before the adjudicating officer securities … · kolar sharex pvt. ltd. stock broker, ... on...

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BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA

[ADJUDICATION ORDER NO. KBL/KSPL/AO/DRK/AS/EAD-3/176/09 -79/2010]

__________________________________________________

UNDER SECTION 15 I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH RULE 5(1) OF SECURITIES AND EXCHANGE BOARD OF INDIA (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995

Against : Kolar Sharex Pvt. Ltd.

Stock Broker, Bombay Stock Exchange Ltd. SEBI Registration Number INB 11105138

FACTS IN BRIEF

1. Securities and Exchange Board of India [hereinafter referred to as

‘SEBI’] conducted an investigation into the scrip of Kolar Biotech Ltd.

(hereinafter referred to as KBL or company) during the period of July 01,

2004 to August 31, 2004 (hereinafter referred to as the investigation

period). The reason for the investigation was that SEBI had received a

complaint dated August 13, 2004 regarding alleged fraud by KBL. The

complainant had stated that the promoters of the company have

escaped from the country after committing a fraud of over Rs.1000

crores. It had also been stated that the company has announced a

bonus issue of 2:1 and Rs. 50 cr. Global Depository Receipt [GDR] issue

and had advertised the same in the widely circulated business daily the

Economic Times [ET] dated August 13, 2004. However, in the ET dated

August 11, 2004 there was a notice by the Bank of India [BOI] regarding

sale of property of Shri Raj Kumar C. Basantani (RKB) who is the main

promoter of KBL. It has been further mentioned in the complaint that the

registered office of KBL has been sealed by the bank, yet the company

has advertised that the meeting to consider GDR issue will be held at its

registered office. Further, various other complaints against the company

and its promoters/ directors were also received.

2. Further, SEBI, vide its interim order dated September 30, 2004, had

issued directions under Section 11B of SEBI Act, 1992 restraining 58

entities who are either promoters, directors, major shareholders of ACL,

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KBL, and SIL or major sellers in the said scrips and the entities related to

them, from buying, selling or dealing in any other manner in the shares

of KBL, ACL and SIL till the investigations are completed. The Chairman,

SEBI passed order dated February 18, 2005 confirming earlier order

dated September 30, 2004 and further directed that the order dated

September 30, 2004 shall continue until further orders. Kolar Sharex Pvt.

Ltd. (hereinafter referred to as the noticee/KSPL) was also one of the

entities against whom the directions under Section 11B was issued.

3. KBL was incorporated on January 13, 1994 with an initial focus on

providing services as Registrar and Share Transfer Agents and other

financial services. It was initially promoted in the name of Kolar

Securities Services Pvt. Ltd. (KSSPL) by Shri Nazeer Ahmed N. Desai

and Shri Maqbool Matwanker. On February 28, 1994, Adam Comsof Ltd.

[hereinafter referred to as ACL] , a company controlled by RKB and

individuals/ entities related/ connected/ associated with him, subscribed

19,99,830 shares of KSSPL. By virtue of their holding of 19,99,830

shares out of total equity of 20,00,000 shares, KSSPL became

subsidiary of ACL. By November 15, 1996, ACL’s holding in KSSPL

increased to 19,99,910 shares. RKB, have since then been the main

promoter / person controlling the company. KSSPL changed its name to

Kolar Information Technologies Ltd. and the focus of the company was

changed to development and trading of computer software and

hardware. In the year 1997, the company came out with a public issue of

60,00,000 equity shares of Rs. 10 each at par aggregating to Rs. 6

crores. The shares were listed on Bombay Stock Exchange Ltd.

[hereinafter referred to ‘BSE’] and Ahmedabad Stock Exchange Ltd.

[hereinafter referred to as ‘ASE’] on April 25, 1997. Thereafter, in the

year 2003, the name of the company was changed to Kolar Biotech Ltd.

with main focus in the biotech sector. The registered office of the

company is located at: Narayan Building, 2nd Floor, 23, L.N. Road,

Dadar (E), Mumbai – 400 014.

4. BSE had transferred the said scrip to ‘Z’ group (trade to trade basis)

w.e.f. August 24, 2004 for non-compliance of the various clauses of the

stock exchange Listing Agreement. Further, trading in the shares of KBL

is suspended at the stock exchanges with effect from October 11, 2004

for non-compliance of various clauses of listing agreement. Subsequent

to the public issue, company had on February 28, 2002 split the shares

from Rs 10/- per share to Re 1/- per share. The shares of KBL were

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admitted on National Securities Depository Ltd. [hereinafter referred to

as ‘NSDL’] on March 4, 1999 and on February 4, 2000 on Central

Depository Services (India) Ltd. [hereinafter referred to as ‘CDSL’].

APPOINTMENT OF ADJUDICATING OFFICER

5. I was appointed as the Adjudicating Officer under section 15 I of the

Securities and Exchange Board of India Act, 1992 read with Rule 3 of

Securities and Exchange Board of India (Procedure for Holding Inquiry

and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter

referred to as ‘Rules’) to inquire into and adjudge under Section 15HA

and 15HB of the SEBI Act, 1992 the violations of the provisions of

Regulation 3, sub-regulation (1) and 2 (a), (b) & (d) of Regulation 4 of

the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating

to Securities Market) Regulations, 2003 (hereinafter referred to as SEBI

PFUTP Regulations) read with clauses A (1),(2),(3) & (4) of the Code of

Conduct for Stock Brokers as prescribed in Schedule II of the SEBI

(Stock Broker and Sub-broker) Regulations, 1992 alleged to have been

committed by Kolar Sharex Pvt. Ltd. (hereinafter referred to as the

noticee.)

SHOW CAUSE NOTICE, HEARING AND REPLY

6. A Show Cause Notice (SCN) dated April 22, 2008 was issued to the

noticee in terms of the provisions of Rule 4 of the Rules, requiring it to

show cause as to why an inquiry should not be held against it and why

penalty, if any, should not be imposed on it under Section 15HA and

15HB of the SEBI Act, 1992 for violating the provisions of Regulation 3,

sub-regulation (1) and 2 (a), (b) & (d) of Regulation 4 of the SEBI PFUTP

Regulations read with clauses A (1), (2), (3) & (4) of Schedule II of the

Code of Conduct for Stock Brokers under Regulation 7 of SEBI (Stock

Brokers and Sub-Brokers) Regulations, 1992.

