wtm/sr/sebi/isd/18/03/2017 · page 2 of 29 2. the examination prima facie revealed the following...

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WTM/SR/SEBI/ISD/18/03/2017

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI CORAM: S. RAMAN, WHOLE TIME MEMBER

ORDER

Under Section 11 and 11B of the SEBI Act, 1992 read with Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, in the matter of Gitanjali Gems Limited, in respect of –

1. Shri Mehul C. Choksi (PAN: AABPC1451E); 2. (Late) Smt Guniyal Choksi (PAN: ADBPC6218J); 3. Partha Gems LLP (PAN: AAACP3048A); 4. Priyanka Gems Private Limited (PAN: AAACP3049B); 5. Rohan Diamond Private Limited (PAN: AAACR2580H); 6. Mozarat Investments Private Limited (PAN: AADCM7054Q); 7. Digico Holdings Limited (PAN: AAECD0363N); 8. Albers Diamonds Private Limited (PAN: AAICA4525F); 9. Ashlesha Trading Private Limited (PAN: AAJCA4594M); 10. Avtar Gems Private Limited (PAN: AAICA4526G); 11. Jaiwanti Mercantiles Private Limited (PAN: AACCJ5103C); 12. Magnifique Gems Private Limited (PAN: AAGCM5160N); 13. Shri Manoj Madhav Vankar (PAN: ABWPV6447M); 14. Rakesh Kumar Gupta/Ashlesha Trading Private Limited (PAN: AHIPG2175P); 15. Rhoda Infrastructure Private Limited (PAN: AAFCR1087C); 16. Rishabh Technomarine Private Limited (PAN: AAECR1364D); 17. Sadhiv Mercantile Private Limited (PAN: AAPCS0583G); 18. Sancheti Properties Private Limited (PAN: AAKCS4345R); 19. Shraddha Garments Private Limited (PAN: AAPCS2367C); 20. Sneaking Infrastructure Private Limited (PAN: AAPCS7733L); 21. Vankars Gems & Jewelleries Private Limited (PAN: AADCV6467A); 22. Sanskar Gems Pvt Ltd; 23. Pinky Agro Foods Pvt Ltd (PAN: AAGCP0004N).

______________________________________________________________________________

Background –

1. Gitanjali Gems Limited (“Gitanjali Gems”) is a public limited company listed on Bombay Stock

Exchange (“BSE”) and National Stock Exchange of India Limited (“NSE”). On receipt of a market

alert, Securities and Exchange Board of India (“SEBI”) conducted a prima facie examination of the

trading in the scrip of Gitanjali Gems for the period from July 18, 2011 to January 25, 2012

(“Examination Period”).

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2. The examination prima facie revealed the following –

2.1 The Promoters of Gitanjali Gems during the Examination Period were –

TABLE I

Sr. No. Name Designation

1. Shri Mehul C. Choksi Promoter

2. (Late) Smt Guniyal Choksi Promoter

3. Partha Gems LLP Promoter

4. Priyanka Gems Private Limited Promoter

5. Rohan Diamond Private Limited Promoter

6. Mozarat Investment Private Limited Promoter

7. Digico Holdings Limited Promoter

2.2 An analysis of the Know Your Client (“KYC”) documents, bank, financial statements of the following

entities (“Choksi Group”) who traded or funded certain transactions in the scrip of Gitanjali Gems,

revealed their connection with the abovementioned Promoter entities through common phone

numbers, residential address, electronic mail, inter se transfer of funds, etc. –

TABLE II

Sr. No. Name

8. Albers Diamonds Private Limited

9. Ashlesha Trading Private Limited

10. Avtar Gems Private Limited

11. Jaiwanti Mercantiles Private Limited

12. Magnifique Gems Private Limited

13. Manoj Madhav Vankar

14. Rakesh Kumar Gupta/ Ashlesha Trading Private Limited

15. Rhoda Infrastructure Private Limited

16. Rishabh Technomarine Private Limited

17. Sadhiv Mercantile Private Limited

18. Sancheti Properties Private Limited

19. Shraddha Garments Private Limited

20. Sneaking Infrastructure Private Limited

21. Vankars Gems & Jewelleries Private Limited

22. Pinky Agro Foods Private Limited

23. Sanskar Gems Private Limited

2.3 An analysis of the trading data of the abovementioned entities at Sr. No. 8–22 revealed domination

of trading by the Choksi Group during the Examination Period to the extent of 25.70% of the gross

market volume in the cash segment and 20.52% of gross market volume in the derivative segment

(entity at Sr. No. 23 i.e. Sanskar Gems Private Limited, had not traded in the scrip of Gitanjali Gems;

it however, funded the trading by some of the aforementioned entities in the said scrip).

2.4.1 An analysis of the trades executed by the Choksi Group in the scrip of Gitanjali Gems vis–a–vis

percentage of the entire market activity in the derivative and equity segments of the said scrip over

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a period of six months i.e. the Examination Period, showed a near 100% concentration of trades by

the said entities. The aforesaid is explained as under –

2.4.2 The Choksi Group entities were only interested in the scrip of Gitanjali Gems. Such huge

concentration raised serious suspicion, more importantly, considering the connection with the

Promoters of Gitanjali Gems, it also indicated that the Choksi Group was acting as front for the

Promoters of Gitanjali Gems and while acting as such, the Promoters remained invisible to the

public in so far as their trades were concerned. For different expiry periods of the derivative

contracts of Gitanjali Gems, the counter parties to the trades of Choksi Group (more than 80%)

were a select set of Foreign Institutional Investors (“FIIs”). In other words, the Choksi Group was

found to have been periodically rolling over their positions in the derivative contracts of Gitanjali

Gems with a common set of counterparties.

2.4.3 On January 24, 2012 (i.e. a day before the exclusion of the scrip of Gitanjali Gems from trading in

the derivative segment), the trades of Choksi Group in the scrip of Gitanjali Gems in

equity/derivative segment were synchronized to the extent of 28.46% to 100% with the trades of

other entities. Similarly, in the derivative segment, on January 24, 2012, the trades of Choksi Group

were synchronized in the range of 59.75% to 99.50% with trades of certain other entities. FIIs were

mostly appearing as counterparties to the synchronized trades of the Choksi Group.

2.4.4 The scrip of Gitanjali Gems was introduced in the derivative segment from July 18, 2011, onwards.

However, the said scrip was excluded from trading w.e.f. January 25, 2012, in terms of NSE Circular

dated November 18, 2011 (reference no. NSE/FAOP/19385) for inter alia breaching the applicable

Market Wide Position Limit (“MWPL”). The Choksi Group was found to have held significant

TABLE III - CONCENTRATION OF CHOKSI GROUP AS % OF THE ENTIRE MARKET ACTIVITY

ENTITY NAME TRADES OF CHOKSI GROUP IN Gitanjali Gems AS A % TO THEIR TRADING ACROSS MARKET (ON VALUE BASIS)

DERIVATIVE SEGMENT EQUITY SEGMENT

Jaiwanti Mercantiles Private Limited 99.01 99.73

Vankars Gems & Jewelleries Private Limited 99.69 100.00

Rhoda Infrastructure Private Limited 84.93 97.73

Sadhiv Mercantile Private Limited 99.80 99.94

Manoj Madhav Vankar - 98.63

Shraddha Garments Private Limited 100.00 100.00

Rishabh Technomarine Private Limited 100.00 89.75

Sancheti Properties Private Limited 100.00 42.91

Magnifique Gems Private Limited 100.00 74.36

Avtar Gems Private Limited 100.00 77.61

Albers Diamonds Private Limited 100.00 91.83

Rakesh Kumar Gupta/Ashlesha Trading Private Limited 99.82 -

Ashlesha Trading Private Limited - 100.00

Sneaking Infrastructure Private Limited 100.00 100.00

Pinky Agro Foods private Limited 100.00 100.00

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percentage of Open Interest (“OI”) as net long position during the Examination Period ranging upto

56.65% of MWPL in Gitanjali Gems, which is summarized as under –

TABLE IV - CONCENTRATION OF THE CHOKSI GROUP TO THE MWPL

DATE % OF LONG OI TO MWPL

22.07.2011 32.91

25.07.2011 32.91

26.07.2011 34.86

27.07.2011 37.14

28.07.2011 30.63

29.07.2011 40.39

1.8.2011 to 29.8.2011 40.60

30.08.2011 to 30.9.2011 51.07

3.10.2011 to 24.10.2011 50.41

25.10.2011 to 31.10.2011 48.19

1.11.2011 to 8.11.2011 45.91

9.11.2011 47.00

11.11.2011 to 23.12.2011 56.09

24.11.2011 to 05.12.2011 51.73

07.12.2011 to 28.12.2011 55.47

29.12.2011 50.19

30.12.2011 to 2.01.2012 55.47

3.1.2012 to 19.01.2012 56.65

20.01.2012 52.94

23.01.2012 37.10

2.4.5 As per the SEBI Master Circular dated December 31, 2010 (No. CIR/DNPD/7/2010), the Choksi

Group fell under the ‘Customer Level’ category. A consequence of such classification was that the

Choksi Group was required to comply with the position limit mentioned therein i.e. 5%. The

aforesaid position limit was also stipulated under the subsequent SEBI Master Circular dated

January 2, 2012 (No. CIR/DNPD/1/2012). The open positions of the Choksi Group had surpassed

the limit of 5% of the OI in the derivatives contract of a particular underlying stock and also the

limit of 1% of the free float market capitalization (in terms of the number of shares) of the scrip in

question, which was prima facie in violation of the said Master Circular.

