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Citation Codes
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citation codes
Judges
  • G.N Bajpai, Chairman
Acts
  • Regulation 11 read with regulation 12 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 read with sections 4(3), 11 and 11B of SEBI Act, 1992,
  • Securities Market) Regulations, 1995 read with Section 11 and 11B of the SEBI Act, 1992
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Judges
  • G.N Bajpai, Chairman
Acts
  • Regulation 11 read with regulation 12 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 read with sections 4(3), 11 and 11B of SEBI Act, 1992,
  • Securities Market) Regulations, 1995 read with Section 11 and 11B of the SEBI Act, 1992
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Smart Summary

Concise Analytical Summary of the Opinion: Prosoft Systems Ltd. and Mohan Kumar

Factual and Procedural Background

Prosoft Systems Ltd. (originally a private limited company incorporated on July 28, 1993, converted to a public limited company on January 19, 2000) carried out a public issue in October 2000 for 61.60 lakh shares at par. The Bangalore Stock Exchange (BgSE) permitted trading in the scrip to commence on December 27, 2000 in compulsory demat mode. The company had not credited fully paid shares to shareholders' demat accounts as on that date; the first demat credit (3,00,000 shares) was given to Shri Pravin Panwar only on January 12, 2001 and further credits followed after January 22, 2001.

Price-volume data showed significant trading activity concentrated on BgSE during late December 2000 and early January 2001, with an apparent sharp rise in price in the first 15 trading days after commencement. SEBI conducted investigations into alleged market manipulation. A show cause notice dated 17-07-2002 was issued to Mr. Mohan Kumar under SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 1995 (seeking directions under regulation 11 read with Sections 11 and 11B of the SEBI Act, 1992). Mr. Mohan Kumar did not reply to the notice and did not appear at the personal hearing granted on 29-10-2002. An ex parte order was therefore considered and passed on available material.

Legal Issues Presented

  1. Whether Prosoft Systems Ltd. and/or its Managing Director, Mr. Mohan Kumar, contravened SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 (specifically regulations 4(a)–4(d) as later found) by facilitating artificial scarcity, price rigging and creation of a false market.
  2. Whether it was appropriate to pierce the corporate veil of Prosoft and hold the natural person (Mr. Mohan Kumar) personally liable for the company's manipulative acts.
  3. Whether directions under Regulation 11 read with Regulation 12 of the PFUTP Regulations, 1995 read with Sections 4(3), 11 and 11B of the SEBI Act, 1992 should be issued restraining the company and Mr. Mohan Kumar from accessing the securities market and dealing in securities (including the duration of such restraint).

Arguments of the Parties

Statements / Contentions attributed to Mr. Mohan Kumar

  • Mr. Mohan Kumar stated under oath that the multiple applications received during the public issue did not come to the notice of the Company.
  • He also stated (in relation to payments to Kamal Investments) that the money paid by the company to Kamal Investments was paid towards reimbursement of public issue expenditure.

Statements / Contentions attributed to Shri Pravin Panwar

  • Pravin Panwar admitted (in a statement recorded on April 4, 2002) that he had marketed the entire public issue and that he tried to create volume/trading interest in the scrip to dispose of his holdings.
  • He explained that when his agents collected applications, he had asked them to put his address in those application forms (which relates to the multiple applications issue).
  • He also confirmed there were no circuit filters for the first three trading days and attributed the deliberate creation of artificial scarcity to active support from Prosoft and its Managing Director.

Statements / Contentions attributed to Intime Spectrum (Sri Modi, COO)

  • Sri Modi contradicted Mr. Mohan Kumar's claim that multiple applications did not come to the company's notice, stating that Intime had taken up the matter with the company before finalizing allotment and that the company requested them not to reject multiple applications because the issue was only marginally oversubscribed.
  • Sri Modi furnished a copy of a Board resolution evidencing the company's involvement in that decision.

Statements / Contentions attributed to ASL Holdings / Mardia Sons (applicants)

  • ASL's representative (Ravikant, MD of ASL Capital Holdings Pvt. Ltd.) stated that they applied for a large quantity to increase chances of allotment and denied that the transaction was financing for subscription; he said they later sold shares to Kamal Investments.
  • Mardia Sons explained (as recorded) that they applied because they considered IT industry investments opportunistic at that time and later sold their allotted shares to Kamal Investments.

Note on party arguments

All summaries above are taken directly from statements and documentary material recorded in the opinion.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Delhi Development Authority v. Skipper Construction Pvt. Ltd., 1997 (089)-COMPCAS-0362-SC Principle that the corporate veil may be lifted where the corporate form is used to commit illegality or defraud others; the court may look behind the corporate entity to do justice. The Court invoked and relied on this principle to justify piercing the corporate veil and holding the natural person (Mohan Kumar, the promoter and Managing Director) personally liable for manipulative acts carried out through the company.
Securities and Exchange Board of India v. Libra Plantations Ltd., 1999-(033)-CLA-0256-BOM Application of the veil-piercing principle in a securities market / regulatory context (as a following decision cited to support lifting the corporate veil). The decision was cited as a supporting authority showing a High Court following the Supreme Court's approach; the opinion relied on this to reinforce the conclusion that corporate personality can be ignored where used to perpetrate fraud in securities markets.

Court's Reasoning and Analysis

The court's reasoning proceeds from fact-finding (market and company records, trading data and bank records) to legal conclusion as follows:

  1. Demat availability and trading commencement: The court notes that when BgSE permitted trading on December 27, 2000 in compulsory demat mode, there were no fully paid-up shares credited in demat form to shareholders. The first NSDL credit (3,00,000 shares) was to Shri Pravin Panwar on January 12, 2001; CDSL credits followed on January 22, 2001. The court treats the absence of dematerialised fully paid shares at commencement as a critical factual foundation.
  2. Trading pattern and market impact: Using BgSE price-volume data and broker-wise trade logs, the court observes concentrated activity by Shri Pravin Panwar acting through two brokers (Sunil Investments and Index Finlease). On December 27, 2000 Pravin Panwar accounted for a substantial portion of trades (purchased 4,902 shares and sold 4,700 across brokers on that date), executing transactions at successively increasing prices that culminated in the day’s highest trade price. For the period December 27, 2000 to January 16, 2001, Panwar's trades represented roughly 42% of total traded volume; overall he purchased and sold, on a gross basis, comparable large quantities (95,651 purchased vs 95,650 sold).
  3. Artificial scarcity and deliveries: Because fully paid demat shares were not available publicly at the start of trading, delivery against sale positions could not be effected in initial settlements; exchanges had to reject or auction positions, with the court noting that Pravin Panwar (the only initial demat allottee) supplied shares in auction settlements. The court finds this sequence consistent with deliberate creation of artificial scarcity of deliverable securities to distort price discovery.
  4. Multiple applications and allotment fabrications: The court details extensive evidence of multiple applications (many bearing similar addresses and patterns) connected to Pravin Panwar and associates; evidence included admission by Panwar that agents used his address in collected applications and documentary evidence that the company and its agents were aware of multiple applications but did not reject them. The court sees this as a contravention of DIP Guidelines and the Companies Act.
  5. Flow of funds and subscription façade: Bank records show transfers from the company's public issue collection account and subsequent circular flows (company → Touchwood Interiors → Ananya Publications / Mohan Kumar / Pravin Panwar → returns to company), and large transfers from company to Kamal Investments (a firm of Pravin Panwar) that were then used to furnish demand drafts to primary applicants. The court takes these transactions as indicia that proceeds were used to fabricate full subscription and to finance the applicants who constituted the bulk of issue subscriptions.
  6. Credibility of competing explanations: The court notes contradictions: Mohan Kumar’s denial that multiple applications were noticed is contradicted by Intime's COO (Sri Modi) and by documentary evidence (board resolution). Similarly, explanations that transfers were reimbursement of expenses are found implausible (given the scale and timing of transfers relative to total monies collected). The court treats these contradictions as supporting its conclusion that the corporate machinery was used to perpetrate the scheme.
  7. Legal application — lifting corporate veil: Relying on established authority (the Supreme Court decision cited and its follow-up), the court reasons that where corporate character is used to commit illegality or defraud, the corporate veil may be pierced. Given that the Managing Director was active in the acts/omissions, the court concludes it is appropriate to hold the natural person (Mohan Kumar) personally liable.
  8. Regulatory relief and ex parte procedure: Because Mr. Mohan Kumar did not reply to the show cause notice and did not avail the personal hearing opportunity, the court proceeded ex parte based on available material and the gravity of charges, concluding that further hearing would serve only to cause delay.

