Adjudication Order in respect of Vikas Gourihar Narnavar in the matter of E.Star Infotech Ltd.
March 30, 2012 Order No. MC/AO- 06/2012 Page 1 of 8
BEFORE THE ADJUDICATING OFFICER
SECURITIES AND EXCHANGE BOARD OF INDIA
[ADJUDICATION ORDER NO. MC/AO- 06/2012]
UNDER SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992
READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING
PENALTIES BY ADJUDICATING OFFICER) RULES, 1995
In Respect of
Vikas Gourihar Narnavar (PAN: ACRPN6457D)
In The Matter of
E.Star Infotech Ltd.
BRIEF BACKGROUND
1. The shares of E.Star Infotech Ltd. (hereinafter referred to as the company/ EIL) were
listed on BSE, Ahmedabad Stock Exchange (ASE) and Hyderabad Stock Exchange
(HSE). The shares were traded only on BSE during of November 16, 2004 to January
18, 2005 (investigation period) SEBI conducted an investigation in respect of buying,
selling and dealing in the shares of EIL during the aforesaid investigation period.
2. The price of the scrip increased from Rs.0.68 (opening price on 16/11/2004) to Rs.2.50
(high on 10/1/2005) and closed at Rs1.76 on 18/1/2005. The average number of shares
traded during the entire period were 15,58,843 shares. The scrip was traded in B2 group
during the period 16/11/2004 and was shifted to T group w.e.f. 6/12/2004.
3. The company made a profit of Rs.485.70 lacs, Rs.270.05 lacs and Rs.356.55 lacs during
the financial year ending on 31st March, 2003, 31st March, 2004 and 31st March, 2005
respectively on paid up equity capital of Rs. 994.50 lacs. The company also reported
profit of Rs.190.64 lacs and Rs.73.12 lacs as on 31st March, 2006 and 31st March, 2007
respectively. The company had not declared any dividend for the last 3 years prior to the
investigation period.
4. During the investigation period, various positive news relating to Strategic Business
Agreement with M/s Raffles – Singapore, procurement of order, introduction of
Nanotechnology etc have appeared in Business Standard and were informed to the
Exchange. The company had made the announcements which were at the proposal Adjudication Order in respect of Vikas Gourihar Narnavar in the matter of E.Star Infotech Ltd.
March 30, 2012 Order No. MC/AO- 06/2012 Page 2 of 8
stage and there was no material development. These positive announcements, which
were not implemented, resulted in the scrip trading at / near circuit limit around the days
of announcement, thus leading to price rise.
5. Shri Mahesh Thanvi, Managing Director of the company, was holding 1,50,27,000
shares amounting to 30.05% of the total paid up capital of the company as on
September 30, 2004. He engaged in off-market transactions with certain connected
clients during the period under examination and, directly and indirectly, transferred
1,50,00,000 shares to the connected clients. No disclosures in this regard have been
made to the Exchange by the company.
6. Shri Mahesh Thanvi transferred 1,00,00,000 shares (20% of the paid up capital of the
company) by off market trades on November 29, 2004 and December 01, 2004 to
Bharat Rikhabchand Shah, Manishaben Himanshubhai Shah, Himanshubhai C. Shah,
Harsha Piyush Shah and Hiren Chinubhai Vora, hereinafter referred to as the Shah
Group.
7. Shri Mahesh Thanvi transferred 50,00,000 shares (10% of the paid up capital of the
company) by off market trades on January 5, 2005 and January 13, 2005 to some of the
connected entities namely Amul Pravinbhai Sheth, Vithalbhai Vallabhbhai Gajera,
Dahyabhai Ghanshyambhai Patel, Vinodbhai Devsibhai Patel, Jayesh Kumar
Prakashbhai Shah, Navinkumar Pravinbhai Patel, Pravinbhai Premjibhai Patel,
Dalsukhbahi Devsibhai Patel, Girdharbhai Jayrambhai Vagadiya, Kanubhai Pragjibhai
Patel, Ramniklal M. Patel (hereinafter referred to as Patel group clients). These entities
further transferred shares in off-market to their connected entities namely
Rameshchandra Jain (440000 shares) and Vikas Gourihar Narnavar (2018817 shares).
Further one connected client of aforesaid entities namely Vipul R. Jain received 224100
shares in off market trades from Harsha P. Shah (a clients of Shah Group). These
clients are hereinafter named as Patel group. These clients were found connected
through common address, common introducer and securities flow among themselves.
