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TMI Blog2014 (12) TMI 1438X X X X Extracts X X X X X X X X Extracts X X X X ..... decrease of 40% in 96 trading days). Subsequently, on December 13, 2013, the equity shares of First Financial were split in the ratio of 1:10 and thereafter, the price of the scrip fell from Rs. 17.7 (effective price as a result of Stock split) to as low as Rs.7 with huge increase in trading volume during December 13, 2013 to March 31, 2014 ("Patch 3"). An illustration of the price/volume movement in the scrip of First Financial during the Examination Period and afterwards is given below: Chart - I : Price-volume movement in the scrip of First Financial 3. First Financial had a share capital of Rs. 37,47,600 comprising 3,74,760 equity shares of Rs.10/- each as on September 30, 2011. On December 08, 2011, First Financial made a preferential allotment of 54,50,000 equity shares at the price of Rs. 20/- per share (hereinafter referred to as the "1st preferential allotment"). Thereafter on April 28, 2012, it made another preferential allotment of 24,50,000 equity shares at the price of Rs. 20/- per share (hereinafter referred to as the "2nd preferential allotment"). Thus, in total, First Financial allotted 77,00,000 equity shares to 83 persons/entities. The equity shares allotted on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d a nexus with First Financial and its directors/promoters and the issue of these shares was under a prior arrangement between them. 5. As a part of the inquiry, SEBI advised BSE to conduct surprise inspection at the registered office of First Financial to determine inter alia, the following: a. Whether the company exists at the registered office/corporate office; b. Whether any operations of the company are conducted at the said address. 6. Accordingly, BSE, on October 31, 2014, conducted a surprise inspection at the registered office of First Financial (i.e. Old no. 24, 2nd Floor, New no. 45, Venkata Maistry Street, Mannady, Chennai, Tamil Nadu - 600 001) when it was revealed that the said premise was occupied by another firm in the name of M/s Carewell Enterprises and no officials/employees of First Financial were available at the time of the said inspection. On further inquiry, it was learnt that First Financial had recently shifted its base to Mumbai. On November 07, 2014 BSE also conducted an inspection of the corporate office of First Financial (i.e. 1513 & 1514, Maker Chamber V, 221, Nariman Point, Mumbai - 400 021) but no employee/official of First Financial was avai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es by putting 1 or 2 trades per day with negligible/ very less quantity of buy order contributed significantly to the price rise. From LTP analysis, it was observed that price of the scrip increased from Rs. 5.35 to Rs.263.45 mainly through first trades in 115 instances. 10. It was observed that in Patch 1, out of a total of 115 instances of trades establishing new high price in the scrip, top four entities namely, Prem Lata Nahar, Shyam Kanheyalal Vyas, Bharat Bagri Bagri and Sumitra Devi Agrawal established new high price on 69 instances. The contribution of these four entities in establishing new high price was Rs. 185/- out of total price rise of Rs. 258/-, which constitutes 72% of the total new high price. The details of contribution to price rise by these four entities during Patch 1 are as under: Table I : Contribution to price rise in Patch 1 by top four entities. Client PAN Client Name Pos Contribution (in %) Tot Pos Contribution in Securities Pos LTP Contribution of the Client as a buyer Count of LTP AFAPN8764M Prem Lata Nahar 29.01 258.35 74.94 34 ACTPV2787Q Shyam Kanheyalal Vyas 19.04 258.35 49.2 16 AADHB8488A Bharat Bagri Bagri 12.74 258.35 32. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the scrip of First Financial opened at Rs. 263.45 on February 11, 2013 and closed at Rs. 178.45 on December 12, 2013. The scrip touched a high of Rs. 300 on June 06, 2013. During this period, the scrip was traded with an average volume of 41,252 shares per day and total volume of 86,21,776 shares in 209 trading days. As compared to Patch 1, in Patch 2 the average volume increased by 179256% (1793 times) and average price increased by 193 %. 