BEFORETHEADJUDICATINGOFFICER

SECURITIESANDEXCHANGEBOARDOFINDIA
[ADJUDICATIONORDERNO.AO/AS/03/2014]
___________________________________________________________________________
UNDER SECTION 15I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ
WITHRULE5OFSEBI(PROCEDUREFORHOLDINGINQUIRYANDIMPOSINGPENALTIESBY
ADJUDICATINGOFFICER)RULES,1995.

Inrespectof

1.ShivKumarAgarwal(PANNo.AAVPA0129R)
2.RosydeviAgarwal(PANNo.AARPA2988E)
3.RoselabsFinanceLtd.(PANNo.AAACR9134M)
4.MadhudeviAgarwal(PANNo.AAVPA0127B)
5.SinghalOverseasLtd.(NowRoselabsLtd.)(PANNo.AACCS7304Q)
6.SadiramIndustriesLtd.(mergedintoRoselabsIndustriesLtd.)(PANnotavailable)
7.PawankumarAgarwal(PANNo.AAUPA5769N)
8.RoselabsLtd.(PANnotavailable)

Promoter/PersonActinginConcert

InthematterM/s.GujaratArthLtd
___________________________________________________________________________
FACTSOFTHECASEINBRIEF
1.

SecuritiesandExchangeBoardofIndia(hereinafterreferredtoasSEBI)conducted
an investigation into the alleged irregularity in the trading in the shares of Gujarat
ArthLimited(hereinafterreferredtoasGAL)andintothepossibleviolationsofthe
provisions of the Securities and Exchange Board of India Act, 1992 (hereinafter
referred to as Act) and various Rules and Regulations made thereunder for the
period from October 06, 2003 to January 28, 2004 (hereinafter referred to as
"investigationperiod").

2.

The Investigation revealed that the promoters and person acting in concert
(hereinafterreferredtoasPAC)namelyShivKumarAgarwal(hereinafterreferredto
asShivKumarAgarwalornoticeeno.1),RosydeviAgarwal(hereinafterreferredtoas
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RosydeviAgarwalornoticeeno.2),RoselabsFinanceLtd.(hereinafterreferredtoas
RoselabsFinanceLtd.ornoticeeno.3),MadhudeviAgarwal(hereinafterreferredto
asMadhudeviAgarwalornoticeeno.4),SinghalOverseasLtd.(hereinafterreferred
to as Singhal Overseas Ltd. or noticee no. 5), Sadiram Industries Ltd. (later merged
withRoselabsLtd.)(hereinafterreferredtoasSadiramIndustriesLtd.ornoticeeno.
6),PawankumarAgarwal(hereinafterreferredtoasPawankumarAgarwalornoticee
no.7)andRoselabsLtd.(hereinafterreferredtoasRoselabsLtd.ornoticeeno.8)(all
thenoticeescollectivelyhereinafterreferredtoas"Noticees")offloadedsharesinthe
market through off market transfer in and around the time of misleading
announcementmadebythecompanywhichcreatedartificialvolumeandimpacted
the price of the scrip thus defrauded the investors. They transferred shares in off
market and received back shares which triggered more than 15% of the paid up
capital of the company before transferring again their entire holding in off market
transaction,nopublicannouncementwasmadeandalsotheydidnotfiledisclosures
aspertherequirementofSEBIRegulations.

3.

SEBI has therefore, initiated adjudication proceedings under the provisions of the
SEBI Act against the Noticees to inquire and adjudge the alleged violations of
provisionsofRegulation3(a),(b),(c),(d),4(1)and4(2)(a),(d),(e),(f),(k)&(r)of
SEBI (Prohibition of Fraudulent and Unfair trade Practices Relating to Securities
Market) Regulations, 2003 (hereinafter referred to as the PFUTP Regulations),
Regulation10ofSEBI(SubstantialAcquisitionofSharesandTakeovers)Regulations,
1997(hereinafterreferredtoastheSASTRegulations)andRegulation13(1),(3),
(4) read with 13 (5) of SEBI (Prohibition of Insider Trading) Regulations, 1997
(hereinafterreferredtoastheInsiderTradingRegulations).

APPOINTMENTOFADJUDICATINGOFFICER
4.

The undersigned was appointed as Adjudicating Officer, vide order dated April 02,
2009 under section 15I of Securities and Exchange Board of India Act, 1992
(hereinafter referred to as SEBI Act) and rule 3 of SEBI (Procedure for Holding

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Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter

referredtoasAdjudicatingRules)toenquireintoandadjudgeunder:
a.Section15Hand15HAoftheSEBIActfortheentitiesmentionedatSr.No.1to8
above
b. Section 15 A (b) of the SEBI Act for entities mentioned at Sr. No. 1 and 5 to 8
above

SHOWCAUSENOTICE,REPLYANDHEARING

5.

