Full Judgment
1.2 Both these companies have been promoted by Shri Saurabh Kumar Tayal and as of June 2007, the following promoters are common in both the companies as disseminated on the exchange website: o Saurabh Kumar Tayal It is also gathered from the website www.capitaline.com that the following companies are group companies of Krishna Group which is promoted by the Tayal family and that Shri P.K. Tayal is the Chairman of the group o KSL & Industries Ltd (KSLIL) o Krishna Lifestyle Technologies Ltd o Krishna Knitwear Technology Ltd (KKT) - not listed o Rajasthan Bank Financial Services Ltd - not listed JTREL is not shown as a group company; however, it is pertinent to mention that the JTREL and KSLIL both have been promoted by Shri Saurabh Kumar Tayal and share 5 other common promoters. This prima facie suggests that JTREL also belongs to the Tayal family.
1.3 It is observed that some entities apparently connected to the promoters of KSLIL and JTREL have been continuously dealing in the shares of KSLIL and JTREL in a manner prima facie inconsistent with the interest of the investors and SEBI Regulations. Such entities have been identified as below: Table 1: Entities connected to the group companies of Tayal Family Entity Link with promoter (Tayal Family) EDC Securities Ltd. o Appearing in the promoter category of KSLIL as on quarter ending March 2005. KSLIL is a group company of Krishna group promoted by Tayal family.
o Similar address as that of KSLIL Nitish Nayak o Shares same telephone number as that of EDC Securities Ltd, which is connected to one of the group companies of Tayal group.
o As per KYC form filed with the broker, EDC securities Ltd is shown as the introducer.
o He has shown KKT as his employer which appears to be the short name of a the group company of Tayal family viz Krishna Knitwear Technology Ltd (KKT) o Resides at Silvassa, where the registered office of KKT and Jayshree Petrochemicals Ltd. o Appearing in the promoter's category of both Krishna Lifestyle Technologies Ltd. & Eskay Kn IT India Ltd, group companies of Krishna group promoted by Tayal family.
Company background of JTREL and KSLIL 1.4 Jaybharat Textiles And Real Estate Ltd was incorporated on February 21, 1985 as Classic Synthetic and Silk Mills Ltd. and its name was changed on April 27, 1989 to Jaybharat Sarees Ltd. Subsequently foraying in to the realty business, the company passed a resolution during an Extra Ordinary Meeting (EGM) held on 02/09/2005 for change in its name to Jaybharat Textile and Real Estate Limited. The company is presently engaged in the textile business of ring doubling and manufacturing of cotton yarn by rotor spinning at Gujarat 1.5 KSL & Industries Ltd, is registered in 1975 as a partnership firm; Krishna Hosiery Mills & was converted into a private limited company in 1983 and subsequently into a public limited company on 1 April 1992.
The name was changed to Krishna Texport & Capital Markets in September 1994. The company is now known as KSL & Industries Ltd. It manufactures and exports specialty knitted fabrics. It had commenced operations as a small-scale knitting unit in Dombivli in 1975, and diversified into dyeing and processing of knitted fabrics in 1979.
Shareholding pattern of JTREL and KSLIL 1.6 The shareholding pattern of JTREL and KSLIL is as follows; Table 2 : Shareholding pattern of JTREL and KSLIL JTREL as on 30-06-2007 Individuals / Hindu Undivided Family Financial Institutions / Banks 781250 Bodies Corporate Individuals/Foreign Nationals 149 Individuals holding nominal share capital in excess of Rs. 1 Lakh Individuals holding nominal share capital up to Rs. 1 lakh 3120860 Total Promoter & Non Promoter 127612500 1.7 The circumstances under which the price and trading volume of the shares of both companies increased and similarities in the manner in which connected entities dealt in the shares of the companies called for an immediate and necessary verification by SEBI, more so when the price rise in KSLIL during the period from October 2006 to December 2006 was followed by an encore in the scrip of JTREL during the period from February 2007 to August 2007, involving the very same common connected entities.
1.8 The preliminary prima facie findings in the course of the same, with regard to the dealing in the shares of KSLIL and JTREL are set out in the following paragraphs.
