1. Sudden spurt in price and trading volume of certain companies in a short period of time, often referred to as "mid cap" or "small cap" companies have been engaging the attention of SEBI and the stock exchanges for some time. Such trading has been under the surveillance of SEBI and the stock exchanges to determine whether the trading volumes and price rise have been the result of unfair trade practices or market manipulation. One such company whose shares have shown a significant increase in prices as well as trading volumes in a short period of time is Konkan Tyres Ltd. (hereinafter referred to as 'KTL' or 'the company').
2. During the period March 1, 2005 to September 21, 2005, the price of the share of KTL on BSE on which the share is listed since 1994, opened at Rs. 5.70 and closed at Rs. 18.80. This represents a rise of about 230% in 143 trading days. During the above period, there was substantial variation in the daily traded quantity. On April 4, 5 and 18, 2005 only 100 shares (1 trade) were traded daily while on August 11, 2005, there were 1051 trades with a traded quantity of 3,63,738 shares. The average daily traded quantity during the relevant period works out to about 41,510 shares. In terms of trading value, shares valuing Rs. 80.90 lakhs were traded August 11, 2005 and shares valuing Rs. 65.07 lakhs were traded on August 12, 2005.
3. The price volume movement of the share on BSE in the past eight years since January 1997 is in complete contrast with the trading pattern during the seven months of the current year between March - September 2005. During the 8 year period between January 1, 1997 and February 28, 2005, the price of the share ranged between Re.1/-and Rs. 8.50 touching the highest value of Rs. 8.50 on January 10, 1997 and the lowest value of Re.1/- on February 26, 1999. The average daily traded volume during the period January 1997 to February 2005 works out to about 2000 shares. The highest value of shares traded on any trading day was Rs. 3.41 lakhs on November 16, 2004. From the above, it is seen the rise in price and trading interest in the share of KTL during the period beginning March 1, 2005 is unprecedented.
4. BSE has categorized the share as'Z' group share. The share is not listed on other stock exchanges. In view of the steep increase in price of the 'Z' group share and wide variation in the daily traded quantity, as detailed above, a preliminary examination of the dealings in the share was conducted. The major findings of the preliminary examination are given below: 5. KTL was incorporated in 1983 and has its corporate office at 419 Hind Rajasthan Bldg., Dada Saheb Phalke Rd. Dadar, Mumbai 400 014. The shares of the company are listed only on BSE.6. The shareholding pattern of the company as on March 31, 2005 is given below:Table 1 - Shareholding Pattern of the Company as on March 31, 2005-------------------------------------------------------------------Shareholders No of Shares % Share HoldingNRI 10400 0.33-------------------------------------------------------------------Institutions 100 0Other Bodies Corporates(Non Promoters) 1265658 39.87Indian Promoters 518180 16.33Public 1360205 42.85Others 19557 0.62Totals 3174100 100-------------------------------------------------------------------Source: Capitaline 7. From the above it is seen that the promoters held only 16.33% of the equity capital of the company. Corporate Bodies held 39.87% of the equity and public held 42.85%.
8. Comparing the shareholding pattern of the company for the two successive quarters ended March and June 2005, as furnished by BSE, it is seen that several entities related / connected to the company appear both under the promoter category as well as non-promoter category. For example, Esskay Rubber Industries Pvt. Ltd. is holding 4.56 % and 2.42 % under Promoters and Private Corporate Bodies respectively. The Promoter himself Shri Ompraksh Soni is shown as holding 2.11 % under promoter's category as well as 3.15 % under Indian Public Category. It thus appears that the shareholding pattern of the company submitted to the BSE is inaccurate and does not reflect the genuine promoter holding in the company.
