wtm/rka/efd-dra-i/9-11/2016 before the securities and exchange board of ... · before the...

Order in the matter of Valecha Engineering Limited of 62

WTM/RKA/EFD-DRA-I/9-11/2016

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA

ORDER

UNDER SECTIONS 11, 11B AND 11(4) OF THE SECURITIES AND EXCHANGE

BOARD OF INDIA ACT, 1992 READ WITH REGULATION 11 OF THE SECURITIES

AND EXCHANGE BOARD OF INDIA (PROHIBITION OF FRAUDULENT AND

UNFAIR TRADE PRACTICES RELATING TO SECURITIES MARKET)

REGULATIONS, 2003.

In respect of:

Sl. No. Name of the Noticees PAN Order Number

1. Valecha Engineering Limited AAACV2288G

09/2016

2. Mr. Jagdish K. Valecha AAAPV6661L

3. F2Fun & Fitness (I) Pvt. Ltd. AABCS3522M

4. Loop Engineering Consultants Pvt. Ltd. AAACL5624Q

5. Core Real Estate Pvt. Ltd. AAACC6003A

6. Brightword Consultancy Pvt. Ltd. AACCB6976B

7. Valecha Investment Private Limited AAACV2759G

10/2016

8. Occasion Impex Private Limited AABFO3272H

9. Worth Buying Trading Private Limited AAACW6052B

10. Admire Consultants Private Limited AAFCA3804N

11. Windmill Exports Pvt. Ltd. AAACW1526E

11/2016

12. Ms. Nirjhari Desai ALDPD0455A

13. Ms. Reena Valecha AACPV8423E

14. Ms. Padma Valecha AAFPV7356K

In the matter of dealing in the scrip of Valecha Engineering Limited Appearances for the Noticees:

Sl. No. Name of the Noticees Authorized Representative

1. Valecha Engineering Ltd. (VEL) Mr. Vinay Chouhan, Advocate

Mr. Prashant Ingle, Advocate

Ms. Kavita Valecha Sharma, Company

Secretary

2. Mr. Jagdish K. Valecha (Mr. Jagdish Valecha)

3. F2Fun & Fitness (I) Pvt. Ltd. (F2Fun)

4. Valecha Investment Private Limited (VIPL)

5. Ms. Reena Valecha

6. Ms. Padma Valecha

7. Ms. Nirjhari Desai Mr. Joby Mathew, Advocate

Mr. Runa Roy, Advocate


Mr. Jinal Bhatt, Company Secretary

8. Loop Engineering Consultants Pvt. Ltd. (Loop) None

9. Core Real Estate Pvt. Ltd. (Core) None

10. Brightword Consultancy Pvt. Ltd. (Brightword) None

11. Occasion Impex Private Limited (Occasion) None

12.. Worth Buying Trading Private Limited (Worth Buying) None

13. Admire Consultants Private Limited (Admire) None

14. Windmill Export Pvt. Ltd. (Windmill) None

1. Securities and Exchange Board of India (“SEBI”) conducted investigation into the trading in the

scrip of Valecha Engineering Ltd. (hereinafter referred to as “VEL” or the company) for the

period January 1, 2009 to December 31, 2009 (hereinafter referred to as the “investigation

period”).

2. The investigation in the matter, inter alia, revealed that:

(1) On October 19, 2005 VEL had made preferential allotment of convertible warrants at the

rate of `199.55/- per warrant/share inter alia to the following entities:

Table 1: Details of allotment of convertible warrants

Name of the entities Date of incorporation No. of Warrants

VIPL 01/10/1982 8,73,900

Occasion 11/07/2005 2,25,000

Worth Buying 14/10/2005 1,00,000

Admire 21/02/2005 1,00,000

Brightword 25/02/2005 1,25,000

(2) Except VIPL, which is promoter of VEL, all the other above mentioned companies

('preferential allottees') were incorporated in the year 2005 with an authorized capital of

`1,00,000/- each. Further, these 5 companies were connected to VEL or its managing

director (MD) Mr. Jagdish Valecha and to each other through common address, common

telephone number, common directors, etc.

(3) Prior to and also after the preferential allotment, substantial funds were transferred from

VEL to the 'preferential allottees' through several 'connected entities' (who were noted to be inter se

connected amongst themselves on the basis of inter se fund transfers, common directors, etc. and also with

VEL, preferential allottees on the basis fund transfer, shareholding, promoter, etc.) and then back to

VEL. Later during 2009, substantial non- genuine trading in the scrip amongst the said

'connected entities,' 'preferential allottees' and the certain other entities connected/ related to VEL

and its MD, Mr. Jagdish Valecha was observed. Trades in the scrip were done through a


common sub-broker Mr. Rajesh Pradhan, who was an employee of VEL. The basis of

connection/ relation amongst all such entities is mentioned in the following table:

Table 2: The basis of connection/relation amongst the above companies/entities

Sl. No. Name Role Key Person/Director Connection/ Relation

1 F2Fun Transferring fund

Mr. Jagdish Valecha

Promoted by Mr. Jagdish Valecha (MD of VEL), Mr. G. Ramachandran (Independent Director of VEL) and VIPL.

2 Loop Transferring fund

Mr. Hansa H Pardiwala; Mr. Mahipal Singh Pariharwala

Fund Transactions with VIPL

3 Core Transferring fund

Ms. Sujita Pradhan (w/o Mr. Rajesh Pradhan, an employee of VEL); Ms. Nirjhari Desai

Promoted by Mr. Jagdish Valecha (MD of VEL) and VIPL.

4 Brightword Allottee of convertible warrants

Ms. Sujita Pradhan; Ms. Nirjhari Desai

- Ms. Sujita Pradhan is wife of Mr. Rajesh Pradhan who is an employee of VEL. - Mr. Rajesh Pradhan, the employee of VEL traded in the scrip as sub-broker for the trades of Ms. Reena Valecha, (wife of Mr. Jagdish Valecha, the MD of VEL), Ms. Padma Valecha, mother of Mr. Jagdish Valecha and Ms. Nirjhari Desai, a friend of Mr. Jagdish Valecha who was holding her Power of Attorney - Both these directors are also directors in Admire and Windmill. - Ms. Sujita Pradhan is also a director in Occasion.

5 VIPL

Allottee of convertible warrants; traded in the scrip

Mr. Umesh Valecha Promoter of VEL

6 Occasion


Ms. Sujita Pradhan; Mr. Ajay Deole.

- Mr. Ajay Deole is common director in Worth Buying and Occasion. - Brightword and Windmill are major shareholders of Occasion. - Ms. Sujita Pradhan, wife of Mr. Rajesh Pradhan is also a director in Core, Admire, Windmill and Brightword. - Mr. Ajay Deole was an employee of F2Fun, which is promoted by VIPL and Mr. Jagdish Valecha, MD of VEL.


7 Worth Buying


Mr. Ajay Deole; Mr. Anil Lulla; and Mr. Uday S Sane

- Same address as D.M. Harish & Co. (a partnership firm of Mr. Anil Harish, Chairman of VEL). - Promoters of Worth Buying viz. Mr. Anil Lulla and Mr. Uday Sane are employees of D. M. Harish & Co. - Mr. Ajay Deole was an employee of F2Fun, which is promoted by VIPL and Mr. Jagdish Valecha, MD of VEL.

8 Admire

Allottee of convertible warrants. Traded in the scrip

Ms. Sujita Pradhan and Mr. G.M. Gwalani (father-in-law of Mr. Jagdish Valecha)

- Phone number (26607476) belongs to Mr. B. L. Pradhan (father of Mr. Rajesh Pradhan who is an employee of VEL). - Ms. Sujita Pradhan, wife of Mr. Rajesh Pradhan is also a director in Occasion, Windmill and Brightword.

9 Windmill Traded in the scrip

Ms. Sujita Pradhan; Mr. G. M. Gwalani

- Common phone number (26733625) as VEL. - Common directors as Admire and Brightword.

10 Ms. Nirjhari Desai

Traded in the scrip

--

- NRI friend of Mr. Jagdish Valecha; - Gave Power of Attorney in his favour. - Received funds from Mr. Jagdish Valecha and his mother Ms. Padma Valecha - Received funds from VIPL, promoter of VEL wherein Mr. Jagdish Valecha was managing director.