Show Cause Notice no. ADJ/GAL/AS/175492/2009 dated 03 September, 2009 and

ADJ/GAL/AS/187407/2009 dated December 15, 2009 (hereinafter referred to as
SCN) were issued to the noticee no. 1 and other noticees no. 2 to 8 above,
respectivelyunderRule4ofAdjudicatingRulestotheNoticeestoshowcauseasto
whyaninquiryshouldnotbeheldagainstthemandpenaltybenotimposedunder
Sections 15A(b), 15H and 15HA of the SEBI Act for the alleged violation of the
provisionsofRegulation3(a),(b),(c),(d),4(1)and4(2)(a),(d),(e),(f),(k)&(r)of
SEBI PFUTP Regulations; Regulation 7(1) read with 7(2) of SEBI SAST Regulations;
Regulation10of SEBISASTRegulationsandRegulation13(1),(3),(4)readwith13
(5)ofSEBIInsiderTradingRegulations.

6.

The allegations against the Noticees were that the noticees had issued misleading
corporate announcements on November 1, 2003, December 22, 2003 and January
16,2004andfinancialresultsregardingacquisitionofbusinessofPoonamIndustries,
preferential/rightissue,whichdidnotmaterializeandwhichluredinvestors,leading
to creation of artificial volumes. Further, noticees transferred shares before the
misleading announcement to various entities who thereafter sold shares through
market and offmarket transfers. Noticees also did not make the public
announcements when the threshold limit under SAST Regulations was crossed
during the course of their acquisition of shares in the month of October, 2003.
Further,Noticeesmentionedat5to8alsodidnotfiledisclosuresasrequiredunder
InsiderTradingRegulations.

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7.

Noticee no. 1 vide his letter dated 21Oct2009 and the other noticees vide their
lettersdatedJanuary18,2010submittedtheirreply.Ithasbeenobservedthatthe
replysubmittedbythenoticeesaresimilar.Ithasbeensubmitted,interalia,that:

a) Noticee no. 1 had ceased to be a member of the Board of Directors as on

October09,2003.
b) AllthenoticeeshadsoldtheirholdingsinGujaratArthLtd.onOctober10,2003.
Hence they were unaware and had no knowledge regarding any corporate
announcementsmadeafterit.
c) Allrequireddisclosureshadbeenfurnished.
d) Inrelationtoallegationsagainstnoticeesexceptnoticeeno.1,maderegarding
disclosures under Regulation 7(1) and 7(2) of Takeover Regulations and
Regulation 13(1), 13(3) and 13(5) of Insider Trading Regulations that the
disclosureunderRegulation13(3)ofInsiderTradingRegulationshadbeenmade
tothecompanyon October11, 2003.ThedisclosureunderRegulation13(1)of
InsiderTradingRegulationsandRegulation7(1)ofTakeoverRegulationswasnot
applicableastheshareswerenotacquired.
e) In relation to the allegations against noticee no. 1 regarding disclosures under
Regulation 7(1A) and 7(2) of Takeover Regulations and Regulation 13(4) and
Regulation 13(5) of Insider Trading Regulations, it was submitted that the
Regulation 13(4) of Insider Trading Regulation did not apply anymore to the
Shivkumar as he ceased to be the Director of the Company from October 09,
2003, however as precautionary measure he had made a disclosure to the
companyonOctober11,2003forthesameunderRegulation13(3).Hehadonce
againmadeadisclosureonJune13,2008regardingRegulation7(1A)ofTakeover
Regulationssincehewasunabletotracetheoriginaldisclosurepreviouslymade.
f) TheyhadsoldthesharesofGALtoCavalierSecuritiesLtd..However,theywere
informed later that some of the shares were erroneously credited to wrong
accountsandthesameneededtoberectified.Therefore,thewronglycredited
shares were credited back into their account on October 21, 2003 which were
given credit into the rightful accounts as per the instructions of Cavalier
SecuritiesLtd.onOctober23,2003.Therewasneitheranagreementtoacquire
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the shares nor was it the intent of us to acquire the shares, it is only a
rectificationtoentriesandnoconsiderationwaseitherreceivedorpaidforthe
said transactions. Therefore, procedure under Regulation 10 of Takeover
Regulationsdidnotneedtobefollowed,asitwasmerelyacorrectionofwrongly
creditedsharesandnoshareswereacquiredbythemofGAL.
g) TheshareholdingofthepromotersandPACsforthequartersendingSeptember
2003 and December 2003 was the same. (25,25,995 shares i.e. 48.58%) as per
BSEwebsite.Theywerenotconnectedwiththeoperationsofthecompanyand
theyhadnocontroloverthedaytodayaffairsofthecompany.However,they
werenotholdinganysharesinGALafterOctober2003.
h) They were not aware of advertisement on November 07, 2003 stating that the
companyhadacquiredthebusinessandundertakingofPoonam IndustriesLtd.
w.e.f.July01,2003.Thesaidadvertisementappearedafterdivestmentoftheir
entire promoter holding. They were not aware of the deal. They were not
involvedinthedealwithPoonamIndustriesLtd.

8.

