G. Anantharaman, Member

1.1 On a preliminary analysis into the buying, selling or dealing in the shares issued through Initial Public Offerings (IPOs) of companies during the period 2003-2005, Securities and Exchange Board of India (hereinafter referred to as SEBI) found that, certain entities opened many demat accounts (for short afferent accounts) in fictitious/ benami names and cornered/ acquired the shares of various companies allotted in the IPOs, by making applications in fictitious/ benami names with each of the applications being of small value so as to make it eligible for allotment under the retail category. It was further revealed that, subsequent to the allotment of IPO shares of various companies, the fictitious/benami allottees had transferred the said shares to their principals who were prima facie identified by SEBI as key operators / master account holders. The modus operandi as detailed above led to the prima facie view that the thousands of entities in whose names demat accounts and bank accounts had been opened and IPO applications made, were either benami, name lenders or non existent.

1.2 In the above facts and circumstances, SEBI vide an ad interim ex parte order dated April 27, 2006 inter alia prohibited various key operators including Shri Dharmesh Bhupendra M and Shri D B Mehta not to buy, sell or deal in the securities market including in IPOs, directly or indirectly till further directions as it was found that they had prima facie violated the provisions of Depositories Act, 1996, Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996, Regulation 3 of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (for short the FUTP Regulations) and the provisions of Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines 2000. It was further directed to treat the said interim order as show cause notice against the entities named therein and an opportunity was also provided to the said entities to file their objections, if aggrieved. An investigation was also ordered by SEBI to look into the alleged violations of the provisions mentioned above.

2.1 Shri Dharmesh Bhupendra M vide letter dated May 09, 2006 inter alia stated that whatever he had done was as per the market practice. According to him, he would not come under the jurisdiction of SEBI as he was not an intermediary registered with SEBI. He informed that Shri Dharmesh Bhupendra M and Shri D.B.Mehta, separately mentioned as two persons in the interim order were actually one and the same. He admitted that he had applied for shares in the IPOs of IDFC Ltd., NTPC Ltd., Nector Life Sciences Ltd., Shoppers Stop Ltd., SPL Industries Ltd. and Yes Bank Ltd. and that the said applications were made by procuring finance from financiers, banks etc. He stated that, after the allotment of shares by various companies, he had transferred the said shares to the financiers through off market transactions at the respective IPO issue price, as per the mutual understanding. He claimed that there was no ban or prohibition or restriction from applying for IPO shares with the borrowed funds in IPOs. He added that the provisions of Section 11, 11B and 11(4) (b) of the Securities and Exchange Board of India, Act 1992 (for short the) can be invoked only in exceptional and extra ordinary situations and that SEBI has to satisfy the need for invoking the said power. He contended that no prima facie case had been made out to warrant the issuance of such an interim order. In his reply, he stated that he had sold 57,500 shares of NTPC Ltd. through Karvy stock Broking Ltd. by way of secondary market sale and that the said transactions had nothing to do with the financing activities. He further explained that the benefit / gain of funds were shared as per the understanding with financiers and that he had transferred the allotted shares according to the proportion in which the benefit was agreed to be shared. He also relied upon the judgment of the Honble Supreme Court in the matter of Ex-Naik Sardar Singh v. Union of India in respect of the quantum of penalty.

2.2 Pursuant to the receipt of the aforesaid reply, an opportunity of hearing was granted to Shri Dharmesh Bhupendra M on December 7, 2006. However he had failed to avail the said opportunity and thereafter vide letter dated December 7, 2006 (received by SEBI on December 8, 2006) inter alia requested SEBI to consider his aforesaid reply. Further, Shri Dharmesh Bhupendra M vide his letter dated January 31, 2007 informed SEBI about the change of his address as A-17, Neelkanth Dhara, 90ft. Road, Ghatkopar East, Mumbai 400077.

