyalchand (a NSE broker) or Sputnik Steels Pvt. Ltd. or Lokprakashan or H S Shah, N S

16

Shah and Mittal Shah or Khandwala Integrated Fin. Ser. Ltd. or Inani Securities Ltd. or Inani Commodities. 1.13 The above mentioned data, indicates and demonstrates the involvement of Shri Hasmukh in the irregularities relating to IPOs and goes to show, prima facie, that Shri Hasmukh violated the provisions of the SEBI Act, Rules and Regulations framed there under for protecting the interest of investors and the integrity of the securities market. In view of the same, SEBI vide an ad interim exparte order dated April 27, 2006 under section 19 read with sections 11 and 11B of the SEBI Act and Section 19 of the Depositories Act, 1996 issued certain interim directions against various market participants including Shri Hasmukh for violation of Regulation 3 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations 2003 (hereinafter to be referred as FUTP Regulations, 2003) pending enquiry and passing final order. Shri Hasmukh was directed not to buy, sell or deal in the securities market including in IPOs, directly or indirectly, till further directions. 1.14 Para 17.18 of the ad interim ex-parte order dated April 27, 2006, stated that the said order shall be treated as show cause notice against the concerned entities named therein including Shri Hasmukh. These entities were given an opportunity for filing their objections, if any, to the order within 15 days from the date of the order and if they so desire, avail themselves of an opportunity of personal hearing at the SEBI Head Office, Mumbai within 15 days from the date of the order. They were also given an opportunity to
17

avail inspection of the relevant documents relied upon by SEBI against them, prior to hearing. 1.15 Aggrieved by the aforesaid ad-interim ex-parte order, Shri Hasmukh had filed a Special Civil Application (SCA) before the Honble Gujarat High Court at Ahmedabad. The matter was heard at length alongwith other connected matters by the Honble High Court on various dates and vide order dated July 17, 2006 dismissed the SCA. Pursuant to the aforesaid order of the Honble Single Judge, Shri Shri Hasmukh filed Letters Patent Appeal before the Honble Division Bench of the Gujarat High Court. The Honble Division Bench vide order dated December 11, 2006 in the connected matters directed the petitioners to file its reply before SEBI to the impugned show cause notice within two weeks and on receiving the reply SEBI to pass final orders within three months. 2.0 2.1 Reply of Shri Hasmukh N Vora Pursuant to the Honble High Courts directions, Shri Hasmukh filed his reply vide letter dated December 22, 2006 which was received by SEBI on December 26, 2006. The submissions made by Shri Hasmukh inter alia are as under: Legal Issues: (i) The provisions of Section 11B and 11(4) of the SEBI Act and section 19 of the Depositories Act do not give power or authority to pass the ex-parte order. (ii) Powers available under section 11B of the SEBI Act are not available to SEBI for the reason that a direction there under can be issued only after making or causing to be made an enquiry. Investigation and enquiry are two distinct and separate legal proceedings under the SEBI Act and not synonymous as could be seen from SEBI Act itself. In the instant case, no enquiry as contemplated as under
18

section 11B has either been made or caused to be made by the Board so as to warrant issuance of directions against Shri Hasmukh under section 11B. (iii) From the order it is clear that no enquiry has been initiated or is pending or is completed. Further in so far as investigation is concerned it is not clear from the order as to whether investigation in terms of section 11C of the SEBI Act has been initiated by the SEBI or not. If the investigation conducted by the Board as referred to in the order is not in consonance with section 11C of the SEBI Act, then the directions issued to Shri Hasmukh under section 11(4)(b) are also without jurisdiction. (iv) Shri Hasmukh is not an intermediary registered with SEBI and also not associated with the securities market. The scope of expression person associated with the capital market as used in section 12 of the SEBI Act has to be understood following the principal of ejusdem generis. (v) An ad-interim ex parte order is justified only if circumstances so warrant. There was no such emergent situation warranting such an ex-parte order. The order should demonstrate that the situation was emergent warranting an ad-interim order. (vi) The impugned order is vitiated by gross violation of principles of natural justice in as much as no opportunity was ever provided to Shri Hasmukh to explain its version and circumstances as stated in the ex-parte order do not justify dispensing of pre decisional hearing of the noticee. Post decisional hearing provided under section 11(4) is an exception, that pre decisional hearing is the general rule. (vii) In the light of punitive directions, the so called show cause notice is faade and a mockery of justice. The law does not recognize show cause cum penal orders in the matters like the one under reference. The directions under Section 11B and 11(4) can be issued for safeguarding the markets and it cannot be issued for penalizing the person. At this juncture, the order issued against Hasmukh is neither preventive, remedial nor curative but is penal in effect. Factual Issues (viii) Hasmukh though in the normal course of business has provided finance to certain persons / entities, he does not come within the definition of the term financier for the reason that he was not ultimate beneficiary in the scheme of cornering retail allotment nor at any point of time indulged in any activity for cornering retail allotment of shares.

19

He is one of the Financiers and has financed Ms. Roopal for applying in the IPO of IDFC Ltd., ILFS Investsmart Ltd. and Nectar Life sciences Ltd. (x) Save and except the relationship of the borrower and financier, he had no relationship with Ms. Roopal and had no knowledge about the utilization of the funds by her. There is no evidence of record to show that he had any role to play in the abusive practices followed by Ms. Roopal. (xi) In the ordinary course of business, Hasmukh provided loan to Ms. Roopal aggregating to the tune of Rs. 14,67,25,000 from time to time in form of running account on different dates as and when the same was demanded. (xii) The loan so provided was repaid back to him through cheques on various dates to the extent of Rs. 11,05,19,200 and in the form of securities to the extent of Rs. 3,62,05,800. (xiii) The shares transferred by Ms. Roopal to his demat account towards security / settlement / repayment were sold by him in order to realize his principle as well as return on funds. The shares were transferred to his account either at the IPO price or any other price, mutually agreed between them. (xiv) With regard to the transfer of 555,000, 23400, 52500 shares of IDFC Ltd, IL&FS Investsmart Ltd and Nectar Life sciences Ltd. respectively by Ms. Roopal to demat account of Shri Hasmukh, it is stated that Ms. Roopal maintained a running account with him and had transferred funds to his accounts on various dates. In the course of the said lending and borrowing Ms. Roopal had refunded to Shri Hasmukh 6 lac shares of IDFC (and not 555000 as stated in the order), 52500 shares of Nectar Life sciences and 23400 shares of ILFS. These shares were sold by Shri Hasmukh in the secondary market to recover the loan provided by him. (xv) In the absence of any correlation between number of shares transferred and the loan provided, it cannot be alleged that the loan amount was provided for the purpose of cornering shares in the IPO as alleged. (xvi) With reference to the IPOs of Nectar Lifesciences Ltd. and IL&FS Investsmart Ltd., he contended that if the amount was utilised for making retail applications, he should have received 36,720 and 25,950 shares respectively based on the ratio of allotment in the IPO. However, Ms. Roopal had transferred only 52500 and 23,400 shares respectively to his account, which clearly indicate that it was given as part of repayment of loan.
20