The undersigned granted an opportunity of personal hearing to the Noticees on

variousdates,whichwaschangedtoApril09,2010aspertheirrequest.Thehearing
wasattendedbytherepresentativeoftheNoticeeswherethesubmissionsmadein
the written reply were reiterated and no documentary proof to substantiate the
repliesofthenoticeesweregiven.Noticeesvideletteroftheirrepresentativedated
21April,2010submittedfurtherdocumentsasunder:
a. copiesofintimationtoGALaboutresignationfromdirectorship
b. copiesofdisclosuremadebynoticeeno1underReg.7(1A)
c. copyofcertificateonchangeofnameofSinghaloverseasltdtoRoselabsLtd.
d. copyofDPstatements
e. copiesofbankstatements
f. confirmation that the noticees are proposing to apply under consent
proceedings.

9.

Inotethatnoticeeshavenotappliedforconsentproceedingssubsequently.

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ConsiderationofIssues,EvidenceandFindings

10.

I have carefully examined the charges made against the Noticees as mentioned in
theSCN,Oralandwrittensubmissionsandthedocumentsasavailableonrecord.In
theinstantmatterthefollowingissuesariseforconsiderationanddetermination:
a. WhethertheNoticeeat1abovehasviolatedRegulations3(a),(b),(c),(d),4(1)
and4(2)(a),(d),(e),(f),(k),(r)ofSEBI(PFUTP)Regulations;Regulation10ofSAST
Regulations;Regulation7(1A)and7(2)ofSASTRegulationsandRegulation13(4)
readwith13(5)ofInsiderTradingRegulations
b. WhethertheNoticeesat2to4abovehasviolatedRegulations3(a),(b),(c),(d),
4(1) and 4(2) (a), (d) and (e) of SEBI (PFUTP) Regulations and Regulation 10 of
SEBITakeoverRegulations.
c. WhethertheNoticeesat5&6abovehasviolatedRegulations3(a),(b),(c),(d),
4(1)and4(2)(a),(d)and(e)ofSEBI(PFUTP)Regulations,Regulation10of SEBI
Takeover Regulations and Regulation 13(3) read with 13(5) of SEBI Insider
TradingRegulations.
d. WhethertheNoticeesat7&8abovehasviolatedRegulations3(a),(b),(c),(d),
4(1)and4(2)(a),(d)and(e)ofSEBI(PFUTP)Regulations,Regulation10of SEBI
Takeover Regulations, Regulation 13 (1), (3) read with 13(5) of SEBI Insider
Trading Regulations and Regulation 7 (1) read with 7(2) of SEBI Takeover
Regulations.
e. Whether Noticees at 1 to 8 are liable for monetary penalty prescribed under
Section15Hand15HAoftheSEBIActfortheaforesaidviolation?
f. Whether Noticees at 1 and 5 to 8 are liable for monetary penalty prescribed
underSection15A(b)oftheSEBIActfortheaforesaidviolation?
g. What quantum of monetary penalty should be imposed on the Noticees taking
intoconsiderationthefactorsmentionedinsection15JofSEBIAct?

11.

Before proceeding, I would like to refer to the relevant provisions of the PFUTP,
TakeoverRegulationsandInsiderTradingRegulationswhichreadsasunder:

PFUTPRegulations
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Regulation3Prohibitionofcertaindealingsinsecurities

Nopersonshalldirectlyorindirectly
(a) buy,sellorotherwisedealinsecuritiesinafraudulentmanner
(b) useoremploy,inconnectionwithissue,purchaseorsaleofanysecuritylisted
or proposed to be listed in a recognized stock exchange, any manipulative or
deceptivedeviceorcontrivanceincontraventionoftheprovisionsoftheActor
therulesortheregulationsmadethereunder;
(c) employanydevice,schemeorartificetodefraudinconnectionwithdealingin
orissueofsecuritieswhicharelistedorproposedtobelistedonarecognized
stockexchange;
(d) engageinanyact,practice,courseofbusinesswhichoperatesorwouldoperate
asfraudordeceituponanypersoninconnectionwithanydealinginorissueof
securities which are listed or proposed to be listed on a recognized stock
exchange in contravention of the provisions of the Act or the rules and the
regulationsmadethereunder.

Reg.4Prohibitionofmanipulative,fraudulentandunfairtradepractices

(1)Withoutprejudiceto theprovisionsofregulation3,nopersonshallindulge ina

fraudulentoranunfairtradepracticeinsecurities.

4(2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade

practiceifitinvolvesfraudandmayincludealloranyofthefollowing,namely:
(a)

Indulginginanactwhichcreatesfalseormisleadingappearanceoftradingin

thesecuritiesmarket;
(b)

paying, offering or agreeing to pay or offer, directly or indirectly, to any

person any money or moneys worth for inducing such person for dealing in any
securitywiththeobjectofinflating,depressing,maintainingorcausingfluctuation
inthepriceofsuchsecurity;
(c)

anyactoromissionamountingtomanipulationofthepriceofasecurity;
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(f) publishing or causing to publish or reporting or causing to report by a person

dealinginsecuritiesanyinformationwhichisnottrueorwhichhedoesnotbelieve
tobetruepriortoorinthecourseofdealinginsecurities;
(k)anadvertisementthatismisleadingorthatcontainsinformationinadistorted
mannerandwhichmayinfluencethedecisionoftheinvestors;
(r) planting false or misleading news which may induce sale or purchase of
securities.

