BEFORE THE ADJUDICATING OFFICER SECURITIES …was initially promoted in the name of Kolar Securities Services Pvt. Ltd. by Shri Nazeer Ahmed N. Desai and Shri Maqbool Matwanker. On

Page 1 of 36

BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA

[ADJUDICATION ORDER NO. DSR/AO-36 /2008

__________________________________________________________________

ORDER 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

Against

Shri Janba Chougle (Director)

Albeli Trading Pvt Ltd Kalbadevi Finance Ltd

Aravali Housing and Finance Ltd

And

Smt Shantabai Chougle (Director) Albeli Trading Pvt Ltd

__________________________________________________________________

FACTS OF THE CASE

1. Securities and Exchange Board of India [hereinafter referred to as ‘SEBI’]

conducted investigation into the scrip of Kolar Biotech Pvt Ltd

(hereinafter referred to as KBL or company) during the period of July 2004

to August 2004. The reason for the investigation was that SEBI had

received a complaint from one Shri Anil Khanna vides e-mail dated

August 13, 2004 regarding alleged fraud by KBL. The complainant had

stated that the promoters of the company have escaped from the country

after committing a fraud of over Rs.1000 crores. It had also been stated

that the company announced a bonus issue of 2:1 and Rs. 50 cr. Global

Depository Receipt [GDR] issue and had advertised the same in the

widely circulated business daily viz., the Economic Times [ET]. However,

in the ET there was also a notice by the Bank of India [BOI] regarding sale

of property of Shri Raj Kumar Basantani who was the main promoter of

KBL. It was mentioned in the said complaint that the registered office of

KBL had been sealed by various banks, yet the company had advertised

Page 2 of 36

that the meeting to consider GDR issue would be held at its registered

office. Further, various other complaints against the company and its

promoters/ directors were also received.

APPOINTMENT OF AO

2. Shri Amit Pradhan was appointed as Adjudicating Officer vide order

dated February 22, 2007 under Rule 3 of SEBI (Procedure for Holding

Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995

(hereinafter referred as ‘said Rules’) to enquire into and adjudge upon the

alleged violations committed by all 26 noticees. Pursuant to the transfer of

Shri Amit Pradhan to NRO, I was appointed as Adjudicating Officer vide

order dated July 19, 2007.

SHOWCAUSE NOTICES, REPLIES AND HEARING

3. Show cause notices (SCNs) all dated April 25th, 2008, were issued to the

entities through registered post with acknowledgment due (RPAD). All

the said SCNs came back undelivered with the remark that all the

addressees had left the premises. Thereafter, a notice dated July 28, 2008

under Rule 7 (c) of the said rules was sent for affixture on a conspicuous

part of the premises wherein the noticees were, inter alia, advised to

collect the show cause notices from SEBI’s office, on or before August 11,

2008, on any working day between 9:30 a.m. to 5:30 p.m. The noticees

were also advised to send their replies and to indicate their desire, if any,

for personal hearing in the matter, within 14 days of collecting the show

cause notice, failing which it would be assumed that they had no reply to

submit and the matter would be proceeded ex-parte. A written report

dated July 30, 2008 thereof (signed by two witnesses evidencing the

completion of affixture of the said notice) is available on record.

4. None of the noticees collected the show cause notices from SEBI’s office,

nor did they file any replies in the matter. All the noticees failed to avail

the opportunity granted to them for filing reply as well as attending

personal hearing in the matter.

5. Thereafter, alternative addresses of the noticees were found on record.

Therefore, letters all dated October 15, 2008 were again issued to the

noticees (through registered post with acknowledgment due) interalia

Page 3 of 36

advising them to collect the show cause notices from SEBI’s office, on or

before October 24, 2008, on any working day between 9:30 a.m. to 5:30

p.m. The noticees were also advised to send their replies and to indicate

their desire, if any, for personal hearing in the matter, within 10 days of

collecting the show cause notices, failing which it would be assumed that

they had no reply to submit and the matter would be proceeded ex-parte.

6. Shri Janba Chougle and Smt Shantabai Chougle collected the show cause

notices on October 24, 2008 and filed a joint reply vide letter dated

October 31, 2008 wherein they had interalia stated that Shri Janba Chougle

was the driver of Shri Rajkumar Basantani and Smt Shantabai Chougle is

his wife. They stated that their employer, Shri Basantani, had taken copies

of their ration cards as identity proof and had also made them sign certain

documents, the contents of which they were unaware of. Shri Janba

Chougle stated that he had studied upto Std. VI and that his wife was

illiterate. They submitted that they were completely unaware as to the

existence of the companies that they were supposedly made the directors

of and that Shri Basantani had exploited their poverty and ignorance by

using their names for his own purposes.

7. Shri Janba Chougle and Smt Shantabai Chougle were granted an

opportunity of personal hearing on November 10, 2008 wherein they

appeared and reiterated the submissions already made vide their letter

dated October 31, 2008. Shri Janba Chougle stated that Shri Rajkumar

Basantani had made him sign certain printed papers, typed in English.

Since he did not know English, he was unaware of their contents. He said

that he had signed the documents without objection because he felt that

asking questions would annoy his employer and he was apprehensive

about losing his job. He submitted that he had begun working as a driver

with Shri Rajkumar Basantani from August 16, 1990 with a starting salary

of Rs. 1,000 and that he worked till March 2004. His last drawn salary was

Rs. 7,250. Smt. Shantabai Chougle submitted that she had never signed

any documents of any sort. A copy of the driving license of Shri Janba

Chougle was taken on record.

Page 4 of 36

CONSIDERATION OF ISSUES AND FINDINGS

8. I have perused the entire material available on record. Kolar Biotech Ltd.

was incorporated on January 13, 1994 with an initial focus on providing

services as Registrar and Transfer agents and other financial services. It

was initially promoted in the name of Kolar Securities Services Pvt. Ltd.

by Shri Nazeer Ahmed N. Desai and Shri Maqbool Matwanker. On

February 28, 1994, Adam Comsof Ltd. (ACL) a company controlled by

Shri Raj Kumar. C. Basantani and individuals/entities

related/connected/associated with him, subscribed 19, 99,830 shares of

Kolar Securities Services Pvt. Ltd. By virtue of their holding of 19, 99,830

shares out of total equity of 20, 00,000 shares, Kolar Securities Services Pvt.

Ltd. became subsidiary of ACL. By November 15, 1996, ACL’s holding in

Kolar Securities Services Pvt. Ltd. increased to 19,99,910 shares. Shri Raj

Kumar Basantani, has since then been the main promoter/person

controlling the company. In the year 1997, the company came out with a

public issue of 60, 00,000 shares of Rs. 10 each at par aggregating to Rs. 6

cr. In the year 1998, Kolar Securities Services Pvt. Ltd. changed its name to

Kolar Information Technologies Ltd. and the focus of the company was

changed to development and trading of computer software and hardware.

Thereafter, in the year 2003, the name of the company was changed to

KBL with main focus in the biotech sector.