11 Ms. Padma Valecha

Traded in the scrip

-- Mother of Mr. Jagdish Valecha

12 Ms. Reena Valecha

Traded in the scrip

-- Wife of Mr. Jagdish Valecha

13 Ms. Kapil Valecha

Traded in the scrip

-- Son of Mr. Jagdish Valecha

14 Mr. Karan Valecha

Traded in the scrip

-- Son of Mr. Jagdish Valecha

15 Mr. Anil Harish

Traded in the scrip

-- Chairman of VEL

16 Mr. Ratna Harish

Traded in the scrip

-- Mother of Mr. Anil Harish, Chairman of VEL.

17 Mr. Rajesh Pradhan

Traded in the scrip as sub-broker

-- Employee of VEL

Fund transfer by VEL directly and through its connected/related entities to the

preferential allottees prior to the preferential allotment and on conversion of warrants -

Allotment of warrants to VIPL: (4) A summary of fund flow between VEL and VIPL, as observed from their bank statements,


vis-a-vis the allotment of the convertible warrants by VEL to VIPL is stated below:

Table 3: Summary of fund flow between VEL and VIPL

Date From (A/c) From To (A/c) To Amount (`)

17-Oct-05 2677256000011 VEL 2677201000003 VIPL 7500000

18-Oct-05 2677201000003 VIPL 2677201000603 VEL 7438675

19-Oct-05 2677256000011 VEL 2677201000003 VIPL 10000000

19-Oct-05 2677201000003 VIPL 2677201000603 VEL 10000000

03-Mar-06 2677256000011 VEL 2677201000003 VIPL 20000000

03-Mar-06 2677201000003 VIPL 2677201000603 VEL 20000000

03-Mar-06 2677256000011 VEL 2677201000003 VIPL 15000000

03-Mar-06 2677201000003 VIPL 2677201000603 VEL 11231570

13-Feb-07 2677256000011 VEL 2677201000003 VIPL 30000000

13-Feb-07 2677201000003 VIPL 2677201000603 VEL 30000000

13-Feb-07 2677256000011 VEL 2677201000003 VIPL 30000000

13-Feb-07 2677201000003 VIPL 2677201000603 VEL 30000000

13-Feb-07 2677256000011 VEL 2677201000003 VIPL 5370000

13-Feb-07 2677201000603 VIPL 2677201000603 VEL 5370900

18-Apr-07 2677256000011 VEL 2677201000437 Loop 17500000

18-Apr-07 2677201000437 Loop 2677201000003 VIPL 17900000

18-Apr-07 2677201000003 VIPL 2677201000603 VEL 11000000

18-Apr-07 2677256000011 VEL 2677201000003 VIPL 9800000

18-Apr-07 2677201000603 VIPL 2677201000603 VEL 13000000

18-Apr-07 2677201000603 VIPL 2677201000603 VEL 8545600

18-Apr-07 2677256000011 VEL 2677201000003 VIPL 10000000

18-Apr-07 2677201000603 VIPL 2677201000603 VEL 10000000

18-Apr-07 2677256000011 VEL 2677201000003 VIPL 18000000

18-Apr-07 2677201000603 VIPL 2677201000603 VEL 17800000

(5) From the above fund transfers it was observed that:

(a) Just before and on the date of preferential allotment, VIPL received an amount of

`1,75,00,000/- in two tranches from VEL (i.e., `75,00,000/- on October 17, 2005 and

`1,00,00,000/- on October 19, 2005). VIPL transferred an amount of `1,74,38,675/- in

two tranches (i.e., `74,38,675/- and `1,00,00,000/- on October 18 and 19, 2005,

respectively) to VEL towards part of consideration for allotment of convertible warrants.

(b) On March 20, 2006, upon conversion of 1,73,900 warrants (out of 8,73,900 convertible

warrants allotted to VIPL) VEL allotted equity shares to VIPL. The consideration

payable by VIPL on or prior to such allotment was `3,12,31,570/-. It was observed that

prior to such allotment of equity shares upon conversion of warrants, VEL had

transferred `2 crore to VIPL on March 03, 2006 which was transferred back to it by

VIPL on the same day. Again, on March 06, 2006 VEL had transferred `1,50,00,000/-


to VIPL out of which VIPL transferred back an amount of `1,12,31,570/- to VEL on

the same day. Thus, the consideration of `3,12,31,570/-payable by VIPL for allotment

of equity shares upon conversion of 1,73,900 warrants was funded by VEL itself.

(c) On February 27, 2007, upon conversion of 3,64,000 warrants (out of the remaining

7,00,000 convertible warrants allotted to VIPL) VEL allotted equity shares to VIPL. The

consideration payable by VIPL on or before such allotment of equity shares was

`6,53,72,580/- It was observed that prior to such allotment of equity shares, VEL had

transferred `6,53,70,000/- in three tranches to VIPL on February 13, 2007 and received

back `6,53,70,900/- in three tranches from VIPL on the same day. Thus, the amount of

`6,53,70,000/- out of total consideration `6,53,72,580/-payable in lieu of 3,64,000

convertible warrants was funded by VEL itself.

(d) On April 18, 2007, upon conversion of the remaining 3,36,000 warrants allotted to VIPL

VEL allotted equity shares to VIPL. The consideration payable by VIPL on or before

such allotment of equity shares was `6,03,43,920/-. On April 18, 2007, VEL transferred

an amount of `5,57,00,000/-, including through Loop, in four tranches. On the same

day, VIPL transferred an amount of `6,03,45,600/- in five tranches to VEL. Thus, the

amount of `5,57,00,000/- out of total consideration `6,03,45,600/- payable in lieu of

3,36,000 convertible warrants was funded by VEL itself.

(e) In the above manner, VEL transferred funds amounting to `17,31,70,000/- to VIPL

(directly or indirectly) on various occasions which amounted to 99.30% of the total

consideration for 8,73,900 convertible warrants allotted to VIPL for allotment/

conversion of warrants.

Allotment of warrants to Occasion:

(6) On October 17, 2005, Valecha Infrastructure Pvt. Ltd. (Valecha Infra - a group company

of VEL) transferred an amount of `43,00,000/- to Core and Core in turn transferred

`45,00,000/- to Occasion. Occasion transferred an amount of `44,89,875/- to VEL on the

same day which was the amount payable on allotment of 2,25,000 convertible warrants by

VEL to it. Thus, the convertible warrants allotted to Occasion were not paid for by it to

the extent of `44,89,875/- but was paid by Core, a connected/related entity of VEL.

Allotment of warrants to Worth Buying: (7) A summary of fund flow between VEL (and its connected/related entities) and Worth Buying

during the relevant time, as observed from their bank statements, is given in the following

table:


Table 4: Summary of fund flow between VEL (and its related entities) and Worth Buying

Date From (A/c No.) From Entity To (A/c No.) To Entity Amount (`)

18-Oct-05 N/A F2 Fun 1020110000032 Worth Buying 20,00,000

19-Oct-05 1020110000032 Worth Buying N/A VEL 19,95,500

08-May-06 N/A Anil Harish 1020110000032 Worth Buying 18,00,000

11-May-06 N/A Rajesh Punjabi 1020110000032 Worth Buying 19,10,000

11-May-06 1020110000032 Worth Buying N/A VEL 18,00,000

11-May-06 1020110000032 Worth Buying N/A VEL 19,00,000

19-Apr-07 2677256000011 VEL 2677201000437 Loop 1,43,00,000

19-Apr-07 2677201000437 Loop 1020110000032 Worth Buying 1,43,00,000

21-Apr-07 1020110000032 Worth Buying N/A VEL 1,42,59,500


(a). On October 18, 2005, i.e., one day before the date of preferential allotment, Worth

Buying received an amount of `20,00,000/- from F2Fun. On October 19, 2005, Worth

Buying transferred `19,95,500/-to VEL. This was exactly the amount payable towards

allotment of 1,00,000 convertible warrants to VEL by Worth Buying.

