WTM/GM/ISD/09/JAN/2017. Case: In Re: Ketan Dhirajlal Kapasi and Ors. Vs. Securities and Exchange Board of India

Case NumberWTM/GM/ISD/09/JAN/2017
Party NameIn Re: Ketan Dhirajlal Kapasi and Ors. Vs
JudgesG. Mahalingam, Whole Time Member
IssueCapital Market
Judgement DateJanuary 27, 2017
CourtSecurities and Exchange Board of India

Order:

G. Mahalingam, Whole Time Member

Background:

  1. Securities and Exchange Board of India ("SEBI"), vide an ad interim ex-parte order dated December 19, 2014 in the matter of trading in shares of First Financial Services Ltd. (hereinafter referred to as "interim order") restrained 152 entities, including Mr. Ketan Kapasi and Mr. Vimal Kapasi (hereinafter referred to as "Noticees"), from accessing the securities market and further prohibited them from buying, selling or dealing in securities, either directly or indirectly, in any manner whatsoever, till further directions. The persons/entities against whom the interim order was passed were advised to file their objections, if any, within twenty one days from the date of the order and, if they so desire, to avail an opportunity of personal hearing before SEBI.

  2. It was alleged in the interim order that the Noticees subscribed to the shares of First Financial Services Ltd. (75,000 shares each) through preferential allotment and subsequently, after the lock-in period of one year, sold them in the market at artificially inflated price to the entities who were alleged to be connected to First Financial Services Ltd. in order to generate fictitious long term capital gains by misusing stock exchange mechanism. In the process allegedly they made gains to the tune of approximately ` 2.2 crore each and converted their ill-gotten gains into genuine one. The Noticees filed their reply in response to the interim order and appeared for hearing. SEBI after considering the submissions confirmed the interim directions qua the Noticees amongst others, vide order dated August 25, 2016 (hereinafter referred to as "confirmatory order"), pending investigation, subject to certain reliefs as below:

    a) enter into delivery based transactions in cash segment in the securities covered in NSE Nifty 500 Index scrips and/or S&P BSE 500 scrips;

    b) subscribe to units of the mutual funds including through SIP and redeem the units of the mutual funds so subscribed;

    c) deal in Debt/Government Securities;

    d) invest in ETF;

    e) avail the benefits of corporate actions like rights issue, bonus issue, stock split, dividend, etc.;

    f) tender the shares lying in their demat account in any open offer/delisting offer under the relevant regulations of SEBI;

    g) permitted to sell the securities held in the demat account as on the date of the interim order, other than the shares of the companies which are suspended from trading by the concerned stock exchange, in orderly manner under the supervision of the stock exchanges so as not to disturb the market equilibrium and deposit the sale proceeds in an interest bearing escrow account with a nationalized bank;

    h) deal with or utilize the sale proceeds lying in the aforesaid escrow account under the supervision of the concerned stock exchange as provided under:-

    (i) the sale proceeds may be utilised for investments permitted above;

    (ii) up to 25% of the value of the portfolio as on the date of the interim order or the amount* in excess of the profit made/loss incurred or value of shares purchased to give exit, whichever is higher, may be utilized for business purposes and/or for meeting any other exigencies or address liquidity problems etc.

  3. The Noticees filed Appeal No. 403 of 2016 before the Securities Appellate Tribunal (SAT)...

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