WTM/SR/EFD/DRA II/ 80 /04/2015

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA

CORAM: S. RAMAN, WHOLE TIME MEMBER
ORDER
Under Sections 11 and 11B of SEBI Act, 1992 read with Regulation 11 of the SEBI
(Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market)
Regulations, 1995 read with Regulation 13 of the SEBI (Prohibition of Fraudulent and
Unfair Trade Practices relating to the Securities Market) Regulations, 2003 in respect of
Dhanlaxmi Cotex Limited (PAN:AABCD2387H) in the matter of Soundcraft Industries
Limited.
___________________________________________________________________________
1. Soundcraft Industries Ltd. (hereinafter referred to as "SIL") is a public limited company.
The shares of SIL are listed in Bombay Stock Exchange Limited (BSE) and the National
Stock Exchange of India Limited (NSE). Mr. Rajkumar Chainrai Basantani (hereinafter
referred to as Rajkumar Basantani) is the Chairman cum Managing Director of SIL and
is also an individual trading member of NSE. He was also one of the Directors of Kolar
Sharex Pvt. Ltd., Member, BSE. On noticing sharp fluctuations in the price and volume in
the scrip at both BSE and NSE during the period July 2, 2001 to January 2, 2002 (hereinafter
referred to as "investigation period"), Securities and Exchange Board of India (hereinafter
referred to as "SEBI") initiated investigation into buying, selling and dealings in the scrip of
SIL.
2. Investigation revealed that a handful of brokers and clients including Dhanlaxmi Cotex Ltd.
(hereinafter referred to as "the Noticee") created false and misleading appearance of trading
in the shares of SIL, both at NSE and BSE, so as to establish and maintain the price of the
scrip of SIL at a specific level through structured and circular/reversed trades, during the
investigation period. The creation of volume was artificial as only a set of a few brokers and
clients were involved throughout the trading in this scrip during the investigation period. It
was further revealed that the whole scheme of manipulation in the scrip of SIL during the
investigation period had been engineered and perpetrated by Mr. Rajkumar Chainrai
Basantani (Chairman cum Managing Director of SIL) (hereinafter referred to as "Rajkumar

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Basantani") to maintain the price of the scrip at a specific level. SIL had passed three
resolutions during 2001 for the preferential allotment of shares and it could not allot the
shares as the negotiations with some financial institutions for subscription of shares of SIL
were not successful. It was alleged that the aforesaid group of clients including the Noticee
and the brokers including M R Share Broking Pvt. Ltd. (M R Share Broking) and V.R.M.
Share Broking Pvt. Ltd. (V.R.M. Share Broking), who are related and connected among
themselves aided and abetted Rajkumar Basantani in the creation of artificial volumes with
the objective to maintain the price of the scrip at a specific level. Rajkumar Basantani along
with the brokers and clients including the Noticee contributed 96% and 85% of the trading
in the scrip at BSE and NSE respectively.
3. On completion of the investigation, a show cause notice (SCN) dated August 31, 2005 was
issued to the Noticee to show cause as to why suitable directions including directions
restraining it from accessing the capital market and prohibiting from buying, selling or
dealing in securities for a specified period should not be issued for alleged violation of the
provisions of Regulation 4 (a), (b), (c) & (d) of the SEBI (Prohibition of Fraudulent and
Unfair Trade Practices relating to Securities Market) Regulations, 1995 (hereinafter referred
to as "PFUTP Regulations, 1995"). Pursuant to this, an opportunity of personal hearing
was also granted to the Noticee on November 22, 2006. After considering the written as well
as oral submissions made by the Noticee, SEBI, vide Order dated January 09, 2009, debarred
the Noticee from accessing the securities market and prohibited it from buying, selling or
dealing in securities, either directly or indirectly for a period of six months, in view of its role
in the manipulation of the scrip of SIL "by creating artificial volume and price discovery in the scrip of
SIL".
4. Noticee challenged the aforesaid order before the Hon'ble Securities Appellate Tribunal
(SAT). SAT, vide its order dated July 08, 2009 remanded the matter back to SEBI for fresh
decision in accordance with law. SAT also directed SEBI to provide the complete
information regarding trade and order log to the Noticee. Vide the aforesaid Order, SAT also
observed, "whatever has been observed hereinabove is only for the purpose of remanding the cases back to the
Board and no observation made should be taken as an expression of our views on the merits of the issues
involved in the appeals. The Board shall examine all issues without being influenced by any of the
observations made by us hereinabove to look into this aspect."