14. On analysis of trading activity during Patch 2, certain entities related/connected to First Financial were found to be the net buyers to the preferential allottees and thereby created artificial demand for the supply of shares from preferential allottees. Their inter- relationship/connection were noted from the Know Your Client (KYC) details, their bank statements, off-market transactions amongst them and the information available on the Ministry of Corporate Affairs ("MCA") website. Considering the large number of these related/connected entities, it was deemed necessary to shortlist those who were closely connected to First Financial and/or were instrumental in the price rise and/or contributed in volume of First Financial during Patch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [email protected] 8 BLUE CIRCLE SERVICES LTD. AAACB2131L 9 MANIMUDRA VINCOM PRIVATE LTD. AADCM4316K 10 AMRIT SALES PROMOTION PVT LTD. AACCA3220D 11 SYMPHONY MERCHANT PVT LTD AADCS5411K 12 BAZIGAR TRADING PRIVATE LTD. AABCB3052B 13 PINE ANIMATION LTD. AAECM0267A 14 FOREVER FLOURISHING FINANCE & INVESTMENT PVT LTD AAACF4311Q 15 ASTABHUJA CONSTRUCTION PRIVATE LTD. AADCN9427C * The directors of these companies are common namely Narendra Joshi and Ratan Pandit. * Ratan Pandit and Anita Jhunjhunwala are directors in Ruby Traders exporters Ltd * Anita Jhunjhunwala is director as well shareholder of Subham Communication in which S Krishna Rao is also a shareholder * As S Krishna Rao was director of First Financial Services during the Examination Period, thus the counterparties are connected to the company. * S Krishna Rao and Jhunjhunwala group /family are closely connected as they are directors as well as shareholders of various private companies namely Onesource idea Pvt ltd, Onesource tech media Pvt ltd, Subham communication, Radhasoami securities, Nandlal Vyapaar Pvt Ltd, Chiraag suppliers Pvt Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... URBHIKA VYAPAAR PRIVATE LTD. AAJCS0680C * Most of these companies are Shareholders of Surbhika vyapaar pvt Ltd. Among others Ritesh Enclave Pvt Ltd and Ritesh Properties Pvt Ltd are shareholder of Surbhika Vyapaar who are also promoter of Dynamic Portfolio Management & Services Ltd 29 NANDAN KANAN IRON AND STEEL PRIVATE LTD. AABCN8968J 30 ANCHAL VYAPAAR PRIVATE LTD. AAFCA2480C 31 BNA COMMERCE PRIVATE LTD. AABCB0727D 32 SANCHAY TRADECOMM PRIVATE LTD. AAPCS2005M 33 SANCHAY TREXIM PRIVATE LTD. AAPCS1999E 34 STARDOX VINIMOY PRIVATE LTD. AAECS0352C * As observed from MCA website, all these private companies have common director namely Biswanath Basak and Swarup Kumar Dey 35 R C SUPPLIERS PRIVATE LTD. AABCR2904A 36 RAINA VYAPAAR PRIVATE LTD AABCR3482R 37 USHITA TRADING AND AGENCIES LTD. AAACU3269L 38 WALTARE INVESTMENT PVT LTD AAACW2314A * Off-market transfer of shares among the clients * Life line marketing Pvt ltd share common address with Waltare Investment Pvt ltd * GRD Securities have acted as broker to all these clients while dealing in the shares of First financial. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the Examination Period. * Further another preferential allottee namely Pawan kumar Bajaj is also connected to Amit Saraf as they are common director in Avyaan Capital private Ltd. * These entities also share a common address. * Rajani Investment Pvt. Ltd. And R. K. Investment Pvt. Ltd. Are also the shareholders of Minimum Shares and Securities Pvt. Ltd. 56 RAJANI INVESTMENT PRIVATE LTD AABCR2457G 57 R K INVESTMENT PRIVATE LTD. AABCR2488R 58 TOPLIGHT COMMERCIALS /TARA CHAND AGARWAL AABCT1134Q * ISG trader is shareholder of Top light commercial among others and also appearing in the bank statement of Comfort Intech. 