7. During the period July 2004 to August 2004, it was observed the noticee

appeared as top stock broker in terms of gross sales and net sales

basis. The total number of shares sold through Kolar Sharex Pvt. Ltd.

was around 4.42 crores shares. It was alleged that the major clients,

who have dealt in the scrip of KBL, are related/ connected/ associated

with KBL/ RKB. (RKB Group as detailed in Table1)

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8. It is alleged that the shares of KBL were transferred to the pool account

of the noticee from the demat accounts of various entities of RKB Group

including those who have not sold shares of KBL through the noticee.

9. It is noted from the submission made by Mr. Ashok Bhagtani,

(Bhagtani) Director of the noticee, during the Investigation that RKB

along with Shri Pankaj Shah and Shri Satish Pancheria have

masterminded the operations and chalked out plan to sell the shares of

KBL in the market and share the sale proceeds. Further, Bhagtani also

mentioned that Shri Basant Malpani, introducer of clients of Ruchiraj

Shares and Stock Brokesr Pvt. Ltd. (Ruchiraj) used to coordinate the

activities along with one Shri Manish who was provided a separate

terminal in KSPL. It is alleged that the noticee being a part & parcel of

the whole operation was fully aware of the fraud being committed upon

common investors and played an active role in the same.

10. As regards the transfer of shares is concerned, it is alleged that Shri

Shyam Sunder Pandey, an employee of Adam Comsof Ltd., used to

coordinate transfer of shares in consultation with Bhagtani, who in turn

was acting under the direction of RKB. It is alleged that the shares have

been transferred off-market from the pool account of the noticee and

from the accounts of various entities of RKB Group to the demat

accounts of Shri Mahesh Mistry and Shri Girdharbhai Karu.

11. It is alleged that Bhagtani was acting as a co-ordinator on behalf of Kolar

Sharex Pvt. Ltd. and Shri Basant Malpani was acting as the co-ordinator

on behalf of other entities who have dealt through stock broker Ruchiraj.

RKB was issuing directions to Bhagtani to execute orders on behalf of

Kolar Sharex Pvt. Ltd. and the counter orders on behalf of other set of

related/ connected/ associated entities consisting Shri Girdhar Karu, Shri

Mahesh Mistry, Cavaliers Securities Ltd. and Shri Sunil Digambar Lad

were being placed either by Shri Satish Pancheria or by Shri Pankaj

Shah.

12. It is alleged that the noticee had two Bank accounts with HDFC Bank

Ltd. Account no.: 0990620001631 was designated for the purpose of

settlement of fund i.e. pay-in and pay-out obligation of funds with BSE

and the other account no.: 060034002479 was designated as client

account which was used for payment to or receipt from the clients. From

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the bank account opening form of Kolar Sharex Pvt. Ltd. it was observed

that Shri Rajesh Sharma, a compliance officer of Kolar Sharex Pvt. Ltd.

working at its Khar office, was also an authorized signatory to operate

the bank accounts. To operate the bank accounts, either RKB alone

could sign the cheque or in his absence, both Shri Rajesh Sharma and

Shri Vinod Hingorani were required to sign the cheques jointly.

13. For the purpose of the examination of the bank accounts to ascertain the

beneficiaries of the sale proceeds of the sale of shares of KBL during the

period July 2004 to August 2004, HDFC Bank Ltd, vide letter dated IVD/

ID3/ PKB/ BJD/ 51446 dated October 07, 2005, was advised to provide

the transaction statement of the said two accounts along with the name

of the entities to whom the payment/ demand draft/ cheques have been

issued. The total sale proceeds of the entities of RKB Group who sold

shares through the noticee was around Rs 6.65 crores. It is alleged that

the sale proceeds have gone to entities of RKB group as mentioned in

Table 6 and not to the clients (as mentioned in Table 1) and the whole

fraud has been perpetuated by RKB along with Shri Pankaj Shah and

Shri Satish Pancheria and the noticee played an active role in that.

14. Further it is alleged that the noticee had executed numerous structured

deals with the counter party stock broker Ruchiraj while dealing on

behalf of its clients namely, Shi Vinod Hingorani, Adam Comsof Ltd.,

Sangam Infotech Pvt. Ltd. and Million Investrade Ltd.

15. It is alleged that the noticee had failed to exercise due care and diligence

while dealing with RKB Group and acted unprofessionally by giving

special treatment to the clients who are related/ connected/ associated

with the noticee. Further, the noticee not only knowingly aided and

abetted clients who are part of RKB group in operation of the whole

fraud but also played an active role in it.

16. It is alleged that the noticee made gross misuse of the trading terminal

by giving it to unauthorized person (as stated by Bhagtani) for fraudulent

purposes. Third party deliveries were accepted and also payments were

made to third parties. Structured deals were also executed by the

noticee for the clients who are part of RKB Group.

17. In view of the above it is alleged that the noticee had violated provisions

of Regulation 3, sub-regulation (1) and 2 (a), (b) & (d) of Regulation 4 of

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the SEBI PFUTP Regulations read with clauses A (1), (2), (3) & (4) of

Schedule II of the Code of Conduct for Stock Brokers under Regulation 7

of SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992.

18. The SCN stated that the reply shall reach within 14 days from date of

receipt of the SCN, failing which it shall be presumed that the noticee

has no reply to submit and the matter shall be proceeded on the basis of

material available on record. The SCN sent through Registered Post

Acknowledgement Due was returned undelivered with the remark ‘left’.

Thereafter a notice dated October 15, 2008 was sent to Mr. Ashok

Bhagtani,(Bhagtani) Director of KSPL/the noticee having address at 2/C,

Ferreira Mansion, Sitadevi Temple Road, Mahim, Mumbai – 400 016.

wherein he was advised to collect the aforesaid SCN from SEBI on or

before October 24, 2008 and submit the reply within 10 days. The

aforesaid notice was duly served on him. Vide his letter dated nil

received by SEBI on October 24, 2008 requested for time till November

10, 2008 to collect the SCN. Bhagtani vide his letter dated November 07,

2008 authorised Shri Sunil Charya to collect the SCN on his behalf.

Thereafter Bhagtani vide letters dated November 20, 2008 and

December 18, 2008 requested for 30 days extension of time to reply to

the SCN and vide letter dated January 19, 2009 requested for another

45 days extension of time to reply to the SCN on medical grounds.

