Adjudication Order in respect of M/s Ishita Finstock Limited in the matter of M/s Gangotri Textiles...

8/10/2019 Adjudication Order in respect of M/s Ishita Finstock Limited in the matter of M/s Gangotri Textiles Limited

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Adjudication Order in respect of M/s Ishita Finstock Limited in the matter of M/s Gangotri Textiles Limited

Page 1 of 28 December 31, 2014

BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA

[ADJUDICATION ORDER NO. JJ/AK/AO-177/2014]

UNDER SECTION 15-IOF SECURITIES AND EXCHANGE BOARD OF INDIA

ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING

INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES,

1995

In respect of

M/s Ishita Finstock Limited

(PAN No. AAACI4661A)

In the matter of Gangotr i Textiles Limited

FACTS OF THE CASE IN BRIEF

1. Securities and Exchange Board of India (hereinafter referred to as SEBI )

conducted investigation in respect of buying, selling and dealing in the

shares of Gangotri Textiles Limited (hereafter referred to as

Gangotri/Company/scrip ), during the period from April 07, 2006 to

May 31, 2006 (hereinafter referred to as Investigation Period ). The

shares of Gangotri are listed on the BSE Limited (hereinafter referred to as

BSE ), National Stock Exchange (hereinafter referred to as NSE ),

Calcutta Stock Exchange, Madras Stock Exchange and Coimbatore Stock

Exchange, but during the investigation period the scrip was traded only at

NSE and BSE.

Price-Volume Analysis:

2. Before Investigation Period (January 2006 to April 6, 2006): It was observed

that the scrip of Gangotri was not listed in NSE during January 2006 to April

6, 2006 and it was only traded in BSE. The highest price during this period

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was`52.25 (intra day high on February 6, 2006) and lowest price during

this period was ` 40.55 (intra day low on March 28, 2006). The average

daily traded quantity during this period was for 77,036 shares.

3. During Investigation Period (April 7, 2006 to May 31, 2006):The scrip of

Gangotri was traded in both NSE & BSE. Details of price volume data at

BSE & NSE for the period April 07, 2006 to May 31, 2006 are as follows:-

It was observed that during investigation period the price of the scrip

went up by 33.24% in BSE and 26.88% in NSE while the Sensex

recorded a decrease of 12.21% (from 11845.13 on April 07, 2006 to

10398.61 on May 31, 2006) and Nifty recorded a decrease of 12.89%

(from 3525.6 on April 07, 2006 to 3071.05 on May 31, 2006).

The price of the scrip mainly increased from April 20, 2006 to May 05,

2006, i.e. during these 12 trading days, the price of the scrip has

increased from ` 41.2 / 43 (NSE/BSE) on April 19, 2006 to

`71.05/70.95 (NSE/BSE) on May 05, 2006 a rise of 72.45%/65%

(NSE/BSE) along with volume spurt.

As on March 06, 2013 the price of the scrip at NSE and BSE was

`2.55 and`2.24 respectively.

4. After Investigation Period (June 2006 to December 2006): The scrip of

Gangotri was opened at `45.95 / 45.2 (NSE/BSE) on June 1, 2006 and

closed at`27.35 / 26.7 (NSE/BSE) on December 29, 2006. The highest

price during this period was `46.25 in (intra day high on June 2, 2006) in

NSE and`46.65 (intra day high on June 5, 2006) in BSE. The lowest price

Exchange Open High Low Close Volume AverageDailyVolume

BSE 53.25April 07, 2006

70.95May 05, 2006

43.00April 19, 2006

44.35May 31, 2006

8941975 241675

NSE 56.00April 07, 2006

71.05May 05, 2006

41.25April 19, 2006

45.40May 31, 2006

6816750 184236



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during this period was`24 (intra day low on December 13, 2006) in both

NSE and BSE. The average daily traded quantity during this period was for

34,080 / 43,717 (NSE/BSE) shares.

5. The role of the entities who had traded in the scrip of Gangotri was

scrutinized. It was observed during the investigation period that certain

entities collectively referred to as Vishvas Group namely, Sunita Gupta

(hereinafter referred to as "Sunita"), Purshottam Khandelwal (hereinafter

referred to as "Purshottam") Cosmo Corporate Services Limited

(hereinafter referred to as "Cosmo"), Ishita Finstock Limited (hereinafter

referred to as "Ishita"), Master Finlease Limited (hereinafter referred to as

"Master" ), Avisha Credit capital Limited (hereinafter referred to as

"Avisha" ), Vishvas Projects Limited (hereinafter referred to as "VPL" ),

Praveen Poddar (hereinafter referred to as "Praveen" ), Quantum Global

Securities and Leasing Company Limited (hereinafter referred to as

Quantum ), Mefcom Securities Limited (hereinafter referred to as

Mefcom ), ISF Securities Ltd (hereinafter referred to as ISF ), Vishvas

Securities Limited (hereinafter referred to as VSL ), Anupama

Communications Private Limited (hereinafter referred to as Anupama )and SIC Stock Brokers and Services Private Limited (hereinafter referred to

as SIC ) had allegedly executed synchronized trades, circular trades and

reversal trades among themselves and traded in significant variation to the

Last Traded Price (LTP) in the shares of Gangotri.

6. It was alleged that one of the entity M/s Ishita Finstock Limited (hereinafter

referred to as "Ishita"/"Noticee") had violated the provisions of section

12A(a), 12A(b), 12A(c) of Securities and Exchange Board of India Act, 1992

(hereinafter referred to as "SEBI Act" ) and Regulations 3(a), 3(b), 3(c),

3(d), 4(1), 4(2)(a), 4(2)(e) and 4(2)(g) of SEBI (Prohibition of Fraudulent and

Unfair Trade Practices relating to Securities Markets) Regulations, 2003



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(hereinafter referred to as PFUTP Regulations )and therefore, liable for

monetary penalty under section 15HA of SEBIAct.

