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BEFORE THE ADJUDICATING OFFICER


SECURITIES AND EXCHANGE BOARD OF INDIA
[ ADJUDICATION ORDER NO. EAD-2/DSR/ RG/ 203 /2014 ]
________________________________________________________________

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
Mercury Fund Management Company Limited

In the matter of
Gennex Laboratories Limited

1. Securities and Exchange Board of India (hereinafter referred to as "SEBI ")
had conducted an investigation into the alleged irregularity in the trading in
the shares of Gennex Laboratories Limited ( hereinafter referred to as
"GLL"), a company listed on the Bombay Stock Exchange Limited
(hereinafter referred to as "BSE") and into the possible violation of the
provisions of the SEBI Act, 1992 (hereinafter referred to as the Act) and
various Rules and Regulations made there under during the period from April
30, 2007 to November 18, 2008.

2. It was observed that GLL (formerly known as Prudential Pharmaceuticals
(PPL)) was incorporated in the year 1985 as a private limited company and
became public limited in the year 1994. The name of the company was
changed to Gennex Laboratories Ltd. w.e.f. September 19, 2007. It was
originally promoted by Pharmasia Ltd. Later, one Mr. Vinod Baid &
Associates acquired controlling stake in the year 1994 for setting up facilities
for manufacture of Bulk Drugs and Drug Intermediates.

3. The investigation, inter alia, revealed GLL had planted certain corporate
announcements. Out of the said announcements, it was observed that the
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company had only implemented the corporate announcement with regard to
the preferential allotment of shares and warrants to Silver Golden Property
Develop Fin Investment Ltd. and Carwin Mercantiles (P) Ltd., whereas, the
remaining corporate announcements were not implemented and therefore,
were false positive corporate announcements. On July 04, 2007 i.e. just
before the corporate announcement with respect to the investment proposal
of one Mr. Arun Jain, Chairman of Innevesco Pvt. Ltd, Mercury Fund
Management Company Limited (hereinafter referred to as the
Noticee/MFMCL), erstwhile promoter of GLL, had received 9,60,000 shares
of GLL from the promoter of GLL viz. Mr. Vinod Baid in off market
transaction. Further, out of the said shares so received, the Noticee had sold
9,30,850 shares during the period July 05, 2007 to August 22, 2007 during
which the price of scrip had increased from ` 24.10 to ` 26.55. It was,
therefore, alleged that the promoter had transferred the shares in off market
to the Noticee and the Noticee in turn sold the said shares in the market
taking advantage of the positive announcement made by GLL which were
never implemented. It was also observed that the company had not informed
the stock exchanges about subsequent implementation status.

4. SEBI has, therefore, initiated adjudication proceedings against the Noticee
for allegedly violating the provisions of Regulation 12(a), (b) and (c) of the
Act read with Regulation 3 of the SEBI (Prohibition of Fraudulent and Unfair
Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter
referred to as the PFUTP Regulations).

APPOINTMENT OF ADJUDICATING OFFICER
5. I have been appointed as the Adjudicating Officer vide order dated the
December 13, 2013 under Section 15-I of the Act read with Rule 3 of the
SEBI ( Procedure for Holding Inquiry and Imposing Penalties by Adjudicating
Officer) Rules, 1995 (hereinafter referred to as the said Rules) to inquire
into and adjudge under Section 15HA of the Act, the alleged violation of
provisions of law by the Noticee.

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NOTICE, REPLY AND PERSONAL HEARING
6. The Noticee was issued a Show Cause Notice dated March 07, 2014
(hereinafter referred to as SCN) under Rule 4(1) of the said Rules to show
cause as to why an inquiry should not be held and why penalty be not
imposed on it for the aforesaid violations. Vide letter dated March 26, 2014,
the Noticee acknowledged the receipt of the said SCN and requested four
weeks' time to file its reply in the matter. However, no reply was received
from the Noticee. Thereafter, in the interest of natural justice and in order to
conduct an inquiry as per Rule 4(3) of the said Rules, an opportunity of
personal hearing was granted to the Noticee on July 08, 2014 vide notice of
hearing dated June 23, 2014. However, again vide letter dated July 05,
2014, the Noticee while acknowledging the receipt of the said hearing
notice, requested for further four weeks' time to file its reply in the matter. As
no reply was received from the Noticee, another opportunity of personal
hearing was granted to it on August 25, 2014 vide notice dated August 05,
2014. However, the Noticee did not attend the hearing on the scheduled
date. Vide letter dated August 22, 2014 (received on August 25, 2014), the
Noticee has once again requested for four more weeks' time to file its reply
in the matter.

