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BEFORE THE ADJUDICATING OFFICER
SECURITIES AND EXCHANGE BOARD OF INDIA
[ADJUDICATION ORDER NO. EAD-2/DSR/VVK/33-42/2014]
____________________________________________________________________
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
1) RAMESHBHAI VAGHJIBHAI SHAH ( PAN : AEFPS1779B )
2) DHIRAJLAL V SANGHVI (HUF) ( PAN : AAEHD6469E )
3) VISHU ENTERPRISE ( PAN : ABUPV9902H )
4) SAGAR SANGHVI ( PAN : BTAPS0001H )
5) ASHIK SANGHVI ( PAN : ATJPS9279F)
6) SAJJANKUMAR NANWAL ( PAN : ABJPN3315R)
7) SUNITADEVI NANWAL ( PAN : ABUPN7788F )
8) GOVINDKUMAR VARMA ( PAN : ABUPV9901E )
9) BABUBHAI DESAI ( PAN : AKSPD2671E )
10) SANGHVI FINCAP LTD. ( PAN : AACCS7458K )
.
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1. The Securities and Exchange Board of India ( hereinafter referred to as “SEBI”)
carried out an investigation into the trading activity of Sanghvi Group in the
matter of four scrips namely Nakoda Textiles India Ltd (hereinafter referred to as
‘NTIL’), Gayatri Projects Ltd. (hereinafter referred to as ‘GPL’), Nandan Exim Ltd.
(hereinafter referred to as ‘NEL’) and Trimurthi Drugs and Pharmaceuticals Ltd.
(hereinafter referred to as ‘TDPL’) for the investigation period from July 01,2009 to
January 19,2010 (hereinafter referred to as the 'IP').
2. The Investigation, inter-alia, had revealed that the entities of Sanghvi Group were
connected in the trading activity of each other viz. Rameshbhai V Shah (Noticee 1),
Dhirajilal V Sanghvi (HUF) (Noticee 2), Vishu Enterprise (Proprietorship) (Noticee 3)
Sagar D Sanghvi (Noticee 4), Ashik D Sanghvi (Noticee 5), Sajjankumar H Nanwal
(Noticee 6), Sunitadevi S Nanwal (Noticee 7), Govindkumar H Varma (Noticee 8),
Babubhai Desai (Noticee 9), Sanghvi Fincap Ltd. (Noticee 10) ( hereinafter
referred to as " Noticees / Sanghvi group entities "), who had allegedly
indulged in fictitious / artificial trading activities such as self trades, intra-day
trades, multiple first trades and synchronised trades by contributing significantly
to the increase in price of the aforesaid four scrips viz. NTIL,GPL,NEL and
TDPL during the said IP. It was revealed by investigation that the counterparties
to many of such trades were the aforesaid noticees only.
3. SEBI has, therefore, initiated adjudication proceedings under the Securities and
Exchange Board of India Act, 1992 (hereinafter referred to as the ‘SEBI Act’),
inter alia, against the Noticees to inquire into and adjudge the alleged violations
of the provisions of Section 12A(a),(b) and (c) of the SEBI Act,1992 and
Regulation 3(a), (b), (c), (d) and 4(1), 4(2)(a), (e) and (g) of the SEBI (Prohibition
of Fraudulent and Unfair Trade Practices relating to Securities Market)
Regulations, 2003 (hereinafter referred to as the 'PFUTP Regulations')
committed by the Noticees.
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Appointment of Adjudicating Officer
4. I have been appointed as the Adjudicating Officer (AO), in place of the previous
Adjudicating Officers, vide order dated the August 29, 2013 under Section 15- I
of the Securities and Exchange Board of India Act, 1992 read with Rule 3 of the
SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating
Officer) Rules, 1995 (hereinafter referred to as “said Rules”) to inquire into and
adjudge under Section 15HA of the SEBI Act, the alleged violation of the
provisions of law commited by the Noticees.
Show Cause Notice, Reply and Personal Hearing
5. A common Show Cause Notice dated May 15, 2013 (hereinafter referred to as
“SCN”) was issued by previous adjudicating officer to the aforesaid 10 Noticees
under Rule 4(1) of the Rules to show cause as to why an inquiry be not held and
penalty be not imposed on them under Section 15HA of the SEBI Act for the
alleged violation of the provisions of law. The noticees No.2 to 10 vide their
respective replies all dated the 30th May,2013 and the Noticee No.1 vide his
reply dated the 31st May,2013 made their common & identical submissions.
6. In the interest of natural justice and in order to conduct an inquiry as per Rule
4(3) of the Adjudication Rules, vide notice dated the 23rd November, 2013, an
opportunity of personal hearing was granted to all the Noticees on 5th
December, 2013. The Noticees nos.2,4,5 and 10 vide their letters all even
dated the 30th November, 2013 expressed their inability to attend hearing on
5th December,2013 and requested for an adjournment whereas the remaining
Noticees failed to attend hearing on the said day. Accordingly, another
opportunity of personal hearing was granted to all the Noticees on 23rd
December, 2013. The Noticees viz. Dhirajilal V Sanghvi (HUF), Sagar D Sanghvi ,
Ashik D Sanghvi, Babubhai Desai were represented by Mr.Devesh Khandelwal,
Company Secretary and the noticees viz. Vishu Enterprise, Sajjan Kumar
Nanwal, Sunitadevi S.Nanwal, Goivindkumar Varma and Sanghvi Fincap Ltd. (
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Director is Sajjan Kumar Nanwal ) were represented by both Mr.Devesh
Khandelwal and Mr.Sajjanm Kumar Nanwal. [ hereinafter referred to as " the
Authorised Representatives (ARs) ]. The ARs reiterated the submissions made
vide their letters dated the 31st May,2013.