8. By executing the above off market trades, the above entities aided and abetted the
company and its promoter in manipulating the market and defrauding the investors.
9. The aforesaid findings lead to the allegation that Vikas Narnavar aided and abetted the
company and its promoter in manipulating the market and defrauding innocent investors.
10. Thus, Vikas Narnavar was alleged to have violated regulations 4(1), 4(2) (a) of SEBI
(PFUTP) Regulations 2003. Adjudication Order in respect of Vikas Gourihar Narnavar in the matter of E.Star Infotech Ltd.
March 30, 2012 Order No. MC/AO- 06/2012 Page 3 of 8
11. Vikas Narnavar was sent summons to provide details of off market trades, details of
disclosures made, bank account statements, demat account statements etc. The
summons could not be delivered to your address hence they were delivered through his
broker. The brokers have given the acknowledgement receipt of the same.
12. Despite being issued summons Vikas Narnavar chose not to furnish the information
asked from him. By not furnishing the information as required by the summons he was
alleged to have violated Section 11C(3) read with 11C(2) of the SEBI act
APPOINTMENT OF ADJUDICATING OFFICER
13. I was appointed as Adjudicating Officer, vide order dated May 07, 2009, under section
15 I of Securities and Exchange Board of India Act,1992 (hereinafter referred to as
“SEBI Act,1992”) to enquire into and adjudge the alleged violations of the provisions of
SEBI Act and SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to
Securities Market) Regulations, 2003 [hereinafter referred to as SEBI (PFUTP)
Regulations], by Vikas Narnavar (hereinafter referred to as noticee) as observed during
the investigations conducted into the trading in the scrip of M/s. E. Star Infotech Ltd. for
the period from November 16, 2004 to January 18, 2005.
SHOW CAUSE NOTICE, REPLY AND HEARING
14. A show cause notice dated November 30, 2009 was issued to Vikas Narnavar in the
matter wherein he was asked to show cause as to why an inquiry should not be held
against him in terms of Rule 4 of the SEBI (Procedure for Holding Enquiry and Imposing
Penalties by Adjudicating Officer) Rules, 1995 read with Section 15 I of the SEBI Act,
1992. The same was dully delivered on December 02, 2009 (proof of delivery/
acknowledgement is present on record). The noticee submitted a written reply dated
December 14, 2009. In his reply noticee mentioned inter alia that that he was trapped by
Ramnik Lal Patel, he has no knowledge of stock market. He does not know where all
Ramnik Lal Patel has opened trading account in his name. The noticee also submitted
that presently he earns Rs.7000 per month and during 2004-05 he used to get only Rs
5000 per month and it was very difficult for him to sustain his family.
15. A notice of inquiry was sent on February 08, 2012 and opportunity for personal hearing
in the matter was also provided.
16. The noticee appeared for hearing before me on February 21, 2012. The noticee
submitted during the hearing that Ramnik Lal Patel had got him to sign on some forms
for which he was paid around Rs.10000 to 15000. He submitted that he neither visited Adjudication Order in respect of Vikas Gourihar Narnavar in the matter of E.Star Infotech Ltd.
March 30, 2012 Order No. MC/AO- 06/2012 Page 4 of 8
any broker nor got any statements from any broker. The noticee submitted that he
presently earns Rs.7000 per month and given his level of income he is hardly able to
sustain his family rest aside investing it in the market.
17. During personal hearing Vikas Narnavar also presented an Affidavit dated 06 Jan 2010
which was verified with the original.
18. In the Affidavit which is signed by Ramnik Lal Patel, it is submitted that Ramnik Lal Patel
had approached Vikas Narnavar for opening trading account, demat account and bank
account for the purpose of trading in shares of various companies. Ramnik Lal Patel had
offered Vikas Narnavar some share in profit made through share transactions in his
account by him. Ramnik Lal Patel had told Vikas Narnavar that he will make profit
without doing anything. Ramnik Lal Patel took signatures of Vikas Narnavar on Account
opening forms of some brokers including Pilot Credit Capital Ltd. Ramnik Lal Patel also
took signature of Vikas Narnavar on blank cheque leafs and blank delivery instruction
slip for demat account. Ramnik Lal Patel also used to place buy and sale orders for
dealing in shares on behalf of Vikas Narnavar. Ramnik Lal Patel used to collect contract
notes and bills from the office of the brokers for transaction done by him in the name of
Vikas Narnavar. For the above favors Ramnik Lal Patel paid some amount to Vikas
Narnavar. All the trades in various scrips were done by Ramnik Patel in the name of
Vikas Narnavar.