9. The shares were listed on Bombay Stock Exchange Ltd. [hereinafter

referred to ‘BSE’] and Ahmedabad Stock Exchange Ltd. [hereinafter

referred to as ‘ASE’] on April 25, 1997. Presently, the trading in the shares

of KBL is suspended at the stock exchanges with effect from October 11,

2004 for non-compliance of various clauses of listing agreement.

Subsequent to the public issue, KBI had on February 28, 2002 split the

shares from Rs 10/- per share to Re 1/- per share. The shares of KBL were

admitted on National Securities Depository Ltd. [hereinafter referred to as

‘NSDL’] on March 4, 1999 and on February 4, 2000 on Central Depository

Services (India) Ltd. [hereinafter referred to as ‘CDSL’].

10. The registered office of the company is located at: Narayan Building, 2nd

Floor, 23, Lakshmi Napoo Road, Dadar (E), Mumbai – 400 014. Since July

27, 2004 the registered office of the company has been sealed by the Office

Page 5 of 36

of the Special Recovery and Sales Officer of Co-operative Department,

Mumbai (Government of Maharashtra) on behalf of The Greater Bombay

Cooperative Bank Ltd. vide its notice no. GBCB/ Rec/ SRB/ 3692/ 2004

dated July 28, 2004 in execution of the Recovery Certificate obtained by

the bank in the matter of recovery of advances given to Soundcraft

Industries Ltd., a group entity of KBL.

11. The period of SEBI’s investigation was July 01, 2004 to August 31, 2004

[hereinafter referred to as ‘period under investigation’] during which

KBL/ Shri Raj Kumar C. Basantani and his related/ connected/ associated

entities/ individuals had allegedly issued false and misleading

advertisement related to KBL, created artificial volume and price in the

scrip and subsequently off-loaded shares in the market through connected

entities at higher price.

The findings of the investigations conducted by BSE are given below:

12. After the declaration of the bonus issue by the Board of Directors of the

company on August 04, 2004, the average daily volumes during the

period August 05, 2004 to August 17, 2004 surged by around 540 % as

compared to the average daily volumes in the scrip for the earlier period

viz. July 26, 2004 to August 04, 2004. The price of the scrip has increased

after August 04, 2004 i.e. the date of approval of Bonus issue in the ratio of

2:1 by the Board of Directors of the company from Rs. 1.04 August 04,

2004 to Rs. 2.12 as on August 10, 2004.

13. The Greater Bombay Co-operative Bank Ltd. received recovery certificate

on July 27, 2004 and registered office of Soundcraft Industries Ltd. (which

also happens to be registered office of KBL) has been sealed by Special

Recovery and Sales Officer of Co-operative Department (Government of

Maharashtra) in the matter of recovery of advances given to Soundcraft

Industries Ltd. The BSE officials who visited the company’s registered

office on August 18, 2004 observed that the office has been sealed vide

notice no. GBCB/ Rec/ SRB/ 3692/ 2004 dated July 28, 2004. Although,

the company did not intimate the exchange regarding such adverse

developments, it intimated the exchange vide its letter dated July 29, 2004

conveying that a board meeting for considering, inter alia, a bonus issue

Page 6 of 36

was fixed at its Registered Office on August 03, 2004. The venue of the

said Board meeting was already sealed before the date of communication

by the company.

14. The entities related to the company are Cavalier Securities Ltd.,

Girdharbhai Karu, Adam Comsof Ltd., Adsul Trading Pvt. Ltd., Mahesh

Mistry, Structure Housing & Finance Pvt. Ltd., Million Investrade Ltd.,

Mastermind Mercantile Co-op Ltd., Sangam Infotech Ltd., Jugnu

Securities Pvt. Ltd. and Albeli Trading Limited. These entities have been

net sellers to the tune of 3,45, 38,628 shares i.e. about 34.54% of the share

capital of the company which has been sold after the announcement of

approval of bonus issue by the Board (i.e. from August 05, 2004 to August

17, 2004) and 29.60% of the trading volume during the period between

August 05, 2004 to August 17, 2004.

15. BSE has also observed that the events depicted above seem to suggest that

entities connected to the company may have possessed the information

about recovery action by Greater Bombay Co-operative Bank Ltd., which

was not available to the investors at large.

Analysis of Data:

Price Volume Analysis:

16. As per the price volume data for the period July 01, 2004 to August 31,

2004, the price of the scrip was in the range of Rs 0.46 to Rs 2.29 with wide

variations/ fluctuations in volumes. The price of the scrip touched a low

of Rs. 0.46 on July 23, 2004 and touched a high of Rs 2.29 on August 11,

2004. The volumes in the scrip increased drastically after the

announcement of bonus issue on August 4, 2004. The volumes have

increased from average of 7 lakh share before the announcement of bonus

issue to 1.30 crores shares after the announcement by the company. The

movement of price and volume of the scrip during the period is

represented in table as:

Page 7 of 36

Date Open

(Rs.)

High

(Rs.)

Low

(Rs.)

Close

(Rs.)

No. of

Shares

No. of

Trades

1 July 0.59 0.59 0.56 0.58 45200 38

2 July 0.58 0.58 0.54 0.55 147500 88

5 July 0.58 0.58 0.56 0.57 45500 45

6 July 0.55 0.58 0.55 0.56 138600 59

7 July 0.58 0.58 0.55 0.56 71105 96

8 July 0.59 0.59 0.48 0.48 208955 92

9 July 0.52 0.52 0.48 0.51 155164 125

12 July 0.53 0.54 0.50 0.50 64000 58

13 July 0.53 0.54 0.45 0.49 82606 57

14 July 0.52 0.52 0.46 0.49 143400 130

15 July 0.49 0.49 0.47 0.48 61900 77

16 July 0.49 0.50 0.45 0.48 588750 142

19 July 0.50 0.50 0.45 0.47 168055 153

20 July 0.49 0.49 0.45 0.47 152031 97

21 July 0.47 0.48 0.45 0.47 67045 43

22 July 0.49 0.50 0.46 0.47 97600 42

23 July 0.46 0.49 0.45 0.47 616400 141

26 July 0.49 0.56 0.46 0.56 1133851 389

27 July 0.58 0.67 0.58 0.66 625466 344

28 July 0.69 0.77 0.66 0.76 367960 269

29 July 0.83 0.90 0.77 0.89 440898 349

30 July 0.99 1.05 0.89 1.02 808993 782

2 August 1.04 1.11 0.98 1.01 1031492 749

3 August 1.04 1.09 1.00 1.00 478820 391

4 August 1.01 1.06 0.97 1.04 648000 328

5 August 1.19 1.24 1.16 1.24 11290837 10398

6 August 1.48 1.48 1.35 1.48 18453908 9653

9 August 1.74 1.77 1.60 1.77 13341001 9439

10 August 2.00 2.12 1.94 2.12 15218476 7577

11 August 2.29 2.29 1.70 1.70 15247877 10000

12 August 1.62 2.04 1.41 2.04 10299927 5741

13 August 2.14 2.14 1.64 1.66 13289842 8710

16 August 1.71 1.75 1.33 1.38 14166184 7096

17 August 1.49 1.65 1.37 1.64 5382270 3472

Page 8 of 36

18 August 1.74 1.80 1.52 1.68 3044998 2904

19 August 1.68 1.78 1.35 1.35 9064367 4967

20 August 1.25 1.45 1.09 1.39 3039839 2741

23 August 1.48 1.54 1.31 1.41 1505881 1492

24 August 1.44 1.46 1.13 1.18 1368932 1200

25 August 1.24 1.30 1.11 1.16 916345 822

26 August 1.20 1.25 1.10 1.20 946944 987

27 August 1.25 1.30 1.12 1.22 889023 566

30 August 1.34 1.44 1.26 1.38 1090660 872

31 August 1.45 1.55 1.25 1.36 476517 466

17. From the above, it is clear that after August 03, 2004 the price increased

100%. Similarly the volumes have also increased almost 15 times. During

the period July 2004 to August 2004, the scrip touched its upper circuit

limit of 20% on 7 days immediately after the announcement of the bonus

issue.