Tthe Noticee No.1 i.e. Rameshbhai Vaghjibhai Shah failed to appear for hearing
on both days of the hearings viz. on 5th December,2013 and 23rd
December,2013. The proof of service of Notice of hearing is on record.
Therefore, I find that enough time and ample opportunities have been granted to
the Noticee No.1 to appear before me but he failed to do so, therefore, I proceed
further against him on the basis of his reply and the material available on record.
Consideration of Issues, Evidence and Findings
7. I have perused the charges made against the Noticees mentioned in the SCN,
written and oral submissions and the documents available on record. In the
instant matter, the following issues arise for consideration and determination:
a) Whether the Noticees have violated the provisions of Section 12A(a),
(b) and (c) of the SEBI Act & Regulations 3(a), (b), (c), (d) and 4(1) and
4(2)(a),(e) & (g) of the PFUTP Regulations?
b) Do the violations, if any, on the part of the Noticees attract any penalty
under Section 15HA of the SEBI Act?
c) If yes, what should be the quantum of monetary penalty?
8. At the outset I find from the investigation report that the said four scrips are
listed on the BSE. The investigation, inter alia, revealed that the entities of
Sanghvi Group were connected to each other in dealing into the buy and sell
transactions of the said four scrips amongst themselves. I find from Annexure II to the
SCN that the said Noticees shared the common addresses, telephone numbers and
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even emails with one noticee or the others which formed the basis of connections
amongst the said ten noticees.
Following Table shows the basis of connections among the 10 entities of Sanghvi Group
Sr.
No. Name Address Phone Email Connections
1 Dhirajlal V Sanghvi HUF
No A-14 Tirthbhumi Apartments Near Lal Garden Ellisbridge Ahmedabad Gujrat India 380006
9825317172
Common address with Sr. No. 2,3 and father of Ashik, Sagar Sanghvi; Director in Sanghvi Fincap (common with Sr. No. 4); Common Phone No. with Sr. No. 3,5,7,9
2 Sagar Sanghvi
No A-14 Tirthbhumi Apartments Near Lal Garden Ellisbridge Ahmedabad Gujrat India 380007
9979150828
Power of attorney to Sajjankumar Nanwal, Son of Dhirajlal Sanghvi;Common address with Sr. No. 1, 2;
3 Ashik Dhirubhai Sanghavi
No A-14 Tirthbhumi Apartments Near Lal Garden Ellisbridge Ahmedabad Gujrat India 380008
9825317172
Common address with Sr. No. 1, 2;Son of Dhirajlal Sanghvi; common phone No. with Sr. No. 1,3,4,7,9
4 Sajjankumar Nanwal
D 176,Padmavati Society,Naroda, Ahmedabad Gujarat India 382330
9376017172,7926565266, 9825317172
POA of Sagar Sanghvi, Common directorship with Sr. No. 1 in Sanghvi Fincap, Off-market transactions with Sr. No. 1, 5, 3, 10,
5 Sunitadevi Sajjan Nanwal
D 176,Padmavati Society,Naroda, Ahmedabad Gujarat India 382331
9825317172
--- Wife of Sajjan Nanwal, common address with 5,6,7, common phone No. with Sr. No. 1,3,4,7,9
6 Govindkumar Varma
D 176,Padmavati Society,Naroda, Ahmedabad Gujarat India 382332
9825317172; 7926565266;
--- Brother of Sr. No. 4; Common address with Sr. No. 4, 5,7; common phone No. with Sr. No. 1,3,4,7,9
7 Vishu Enterprise
D 176,Padmavati Society,Naroda, Ahmedabad Gujarat India 382333
9825317172; 7926565266
Common address with Sr. No. 4,5,6; Common Phone No. with Sr. No. 1,3, 4, 5,9,10; Common email with Sr. No 1, 2,3
8 Rameshbhai Vaghjibhai Shah
19, Pancharatna Society,Ta. Vishnagar, Mahesana Mahesana Gujarat India 384315
9925358326;7926565266;
9825317172
--- Common Phone No. with Sr. No. 4,7,9,10; Relative of Sr. 1,2, 10 - (as per entities replies)
9 Babubhai Desai
Rabari Vasahat,Nava Vadaj,Ahmedabad, Ahmedabad Gujarat India 380016
9825317172, 7926565266
--- Same Phone No. as Sr. No. 4,9,8,10; Indirect associate of Sr. no. 1,2, 10 (As per Entities replies)
