WTM/GM/ISD/15/2017. Case: In Re: Supreme Tex Mart Ltd. Vs. Securities and Exchange Board of India

Case NumberWTM/GM/ISD/15/2017
JudgesG. Mahalingam, Whole Time Member
IssueSecurities And Exchange Board Of India Act, 1992 - Sections 11(1), 11(4), 11B, 11D, 12(1), 12A, 19
Judgement DateFebruary 23, 2017
CourtSecurities and Exchange Board of India


G. Mahalingam, Whole Time Member

  1. Securities and Exchange Board of India ("SEBI") has been receiving investor complaints alleging receipt of Short Message Service ("SMS") from certain numbers with fake or bogus recommendations on trading in the securities market. In particular, a complaint with respect to 'stock tips'/recommendations for the scrip - Supreme Tex Mart Ltd. (hereinafter referred as "STML") having BSE code as 531934 and NSE Code as SUPREMETEX, has been examined and specific allegations relating to trades in STML are the subject matter of this Order.

  2. From the available records, STML was incorporated on October 25, 1988 and its shares are listed on both BSE and NSE. Financial statements of STML during the period between 2012 and 2016 were examined, as indicated below:

    From the above, it is seen that the revenue of STML has been declining and profit margins (OPM and NPM) are worsening over the years. Annual Report FY 2014-15 of STML states that "Company's accumulated losses have exceeded its entire net worth as on 31.03.2015 and has become Sick Industrial Company in accordance with the provisions of Sick Industrial Companies (Special Provisions) Act, 1985". The website of the Board for Industrial and Financial Reconstruction (BIFR) also states the status of the company as "Pending Determination of Sickness".

  3. A preliminary examination of trades in the scrip of STML revealed that there was a major spike in the price and volume of the scrip during the period commencing from July 01 to October 30, 2016 ("Examination period"). During the said period, average volumes on BSE and NSE were 18,83,781 shares and the scrip price on NSE ranged from a minimum of ` 4.95 to ` 11.15. The Price Volume (PV) chart of STML for the relevant period is as under:-

  4. SEBI obtained SMS data records from the concerned telecom service providers/SMS Aggregators through whom SMSes were sent pertaining to STML. It is understood that a sender places request for Bulk SMSes to re-sellers/sub-aggregators which is routed to an SMS Aggregator and onwards to the telecom service provider before it is sent to various cell phone numbers, as per the request of the sender.

  5. SMS records and documents relating thereto, pertaining to stock recommendations were sought from the telecom service providers or from their aggregator(s) to determine who were the actual senders of the SMS. It was observed that around 17.23 lakh SMSes were sent recommending BUY for STML (recommendation for purchase of shares in STME) across different dates during the Examination period.

  6. I note that the trade volume of the STML scrip on the days on which SMSes were sent was significantly high in comparison to its average daily trading volume during the pre-SMS period discussed in this Order. The Examination period was divided into the following patches in order to ascertain the impact of SMS on volume:

    (i) Pre SMS period i.e. July 01, 2016 to July 25, 2016, pertains to period before the SMSes were sent.

    (ii) SMS period i.e. July 26, 2016 to Oct 04, 2016, pertains to the period when SMSes were sent. (The end date of the SMS period was taken as 04 Oct 2016, since one of the messages disseminated via SMS mentioned the target date as being October 04, 2016.)

    (iii) Post SMS period i.e. Oct 05, 2016 to Oct 30, 2016, pertains to period after the SMSes were sent.

    It is observed that trade volume in the scrip of STML rose significantly during 'the SMS period' as compared to the 'Pre-SMS period' (rise in volume is 4.03 times). Comparatively, volumes fell in the 'Post SMS period'. A similar effect is observed in the prices of the scrip as seen in Chart 3.

  7. Based on the records/documents collected with respect to messages sent from a stylised number-IM CINRES, the role of one of the alleged senders of SMS i.e. Gautam Sanjay Khandelwal (hereinafter referred to as "Gautam') in making recommendations with regard to the STML scrip, was examined. IM CINRES was registered with Idea Cellular Telecom Service provider. On further enquiry, it was learnt that Tanla Solutions Limited (hereinafter referred to as "Tanla), an SMS Aggregator service provider, was used to send the Bulk SMS from the number IM-CINRES. Tanla submitted and confirmed that the person who had subscribed for the Bulk SMS service was Gautam. Tanla has submitted the following documents as prima facie evidence as proof of having received the request for Bulk SMS from Gautam:

    (i) Certificate...

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