Holding and Implications

Holding: Mr. Mohan Kumar is held guilty of violating regulation 4(a), 4(b), 4(c) and 4(d) of the SEBI (Prohibition of Fraudulent Trade Practices relating to the securities market) Regulations, 1995.

Remedies directed (direct, concrete consequences set out in the opinion):

  • Prosoft Systems Ltd. — the Company was debarred from accessing the capital market for a period of two years (direct order by the authority).
  • Mr. Mohan Kumar — in exercise of powers under Regulation 11 read with Regulation 12 of the PFUTP Regulations, 1995 read with sections 4(3), 11 and 11B of the SEBI Act, 1992, Mr. Mohan Kumar is directed to be debarred from accessing the capital market and from dealing in securities for a period of two years; the order comes into force with immediate effect.

Broader implications identified by the opinion:

  • The decision is framed as a measure to protect investors and to maintain integrity and investor confidence in the securities market by preventing repetition of such manipulative practices.
  • The opinion expressly justifies lifting the corporate veil in the securities market context where corporate form is used to perpetrate illegality or defraud investors.

The opinion does not state that a novel legal precedent was established beyond applying existing veil-piercing authorities; it applies those authorities to the particular facts and orders relief specific to the parties and facts set out.

Show full summary ...

    Mohan Kumar, In Re (Irregularities In The Public Issue)

    1. Prosoft Systems Ltd. (hereinafter called Prosoft) was incorporated as private Limited Company on July 28, 1993. It was converted in to a public limited company on January 19, 2000. It has its registered office at 186, Datta Complex, Main Road, Gandhi Bajar, Basavanna Gudi, Bangalore, 004. Mr. Mohan Kumar was the main Promoter and Managing Director of the Prosoft.

    2. During October 2000, the company came out with a public issue of 61.60 lakh shares at par aggregating to Rs. 616 lakhs (Rs. 2.50 on application and 7.50 on allotment). The issue was closed on October 23, 2000 and BGSE granted permission for listing on November 17, 2000. The last date for payment of allotment money was December 15, 2000. Bangalore Stock Exchange had permitted trading in the scrip to commence on December 27, 2000. Trading was permitted in compulsory demat mode.

    3. However, Prosoft had not credited shares to the demat account of any shareholder as on that date. Being the Managing Director of the Company, Mr. Mohan Kumar failed to discharge his responsibility. The first credit was given only on January 12, 2001. Prosoft had given credit of 3.00 lakh shares to the demat account of Shri Panwar on January 12, 2001 and the remaining shareholders accounts were credited only after January 22, 2001. This created artificial scarcity of deliverable securities in the market. Thus, the company had failed to give demat credit to its shareholders before commencement of trading in compulsory demat mode. This was apparently done with the active support of Shri Mohan Kumar.

    4. It was stated in the prospectus for the said public issue that the post-issue paid up capital of the company will be Rs. 1026 Lakhs whereas the audited annual report of the company for the year ended March 31, 2001 revealed that the paid-up capital was Rs. 575.83 lakhs and Rs. 450-19 lakhs were calls in arrears.

    5. As per the public issue prospectus of the company dated September 27, 2000, the scrip of the company was proposed to be listed on Bangalore, Hyderabad and Ahmedabad Stock Exchanges.

    6. The details of the directors of the company are furnished below:

    Name Designation Mohan Kumar K.N Managing Kishore Kumar K.N Technical Avinash Jodhawat Kamal Kishore Kasat Pravin M. Shah Company

    7. The price volume data of the scrip on BgSE for the period from December 27, 2000 to March 2002 is as under:

    Date Avg. Rate High Low Close No. of Trades Volume Traded 27/12/2000 20.29 28 14 25.15 37 8252 28/12/2000 25.28 27.15 23.15 25.45 132 59207 29/12/2000 25.54 27.5 23.45 23.7 88 36107 1/1/2001 23.89 25.6 21.85 25.6 32 8506 2/1/2001 27.38 27.6 26.7 27.6 29 19104 3/1/2001 28.03 29.8 25.45 29.25 76 45610 4/1/2001 30.96 31.45 29.5 31.45 12 5001 5/1/2001 31.33 33 29.3 33 8 3552 8/1/2001 33.86 35.5 32.5 34.95 36 30058 9/1/2001 35.2 37.7 32.5 36.6 14 2850 10/1/2001 36 36 36 36 5 1200 11/1/2001 35 36 34 34 3 710 12/1/2001 35.35 36.7 34 36.7 16 4000 15/01/2001 38.75 39.5 38 39.5 6 2740 16/01/2001 36.4 36.4 36.4 36.4 2 500 17/01/2001 36 36 36 36 1 500 19/01/2001 36.08 38.4 33.5 34 9 3610 22/01/2001 31.85 33 31.4 31.5 17 5332 24/01/2001 29 29 29 29 1 1 25/01/2001 27.28 26.7 26.7 26.7 1 5 29/01/2001 25.13 24.6 24.6 24.6 2 11 30/01/2001 22.65 22.65 22.65 22.65 2 30 31/01/2001 20.85 20.85 20.85 20.85 1 15 7/2/2001 19.2 19.2 19.2 19.2 1 10 21/02/2001 17.7 17.7 17.7 17.7 1 1 23/02/2001 16.65 16.3 16.3 16.3 1 2 12/3/2001 15 15 15 15 2 2 21/03/2001 13.8 13.8 13.8 13.8 1 1 30/03/2001 12.45 12.45 12.45 12.45 1 600 2/4/2001 12.35 12.35 12.35 12.35 1 699 22/06/2001 10.5 10.5 10.5 10.5 1 1 Total 539 238217

    Based on the above data, it is noted that the total number of trades in the scrip on BgSE over a period of 6 months i.e from December 27, 2000 to June 22, 2001 was only 539. During the period 2,38,217 shares were traded and the total value of shares traded was Rs. 65,12,251/- only. BgSE has informed to us that there has been no trade in the scrip subsequent to June 22, 2001 till March 2002.

