Adjudication Order in respect of Murli Industries Limited

8/10/2019 Adjudication Order in respect of Murli Industries Limited

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Adjudication Order in respect of Murli Industries Limited

Page 1 of 29 November 28, 2014

BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA

ADJUDICATION ORDER NO. JJ/AM/AO-159/2014

_________________________________________________________________________________________

UNDER SECTION 15-I OF 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:

Murli Industries Limited

(PAN AACCM1276B)

In the matter of:

Dealings of Sanjay Dangi and other entities in various scrips

_________________________________________________________________________________________

BACKGROUND

1.

Securities and Exchange Board of India (SEBI)had received a reference from the

Income Tax Department (ITD), containing certain findings in the matter of Murli

Industries Limited (Noticee/MIL). It was stated in the said reference that ten

entities were holding substantial shares of MIL and the affairs of the ten

companies were being looked after by Mr. Amit Raja, Chartered Accountant, who

happened to be their auditor. The ITD had found certain documents suggesting

manipulation in the share price of MIL. The reference stated that the following

ten private limited companies were found to be dummy companies incorporated

by MIL (hereinafter collectively referred to as dummy companies) which had

together cornered a large part of the shareholding of MIL.

i. Ambaji Papers Private Limited (Ambaji)

ii. Inco Infrastructures Private Limited (Inco)

iii. Kanhaiya Mining And Minerals Private Limited (Kanhaiya)

iv. Krishnum Investments Private Limited (Krishnum)

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v. Lakhi Packaging Private Limited (Lakhi)

vi. Ramji Agri Business Private Limited (Ramji)

vii. Ramkrishna Fabrication and Machineries Private Limited (Ramkrishna)

viii. Runicha Alloys And Steel Private Limited (Runicha)

ix. Simple Mining And Power Private Limited (Simple)

x. Taitan Management Services Private Limited (Taitan)

2.

The reference made by the ITD stated that none of the dummy companies

had proper offices and that the directors of these dummy companies were

of no means to carry out huge transactions running into millions of

rupees. As per the said reference, ITD conducted survey under Section

133A of the Income Tax Act, 1961 at the premises of the dummy

companies and found that the companies were not traceable at their

given addresses. The original documents relating to the ten dummy

companies and their directors (bank statements, demat statements,

correspondence from brokers, dividend vouchers, contract notes,

correspondence with shareholders, tax invoices, income tax returns filed,

income tax acknowledgements, copies of PAN applications,

correspondence with lenders, blank pledge creation forms, etc.) were

found at the premises of Mr. Amit Raja and were impounded by ITD,

whereas even copies of these documents were not found in the premises

of the dummy companies or their directors. Similarly, the original

documents pertaining to the directors in their personal capacity (bank

statements, demat statements, correspondence from brokers, dividend

vouchers, contract notes, income tax returns filed, income tax

acknowledgements, copies of PAN applications, etc.) were also found inthe premises of Mr. Amit Raja, whereas no such documents or even their

copies were found in the premises of the individual directors.



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3.

ITD also forwarded certain documents which indicated an agreement for

manipulation of MIL share price and profit sharing between MIL

promoters and Sanjay Dangi.

4.

The reference received from the ITD suggested that the price of the MIL

scrip was manipulated by the entities mentioned in the reference for the

purpose of issuing Foreign Currency Convertible Bond (FCCB)at a higher

price than what was the correct price. In light of the aforesaid reference

and documents received from the ITD regarding the manipulation in

share price of MIL and the profit sharing arrangement between MIL and

Mr. Sanjay Dangi, SEBI initiated a preliminary inquiry in the matter to

find as to whether there was any concentration of shareholding of the

company among the ten entities and whether there was any attempt to

manipulate the shares of the company before the FCCB issue of MIL.

Based on the preliminary findings of the aforesaid investigation, it

appeared to SEBI that a group of entities connected to each other (Dangi

group) had influenced the price rise in the scrip during the pricing

period of FCCBs and thereafter, exited the scrip at a profit, as per the

alleged agreement made with the promoters of MIL.

5. Based on the finding in MIL that a group was operating to offer its

services to a promoter, SEBI examined similar patterns in the trading and

price-volume of scrips of other companies that had issued FCCBs or in

which Dangi Group had been found to have traded regularly, or both. The

said examination revealed that the Dangi Group was actively trading in

the shares of many companies where there was capital raising exercisethrough FCCB issue, ADR/GDR issue, QIB/QIP placement, preferential

allotment or loans or pledge/revocation of pledge of promoter shares.

Among the several scrips in which Dangi group was trading, their role

was taken up for examination in their dealings in the shares of Hubtown

Ltd. (Hubtown)(earlier known as Ackruti City Ltd.); Welspun Corp Ltd.



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(earlier known as Welspun Gujarat Stahl Rohren Ltd.) (WCL),

Brushman (India) Ltd. (BIL)and RPG Transmission Ltd. (RPG).

6. In view of the above findings in various scrips and noticing that such

operations were possibly continuing in the market to the detriment of the

investing public, SEBI vide ad-interim ex-parte order (interim Order)

dated December 02, 2010, (available on SEBI website www.sebi.gov.in)

issued directions against Mr. Sanjay Dangi, his associates & promoter

entities of 4 companies i.e. MIL, Hubtown Ltd., WCL & BIL.

7.

Further, certain promoter/promoter related entities of MIL, Hubtown,

WCL and BIL mentioned therein were directed not to buy, sell or deal in

the securities of their own companies and their listed group companies,

in any manner whatsoever, till further directions. The aforesaid four

companies and their respective promoters were directed to ensure that

the shareholding of the promoters/promoter group in the said companies

was not altered in any manner till further directions. The stock brokers

namely, Sanchay Fincom Limited, Sanchay Finvest Limited and Ashika

Stock Broking Ltd. (ASBL) were directed not to buy, sell or deal in the

securities in their own/proprietary account in any manner till further

directions in this regard. They were further directed not to take/deal

with fresh/new clients with immediate effect until further orders.

8.