CONSIDERATION OF ISSUES
19. On perusal of the Show Cause Notice, and other material available on record, I have the
following issues for consideration, viz,
(1) Whether the noticee has violated Regulations 4(1) and 4(2) (a) of SEBI PFUTP
Regulations.
(2) Whether the noticee has violated Section 11C(3) read with 11C(2) of the SEBI Act.
(3) Whether the noticee is liable for monetary penalty under sections 15 HA and
15A(a) of the SEBI Act.
(4) What quantum of monetary penalty should be imposed on the noticee, taking into
consideration the factors mentioned in section 15J of SEBI Act. Adjudication Order in respect of Vikas Gourihar Narnavar in the matter of E.Star Infotech Ltd.
March 30, 2012 Order No. MC/AO- 06/2012 Page 5 of 8
FINDINGS
20. On Perusal of the materials available on record and giving regard to the facts and
circumstances of the case, I record my findings hereunder
Issue 1: Whether the noticee has violated 4(1) and 4(2) (a) of PFUTP Regulations,
PFUTP Regulations
4. Prohibition of manipulative, fraudulent and unfair trade practices”
(1) Without prejudice to the provisions of regulation 3, no person shall indulge in a
fraudulent or an unfair trade practice in securities.
(2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade
practice if it involves fraud and may include all or any of the following, namely:-
(a) Indulging in an act which creates false or misleading appearance of trading in the
securities market;
21. The investigation report brought out that Shri Mahesh Thanvi transferred 50,00,000
shares (10% of the paid up capital of the company) by off market trades on January 5,
2005 and January 13, 2005 to some of the connected entities namely Amul Pravinbhai
Sheth, Vithalbhai Vallabhbhai Gajera, Dahyabhai Ghanshyambhai Patel, Vinodbhai
Devsibhai Patel, Jayesh Kumar Prakashbhai Shah, Navinkumar Pravinbhai Patel,
Pravinbhai Premjibhai Patel, Dalsukhbahi Devsibhai Patel, Girdharbhai Jayrambhai
Vagadiya, Kanubhai Pragjibhai Patel, Ramniklal M. Patel (Patel group). These entities
further transferred shares in off-market to their connected entities namely
Rameshchandra Jain (440000 shares) and Vikas Gourihar Narnavar (2018817 shares).
22. Vikas Narnavar through the broker Pilot Credit Capital Limited sold 25,51,500 shares
and purchased 1,00,000 shares from the market i.e. he made a net sale of 24,51,500
shares.
23. Thus it is clear that Vikas Narnavar received 20,18,817 shares in off market trades
through the Patel Group entities who in turn received the shares from Mahesh Thanvi.
He sold these shares in the market at higher prices. Thus he facilitated the sale of
shares transferred by the promoter of the company, Shri Mahesh Thanvi to the Patel
Group entities.
24. Based on the submissions made by Vikas Narnavar, it seems that he has allowed some
persons to use his trading account as well as bank accounts to indulge in trades which Adjudication Order in respect of Vikas Gourihar Narnavar in the matter of E.Star Infotech Ltd.
March 30, 2012 Order No. MC/AO- 06/2012 Page 6 of 8
enabled Shri Mahesh Thanvi to offload his shareholding in the market, thus creating a
false impression of trading in the market.
25. I theeforre find that the noticee has aided and abetted the company and its promoter in
manipulating the market and defrauding innocent investors and hence violated
Regulations 4 (1) and (2) (a) of SEBI (PFUTP) Regulations 2003.
26. In view of the foregoing, I hold that the allegation of violation of provisions of Regulations
4(1) and (2) (a) of SEBI PFUTP Regulations stand established.
Issue 2: Whether the noticee has violated Section 11C(3) read with 11C(2) of the SEBI
Act.
11C.
(2) Without prejudice to the provisions of sections 235 to 241 of the Companies Act, 1956(1
of 1956), it shall be the duty of every manager, managing director, officer and other
employee of the company and every intermediary referred to in section 12 or every person
associated with the securities market to preserve and to produce to the Investigating
Authority or any person authorised by it in this behalf, all the books, registers, other
documents and record of, or relating to,he company or, as the case may be, of or relating to,
the intermediary or such person, which are in their custody or power.