(ix)

(xvii) With reference to IDFC Ltd., no amount was given to Ms. Roopal before or on and after the date of opening and closing of the issue. Even assuming that the amount financed for the IPO of Nectar would have come back to the account of Ms. Roopal, the same would amount to Rs. 7.70 crores (9.80 crore amount financed for Nectar Lifesciences less Rs. 1.26 crore, 52500 shares of Nectar @ 240) and if the same amount had been utilised for making detailed application, he should have received 4,32,516 shares of IDFC based on the ratio of allotment in the IPO. However Ms. Roopal had transferred only 6 lac shares to his account which clearly indicates that it was given as a part of repayment of loan. (xviii) It is denied that the amount was advanced by him to Ms. Roopal for the purpose of cornering shares in the IPOs. Ms. Roopals intention was not known to him and it should be noted that even banking institutions who had advanced larger sums to her were unaware of her designs to indulge in manipulation. 3.0 3.1 Personal Hearing Initially vide letter dated May 31, 2006, an opportunity of personal hearing was granted to Shri Hasmukh before the Whole Time Member, SEBI on June 12, 2006 at 11.00 am at SEBIs Office. However, he did not avail the said opportunity of hearing. Instead, he filed Special Civil Application before the Honble Gujarat High Court challenging the ad interim ex-parte order. 3.2 Further, pursuant to the direction of the Honble Division Bench of the Gujarat High Court and the reply dated December 22, 2006, filed by Shri Hasmukh, an opportunity of personal hearing was granted to Shri Hasmukh on February 2, 2007. However, at the request of Shri Hasmukh vide letter dated January 27, 2007 the hearing was adjourned to and held on February 23, 2007. Shri Saleh Doctor, and Shri Vinay Chauhan, Advocates appeared on behalf of Shri Hasmukh on the designated day and made submissions on behalf of Shri Hasmukh. The submissions were by and large reiteration of his
21

reply dated December 22, 2006. Shri Hasmukh also filed written submissions vide letter dated March 8, 2007. 4.0 4.1 Consideration of the issues I have carefully considered the prima facie findings made in the ad interim ex- parte order dated April 27, 2006, Shri Hasmukhs replies dated December 22, 2006, the submissions made by his

representatives during the hearing and the written submissions dated March 8, 2007. The question that arises for consideration is whether the interim order dated April 27, 2006 shall not be confirmed as against Shri Hasmukh. 4.2 At the outset Shri Hasmukh contented that he was not a financier as per the definition of the term given in ex-parte order. I note that the term financier is defined in the ex-parte order as a person who either on his own or alongwith others provided the finance for IPO subscription and are the ultimate beneficiaries in the scheme of cornering retail allotment and forking out a big gain on sale immediately after listing. It is admitted position that Shri Hasmukh financed Ms Roopal and shares were also ultimately received by him and even the profit on sale thereof was pocketed not by Ms Roopal but Shri Hasmukh. Further, in his reply dated December 22, 2007, Shri Hasmukh stated that the transactions with the said key operators were purely commercial transactions to earn interest on the amounts so financed by him. The contention of Shri Hasmukh that he is not a financier, is therefore, contradictory and not convincing.
22

4.3

Shri Hasmukh has contented that the provisions of sections 11B and 11(4) of the SEBI Act and section 19 of the Depositories Act do not give power or authority to SEBI to pass the ex-parte order. In this regard, it would be pertinent to refer to para 17.1 of the ex-parte order, which enumerates the Sections under which the ex-parte order was passed. As may be seen from the said para, that the order was passed with a view to protect the interests of investors and securities market from further acts by the manipulators such as manipulation in IPOs. The order was passed by the Whole Time Member, SEBI in exercise of the powers delegated to him by the SEBI Board in terms of Section 19 of the SEBI Act read with sections 11, 11B and 11 (4) (b) of the SEBI Act and Section 19 of the Depositories Act, 1996. The power to pass an ex-parte order, is derived from Section 11 (4) of the SEBI Act. The proviso to Section 11 (4) clearly empowers SEBI to pass ex-parte orders in emergent situations and a post decisional hearing can be granted thereafter. The contention of Shri Hasmukh, therefore, is devoid of merit.

4.4

Shri Hasmukh contended that powers available under section 11B of the SEBI Act are not available to SEBI for the reason that a direction there under can be issued only after making or causing to be made an enquiry. It is true that investigation and enquiry are two distinct and separate legal processes under the SEBI Act as contented by Shri Hasmukh. However, I note that SEBI had collected numerous factual findings from various sources during the course of its investigation into the dealings in shares issued through IPOs. The order was passed after a comprehensive examination of
23

the factual findings, detailed reasons of which are mentioned in the order. I am of the view that this process amounts to an enquiry within the meaning of section 11B of the SEBI Act. I assert that enquiry, as contemplated under section 11B, is different from enquiry as provided for under the SEBI (Procedure for Holding Enquiry by an Enquiry Officer and Imposing Penalty) Regulations, 2002 (hereinafter referred to as Enquiry Regulations). To support my assertion, I would like to lay forth the observations made by the Honble Bombay High Court in the Writ Petition of Anand Rathi v. SEBI (2002) 110 Com Cas 837, challenging a similar interim Order of SEBI against the President of a Stock Exchange: the power which has been conferred by section 11B to issue direction are of widest possible amplitude and are exercisable in the interests of investors and in order to prevent inter alia a broker from conducting his business in a manner detrimental to the interests of investors or the securities market. The said power to issue directions under section 11B must carry with it by necessary implication, all powers and duties incidental and necessary to make the exercise of these powers fully effective including the powers to pass interim orders in aid of the final orders. The provision of section 11B it is to be noted has been introduced by an amendment brought about in 1995 and the same seeks to confer additional power on the board by way of interim measures, pending inquiry. The same is intended for the protection of the interests of the investors and the securities market. I further note that action under the Enquiry Regulations are applicable to intermediaries registered under section 12 of the SEBI Act. In case of non intermediaries the enforcement proceedings are taken up under Section 11 and 11 B and the word enquiry therein denotes compliance to natural justice. From the above, I note that recording of prima facie findings based on