TakeoverRegulations

Reg.10Acquisitionoffifteenpercentormoreofthesharesorvotingrightsofany
company

Noacquirershallacquiresharesorvotingrightswhich(takentogetherwithsharesor
voting rights, if any, held by him or by persons acting in concert with him), entitle
suchacquirertoexercise[fifteen]percentormoreofthevotingrightsinacompany,
unless such acquirer makes a public announcement to acquire shares of such
companyinaccordancewiththeregulations.

Regulation 7(1) Acquisition of 5 per cent and more shares or voting rights of a
company

Any acquirer, who acquires shares or voting rights which (taken together with

sharesorvotingrights,ifany,heldbyhim)wouldentitlehimtomorethanfiveper

cent or ten per cent or fourteen per cent or fifty four per cent or seventy four per

centsharesorvotingrightsinacompany,inanymannerwhatsoever,shalldisclose

ateverystagetheaggregateofhisshareholdingorvotingrightsinthatcompanyto

the company and to the stock exchanges where shares of the target company are

listed.

Regulation 7(1A) Any acquirer who has acquired shares or voting rights of a
company under subregulation(1) of regulation 11, shall disclose purchase or sale
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aggregatingtwopercent.ormoreofthesharecapitalofthetargetcompanytothe
target company, and the stock exchanges where shares of the target company are
listedwithintwodaysofsuchpurchaseorsalealongwiththeaggregateshareholding
aftersuchacquisitionorsale.

Regulation7(2)
Thedisclosuresmentionedinsubregulations(1)and(1A)shallbemadewithintwo
daysof,
(a) thereceiptofintimationofallotmentofshares;or
(b) theacquisitionofsharesorvotingrights,asthecasemaybe.

InsiderTradingRegulations

Regulation13(1)Anypersonwhoholdsmorethan5%sharesorvotingrightsinany

listed company shall disclose to the company in Form A, the number of shares or

voting rights held by such person, on becoming such holder, within 2 working days

of:
(a)thereceiptofintimationofallotmentofshares;or
(b)theacquisitionofsharesorvotingrights,asthecasemaybe.

Regulation13(3)Anypersonwhoholdsmorethan5%sharesforvotingrightsinany
listed company shall disclose to the company in Form C the number of shares or
voting rights held and change in shareholdingor voting rights, even if such change
results in shareholding falling below 5%, if there has been change in such holdings
fromthelastdisclosuremadeundersubregulation(1)orunderthissubregulation;
andsuchchangeexceeds2%oftotalshareholdingorvotingrightsinthecompany

Regulation13(4)Anypersonwhoisadirectororofficerofalistedcompany,shall
disclose to the company and the stock exchange where the securities are listed in
FormD,thetotalnumberofsharesorvotingrightsheldandchangeinshareholding
orvotingrights,iftherehasbeenachangeinsuchholdingsofsuchpersonandhis
dependents (as defined by the company) from the last disclosure made under sub
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regulation (2) or under this subregulation, and the change exceeds Rs. 5 lakh in
value or 25,000 shares or 1% of total shareholding or voting rights, whichever is
lower.

Regulation13(5)Thedisclosurementionedinsubregulations(3)and(4)shallbe
madewithin4workingdaysof:
(a)thereceiptsofintimationofallotmentofshares,or
(b)theacquisitionorsaleofsharesorvotingrights,asthecasemaybe.

AllegedViolationsofFUTPRegulations

12.

IobservefromtheinvestigationreportthataspertheBSEwebsite,forthequarter
ended September 30, 2003, Shiv Kumar Agarwal, Madhudevi Agarwal, Singhal
Overseas Ltd. and Sadiram Industries Ltd (later merged with Roselabs Ltd) were
statedtobethepromotersofGALandPawankumarAgarwal,RoselabsFinanceLtd.,
Roselabs Ltd. and Rosydevi Agarwal were stated to be the PAC. The shareholding
detailsindicatedthatasonquarterendingSeptember2003andDecember2003,the
promoters were holding 11,14,700 shares (21.44%) and PACs were holding
14,11,295 shares (27.14%) thus together holding 25,25,995 shares (48.58%) as on
September2003andDecember2003.

13.

From the investigation report it is also observed that prior to the investigation
period,thescripofGALwastradedirregularlyandfromAugust01,2003toOctober
06,2003,thescripwastradedononly3dayswithonetradeoneachday@Rs8.05.
It started trading actively from October 2003 and major volume was observed on
January 16, 2004 which was for 804675 shares. Thereafter, the price and volume
starteddecliningandthescripclosedatRs4.63inFebruary2004,Rs1.62inMarch
2004andwaslasttradedonBSEonDecember20,2004atRs1.25.