(b). On May 08, 2006, Worth Buying received `18,00,000/- from Mr. Anil Harish and on

May 11, 2006, Worth Buying received `19,10,000/- from Mr. Rajesh Punjabi. On May

11, 2006, Worth Buying transferred an amount of `37,00,000/- to VEL in two tranches.

On February 27, 2007, VEL allotted 10,000 equity shares to Worth Buying in lieu of the

convertible warrants. The consideration payable on conversion of 10,000 convertible

warrants was `17,95,950/-.

(c). On April 18, 2007, VEL allotted the 90,000 equity shares to Worth Buying in lieu of the

remaining 90,000 convertible warrants. On April 19, 2007, VEL transferred an amount

of `1,43,00,000/- to Loop and on the same day Loop transferred the same amount to

Worth Buying. On April 21, 2007, Worth Buying transferred `1,42,59,500/- to VEL.

The consideration payable on conversion of 90,000 convertible warrants was

`1,61,63,550/- as consideration towards balance and full payment for allotment of shares

in lieu of the convertible warrants.

(9) Hence, the consideration of `1,42,59,500/- towards allotment of equity shares of VEL in

lieu of the convertible warrants allotted to Worth Buying was not paid by Worth Buying.

Thus, an amount of `1,43,00,000/- (71.52% of the total value of convertible warrants) was

financed by VEL to Worth Buying, whereas an amount of `38,00,000/- (19% of total value

of warrant) was arranged by the entities related to VEL. Therefore, more than 90% of

value of warrants issued to Worth Buying were financed by VEL and/or its connected/related

entities.


Allotment of warrants to Admire:

(10) A summary of fund flow between VEL (and its connected/related entities) during the relevant

time, as noticed from their bank statements, is stated below:

Table 5: Summary of fund flow between the related entities of VEL and Admire


17-Oct-05 CA-437 Loop 2677201000602 Admire 2000000

18-Oct-05 2677201000602 Admire VEL 1995500

12-Dec-05 Giresh Melwani 2677201000602 Admire 9922624

12-Dec-05 2677201000602 Admire VEL 9922624

07-Jan-06 CA-437 Loop 3067 F. C. Nath 1750000

07-Jan-06 3067 F. C. Nath 2677201000602 Admire 1750000

07-Jan-06 2677201000602 Admire VEL 1750000



12-Jan-06 2677201000602 Admire VEL 2050000



16-Jan-06 2677201000602 Admire VEL 4182000

23-Jan-06 Giresh Melwani 2677201000602 Admire 54876

25-Jan-06 2677201000602 Admire VEL 54876

(11) From the table above fund transfers it was observed that:

(a). On October 17, 2005, Loop transferred an amount of `20,00,000/- to Admire and

Admire in turn transferred `19,95,500/- to VEL on October 18, 2005. The total

consideration payable on preferential warrants was `19,95,500/-. Thus, Admire received

the exact amount from Loop towards payment of preferential warrant.

(b). Mr. Giresh Melwani (NRI investor in Admire personally known to Mr. Jagdish Valecha,

MD of VEL) transferred an amount of `99,77,500/- in two tranches (`99,22,624/- on

December 12, 2005 and `54,876/- on January 23, 2006) to Admire and Admire in turn

transferred the said amount to VEL.

(c). Loop transferred an amount of `54,00,000/- in three tranches to Dr. F. C. Nath who in

turn transferred `1,00,00,000/- to Admire.

(d). Admire transferred `79,82,000/- to VEL in three tranches as consideration towards

allotment of shares in lieu of the convertible warrants.

(e). The total consideration payable on conversion of 1,00,000 warrants was `1,79,59,500/-

(90% of 1,00,000 @199.55/-). The total amount transferred to Admire by various

connected/related entities of VEL is `1,79,59,500/-.

(f). On March 20, 2006, VEL allotted the 1,00,000 equity shares to Admire in lieu of the


convertible warrants. Hence, the consideration of `1,79,59,500/- towards allotment of

equity shares of VEL in lieu of the convertible warrants was not paid by Admire but was

funded by connected/related entities of VEL.

Allotment of warrants to Brightword: (12) A summary of fund flow between VEL (and its connected/related entities) and Brightword, as

observed from their bank statements, vis-a-vis the allotment of the convertible warrants by

VEL to Brightword is given below:

Table 6: Summary of fund flow between VEL (and its connected/related entities) and Brightword


15-Oct-05 N/A Loop N/A Windmill 6,00,000

15-Oct-05 N/A Windmill CAPUB/4367 Brightword 25,00,000

18-Oct-05 CAPUB/4367 Brightword N/A VEL 24,94,375

19-Jan-06 N/A Windmill CAPUB/4367 Brightword 56,00,000

21-Jan-06 CAPUB/4367 Brightword N/A VEL 56,00,000

31-Jan-06 N/A GLM & Co. CAPUB/4367 Brightword 10,00,000

31-Jan-06 N/A L. M. Gwalani CAPUB/4367 Brightword 5,00,000

01-Feb-06 N/A Vimla Gwalani CAPUB/4367 Brightword 20,00,000

04-Feb-06 N/A G Umesh & Co. CAPUB/4367 Brightword 19,84,000

04-Feb-06 N/A L. M. Gwalani CAPUB/4367 Brightword 5,00,000

07-Feb-06 CAPUB/4367 Brightword N/A VEL 59,85,000

25-Mar-06 N/A Arvind Thakkar CAPUB/4367 Brightword 1,10,10,000

28-Mar-06 CAPUB/4367 Brightword N/A VEL 1,09,64,375


(a). On October 15, 2005, Windmill transferred an amount of `25,00,000/- to Brightword.

On October 18, 2005, Brightword transferred an amount of `24,94,375/- to VEL

towards allotment of convertible warrants. Thus, Brightword received the exact amount

from Windmill towards payment of preferential warrant.

(b). On January 19, 2006, Windmill transferred an amount of `56,00,000/- to Brightword.

On January 21, 2006, Brightword transferred the same amount to VEL. Between

January 31, 2006 and February 04, 2006, M/s G.L.M. & Co., M/s G. Umesh & Co.,

Mr. L. M. Gwalani and Ms. Vimla Gwalani transferred an amount of `59,84,000/- to

Brightword. On February 07, 2006, Brightword transferred an amount of `59,85,000/-

to VEL. On March 25, 2006, Mr. Arvind Thakker transferred an amount of

`1,10,10,000/- to Brightword. On March 28, 2006, Brightword transferred an amount

of `1,09,64,375/- to VEL. The total amount transferred to Brightword by various


connected/related entities of VEL is `2,25,94,000/-.

(c). On March 20, 2006, VEL allotted the 1,25,000 equity shares to Brighword in lieu of the

convertible warrants. The consideration payable on conversion of 1,25,000 convertible

warrants was `2,24,49,375/- (90% of 1,25,000 @199.55/-) as consideration towards

allotment of shares in lieu of the convertible warrants. Hence, the consideration of

`2,25,94,000/- towards allotment of equity shares of VEL in lieu of the convertible

warrants was not paid by Brightword but was funded by connected/related entities of VEL.

(14) Out total consideration of `28,41,39,245/- required towards allotment/conversion of the

convertible warrants, VEL financed `18,74,70,000/- (65.85% of total value of warrants) to

the preferential allottees and thus, invested in its own shares through these allottees without

getting actual consideration for the warrants which were financed by it. Such sham

allotment was nothing but to defraud the genuine investors.

Trading in the scrip amongst entities connected/related to VEL and its MD

(15) During January 1, 2009 to December 31, 2009, large trading volume was noticed in the

scrip of VEL at BSE and NSE. It was observed that some of the connected/related entities, viz.

VIPL, Occasion, Worth Buying, Admire, Windmill, Ms. Reena Valecha, Ms. Padma

Valecha and Ms. Nirjhari Desai had heavily traded in the scrip of VEL. These

connected/related entities had traded in the scrip through the stock broker Techno Shares and

Stocks Ltd. (Techno). Techno had concentration of 9.31% and 9.24% in buy and sell,

respectively in the scrip at BSE and 6.13% (buy) and 2.89% (sell) at NSE. The trade

volume in the scrip of VEL on BSE and NSE is given below:

Table 7: Trade volume on BSE and NSE

Client Name

BSE NSE

Buy % to Mkt. Vol.