Subsequently, SEBI conducted detailed investigations in respect of

dealings in the five scrips including MIL. From the bank statements of

Ramji, Runicha, Ambaji, Kanhaiya and Inco it was observed that thesecompanies had availed loans from SICOM Limited (SICOM) to make the

payments to MIL for conversion of the share warrants allotted to them. In

this regard, all the loan related papers available with SICOM were

examined. It was observed that the loans granted to the five dummy

companies mentioned above were in the form of Inter Corporate Deposits



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10.

From the information furnished by the dummy companies, MIL, bank

transaction counterparties of dummy companies, etc., it was observed

that many major customers of MIL had given huge unsecured loans to the

dummy companies immediately after their incorporation and even before

these companies had set up any business infrastructure. Further, it was

observed that when the five dummy companies which took loans from

SICOM had to repay their loans, they received the necessary funds as

unsecured loans from ANG Financial Consultants Private Limited (earlier

known as Madhulika Leasehold Private Limited), which in turn had

received the necessary funds from MIL. On the same day as loan was

extended to the five dummy companies, ANG Financial Consultants

Private Limited (ANG) had received the same amount from MIL.

However, ANG repaid MIL in installments using the money paid by the

dummy companies as repayment for their loans. Thus, it appeared that

MIL had used ANG as a conduit to provide funds to the five dummy

companies to repay their loans to SICOM.

11.

It was observed that for the bank account of one of the directors of

Krishnum, i.e., Kamalkishore Bhattad held with State Bank of India

(Nagpur), for the purpose of residence proof, a letter dated November 01,

2001 from Murli Agro Products Limited (now MIL) was submitted. It was

also observed that the residence of Kamalkishore Bhattad was in the

same building as the office of MIL. It was further observed that for the

same bank account, the introducer of Kamalkishore Bhattad was

indicated as Mrs. Shanta Bajranglal Maloo, who has the same address as

Mr. Bajranglal Maloo (one of the promoters of MIL).

12.

It was observed from the depository (CDSL) account of Kamalkishore

Bhattad maintained with Motilal Oswal Securities Limited that his

address was 101, Jai Bhavani Society, Wardhaman Nagar, Nagpur, which

was also the address of MIL and for the same account, the email id



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provided was [email protected]. It was observed from the demat

account opening forms of the promoters of MIL that for the accounts held

with ICICI the email id furnished by Mahesh Maloo, Lalchand Maloo HUF,

Murli S Maloo, Bajranglal Maloo HUF, Nandlal Maloo HUF, Sunilkumar

Sobhagmal Maloo, Lalchand Bankatlal Maloo and Bajranglal Bankatlal

Maloo was also [email protected]. For the same account, the

phone number provided by Kamalkishore Bhattad was 2768912, which

was registered in the name of Mr. Bajranglal Bankatlal Maloo, C/o Nandlal

Enterprises. In the account of Kamalkishore Bhattad with IL&FS

Securities Services Limited, the address mentioned was Jai Bhawani

Society, Central Avenue, Wardhman Nagar, Nagpur 440008 and the

phone numbers mentioned were 2738634 and 9373118357. In the

Income Tax returns, the address furnished by Kamalkishore Bhattad was

201, 202 Jai Bhawani Society, C A Road, Wardhaman Nagar, Nagpur.

Further, it was observed from Kamalkishore Bhattads bank account

statement that in May-June 2010 that Kamalkishore Bhattad received Rs.

4,80,000/- each from Nihal Gilts Private Limited and Raghav Finvest

Private Limited, both being promoters of MIL.

13. It was observed that in the bank account opening form of Taitan, the

address of one of its directors, i.e., Poonamchand Bhattad was mentioned

as 102, Jai Bhawani Society, Wardhaman Nagar, Nagpur (address of MIL

being 101, Jai Bhawani Society, Wardhaman Nagar, Nagpur) and his

phone number was 2738634 (same phone number as mentioned in

Kamalkishore Bhattads account with IL&FS Securities Services Limited).

It was observed that Poonamchand Bhattad was also a director of Ambaji.It was further observed that the address in the driving license (issued in

March 2004) of Lalit Loya, who was a director of Krishnum and Ramji

was C/o M/s. Murli Agro Products Limited, MIDC, Dhurkheda Tah,

Umrer. The connection between the dummy companies arising out of

common contact details was as follows:



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Common Telephone Number

1 3096334 Kamalkishore Bhattad -

(R) Director of KrishnumIDBI Bank a/c opening form of Krishnum

Shivshakti B Dhoot - (R)

Director of Inco and

Simple

IDBI Bank a/c opening form of Kanhaiya

Nilesh Jain - (R) Director

of Ramkrishna, Runicha

and Taitan

IDBI Bank a/c opening form of Ramkrishna

Inco - (O) IDBI Bank a/c opening form; Guiness

Securities a/c opening form

Taitan - (O) IDBI Bank a/c opening form

2 2732955

(Phone Number of Mr. Harish D

Jasani)

Sukhram Prajapat (O) IDBI Bank a/c opening form

Sanjay Lute - (O) Director of Inco

IDBI Bank a/c opening form

Umardan Khariya - (O) -

Director of Ramji


Lalit Loya - (O) - Directorof Krishnum and Ramji


3 9370422232 (Phone Number of

Mr. Amit Raja CA)

Krishnum Guiness Securities a/c opening form

Simple Guiness Securities a/c opening form

Taitan Guiness Securities a/c opening form

Lakhi Guiness Securities a/c opening form

4 2778910

(Phone Number of Mr. Amit Raja

CA)

Krishnum IDBI demat a/c opening form

Simple IDBI Bank a/c opening form; IDBI Demat a/c

opening form

Lalit Loya - (R) IDBI Bank a/c opening form of Runicha

Kanhaiya Guiness Securities a/c opening form; IDBDemat a/c opening form

Taitan IDBI Demat a/c opening form

Lakhi IDBI Demat a/c opening form

Ambaji - (O) Guiness Securities a/c opening form; IDB

Demat a/c opening form

Runicha IDBI Demat a/c opening form

Ramji Guiness Securities a/c opening form; IDB

Demat a/c opening form

Common Address

1 C/o M/s. Murli Agro Products

Limited, MIDC, Dhurkheda Tah,

Umrer

Lalit Loya Address in Driving Licence

2 Plot 142, East Wardhaman Nagar,

Behind Akash Apartment, Nagpur

8(Address of Amit Raja CA)