3) The Investigating Authority may require any intermediary or any person associated with
securities market in any manner to furnish such information to, or produce such books, or
registers, or other documents, or record before it or any person authorised by it in this behalf
as it may consider necessary if the furnishing of such information or the production of such
books, or registers, or other documents, or record is relevant or necessary for the purposes
of its investigation.
27. Vikas Narnavar was sent summons vide letter dated June 12, 2008 and November 17,
2008 to provide details of off market trades, details of the counter party, consideration
amount, bank account statements, demat account statements. He replied to the
summons vide letter dated Sep 09, 2008 stating, inter alia, that his name had been used
by Ramnik Lal Patel for trading in various scrips and that he was willing to cooperate in
any inquiry or investigation.
28. Although the information sought was not provided by Vikas Narnavar, I find that his
submission deserved to be treated with merit. As a name lender, he may not be in a
position to supply all details of bank accounts, demat accounts or trading accounts.
Moreover, this information was available from the exchanges, brokers as well as
depository participants. As the noticee responded to the summons and submitted
information about the person he was working for, I find that he complied with the Adjudication Order in respect of Vikas Gourihar Narnavar in the matter of E.Star Infotech Ltd.
March 30, 2012 Order No. MC/AO- 06/2012 Page 7 of 8
summons and hence the charge of violation of Section 11C(3) read with 11C(2) of the
SEBI Act is not established.
Issue 3: Whether the noticee is liable for monetary penalty under sections. 15HA and
15A(a) of SEBI Act, 1992
29. As the allegations of violation of Regulations 4 (1) and (2) (a) of SEBI (PFUTP)
Regulations 2003 against Vikas Narnavar stand established, the noticee is liable for
monetary penalty under Section 15HA, of the SEBI Act, 1992, which reads as follows:
“Penalty for fraudulent and unfair trade practices.
15HA. If any person indulges in fraudulent and unfair trade practices relating to
securities, he shall be liable to a penalty of twenty-five crore rupees or three times the
amount of profits made out of such practices, whichever is higher.”
Issue 4: What quantum of monetary penalty should be imposed on the noticee, taking
into consideration the factors mentioned in section 15J of SEBI Act?
30. While deciding the quantum of penalty, the factors laid down under Section 15J of SEBI
Act have to be given due regard, which are as follows –
(i) the amount of disproportionate gain or unfair advantage, wherever quantifiable,
made as a result of default,
(ii) the amount of loss caused to an investor or group of investors as a result of the
default and
(iii) the repetitive nature of default.
31. From the material available on record, it is difficult to quantify exactly the
disproportionate gains or unfair advantage enjoyed by Vikas Narnavar and the
consequent losses suffered by the investors.
32. While the amount of loss caused to investors cannot be quantified, considering the facts
and circumstances of the case and the material available on record and the violation
committed by the noticee, I find that penalty of Rs.50,000/-(Rs. Fifty Thousand only)
under Section 15 HA of the SEBI Act will be commensurate with the violations
committed by Mr. Vikas Narnavar. Adjudication Order in respect of Vikas Gourihar Narnavar in the matter of E.Star Infotech Ltd.
March 30, 2012 Order No. MC/AO- 06/2012 Page 8 of 8
ORDER
33. After taking into consideration all the facts and circumstances of the case, I hereby
impose a penalty of Rs.50,000/-(Rs. Fifty Thousand only) under Section 15 HA on Mr.
Vikas Narnavar for violation of Regulations 4 (1) and 4(2) (a) of PFUTP Regulations of
the SEBI Act 1992.
34. Vikas Narnavar as mentioned above shall pay the said amount of penalty by way of
demand draft in favour of “SEBI - Penalties Remittable to Government of India”, payable
at Mumbai, within 45 days of receipt of this order. The said demand draft should be
forwarded to Mr. Biswajit Choudhury, Deputy General Manager, SEBI, SEBI Bhavan,
C4-A, ‘G’ Block, Bandra Kurla Complex, Bandra (East). Mumbai- 400 051.
35. In terms of rule 6 of the Rules, copies of this order are sent to the noticee and also to the
Securities and Exchange Board of India.
Date: March 30, 2012 Maninder Cheema
Place: Mumbai Adjudicating Officer