2.3 I have perused the reply filed by Shri Dharmesh Bhupendra M and other materials available on record. Though Shri Dharmesh Bhupendra M and Shri D. B. Mehta are mentioned as two separate persons in the interim order dated April 27, 2006, Shri Dharmesh Bhupendra M in his reply has submitted that both are one and the same person and therefore for the sake of present proceedings, both the names will represent one entity only. The only issue to be considered in the instant proceedings is whether, based on the available materials on record and considering the submissions made by Shri Dharmesh Bhupendra M, the directions issued vide ad interim ex parte order dated April 27, 2006 needs to be continued, revoked or modified in any manner in so far as it relates to Shri Dharmesh Bhupendra M.

3.1 Shri Dharmesh Bhupendra M. in his reply contended that he was not an intermediary registered with SEBI and hence, he would not come under the jurisdiction of SEBI. He also contended that powers under Sections 11, 11B and 11 (4) (b) was not available for routine application. In this context, I note that the primary function and duty of SEBI is to protect the interests of the investors in securities and to regulate the securities market. The said duty is inter alia performed under Sections 11, 11B of thewhich is the very soul and heart of it. On a careful perusal of Section 11, it could be seen that SEBI has been mandated to protect the interests of investors in securities by such measures as it thinks fit which provide a large sweep to SEBI. If one has regard to the aforesaid principles, it would follow that the power which has been conferred under Section 11B of theto issue directions are of a widest possible amplitude and are exercisable in the interests of investors. The powers of SEBI to pass orders under these sections have been judicially recognized by various judgments. The Honble High Court of Bombay in the matter of Anand Rathi v. SEBI had inter alia observed as follows:

...It cannot be gainsaid that SEBI has to regulate speculative market and in case of speculative market varied situations may arise and looking into the exigencies and requirements, it has been entrusted with the duty and functions to take such measures as it thinks fit. Section 11B is an enabling provision enacted to empower the SEBI Board to regulate securities market in order to protect the interest of the investors. Such an enabling provision must be so construed as to subserve the purpose for which it has been enacted.... Further the Honble Court had observed "Section 11B is an enabling provision enacted to empower SEBI to protect interest of investors and to promote the development of and to regulate the securities market and to prevent malpractices and manipulations inter alia by brokers....

3.2 Further the contention that as he was not an intermediary registered with SEBI, no order can be passed against him, takes a restricted and blinkered view of SEBIs powers. I note that SEBI has plenary powers to take measures to prohibit, unearth and deal with fraudulent and manipulative transactions to effectively protect the interest of investors and such powers travel beyond the straight-jacket of registered intermediaries to the vast expanse of people associated with the securities market. This is also needed in order to promote an orderly development of healthy and vibrant securities market. In view of the above, the contention that SEBI did not have power to pass directions under Sections 11 and 11 B of the against Shri Dharmesh Bhupendra M is devoid of any merits and accordingly is rejected.

3.3 Further, I note that 24 key operators / master account holders received off market credit of shares of 500 or more dematerialsed account holders in respect of 21 IPOs having certain commonalties and fitting into a large design. Shri Dharmesh Bhupendra M is one of the key operators found as per the above criteria and his role has to be seen in the context of the large scale cornering of IPO shares during the period that substantially interfered with the allotment process, tweaking it unfairly in favour of a few, found to be abusing the process.

3.4 The fact that Shri Dharmesh Bhupendra M / Shri D.B. Mehta received substantial number of IPO shares from various afferent accounts is an undisputed fact and the details of them are as follows:

Name of Entity

Name of the Depository Participant

Client ID

Names of IPOs

Number of afferent accounts from which shares received

No of shares transferred

Shri Dharmesh Bhupendra M.

Karvy Stock Broking Limited

40081967

Infrastructue Development Finance Co. Ltd.