9. From the data obtained from BSE, it is seen that the share is in 'Z' group and trading is compulsorily in dematerialized form and only 35.65% of the equity capital of KTL representing 11,31,420 shares are in dematerialized form. The balance 20,42,680 shares are in physical form and hence not available for trading. This shows that the shares available for trading are limited in number.----------------------------------------------------Name Designation----------------------------------------------------O G Soni ChairmanSunil Kumar Menon Additional DirectorRamesh Kumar Putta DirectorNarayan N Iyer Additional Director----------------------------------------------------Source: Capitaline 11. A brief summary of the quarterly financials of the company is given below:Table 3 - Financial Performance (figures in Rs. crores)------------------------------------------------------------------Type UnAudited UnAudited UnAudited UnAuditedQuarter Ended 31 Mar 05 31 Dec 04 30 Sep 04 30 Jun 04------------------------------------------------------------------Net Sales 2.2 7.5 - -Total Income 2.2 7.5 - -Expenditure -2.3 -7.7 -1.3 -1.4Operating Profit -0.1 -0.2 -1.3 -1.4Interest - - - -0.8Gross Profit -0.1 -0.2 -1.3 -2.2Depreciation - - - -0.3Profit before Tax -0.1 -0.2 -1.3 -2.5Profit after Tax -0.1 -0.2 -1.3 -2.5Net Profit -0.1 -0.2 -1.3 -2.5Equity Capital(no. of shares) 0.32 0.32 0.32 0.31------------------------------------------------------------------Source: Capitaline 12. From the above it is seen that the company has all along been a loss making company. The company is financially in dire straits as may be seen from the director's report of KTL for the year 2003-04 wherein it is mentioned that the company was undergoing labour problems and financial crunch due to which the company had suspended operation in the second half of the year ended March 31, 2004. Since the operation of the company was suspended, the bank had taken action under securitization and taken possession of all the properties and collateral securities including factory building, plant, machinery and stock. The auditor's report has mentioned that the company has defaulted in repayment of dues to the bank and the account has become NPA.13. In sharp contrast to the record of turnover and profitability of the company in the past 8 years the quarterly unaudited results for the quarter ended June 30, 2005 as furnished by the company to BSE, showed a sudden significant turnaround in the performance of the company. The company which was loss making till the financial year ended March 2005 and as such did not declare any dividend, showed a net profit of Rs. 64 lakhs during the quarter ended June 30, 2005, as compared to a net loss of Rs. 25 lakhs in June 30, 2004 quarter. Since the operation of the company was suspended during the second half of the year ended March 31, 2004 and the bank had taken possession of all the moveable and immoveable properties of the company indicating as already highlighted earlier the dire financial straits of the company, the sudden improvement in financial performance during the quarter ended June 2005 does not appear to be credible.
14. Some of the latest corporate announcements by the company, as obtained from BSE, include the following:---------------------------------------------------------------------Date/ & Publication Corporate Announcement---------------------------------------------------------------------24-05-2005 Informed to Konkan Tyres Board Meeting on May 30, 2005:Exchange at Konkan Tyres Ltd has informed01:20:24 P.M. BSE that a meeting of the Board of Directors of the Company will be held30-05-2005 Informed to Konkan Tyres - Outcome of Board Meeting:Exchange at Konkan Tyres Ltd has informed BSE that02:02:23 P.M. the Board of Directors of the Company at its meeting held on May 30, 2005 , 2.
The Board of Directors has decided to go very aggressively in grabbing 3.