2. PRELIMINARY PRIMA FACIE FINDINGS 2.1 Dealing in Shares of Jaybharat Textile & Real Estate Ltd (JTREL) Price and volume movement JTREL 2.1.1 The movement in the price and volume of the company for the period Jan 2007 to August 2007 is given below: Table 3 : Price and volume data - JTREL Open Date 2.1.2 During the examination period from February 14, 2007 to May 28, 2007 price of the scrip moved up Rs.93.10 to Rs.192.00 on May 28, 2007 a rise of 106.30%. Further, during the period June 07 to August 07 the price of the scrip further moved up from 190.00 to Rs 405.45. It is also observed that the volume in the scrip has witnessed substantial rise during the period February 07 to August 07.
Dealing in shares of JTREL by connected entities 2.1.3 The trading details of the entities connected to the promoters were analysed for three periods, the first two of which are as given below: Table 4 : Dealing in shares of JTREL by the connected entities during period I and II. rate rate Dimension al Securities Pvt. Ltd. 4,000 R.R.Chokh ani Stock Brokers 1,572 Jayshree Petrochemi cals Pvt. Ltd. Finquest Securities Pvt. Ltd. 89,864 R.R.Chokh ani Stock Brokers 82,677 Senator Securities Pvt. Ltd. 17,610 Total 1,95,723 1,72,923 1,48,101 1,50,466 % of total market volume 64.33% 59.3% 60.3% 2.1.4 Observations on period I (February 14, 2007 to April 25, 2007 ) a. During this period the price of the scrip moved up from Rs 93.10 to Rs 169.10.
b. The entities connected to the promoters have accounted for as high as 72.8% and 64.33% of purchases & sales respectively on majority of trading days during examination period.
c. On majority of the trading days, company related entities were the first to place buy orders at high rates / upper circuit rates.
These entities had also placed / updated majority of the sell orders. Hence, most of the buy and sell orders got executed with each other. The buy orders were placed in tandem with available sell orders in the system.
d. It was further observed that these entities traded among themselves to the tune of 1,06,777 shares, which accounted for 39.72% of the market volume. Out of these, orders for trades executed for 55,372 shares were synchronized which accounted for 20.6% of the market volume.
e. Clients EDC Securities Pvt Ltd and Nitish Nayak (both entities connected to the promoters), each dealt through two different brokers of the same exchange. This type of trading strategy in a single scrip seems to have been adopted by these entities only to divide the concentration so as to put the transactions beyond the pale of scrutiny.
f. The entities altogether appeared as buyers in 73 instances out of total 94 instances of price rise over the last traded price and contributed a rise of Rs.54.45 to the total price rise of Rs.76.4.
g. Out of these 73 instances, on 31 instances these entities were counter parties to each other and these instances contributed price rise of Rs.22.75.
h. Analysis of order log i.e. total orders placed for the scrip revealed that these entities dealing through trading members as mentioned above, contributed an average of 73.8% of the buy order quantity and 73.3% of the sell order quantity. Thus these entities were dominant in terms of concentration of orders while the general investor participation was not significant.
2.1.5 Observations on Period II (April 26, 2007 to May 28, 2007).
a. During this period the price of the scrip moved up from Rs 172.00 to Rs 192.00.
b. Above-mentioned, company related entities have appeared in more than 50% of purchases and sales on majority of the trading days in the period.
c. On analyzing the order log, it was observed that these entities contributed to 60.79% of buy orders and 71.66% of sell orders, when averaging across the trading days. This indicates the significant concentration in trading by the entities connected to the company.
d. On analyzing trades resulting into establishing a new price, it was observed that above mentioned company related entities appeared as buyers in 17 instances out of total 35 instances and altogether contributed Rs.8.65 to the total price rise of Rs.20.05. Out of these trades, on 9 instances these entities were counter parties to each other.
e. It is observed that the entities executed trades among themselves for a total quantity of 59,888 shares all of which were synchronized in nature.