1206

320796

Nectar Lifesciences Ltd

704

17600

D. B. Mehta

Karvy Stock Broking Limited

40064516

Shoppers Stop Ltd

702

17550

SPL Industries Ltd

577

57700

Yes Bank Ltd

556

83550

National Thermal Power Corporation Ltd

710

151940

3.5 The gain made by the financiers through the transactions of Shri Dharmesh Bhupendra M is mentioned below:

Company Name

Name Of Financier

No. Of Shares

Close price on the date of listing

Issue Price

Gains*

IDFC Ltd.

Welvet Financial Advisers Pvt Ltd

43624

69.50

34.00

1,548,652.00

IDFC Ltd.

Pratik Pulp P Ltd

25270

69.50

34.00

897,085.00

IDFC Ltd.

Sonal N Dadia

3325

69.50

34.00

118,037.50

IDFC Ltd.

Kiran D Dadia

3325

69.50

34.00

118,037.50

IDFC Ltd.

Jayesh N Dadia

6650

69.50

34.00

236,075.00

IDFC Ltd.

Dadia Finvest Limited

24472

69.50

34.00

868,756.00

IDFC Ltd.

Deepak N Dadia

3325

69.50

34.00

118,037.50

IDFC Ltd.

Jasmina J Dadia

10108

69.50

34.00

358,834.00

IDFC Ltd.

Natvarlal N Dadia

3325

69.50

34.00

118,037.50

IDFC Ltd.

Pratik Pulp P Ltd

25270

69.50

34.00

897,085.00

IDFC Ltd.

Jasmina J Dadia

10108

69.50

34.00

358,834.00

IDFC Ltd.

Natvarlal N Dadia

3325

69.50

34.00

118,037.50

IDFC Ltd.

Kiran D Dadia

3325

69.50

34.00

118,037.50

IDFC Ltd.

Sonal N Dadia

3325

69.50

34.00

118,037.50

IDFC Ltd.

Deepak N Dadia

3325

69.50

34.00

118,037.50

IDFC Ltd.

Jayesh N Dadia

6650

69.50

34.00

236,075.00

IDFC Ltd.

Neha Narendra Dadia

4708

69.50

34.00

167,134.00

IDFC Ltd.

Dhaval Narendra Dadia

4708

69.50

34.00

167,134.00

IDFC Ltd.

Narendra Harilal Dadia

7062

69.50

34.00

250,701.00

IDFC Ltd.

Kashmira Narendra Dadia

7062

69.50

34.00

250,701.00

National Thermal Power Corporation Ltd.

Karvy Stock Broking Limited

7500

75.55

62.00

101,625.00

National Thermal Power Corporation Ltd.

Karvy Stock Broking Limited

50000

75.55

62.00

677,500.00

Nectar Lifesciences Ltd

Natvarlal N Dadia

560

260.10

240.00

11,256.00

Nectar Lifesciences Ltd

Deepak N Dadia

560

260.10

240.00

11,256.00

Nectar Lifesciences Ltd

Welvet Financial Advisers Pvt Ltd

12000

260.10

240.00

241,200.00

Shoppers stop Ltd

Ashmi Financial Consultancy Pvt Ltd

12700

372.60

238.00

1,709,420.00

Shoppersstop Ltd

Dadia Finvest Limited

2079

372.60

238.00

279,833.40

Spl Industries Ltd

Welvet Financial Advisers Pvt Ltd

7300

103.35

70.00

243,455.00

Yes Bank Ltd

Welvet Financial Advisers Pvt Ltd

55000

60.80

45.00

869,000.00

*Worked out by comparing the closing price (on NSE) on the first day of listing in respect of each of the IPOs with the respective issue price.

