Judgment:
1.1 Securities and Exchange Board of India (for short SEBI) noticed substantial price rise (235% from the issue price) in the shares of Nissan Copper Limited (for short the company) at the National Stock Exchange of India Ltd. (for short NSE) and the Bombay Stock Exchange Ltd. (for short BSE) on the day of listing (December 29, 2006). The said increase was found to be unusual compared to the other Initial Public Offerings (IPOs) of various companies which were listed during the period October - December 2006. On a perusal of the trading pattern of the shares of the company on the day of listing, around 88% of issue size of the IPO of the company was offloaded. It was also observed from the trading that took place on the next day i.e. January 2, 2007 that the share price of the company reached the upper price band of 20% initially and closed at lower price band amidst large volatility. In the facts and circumstances, in order to protect the interest of investors, SEBI vide letter dated January 2, 2007 inter alia advised the stock exchanges to withhold the pay-out of securities and funds for the trading done on December 29, 2006 and January 2, 2007 for a period of 15 days. Thereafter, SEBI vide order dated January 17, 2007, for the reasons stated therein pending investigation and passing of final order, inter alia directed BSE and NSE to withhold the profit/gains of various persons/entities including Shri Mukesh Agarwal, Shri Tanmay Agarwal and Smt. Sharvari M Agarwal in a separate escrow account. SEBI also granted an opportunity to the persons/entities mentioned in the said order, to file their written objections, if aggrieved, within 15 days from the date of the said order.
1.2 Subsequently, SEBI on April 5, 2007 granted an opportunity of hearing to Shri Mukesh Agarwal, Shri Tanmay Agarwal and Smt. Sharvari M Agarwal (hereinafter referred to as the noticees). Shri Mihir Thakore, Sr. Advocate appeared on behalf of the noticees and inter alia submitted that the noticees had not purchased the shares of the company except which were allotted to them at the time of initial allotment in the IPO of the company. He also stated that the allotted shares were sold through a stock broker at 2:30 p.m. on December 29, 2006 for which the instruction was given at 1:30 p.m. In view of the above submissions, the learned advocate requested SEBI to revoke the directions passed vide interim order dated January 17, 2007. Pursuant to the hearing, vide letter dated April 10, 2007, Shri Mukesh R Agarwal inter alia stated that he had sold the shares of the company on the day of its listing, as according to him the price of the said shares was hovering around Rs. 115/- as against the opening price of Rs. 39/- on the date of listing. He also stated that his trade was too insignificant to have any effect on market volume or price. He further contended that there were instances of similar price rise in the shares of other IPOs. He also contended that there was no relationship between the Reniwal group and the noticees except the fact that his sister viz.
Smt. Sweety is married to Shri Rajiv Reniwal of the Reniwal Group. He contended that the mere fact of the noticees sharing a common address did not mean that the sale of the shares took place as a result of pre determined scheme to jack up the price. He also added that the exercise of powers by SEBI inter alia under Section 11(1) and 11(4) of the Securities and Exchange Board of India Act, 1992 (for short the Act) was unjustified and unwarranted. In view of the above, he requested for the release of the monies impounded in terms of the interim order dated January 17, 2007 as he was not responsible for manipulating the price of the shares of the company. Smt. Sharvari M. Agarwal and Shri Tanmay T. Agarwal vide separate letters dated April 10, 2007 took a similar stand as that of Shri Mukesh M Agarwal.
2.1 I have taken note of the materials available on record and the oral as well as written submissions made on behalf of the noticees. In the facts and circumstances, the only issue to be considered in the present proceedings is whether the directions passed vide ad interim order dated January 17, 2007 are to be confirmed, revoked or modified, as against the noticees.
2.2 Before proceeding further, I would like to deal with the contention of the noticees that the exercise of powers by SEBI under various sections as mentioned above was unjustified and unwarranted. The said contention is at once trite and reckons without the attendant circumstances of the case. In this context, I note that the primary function and duty of SEBI is to protect the interests of the investors in securities and to regulate the securities market. SEBI has been mandated to protect the interests of investors in securities by such measures as it thinks fit which provide a large sweep to SEBI. The enabling provisions of the Act must be so construed as to subserve the purpose for which it has been enacted. Further, the powers of SEBI to pass directions (even by way of an interim order) has been judicially recognized. The interim order dated January 17, 2007 was passed in order to protect the interest of investors and the integrity of the securities market. In view of the settled judicial pronouncements in the subject, I do not find it necessary to say anything further on this issue. Accordingly, I do not find any merit in the argument of the noticees in this regard.