7. I am of the opinion that sufficient time has been granted to the Noticee to file
its reply and ample opportunities of hearing have been granted to the Noticee
to present its case before me in the interest of natural justice. In view of the
same, I am proceeding with the inquiry taking into account the documents
and material as available on record.

CONSIDERATION OF EVIDENCE AND FINDINGS
8. I have carefully perused the charges leveled against the Noticee in the SCN
and the documents and material available on record. In the instant matter,
the following issues arise for consideration and determination :-
(a) Whether the Noticee has violated the provisions of Section 12A(a),
(b) and (c) of the Act read with Regulation 3 of the PFUTP
Regulations?
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(b) Do the violations, if any, on the part of the Noticee attract any
penalty under Section 15HA of the SEBI Act ?

(c) If yes, what should be the quantum of monetary penalty?

9. Before proceeding further, I would like to refer to the relevant provisions of
the Act and PUFTP Regulations which read as under :

Relevant provisions of the SEBI Act, 1992:
Prohibition of manipulative and deceptive devices, insider trading and
substantial acquisition of securities or control.
12A. No person shall directly or indirectly
(a) use or employ, in connection with the issue, purchase or sale of any
securities listed or proposed to be listed on a recognized stock exchange,
any manipulative or deceptive device or contrivance in contravention of the
provisions of this Act or the rules or the regulations made thereunder;
(b) employ any device, scheme or artifice to defraud in connection with issue
or dealing in securities which are listed or proposed to be listed on a
recognized stock exchange;
(c) engage in any act, practice, course of business which operates or would
operate as fraud or deceit upon any person, in connection with the issue,
dealing in securities which are listed or proposed to be listed on a recognized
stock exchange, in contravention of the provisions of this Act or the rules or
the regulations made thereunder;

Relevant provisions of PFUTP Regulations:
Prohibition of certain dealings in securities
3. No person shall directly or indirectly -
(a) buy, sell or otherwise deal in securities in a fraudulent manner;
(b) use or employ, in connection with issue, purchase or sale of any security
listed or proposed to be listed in a recognized stock exchange, any
manipulative or deceptive device or contrivance in contravention of the
provisions of the Act or the rules or the regulations made thereunder;
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(c) 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; and,
(d) engage in any act, practice, course of business which operates or would
operate as fraud or deceit upon any person in connection with any dealing in
or issue of 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 regulations made thereunder."

10. I find from the SCN that GLL is a company listed on the BSE. During the
investigation period, GLL had planted false positive announcements, the
details of which are as under:


Date News Price movement in the
scrip
Trading by
MFMCL
Status
05.07.07
(1:22:31
P.M.)

Informed BSE about board
meeting on July 16,2007 to
discuss about the investment &
management participation
proposal received from the
INNOVESCO PTE LTD,
Singapore and the financial
arrangement to be made for the
proposed Bio-tech Products.
On July 5,2007, the
scrip opened at `
24.10, lower than
previous days close of
` 24.45 and reached till
` 25.65 with 253 trades.
The last trade before
this announcement was
executed at ` 24.20
and first trade after
announcement was at `
24.45. During July
6,2007 to July 13,2007,
the price has moved
from ` 26.15 to ` 29.95
in 1506 trades.
During 30.04.07
03.07.07, had
purchased 2055
shares and sold
16,17,350 shares.
On 05.07.07, the
total trading was
3,42,912 shares and
it sold 2 Lakh
shares.

During 06.07.07 to
12.07.07, sold 2
Lakh shares
Not
implemented
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16.07.07
(6:10:26
P.M)
Informed BSE about in-principle
approval of the investment and
management proposals from
Mr. Arun Jain, Chairman of
Innovesco Group of
Companies, Singapore and his
Associates and decision to allot
30% of the expanded Equity
capital of GLL to Mr. Arun Jain
& his Associates and/or their
SPV in India on preferential
basis at a price to be
determined after receipt of the
valuation report. The statutory
auditor, M/s. Laxmi Niwas &
Jain, was appointed for
valuation of the business of the
Company and to determine the
quantum of investment to be
brought in by M/s. Arun Jain &
Associates.
The price of the scrip
opened at ` 28.00 on
July 16,2007 (1.23%
lower than the previous
close price of ` 28.35)
and reached till `28.85
with 72 trades during
the day.