2.4.6 The Choksi Group was able to build up substantially large position in the derivatives segment

ranging from 32.91% to 56.65% of MWPL thereby circumventing the position limit of 5% specified

by SEBI as specified in its Master Circulars dated December 31, 2010 and January 2, 2012. The

abovementioned cornering of position limits by the connected/related entities deprived other

bona fide investors from taking position in the scrip of Gitanjali Gems. The Choksi Group had

combined their long position in the scrip of Gitanjali Gems in the derivatives market with long

position in the cash market thereby being net long in both the cash and derivatives segment which

was not a hedged position. The trading pattern of Choksi Group entities in the scrip of Gitanjali

Gems, who were allegedly connected to the Promoters of Gitanjali Gems, prima facie indicated

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that the Promoters used the Choksi Group to build up substantial large position in the scrip of

Gitanjali Gems in the derivatives segment, thereby circumventing the position limit prescribed by

SEBI. Such trading was alleged to be in violation of Section 12A (a), (b), (c) of the Securities and

Exchange Board of India Act, 1992 (“SEBI Act”), Regulations 3 and 4(1) of the Securities and

Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities

Market) Regulations, 2003 (“PFUTP Regulations”).

2.5.1 The disclosures made by Gitanjali Gems to BSE regarding shares pledged by the Promoter and

Promoter Group for the quarter ended September 2011 and December, 2011, was found to be

different from that obtained by SEBI from the Depositories. For example,

i. For the quarter ended September 2011, as per the details furnished by Gitanjali Gems to

BSE, 18.73% of the Promoters’ holding was pledged while according to data obtained from

Depositories, the corresponding figure was 27.92%.

ii. Similarly, as much as 42.77% of the Promoters’ holding was pledged for the quarter ended

December 2011 (as per data obtained from Depositories) while only 30.95% was declared

to BSE by Gitanjali Gems.

2.5.2 The Promoters furnished misleading declarations regarding shares pledged by them. The said acts

of the Promoters were in violation of Regulation 8A(2) of the Securities and Exchange Board of

India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (“Takeover Regulations,

1997”), in respect of the disclosure made for the quarter ended September 2011; Regulation 31(1)

read with Regulation 31(3) of the Securities and Exchange Board of India (Substantial Acquisition

of Shares and Takeovers) Regulations, 2011 (“Takeover Regulations, 2011”), in respect of the

disclosure made for the quarter ended December 2011.

2.6.1 The Promoters’ holding in Gitanjali Gems as on March 31, 2011 was 54.73% of the share capital

(Source: BSE website). In terms of Regulation 11(1) of the Takeover Regulations, 1997 and

Regulation 3(2) of the Takeover Regulations, 2011, the Promoters together with persons acting in

concert cannot acquire more than 5% of voting rights in any financial year (creeping acquisition)

unless they make a public announcement to acquire shares. Considering the relationship between

the Choksi Group and the Promoters of Gitanjali Gems, the Choksi Group were persons acting in

concert with the Promoters. The Choksi Group and the Promoters of Gitanjali Gems appeared to

have a common objective for the purposes of substantial acquisition of shares and voting rights.

During the financial year 2011–2012 (till March 21, 2012), the Choksi Group alongwith the

Promoter of Gitanjali Gems, Shri Mehul Choksi, acquired 65.36% of the shares of Gitanjali Gems

(gross acquisitions). It was observed that they had crossed 5% on May 19, 2011. The same was not

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followed by the concomitant requirement of making the public announcement to acquire shares,

in terms of Regulation 11(1) of the Takeover Regulations, 1997 and Regulation 3(2) of the Takeover

Regulations, 2011. Further, the subsequent acquisition of shares by the Promoters of Gitanjali

Gems along with the Choksi Group was not followed by a public announcement in terms of

Regulations 11(2) of the Takeover Regulations, 1997 and Regulation 3(2) of the Takeover

Regulations, 2011.

2.6.2 The gross acquisitions of the Choksi Group along with Mehul Choksi from April 1, 2011 till March

21, 2012, are summarized below:

GROSS ACQUISITIONS OF THE CHOKSI GROUP ALONG WITH MEHUL CHOKSI FROM APRIL 1, 2011 - MARCH 21, 2012

DATE GROSS BUY VOL.

GROSS SELL VOL.

NET TRADE VOL.

CUMULATIVE NET TRADE

VOLUME

ISSUED SHARE CAPITAL (QTY.)

% OF CUMULATIVE NET TRADE OVER

ISSUED SHARE CAPITAL

April 01, 2011 to February 29, 2012 56013332 91122095 61.47

01/03/2012 253802 0 253802 56117637 91122095 61.59

02/03/2012 257459 0 257459 56375096 91122095 61.87

03/03/2012 525000 0 525000 56891397 91122095 62.43

05/03/2012 420000 0 420000 57161397 91122095 62.73

06/03/2012 190833 0 190833 57224693 91122095 62.80

07/03/2012 281618 0 281618 57331311 91122095 62.92

09/03/2012 178059 0 178059 57504798 91122095 63.11

12/03/2012 400000 144607 255393 57760191 91122095 63.39

13/03/2012 294090 0 294090 58004281 91122095 63.66

14/03/2012 295000 33709 261291 58265572 91122095 63.94

15/03/2012 175000 0 175000 58440572 91122095 64.13

16/03/2012 340000 0 340000 58780572 91122095 64.51

19/03/2012 380000 0 380000 59160572 91122095 64.92

20/03/2012 125000 0 125000 59285572 91122095 65.06

21/03/2012 273000 0 273000 59558572 91122095 65.36

2.7 In response to the letter of SEBI dated May 18, 2012, the entities at Sr. no. 8–23 stated that they/their

directors/promoters/key management personnel were not related in any manner with Gitanjali

Gems/its Promoters/Key Management Personnel. From the sequence of events enumerated above

and connections among themselves (as stated in paragraph 2.2), prima-facie the entities at Sr. no. 8–

23 furnished incorrect and misleading information to SEBI.

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Show Cause Notice, Reply and Personal Hearing

3. On October 26, 2012, SEBI issued a common Show Cause Notice (“SCN”) calling upon the Entities,

viz. entities at Sr. no. 1 – 23, to show cause as to why suitable directions under Sections 11, 11B

and 11(4) of the SEBI Act, Regulations 44 and 45 of the Takeover Regulations, 1997 read with

Regulation 32 of the Takeover Regulations, 2011 including but not limited to:

i. Directions restraining them from buying, selling or dealing in securities in any manner for a

suitable period of time; and/or

ii. Restraining them from accessing the securities market directly or indirectly; and/or

iii. Directing them to make an open offer for acquiring shares of the Target Company i.e.

Gitanjali Gems, in accordance with the provisions of the Takeover Regulations;

iv. Any other direction(s) as deemed appropriate including direction(s) to freeze and realize the

shares in their demat account(s).

4. As per the SCN, the following violations were alleged to have been committed by entities at Sr. no.

1–23, viz. –

i. Entities at Sr. no. 8–23 (Choksi Group) traded significantly in the scrip of Gitanjali Gems and

resultantly contributed substantially to the trading volume during the period July 18, 2011–

January 25, 2012. Entities at Sr. no. 8–23 were connected to entities at Sr. no. 1–7 (Promoters

of Gitanjali Gems). The aforesaid entities failed to comply with the position limit mentioned in

the SEBI Master Circulars dated December 31, 2010 and January 2, 2012, respectively. The

open positions taken by the aforesaid entities (ranging from 32.91% to 56.65% of Market Wide

Position Limit) surpassed the limit of 5% of OI in the derivatives contract of a particular

underlying stock and also the limit of 1% of the free float market capitalization (in terms of

number of shares) of the scrip in question, which was in violation of the aforesaid Circulars.