The Board has decided to acquire the production facility from the existing06-06-2005 Informed to Konkan Tyres secures export order from Mirador Traders, Dubai:Exchange at Konkan Tyres Ltd has informed BSE that11:31:21 A.M. the Company has received an order from Mirador Traders, Dubai, UAE for the04-08-2005 Informed to countries like Gulf Countries, Australia and UK, which is the part of21-06-2005 Informed to Market. Konkan Tyres - Expa nsion Program:Exchange at Konkan Tyres Ltd has informed BSE that12:16:32 P.M. after seeing the growing demand in Tyre Industries & rapid growth of Automobile11-07-2005 Informed to Kokan Tyres to further expand its Tyre Manufacturing unit:Exchange at Kokan Tyres Ltd has informed BSE that06:47:56 A.M. after completion of its first Phase by working with 100% capacity in its04-08-2005 Infored to Konkan Tyres starts remoulding of tyres at its Chiplun manufacturing unit:Exchange at Konkan Tyres Ltd has informed BSE that02.07.31 P.M. after completion of its first Phase by working with 100% capacity and alsoExchange at 10:40:31 A.M. Konkan Tyres Ltd has informed BSE that the Register of Members & Share 15. The tabulation of a flurry of corporate announcements demonstrates aggressive advertisement of the future plans of the company which inter alia include expansion into other Automobile Industrial Products, raising Rs 100 million by way of issuing any debt instrument in Overseas or Domestic Market for requirement of expansion and acquisition in the on going business, opening Marketing Offices in Overseas, acquiring the production facility, receipt of order from Mirador Traders, Dubai, UAE for the supply of 20 Containers of Procured Tread Rubber having appx. value of Rs 32.50 million, increasing the plant capacity by 100% in 2 months etc.
16. In the light of the past poor track record of the company till March 2005, which included the company's account being declared as an NPA during the financial year 2003-04, the sudden holding out of hope and promise of a bright future through aggressive pub lic announcements in the past 4-5 months appears to have more of conjuror's touch to it.
Such announcements coupled with the rise in the price and trading volume of the share during the same period, as analysed in the succeeding paragraphs, accentuates the gnawing doubt in regard to the sincerity of the promoters and the credibility of the announcement.
17. The corporate announcements, as above, were made between May 24, 2005 and August 11, 2005. During the period March 1, 2005 to May 23, 2005, the price of the share of KTL on BSE opened at Rs. 5.70 and closed at Rs. 9.00 i.e. an increase of 58% in 58 trading days.
Thereafter, during the period May 24, 2005 to August 11, 2005, the price of the share opened at Rs. 9.51 and closed at Rs. 23.84 i.e. an increase of 151% in the next 58 trading days. The average daily traded quantity has increased from 7922 shares during the pre-announcement period to 64,432 shares during the period of announcement. The coincidence between the steep rise in price and trading volumes and the flurry of favourable corporate announcements is intriguing leading to the inevitable conclusion that both the price and volume are artificial, driven by such announcements.
18. To verify the factual position the following information from KTL by e-mail on September 24, 2005 was sought: 2. Is the company present engaged in business activity? If yes, what is the nature of activity e.g. manufacturing, trading etc., mention the product names and other details.
3. What was the turnover of the company during the years 2003-04 and 2004-05? 4. Has the company received export order to the tune of Rs. 3.25 crore from Mirador Traders, Dubai during June 2005? Has the company opened Letter of Credit for the above transaction? If yes, give the date of LC, validity period and the name of bank and branch where LC has been opened? 5. As per the annual report of the company for the year 2003-04, all the assets of the company has been taken possession of by the Bank and the loan account of the company is an NPA. In the light of the above, how does the company propose to fullfill the export order? 6. In view of the precairous financial position of the company, it does not appear that the company would be able to fulfill the export order. Please comment.
7. Does the company have any manufacturing facilities that are presently operational? 8. If the company proposes to execute the export order through purchase from the market, furnish the name and address of the supplier from whom the material is proposed to be procured from, the purchase cost and how the company proposes to make the necessary payment for the same?" 19. KTL was advised to furnish its reply by September 26, 2005.
Although the questions afforded replies which the company could have easily responded to, no reply has been received as yet.
20. In view of the artificial price rise in the share, BSE has taken surveillance measures in respect of trading in the share. The surveillance actions in the share taken by BSE during the relevant period were reduction in circuit filter applicable to the share from 20% to 10% on May 18, 2005 and further reduction in circuit filter to 5% on June 30, 2005.
Trading in the share by major clients between March 1, 2005 and September 21, 2005 21. The trading by major clients brings out several curious findings.