    8. The details of trading in the scrip of Prosoft on Hyderabad Stock Exchange during the period from December 27, 2000 to March 31, 2002 is as under:

    >Date >Open >High >Low >Close >No. of trades >Volume >Value >12-01-01 >31.00 >31.05 >31.00 >31.05 >2 >400 >12,410

    9. The scrip was not traded on Ahmedabad Stock Exchange during the period from December 27, 2000 to April 4, 2002. Therefore it is found that the scrip was traded in significant volumes only on the Bangalore Stock Exchange.

    1. It was further found that there were no major corporate announcements during the period under enquiry. There was variation in the price of the scrip of Prosoft listed on Bangalore Stock Exchange (BgSE), between Rs. 25.15 and Rs. 36.40 between December 27, 2000 and January 16, 2001 i.e an increase of about 45% in 15 trading days. In view of this SEBI conducted investigations into the dealings in the shares of Prosoft for alleged market manipulation. Investigations revealed several irregularities in the trading done by Shri Pravin Panwar in the shares of the company, such as creation of artificial volumes & false market in the shares and price rigging. This was prima-facie found to have been done with active support of Shri Mohan Kumar.

    2. Shri Mohan Kumar saw to it that as soon as the BgSE permitted trading in the scrip, Shri Pravin Panwar, who is associated with Prosoft and who had marketed the entire public issue, executed substantial trades in the scrip acting through two different brokers, namely, Sunil Investments and Index Finlease Services Ltd. In many of the trades, Sri Panwar acted as both buyer and seller.

    3. In view of the above a show cause notice was issued to Mohan Kumar bearing no IES/ID7/901/13141/2002 dated 17-07-02 for violating SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 1995 asking them to show cause why suitable direction under regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 read with Section 11 and 11B of the SEBI Act, 1992 including a direction to prohibit them from accessing the securities market for a particular duration should not be passed against them.

    4. The said show cause notice was not replied to by Mr. Mohan Kumar. An opportunity of personal hearing was also accorded to him on 29-10-02 which he did not avail either. An ex-parte order therefore is passed based on the available material looking into the gravity of the charges and it is considered that no purpose will serve if another opportunity of hearing is given except further delay in proceedings.

    1. It is found that there were no fully paid up shares in demat form on December 27, 2000 i.e when BgSE permitted the trading in the scrip. It is apparent that Mr. Mohan Kumar knew of his fact being the MD of the company. In fact, the first demat credit of fully paid up shares was given by NSDL only on January 12, 2001. The said credit was given to Shri Pravin Panwar for 3,00,000 shares. This was apparently done at the instance of Sri Mohan Kumar. The first demat credit of shares was given by CDSL on January 22, 2001. Therefore, as on the date when commencement of trading was permitted in compulsory demat mode i.e December 27, 2000, there was not even a single share in demat form available with the shareholders. It may therefore be seen that the company did not credit the fully paid up shares after the closing date for payment of allotment money i.e December 15, 2000.

    2. It was further observed that during the first two settlements, the members who traded in the scrip had not delivered against their sale position. Even if it was delivered it was partly paid shares in which case the exchange has rejected the deliveries and settled the open position at highest rate in first settlement and during second settlement it was auctioned day close plus 20%. During the third settlement, the exchange had initiated the auction for non-delivery of shares against sale position. In auction settlement, one of the members namely; Sunil Investments had participated and gave delivery of shares which was received from Shri Pravin Panwar, who is the main trader in the scrip. It is observed that Pravin Panwar was the only person who was allotted shares in demat form.

    3. In the light of what has been stated in the foregoing paragraphs, it is apparent that during the first two settlements, delivery could not take place because no fully paid up shares were available with the public. During the third settlement, Shri Pravin Panwar, who was the only person to have received demat credit of shares, has offered the shares in auction. This was deliberately done with a view to see that the prices of the scrip were appreciated unnaturally in defiance of the price discovery mechanism of the Exchange. It was found that Sri Mohan Kumar facilitated the same being the Managing Director. The motive behind this was apparently to get wind fall profit from the sale of the securities.

    1. It further came to light in the investigation that the Shri Pravin Panwar had made multiple applications in the public issue of Prosoft, furnishing different addresses. He had made 13 such applications for allotment of 2600 shares on cumulative basis. Similarly, such multiple applications were received from various relatives of his like Shri D.B Panwar, Smt. Savita Panwar, Shri Kamal Kishore, Smt. Kamaladevi etc. for a total of 18000 shares. It was further noticed that about 100 applicants had furnished the address of Kamal Investments, a firm belonging to Shri Pravin Panwar, as their address. It was also noticed that most applicants had furnished the same addresses as those furnished by Shri Pravin Panwar in his various applications. The details of some of the multiple applications received and allotted are furnished below:

    Shares Amt. Name1 Fh1 Age Add1 Add2 200 500 Pravin Panwar D.B Panwar 30 9 Shivajinagar Near Mohit Hotel 200 500 Pravin Panwar D.B Panwar 37 86 22nd Cross 8th Main Jayanagar 200 500 Pravin Panwar D.B Panwar 32 Ranveer Bhawan Chopasni Road 200 500 Pravin Panwar D.B Panwar 40 67 4th Main Shakambari Nagar 200 500 Pravin Panwar D.B Panwar 36 15 Bhoomija Apt. Mission Road 200 500 Pravin Panwar D.B Panwar 30 Nilesh Securities 310 S.M Lodha Complex 200 500 Pravin Panwar D.B Panwar 37 1144.B Dr. Raj Kumar Road Rajaji Nagar 200 500 Pravin Panwar D.B Panwar 30 606 World Trade Centre Sayaji Gunj 200 500 Pravin Panwar D.B Panwar 30 45 7th Cross 1th Main 200 500 Pravin Panwar D.B Panwar 30 101 Sundar Gopal Complex Ambawade Bazar 200 500 Pravin Panwar D.B Panwar 30 B-90 Anandpuri M.D Road 200 500 Pravin Panwar D.B Panwar 37 Paramount Traders Opp. M.G Hospital 200 500 Pravin Panwar D.B Panwar 30 6 Motilal Build Ratanada Road 200 500 D.B Panwar Ganshni Ram 50 9 Shivajinagar Near Mohit Hotel 200 500 D.B Panwar Ganshi Ram 32 86 22th Cross 8th Main Jayanagar 200 500 D.B Panwar Mangniram 49 Ranveer Bhawan Chopasni Road 200 500 D.B Panwar Ganshi Ram 50 15 Bhoomija Apt. Mission Road 200 500 D.B Panwar Ganshiram 50 35 3rd Main 4th Cross Matadahalli R.T Nagar 200 500 D.B Panwar Ganshi Ram 30 Nilesh Securities 310 S.M Lodha Complex 200 500 D.B Panwar Ganshi Ram 50 45 7th Cross 1th Main 200 500 D.B Panwar Ganshi Ram 46 101 Sundar Gopal Complex Ambawade Bazar 200 500 D.B Panwar Ganshi Ram 45 B-90 Anandpuri M.D Road 200 500 D.B Panwar Ganshiram 45 Paramount Traders Opp. M.G Hospital 200 500 D.B Panwar Ganshi Ram 50 6 Motilal Building Ratanad Road 200 500 D.B Pawar Ganshi Ram 46 67 4th Main Shakambari Nagar 200 500 D.B Pawar Ganshi Ram 50 G.C.I Krishna Regency K.R Road 200 500 D.B Pawar Ganshi Ram 50 1144.B Dr. Raj Kumar Road Rajaji Nagar 200 500 D.B Pawar Gansih Ram 50 606 World Trade Centre Sayaji Gunj 200 500 Avinash Jodhawat M. Jodhawat 32 9 Shivajinagar Near Mohit Hotel 200 500 Avinash Jodhawat M. Jodhawat 40 86 22th Cross 8th Main Jayanagar 200 500 Avinash Jodhawat M. Jodhawat 30 Ranveer Bhawan Chopasni Road 200 500 Avinash Jodhawat M. Jodhawat 35 67 4th Main Shakambari Nagar 200 500 Avinash Jodhawat M. Jodhawat 35 Nilesh 310 S.M Securities Lodha Complex 200 500 Avinash Jodhawat M. Jodhawat 40 606 World Trade Centre Sayaji Gunj 200 500 Avinash Jodhawat M. Jodhawat 32 45 7th Cross 1st Main 200 500 Avinash Jodhawat M. Jodhawat 32 B-90 Anandpuri M.D Road 200 500 Avinash Jodhawat M. Jodhawat 33 Paramount Traders Opp. M.G Hospital 200 500 Avinash Jodhawat M. Jodhawat 37 6 Motilal Building Ratanad Road 200 500 Avinash Jodha Wat M. Jodha Wat 33 15 Bhoomija Apt. Mission Road 200 500 Avinash Jodhawath M. Jodhawath 38 101 Sundar Gopal Complex Ambawade Bazar 200 500 Avinash Jodhwat M. Jodhwat 32 G.C.I Krishna Regency K.R Road 200 500 Avinash Jodhwath M. Jodhawath 32 1144.B Dr. Raj Kumar Road Rajaji Nagar 200 500 Vertika Samar Bhagwan Singh Samar 30 9 Shivajinagar Near Mohit Hotel 200 500 Vertika Samar Bhagwan Singh Samar 22 86 22nd Cross 8th Main Jayanagar 200 500 Vertika Samar Bruwan Singh Samar 21 Ranveer Bhawan Chopasni Road 200 500 Vertika Samar Bhagwan Singh Samar 20 67 4th Main Shakambari Nagar 200 500 Vertika Samar Bhagwan Singh Samar 30 15 Bhoomija Apt. Mission Road 200 500 Vertika Samar Bhagwan Singh Samar 30 G.C.I Krishna Regency K.R Road 200 500 Vertika Samar Bhagwan Singia Samar 26 35 3rd Main 4th Cross Matadahalli R.T Nagar 200 500 Vertika Samar Bhagwan Singh Samar 24 Nilesh Securities 310 S.M Lodha Complex 200 500 Vertika Samar Bhagwan Sigh Samar 30 1144.B Dr. Raj Kumar Road Rajaji Nagar 200 500 Vertika Samar Bhagwan Singh Samar 30 606 World Trade Centre Sayaji Gunj 200 500 Vertika Samar Bhagwan Singh Samar 40 45 7th Cross 1st Main 200 500 Vertika Samar Bhagwan Singh Samar 20 101 Sundar Gopal Complex Ambawade Bazar 200 500 Vertika Samar Bhagwan Singh Samar 27 B-90 Anandpuri M.D Road 200 500 Vertika Samar Bhagwan Singh Samar 29 Paramount Traders Opp. M.G Hospital 200 500 Vertika Samar Bhagwan Singh Samar 21 6 Motilal Building Ratanad Road 200 500 Anil Pawar Aehlu Ram 28 9 Shivajinagar Near Mohit Hotel 200 500 Anil Pawar Achlu Ram 37 86 22nd Cross 8th Main Jayanagar 200 500 Anil Pawar Achluram 28 Ranveer Bhawan Chopasni Road 200 500 Anil Pawar Achluram 29 67 4th Main Shakambari Nagar 200 500 Anil Pawar Achlu Ram 35 15 Bhoomija Apt. Mission Road 200 500 Anil Pawar Achlu Ram 26 G.C.I Krishna Regency K.R Road 200 500 Anil Pawar Achluram 35 Nilesh Securities 310 S.M Lodha Complex 200 500 Anil Pawar Achlu Ram 38 1144.B Dr. Raj Kumar Road Rajaji Nagar 200 500 Anil Pawar Achlu Ram 27 606 World Trade Centre Sayaji Gunj 200 500 Anil Pawar Narendra Bhansali 28 45 7th Cross 1st Main 200 500 Anil Pawar Achlu Ram 30 101 Sundar Gopal Complex Ambawade Bazar 200 500 Anil Pawar Achluram 31 B-90 Anandpuri M.D Road 200 500 Anil Pawar Achluram 30 Paramount Traders Opp. M.G Hospital 200 500 Anil Pawar Achlu Ram 31 6 Motilal Building Ratanad Road 200 500 Lalit Panwar Panwar 37 Nilesh Securities 310 S.M Lodha Complex 200 500 Lalit Kumar Panwar 37 9 Shivajinagar Near Mohit Hotel 200 500 Lalit Kumar D.B Panwar 37 86 22nd Cross 8th Main Jayanagar 200 500 Lalit Kumar Panwar 27 Ranveer Bhawan Chopasni Road 200 500 Lalit Kumar Panwar 30 