Sell % to Mkt. Vol.

Buy % to Mkt. Vol.

Sell % to Mkt. Vol.

VIPL 239555 3.01 0 0.00 113433 1.08 0 0.00

Occasion 45504 0.57 388507 4.89 262218 2.50 223074 2.13

Admire 2 0.00 209708 2.64 0 0.00 0 0.00

Windmill 64450 0.81 55405 0.70 68276 0.65 26000 0.25

Worth 26000 0.33 38514 0.48 26000 0.25 38486 0.37

Reena 108395 1.36 0 0.00 0 0.00 0 0.00

Padma 49525 0.62 0 0.00 50475 0.48 0 0.00

Nirjhari 35785 0.45 0 0.00 38790 0.37 0 0.00

*Total Volume at BSE -7952145 and NSE - 10494156

(16) At NSE, Techno executed 43 cross deal (on 13 trading days) for 260982 shares in which 19

cross deals for 257046 shares were executed where time difference between buy and sell


orders ranged between 0-38 seconds only.

(17) The details of the cross deals among VIPL, Admire, Occasion, Worth Buying, Windmill,

Ms. Nirjhari Desai, Ms. Padma Valecha and Ms. Reena Valecha and other connected/related

entities of VEL are given below at Tables-8 and 9 for BSE and NSE, respectively:

Table 8: Cross deals by the noticees on BSE

Trade Date

Trade Quantity

Buy Order Time

Buy Client Code

Buy Client PAN

Sell Order Time

Sell Client Code

Sell Client PAN Time Difference

27-02-09 209704 15:10:25 V0857 AAACV2759G 15:10:24 A498 AAFCA3804N 0:00:01

27-02-09 26054 15:11:44 V0857 AAACV2759G 15:11:43 W0010 AAACW1526E 0:00:01

27-02-09 100 15:11:44 V0857 AAACV2759G 15:11:51 W0010 AAACW1526E 0:00:07

20-03-09 99900 9:55:11 R2094 AACPV8423E 9:55:11 O017 AABFO3272H 0:00:00

20-03-09 100 9:55:11 R2094 AACPV8423E 9:55:18 O017 AABFO3272H 0:00:07

24-03-09 8295 9:55:06 R2094 AACPV8423E 9:55:03 O017 AABFO3272H 0:00:03

25-03-09 64385 9:55:03 K1513 AEEPV8425N 9:55:03 O017 AABFO3272H 0:00:00

25-03-09 64500 9:55:38 K1121 ADMPV1447K 9:55:38 O017 AABFO3272H 0:00:00

15-04-09 24950 10:13:17 N396 ALDPD0455A 10:13:17 O017 AABFO3272H 0:00:00

22-04-09 25 9:56:09 R476 AOHPK0343M 14:41:14 O017 AABFO3272H 4:45:05

22-04-09 25 9:56:11 A297 AEXPK3543D 14:41:14 O017 AABFO3272H 4:45:03

22-04-09 25 9:56:07 K1473 AYYPS2012C 14:41:14 O017 AABFO3272H 4:45:07

07-05-09 49000 15:18:39 P1808 AAFPV7356K 15:18:40 O017 AABFO3272H 0:00:01

12-05-09 46 10:14:18 N396 ALDPD0455A 10:34:54 N0382 AACPP2588E 0:20:36

12-08-09 5496 14:17:56 N396 ALDPD0455A 14:17:40 O017 AABFO3272H 0:00:16

23-09-09 193 15:01:18 O017 AABFO3272H 13:42:59 P1210 ADCPV3079R 1:18:19

23-09-09 507 15:01:45 O017 AABFO3272H 13:42:59 P1210 ADCPV3079R 1:18:46

30-09-09 24400 9:55:05 W0010 AAACW1526E 9:55:02 O017 AABFO3272H 0:00:03

30-09-09 600 14:37:54 T093 AACCT3286G 9:55:02 O017 AABFO3272H 4:42:52

01-12-09 9950 9:55:04 W0010 AAACW1526E 9:55:10 W011 AAACW6052B 0:00:06

07-12-09 10700 9:55:08 W011 AAACW6052B 9:55:05 W0010 AAACW1526E 0:00:03

10-12-09 14675 9:55:07 W011 AAACW6052B 9:55:10 W0010 AAACW1526E 0:00:03

14-12-09 25000 9:55:06 W0010 AAACW1526E 9:55:05 W011 AAACW6052B 0:00:01

16-12-09 2000 11:16:08 W0010 AAACW1526E 11:16:10 W011 AAACW6052B 0:00:02

*Client codes: C0361- Core; L0711 – Loop; V1370 – VEL; V0857- VIPL; W0010- Windmill; W011- Worth Buying; O017 – Occasion; B1195 – Brightword; R2094 - Reena Valecha; A498 – Admire; P1808 - Padma Valecha; N396 – Nirjhari Desai; K1513 - Kapil Valecha

