1. Havells India Ltd. (hereinafter referred to as HIL) was promoted by Shri Qimat Rai Gupta and Shri S. K. Gupta. HIL was incorporated as Havells Pvt. Ltd. in August, 1983 and converted into a public limited company in March, 1992. It started by producing miniature circuit-breakers and distribution boards in 1984. It entered into a technical collaboration with Christian Geyer, Germany to manufacture miniature circuit breakers in India. In 1991, it was amalgamated with Elymer Havells Pvt. Ltd. 2. The National Stock Exchange based on a market alert received for the period October - December 2002, scrutinised the trading pattern in the scrip of HIL for Settlement nos. 2001141W to 2001151W (i.e. for the period October 15, 2001 to December 28, 2001) due to the high trading activity in an illiquid scrip.
3. Further investigations conducted by the Securities and Exchange Board of India (hereinafter referred to as SEBI) brought out that two NSE brokers - M/s. O. J. Financial Services Ltd. (hereinafter referred to as OJFSL) and M/s. Emerging Securities Private Limited (hereinafter referred to as ESPL) based at New Delhi had together contributed 96.70% of the gross traded quantity during the period. Two clients, M/s. Focus Portfolio Pvt. Ltd. (hereinafter referred to as Focus) and M/s. Hind Comtel Ltd. (hereinafter referred to as HCL) had contributed to the entire volumes from these brokers respectively.
4. It was revealed during the investigations that total transactions performed by the two brokers comprised of 66 structured deals between these two clients accounting for a gross traded quantity of 1,79,600 shares which constituted 95.76% of the gross quantity traded during the period under scrutiny. It was also revealed that both the clients shared the same address, M-19, Munish Plaza, 20, Ansari Road, Darya Gunj, New Delhi - 110002.
5. HCL has traded in all the 11 settlements during the investigation period. The client has bought 45,000 shares and sold 45,000 shares in the entire period under scrutiny. The total traded quantity by HCL was 47.99% of the total gross quantity for the entire period. As the buy quantity equalled the sell quantity, the net traded quantity was nil for each settlement and no delivery was given or taken. The transactions of HCL have matched exactly with those of Focus in all the 11 settlements under scrutiny and these transactions were synchronised in nature where the order times for the buy and the sell orders is either nil or close to zero.
6. Based on the above findings of the investigation, it was alleged that HCL along with the other client Focus have created a false and misleading impression of trading in the scrip of HIL for the period under scrutiny by entering into synchronised deals, thereby violating the provisions of Regulation 4 (b) and (d) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995.
7. Pursuant to the investigation, a show cause notice No.IVD/ID3/PKB/JJS/HIL/1213/04 dated 19th January,2004 was issued to HCL and its Director Shri L. N. Agarwal under Section 11 (4) (b) read with Section 11B of the SEBI Act,1992, read with the provisions of Regulation 11 and 13 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 2003 asking them to show cause as to why suitable directions including such directions prohibiting them from buying, selling or dealing in securities for a specified period should not be issued. It was also mentioned that if they failed to submit any reply within the stipulated period of 21 days, it would be construed that they had no explanation to offer and SEBI would be constrained to pass such orders as specified in terms of the Act and Regulations. However, neither HCL nor its Director Shri L. N. Agarwal replied to the said show cause notice.
8. Further to the above, an opportunity of hearing was granted to HCL and its director Shri L. N. Agarwal on 3rd April, 2004 by the then Whole Time Member, Shri A. K. Batra and on 19th January, 2006, before me. Shri Hans Raj Chugh, a practicing Chartered Accountant, holding power of attorney from HCL appeared and represented HCL before me. He submitted that he had nothing more to add to the explanations given on behalf of HCL at the time of investigation. He also submitted that Shri L. N. Agarwal had deceased and therefore no further proceeding could be possible against him. As against HCL, he prayed for a lenient view considering the hapless state of affairs of HCL.
