Prashant Saran, Whole Time Member

1. The Securities and Exchange Board of India (hereinafter referred to as SEBI) had, pending investigation and passing of further orders, vide an interim ex-parte Order dated September 21, 2011 (hereinafter referred to as the Order), amongst others directed Mavi Investment Fund Limited (hereinafter referred to as Mavi), not to deal in securities or instruments with Indian securities as the underlying, in any manner whatsoever, until further orders. Subsequently, an opportunity of hearing was afforded to the entity on November 8, 2011, when Mr. Pradeep Sanchetty, Senior Advocate along with Mr. Sagar Ghogre (counsel) and Mr. Gilbert Noel (director, Mavi) appeared before me and made submissions. Subsequently, written submissions dated November 15, 2011 were also filed on behalf of Mavi.

2. I have considered the submissions made by the learned counsel on behalf of Mavi during the course of hearing, the written submissions dated November 15, 2011 and other material available on record. The limited issue to be considered at this stage is whether on a consideration of the submissions and documents submitted by Mavi, the interim ex-parte directions issued vide the Order against it should be confirmed, vacated or modified in any manner. Before proceeding further, it would be necessary to note the background of the matter. SEBI was alerted by its surveillance systems of the large scale off-market transactions in certain scripts, namely, IKF Technologies Limited, Avon Corporation Limited, CAT Technologies Limited, Asahi Infrastructure and Projects Limited and K Sera Sera Limited and a revelation in the preliminary examination that Foreign Institutional Investors (hereinafter referred to as FIIs),namely, India Focus Cardinal Fund (India Focus), KII Limited (KII), Mavi and Sophia Growth (Spohia), were converting the Global Depository Receipts (hereinafter referred to as GDRs) underlying the shares of the aforesaid companies held by them into equity shares to sell in the Indian market and that most cancellations happened within a short period of time of their issue and on noticing that a few entities were repeatedly appearing as counterparties to the 33% to 75% of those shares sold by FIIs in the scripts, had conducted an examination into the same. The prima facie findings of the said examination pointed out to the various aspects of the GDR issues like the large size of the issue vis--vis the existing size of the issuing company, unimpressive financials of the company, common initial investors, high proportion of cancellation of GDRs repeatedly by a set of FII/Sub-Accounts, sale in Indian stock exchanges and a major portion being bought by a constant group of clients, the trading amongst the said clients and subsequent off-loading by them. The preliminary findings had pointed towards an elaborate scheme to manipulate the securities market. The Order had classified the FIIs/Sub-Accounts as "Sub-Accounts" and the clients appearing as their counterparties as "Group". The period taken up for the examination was between January 1, 2009 and May 31, 2010 (hereinafter referred to as the investigation period). The FIIs/sub-accounts cancelled shares of the select companies and subsequently were found selling in the Indian Stock Exchanges with the Group as its majority counterparty on each occasion as narrated in the Order. In view of the prima facie findings, the Order had alleged that the activities of FIIs/sub-accounts including Mavi were in violation of the provisions of the Securities and Exchange Board of India Act, 1992, the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 and the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995, as mentioned therein.

3. It was inter alia submitted by Mavi that it had dealt in the GDR issued by Maars Software International Limited (hereinafter referred to as Maars). It was submitted that Maars issued GDRs in September 2007 at a price equivalent to USD 2.50/GDR, which works out to approximately ` 10 per share (1 GDR: 10 shares). According to Mavi, the shares of the said company were traded at the Bombay Stock Exchange Limited (BSE) in early January 2008 in the range of ` 9 to ` 11 per share, and towards the end of January 2008, the share price dropped to ` 6.23 (January 24, 2008) and the average daily trading volume of the said company shares around the said period was about 5,32,039 shares. According to it, the same prompted the purchase of 2,60,000 GDRs on January 24, 2008, the equivalent price of GDRs including cost of conversion amounted to ` 4.96 per share. It was submitted that the same would be a good investment opportunity and that is why the GDRs were immediately converted into equity shares and the shares were credited to its demat account on January 30, 2008. It was also stated that the transaction of USD 3,25,000 is insignificant in comparison to its investments in India, which are about USD 500 million and trading volumes of ` 4892 crores in the relevant year i.e. 2008. It was further stated that Mavi had placed orders for the sale of the shares of Maars and instructed two stock brokers to place the orders, in four tranches over two days i.e. on September 18 and September 22, 2009 in lots of 6,50,000 shares each. The trades were done through the order matching mechanism of BSE during regular trading hours. It was also stated that Mavi had a positive outlook towards Indian information technology industry and therefore, under the advice of its investment advisor, it had purchased GDRs/shares of other Indian information technology companies also. It was the submission that because of the downturn in Indian markets, followed by global economic recession, some of the investments were sold at a loss at opportune moments when Mavi found the price of shares had recovered substantially and accordingly, shares of Maars were sold at ` 4.05/` 4.10 per share as compared to the purchase price of ` 4.96/share. According to it, as the Indian markets were showing positive upward movement in general by August-September 2009, Mavi decided to sell the shares of Maars to minimize losses and its trades were routine and part of its day to day business. It was the submission that on September 18, 2009, Mavi placed two sell orders of 6,50,000 shares each through two stock brokers at 14:51:54 and 14:53:54 respectively and that the orders were placed telephonically. According to Mavi, the said trades were not synchronized in nature and there was a time difference of six minutes and twenty four minutes between the buy and sell orders. Similarly, for the trades executed on September 22, 2009, Mavi placed two Sell Orders of 6,50,000 shares each through two stock brokers -one Sell Order was placed at 13:41:54 and second Sell Order was placed at 13:43:12 and there were huge time difference between the buy and sell orders. It was stated that the issue size of GDRs of Maars was not disproportionate to the pre-GDR capital of Maars and that it held on to the shares of Maars for twenty months before selling. It was further submitted that Mavi is not owned and controlled by Mr. Arun Panchariya and that it has no connection or relationship with him or others. In view of the above submissions, Mavi requested that it may be permitted to sell/liquidate its investments so as to stop its losses in a volatile market and create liquidity in order to meet redemption pressures as and when it deems it necessary and with guidance/measures as SEBI may deem practical and reasonable in the facts and circumstances of the case.