2.1.6 Observations on period III (May 29, 2007 to August 28, 2007).
a. During this period the price of the scrip moved up from Rs 190.00 to Rs 397.70.
b. Further examination of the trading activities in the scrip JTREL during the period May 30, 2007 to August 28, 2007, in addition to highlighting the continuing concentration of the connected entities as observed in the earlier period, revealed the presence of few more entities apparently connected to the group companies of Tayal family. They have also traded in the scrip, the details of which and their connection with the group companies of Tayal family are set out in following tables: Table 5 : Dealing in shares of JTREL by the connected entities during period III. Avory Procon Pvt. Ltd. R.R.Chokhani Stock Broker 80,999 R.R.Chokhani Stock Broker 28,865 Table 6: Entities connected to the group companies of Tayal Family Client Name Connection to the group companies of Tayal family Axon Realpro Pvt. Ltd. o As per BSE client database phone number of Axon Realpro Pvt. Ltd and Nitish Nayak is common.
o Located at Silvassa, which is the registered office of other group companies of Tayal family e.g. KKT, KSLIL ,etc.
o Traded through Finquest Securities Pvt. Ltd, through which other entities connected to the Tayal family also traded.
Avory Procon Pvt. Ltd. o One of the directors of Avory Procon Pvt. Ltd. Shri Anil Kumar Dubey is also a director in Jaybharat Textiles & Real Estate Ltd. o Located at Silvassa, which is the registered office of other group companies of Tayal family e.g. KKT, KSLIL ,etc.
o Traded through R.R.Chokhani Stock Broker, where other entities connected to the Tayal family traded.
MDGNA Developers Pvt. Ltd. o Has common address with Jayashree Petrochemicals Pvt. Ltd. o Traded through R.R. Chokhani Stock Broker, where other entities connected to the Tayal family traded.
2.1.7 During the period May 29, 2007 to August 28, 2007 the scrip witnessed significant rise in its price and volume. The trading volumes pertaining to the above listed connected entities were not as significant when compared to the total market volume as was observed in their dealing in shares of JTREL in the earlier periods. This suggests that significant concentration in trading attributable to the connected entities over the earlier periods between February and May 2007 resulted in rising price and volumes thereby attracting larger investor participation.
2.1.8 It will be noticed that the investors' interest moved up significantly to 95% of the traded quantity as against around 40% noticed in May 2007, prima facie evidencing the impact of concentrated levels of activity earlier driving up the investors' interest and momentum in the trading of the scrip. Such a level of activity in the sequence of pump and dump is fraught with a serious possible downside later.
2.1.9 Therefore, by placing the buy or sell orders at higher price and by indulging the synchronized trades these entities have contributed to price rise and also to increase in the trading volume in the scrip. The trading activities of these entities connected to the promoters have not only resulted in artificial price rise but also created artificial volume in the scrip. This prima facie indicates that these entities, irrespective of connection with promoters or otherwise, appear to have violated following Regulations of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003: No person shall directly or indirectly 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 No person shall directly or indirectly indulge in an act which creates false or misleading appearance of trading in the securities market Regulation 4(2)(b) No person shall directly or indirectly deal in a security not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress or cause fluctuations in the price of such security for wrongful gain or avoidance of loss; Regulation 4(2) (g) No person shall directly or indirectly enter into a transaction in securities without intention of performing it or without intention of change of ownership of such security; 2.2 Dealing in Shares of KSL & Industries Ltd (KSLIL) Corporate announcements made by the company 2.2.1 The company has made the following major corporate announcements during the month of June 01, 2006 to December 18, 2006; Table 6: Corporate announcements of KSLIL Date KSL & Industries Ltd has informed BSE that the members at the 24th Annual General Meeting (AGM) of the Company held on June 06, 2006, inter alia, have passed the following businesses: Subject to the approval of Central Government the Members of the Company have given their consent for changing the name of the Company from "KSL & Industries Ltd" to "KSL Realty & Infrastructure Ltd" 31-Oct-2006 Board of directors of the company has approved the following.
Raising funds for expansion for textile as well as real estate business through private placement of Equity or Preference Shares or fully Convertible Debentures or GDR or Share Warrants or any other instrument as the Board may deem fit.
