Case 1

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BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA

[ADJUDICATION ORDER NO. EAD-2/21-27/2012]

___________________________________________________________________

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

Against

1. Shri Yashwant Rampuria [PAN: Not Available] 2. Shri Pankaj Sachan [PAN: Not Available] 3. Shri Shashi Jain [PAN: Not Available] 4. Shri Ashok Agarwal [PAN: Not Available] 5. M/s. G.R. Magnets Ltd. [PAN: Not Available] 6. Shri Parasmal Rampuria [PAN: Not Available] 7. M/s. J.R.P. Holdings Ltd. [PAN: AABCJ3755F]

In the matter of

Zigma Software Limited Background 1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) had

conducted investigation in to the alleged irregularity in the trading in the

shares of Zigma Software Limited (hereinafter referred to as ‘ZSL’ or the

‘company’), and into the possible violations of the provisions of the Securities

and Exchange Board of India Act, 1992 (hereinafter referred to as the ‘SEBI

Act’) and various Rules and Regulations made there-under, for the period

from June 01, 2005 to September 30, 2005. ZSL is a public company listed at

the Bombay Stock Exchange (BSE) and Calcutta Stock Exchange,

2. The Investigation revealed that the company had made various positive

corporate announcements during the period under investigation some of

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which were false and misleading and aimed at creating artificial demand for

the scrip in the market. Shri Yashwant Rampuria, Shri Pankaj Sachan, Shri

Shashi Jain and Shri Ashok Agarwal (hereinafter referred to as ‘Group-I

Noticees’) were the directors of the company during the period when such

announcements were made. M/s. G.R. Magnets Ltd (GRML) - promoter of

ZSL, and J.R.P. Holding Ltd. (JRPH) - an associate of GRML, allegedly off-

loaded shares after the said announcements in a fraudulent and manipulative

manner. Shri Parasmal Rampuria, father of Shri Yashwant Rampuria, was

director of GRML during the investigation period. GRML, JRPH and Shri

Parasmal Rampuria are hereinafter together referred to as ‘Group-II

Noticees’. It was alleged that the Group-I and Group-II Noticees allegedly

violated provisions of Regulations 3 (b), 3 (c), 3 (d), 4 (1), 4 (2) (e) and 4 (2)

(r) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating

to Securities Markets) Regulations, 2003 (hereinafter referred to as the

‘PFUTP Regulations’). Further, GRML allegedly failed to make disclosures as

required under Regulation 13 (3) read with 13 (5) of the SEBI (Prohibition of

Insider Trading) Regulations, 1992 (hereinafter referred to as the ‘Insider

Trading Regulations’).

3. SEBI has therefore, initiated adjudication proceedings under the SEBI Act

against Group-I and Group-II Noticees to inquire into and adjudge the alleged

violations of the provisions of Regulations 3 (b), 3 (c), 3 (d), 4 (1), 4 (2) (e) and

4 (2) (r) of the PFUTP Regulations by them and the violation of Regulation 13

(3) read with 13 (5) of the Insider Trading Regulation by GRML.

Appointment of Adjudicating Officer 4. SEBI vide order dated April 20, 2009 appointed Shri Deepak Trivedi as the

Adjudicating Officer (AO) under Section 15-I of the SEBI Act read with Rule 3

of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by

Adjudicating Officer) Rules, 1995 (hereinafter referred to as the ‘Adjudication

Rules’) to inquire into and adjudge under Section 15HA of the SEBI Act, the

alleged violation of the provisions of Regulations 3 (b), 3 (c), 3 (d), 4 (1), 4 (2)

(e) and 4 (2) (r) of the PFUTP Regulations by the Group-I and Group-II

Noticees and also under Section 15A (b) of the SEBI Act, the alleged violation

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of the provisions of Regulation 13 (3) read with 13 (5) of the Insider Trading

Regulations by GRML. SEBI vide order dated January 04, 2012 appointed the

undersigned as the AO in these matters.