Ramji IDBI Demat a/c opening form


Lakhi IDBI Demat a/c opening form

Taitan IDBI Demat a/c opening form

Kanhaiya IDBI Demat a/c opening form; Guiness


Inco IDBI Bank a/c opening form; Guiness




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Simple IDBI Demat a/c opening form

Krishnum IDBI Demat a/c opening form

3 c/o Vidya Amar Fulzale,

Ambedkar Square, bypass Road,

Umrer, Nagpur 441203

Ramji IDBI Demat a/c opening form; Guiness



Krishnum Guiness Securities a/c opening form

4 2nd Floor, Bind Apartment,

Gandhi X Ray, Gandi Putla,

Nagpur -8

(Address of late Deepti Raja, wife

of Amit Raja CA)

Kamalkishore Bhattad IDBI Bank a/c opening form of Krishnum

Krishnum Fortis a/c opening form; IDBI demat a/c

opening form

Common e-mail address

1 [email protected]

(e-mail address of Amit Raja

CA)

Krishnum Guiness Securities a/c opening form; ROC

Filings

Simple Guiness Securities a/c opening form; ROC

Filings

Taitan Guiness Securities a/c opening form; ROCFilings

Lakhi Guiness Securities a/c opening form; ROC

Filings

14.

It was observed that the 10 dummy companies had a common auditor,

common consultant (which incidentally was run by the family members

of Mr. Amit Raja, CA), bank accounts in the same branch of IDBI Bank Ltd.,

demat accounts with the same DP (Guiness Securities), trading accounts

with the same broker, off market transfers by directors of dummy

companies with the same counterparties and a large number of common

shareholders. It was observed that all the dummy companies had used

the services of Bhagwati Commercial and Financial Services Private

Limited (promoters/directors of Bhagwati Commercial & Financial

Services Pvt. Ltd. were Jayantilal V Raja, Lata J Raja and Deepti A Raja) for

accounting consultancy and ROC work. It was also observed that Mr. Amit

Raja, CA, was the auditor of the dummy companies since the

incorporation of each of the companies.

15. The common phone number and email id shared by the promoters of MIL

and some of the directors of dummy companies indicated that the



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promoters of MIL were known well to the directors. The only income for

the various dummy companies and their directors appeared to be the

dividend paid by MIL as seen from their respective bank statements. It

was also observed that none of the dummy companies had invested in

any scrip other than MIL since their incorporation. It was also observed

that four dummy companies, namely, Krishnum, Lakhi, Simple and Taitan

had actively traded in the scrip of MIL. The dummy companies

incorporated with a capital of not more than a couple of lakhs of rupees

had invested in the warrants of MIL knowing very well that a payment

close to Rs 5 Crore would be necessary to convert the warrants. Yet no

activity was undertaken by any of these companies to generate income

from any business activity.

16. It was observed that all the 10 dummy companies were incorporated

during the same time period (April May, 2005) and since incorporation,

none of the dummy companies, except Ramkrishna had undertaken any

major business activity. Only Runicha, Ramji, Lakhi and Kanhaiya had

carried out some business of coal, for which the buyer was Nandlal

Enterprises Limited, a company connected to MIL (directors of Nandlal

Enterprises Ltd. were Nandlal B Maloo, Shobhagmal B Maloo, Bajranglal B

Maloo and Lalchand B Maloo). Even in the case of Ramkrishna, its

business dealings were only with MIL and Nandlal Enterprises Ltd. It was

observed that five of the dummy companies, namely, Runicha, Ramji,

Lakhi, Kanhaiya and Ramkrishna had received some amount of money

from Nandlal Enterprises Ltd., details of which are as follows:

Date From To Amount Purpose03.05.2007 Nandlal Enterprises Ltd Runicha 1,50,000 Purchase of Coal

03.05.2007 Nandlal Enterprises Ltd Lakhi 1,50,000 Purchase of Coal

22.05.2007 Nandlal Enterprises Ltd Kanhaiya 2,00,000 Purchase of Coal


20.07.2007 Nandlal Enterprises Ltd Ramkrishna 1,00,000 Purchase of Land



01.08.2007 Nandlal Enterprises Ltd Ramji 3,00,000 Purchase of Coal



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17. During investigation certain fund flows were observes between ANG, MIL

and some of the dummy companies. Regarding the financial dealings

between ANG and MIL, ANG had stated that it had received a loan of

28,27,00,000/- from MIL on 30/11/2007, which was repaid in

installments during FY 2008-09. The last payment was made on

11/12/2008. Even though ANG denied any other connection/relationship

with MIL, it was observed that the loan was given without any collateral.

ANG also stated that the amount of 28,27,00,000/- received from MIL

was margin money for lease finance for various Plants & Machinery, with

a rate of interest of 8%. However, it was observed that on 30/11/2007,

ANG gave a loan of 5,65,25,000/- to Kanhaiya, Ramji and Runicha.

Further, on 01/12/2007, ANG gave a loan of 5,65,25,000/- to Ambaji

and Inco. The total amount given as loan to the above 5 dummy

companies was 28,26,25,000/-. Regarding the loans given by ANG to

Kanhaiya, Ramji, Runicha, Ambaji and Inco it was stated that the loans

were of unsecured nature with an interest rate of 9% per annum. Hence,

it appeared that ANG had been used as a conduit by MIL to provide a

short term loan to the 5 dummy companies which had applied for its

warrants, to make payment to SICOM on due date.

18.

During investigation it was observed that some of the major customers of

MIL, namely, Kavyatri Paper & Board Pvt. Ltd. (Mumbai), Sammanlal Sher

Singh Papers Ltd (Delhi), ECC Trading Pvt. Ltd (Secunderabad), T.K. Ruby

& Co (Mumbai), Mukul Agencies Private Limited and PS Universal Pvt. Ltd

(New Delhi) had paid lakhs of rupees to one or more of the dummy

companies immediately after the formation of those dummy companies.