19. Bhagtani vide letter dated nil received on March 12, 2009 stated that he,

as an individual, denies all the allegations leveled against him in the

SCN and requested for a personal hearing in the matter. As requested,

hearing notice dated November 18, 2009 was served on him for the

hearing scheduled on December 02, 2009. Bhagtani vide letter dated

December 02, 2009 requested for further 45 days to make a detailed

written submission to the SCN. Accordingly a fresh date of hearing on

January 07, 2010 was granted to him vide hearing notice dated

December 02, 2009. Bhagtani vide letter dated December 30, 2009

made a detailed reply to the SCN and made the submissions. The

summary of his submissions are as under-

a) The captioned letter issued to me, enclosing a copy of the show

cause notice, proceeds on a wrong premise/assumption that I am a

Director of the Company and therefore an officer in default. Though

it appears on the records of the company that I am a Director, I was

holding only 1 (one) share of face value of Rs.10/-, in fact I was a

paid employee of the company drawing salary of Rs. 9,205/- per

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month after deduction of professional tax. I was neither informed

nor called upon to attend any of the board meetings of the

company. I was never paid director’s fees, salary, honorarium, etc. I

was in no way with the day to day affairs of the company. I was

only an employee working in Kolar Sharex Pvt. Ltd., as a dealer

handling one NSE terminal out of 10 BSE/NSE terminals. The

records of the company will bear testimony that, I had no authority

or say in that control/management of the affairs of the company. I

was also not a signatory to any of the transactions carried out by

the company such as Banking/demat. HDFC bank records of the

company send by SEBI prove the same. The alleged shareholding

in itself is self explanatory as to my status in the company.

b) At the very onset, I would like to bring to the notice of the

Adjudicating Officer that Shri Rajkumar Basantani had 84% holding

and Shri Vinod Hingorani had 6% holding in the company. I

reiterate that I am being shown as a director who was holding only

1(One) share of face value of Rs. 10/-.

c) The conduct of the promoter directors of KBL and Kolar Sharex Pvt.

Ltd. also cannot be ignored. They have projected their former

employees as directors and have left them in the lurch to face the

charges on the alleged ground that the employees are in charge of

the affairs of the various companies run by them. I am in fact a

victim of one such fraud and had no role in perpetration of any of

the alleged wrong doing of the company. I was only an employee of

the company.

d) It would be a travesty of justice to implicate me for the wrong doing

of others. The fact that the promoters had floated many such

companies in which their petty employees like Peon, Drivers, clerks

and small time employees were shown as directors only on paper

for the motives and reasons best known to them, to name a few,

viz. M/s Albeli, where the Director Shri Jhanbha Chougale was

actually Shri Rajkumar Basantani’s driver, M/s Adsul Trading,

where the Director Shri Mahesh Adsul was actally a Hardware

Engineer (as can be known from the order passed by SEBI in the

case against Shri Jhanbha Chougale). e) It is stated that I had nothing to do with KBL. I have not come

across any such advertisement. I had no connection with the pool

account, and as already brought out in the SCN the pay-in and pay-

out of shares as well as funds was managed in Khar office by Shri

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Vinod Hingorani and Rajesh Sharma and I was in no way

connected with the same.

f) I say that the allegation of target client demat account-ID being with

me and having passed on the same to Shri Shyam Sunder Pandey,

an employee of Adam Comsof Ltd. is being based admittedly on

surmises and conjunctures. I deny the same. I also deny the

allegation of having confirmed the same. Moreover, Shri Vinod

Hingorani, the then Chairman of KBL, who was also Chairman of

Adam Comsof Ltd. and Director of Kolar Sharex Pvt. Ltd, was

present through out and was very much in office at the relevant

point of time. I was only concerned with my duties as an employee

of the Company.

g) I was not acting as the coordinator of the company. I was only an

employee working under the instructions of my employers and I did

not do any alleged fraudulent transaction. I strongly refute that I did

or was aware that any of the transactions were fraudulent

transaction as alleged.

h) The Account opening form of HDFC Bank, forwarded by SEBI to

me, clearly indicates that the mode of operation was to be handled

by Shri Rajkumar Basantani solely, and Shri Vinod Hingorani and

Rajesh Sharma, jointly, and therefore I cannot comment on the

issue.

i) I have no knowledge of fraud committed by the promoters. I had no

control over the affairs of the company and therefore the allegations

made therein cannot be attributed to me personally. I am in no way

responsible for the alleged fraud committed by the promoters.

j) I had no authority to allot any terminal to any individual. I was only a

dealer handling one NSE terminal out of the ten NES/BSE

terminals. As regards pay-in and pay-out of deliveries and funds, I

reiterate that the same were being handled at the Khar office by

Shri Vinod Hingorani and Rajesh Sharma.

k) I had no role in any of the alleged fraud played by the promoters. In

the above case, there is nothing which indicates that I was an

officer in default. I was a dummy Director and I was neither

handling the day-to-day affairs of the company nor I was a

signatory in any of the financial documents and demat pay-outs. I

had no authority or say, whatsoever, in the affairs of the Company.

Rather the entire episode has caused me severe mental trauma not

to mention social stigma. Therefore I humbly request SEBI to quash

all the proceedings initiated against me and exonerate me of all

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charges. I am willing to co-operate with the investigation and inquiry

in any manner to bring the guilty to book.

20. Bhagtani attended the hearing scheduled on January 07, 2010 and

made his submissions. He submitted that he is representing on his own

behalf and is not representing on behalf of the noticee. Further he

submitted that he is not aware about the whereabouts of the noticee and

has no contact with other two Directors of the noticee and thereby is also

not authorized to represent on behalf of KSPL/the noticee. He is

appearing for the present adjudication proceedings as the show cause

notice was sent to him and to comply with the Regulator.

21. Further in support of his submissions that he is just an employee of the

company, he has shown the Bank statement for the year 2002, 2003,

and 2004 and submitted Form 16 for the financial year 2002, 2003, 2004

wherein his designation is stated as a Dealer-Employee of the noticee.

Bhagtani was given additional 10 days time to make further submissions,

if any. Bhagtani vide his letter dated January 15, 2010 reiterated his

reply that he was a mere employee of the noticee and had no control in

the day to day affairs of the company.

CONSIDERATION OF EVIDENCE AND FINDINGS

22. I have taken into consideration the facts and circumstances of the case,

and the material made available on record. It may be noted that

Bhagtani has stated in his reply as well as in hearing that he is not

representing on behalf of the noticee, however he is shown as a

‘Director’ in the List of Directors of the noticee as submitted by him

during the adjudication proceedings. Further the records of BSE

mentions Bhagtani as a member of Board of Directors of the noticee.

Therefore the submissions made by him during the investigation as well

as the adjudication proceedings are taken on record so far as it explains

the role of the noticee and corroborates with the material available on

record in the present adjudication proceedings.