Show Cause Notice, Reply and Personal Hearing 5. The AO issued separate notices dated September 01, 2009 and September

03, 2009 (hereinafter referred to as the ‘SCN’) under Rule 4 of the

Adjudication Rules to the Group-I & II Noticees to show cause as to why an

inquiry should not be held against them and penalty be not imposed under

Section 15HA of the SEBI Act for their alleged violation of the

abovementioned provisions of the PFUTP Regulations and in case of GRML

under Section 15A (b) of the SEBI Act also, for its alleged violation of the

abovementioned provisions of Insider Trading Regulations..

6. The SCN alleged that ZSL made misleading announcements pertaining to

Bonus issue, preferential issue and development of real estate project at

Bangalore, etc. during the period July 18, 2005 to September 05, 2005. It is

alleged that the said several positive corporate announcements were not

implemented by ZSL, but were only meant to attract the innocent investors to

purchase the shares under such fraudulent exercise. The Group-I Noticees

were the directors of ZSL during the relevant period. Further, GRML and

JRPH bought and/or sold shares of ZSL, allegedly taking advantage of the

false positive corporate announcements in a fraudulent manner. Shri

Parasmal Rampuria, father of Shri Yashwant Rampuria, was director of

GRML during the investigation period. Thus, the Group-I & II Noticees

allegedly violated Regulations 3 (b), 3 (c), 3 (d), 4 (1), 4 (2) (e) and 4 (2) (r) of

the PFUTP Regulations. Further, GRML was holding shares constituting more

than 8.47% of the paid up capital of ZSL as on quarter ended March 2005 and

on sale of the shares its holding reduced to 1.91% as on quarter ended June

2005 (i.e. change of more than 2%,) for which it was required to make

disclosure to the company which it allegedly failed to do. GRML is thus

alleged to have violated Regulation 13 (3) read with 13 (5) of the Insider

Trading Regulations.

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7. The SCNs were duly delivered to the Group-I & II Noticees and Shri Yashwant

Rampuria, Ashok Agarwal and JRPH submitted their replies dated June 07,

2010, July 09, 2010 and August 04, 2010 respectively. After considering the

submissions, the AO decided to conduct an inquiry in the matter and

accordingly granted opportunities of personal hearing to the Group I & II

Noticees during August 24-25, 2011 at Kolkata and September 30, 2011 to

October 04, 2011 at Mumbai. The Noticees mostly requested for another

opportunity of hearing at Mumbai. The undersigned granted opportunities of

personal hearing on February 06, 2012 and February 23, 2012 at Mumbai

vide letters dated January 20, 2012 and February 13, 2012 respectively which

were hand-delivered at their addresses. However, the Noticees did not attend

the personal hearings nor sent any communication in this regard.

8. In view of the above, I am proceeding with the inquiry taking into account the

written submissions made by the Noticees and other material as available on

record.

Consideration of Issues, Evidence and Findings 9. I have carefully perused the charges against the Noticees mentioned in the

SCN, the written submissions of the Noticees and all the materials and

documents available on record. The issues that arise for consideration in the

present case are:

a) Whether the Noticees have violated the provisions of Regulations

3 (b), 3 (c), 3 (d), 4 (1), 4 (2) (e) and 4 (2) (r) of PFUTP Regulations

and whether GRML has violated the provisions of Regulation 13

(3) read with 13 (5) of the Insider Trading Regulations?

b) Do the violations, if any, on the part of the Noticees attract any

penalty under Section 15HA of the SEBI Act and whether GRML is

also liable for penalty under Section 15A (b) of the SEBI Act?

c) If yes, what should be the quantum of penalty?

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10. Before proceeding to decide the above issue, it is important to have a look at

the abovementioned provisions which read as follows.