24

material showing necessity for passing the interim order would be construed as enquiry under Section 11B and no formal enquiry as in an accusatorial proceeding is required. I have further noted that the Honble Securities Appellate Tribunal has vide its order dated January 8, 2007, in the matter of Karvy Stock Broking Limited v. SEBI, upheld the power of SEBI in issuing directions under section 11 and 11B of the SEBI Act, pending investigation and enquiry. 4.5 I note that the ex-parte order was passed after substantive completion of investigation conducted under section 11C of the SEBI Act and pending further enquiry. The provisions of Section 11 (4) of the SEBI Act empowers SEBI to pass an order in the interest of investors or securities market, either pending investigation or enquiry or on completion of such investigation or enquiry which also includes power to restrain persons from accessing the securities market and prohibit any person associated with securities market to buy, sell or deal in securities. The Honble SAT in the matter of Karvy Stock Broking Ltd. v. SEBI, observed as under: As is clear from the language of sub section (4) the measures that the Board may take or the orders that it may pass would be either pending investigation or enquiry or on completion of such investigation or enquiry. The word investigation as used in section 11(4) has not been defined. It obviously refers to the investigation as ordered under section 11C of the Act because sections 11-C and 11(4) were introduced simultaneously in the year 2002 when Parliament found that the Board prior to their introduction did not have statutory power to investigate. The word inquiry too has not been defined in the Act though it finds mention
25

in Sections 11, 11B, 11D and 15I. Under section 12(3) of the Act also, the Board holds an inquiry under the inquiry regulations for imposing major or minor penalties including the penalty of suspension or cancellation of a certificate of registration. It is, thus, clear that an inquiry is held under sections 11, 11B and 11D, it is also held under section 12(3) and also under section15I. Having regard to the scheme of the Act, the rules and regulations made thereunder we are clearly of the view that even though the inquiries contemplated by the Act may be held under different set of provisions, their object is one and the same viz. to help the Board to promote the development of and to regulate the securities market and protect the interests of investors. The inquiry under section 11 of the Act is held by the Board to find out what measures it needs to take to protect the interests of the investors and what steps it needs to take to promote the development of and to regulate the securities market.As already observed, the Board also causes an inquiry to be made by an inquiry officer under the inquiry regulations and/or by an adjudicating officer under Chapter VIA. It is during the pendency of any of these inquiries or on their completion that the Board may pass appropriate order interim or final. This is clear from the language of section 11(4). Therefore the contention of Shri Hasmukh that if the investigation conducted by SEBI as referred to in the ex-parte order is not in consonance with section 11C of the SEBI Act, then the directions issued to Shri Hasmukh under section 11(4) (b) are also without jurisdiction is not tenable.

4.6

I note that a plain reading of section 11 of the SEBI Act shows that it is the duty of SEBI to protect the interest of investors in securities and to promote the development of and to regulate the securities market by taking such measures as it thinks fit. Reference is drawn to para 17.1 of the ex-parte interim order which states as under : In the wake of the interim orders in the case of Yes bank and IDFC IPOs there has been a spate of public complaints alleging manipulation in IPOs and urging immediate action from SEBI for protecting the retail investors.
26

Also there is a heightened investors concern on the IPOs as reflected in the tenor of demands made on SEBI and the same calls for a timely response from SEBI as regulator to restore the confidence of the retail investor. Amidst such public expectations, coupled with due regard to the fact that a number of IPOs are in the wait for entry into the securities market, which need to be insulated from the manipulations of the various entities as mentioned in this order by suitably restraining them from participation in the ensuing IPOs which has acquired a sense of urgency and which cannot brook the normal delay of quasi judicial proceedings for taking a decision, there is an imperative need to pass the present interim order to protect the market particularly the IPOs from being preyed on by predatory manipulators. Further if the entities, as prima facie found to be instrumental in tilting the IPO allotment process to their favour by the intricate modus operandi as clearly seen in the findings of this order, are allowed to operate in the market any more, the same is fraught with immense mischief and incalculable damage to IPO allotment process besides undermining the confidence of the retail investors who are urging for a fair deal in the market free of such manipulators. From the above, I find that the ex-parte order, was passed in exercise of powers under section 11 (4) and 11B of SEBI Act to protect the interest of investors and securities market pending investigation and passing of final orders. Therefore the contention of Shri Hasmukh that the order should demonstrate urgency warranting an adinterim ex-parte order is fairly addressed in para 17.1 of the ex-parte order. 4.7 Shri Hasmukh has also raised the contention that ad interim ex-parte order was passed in violation of principles of natural justice. As is evident from the above mentioned provisions of the SEBI Act, SEBI has power to pass such an order in the interest of investors even before giving an opportunity of hearing to the person concerned. When the statute itself confers powers upon SEBI to pass appropriate ad-interim ex-parte order, there is no question of
27

violation of principles of natural justice. I state that in certain circumstances, application of principles of natural justice could be modified and even excluded. It is well established that where a right to a prior notice and an opportunity to be heard before an order is passed would obstruct taking of prompt action or in emergent situations, such a right could be excluded. Further, it could also be excluded where the nature of the action to be taken, its object and purpose and the scheme of the relevant statutory provisions warrant its exclusion. Reference is drawn to the matter of Liberty Oil Mills case wherein Supreme Court observed as under: We do not think that it is permissible to interpret any statutory instrument so as to exclude natural justice, unless the language of the instrument leaves no option to the court. Procedural fairness embodying natural justice is to be implied whenever action is taken affecting the rights of parties. It may that the opportunity to be heard may not be predecisional; it may necessarily have to be post decisional where the danger to be averted or the act to be prevented is imminent or where the action to be taken can brook no delay..In such situation, it may be enough to issue post decisional notices providing for an opportunity. It may not even be necessary in some situations to issue such notices, but it would be sufficient but obligatory to consider any representation that may be made by the aggrieved person and that would satisfy fairness and natural justice. Ad interim orders may always be made ex parte and such orders may themselves provide for an opportunity to the aggrieved party to be heard at a later stage. .. Natural justice will be violated if the authority refuses to consider the request of the aggrieved party for an opportunity to make his representation against the ex-parte ad interim order. The Honble Bombay High Court in the matter of Anand Rathi v. SEBI held, it is thus clearly seen that pre decisional natural justice is not always necessary when ad interim orders are made pending investigation or enquiry, unless so provided by the statue and rules of natural justice would be satisfied if the affected party is given post decisional hearing. it
28

is not always necessary to grant prior opportunity of hearing when adinterim orders are made and principles of natural justice will be satisfied if post decisional hearing is given if demanded..Thus it is settled position that while ex-parte interim orders may always be made without a pre decisional opportunity or without the order itself providing for a post decisional opportunity, the principles of natural justice which are never excluded will be satisfied if a post decisional opportunity is given, if demanded. As stated in para 3.1 of this order, inspite of opportunity of hearing being granted to Shri Hasmukh on June 12, 2006, it chose to file a writ petition before the Honble Gujarat High Court praying stay of the interim order. In the light of the above decisions and the facts, I find that there is no substance in the plea of failure to comply with the principles of natural justice. 4.8 I find that the order only places a temporary prohibition on Shri Hasmukh for the reasons explained therein and cannot be construed as a punitive direction. The ex-parte order was passed on a prima facie finding and the same has been treated as a show cause notice for complying with the natural justice. Therefore the contention of Shri Hasmukh is not acceptable and the proceedings cannot be construed as a faade and mockery of justice. As stated earlier the ex-parte order has been passed not by way of punishment or penalty but only by way of an interim measure, pending enquiry in the interest of the investors and the securities market. 4.9 Shri Hasmukh has further contended that Shri Hasmukh is not an intermediary registered with SEBI and also not associated with the securities market. In this regard, it is pertinent to note and rely on the observations of the Honble High Court of Gujarat at
29