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5. Pursuant to this, a Show Cause Notice (SCN) dated February 17, 2012 was issued to the
Noticee to show cause as to why suitable directions including directions restraining it from
accessing the capital market and prohibiting it from buying, selling or dealing in securities for
a specified period should not be issued against the Noticee for the alleged violation of
Regulation 4(a), (b), (c) and (d) of PFUTP Regulations, 1995. All the material relied upon by
SEBI against the Noticee were also furnished to them along with the said SCN.
5.1 The allegations levelled against the Noticee in the aforesaid SCN dated February 17, 2012
were as follows:
i.

A group of brokers and clients including the Noticee, connected and related to
Rajkumar Basantani contributed trades (both buy and sell) almost 96% of the trading
in the scrip at BSE and nearly 84.57% of the trading at NSE during the investigation
period. The Noticee had traded through the brokers, viz. V R M Share Broking
Private Limited at NSE and M R Share Broking Pvt. Ltd. at BSE.

ii.

At BSE, during the period August 1, 2001 to September 28, 2001, the total volume
traded in SIL shares was 2,01,963. A total of 1,92,932 shares were traded among
these clients including the Noticee in circular/reversal pattern, which adds up to
about 95.52% of the total volumes for the said period. The Noticee traded through
the stock broker, M.R. Share Broking Pvt. Ltd. and their contribution was the second
highest to the volume in the scrip of SIL at BSE.

iii.

At NSE, the group of clients including the Noticee were alleged to have indulged in
1852 structured trades amongst themselves and created gross trading volume of
3,61,200 shares (20.22% of total gross market volume) in the scrip during the
investigation period. The Noticee was involved in 197 structured deals, which
resulted in the creation of artificial volume of 40,175 shares. It is further alleged that
out of the said 197 structured deals, the counterparty in 90 structured deals was Jaitra
Estate Developers P. Ltd., one of the clients of Rajkumar Basantani, who is the main
perpetrator of the whole scheme of manipulation. The said group including the

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Noticee also traded among themselves through circular and reversal trades, thereby
creating volume of 6,23,161 shares (69.78% of the total market volume).
iv.

It is alleged that the Noticee along with related entities at both NSE and BSE entered
into structured trades and/or circular/reversal trades among themselves with the
intention to create artificial volumes.

v.

SIL had passed three resolutions during 2001 for the preferential allotment of shares
and they could not allot the shares as the negotiations with some financial institutions
for subscription of shares of SIL were not successful. It is alleged that the aforesaid
group of clients including the Noticee and the brokers, who are related and
connected among themselves and with Rajkumar Basantani, (M.D. of SIL) aided and
abetted Rajkumar Basantani in perpetrating the creation of artificial volumes with the
objective to keep the price of the scrip at a specific level depicting attractiveness for
price and liquidity in terms of volumes.

vi.

The connection alleged in the SCN is that M R Share Broking Pvt. Ltd., Member
BSE, V.R.M. Share Broking Pvt. Ltd., Member NSE and the Noticee are sister
concerns. The three entities have a common director, viz. Mr.Ramautar Jhawar.