PFUTP Regulations

“Prohibition of certain dealings in securities

3. No person shall directly or indirectly—

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

security listed or proposed to be listed in a recognized stock exchange, any

manipulative or deceptive device or contrivance in contravention of the provisions

of the Act or the rules or the regulations made thereunder;

(c) employ any device, scheme or artifice to defraud in connection with

dealing in or issue of securities which are listed or proposed to be listed on a

recognized stock exchange;

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

would operate as fraud or deceit upon any person in connection with any dealing

in or issue of securities which are listed or proposed to be listed on a recognized

stock exchange in contravention of the provisions of the Act or the rules and the

regulations made thereunder.

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

:—

(e) any act or omission amounting to manipulation of the price of a security;

(r) planting false or misleading news which may induce sale or purchase of

securities.

Insider Trading Regulations

13. (3) Any person who holds more than 5% shares for voting rights in any listed

company shall disclose to the company in Form C the number of shares or voting

rights held and change in shareholding or voting rights, even if such change

results in shareholding falling below 5%, if there has been change in such

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holdings from the last disclosure made under sub-regulation (1) or under this sub-

regulation; and such change exceeds 2% of total shareholding or voting rights in

the company.

(5) The disclosure mentioned in sub-regulations (3) and (4) shall be made within

4 working days of :

(a) the receipts of intimation of allotment of shares, or

(b) the acquisition or sale of shares or voting rights, as the case may be.

11. Shri Yashwant Rampuria and Shri Ashok Agarwal in their reply to the SCN

have inter alia submitted that all the announcements made during the

investigation period were bonafide and genuine in nature for benefit of the

company and its shareholders at large. The corporate announcements were

made as per Clause 19, 22, 36 41 etc. of the Listing Agreement and as a

good governance policy. Price sensitive information was made public for the

benefit of investors and there was no malafide intention to mislead the

investors. Due efforts and utmost care was taken for implementation of

announcements. The announcements were genuine and based on strategic

decisions taken by the company for its growth and to benefit investors.

12. Company made an announcement to issue bonus shares at the ratio 2:1. At

EGM held on March 07, 2006, members passed resolution and approved

issue of bonus shares. The company applied to stock exchange for In-

Principle approval which was refused on technical ground as the time period

of application had lapsed etc. The company made an application to SEBI for

condonation of delay and grant of NOC to issue bonus shares. The same

proves that there was no malafide intention to deceive investors.

13. Preferential issue was proposed in the Board meeting held on August 24,

2005. Thereon, the company put all the efforts to carry out preferential issue

for which the authorized share capital of the company was increased and

necessary fee was paid to ROC.

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14. Payment of Rs. 76 Lakhs was made to Bennett Coleman & Co. Ltd. for the

development of real estate project at Bangalore. The said project could not be

implemented as the area was declared a green belt and construction of

apartments was not permitted. The intimation by Bennett Coleman & Co. Ltd.

to BSE regarding frustration of contract is its unilateral decision and the

company is yet to get the refund of money paid.

15. Quarterly result for June quarter was duly declared as per format of Clause 41

of the Listing Agreement.

16. Non implementation of announcement or delay in issue of bonus shares or

preferential shares is all because of various reasons both procedural and

technical beyond one’s control. All necessary steps, efforts and procedure as

called for were taken but could not happen. The SCN is silent about what

disclosure was to be made to the exchange and how they were responsible

for the same. Only because they were holding an office of director in the

company does not make them guilty for violation, if any, by the company.

They had not done any transaction, nor benefited directly or indirectly by the

corporate announcements. The Noticees have submitted various documents

in support of their contentions mentioned above.

17. Further, JRPH in its reply has inter alia contended that they are shareholders

of the company and were not responsible for the various corporate

announcements made by the company. They were holding shares under

‘Public Holding’ and rightly categorized under “Public Shareholder” in

shareholding pattern filed by ZSL to stock exchange. They have done

investment from long term prospective. They have purchased share in year

2003 and sold them in 2005 when they felt there was opportunity for best

price in market. There was no synchronized/circular/structured trade when

shares were sold. They have done investment in shares of ZSL in normal

course of business. They had no/prior advance information/data about

company likely to make any such corporate announcements.