18. The price volume chart for the period July 01, 2004 to August 31, 2004 is

indicated below in graphical form.

02000000400000060000008000000

100000001200000014000000160000001800000020000000

1 Ju

ly

2 Ju

ly

5 Ju

ly

6 Ju

ly

7 Ju

ly

8 Ju

ly

9 Ju

ly

12 J

uly

13 J

uly

14 J

uly

15 J

uly

16 J

uly

19 J

uly

20 J

uly

21 J

uly

22 J

uly

23 J

uly

26 J

uly

27 J

uly

28 J

uly

29 J

uly

30 J

uly

2 Au

gust

3

Augu

st

4 Au

gust

5

Augu

st

6 Au

gust

9

Augu

st

10 A

ugus

t 11

Aug

ust

12 A

ugus

t 13

Aug

ust

16 A

ugus

t 17

Aug

ust

18 A

ugus

t 19

Aug

ust

20 A

ugus

t 23

Aug

ust

24 A

ugus

t 25

Aug

ust

26 A

ugus

t 27

Aug

ust

30 A

ugus

t 31

Aug

ust

Date

Qua

ntity

0.00

0.25

0.500.75

1.00

1.25

1.501.75

2.00

2.25

Pric

e

Quantity Price

Analysis of Financial Results:

19. Based on the balance sheet filed by the company with BSE, the financial

results of the company of the quarter ended June 30, 2004 is as under:

Page 9 of 36

Audited financial results for the year

ended on 30/06/2004

Rs. In lacs

S.

No.

Particulars Year ended

(Audited) Quarter ended (Audited)

30/06/2004 30/06/2003 30/06/2004 30/06/2003

Net A

1

Net Sales/

Income from

Operations 4202.5 2537.2 1756.46 582.2

2

Total

Expenditure

Cost of goods

sold 2648.89 1750.43 1052.67 382.15

Staff Cost 22.32 20.99 8.1 6.2

Other

Expenditure 8.79 10.09 3.55 3.28

3

Gross Profit

Before Interest 1522.5 755.69 692.14 190.57

Depreciation

& Taxation

4 Interest 11.15 8.12 2.04 1.58

5

Depreciation

& Taxation 1.49 1.88 0.2 0.11

6

Profit Before

Tax 1509.86 745.69 689.9 188.88

7

Provision for

Taxation 181.23 85.02 62.23 0

8

Profit after

Tax 1328.63 660.67 627.67 188.88

9

Equity Share

Capital 1000 1000 1000 1000

10 Reserve 2547.9 1214.27 0 0

11

Basic/ Diluted

EPS 1.33 0.66 0.63 0.19

Page 10 of 36

12

Aggregate of

Non Promoter

Share

Holdings

No of Shares 74798900 45786900 74798900 45786900

% of

Shareholding 74.80% 45.79% 74.80% 45.79%

20. From the above, it can be observed that net profit for the quarter ended

June 2004 increased from Rs 663 lakhs to Rs. 1328 lakhs.

Analysis of the Shareholding Pattern:

21. The details of the shareholding for the quarter ended September 30, 2003

and December 31, 2003, filed with the stock exchange (as per the

requirement of clause 35 of listing agreement) are as follows:

Sr.

No

Name of the

promoter /

related entities.

September

30, 2003

%-age

of

share

capita

l

December

31, 2003

%-age

of

share

capital

Promoters

Holding

1 Adam Comsof

Ltd

1,99,99,100 19.99 1,99,99,100 19.99

2 Manaroma

Trading Ltd

50,00,000 5 50,00,000 5

3. Others 2,02,000 0.21 2,02,000 0.21

Total 2,52,01,100 25.20 2,52,01,100 25.20

Non promoter

Holding

4 Canara Bank 15,00,000 1.5 15,00,000 1.5

Others 6,65,000 0.67 6,65,000 0.67

Total 21,65,000 2.17 21,65,000 2.17

Page 11 of 36

NRI/OCB’S 600000 0.60 600000 0.60

Private Corporate

Bodies

7 Kalbadevi

Finance Ltd

15,00,000 1.5 15,00,000 1.5

8 Moreearn Finvest

Pvt. Ltd

30,00,000 3.0 30,00,000 3.0

9 Million

Investrade Pvt.

Ltd

50,00,000 5.0 50,00,000 5.0

10 Exclusive Impex

Ltd

14,19,000 1.4 14,19,000 1.4

11 Balwan Exports

Pvt. Ltd

30,00,000 3.0 30,00,000 3.0

Total 1,39,19,000 13.92 1,39,19,000 13.92

Indian Public

12 Anita Patil 29,46,000 2.9 29,46,000 2.9

13 Brijesh Merchant 38,17,000 3.8 38,17,000 3.8

14 Hemlata Patil 18,72,000 1.8 18,72,000 1.8

15 Hina shah 33,97,000 3.3 33,97,000 3.3

16 Jabna Chowgle 35,31,000 3.5 35,31,000 3.5

17 Rahul Merchant 34,36,000 3.4 34,36,000 3.4

18 Sanjay Pujari 30,54,000 2.5 25,54,000 2.5

19 Shantabai

Chowgle

35,31,000 3.5 35,31,000 3.5

20 Shilap Shah 26,72,000 2.6 26,72,000 2.6

21 Tejwant Singh 34,36,000 3.4 34,36,000 3.4

22 Dr. Umesh

Khariwala.

11,20,000 1.2 12,64,899 1.2

Total 5,81,14,900 58.11 5,81,14,900 58.11

Total no of shares 10,00,00,000 100 10,00,00,000 100

22. Based on the shareholding pattern as mentioned above, it appears that

company was widely held company with only 25% of the total capital

with the promoters and rest with the private corporate bodies and India

public. However, it was observed that the names appearing under the

Page 12 of 36

heading Private Corporate Bodies are companies owned by Shri. Raj

Kumar Basantani either directly or indirectly. Further, certain individual

appearing under the head of Indian public are also related to Shri Raj

Kumar C Basantani/ KBL.

Trading Analysis July 2004 – August 2004:

23. It was observed that stock brokers Kolar Sharex Pvt. Ltd. and Ruchiraj

Shares & Stock Brokers Pvt. Ltd. [hereinafter referred to as ‘Ruchiraj’]

were having major concentration on gross sales basis. Kolar Sharex Pvt.