Ahmedabad in the matter of Karnavati Fincap Ltd. v. SEBI wherein it was held as under: The words other persons associated with the securities market; whether the persons associated with the securities market takes it colour from person enumerated in clause (ba). If one has to go by the literal meaning, the interpretation which restricts the meaning of persons associated with the securities market the persons enumerated in clause (ba) is not acceptable. In ordinary meaning, the persons associated with the securities market would include all and sundry who have something to do with the securities market..It is to be noted that the securities market in the sense not confined the stock exchange only. The words persons associated with the securities market are of much wider importance than intermediaries. Person associated with denotes a person having connection or having intercourse with the other. Though securities market has not been defined, definition of Stock Exchange under section 2(i) of the Securities Contract (Regulation)Act means any body of individuals whether corporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities. Security has been defined under section 2(h) to include shares, scrips, stocks, debentures debenture stock or other marketable securities of like nature in or of any incorporated company or other body corporate etc. What is noticeable in it refers to marketability of it. Stock Exchange is more than mere selling, buying or dealing place for securities, but adorns the role of an assisting agency in smooth conduct of securities business by suitable regulating or controlling authority. None the less a market cannot be conceived without a seller or buyer who are primary persons for whose purpose the market exists. All activities of business of selling and buying are related to seller or buyer. It is inconceivable to think that a buyer or seller of a scrip is not a person associated with securities market, where or through which he transacts his business, whether as trader or as investor of selling or buying the required scrip. The plea of Shri Hasmukh that he is not associated with securities market is therefore, not tenable. 4.10 I note that at the time of hearing before me, certain information viz., copies of final accounts, statements of income and Income Tax
30

returns, contract notes etc. was sought from Shri Hasmukh in support of the contentions raised by him. The said information was submitted by Shri Hasmukh vide letter dated March 8, 2007. A perusal of Income Tax return of Shri Hasmukh for assessment year 2004-05 shows that he has shown total income of Rs.1,22,250 for Financial Year 2003-04 from his business of borrowing and lending of funds. However, it appears that he gradually discontinued this business in subsequent years. A perusal of Income Tax return of Shri Hasmukh for assessment year 2005-06 shows that he has shown total income of Rs.33,84,430 for Financial Year 2004-05 which includes short term capital gain of Rs.31,68,805 on sale of securities and interest income of only Rs.2,15,629. Shri Hasmukh has shown taxable income of Rs.2,54,84,370 for assessment year 2006-07 which represents short term capital gain on sale of securities. During this period, he has not received any interest income, though he has shown to have paid interest of Rs. 5,51,819 on his borrowings. Thus, I find that Shri Hasmukh has ceased to carry on the money-lending business w.e.f. April 1, 2005 and is presently engaged in the activity of investment in securities. 4.11 In his reply dated December 22, 2006, Shri Hasmukh has claimed that he is in the business of providing finance to various entities /persons as a commercial lender and that he has financed Ms. Roopal for investing in the capital market. However, as stated above, it is clear from perusal of Income Tax returns of Shri Hasmukh for assessment years 2005-06 and 2006-07 that he is essentially engaged in investment in securities and the chief source

31

of his income is profit on sale of securities. If he were a commercial lender, interest earned on the loans would be his main source of income as was the case during assessment year 2004-05. I find that Shri Hasmukh has not shown any interest income from money financed to Ms. Roopal in his return for the Financial Year 2005-06. However as per the definition of the term financier given in the ad interim ex-parte order, Shri Hasmukh was financier as he lent Ms. Roopal and cornered shares instead of money. A perusal of ledger account of Ms Roopal for Financial Years 2004-05 and 2005-06 as per the books of account of Shri Hasmukh also shows that no

interest has been charged by Shri Hasmukh from Ms. Roopal on alleged loans of Rs.9,17,58,940 and Rs.14,67,25,000/- respectively advanced by him to Ms Roopal during the said periods. 4.12 Shri Hasmukh has furnished details of parties allegedly financed by him during the period 2003-06 for various purposes including investment in capital market, short term business requirements, personal purposes, etc. However, from perusal of the details, it is observed that these include opening balances, debits and credits in the accounts of the various parties during the said period. Shri Hasmukh was asked to submit copies of ledger accounts of all these parties, but he has furnished copies of accounts of only ten parties including Ms Roopal . It is observed from these details that Shri Hasmukh has financial dealings with Rajesh N. Jhaveri and Kelan A. Doshi both of whom are among the financiers named in the SEBI order dated April 27, 2006. It is also observed that Shri Hasmukh had financial dealings with Lok Prakashan Ltd. During Financial

32

Years 2004-05 and 2005-06, Shri Hasmukh is found to have received from and paid to Lok Prakashan Ltd. Rs.4.41 crore and Rs. 4 crore respectively. However, copies of account of M/s Lok Prakashan Ltd. have not been furnished to SEBI. It is observed from final accounts of Shri Hasmukh Rs.14,07,57,242 that he had outstanding unsecured loans of loans and advances (receivables) of

and

Rs.15,31,04,092 as on March 31, 2006 for which no details have been provided by him to SEBI. It is observed that despite having huge loans and advances of over Rs.15 crore, he has not shown to have received any interest on such loans and advances during Financial Year 2005-06. This indicates that Shri Hasmukh has utilized these funds for providing finance to the key operators like Ms. Roopal so as to make huge gains through the modus operandi brought out in the SEBI order dated April 27, 2006. For want of adequate and credible evidence, it is not possible to accept the position that Shri Hasmukh was acting merely as a commercial lender as claimed. 4.13 As stated in para 11.25 of the interim order dated April 27, 2006, there are a large number of bank transactions of Shri Hasmukh with various entities like Zenet Software Ltd, Tauras Infosys Ltd, Excel Multitech Ltd, Deep Stock Broking Pvt. Ltd etc. who were also named as financiers of Ms. Roopal. From perusal of the submissions made by Shri Hashmukh, it is noted that names of the above mentioned entities have not been included in the list of persons whom Shri Hasmukh had allegedly financed. This implies that the finance extended to these entities was not in the normal course of

33

business and may in all likelihood have been provided for cornering the shares in IPOs. 4.14 Based on examination of documents submitted to SEBI vide his letter dated March 8, 2007 and the findings stated in the interim order dated April 27, 2006, following are the linkages/ connections of Shri Hasmukh with the other financiers named in the said order:

(i)

As per information available with SEBI, the address of Shri Hasmukh mentioned in Return of Income for Assessment Year 2006-07 and HDFC Bank account number 0062340000028 is similar to that of Excel, Taurus and Zenet i.e. H.N. House, Near Old High Court Railway Crossing, Navrangpura, Ahmedabad380009. The address of Shri Hasmukh as per contract notes issued by the broker is 20 Basant Bahar Society, Near Purshottam Nagar Bus stop, Bopal, Ahmedabad.