23. IR observed that since July 27, 2004 the registered office of the

company has been sealed by the Office of the Special Recovery and

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Sales Officer of Co-operative Department, Mumbai (Government of

Maharashtra) on behalf of The Greater Bombay Co-operative Bank Ltd.

vide its notice no. GBCB/ Rec/ SRB/ 3692/ 2004 in execution of the

Recovery Certificate obtained by the bank in the matter of recovery of

advances given to Soundcraft Industries Ltd. (SIL), a group entity of

KBL.

24. During the investigation period KBL and its Directors; RKB and RKB

group had issued false and misleading advertisements relating to KBL,

created artificial volume and price rise in the scrip and subsequently off-

loaded RKB group’s shares in KBL in the market through connected

entities.

Analysis of Data: Price Volume Analysis:

25. As per the price volume data for the period July 01, 2004 to August 31,

2004, the price of the scrip was in the range of Rs 0.46 to Rs 2.29 with

wide variations/ fluctuations in volumes. The price of the scrip touched a

low of Rs. 0.46 on July 23, 2004 and touched a high of Rs 2.29 on

August 11, 2004. The volumes in the scrip increased drastically after the

announcement of bonus issue. The volumes have increased from an

average of 1 lakh shares per day before the announcement of bonus

issue to 1.30 crores shares after the announcement by the company.

26. On the trading analysis from July 2004 – August 2004, it is observed

from the investigation report that the price of the scrip was in the range

of 45 paise to 59 paise during the period July 1, 2004 to July 23, 2004

with average volume of 1 lakh shares. The price and volumes started

increasing from July 26, 2004 i.e. 7 days before the issue of the

advertisement. From the above, it is clear that after the date of issuing

advertisement the price had increased from Rs 1 to Rs 2 i.e by 100%.

Similarly the volumes have also increased almost by 15 times. During

the period July 2004 to August 2004, the scrip touched its upper circuit

limit of 20% on 7 days immediately after the announcement of the bonus

issue.

27. As per the member’s concentration during the above period, it was

observed that stock brokers KSPL/the noticee and Ruchiraj were having

major concentration on gross sales basis. KSPL sold around 4.42 crores

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shares constituting around 30.69% of the total gross sales and 60% of

the total net sales during the period. Ruchiraj sold around 2.16 crores

shares constituting around 27.7% of the gross sales and 30% on net

basis. Around 22 lakhs shares were sold through BSE stock broker M/s

Shiv Kumar H. Bissa (Bissa). Other stock brokers did not have any major

concentration during the period wherein concentration either in gross or

net was less than 10%. Besides, the client of these other stock brokers

were not apparently related/ connected/ associated with the company.

28. Thus, from the above, it is clear that around 6.58 crore shares were sold

in the market by only the two stock brokers i.e. the noticee and Ruchiraj

which constituted around 90% of net sales position and around 57% of

gross sales position in the market during the period.

29. It was observed that the noticee was connected to the KBL since KBL

and KSPL had a common director Shri Vinod Hingorani who is the

Chairman of KBL. Further, the promoter and director of the noticee was

also RKB. Further the address of KSPL was same as that of the

registered office of KBL i.e. Narayan Building, 23, L.N. Road, Dadar (E),

Mumbai – 14.

30. Details of gross sales of the shares of KBL by RKB Group through the

noticee during the period July 2004 to August 2004 are presented in the

following table:

Table -1

Sr. No Name of the entity Shares sold

Value of shares(Rs)

1 Adam Comsof Ltd 87,79,913 1,43,67,890 2 Albeli Trading Pvt. Ltd 28,80,000 62,61,100 3 Jugnu Securities Pvt. Ltd 30,29,930 49,88,044 4 Million Investrade Pvt. Ltd 48,42,653 64,45,750 5 Sangam Infotech Pvt. Ltd 53,20,146 96,78,874 6 Structural Hsg. Finance Pvt.

Ltd. 98,07,477 1,20,86,459

7 Vinod Hingroni 2,02,000 2,27,435 8 Adsul Trading Pvt. Ltd 52,92,437 74,21,386 9 Mastermind Mercantile Coop.

Pvt. Ltd. 41,28,327 51,19,125

Total 4,42,82,883 6,65,96,063

Table 2- The table below summarises the relation/ connection/ association of the clients with KBL/ RKB:

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Sr.No

Name of the Major selling Client

Link / connection with the Company.

1 Adam Comsof Ltd. • Promoter of KBL, • As per KYC form for demat account with Ghalla

Bhansali Stock Brokers Pvt. Ltd. same registered address as that of KBL.

• ACL, major client which sold shares through Kolar Sharex Pvt. Ltd., a group company of KBL.

• ACL also share registrar of KBL.

2 Adsul Trading Pvt. Ltd. • As per client details data provided by BSE, indicate that telephone number i.e. 24151450 is same as that of KBL

• Correspondance address is same as the registered office of KBL, SIL and ACL. Demat account opening from with IL&FS [a/c no.: 1601480000008014]

• Directors of the company are employees of KBL/ SIL. They are employed by RKB. Statement of Shri Mahesh Adsul, Director of Adsul Trading Pvt. Ltd., at the time of deposition before Investigating Officer.

3 Albeli Trading Pvt. Ltd. • Correspondance address is same as the registered office of KBL, SIL and ACL. Demat account opening from with SHCIL [a/c no.: 1601010000060164].

• Shri Janba Chowgle, director of Albeli Trading Pvt Ltd. is a major shareholder of KBL.

• Shri Janba Chowgle is an employee of KBL/ SIL. Employed by RKB.

4 Million Invest Trade

Ltd. • As per client details data provided by BSE,

indicate that telephone number i.e. 24151450 is same as that of KBL.

• Correspondance address is same as the registered office of KBL, SIL and ACL. Demat account opening from with SHCIL [a/c no.: 1601010000060179].

• Directors of the company are employees of KBL/ SIL. They are employed by RKB.

5 Mastermind Mercantile Coop. Pvt. Ltd.

• As per client details data provided by BSE, indicate that telephone number i.e. 24151450 is same as that of KBL.

• Correspondance address is same as the registered office of KBL, SIL and ACL. Demat account opening from with IL&FS [a/c no.: 1601480000007804].


6 Sangam Infotech Pvt.

Ltd. • As per client details data provided by BSE,

indicate that telephone number i.e. 24151450 is same as that of KBL



• Statement of Shri Mahesh Adsul, Director, at the time of deposition before Investigating Officer.

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7 Struture Hsg & Fin P Ltd

• Shri Natin Namdev is common director of Structure and Jugnu Securities. Jugnu Securities P Ltd has same address as that of Shri Vinod Hingroni (Chairman of KBL).