Ltd. sold 44,284,323 shares constituting around 30.69% of the total gross

sales and 60% of the total net sales during the period. Ruchiraj sold 1, 91,

19,594 shares constituting around 27.7% of the gross sales and 30% on net

basis. 22, 25,401 shares were sold through BSE broker M/s Shiv Kumar H.

Bissa. As per the investigation report, other brokers did not have any

major concentration during the period wherein concentration either in

gross or net was less than 10%.

24. Thus, from the above, it is clear that 6,34,03,917 shares were sold in the

market by only two brokers i.e. Kolar shares Pvt. Ltd. and Ruchiraj which

constituted around 90% of net sales position and around 57% on the basis

of gross sales position in the market during the relevant period.

25. The price of the scrip was in the range of 45 paise to 56 paise during the

period July 1, 2004 to July 23, 2007 with average volume of 1 lakh shares.

The price and volumes started increasing from July 26, 2004 i.e. 5 days

before the issue of the advertisement. However, the price increased from

Rs 1 to Rs 2 i.e. by 100% after the date of issuing advertisement i.e. on

August 3, 2004.

SUBMISSION MADE BY VARIOUS ENTITIES/ INDIVIDUALS:

26. During his deposition before the Investigating Authority, Shri Vinod

Hingorani, the then Chairman of KBL, who was also Chairman of ACL

and Director of Kolar Sharex Pvt. Ltd., when asked as to whether the

following entities namely, Adsul Trading Pvt. Ltd., Sangam Infotech Pvt.

Ltd., Manorama Trading Pvt. Ltd., Adam Comsof Ltd., Structure Housing

Page 13 of 36

& Finance Pvt. Ltd., Mastermind Mercantile Coop. Ltd., Jugnu Securities

Pvt. Ltd., Albeli Trading Co. Pvt. Ltd., Kalbadevi Finance Ltd., Moreearn

Finvest Pvt. Ltd., Million Investrade Ltd., Exclusive Impex Ltd. and

Balwan Exports Pvt. Ltd. were related to KBL/ SIL/ ACL/ Shri Raj

Kumar C Basantani, he replied that “all these above mentioned

companies are sister concern companies of Shri Rajkumar Basantani.”

Besides, Shri Ashok Bhagtani, Director of Kolar Sharex Pvt. Ltd., in his

statement recorded on November 21, 2005 also confirmed that these

companies belong to/ promoted by Shri Raj Kumar C Basantani.

27. Further, regarding the relationship of the individuals namely, Shri Vikas

Seth, Shri Umesh R. Khariwala, Shri Mahesh Ramdas Adsul, Shri Vithal

Patil, Shri Hiralal Yadav, Shri Nitin Sawant, Shri Vilas Chowgle, Shri

Janba Chowgle, Shri Girdhar Karu, Shri Mahesh Mistry, Shri Basant

Malpani, Shri Satish Pancheria, Shri Ashok Bhagtani, Shri Rajesh Sharma,

Shri Shyam Shankar Pandey and Shri Manish Bhai, Shri Vinod Hingorani

replied as follows :

i) Shri Vikas Seth: He was a Director of KBL, ACL and SIL.

ii) Shri Umesh R. Khariwala: He is a Director of KBL and ACL.

iii) Shri Mahesh Ramdas Adsul: Employee of SIL.

iv) Shri Vithal Patil: Employee of SIL.

v) Shri Hiralal Yadav: Employee of SIL.

vi) Shri Nitin Sawant: Employee of SIL.

vii) Shri Vilas Chowgle: Employee of SIL.

viii) Shri Janba Chowgle: Driver of Shri Raj Kumar Basantani.

ix) Shri Ashok Bhagtani: Director of Kolar Sharex Pvt. Ltd.

Page 14 of 36

x) Shri Rajesh Sharma: Compliance Officer and authorized signatory of

Kolar Sharex Pvt. Ltd.

xi) Shri Shyam Shankar Pandey: Employee of ACL.

xii) Shri Girdhar Karu, Shri Mahesh Mistry, Shri Basant Malpani, Shri

Manish Bhai and Shri Satish Pancheria: No knowledge about these

persons.

28. Regarding the aforementioned individuals, Shri Ashok Bhagtani stated

that he personally knew Shri Vikas Seth, Shri Umesh R. Khariwala, Shri

Mahesh Ramdas Adsul, Shri Vithal Patil, Shri Hiralal Yadav, Shri Nitin

Sawant, Shri Vilas Chowgle, and Shri Janba Chowgle. Shri Ashok

Bhagtani also stated as follows:

i) Shri Umesh R. Khariwala: He is a fixed deposit clerk of SIL at Dadar

Office.

ii) Shri Mahesh Ramdas Adsul: Hardware engineer of SIL at Dadar office.

iii) Shri Vithal Patil: Clerk in CD department of SIL at Dadar office.

iv) Shri Hiralal Yadav: Watchman of SIL at Dadar office.

v) Shri Nitin Sawant: Clerk of administration department of SIL at

Dadar office.

vi) Shri Vilas Chowgle: Peon of SIL at Dadar office.

vii) Shri Janba Chowgle: Personal driver of Shri Raj Kumar Basantani.

viii) Shri Vikas Seth: Not aware of his designation but seen him at Dadar

office.

29. Shri Mahesh Adsul, Director of Sangam Infotech Ltd. and Adsul Trading

Pvt. Ltd. (clients who have been identified as major sellers of KBL’ shares

during the period under investigation), in his statement recorded before

Page 15 of 36

the Investigating Authority on November 02, 2005, stated that he was

working as a computer hardware maintenance employee in SIL. He was

appointed as Director of the Sangam Infotech Ltd., Adsul Trading Pvt.

Ltd., Doctors’ Biotech Ltd. and Munoth Hire and Purchase Ltd. by Shri Raj

Kumar C Basantani. He was also made the authorized signatory of

Sangam Infotech Ltd. and Adsul Trading Pvt. Ltd. for bank and demat

purpose. He was forced/ compelled to give various documents [proof of

residential address, ration card, electricity bill, etc] for opening of bank

account, etc. Subsequently, he was made to sign the blank cheque books

and blank demat book [instruction slip] whenever required. He stated that

another employee of SIL, Shri Vithal Patil, who was working in the

accounts department of SIL, was also appointed as Director of Sangam

Infotech Ltd. and Adsul Trading Pvt. Ltd. From the demat account

opening form of Sangam Infotech Ltd. and Adsul Trading Pvt. Ltd., it is

observed that these entities have same correspondence address as the

registered office of KBL.

30. From the submission of Shri Vinod Hingorani, Shri Ashok Bhagtani and

Shri Mahesh Adsul it can be observed that various low rung employees of

SIL/ ACL/ KBL or under personal employment of Shri Raj Kumar

Basantani were appointed as Directors of various entities controlled

directly or indirectly by Shri Raj Kumar Basantani.

31. From this analysis, it can be observed that Shri Raj Kumar C Basantani

was controlling around 4,74,46,999 shares (2,22,45,899 shares through

various entities/ individuals as mentioned in the table above and

2,52,01,100 shares under promoter holdings) as on December 31, 2003.