10 Sanghvi Fincap Ltd.
B-54 Dhaval Avenue. Dehind Associated Petrolpump , C.G Road, Ahmedbabd Ahmedabad Gujarat India 380006
7926565266
--- Directors - Dhirajlal, Sajjankumar; Same Phone No. as 4,7,8,9; Indirect associates with Sr. No. 9,10 as per own reply
Page 6 of 23
Some of the above connections among these entities are pictorially
summarized in the following diagram. Sanghvi Group Relationship Summary Chart
9. I find from the Annexure III to the SCN that the trades of said Noticees contributed
significantly to the increase in price of the said four scrips viz. NTIL, GPL, NEL and
TDPL. The observations from the price volume data and price movement data for the
said scrips for the period before, during and after the IP are given below :-
a) that the average volume in the scrip of NTIL was 77620 during the pre-IP i.e. 1st
June,2009 to 30th June,2009 which rose to 273316 during the post IP 20th
January,2010 to 19th February,2010;
b) that the average volume in the scrip of TDPL was 58569 during the pre-IP i.e. 1st
June,2009 to 30th June,2009 which rose to 276520 during the post IP 20th
January,2010 to 19th February,2010;
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c) that the average volume in the scrip of GPL was 91831 during the pre-IP i.e. 1st
June,2009 to 30th June,2009 which fell to 44461 during the post IP 20th January,2010
to 19th February,2010; and,
d) that the average volume in the scrip of NEL was 354957 during the pre-IP i.e. 1st
June,2009 to 30th June,2009 which fell to 295097 during the post IP 20th January,2010
to 19th February,2010.
10.Further it is observed from Annexure III to the SCN that pertains to the client-wise
trading summary in each of the 4 scrips that in scrip of GPL, the open price was 175.25
and close price was 175.25 with number of shares being 14878 with 31 trades and a
total turnover was Rs.2607369 on 1st June,2009 whereas on 19th February,2010 the
open price was 458 and close price was 392.45 with number of shares being 17135 with
403 trades and a total turnover in GPL was 6833658. In the scrip of NTIL, the open
price was 33.7 and close price was 31.9 with number of shares being 144641 with 382
trades and a total turnover was Rs.4722578 on 1st June,2009 whereas on 19th
February,2010 the open price was 11.56 and close price was 11.91 with number of
shares being 141496 with 316 trades and a total turnover in NTIL was 1688013. In the
scrip of TDPL, the open price was 18.75 and close price was 18.85 with number of
shares being 30505 with 24 trades and a total turnover was Rs.574477 on 1st
June,2009 whereas on 19th February,2010 the open price was 6.49 and close price was
5.94 with number of shares being 50691 with 76 trades and a total turnover in TDPL was
301404. As regards in NEL, the open price was 2.02 and close price was 2.02 with
number of shares being 494555 with 154 trades and a total turnover was Rs.999001 on
1st June,2009 whereas on 19th February,2010 the open price was 2.21 and close price
was 2.32 with number of shares being 206804 with 106 trades and a total turnover in
NEL was 475985.
11.Following is the scrip-wise trading summary of the Noticees during the IP :-
Scrip Name Market
Volume Group
Purchase % to
Market Group
Sales % to
Market
Trade within Group
% to Market
Synch volume
% to Market
Nakoda 22548566 8712500 38.64% 9193826 40.77% 5683458 25.21% 2527969 11.21%
Nandan 90521616 18134907 20.03% 15993188 17.67% 5434188 6.00% 122648 0.14%
Trimurthi 16042702 9572564 59.67% 7671610 47.82% 4586366 28.59% 678704 4.23%
Gayatri 9262632 2048890 22.12% 2003272 21.63% 837767 9.04% 300776 3.25%
Page 8 of 23
12. It is observed from the above table that the Noticees have contributed significantly
(between 17.67% to 59.67%) to the market volume during the IP. Of these trades, about
25% volume in NTIL and about 28.5% of market volume in TDPL is due to trades among
the entities belonging to Noticees. The synchronized trades of the group in NTIL
contributed to as much as 11.21% of the market volume in the scrip. In NIL and GPL, the
trading volume of the Noticees contributed to (17.67% - 22.12%) of the total market
volume.
13. Further, it is observed (from Annexure IV i.e the client-wise trading summary in each of
the four scrips) that Sanghvi Group earned a collective profit of Rs.1,10,99,947/- during
the said IP.
14. It is observed from the IR with regard to the total synchronized trades where the buy and
sell order quantity and rate were found to be identical. It is further observed that the
orders for these transactions were placed within the time gap of one minute during the
said IP for all the 4 scrips which were analyzed and the same are detailed out as below:-
Scrip Name
Market Volume
Sync Trade Volume
Sync Trade volume within the Group
% to Market
Sync Trade LTP within Group
Nakoda 2,25,48,566 35,41,121 25,27,969 11.21% 3.65
Nandan 9,05,21,616 24,27,811 1,22,648 0.14% 0
Trimurthi 1,60,42,702 15,37,744 6,78,704 4.23% 8.27
Gayatri 92,62,632 9,59,073 3,00,776 3.25% 2.6
15. It is observed from the above table that the synchronized trades executed by the
Noticees ranged from 0.14% to 11.21% in the scrips. Among these, in the scrip NTIL,
the noticees have contributed to significant volume (i.e. 11.21% of the total market
volume). The net Last Traded Price (hereinafter referred to as 'LTP') contribution due to
such synchronized trades by the noticees was highest in TDPL i.e. ` 8.27 while it was
zero in NEL.