On July 17,2007, the
price opened at ` 28.95
and fell down to ` 27.10


sold 55000 shares
and counterparties
were scattered.
Total trading was
83,574 shares.

During 17.07.07 to
22.08.07, purchased
5350 shares and
sold 5,30,850
shares
Not
implemented
29.08.07(
1:35:02
PM)
Informed BSE about Board
meeting on September 04,
2007 to consider the allotment
of 2500000 equity shares and
issue of 25,00,000 equity
warrants as under:
Silver Golden Property Develop
Fin Investment Ltd, Mumbai.
1500000 shares and 2500000
warrants
Carwin Mercantiles (P) Ltd,
Kolkata 1000000 shares
The scrip opened at `
27.70 on August
29,2007 (prev. day cl.
price ` 27.50) and fell
down to ` 27.35. There
were 36 trades during
the day.
had not traded on
this date.
Implemented
04.09.07(
3:08:51
PM)
Informed BSE about approval
of above decision.
The scrip opened at `
31.35 (4.85% higher
than the prev. cl. price
of ` 29.90) and same
was the closing price.
There were 22 trades
during the day.
Similarly on 05.09.07,
the scirp opened at `
32.90 and remain the
price of the day with 28
trades.
had not traded on
this date.
Subsequently during
07.09.07 to
19.08.08,
purchased 65,153
shares and sold
3,91,194 shares.
Implemented
27.08.08(
11:12:43
AM)
Informed BSE that in Board
meeting held on Aug 26, 2008,
it was unanimously decided to
make an offer for purchase of
51% Stake in Ammana Bio
Pharma Ltd and authorized the
Managing Director of the
Company to enter into
necessary Shareholders
Agreement with them for
acquisition of said stake.
The scrip opened at `
46.25 on August
27,2007 (prev. cl. price
` 46.40), reached till `
48.00 and closed at `
45.05. There were 246
trades during the day.
had not traded on
this date &
subsequently till the
end of investigation
period.
Not
implemented


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11. I find from the above corporate announcements that GLL had implemented
only the corporate announcement with regard to the preferential allotment of
shares and warrants to Silver Golden Property Develop Fin Investment Ltd.
and Carwin Mercantiles (P) Ltd. whereas, the remaining announcements
were not implemented. Upon inquiring the implementation status of these
corporate announcements, the company had informed that the proposed
investment by one Mr. Arun Jain did not take place as proposed and further,
the deal with Ammana Bio Pharma Limited could not be executed as
Ammana had not complied with the relevant requirements. Further, it was
also noted that the company had not informed about the subsequent
implementation status to the stock exchange and thereby, had left the
investors at large uninformed about the same.

12. I further find that on July 04, 2007 i.e. just before the corporate
announcement with respect to the investment proposal of one Mr. Arun Jain,
Chairman of Innevesco Pvt. Ltd, the Noticee (erstwhile promoter of GLL)
had received 9,60,000 shares of GLL from one of the promoters of GLL viz.
Mr. Vinod Baid in off market transaction. Further, out of the said shares so
received, the Noticee had sold 9,30,850 shares during the period from July
05, 2007 to August 22, 2007 i.e. the period during which the price of scrip
had increased from ` 24.10 to ` 26.55. It was noted that the said promoter
had transferred the shares in off market to the Noticee and the Noticee in
turn had sold part of the said shares in the market, taking advantage of the
positive announcement by the company which was never implemented. It
was, therefore, alleged in the SCN that the Noticee had facilitated the
promoter viz. Mr. Vinod Baid in off loading the shares of GLL in the market
who in turn made unlawful gains by taking advantage of the inflated price of
the scrip, thereby, violating Section 12A(a), (b) and (c) of the Act read with
Regulation 3 of the PFUTP Regulations.

13. I find that upon receipt of 9,60,000 shares from Mr. Vinod Baid, the Noticee
had sold 9,30,850 shares during the period from July 05, 2007 to August 22,
2007. During the said period, the price of the scrip had increased from `
24.10 to ` 26.55. Further, I note that upon making of another corporate
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announcement on July 16, 2007, the price of the scrip had increased from
` 28.00 to ` 28.85. In the meantime, as the price of the scrip kept increasing
steadily, the Noticee offloaded more shares of GLL in the market between
July 06, 2007 and August 19, 2008 when the price of the scrip was in the
range of ` 24.10 to ` 31.35. Further, I find that upon examining the said off
market transaction and inquiring into the details, Mr. Vinod Baid and the
Noticee had termed the said transfer of 9,60,000 shares as loan against
shares. It was informed by Mr. Vinod Baid that the shares were transferred to
the Noticee as security in connection with the financial assistance given by it
and proper consideration was received. Whereas, the Noticee had stated
that Mr. Vinod Baid had approached the Noticee for loan against shares and
on the basis of agreement entered between the two, shares were transferred
in the account of the Noticee. Further, the same were sold by the Noticee
through its broker in the market. However, I do not find merit in the said
statements inasmuch as neither the Noticee nor Mr. Vinod Baid had provided
any Bank Statements evidencing transfer of funds nor a copy of agreement
entered into for loan against shares was made available.