5.2 Noticee vide letter dated March 12, 2012 sought certain documents/information from
SEBI. In response, SEBI vide its letter dated April 10, 2012, informed the Noticee that
all the documents relied upon by SEBI in the SCN had already been provided to it.
5.3 Noticee, vide letters dated April 30, 2012 and May 16, 2012 sought complete copy of
trade log and order log. In response, SEBI vide letters dated May 09, 2012 and July 19,
2012 informed that all the information in relation to their trades were already provided to
them. Noticee was also advised to file their reply to the SCN.
5.4 Thereafter, Noticee, vide letter dated July 23, 2012 submitted their reply. An opportunity
of hearing was granted to Noticee on June 19, 2013. During the hearing Noticee
reiterated the submissions made on the aforesaid reply and also submitted that SEBI had
not furnished complete copy of order log and trade log. Subsequent to the hearing,

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Noticee vide letter dated June 21, 2013 again sought for the relevant information
pertaining to trade log and order log. It is however, observed that all the documents
including the trade log and order log which were relevant in respect of the violations
alleged against the Noticee in the SCN were already provided to them along with the
SCN.
5.5 Another opportunity of hearing was granted to the Noticee on January 07, 2015, which
was postponed to February 04, 2015 at the request made by the Noticee. During the
hearing held on February 04, 2015, the entity reiterated the submissions made by them in
their reply dated July 23, 2012. The entity also filed their additional reply vide letter dated
February 10, 2015.
5.6 Noticee, in their replies, vide letters dated July 23, 2012 and February 10, 2015 and also
during the hearing held on February 4, 2015, inter alia made the following submissions:
a. Noticee is neither connected nor associated with any of the entities who are
mentioned in the SCN nor it has entered into any kind of structured/circular or
manipulative/dubious trades in the scrip of SIL so as to create artificial volumes.
b. The SCN does not establish any connection between the Noticee and the other
entities.
c. SEBI in its Orders passed in respect of the entities M.R. Share Broking P. Ltd.
and V.R.M. Share Broking P. Ltd.(sister concerns of the Noticee) observed "The
factors do not suggest any connection of Dhanlaxmi Cotex with any other clients or stock
brokers mentioned in the Report"
d. They were involved in jobbing transaction. They were taking short positions in
the market in the morning and purchasing the shares at evening. Thus, he was
squaring of his position. Further, Noticee was involved in purchase of other
shares during the same period.
e. As they were taking short position in the market, there was selling pressure in
the market due to which price of scrip may go down, however there was
allegation that Noticee was involved in maintaining the price.
f. There was no artificial volume created in the scrip as the deliveries have been

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taken /given on the net position. Further, total trading done by Noticee in the
investigation period was also merely 8.73% of the total quantity traded in the
market, thus the allegation of creating artificial volume cannot stand.
g. Noticee has not been provided relevant information/ documents such as
Investigation report, trade log and order log for entire Investigation period and
order book position before and after each trade etc.
h. In a screen based trading , as a client they are not aware with whom they traded
in the market. Thus, they were not aware about the counterparty broker and
client.
i. It is denied that Noticee is a Basantani related entity as specified in SCN and that
they had indulged in structured deals and attempted to create market volume.
j. Only one of the alleged three resolutions for preferential allotment of shares were
passed during the period of investigation.
k. With only limited number of clients interested in particular scrip, the probability
of matching trades is too high.
Consideration of Issues and Findings6. I have carefully considered the investigation report, SCN issued to the Noticee along with
the documents contained therein, the oral and written submissions of the Noticee and all
other relevant materials available on record. In light of the same, I shall now proceed to deal
with the charges alleged against the Noticee in the SCN.
The relevant legal provisions, the contravention of which have been alleged in this case are
reproduced hereunder:-

PFUTP Regulations, 1995

Prohibition against Market Manipulation
4. No person shall - (a) effect, take part in, or enter into, either directly or indirectly, transactions in securities,
with the intention of artificially raising or depressing the prices of securities and thereby inducing the sale or
purchase of securities by any person;
(b) indulge in any act, which is calculated to create a false or misleading appearance of trading on the securities

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market;
(c) indulge in any act which results in reflection of prices of securities based on transactions that are not genuine trade
transactions;
(d) enter into a purchase or sale of any securities, not intended to effect transfer of beneficial ownership but intended
to operate only as a device to inflate, depress, or cause fluctuations in the market price of securities;