APPOINTMENT OF ADJUDICATING OFFICER

7. Shri Piyoosh Gupta was appointed as Adjudicating Officer, vide order dated

August 08, 2013 under section 15-I of Securities and Exchange Board of

India Act, 1992 (hereinafter referred to as SEBI Act ) and rule 3 of SEBI

(Procedure for Holding Inquiry and Imposing Penalties by Adjudicating

Officer) Rules, 1995 (hereinafter referred to as Rules ) to enquire into and

adjudge under section 15HA of the SEBI Act for the alleged violations of

provisions of section 12A(a), 12A(b), 12A(c) of SEBI Act and Regulations

3(a), 3(b), 3(c), 3(d), 4(1), 4(2)(a), 4(2)(e) and 4(2)(g) of PFUTP

Regulations by Ishita. Consequent, to the transfer of Shri Piyoosh Gupta,

the undersigned was appointed as Adjudicating Officer vide order dated

November 08, 2013 to enquire and adjudge the matter

SHOW CAUSE NOTICE, HEARING AND REPLY

8. Show Cause Notice reference no. EAD/JJ/AK/32187/2013 dated

December 12, 2013 (hereinafter referred to as SCN) was issued to the

Noticee under rule 4(1) of the Rules to show cause as to why an inquiry

should not be held against the Noticee and penalty be not imposed under

section 15HA of SEBI Act for the alleged violations specified in the said

SCN. The said SCN was sent at the address of the Noticee i.e. at "16,

Kalyan Building, Kuvada Road, opposite Siddhi Vinayak Travels, Rajkot, Gujarat"

which was delivered as per the acknowledgement card received.

9. In the interest of natural justice and in order to conduct an inquiry as per

rule 4(3) of the Rules, the Noticee was granted an opportunity of personal

hearing on February 28, 2014 at SEBI, Head Office, Mumbai, vide notice



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dated February 11, 2014. The said Notice of hearing dated February 11,

2014 was delivered at the aforesaid address as per the acknowledgement

card received. However, it is observed that the Noticee have neither

submitted any reply nor did it avail the opportunity of personal hearing.

Further, in the interest of natural justice and in order to conduct an inquiry

as per rule 4(3) of the Rules, the Noticee was granted a final opportunity of

personal hearing on May 29, 2014 at SEBI, Head Office, Mumbai, vide

notice dated May 08, 2014.The said Notice of hearing dated May 08, 2014

was returned undelivered from the aforesaid address.

10. Thereafter, it was observed from Ministry of Corporate Affairs (MCA)

website that the registered address of the Noticee has changed to "135/136

Star Chamber Harihar Chowk, Rajkot, Gujarat - 360001". Thus, in order to

conduct an inquiry as per rule 4(3) of the Rules and in the interest of natural

justice, the Noticee was granted a final opportunity of personal hearing on

August 26, 2014 at SEBI, Head Office, Mumbai, vide notice dated August

07, 2014. A copy of SCN dated December 12, 2013 was also enclosed with

the notice dated August 07, 2014.The said Notice of hearing dated August

07, 2014 was sent at the new registered office of the Noticee i.e. at135/136

Star Chamber Harihar Chowk, Rajkot, Gujarat - 360001, which was also

returned undelivered.

11. In the interest of natural justice and in order to conduct an inquiry as per

rule 4(3) of the Rules, the Noticee was again granted a final opportunity of

personal hearing on December 19, 2014 at SEBI, Head Office, Mumbai,

vide notice dated November 26, 2014. A copy of SCN dated December 12,

2013 was also enclosed with the notice dated November 26, 2014. As per

rule 7(c) of the Rules the said notice of hearing dated November 26, 2014

along with SCN dated December 12, 2013 was affixed at the old address of

the Noticee as well as at the new registered address of the Noticee

available with SEBI i.e. at "16, Kalyan Building, Kuvada Road, opposite Siddhi



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Vinayak Travels, Rajkot, Gujarat" and at"135/136 Star Chamber Harihar Chowk,

Rajkot, Gujarat - 360001", on December 01, 2014 (affixture report is present

on record). Form the documents available on record, it is observed that the

Noticee neither appeared on December 19, 2014 nor submitted any reply to

the SCN.

12. In view of the aforesaid steps taken, I am convinced that opportunities have

been given to the Noticee to explain its case. As per rule 4(7) of the Rules,

if any person fails, neglects or refuses to appear as required by sub-rule (3)

before the Adjudicating Officer, he may proceed with the inquiry in the

absence of such person after recording the reasons therefor. Despite

having been given the opportunity of being heard, the Noticee had failed to

avail of the same. I am, therefore, compelled to proceed with the matter ex-

partebased on the material available on record.

CONSIDERATION OF ISSUES AND FINDINGS

13. After perusal of the material available on record, the issues that arise for

consideration in the present case are as under:

A. Whether the Noticee have violated the provisions of section 12A(a),

12A(b), 12A(c) of SEBI Act and Regulations 3(a), 3(b), 3(c), 3(d), 4(1),

4(2)(a), 4(2)(e) and 4(2)(g) of PFUTP Regulations?

B. Whether the Noticee is liable for monetary penalty under section 15HA

of the SEBI Act ?

C. What quantum of monetary penalty should be imposed on the Noticee

taking into consideration the factors mentioned in Section 15J of SEBI

Act ?