14.

IfindfromtheSCNthatthepriceofthescripincreasedfromopeningpriceofRs.9.5
on October 6, 2003 to closing high price of Rs.26.45 on November 11, 2003
accompaniedbyhighvolumes.TheresultsforquarterendedSeptember2003were
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declared on November 7, 2003. Thereafter from opening price of Rs. 27.75 on

November12,2003thepriceofthescripfellandreducedtoRs.10.12onDecember
18, 2003 amidst comparatively low volumes. The results for quarter ended
December 2003 were declared on January 14, 2004. During this period the scrip
recorded very large volumes especially on 15th, 16th and 19th January 2004. The
price hit the lower circuit of 5% thereafter and closed at Rs.11.10 on January 28,
2004. The volumes in the scrip were as low as 143 shares on October 6, 2003 and
wasashighas8,04,675sharesonJanuary16,2004.

15.

IfindthatfollowingcorporateannouncementsweremadebyGAL:
Date

Newstext(gist)

November 1, Informed BSE that it has acquired the

2003
business and undertaking of Poonam
Industries Ltd along with their registered
TradeMarksongoingconcernbasisandhave
entered into an agreement on October 25,
2003.
December 22, Informed BSEthattheEGMofthemembers
2003
would be held on January 12, 2004 to seek
approval to increase the Authorized Share
capitalofthecompanyfromRs.55millionto
Rs. 260 million and to issue and allot in one
or more lots on preferential or Rights Issue
basis not exceeding 20.80 million equity
shares of Rs 10/ for value not exceeding Rs
208millionatapriceinaccordancewiththe
SEBIGuidelines
January 16, Informed BSE that at the EGM held on
2004
January 12, 2004 the shareholdersapproved
theincreaseinauthorizedsharecapitalfrom
Rs.55milliontoRs.260millionandtheissue
and allotment on preferential or as Rights
issuebasisupto2,08,00,000equitysharesof
Rs.10/ at a price determined as per SEBI
guidelines,butnotlessthanRs.10/

Impact
on
price/volume
Next 7 days
price went up
from Rs 21.55
toRs26.45.

Marginal rise
inprice.

Price
fell,
accompanied
by
huge
volumes.

16.

GALdeclaredtheresultsforquarterended September2003on November7,2003

andfollowingobservationsweremade:

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a. The Sales of GAL were Rs.2351.68 lakhs and net profit of Rs.237.19 lakhs as
against total sales of Rs.15 lakhs and net loss of Rs.0.44 lakhs for the quarter
endedSeptember30,2002.
b. InthenotesbelowtheresultsofSeptember2003thecompanyannouncedthat
by an agreement dated 25th October, 2003 it acquired w.e.f. 1st July, 2003 the
business and undertaking of Poonam Industries Ltd. alongwith trade mark
PoonamSareeshavingannualturnoverofaboutRs.100crores.

17.

GALdeclaredtheresultsforquarterendedDecember2003onJanuary14,2004and
itisobservedfromthesamethat:
a. The sales of GAL were Rs.2615.33 lakhs and net profit of Rs.259.29 lakhs as
against the sales of 0.15 lakhs and net profit of Rs.0.43 lakhs for the quarter
endedDecember2002.
b. TheBoardofDirectorsrecommendedadividendof40%alongwiththeresults.

18.

IfurtherfindfromtheinvestigationreportthatGALhasterminateditsarrangement
withPoonamIndustriesforusingthebrandnamePoonamSareesandGALwithheld
thepaymentofroyaltyamount.GALalsosubmittedthattherewasnopreferential
allotment,buybackoranydevelopmentregardingequitycapitalfortheyear2002
03and200304.Further,inrepliestothevarioussummons/lettersissuedtonoticee
no. 1, he had stated that till the time he was in charge of the company, no
negotiationswereheldwithPoonamIndustries.

19.

IfurtherfindfromthedocumentsubmittedtotheofficeoftheRegistrarofCompany
Affairs,whichwassubmittedbythenoticees videtheirrepresentativeletterdated
21 April, 2010 that although the noticee no. 2 had resigned as Director of the
companyw.e.f.01Oct2003butnoticeeno.1whoisalsoahusbandofnoticeeno.2
wasadirectorofthecompanyandremainedDirectorofthecompanytill11June
2004. Further the other noticees were Promoters and Person Acting in Concert as
perthedisclosuremadetothestockexchange.

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20.

Thus, noticees of GAL were instrumental in issuing misleading corporate

announcements on November 1, 2003, December 22, 2003 and January 16, 2004
and financial results regarding acquisition of business of Poonam Industries,
preferential/rightissue,whichdidnotmaterializeandwhichluredinvestors,leading
tocreationofartificialvolumes.

21.