15 Bhoomija Mission Apt. Road 200 500 Lalit Kumar Panwar 37 G.C.I Krishna Regency K.R Road 200 500 Lalit Kumar Panwar 37 1144.B Dr. Raj Kumar Road Rajaji Nagar 200 500 Lalit Kumar Panwar 37 606 World Trade Centre Sayaji Gunj 200 500 Lalit Kumar Panwar 37 45 7th Cross 1st Main 200 500 Lalit Kumar Pawar 32 101 Sundar Gopal Complex Ambawade Bazar 200 500 Lalit Kumar Panwar 32 B-90 Anandpuri M.D Road 200 500 Lalit Kumar Panwar 30 Paramount Traders Opp. M.G Hospital 200 500 Lalit Kumar Panwar 31 6 Motilal Build Ratanada Road 200 500 Lalith Kumar Panwar 28 67 4th Main Shakambari Nagar 200 500 Kamla Devi D.B Panwar 42 9 Shivajinagar Near Mohit Hotel 200 500 Kamala Devi D.B Pawar 45 86 22nd Cross 8th Main Jayanagar 200 500 Kamala Devi D.B Panwar 40 Ranveer Bhawan Chopasni Road 200 500 Kamala Devi D.B Panwar 40 67 4th Main Shakambari Nagar 200 500 Kamla Devi D.B Panwar 42 15 Bhoomija Apt. Mission Road 200 500 Kamla Devi D.B Pawar 42 G.C.I Krishna Regency K.R Road 200 500 Kamala Devi D.B Panwar 42 35 3rd Main 4th Cross Matadahalli R.T Nagar 200 500 Kamala Devi D.B Panwar 22 Nilesh Securities 310 S.M Lodha Complex 200 500 Kamla Devi D.B Pawar 42 1144.B Dr. Raj Kumar Road Rajaji Nagar 200 500 Kamala Devi D.B Pawar 42 606 World Trade Centre Sayaji Gunj 200 500 Kamla Devi D.B Panwar 42 45 7th Cross 1st Main 200 500 Kamla Devi D.B Pawar 42 101 Sundar Gopal Complex Ambawade Bazar 200 500 Kamala Devi D.B Panwar 42 B-90 Anandpuri M.D Road 200 500 Kamala Devi D.B Panwar 42 Paramount Traders Opp. M.G Hospital 200 500 Kamla Devi D.B Panwar 42 6 Motilal Building Ratanad Road 200 500 Kamal Kishore D.B Panwar 20 9 Shivajinagar Near Mohit Hotel 200 500 Kamal Kishore D.B Panwar 35 86 22nd Cross 8th Main Jayanagar 200 500 Kamal Kishore D.B Panwar 23 Ranveer Bhawan Chopasni Road 200 500 Kamal Kishore D.B Panwar 20 67 4th Main Shakambari Nagar 200 500 Kamal Kishore D.B Panwar 22 15 Bhoomija Apt. Mission Road 200 500 Kamal Kishore D.B Pawar 22 G.C.I Krishna Regency K.R Road 200 500 Kamal Kishore D.B Panwar 28 35 3rd Main 4th Cross Matadahalli R.T Nagar 200 500 Kamal Kishore D.B Panwar 30 Nilesh Securities 310 S.M Lodha Complex 200 500 Kamal Kishore D.B Pawar 20 1144.B Dr. Raj Kumar Road Rajaji Nagar 200 500 Kamal Kishore D.B Pawar 22 606 World Trade Centre Sayaji Gunj 200 500 Kamal Kishore D.B Panwar 20 45 7th Cross 1st Main 200 500 Kamal Kishore D.B Pawar 22 101 Sundar Gopal Complex Ambawade Bazar 200 500 Kamal Kishore D.B Panwar 22 Paramount Traders Opp. M.G Hospital 200 500 Komal Kishore D.B Panwar 24 6 Motilal Building Ratanad Road 200 500 Kamal D.B Panwar 26 67 4th Main Shakambari Nagar 200 500 Savita Pravin 26 9 Shivajinagar Near Mohit Hotel 200 500 Savita Pravin 26 Ranveer Bhawan Chopasni Road 200 500 Savita Pravin 27 15 Bhoomija Apt. Mission Road 200 500 Savita Pravin 26 G.C.I Krishna Regency K.R Road 200 500 Savita Pravin 26 45 7th Cross 1st Main 200 500 Savita Pravin 27 101 Sundar Gopal Complex Ambawade Bazar 200 500 Savita Pravin 28 B-90 Anandpuri M.D Road 200 500 Savita Pravin 27 6 Motilal Building Ratanad Road 2000 5000 Savita Panwar Pravin Panwar 27 6 Motilal Build Ratanada Road 200 500 Suman Parihar Pravin Parihar 28 9 Shivajinagar Near Mohit Hotel 200 500 Suman Parihar Pravin Panwar 35 86 22nd Cross 8th Main Jayanagar 200 500 Suman Parihar Pravin Parihar 26 Ranveer Bhawan Chopasni Road 200 500 Suman Parihar Pravin Parihar 45 67 4th Main Shakambari Nagar 200 500 Suman Parihar Pravin Parihar 27 15 Bhoomija Apt. Mission Road 200 500 Suman Parihar Pravin Parihar 27 G.C.I Krishna Regency K.R Road 200 500 Suman Parihar Pravin Parihar 29 Nilesh Securities 310 S.M Lodha Complex 200 500 Suman Parihar Pravin Parihar 28 1144.B Dr. Raj Kumar Road Rajaji Nagar 200 500 Suman Parihar Pravin Parihar 26 606 World Trade Centre Sayaji Gunj 200 500 Suman Parihar Pravin Bhai Parinar 28 45 7th Cross 1st Main 200 500 Suman Parihar Pravin Parihar 31 101 Sundar Gopal Complex Ambawade Bazar 200 500 Suman Parihar Pravin Parihar 32 B-90 Anandpuri M.D Road 200 500 Suman Parihar Pravin Parihar 27 Paramount Traders Opp. M.G Hospital 200 500 Shiv Prakash L Lingaraju 22 GC-I Krishna Regency K.R Road 200 500 Veena N.N N. Naveena Chadra 22 GC-I Krishna Regency K.R Road 200 500 Vani N Naveena 19 GC-I Krishna Regency K.R Road 200 500 Manjula N Naveena Chandra 40 GC-I Krishna Regency K.R Road 200 500 B Podrna Chandra Bhaskar 32 GC-I Krishna Regency K.R Road 200 500 B.P Suchitra B Poorna Chandra 23 GC-I Krishna Regency K.R Road 200 500 J Ramesh Jai Chand Naidu 30 GC-I Krishna Regency K.R Road 200 500 J Jagadeesh Jai Chand 26 GC-I Krishna Regency K.R Road 200 500 D Indumathi J Ramesh 28 GC-I Krishna Regency K.R Road 200 500 Anitha J J Jagadeesh 23 GC-I Krishna Regency K.R Road 200 500 Yogesh Naidu Subramanya 58 GC-I Krishna Regency K.R Road 200 500 Radamma Yogesh Naidu 55 GC-I Krishna Regency K.R Road 200 500 H.Y Srinivas Yogesh Naidu 32 GC-I Krishna Regency K.R Road 200 500 Vijaya S. H.Y Srinivas 29 GC-I Krishna Regency K.R Road 200 500 Manoj Yogesh Naidu 28 GC-I Krishna Regency K.R Road 200 500 Jonna Manoj 23 GC-I Krishna Regency K.R Road 200 500 Sadashiv Anand Rao 30 GC-I Krishna Regency K.R Road 200 500 Jyothi Sadashiv 29 GC-I Krishna Regency K.R Road 200 500 Rama Chandra Rudrappa 29 GC-I Krishna Regency K.R Road 200 500 Kalpana Rama Chandra 