6.1

From the SCN, it is noted that at NSE, the price decreased from ` 505.40 on July 2, 2001
to ` 428.00 on January 2, 2002, i.e. a fall of 15.31% and the traded volume decreased
from 15,215 to 235 i.e. a fall of 98.46%. At BSE, the price of SIL shares decreased from `
506.50 on July 2, 2001 to ` 429.05 on January 2, 2002 i.e a fall of 15.29% and the traded
volume decreased from 15150 to 2010, i.e. a drop of 86.73%. The analysis of the trades in
the scrip of SIL at both NSE and BSE revealed that there was a constant endeavour by
certain entities including brokers and clients allegedly connected and related to the
Chairman cum Managing Director of SIL, viz. Basantani, to keep the price of the scrip at
a specific level indicating attractiveness for price and liquidity in terms of volumes during
the investigation period.

6.2 The details of the trades executed at both NSE and BSE, by the entities including the
Noticee, allegedly connected amongst themselves have been provided in Table No 1 and
2 at Paragraphs Nos. 8 and 9 of the SCN respectively. The details of the connected
clients and the brokers, who traded at NSE and BSE are as under:
At NSESerial

Name of the Client

Name of the Broker

Bharat H Jain (Sub Client Code- B005)

H Nyalchand Financial Services Ltd.

Ashmita R Shah (Sub Client Code- A0008)

H Nyalchand Financial Services Ltd.

Bharat H Jain

Mekaster Securities Pvt. Ltd.

Jaitra Estate Developers Pvt. Ltd.

Rajkumar Chainrai Basantani

Panna Agrofine Pvt. Ltd.

Rajkumar Chainrai Basantani

No.
1.
2
3
4
5

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AMS Finance & Securities Ltd.

R K Global Shares & Securities Ltd.

Dhanlaxmi Cotex Ltd.

V.R.M. Share Broking Pvt. Ltd.

Name of the Client

Name of the Broker

1.

Born Free Finance Pvt. Ltd.

Kolar Sharex Pvt. Ltd.

Panna Agrofine Pvt. Ltd.

Kolar Sharex Pvt. Ltd.

Dhanlaxmi Cotex Ltd.

M R Share Broking Pvt. Ltd.

Ashmita R Shah

Park Light Investment Pvt. Ltd.

Bharat H Jain

Park Light Investment Pvt. Ltd.

Sparkling Securities

Churiwala Securities Pvt. Ltd.

Jain Investment (Ramila Jain)

AMS Stock Management

At BSESerial
No.

6.3 The connection amongst the entities as explained in Paragraph No. 10 of the SCN is as
under:
a) Rajkumar Basantani, the director of the broking firm Kolar Sharex Pvt. Ltd. is
also the Chairman cum Managing Director of SIL. He is also a broker at NSE in
his individual capacity.
b) The old registered office address of Jaitra Estate Developers P. Ltd. is the same
as the office address of Rajkumar Chainrai Basantani. Panna Agrofine and Jaitra
Estate Developers P. Ltd. have a common director, Nitin Sawant. Further,
Ramesh Verma, director of Jaitra Estate Developers P. Ltd. is a dealer with
Rajkumar Basantani at NSE.
c) Ramila B Jain, director of Jain Investment, is the wife of Bharat H Jain. Bharat H
Jain is also the introducer of Asmita R Shah. Bharat H Jain has for long been a
registered client with Rajkumar Chainrai Basantani at NSE.
d) H Nyalchand Financial Services Ltd., Member NSE and Park Light Investment
Pvt. Ltd., Member BSE are related entities. The Director of H Nyalchand,
Mr.Dhiren Vora is the brother of Mr. Uday Vora, director of Park Light
Investment Pvt. Ltd.