Table 9: Cross deals by the noticees on NSE

Trade

Date

Trade

d

Quant

ity

Buy

Order

Time

Buy

Client

Code

Buy Client

PAN

Sell Order

Time

Sell Client

Code

Sell Client PAN Time

Differenc

e

24-03-09 29000 10:56:51 K1121 ADMPV1447K 10:57:13 O017 AABFO3272H 00:00:22

24-03-09 27085 10:57:03 K1513 AEEPV8425N 10:57:13 O017 AABFO3272H 00:00:10

24-03-09 1915 10:57:03 K1513 AEEPV8425N 10:58:14 O017 AABFO3272H 00:01:11

22-04-09 25960 10:12:55 V0857 AAACV2759G 10:12:56 O017 AABFO3272H 00:00:01

05-05-09 2500 10:02:32 N396 ALDPD0455A 10:02:33 O017 AABFO3272H 00:00:01

05-05-09 22350 10:02:32 N396 ALDPD0455A 10:02:33 O017 AABFO3272H 00:00:01

07-05-09 5000 15:20:17 P1808 AAFPV7356K 15:20:18 O017 AABFO3272H 00:00:01

07-05-09 5000 15:20:17 P1808 AAFPV7356K 15:20:18 O017 AABFO3272H 00:00:01

07-05-09 5000 15:20:17 P1808 AAFPV7356K 15:20:18 O017 AABFO3272H 00:00:01

07-05-09 5000 15:20:17 P1808 AAFPV7356K 15:20:18 O017 AABFO3272H 00:00:01

07-05-09 29900 15:20:17 P1808 AAFPV7356K 15:20:18 O017 AABFO3272H 00:00:01


07-08-09 5000 12:31:10 N396 ALDPD0455A 12:31:02 O017 AABFO3272H 00:00:08

29-09-09 420 15:26:48 O017 AABFO3272H 15:25:43 K1473 AYYPS2012C 00:01:05

30-09-09 24975 09:55:11 W0010 AAACW1526E 09:55:11 O017 AABFO3272H 00:00:00

30-09-09 1 14:38:00 T093 AACCT3286G 09:55:11 O017 AABFO3272H 04:42:49

15-10-09 100 14:07:26 O017 AABFO3272H 13:25:34 T108 ALTPB8351R 00:41:52

15-10-09 50 14:19:15 O017 AABFO3272H 14:17:46 S4177 ATLPP4298B 00:01:29

15-10-09 101 14:19:15 O017 AABFO3272H 14:17:59 P1210 ADCPV3079R 00:01:16

15-10-09 1000 14:19:15 O017 AABFO3272H 14:18:42 P1410 AACPD6288K 00:00:33

15-10-09 50 14:19:15 O017 AABFO3272H 14:17:46 S4177 ATLPP4298B 00:01:29

15-10-09 101 14:19:15 O017 AABFO3272H 14:17:59 P1210 ADCPV3079R 00:01:16

15-10-09 50 14:19:15 O017 AABFO3272H 14:17:46 S4177 ATLPP4298B 00:01:29

15-10-09 101 14:19:15 O017 AABFO3272H 14:17:59 P1210 ADCPV3079R 00:01:16

15-10-09 50 14:19:15 O017 AABFO3272H 14:17:46 S4177 ATLPP4298B 00:01:29

15-10-09 101 14:19:15 O017 AABFO3272H 14:17:59 P1210 ADCPV3079R 00:01:16

15-10-09 50 14:19:15 O017 AABFO3272H 14:17:46 S4177 ATLPP4298B 00:01:29

15-10-09 101 14:19:15 O017 AABFO3272H 14:17:59 P1210 ADCPV3079R 00:01:16

15-10-09 50 14:19:15 O017 AABFO3272H 14:17:46 S4177 ATLPP4298B 00:01:29

15-10-09 101 14:19:15 O017 AABFO3272H 14:17:59 P1210 ADCPV3079R 00:01:16

15-10-09 50 14:19:15 O017 AABFO3272H 14:17:46 S4177 ATLPP4298B 00:01:29

15-10-09 101 14:19:15 O017 AABFO3272H 14:17:59 P1210 ADCPV3079R 00:01:16

15-10-09 50 14:19:15 O017 AABFO3272H 14:17:46 S4177 ATLPP4298B 00:01:29

15-10-09 101 14:19:15 O017 AABFO3272H 14:17:59 P1210 ADCPV3079R 00:01:16

15-10-09 50 14:19:15 O017 AABFO3272H 14:17:46 S4177 ATLPP4298B 00:01:29

15-10-09 101 14:19:15 O017 AABFO3272H 14:17:59 P1210 ADCPV3079R 00:01:16

15-10-09 50 14:19:15 O017 AABFO3272H 14:17:46 S4177 ATLPP4298B 00:01:29

15-10-09 91 14:19:15 O017 AABFO3272H 14:17:59 P1210 ADCPV3079R 00:01:16

15-10-09 5876 15:27:18 W0010 AAACW1526E 15:27:56 O017 AABFO3272H 00:00:38

30-11-09 2500 15:11:59 W0010 AAACW1526E 15:11:44 W011 AAACW6052B 00:00:15

03-12-09 9900 09:55:06 W0010 AAACW1526E 09:55:08 W011 AAACW6052B 00:00:02

07-12-09 11000 09:55:05 W011 AAACW6052B 09:55:05 W0010 AAACW1526E 00:00:00

10-12-09 15000 09:55:06 W011 AAACW6052B 09:55:06 W0010 AAACW1526E 00:00:00

14-12-09 25000 09:55:05 W0010 AAACW1526E 09:55:05 W011 AAACW6052B 00:00:00

(18) From the tables above, it is observed that:

(a). VIPL, Occasion, Admire and Worth Buying entered into negotiated deals on 15 trading

days on BSE, wherein VIPL traded on 1 day, Occasion traded on 8 days, Admire

traded on 1 day and Worth Buying on 5 days. Similarly, on NSE, VIPL, Occasion, and

Worth Buying had entered into negotiated deals on 13 trading days wherein VIPL

traded on 1 day, Occasion traded on 8 days and Worth Buying traded on 5 days.

(b). Ms. Nirjhari Desai, Ms. Reena Valecha, Ms. Padma Valecha and Windmill entered into

negotiated deals on 13 trading days on BSE, wherein Ms. Nirjhari Desai entered on 3

days, Ms. Reena Valecha on 2 days, Ms. Padma Valecha on 1 day and Windmill on 7

days. Similarly, on NSE these noticees entered into negotiated deals on 10 trading days

wherein Ms. Nirjhari Desai entered on 2 days, Ms. Padma Valecha on 1 day and

Windmill on 7 days.

(c). On February 27, 2009, VIPL bought 235860 shares (96.41% of market volume) at

BSE. Of these buy transactions of VIPL, counterparties in respect of 2,35,858 shares of

VEL were Admire (209704 shares) and Windmill (26154 shares). Time difference in the

buy and sell orders in their transactions was between 1-7 second only with the

matching price and quantity. On April 22, 2009, VIPL bought 26020 shares of VEL at


NSE. Out of these buy transactions, the counterparty for 25960 shares was Occasion.

Time difference in the buy and sell orders of VIPL and Occasion was 0 second only.

(d). During November 30, 2009 to December 16, 2009 Windmill and Worth Buying

altogether bought 64450 shares at BSE and 63400 shares at NSE and were

counterparty for each other for 62325 shares and 63400 shares respectively. Time

difference between orders placed at BSE was ranging 1-6 seconds while at NSE it was

0 seconds. Further, price and quantity were also matching for these orders.

(e). On March 20, 2009, Ms. Reena Valecha bought 100100 shares (93.77% of market

volume at BSE) and on March 24, 2009, she bought 8295 shares (41.89% of volume)

for which major counterparty was Occasion (for 108295 shares) and time difference

was ranging from 0-7 seconds. Further, price and quantity matched for these orders.

(f). On May 7, 2009, Ms. Padma Valecha bought 100000 shares (49525 shares at BSE and

50475 shares at NSE) constituting 67.25% of total volume recorded at these exchanges.

Of these, the counterparty for 98900 shares (49000 shares at BSE and 49900 shares at

NSE) was Occasion. Time difference in these orders was 0 second at NSE and 1

second at BSE. Further, price and quantity was also matching.

(g). Ms. Nirjhari Desai bought 25000 shares on April 15, 2009, 24850 shares on May 5,

2009, 5000 shares on August 7, 2009 and 5600 shares on August 12, 2009. For these

transactions, the major counterparty was Occasion for 24950 shares, 24850 shares,

5000 shares and 5496 shares respectively. The exchange wise trading volume

contribution of Ms. Nirjhari Desai ranged between 21.74% and 76.41%. Time

difference in placing orders was 0 seconds in all days except on one day wherein it was

16 seconds.

(h). Thus, the trading volume was in the range of 21.74% to 96.41% on days when the

above connected/related entities traded.

Financing of the transactions of connected/related entities who traded in the scrip

(19) Transfers of funds among the connected/related entities were observed from the bank

statements of the various connected/related entities which had traded in the scrip during

January 1, 2009 to December 31, 2009. Such fund transfer amongst the connected/related

entities is illustrated in the following table:

Table 10: Instances of fund flow amongst the connected/ related entities of VEL


02-Mar-09 2677256000011 VEL 2677201000003 VIPL 6100000.00

02-Mar-09 2677201000003 VIPL Techno 6166924.59

04-Mar-09 Techno 2677201000425 Windmill 681975.01

04-Mar-09 2677201000425 Windmill 2677201000437 Loop 670000.00

04-Mar-09 Techno 2677201000602 Admire 5426278.51

04-Mar-09 2677201000602 Admire 2677201000437 Loop 5430000.00



04-Mar-09 2677201000437 Loop 2677201000003 VIPL 6100000.00

04-Mar-09 2677201000602 Admire 2677201000437 Loop 3100000.00

04-Mar-09 2677201000437 Loop 2677201000425 Windmill 3100000.00

04-Mar-09 2677201000425 Windmill 2677201000602 Admire 3100000.00

24-Mar-09 Techno 20010200025300 Occasion 2300754.07

25-Mar-09 20010200025300 Occasion 2677201000425 Windmill 2300000.00


25-Mar-09 2677201000437 Loop 2677201000003 VIPL 2300000.00




28-Mar-09 2677201000437 Loop 2677201000003 VIPL 1680000.00




31-Mar-09 2677201000437 Loop 2677201000003 VIPL 3040000.00

02-Apr-09 2677201000003 VIPL 2677201000437 Loop 6000000.00

02-Apr-09 2677201000437 Loop 2677201000425 Windmill 6000000.00

02-Apr-09 2677201000425 Windmill 20010200025300 Occasion 6000000.00

02-Apr-09 20010200025300 Occasion Techno 6000000.00

11-Apr-09 20010200025300 Occasion Techno 10933.17

13-Apr-09 Techno 20010200025300 Occasion 377539.50

16-Apr-09 20010200025300 Occasion 2677201000425 Windmill 375000.00

17-Apr-09 2677201000425 Windmill 2677201000437 Loop 375000.00

17-Apr-09 2677201000437 Loop 2677201000003 VIPL 375000.00

17-Apr-09 2677201000003 VIPL 2677104003469 Nirjhari Desai 1000000.00

18/Apr/09 2677104003469 Nirjhari Desai Techno 1005236.60




21-Apr-09 2677201000437 Loop 2677201000003 VIPL 1000000.00

22-Apr-09 2677256000011 VEL 2677201000003 VIPL 2300000.00

22-Apr-09 2677201000003 VIPL RTGS Techno 3600000.00




25-Apr-09 2677201000437 Loop 2677201000003 VIPL 1550000.00

25-Apr-09 2677201000003 VIPL RTGS Techno 1051796.45

02-May-09 2677201000003 VIPL 2677104003469 Nirjhari Desai 1130000.00

08-May-09 Techno 20010200025300 Occasion 959884.73

08-May-09 20010200025300 Occasion 2677201000425 Windmill 960000.00

08-May-09 2677201000425 Windmill 2677201000437 Loop 950000.00

08-May-09 2677201000437 Loop 2677201000003 VIPL 950000.00

08-May-09 2677104003469 Nirjhari Desai Techno 964379.29

08-May-09 2677201000003 VIPL 2677104003469 Nirjhari Desai 600000.00

11-May-09 Techno 20010200025300 Occasion 3970919.12

13-May-09 20010200025300 Occasion 2677201000425 Windmill 3970000.00

13-May-09 2677201000425 Windmill 2677201000437 Loop 3970000.00

13-May-09 2677201000437 Loop 2677201000003 VIPL 3970000.00

20-May-09 2677104003469 Nirjhari Desai Techno 311058.09


25-May-09 2677201000003 VIPL 2677201000437 Loop 200000.00

25-May-09 2677201000437 Loop 2677201000425 Windmill 200000.00

25-May-09 2677201000425 Windmill 20010200025300 Occasion 200000.00

25-May-09 20010200025300 Occasion Techno 228867.86

27-Jun-09 2677201000003 VIPL 2677201000437 Loop 8000000.00

27-Jun-09 2677201000437 Loop 2677201000425 Windmill 8000000.00

27-Jun-09 2677201000425 Windmill 20010200025300 Occasion 8000000.00

27-Jun-09 20010200025300 Occasion Techno 8000000.00

30-Jun-09 2677201000003 VIPL 2677201000437 Loop 400000.00


30-Jun-09 2677201000425 Windmill 20010200025300 Occasion 400000.00

30-Jun-09 20010200025300 Occasion Techno 377602.11


08-Jul-09 Techno 20010200025300 Occasion 4467814.21

09-Jul-09 20010200025300 Occasion 2677201000425 Windmill 4850000.00

09-Jul-09 2677201000425 Windmill 2677201000437 Loop 4850000.00

09-Jul-09 2677201000437 Loop 2677201000003 VIPL 4850000.00

01-Aug-09 2677101000059 Padma Valecha/ Jagdish Valecha 2677104003469 Nirjhari Desai 65000.00

04-Aug-09 2677104003469 Nirjhari Desai Techno 550922.67

11-Aug-09 2677101000059 Padma Valecha/ Jagdish Valecha 2677104003469 Nirjhari Desai 400000.00


13-Aug-09 Techno 20010200025300 Occasion 383974.45

14-Aug-09 20010200025300 Occasion 2677201000425 Windmill 400000.00

18-Aug-09 2677201000425 Windmill 2677201000437 Loop 420000.00

18-Aug-09 2677201000437 Loop 2677201000003 VIPL 420000.00

18-Aug-09 2677101000059 Padma/Jagdish Valecha 2677104003469 Nirjhari Desai 300000.00

20-Aug-09 2677201000425 Windmill 2677201000437 Loop 2400000.00

20-Aug-09 2677201000437 Loop 2677201000003 VIPL 2400000.00


01-Sep-09 20010200025300 Occasion Worth 1938000.00

06-Oct-09 Techno 20010200025300 Occasion 6068042.05

06-Oct-09 20010200025300 Occasion 2677201000425 Windmill 5120000.00

06-Oct-09 2677201000425 Windmill Techno 5123710.74

07-Oct-09 2677201000003 VIPL 2677201000437 Loop 875000.00

07-Oct-09 2677201000437 Loop 2677201000425 Windmill 875000.00

07-Oct-09 2677201000425 Windmill 20010200025300 Occasion 875000.00

07-Oct-09 20010200025300 Occasion Techno 1825216.04

15-Oct-09 2677201000437 Loop 2677201000003 VIPL 2350000.00

15-Oct-09 2677201000602 Admire 2677201000437 Loop 30000000.00

15-Oct-09 2677201000437 Loop 2677201000003 VIPL 30000000.00

15-Oct-09 2677201000602 Admire 2677201000437 Loop 2545000.00

20-Oct-09 2677201000003 VIPL 2677201000437 Loop 4300000.00

20-Oct-09 2677201000437 Loop 2677201000425 Windmill 4400000.00

20-Oct-09 2677201000425 Windmill 20010200025300 Occasion 3710000.00

21-Oct-09 20010200025300 Occasion Techno 3664374.89

21-Oct-09 2677201000425 Windmill Techno 679564.99

20-Nov-09 2677201000003 VIPL 2677201000437 Loop 3900000.00

26-Nov-09 2677201000437 Loop 2677201000003 VIPL 635000.00


02-Dec-09 Techno 2677201000425 Windmill 444773.55

08-Dec-09 Techno 20010200025300 Occasion 2407862.27

15-Dec-09 20010200025300 Occasion 2677201000425 Windmill 2135000.00

16-Dec-09 2677201000425 Windmill 2677201000437 Loop 1850000.00

16-Dec-09 2677201000437 Loop 2677201000003 VIPL 7875000.00

24-Dec-09 2677201000425 Windmill Techno 400000.00


(a). On March 2, 2009 VIPL received `61,00,000/- from VEL and transferred

`61,66,924.59/- to Techno to meet its pay-in obligation towards shares bought on

February 27, 2009 (Friday) where counterparties were Admire and Windmill. On March

4, 2009, Techno transferred `68,19,750.01/- and `54,26,278.51/- to Windmill and

Admire respectively towards sales proceed for shares sold on February 27, 2009. On the

same day, Admire and Windmill transferred `54,30,000/- and `6,70,000/-, respectively

to Loop and, in turn, Loop transferred `61,00,000/- to VIPL on the same day. In this

manner, fund was returned to VIPL.

(b). On April 17, 2009, Ms. Nirjhari Desai received `10,00,000/- from VIPL and paid

`10,05,236.60/- to Techno on April 18, 2009 to meet her pay-in obligation towards

shares bought on April 15, 2009 where the counterparty was Occasion. Techno

transferred `9,94,738.40/- to Occasion on same day towards sales proceed and Occasion

transferred `10,00,000/- to VIPL on April 21, 2009 through the layer of Windmill and

Loop.

(c). Similarly, it was observed that the funds were also transferred from Ms. Padma Valecha

and Mr. Jagdish Valecha to Ms. Nirjhari Desai who in turn transferred funds to Techno

to meet her pay-in obligation. A summary of such fund transfers is as following:

Table 11: Fund transfer from Ms. Padma Valecha to Ms. Nirjhari Desai


01-08-09 2677101000059 Padma/Jagdish Valecha 2677104003469 Nirjhari Desai 65,000.00

04-08-09 2677104003469 Nirjhari Desai NA Techno 5,50,922.67

11-08-09 2677101000059 Padma/Jagdish Valecha 2677104003469 Nirjhari Desai 4,00,000.00

12-08-09 2677104003469 Nirjhari Desai NA Techno 3,88,025.55

(21) It was also observed that whenever Occasion bought shares, the ultimate source of funds

for its pay-in obligation was VIPL through layers of Loop and Windmill. Similarly, sale

proceeds of Occasion were transferred back to VIPL through Loop and Windmill. Also,

sale proceeds of Admire were transferred to VIPL through Loop.

(22) VEL or its management was having control over the connected/related entities and the fund

was transferred for meeting the pay-in obligations of sellers to connected/related sellers. Thus,


no actual transfer of beneficial ownership of shares so traded amongst connected/related

entities took place and artificial volumes in the scrip was created.

3. Pursuant to the investigation, SEBI issued three show cause notices (SCNs) dated November 01,

2011 to VEL, its MD Mr. Jagdish Valecha and connected/related entities, details of which are as

under:

Table 12: Details of SCNs

Sl.