25 GC-I Krishna Regency K.R Road 200 500 Krishna Murthy Ram Murthy 30 GC-I Krishna Regency K.R Road 200 500 Usha Rani Krishna Murthy 25 GC-I Krishna Regency K.R Road 200 500 Laxmi Kantha Uma Kantha 28 GC-I Krishna Regency K.R Road 200 500 Jeevan Appachu Ramesh Appachu 35 GC-I Krishna Regency K.R Road 200 500 Manjunath Krishna Prasad 28 GC-I Krishna Regency K.R Road 200 500 B Deepak Joyappa Joyappa 28 GC-I Krishna Regency K.R Road 200 500 Rajesh Somanna Somanna 29 GC-I Krishna K.R Road Regency 200 500 Girish Appachu Umesh Appachu 29 GC-I Krishna Regency K.R Road 200 500 Manjunath S.M Mahadevappa 25 GC-I Krishna Regency K.R Road 200 500 Gayathri P. Prakash 25 GC-I Krishna Regency K.R Road 200 500 Pushpa U. Umesh 25 GC-I Krishna Regency K.R Road 200 500 Rashmi N. Narayane Gowda 21 GC-I Krishna Regency K.R Road 200 500 Renuka Prasad Ram Prasad 26 GC-I Krishna Regency K.R Road 200 500 Vinutha B. Bhaskar 25 GC-I Krishna Regency K.R Road 200 500 Yeshoda Narayanappa 28 GC-I Krishna Regency K.R Road 200 500 Bali Krishnappa 28 GC-I Krishna Regency K.R Road 200 500 Rafi Ulla Raheem Ulla 28 GC-I Krishna Regency K.R Road 200 500 Uma Shankara Ravi Shankara 25 GC-I Krishna Regency K.R Road 200 500 Rukmini Venkat Rama 23 GC-I Krishna Regency K.R Road 200 500 Jai Prakash Uma Gowda 27 GC-I Krishna Regency K.R Road 200 500 Ravi U.P Uma Pathy 26 GC-I Krishna Regency K.R Road 200 500 Yogitha R. Bali Mahadeva 22 GC-I Krishna Regency K.R Road 200 500 Veena M.P Prakash 26 GC-I Krishna Regency K.R Road 200 500 Harshini V. Venkatesh Murthy 23 GC-I Krishna Regency K.R Road 200 500 Vinutha G. Ganesh Murthy 26 GC-I Krishna Regency K.R Road 200 500 Vasanthi K.M Krishna Murthy 25 GC-I Krishna Regency K.R Road 200 500 B.G Hemalatha Satish Kumara 25 GC-I Krishna Regency K.R Road 200 500 Vijaya Lakshmi Satish 24 GC-I Krishna Regency K.R Road 200 500 Mahesh Chinnai Rajesh Chinnai 27 GC-I Krishna Regency K.R Road 200 500 Shiv Linga Mahadev Linga 27 GC-I Krishna Regency K.R Road 200 500 Leelavathi Bhorraiah 30 GC-I Krishna Regency K.R Road 200 500 Nirmala A.K Anthony Kamal 28 GC-I Krishna Regency K.R Road 200 500 Jyothi Uduppa Uttapa Uduppa 24 GC-I Krishna Regency K.R Road 200 500 Srikanth Raj Kanth 29 GC-I Krishna Regency K.R Road 200 500 Umashankar V.R Veer Naidu 25 GC-I Krishna Regency K.R Road 200 500 Shekhar M. Mohan S. 30 GC-I Krishna Regency K.R Road 200 500 Kannaiah Sathya Narayana 22 GC-I Krishna Regency K.R Road 200 500 Narsimha Rudra Setty 32 GC-I Krishna Regency K.R Road 200 500 Padmama Srinivas 40 GC-I Krishna Regency K.R Road 200 500 Guwa Shekhar Aradhya 45 GC-I Krishna Regency K.R Road 200 500 Rajesh Sairam 26 GC-I Krishna Regency K.R Road 200 500 Anjana Ravi Kiran 45 GC-I Krishna Regency K.R Road 200 500 Amrutha Deepak 22 GC-I Krishna Regency K.R Road 200 500 Kokila Balakrishna Reddy 27 GC-I Krishna Regency K.R Road 200 500 Kavita Balu 30 GC-I Krishna Regency K.R Road 200 500 Jyothi Gunashekhar 24 GC-I Krishna Regency K.R Road 200 500 Shailesh Rathwa Mahesh Bhai Rathwa 32 GC-I Krishna Regency K.R Road 200 500 Vaishali Punjabi Mahesh Punjabi 25 GC-I Krishna Regency K.R Road 200 500 Tara Ben Lalkawala Ranjikant Lalkawala 36 GC-I Krishna Regency K.R Road 200 500 Laxman Patel Sunat Bhai Patel 27 GC-I Krishna Regency K.R Road 200 500 Suman Ben Patel Sanat Bhai Patel 52 GC-I Krishna Regency K.R Road 200 500 Jay Kumar Patel Sanat Bhai Patel 30 GC-I Krishna Regency K.R Road 200 500 Sanat Bhai Patel Mohan Bhai Patel 60 GC-I Krishna Regency K.R Road 200 500 Nila Shah Anil 28 GC-I Krishna Regency K.R Road 200 500 Rekha Shah Manol 29 GC-I Krishna Regency K.R Road 200 500 Yogendra Shah Anil Shah 28 GC-I Krishna Regency K.R Road 200 500 Heena Shah Yogendra 23 GC-I Krishna Regency K.R Road 200 500 Nisha Shah Ramesh Shah 23 GC-I Krishna Regency K.R Road 200 500 Rakesh Shah Ramesh Shah 30 GC-I Krishna Regency K.R Road 200 500 Rita P. Shah Parimal Shah 25 GC-I Krishna Regency K.R Road 200 500 Binit Divecha Mahendra Divecha 36 GC-I Krishna Regency K.R Road 200 500 Jayshree Divecha Binit Divecha 26 GC-I Krishna Regency K.R Road 200 500 Namitha Ravikiran 21 GC-I Krishna Regency K.R Road 200 500 Umesh Gandhi Ramesh Gandhi 48 GC-I Krishna Regency K.R Road 200 500 Somal Gandhi Umesh Gandhi 20 GC-I Krishna Regency K.R Road 200 500 Harish Rana Kanchanlal Rana 30 GC-I Krishna Regency K.R Road 200 500 Vijay Shah Jantilal Shah 22 GC-I Krishna Regency K.R Road 200 500 Sunliay Shah Jantilal Shah 30 GC-I Krishna Regency K.R Road 200 500 Jyothi Shah Sanjay Shah 23 GC-I Krishna Regency K.R Road 200 500 Sakunthala Shah Jayantilal 27 GC-I Krishna Regency K.R Road 200 500 Suresh Gandhi Aravind Gandhi 28 GC-I Krishna Regency K.R Road 200 500 Saroj Gandhi Naresh Gandhi 25 GC-I Krishna Regency K.R Road 200 500 Shantilal Shah Manginal Shah 45 GC-I Krishna Regency K.R Road 200 500 Lapan Gandhi Nayan Gandhi 30 GC-I Krishna Regency K.R Road 200 500 Raj Joshi Bhagwan Bhai Joshi 29 GC-I Krishna Regency K.R Road 200 500 Puk Joshi Bhagwan Bhai Joshi 60 GC-I Krishna Regency K.R Road 200 500 Ral Gandhi Pravin Bhai Gandhi 28 GC-I Krishna Regency K.R Road 200 500 Mayaresh Shelar Paduranga Shelar 30 GC-I Krishna Regency K.R Road 200 500 Vithal Pawar Tukram Pawar 40 GC-I Krishna Regency K.R Road 200 500 Savitha Pawar Vithal Pawar 35 GC-I Krishna Regency K.R Road