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e) M R Share Broking Pvt. Ltd., Member BSE, VRM Share Broking Pvt. Ltd.,
Member NSE and the Noticee are sister concerns. The three entities have a
common director, Mr. Ramautar Jhawar.
f) Mr. Vinod Bagri is the Director of AMS Stock Management. His wife, Mrs. Alka
Bagri is erstwhile director of AMS Finance & Securities Ltd. Further, Mr. Vinod
Bagris brother-in-law, Mr. Brij Mohan Binani is the Director of AMS Finance &
Securities Ltd. Mr. R K Bagchandka, Director of R K Global, is introducer of
AMS Finance to RK Global.
The aforesaid group of entities including the brokers and clients are hereinafter
collectively referred to as "connected entities" and individually by their respective
names.
6.4 It is observed from the SCN that the aforesaid connected entities contributed (both buy
and sell) almost 96% of the trading in the scrip at BSE and nearly 84.57% of the trading
at NSE during the investigation period. The Noticee had traded both in NSE and BSE,
during the investigation period through the brokers, viz. V.R.M. Share Broking at NSE
and M.R. Share Broking at BSE. As per Table 1, provided in the SCN, the Noticee has
contributed to 21.33% of the total gross market volume in the scrip at BSE and 8.73% of
the total gross market volume at NSE during the investigation period. It is observed that
the Noticee has not disputed the aforesaid trades.
Structured Trades-

6.5

It is further observed from Annexure 3 to the SCN, which provides the details of
structured deals executed by the connected entities including the Noticee, at NSE that in
all the structured deals, sell and buy orders have been placed by the entities either
simultaneously or within the time period of less than 60 seconds. The prices at which the
buy and sell orders were placed were also identical. The summary of the structured deals
executed by the connected entities at NSE are provided in Table 3 at Paragraph No. 11
of the SCN.

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6.6 From the summary of structured deals provided in the SCN, it is observed that out of the
total 1852 structured deals (which created gross trading volume of 3,61,200 shares, i.e.
20.22% of the total gross market volume in the scrip) executed by the connected entities
at NSE, the Noticee, through the broker, V.R.M. Share Broking has indulged in 197
structured deals, which resulted in creation of artificial volume of 40,175 shares. It is
observed that out of the said 197 structured deals, 90 structured deals (13,678 shares)
were directly with the client of Rajkumar Basantani, viz. Jaitra Estate Developers P. Ltd.
Circular/reversal Trades6.7 From the instances of circular/reversal trades alleged to have been executed by the
Noticee in NSE and BSE, as provided in the SCN, it is observed thati.

At NSE, on July 2, 2001, the Noticee bought 1750 shares from Jaitra Estate
Developers P. Ltd. (one of the connected entities and client of Rajkumar Basantani)
and sold 1845 shares to AMS Finance (another of the connected entities). On July
20, 2001, the Noticee bought 1200 shares from Bharat H. Jain and 400 shares from
Jaitra Estate Developers P. Ltd. and sold 1530 shares to AMS Finance, 10 shares to
Bharat H. Jain & Asmita R. Shah and 60 shares to Jaitra Estate Developers P. Ltd.

ii.

At BSE, on August 16, 2001, the Noticee sold 1500 shares to Born Free Finance
Pvt. Ltd and squared off its transaction as it bought 300 shares from Jain
Investment, 950 shares from Sparkling Securities and 250 shares from Born Free
Finance Pvt. Ltd.

6.8 The SCN alleges that the aforesaid structured and circular/reversal transactions executed
by the connected entities including the Noticee were with prior meeting of minds and
not intended to effect transfer of beneficial ownership of shares of SIL. The aforesaid
transactions resulted in false and misleading appearance of trading in the scrip of SIL at
NSE and BSE. It is alleged that Noticee, through the related brokers M.R. Share Broking
and V.R.M. Share Broking, along with the connected entities created artificial volume
and involved in structured deals and circular trades with connected entities at NSE and
BSE. On the basis of the connection alleged in the SCN, it is alleged that the aforesaid
trades executed by the Noticee along with the connected entities have aided and abetted
Rajkumar Basantani (Chairman and MD of SIL) to establish and maintain the price of

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the scrip of SIL at a specific level.