(ii)

Shri Hasmukh is a broking client of H Nyalchand Financial Services Ltd, NSE broker and Parklight Investment Pvt. Ltd, a BSE broker. Incidentally, Excel, Tauras, Zenet and Deep Stock Broking Pvt. Ltd. are also clients of the said brokers.

(iii)

From the bank account opening form of HDFC Bank, Ahmedabad the account of Shri Hasmukh HUF bearing A/C No. 0062340000028 was opened by him as Karta of the joint family and the adult Co-parceners and signatories to the account are Mrs. Saryuben H. Vora, Mr. Uday Vora and Mr. Dhiren Vora.

34

As per the information available on BSE and NSE websites, it is also noted that Mr. Uday Vora is director of Park Light Investment Pvt. Ltd, broker of BSE and Mr. Dhiren Vora is director of H Nyalchand Financial Services Ltd, broker of NSE. (iv) A perusal of the bank statement of Shri Hasmukh reveals that there are large number of bank transactions/ fund transfers between Shri Hasmukh and Deep Stock broking Pvt. Ltd., Excel, Tauras, Zenet, Rajesh N. Jhaveri (Prop: Gautam Jhaveri), V & S Intermediaries (Prop: Saumil Bhavnagari) etc. which clearly establish the linkages between them. As Shri Hasmukh has not furnished his complete demat account despite having been asked to do so, it is not possible to ascertain whether he had entered into any off market transactions with the said persons/ entities. However, given his close connection with all of them, such a possibility cannot be ruled out. It is noted that all these entities/ persons were also identified as financiers of key operators like Ms Roopal vide SEBI order dated April 27, 2006. 4.15 It is relevant to note that as per the findings mentioned in para 11.9 (pages 62 and 63) of the ad interim ex-parte order dated April 27, 2006 Excel, Zenet and Tauras had sourced the margin requirement for Ms Roopal to the extent of Rs.10.55 crore on June 20, 2005 in the IPO of Yes Bank. In the background of large number of financial transactions with these entities, the complicity of Shri Hasmukh in abuse of IPO process for the purpose of cornering allotment in shares can be inferred.

35

4.16

In his reply filed on December 22, 2006, Shri Hasmukh has admitted to have given loan to Ms Roopal for investing in the capital market. He has clarified that he had no role in the investment decisions taken by Ms. Roopal. He has claimed that at the relevant time he was not aware that Ms. Roopal would be investing the loan amount in making applications for allotment of shares in IPOs in any fictitious /benami names through multiple demat accounts as alleged by SEBI. According to him, his relationship with Ms. Roopal is only that of a lender and a borrower. He has also pointed out that he had not applied for allotment of shares in IPOs in the retail category. He has further stated that financing was done by him in good faith and in normal course of business and that he was not aware of the designs of Ms. Roopal or her plans to corner the shares in retail category in IPOs. He has also stated that he came to know that Ms. Roopal was a key operator only after passing of the SEBI order dated 27.04.2006. He has claimed that he received shares from Ms. Roopal towards part payment of the loan. He has stated that he may not be treated as the ultimate beneficiary simply because he has sold the shares received from Ms. Roopal and earned some profit. With regard to the transfer of shares by Ms. Roopal to his demat account, he submitted as follows: (i) He is in business of lending short term finances to various entities for their immediate requirements. (ii) Funds advanced by him to Ms Roopal were on terms orally agreed to at the time of advancing funds. Hence no formal agreements were entered into.

36

(iii)

Ms Roopal maintained a running account with him. Funds given to her were to be utilized for purchasing shares or marketable securities in the primary or the secondary market. The loan was to be repaid on demand either in cash or in kind.

(iv)

No interest was taken from Ms Roopal for these transactions since it was agreed that interest would be settled at the end of the financial year. Since he made profit out of the shares given by Ms Roopal, the interest was foregone by him.

(v)

He has paid taxes on the profits earned by him from the sale of the shares received from Ms Roopal.

4.17

However, I find that the plea taken by Shri Hasmukh is not supported by documentary evidence. An examination of the timing of advance, the period of advance, the actual amount advanced to Ms Roopal and the manner of adjustment thereof clearly shows that finance was extended by him to Ms Roopal with the sole objective of financing applications in the IPO on his behalf. Moreover, it is also seen from the record that Shri Hasmukh was well aware of the modus operandi and was a party to the pre-arranged gameplan of cornering the shares by circumventing the IPO process and making huge gains at the cost of retail investors. The mere fact that Shri Hasmukh has paid taxes on short term capital gain on sale of illegally cornered shares will not lend any legitimacy to his transactions with Ms Roopal . The fact of the matter remains that the profit earned by him on sale of such shares would represent illegitimate and ill-gotten gains.

37

4.18

At the outset, based on the submissions made by Shri Hasmukh, I have noted that he had financed various entities including Key operators during the period 2004-06. Further, it is also an admitted position that he had financed Key operators in the following IPOs: a. Nectar Lifesciences Ltd to the extent of Rs. 9,80,00,000/ during the currency of IPO i.e. on June 27, 2005 and June 28, 2005 and b. IL&FS Investmart Ltd to the extent of Rs 4,55,25,000/- during the currency of IPO i.e. from July 4, 2005 to July 8, 2005. However, in respect of IPO of IDFC Ltd, it is claimed that no direct finance has been extended by him to Ms Roopal.