Further, I find that on 10th and 11th October 2003, noticees transferred 22, 76,975
shares tovariousentities.Thereafteron20th,21stand 22ndOctober2003, noticees
receivedback15,69,695sharesfromtheentitiesotherthanthosetowhomshares
were transferred earlier. Again on 23rd and 24th October 2003, 18,18,695 shares
were transferred by noticees to various entities. Thus, noticees transferred shares
beforethemisleadingannouncement,tovariousentitieswhothereaftersoldshares
throughmarketandoffmarkettransfers.Inreplytotheaboveallegations,noticees
have just submitted that the shares were transferred erroneously from their
accounts. However, it is observed that the shares were transferred from and
receivedbackintheaccountsofallthenoticees.Itishighlyunlikelythattheshares
were transferred from and received back in the accounts of all the notices
erroneously. Further, the noticees have not produced any evidence in support of
theircontentionregardingerroneoustransferofsecurities.

22.

Regulation 3 (a), (b), (c) & (d) of SEBI PFUTP Regulations prohibits a person from
buying, selling or otherwise dealing in securities in a fraudulent manner. Further,
Regulation 4 (1) of SEBI PFUTP Regulations states that without prejudice to the
provisionsofregulation3,nopersonshallindulgeinafraudulentoranunfairtrade
practiceinsecurities.

23.

Regulation

4 (2) (a), (d), (e), (f), (k) & (r) of SEBI PFUTP Regulations states that

dealinginsecuritiesshallbedeemedtobeafraudulentoranunfairtradepracticeif
itinvolvesfraudandmayincludealloranyofthefollowing,namely:

a)Indulginginanactwhichcreatesfalseormisleadingappearanceoftrading

inthesecuritiesmarket;

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d) paying, offering or agreeing to pay or offer, directly or indirectly, to any

personanymoneyormoneysworthforinducingsuchpersonfordealingin
any security with the object of inflating, depressing, maintaining or causing
fluctuationinthepriceofsuchsecurity;
e)anyactoromissionamountingtomanipulationofthepriceofasecurity;
(f) publishing or causing to publish or reporting or causing to report by a
person dealing in securities any information which is not true or which he
doesnotbelievetobetruepriortoorinthecourseofdealinginsecurities;
(k) an advertisement that is misleading or that contains information in a
distortedmannerandwhichmayinfluencethedecisionoftheinvestors;
(r) planting false or misleading news which may induce sale or purchase of
securities.

24.

The facts of the case as stated above, highlight the noticees involvement in off
loadingsharesinthemarketthroughoffmarkettransfersinandaroundthetimeof
misleadingannouncementwhichcreatedartificialvolumeandimpactedthepriceof
thescripthusdefraudingtheinvestors.

25.

Inviewofforegoing,Ifindthatthesubmissionsofthenoticeesarenottenableand
consequently, hold that the charges leveled against the noticees are proved and
that:
a. theNoticeeat1abovehasviolatedRegulations3(a),(b),(c),(d),4(1)and4(2)
(a),(d),(e),(f),(k),(r)ofSEBI(PFUTP)Regulations;
b. theNoticeesat2to8abovehasviolatedRegulations3(a),(b),(c),(d),4(1)and
4(2)(a),(d)and(e)ofSEBI(PFUTP)Regulations;

AllegedViolationsofRegulation10ofSASTRegulations

26.

PromotersandPACsi.e.noticeestransferred22,76,975shares(43.79%)onOctober
11,2003inoffmarketdealstootherentities,shareholdingofPromotersandPACsin
GAL reduced to 2,49,000 shares (4.79%). On October 20 and 21, 2003, Promoters
and PACs acquired 15,69,695 shares and shareholding became 18,18,695 shares
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(35%) and crossed the threshold limit of 15% mentioned in the Takeover
Regulations. As per Regulation 10 of the Takeover Regulations, a public
announcementhastobemadebytheacquirerontheacquisitionofsharesbeyond
15%oftheequitycapitalofthecompany.ItisallegedthatPromotersandPACsdid
not make any public announcement and alleged to have violated provisions of
Regulation10 of SAST Regulations. The noticees inreply to this allegation that the
shares were transferred erroneously. However, it is observed that theshares were
transferred from and received back in the accounts of all the noticees. It is highly
unlikelythatthesharesweretransferredfromandreceivedbackintheaccountsof
allthenoticeserroneously.Further,thenoticeeshavenotproducedanyevidencein
supportoftheircontentionregardingerroneoustransferofsecurities.

27.

Further, Regulation 10 of SEBI Takeover Regulations mandates for a public

announcement to acquire shares of a company if the acquirer acquires shares or
votingrightswhich(takentogetherwithsharesorvotingrights,ifany,heldbyhim
orbypersonsactinginconcertwithhim),entitlesuchacquirertoexercisefifteenper
centormoreofthevotingrightsinacompany.

28.

I find that the noticees transferred shares in offmarket and received back shares
which triggered more than 15% of the paid up capital of the company before
transferring again their entire holding in off market transaction. But no public
announcementwasmadeaspertheprovisionofSEBITakeoverRegulations.

29.

Inviewoftheforegoing,Ifindthatthesubmissionsofthenoticeesarenottenable
andconsequently,holdthatthechargesleveledagainstthenoticeesareprovedand
that the allegation of violation of provision of Regulation 10 of SEBI Takeover
Regulationsstandsestablished.