The aforesaid cornering of position limits by the aforesaid entities deprived other bona fide

investors from taking a position in the scrip of Gitanjali Gems. Therefore, the entities at Sr. no.

1–23 violated the provisions of Sections 12A(a)–(c) of the SEBI Act and Regulations 3 & 4(1) of

the SEBI PFUTP Regulations.

ii. Entities at Sr. no. 1–7 furnished misleading declarations regarding shares of Gitanjali Gems

pledged by the Promoter and Promoter Group in violation of Regulation 8A(2) of the Takeover

Regulations, 1997 and Regulation 31(1) read with Regulation 31(3) of the Takeover

Regulations, 2011.

iii. Entities at Sr. no. 1–23 failed to make a public announcement for acquisition of more than 5%

shares of Gitanjali Gems in a Financial Year (i.e. from 54.73% in March 31, 2011 to 65.36% in

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March 31, 2012), made by the Promoters and persons acting in concert with them. The

Promoters and persons acting in concert with them (Choksi Group) had crossed the limit of 5%

on May 19, 2011 and went on to acquire further shares of Gitanjali Gems during the Financial

Year 2011–12. The aforementioned resulted in violation of Regulations 11(1) and 11(2) of the

Takeover Regulations, 1997 and Regulation 3(2) of the Takeover Regulations, 2011.

5. In their replies to the SCN, the entities at Sr. no. 1, 3–23 requested for inspection of documents

relied upon for the SCN. Accordingly, SEBI granted inspection of documents on January 9, 2013.

6. Subsequent to the inspection of documents, the entities at Sr. no. 1–23 filed their replies to the

said SCN as under –

i. A reply dated January 8, 2013, was received from Shri Mehul Choksi stating that the entity

at Sr. no. 2 i.e. Smt. Guniyal Choksi, Promoter of Gitanjali Gems, died on October 6, 2011.

ii. The Promoters of Gitanjali Gems i.e. entities at Sr. no. 1, 3–7, filed a common reply to the

SCN vide letter dated February 28, 2013;

iii. The entities at Sr. no. 9, 13, 20, 21 & 23 filed their replies vide letters dated June 12, 2013.

iv. The entity at Sr. no. 14 filed its reply vide letter dated July 9, 2013.

v. The entities at Sr. no. 11, 15, 17 & 19 filed their replies vide letters dated June 13, 2013.

vi. The entity at Sr. no. 12 filed its reply vide letters dated June 17, 2013 and November 11,

2013.

vii. The entity at Sr. no. 16 filed its reply vide letters dated June 17, 2013 and September 3, 2013.

viii. The entity at Sr. no. 8 filed its reply vide letters dated June 18, 2013 and November 8, 2013.

ix. The entity at Sr. no. 10 filed its reply vide letters dated June 18, 2013 and November 9, 2013.

x. The entity at Sr. no. 18 filed its reply vide letters dated June 18, 2013 and November 9, 2013.

xi. The entity at Sr. no. 22 filed its reply vide letter dated June 18, 2013.

7. Thereafter, an opportunity of personal hearing was granted to all the entities as under:

December 2, 2013

i. Opportunity of personal hearing was granted on December 2, 2013, to 18 of the 23 entities

mentioned in the SCN. Noticee 2, who expired on October 6, 2011 and Entities 8, 10, 12 and

18, who submitted their replies and requested exemption from personal hearing, were not

issued Hearing Notices.

ii. On December 2, 2013, Entities 9, 13, 14, 20, 21 & 23, attended the hearing while Notices 1,

3–7, 11, 15–17, 19, requested for an adjournment.

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iii. No communication was received from Noticee 22.

iv. During the hearing, letter dated December 2, 2013, was given to the authorised

representatives of the entities who appeared for the hearing. The entities were directed to

submit their response to the letter dated December 2, 2013, served upon them during the

hearing.

v. During the hearing, the entities at Sr. no. 1, 3–7, submitted that a criminal case had been

initiated by Gitanjali Gems against Manoj Vankar (entity at Sr. no. 13) and the same was

stated to have been informed to SEBI through the entities' common reply. In this regard, the

entities' authorised representative was asked by this Authority to point out the same in the

replies submitted by the entity but was unable to do so. The entity was therefore, directed

by this Authority to address this issue in its written submission.

vi. In addition, letter dated December 2, 2013, was also issued to the entities at Sr. no. 8, 10, 12

and 18.

July 25, 2014

i. Opportunity of personal hearing was granted on July 25, 2014, to Entities 1, 3–7, 11, 15–17,

19 and 22.

ii. Noticee 22 submitted its reply and requested exemption from personal hearing.

iii. The Advocate for Entities 11, 15, 17 and 19, informed SEBI of her clients’ desire to submit

written submissions and also request for exemption from personal hearing.

iv. Entities 1, 3–7 and 16, attended the hearing. The hearing was, however, adjourned sine die.

March 16, 2016

i. Opportunity of personal hearing was granted on March 16, 2016, to the Entities at Sr. no. 1,

3–23.

ii. Only the entity at Sr. no. 16 attended the hearing on that date.

iii. The entities at Sr. no. 1, 3–7, requested for adjournment of the hearing to a later date.

iv. The following entities requested for exemption from personal hearing and also that their

submissions to the SCN may be considered for the purpose of concluding the instant

proceedings, viz. –

a. Entities at Sr. no. 9, 13, 14, 20, 21 and 23 vide letter dated March 9, 2016;

b. Entity at Sr. no. 18 vide letter dated March 8, 2016;

c. Entity at Sr. no. 8 vide letter dated March 8, 2016;

d. Entity at Sr. no. 10 vide letter dated March 8, 2016;

e. Entities at Sr. no. 11, 15, 17 and 19 vide letter dated March 11, 2016;

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f. Entity at Sr. no. 22 vide letter dated March 8, 2016.

April 11, 2016

i. Opportunity of personal hearing was granted on April 11, 2016, to the Entities at Sr. no. 1,

3–7. However, the aforesaid entities requested for adjournment of the hearing to a later

date.

June 7, 2016

i. Opportunity of personal hearing was granted on June 7, 2016, to the Entities at Sr. no. 1,

3–7. However, the aforesaid entities requested for adjournment of the hearing to a later

date.

July 13, 2016

i. Opportunity of personal hearing was granted on July 13, 2016, to the Entities at Sr. no. 1, 3–

7 alongwith the entity at Sr. no. 13. The aforesaid entities attended the hearing on that date.

Consideration of Issues and Findings –

7.1 I have considered the material available on record such as the Examination Report, the SCN issued

to the Entities, replies filed by the Entities to the SCN and additional submissions (both written and

oral) made by the Entities during the personal hearing before me alongwith the documents

submitted by them.

7.2 The relevant legal provisions, the contravention of which have been alleged in the instant

proceedings are reproduced below –

SEBI ACT, 1992

Section 12A (a)-(c)

12A. No person shall directly or indirectly—

(a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed

to be listed on a recognized stock exchange, any manipulative or deceptive device or contrivance in

contravention of the provisions of this Act or the rules or the regulations made thereunder;

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(b) employ any device, scheme or artifice to defraud in connection with issue or dealing in securities

which are listed or proposed to be listed on a recognised stock exchange;

(c) engage in any act, practice, course of business which operates or would operate as fraud or

deceit upon any person, in connection with the issue, dealing in securities which are listed or

proposed to be listed on a recognised stock exchange, in contravention of the provisions of this Act

or the rules or the regulations made thereunder.

Securities and Exchange Board of India (Prevention of Fraudulent and Unfair Trade Practices)

Regulations, 2003

3. Prohibition of certain dealings in securities No person shall directly or indirectly—

(a) buy, sell or otherwise deal in securities in a fraudulent manner;

(b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be

listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in

contravention of the provisions of the Act or the rules or the regulations made there under;

(c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of

securities which are listed or proposed to be listed on a recognized stock exchange;

(d) engage in any act, practice, course of business which operates or would operate as fraud or

deceit upon any person in connection with any dealing in or issue of securities which are listed or

proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act

or the rules and the regulations made there under.

4. Prohibition of manipulative, fraudulent and unfair trade practices

(1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an

unfair trade practice in securities.

Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations,

1997

Consolidation of holdings.