1-Nov-2006 The Board of Directors of the Company at its meeting held on October 26, 2006, inter alia, has considered and approved the following: Approved raising of funds for expansion for textile as well as real estate business through private placement of Equity / Preference Shares / Fully Convertible Debentures / GDR / Share Warrants or any other instrument of Equity Nature.
23-Nov-2006 KSL & Industries Ltd has informed BSE that a meeting of the Board of Directors of the Company will be held on November 30, 2006, inter alia, to consider new real estate projects at multiple states in India in addition to existing real estate project at Nagpur.
30-Nov-2006 KSL & Industries Ltd has informed BSE that the Board of Directors of the Company at its meeting held on November 30, 2006, inter-alia, has considered and approved the following: New Real Estate Projects at multi states and multi location comprising of Malls, Multiplexes, I.T. Parks, Commercial Space, Hotels, Residential Buildings, Warehouses, Restaurants aggregating approximately 2 crores square feet.
With the permission of the chair, the Board has also considered and accepted the Sanction Letter received from General Insurance Corporation of India for investment in the Equity Shares of the Company.
The Board has considered Preferential Issue of Equity Shares to Institutions for Textiles and Real Estate Projects of the Company.
The Notice of Extra Ordinary General Meeting to be held on December 26, 2006 for passing the resolution u/s 81(1 A) of the Companies Act, 1956 has been approved by the Board.
12-Dec-2006 KSL & Industries Ltd has informed BSE that the Board of Directors of the Company at its meeting held on November 30, 2006, has considered and accepted the sanction letter received from General Insurance Corporation of India agreeing to subscribe for Equity Shares of the Company aggregating Rs 30,00,00,000/-. The Extra Ordinary General Meeting (EGM) of the members of the Company will be held on January 09, 2007 for passing special resolution for issue and allotment of 1401870 Equity Shares of Rs 4/- each on Preferential basis to General Insurance Corporation of India at the subscription price of Rs 214/-. The issue price has been arrived at Rs 214/- as per SEBI (DIP) Guidelines.
2.2.2 It is observed that the most of the announcements pertain to plans drawn up in real estate business and all these announcements have been made during the period of realty boom. It is further observed that the company had passed a resolution on June 6, 2006 for change in its name from 'KSL & industries Ltd' to 'KSL Realty & Infrastructure Ltd' seeking to capitalize on the burgeoning realty market. Subsequently, Stock Exchange (BSE) expressed its refusal for the proposed name change, citing reasons of noncompliance with listing agreements. KSLIL did not make any announcement with regard to rejection of name change by BSE on February 7, 2007. However, the company continued to display its name as "KSL Realty & Infrastructure Ltd" on its website i.e.
www.kslindustries.com till July 27, 2007. KSLIL subsequently made an announcement to BSE on July 25, 2007 that the members at the Extra Ordinary General Meeting (EGM) of the Company held on July 24, 2007, have considered and approved the Resolution for change of the Name of the Company from "KSL Realty and Infrastructure Limited" to "KSL and Industries Ltd". Evidently the timely name change and the delay in canceling the same as per the directions of BSE smack of an attempt to wangle unfair gains in terms of market valuation of share price.
Price and volume movement of KSLIL 2.2.3 The movement in the price and volume of the company for the period June 2006 to December 2006 is given below: Table 7: Price and volume data - KSLIL Date 2.2.4 It can be seen from the above table that during the period June 2006 to October 2006 the price of the scrip moved within the range of Rs 78 to Rs 120 and the average monthly volume was within the range of 75,000 to 1,20,000 shares. However during the month of November 2006 the scrip witnessed sudden spurt in price and volume. The price of the scrip moved up from Rs 110.05 to 199.45 while the trading volume of the scrip experienced a jump of more than 3 times from 1 lakh shares in October 2006 to 3.5 lakh shares in November 2006. The dealing in the shares was examined for the period October 23, 2006 to December 18, 2006 when the price of the shares of KSLIL moved from Rs. 73/-to Rs.277.80, a rise of 280.54%.