14. As the Noticee has neither submitted any reply to the SCN nor has it availed
the opportunity of personal hearing granted to it, I find that the Noticee has
nothing to submit in the matter and therefore, the said transaction was
nothing but an act of fraudulent and manipulative trade practice adopted by
Mr. Vinod Baid in collusion with the Noticee in creating artificial and false
market in the scrip of GLL and thereby, misled the investors at large.

15. I also note that actions under Section 11and 11B of the SEBI Act were
initiated against GLL and its directors including Mr. Vinod Baid for violating
various provisions of the PFUTP Regulations. SEBI, vide order dated
September 13, 2013, while holding the company and its directors guilty of
violating the provisions of PFUTP Regulations gave directions of restraining
GLL and its directors including Mr. Vinod Baid from accessing the securities
market and also prohibiting them from buying, selling, and otherwise dealing
in securities market, directly or indirectly, in whatsoever manner, for a period
of three years from the date of the said order. Further, aggrieved by the said
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order, GLL and Mr. Vinod Baid had filed an appeal before the Hon'ble
Securities Appellate Tribunal(SAT). While upholding the said order passed
by SEBI, SAT vide its order dated February 25, 2014 observed at para 17 as
under:

"......... From these facts, it is more than just a plausible scenario that Mr. Baid
and MFMCL were acting in collusion with each other and that they cleverly
succeeded in creating a false market for the shares of GLL thereby duping
investors into purchasing shares, the prices of which were artificially hiked."

16. From the foregoing, I conclude that the Noticee did facilitate Mr. Vinod Baid
in off loading the shares in the market and in making unlawful gains thereby,
violating Section 12A(a), (b) and (c) of the Act read with Regulation 3 of the
PFUTP Regulations thus, liable for imposition of monetary penalty under
Section 15HA of the Act which reads as under:

15HA.Penalty for fraudulent and unfair trade practices.- 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.

17. While imposing penalty, it is obligatory to consider the factors stipulated in
Section 15J of the SEBI Act which reads as under:
15J - Factors to be taken into account by the adjudicating
officer
While adjudging quantum of penalty under section 15-I, the
adjudicating officer shall have due regard to the following factors,
namely:-
(a) the amount of disproportionate gain or unfair advantage, wherever
quantifiable, made as a result of the default;
(b) the amount of loss caused to an investor or group of investors as a
result of the default;
(c) the repetitive nature of the default.
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18. I observe that, from the material available on record, it is difficult to quantify
the exact gain or unfair advantage accrued to the Noticee or the extent of
loss suffered by the investors as a result of the default of the Noticee. The
said defaults on the part of the Noticee are not repetitive in nature.


ORDER

19. In view of the above, after considering all the facts and circumstances of the
case and exercising the powers conferred upon me under Section 15-I (2) of
the SEBI Act read with Rule 5 of the said Rules, I impose a penalty of
`50,00,000/- (Rupees Fifty Lakhs Only) under Section 15HA of the SEBI Act
on the Noticee viz. Mercury Fund Management Company Limited in the
matter. In my view, the penalty is commensurate with the default committed
by the Noticee.

20. The penalty amount as mentioned above shall be paid by the Noticee
through a duly crossed demand draft drawn in favour of SEBI Penalties
Remittable to Government of India and payable at Mumbai, within 45 days
of receipt of this order. The said demand draft should be forwarded to the
Division Chief, IVD-8, Securities and Exchange Board of India, SEBI Bhavan,
Plot No. C4-A, G Block, Bandra Kurla Complex, Bandra (E), Mumbai
400051.

21. In terms of the Rule 6 of the said Rules, copies of this order are sent to
Noticee and also to Securities and Exchange Board of India.



Date: September 02, 2014 D. SURA REDDY
Place: Mumbai ADJUDICATING OFFICER


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