2.3 The fact that the noticees were allotted shares in the initial allotment of the company has not been disputed. Shri Mukesh Agarwal, Shri Tanmay Agarwal and Smt Sharwari M Agarwal were allotted (shares of the company) 38020 shares, 44362 shares and 44362 each respectively.
The noticees are closely connected to each other and they share the common address i.e. 4th floor, Commerce House, Near Surel Bungalows, Judges Bungalows Cross Road, Bodakdev, Ahmedabad 380054. It has been observed that on December 29, 2006 and January 2, 2007, the majority of the trades in the shares of the company were made by various clients including one Dimensional Securities which had dealt on behalf of Inducto Steel Ltd. (a company promoted by the Reniwal group). On a perusal of the documents filed by Inducto Steels Ltd. for the scheme of Amalgamation of Haryana Industrial Gases Pvt. Ltd. and Inducto Techno Casting Pvt. Ltd., it was observed that one Shri Mukesh Agarwal was director of the said company and had resigned with effect from August 16, 2005. The said Shri Mukesh Agarwal was also described as the brother of Smt. Sweety Reniwal, Promoter/Director of Inducto Steel Ltd. Therefore, prima facie there appeared to be a nexus between the noticees and the Reniwal group with whom they had not only personal but also business relationship. Further, the shares of the company allotted to the noticees (on the initial allotment of the company) were sold by them on the date of listing and made profits.
2.4 The contention that the trades of the noticees were minuscule and were incapable of giving any effect in the securities market cannot be accepted. While appraising the conduct of any market participant, the same has to be viewed in the overall context of the happenings in the market at the material point of time and can not be viewed in isolation. The ad interim ex-parte order dated January 17, 2007 clearly brings into focus certain abnormalities featuring astronomical price rise of around 235% from the issue price, large traded quantity of around 2,045% of issue size, besides around 88% of issue size having been sold on the first day of listing itself. Such a spurt in price, traded quantity, delivery percentage on the first day of the listing as compared to the listing price and size are not features commonly noticed on the first day of listing. Further, most of the shares obtained on allotment were sold subsequently on the day of listing. The ad interim order dated January 17, 2007, further, indicated that when the Foreign Institutional Investors (FII) group had sold shares of the company on December 29, 2006, entities belonging to Vora group and Reniwal group were on the buy side and that they had purchased majority of the quantity sold by the FIIs. The said groups had placed buy orders much ahead of FII sell orders at lower prices compared to prevailing market prices and the said buy orders were subsequently modified a few seconds prior to sell order entry by the FIIs to a price which matched with sell limit order price of the FIIs. It was also prima facie indicated in the ad interim order that the Vora group and Reniwal group had created an artificial scarcity of shares in the market possibly by entering into structured transactions with FIIs and subsequently made huge profit.
2.5 The entire sequence of trades on the first day of listing indicated a prima facie existence of a design of structuring the trades and matching with the sell limit order price of FIIs for facilitating safe exit for the FIIs and also a likely concerted activity to suck the liquidity of the stock from the market into the hands of few for creating an artificial market. The noticees very much appear to be the unjust beneficiaries of the same, besides their prima facie connection with the operators on the buy side at the beginning of the trade on the first day of listing i.e. December 29, 2006. The submissions made by noticees have not mitigated the apprehension raised in the ad interim order dated January 17, 2007.
2.6 I also note that the investigation in respect of the dealings in the shares of the company is in progress and the documents pertaining to the trades of the noticees (submitted by them to SEBI) including various other details are being examined by SEBI in the ongoing investigation to, inter alia, ascertain the role and involvement of noticees in the seeming market abnormality on the first day of listing.
Also, the suspected unfair gains have been impounded vide ad interim order dated January 17, 2007, pending investigation and passing of final order with a view to ensuring that the same is not spirited out of the system pending verification and ascertainment. I understand that the investigation is in an advanced stage and accordingly it is expected that SEBI would complete the investigation as expeditiously as possible but not later than November 2, 2007. In the meantime, it is imperative in the interest of securities market and genuine investors to confirm the directions passed vide ad interim order dated January 17, 2007 as against the noticees.
3.1 Therefore, in exercise of the powers delegated to me in terms of Section 19 read with Sections 11, 11B and 11(4) of the Securities and Exchange Board of India Act, 1992, I hereby confirm the ad interim order dated January 17, 2007 passed by SEBI against Shri Mukesh Agarwal, Shri Tanmay Agarwal and Smt. Sharvari M Agarwal.
3.2 It is clarified that this order is passed for a limited purpose of confirming the ad interim order dated January 17, 2007 against Shri Mukesh Agarwal, Shri Tanmay Agarwal and Smt. Sharvari M Agarwal only.