Announcement of Corporate Results by KSLIL 2.2.5 KSLIL announced following quarterly results during the period September 2005 to September 06.
Table 8 : Financial Results - KSLIL Quarter End 2.2.6 The quarterly results announced by the company show only a gradual rise in the growth of the company. The results presented for quarter ending September 2006, which were released in October 2006 indicates a growth of around 14% over the preceding quarter, whereas the price of the scrip has moved up by more than 280% in the period November to December 2006. This price rise in the scrip does not appear to be explained by the underlying financials of the company for the latest available quarter.
Dealing in shares of KSLIL by connected entities 2.2.7 Observations on period I (October 23, 2006 to December 18, 2006).
Table 9 : Dealing in shares of KSLIL by the connected entities during period I Holding as on Sep 30, 2006 Member Name Net Holding as on Dec 2006 EDC Securities Ltd. (Pravin Tayal) 37,67,940 RR Chokhani Stock Brokers Pvt. Ltd. 3,08,986 Dimensional Securities Pvt. Ltd. 0 R R Chokhani Stock Brokers Pvt. Ltd. 0 Senator Securities Pvt. Ltd. 334717 Jayshree Petrochemicals Pvt. Ltd. 5,06,130 Finquest Securities Pvt. Ltd. 447 644150 %Age total market volume 16.12 67.18 a. During this period the price of the scrip moved up from Rs 73.00 to Rs 244.70.
b. The entities connected to the promoters have sold around 67.18% of total market sale.
c. Trade log analysis reveals that on 94 instances trades executed by these entities have contributed to price rise of Rs.38.60 out of a total rise of Rs.195.40 during the period under examination.
d. The entities have altogether sold 26,84,436 shares at an average price of Rs.164.43 whereas net quantity sold was 20,40,286 shares.
Since these entities were already holding significant quantity of shares, their gain is calculated on the basis of opening price of the examination period, which was at Rs.73. By selling 20,40,286 shares at Rs164.43 the entities connected to the promoters could have made a profit of Rs 18,65,43,349/-. Further it will be seen that Jayshree Petrochemicals Pvt ltd., a connected entity, has dumped its holding during the period of price rise for obvious gains.
e. All the connected entities dealt through two brokers of the same exchange with a view to obfuscating the concentration and the likely scrutiny that the same may entail.
2.2.8 Observations on period II (December 19, 2006 to May 29, 2007,).
Table 10 : Dealing in shares of KSLIL by the connected entities during period II EDC Securities Ltd. (Pravin Tayal) R.R.Chokhani Stock Brokers Pvt.Ltd. 13641 Dimensional Securities Pvt. Ltd. 6021 R.R.Chokhani Stock Brokers Pvt.Ltd. 385310 Senator Securities Pvt. Ltd. 26514 Jayshree Petrochemicals Pvt. Ltd. Finquest Securities Pvt. Ltd. 414823 Networth Stock Broking Ltd. 0 0 Total 846309 %Age to total market volume 55.98 50.73 a. During this period the price of the scrip moved from Rs 235.00 to Rs 219.90.
b. Above table shows that the entities continue to trade in the scrip in huge quantity and accounted for 55.98% of gross purchase & 50.73% of gross sale. The entities connected to the promoters have contributed to the price rise by placing the buy orders at a higher price.
2.2.9 Observations on period III (May 30,2007 to August 28, 2007) Table 11: Dealing in shares of KSLIL by the connected entities during period III % to Total Gross Purchases Gross sell quantity Jayshree Petrochemicals Pvt. Ltd. Finquest Securities pvt.
R.R. Chokhani Stock Broker 475121 R.R. Chokhani Stock Broker 72908 MDGNA Developers Pvt. Ltd. R.R. Chokhani Stock Broker 1905 1022722 a. During this period the price of the scrip moved within the range from Rs 220.00 to Rs 173.40.
b. The examination has further revealed that in addition to entities already identified, few more entities as identified in Table 6 in connection with JTREL, apparently connected to the group companies of Tayal family have also traded in the scrip. Altogether, these entities have contributed around 47% and 51% of the total buy and sell quantity respectively.