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FINDINGS

14. On perusal of the material available on record and giving regard to the facts

and circumstances of the case, I record my findings hereunder:

ISSUE 1:Whether the Noticee have violated the provisions of section

12A(a), 12A(b), 12A(c) of SEBI Act and Regulations 3(a), 3(b),

3(c), 3(d), 4(1), 4(2)(a), 4(2)(e) and 4(2)(g) of PFUTP

Regulations?

15. Before moving forward, it will be appropriate to refer to the relevant

provisions of SEBI Act and PFUTP Regulations, which read as under:

SEBI Act

Prohibition of manipulative and deceptive devices, insider trading and

substantial acquisition of securities or control.

Section 12A.No person shall directly or indirectly

(a)use or employ, in connection with the issue, purchase or sale of anysecurities listed or proposed to be listed on a recognized stock

exchange, any manipulative or deceptive device or contrivance incontravention of the provisions of this Act or the rules or the

regulations made thereunder;

(b) employ any device, scheme or artifice to defraud in connection withissue 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 orwould 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

Regulation 3: - Prohibition of certain dealings in securities

3.No person shall directly or indirectly

(a)buy, sell or otherwise deal in securities in a fraudulent manner;



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(b) use or employ, in connection with issue, purchase or sale of anysecurity 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

thereunder;

(c) employ any device, scheme or artifice to defraud in connection withdealing in or issue of securities which are listed or proposed to be listedon a recognized stock exchange;

(d)engage in any act, practice, course of business which operates or wouldoperate 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 thereunder.

Regulation 4:-Prohibition of manipulative, fraudulent and unfair trade practices

(1) Without prejudice to the provisions of regulation 3, no person shall indulge in

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

practice if it involves fraud and may include all or any of the following,

namely:-

(a) indulging in an act which creates false or misleading appearance oftrading in the securities market;

(b)..(c) ..(d)..;(e) any act or omission amounting to manipulation of the price of a

security;

(f) .(g)entering into a transaction in securities without intention of performing

it or without intention of change of ownership of such security;

Connections between Vishvas Group entities:

16. From the documents available on records, following details were observed

with respect to the connection between Vishvas Group entities:

Sr.No

Entity Name(Brokers Name)

Connection w ith other entities ofGroup

Traded Qty. (DuringInvestigation Period)

1 Master Finlease Ltd.(Integrated Mastersecurities Pvt. Ltd.)

Same address as Avisha CreditCapital & Vishvas Projects Ltd.(Mefcom Agro. Industries Ltd.)

Share holder in Vishvas

BSE: Buy-38000Sell-18386

NSE: Buy-20500Sell-111400



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securities Ltd. (UnlistedCompany - 19.24%shareholding as on 30.09.2006)

Off market transfers withVishvas Securities limited.

2 Purshottam Khandelwal

(SIC Stock and ServicesPvt. Ltd.)

Off Market Transfers fromAnupama Communications Pvt.Ltd.

Entered into Synchronizedtrades with entities at sr. no. 8,9.

BSE: Buy 2927835

Sell 2882486NSE:-Buy-NIL

Sell-NIL

3 Anupama CommunicationsPvt. Ltd.

Transferred shares off marketto Purshottam Khandewal.

Directors of AnupamaCommunications Pvt. Ltd. (Rakesh Mishra, Ram dutt joshi)are also directors in Cosmocorporate services Ltd.

Nil Trading at BSEand NSE

4 Cosmo Corporate Serviceslimited.(Integrated Mastersecurities Ltd.)

Entered into Off MarketTransfers with Master FinleaseLtd.

Entered into Synchronizedtrades with entities at sr. no.6,7,8,9.

BSE:Buy-445643Sell-320630

NSE:Buy-401520Sell-471184

5 ISF Securities limited(BSE:-Sam GlobalSecurities Ltd.NSE:-ISF Securities Ltd.)

Off Market Transfers fromMaster Finlease Ltd.

Entered into Synchronizedtrades with entities at sr. no.6,7,8,9.



6 Quantum Global Securitiesand leasing company Ltd.

Entered into Synchronizedtrades with entities at sr. no. 4,5, 7, 10, and 12.

BSE: Buy-NILSell-NILNSE:Buy-302095

Sell-286835

7 Ishita Finstock Ltd.(Vishvas securities Ltd .)

Entered into large no. ofSynchronized trades withentities at sr. no. 1, 4, 5, 6, and10.

BSE: Buy-NILSell-NIL

NSE:Buy1953803Sell-1569204

8 Praveen Poddar(TCP Stock Brokers Ltd)

Entered into large no. ofSynchronized trades withentities at sr. no. 2, 4, 5, 9 and10.


NSE:-Buy-NILSell-NIL

9 Sunita Gupta(Parasram Holdings)

Entered into large no. ofSynchronized trades withentities at sr. no. 2, 4, 5, 8 and10.



10 Mefcom Securities limited(Mefcom Securities limited)

Same address, same e-mail Id,same director (Vijay Mehta) asof Mefcom infrastructure projectLimited. And director (vijaymehta) belongs to promoter





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group of Vishvas Projects Ltd.(Formerly Known as Mefcomagro Industries Ltd.)

11 Avisha Credit capital Ltd.(Shriram Insight ShareBrokers Ltd.)

Holder of 25% stake in VishvasSec Ltd. (Unlisted Co.) 337380Shares as on 30.09.2006.

Same address as Vishvasprojects Ltd. (mefcom AgroIndustries Ltd.) & MasterFinlease Ltd.

Directors of Avisha CreditCapital Ltd.( Shubha Jhindal,Vijay Jhindal, & Rakesh

Agarwal) are also directors inMaster Finlease Ltd.

