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BEFORE THE ADJUDICATING OFFICER
SECURITIES AND EXCHANGE BOARD OF INDIA
[ADJUDICATION ORDER NO. EAD-2/21-27/2012]
___________________________________________________________________
UNDER SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995
Against
1. Shri Yashwant Rampuria [PAN: Not Available] 2. Shri Pankaj Sachan [PAN: Not Available] 3. Shri Shashi Jain [PAN: Not Available] 4. Shri Ashok Agarwal [PAN: Not Available] 5. M/s. G.R. Magnets Ltd. [PAN: Not Available] 6. Shri Parasmal Rampuria [PAN: Not Available] 7. M/s. J.R.P. Holdings Ltd. [PAN: AABCJ3755F]
In the matter of
Zigma Software Limited Background 1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) had
conducted investigation in to the alleged irregularity in the trading in the
shares of Zigma Software Limited (hereinafter referred to as ‘ZSL’ or the
‘company’), and into the possible violations of the provisions of the Securities
and Exchange Board of India Act, 1992 (hereinafter referred to as the ‘SEBI
Act’) and various Rules and Regulations made there-under, for the period
from June 01, 2005 to September 30, 2005. ZSL is a public company listed at
the Bombay Stock Exchange (BSE) and Calcutta Stock Exchange,
2. The Investigation revealed that the company had made various positive
corporate announcements during the period under investigation some of
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which were false and misleading and aimed at creating artificial demand for
the scrip in the market. Shri Yashwant Rampuria, Shri Pankaj Sachan, Shri
Shashi Jain and Shri Ashok Agarwal (hereinafter referred to as ‘Group-I
Noticees’) were the directors of the company during the period when such
announcements were made. M/s. G.R. Magnets Ltd (GRML) - promoter of
ZSL, and J.R.P. Holding Ltd. (JRPH) - an associate of GRML, allegedly off-
loaded shares after the said announcements in a fraudulent and manipulative
manner. Shri Parasmal Rampuria, father of Shri Yashwant Rampuria, was
director of GRML during the investigation period. GRML, JRPH and Shri
Parasmal Rampuria are hereinafter together referred to as ‘Group-II
Noticees’. It was alleged that the Group-I and Group-II Noticees allegedly
violated provisions of Regulations 3 (b), 3 (c), 3 (d), 4 (1), 4 (2) (e) and 4 (2)
(r) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating
to Securities Markets) Regulations, 2003 (hereinafter referred to as the
‘PFUTP Regulations’). Further, GRML allegedly failed to make disclosures as
required under Regulation 13 (3) read with 13 (5) of the SEBI (Prohibition of
Insider Trading) Regulations, 1992 (hereinafter referred to as the ‘Insider
Trading Regulations’).
3. SEBI has therefore, initiated adjudication proceedings under the SEBI Act
against Group-I and Group-II Noticees to inquire into and adjudge the alleged
violations of the provisions of Regulations 3 (b), 3 (c), 3 (d), 4 (1), 4 (2) (e) and
4 (2) (r) of the PFUTP Regulations by them and the violation of Regulation 13
(3) read with 13 (5) of the Insider Trading Regulation by GRML.
Appointment of Adjudicating Officer 4. SEBI vide order dated April 20, 2009 appointed Shri Deepak Trivedi as the
Adjudicating Officer (AO) under Section 15-I of the SEBI 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 ‘Adjudication
Rules’) to inquire into and adjudge under Section 15HA of the SEBI Act, the
alleged violation of the provisions of Regulations 3 (b), 3 (c), 3 (d), 4 (1), 4 (2)
(e) and 4 (2) (r) of the PFUTP Regulations by the Group-I and Group-II
Noticees and also under Section 15A (b) of the SEBI Act, the alleged violation
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of the provisions of Regulation 13 (3) read with 13 (5) of the Insider Trading
Regulations by GRML. SEBI vide order dated January 04, 2012 appointed the
undersigned as the AO in these matters.
Show Cause Notice, Reply and Personal Hearing 5. The AO issued separate notices dated September 01, 2009 and September
03, 2009 (hereinafter referred to as the ‘SCN’) under Rule 4 of the
Adjudication Rules to the Group-I & II Noticees to show cause as to why an
inquiry should not be held against them and penalty be not imposed under
Section 15HA of the SEBI Act for their alleged violation of the
abovementioned provisions of the PFUTP Regulations and in case of GRML
under Section 15A (b) of the SEBI Act also, for its alleged violation of the
abovementioned provisions of Insider Trading Regulations..