16. It is commonly observed that the self trades create artificial / fictitious volume in the
market and give a false and misleading appearance of trading in the scrip at the
Page 9 of 23
exchange. Following are the details of the self trades executed by the Sanghvi Group
entities wherein the same client appeared on both buy and sell side of the trades :-
Scrip Name Nakoda Gayatri Trimurthi Nandan
Client Name Volume No. of trades
Volume No. of trades
Volume No. of trades
Volume No. of trades
Dhirajlal V Sanghvi HUF 2699 12 244 5 5949 10 18816 2
Ashik Sanghavi 0 0 0 0 166 2 0 0
Vishu Enterprise 2725 14 93 4 1575 3 9150 1
Rameshbhai VShah 337 9 147 10 3329 14 0 0
17. Further, I observe from the Annexure V the details of day-wise self trades of each
noticee and percentage to market volume. The brokers through whom these self trades
were carried out by the noticees were Religare Securities Ltd. for Vishu Enterprise,
Finquest Securities Pt. Ltd. for Rameshbhai Shah, and MTL Share and Brokers Ltd. for
for Dhirajlal V.Sanghvi. It is observed that the orders of Rameshbhai Shah and Vishu
Enterprise were placed via internet whereas Dhirajlal V Sanghvi's orders were placed
through broker terminal (terminal no. 3800090422001001) of MTL Share and Brokers
Ltd.
18. The details of trades by the noticees as buyers, which resulted into LTP influence are tabulated below:
Table: LTP contribution
Scrip Name
Total No. of
Trades
Group Total Trades
% to Market
Group No. of Trades with -
ve LTP
Market -ve
Trades
% to Market
Group No. of Trades
with +ve LTP
Market + ve LTP
trades
% to Market
Group No of trades with zero LTP
Market zero LTP trades
% to Market
Nakoda 86,962 16,134 18.55% 2,735 19,506 14.02% 4,989 18,617 26.80% 8,410 48,839 17.22% Nandan 33,390 4,554 13.64% 941 5,117 18.39% 783 5,978 13.10% 2,830 21,354 13.25% Trimurthi 16,475 11,183 67.88% 2,079 3,473 59.86% 2,260 2,972 76.04% 6,844 10,030 68.24% Gayatri 84,779 17,486 20.63% 4,248 22,763 18.66% 6,970 22,206 31.39% 6,268 39,810 15.74%
19. As evident from the table, the no. of trades of the noticees, which contributed to positive
LTP when compared to no. of market trades contributing to positive LTP in the four
scrips ranged from 13.10% to 76.04%. The comparison of actual LTP contribution of the
noticees to total market contribution in the four scrips is tabulated below :-
Page 10 of 23
Table: LTP comparison with Market
Scrip Name
Group - Total -ve
LTP Contri
Market -ve LTP Contri
% of Group -ve contri to Market -ve LTP
Group - Total
+ve LTP Contri
Market + ve LTP Contri
% of Group +ve contri to Market +ve LTP
Market Net LTP
Group Net LTP
Nakoda -664.55 -4487.95 14.81% 2139.6 4503.75 47.51% 15.8 1475.05
Nandan -14.54 -106.99 13.59% 14.78 92.84 15.92% -14.15 0.24
Trimurthi -329.73 -698.66 47.19% 538.34 673.43 79.94% -25.23 208.61
Gayatri -2110.5 -15654.3 13.48% 6999.6 15883.6 44.07% 229.3 4889.1
20. As observed from the above table, the Noticees have contributed significantly (44% -
80%) to positive LTP in scrips NTIL, GPL and TDPL, whereas their contribution to
positive LTP in NEL is 15.92%.
21 It is observed from the Individual client-wise contribution to LTP in each scrip from
Annexure VI to the SCN that the Noticees indulged in totally 366 first trades. Amongst
all the noticees, the Noticee No.1 indulged in first trades in a maximum way in all the
scrips with a total of 256 trades and the Noticee No.2 with a total of 72 self trades who
contributed to price rise through first trades wherein buy orders were placed by them at a
rate significantly higher than the previous traded price / close price.