Details of some of such transactions are presented below:

Date From To Amount (`)

Jain Coal Services- a partnership firm in Nagpur having dealings with MIL

03.02.2006 Jain Coal Services Simple 27,40,000.00



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03.02.2006 Jain Coal Services Taitan 13,70,000.00

03.02.2006 Jain Coal Services Lakhi 27,25,000.00

01.01.2008 Taitan Jain Coal Services 16,60,355.00

28.03.2008 Lakhi Jain Coal Services 33,94,469.00

28.03.2008 Simple Jain Coal Services 34,13,155.00

Mukul Agencies Private Limited

22.07.2006 Mukul Agencies Krishnum 50,00,000.0007.12.2007 Krishnum Mukul Agencies 50,00,000.00

Kavyatri Paper & Board Private Limited

16.06.2005 Kavyatri Paper & Board Runicha 10,00,000.00

18.06.2005 Kavyatri Paper & Board Runicha 500,000.00

30.10.2009 Runicha Kavyatri Paper & Board 500,000.00

ECC Trading Private Limited

14.06.2005 ECC Trading Inco 2,000,000.00

18.07.2006 ECC Trading Simple 5,000,000.00

07.10.2008 Inco ECC Trading 1,000,000.00

27.10.2009 Simple ECC Trading 400,000.00

27.10.2009 Inco ECC Trading 1,000,000.00

MIL customers which have applied for shares of dummy companies

14.06.2005 T K Ruby & Co Kanhaiya 2,000,000.00

29.06.2005 Hero Paper Stores Runicha 1,000,000.00

04.01.2007 Runicha Hero Paper Stores 1,000,000.00

23.06.2005 Sammanlal Shersingh Papers Ambaji 5,000,000.00

21.07.2006 Sammanlal Shersingh Papers Krishnum 5,000,000.00

03.01.2007 Sammanlal Shersingh Papers Ambaji 1,000,000.00

19.

During investigation, one of the entities Mukul Agencies Private Limited

stated that it was not known to/ connected to/ familiar with any of the

promoters/ directors of Krishnum and that the entity Krishnum was

introduced to it by MIL. Further, P S Universal (agent/ distributor for

MIL) stated that it knew Mr. Shivshakti B Dhoot (Director of Inco and

Simple) and Mr. Kamalkishore Bhattad (Director of Krishnum), directors

of the dummy companies. The company lent money to the above

mentioned entities on the basis of their planning and business growth,

but later asked for returning the money when they realised that the

above mentioned companies were not up to the mark. However, it was

observed that Inco had not repaid its loan to PS Universal even as late as

November 2011.

20.

It was observed that corporate entities not based out of Nagpur, but

major clients of MIL, had given money to the dummy companies as either

advance or share application money, immediately after the respective



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dummy companies were set up. The offices of these dummy companies

were set up at the residences of their respective directors and the

companies had no infrastructure or business deals in place. The amounts

thus received by the dummy companies were used either to pay for share

warrants of MIL or to pay off unsecured loans. Therefore, on examining

the end use of these funds, it appeared that the top clients of MIL had

funded the dummy companies to purchase the share warrants of MIL.

21.

In order to conduct a thorough investigation and in order to ascertain the

exact role played by the various entities including the ten dummy

companies, vide summons dated September 19, 2011,

details/information was sought from the Noticee by the SEBI

Investigating Authority (IA). It was alleged that despite duly receiving

summons dated September 19, 2011; the Noticee failed to submit correct

and complete details/information as required vide the aforesaid

summons, thereby violating the provisions of Section 11C(2) and 11C(3)

of the SEBI Act, 1992.

APPOINTMENT OF ADJUDICATING OFFICER

22. Shri Piyoosh Gupta was appointed as the Adjudicating Officer vide order

dated March 30, 2012 and the said appointment was conveyed vide

proceedings of the Whole Time Member dated April 11, 2012 to inquire

and adjudge under Section 15A(a) of the SEBI Act, 1992 alleged violations

of provisions of Section 11C(2) & 11C(3) of SEBI Act, 1992 committed by

the Noticee. Pursuant to the transfer of Shri Piyoosh Gupta theundersigned has been appointed as Adjudicating Officer vide Order dated

November 08, 2013.



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SHOW CAUSE NOTICE, HEARING & REPLY

23.

Show Cause Notice (SCN)in terms of the provisions of Rule 4(1) of SEBI

(Procedure for Holding Inquiry and Imposing Penalties by Adjudicating

Officer) Rules, 1995 (Adjudication Rules)was issued to the Noticee on

April 22, 2013, calling upon the Noticee to show cause why an inquiry

should not be held against it under Rule 4(3) of the Adjudication Rules for

the alleged violations and penalty.

24. The aforesaid SCN was duly delivered to the Noticee by Speed Post.

Subsequently, vide letter dated April 30, 2013, M/s. Lakshmi Kumaran &

Sridharan, Attorneys acknowledged the receipt of SCN by the Noticee and

sought extension of 6 weeks time to submit reply. Vide letter dated May

06, 2013 the Noticee was advised to submit vakalatnama/authorisation

within 7 days for taking cognizance of the letter dated April 30, 2013.

Subsequently, on May 16, 2013 authorization of the Noticee in favour of

M/s. Lakshmi Kumaran & Sridharan, Attorneys was received.

25.