6. The SCN alleged that ZSL made misleading announcements pertaining to
Bonus issue, preferential issue and development of real estate project at
Bangalore, etc. during the period July 18, 2005 to September 05, 2005. It is
alleged that the said several positive corporate announcements were not
implemented by ZSL, but were only meant to attract the innocent investors to
purchase the shares under such fraudulent exercise. The Group-I Noticees
were the directors of ZSL during the relevant period. Further, GRML and
JRPH bought and/or sold shares of ZSL, allegedly taking advantage of the
false positive corporate announcements in a fraudulent manner. Shri
Parasmal Rampuria, father of Shri Yashwant Rampuria, was director of
GRML during the investigation period. Thus, the Group-I & II Noticees
allegedly violated Regulations 3 (b), 3 (c), 3 (d), 4 (1), 4 (2) (e) and 4 (2) (r) of
the PFUTP Regulations. Further, GRML was holding shares constituting more
than 8.47% of the paid up capital of ZSL as on quarter ended March 2005 and
on sale of the shares its holding reduced to 1.91% as on quarter ended June
2005 (i.e. change of more than 2%,) for which it was required to make
disclosure to the company which it allegedly failed to do. GRML is thus
alleged to have violated Regulation 13 (3) read with 13 (5) of the Insider
Trading Regulations.
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7. The SCNs were duly delivered to the Group-I & II Noticees and Shri Yashwant
Rampuria, Ashok Agarwal and JRPH submitted their replies dated June 07,
2010, July 09, 2010 and August 04, 2010 respectively. After considering the
submissions, the AO decided to conduct an inquiry in the matter and
accordingly granted opportunities of personal hearing to the Group I & II
Noticees during August 24-25, 2011 at Kolkata and September 30, 2011 to
October 04, 2011 at Mumbai. The Noticees mostly requested for another
opportunity of hearing at Mumbai. The undersigned granted opportunities of
personal hearing on February 06, 2012 and February 23, 2012 at Mumbai
vide letters dated January 20, 2012 and February 13, 2012 respectively which
were hand-delivered at their addresses. However, the Noticees did not attend
the personal hearings nor sent any communication in this regard.
8. In view of the above, I am proceeding with the inquiry taking into account the
written submissions made by the Noticees and other material as available on
record.
Consideration of Issues, Evidence and Findings 9. I have carefully perused the charges against the Noticees mentioned in the
SCN, the written submissions of the Noticees and all the materials and
documents available on record. The issues that arise for consideration in the
present case are:
a) Whether the Noticees have violated the provisions of Regulations
3 (b), 3 (c), 3 (d), 4 (1), 4 (2) (e) and 4 (2) (r) of PFUTP Regulations
and whether GRML has violated the provisions of Regulation 13
(3) read with 13 (5) of the Insider Trading Regulations?
b) Do the violations, if any, on the part of the Noticees attract any
penalty under Section 15HA of the SEBI Act and whether GRML is
also liable for penalty under Section 15A (b) of the SEBI Act?
c) If yes, what should be the quantum of penalty?
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10. Before proceeding to decide the above issue, it is important to have a look at
the abovementioned provisions which read as follows.
PFUTP Regulations
“Prohibition of certain dealings in securities
3. No person shall directly or indirectly—
(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
:—
(e) any act or omission amounting to manipulation of the price of a security;
(r) planting false or misleading news which may induce sale or purchase of
securities.
Insider Trading Regulations
13. (3) Any person who holds more than 5% shares for voting rights in any listed
company shall disclose to the company in Form C the number of shares or voting
rights held and change in shareholding or voting rights, even if such change
results in shareholding falling below 5%, if there has been change in such
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holdings from the last disclosure made under sub-regulation (1) or under this sub-
regulation; and such change exceeds 2% of total shareholding or voting rights in
the company.
(5) The disclosure mentioned in sub-regulations (3) and (4) shall be made within
4 working days of :
(a) the receipts of intimation of allotment of shares, or
(b) the acquisition or sale of shares or voting rights, as the case may be.
11. Shri Yashwant Rampuria and Shri Ashok Agarwal in their reply to the SCN
have inter alia submitted that all the announcements made during the
investigation period were bonafide and genuine in nature for benefit of the
company and its shareholders at large. The corporate announcements were
made as per Clause 19, 22, 36 41 etc. of the Listing Agreement and as a
good governance policy. Price sensitive information was made public for the
benefit of investors and there was no malafide intention to mislead the
investors. Due efforts and utmost care was taken for implementation of
announcements. The announcements were genuine and based on strategic
decisions taken by the company for its growth and to benefit investors.