59 VEENA MOHANLAL CHANDIRAMANI AAWPC3158M * All these clients have traded through comfort securities who is a connected entity to First Financial * All these entities have received money from similar entities namely Keshav Madhav Enterprises and Madanji Enterprises who have also provided funds to Astabhuja Construction, Nityadhara plaza etc. 60 NIRMAL KUMAR MALHOTRA AAUPM6284E 61 KIRIT VASUDEO DAVE AHKPD0543J 16. It is observed that during Patch 2, the preferential allottees were net s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 249900 5000000 72540759 67540759 16 BITTHAL DAS PARWAL 50000 50000 1000000 14705000 13705000 17 NAVRATANMAL JEETMAL GANNA 50000 50000 1000000 14022850 13022850 18 VIMAL KUMAR MANTRI 25000 25000 500000 7364800 6864800 19 DHIRAJLAL MAGANLAL MEHTA 50000 50000 1000000 14326875 13326875 20 BHARAT RAMJIBHAI MANEK 75000 75000 1500000 21984438 20484438 21 CHETAN RAMJIBHAI MANEK 75000 75000 1500000 21984612 20484612 22 GOKUL SECURITIES PRIVATE LTD. 300000 300000 6000000 81397817 75397817 23 MUKESH ATAL MUKESH ATAL (HUF) 50000 50000 1000000 14702000 13702000 24 AASHISH V AGGARWAL 50000 40000 1000000 11807946 10807946 25 BAL KISHAN & SONS HUF 50000 50000 1000000 14693300 13693300 26 AMIT HASMUKHBHAI PATEL 375000 625000 7500000 55706489 48206489 27 RAJENDRAKUMAR AGARWAL HUF 75000 75000 1500000 21902905 20402905 28 RAJNI ATAL 50000 50000 1000000 14728900 13728900 29 RAJESH ATAL 50000 50000 1000000 14718580 13718580 30 SYNCOM FORMULATIONS (INDIA) LTD. 100000 100000 2000000 24963016 22963016 31 JINESHNAVRATANMALGAN NA 50000 50000 1000000 13993425 12993425 32 VIKASNAVR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50000 1000000 13844535 12844535 68 MANJUDEVI N MUNDRA MUNDRA 100000 100000 2000000 28869249 26869249 69 CHAMPAKBHAI MANUBHAI SOPARIWALA 50000 50000 1000000 14245180 13245180 70 BHARATI BHARAT MANEK 75000 75000 1500000 22022488 20522488 71 ANSHUL JAIN JAIN 50000 50000 1000000 14597500 13597500 72 NEERAJ SINGAL 225000 225000 4500000 64835211 60335211 73 UMA SONGAL 75000 75000 1500000 22178900 20678900 74 RAJKUMAR TEJBAHADUR SINGH 50000 52000 1000000 15349975 14349975 75 PUNEET SINGHANIA 50000 50000 1000000 14546735 13546735 76 AAMIR NAWAB MEHJABEEN MALIK 87500 87500 1750000 25605054 23855054 77 JASHANJYOT SINGH 50000 50000 1000000 14687586 13687586 78 HIMANSHU C SOPARIWALA 50000 50000 1000000 14426965 13426965 79 HARSHITA MAHESHWARI 25000 27000 500000 7927996 7427996 80 ANJALI DAGA 50000 50000 1000000 14378300 13378300 TOTAL 7250000 6995530 145000000 1867097889 1722097889 18. The transactions wherein the entities of First Financial group bought most of the shares sold by the allottees cannot be just a coincidence particularly when sellers have nexus with First Financial and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis of connection). 20. Thereafter, the trading volume in the scrip decreased in the quarter ending June 2014 and again started increasing from August 2014 onwards. It was also noticed that the price of the scrip increased from Rs. 9 to a high of Rs. 24 during August, 2014 to October 2014 and the total trading volume also increased to 50,28,803 which is 1.6 times higher than the trading volume of 31,00158 shares during April to June 2014. From the trade data it is prima facie observed that connected /related clients namely Kripa securities Pvt. ltd, Padma Impex Private Ltd, Atash transport Pvt. Ltd, Pride Distillery are found to be top net sellers among others during this period August, 2014 to October 2014. It is pertinent to mention that Kripa securities Pvt. ltd, Padma Impex Private Ltd and Pride Distillery were buyers during Patch II, whereas, directors of Atash transport Pvt. Ltd were preferential allotees of the shares of First Financial and there were fund transactions between Atash transport Pvt. Ltd and First Financial during the Examination Period. USE OF FUNDS RECEIVED THROUGH PREFERENTIAL ALLOTMENT AND CONNECTION BETWEEN PREFERENTIAL ALLOTEES AND FIRST FINANCIAL 21. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Transfer of money after the preferential allotment 1st Preferential Allotment Entities Values (approx.) First Financial (other bank A/c) 1,20,00,000 Bina Hemanshu Mehta 2,42,00,000 Parikh Group (Chetan S Parikh HUF, Pankaj S Parikh, Vinod S Parikh, Kajal P Parikh, Dhara V Parikh, Dipal C Parikh, Megha P Parikh) 4,36,80,000 Marsh Steel Trading 1,00,00,000 Vision Steel Ltd 50,00,000 Noble Express Services Pvt. Ltd 5,00,000 Comfort Group comprising Comfort Fincap Ltd, Comfort Intech Ltd, Comfort Securities. 