3.6 Shri Dharmesh Bhupendra M, stated that, after the allotment of shares by various companies, he had transferred the said shares to the financiers as per the mutual understanding through off market transactions at the respective IPO issue price. He also stated that the benefit / gain of funds were shared as per the understanding with financiers and that he had transferred the allotted shares according to the proportion in which the said benefit/ gain of funds was agreed to be shared. According to him, such transactions were permitted by law. Admittedly, Shri Dharmesh Bhupendra M made profit / gain out of the aforesaid transactions. The details of the gains made in respect of the transactions of Shri Dharmesh Bhupendra M (as mentioned in the ad interim order dated April 27, 2006) have not been disputed. The bank account of Shri Dharmesh Bhupendra M maintained with the Bharat Overseas Bank Ltd., Goregaon Branch (Account No. 0023100000054255) reveals that the application money in respect of numerous applications in various IPOs had been debited on various dates in his account. It has been noted that, in respect of Nector Life Sciences Ltd. IPO, Rs.48,000/-,(per application) was debited on July 2, 2005 from the aforesaid account of Shri Dharmesh Bhupendra M. Application money pertaining to about 1000 applications in the said IPO were found to be debited from the said account on the very same date. Similarly, number of debits pertaining to numerous applications were also made from the said account of Shri Dharmesh Bhupendra M. in respect of IPOs viz. (a) Yes Bank Ltd. on June 25, 2005 Rs.47,250/-per application (b) SPL Industries Ltd on July 9, 2005 for Rs.49,000/-per application (d) IDFC Ltd. on July 30, 2005 for Rs.47,600/-per application. Apparently, no margin money was received from the purported applicants. Each application was for a value less than Rs.50,000/-thereby not requiring to mention the Permanent Account Number of the purported applicants. In view of the above also, it appears that the purported applicants were non existent or merely name lenders. This is further strengthened in the facts and circumstances, by the fact that immediately after the IPO allotment, the allottees made off market transfers to the demat account of Shri Dharmesh Bhupendra M. It appears that the application money was debited from the account of Shri Dharmesh Bhupendra M so as to enable him to exercise control over the said afferent accounts as referred in the table at para 3.4. The demat account (No.40081967) of Shri Dharmesh Bhupendra M shows the off market credit of various IPO shares and the subsequent transfer to the accounts of others (reportedly financiers). For instance, on August 10, 2005 Shri Dharmesh Bhupendra M transferred 25,270 shares of IDFC Ltd. to the financier viz. Pratik Pulp P Ltd. (DP account No. 14168053). He had also transferred 24,472 shares of IDFC Ltd. to the financier viz. Dadia Finest Limited on August 10, 2005. Similarly, the shares were transferred from the demat account of Shri Dharmesh Bhupendra M to various financiers on different dates. None of these transfers have been disputed by Shri Dharmesh Bhupendra M. On the other hand, he claimed that he had shared the benefit / gain of funds with the financiers.

3.7 The contention of Shri Dharmesh Bhupendra M that whatever he did was as per the market practice and within the four corners of law is not acceptable. As per fair market practice, he could not have cornered such allotments in large numbers as mentioned in the table at para 3.4. It may be a form of market practice but it is detrimental to integrity. Any market practice which facilitates cornering is an abomination. Admittedly, he had received substantial number of IPO shares through off market transfers from numerous afferent accounts. For instance, in the case of IDFC Ltd., he had received about 3.2 lakh shares from 1206 afferent accounts. The receipt of such large number of shares through off market transfers before listing from various afferent accounts cannot be considered as a normal market practice. This aspect has to be seen from the context of the admission of Shri Dharmesh Bhupendra M that the benefit/gain of funds deployed was shared between him and the financiers. Admittedly, he made benefits out of the shares received by him from the afferent accounts and he had shared the benefits with the financiers. Prima facie, this can not be treated as a normal market practice as contended by him. The abuse of allotment process for cornering shares in unjust enrichment smacks of a venality of the worst order and whoever participated in the same either on their own or on behalf of some financiers or jointly is tarred with the same brush and they can not be allowed to seek legitimacy for their unfair shenanigans by making a fetish of market practice. Any market practice which favours abusing the IPO allotment process through cornering and offloading on listing for raking in unfair gains can not be a standard or bench mark to defend such execrable activity hurting the retail investors by depriving them of their legitimate dues. Shri Dharmesh Bhupendra M claims that he shared benefits with the financiers (by deploying their funds). It is again an ipse dixit, uncorroborated in material particulars. There is no documentary evidence or agreement in support of the same. May be, it is his money or somebody elses money, but that is not the issue. The issue is one of cornering of shares at the cost of retail investors. Further, all the exercise to reconstruct the case history to invest it with the trappings of a financial transaction is just an after thought to give a veneer of acceptability to unmitigated market abuse festering with all its enormity and gravity. Further, such an attempted rejig does not detract from what really transpired with the IPO allotment to the detriment of retail investors. The fact remains that that afferent fake accounts were pressed into service to corner shares with own money or borrowed funds for wangling a patently unfair advantage which no market practice can either bless or anoint. Any attempt to morph it to make it appear market friendly is at once mischievous and beguiling and needs to be frowned upon, while the case history in the broad picture of IPO manipulation reeks of vilest of manipulative intent. It is very difficult to unravel all the threads in the tangled skin of the abuse of the IPO allotment process, since the intentions of the players are shrouded in secrecy and stealth. There can be no direct evidence to fathom the same, but it has to be a matter of inference from the attendant circumstances of the case which prima facie establishes that there was cornering of the shares by certain players either on their own or in concert with others in an abuse of the IPO allotment process. The manner how it was executed through fictitious afferent accounts and exercise of control over them to facilitate off-market transfers on allotment has all the ingredients of a devious design and the same definitely casts a reflection on the conduct of parties including Shri Dharmesh Bhupendra, M, which can by no stretch of imagination be regarded as a fair market practice.