• Directors of the company are employees of KBL/ SIL.

8 Shri Vinod Hingorani • Chairman of KBL.

• Brother-in-law of Shri Raj Kumar C. Basantani (brother of Smt. Seema Basantani).

• Statement given by him at the time of deposition before Investigating Officer.

• Chairman of ACL, major client which sold shares through Kolar Sharex Pvt. Ltd. (group company of KBL)

• Also Director of Kolar Sharex Pvt. Ltd.

9 Jugnu Securities Pvt. Ltd.

• Shri Natin Namdev is common director of Structure and Jugnu Securities. Jugnu Securities P. Ltd. has same address as that of Shri Vinod Hingroni (Chairman of KBL).


• Directors of the company are employees of KBL/ SIL. They are employed by Shri Raj Kumar C Basantani.

31. The pool account of the noticee for the period under investigation was

also examined. It is observed that shares of KBL were transferred to the

pool account of the noticee from the demat accounts of various entities

of RKB Group including those who have not sold shares of KBL through

the noticee. Details of such receipts are presented in the table below:

Table -3

Sr. No

Name of the entity Date Shares received

Total Receipt

1 Mastermind Mercantile Coop. Pvt. Ltd

5/8/2004 45,00,000

Mastermind Mercantile Coop. Pvt. Ltd

13/08/2004 4,000

Mastermind Mercantile Coop. Pvt. Ltd.

17/08/2004 27,000

Mastermind Mercantile Coop. Pvt. Ltd.

17/08/2004 4,96,000

Sub-total 5027000 2 Adsul Trading Pvt. Ltd. 5/8/2004 44,50,000 Adsul Trading Pvt. Ltd. 13/08/2004 36,000 Sub-total 4486000 3 Structure Housing & Finance

Pvt. Ltd. 5/8/2004 43,50,000

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Structure Housing & Finance Pvt. Ltd.

17/08/2004 6,50,000

Sub-total 5000000 4 Adam Comsof Ltd. 7/8/2004 80,00,000 Adam Comsof Ltd. 9/8/2004 48,47,350 Sub-total 12847350 5 Kalbadevi Finance Pvt. Ltd. 18/08/2004 9,00,000 Kalbadevi Finance Pvt. Ltd. 23/08/2004 21,50,000 Sub-total 3050000 6 Sangam Infotech Pvt. Ltd. 11/8/2004 35,33,000 3533000 7 Jugnu Securities Pvt. Ltd. 11/8/2004 28,80,000 2880000 8 Aravali Housing & Finance Pvt.

Ltd. 14/08/2004 15,00,000 1500000

9 Albeli Trading Pvt. Ltd. 14/08/2004 14,00,000 1400000 10 Million Investrade Ltd. 16/08/2004 28,50,000 2850000

11 Ghalla Bhansali Stock Brokers Pvt. Ltd./ 10024294 23/08/2004 37,00,000 37,00,000

Total 4,62,73,350

32. In order to examine the role of the noticee summons dated October 11,

2005 was issued to the noticee u/s 11(3) and 11(5) of SEBI Act, 1992

which returned undelivered. However, the summons was served on the

noticee through BSE by pasting the same on the premises of the

noticee. Keeping in view the significant role played by the noticee, efforts

were made to trace Bhagtani, Director of KBL to collect additional

information and to have a better understanding of the modus operandi.

33. Shri Rajesh Durglal Sharma, who has been mentioned in the interim

order dated 30/09/2004 as a major seller in the scrip during the period

under investigation was an employee of the noticee. In his statement

recorded before the Investigating Authority he stated that “to the best of

my knowledge, whatever information, I provided above is known to me

and further any dealing in this particular scrip, you will get more

information from our director (Bhagtani)”. Subsequently, Shri Rajesh

Durglal Sharma provided the address of Shri Ashok Bagtani i.e. 2/C

Ferreira Mansion, Sitladevi Temple Road, Mahim, Mumbai –400016.

Based on the aforementioned information a fresh summons to appear

before the Investigating Authority was issued to Bhagtani.

34. In his statement recorded before the Investigating Authority on

November 21, 2005, Bhagtani, inter alia, made the following

submissions:

“Q: Please explain the events which took place during the period July to August 2004.

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Ans: In the month of July 2004, RKB called me up on my mobile and put me on to one Mr. Pankaj Bhai and told me that Mr. Pankaj Bhai and Satish Bhai are consulting him in the matter of Kolar Biotech Ltd, therefore directed me to cooperate with them and follow their instruction in respect of purchase and sale of KBL Such an instruction from RKB had come for the first time. After the conference was over, Mr Basantani gave me the mobile number of Mr. Satish Bhai and Shri Pankaj Bhai which is 9821146188 and 9825005251 respectively and told me to see Mr. Satish Bhai. After a day or two I met Mr. Satish Bhai in turn he introduced me to one Mr. Basant and told me to that Mr. Basant would give orders and I should execute the same and I confirmed this with RKB and gave me a go ahead. Two days after, Pankaj Bhai called me and told me that they would send one Mr. Manish Bhai in the dadar office and I should provide him a terminal. I asked Mr Raj Kumar C Basantani over the phone about Pankaj bhai request for terminal for their operator Mr. Manish Bhai. Mr Basantani told me to do as said. Accordingly, I provided a terminal for Manish bhai and advised Mr Rajesh Sharma, compliance officer at Khar office to increase the trading limit of the said terminal.

The terminal was provided to Manish Bhai in the month of August 2004 and Mr Manish Bhai had come to office with a separate cordless phone which he used for communication with Mr Basant and then executed order accordingly. At the end of the day Mr Raj Kumar Basantani asked for the report as to how many shares were sold and instructed me to transfer 40% shares to the accounts given by Pankaj Bhai or Satish Bhai. In turn, pankaj bhai gave me the details of the demat accounts to which shares should be transferred, which in turn I passed on to Mr Shyam Shankar Pandey, who is employee of Adam Comsof Ltd for execution. Shri Shyam Shankar Pandey, used to transfer the share to the demat account numbers provided by me (which was provided to me by Pankaj Bhai or Satish Bhai) after confirmation from Mr Raj Kumar C Basantani. The above procedure was followed on all the days when shares were sold by Manish Bhai. Manish Bhai in the process also bought shares of other companies in the client code created for the said purpose which was subsequently transferred to the demat account of the entity created by them. The shares bought were in lieu of their share. It may be clarified that Shri Manish Bhai is not an employee of Kolar Sharex Pvt. Ltd. To the extent of what I remember, the shares were transferred to one Mr. Girdhar Kharu and Mahesh Mistry.” [emphasis added]

35. From the above submissions made by Bhagtani, it is clear that RKB

along with Shri Pankaj Shah and Shri Satish Pancheria have

masterminded the operations and chalked out plan to sell the shares of

KBL in the market and share the sale proceeds. Further, Bhagtani also

mentioned that Shri Basant Malpani used to coordinate the activities

along with one Shri Manish.