Vide Notice dated June 06, 2013 the Noticee was asked to submit its

reply, if any, on or before June 14, 2013 and the Noticee was granted an

opportunity of personal hearing on June 14, 2013. Vide email dated June

12, 2013 M/s. Lakshmi Kumaran & Sridharan, Attorneys submitted a

scanned copy of the Noticees reply to SCN and also requested for

postponement of the hearing and another opportunity of personal

hearing. The salient points of Noticees reply dated June 12, 2013 are as

follows:o The Noticee duly submitted all information against each item and

diligently complied with all requisitions, without any inordinate delay and

therefore duly discharged its obligations and duties under Section 11C (2) &

(3) of the SEBI Act. In addition, the Noticee has also not contravened the

provisions of Section 15A of the said Act. In fact, Section 15A of the said Act

does not even apply to the facts and circumstances of the instant case and



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resultantly, the contraventions thereof as alleged in the instant Show Cause

Notice, must fall against the said Noticee, as they are not maintainable in the

first place.

o In this regard, it may only be stated that the above stated provisions of

Section 15A of the SEBI Act would trigger only when there is a failure on the

part of the Noticee to furnish information. If information is supplied, the

provisions cannot trigger. It cannot be anybodys case that although the

information was provided by the Noticee, however, as it was considered wrong,

deficient, incomplete or insufficient, the Noticee ought to be proceeded under

Section 15A of the said Act. The condition precedent for the above stated

provision to apply is failure to furnish information; the provision does not bring

within its fold such information which the authority may consider to be

deficient, incomplete or insufficient. For this reason, the instant show cause

notice is not maintainable as the facts and circumstances of the instant case

are beyond the scope and objects of Section 15A of the SEBI Act.

o

Be that as it may, it is respectfully submitted that the instant show cause

notice under reply, has admittedly alleged contravention of Section 11C(2) and

(3) read with Section 15A of the SEBI Act, 1992 on the premise that

information provided by the Noticee at Item No. 5 was wrong, incorrect,

incomplete and/or an attempt to conceal information from the Investigating

Authority.

o It is respectfully submitted that an action cannot be initiated under rule

4(1) of Securities and Exchange Board of India (Procedure for Holding Inquiry

and Imposing Penalties by Adjudicating Officer) Rules, 1995 on the premise

that information supplied was wrong, incorrect, incomplete or provided with a

view to conceal information. It is respectfully submitted that such an action has

in fact presumed that the Noticee had supplied wrong, incorrect or incomplete

information, even though there is no order to this effect. It is being reiterated

that the presumption of falsification or falsehood against the Noticee has been

made at a time when the adjudication proceedings before the adjudicating

authority pursuant to the order of SEBI dated 16.03.2011, is pending

adjudication and has not reached finality. There is no order which holds the

information supplied as wrong, incorrect, incomplete or holds the Noticee

liable for concealment. In the absence of such an order, the initiation of action

by way of the instant Show cause Notice cannot stand scrutiny.o The Noticee would respectfully submitted that its conduct has been

bonafide and above board. The Noticee, has not willfully or otherwise

concealed information or mislead the investigating authority, in any manner

whatsoever. In this regard, it is respectfully submitted that the Show Cause

Notice has incorrectly held the Noticee guilty of concealment and of misleading

the investigating authority.



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o However, as has been stated herein above earlier, allegations under the

Show Cause Notice under reply that the information provided by the Noticee

was false and incorrect is presumptuous and as such cannot be sustained as the

adjudication proceedings are still pending. It is submitted that the correctness

of the said information is subject matter of determination pursuant to the

outcome of the adjudication proceedings, which is still pending and therefore

this present Show Cause Notice inasmuch as it has proceeded against the

Noticee presuming the information provided to be false of incorrect; the same

must fall as it is premature.

26. Subsequently, vide Notice dated June 14, 2013 the Noticee was given

another opportunity of personal hearing on July 02, 2013. However, vide

email dated July 01, 2013 the hearing of the Noticee was adjourned and

vide Notice dated August 29, 2013 the Noticee was given an opportunity

of personal hearing on September 11, 2013. Mr. Vinay Chauhan alongwith

Mr. Prashant Ingle of M/s. Corporate Law Chambers India, Advocates,

appeared as Authorised Representatives (AR) on behalf of the Noticee

and reiterated their previous submissions. The AR also stated that they

will be making additional submissions by September 16, 2013.

Thereafter, vide letter dated September 12, 2013 the Noticee made

additional submissions, salient points of which are as follows:

o It is submitted that adverse inference against us has been drawn based

on answer given by us with regard to Query 5 of summons dated September 19,

2011 (Annexure I to SCN).

o In our reply to Query 5 there was no mention of any connection/relation

with the promoters/directors of dummy companies by us. Therefore, to this

extent there is a error in Para 25 of the Notice, which sets out the charge and

the allegations based thereupon collapse. In fact the Query 5 is also restricted

to connection/relation with dummy companies and not their

promoters/directors.

o

The charge of submitting incomplete reply is vague. Nothing has beenspelled out in this regard. It is reiterated that we have submitted complete

information pertaining to ourselves. Further, it is denied that we have

submitted any incorrect reply. It is denied that we are connected/related to

dummy companies, save and except as company and shareholders and having

fund transfers with Ramakrishna Fabrications & Machineries Ltd., which we

have already submitted in response to query 5 as stated hereinbefore. Reliance



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information or attempted to mislead the investigation process of SEBI in any

manner. It is further submitted that we have not made any unfair gains or

caused any loss to anybody including investors in the market etc by submitting

the alleged wrong information.

o Without prejudice to the aforesaid submissions, it is submitted that

admittedly, section 15 A (a) is limited and restricted to failure to furnish the

information. Therefore, no penalty for submitting incorrect or false

information under this section can be imposed. The interpretation of section 15

A (which is a penal provision) cannot be stretched so as to include within its

ambit submission of incorrect information etc as done in the matter under

reference. Same would be contrary to the well settled principle of law that

penal provisions are to receive strict construction and that when the language

of the statute is plain and crystal clear, it does not require any interpretation

other than its literal meaning.

o In this context attention is also invited to the observations of the

Adjudicating Officer SEBI in his Order No. ACR/95 OF 2005 dated 25/10/2005,

where under similar circumstances involving interpretation of section 15 A(a),

wherein, based on the Para 2.4 of the Report submitted by expert group

constituted by SEBI under the chairmanship of Mr Justice M H Kania, former

Chief Justice of India, it has been stated as follows;

14. I therefore conclude that law does not permit me to adjudicate and impose

penalty in cases where the information furnished by a person is allegedly false

and misleading.

o In view of the aforesaid, it is submitted that we have not violated the

provisions of sections 11C (2) & 11C (2) & 11C (3) of SEBI and no penalty is

warranted under section 15A (a) of the SEBI Act.