BSE: Buy-50000Sell-NIL

NSE:-Buy-NIL

Sell-NIL

12 Vishvas Securities Ltd.(Vishvas Securities Ltd.)

Old Address of Mefcom AgroIndustries Limited same asaddress of Vishvas SecuritiesLtd. i.e. 912, Kailash Building,Kasturba Gandhi Marg, NewDelhi".

Off market transfer to MasterFinlease Ltd., SIC Stock andServices Pvt. Ltd. (8/7/2006,50000 shares) and AvishaCredit Capital Ltd.

Avisha Credit capital Ltd. andMaster Finlease Ltd. were theshareholders of VishvasSecurities Ltd. as on30.9.2006.(Unlisted Co.)

Atul Joshi one of the director ofVishvas Securities Ltd. is alsodirector in Mefcom AgroIndustries Ltd.

BSE: Buy-NILSell-NIL


13 Vishvas Projects limited(Formerly Known asMefcom Agro IndustriesLtd.(Mefcom Securities Ltd)

Same address as Avisha CreditCapital & Master Finlease.

BSE:Buy-100000Sell-NIL


14 SIC Stocks and ServicesPvt. Ltd.

Received 50,000 shares from

Vishvas Securities Ltd. throughoff market.

Holding 10.7% shares inMefcom Agro Industries Ltd.(listed company) as on20/9/2006.

Transfer of substantial amountto avisha credit capital Limitedas per bank statements.

NIL Trading at BSE &NSE



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From the above table I find the following:

The members of Vishvas Group namely, Purshottam, Ishita, Cosmo,

Praveen, Sunita, Master, Quantum, VPL, Avisha, Mefcom, ISF, VSL,Anupama and SIC are connected to each other.

Noticee had traded through broker Vishvas Securities Limited in the

scrip of Gangotri at NSE.

17. Traded quantity of Vishvas Group at BSE and NSE (During Investigation

Period) is as under:-

From the above table I find the following:

Nine members of Vishvas Group namely, Master, Purshottam,

Cosmo, ISF, Praveen, Sunita, Mefcom, Avisha and VPL had traded

in the scrip of Gangotri at BSE.

Sr.No.

Members ofVishvas Group

Traded quantity (During Investigation Period)

BSE NSE

Buy Sell Buy Sell

1 Master 38000 18386 20500 111400

2 Purshottam 2927835 2882486 0 0

3 Anupama 0 0 0 0

4 Cosmo 445643 320630 401520 471184

5 ISF 389748 338795 453396 368574

6 Quantum 0 0 302095 286835

7 Ishita0 0 1953803 15692048 Praveen 460990 460990 0 0

9 Sunita 342246 342246 0 0

10 Mefcom 443942 348370 610646 667122

11 Avisha 50000 0 0 0

12 VSL 0 0 134460 118661

13 VPL 100000 0 0 0

14 SIC 0 0 0 0

Total 5198404 4711903 3876420 3592980



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Seven members of Vishvas Group namely, Master, Cosmo, ISF,

Quantum, Ishita, Mefcom and VSL had traded in the scrip of

Gangotri at NSE.

Total buy and sell quantity of the members of Vishvas Group at BSE

is 51,98,404 shares and 47,11,903 shares respectively.

Total buy and sell quantity of the members of Vishvas Group at NSE

is 38,76,420 shares and 35,92,980 shares respectively.

Noticee had bought 19,53,803 shares of Gangotri and sold

15,69,204 shares of Gangotri at NSE.

TRADE CONCENTRATION

AT NSE:

18. From the trade & order log and documents available on record, I find that

total traded volume of the scrip of Gangotri during investigation period was

68,16,750 shares. During the investigation period, the trading details of top

10 trading brokers were analyzed and found that they had contributed72.8% (49,62,603 shares) and 69.4% (47,33,357 shares) of the gross buy

and gross sell respectively. Further, it is observed that the Noticee's broker

VSL appeared in top 10 trading brokers by gross buy and gross sell.

Noticee's broker VSL was the highest contributor to both gross buy and

gross sell with 36.3% (24,77,101 shares) and 26.6% (18,15,976 shares) of

total market quantity respectively.

19. During investigation period, the trading details of top 10 trading clients were

analyzed and found that they had contributed 67.42% (45,95,836 shares)

and 59.85% (40,80,121 shares) of the gross buy and gross sell

respectively. Further, it is observed that out of top 10 trading clients, six

members of Vishvas Group namely, Ishita, Mefcom, ISF, Cosmo, Quantum



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and VSL were appeared in gross buy with total contribution of 56.56% (

38,55,920 shares) and six members of Vishvas Group namely, Ishita,

Mefcom, ISF, Cosmo, Quantum and VSL were appeared in gross sell with

total contribution of 51.07% (34,81,580 shares). It is observed that the

Noticee was the highest contributor to both gross buy and gross sell with

28.66% (19,53,803 shares) and 23.02% (15,69,204 shares) of total market

quantity respectively.

20. During investigation period, the trading details of top 10 clients with net buy

and net sell position were also analyzed and found that 3 members of

Vishvas Group namely, Ishita, ISF and VSL appeared at net buy position

and 3 members of Vishvas Group namely, Master, Cosmo, Mefcom

appeared at net sell position. At the end of the investigation period the net

buy position of the Noticee was 3,84,599 shares.

SYNCHRONIZED TRADES

AT NSE

21. Upon perusal of data, trade & order log and documents available on record,

I find that during investigation period there were 21,451 trades for a traded

quantity of 68,16,750 shares at NSE. Out of these, there were 495 trades

for 14,48,679 shares (21.25% of the total traded quantity) were

synchronized trades i.e. the difference between buy order time and sell

order time was less than 60 seconds and there was no difference between

buy order rate and sell order rate as well as there was no difference

between buy order quantity and sell order quantity..