36. When asked about the manner/ nature of communication by which the

above mentioned clients used to place orders. Bhagtani replied that:

“In respect of all the trade done by the clients as mentioned at question no 8, the orders were placed by RKB to various BOLT operators at any

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of our offices and I some times used to take the orders from RKB for the above mentioned clients”.

37. From the above statement, it is clear that the noticee being a part &

parcel of the whole operation was fully aware of the fraud being

committed upon common investors and played an active role in the

same.

38. As regards the transfer of shares is concerned it was observed that

shares have been transferred off-market from the pool account of the

noticee and from accounts of various entities of RKB Group to the demat

accounts of Shri Mahesh Mistry and Shri Girdharbhai Karu. Table-4

Off-market transfer of KBL shares by various related/ connected/ associated entities/ individuals of RKB/KBL to Karu:

Name of the source client

Name of target client Number of shares

No of shares net sold in the market

Adam Comsof Ltd Girdharbhai Karu 51,61,650 Million Investrade Girdharbhai Karu 10,00,000 Sangam Infotech Girdharbhai Karu 2,84,000 Jugnu Securities Girdharbhai Karu 9,20,000 Albeli Trading Pvt Ltd Girdharbhai Karu 12,47,690 Arvali Hsg and finance Ltd Girdharbhai Karu 19,30,000 Structure Hsg and finance Girdharbhai Karu 9,50,279 Mastermind Mercantile Ltd Girdharbhai Karu 12,00,000 Kalbadevi Finance Pvt. Ltd.

Girdharbhai Karu 3,50,000

Adsul Trading Pvt. Ltd. Girdharbhai Karu 5,35,975 Janba Krishna Chougle Girdharbhai Karu 2,50,000 Total 1,38,29,594

1,38,44,591

Table-5

Off-market transfer of KBL shares by various related/ connected/ associated entities/ individuals of RKB/KBL to Mahesh:

Date of off market transfer

Name of the source client

Name of target client

Number of shares

No of shares sold in the market

August 6, 2004

Pool account of Kolar Sharex Pvt. Ltd

Mahesh Mistry

33,00,000

August 7, 2004

Adam Comsof Ltd Mahesh Mistry

19,90,000

August 17, 2004

Adsul Trading Pvt. Ltd

Mahesh Mistry

10,58,700

August 23, 2004

Kalbadevi Finance Mahesh Mistry

9,00,000

August 25, 2004

Kalbadevi Finance Mahesh Mistry

1,05,000

75,15,401

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August 25, 2004

Adsul Trading Pvt. Ltd

Mahesh Mistry

46,701

August 25, 2004

Janba Krishna Chougle

Mahesh Mistry

1,15,000

Total 75,15,401

39. As regards tracking of sales proceeds of the noticee, the noticee had two

bank accounts with HDFC Bank Ltd. Account no.: 0990620001631 was

designated for the purpose of settlement of fund i.e. pay-in and pay-out

obligation of funds with BSE and the other account no.: 060034002479

was designated as client account which was used for payment to or

receipt from the clients. The total sale proceeds of the entities of the

RKB group who sold shares through the noticee was around Rs 6.65

crores. The details of the substantial payment made by Kolar Sharex

Pvt. Ltd. from the account no.: 0600340002479 after the pay-out of the

money received from BSE are given in the following table.

Table 6-

Date Cheque No & amount Pay order / Cheque issued to

Amount

09/08/2004 Ch. No. 126796 of Rs. 20,00,000

Federal Forex Pvt. Ltd 20,00,000

10/08/2004 Ch. No. 126804 of Rs. 91,55,520


I D Sharma 1,00,000 Sati Bhatia 1,00,000 Hari M. Balwani 1,00,000 Eskay Dye & Agro Chem P.

Ltd. 4,80,000

RoC 1,500 Vinod Hingorani 25,00,000 Rajiv Sadashiv Modak 11,046 Pooja Rajiv Modak 20,000 Putli Resri Dodhi 36,299 Resri N. Dodhi 36,299 J Mitthawala 20,376 C. H. Ramchandani HUF 5,00,000 Hitesh K. Shah Financial

Service Ltd. 2,50,000

10/08/2004 Ch. No. 434102 of Rs. 5,00,000


11/08/2004 Ch. No. 126812 of Rs 52,43,000


Kolar Travels Pvt. Ltd. 25,00,000 Rakhi Parekh 70,000 Hemendra Parekh 1,00,000 Anjali I Ingle 35,000 S M Naik 16,000 MD Naik – HUF 22,000 12/08/2004 Ch. No. 126814 of Rs

1,00,10,300 Federal Forex Pvt. Ltd 25,00,000

Kolar Travels Pvt. Ltd 25,00,000 Raj Kumar C Basantani 25,00,000 Raj Kumar C Basantani 25,00,000 Gaurishankar L Jangam 10,300 12/08/2004 Chq no. 126816 Rs 9 Pay order of Rs 9 lakh 1,20,00,000

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1,20,00,000 issued each to Raj Kumar C Basnatani and Rs 13 lakh each to Vinod Hingorani

13/08/2004 Ch. No 126818 of Rs 40,00,000

Raj Kumar Basantani 10,00,000

Vinod Hingorani 10,00,000 Federal Forex Ltd 10,00,000 Kolar Travels Pvt. Ltd 10,00,000 16/8/2004 Chq. No 434101 Cash Withdrawal 4,00,000 17/08/2004 Chq No. 126820 Rs

46,41,000 Kolar Sharex Rs 25 lakh PO.