3.8 Sharing of benefit would prima facie indicate the commonality of interests. In the present matter, such unity of interests was used for the purpose of making illegal gains at the cost of retail genuine applicants (investors). Besides, Shri Dharmesh Bhupendra M had admittedly dealt in the IPO shares of NTPC Ltd on his own account without the involvement of any financier. He had also sold the shares of NTPC Ltd. through the stock broker Karvy Stock Broking Ltd., immediately upon listing of the shares on the stock exchanges. Coupled with the admissions of Shri Dharmesh Bhupendra M, it could be reasonably inferred that he was prima facie a necessary party to the manipulation. The plea that Shri Dharmesh Bhupendra M was unaware of the consequences is unbelievable. It is difficult to accept such a contention from a person who had by his active participation through out the entire game plan (from the time of payments for the IPO applications till the offloading of the IPO shares in the market) made profits at the cost of genuine retail investors.

3.9 It has been noted that Shri Dharmesh Bhupendra M had transferred around 43,624 shares of IDFC Ltd. to M/s. Welvet Financial Advisers Pvt Ltd. (Welvet Financial), one of the financiers on August 11, 2005 i.e. just before listing (August 12, 2005) of the said shares on stock exchanges. Shri Dharmesh Bhupendra M stated to SEBI that Welvet Financial had lent him Rs.78 lakhs for the purpose of making margin for retail application in the IPOs and that after the allotment of IDFC Ltd shares, he had transferred 43,000 equity shares of IDFC as per its instruction and the balance amount of Rs.64 lakhs was returned by cheque payment. However, on an examination of the bank account details of Welvet Financial, it has been observed that it had paid Rs 76,56,250 to Shri Dharmesh Bhupendra M and there was no receipt of Rs 64 lakhs by the said Welvet from Shri Dharmesh Bhupendra M, as contended by him. Thus, in addition to the admission made by Shri Dharmesh Bhupendra M that the benefit/ gain of funds were shared between him and the financiers, the examination of the bank account details of Welvet Financial prima facie indicate that there was a prima facie effort to corner the retail portion of the IDFC Ltd. IPO and that the same was sought to be cloaked as a loan transaction.