11. (1) No acquirer who, together with persons acting in concert with him, has acquired, in

accordance with the provisions of law, 15 per cent or more but less than fifty five per cent (55%) of

the shares or voting rights in a company, shall acquire, either by himself or through or with persons

acting in concert with him, additional shares or voting rights entitling him to exercise more than 5%

of the voting rights, in any financial year ending on 31st March, unless such acquirer makes a public

announcement to acquire shares in accordance with the Regulations.

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(2) No acquirer, who together with persons acting in concert with him holds, fifty-five per cent (55%)

or more but less than seventy-five per cent (75%) of the shares or voting rights in a target company,

shall acquire either by himself or through 1 [or with] persons acting in concert with him any

additional shares 2 [entitling him to exercise voting rights] or voting rights therein, unless he makes

a public announcement to acquire shares in accordance with these Regulations:

Provided that in a case where the target company had obtained listing of its shares by making an

offer of at least ten per cent (10%) of issue size to the public in terms of clause (b) of sub-rule (2) of

rule 19 of the Securities Contracts (Regulation) Rules, 1957, or in terms of any relaxation granted

from strict enforcement of the said rule, this sub-regulation shall apply as if for the words and figures

‘seventy-five per cent (75%)‘, the words and figures ‘ninety per cent (90%)‘ were substituted.

Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations,

2011

Substantial acquisition of shares or voting rights.

3.(2) No acquirer, who together with persons acting in concert with him, has acquired and holds in

accordance with these regulations shares or voting rights in a target company entitling them to

exercise twenty-five per cent or more of the voting rights in the target company but less than the

maximum permissible non-public shareholding, shall acquire within any financial year additional

shares or voting rights in such target company entitling them to exercise more than five per cent of

the voting rights, unless the acquirer makes a public announcement of an open offer for acquiring

shares of such target company in accordance with these regulations:

Provided that such acquirer shall not be entitled to acquire or enter into any agreement to acquire

shares or voting rights exceeding such number of shares as would take the aggregate shareholding

pursuant to the acquisition above the maximum permissible non-public shareholding.

Disclosure of encumbered shares.

31. (1) The promoter of every target company shall disclose details of shares in such target company

encumbered by him or by persons acting in concert with him in such form as may be specified.

(2) The promoter of every target company shall disclose details of any invocation of such

encumbrance or release of such encumbrance of shares in such form as may be specified.

7.3 In their replies alongwith oral/written submissions, the entities at Sr. no. 1, 3–7 inter alia made the

following submissions concerning the basis of connection alleged in the SCN –

i. “Charges in the Notice are based on the assumption that we are part of the alleged Choksi

Group consisting of some 16 entities, and their alleged trades have been attributed to us to

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draw adverse inferences against us. The said assumption and saddling of the alleged trades

of the alleged Choksi group is totally baseless, erroneous, bald, sweeping, vague,

unfounded, misconceived and speculative, based on surmises and conjectures and

completely contrary to factual position on record. In this context, we may point out that,

save and except the promoters group [i.e. Entities in the Notice being Shri Mehul Choksi,

(Late) Guniyal Choksi, Partha Gems LLP, Priyanka Gems Pvt. Ltd., Rohan Diamond Pvt. Ltd.,

Mozarat Investment Pvt. Ltd., and Digico Holdings Limited (not any more)] we have no

link/connection with the rest of other entities as set out at Sr. No. 8 to Sr. No. 23 ("the said

Entities") of the Notice.

ii. Based on the analysis of KYC documents pertaining to Shri Mehul Choksi

and Partha Gems LLP and one Shri Manoj Vankar and entities related to him

directly or indirectly, inference has been drawn that the said Entities, are connected to us.

We vehemently submit that the inference of our alleged connection is totally incorrect.

Based on the said perceived connection between us and the entities who had traded in the

scrip during the period, the burden of trading done by others is being erroneously sought to

be saddled on to us without any credible basis.

iii. In this context, with regard to Shri Manoj Vankar, following be noted:

a. Sometime around August 2007, Shri Manoj Vankar had joined Gitanjali Gems as

'Accounts Manager'. At the relevant time he was looking after activities pertaining to

accounts, Media and Marketing, including the responsibility to handle the verification,

approval and payment of all the media and marketing relating bills and their payment.

Further, Shri Manoj Vankar was also assisting the Chairman and promoters of Gitanjali

Gems in their various administrative, ministerial and ancillary works such as filling of

KYC forms with stock brokers etc. It was in this background that he had at the relevant

time, in the ordinary course, filled the KYC form of Shri Mehul Choksi with Edelweiss

Securities Limited (“Edelweiss Securities”) and KYC form of Partha Gems with Religare

Securities Ltd. Subsequently, in light of his good professional performance at that time

he was also made as one of the directors of Gitanjali Capital Private Limited (hereinafter

"GCPL"), a subsidiary company of Gitanjali Gems.

b. During the course of internal audit of Gitanjali Gems during Mid February 2011 in the

ordinary course, the internal auditors viz. M/s Singrodia Goyal & Co., Chartered

Accountants, discovered instances of inflated bills pertaining to Media and Marketing

activities of the Company, being handled by Shri Manoj Vankar and of possible

embezzlement and siphoning of funds. Consequently, M/s Singrodia Goyal & Co.,

Chartered Accountants, immediately escalated the said matter to the management of

the Company and also submitted their report dated 18th February, 2011 highlighting

that Shri Manoj Vankar has caused loss to the tune of around Rs. 61,19, 824/- to the

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Gitanjali group, as a result of inter alia the following irregularities in the services of

Gitanjali Gems, approving bills as at card rate inspite of Gitanjali Gems having

negotiated rates; not utilizing free space fully as against the paid bills; not availing

Bonus insertions in the print media etc.

c. The said revelation by internal auditors came as complete shock and surprise to the

Company and its promoters, since he was considered one of the trusted employees of

the Company who was handling financially sensitive matters. At the relevant time there

was nothing for the management of the Company or its promoters to suspect anything

amiss in Shri Manoj Vankar's working behavior. In fact, in the past based on his

performance in the tasks and responsibilities assigned to him he was elevated to the

post of a director in one of the group companies.

d. Subsequently, Shri Manoj Vankar was confronted with the report and his explanation

was sought. Since no credible explanation was forthcoming from Shri Manoj Vankar

with regard to his involvement in the embezzlement/siphoning off and he remained

evasive, he was asked to resign immediately from the board of GCPL. Pursuant to the

same he submitted his resignation on 23.02.2011. Post this date i.e. 23.02.2011, there

is no connection between Gitanjali Gems Group / its Promoters with Shri Manoj Vankar.

e. Subsequently, post resignation of Shri Manoj Vankar, based on the legal advice,

Company had through advocate also issued legal notice to Shri Manoj Vankar calling

upon him to compensate the Gitanjali group for the losses caused by him. Shri Manoj

Vankar, vide his letter dated 22.02.2011, duly acknowledged the said letter (Notice)

dated 21.02.2011 and apologized for the losses caused and requested to take a lenient

view in the matter.

f. In the circumstances, Gitanjali Gems also filed police complaint dated 10th March,

2011 against Shri Manoj Vankar for his said acts under relevant

provisions of IPC/CrPC.

iv. It may be noted that in so far as various entities as set out in the Notice (at Annexure-2) are

concerned, we are not aware of any of the persons/ entities, save and except Shri Manoj

Vankar. At the relevant time we were not aware and had no knowledge that Shri Manoj

Vankar is involved with various companies as set out in Annexure 2. Merely because number

or e-mail id of Shri Manoj Vankar is appearing in the KYC forms of promoters, inference of

linkage has been drawn. In light of the submissions made hereinbefore, the circumstances

under which the KYC forms of promoters were filled by Shri Manoj Vankar i.e.: (i) At the time

of filling the KYC forms Shri Manoj Vankar was the employee of Gitanjali Gems; (ii) Manoj

Vankar in his capacity as Accounts Manager of Gitanjali Gems was also looking after certain

administrative, ministerial and ancillary works of the chairman and promoters of the

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Company in the ordinary course, wherein he had filled the KYC forms of the promoters with

stock brokers, no such inference can be drawn. Fact is Manoj Vankar was forced to resign

in February 2011, when his nefarious activities came to light consequent to Internal

Auditors report and he was slapped with legal notice for the same followed by filing of police

complaint. Actually, post February 2011, both, Shri Manoj Vankar and the Company/ its

promoters are at cross purposes. Therefore, the inference of linkage between the promoters

and Shri Manoj Vankar for the impugned trades carried out somewhere between

18.07.2011 to 25.01.2012 (i.e. much after forced severance of Shri Manoj Vankar from

Company in February 2011) by Shri Manoj Vankar and his entities is totally erroneous and

completely contrary to factual position on record.

v. Notice does not give any indication as to whether issuance of Notice has been preceded by

conducting of investigation as is mandated under section 11 C of SEBI Act and the applicable

provisions of the Regulations. In the circumstances, non-conducting of investigation prior

to issuance of Notice totally vitiates the entire proceedings and Notice needs to be

withdrawn forthwith.

vi. With respect to the contents of Annexure 2 to the SCN mentioned in Para 2, we submit that

in so far as we are concerned, apparently the alleged connection has been demonstrated

only qua two promoters viz. Partha Gems LLP and Shri Mehul Choksi. In so far as other

promoters viz. Priyanka Gems Pvt. Ltd., Rohan Diamond Pvt. Ltd., Mozarat Investments Pvt.