4. I have considered the aforesaid submissions of the companies and other material available on record. It was noted that Mavi, had sold 26,00,000 shares of Maars, out of which 25,24,676 shares (97.10% of shares sold by Mavi) were matched with the Group. Out of the same, for 17,07,246 shares (65.66% of shares sold by Mavi) the buy and sell order rate was same. I further note that the trades executed by Mavi in the shares of Maars were matched with the Group members and were apparently synchronized. It was the submission that the same were not synchronized and there was huge time gap between the buy and sell orders. However, the fact remains is that majority of its sale in the said company were absorbed by the group entities as mentioned in the Order. The counsel for Mavi pointed out that, even SEBI does not have a case that Mavi was converting and selling the shares of CAT Technologies Limited to the alleged group members. Mavi submitted that its dealing in the scripts was miniscule when compared to its total volume. The issue before me is to decide whether there are sufficient reasons that the Order dated September 21, 2011 may be allowed to continue as against Mavi. At this stage, the findings points out to a case where a group of sub-accounts have sold considerable quantities of shares on conversion of the GDRs of the respective companies, the counterparties were seen to be another set of entities whose presence as counterparties was regular in the identified scripts when the said sub-accounts sold those shares. The companies which had issued such GDRs had financials which could not readily attract investors. Such companies have come out with GDR issue of size considerably larger than their existing equity capital size. Further, GDRs were issued by such companies on the advice/arrangement from Pan Asia whose founder was none other than Mr. Arun Panchariya. Considering the facts that, a common entity (Pan Asia) and Mr. Arun Panchariya of Pan Asia advised the companies in their GDR issuances, Mr. Arun Panchariyas alleged relationship with Euram Bank, Alka India Limited and India Focus Cardinal Fund, the pattern of trading by the sub-accounts and the Group entities especially Alka India Limited, Oudh Finance and Investment Private Limited and Basmati Securities Private Limited and the Groups inter-se trading, as outlined in the Order and the prima facie findings of the preliminary examination which pointed to the various suspicious aspects of the GDR issues like the size of the issue being multiple times the existing capital of issuing company, unimpressive financials of the company, common initial investors, high proportion of cancellation of GDRs repeatedly by a set of FII/Sub-Accounts, sale in Indian stock exchanges by them and a major portion being bought by common set of clients, the inter-se trading amongst the said clients and subsequent off-loading by them, when seen in totality, do not convince me at this stage to vacate the interim directions issued against Mavi. At this stage, the prima facie findings suggest that Mavi was a part of a larger group which had allegedly indulged in the manipulation. Given this chain of events and circumstances, the preponderance of probability at this stage suggests the involvement of Mavi in the alleged scheme of things and that I am unable to consider the case on its merits, at this stage, since the investigation in the matter is not yet completed. Considering the facts and circumstances and also the submissions made by Mavi, SEBI shall expeditiously complete the investigation in the matter, in the interest of justice and thereafter shall immediately take appropriate actions in accordance with law.

5. Having arrived at such a view, I note that Mavi has requested permission to sell/liquidate its investments so as to stop its losses in a volatile market and create liquidity in order to meet redemption pressures as and when it deems necessary. I also note that the Honorable Securities Appellate Tribunal (Honble SAT) in the matter of Appeal No. 193 of 2011-India Focus Cardinal Fund vs. SEBI], vide Order dated November 21, 2011 inter alia had allowed the appellant therein, to sell all the securities held by it as enlisted in Exhibits G and J to the said appeal and the sale proceeds were directed to be deposited in a fixed deposit with ICICI Bank Limited earning interest. The Honble SAT also observed that the appellant therein shall not be allowed to withdraw monies from that account including interest without the prior permission of SEBI and that in case it wants to utilize any or whole of the sale proceeds, it shall seek the permission of SEBI. The direction regarding sale of securities has been given by the Honble SAT in view of the falling markets to avoid further erosion in the value of the portfolio held by the entity. Considering the above, in the interest of justice, I am of the considered view that the impugned directions issued by SEBI, vide Order dated September 21, 2011 should be modified (as against Mavi) to the extent as directed by the Honble SAT vide Order dated November 21, 2011 in Appeal No. 193 of 2011. Therefore, in the interest of justice Mavi would also be entitled to a similar benefit.

6. In view of the foregoing reasons, I, in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 read with Sections 11(1), 11(4) and 11B thereof, hereby modify the directions issued vide the ad interim ex-parte Order dated September 21, 2011 in the matter of market manipulation using GDR issues against Mavi Investment Fund Limited, to the limited extent of allowing it to sell the securities held by it in its demat accounts. Mavi Investment Fund Limited shall deposit sale proceeds, in case of any sale, in a bank fixed deposit earning interest and it shall not be allowed to withdraw monies from the said account including interest without the prior permission of the Securities and Exchange Board of India. In case, Mavi Investment Fund Limited intends to utilize any or whole of the sale proceeds, it shall seek prior permission of the Securities and Exchange Board of India.