    2. Shri Pravin Panwar explained in his statement that he had marketed the entire public issue. He stated that when his agents asked him to give an address to be filled in the various applications collected by them from the investors, he had asked them to put his address in the application forms. The above reply of Shri Panwar makes it very clear that the Prosoft accepted the multiple applications in various names in violation of DIP Guidelines and Companies Act.

    3. Sri Mohan Kumar, sated under oath that the multiple applications received during the public issue did not come to the notice of the Company. However, Sri Modi, COO of Intime Spectrum, contradicted this statement. Sri Modi stated that they had taken up the matter with the company even before finalizing the basis of allotment and that the company requested them not to reject the multiple applications since the issue was only marginally oversubscribed. Sri Modi also furnished copy of the Board resolution passed by the Company. This could not have been done without the active support of Sri Mohan Kumar. Hence Kumar is responsible for the acts of the Company.

    1. It was found that the scrip was traded by the said Pravin Panwar from the day the trading permission was granted by BgSE. The details of the individual trades executed by the said Pravin Panwar on December 27, 2000 are as under:

    Name of the Broker Bought Rate Sold Rate Traded (In rupees) Sunil Investments 200 14.00 -2800.00 200 16.00 3200.00 500 16.50 -8250.00 200 17.00 -3400.00 500 17.25 -8625.00 300 17.50 -5250.00 100 18.00 1800.00 300 18.50 5550.00 200 18.75 3750.00 200 19.00 3800.00 200 19.50 3900.00 400 19.50 7800.00 100 19.75 1975.00 200 20.00 4000.00 300 20.50 6150.00 200 21.00 4200.00 200 21.50 4300.00 200 21.75 4350.00 100 21.90 2190.00 300 22.00 6600.00 500 22.50 11250.00 150 23.25 -3487.50 100 23.60 -2360.00 100 23.90 -2390.00 150 23.95 -3592.50 200 24.00 -4800.00 200 24.90 -4980.00 1500 25.25 -37875.00 1 26.50 -26.50 1 27.00 -27.00 98 28.00 -2744.00 2 28.00 -56.00 48 28.00 -1344.00 50 28.00 -1400.00 2 28.00 -56.00 Total 4302 3700 -18648.50 Index Finlease Services 200 16.00 -3220.00 200 18.75 -3770.00 200 19.00 -3820.00 200 14.00 2780.00 100 18.50 1840.00 150 22.00 3285.00 150 23.95 3577.50 200 24.00 4780.00 200 24.90 4960.00 Total 600 1000 10412.50

    * - Traded value inclusive of brokerage.

    2. The above table clearly revealed that Pravin Panwar purchased 4902 shares of Prosoft and sold 4700 shares, acting through two brokers. Out of the above, the bulk of the trades i.e purchase of 4302 shares and sales of 3700 shares have been executed through Sunil Investments.

    3. Pravin Panwar also got executed 35 transactions (both bought and sold) through Sunil Investments. Based on the Price Volume data furnished by BgSE, it is noticed that there were only 37 transactions in that scrip for a total traded volume of 8252 shares on December 27, 2000.

    4. Thus, he had done almost the entire transactions in the scrip on December 27, 2000. It is also seen that, acting through Sunil Investments, Sri Pravin Panwar got executed these trades at successively increasing prices starting from Rs. 14.00 and closing at Rs. 28.00 It was noted that Rs. 28.00 was the highest traded price on that date. Out of the above transactions done on his behalf on December 27, 2000, he had acted as both buyer and seller in the case of six transactions aggregating to 1150 shares. This resulted in the artificial rise in the price of the scrip. It is therefore found that Sri Pravin Panwar had constituted the single largest trading client on December 27, 2000 (both on buy and sell sides).

    1. It was further found that the trades done by Sri Pravin Panwar constituted 42% of the total traded volume in the scrip of Prosoft for the period December 27, 2000 to January 16, 2001. He dealt in the scrip during the above period through two different brokers namely, Sunil Investments and Index Finlease Services Ltd. His daily trading details, are as under:

    Trade done through Sunil Investments:

    Date Purchase Sale 27-12-00 4302 3700 28-12-00 21793 22944 29-12-00 12401 11752 01-01-01 2302 1901 02-01-01 3299 3301 03-01-01 8100 7100 04-01-01 200 0 05-01-01 500 501 08-01-01 10703 11900 09-01-01 1750 400 10-01-01 0 1200 11-01-01 500 210.00 12-01-01 1600 200 15-01-01 0 1840 16-01-01 0 500 TOTAL 67450 67449

    Trades done through Index Finlease Services Ltd.

    Date Purchase Sale 27-12-00 600 1000 28-12-00 7300 8200 29-12-00 5100 4300 01-01-01 1500 1000 02-01-01 6301 6301 03-01-01 6300 5200 04-01-01 0 1100 09-01-01 200 100 12-01-01 900 1000 TOTAL 28201 28201

    2. It is evident from the above tables that during the period from December 27, 2000 to January 16, 2001, he had purchased 95,651 shares and sold 95,650 shares, on gross basis. In many of the above trades, he was found to have acted both as a buyer and a seller with a view to influence the market price of the scrip.

    3. Sri Pravin Panwar in the statement under oath given to the investigating authority, which was recorded on April 4, 2002 had confirmed that he tried to create volume/trading interest in the scrip to dispose off his holdings. In the aforementioned statement he had further confirmed that there were no circuit filters for the first three days (after commencement of trading). This was intentionally and deliberately done with the active support from Prosoft and its managing Director who had ensured that nobody else in the market had the shares with them to trade in the market. This creation of artificial scarcity of shares of prosoft was a fraud committed on the investors.

    4. Because of this artificial scarcity created by Prosoft, its Managing Director Mohan Kumar and Pravin Panwar, being the lone allottee of demat shares, the price discovery mechanism of the exchange was influenced artificially by putting transactions at successively increasing rates and acting as both buyer and seller in various transactions.