4.19

Shri Hushmukh also submitted that he was maintaining a running account with Ms. Roopal. In this context, I have noted that the purpose of maintaining running accounts is generally to keep the money with the key operators for a period of time so as to enable them to make multiple applications in successive IPOs and to keep the cycle going. Therefore, in case of running accounts, it may not always be possible to exactly establish the trail of money as the possibility of the refund money in one IPO being used for the purpose of making applications in successive IPOs cannot be ruled out. However, ideally at the end of each financial year, the money paid and received will be accounted for and settled accordingly. In this regard, I have noted that as per the ledger account of Ms. Roopal in the books of Shri Husmukh for the financial years ended March 31, 2005 and March 31, 2006, the balance in the account of Ms Roopal is zero or nil. However, the total disbursements made to Ms. Roopal during the said periods were Rs 9,17,58,940 and
38

Rs.14,67,25,000 respectively whereas the money received/ recovered by him was also the same. For financial year ended March 31, 2006 (during which period the dealings with Ms. Roopal in the said IPOs took place), it is observed that the funds were repaid back to him through cheques on various dates to the tune of Rs. 11,05,19,200/and through pre-listing off-market transfer of shares to Shri Hasmukh to the extent of Rs 3,62,05,800 (52,500 shares of Nectar Life Sciences Ltd. at the rate of Rs 240, 23400 shares of IL&FS at the rate of Rs.137and 6,00,000 shares of IDFC at the rate of Rs 34). The credit for these shares has been given by way of journal entries which implies that corresponding money has not been received from Ms Roopal. Further, the entries for such credit of shares have been made invariably at the issue price of each scrip. 4.20 The IPO of Nectar Life Sciences Ltd. opened on June 22, 2005 and closed on June 28, 2005. The issue price was Rs.240 and the allotment of shares under the retail category was 25 shares. Shri Hasmukh disbursed an amount of Rs 9.8 crore through 10 cheques of Rs. 90 lakh each and 3 cheques aggregating to Rs.80 lakh from his account bearing No.0062340000028 maintained with HDFC Bank,

Ahmedabad on June 27, 2005 and June 28 2005 (i.e. on or before the closure of issue on June 28, 2005) which were deposited in account of Ms. Roopal bearing account number 0062100004760 maintained with the HDFC Bank, Ahmedabad on the same days. The said amount disbursed represented share applications money for 2100 applications at the rate of Rs 46,800 per application. Taking into account share application money of Rs 46,800 each, it is noted that

39

the finance of Rs 9,80,00,000 extended by Shri Hasmukh to Ms. Roopal broadly corresponds with value of 2100 applications (Rs.46,800 * 2,100 = Rs.9,82,80,000). 4.21 It is no mere coincidence that the shares received by Shri Hasmukh exactly match with the allotment in the retail category in respect of 2100 applications. As stated above, 25 shares were allotted for each application in the retail category at the issue price of Rs.240 each. Thus, the allotment money per application worked out to be Rs. 6,000 (25 * Rs 240) and the corresponding refund amount per application worked out to be Rs.40,800 (Rs 46,800 Rs 6,000). The amount of refund due in respect of 2,100 applications made on behalf of Shri Hashmukh thus stood at Rs.8,56,80,000 (2100 * Rs. 40,800). It appears that the said refund amount given to Ms. Roopal on July 13, 2005 was utilized by her for the purpose of making applications on behalf of Shri Hashmukh in the IPO of IDFC Ltd which opened on July 15, 2005. 4.22 Besides, as stated above, 52,500 shares were received by Shri Hashmukh from Ms Roopal corresponding with allotment of 25 shares per application for 2,100 applications (25 * 2,100). The said 52,500 shares received from Ms Roopal, as stated above, have been sold in the market through NSE broker, H Nyalchand Financial Services Ltd and BSE broker, Parklight Investment Pvt. Ltd. 18,700 shares were sold in settlement number 2005079 on July 18, 2005 for Rs.49,75,356/- at the rate of Rs.266.06, 33,150 share were sold in settlement number 2005137 on July 18, 2005 for Rs.89,86,701/- at the rate of Rs. 271.09 and 650 shares were sold in settlement number
40

2005138 on July 19, 2005 for Rs. 1,71,805/- at the rate of Rs. 264.32. Thus, the total profit made by Shri Hashmukh on sale of the shares of Nectar Lifesciences Ltd. (being the difference between the actual sale price and the issue price) works out to Rs.15,33,862 /- as against the notional profit of Rs.10,55,250/- calculated in the SEBI order dated April 27, 2006. It is also interesting to note that Shri Hasmukh has sold shares through two broking firms mentioned above which are connected with him as stated above. 4.23 The IPO of IL&FS Investsmart opened on July 04, 2005 and closed on July 8, 2005. The issue price was Rs. 125 and the allotment of share under the retail category was 50 shares. It is observed that Shri Hasmukh disbursed an amount of Rs.4,55,25,000/- through 4 cheques of Rs. 90 lakh each and 1 cheque of Rs 95,25,000/- from his account bearing No.0062340000028 maintained with HDFC Bank, Ahmedabad on July 7, 2005 (i.e. a day before the closure of issue on July 8, 2005) which were deposited in account of Ms Roopal bearing account number 0062100004760 maintained with the HDFC Bank, Ahmedabad on the same day. The said amount disbursed represented share applications money for 468 applications at the rate of Rs. 97,275 per application. Taking into account share application money of Rs. 97,275 each, it is noted that the finance of Rs. 4,55,25,000 extended by Shri Hasmukh to Ms. Roopal broadly corresponded with value of 468 applications (Rs.97,275 * 468 = Rs.4,55,24,700). 4.24 Further, as stated above, 50 shares were allotted for each application in the retail category at the issue price of Rs. 125 each. Thus, the
41

allotment money per application worked out to be Rs. 6,250 (50 * Rs 125) and the corresponding refund amount per application worked out to be Rs. 91,025 (Rs. 97,275 Rs. 6,250). The amount of refund due in respect of 468 applications made on behalf of Shri Hasmukh thus stood at Rs.4,25,99,700 (468 * Rs 91,025). It appears that the said refund amount was utilized by Ms. Roopal for the purpose of making applications on behalf of Shri Hasmukh in the IPO of IDFC Ltd which opened on July 15, 2005. 4.25 Besides, as stated above, 23,400 shares were received by Shri Hasmukh from Ms Roopal corresponding with allotment of 50 shares per application for 468 applications (50 * 468). The said 23,400 shares received from Ms Roopal, as stated above, have been sold in the market through NSE broker, H. Nyalchand Financial Services Ltd on August 22, 2005 in settlement number 1005160 for Rs.44,45,031/- at the rate of Rs.190 approx. Thus, the total profit made by Shri Hasmukh on sale of shares of IL&FS (being the difference between the actual sale price and the issue price) works out to Rs.15,20,031/- as against the notional profit of Rs.14,07,510/calculated in the ad interim ex-parte order dated April 27, 2006. 4.26 The IPO of IDFC Ltd. opened on July 15, 2005 and closed on July 22, 2005. The issue price was Rs.34 and the allotment of shares under the retail category is 200 shares. As per submission made by Shri Hasmukh, it is noted that no amount was given from his account to Ms. Roopal on or before the date of closure of IPO of IDFC. However, it is noted that the refunds in respect of IPOs of Nectar Life Sciences and IL&FS amounted to Rs.12,82,79,700 (Rs. 8,56,80,000
42

in case of Nectar and Rs. 4,25,99,700 in case of IL&FS Investsmart Ltd.). Thus, an amount of Rs.12,82,79,700/- was available with Ms. Roopal before the date of closure of IPO of IDFC for the purpose of making application on behalf of Shri Hasmukh in the said IPO. It is pertinent to note that Ms Roopal had made 3000 applications on behalf of Shri Hasmukh at the rate of Rs 34,000 each which works out to Rs.10,02,00,000/-. Therefore, Ms Roopal is observed to have refunded excess money of Rs.20,00,000 to Shri Hasmukh on July 23, 2005 and Rs 2,38,62,250 on August 2, 2005.