AllegedViolationofRegulation7ofSASTRegulationsandRegulation13ofInsiderTrading
Regulations

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30.

Itisobservedfromtheinvestigationreportthatnoticeeno.1,5,6,7,8wereholding
210080 (4.04%), 2,97,200 (5.72%), 3,58,400 (6.89%), 2,74,600 (5.28%) and
7,28,000(14%)respectively,ason30thSeptember,2003.

31.

OnOctober11,2003,noticeeno.1transferredhisentireshareholdingthroughoff
markettransfers.Thistransactionamountedtosaleofmorethan2%ofthepaidup
capital and required disclosure under Takeover Regulations and Insider Trading
Regulations,asitchangedtheshareholdinginitiallyfrom4.04%to0%inGAL,which
itwasallegedthatnoticeeno.1hadnotdone.

32.

Noticee no. 5 also transferred their entire holding of 2, 97,200 (5.72%) shares
through off market transfers on October 11, 2003. This transaction required
disclosureunderInsiderTradingRegulationswhichitwasallegedthatnoticeeno.5
hadnotdone.

33.

Noticee no. 6 also transferred their entire holding of 3, 58,400 (6.89%) shares
through off market transfers on October 11, 2003. 2, 58,400 (4.96%) shares were
received back on October 21, 2003, which was again transferred on October 24,
2003. These transactions required disclosure under Insider Trading Regulations
whichitwasallegednoticeeno.6hadnotdone.

34.

Noticee no. 7 also transferred their entire holding of 2,74,600 shares (5.28%)
throughoffmarkettransfersonOctober11,2003.FurtheronOctober21,2003,the
entire 2,74,600 shares (5.28%) were received back which was again transferred on
October24,2003.ThesetransactionsrequireddisclosureTakeoverRegulationsand
InsiderTradingRegulationswhichitwasallegedthatnoticeeno.7hasnotdone.

35.

Noticeeno.8alsotransferredtheirentireholdingof7,28,000shares(14%)through
offmarkettransfersonOctober11,2003.FurtheronOctober21and222003,the
entire 7,28,000 shares (14%) were received back which was again transferred on
October 24, 2003. These transactions required disclosure under Takeover
RegulationsandInsiderTradingRegulationswhichitwasallegedthatnoticeeno.8
hadnotdone.
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36.

Ifurtherfindthatthenoticeeat1abovedidnotfiledisclosuresasperRegulation13
(4)readwithRegulation13(5)ofSEBIInsiderTradingRegulations.

37.

I further find that the noticees at 5, 6, 7 & 8 have submitted that the disclosures
underRegulation13(3)oftheInsiderRegulationshavebeenmadetotheCompany
on October 11, 2003, however, no documentary evidence has been submitted in
support of their submission. Thus, I find that they did not file disclosures as per
Regulation13(3)&(5)ofSEBIInsiderTradingRegulations.

38.

Noticeesat7&8didnotalsofiledisclosuresasperRegulation13(1)ofSEBIInsider
TradingRegulationsandRegulation7(1)readwith(2)ofSEBITakeoverRegulations.
ForthisthenoticeeshavesubmittedthattheseRegulationswerenotapplicableto
them as the shares were not acquired by them and they were erroneously
transferred. However, it is observed that the shares were transferred from and
receivedbackintheaccountsofallthenoticees.Itishighlyunlikelythattheshares
were transferred from and received back in the accounts of all the notices
erroneously. Further, the noticees have not produced any evidence in support of
theircontentionregardingerroneoustransferofsecurities.

39.

Ifurtherfindfromthedocumentssubmittedvidetheirrepresentativesreplydated
April21,2010thatadisclosureunderRegulation7(1A),submittedbytheNoticeeno.
1 is dated 12June2008. Thus, I find that noticee no. 1 did not file disclosure as
requiredunderRegulation7(1A)readwith7(2)ofSASTRegulations.

40.

Thenextissueariseforconsiderationisastowhatwouldbethemonetarypenalty
that can be imposed on the noticees for violation of aforesaid Regulations. The
Honble Supreme Court of India in the matter of SEBI Vs. Shri Ram Mutual
Fund[2006] 68 SCL 216(SC) held that 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
contraventionisestablished,thenthepenaltyistofollow.

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QuantumofMonetarypenalty

41.

Thus, the aforesaid violations by the Noticees make it liable for penalty under
Sections15H,15HAand15A(b)ofSEBIAct,1992whichreadasfollows:

Penaltyfornondisclosureofacquisitionofsharesandtakeovers.

15H.Ifanyperson,whoisrequiredunderthisActoranyrulesorregulationsmade
thereunder,failsto
(i)disclosetheaggregateofhisshareholdinginthebodycorporatebeforehe
acquiresanysharesofthatbodycorporate;or
(ii)makeapublicannouncementtoacquiresharesataminimumprice;or
(iii) makea public offerby sending letter of offer to the shareholders of the
concernedcompany;or
(iv)makepaymentofconsiderationtotheshareholderswhosoldtheirshares
pursuanttoletterofoffer
heshallbeliabletoapenaltyoftwentyfivecrorerupeesorthreetimestheamount
ofprofitsmadeoutofsuchfailure,whicheverishigher.