46,41,000

18/08/2004 Multiple Chqeues for Rs 15,00,000

ABN Amro Card 2,00,000

HSBC Card 2,00,000 Standard Chartered 2,00,000 Citibank Card 2,00,000 Citibank Card 5,00,000 Standard Chartered 2,00,000 27/08/2004 Chq no. 434104 of Rs

30,00,000 Mohanlal Hingorani 2,00,000

3 PO 3,00,000 Kolar Sharex 25,00,000 31/08/2004 Chq no. 434110 of Rs

1,05,09,808 Negoem India Ltd 20,00,000

Negoem India Ltd 20,00,000 Negoem India Ltd 20,00,000 Negoem India Ltd 20,00,000 Negoem India Ltd 20,00,000 Spectra Motor Pvt. Ltd 4,71,534 Jignesh Shah 21,200 General Insurance

Cholamandalam 17,074

Total 6,29,59,628

40. From the above, it is clear that the sale proceeds have gone to RKB,

Vinod Hingorani and others and not to any of the clients whose shares

were sold by the noticee as mentioned in Table 1 suggesting that the

whole fraud has been perpetuated by RKB, Shri Pankaj Shah and Shri

Satish Pancheria along with the noticee.

41. It has also been observed that the noticee had executed numerous

structured deals with the counter party stock broker Ruchiraj while

dealing on behalf of its clients namely, Shi Vinod Hingorani, Adam

Comsof Ltd., Sangam Infotech Pvt. Ltd. and Million Investrade Ltd. In all

such instances the counter party client was Cavalier Securities Ltd and

Girdhar Bhai Karu.

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Table- 7 Trades executed between Ruchiraj - 380 (buyer) and Kolar Sharex - 167 (seller)

Trade Date Buy TM Buy Client Qty * Price Time Sell TM S client B ord

Tim S Ord Tim

Time Diff

B ord qty

S ord qty

B Dis Qty

S Dis Qty

B ord Pric

S ord Pric

3-Aug-04 D0380 CAVALIER 30000 * 1.02 15:24:19 D0167 VINOD Hingronai 15:23:53 15:24:19 0:00:26 50000 30000 50000 3000 1.02 1 3-Aug-04 D0380 CAVALIER 25000 * 1.00 15:23:21 D0167 VINOD Hingronai 9:55:31 15:23:21 5:27:50 75000 25000 75000 3000 1 1 3-Aug-04 D0380 CAVALIER 25000 * 1.00 15:23:32 D0167 VINOD Hingronai 9:55:31 15:23:33 5:28:01 75000 25000 75000 3000 1 1

5-Aug-04 D0380 5661 1000 * 1.24 10:14:57 D0167 STRUCTURE HSG&FIN P L 10:14:57 10:08:41 0:06:16 1000 500000 1000 50000 1.24 1.24

5-Aug-04 D0380 6059 1000 * 1.24 10:15:07 D0167 STRUCTURE HSG&FIN P L 10:15:06 10:08:41 0:06:25 1000 500000 1000 50000 1.24 1.24

5-Aug-04 D0380 57092 3942 * 1.24 13:22:40 D0167 MASTERMIND MERCHANTIL 12:12:57 13:22:39 1:09:43 100000 5000 100000 500 1.24 1.24

6-Aug-04 D0380 57086 35000 * 1.48 15:29:39 D0167 ADAM COMSOF LTD 15:14:58 15:29:39 0:14:41 35000 3000000 35000 300000 1.48 1.48

6-Aug-04 D0380 57092 25000 * 1.48 15:29:39 D0167 ADAM COMSOF LTD 15:22:11 15:29:39 0:07:29 25000 3000000 25000 300000 1.48 1.48

6-Aug-04 D0380 CAVALIER 1883206 * 1.48 15:29:39 D0167 ADAM COMSOF LTD 15:29:36 15:29:39 0:00:04 2000000 3000000 200000 300000 1.48 1.48

6-Aug-04 D0380 CAVALIER 136500* 1.48 15:46:10 D0167 ADAM COMSOF LTD 15:46:10 15:41:08 0:05:02 186500 152000 19000 15200 1.48 1.48

10-Aug-04 D0380 CAVALIER 138240 * 2.12 14:41:03 D0167 SANGAM INFOTECH P LTD 14:41:04 14:40:56 0:00:07 180000 180000 18000 18000 2.12 2.12

11-Aug-04 D0380 11140 500 * 2.18 9:59:46 D0167 SANGAM INFOTECH P LTD 9:59:47 9:55:12 0:04:35 500 770000 500 77000 2.18 2.18

16-Aug-04 D0380 CAVALIER 150000 * 1.33 13:30:42 D0167 MILLION INVESTRADE LT 13:30:42 13:30:18 0:00:24 150000 200000 15000 20000 1.33 1.33





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16-Aug-04 D0380 GIRDHARBH 495827 * 1.33 13:52:54 D0167 MILLION INVESTRADE LT 13:52:46 13:52:54 0:00:08 500000 500000 50000 50000 1.33 1.33







* Single Order has been executed in multiple trades.

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42. It may be noted in Table 7, that the buyer clients are Cavelier and Karu

dealing through the Ruchiraj and seller clients are Vinod Hingronai, Structure

Housing & Finance Pvt. Ltd., Adam Comsof Ltd., Sangam Infotech Pvt. Ltd.,

Million Investrade Ltd. dealing through the noticee. In all the trades the buyer

stock broker is Ruchiraj and the counter party stock broker is the noticee. It is

pertinent to note that in majority of the trades the time difference between the

buy order time and sell order time is less than one minute.

43. In this reference I would like to quote the following judgments-

44. The Hon’ble Securities Appellate Tribunal (hereinafter referred to as ‘SAT’) , in Nirmal Bang Securities Pvt. Ltd Vs SEBI (Appeal no. 54-57/2002),

observed as follows:

“Synchronized trading is violative of all prudential and transparent norms of trading in securities. Synchronized trading on a large scale can create false volumes… There are many transactions giving an impression that these were all synchronized, otherwise there was no possibility of such perfect matching of quantity price etc.…. In a synchronized trading intention is implicit.”

45. Also the Hon’ble SAT, in Ketan Parekh Vs. Securities and Exchange Board of

India (Appeal No. 2 of 2004), observed as follows:

“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.”

46. In view of the role of the noticee as discussed in pre paras, it can be

concluded that the noticee has not only knowingly assisted RKB Group in

operation of the whole fraud but also played an active role in the same and

thereby has violated Regulation 3, sub-regulation (1) and 2 (a), (b) & (d) of

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Regulation 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade

Practices Relating to Securities Market) Regulations, 2003.