It is seen that there has been substantial trading, both buying and selling of the shares of the company by the promoters and its associate entities, resulting in a net sale of 2,79,504 shares during the period when the price of the share was artificially jacked up. Besides the details of dematerialized holdings of major shareholders during this period includes holdings by several brokers. The table below giving the major trading clients in the share during the relevant period indicates that the net sales by these clients during this period was 9,78,964 shares. The trading by the promoters was mainly done through three major broking firms namely, Bhupendra M Bheda, DSE Securities Ltd. and Unique Brokers Ltd., all members of BSE. The major trading clients in the share during the relevant period are as below:Table 4 - Dealings by major clients----------------------------------------------------------------------------------------S.No. Name of Broker Name of client Purchase Sale Net----------------------------------------------------------------------------------------1 DSE Securities Ltd. Anil Khanna 87257 75251 120062 DSE Securities Ltd. Madan Mehta 44051 32798 112533 DSE Securities Ltd. Sunayna Bhel 22500 12800 97004 DSE Securities Ltd. Bhupinder Singh Sawhney 11892 106925 -950335 DSE Securities Ltd. Fathesingh Solanki * 52414 226733 -1743196 DSE Securities Ltd. Indu Soni 43125 85969 -428447 DSE Securities Ltd. Konkan Capfin Ltd and Olympic Agro (Director Omprakash Soni) 23771 176081 -1523108 ARJ Securities Pvt. Ltd. Ashit Shah 21500 11500 10000 Stock Brokers Pvt. Ltd. Drishti Securities Pvt. Ltd. 0 174101 -17410110 Active Finstock Pvt. Ltd. Pragnesh Patel 54900 57400 -250011 Active Finstock Pvt. Ltd. Hiren Shah 0 12812 -1281212 B. M. Gandhi Securities Gandhi Securities Pvt. Ltd. 25000 16000 9000 Pvt. Ltd. (Narendra Gandhi)13 B. M. Gandhi Securities Rajeshwari Gandhi 27650 29650 -200014 Peninsular Capital Market Savitha Panwar 99350 98850 50015 Bhupendra M Bheda Konkan Capfin Ltd 23771 176081 -15231016 Unique Brokers Ltd. Olympic Agro Industries 900 51675 -5077517 Bhupendra M Bheda Indu Soni 43125 85969 -4284418 UNIQUE STOCKBROKER LTD. Indu Soni 2000 35575 -3357519 India Broking Ltd. Jaysingh Desai 800 39800 -3900020 Jash Securities Pvt. Ltd. Hariom Investment 0 57000 -57000 and Sumat P. Jain (Bhavesh Pabari)------------------------------------------------------------------------------------------ Total 584006 1562970 -978964------------------------------------------------------------------------------------------* The entity at sr. no. 5 above, has received 1,00,000 shares in off market from Konkan Capfin Ltd (director Shri Omprakash G Soni apparently the chairman of the company).
22. From the above, it is seen that the major clients have together bought 5,84,006 shares and sold 15,62,970 shares on gross basis and were net sellers to the extent of 9,78,964 shares. Out of the above, Konkan Capfin Ltd and Olympic Agro Industries ( having a common Director Shri Omprakash Soni apparently the Chairman of KTL) and Smt.
Indu Soni (having the same address as that Shri Omprakash Soni, apparently the Chairman of KTL) are related to each other and also related to KTL in view of common directorship / address with Shri Omprakash Soni apparently the Chairman of KTL. They altogether bought 69,796 shares and sold 3,49,300 shares accounting for 1.18% and 5.88 % respectively of the total market volume. Thus, the promoter related entities have together sold 2,79,504 shares on net basis.
23. In addition to the promoter entities' own sales, Konkan Capfin Ltd., an entity related to the promoter of the company has made an off-market transfer of one lakh shares to Shri Fateh Singh Solanki who in turn was a net seller to the tune of 1,74,319 shares. The share of KTL is in 'Z' group of BSE and hence all trades need to be settled by delivery and no square off is permitted. It can be inferred tha t the off-market transfer by Konkan Capfin Ltd. was done to enable Shri Fateh Singh Solanki to meet his delivery obligations for the shares sold by him.