    1. It was noticed that two applicants namely; Mardia Sons Holdings Ltd. and ASL Holdings Pvt. Ltd. had applied for 54,40,000 shares amounting to Rs. 136 lakhs, out of the total of 61,60,100 shares amounting to Rs. 153,92,555/-(Rupees one crore fifty three lakhs ninety two thousand five hundred and fifty five only) received in the public issue. Thus, the above mentioned two applicants constituted about 88% of the total number of shares applied for/allotted in the public issue. This fact was known to Mr. Mohan Kumar personally being the Managing Director.

    2. It is evident from the statement of bank account of Prosoft (CA No. 980 with Vijaya Bank, Vani Vilas Road Branch, Bangalore) that the public issue proceeds of Rs. 153,92,555 (Rupees One crore Fifty Three Lakhs Ninety Two Thousand Five Hundred Fifty Five Only) was transferred from the public issue collection account on November 28, 2000. The same day a sum of Rs. 220 lakhs was transferred to Touchwood Interiors from the company account.

    3. Touchwood Interiors transferred this amount to Ananya Publications Pvt. Ltd. (Rs. 170 lakhs), Shri Mohan Kumar (Rs. 30 lakhs) and Shri Pravin Panwar (Rs. 20 lakhs). Ananya Publications and Shri Mohan Kumar transferred the same amount i.e Rs. 170 lakhs and Rs. 30 lakhs back to the company's account on the same day. Shri Pravin Panwar transferred Rs. 18.68 lakhs back to the company on the same day. This clearly manifests the role of Mohan Kumar in artificial creation of market and crating also of a facade of full subscription.

    4. On November 28, 2000, the company transferred Rs. 140 lakhs to Kamal Investments, a firm belonging to Shri Pravin Panwar. Kamal Investments used this money to issue two DDs for Rs. 100 lakhs and Rs. 36 lakhs respectively. Kamal Investments did not respond to the summons seeking clarifications regarding the beneficiaries of these DDs. However, based on the bank statement of Mardia Sons and the statement made by the representative of Mardia Sons, it was found that Kamal Investments had issued the DD for Rs. 100 lakhs to Mardia Sons and was drawn in favour of ASL Holdings, Rs. 36 lakhs.

    5. This flow of funds from the company to Kamal Investments and thereafter to the applicants indicates the financing of the public issue for the purpose of full-subscription. Mohan Kumar stated that the money paid by the company to Kamal Investments was paid towards reimbursement of public issue expenditure. Since the total money collected from the public issue is only Rs. 153.93 lakhs, and the amount paid to Kamal investments was Rs. 140 lakhs it is clear that this statement is far from truth. This is a clear proof of the fact that Mr. Mohan Kumar acted only to facilitate the manipulation of the public issue by the said Pravin Panwar.

    6. As to the reason behind Mardia Sons applying for more than 60% of the shares offered in IPO, it was stated that since the market for IT industry was poor they thought it would be a good time to make investment in company engaged in IT related services. Mardia Sons stated that later they sold these shares to Kamal Investments.

    7. Shri Ravikant, Managing Director, ASL Capital Holdings Pvt. Ltd., stated that ASL had applied for 14,40,000 shares of Rs. 2.50 each and was allotted 14,34,100 shares. According to him at the time of the IPO of Prosoft, many IPOs' were getting oversubscribed by 20-25 times. Hence, in order to ensure allotment of shares, they applied for a large quantity. He denied that it was a financing transaction and stated that since they were allotted large quantity of shares of Prosoft, they were not in a position to dispose it off in the market. He further stated that Kamal Investments offered to buy the shares allotted to them for a consideration of Rs. 36.57 lakhs and they agreed to it.

    8. It is therefore clear that the two applicants are in fact arranged applicants to bailout the public issue. It is also found from the above facts that the public issue was not fully subscribed but for the applications of these two entities. It is further found that the consideration of the shares by way of application money was paid back to the applicants from the public issue proceeds.

    9. This creation of illusion of subscription of public issue is a fraud committed on the unsuspecting small investors who invested their hard earned monies in the pubic issue. Sri Mohan Kumar who acted as Managing Director of the Company and its main promoter, instead of serving the investors community, acted hand in glove with the manipulators with an ulterior motive of illegal gains by manipulating the prices of the scrip. This has to be dealt with very seriously.

    1. The violations found to have been committed by Prosoft are very serious in nature and they erode the confidence of the investors in the market mechanism. The transactions undertaken by Sri Panwar in concert with the Company and its managing Director are very heinous and if left unchecked will leave the very securities market in great chaos as they made use of the depository system also for their ulterior purposes. Therefore the Company was debarred from accessing the capital market for a period of two years.

    2. It is found that the Managing Director of the Company Sri Mohan Kumar, being the main promoter and the Managing Director of the company is equally responsible for these commissions and omissions. A corporate entity acts through its Directors who are natural persons. It is these kinds of persons who will create havoc on market by their illicit actions by duping the small investors. I am therefore of the opinion that it is a fit case for piercing the corporate veil finding that the natural person who promoted the company and acted as its Managing Director as guilty of market manipulation.

    The concept of corporate entity was evolved to encourage and promote trade and commerce but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned. In Delhi Development Authority v. Skipper Construction Pvt. Ltd., 1997 (089)- COMPCAS-0362-SC., the Supreme Court has referred to the above discussion on the topic of Corporate veil and held as follows:—

    “Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned.

    The aforesaid decision of Supreme Court was followed by Bombay High Court in Securities and Exchange Board of India v. Libra Plantations Ltd., 1999-(033)-CLA-0256-BOM.

    3. I am therefore convinced that it is a fit case to lift the corporate veil and hold Mohan Kumar guilty of market manipulation and for creating facade of subscription in the public issue.

    4. It is this kind of persons who indulged in such actions which tend to lower the integrity of the securities market and affect the interest of investors by creating unhealthy market situation as stated above. These actions would result in creating an atmosphere which is not conducive to the development of securities market. It is also necessary to see that these kinds of actions should not be repeated. The need of the hour is to create and enhance the confidence of the investors in the market mechanism.

    5. I, therefore, hold Mr. Mohan Kumar guilty for violation of regulation 4(a), 4(b), 4(c) and 4(d) of the SEBI (Prohibition of Fraudulent Trade Practices relating to the securities market) Regulations, 1995. In these circumstances, as a measure of investor protection and maintaining high standards of integrity of the Securities market the persons like Mr. Mohan Kumar be required to be restrained from dealing in securities and accessing the capital market. Therefore, in order to restore the confidence of the investors in the Securities Market and to see that this kind of actions are not repeated by the said company, in exercise of powers under Regulation 11 read with regulation 12 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 read with sections 4(3), 11 and 11B of SEBI Act, 1992, I hereby direct that Mr. Mohan Kumar be debarred from accessing the capital market and also from dealing in securities for a period of two years. This order shall come into force with immediate effect.

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    Comments

    Mohan Kumar, In Re (Irregularities In The Public Issue)
    (Dec 12, 2002)