Penaltyforfraudulentandunfairtradepractices

15HA. If any person indulges in fraudulent and unfair trade practices relating to
securities, he shall be liable to a penalty of twentyfive crore rupees or three times
theamountofprofitsmadeoutofsuchpractices,whicheverishigher.

Penaltyforfailuretofurnishinformation,return,etc.

15A(b).Ifanyperson,whoisrequiredunderthisActoranyrulesorregulationsmade
thereunder,is to file any return or furnish any information, books or other
documentswithinthetimespecifiedthereforintheregulations,failstofilereturnor
furnish the same within the time specified therefor in the regulations, he shall be

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liable to a penalty of one lakh rupees for each day during which such failure
continuesoronecrorerupees,whicheverisless;

42.

Whiledeterminingthequantumofpenaltyundersections15H,15HBand15A(B),it
isimportanttoconsiderthefactorsstipulatedinsection15JofSEBIAct,whichreads
asunder:

Factorstobetakenintoaccountbytheadjudicatingofficer

15J.Whileadjudgingquantumofpenaltyundersection15I,theadjudicatingofficer
shallhavedueregardtothefollowingfactors,namely:
(a)

the amount of disproportionate gain or unfair advantage, wherever

quantifiable,madeasaresultofthedefault;

(b)

theamountoflosscausedtoaninvestororgroupofinvestorsasaresultof
thedefault;

(c)

therepetitivenatureofthedefault.

43.

Itisdifficult,incasesofsuchnature,toquantifyexactlythedisproportionategainsof
unfair advantage enjoyed by an entity and the consequent losses suffered by the
investors. I have noted that the investigation report also does not dwell on the
extent of specific gains made by the clients or the brokers. Suffice to state that
keepinginmindthepracticesindulgedinbytheNoticees,gainsperseweremadeby
the Noticees. People who indulge in manipulative, fraudulent and deceptive
transaction, or abet the carrying out of such transaction which are fraudulent and
deceptive should be suitably penalized for the said acts of omissions and
commissions.

Order

44.

In view of the above, after considering all the facts and circumstances of the case
andexercisingthepowersconferreduponmeundersection15I(2)oftheSEBIAct,
1992,IherebyimposeamonetarypenaltyofRs.2,53,72,500/(RupeesTwoCrores
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FiftyThreeLacsSeventyTwoThousandandFiveHundredOnly)eachonnoticeesat1
to 8 under section 15 H and 15HA and Rs. 7,73,500/ (Rupees Seven Lacs Seventy
Three Thousand and Five Hundred Only) on noticee 1, Rs. 12,38,875/ (Rupees
TwelveLacsThirtyEightThousandEightHundredandSeventyFiveOnly)onnoticees
at 5 & 6, Rs. 15,01,313/ (Rupees Fifteen Lacs One Thousand Three Hundred and
ThirteenOnly)onnoticeeat7andRs.23,93,639/(RupeesTwentyThreeLacsNinety
Three Thousand Six Hundred and Thirty Nine Only) on noticee at 8 under section
15A(b) of the SEBI Act. i.e total penalty of Rs. 2,61,46,000/ (Rupees Two Crores
Sixty One Lacs and Forty Six Thousand Only) on Noticee at 1, Rs. 2,53,72,500/
(RupeesTwo CroresFifty ThreeLacs and SeventyTwo ThousandandFiveHundred
Only)onNoticeeat2to4,Rs.2,66,11,375/(RupeesTwoCroresSixtySixLacsEleven
Thousand Three Hundred and Seventy Five Only) on Noticee at 5 & 6, Rs.
2,68,73,813/ (Rupees Two Crores Sixty Eight Lacs Seventy Three Thousand Eight
HundredandThirteenOnly)onNoticeeat7and2,77,66,139/(RupeesTwoCrores
Seventy Seven Lacs Sixty Six Thousand One Hundred and Thirty Nine Only) on
Noticee at 8 which will be commensurate with the violations committed by the
Noticees.

45.

The penalty shall be paid by way of demand draft drawn in favour of SEBI
PenaltiesRemittabletoGovernmentofIndiapayableatMumbaiwithin45daysof
receipt of this order. The said demand draft shall be forwarded to Division Chief,
Investigation Department (IVD7), Securities and Exchange Board of India, Plot No.
C4A,GBlock,BandraKurlaComplex,Bandra(E),Mumbai400051.

46.

IntermsoftheprovisionsofRule6oftheAdjudicatingRulesthecopiesofthisorder
issenttotheNoticeesandalsotoSecuritiesandExchangeBoardofIndia.

Date:December19,2014

Place:Mumbai

ADJUDICATINGOFFICER

ASHASHETTY

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