22. It was observed that there were 30 trading days (out of total 37 trading days

during the investigation period) when synchronized trading was being done

at NSE, out of which Vishvas Group appeared in 24 trading days. Out of

these 24 days, on 23 days, the matching of synchronized trades of



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members of Vishvas Group with total market synchronized trades was more

than 50% and on 15 days, the contribution of volumes through

synchronized trades by the members of Vishvas Group was more than 15%

to the total market volume. For e.g. on May 24, 2006 the total day traded

volume was 1,35,845 shares out of which 56,862 shares (41.86% shares)

were synchronized by Vishvas Group.

23. It is observed that the seven members of Vishvas Group namely, Ishita,

Cosmo, VSL, Quantum, Mefcom, ISF and Master, indulged in 312

synchronized trades for 12,01,751 shares (82.95% of total synchronized

quantity). The details of synchronized trade amongst the member of

Vishvas Group are as under:

Particulars Seller Name

Buyer Name Ishita Quantum VSL Mefcom Cosmo ISF Master Total

Mefcom 122738 73820 5000 00 56927 53390 7000 318875

Ishita 00 73439 00 136008 42150 44444 00 296041

Cosmo 110657 4975 00 81341 00 32925 00 229898

Quantum 68063 00 27653 41787 29953 1000 00 168456

ISF 67724 18996 1992 35350 37300 00 00 161362VSL 00 4975 00 16340 00 00 00 21315

Master 3804 00 00 00 00 2000 00 5804

Total 372986 176205 34645 310826 166330 133759 7000 120175

From the above table, it is observed that:

Out of total shares bought (19,53,803 shares) by the Noticee at NSE

during investigation period, 2,96,041 shares were synchronized with

the members of the Vishvas Group i.e. Quantum, Mefcom, Cosmo

and ISF.

Out of total shares sold (15,69,204 shares) by the Noticee at NSE

during investigation period, 3,72,986 shares were synchronized with

the member of the Vishvas Group i.e. Mefcom, Cosmo, Quantum,

ISF and Master.



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one of the instances of the synchronized trade and reversal trade by

the Noticee with other members of Vishvas Group is that on May 19,

2006, Noticee sold 10,000 shares of Gangotri @`55.50 to Mefcom

at 10:35:21. The sell order was placed by Noticee at 10:35:21 @

`55.50 for 10,000 shares and the buy order was placed by Mefcom

at 10:35:20 @`55.50 for 10,000 shares. The order time difference

was 1 seconds. Noticee again bought 10,000 Gangotri shares back

from Mefcom @ ` 55.85 at 11:03:29 i.e. the trade was reversed

within 30 minutes. In the reverse trade the sell order was placed by

Mefcom at 11:03:11 @`55.85 for 10,000 shares and the buy order

was placed by Noticee at 11:03:29 @`55.85 for 10,000 shares. The

order time difference was 18 seconds. During investigation period,

similar trading patterns of synchronized trading were also observed

between Noticee and other members of Vishvas Group.

24. Details of total number of synchronized buy and sell orders, trades and

trade quantity by the members of Vishvas Group during investigation period

are as under:

Client Name Buy Sell Total

Countof BuyOrders

Countof BuyTrades

TotalBuy Qty

Countof SellOrders

Countof SellTrades

TotalSell Qty

TotalOrders

TotalTrades

TotalQty

Ishita 51 70 296041 65 92 372986 116 162 669027

Mefcom 62 102 318875 58 68 310826 120 170 629701

ISF 32 42 161362 23 23 133759 55 65 295121

Quantum 33 51 168456 31 40 176205 64 91 344661

Cosmo 36 40 229898 31 68 166330 67 108 396228

VSL 4 4 21315 8 19 34645 12 23 55960

Master 3 3 5804 2 2 7000 5 5 12804

Total 221 312 1201751 218 312 1201751 439 624 2403502

From the above table, it is observed that out of total 624

synchronized trades (buy & sell) by Vishvas Group for 24,03,502



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shares, Noticee was indulged in 162 synchronized trades for

6,69,027 shares.

CIRCULAR TRADES and REVERSAL TRADES

25. Uponanalysis of trade log in BSE & NSE, it is observed that there were

substantial number of trades in which parties and counterparties to the

trade were same entities which belong to Vishvas Group. They were

creating an artificial volume in the market by trading among themselves i.e.

by circular trading and reversal trading. Nine members of Vishvas Group

were doing circular trading and reversal trading in BSE and seven members

were doing in NSE.

At NSE

26. It is observed that seven members of Vishvas Group namely, Ishita,

Cosmo, VSL, Quantum, Mefcom, ISF and Master involved in circular trades

in 29 trading days out of 37 trading days during investigation period and

created artificial volume of 23,56,185 shares (34.56% of total market

volume) by buying and selling among themselves. These transactions took

place in 2419 trades. Out of the same, circular trades aggregating to

12,01,751 shares from 312 trades were synchronized.

27. It is also observed that members of Vishvas Group made large contribution

in circular and reversal trades as compared to the total market volume in

the scrip. The circular trades and reversal trades by seven members of

Vishvas Group resulted in significant proportion of volume to the total

market volume in the scrip. Out of 29 trading days, On 10 days, the

percentage of circular trade volume of seven entites of Vishvas Group to

the total market volume was more than 40% and on 5 days it was more

than 60%.