24. The details of top 25 shareholders of KTL as per the dematerialized account holdings at NSDL and CDSL as on June 30, 2005, July 31, 2005, August 31,2005 and September 21, 2005 were examined. The dematerialized holdings by the major shareholders as on the above dates is summarized below:Table 5 - Major account holders in the depositories--------------------------------------------------------------------------------------Name of holder 30-Jun-05 31-Jul-05 31-Aug-05 21-Sep-05--------------------------------------------------------------------------------------OMPRAKASH G SONI 100000 0 58400 66800NIMESHA OMPRAKASH SONI 50000 0 0 0INDU SONI 26238 0 19386 19386FATEH SINH SOLANKI 25000 4800 0 0BHUPINDER SINGH PREHLADSINGH SAWHNEY 25000 55825 0 0KEVAL SHARE BROKING P LTD 0 58145 0 0NIRMIT SHARES BROKING PVT Ltd 0 32190 0 0SSKI INVESTOR SERVICES PVT LTD - DEBIT TRF 0 28350 10595 13495SHRI PARASRAM HOLDINGS PVT.LTD. 0 16401 0 0MARWADI SHARES AND FINANCE PVT. LTD. 0 0 29980 32030VISHNUKUMAR KHANDELWAL 0 15600 21100 21100ANAGRAM STOCKBROKING LTD 0 0 21000 22200DHAVAL R KOTHARI 0 0 16000 20700ESSKEY RUBBER INDUSTRIES PVT LTD ESSKEY 144800 0 78000 5600BHUPENDRA MEGHJI BHEDA B.M.BHEDA 51456 15064 0 0ANGEL BROKING LIMITED. 16658 15749 17858 25492ANGEL LASSIC TYRES PVT LTD. KLASSIC 10806 0 0 0MANGAL KESHAV SECURITIES LTD B-GOKUL(JAIPUR) 10500 19750 0 0PRAGNESH VASANTBHAI PATEL 0 46200 0 0SKSE SECURITIES LTD A/C. 64 SKSESL 0 25295 0 9750LAURIE KERSI CHINOY 0 20000 0 4000GANDHI SECURITIES PVT LTD GANDHI SEC P Ltd 0 17500 5850 0SYKES & RAY EQUITIES (I) LTD. SRE189BENEFICIARY 0 0 55900 19770MOHAN CHUGH SECURITIES PVT. LTD .
0 0 41328 33747ANGEL INFIN PRIVATE LIMITED M.BNL 0 0 10800 10500VSE STOCK SERVICES LTD VSEL 0 0 0 11498-------------------------------------------------------------------------------------- 25. From the above, it is seen that during July 2005, the dematerialized holdings of the entities which is apparently a part of the promoter group viz. Shri Omprakash G Soni, Smt. Nimesha Omprakash Soni and Indu Soni have declined to zero. During August 2005, the dematerialized account holdings of Shri Omprakash G Soni and Indu Soni increased by 77786 shares and there was no holding by Smt. Nimesha Omprakash Soni. During Sep. 2005 (till Sep. 21, 2005), the holding of Shri Omprakash G Soni increased by 8400 shares and there were no changes in holdings by Smt. Nimesha Omprakash Soni and Indu Soni.
26. The dematerialized account holding in KTL shares by Esskey Rubber Industries Pvt Ltd which is categorized as a person acting in concert with promoter has reduced by 1,44,800 shares during July 2005.. The trading data of the top 25 clients furnished by BSE includes transactions by the clients who have made gross sales of 37575 shares or more. The reduction in dematerialized holding of Esskey Rubber is higher than the 37,575 shares threshold. However, Esskey Rubber does not appear amongst the major trading clients identified by BSE. This leads to the inference that Esskey Rubber may have indulged in off-market transaction. However, the report of off-market transfer of one lakh shares and more during the month of July 2005 does not reveal any transfers by Esskey Rubber and hence the off-market transfers might have been done in small quantities (less than 1 lakh shares) to one or more entities.