Ltd., and Digico Holdings Limited are concerned no basis for connection has been brought

on record. The alleged connection of Partha Gems LLP and Mr Mehul Choksi with the said

Entities has been drawn on the basis of particulars appearing in their KYC forms viz. phone

numbers, email ID (of Manoj Vankar), which are also appearing in the KYC forms of some

of the said Entities related to Mr Vankar. Based on the said commonalities in the KYC forms,

inference of our linkage with Mr Vankar and his entities has been drawn. Thus, our

connection with the said Entities has been drawn through Shri Vankar. Save and except the

said bases, there is admittedly no other basis spelled out in the Notice for the linkage

between us and the said Entities.

vii. As stated hereinbefore, Shri Manoj Vankar was handling the accounts for media and

marketing and he resigned consequent to exposure of his involvement in embezzlement /

siphoning of funds of Gitanjali Gems on 23.02.2011. Post his resignation on 23.02.2011, we

had no connection with Shri Manoj Vankar. At the relevant time, when KYC of Partha Gems

LLP and Shri Mehul Choksi was filled, Shri Manoj Vankar was associated with Gitanjali

Gems. Since he was assisting for demat account opening etc. of the promotes of Gitanjali

Gems, therefore he had filled in his phone numbers and his e mail-id in the KYC forms of Shri

Mehul Choksi and Partha Gems, opened during the relevant period. It was in these peculiar

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circumstances that Shri Manoj Vankars' e-mail ID and phone number is appearing in the

KYC forms of Partha Gems LLP and Shri Mehul Choksi. It may be noted that:

a. Admittedly, neither Partha Gems LLP nor Shri Mehul Choksi have traded in Derivatives

segment in the scrip of Gitanjali Gems with which the Notice is concerned.

b. Since, Shri Manoj Vankar resigned from directorship, consequent to internal

investigation, he had no connection with us or Gitanjali Gems;

c. Impugned trading in the scrip pertains to July 2011 to January 2012, when we had

already severed the ties with Shri Manoj Vankar.

d. In so far as particulars appearing in the KYC forms of said Entities (apparently related

to Manoj Vankar), we submit that neither we were aware of the same at the relevant

time nor we were concerned with the same. Particulars appearing in the KYC forms of

the said Entities can be best answered by them. Here we may highlight that Gitanjali

Gems/ or its promoters had not authorised the said Entities to mention the phone

number of Gitanjali Gems in their KYC forms.

viii. With respect to Sr. No. 1 in Annexure 2, the details pertaining to Jaiwanti Mercantiles

Private Limited (Noticee No. 11) reflected therein and the Remarks made there against, we

submit as under:

a. We are not aware of Jaiwanti Mercantiles Pvt. Ltd. or its address at all. We are not

aware of the business and nature of operation, composition of Jaiwanti Mercantiles

Pvt. Ltd. However, the registered address of Gitanjali Gems is A-l, 7th Floor, Laxmi

Towers, near ICICI Bank, BKC, Bandra East, Mumbai-400051, which does not match

with the three addresses of Jaiwanti Mercantiles Pvt. Ltd. detailed in Annexure 2.

b. Out of the five telephone numbers reflected in the Annexure 2, number 40102000

admittedly belongs to Gitanjali Group, and the same has been displayed on the Gitanjali

Group website. Gitanjali Group has more than twenty (20) telephone line connections

issued in its name and the aforesaid telephone number (40102000) is the common

board line number. Any alleged use of the said telephone number of Gitanjali Gems by

Jaiwanti Mercantiles Pvt. Ltd. in its documents or otherwise, is without prior permission

or consent of Gitanjali Gems, and is thus unauthorized and illegal.

c. However, while analyzing the KYC details of Jaiwanti Mercantiles Pvt Limited as

provided by SEBI during inspection, it is noted that the said phone number 40102000 is

nowhere mentioned in the KYC form of Jaiwanti Mercantiles Pvt. Ltd.

d. Thus, it is submitted that the phone number 40102000 belongs to Gitanjali group and

no third party has either approached or has been authorised to use the same in any

manner whatsoever. Any alleged use of the same is unauthorised and illegal.

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ix. With respect to contents at Sr. No.2 in Annexure 2, the details pertaining to Rhoda

Infrastructure Private Limited (Noticee No. 15) reflected therein and the Remarks made

there against, we submit as under:

a. We are not aware of Rhoda Infrastructure Pvt. Ltd., its nature of business, and its

connection with Jaiwanti Mercantile Pvt. Ltd. We are not aware that the address, phone

numbers and email id of Rhoda Infrastructure Pvt. Ltd.

b. We are neither aware of nor concerned with the address, telephone number and

email.id of Rhoda Infrastructure Pvt. Ltd. We are not aware that Rhoda Infrastructure

Pvt. Ltd. has the same address, phone numbers and Email id as that of Jaiwanti

Mercantile Pvt. Ltd.

c. We however reiterate that the phone number 40102000 belongs to

Gitanjali group and no third party has either approached or has

been authorised to use the same in any manner whatsoever. Any

alleged use of the same is unauthorised and illegal.

x. With respect to contents at Sr.No.3 & 4 in Annexure 2, we submit as under:

a. It is denied that the phone number 8652244619 is common between Mehul Choksi and

Vankar Gems & Jewelleries Pvt. Ltd., as alleged.

b. We are neither aware of nor concerned with Vankar Gems & Jewelleries Pvt. Ltd. We

are not aware of the address, telephone numbers and KYC details of Vankar Gems Pvt.

Ltd. We are not aware of the business and the nature of operation of Vankar Gems Pvt.

Ltd.

c. While analyzing the KYC form of Vankar Gems & Jewelleries Pvt. Ltd. as provided by

SEBI during inspection of documents, it has been noted that the phone number

8652244619 is nowhere mentioned in the KYC of Shri Mehul Choksi or in the KYC form

of Vankar Gems & Jewelleries Pvt. Ltd., as alleged. Thus the allegation of common

number in the KYC of Shri Mehul Choksi and KYC of Vankar Gems does not sustain.

d. We are not aware that Ms. Sonia Vankar wife of Shri Manoj Vankar is one of the

subscribers to the MOA of Vankar Gems.

e. In so far as Shri Manoj Vankar being director of GCPL is concerned, as submitted

hereinbefore, Shri Manoj Vankar was forced to resign from the directorship of GCPL in

February 2011 following the discovery of embezzlement/siphoning of funds of Gitanjali

Gems by him.

f. With regard to KYC of Partha Gems LLP, we were not aware about the fact that Shri

Manoj Madhav Vankar filled in his personal contact details (email id:-

[email protected]' and phone number:- '9223253072')- in the KYC of Partha Gems

LLP. Post his resignation, subsequently, the KYC of Partha Gems was modified and his

email id was replaced with the email id of his replacement in the Company i.e. Shri

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Saurabh Deshpande as '[email protected]'. The same can be verified from

the records. No adverse inference can be drawn against us from the same.

xi. With respect to contents at Sr.No.5 in Annexure 2, we submit as under:

a. It is denied that the phone number of Partha Gems is also the same as that of Sadhiv

Mercantile Pvt. Ltd. It is submitted that none of the numbers shown in the Sr. No.5 in

Annexure 2 belong to Partha Gems and further they do not match with the number in

the KYC of Partha Gems as provided by SEBI.

7.4 In their reply alongwith oral/written submissions, the entity at Sr. no. 13 inter alia made the

following submissions concerning the basis of connection alleged in the SCN –

i. “I resigned on February 23, 2011 and was in no way related/connected with Gitanjali Gems

nor with Shri Mehul Choksi or the other Promoters of Gitanjali Gems thereafter. I am not

aware of receipt of contract notes from Edelweiss Securities.

ii. I was a mere employee and I acted under the direction of the Promoters of Gitanjali Gems.”