9. I have considered the findings of the investigation, the submissions of HCL at the time of investigation, the show cause notice issued to HCL and the submissions made on behalf of HCL at the time of hearing before me. Now, I proceed to analyse the charges against HCL and its Director Shri L. N. Agarwal and the response in this behalf, to arrive at a conclusion as to the validity of the charges or otherwise.
10. I have noted the submission that Shri L. N. Agarwal had since deceased during the pendency of proceedings in this case. Consequently, no proceeding survives as far the charges against Shri Agarwal are concerned. Therefore, I hereby direct that the charges against Shri Agarwal be dropped forthwith.
11. I note from the submissions of HCL at the time of investigation that the scrip of HIL was a good prospect and earning profit was the only motive for trading the scrip at the time, as was also the case in other scrips dealt with by HCL. I see that no plausible explanation was forthcoming from HCL as to the synchronization of the transaction with Focus but for the profit motive. The client has denied any link between itself and Focus or HIL.
12. I observe that HCL was a shareholder of HIL and held 1,62,100 shares constituting 3.25% of the share capital of HIL as on September 8, 2000. As on December 31, 2001, HCL continued to hold 1,76,852 shares constituting 3.55% of the share capital of HIL. As on June 26, 2002, HCL held 2,22,750 shares constituting 4.47% of HIL. All the synchronised deals executed through the broker ESPL were executed by the User IDs 7773, 7774 and 7775 which are located at the registered and correspondence office of the broker - 106, Oriental House, Gulmohar Park Commercial Complex, Yusuf Sarai, Delhi-110049.
13. I further observed that there were 66 synchronised deals accounting for a gross traded quantity of 1,79,600 shares accounting for 95.76% of the gross quantity for the market during the period under scrutiny. The gross traded quantity of these synchronised deals ranged from 97.12% to 99.56% of the gross quantity to the market for the respective settlements. I also observe that synchronisation of the order times as observed in this case was so accurate that in 39 instances there is 'zero' time difference, there was a time difference of upto 1 second in 22 transactions and 4 transactions where the time difference for the order entry of the buy and sell was 2 seconds. The client could not explain the synchronisation and there hardly appears to be any investment purpose / objective to these transactions since there has been no delivery involved in any of these transactions. Thus, I hereby conclude that these transactions have been carried out to create a false and misleading appearance of trading in the scrip of HIL in the market, especially considering that the scrip at the time of the investigation was very illiquid.
14. I observe that HCL is sharing the same office address with Focus.
However, HCL has denied any relation with the Focus or HIL. I do not find the submission of HCL satisfactory, especially in view of the large number of synchonised deals that have been put through by the two clients within fractions of second difference or even zero time difference.
15. After taking into consideration the material and evidence gathered during the investigations in the price manipulation in the scrip of Havells India Limited, I conclude that M/s. Hind Comtel Ltd. had acted in a manipulative manner in order to create an artificial market and disturb the market equilibrium in the scrip of Havells India Ltd, which is detrimental to the stability of the securities market and for the interest of investors. Therefore, I find that M/s. Hind Comtel Ltd. is guilty of violating the provisions of regulation 4 (b) and (d) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995.
16. By such false appearance of trading and creating false impression of liquidity in the securities market and its continuance thereof, innocent investors would be induced to trade unless these unscrupulous activities are prevented/ contained in the securities market. I find that it is a fit case for issue of directions against M/s. Hind Comtel Ltd. whose conduct is detrimental to the interests of investors and the securities market.
17. Therefore, in exercise of the powers conferred upon me by virtue of Section 19 read with Sections 11 (4) (b) and 11B of the Securities and Exchange Board of India Act, 1992, read with Regulations 4 (b) and (d) of the SEBI ( Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations,1995 read with regulation 11 and 13 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations,2003, I hereby direct that M/s. Hind Comtel Ltd. be prohibited from buying, selling or dealing in securities, directly or indirectly, for a period of six months.