Thus, around 47.4 % of the total capital was under the direct/ indirect

control of the Shri Raj Kumar C Basantani.

FINDINGS OF INVESTIGATION:

32. The Greater Bombay Co-operative Bank Ltd. had received recovery

certificate on July 27, 2004 and the registered office of KBL i.e. Narayan

Building, 2nd Floor, 23, Lakshmi Napoo Road, Dadar (E), Mumbai – 400

014 was sealed by the Office of the Recovery and Sales Officer of the Co-

operative Department, Mumbai (Government of Maharashtra). However,

Page 16 of 36

it was observed that although KBL had intimated BSE vide letter dated

July 29, 2004 that it would convene a board meeting on August 03, 2004,

for considering various proposals inter-alia including considering issue of

bonus shares. The letter was signed by Shri Vinod Hingorani, chairman of

KBL. Again, KBL vide an unsigned letter dated August 03, 2003, sent to

BSE with a copy of the audited results as on June 30, 2004 stated that

board had decided to declare bonus shares in the ratio of 2:1, which was

duly approved by the Board of Directors in their meeting held on August

03, 2004, at the registered office of the company and simultaneously

issued an advertisement on the August 05, 2004 in ET publishing the

audited financial results for the quarter ended June 30, 2004.

33. The advertisement was published with the heading “Two Bonus Shares

for One…Recommended”. Besides, the advertisement had a mention of the

following items which was specifically highlighted under notes.

a) Announcement of issue of Bonus issue of 2:1

b) The company bagged an order worth Rs 10 crores from a UK based

Company

c) The Board of directors have also decided to invest Rs 7.5 crores on

research based activities in Biotech as against Rs 3 crores incurred

during last year

d) The company is expecting to tough Rs 100 crores turnover after

completion of its diversification/ expansion project, which is in

progress.

34. Again, on August 13, 2004, KBL issued an advertisement that board

meeting will be held on August 23, 2004 at its registered office to consider

the issue of GDR for Rs 50 crores and to fix the date and time and venue of

Extra Ordinary General Meeting for issue of bonus shares in the ration of

2:1 to shareholders whose names appear on the record date.

35. The management of KBL had deliberately and consciously resorted to

such practices only to induce the gullible investors to deal in the scrip to

Page 17 of 36

off-load their holdings before the negative information came to the public

domain, by issuing fraudulent advertisements pertaining to increase in

profit, issue of Bonus shares and issue of GDR in leading news papers and

intimating BSE about such issues, which BSE uploaded on its website for

public knowledge, with the sole aim to draw attention of the investors and

entice/ induce gullible investors to deal in the scrip so that the clients/

entities associated with Shri Raj Kumar C Basantani could easily off-load

the shares.

Clients Associated/ Connected with KBL/ Shri Raj Kumar C Basantani

either Directly or Indirectly:

36. The relation/ connection/ association among the clients who are directly

or indirectly related/ connected/ associated with/ to KBL/ Shri Raj

Kumar C Basantani are mentioned in the following table. The relation/

connection/ association between the clients who have dealt in the scrip of

KBL with KBL/ Shri Raj Kumar C Basantani have established/ arrived at

based on the off-market transfers, transfer of money among themselves,

same correspondence address, same contact numbers, same introducer,

deposition of client/ KBL/ broker before the Investigating Authority. The

table below summarises the relation/ connection/ association of the

clients with KBL/ Shri Raj Kumar C Basantani:

Sr.No Name of the

Major selling

Client

Link / connection with the Company.

1 Adsul Trading

Pvt. Ltd.

• The client details data provided by

BSE, indicate that telephone number

i.e. 24151450 is same as that of KBL

• Correspondence address is same as

the registered office of KBL, SIL and

ACL. Demat account opening from

with IL&FS [a/c no.:

1601480000008014]

• Directors of the company are

employees of KBL/ SIL. They are

employed by Shri Raj Kumar C

Page 18 of 36

Basantani. Statement of Shri Mahesh

Adsul, Director of Adsul Trading

Pvt. Ltd., at the time of deposition

before Investigating Officer.

2 Million Invest

Trade Ltd.



i.e. 24151450 is same as that of KBL.




with SHCIL [a/c no.:

1601010000060179].




Basantani.

3 Mastermind

Mercantile

Company Pvt.

Ltd.



i.e. 24151450 is same as that of KBL.





1601480000007804].




Basantani.

4 Sangam Infotech

Pvt. Ltd.



i.e. 24151450 is same as that of KBL





Page 19 of 36

1601480000007804].




Basantani.

• Statement of Shri Mahesh Adsul,

Director, at the time of deposition

before Investigating Officer.

5 Shri Vinod

Hingorani

• Chairman of KBL.

• Brother-in-law of Shri Raj Kumar C.

Basantani (brother of Smt. Seema

Basantani).

• Statement given by him at the time

of deposition before Investigating

Officer.

• Chairman of ACL, major client

which sold shares through Kolar

Sharex Pvt. Ltd. (group company of

KBL)

• Also Director of Kolar Sharex Pvt.

Ltd.

6 Adam Comsof

Ltd.

• Promoter of KBL,

• As per KYC form for demat account

with Ghalla Bhansali Stock Brokers

Pvt. Ltd. same registered address as

that of KBL.

• ACL, major client which sold shares

through Kolar Sharex Pvt. Ltd., a

group company of KBL.

• ACL also share registrar of KBL.

7 Albeli Trading

Pvt. Ltd.




Page 20 of 36

with SHCIL [a/c no.:

1601010000060164].

• Shri Janba Chowgle, director of

Albeli Trading Pvt Ltd. is a major

shareholder of KBL.

• Shri Janba Chowgle is an employee

of KBL/ SIL. Employed by Shri Raj

Kumar C Basantani.

8 Jugnu Securities

Pvt. Ltd.

• Shri Nitin Namdev is common

director of Structure and Jugnu

Securities. Jugnu Securities P. Ltd.

has same address as that of Shri

Vinod Hingorani (Chairman of

KBL).





1601480000008001].




Basantani.

9 Structure Hsg &

Fin P Ltd

• Shri Nitin Namdev is common

director of Structure and Jugnu

Securities. Jugnu Securities P Ltd has

same address as that of Shri Vinod

Hingorani (Chairman of KBL).





1601480000007992].


Page 21 of 36

employees of KBL/ SIL.

10 Cavalier

Securities Ltd

• Share common Telephone contact

number with Girdhar Karu as per

the DP Delivery instruction slip.

• Basant Malpani is the authorized

signatory who is also introducer of

Girdhar Karu to Ruchiraj Shares.

• Off market transfers with Girdhar

Karu.

11 Girdharbhai Karu • Indirectly related through off market

transfer of securities from entities

connected to Kolar Biotech.

• The correspondence address of

Mahesh Mistry and Girdhar Karu

are similar as per the Bank opening

form with Bank of India. Fort

Branch. Mumbai.

• Introducer of Girdhar Karu is Basant

Malpani who was also related to

Cavalier Securities Ltd.

• Front entity of Cavalier Securities

Ltd. off market transfer observed

with Cavalier Securities Ltd.