1,30,00,000 2nd Preferential Allotment Comfort Group (Comfort Fincap Ltd, Comfort Intech 2,48,36,757 Ltd, Comfort Securities) Tirupati Developers Pvt. Ltd 5,00,000 Advent Developers Pvt. Ltd 40,00,000 Kuber Kamana Marbles 1,05,00,000 Chiraag Suppliers Pvt. Ltd 50,00,000 24. From the fund statement analysis, it is observed that funds received as proceeds of preferential allotment were immediately transferred to various entities on the same day or next day and was never retained in the company for expansion of its business or execute its future plans as envisaged in the special resolution passed under section 81(1A) of the Companies Act, 1956. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15 lac from First Financial during Examination Period. Lakshya Global Logistics ● Directors of Lakshya Global Logistics are Preferential allotee of First Financial ● Transfer of Fund between Lakshya Global Logistics and First Financial and transfer of fund between Lakshya Global Logistics with Comfort Intech BLC Trading Agencies ● Company had fund transfer with First Financial as well as with Comfort Intech Suresh Khandelia and Manju Khandelia ● Promoter of Comfort Fincap Ltd as well as preferential allottee of First Financial A. K Nevatia ● A. K Nevatia is the director of Comfort Group and also the director of Splash Media Infra Ltd in which First Financial has invested during the Examination Period. Ranisati Dealer Pvt Ltd and Prefer Abasan pvt Ltd ● Both the entities are counterparties as buyers to preferential allottees and have also appeared in the bank statement of Comfort Fincap Ltd / Comfort Intech Ltd. 26. This prima facie indicates that Comfort group and its directors share a close relationship with First Financial which cannot be termed as mere commercial/business relationship. Further on analysis, it is observed that comfo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wards purchase of shares of First Financial. Most of the First Financial Group entities are private Ltd. companies, engaged in various kind of businesses. However, the analysis of bank account statement reveals that they are only indulged in routing of funds. On most of the instances, the funds received by them were immediately transferred to a trading member or to another entity. It was observed that there was a significant layering by way of funds transfers hiding the true identity of ultimate owner. 31. From the above examination and factors as discussed hereinabove, I note that the allottees, First Financial and First Financial group entities are connected to each other. In this regard, I note that Hon'ble SAT has, in many cases such as Classic Credit Ltd. vs. SEBI (SAT Appeal no. 68/2003, Order dated December 8, 2006), Classic Credit Ltd. vs. SEBI (SAT Appeal no. 76/ 2003, Order dated January 9, 2007) and Veronica Financial Services Ltd. vs. SEBI (SAT Order dated August 24, 2012), held that connection/relations can be established on the basis of factors including the common addresses, common directors/ shareholders, etc. 32. It is pertinent to mention that the key to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allotment route was preferred over secondary market route because the share capital of First Financial prior to preferential allotment was very small i.e. 3,74,760 equity shares (face value Rs. 10) to accommodate the required fictitious LTCG of Rs. 172 crore approximately. As such the capital expansion through preferential allotment and sock split provided much bigger source to the persons involved in terms of volume and price manipulation to facilitate the whole operation. 35. Since prior to the trading in its scrip during the Examination Period, First Financial did not have any business or financial standing in the securities market, in my view, the only way it could have increased its share value is by way of market manipulation. In this case, it is noted that the traded volume and price of the scrip increased substantially only after First Financial group and allottees started trading in the scrip. The average volume increased by 179256% (1793 times) during the Examination Period i.e. from 23 shares per day to 41,252 shares per day & the price increased by 5160% (53 times) during the Examination Period, i.e. Rs. 5 to Rs. 263. First Financial group entities were trading in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereunder; (b) employ any device, scheme or artifice to defraud in connection with issue or dealing in securities which are listed or proposed to be listed on a recognised stock exchange; (c) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person, in connection with the issue, dealing in securities which are listed or proposed to be listed on a recognised stock exchange, in contravention of the provisions of this Act or the rules or the regulations made thereunder;" PFUTP Regulations "3. 