Case: 1. SEBI, 2. In Re: Axel Polymers Limited Vs 1. Mr. Vijay Singh Bhandari. Securities and Exchange Board of India
| Judges | K.M. Abraham, Member |
| Issue | Company Laws |
| Judgement Date | August 31, 2009 |
| Court | Securities and Exchange Board of India |
Order:
K.M. Abraham, Member
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On the basis of a report received from the Bombay Stock Exchange Limited (hereinafter referred to as BSE), the Securities and Exchange Board of India had conducted an investigation into the buying, selling or dealing otherwise, in the shares of Axel Polymers Limited (hereinafter referred to as the company) for the period between August 02, 2000 to August 31, 2000 (hereinafter referred to as the investigation period). The said investigations inter alia observed/found the following:
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The shares of the company were listed at BSE, Ahmedabad Stock Exchange Limited (hereinafter referred to as ASE), Vadodara Stock Exchange Limited (hereinafter referred to as VSE) and the Madras Stock Exchange Limited (hereinafter referred to as MSE).
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The trading in the equity shares of the company was suspended by BSE with effect from February 24, 1997 for the non-compliance with Clause 16 of Listing Agreement. The suspension was later revoked by BSE with effect from April 03, 2000. Though, the said suspension was revoked on April 03, 2000, the shares of the company were not traded till August 01, 2000.
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During the investigation period, the shares of the company were not traded in any of the stock exchanges except in BSE. It was observed that a single trade for 10,000 shares of the company at the rate of Rs. 1.85/- was executed only on August 02, 2000. Thereafter, trading was observed from August 16, 2000 onwards. The share price of the shares of the company touched its period high of Rs. 6.10/- on August 29, 2000 and closed at Rs. 5.50/- on August 31, 2000. The traded volumes increased from 10,000 shares (on August 02, 2000) to 1,96,000 shares (on August 21, 2000) and the average daily volume traded during the specified period was 87,638 shares.
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The investigation conducted by SEBI revealed that one Vijay Singh Bhandari (hereinafter referred to as the noticee) had purchased 49,300 shares and sold 1,06,500 shares during the investigation period. It was also observed that he had dealt in large volume of shares of the company and was also involved in trade reversals. In view of the same, it was alleged that the noticee had prima facie contravened the provisions of Regulation 4(b), (c) and (d) of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 (hereinafter referred to as PFUTP Regulations). Thereafter, SEBI issued a notice dated May 30, 2008 to the noticee calling upon him to show cause as to why suitable directions including directions restraining him from buying, selling or dealing in securities for a specified period should not be issued. The said notice required the noticee to reply to the same within twenty one days from the date of receipt of the notice. As the noticee did not submit his reply to the said notice within a reasonable time, SEBI, vide letter dated December 02, 2008 issued a reminder and required him to file his reply to the show cause notice. Though, the said reminder was also delivered to him, no reply was submitted by him to SEBI. Subsequently, a notice dated June 26, 2009 was issued to the noticee affording an opportunity of hearing scheduled on July 16, 2009 which was later rescheduled to July 17, 2009. The noticee failed to appear in person or through an authorized representative for the personal hearing.
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I note that sufficient opportunities were provided to the noticee to make his submissions. However, despite, various opportunities, the noticee failed to do so. In the absence of any reply and the noticee's failure to appear before me in the personal hearing, I am constrained to proceed and to consider the case based on the available documents on record. On consideration of the facts and circumstances of the present case, the following issues arise for consideration:
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Whether the trades of the noticee were instrumental in the artificial price rise in the shares of the company?
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Whether the reversal of trades was carried to create artificial volumes in the shares of the company? The issues are dealt with in seriatim herein below.
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I note that the trading in the shares of the company was suspended by BSE from February 24, 1997 and the said suspension was revoked on April 03, 2000. Though, the said suspension was revoked on April 03, 2000, the shares of the company were not traded till August 01, 2000. On August 02, 2000, a single trade for 10,000 shares (at the rate of Rs. 1.85/- per share) was executed. There was no trading in the shares of the company in BSE between August 03, 2000 and August 16, 2000. On August 16, 2000, 1,29,600 shares of the company were traded in 107 trades. During the investigation period, the share price touched Rs. 6.10/-, which was the highest during the said period. The volumes also increased from 10,000 shares (traded on August 02, 2000) to 1966000 shares (traded on August 21, 2000). The price volume date of the shares of the company during the investigation period is given below:
Date
Closing Price( Rs.)