22. It is observed that during the IP, the price of the said scrips varied as follows -:
Scrip Name Open High Low Close NHP (High‐Open)
Nakoda 43.7 93.2 33.3 59.5 49.5
Nandan 2 3.23 1.45 2.63 1.23
Gayatri 183.5 469.4 156.1 412.55 285.9
Trimurthi (Before split) 31.55 52.9 23.65 51.05 21.35
Trimurthi (after split) 5.35 7.46 4.91 6.32 2.11
23. I note that the market New High Price( NHP) contribution during the investigation period
for NTIL, GPL and NEL was ` 49.5, ` 1.23 and ` 285.9 respectively. In TDPL total NHP
contribution was ` 21.35 and ` 2.11 during the periods before stock split and after stock
split respectively. The noticee's dealing in the four scrips made the following contribution
to the new price established in each scrip during the IP :-
Page 11 of 23
Scrip Name Nakoda Nandan Trimurthi Gayatri
Client Name NHP
contri by Client
% to Total Scrip NHP
NHP contri by
Client
% to Total Scrip NHP
NHP contri by
Client
% to Total Scrip NHP
NHP contri
by Client
% to Total Scrip NHP
Dhirajlal V Sanghvi HUF 8.55 17.27% 0.01 0.81% 2.2 9.38% 15.75 5.51%Sagar Sanghvi 0 -- 0 -- 0 -- --Ashik Dhirubhai Sanghavi 0 -- 0 -- 0 -- 5.9 2.06%Sajjankumar Nanwal 0 -- 0 -- 0.25 1.07% --Sunitadevi Sajjan Nanwal 0 -- 0 -- 0.25 1.07% --Govindkumar Varma 0 -- 0 -- -- --Vishu Enterprise 0.95 1.92% 0.13 10.57% 0.3 1.28% 21.35 7.47%Rameshbhai V Shah 39.2 79.19% 0 -- 14.65 62.45% 87 30.43%Babubhai Desai 0 -- 0 -- 0 -- --Sanghvi Fincap Ltd. 0 -- 0 -- 0 -- --Group total NHP 48.75 98.48% 0.14 11.38% 17.65 75.23% 130 45.47%Scrip total NHP 49.5 -- 1.23 -- 23.46 -- 285.9 --
24. As evident from the table, as much as 98.48% of the NHP in NTIL was contributed by
the noticees. The NHP contribution in TDPL was 75.23%, and GPL was 45.47%. NHP
contribution of the noticees in NEL was 11.38% as compared to other three scrips. The
NHP was contributed mainly by Rameshbhai V Shah (30%-79%), and Dhirajlal V
Sanghvi (HUF) (5.51%-17.27%).
25. It is observed from the Annexure VII that pertains to the transaction-wise details of the
above trades by the Noticees who established New High Price (NHP) that high
percentage of first trades was contributed by Sanghvi Group in NTIL, GPL and NEL.
Following is the first trade details of Sanghvi group in all 4 scrips during the investigation
period :-
Scrip Name
No of First trades in Market
Market Volume
No of buy Trades by Group
Group Purchase
% to Market
No. of Sell trades by Group
Group Sales
% to Market
Trade within Group
% to Market
Nakoda 132 55,847 126 54,927 98.35% 7 41284 73.92% 41,284 73.92%
Nandan 134 2,11,102 33 9,850 4.67% 0 0 0.00% 0 0.00% Trimurthi (Before split)
72 94,552 59 76,501 80.91% 18 54,622 57.76% 64,722 68.45%
Trimurthi (After split)
60 26,929 58 15,929 59.15% 20 11,650 43.26% 11,650 43.26%
Gayatri 134 8,510 87 3,653 42.93% 0 0 0.00% 0 0.00%
Page 12 of 23
26. It is observed from the table above, apart from NEL, in all other 3 scrips, Sanghvi Group
has entered into majority of the first trades in each scrip occurring during the
investigation period. Even in NEL, more than 65% of the LTP contribution in first trades
is through Sanghvi Group's trading.
Following is the LTP and NHP contribution details for all the first trades mentioned
above.
Scrip Name
Sum of market LTP (buyer)
Sum of market NHP (buyer)
LTP of Group (buyer)
NHP Contri of the Group (buyer)
Nakoda 509.25 31.2 498.95 31.2
Nandan 3.43 0.63 2.25 0.1Trimurthi (Before split) 79.2 18.7 84.3 16.7Trimurthi
(After split) 14.81 2.11 14.85 2.11
Gayatri 1082.9 161.75 915.05 72.8
27. It is observed that from the LTP/NHP table, almost all the NHP and LTP contribution
(more than 90%) in NTIL and TDPL and significant NHP and LTP in GPL (90% LTP and
~45% NHP) has been contributed by Sanghvi Group entities. The price was raised by
Sanghvi Group entities through multiple first trades. In the scrip of GPL, Sanghvi group
mainly indulged in placing buy orders at rates higher than prevailing LTP or previous
close price for the trades which contributed to price rise. Such orders triggered trades
resulting into positive contribution LTP or even resulting into NHP. Also, the
counterparties to many of such trades were other Sanghvi group entities, i.e. they aided
in raising the price by putting in matching sell orders. Rameshbhai V Shah increased the
price especially through first trades (73 out of 134 total first trades), wherein buy orders
were placed by him at a rate significantly higher (5-20%) than previous close price.
Often, these buy orders were placed at higher circuit limit prices. Dhirajlal V Sanghvi
HUF and Vishu Enterprise contributed to price rise both through first trades and intraday
trades wherein buy orders were placed by them at a rate significantly higher than
previous traded price/close price. However, total LTP contribution of Dhirajlal was
negative.
Page 13 of 23
28. Further, it is observed that in the scrip of NTIL, the counter-party to more than 50% of
traded quantity of each of the Sanghvi group member was another Sanghvi Group
member. Rameshbhai Vaghjibhai Shah (Noticee No.1) was increasing price through
first trades (84 out of 132 total first trades) and intraday trades, wherein buy orders were
placed by him at a rate higher than previous close price/last traded price. Dhirajlal V
Sanghvi HUF (Noticee No.2) (29 out of 132 first trades) and Vishu Enterprise (Noticee
No.3) contributed to price rise both through first trades and intraday trades wherein buy
orders were placed by them at a rate significantly higher than previous traded price/close
price.