3.10 Further, the conduct of a market participant has to be appraised in the overall context of the happenings in the market at the material point of time and the individual involvement can not be viewed in isolation. While deciding the issue of manipulation, the volume of involvement of the manipulator is not relevant. In the present matter, Shri Dharmesh Bhupendra M had made payments from his bank account in respect of numerous and upon receipt of IPO allotment in the demat accounts of the purported applicants, he had got the shares transferred to his demat account through off market transactions. Thus, prima facie, he had cornered IPO shares meant for retail investors. Also any suggestion attributing innocence to the parties involved in such transactions would give rise to an untenable situation where certain other third persons/entities alone would be responsible for the manipulation and none else. Apparently, Shri Dharmesh Bhupendra M had full control over the afferent accounts which have been used for the share transactions for the purpose of cornering IPO shares and the same prima facie establishes the role of Shri Dharmesh Bhupendra M in cornering IPO shares to the detriment of genuine retail investors in retail quota.

3.11 The cornering of the shares and selling it on the first day of listing for obvious gains runs through the very warp and woof of IPO allotment processes in 21 IPOs during the period 2003- 2005. Shri Dharmesh Bhupendra M. is an unjust beneficiary of the same with or without other connection. By receiving IPO shares ( at the cost of the retail investors) and by making benefits out of the sale of such shares, Shri Dharmesh Bhupendra M was prima facie a necessary party to the said manipulation. The submissions made by Shri Dharmesh Bhupendra M have not mitigated the apprehension raised in the ad interim order dated April 27, 2006. In the instant case, there is adequate material to come to a prima facie finding against Shri Dharmesh Bhupendra M as discussed above.

3.12 The contention that Shri Dharmesh Bhupendra M was not involved in the manipulation will not hold good as the transactions were executed according to a master plan which is in evidence on an increasing scale in all the 21 IPOs from 2003- 2005. Admittedly, the IPO shares were received by Shri Dharmesh Bhupendra M from number of afferent accounts. The application money for the IPOs had been paid from the bank account of Shri Dharmesh Bhupendra M on behalf of the afferent account-holders / IPO applicants. Thus, it prima facie appears that Shri Dharmesh Bhupendra M had complete control over the bank accounts and dematerialized accounts held in the names of fictitious / benami entities and those fictitious / benami entities were merely name-lenders. This has not been denied by Shri Dharmesh Bhupendra M. Proof of manipulation almost always depends on inferences drawn from a mass of factual details. Findings must be gathered from patterns, nature of the transactions etc. The evidence, direct or circumstantial, should be sufficient to raise a presumption in its favour with regard to the existence of a fact sought to be proved. As pointed out by Best in "Law of Evidence", the presumption of innocence is no doubt presumptio juris; but everyday practice shows that it may be successfully encountered by the presumption of guilt arising from circumstances, though it may be a presumption of fact. It is exceedingly difficult to prove facts which are especially within the knowledge of the parties proceeded against and in that view the findings would be inferential from the conduct of the parties. The legal proof in such circumstances partakes the character of a prudent mans estimate as to the probabilities of the case. In this regard, the Honble Securities Appellate Tribunal has observed in the matter of Ketan Parekh v. Sebi:

...Whether a transaction has been executed with the intention to manipulate the market or defeat its mechanism will depend upon the intention of the parties which could be inferred from the attending circumstances because direct evidence in such cases may not be available....

3.13 In view of the above, it is seen that Shri Dharmesh Bhupendra M had played a major role in cornering the shares and inter alia thereby prima facie violated the provisions of FUTP Regulations and DIP Guidelines. Shri Dharmesh Bhupendra M could not rebut the findings made in the ad-interim ex-parte order. I am, therefore, convinced that there are reasonable grounds to confirm the ad interim order dated April 27, 2006 against Shri Dharmesh Bhupendra M having his address at A-17, Neelkanth Dhara, 90ft. Road, Ghatkopar East, Mumbai 400077.

4.1 Therefore, in exercise of the powers delegated to me in terms of Section 19 read with Sections 11, 11B and 11(4) of the Securities and Exchange Board of India Act, 1992, I hereby confirm the ad interim order of Securities and Exchange Board of India dated April 27, 2006 against Shri Dharmesh Bhupendra M.