27.

Subsequent to the appointment of the undersigned as the Adjudication

Officer, vide Notice dated August 27, 2014 the Noticee was given another

opportunity of personal hearing on September 10, 2014. Vide letter dated

September 09, 2014 the Noticee submitted that it had already availed the

opportunity of personal hearing granted on September 11, 2013 and

requested for passing of a final order in the matter taking into

consideration its reply and written submissions. Hence, I am proceeding

with the inquiry taking into account the material available on record.



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ISSUES FOR CONSIDERATION

28.

After perusal of the material available on record, I have the following

issues for consideration, viz.,

A. Whether the Noticee has violated provisions of Section 11C(2) and

11C(3) of the SEBI Act, 1992?

B.

Whether the Noticee is liable for monetary penalty under Section

15A(a) of the SEBI Act, 1992?

C.

What quantum of monetary penalty should be imposed on the Noticee

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

SEBI Act, 1992?

FINDINGS

29.

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 has violated provisions of Section 11C(2) and

11C(3) of the SEBI Act, 1992?

30. The provisions of Section 11C(2) and 11C(3) of the SEBI Act, 1992 read as

under:

Section 11C(2) and Section 11C(3) of the SEBI Act, 1992

Section 11C(2): Without prejudice to the provisions of sections 235 to 241 of the

Companies Act, 1956 (1 of 1956), it shall be the duty of every manager, managing

director, officer and other employee of the company and every intermediary referred to

in section 12 or every person associated with the securities market to preserve and to

produce to the Investigating Authority or any person authorised by it in this behalf, all

the books, registers, other documents and record of, or relating to, the company or, as

the case may be, of or relating to, the intermediary or such person, which are in their

custody or power.

Section 11C(3): The Investigating Authority may require any intermediary or any

person associated with securities market in any manner to furnish such information to,

or produce such books, or registers, or other documents, or record before him or any

person authorised by it in this behalf as it may consider necessary if the furnishing of



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such information or the production of such books, or registers, or other documents, or

record is relevant or necessary for the purposes of its investigation.

31. From the material available on record, I note that summons dated

September 19, 2011, was issued to the Noticee by the IA asking it tofurnish the following information by September 26, 2011.

1) Furnish copies of bank statements highlighting the following transactions:

a) Payments received for warrants issued in the year 2005

b) Payments received for conversion of warrants in the year 2006

c) Amounts received through FCCB issue in the year 2007

d) Utilization of funds raised through FCCB issue in the year 2007

2) Furnish the list of allottees of the FCCB issue by MIL in February, 2007.

3) Furnish copy of the final information memorandum/placement document of

the FCCB issue by MIL in February, 2007.

4)

Is the Company MIL, its promoters and/or directors connected/related to any

of the Following entities? Has the company MIL had any business/financial

dealings with any of the following entities during the period April 01, 2005 to

December 31, 2009:

a) Shri Amit Raja, CA

b) Shri Manoj Agarwal, CA. Give details.

5) Is the Company MIL, its promoters and/or directors connected/related to any

of the following entities? Has the company MIL had any business/financial

dealings/ fund transfers with any of the following entities during the period

April 01, 2005 to December 31, 2009:

i. Taitan Management Services Pvt. Ltd.

ii. Ramkrishna Fabrications & Machineries Pvt. Ltd.

iii. Lakhi Packaging Pvt. Ltd.

iv. Kanhaiya Mining and Mineral Pvt. Ltd.

v. Krishnum Investments Pvt. Ltd.

vi. Runicha Alloys & Steel Pvt. Ltd.

vii. Simple Mining & Power Pvt. Ltd.

viii. Ambaji Papers Pvt. Ltd.

ix. Ramji Agri Business Pvt. Ltd.

x.

Inco Infrastructures Pvt. Ltd. Give details.In case of fund transfers, the information may be furnished in the format

given below:

Date From To Amount Mode of Payment (Cash/ Cheque) Purpose of Payment

For all transactions, furnish copy of the bank statement highlighting the

payment made/ received.



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6) Whether MIL and/or its promoters/directors were involved in the

formation/Management of the entities mentioned at Point 4.

32.

It is observed that vide letter dated September 23, 2011, the Noticee

submitted information sought in serial number 2), 3), 4), and 6) and

requested for an extension of one month for submitting the information

sought in serial number 1) and 5) as required by the IA vide summons

dated September 19, 2011. Subsequently, vide letter dated October 29,

2011, the Noticee submitted information sought in serial number 1) and

5). However, the Noticee did not submit true and complete information.

33.

It is observed that vide summons dated September 19, 2011 the Noticeewas inter aliaasked whether the Noticee, its promoters and/or directors

were connected/related to any of the dummy companies. The Noticee

was also asked whether it had any business/financial dealings/ fund

transfers with any of the dummy companies. However, the Noticee, vide

its letter dated October 29, 2011, inter alia, stated that The company

Murli Industries Limited is not related/connected with the companies

mentioned in the point no. 5 except as share holders company relation.

Murli Industries Limited has distributed dividend on regular basis during

the period in question. Hence, as a share holder of the company all the

companies received dividend. M/s Ramakrishna Fabrication & Machineries

Pvt Ltd. sold land to the company and hence there are financial

transactions between Murli Industries Limited and Ramakrishna

Fabrication and Machineries Pvt Limited.........

34.

As observed before, five of the dummy companies viz., Ramji, Runicha,

Ambaji, Kanhaiya and Inco had availed loans from SICOM to make

payments to the Noticee for conversion of the share warrants allotted to

them and that the loan granted to these five dummy companies were in

the form of ICDs. One option of debt recovery available to SICOM in case



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of default of these ICDs was that either the Noticee or its promoters

acquired the shares under Creeping Acquisition. The shares referred to

were the 5 Lac shares each of the Noticee which the five dummy

companies had to pledge as collateral for the ICDs.The security toward

the ICDs extended to the five dummy companies was pledge of 5 Lac

shares of the Noticee on conversion of warrants; PDCs towards principal

and interest from the borrower companies; personal guarantees of

promoters/ directors of borrower companies; comfort letter of the

Noticee (signed by Shri Tarun Singh, company secretary of the Noticee);

PDCs towards principal and interest from Shri Nandlal Maloo (promoter/

MD of the Noticee). In addition, as temporary collateral till the borrowers

converted their warrants, Ramji, Runicha, Ambaji, Kanhaiya and Inco

were required to pledge 1.50 Lac shares each of the Noticee with SICOM,

the same to be released after conversion of warrants and the subsequent

pledge of the 5 Lac shares in demat form. The total 7.50 Lac shares thus

pledged on behalf of the borrowers was also by Mr. Nandlal Maloo, Mr.