12 Mahesh Mistry. • Indirect relation with the company

through off market transfer of

securities from entities connected to

KBL.

• The correspondence address of

Mahesh Mistry and Girdhar Karu

are similar as per the Bank opening

form with Bank of India. Fort

Branch. Mumbai.

• Part of the Sales proceeds i.e. Rs 28

Page 22 of 36

lakhs transferred to bank account of

Kolar Sharex Ltd (company

associated with KBL) although

Mahesh Mistry is not a client of

Kolar Sharex P. Ltd. Details are

mentioned under respective head.

• Major Client who dealt through

Ruchiraj Shares and Harikishan

Hiralal.

• Front entity of Cavalier Securities

Ltd.

• Majority of the Sales Proceeds

transferred to the Shri Ramniklal M

Patel

13 Shri Rajesh

Sharma

• Employee of Kolar Sharex Pvt. Ltd.

who is also authorized signatory for

operation of the bank account of

Kolar Sharex Pvt. Ltd maintained

with HDFC Bank Ltd.

14 Basant Malpani • Introducer of Girdhar Karu and was

main coordinator of the said client in

arranging the shares.

• Statement of Ashok Bhagtani,

Director of Kolar Sharex Pvt. Ltd.

• Authorized Signatory of Cavalier

Securities Ltd for operating the

demat account of Cavaliers

Securities Ltd.

15 Shri Ashok

Bhagtani

• Director of Kolar Sharex Pvt. Ltd,

who was the main person who

coordinated the activities of the all

shares executed on the terminals of

Kolar Sharex Pvt. Ltd, facilitated the

sale of shares of KBL.

Page 23 of 36

• Executed the operations at the

instructions of Shri Raj Kumar C

Basantani.

• Statement given by him before the

Investigating Authority regarding

the modus operandi of the whole

operations.

16 Shri Shyam

Sunder Pandya

• An Employee of the KBL, who is in

charge of the share department and

had coordinate the transfer of shares

from one demat to another demat

account pertaining to all companies

related to the KBL

• The main person who coordinated

on behalf of KBL for the issue of

advertisement to Garima Agency,

Ahmedabad.

17 Smt. Aarti

Basantani

• Related to Raj Kumar C Basantani.

18 Smt. Seema

Basantani

• Wife of Shri Raj Kumar C Basantani.

19 Kalbadevi

Finance Pvt. Ltd.

• As per the demat account opening

form of Kalbadevi with IL&FS

[Client ID: 10411475], the authorized

signatory is Shri Raj Kumar

Basantani and the telephone number

and address of the entity is same as

that of KBL.

• Off-market transfers of shares of

KBL were made to Girdhar Karu

and Mahesh Mistry.

20 Aravali Housing

& Finance Pvt.

Ltd.

• As per demat account opening form

with SHCIL [Client ID:

1601010000060145] the address and

telephone number i.e. 24151450 are

Page 24 of 36

same as that of KBL

• The directors are employees of

KBL/ SIL/ ACL.

• Off-market transfers of shares of

KBL to Girdhar Karu.

21 Manorama

Trading Pvt. Ltd.

• As per demat account opening form

with IL&FS [Client ID: 10411387],

the authorized signatory is Shri Raj

Kumar Basantani and the telephone

number i.e. 24151450 of the entity is

same as that of KBL.

• The name of Manorama Trading

Pvt. Ltd. also appears in the list of

promoters of KBL.

Dealing of Major Selling Clients Connected With KBL/ Shri Raj Kumar

C Basantani and Selling Through Kolar Sharex Pvt. Ltd., member of

BSE During the Period July 02, 2004 to August 26, 2004.

The following entities, which appear as the major selling clients, are

connected with KBL/ Shri Raj Kumar C Basantani as mentioned in the

interim order.

Sr.

No

Name of the

entity

Name of

Directors

Shares Value of

shares sold(

in Rs.)

Remarks

1 Adsul Trading

Pvt. Ltd. [client

ID: A028]

1) Mahesh

Adsul

2) Vithal Patil

52,92,437 74,21,386 Off-

market

transfer

as per

Table B

and

Table C

2 Sangam

Infotech Pvt.

Ltd. [client ID:

1) Mahesh

Adsul

2) Vithal Patil

53,20,146 96,78,874 Off-

market

transfer

Page 25 of 36

S015] as per

Table B

and

Table C

3 Adam Comsof

Ltd. [client ID:

A031]

1)Vinod

Hingorani

2) Vikas Sheth

3) Umesh

Khariwala

87,79,913 1,43,67,890 Off-

market

transfer

as per

Table B

and

Table C

4 Structure

Housing and

Finance Pvt.

Ltd. [client ID:

S100]

1) Nitin

Sawant

2) Hiralal

Jadav

98,07,477 1,20,86,459 Off-

market

transfer

as per

Table B

and

Table C

5 Million

Investrade Ltd.

[client ID:

M086]

1) Nitin

Sawant

2) Rajesh

Sakharle

48,42,653 64,45,750 Off-

market

transfer

as per

Table B

and

Table C

6 Master Mind

Mercantile Ltd.

[client ID:

M087]

1) Vilas

Chowgle

2) Vithal Patil

41,28,327 51,19,125 Off-

market

transfer

as per

Table B

and

Table C

7 Jugnu Securities

Ltd. [client ID:

J020]

1) Nitin

Sawant

2) Hiralal

Jadav

30,29,930 49,88,044 Off-

market

transfer

as per

Table B

and

Table C

8 Albeli Trading 1) Janba 28,80,000 62,61,100 Off-

Page 26 of 36

Table B:

Off-market transfer of KBL shares by various individuals/ entities to

Shri Girdharbhai Karu:

Name of the source client Name of target

client

Number of

shares

No of

shares net

sold in the

market

Adam Comsof Ltd Girdharbhai Karu 51,61,650

Million Investrade Girdharbhai Karu 10,00,000

Sangam Infotech Girdharbhai Karu 2,84,000

Jugnu Securities Girdharbhai Karu 9,20,000

Albeli Trading Pvt Ltd Girdharbhai Karu 12,47,690

Aravali Hsg and finance Ltd Girdharbhai Karu 19,30,000

Structure Hsg and finance Girdharbhai Karu 9,50,279

Mastermind Mercantile Ltd Girdharbhai Karu 12,00,000

Kalbadevi Finance Pvt. Ltd. Girdharbhai Karu 3,50,000

Adsul Trading Pvt. Ltd. Girdharbhai Karu 5,35,975

Janba Krishna Chowgle Girdharbhai Karu 2,50,000

Total 1,38,29,594

1,38,44,591

Table C:

Off-market transfer of KBL shares by various individuals/ entities to

Shri Mahesh Mistry:

Pvt. Ltd. [client

ID: A032]

Chowgle

2) Mrs.

Shantabai

Chowgle.

market

transfer

as per

Table B

and

Table C

9 Vinod

Hingorani

[client ID: V003]

Chairman of

KBL

2,02,000 2,27,435

Total 4,42,82,883 6,65,96,063

Page 27 of 36

Date of off

market transfer

Name of the

source client

Name of

target

client

Number of

shares

No of

shares

sold in

the

market

August 6, 2004 Pool account of

Kolar Sharex Pvt.