12. Company made an announcement to issue bonus shares at the ratio 2:1. At
EGM held on March 07, 2006, members passed resolution and approved
issue of bonus shares. The company applied to stock exchange for In-
Principle approval which was refused on technical ground as the time period
of application had lapsed etc. The company made an application to SEBI for
condonation of delay and grant of NOC to issue bonus shares. The same
proves that there was no malafide intention to deceive investors.
13. Preferential issue was proposed in the Board meeting held on August 24,
2005. Thereon, the company put all the efforts to carry out preferential issue
for which the authorized share capital of the company was increased and
necessary fee was paid to ROC.
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14. Payment of Rs. 76 Lakhs was made to Bennett Coleman & Co. Ltd. for the
development of real estate project at Bangalore. The said project could not be
implemented as the area was declared a green belt and construction of
apartments was not permitted. The intimation by Bennett Coleman & Co. Ltd.
to BSE regarding frustration of contract is its unilateral decision and the
company is yet to get the refund of money paid.
15. Quarterly result for June quarter was duly declared as per format of Clause 41
of the Listing Agreement.
16. Non implementation of announcement or delay in issue of bonus shares or
preferential shares is all because of various reasons both procedural and
technical beyond one’s control. All necessary steps, efforts and procedure as
called for were taken but could not happen. The SCN is silent about what
disclosure was to be made to the exchange and how they were responsible
for the same. Only because they were holding an office of director in the
company does not make them guilty for violation, if any, by the company.
They had not done any transaction, nor benefited directly or indirectly by the
corporate announcements. The Noticees have submitted various documents
in support of their contentions mentioned above.
17. Further, JRPH in its reply has inter alia contended that they are shareholders
of the company and were not responsible for the various corporate
announcements made by the company. They were holding shares under
‘Public Holding’ and rightly categorized under “Public Shareholder” in
shareholding pattern filed by ZSL to stock exchange. They have done
investment from long term prospective. They have purchased share in year
2003 and sold them in 2005 when they felt there was opportunity for best
price in market. There was no synchronized/circular/structured trade when
shares were sold. They have done investment in shares of ZSL in normal
course of business. They had no/prior advance information/data about
company likely to make any such corporate announcements.
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18. They sold shares on August 04, 12, 16 and 18, 2005. None of the
transactions was made subsequent or immediately preceding to the corporate
announcements and there was a minimum gap of 20 days between them.
When they sold shares in August 2005, the price of the scrip increased
instead of falling. Had they been aware of the rise in price, they would not
have sold shares at low price. They have made all the disclosures under the
Insider Trading Regulations. They have no role to play in giving any
announcement pertaining to Bonus issue, preferential issue, development of
real estate project etc. they have no role to play in carrying out those
announcements. There is no evidence to prove that they acted in concert with
directors and promoters of ZSL. The information about various corporate
announcements was available/ published in BSE website and was public
information/news. Like any genuine investor, they decided to sell shares to
meet their requirements and fetch maximum/good returns.
19. I find that the issues therefore to be ascertained and determined are (a)
whether ZSL made false and misleading corporate announcements during the
investigation period and the Group-I Noticees being directors of the company
were liable for the same. (b) whether the Group-II Noticees fraudulently off-
loaded shares by acting in concert with Group-I Noticees and (c) whether
GRML failed to make disclosures as required under the provisions of Insider
Trading Regulations.
20. I find from available records that ZSL made various corporate announcements
during the investigation period regarding sub-division of face value of shares,
bonus issue, declaration of dividend, issue of preferential shares,
development of a real estate project at Bangalore and declaration of quarterly
results for June 2005. It was alleged in the SCN that the announcements
pertaining to bonus issue, preferential issue and development of real estate
project at Bangalore were misleading as ZSL had not made any application
for in-principle approval for the bonus issue and for in-principle approval for
listing preferential warrants. The real estate project was not implemented and
the same was not informed to the stock exchanges and to the general
investors.
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21. I have noted the submissions of the Noticees that the company had indeed
applied to BSE for in-principle approval for the bonus issue. In support of the
same, they have submitted a letter (Ref. No. ZSL/BSE_Bonus/05-06) dated
March 27, 2006 by ZSL addressed to BSE wherein ZSL requested BSE to
grant ZSL in-principle approval for issue and allotment of bonus shares which
was approved by its board on July 18, 2005 and its shareholders on March
07, 2006. The said letter dated March 27, 2006 also refers to ZSL’s earlier
letter dated March 07, 2006 sent to BSE in connection with the bonus issue.