4.27

Shri Hasmukh had received 6,00,000 shares in all of IDFC from Ms Roopal, out of which 5,55,000 shares were received on August 9, 2005 (three days before listing) while remaining 45,000 shares were received on August 16, 2005 and September 5, 2005. The said shares received from Ms Roopal correspond with 3000 applications at the rate of Rs.34,000 per application. (3000 * Rs.34,000 = Rs.10,20,00,000). The said 6,00,000 shares received from Ms Roopal , as stated above, have been sold in the market through BSE broker, Parklight Investment Pvt. Ltd on August 12, 2005/ August 17, 2005/ September 06, 2005 in settlement numbers 0506097/ 0506099/ 0506113 for an aggregate amount of Rs 3,97,03,746/-. Thus, the total profit made by Shri Hashmukh on sale of 600000 shares of IDFC (being the difference between the actual sale price and the issue price) works out to Rs.1,93,03,746 /- as against the notional profit of Rs.1,97,02,500/- calculated in the SEBI order dated April 27, 2006.

43

4.28

It is relevant to note that at the time of making application in the IPO, the likelihood of number of shares to be allotted per application in the retail category is not possible to be ascertained or known till the basis of allotment is finalized. Therefore, it is implicit that any pre-arrangement between key operators and financiers can be only application-wise and shares allotted for each application would naturally be transferred to the financier as part of the prearrangement / understanding at the issue price.

4.29

Thus, from the above, it is clear that Shri Hasmukh had a prior arrangement and understanding with Ms Roopal whereby Shri Hasmukh carried out the game plan of cornering IPO shares and made astronomical gains. Ms Roopal acted as a conduit for Shri Hasmukh who was the ultimate beneficiary in the scheme of

cornering allotment of IPO shares under the retail category. The money was advanced by Shri Hasmukh to Ms Roopal specifically for the purpose of making applications in various IPOs through multitude of fictitious/ benami demat accounts controlled by her. The plea taken by Shri Hasmukh that he did not have knowledge of the modus operandi of cornering the shares is, therefore, not tenable. If Shri Hasmukh was a genuine investor, he would have applied in IPOs through his own demat account and not through various demat accounts controlled by Ms Roopal unless the intent was fraudulent and deceptive. In this context, it is relevant to note that if Shri Hasmukh had applied in the IPO of IDFC to the extent of money advanced to Ms Roopal i.e. Rs.10,02,00,000 /- through his own demat account, he would have fallen under the category of

44

Non-institutional Investors/ High Networth Individuals (HNIs) wherein the proportional allotment to Shri Hasmukh would have been only around 50,000 shares. However, through the modus operandi stated above, Shri Hasmukh was able to corner 6,00,000 shares which is 12 times of the likely allotment in HNI category. 4.30 The transactions of Shri Hasmukh with Ms Roopal cannot be

treated as straight forward and bonafide financing transactions for the following reasons: (i) There is no written agreement or document to evidence that funds of Rs.14,67,25,000/- provided by Shri Hasmukh to Ms Roopal were in the nature of loans. The arrangement was claimed to be a verbal one. However, the terms and

conditions of the verbal arrangement have not been clearly spelt out by Shri Hasmukh viz. rate of interest, purpose of loan, etc. (ii) Shri Hasmukh has not taken any margin or security or guarantee from Ms Roopal . It is strange that crores of rupees were provided by Shri Hasmukh to Ms Roopal without any margin or security. (iii) Normally the amount of money financed by a lender to a borrower is in round figures. However, the money provided by Shri Hasmukh to Ms Roopal for IPO of IL&FS was

Rs.4,55,25,000/- which was found to be matching with share application money of Rs.97,275 each for 468 applications in retail category. This shows that Shri Hasmukh was aware that

45

this money given to Ms Roopal

was meant for making

applications in retail category in different IPOs. (iv) No satisfactory or valid explanation has been offered by Shri Hasmukh regarding the receipt of (say) 23400 shares of IL&FS through off-market transfers prior to listing from Ms Roopal . A plea has been taken that this was done as Ms Roopal did not have adequate funds to repay the loan. However, no reasonable justification has been given as to why Ms Roopal could not have sold the shares in the market and repaid the alleged loan with the help of the sale proceeds of shares. (v) Assuming, for the sake of argument only, that the off-market transfers of shares by Ms Roopal to Shri Hasmukh were made towards part payment of outstanding loans, it is observed that Shri Hasmukh has not been able to satisfactorily explain the adjustment of alleged loan account after realization of sale proceeds of shares by him. It is observed that Shri Hasmukh had shown to have purchased shares of Nectar Lifesciences, IL&FS and IDFC from Ms. Roopal at the issue/allotment price. If these were mere financing transactions, Shri Hasmukh would be entitled to keep only the money

outstanding in the alleged loan account at the time of settlement of loan and he would be required to refund the balance amount to Ms Roopal . However, in actuality, what had happened was that Shri Hasmukh had after adjusting the amount due retained the surplus realized on sale of the shares. Thus, the pocketing of huge gains on sale of shares by Shri Hasmukh confirms the position that Ms Roopal was
46

used only as a front to corner shares and that the making of applications through Ms Roopal in fictitious/ benami names was nothing but a manipulative or fraudulent device or artifice employed by Shri Hasmukh to corner allotment of shares in the retail category in IPO. 4.31 Further, it is noted that Shri Hushmukh being a financier would have included interest amount in the said ledger. There the arrangement is other than mere commercial lending which is apparent from the manner in which shares have been received from Ms. Roopal at the issue price on the date of listing. These shares were sold at market price thereby making a huge gain pocketed by Shri Hasmukh which ideally should have gone in favour of Ms Roopal a borrower. For example, in the case of IDFC, Shri Hasmukh received 45,000 shares from Ms Roopal as part payment of loan at the issue of Rs. 34 after the date of listing (August 12, 2005) where as the closing market price on the date of off market transfer of 33,934 shares on August 16, 2005 was Rs 64.70 and closing price on September 5, 2005 in respect of off market transfers of 11,066 shares was Rs 69,40. Thus, the total gain on these 45,000 shares received after the date of listing is Rs 14,85,238 /- which ideally should have been adjusted in the account of Ms Roopal . In view of the above, such transactions cannot be treated as commercial lending transactions but can only be in the nature of deceptive transactions associated with a financier as defined in the ad interim ex-parte order dated April 27, 2006.