2.2.10 The analysis of dealing in shares of KSLIL reveals that during the period October 23, 2006 to December 18, 2006, the price of the scrip has gone up from Rs 73.00 to Rs 244.00 while the connected entities sold around 26.84 lacs shares during the same period.
Subsequently, during the period from December 19, 2006 to August 30, 2007 the price of the scrip has drifted lower from Rs 244.00 to 173.40, while the connected entities maintained a significant trading volume of around 50% of market volume during the same period. It therefore appears that this significant trading activity by the connected entities and the resultant impetus might prima facie be to sustain the interest of investors in the scrip KSLIL, which, in turn might have imparted a steadying influence on the price, amidst the vulnerabilities of selling pressure.
3.1 Sudden rice in the price and volume was noticed in the scrips of KSLIL and JTREL, both of which are related to the Tayal family.
3.2 Following entities connected to the promoters of KSLIL and JTREL were found to be dealing in the shares of these companies: Name of the entity Jayshree Petrochemicals Pvt Ltd AAACJ0934B Axon Realpro Private Limited AAGCA2391H 3.3 It is noticed that some of these entities have indulged in synchronized trades between themselves and also frequently placed buy orders at a higher price. By indulging in this act these connected entities have contributed to price rise and created artificial volume in the scrip, which is in violation of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 3.4 The role of trading members viz. RR Chokhani Stock Brokers Pvt Ltd, Dimensional Securities Pvt ltd, Senator Securities Pvt ltd, Finquest Securities Pvt ltd and Networth Stock Broking Ltd., who dealt on behalf of the connected entities needs to be examined in detail in view of the trading activities by their clients, which prima facie appeared to be inconsistent with the interest of the investors and SEBI Regulations.
3.5 The trading of the connected entities has prima facie played a significant role in causing the price of the scrip to rise and also creating volume in the scrip in order to attract gullible investors to deal in the shares of KSLIL and JTREL.
3.6 These entities have been found to be dealing in the shares of both these companies with a strategic shift viz. first dealing in KSLIL followed by similar concerted activity in the shares JTREL and contributing significant rise in the price and volume. In the case of KSLIL these entities have subsequently sold substantial shares thereby benefiting to the tune of Rs 18.65 crore. The trading by these entities prima facie appears to be carried out with an intention to artificially inflate the price and volume in the scrips thereby inducing lay investors to deal in the shares of these companies. The price rise in these scrips does not appear to be commensurate with the financial results published by the companies. Detailed investigation has been ordered but in the meantime the connected entities continue to deal in shares of JTREL and KSLIL in a manner prima facie inconsistent with the interest of the investors and SEBI Regulations. Therefore there is a need for an urgent and immediate action to prevent these entities from causing further damage or possible loss to investors.
4 Order 4.1 Therefore, in order to protect the interest of investors and the integrity of the securities market, I, in exercise of the powers conferred upon me in terms of Section 19 read with Section 11(1), Section 11(4) (b) and Section 11B of SEBI Act, 1992, pending investigation and passing of final order, hereby issue the following directions, by way of ad interim, ex-parte order: 4.1.1 The following entities viz.
Name of the entity Jayshree Petrochemicals Pvt Ltd AAACJ0934B Axon Realpro Private Limited AAGCA2391H shall not buy, sell or deal in shares of KSL & Industries Ltd and Jaybharat Textile & Real Estate Ltd directly or indirectly; in any manner, till further directions in this regard.
4.1.2 The Depositories shall not give effect to any transfer of shares of KSL & Industries Ltd. and Jaybharat Textile & Real Estate Ltd lying in the beneficial owner accounts of the entities mentioned in para 4.1.1 above.
4.1.3 The above order is without prejudice to any other action that may be initiated against the said violations.
4.1.4 The above order shall take effect immediately. However, the entities/persons against whom this order is issued may file their objections, if any, to this order within 15 days from the date of this order at the Securities and Exchange Board of India, SEBI Bhavan, C4-A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai-400 051.