29. It is observed that in the scrip of TDPL, Rameshbhai V Shah was increasing price
through first trades (77 out of 132 total first trades) and intraday trades, wherein buy
orders were placed by him at a rate higher than previous close price/last traded price.
Dhirajlal V Sanghvi HUF (25 out of 132 first trades) and Vishu Enterprise contributed to
price rise both through first trades and intraday trades wherein buy orders were placed
by them at a rate significantly higher than previous traded price/close price. Dhirajlal's
total LTP contribution was negative in TDSL.
30. It is observed In the scrip of NEL, the volume contribution of Sanghvi Group as well as
contribution to LTP by the Sanghvi Group as compared to that of market volume and
LTP, was not significant so as to have large influence on share price. However,
Rameshbhai V Shah was seen increasing price through first trades (22 out of 134 total
first trades) and intraday trades, wherein buy orders were placed by him at a rate higher
than previous close price/last traded price.
31 It is observed that Sanghvi group together created artificial volume in the scrip of Nakoda
Ltd by contributing to as much as 11.21% of the market volume through synchronized
trades within group, wherein both buyer and seller were from Sanghvi group, the buy/sell
order rate as well as quantity were same and time difference between orders was less
than 1 minute.
32. I observe from Annexure IX that pertains to the sample trades for Sanghvi Group in
different scrips wherein buy orders were placed at prices above the prevailing sale order
prices or previous close prices (in the case of first trades).
Page 14 of 23
33. It is revealed from Annexure IX that the first trade orders in the said four amongst the
said Noticees marched with the counter party noticees from 31st July,2009 to 18th
September,2009. Further the Order book analysis of Sanghvi group revealed the
following:-
(a) Sagar Sanghvi ( Noticee No.4)
It is revealed that the Noticee No.4 had given power of attorney of his HSBC direct
trading account to Sajjankumar Nanwal. It is revealed that his trades did not contribute
to price rise in GPL. Also, he did not trade in NEL. He contributed to price rise mainly
through intraday trades, by placing buy orders at higher prices than LTP and available
sell order prices in NTIL and TDPL. Also, counterparties to many of his trades were
Sanghvi Group entities in these two scrips - (19 out of 29 +ve LTP trades in NTIL, 6 out
of 9 +ve LTP trades in TDSL).
(b) Ashik D Sanghvi ( Noticee No.5)
It is revealed that Ashik Sanghvi contributed to price rise mainly through intraday trades,
by placing buy orders at higher prices than LTP and available sell order prices in NTIL,
GPL and TDPL. He also contributed to price rise through first trades on few instances in
NTIL, GPL and TDPL.
(c) Sajjankumar H Nanwal ( Noticee No.6)
It is also revealed that Sajjankumar Nanwal contributed to price rise mainly through
intraday trades, by placing buy orders at higher prices than LTP and available sell order
prices in NTIL. He also had power of attorney for Sagar D Sanghvi's trading account
with HSBC direct.
(d) Sunitadevi S Nanwal ( Noticee No.7)
It is also revealed that Sunitadevi Nanwal, wife of Sajjankumar Nanwal, contributed to
price rise mainly through intraday trades, by placing buy orders at higher prices than
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LTP and available sell order prices in NTIL, TDPL, GPL and NEL. It is further revealed
that In the scrip of NEL, most of her positive LTP buy trades matched (for quantity and
price) with Rameshbhai V Shah as counterparty (5 out of 6, positive LTP trades).
(e) Govindkumar H Varma ( Noticee No.8)
It is revealed that Govindkumar H Varma, contributed to price rise mainly through
intraday trades, by placing buy orders at higher prices than LTP and available sell order
prices in the scrips of NTIL and GPL. Many of his positive LTP buy trades had another
Sanghvi Group member as counterparty seller.
(f) Babubhai Desai
It is also revealed that Babubhai Desai contributed to price rise mainly through intraday
trades, by placing buy orders at higher prices than LTP and available sell order prices in
the scrips of NTIL and TDSL.
(g) Sanghvi Fincap Ltd
It is revealed that Sanghvi Fincap did not trade in GPL and its trading and contribution to
price rise was insignificant in other scrips.
34. Before proceeding further, I would like to refer to the relevant provisions of the
SEBI Act and the PFUTP Regulations which read as under :-
SEBI Act, 1992:
Section 12A. No person shall directly or indirectly –
(a) use or employ, in connection with the issue, purchase or sale of any securities
listed or proposed to be listed on a recognised stock exchange, any manipulative
or deceptive device or contrivance in contravention of the provisions of this Act or
the rules or the regulations made there under;
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(b) employ any device, scheme or artifice to defraud in connection with issue or
dealing in securities which are listed or proposed to be listed on a recognized
stock exchange;
(c) engage in any act, practice, course of business which operates or would
operate as fraud or deceit upon any person, in connection with the issue, dealing
in securities which are listed or proposed to be listed on a recognized stock
exchange, in contravention of the provisions of this Act or the rules or the
regulations made there under;
PFUTP Regulations,2003 :
3. Prohibition of certain dealings in securities
No person shall directly or indirectly—
(a) buy, sell or otherwise deal in securities in a fraudulent manner;
(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
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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:—
(a) indulging in an act which creates false or misleading appearance of trading in
the securities market;
(b) .............