6.9 It is noted that the Noticee has not disputed the aforesaid transactions alleged to have
been executed by them. Noticee, however, in their reply vide letter dated February 10,
2015 contended that all the trades were genuine jobbing transactions. They contended
that nothing has been brought on record to establish any connection between them and
other entities. The SCN did not contain any material to prove connection between the
Noticee and the Rajkumar Basantani.
6.10 I have examined the details of the connection as given in the SCN. As per the SCN "M. R.
Share Broking Pvt. Ltd., Member BSE, V.R.M. Share Broking Pvt. Ltd., Member NSE and
Dhanlaxmi Cotex Ltd. are sister concerns. The three entities have a common director, viz. Mr.
Ramautar Jhawar". The fact of having a common director has not been refuted by the
Noticee. Apart from this, there is nothing on record to suggest any connection or
relation between the Noticee and other connected entities, who were counterparties to
the alleged structured deals and circular/reversal trades executed by the Noticee. The
said factors do not suggest any connection/relation between the Noticee and the
Rajkumar Basantani, who is the alleged perpetrator of the entire scheme of manipulation
in the scrip of SIL. I also note that SEBI, vide separate Orders dated December 20, 2013
disposed of the SCN issued against them by giving benefit of doubt to the aforesaid
stock brokers, viz. M.R. Share Broking and V.R.M. Share Broking, through whom the
Noticee executed the trades in NSE and BSE during the investigation period. It was
observed that the link between the entities and Rajkumar Basantani has not been firmly
established.
6.11 From the relationship as alleged in SCN, I observe that even though there is connection
between the Noticee and its brokers through a common director, there is no material
available to buttress the case of relationship between Noticee and other connected
entities allegedly formed by Rajkumar Basantani. Apart from a statement to the effect
that they are related, SCN also fails to establish any inter-se connection between the
connected entities and also their connection with Rajkumar Basantani. It is also observed
that the SCN issued to the Noticee does not specify that Noticee had traded in the scrip

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above the last traded price or had attempted to affect the price in any manner. It is
however, noted that there was decrease in price of scrip during investigation period.
Therefore, the evidence available on record does not conclusively substantiate the
allegation in the SCN regarding circular/reversed and structured trades, being executed
to maintain price at a particular level.
7. I am, therefore of the considered view that in the absence of sufficient evidence/material to
prove that there was a meeting of minds between the Noticee and other connected entities
and involvement of the Noticee in aiding and abetting Rajkumar Basantani in the creation of
artificial volume with the objective to fix the price of the scrips of SIL during the
investigation period, the charges levelled against the Noticee in the SCN dated February 17,
2012 have not been conclusively established. I also note that the investigation period with
regard to the trades in the scrip at NSE and BSE is between July 02, 2001 to January 02,
2002 and considerable time has elapsed since the initiation of these proceedings against the
Noticee. Considering the above facts and circumstances, I am inclined to give the benefit of
the doubt to the Noticee in respect of the charges alleged therein. However, I find that the
Noticee has participated in the circular trades as well as structured deals in the scrip of SIL
on many occasions as have been discussed in the preceding paragraphs, which eventually
resulted in the creation of volume in the scrip of SIL.
8.

I therefore, in exercise of the powers conferred upon me under Section 19 read with
Sections 11 and 11B of the SEBI Act and Regulation 11 of the SEBI (Prohibition of
Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 read
with Regulation 13(3) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices
relating to Securities Market) Regulations, 2003, hereby warn the Noticee herein, viz.
Dhanlaxmi Cotex Ltd. (PAN AABCD2387H) to be cautious in its future dealings and
exercise due care and diligence in the conduct of its dealings as a securities market
participant. Any future instance of violation of SEBI Act, Rules and Regulations framed
there under shall be dealt with stringently.

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Place: Mumbai
Date: April 21, 2015

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S. RAMAN
WHOLE TIME MEMBER
SECURITIES AND EXCHANGE BOARD OF INDIA

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