Bajranglal Maloo, Mr. Lalchand Maloo and Mr. Sunilkumar Maloo

(promoters of the Noticee). The fact that comfort letter was issued by the

Noticee and PDCs towards

principal and interest were issued by the

Managing Director of the Noticee clearly establish that the Noticee was

connected/related to the five dummy companies viz., Ramji, Runicha,

Ambaji, Kanhaiya and Inco. Also, the Noticee in its replies dated June 12,

2013 and September 12, 2013 has neither denied nor disputed the fact of

issuance of comfort letter by it to SICOM. Further, providing the

temporary collateral by the promoters of the Noticee clearly show that

promoters of the Noticee had used their goodwill with SICOM to availloans for the five dummy companies so that they could convert their

warrants.

35.

Moreover, when the five dummy companies which took loans from

SICOM had to repay their loans, they received the necessary funds as



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unsecured loans from ANG which in turn had received the necessary

funds from the Noticee. On the same day as loan was extended to the five

dummy companies, ANG had received the amount from the Noticee and

ANG repaid the Noticee in installments using the money paid by the

dummy companies as repayment for their loans. ANG had received a loan

of 28,27,00,000/- from the Noticee on 30/11/2007, and the loan was

given without any collateral. Further on 30/11/2007, ANG gave a loan of

5,65,25,000/- to Kanhaiya, Ramji and Runicha and on 01/12/2007,

ANG gave a loan of `5,65,25,000/- to Ambaji and Inco. The total amount given

as loan to the above five dummy companies was 28,26,25,000/-. I note

in its reply dated September 12, 2013 the Noticee not denied the fact that

it had paid 28,27,00,000/- to ANG, but has, inter alia, contend that

Funds given by ANG Financial Consultants Pvt Ltd to certain dummy

companies cannot be construed as funds given by MIL to dummy companies

and an inference drawn that therefore the response to Query 5 given by us

wherein we have stated that we are not related/ connected to dummy

companies, is incorrect. However, I am of the opinion that it is too much

of a coincidence that when the five dummy companies which took loans

from SICOM had to repay their loans, they received the necessary funds,

i.e., crores of rupees as unsecured loans from ANG which in turn had

received the necessary funds from the Noticee as unsecured loan and all

these happened within the span of a day. Hence, I am inclined to believe

that ANG had been used as a conduit by the Noticee to provide a short

term loan to the five dummy companies which had applied for its

warrants, to make payment to SICOM on due date, thereby demonstrating

connection between the Noticee and Ramji, Runicha, Ambaji, Kanhaiya,

Inco.

36.

Further, as observed in aforesaid paragraphs 11 16, all the ten dummy

companies were connected to each other and some of the directors of the



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dummy companies were connected to the promoters of the Noticee. All

the ten dummy companies were incorporated during the same time

period, had a common auditor and common consultant, bank accounts in

the same bank branch, demat accounts with same DP, trading accounts

with the same broker and 8 of the 10 dummy companies, i.e., Krishnum,

Simple, Kanhaiya, Taitan, Lakhi, Ambaji, Runicha and Ramji had used

common phone number (phone number of CA Amit Raja) in their demat

a/c opening form. Also, since incorporation, none of the dummy

companies, except Ramkrishna had undertaken any major business

activity. Only Runicha, Ramji, Lakhi and Kanhaiya had carried out some

business of coal, for which the buyer was Nandlal Enterprises Limited, a

company connected to the Noticee (directors of Nandlal Enterprises Ltd.

were Nandlal B Maloo Managing Director of the Noticee, Shobhagmal B

Maloo, Bajranglal B Maloo and Lalchand B Maloo). Even in the case of

Ramkrishna, its business dealings were only with the Noticee and Nandlal

Enterprises Ltd. During investigation, it was also observed that corporate

entities not based out of Nagpur, but major clients of MIL, had given

money to the dummy companies as either advance or share application

money, immediately after the respective dummy companies were set up.

The offices of these dummy companies were set up at the residences of

their respective directors and the companies had no infrastructure or

business deals in place. The Noticee vide its reply dated September 12,

2013 has, inter alia, submitted that Funds given by the clients of MIL to

certain dummy companies cannot be construed as funds given by MIL to

dummy companies and therefore relation/ connection with them, and an

inference drawn that therefore the response to Query 5 given by us, isincorrect. However, looking at the entire gamut of the case, I am of the

considered opinion that all these clearly tend to indicate towards one

thing and one thing only, that the Noticee and its promoters / directors

were related and/or connected to the dummy companies. From the

aforesaid, it is clear that the Noticee was related / connected to



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the dummy companies and the Noticee did not submit true and complete

information / documents as sought by the SEBI summons dated

September 19, 2011.

37.

I now proceed to discuss as to how essential and important the required

information was in the instant matter which was not provided by the

Noticee. Since SEBI was investigating manipulation in price of the shares

of the Noticee before its FCCB issue and since the dummy companies had

together cornered a large part of the shareholding of the Noticee, it was

imperative for the IA to know the exact relationship that existed between

the Noticee and the ten dummy companies. Had the required information

been provided, then the IA would have been in a better position to

ascertain the exact role played by various entities including the Noticee

and the same would have helped in examination of possible violations of

the provisions of SEBI Act and Rules and Regulations made thereunder. In

this regard, I also refer to the observations made by the Securities

Appellate Tribunal (SAT)in Appeal No. 41 of 2010 (Brijlaxmi Leasing &

Finance Ltd. vs. SEBI, decided on 07-06-2010) if the required

information had been furnished, it is possible that many more things could

have been revealed. Since the information was withheld, we are satisfied

that the appellants did not cooperate with the investigating officer and

hampered the investigations. This is, indeed, a serious matter and cannot be

viewed lightly... In this context, it can be said beyond doubt that the

information which was not provided by the Noticee was relevant to find

the truth in the matter.