(c) .............
(d) .............
(e) any act or omission amounting to manipulation of the price of a security.
(f) .............
(g) entering into a transaction in securities without intention of performing it or
without intention of change of ownership of such security;
35. The noticees No.2 to 10 vide their respective replies all dated the 30th
May,2013 and the Noticee (No.1) vide his reply dated the 31st May,2013, while
denying the allegations, made their common & identical submissions, which are,
inter alia, reproduced below :-
" The connection between all the notices/Sanghvi Group as detailed in the
Annexure II of the above referred Notice sent by you does not mean that we did
the transactions in the scrips of the said four companies. with the object to
effect the price and/or volume during the period of investigation. The
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transactions done by me and Sanghvi Group as a whole were being carried out
as a trader and investor in the capital market.
* The trade done by me was based purely on commercial terms as a trader
and investor of capital market with no intention to do any type of manipulation in
the volume of NTIL, GPL, NEL and TDPL.
* the positive LTP transaction done by us was based on the current market
situation, availability of shares and other factors of market.
* Any trade by me is influenced with the commercial gain and / or loss as a
trader and investor, with no intention to affect the market.
* I have yet to verify the data submitted by you with regard to para 5,6 and 9 of
the SCN.
* It is being alleged that the Sanghvi Group earned approximate profit of
Rs.1,10,99,947/- during investigation period in the said four scrips. The
calculation of profit given in your notice is subject to verification by me from
records, further it is to be noted that any such alleged profit earned by the group
was from its trading and investment activity in the said four scrips which being
carried out by the group and was not a result of any type of manipulation done
by the group in the said 4 scrips as alleged in the notice. "
36. I note that the noticees made their common & identical submissions .The
noticees simply refuted the allegations without elaborating their
submissions .The replies of the noticees are not convincing & same are
untenable. They have not denied that they acted as a Group in executing
the transactions as mentioned in detail hereinabove. The submission of the
noticees, that the trades done by them were based purely on commercial terms
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as traders and investors of capital market with no intention to do any type of
manipulation , is devoid of fact inasmuch as the data as mentioned at para no.
8 to 33 of this order clearly establishes the role played by the noticees in
violating the provisions of law. The noticees have also not specifically denied
the profit mentioned in the notice except saying that the same is subject to
verification from their records.
The group together created artificial volume in the scrip of NTIL by contributing
to as much as 11.21% of the market volume through synchronized trades within
group wherein both buyer and seller were from Sanghvi Group, the buy/ sell
order rate as well as quantity were same and time difference between orders
was less than 1 minute.
As revealed by investigation & as seen from NHP, first trades, LTP and order
book analysis, three Sanghvi Group entities namely, Rameshbhai V Shah,
Dhirajlal V Sanghvi HUF, Vishu Enterprise indulged in rising price of scrips
under investigation by putting in buy orders at rates higher than LTP for intraday
trades and higher than previous close price for first trades. It was seen that on
multiple instances such buy order rates were higher than available sell order
rates. On a few instances, the sell order of higher rates by Sanghvi group
member were matched by corresponding buy orders from another Sanghvi
group member. With regard to first trades buy orders were placed consistently
at higher rates than previous close price and often no sell orders were available
for such first trades.
Rameshbhai V Shah, contributed to price rise in all 4 scrips. Vishu Enterprise
contributed to price rise in Nakoda, Gayatri and Trimurthi. Dhirajlal V Sanghvi
HUF contributed to price rise in Nakoda.
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In addition to this, as discussed hereinabove, Dhirajlal V Sanghvi HUF and
Vishu Enterprise have created artificial volume in all 4 scrips whereas
Rameshbhai V Shah created artificial volume through self trades in Nakoda,
Gayatri and Trimurthi.
It is observed from the material available on record that Mr. Rameshbhai V Shah
contributed to artificial volume in the scrip of NTIL with other group entities. He
also entered into self trades and contributed to price rise in fraudulent manner
in the scrips of NTIL, GPL, TDPL and NEL.
It is observed from the material available on record that Mr. Dhirajlal V Sanghvi
HUF contributed to artificial volume in the scrip of NTIL with other group entities.
He also entered into self trades in the scrips of NTIL, GPL, TDPL and NEL and
also contributed to price rise in fraudulent manner in NTIL.
It is observed from the material available on record that Mr. Vishu Enterprise
contributed to artificial volume in the scrip of NTIL with other group entities. It
also entered into self trades in the scrips of NTIL, GPL, TDPL and NEL and
contributed to price rise in fraudulent manner in NTIL, GPL, TDPL.
It is observed from the material available on record that the Noticees namely
Sagar Sanghvi, Ashik Dhirubhai Sanghvi, Sajjan Kumar Nanwal, Sunitadevi
Sajjan Nanwal , Govind Kumar Varma, Babubhai Desai, Sanghvi Fincap
contributed to artificial volume in the scrip of NTIL with other group entities.