7.5 In their replies alongwith oral/written submissions, the entities at Sr. nos. 9, 13, 20, 21 & 23 vide

their replies dated June 12, 2013, inter alia made similar submissions concerning the basis of

connection alleged in the SCN –

i. It is denied that they have violated any of the provisions of the SEBI Act, PFUTP Regulations,

SAST Regulations, or Master Circulars dated December 31, 2010 and January 2, 2012 as

alleged in the SCN.

ii. It is submitted that, save and except Ashlesha Trading Pvt Ltd, Sneaking Infrastructure Pvt

Ltd, Pinky Agro Foods Pvt Ltd, Rajesh Kumar Gupta, Manoj Vankar and Vankar Gems &

Jewelleries Pvt Ltd, they are not related to any of the promoters or Choksi Group entities as

mentioned in the SCN. Ashlesha Trading Pvt Ltd, Sneaking Infrastructure Pvt Ltd, Pinky Agro

Foods Pvt Ltd and Vankar Gems Pvt Ltd are Group Companies.

iii. Charge against Vankar Gems & Jewelleries Pvt Ltd is a derivative charge based on the

presumption that, since Mr. Manoj Vankar is husband of Sonia Vankar who was director of

Vankar Gems & Jewelleries Pvt Ltd, was also an employee of Gitanjali Gems and based on

the same it has been alleged that Vankar Gems & Jewelleries Pvt Ltd is connected to the

promoters of Gitanjali and that their trades were carried on the behest of the promoters.

However, the trades carried by them were independent and based on their own financial

wisdom without being aware of the trades carried by other entities.

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iv. It is alleged that as per KYC details, the phone no. 86522446197 is common for Vankar

Gems Pvt Ltd and Shri Mehul Choksi (CMD, Gitanjali Gems Ltd). It is denied that the said

phone number belongs to Vankar Gems Pvt Ltd.

v. SEBI has conveniently picked a single day i.e. January 24, 2012 to draw adverse inferences

that the trades of entities were synchronized. The counterparty to the client’s trades i.e.

(FII’s) have not been issued SCN. If one party to the alleged trades is given a go by then the

charge of synchronized trading does not old ground.

vi. It is denied that they were holding significant percentage of open interest as net long

position during the period July 18, 2011 to January 25, 2012 ranging upto 56.65% of the

Market Wide Position Limit (MWPL). The aforesaid charge cannot be attributed to them as

they are not connected to the promoters group nor part of the alleged Choksi Group. There

is no embargo for holding large/significant percentage of Open Interest.

vii. They are not part of the Choksi group, hence violation of Master Circulars No.

CIR/DNPD/7/2010 and CIR/DNPD/1/2012 cannot be attributed to them.

viii. It is denied that they were person acting in concert with the promoters of Gitanjali Gems as

alleged. It is denied that they were having common objective along with the promoters for

the purpose of substantial acquisition of shares and voting rights as alleged.

ix. It is denied that they furnished incorrect and misleading information to SEBI as alleged.

7.6 In the reply alongwith oral/written submissions, the entity at Sr. no. 14 vide reply dated July 09,

2013, inter alia made the following submissions concerning the basis of connection alleged in the

SCN –

i. It is denied that he has violated any of the provisions of the SEBI Act, PFUTP Regulations,

SAST Regulations, or Master Circulars dated December 31, 2010 and January 2, 2012 as

alleged in the SCN.

ii. It is denied that he is not connected/related to any of the Promoters or Choksi group

entities as mentioned in the SCN.

7.7 In their replies alongwith oral/written submissions, the entities at Sr. nos. 11, 15, 17 and 19 vide

letters dated June 13, 2013, inter alia made the following submissions concerning the basis of


i. They are not connected to the promoter entities of Gitanjali or any of the alleged Choksi

group entities, save and except amongst Jaiwanti Mercantile Pvt Ltd, Rhoda Infrastructure

Pvt Ltd., Sadhiv Mercantile Pvt Ltd., & Shraddha Garments Pvt Ltd (i.e. Entities in sl. no. 11,

15, 17 & 19) by virtue of being group companies.

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ii. It is denied that they created substantial volumes in both cash and derivatives segment from

July 18, 2011 till January 25, 2012, as alleged. They have traded independently in the scrip

of Gitanjali Gems Ltd and had no knowledge about the trades carried out by other entities.

iii. It is denied that they were only interested in the scrip of Gitanjali as alleged. It is denied

that, they were acting as front for the promoters of Gitanjali as alleged. It is denied that,

they were periodically rolling over the position in the derivatives contract of Gitanjali with

common set of counter parties as alleged.

iv. They had sold the shares and given delivery, and were not aware of the counter parties to

the sale transaction as the same were delivery based executed through market mechanism.

v. It is denied that, on January 24, 2012 the trades carried out by them were synchronized to

the extent 28.46% - 100% in cash segment and 59.75% - 99.50% in derivatives segment

with the trades of other entities as alleged. The trading was carried out in normal course

and based on own financial wisdom.

vi. It is denied that they were holding significant percentage of open interest as net long

position during the period July 18, 2011 to January 25, 2012 ranging upto 56.65% of the

Market Wide Position Limit (MWPL). The aforesaid charge cannot be attributed to them as

they are not connected to the promoters group nor part of the alleged Choksi Group. There

is no embargo for holding large/significant percentage of Open Interest.

vii. They are not part of the Choksi group, hence violation of Master Circulars No.

CIR/DNPD/7/2010 and CIR/DNPD/1/2012 cannot be attributed to them.

viii. It is denied that they were person acting in concert with the promoters of Gitanjali Gems as

alleged. It is denied that they were having common objective along with the promoters for

the purpose of substantial acquisition of shares and voting rights as alleged.

ix. It is denied that they furnished incorrect and misleading information to SEBI as alleged.

7.8 In their replies alongwith oral/written submissions, the entity at Sr. no. 8 vide letters dated June

18, 2013 and November 8, 2013 inter alia made the following submissions concerning the basis of


i. Insofar as allegation regarding the common Phone No. is concerned it is denied that the

phone number 23686868 belongs to them. They are not aware on what basis the said

number has been captured in the Notice. Their office is in Surat, where they are having 7

digit landline telephone numbers. Their phone no is 0261-2453458 which has been given to

the brokers.

ii. The other telephone number 8898058584 mentioned in their KYC form, it appears has been

mentioned erroneously against their name, as it does not belong to them.

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iii. Insofar as allegation regarding the common residential address is concerned it is submitted

that Kushal Vimal Parlecha (director in Magnifique Gems Ltd), and Sandeep Tejmal Jain

(director in Albers Diamond Pvt Ltd) are relatives and they have common residential

address. They say and declare that their stock market activities are looked after by the other

Director - Shri Gyanchand Nirmalkumar Pokhrana and Shri Sandeep Tejmal Jain looks after

the core business of trading, import and export of rough and polished diamonds.

iv. Their registered address is 402 Gopinath Appartment Jadda Khadi Mahidharpuzha, Surat,

Gujrat, and not 217 D Panchratna, Opera House, Mumbai -4000004 as alleged in the Show

Cause Notice. The address of Mumbai is not their address and that is factually incorrect.

v. The trading carried out by them is based on their independent commercial wisdom without

acting in concert with anyone.

vi. They are not related/connected to the Choksi Group and the promoter group of Gitanjali

Gems.

vii. The allegation against synchronized trading will survive only if sufficient action has been

taken against their counter parties for the alleged transaction.

viii. They had no role to play in the scrip of Gitanjali Gems breaching the applicable Market Wide

Position Limit breaching their holding during the relevant time went only to an extend of

6.94 %.

ix. Admittedly, as a result of execution of the impugned transactions, they have not made any

gain or gained any unfair advantage. Further the alleged default is not repetitive in nature.

x. They have not been provided with any investigation report which would give a clearer

picture about their role and task done by others.

xi. Their trading is based on their own funds and no other person mentioned in the SCN have

funded or in any manner influenced their decision.

xii. They trade/ invest in stock market for a short period of time. Their trading in the stock

market for Gitanjali is only 0.62% of total trading for Gitanjali at both BSE and NSE

(quantity) for the year 2011-12. Further, their purchase is only 3.30% of total share capital

of Gitanjali as on March 2012. They have traded in five other scrips also in the year 2011-

12. With regards to matching of trades, they have submitted that have never been in touch

with big Flls.

xiii. They deny that they are acting as Persons Acting in Concert as defined under Regulation

2(1 )(e) of Takeover Regulations 1997 and Regulation 2(1 )(q) of Takeover Regulations 2011

and are not part of any group by the name of 'Choksi group' and are not connected to any

entity and promoters in any way.