27. During the period from March 1, 2005 to September 21, 2005, the price of the share of KTL on BSE has increased from Rs. 5.70 to Rs. 18.80 representing a rise of about 230% in 143 trading days. In particular on August 11, 2005 the total value of trades was as much as Rs. 80.90 lakhs compared to the maximum value of trade on any day between January 1997 and February 2005 which was only Rs. 3.41 lakhs on November 16, 2004. The increase in price and trading interest in the share is unprecedented when compared to the price during the last 8 years or so. Besides the trading volume which was very low during that period suddenly showed a significant rise during the past few months in this year when as much as 41,000 shares were traded daily.
28. The sudden price rise and spurt in trading volume in the share does not pass muster in the light of the past performance of the company till the financial ending March 31, 2005 and is apparently sought to be propped up through aggressive public announcements which conjured up a rosy picture of the company, to beguile the investors at large. The beneficiaries of these steps are the promoters and associate entities who have been continuously selling their holdings while at the same time the company is going on making positive announcements aggressively. The methodology appears to be trite and well tried out as is evident in several other similar cases in which SEBI has already taken action.
29. Besides attempting to benefit from artificial propped up prices, the promoters of the company also attempted to mislead the public by classifying some of the promoter holding as public holding. The effect of this misclassification is that when the promoters sell their shares which are classified in the public category, the same would not reflect in the reduction in the promoter holding and the investors will be kept in dark regarding the off-loading by promoters.
30. The price rise and increased trading interest has enabled the promoters to sell some of their holdings. If this state of affairs is allowed to continue, it is apprehended that innocent investors would be lured to invest in the shares of the company at the apparently inflated price and thereby providing an opportunity to the present promoters / substantial share holders of the company to offload their holding with unjust gains.
31. All the above clearly indicates a careful designing and orchestration of a plan by the promoters to make personal gains at the expense of investors by enticing them to participate in the trading of the shares of the company.
32. The findings of preliminary enquiry as detailed above bring out a prima facie case of violation of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003. SEBI is initiating formal investigations into the matter.
33. Therefore, in view of the grave emergency and to save the investors and the securities market from further acts of the concerned entities, in exercise of the powers delegated to me by the SEBI Board in terms of Section 19 of the Securities and Exchange Board of India Act 1992 read with Section 11B and 11(4)(b), pending investigation and passing final order, I hereby issue the following directions, by way of ad interim, ex-parte order 34. The promoters and directors of KTL namely, S/ Shri O G Soni, Sunil Kumar Menon, Ramesh Kumar Putta, Fateh Singh Solanki, Narayan N Iyerare, Smt Indu Omprakash Soni, Konkan Capfin Ltd, Olympic Agro Industries and Esskey Rubber Industries Pvt Ltd. are hereby directed not to buy, sell, pledge or deal in securities of KTL, directly or indirectly, till further directions in this regard. KTL is directed not to issue any equity shares or any other instrument convertible into equity shares or alter its capital structure in any manner till further directions in this regard.
35. That the brokers of BSE namely, Bhupendra M Bheda, Unique Stock Brokers Ltd. and DSE Securities Ltd. through whom the promoter entities have dealt are hereby directed not to buy, sell or deal in secur ities of KTL on behalf of the above-mentioned promoters and directors, directly or indirectly, till further directions in this regard.
36. Further the entities/persons against whom this direction is issued may file their objections, if any, to this order within 15 days from the date of this order and, if they so desire, avail themselves of an opportunity of personal hearing at the Securities and Exchange Board of India, Head Office, First Floor, Mittal Court B wing, Nariman Point, Mumbai 400 021 on a date and at a time to be fixed on a specific request, to be received in this behalf from the entities/persons within 15 days from the date of this order.