No.

Name of

the entity

SCN Allegation Violation

1. VEL IVD/ID4/AM/MR

/VEL/33717/2011

Dated November

01, 2011

VEL, in connivance with Mr. Jagdish Valecha,

F2Fun, Loop, Core and Brightword have

defrauded the investors by irregularly issuing

preferential convertible warrants through unfair

manner. VEL issued the convertible warrants

without getting actual consideration. The issuance

of warrants without receiving actual consideration

is irregular and adversely affected the interest of

investors in securities market and rights of the

existing shareholders of company.

Regulations

3(a), (b), (c)

and (d), and

4(1) of the

Securities and

Exchange

Board of India

(Prohibition of

Fraudulent and

Unfair Trade

Practices

relating to

Securities

Market)

Regulations,

2003 (the

PFUTP

Regulations)

read with

section 12A(a),

(b) and (c) of

the Securities

and Exchange

Board of India

Act, 1992 (the

SEBI Act).

2. Mr. Jagdish

Valecha

3. F2Fun

4. Loop

5. Core

6. Brightword

7. VIPL IVD/ID4/AM/MR

/VEL/33718/2011

Dated November

01, 2011

VIPL, Occasion, Worth Buying and Admire in

connivance with the other related entities have

defrauded the investors by subscribing to

convertible warrants on preferential basis through

unfair manner and assisted VEL in investing in its

own shares without getting actual consideration.

Further, these noticees have allegedly indulged in

financing transactions and executed sham

transactions with the funds received from VEL

thereby creating artificial volumes.

8. Occasion

9. Worth Buying

10. Admire

11. Windmill IVD/ID4/AM/MR

/VEL/33719/2011

Dated November

01, 2011

Windmill, Ms. Nirjhari Desai, Ms. Padma Valecha

and Ms. Reena Valecha, in connivance with the

other related entities indulged in

financing/executing sham transactions with the

funds received from VEL/VIPL thereby creating

artificial volumes and defrauding investors. Such

acts were fraudulent, unfair intentional and not

co-incidental and have lead to artificial

appearance of trading at the stock exchange and

also artificial appearance of discovery of price,

thereby misguiding the genuine investors.

12. Ms. Nirjhari Desai

13. Ms. Reena Valecha

14. Ms. Padma Valecha

4. Vide the said SCNs, the noticees were called upon to show cause as to why appropriate

directions in terms of sections 11(4) and 11B of the SEBI Act, 1992 read with regulation 11 of


the PFUTP Regulations, 2003 should not be initiated against them for the violations as

mentioned therein, which may include debarring them from accessing the securities market and

prohibiting them from buying, selling or otherwise dealing in securities for an appropriate period

of time.

5. The aforementioned noticees replied to the respective SCNs issued to them as mentioned in the

following table:

Table 13: Replies of the noticees.

Sl. No. Name of the noticee Date of reply

1 VEL January 04, 2012, September 25, 2012, December 17, 2012 and

December 10, 2013 and April 23, 2015

2 Mr. Jagdish Valecha January 04, 2012, September 25, 2012, December 17, 2012 and

December 10, 2013

3 F2Fun January 04, 2012, September 25, 2012, December 17, 2012 and

December 10, 2013

4 Loop January 25, 2012

5 Core January 25, 2012

6 Brightword January 25, 2012

7 VIPL January 04, 2012, September 25, 2012, December 17, 2012 and

December 10, 2013

8 Occasion January 27, 2012

9 Worth Buying January 27, 2012

10 Admire January 27, 2012

11 Windmill January 25, 2012

12 Ms. Nirjhari Desai June 12, 2012

13 Ms. Reena Valecha January 04, 2012, September 25, 2012, December 17, 2012 and

December 10, 2013

14 Ms. Padma Valecha January 04, 2012, September 25, 2012, December 17, 2012, December

10, 2013

6. The noticees also sought copy of the Investigation Report, copies of statements of Ms. Sujita

Pradhan, Ms. Nirjhari Desai, Mr. Ajay Deole, Dr. F. C Nath and Mr. Rajesh Punjabi, and copies

of all the correspondences between the persons/entities related to the matter with SEBI

including but not limited to Ms. Sujita Pradhan, Ms. Nirjhari Desai, Mr. Ajay Deole, Dr. F. C

Nath and Mr. Rajesh Punjabi.

7. The noticees were also granted opportunities of personal hearing on several occasions. The

authorised representatives of VEL, Mr. Jagdish Valecha, F2Fun, VIPL, Ms. Reena Valecha, Ms.

Padma Valecha and Ms. Nirjhari Desai appeared before me and made oral submissions appeared

before me and made oral submissions on February 03, 2015. Further, the aforementioned

noticees also submitted certain documents on March 04, 2015, April 17, 2015 and April 23,


2015. However, Loop, Core, Brightword, Occasion, Worth Buying and Windmill did not appear

for the personal hearing either personally or through any authorised representatives. The

replies/submissions of the noticees are inter alia as under:

I. Valecha Engineering Ltd. (VEL):

(1) The assumption that VEL and its promoters/related entities had issued warrants to

certain entities without receiving the actual consideration is contrary to factual position.

VEL had received the requisite consideration from the respective allottees towards the

subscription.

(2) As regards the allegation of financing, it had provided finances to VIPL (promoter of

VEL). Over the years, VEL had been raising/borrowing funds from VIPL for its

temporary use. Flow of funds between VEL and VIPL is duly captured in the books of

both the companies and also in their annual reports and the bank entries pointed out in

the SCN are part of various other bank entries which have taken place between VEL

and VIPL. The outstanding amounts from time to time, the interest thereon and TDS

on such interest are as follows:

Table 14: Liability of VEL to VIPL

Date Amount payable by

VEL to VIPL (`) Interest paid during the financial

year by VEL to VIPL (`) TDS Deducted(`)

31/03/05 15,28,727/- 1,62,675/- 3,65,050/-

30/09/05 6,65,37,249/-

31/03/06 1,60,51,462/- 24,22,576/- 54,366/-

31/03/07 2,78,81,462/- 13,16,411/- 17,86,873/- (VIPL to VEL)

2,95,403/- 4,00,974/-

20/04/07 81,462/-

(3) The payments made by VEL to VIPL on October 17, 2005 (`75,00,000/-), on October

19, 2005 (`1,00,00,000/-), on March 03, 2006 (`1,50,00,000/- and `2,00,0000/-), on

February 13, 2007 (`3,00,00,000/-; `3,00,00,000/-; `53,70,000/-), on April 18, 2007

(`1,80,00,000/-) were all part of repayments of outstanding amounts payable by VEL to

VIPL. In support of its submission, VEL submitted a copy of its ledger and copies of

the TDS certificates for interest paid for the loans given/taken by VEL from VIPL.

(4) As regards providing finances to other entities, namely, Admire, Core, Loop, Occasion,

Worth Buying and Brightword, these companies have NRI investors and the same is

enumerated in the following table:

Table 15: Details of companies and their NRI investors

Sl. No. Name of Company NRI Investor

1. Admire Dr. F.C. Nath and Mr. Giresh Melwani

2. Core Ms. Nirjhari Desai


3. Loop Dr. F.C. Nath

4. Occasion Ms. Nirjhari Desai

5. Worth Buying Dr. F.C. Nath and Mr. Rajesh Punjabi

6. Brightword Mr. Narendra Mulji

(5) The NRI investors, namely, Ms. Nirjhari Desai, Dr. F. C. Nath and Mr. Rajesh Punjabi,

were personally known to Mr. Jagdish Valecha [the Managing Director (MD) of VEL]

and were interested in investing in VEL by acquiring warrants/shares of VEL by way of

preferential issue.

(6) The said NRI investors had requested the directors of VEL to assist them in setting

up/acquiring companies in which they would bring finances for acquiring shares of

VEL. Hence, the directors of VEL in consultation with these NRI investors, helped

them in identifying the companies and selected these companies (Admire, Core, Loop,

Occasion and Worth Buying) and requested certain trustworthy local representatives to

make the initial investment and accept directorship to facilitate the process and

represent the companies. It was in this background, the preferential allotment was made

to the said allottee companies, after receiving the requisite subscription amounts from

the said companies.