No. of Trades
Volume (No. of shares)
02.08.2000
1.85
1
10,000
16.08.2000
2.3
107
1,29,600
17.08.2000
2.75
173
1,00,000
18.08.2000
2.75
209
45,300
21.08.2000
3.4
259
1,96,000
22.08.2000
4.05
95
72,000
23.08.2000
4.1
37
36,900
24.08.2000
4.05
48
20,800
25.08.2000
4.1
116
1,64,800
28.08.2000
5.1
120
78,100
29.08.2000
5.2
112
1,70,600
30.08.2000
5.1
22
7,600
31.08.2000
5.5
209
1,07,600
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The noticee was a client of Joindre Capital Services Private Limited (stock broker). Through the said stock broker, the noticee had purchased 48,000 shares and had sold 1,02,100 shares of the company during the investigation period, which was a net sale of 54,100 shares. The noticee had sold 50,000 shares in Settlement No. 22 and had purchased 48,000 shares and sold 52,100 shares in Settlement No. 23. From the 'inward-outward' details submitted by the stock broker during the course of investigation, it was found that 50,000 shares which were delivered by the noticee were in the names of Mr. R. N. Singhvi, M. Pestonji/ S. Pestonji, Mr. A.C. Patel and Mr. Prem Chopra. Besides, Mr. R. N. Singhvi was the promoter/director of the company. I further note that the noticee (having client code "V012") was involved in trade reversals in respect of 34,800 shares of the company with one Vishal Pandya (client code- "2V108") trading through the stock broker, M/s. Dipak G Cholera during the investigation period. The table below would illustrate the 'trade reversals' indulged in by the noticee.
Date
Stock broker
Client code
Counter party stock broker
Counter party
clientVolume of
sharesPrice
(Rs.)31.8.2000
Dipak G Cholera
( Clg No. 160)V012
Joindre Capital Services Ltd
(Clg No.89)2V108
45100
4.84
Joindre Capital Services Ltd
(Clg No.89)2V108
Dipak G Cholera (Clg No.160)
V012
34800
4.78
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I find that on August 31, 2000, the total traded quantity (in gross) were 1,07,600 shares. The quantity of shares which were traded between the noticee and his counter party in respect of the trades which were reversed, were 79,900, which was quite substantial (around 74.25% of the total). It is pertinent to note that the shares of the company were illiquid and had started to trade from August 02, 2000 only, after the revocation of the suspension by BSE. Thus, the noticee was involved in creation of artificial volumes in the market for the shares of the company. The trades of the noticee, no doubt created misleading appearance of trading in the securities of the company. As stated above, the noticee was also involved in the reversal of trades. Needless to say, the trades of the noticee resulted in the manipulation of the share price of the company.
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It is pertinent to note that the noticee was the seventh largest shareholder in the company, holding 61,000 shares as on August 01, 2000. The figures remained unchanged during the period of his trades. I note that during the investigation, summons were issued to the noticee on several occasions requiring him to appear in person and to furnish case related documents. Summons were also issued to the noticee through his stock broker, Joindre Capital Services Private Limited on January 12, 2005 requiring the noticee to appear before Investigating Authority on January 25, 2005 along with his trading details and other relevant documents. The stock broker, vide letter dated January 18, 2005 informed that the same had been sent to its client (the noticee) through speed post, vide its letter dated January 15, 2005 and had also furnished proof of service of the said letter on the noticee. However, I note that the noticee did not appear before Investigating Authority. This was a constraint for the smooth completion of the investigation.
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From the foregoing, I find the following:
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The shares resumed traded only on August 02, 2000, even though the trading suspension was revoked by BSE on April 03, 2000. There was a noticeable price rise in the shares of the company during the investigation period.
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There was an increase in the traded volumes during the period under investigation. From 10,000 shares that were traded on August 02, 2000, the traded quantity went up to 1,96,000 shares. This rise was not supported by any fundamentals of the company.
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The noticee was the seventh largest shareholder of the company during the investigation period. The noticee was holding 61,000 shares of the company on August 01, 2000 as well as on August 31, 2000.
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The noticee had purchased 48,000 shares and sold 1,02,000 shares of the company during the investigation period. Out of the total shares delivered by the noticee, 50,000 shares were found to be in the names of Mr. R. N. Singhvi, M. Pestonji/ S. Pestonji, Mr. A.C. Patel and Mr. Prem Chopra. I take note of the fact that Mr. R. N...
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