47

4.32

Thus, it is clear that Shri Hasmukh, acting in concert with Ms. Roopal had executed a gameplan of cornering allotment in IPO shares and making undue gains at the cost of retail investors by adopting the modus operandi stated above. Such a practice is not only unhealthy for capital market but also deceptive and fraudulent. It is also noted that Ms. Roopal is not associated as a registered intermediary in the secondary market. However, as per the finding of the ad interim ex-parte order, it appears that Ms. Roopal was only an IPO sub broker in the primary market and not in the secondary market. Further, interim order also brought out large scale opening of fictitious demat accounts by Ms. Roopal. In light of such findings, the relationship of Shri Hasmukh with key operators is not at all of commercial lender and borrower.

4.33

Thus, it is evident that Shri Hasmukh in concert with Ms Roopal had executed a game plan of cornering allotment in IPO shares and making undue gains at the cost of retail investors by adopting the modus operandi stated above. Such a practice is not only unhealthy for capital market but also deceptive and fraudulent. After going to the above facts and circumstances of the case, the complicity of Shri Hasmukh in the larger game plan is demonstrated by the manner in which it had financed and got shares from the key operators.

4.34

Had Shri Hasmukh been a genuine investor, it might have subscribed to the IPO directly as an applicant for maximum number of shares. Instead it financed Ms. Roopal, a key operator who opened fictitious demat accounts and made multiple applications with a view to cornering shares. The key operators has
48

subsequently transferred the shares allotted through off market deals to Shri Hasmukh. It is uncommon that a financier receives shares instead of money with interest. Even if he receives shares they will be at corresponding market price. Whereas in this case shares were transferred at the issue price. As is seen, the entire convergence of transactions as discussed above and particularly off market transfers received from Ms. Roopal who is the kingpin in opening of fictitious accounts exposes the adverse role played by Shri Hasmukh. It was a well orchestrated role played by Shri

Hasmukh in cornering the shares meant for retail investors in the garb of financing. Shri Hasmukh failed to satisfactorily explain that it was a genuine financing to Ms. Roopal in normal course of business. In the facts and circumstances of the case, I am inclined to hold that Shri Hasmukh has violated FUTP Regulations, 2003 by cornering the shares of retail investors and thereby Shri Hasmukh is responsible for the legal consequences. 4.35 I have also noted that the contention of Shri Hasmukh that the charge of market manipulation is a serious one and such a charge cannot be made without adequate evidence / material in support and has cited certain judgments in this regard. However, the said judgments have no relevance to the facts of this case and the present proceedings. The standard of proof required in a proceeding of this nature is at variance with the standard of proof required in criminal cases. It is sufficient if the preponderance of probabilities suggests towards the indulgence of the delinquent in the misconduct. The strict rules of

49

Evidence Act and proof beyond reasonable doubt are not applicable to a proceeding of this nature [Gulabchand vs Kudilal (AIR, 1966, SC 1734), National Housing Bank Vs ANZ Grindlays Bank (1998 (2) LJ 153)]. In this connection it is relevant to note Honble Supreme Courts decision in Collector of Customs v/s D. Bhoormull (AIR 1974 SC 859), wherein it was held that: ..The prosecution or the department is not required to prove its case with mathematical precision to a demonstrable degree; for, in all human affairs absolute certainty is a myth, and- as Prof. Brett felicitously puts it all exactness is a fake. El Dorado of absolute proof being unattainable, the law, accepts for it probability as a working substitute in this work-a-day world. The law does not require the prosecution to prove the impossible. All that it requires is the establishment of such a degree of probability that a prudent man may, on its basis, believe in the existence of the fact in issue. Thus, legal proof is not necessarily perfect proof; often it is nothing more than a prudent mans estimate as to the probabilities of the case. .Since it is exceedingly difficult, if not absolutely impossible, for the prosecution to prove facts which are especially within the knowledge of the opponent or the accused, it is not obliged to prove them as part of its primary burden. 4.36 The payment details and the details of transfer of shares by Shri Hasmukh to the parties as discussed above, indicate the role of Shri Hasmukh in the entire plan of cornering the shares meant for the retail investors. At this juncture I refer to the Regulation 3 of FUTP Regulations, 2003 which reads as follows: Prohibition of certain dealings in securities 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;
50

(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.

4.37

Considering the activities of Shri Hasmukh in the light of his reply, I am of the view that the factual information provided by Shri Hasmukh has not diminished the intensity of the charges against it. Based on the material on record, there is a greater preponderance that Shri Hasmukh was involved in the larger game plan of

cornering the shares meant for the retail investors and is, therefore, liable to be proceeded against for violation of Regulation 3 of FUTP Regulations, 2003.

4.38

To recapitulate, the findings recorded in the ad interim ex-parte order was based on the findings of a detailed investigation which revealed large scale off market transfers from afferent accounts to key operators and thereafter to financiers before the date of listing. Further, the financiers in concert with Key Operators have made ultimate gains through the modus operandi stated above. Such practices are deceptive, manipulative and fraudulent and not in the interest of investors and securities market. SEBI, being the regulatory body for capital market is cast with the responsibility to protect the interest of investors and securities market. I have noted that for violation of Section 12A of SEBI Act, 1992, Regulations 3, 4, and 6 of FUTP Regulations 1995, Regulations 3 and 4 of FUTP Regulations, 2003, adjudication proceedings have been initiated
51

against Shri Hasmukh and the same

are

in progress. There is

however the need for taking steps to insulate IPOs from manipulators especially as it is the duty of SEBI to uphold and protect the interests of investors. 5.0 5.1 Order In view of the above, I, in exercise of the powers conferred upon me in terms of section 19 read with section 11 and 11B of SEBI Act, 1992, hereby confirm the interim order dated April 27, 2006 against Shri Hasmukh N. Vora. 5.2 It is clarified that this order is passed for a limited purpose of finalising the ad interim ex-parte order dated April 27, 2006 against Shri Hasmukh N. Vora and the same shall not in any way influence the proceedings pending before the Adjudicating Officer, who may pass orders in his adjudication proceedings.

PLACE: MUMBAI DATE: 26.03.2007

T .C. NAIR WHOLE-TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

52