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7.9 In their reply alongwith oral/written submissions, the entity at Sr. no. 22 vide letter dated June 18,

2013, inter alia made the following submissions concerning the basis of connection alleged in the

SCN –

i. They are not aware whether SEBI received any alerts regarding trades carried out by few

entities who had taken substantial position in the scrip of Gitanjali Gems. In fact no

information was sought from them by SEBI prior to issuance of Notice.

ii. It is denied that they are connected to the promoter entities of Gitanjali Gems. The alleged

trades carried out in the scrip of Gitanjali are in the normal course of their business.

iii. The charge against us is based on the fund transfer with Pinky Agro Private Limited and

Shraddha Garments Pvt Ltd. They have been giving and taking monies from certain entities

and the same is in normal course of business and no adverse inference can be drawn against

them based on the fund transfers.

iv. Admittedly their directors are also directors of Albers Diamond Private Limited and

Magnifique Gems Private Limited, nothing ulterior should be read into this.

v. The information provided by them was true to the best of their knowledge that that we are

not connected to Gitanjali Gems, its promoters and Choksi Group.

vi. They have not violated the provisions of the SEBI Act, PFUTP Regulations and Takeover

Regulations.

7.10 In their reply alongwith oral/written submissions, the entity at Sr. no. 12 vide letters dated June 17,

2013 and November 11, 2013, inter alia made the following submissions concerning the basis of


i. They are not linked to the promoter group or to the Choksi Group.

ii. It is denied that the phone number 23686868 belongs to them. Their phone is 0261-

2912502. The telephone number 8898058584 stated in their KYC form, appears has been

wrongly entered by broking staff since it does not belong to them and they have not used

this phone number.

iii. The trading done by them in Gitanjali Gems and other shares is based on their own funds.

Their trading in Gitanjali Gems is negligible. They have bought less than 1% of total share

capital of Gitanjali and have not violated the takeover regulations. They have traded in

around 10 other scrips in the year 2011-12.

iv. With respect to the allegation regarding the common residential address between Kushal

Vimal Parlecha (director in Magnifique Gems Ltd), and Sandeep Tejmal Jain (director in

Albers Diamond Pvt Ltd), it is submitted that both are relatives and they share a common

residence. Further these two directors are distant relatives of each other and hence sharing

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a common address for record purposes but no conclusion can be drawn on this basis alone

two companies, which are distinct entities in the eyes of law.

v. They have got two directors and the areas of work are distributed between the directors.

While Shri Sumit Kumar Sisodia looks after the business of trading, import and export of

polished diamonds, the other Director - Shri Kushal Vimal Parlecha is looking after the stock

market related activities of Magnifique Gems Ltd.

vi. They are not aware or involved with the trades done b by the Choksi Group in the scrip of

Gitanjali Gems. No action has been taken against the counterparties i.e. the FIIs.

vii. They deny that they have contributed significantly to the trading volume during the period.

Neither the exchange nor the broker have informed them regarding any violation during

the time of trades.

viii. The replies made by them to SEBI are true, that they are not connected to Gitanjali Gems,

its promoters and its connected entities.

ix. They have not made any disproportionate gain or gained unfair advantage or caused any

loss to the investors.




i. It is denied that the other entities are connected to them as alleged.

ii. The phone number 23686868 and e-mail address [email protected] does not belongs

to them and our registered phone number is 0261-2912503.

iii. They denied all the statements, allegations and contentions contained in the said SCN and

Annexures and submit that they have not violated any of the provisions of SEBI Act, 1992

and any Regulations made thereunder and more particularly have not violated Section 12

A (a) to (c) of Securities & Exchange Board of India Act. 1992; Regulation 3 & 4(1) SEBI

(Prohibition of Fraudulent & Unfair Trade Practices) Regulations, 2003 read with Regulation

11(1) of SEBI Takeover Regulations 1997 and Regulation 3(1) of SEBI Takeover Regulations

2011.

iv. They have not been provided with the complete investigation report.

v. With receipt of receipt and payment of funds between Avtar and other entities viz. Sadhiv

Mercantile Pvt Ltd., Jaiwanti Mercantile Pvt Ltd., Rhoda Infrastructure Private Limited etc.

They submitted that the aforesaid receipt and payment of funds was carried out during the

course of normal business transactions for purchase and/ or sale of diamonds.

vi. They submitted that trading in the stock market is carried out with our own funds.

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vii. They submitted that the entire trading done by them in the shares of Gitanjali and also in

other shares is based on their own funds and no other person mentioned in the SCN or not

or otherwise have funded their transactions in Gitanjali or in any manner influenced their

decision to buy or sell the stock.

viii. They submitted that their main business is of Trading, Export and Import of rough and

Polished Diamonds and they also trade/ invest in stock market for a short period of time.

Their trading in the stock market for Gitanjali is very miniscule percentage of total trading

for Gitanjali at both BSE and NSE (quantity) for the year 2011-12.

ix. They further submitted that this may considered as final submissions and they may be

exempted from personal hearing in this regard.

7.12 In their reply alongwith oral/written submissions, the entity at Sr. no. 16 vide its letters dated June

17, 2013 and September 3, 2013, inter alia made the following submissions concerning the basis

of connection alleged in the SCN –

i. They are not linked to the promoter group or to the Choksi Group.

ii. It is submitted that the telephone number 23686868 belongs Deepak Jain, one of the

director of Rishabh Technomarine Pvt Ltd ("Rishabh"). They are unaware that this phone

number is being used by other entities also and they are completely shocked to know that

this is being used/ misused by other entities. They / their directors have not authorized any

of the other three entities to use the abovementioned phone number.

iii. Further, Rishabh is alleged to be connected to Albers Diamonds Pvt Ltd (Albers) on the basis

that the address of Rishabh and Albers i. e. 217 D, Panch Ratna, Opera House, M P Road,

Mumbai - 400004 is common. It is submitted that this is completely false and no company

by the name of Albers Diamonds P Ltd. is functioning from the above mentioned address

and this address belongs to Rishabh.

iv. They have no connection with Avtar Gems Pvt Ltd. (Avtar), and they are not aware of how

the email address has been given by Avtar in the KYC forms.

v. They are not a part of so called 'Choksi group' as alleged and do not fall under the definition

of associate/ connected person or PACs as defined under Takeover Regulations. The SCN

does not specify the alleged common purpose or objective which we have shared with the

alleged Choksi Group and / or the promoters.

vi. Their trading in the cash segment of stock exchanges in the scrip of Gitanjali is 0.08% of

total trading carried out at both the stock exchanges in terms of quantity in the scrip of

Gitanjali for the financial year 2011-12.

vii. Their entire trading by them is based on their own funds.

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viii. They have traded on the electronic trading platform provided by the stock exchanges

wherein name of the counter party is not available. Further, no action has been taken

against the counterparties i.e. the FIIs. Hon'ble SAT's order dated 17.08.2010 in the case of

"Prashant J Patel vs. SEBI" has been cited by the entity.

ix. The circular of NSE did not state breaching of MWPL as one of the criteria for excluding of

Gitanjali Gems Ltd from F & O segment.

x. They have not crossed the limit of 5% of open interest and always complied with stipulations

contained in para 3.3.2.2. of Master Circular ref. no CIR/DNPD/7/2010 dated December 31,

2012.

xi. They cannot be held guilty of any alleged violation with regards to the charge of the failure

of the promoters to make necessary announcements.

xii. They request that the present proceedings against Rishabh Technomarine P Ltd. may be

dropped and they may be discharged from the same.

xiii. It is denied that the phone number 23686868 belongs to them. Their phone is 0261-

2912502. The telephone number 8898058584 stated in their KYC form, appears has been

wrongly entered by broking staff since it does not belong to them and they have not used

this phone number.

xiv. The trading done by them in Gitanjali Gems and other shares is based on their own funds.

Their trading in Gitanjali Gems is negligible. They have bought less than 1% of total share

capital of Gitanjali and have not violated the takeover regulations. They have traded in

around 10 other scrips in the year 2011-12.

xv. With respect to the allegation regarding the common residential address between Kushal

Vimal Parlecha (director in Magnifique Gems Ltd), and Sandeep Tejmal Jain (director in

Albers Diamond Pvt Ltd), it is submitted that both are relatives and they share a common

residence. Further these two directors are distant relatives of each other and hence sharing

a common address for record purposes but no conclusion can be drawn on this basis alone

two companies, which are distinct entities in the eyes of law.

xvi. They have got two directors and the areas of work are distributed between the directors.