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18. They sold shares on August 04, 12, 16 and 18, 2005. None of the

transactions was made subsequent or immediately preceding to the corporate

announcements and there was a minimum gap of 20 days between them.

When they sold shares in August 2005, the price of the scrip increased

instead of falling. Had they been aware of the rise in price, they would not

have sold shares at low price. They have made all the disclosures under the

Insider Trading Regulations. They have no role to play in giving any

announcement pertaining to Bonus issue, preferential issue, development of

real estate project etc. they have no role to play in carrying out those

announcements. There is no evidence to prove that they acted in concert with

directors and promoters of ZSL. The information about various corporate

announcements was available/ published in BSE website and was public

information/news. Like any genuine investor, they decided to sell shares to

meet their requirements and fetch maximum/good returns.

19. I find that the issues therefore to be ascertained and determined are (a)

whether ZSL made false and misleading corporate announcements during the

investigation period and the Group-I Noticees being directors of the company

were liable for the same. (b) whether the Group-II Noticees fraudulently off-

loaded shares by acting in concert with Group-I Noticees and (c) whether

GRML failed to make disclosures as required under the provisions of Insider

Trading Regulations.

20. I find from available records that ZSL made various corporate announcements

during the investigation period regarding sub-division of face value of shares,

bonus issue, declaration of dividend, issue of preferential shares,

development of a real estate project at Bangalore and declaration of quarterly

results for June 2005. It was alleged in the SCN that the announcements

pertaining to bonus issue, preferential issue and development of real estate

project at Bangalore were misleading as ZSL had not made any application

for in-principle approval for the bonus issue and for in-principle approval for

listing preferential warrants. The real estate project was not implemented and

the same was not informed to the stock exchanges and to the general

investors.

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21. I have noted the submissions of the Noticees that the company had indeed

applied to BSE for in-principle approval for the bonus issue. In support of the

same, they have submitted a letter (Ref. No. ZSL/BSE_Bonus/05-06) dated

March 27, 2006 by ZSL addressed to BSE wherein ZSL requested BSE to

grant ZSL in-principle approval for issue and allotment of bonus shares which

was approved by its board on July 18, 2005 and its shareholders on March

07, 2006. The said letter dated March 27, 2006 also refers to ZSL’s earlier

letter dated March 07, 2006 sent to BSE in connection with the bonus issue.

The Noticees have also submitted a copy of an undated letter (Ref. No.

ZSL/SEBI/NOC/BONUS/2008) by ZSL addressed to SEBI which bears the

stamp of SEBI with November 11, 2008 as the date of receipt. The subject of

the said letter was Application for NOC pertaining to Bonus Issue of “Zigma

Software Ltd.” In the said letter, the said issue of bonus shares was

mentioned. The said letter inter alia contained the following: “After the

necessary correspondence & communications with the authorities of the

Bombay Stock Exchange Ltd (BSE), the authorities of BSE required an No

Objection Certificate (NOC) from the Regulatory Authorities i.e. Securities

Exchange Board of India (SEBI).” ZSL vide the said letter requested SEBI to

condone the delay on part of execution of issue & allotment of aforesaid

Bonus Issue in the year 2005 and to grant them the NOC to proceed with the

matter. I find from an extract copy of the public announcements dated

November 04, 2008 as available on record that ZSL informed BSE regarding

issuance of bonus shares subject to the necessary NOC from regulatory

authorities.