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28. The details of circular trades among the seven members of Vishvas Group

are as under:-

Circular

Trades Sellers

Buyers ISF Mefcom VSL Cosmo Ishita Master QuantumGrandTotal

ISF 625 110961 6552 68158 157108 00 33458 376862

Mefcom 68254 550 5000 102992 231230 7040 100574 515640

VSL 26258 24142 497 100 5022 00 14980 70999

Cosmo 36925 123702 00 00 143512 00 27975 332114

Ishita 157329 188865 2570 183095 92185 29825 107776 761645

Master 2000 00 00 00 7841 00 00 9841

Quantum 2000 76917 48823 59751 101533 00 60 289084

GrandTotal 293391 525137 63442 414096 738431 36865 284823 2356185

From the above table, it is observed that:

Out of total shares bought (19,53,803 shares) by the Noticee during

investigation period, 7,61,645 shares were involved in circular

trading with the member of the Vishvas Group i.e. ISF, Mefcom,

VSL, Cosmo, Noticee, Master and Quantum.

Out of total shares sold (15,69,204 shares) by the Noticee during

investigation period, 7,38,431 shares were involved in circular

trading with the other members of the Vishvas Group i.e. ISF,

Mefcom, VSL, Cosmo, Noticee, Master and Quantum.

29. During investigation period, circular trading among Vishvas Group were

observed from April 21, 2006 till May 31, 2006. One of the instances of

circular trading are as follows



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Trade Quantity = 9,500

Trade Quantity = 9,905 Trade Quantity = 10,577

Trade Quantity = 9,875

Circular pattern observed on April 25, 2006 among the group is as

under:

SELF TRADES

AT NSE

30. It is also observed that Noticee had also indulged in self trades during

investigation period. The summary of self trades done by the Noticee are

as under -

Name of the entityNumber oftrades

TradedQty

Ishita Finstock Limited 333 92,185

It is observed that 333 trades of the Noticee for 92,185 shares were

self trades i.e. where buyers and sellers are same person.

PRICE MANIPULATION:

31.Last Traded Price (LTP) analysis:- It is observed that during investigation

period, the price of the scrip has decreased in patch I & III and increased in

patch II as discussed below:

Mefcom

(broker Mefcom)

ISF(broker ISF)

Cosmo(broker Integrated)

Ishita

(broker VSL)



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Patch I (Apr il 7, 2006 to Apri l 20, 2006):

Exchange Opening price(April 07, 2006)

Closing price(April 20, 2006)

Tradingdays

% Change inprice of the

scrip

AverageDaily Traded

VolumeBSE 53.25 44.75 8 Days 15.96%

(Decrease)70713

NSE 56.00 44.40 8 Days 20.70%(Decrease)

68005

Patch II (April 21, 2006 to May 5, 2006):

Exchange Opening price(April 21, 2006)

Closing price(May 05, 2006)

Tradingdays

% Change inprice of thescrip

AverageDailyTradedVolume

BSE 46.00 66.55 11 Days 44.70%(Increase)

338391

NSE 46.00 66.90 11 Days 45.40%(Increase)

213738

Patch III (May 8, 2006 to May 31, 2006):

Exchange Opening price(May 08, 2006)

Closing price(May 31,2006)

Tradingdays

% Change inprice of thescrip

AverageDailyTradedVolume

BSE 64.50 44.35 18 Days 31.20%(Decrease)

258554

NSE 63.55 45.40 18 Days 28.60%(Decrease)

217866

It is observed that, all the member of Vishvas Group started trading

on or after April 21, 2006 i.e. they had traded only during patch II

(Period of price rise) and patch III (Period of price fall).

It is also observed that the day from when the members of Vishvas

Group start trading, the average trading volume of the scrip at BSE /

NSE had gone up significantly from 70,713 / 68,005 shares (during



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April 07, 2006 to April 20, 2006) to 3,38,391 / 2,13,738shares (during

April 21, 2006 to May 05, 2006) and 2,58,554 / 2,17,866 shares

(during May 08, 2006 to May 31, 2006).

32.LTP contribution of Visvas Group entities at NSE: Total cumulative

positive and negative LTP contribution was `995.25 and `1007.25

respectively during investigation period in NSE, whereas it is observed that

seven members of Vishvas Group namely, Cosmo, Master, Ishita, Mefcom,

VSL, Quantum and ISF had contributed `489.05 to positive LTP and

`307.90 to negative LTP. The details of contribution of seven members of

Vishvas Group to cumulative Positive and Negative LTP variation are as

under

Sr.No.

Client Name Sum of PositiveLTP`

Sum of NegativeLTP`

Total positiveCumulative LTP

1 Ishita 365.95 -229.2 136.75

2 Mefcom 56.55 -45 11.55

3 VSL 32.1 -18.5 13.6

4 Cosmo 14.5 -6.7 7.8

5 Quantum 10.55 -3.7 6.85

6 ISF 8.8 -4.6 4.2

7 Master 0.6 -0.2 0.4

Total 489.05 -307.90 181.15

Noticee was the highest and significant contributor to both positive

LTP and negative LTP i.e. Noticee had contributed`365.95 to total

cumulative positive LTP and ` 229.2 to total cumulative negative

LTP.

33. I find that at NSE during the investigation period, the Noticee had bought

19,53,803 shares and sold 15,69,204 shares (total traded volume of the

Noticee was 32,23,007 shares). Out of total trading volume of the Noticee,

6,69,027 shares of the Noticee were synchronized and 15,00,076 shares

were circular with other members of Vishvas Group. I also find that Noticee

had indulged in 333 self trades for 92,185 shares.



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34. The role of the Noticee in executing the larger game plan of creating

manipulation in the scrip of Gangotri in concert with the other entities of the

Vishvas Group cannot be overlooked i.e. the Noticee had mostly traded

with Mefcom, VSL, Comso, Quantum, ISF, Master, and Itself, who are the

contributors towards LTP variation. Further, most of the synchronized

trades and circular trades of the Noticee's were with Mefcom, VSL, Comso,

Quantum, ISF, Master, and Itself. It is not possible for a single entity to

manipulate the market and the role of the entire Vishvas group has to be

considered in a holistic manner to arrive at any conclusion.