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; (d) en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred to other law enforcement agencies such as Income Tax Department, Enforcement Directorate and Financial Intelligence Unit for necessary action at their end as may be deemed appropriate by them. 39. SEBI strives to safeguard the interests of a genuine investor in the Indian securities market. The acts of artificially increasing the price of scrip misleads investors and the fundamental tenets of market integrity get violated with impunity due for such acts. Under the facts and circumstances of this case, I prima facie find that the acts and omissions of First Financial group and allottees as described above is inimical to the interests of participants in the securities market. Therefore, allowing the entities that are prima facie found to be involved in such fraudulent, unfair and manipulative transactions to continue to operate in the market would shake the confidence of the investors in the securities market. 40. In this case it is noted that as on December 01, 2014 the allottees are still holding 65,98,810 shares of First Financial that were allotted to them in the aforesaid preferential allotments. Further, the entities that were buyers in Patch-2 and Patch-3 have gradually ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AL AABHH6685K 20 SANJAY DAGA AABHS1744Q 21 KETAN DHIRAJLAL KAPASI AABPK6452F 22 DRAKE PROPERTIES PRIVATE LTD. AACCD4639H 23 ANIL AGRAWAL HUF AACHA9591E 24 BITTHAL DAS PARWAL AACHB8343P 25 NAVRATANMAL JEETMAL GANNA AACHN5142C 26 VIMAL KUMAR MANTRI AACHV0973P 27 DHIRAJLAL MAGANLAL MEHTA AACPM3147N 28 BHARAT RAMJIBHAI MANEK AACPM3397G 29 CHETAN RAMJIBHAI MANEK AACPM3398K 30 GOKUL SECURITIES PRIVATE LTD. AADCG7372B 31 MUKESH ATAL MUKESH ATAL (HUF) AADHM9088H 32 AASHISH V AGGARWAL AADPA5357P 33 BAL KISHAN & SONS HUF AAEFB0727D 34 AMIT HASMUKHBHAI PATEL AAEHA4171N 35 RAJENDRAKUMAR AGARWAL HUF AAEHR7685G 36 RAJNI ATAL AAEPA0263F 37 RAJESH ATAL AAEPA0264C 38 SYNCOM FORMULATIONS (INDIA) LTD. AAFCS6794R 39 JINESHNAVRATANMALGANNA AAFHJ7950P 40 VIKASNAVRATANMALGANNA AAHHV1011R 41 DEVSHIBHAI PARSHOTTAMBHAI DUNGRANI AAIPD7191D 42 AMIT SARAF AAJHA6325F 43 PAWAN KUMAR BAJAJ AAKHP1145F 44 GIRISHBHAI PATEL HUF AALHP0436L 45 RITESH AGARWAL HUF AAMHR6805C 46 HARJEET SINGH ARORA AAMPA0474C 47 SARLA DHIRAJLAL MEHTA AANPM7722Q 48 SAMIR HARSHADRAI DOSHI AAQPD2202F 49 KAMAL KHEMKA AAQPK0916R 50 KULBIR SINGH AATPS8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LIA AAACF4335Q 111 GLOBAL INFRATECH & FINANCE LTD. AABCA4255H 112 LIFE LINE MARKETING PVT LTD. AAACL5973G 113 SHREE SUDHARSHAN CASTINGS PVT LTD AADCS9429B 114 BSR FINANCE & CONSULTANTS PRIVATE LTD. AABCB0636K 115 WALTARE INVESTMENT PVT LTD AAACW2314A 116 BIMAL KUMAR DROLIA AABCG9640C 117 PARMANAND DROLIA AABCC0603M 118 PRIDE DISTILLERY PRIVATE LTD AACCM6582E 119 R C SUPPLIERS PRIVATE LTD. AABCR2904A 120 USHITA TRADING AND AGENCIES LTD. AAACU3269L 121 GRD ENCLAVE PRIVATE LTD AABCG9641D 122 LINTON CONSULTANTS PRIVATE LTD AAACL5784F 123 SANTOSH KUMAR SHAH ALGPS0859J 124 MADSAN AGENCIES (P) LTD. AACCM0579K 125 MOTOREX FINANCE PVT. LTD. AACCM1042R 126 MIDNIGHT AGENCIES PVT LTD/VIJAY KUMAR SHAH AABCM6864G 127 EAST INDIA SECURITIES LTD. AABCE2412N 128 VALUE AND WORTH AAFFV5756K 129 MINIMUM SHARES AND SECURITIES PVT LTD AAGCM0970Q 130 RAJANI INVESTMENT PRIVATE LTD. AABCR2457G 131 R K INVESTMENT PRIVATE LTD. AABCR2488R 132 DYNAMIC PORTFOLIO MANAGEMENT & SERVICES LTD AAACD9125E 133 RITESH COMMERCIAL HOLDINGS LIMITED AABCR1974J 134 RITESH PROJECTS PRIVATE LTD AADCR6224M 135 BURLINGTON FINANCE LIMITED AABCB2575P 136 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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