While Shri Sumit Kumar Sisodia looks after the business of trading, import and export of

polished diamonds, the other Director - Shri Kushal Vimal Parlecha is looking after the stock

market related activities of Magnifique Gems Ltd.

xvii. They are not aware or involved with the trades done b by the Choksi Group in the scrip of

Gitanjali Gems. No action has been taken against the counterparties i.e. the FIIs.

xviii. They deny that they have contributed significantly to the trading volume during the period.

Neither the exchange nor the broker have informed them regarding any violation during

the time of trades.

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xix. The replies made by them to SEBI are true, that they are not connected to Gitanjali Gems,

its promoters and its connected entities.

xx. They have not made any disproportionate gain or gained unfair advantage or caused any

loss to the investors.




i. It is denied that the other entities are connected to them as alleged.

ii. The phone number 23686868 does not belong to them and they have no comments to offer

on it. A search at the website of MTNL reveals that this number belongs to one Mr Deepak

Jain of Mumbai whose address is situated at somewhere in Walkeshwar, Mumbai and their

office is situated at Napean Sea Road, Mumbai, which is quite far off from Walkeshwar.

They request SEBI to provide KYC document and/ or any other document that SEBI has relied

upon wherein this telephone number 23686868 has been attributed to Sancheti.

iii. Their registered address during the investigation period is 20, Om Dariya Mahal, 80,

Napean Sea Road, Mumbai. They are not aware on what basis Raj Kumar Jain has provided

the same address in his KYC that has been captured in the Notice as they are not connected

to him. The aforesaid premises owned by Mrs. Manju G Jain, who is a director in the Noticee

Company & Shri Gyanchand Jain, her husband. Mrs. Manju G Jain has given one room of

the same flat on rent to Shri Raj Kumar Jain. In view of the same Rajkumar Jain might have

given this address as his address in the KYC to the broker. Subsequently, the company

moved to the present address at 309, Panchratna, Opera House, Mumbai - 400004 way

back in April 2012.

iv. They have not been provided with the complete investigation report.

v. It is denied that they are connected to the promoter entities of Gitanjali Gems as alleged.

Our trades in the scrip of Gitanjali Gems were carried out in the normal course of our

business.

vi. The entire trading by us is based on their own funds. Their trading in the cash segment of

stock exchanges in the scrip of Gitanjali is 0.07% of total trading carried out at both the

stock exchanges in terms of quantity in the scrip of Gitanjali for the financial year 2011-12

and 0.37% of total paid up capital of Gitanjali as on 31st March, 2012.

vii. They have traded in a total of four scrips for an amount of around Rs 60 crore.

viii. The trades were carried out independently and were carried out in normal course

transparently through market mechanism; SEBI has conveniently cherry picked a single day

trade and alleged that the same were synchronised. There is no allegation against the

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counter parties to the alleged synchronized trading in the absence of the same the alleged

the charge of synchronization cannot survive. No action is being taken/ contemplated

against FIIs. The order by Hon'ble SAT in the case of ‘Prashant J Patel vs. SEBI’ has been

cited in their support.

ix. Their trading in Gitanjali was not to contribute substantially to the trading volume can't be

held liable for the noncompliance of the various master circular done by the promoters and

other entities. With regards to MWPL, they did not receive any communication from NSE at

the time of trading. It is submitted that the limits prescribed under the circular is on a 'per

entity' basis and there is no provisions for clubbing of holdings. The takeover regulations

does not specify that use of common telephone number etc. as one of the criteria for

alleging two entities to be PACs. The SCN does not specify the alleged common purpose or

objective which they have shared with the alleged Choksi Group and / or the promoters.

x. It is completely denied that we have furnished incorrect and misleading information to SEBI

as alleged.

Findings –

8.1 On a consideration of the material available on record, I find as under –

i. The connection/relation between the Promoters of Gitanjali and the Choksi Group as

alleged in the SCN was based on an analysis of the KYC documents, financial statements,

etc. of the said entities.

ii. In addition to the above, the SCN also alleged that several of the aforementioned entities

shared common address, common phone number and common email ids, etc.

iii. The common thread for the aforementioned alleged connection between the Choksi

Group and the Promoters of Gitanjali Gems was the role played by Shri Manoj Vankar, an

employee of Gitanjali Gems.

iv. Shri Manoj Vankar had resigned on February 23, 2011.

v. The trading patterns of the entities who had traded in the shares of Gitanjali Gems during

the examination period pertains to the period from July 2011 to January 2012, which,

incidentally, is after the resignation of Shri Manoj Vankar.

vi. From the material on record, it is observed that post resignation of Shri Manoj Vankar, the

KYC documents were in fact modified by Gitanjali Gems and the official e–mail id was

replaced to [email protected]. However, it is noted that Edelweiss Securities

continued to forward electronic contract notes pertaining to Shri Mehul Choksi to e–mail

id [email protected] belonging to Shri Manoj Vankar even after his resignation.

mailto:[email protected]

mailto:[email protected]

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vii. In this context, SEBI sought comments from the Promoters of Gitanjali Gems vide letter

dated October 9, 2013. In their reply dated October 21, 2013, the Promoters of Gitanjali

Gems submitted that due to an inadvertent oversight, the details provided to Edelweiss

Securities at the time of opening of account were not updated post resignation of Shri

Manoj Vankar. Further, it was submitted that the same also did not come to Shri Mehul

Choksi’s notice since he was receiving the hard copies of the contract notes from Edelweiss

Securities through courier. Vide letter dated December 6, 2013, Edelweiss Securities

clarified that they were sending only electronic contract notes to the aforesaid client.

When SEBI sought documentary evidence from Shri Mehul Choksi vide letter dated

December 26, 2013, regarding the receipt of hard copies of the said contract notes, no

response was received.

viii. As regards the allegations of synchronised trading, it is observed that the counter parties

to such trades were not charged in the SCN.

ix. The Promoters of Gitanjali Gems submitted that Shri Manoj Vankar was terminated from

the services of the company on account of siphoning of funds prior to the trades alleged

in the SCN and that the SCN also does not clearly sate any other basis to conclude the

existence of a connection between such Group and the Promoters.

x. On the other hand, Shri Manoj Vankar submitted that he was merely an employee and

acted as per the directions of the Promoters of Gitanjali Gems.

8.2.1 In the instant proceedings, some of the entities have contended: “We have not been provided with

any Investigation Report, which would give a clearer picture about their role and task done by

others.” Further, one of the entities has also contended that the issuance of SCN was not preceded

by any formal investigation.

8.2.2 I note that no formal investigation was conducted by SEBI to verify the claims and counter claims

made by the Promoters of Gitanjali Gems vis–a–vis Shri Manoj Vankar regarding inter alia their

roles within the company, etc. Perhaps considering the gravity of the allegations, the SCN dated

October 26, 2012, was issued at that point in time on the basis of an immediate preliminary

examination. Be that as it may, I have made an attempt to arrive at a conclusion in these

proceedings on the basis of the material available on record including the oral/written submissions

made by the entities in the six hearings, which have been granted by me in this matter. At this stage

of the proceedings, where the merits of the contentions have to be appreciated in light of the

evidence produced before me, I am constrained to hold that unless and until more factual details

regarding the matter are brought on record, it is difficult to conclude the case. In view of all that

has been discussed in the preceding paragraphs including in particular paragraph 8.2.1, the only

way forward would be to conduct a formal investigation to unearth all the details required. As more

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material facts need to be unearthed in the matter, I am of the view that this is the fit case for

investigation and SEBI should employ all the investigative powers entrusted to it to unearth the

entire truth and to find out the role of alleged Choksi Group entities vis–a–vis the Promoter entities

of Gitanjali Gems. The Investigating Authority shall be at liberty to look into all aspects.

Order –

9.1 I, therefore, in exercise of the powers conferred upon me under Section 19 of the SEBI Act, read

with Section 11 and 11B, hereby direct SEBI to investigate the matter of alleged manipulative

trading in the scrip of Gitanjali Gems alongwith violations of the Takeover Regulations, 1997 read

with the Takeover Regulations, 2011.

9.2 SEBI shall endeavour to complete the investigation within six months from the date of this Order

and thereafter, to conclude the matter expeditiously.

9.3 The SCN dated October 26, 2012, issued against the entities, is accordingly disposed of.

9.4 Order accordingly.

Place: Mumbai S. RAMAN Date: March 10, 2017 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

wtm/sr/sebi/isd/18/03/2017 · page 2 of 29 2. the examination prima facie revealed the following...

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