38.

I note that the Noticee in its reply has submitted that provisions of

Section 15A of the SEBI Act, 1992 would trigger only when there is failure

on the part of the Noticee to furnish information and if information is

supplied, the provisions cannot trigger. The Noticee has therefore stated

that no penalty for submitting incorrect or false information under this



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section can be imposed. The Noticee has also quoted form one

Adjudication Order dated October 25, 2005 wherein it was stated that I

therefore conclude that law does not permit me to adjudicate and impose

penalty in cases where the information furnished by a person is allegedly

false and misleading. However, I find the interpretation adopted by the

Noticee unsustainable. In the previous paragraphs, it has been

established beyond doubt that the Noticee did not provide the correct

information as required and sought by SEBI vide summons dated

September 19, 2011. While interpreting SEBI Act and its provisions, its

larger objective should be kept in mind. In this regard, I note that the

Honble Supreme Court in SEBI vs Ajay Agarwal (AIR 2010 SC 3466)

has laid down the principle to be adopted while interpreting the SEBI

Act as follows: It is a well known canon of construction that when Court

is called upon to interpret provisions of a social welfare legislation the

paramount duty of the Court is to adopt such an interpretation as to

further the purposes of law and if possible eschew the one which

frustrates it.Hence, when SEBI seeks information/documents through

summons under Section 11C of the SEBI Act, 1992, it seeks true and

complete information only as furnishing false/incomplete/misleading

information will frustrate the purpose of seeking information and render

the investigative process of SEBI ineffective. Further, Honble SAT in

Appeal No. 96 of 2007 (Siddhartha Agarwal vs. Adjudicating Officer,

SEBI; decided on 26-11-2008) has inter aliaheld that Making a false

statement would amount to failure to furnish the information sought and

would attract section 15A(a) of the Act.. Therefore, I am of the

considered opinion that submitting incorrect/false information should betreated as failure to furnish information/document and should be

penalized accordingly.

39.

From the forgoing paragraphs it is observed that the Noticee failed to

provide the required information to the IA. The said details which were



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sought vide the summons dated September 19, 2011 were very relevant

and important in the whole Investigating Process. Thereby, it is

established that the Noticee has violated the provisions of Section 11C(2)

& 11C(3) of the SEBI Act, 1992.

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

15A(a) of the SEBI Act, 1992?

40.

The provisions of Section 15A(a) of the SEBI Act, 1992 read as under:

Penalty for failure to furnish information, return, etc.:

Section 15AIf any person, who is required under this Act or any rules

or regulations made there under,(a) to furnish any document, return or report to the Board, fails to furnish

the same, he shall be liable to a penalty of one lakh rupees for each day

during which such failure continues or one crore rupees, whichever is less

41.

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.

42.

As already observed, the Noticee has violated the provisions of Section

11C(2) & 11C(3) of the SEBI Act, 1992. Therefore, I find that the Noticee

is liable for monetary penalty under Section 15A(a) of the SEBI Act, 1992.

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

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

the SEBI Act, 1992?



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43.

In the absence of material on record, the amount of disproportionate gain

or unfair advantage made as a result of the default and the amount of loss

caused to the investors due to the said default cannot be quantified.

However, I note that not submitting complete details and correct

information in response to the SEBI summons appears to be a deliberate

action on the part of the Noticee to not cooperate with the regulatory

mechanism, especially when sufficient time and opportunity was

provided. I also note that such non cooperation and default of the Noticee,

which is a listed company, definitely compromises the regulatory

framework and acts as an impediment to the functioning of the

investigation process of SEBI. Further, any delay or hurdle in

investigation due to non cooperation by any entity is detrimental to the

interest of investors in securities market. As already noted, SEBI had

received a reference from the Income Tax Department, containing certain

findings regarding the Noticee and the dummy companies which

suggested that the price of the shares of the Noticee were manipulated for

the purpose of issuing FCCB at a higher price than what was the correct

price and SEBI was conducting detailed investigation in respect of

dealings in the shares of the Noticee. As a part of the investigation

process, summons were issued to the Noticee, however, the Noticee did

not submit the correct information/documents regarding its relation to

the dummy companies in response to SEBI summons thereby hampering

the investigation to a great extent. Therefore, the violation of the Noticee

cannot be viewed lightly.

44.

From the forgoing paragraphs it is now established that the Noticeeviolated the provisions of Section 11C(2) & 11C(3) of the SEBI Act, 1992.

Considering the facts and circumstances of the case and the violation

committed by the Noticee, I find that imposing a penalty of `30,00,000/-

(Rupees Thirty Lakhs only) on Murli Industries Limited would be

commensurate with the violation committed by the Noticee.



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ORDER

45. In terms of the provisions of the SEBI Act, 1992 and Rule 5(1) of the

Adjudication Rules, I hereby impose a penalty of `30,00,000/- (Rupees

Thirty Lakhs only) under Section 15A(a) of SEBI Act, 1992 for violation of

Section 11C(2) & 11C(3) of the SEBI Act, 1992 on Murli Industries

Limited.

46.

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 Division Chief, Enforcement Department, Securities and

Exchange Board of India, Plot No. C4-A, G Block, Bandra Kurla Complex,

Bandra (E), Mumbai 400051.

47. In terms of the provisions of Rule 6 of the SEBI (Procedure for Holding

Inquiry and Imposing Penalties by Adjudicating Officer) Rules 1995,

copies of this Order are being sent to the Noticee and also to Securitiesand Exchange Board of India.

Date: November 28, 2014 Jayanta Jash

Place: Mumbai Adjudicating Officer

Adjudication Order in respect of Murli Industries Limited

Documents

Transcript of Adjudication Order in respect of Murli Industries Limited