35. I find that the patterns of circular trading among the Vishvas Group are in

the manner [ABCDA]. Almost same numbers of shares were

rotated in a circular manner among the Vishvas Group on daily basis and

the pattern depicts that the trades were planned with a manipulative intent.

Thus, the said circular trading was not just a co-incidence and the same

indicates their concerted effort and manipulative intent to increase the price

of the scrip by creating false and artificial volume in the scrip. Due to the

concerted effort of Vishvas Group the price of the scrip of Gangotri in NSE

had increased from`41.25 on April 19, 2006, touched the high to`71.05

on May 05, 2006 and then decreased to`45.40 on May 31, 2006 within a

period of one and half month. This gave an impression to other investors in

the market that the scrip of Gangotri was being actively traded at the

prevailing price but actually this was not the case.

36. The pattern of synchronized order placement and circular trading clearly

points out that the transactions were carried out with the intention that the

orders of particular entities should match and there was a prior

arrangement with respect to these transactions. These transactions

resulted in creation of artificial volume. The pattern of trading indicates

several instances where the time difference between buy and sell orders

was less than 20 seconds. No unknown person can trade continuously with



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same set of persons by putting orders in such pattern contributing

significantly to total volume in the market. The Noticee along with the other

members of Vishvas Group have transacted amongst themselves in the

shares of Gangotri through circular and synchronized order placement in a

contrived pricing pattern and it led to creation of artificial volumes in the

scrip as the trades were reversed in a short time. The increase in the

trading volume of Gangotri shares can be attributed to the trades done by

the Noticee in collusion with the other members of Vishvas Group. Thus,

these trades were fraudulent and manipulative in nature as Noticee have

misused the trading mechanism and also created artificial trading volume.

37. The fact is that had the trades of the members of Vishvas Group been

executed in the normal course of business, the possibility of such perfect

matching would not have been possible. The buy and sell prices of one

entity were close to the buy/sell rates of the other entity in all the

settlements, such that the trades of these entities were always matched. A

trade can be executed on the screen and still be manipulative in nature.

Considering the number of such trades, it is clear that there has been a

gross mis-use of the screen based trading system. It is also to be stated

that intention is inherent in all cases of synchronized trading involving

large scale price manipulation and the same was also brought out in the

case ofNirmal Bang Securities (P) Ltd. vs SEBIby the Honble SAT whereby it

was observed that Intention is reflected from the action of the Appellant.

Choosing selective time slots does not appear to be an involuntary action.

38. The trading pattern of the Noticee creates doubts about the genuineness of

its trades. I am of the view that the trades carried out were fraudulent and

manipulative in nature. However, in the present case, the records show that

most of the trading carried out by the Noticee was with a fixed set of entities

i.e. members of Vishvas Group namely, ISF, Mefcom, VSL, Cosmo,

Quantum, Master and Noticee.



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39. I am of the view that the trades of the Noitcee and Vishvas Group were with

the intention not to transfer the beneficial ownerships of the shares of

Gangotri but with an intention to operate only as a device to inflate, depress

or cause fluctuations in the price of shares of Gangotri for wrongful gains.

Thus the Noticee through collusion with the other members of the Vishvas

Group has transacted in the shares of Gangotri in such a manner that it led

to creation of artificial volumes in the scrip and a false market leading to

price movement in the scrip which lacked presence of any sort of

fundamentals.

40. It is evident from the trading pattern of the Noticee and other members of

Vishvas Group that through circular, reversal and synchronized trades, they

have manipulated the price of the scrip during the period under scrutiny. It

is also observed that there was no transfer of ownership of shares.

41. Honble Securities Appellate Tribunal (hereinafter referred as SAT ), in

Ketan Parekh Vs. Securities & Exchange Board of India (Appeal No. 2 of

2004), observed that, A synchronized transaction even on the trading screen

between genuine parties who intend to transfer beneficial interest in the trading

stock and who undertake the transaction only for that purpose and not for rigging

the market is not illegal and cannot violate the regulations. As already observed

synchronisation or a negotiated deal ipso facto is not illegal. 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



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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.

42. In my view, the Noticee in collusion with other members of Vishvas Group,

through the said artificial trades interfered with the market mechanism by

manipulating the price and volume of the said scrip. The trades executed by

the Noticee and Vishvas Group were not real trades as there was no

intention to change the beneficial ownership. When the trades were

inherently non genuine, I do not feel that it is necessary to prove that

investors had, in fact got induced and bought and/ or sold on the basis of

these trades. Similar views were expressed by Honble SAT in its order

dated 14.7.2006 in Ketan Parekh Vs. SEBI wherein it had observed that

When a person takes part in or enters into transactions in securities with the

intention to artificially raise or depress the price he thereby automatically induces

the innocent investors in the market to buy /sell their stocks. The buyer or the seller

is invariably influenced by the price of the stocks and if that is being manipulated

the person doing so is necessarily influencing the decision of the buyer / seller

thereby inducing him to buy or sell depending upon how the market has been

manipulated. We are therefore of the view that inducement to any person to buy or

sell securities is the necessary consequence of manipulation and flows therefrom.

In other words, if the factum of manipulation is established it will necessarily

follow that the investors in the market had been induced to buy or sell and that no

further proof in this regard is required. The market, as already observed, is so wide

spread that it may not be humanly possible for the Board to track the persons who



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were actually induced to buy or sell securities as a result of manipulation and law

can never impose on the Board a burden which is impossible to be discharged.