22. The Noticees have submitted copies of a series of letters exchanged between

ZSL and BSE on the issue of prior in-principle approval for preferential issue

of warrants. ZSL letter dated September 20, 2005 addressed to BSE with

heading “Re: Request for prior in-principle approval for issuing/allotting the

proposed 48,00,00,000 warrants on preferential basis.” reveals that ZSL had

communication with BSE on the said issue prior to the said letter also. The

Noticees have also produced a letter of BSE dated October 04, 2005

addressed to ZSL wherein the said letter dated September 20, 2005 is

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referred to. The Noticees have also submitted copy of ZSL’s letter dated

October 13, 2005 to BSE on the same subject, which bears the stamp of

Inward Section of BSE showing October 17, 2005 as the date of receipt. The

Noticees have further submitted copies of BSE’s letter dated December 23,

2005 to ZSL and ZSL’s letters dated December 26, 2005, January 06, 2006

and January 19, 2007 to BSE on the same issue. I find from the copy of

extracts of public announcements dated August 22, 2007 as available on

record that ZSL informed BSE regarding withdrawal of issue of share warrants

on preferential basis.

23. The Noticees have submitted that ZSL proposed to implement the real estate

project for which it paid Rs. 76 Lakhs to Bennett Coleman & Co. Ltd. which as

on date was still lying with them. The project got delayed due to statutory

approvals from the government but it has not been given up. Had it been non-

implementation of the project, ZSL would have made efforts to get Rs. 76

Lakhs back from Bennett Coleman & Co. The intimation by Bennett Coleman

to BSE regarding frustration of contract is its unilateral decision and hence the

same should not be considered as valid. They continue to hold the said

amount of Rs. 76 Lakhs which proves that the contract is still subsisting and

not revoked. The Noticees have submitted a copy of statement of ZSL’s bank

account with Kotak Mahindra Bank showing a payment of Rs. 76 Lakhs to B C

C Ltd. on September 21, 2005. I find from the available records that Bennett

Coleman & Co. Ltd. vide letter dated January 19, 2009 confirmed the

agreement they entered into with ZSL for the development project and that

the said agreement was terminated vide their letter dated May 08, 2008 as the

agreement became frustrated due to certain new guidelines issued by the

Karnatake state government.

24. From the foregoing, I am of the view that the corroborative evidences

available are insufficient to establish beyond reasonable doubt that the Group-

I Noticees made false and misleading corporate announcements during the

investigation period as alleged in the SCN and therefore I am inclined to give

benefit of doubt to the Group-I Noticees.

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25. The next issue is whether the Group-II Noticees fraudulently off-loaded shares

by acting in concert with Group-I Noticees. I have noted the submissions of

JRPH as detailed above. Further, I find that JRPH sold 85,72,020 shares

constituting 5.9% of the paid up capital of the company at prices ranging from

Rs.2.97 to Rs.3.36 during the period from August 08, 2005 to August 19, 2005

and that the disclosures as required under provisions of Insider Trading

Regulations were made. The corporate announcement of issue of bonus

shares and issue of preferential shares were initially made public on July 12,

2005, almost a month prior to the sale of shares by JRPH. The corporate

announcement on development of real estate project was made after August

19, 2005 i.e. after the sale of shares by JPRH.

26. Similarly, GRML bought 3,29,871 shares of Rs.10 at prices ranging from

Rs.22.85 to Rs.26.80 and sold 7,58,444 shares at prices ranging from

Rs.24.35 to Rs.26.45 during June 01, 2005 to July 12, 2005. Further, GRML

bought 7,21,720 shares of Re.1 each at prices ranging from Rs.3.75 to

Rs.4.50 and sold 19,42,560 shares of Re.1 each at prices ranging from

Rs.3.01 to Rs.4.55 post split of shares, during the period from July 19, 2005

to August 16, 2005. I have noted that the first set of transactions was

executed prior to the corporate announcement regarding issue of bonus

shares and issue of preferential shares which was initially made public on July

12, 2005. The second set of transactions was executed much after the above

announcements were made and before the announcement regarding

development of real estate project was made after August 16, 2005.

27. I find from the Investigation Report that ‘GRML bought and sold shares before

the announcements but there is no clear pattern of insider trading’. Further, it

is observed that ‘the analysis of trade and order log does not reveal any

consistent efforts by brokers/clients in influencing the scrip price. The price of

the scrip rose gradually and mainly due to positive news announced by the

company such as bonus issue etc. and also due to the buying pressure during

both the periods’.