Ltd

Mahesh

Mistry

33,00,000

August 7, 2004 Adam Comsof Ltd Mahesh

Mistry

19,90,000

August 17, 2004 Adsul Trading Pvt.

Ltd

Mahesh

Mistry

10,58,700

August 23, 2004 Kalbadevi Finance Mahesh

Mistry

9,00,000

August 25, 2004 Kalbadevi Finance Mahesh

Mistry

1,05,000

August 25, 2004 Adsul Trading Pvt.

Ltd

Mahesh

Mistry

46,701

August 25, 2004 Janba Krishna

Chowgle

Mahesh

Mistry

1,15,000

Total 75,15,401

75,15,401

37. From Table B & C above it is observed that entities related/ connected/

associated to/ with KBL/ Shri Raj Kumar Basantani were transferring

shares of KBL through off-market transactions to the demat accounts of

Shri Girdharbhai Karu and Shri Mahesh Mistry for off-loading in the

market.

38. Albeli Trading Limited, Mastermind Mercantile Co. Pvt. Ltd., Adsul

Trading Pvt. Ltd., Structure Housing & Finance P. Ltd., Adam Comsof

Ltd., Kalbadevi Finance P. Ltd., Sangam Infotech P. Ltd., Jugnu Securities

P. Ltd., Aravali Housing & Finance Pvt. Ltd. and Million Investrade Ltd.

had dealt through Kolar Sharex Pvt. Ltd, member of BSE. These entities

had also transferred shares off-market to Shri Girdharbhai Karu or Shri

Mahesh Mistry, who in turn off-loaded the shares in the market.

Page 28 of 36

39. Summaries of transactions in the DP accounts of the abovementioned

entities are given below:

Albeli Trading Pvt Ltd.

Particulars Number of

shares

Balance in the account as on July 01, 2004 0

Dematerialization (August 12, 2004) 26,72,000

Shares sold in the market through Kolar Sharex Pvt. Ltd. 14,00,000

Shares transferred to Shri Girdharbhai Karu (IN302488

10015057)

12,47,690

Balance as on August 31, 2004 24,310

Adsul Trading Pvt Ltd.

Particulars Number

of shares

Balance in the account on July 23,2004 44,93,000

Further Dematerialization on August 16, 2004 17,00,000

Total Shares Available 61,93,000


Off-market transfer 6,800

Shares transferred to Shri Girdharbhai Karu (10015057) 5,35,975

Shares transferred to Shri Mahesh Mistry (10045662) 11,05,401

Balance as on August 31, 2004 58,824

Sangam Infotech Pvt Ltd.

Particulars Number

of

shares





10015057)

2,84,000

Balance as on August 31, 2004 0

Page 29 of 36

Adam Comsof Ltd.

Particulars Number

of shares


Dematerialization (August 07, 2004) 1,99,99,100

Shares sold in the market through Kolar Sharex Pvt. Ltd. 1,28,47,350


10015057)

51,61,650

Shares transferred to Shri Mahesh Mistry (10045662) 19,90,000

Structure Housing and Finance Pvt. Ltd.


shares

Balance in the account as on July 01, 2004 2,18,365

Off-market Receipt (August 05, 2004) –

1601480000008301

43,50,000

Further Dematerialization (August 14, 2004) 16,00,000



10015057)

9,50,279

Million Investrade Ltd.


shares






10015057)

10,00,000

Page 30 of 36

Mastermind Mercantile Coop Pvt. Ltd.


shares

Balance in the account as on July 01, 2004 45,27,348




10015057)

12,00,000


Jugnu Securities Pvt. Ltd.


shares





10015057)

9,20,000


Aravali Housing and Finance Ltd

Aravali Hsg and finance Ltd 1) Janba

Chougle

2) Maruti

Gudulkar

19,30,000 Off market

Transfer.

19,30,000 shares

to Girdharbhai

Karu

Kalbadevi Finance Ltd.

Kalbadevi Finance Ltd 1) Janba

Chougle

2) Raj Kumar

Basantani

(authorized

Signatory)

13,55,000 Off market

Transfer. 10,05,000

shares to Mahesh

Mistry and 3,50,000

shares to Girdhar

Karu

Page 31 of 36

Tracking of Sales Proceeds of Kolar Sharex Pvt. Ltd.

40. As per the investigation report available on record, Kolar Sharex Pvt. Ltd.

had two accounts with HDFC Bank Ltd. Account no.: 0990620001631 was

designated for the purpose of settlement of fund i.e. pay-in and pay-out

obligation of funds with BSE and the other account no.: 060034002479 was

designated as client account which was used for payment to or receipt

from the clients. From the bank account opening form of Kolar Sharex Pvt.

Ltd. it was observed that Shri Rajesh Sharma, a compliance officer of Kolar

Sharex Pvt. Ltd. working at its Khar office, was also an authorized

signatory to operate the bank accounts. To operate the bank accounts,

either Shri Raj Kumar C Basantani alone could sign the cheque or in his

absence, both Shri Rajesh Sharma and Shri Vinod Hingorani were

required to sign the cheques jointly.

For the purpose of the examination of the bank accounts to ascertain the

beneficiaries of the sale proceeds of the sale of shares of KBL during the

period July 2004 to August 2004, HDFC Bank Ltd, vide letter dated IVD/

ID3/ PKB/ BJD/ 51446 dated October 07, 2005, was advised to provide

the transaction statement of the said two accounts along with the name of

the entities to whom the payment/ demand draft/ cheques have been

issued.

As mentioned above, the total sales proceeds of the entities, [related/

connected/ associated with the KBL/ Shri Raj Kumar C Basantani] who

sold shares through Kolar Sharex Pvt. Ltd. was around Rs. 6,65,96,063.

The details of the substantial payments made by Kolar Sharex Pvt. Ltd.

from the account no.: 0600340002479 after the pay-out of the money

received from BSE are given in the following table.

Date Cheque No &

amount

Pay order / Cheque

issued to

Amount

09/08/2004 Ch. No. 126796 of Rs.

20,00,000

Federal Forex Pvt. Ltd 20,00,000

10/08/2004 Ch. No. 126804 of Rs.

91,55,520


I D Sharma 1,00,000

Page 32 of 36

Sati Bhatia 1,00,000

Hari M. Balwani 1,00,000

Eskay Dye & Agro

Chem P. Ltd.

4,80,000

RoC 1,500

Vinod Hingorani 25,00,000

Rajiv Sadashiv Modak 11,046

Pooja Rajiv Modak 20,000

Putli Resri Dodhi 36,299

Resri N. Dodhi 36,299

J Mitthawala 20,376

C. H. Ramchandani HUF 5,00,000

Hitesh K. Shah Financial

Service Ltd.

2,50,000

10/08/2004 Ch. No. 434102 of Rs.