The Noticees have also submitted a copy of an undated letter (Ref. No.
ZSL/SEBI/NOC/BONUS/2008) by ZSL addressed to SEBI which bears the
stamp of SEBI with November 11, 2008 as the date of receipt. The subject of
the said letter was Application for NOC pertaining to Bonus Issue of “Zigma
Software Ltd.” In the said letter, the said issue of bonus shares was
mentioned. The said letter inter alia contained the following: “After the
necessary correspondence & communications with the authorities of the
Bombay Stock Exchange Ltd (BSE), the authorities of BSE required an No
Objection Certificate (NOC) from the Regulatory Authorities i.e. Securities
Exchange Board of India (SEBI).” ZSL vide the said letter requested SEBI to
condone the delay on part of execution of issue & allotment of aforesaid
Bonus Issue in the year 2005 and to grant them the NOC to proceed with the
matter. I find from an extract copy of the public announcements dated
November 04, 2008 as available on record that ZSL informed BSE regarding
issuance of bonus shares subject to the necessary NOC from regulatory
authorities.
22. The Noticees have submitted copies of a series of letters exchanged between
ZSL and BSE on the issue of prior in-principle approval for preferential issue
of warrants. ZSL letter dated September 20, 2005 addressed to BSE with
heading “Re: Request for prior in-principle approval for issuing/allotting the
proposed 48,00,00,000 warrants on preferential basis.” reveals that ZSL had
communication with BSE on the said issue prior to the said letter also. The
Noticees have also produced a letter of BSE dated October 04, 2005
addressed to ZSL wherein the said letter dated September 20, 2005 is
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referred to. The Noticees have also submitted copy of ZSL’s letter dated
October 13, 2005 to BSE on the same subject, which bears the stamp of
Inward Section of BSE showing October 17, 2005 as the date of receipt. The
Noticees have further submitted copies of BSE’s letter dated December 23,
2005 to ZSL and ZSL’s letters dated December 26, 2005, January 06, 2006
and January 19, 2007 to BSE on the same issue. I find from the copy of
extracts of public announcements dated August 22, 2007 as available on
record that ZSL informed BSE regarding withdrawal of issue of share warrants
on preferential basis.
23. The Noticees have submitted that ZSL proposed to implement the real estate
project for which it paid Rs. 76 Lakhs to Bennett Coleman & Co. Ltd. which as
on date was still lying with them. The project got delayed due to statutory
approvals from the government but it has not been given up. Had it been non-
implementation of the project, ZSL would have made efforts to get Rs. 76
Lakhs back from Bennett Coleman & Co. The intimation by Bennett Coleman
to BSE regarding frustration of contract is its unilateral decision and hence the
same should not be considered as valid. They continue to hold the said
amount of Rs. 76 Lakhs which proves that the contract is still subsisting and
not revoked. The Noticees have submitted a copy of statement of ZSL’s bank
account with Kotak Mahindra Bank showing a payment of Rs. 76 Lakhs to B C
C Ltd. on September 21, 2005. I find from the available records that Bennett
Coleman & Co. Ltd. vide letter dated January 19, 2009 confirmed the
agreement they entered into with ZSL for the development project and that
the said agreement was terminated vide their letter dated May 08, 2008 as the
agreement became frustrated due to certain new guidelines issued by the
Karnatake state government.
24. From the foregoing, I am of the view that the corroborative evidences
available are insufficient to establish beyond reasonable doubt that the Group-
I Noticees made false and misleading corporate announcements during the
investigation period as alleged in the SCN and therefore I am inclined to give
benefit of doubt to the Group-I Noticees.
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25. The next issue is whether the Group-II Noticees fraudulently off-loaded shares
by acting in concert with Group-I Noticees. I have noted the submissions of
JRPH as detailed above. Further, I find that JRPH sold 85,72,020 shares
constituting 5.9% of the paid up capital of the company at prices ranging from
Rs.2.97 to Rs.3.36 during the period from August 08, 2005 to August 19, 2005
and that the disclosures as required under provisions of Insider Trading
Regulations were made. The corporate announcement of issue of bonus
shares and issue of preferential shares were initially made public on July 12,
2005, almost a month prior to the sale of shares by JRPH. The corporate
announcement on development of real estate project was made after August
19, 2005 i.e. after the sale of shares by JPRH.