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28. Taking into account of the above observations, I am of view that the

corroborative evidences as available on record are insufficient to establish

beyond doubt that the Group-II Noticees acted in concert with ZSL and its

directors in making false misleading positive corporate announcements and

traded in a fraudulent manner and therefore I am inclined to benefit of doubt

to them.

29. The next issue to be decided is whether GRML failed to make disclosures as

required under the provisions of Insider Trading Regulations. I find from

available records that GRML’s shareholding in ZSL stood at more than 8.47%

as on quarter ended March 2005. The same reduced to 1.91% of the total

paid up capital of ZSL as on quarter ended June 2005. The change in

shareholding was more than 2% which required disclosures to be made as

per the provisions of Regulation 13 (3) read with 13 (5) of the Insider Trading

Regulations. There is nothing on record to show that GRML made the said

required disclosures.

30. From the foregoing findings and analysis I conclude that the allegation of

violation of the provisions of Regulations 3 (b), 3 (c), 3 (d), 4 (1), 4 (2) (e) and

4 (2) (r) of PFUTP Regulations against Group I & II Noticees do not stand

established beyond reasonable doubt. However, I conclude that the allegation

of violation of the provisions of Regulation 13 (3) read with 13 (5) of the

Insider Trading Regulations by GRML stands established, which makes it

liable for penalty under Section 15A (b) of the SEBI Act.

31. The provisions of Section 15A (b) of the SEBI Act read as follows:

Penalty for failure to furnish information, return, etc.

15A. If any person, who is required under this Act or any rules or regulations

made thereunder,—

(b) to file any return or furnish any information, books or other documents

within the time specified therefor in the regulations, fails to file return or furnish

the same within the time specified therefor in the regulations, he shall be liable to

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a penalty of one lakh rupees for each day during which such failure continues or

one crore rupees, whichever is less;

32. While imposing penalty it is important to consider the factors stipulated in

Section 15J of SEBI Act, which reads as under:

“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.”

33. I observe that from the material available on record it is difficult to quantify any

gain or unfair advantage accrued to the GRML or the extent of loss suffered

by the investors as a result of the defaults and whether the default is repetitive

in nature.

Order 34. In view of the above, after considering all the facts and circumstances of the

case and exercising the powers conferred upon me under Section 15-I (2) of

the SEBI Act read with Rule 5 of the Adjudication Rules, I conclude that the

allegation of violation of the provisions of Regulations 3 (b), 3 (c), 3 (d), 4 (1),

4 (2) (e) and 4 (2) (r) of PFUTP Regulations against Group-I and Group-II

Noticees as mentioned in the SCN do not stand established beyond

reasonable doubt. Accordingly, the above charges against them are disposed

of.

35. However, I conclude that the allegation of violation of the provisions of

Regulation 13 (3) read with 13 (5) of the Insider Trading Regulations by

GRML stands established. Therefore, exercising the powers conferred upon

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me under Section 15-I (2) of the SEBI Act read with Rule 5 of the Adjudication

Rules, I hereby impose a penalty of ` 5,00,000/- (Rupees Five lakh Only) on

GRML under Section 15A (b) of the SEBI Act. In my view, the penalty is

commensurate with the defaults committed by GRML.

36. The above penalty amount shall be paid by GRML through a duly crossed

demand draft drawn in favour of ‘SEBI – Penalties Remittable to Government

of India’ and payable at Mumbai, within 45 days of receipt of this order. The

said demand draft shall be forwarded to the Division Chief, IVD-ID8,

Securities and Exchange Board of India, Plot No. C4-A, ‘G’ Block, Bandra

Kurla Complex, Bandra (E), Mumbai – 400 051.

37. In terms of the provisions of Rule 6 of the Adjudication Rules the copies of this

order are sent to the Noticees and also to Securities and Exchange Board of

India.

Date: March 29, 2012 P K KURIACHEN Place: Mumbai ADJUDICATING OFFICER

Case 1

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