This, in our view, clearly flows from the plain language of Regulation 4(a) of the

Regulations.

43. Keeping in mind the dicta of the SAT as reproduced above, I see no reason

to take a different view in the present case.

44. As per regulation 2 (1) (c) of PFUTP Regulations, "fraud" includes any act,

expression, omission or concealment committed whether in a deceitful manner or

not by a person or by any other person with his connivance or by his agent while

dealing in securities in order to induce another person or his agent to deal in

securities, whether or not there is any wrongful gain or avoidance of any loss.

45. I find that the Noticee has failed to file any reply to the said SCN and has

not refuted the charges. The Honble Securities Appellate Tribunal (SAT) in

the matter of Classic Credit Ltd. v/s SEBI [2007] 76 SCL 51 (SAT -

MUM.) inter-alia held the appellants did not file any reply to the second show-

cause notice. This being so, it has to be presumed that the charges alleged against

them in the show-cause notice were admitted by them. The order passed by

Honble SAT is relied upon in this case for guidance. Therefore, I presumed

that the Noticee has admitted the charges alleged in the said SCN.

46. Therefore, I hold that the charges leveled against the Noticee are proved

and that the allegation of violation of provisions of section 12A(a), 12A(b),

12A(c) of SEBI Act and regulations 3(a), 3(b), 3(c), 3(d), 4(1), 4(2)(a),

4(2)(e) & 4(2)(g) of PFUTP Regulations by the Noticee stand established.



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ISSUE 2: Whether the Noticee is liable for monetary penalty under

section 15HA of the SEBI Act ?

47. The aforesaid violations of SEBI Act and PFUTP Regulations by the

Noticee make it liable for penalty under Section 15HA of SEBI Act which

reads as follows:

Section 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.

48. In the matter of SEBI vs. Shri Ram Mutual Fund [2006] 68 SCL 216 (SC),

the Honble Supreme Court of India has held that In our considered opinion,

penalty is attracted as soon as the contravention of the statutory obligation as

contemplated by the Act and the regulation is established and hence the intention of

the parties committing such violation becomes wholly irrelevant.

49. As already observed that, Noticee have violated the provisions of sections12A(a), 12A(b), 12A(c) of SEBI Act and regulations 3(a), 3(b), 3(c), 3(d),

4(1), 4(2)(a), 4(2)(e) & 4(2)(g) of PFUTP Regulations. Therefore, I find that

the Noticee is liable for monetary penalty under Section 15HA of the SEBI

Act.

ISSUE 3: What quantum of monetary penalty should be imposed on

the Noticee taking into consideration the factors mentioned

in Section 15J of SEBI Act ?

50. While determining the quantum of penalty under Section 15HA of SEBI Act,

it is important to consider the factors stipulated in section 15J of SEBI Act,

which reads as under:-



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15J-Factors to be taken into account by the adjudicating officer

While adjudging quantum of penalty under section 15-I, 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;

(c) the repetitive nature of the default.

51. I note that on the basis of data available on record, it is difficult, in cases of

such nature, to quantify exactly the disproportionate gain or unfair

advantage enjoyed by the Noticee and the consequent losses suffered by

the investors. Further the amount of loss to an investor or group of investors

also cannot be quantified on the basis of available facts and data. Even

though the monetary loss to the investors cannot be computed, any

manipulation in the volume or price of the stocks caused by vested interest

always erodes investor confidence in the market so that investors find

themselves at the receiving end of market manipulators. Hence, anyone

could have been carried away by the unusual fluctuations in the

volume/price andbeen induced into investing in the said scrip. Besides, this

kind of activity seriously affects the normal price discovery mechanism of

the securities market. People who indulge in manipulative, fraudulent and

deceptive transactions, or abet the carrying out of such transactions which

are fraudulent and deceptive, should be suitably penalized for the said acts

of omissions and commissions. Considering the continuous effort of the

Noticee in this aspect where the trading was carried out over a period of

time, it can safely be surmised that the nature of default was also repetitive.

52. In the forgoing paragraphs, it is now established that the Noticee have

violated the provisions of sections 12A(a), 12A(b), 12A(c) of SEBI Act and



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regulations 3(a), 3(b), 3(c), 3(d), 4(1), 4(2)(a), 4(2)(e) & 4(2)(g) of PFUTP

Regulations. In view of the above and considering the facts and

circumstances of the case and factors under Section 15J of the SEBI Act

and the violation committed by the Noticee, I find that imposing a penalty of

` 80,00,000/- (Rupees Eighty Lakhs only) on the Noticee would be

commensurate with the violations committed by it.

ORDER

53. In exercise of the powers conferred under Section 15-I of the SEBI Act and

in terms of the provisions of Section 15HA of the SEBI Act & Rule 5(1) of

the Rules, I hereby impose a penalty of`

80,00,000/- (Rupees Eighty Lakhsonly) on M/s Ishita Finstock Limited for violation of provisions of sections

12A(a), 12A(b), 12A(c) of SEBI Act and regulations 3(a), 3(b), 3(c), 3(d),

4(1), 4(2)(a), 4(2)(e) & 4(2)(g) of PFUTP Regulations.

54. The Noticee shall pay the said amount of penalty 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 Division Chief, Enforcement Department

(EFD DRA-3), Securities and Exchange Board of India, Plot No. C4-A, G

Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051.

55. In terms of rule 6 of the Rules, copies of this order are sent to the Noticee

and also to SEBI.

Date: December 31, 2014 Jayanta Jash

Place: Mumbai Adjudicat ing Officer

Adjudication Order in respect of M/s Ishita Finstock Limited in the matter of M/s Gangotri Textiles...

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