5,00,000


11/08/2004 Ch. No. 126812 of Rs

52,43,000


Kolar Travels Pvt. Ltd. 25,00,000

Rakhi Parekh 70,000

Hemendra Parekh 1,00,000

Anjali I Ingle 35,000

S M Naik 16,000

MD Naik – HUF 22,000

12/08/2004 Ch. No. 126814 of Rs

1,00,10,300


Kolar Travels Pvt. Ltd 25,00,000

Raj Kumar C Basantani 25,00,000

Raj Kumar C Basantani 25,00,000

Gaurishankar L Jangam 10,300

12/08/2004 Chq no. 126816 Rs

1,20,00,000

9 Pay order of Rs 9 lakh

issued each to Raj

Kumar C Basnatani and

Rs 13 lakh each to Vinod

Hingorani

1,20,00,000

13/08/2004 Ch. No 126818 of Rs Raj Kumar Basantani 10,00,000

Page 33 of 36

40,00,000

Vinod Hingorani 10,00,000

Federal Forex Ltd 10,00,000

Kolar Travels Pvt. Ltd 10,00,000

16/8/2004 Chq. No 434101 Cash Withdrawal 4,00,000

17/08/2004 Chq No. 126820 Rs

46,41,000

Kolar Sharex Rs 25 lakh

PO.

46,41,000

18/08/2004 Multiple Chqeues for

Rs 15,00,000

ABN Amro Card 2,00,000

HSBC Card 2,00,000

Standard Chartered 2,00,000

Citibank Card 2,00,000

Citibank Card 5,00,000

Standard Chartered 2,00,000

27/08/2004 Chq no. 434104 of Rs

30,00,000

Mohanlal Hingorani 2,00,000

3 PO 3,00,000

Kolar Sharex 25,00,000

31/08/2004 Chq no. 434110 of Rs

1,05,09,808

Negoem India Ltd 20,00,000





Spectra Motor Pvt. Ltd 4,71,534

Jignesh Shah 21,200

General Insurance

Cholamandalam

17,074

Total 6,29,59,628

As Kolar Sharex Pvt. Ltd. sold shares of KBL/ Adam Comsof Ltd. on

behalf of its various group entities and the pay-out received on account of

sales of other shares/ clients it is difficult to pinpoint the exact destination

of amount to be received by ACL. However, the total payment made by

Kolar Sharex Pvt. Ltd. to various parties from the amount received from

Page 34 of 36

pay-out towards consideration of sale of shares of KBL by ACL was not

paid to ACL is evident from the above table.

From the above, it is clear that the sale proceeds have gone to entities

related/ connected/ associated to/ with KBL/ Shri Raj Kumar C.

Basantani and not to the clients suggesting that the whole fraud has been

perpetuated by Shri Raj Kumar C. Basantani and the broking entity Kolar

Sharex Pvt. Ltd. played an active role in the whole process.

41. Shri Rajkumar Basantani, the main promoter of KBL, was instrumental in

making false announcements regarding the company such as the holding

of a Board Meeting, issue of bonus shares etc. to induce public interest in

the scrip of the company. These false advertisements were made with the

sole intention of luring the public into investing in the scrip of KBL, as a

result of which, there was a sharp increase in its price. This artificial price-

hike enabled Shri Basantani to offload his shares in the market through

various dubious means, and make a huge profit at the expense of

investors. He created a huge network of companies which he controlled

in fact but nominated his personal employees as their directors. These

companies essentially acted as a front to his own activities and through

them, he completed the process of off-loading his shares into the market,

taking advantage of the artificial price-rise. These companies offloaded

shares in the market through brokers like Kolar Sharex Ltd. and Ruchiraj

which were also linked to Rajkumar Basantani and also transferred shares

off-market to Girdharbhai Karu and Mahesh Mistry, who in turn

offloaded the shares into the market.

42. At this juncture, I note that the provisions of Regulation 3 and sub-

regulations (1), 2(a), and (d) of regulation 4 of the SEBI (Prohibition of

Fraudulent and Unfair Trade Practices Relating to Securities Market)

Regulations, 2003 (hereinafter referred to as FUTP Regulations) read as

under:

PROHIBITION OF FRAUDULENT AND UNFAIR TRADE PRACTICES

RELATING TO THE SECURITIES MARKET

Prohibition of certain dealings in securities

3. No person shall directly or indirectly—

Page 35 of 36

(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;

(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;

(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.

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;

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

person any money or money’s worth for inducing such person for

dealing in any security with the object of inflating, depressing,

maintaining or causing fluctuation in the price of such security;

43. I note that the noticees were channels through which shares were traded

by Rajkumar Basantani. However, I am convinced that Shri Janba Chougle

was merely an employee of Shri Basantani and Smt Shantabai Chougle

was his wife and they were unaware of the fact that they had been made

directors of companies opened by their employer. Shri Basantani obtained

copies of their ration cards on the pretext of requiring proof of their

identities. Shri Basantani used their names as Directors of Companies

created by him and used his influence as an employer to obtain the

signature of Shri Janba Chougle on certain documents. Shri Janba

Chougle had been employed with Shri Rajkumar Basantani as a driver

since August, 1990 earning a paltry salary. He served him for fourteen

Page 36 of 36

years, till the time when Shri Basantani allegedly absconded from the

country. He gave in to the dictates of his employer by signing certain

documents printed in English, the contents of which he was not in a

position to comprehend as he was not educated. His wife was also

completely illiterate. He did not object to his employer’s instructions

because he was apprehensive of losing his job and did not want to annoy

his employer. Smt Shantabai Chougle had not signed documents of any

sort and was completely clueless as to when, why and how she was

appointed director of Albeli Trading Pvt. Ltd. Neither of them had ever

attended any board meeting in relation to the companies of which they

were made directors. As such, Shri Janba Chougle and Smt Shantabai

Chougle cannot be said to have aided and abetted Shri Rajkumar

Basantani in his nefarious activities because they were absolutely unaware

about the entire scheme of affairs.

44. I note that there is nothing on record to prove that Shri Janba Chougle

and Smt Shantabai Chougle had benefited in any manner whatsoever

from the activities of Shri Rajkumar Basantani. Shri Janba Chougle drew a

paltry sum as salary and was not accorded any other monetary benefit by

Shri Basantani. I am convinced that the noticees had no knowledge of the

scheme devised by their employer, Shri Rajkumar Basantani and they

were used as pawns by him for his own dubious purposes. An order

dated 28.11.2008 was passed by me imposing a monetary penalty of Rs.15

crores against Shri Rajkumar Basantani. Although the noticees should

have been more careful, penalising the noticees for no fault of theirs

would not serve the interests of justice in the given facts and

circumstances of the case.

45. In view of the above, I find that the allegations leveled against Shri Janba

Chougle and Smt. Shantabai Chougle, do not stand established and the

matter is, accordingly, disposed of.

46. In terms of Rule 6 of the Adjudication Rules, copies of this order are sent

to the noticees and also to Securities and Exchange Board of India.

Date: 12.12.2008 D.S.Reddy

Place: Mumbai Adjudicating Officer

Documents

BEFORE THE ADJUDICATING OFFICER SECURITIES …was initially promoted in the name of Kolar Securities Services Pvt. Ltd. by Shri Nazeer Ahmed N. Desai and Shri Maqbool Matwanker. On