The text of the provisions is as under-

SEBI (Prohibition of Fraudulent and Unfair Trade Practice Relating to Securities Markets) Regulation, 2003 Regulation 3_

4. Prohibition of manipulative, fraudulent and unfair trade practices

(1)_

(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;

47. It is also noted that the noticee had failed to exercise due care and diligence

while dealing with RKB Group and acted unprofessionally by giving special

treatment to the clients who are related/ connected/ associated with the

noticee. Further, the noticee made gross misuse of the trading terminal by

giving it to unauthorized person for fraudulent purposes. Third party deliveries

were accepted and also payments were made to third parties. In view of the

above findings/observations, it can be concluded that clauses A (1), (2), (3) &

(4) of Schedule II of the Code of Conduct for Stock Brokers under Regulation

7 of SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 have not been

complied with by the noticee. The text of the provisions is as under-

Securities and Exchange Board of India (Stock Brokers and Sub-

brokers) Regulations, 1992

Code of Conduct for Stock Brokers

[Regulation 7]

A. General.

(1) Integrity: A stock-broker, shall maintain high standards of integrity,

promptitude and fairness in the conduct of all his business.

(2) Exercise of due skill and care : A stock-broker shall act with due skill,

care and diligence in the conduct of all his business.

(3) Manipulation : A stock-broker shall not indulge in manipulative,

fraudulent or deceptive transactions or schemes or spread rumours with a

view to distorting market equilibrium or making personal gains.

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(4) Malpractices: A stock-broker shall not create false market either singly or

in concert with others or indulge in any act detrimental to the investors

interest or which leads to interference with the fair and smooth functioning of

the market. A stock-broker shall not involve himself in excessive speculative

business in the market beyond reasonable levels not commensurate with

his financial soundness.

CONCLUSION:

48. Considering the facts and circumstances of the case, it can be concluded that

the noticee has violated the provisions of Regulation 3, sub-regulation (1) and

2 (a), (b) & (d) of Regulation 4 of the SEBI PFUTP Regulations read with

clauses A (1), (2), (3) & (4) of Schedule II of the Code of Conduct for Stock

Brokers under Regulation 7 of SEBI (Stock Brokers and Sub-Brokers)

Regulations, 1992. In view of the above, I am satisfied that the present case

warrants imposition of penalty as per the provisions of the SEBI Act, 1992.

49. The violations stipulated in the above paragraphs make the noticee liable to

the penalty under Section 15HA and 15HB of the SEBI Act, 1992. The Text of

the said provision is stated below-

15HA.Penalty for fraudulent and unfair trade practices.- If any person

indulges in fraudulent and unfair trade practices relating to securities, he

shall be liable to a penalty of twenty-five crore rupees or three times the

amount of profits made out of such practices, whichever is higher.

15HB. Penalty for contravention where no separate penalty has been

provided.-

Whoever fails to comply with any provision of this Act, the rules or the

regulations made or directions issued by the Board there under for which no

separate penalty has been provided, shall be liable to a penalty which may

extend to one crore rupees.

50. In this regard, the provisions of Section 15J of the SEBI Act and Rule 5 of the

Rules require that while adjudging the quantum of penalty, the adjudicating

officer shall have due regard to the following factors namely;

a. the amount of disproportionate gain or unfair advantage wherever

quantifiable, made as a result of the default

b. the amount of loss caused to an investor or group of investors as a

result of the default

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c. the repetitive nature of the default

51. While considering the 15J factors, the statistics regarding the number of

investors who dealt in the scrip before/ after the issue of advertisement may

be noted-

Buy / Sell Before the issue of advertisement i.e before August 4, 2004 Clients* No. of shares

After the issue of advertisement i.e. after August 4, 2004 Clients* No. of shares

Number of sellers 309 83,89,291

2455 6,93,24,006

Number of buyers 845 83,89,291

7691 6,93,24,006

Total 1154 1,67,78,582 10146 13,86,48,012

* the number of clients is based on client code available in the trade log submitted by BSE.

52. From the above, it could be observed that number of investors who have

dealt in the scrip (buyers) after announcements made by KBL and

advertisements issued by it in leading newspaper increased by approximately

9 times i.e. from 845 to 7691 investors [inclusive of related/ connected/

associated entities] and there was also corresponding increase in the

volumes which registered an increase of approximately 8.5 times. Further, the

corresponding price of KBL in BSE during the period also increased from

close of Rs 1.04 on August 04, 2004 to high of Rs 2.29 on August 11, 2004,

an increase of more than 120% in six (6) trading days. The above increase in

price, volume and number of investors can be directly attributable to the fraud

committed by the RKB Group along with the noticee.

53. Having considered the facts and circumstances of this case and after taking

into account the factors under section 15J of the SEBI Act, 1992, I find that a

penalty of Rs. 25,00,000/- (Rupees Twenty Five Lakhs only) under Section 15

HA and a penalty of Rs. 5,00,000/- (Rupees Five Lakhs only)under Section

15HB on the noticee would be commensurate with the violations committed

by the noticee in this case. ORDER

54. In exercise of the powers conferred under Section15 I of the Securities and

Exchange Board of India Act, 1992, and Rule 5 of Securities and Exchange

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Board of India (Procedure for Holding Inquiry and Imposing Penalties by

Adjudicating Officer) Rules, 1995, I hereby, impose a consolidated penalty of

Rs. 30,00,000/- (Rupees Thirty Lakhs only) on Kolar Sharex Pvt. Ltd, Stock

Broker, BSE, SEBI Registration Number INB 11105138, having address at

Naryana Building, 23, L.N. Road, Dadar (E), Mumbai 400 014 in terms of the

provisions of Section 15HA and 15HB of the Securities and Exchange Board

of India Act,1992 for violation of Regulation 3, sub-regulation (1) and 2 (a), (b)

& (d) of Regulation 4 of the SEBI PFUTP Regulations read with clauses A (1),

(2), (3) & (4) of Schedule II of the Code of Conduct for Stock Brokers under

Regulation 7 of SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992. In

the facts and circumstances of the case, I am of the view that the said penalty

is commensurate with the violations committed by the noticee.

55. The penalty shall be paid by way of Demand Draft drawn in favour of “SEBI –

Penalties Remittable to Government of India” payable at Mumbai within 45

days of receipt of this order. The said Demand Draft shall be forwarded to the

Deputy General Manger, ID3, Investigation Department.

56. In terms of the provisions of Rule 6 of the Securities and Exchange Board of

India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating

Officer) Rules 1995, copy of this order is being sent to Kolar Sharex Pvt. Ltd,

Stock Broker, BSE, SEBI Registration Number INB 11105138 and also to

Securities and Exchange Board of India, Mumbai.

Place: Mumbai D. RAVI KUMAR Date : July 22, 2010 CHIEF GENERAL MANAGER &

ADJUDICATING OFFICER

before the adjudicating officer securities … · kolar sharex pvt. ltd. stock broker, ... on...

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