In view of the above, I conclude that the allegations mentioned in the SCN
against the Sanghvi Group entities stand established & Sanghvi Group has
violated the provisions of Section 12A(a),(b) and (c) of the SEBI Act,1992 read
with Regulation 3(a), (b), ( c) and (d) and 4(1), (2)(a) of SEBI (Prohibition of
Fraudulent & Unfair Trade Practices relating to Securities Market ) Regulations,
2003.
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37.At this juncture, it is noteworthy to quote the observations of the Hon’ble
Supreme Court of India in the matter of SEBI Vs. Shri Ram Mutual Fund [2006]
68 SCL 216 (SC) which are as follows:-
“ once the violation of statutory regulations is established, imposition of penalty
becomes sine qua non of violation and the intention of parties committing such
violation becomes totally irrelevant. Once the contravention is established then
the penalty is to follow ”
The Hon’ble Securities Appellate Tribunal in Ketan Parekh Vs. Securities and
Exchange Board of India (Appeal No. 2 of 2004), wherein it was observed that
“ A synchronised transaction will, however, be illegal or violative of the
Regulations if it is executed with a view to manipulate the market or if it results in
circular trading or is dubious in nature and is executed with a view to avoid
regulatory detection or does not involve change of beneficial ownership or is
executed to create false volumes resulting in upsetting the market equilibrium.
Whether a transaction has been executed with the intention to manipulate the
market or defeat its mechanism will depend upon the intention of the parties
which could be inferred from the attending circumstances because direct
evidence in such cases may not be available. This list of factors, in the very
nature of things, cannot be exhaustive. Any one factor may or may not be
decisive and it is from the cumulative effect of these that an inference will have to
be drawn.”
In another case, the Hon’ble Securities Appellate Tribunal, in Nirmal Bang
Securities Pvt. Ltd Vs SEBI (Appeal no. 54-57/2002), observed that: -
“Synchronized trading is violative of all prudential and transparent norms of
trading in securities. Synchronized trading on a large scale can create false
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volumes… There are many transactions giving an impression that these were all
synchronized, otherwise there was no possibility of such perfect matching of
quantity, price etc.…. In a synchronized trading intention is implicit.”
The Hon'ble SAT, in Chirag Tanna Vs The Adjudicating Officer, held as under: “..we have on record the trade and order logs from which it has been pointed out by the learned counsel for the respondent Board that the appellant had executed self trades i.e. trades in which he was both the buyer and the seller. Such trades are, admittedly, fictitious and create artificial volumes in the traded scrip..”
Also, the Hon’ble SAT, in Triumph International Finance Ltd Vs. SEBI held as under: “..The buyer and the seller were also the same. It is obvious that these trades were fictitious to which the appellant was a party. They were fictitious because the buyer and the seller were the same..”
38. While imposing penalty, it is obligatory to consider the factors stipulated in Section
15J of the 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.
39. It is observed from the Annexure IV of the SCN that the approximate
profit earned together by Sanghvi Group in all 4 scrips is Rs.1,10,99,947/ -
profit = (avg sell price - avg buy price )* (total quantity squared off)
through self trades, first trades and intra-day trades, synchronised
trades. After carefully examining and recalculating the profit in Annexure
IV, I find that the Sanghvi Group has made a profit of Rs.2,33,95,099/- in
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all the 4 scrips. The details of the profit are herewith annexed and marked
as Annexure - A & the same forms part of this Order. It is difficult in cases of
such nature to quantify exactly the consequent losses suffered by the investors
as a result of the defaults of the noticees. I find that the default is repetitive in
nature inasmuch as the noticees indulged in various types of trades repeatedly
in all the four scrips during the said IP.
O R D E R
41. In view of the above, after considering all the facts and circumstances of the case
and in exercise of the powers conferred upon me under Section 15-I of the SEBI
Act read with Rule 5 of the Rules, I hereby impose a consolidated penalty of
`5,00,00,000 /- (Rupees five crore only) on the following noticees viz. Rameshbhai
V Shah , Dhirajlal V Sanghvi (HUF) , Vishu Enterprise , Sagar Sanghvi , Ashik
Sanghvi, Sajjankumar Nanwal , Sunitadevi Nanwal , Govindkumar Varma ,
Babubhai Desai , Sanghvi Fincap Ltd. under Section 15HA of the SEBI Act. The
Noticees are liable to pay the penalty jointly and severally. In my view, the
penalties imposed on the Noticees are commensurate with the defaults committed
by them.
42. The above penalty amount shall be paid by the Noticees by way of Demand Draft
drawn in favour of “SEBI – Penalties Remittable to the Government of India” and
payable at Mumbai, within 45 (forty five ) days of receipt of this order. The said DD
should be forwarded to The Deputy General Manager, IVD-ID 1, Securities and
Exchange Board of India, SEBI Bhavan, Plot No. C4-A, ‘G’ Block, Bandra Kurla
Complex, Bandra (E), Mumbai – 400 051.
43. In terms of the Rule 6 of the Adjudication Rules, copies of this order are sent to the
Noticees and also to the Securities and Exchange Board of India.
Date: JANUARY 28, 2014 D. SURA REDDY Place: Mumbai ADJUDICATING OFFICER