26. Similarly, GRML bought 3,29,871 shares of Rs.10 at prices ranging from
Rs.22.85 to Rs.26.80 and sold 7,58,444 shares at prices ranging from
Rs.24.35 to Rs.26.45 during June 01, 2005 to July 12, 2005. Further, GRML
bought 7,21,720 shares of Re.1 each at prices ranging from Rs.3.75 to
Rs.4.50 and sold 19,42,560 shares of Re.1 each at prices ranging from
Rs.3.01 to Rs.4.55 post split of shares, during the period from July 19, 2005
to August 16, 2005. I have noted that the first set of transactions was
executed prior to the corporate announcement regarding issue of bonus
shares and issue of preferential shares which was initially made public on July
12, 2005. The second set of transactions was executed much after the above
announcements were made and before the announcement regarding
development of real estate project was made after August 16, 2005.
27. I find from the Investigation Report that ‘GRML bought and sold shares before
the announcements but there is no clear pattern of insider trading’. Further, it
is observed that ‘the analysis of trade and order log does not reveal any
consistent efforts by brokers/clients in influencing the scrip price. The price of
the scrip rose gradually and mainly due to positive news announced by the
company such as bonus issue etc. and also due to the buying pressure during
both the periods’.
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28. Taking into account of the above observations, I am of view that the
corroborative evidences as available on record are insufficient to establish
beyond doubt that the Group-II Noticees acted in concert with ZSL and its
directors in making false misleading positive corporate announcements and
traded in a fraudulent manner and therefore I am inclined to benefit of doubt
to them.
29. The next issue to be decided is whether GRML failed to make disclosures as
required under the provisions of Insider Trading Regulations. I find from
available records that GRML’s shareholding in ZSL stood at more than 8.47%
as on quarter ended March 2005. The same reduced to 1.91% of the total
paid up capital of ZSL as on quarter ended June 2005. The change in
shareholding was more than 2% which required disclosures to be made as
per the provisions of Regulation 13 (3) read with 13 (5) of the Insider Trading
Regulations. There is nothing on record to show that GRML made the said
required disclosures.
30. From the foregoing findings and analysis I conclude that the allegation of
violation of the provisions of Regulations 3 (b), 3 (c), 3 (d), 4 (1), 4 (2) (e) and
4 (2) (r) of PFUTP Regulations against Group I & II Noticees do not stand
established beyond reasonable doubt. However, I conclude that the allegation
of violation of the provisions of Regulation 13 (3) read with 13 (5) of the
Insider Trading Regulations by GRML stands established, which makes it
liable for penalty under Section 15A (b) of the SEBI Act.
31. The provisions of Section 15A (b) of the SEBI Act read as follows:
Penalty for failure to furnish information, return, etc.
15A. If any person, who is required under this Act or any rules or regulations
made thereunder,—
(b) to file any return or furnish any information, books or other documents
within the time specified therefor in the regulations, fails to file return or furnish
the same within the time specified therefor in the regulations, he shall be liable to
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a penalty of one lakh rupees for each day during which such failure continues or
one crore rupees, whichever is less;
32. While imposing penalty it is important to consider the factors stipulated in
Section 15J of 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.”
33. I observe that from the material available on record it is difficult to quantify any
gain or unfair advantage accrued to the GRML or the extent of loss suffered
by the investors as a result of the defaults and whether the default is repetitive
in nature.
Order 34. 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 Adjudication Rules, I conclude that the
allegation of violation of the provisions of Regulations 3 (b), 3 (c), 3 (d), 4 (1),
4 (2) (e) and 4 (2) (r) of PFUTP Regulations against Group-I and Group-II
Noticees as mentioned in the SCN do not stand established beyond
reasonable doubt. Accordingly, the above charges against them are disposed
of.
35. However, I conclude that the allegation of violation of the provisions of
Regulation 13 (3) read with 13 (5) of the Insider Trading Regulations by
GRML stands established. Therefore, exercising the powers conferred upon
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me under Section 15-I (2) of the SEBI Act read with Rule 5 of the Adjudication
Rules, I hereby impose a penalty of ` 5,00,000/- (Rupees Five lakh Only) on
GRML under Section 15A (b) of the SEBI Act. In my view, the penalty is
commensurate with the defaults committed by GRML.
36. The above penalty amount shall be paid by GRML 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 shall be forwarded to the Division Chief, IVD-ID8,
Securities and Exchange Board of India, Plot No. C4-A, ‘G’ Block, Bandra
Kurla Complex, Bandra (E), Mumbai – 400 051.
37. In terms of the provisions of Rule 6 of the Adjudication Rules the copies of this
order are sent to the Noticees and also to Securities and Exchange Board of
India.
Date: March 29, 2012 P K KURIACHEN Place: Mumbai ADJUDICATING OFFICER