(7) The linkages with the aforementioned companies are only to the extent of business

transactions carried out in normal course of business.

(8) As regards transfer of funds from VEL to Loop, the same was a temporary loan given

by VEL to Loop in the ordinary course of business which was repaid subsequently

within a period of 4 months by Loop to VEL. However, it was not aware of fund

movement between Loop and others including VIPL.

(9) It also denied having any knowledge about fund movement between Occasion and

others. It has confirmed that the transfer of funds by Occasion to VEL was towards

initial 10% subscription amount of convertible warrants and has contended that the

allegation in the SCN is qua the initial 10% subscription amount only and there is no

allegation qua the receipt of balance 90% subscription amount. Further, the

independent fund transactions between Occasion and other entities cannot be treated as

fund transactions between Occasion and VEL.

(10) It had no knowledge about transfer of funds between Worth Buying and others. The

transfer of funds from Worth Buying to VEL was with regard to subscription of

warrants.

(11) The transfer of funds from VEL to Loop was a temporary loan given by VEL to Loop

in the ordinary course of business and the said amount was repaid by Loop to VEL

subsequently within 4 months. It is not aware about the amount transferred by Loop to

Worth Buying.


(12) VEL has denied that it had financed 71.46% of the total value of convertible warrants

to Worth Buying. In fact, Worth Buying had paid the consideration amount to VEL

towards allotment of warrants and VEL had not funded the said amount as insinuated.

It has further stated that there is nothing on record to show that VEL had given

monies/funds to Worth Buying and independent fund transactions between Worth

Buying and other entities cannot be treated as fund transactions between Worth Buying

and VEL.

(13) It has no knowledge about transfer of funds between Admire and others. However, the

transfer of funds from Admire to VEL was with regard to allotment of warrants and

there is nothing on record to show that VEL had given monies/funds to Admire and

independent fund transaction between Admire and other entities cannot be treated as

fund transactions between Admire and VEL.

(14) It has no knowledge about transfer of funds between Brightword and others. However,

the transfer of funds from Brightword to VEL was with regard to allotment of warrants

and there is nothing on record to show that VEL has given monies/funds to

Brightword. Independent fund transactions between Brightword and other entities

cannot be treated as fund transaction between Brightword and VEL

(15) VEL has denied that it financed `18,74,70,000/- out of `28,47,08,805/- (65.85% of

total value of preferential warrants) to the preferential allottees and also denied that it

invested in its own shares through these entities without getting actual consideration.

(16) All the allottees are independent and investments made by them in VEL's shares cannot

be treated as investment made by VEL in its own shares.

(17) It is not having any control over Worth Buying and Occasion.

(18) None of the allottees entities or their promoters/major shareholders, viz. Dr. F. C.

Nath, Mr. Rajesh Punjabi and Ms. Nirjhari Desai have denied that the shares of VEL

held by the said allottee companies pursuant to preferential allotment did not belong to

them or that they have not dealt in the said shares through their entities.

(19) The said NRIs have sought preferential allotment of warrants of VEL, subscribed to the

same and have actually converted the warrants into shares after paying the requisite

amounts and post conversion of warrants into shares, they have sold the shares through

their entities and remitted the amounts from the bank accounts of the respective entities

to their own individual bank accounts.

(20) VEL has denied that it was given any power of attorney by any of the NRIs or that

VEL has gained any advantage through the use of power of attorney.

(21) Vide its letter dated September 25, 2012, VEL has stated that the mother-in-law of Ms.

Nirjhari Desai had never held shares of VEL, as alleged by Ms. Nirjhari Desai.

However, the shares were held by Ms. Nirjhari Desai only which were sold

subsequently. It has further stated that at no point of time any amount was deposited by


Ms. Nirjhari Desai with it.

(22) The interest paid to VIPL for the financial year ending 2004-05 and 2005-06 is

`26,95,747/- and `25,85,251/- respectively as against `1,62,675/- and `24,22,576/-

submitted in its initial reply. It has submitted the TDS certificate for the financial year

ending March 31, 2005 evidencing payment of `26,95,747/- as interest. It has also

submitted a certificate from its statutory auditor M/s D. M. Jani & Co., Chartered

Accountants, dated August 21, 2012 inter alia confirming and certifying the details of

loans given to/taken from VIPL and interest charged/paid.

(23) As regards financing by VIPL to Occasion through Core, it has stated that VIPL was

borrowing/lending from/to Core in the ordinary course of business.

(24) As regards financing by F2Fun (a company promoted by VIPL) to Worth Buying, it has

stated that F2Fun had given the said amount in the ordinary course to Worth Buying

and the said amount was repaid by Worth Buying to F2Fun subsequently.

(25) The other entities viz., Mr. Rajesh Punjabi, Mr. Rajesh Pradhan, Mr. Giresh Melwani,

Dr. F. C. Nath, Mr. L. M. Gwalani, Ms. Vimla Gwalani, Mr. Ajay Deole referred in the

SCN have also carried out similar activities. However, VEL has been selectively

proceeded against, to the exclusion of those entities.

(26) No reliance can be placed on the statement of Mr. Dinesh Valecha recorded under

section 11C(5) of the SEBI Act, 1992 since as per the copies furnished by SEBI those

proceedings were neither before the investigating authority nor the investigating

authority has signed them during the statement recording.

II. Mr. Jagdish Valecha:

(1) He has adopted the reply of VEL and submitted that the reply of VEL be read as part

and parcel of his reply.

(2) He has not acted in connivance with VEL in any manner.

(3) VEL made the preferential allotment in the ordinary course of business, transparently

and with full disclosures and in consonance with the applicable provision of the SEBI

Regulations and Guidelines.

(4) VEL did not finance any of the allottees out of its own funds. The allegations regarding

financing, etc. are contrary to factual position on record and are based on mere surmises

and conjectures.

(5) The NRI investors were interested in investing in VEL by acquiring warrants/shares of

VEL by way of preferential allotment. These NRI investors were known to him and Mr.

Dinesh Valecha (director of VEL) personally and they requested him to assist them in

setting up/acquiring companies in which they would bring in finances for acquiring

shares of VEL.

(6) To facilitate the investment by these NRI investors, they requested him to recommend


known and trustworthy individuals who can be requested to make initial investments to

acquire or set up such companies and also to hold directorships of these companies so

that the requirements of complying with the requisite rules and regulation of the

Companies Act, 1956 and other such compliances can be met in India, as it is

impractical for these NRI investors to come to India only for these procedural

compliances.

(7) Keeping this in view and as requested by them, he had in consultation with them

identified the companies viz. Admire, Occasion, Worth Buying and Brightword and

requested certain trustworthy local representatives to make the initial investment and

accept directorships to facilitate the process and represent the companies and to help

out these NRI investors in investing in India through these companies and in VEL.

(8) He had no direct/indirect interest or any involvement in the management or decision

making of these corporate entities.

(9) He was holding the power of attorney given by Ms. Nirjhari Desai (an NRI investor)

and had acted within the powers conferred on him by the said power of attorney. Ms.

Nirjhari Desai was informed about the action taken by him in exercising the power of

attorney bestowed on him and the funds transferred by Ms. Nirjhari Desai to her

entities in India were utilized as per the instructions of Ms. Nirjhari Desai and the

profits earned out of her investments were also deposited in the bank accounts of Ms.

Nirjhari Desai or the entities owned by her.

(10) He had requested Mr. Ajay Deole, Mr. Anil Lulla and Mr. Uday Sane to accept

directorship in Worth Buying and Occasion in order to facilitate the process and

represent the companies and to help out the NRIs investors in investing in India

through these companies. He has also submitted that the NRIs enjoyed the dividends

received by them from their investments.

(11) He was not having any control over Worth Buying and Occasion and also refuted the

stand taken by Ms. Nirjhari Desai that she became aware of her investments in these

companies on November 05, 2010.

(12) He has not used the power of attorney for transfer of funds for allotment/conversion

of warrants without the knowledge of the NRI investors. Further, the sale proceeds of

the shares have been remitted to the accounts of the NRI investors from the accounts

of the allottee companies owned by the NRI investors.

(13) He denied having control over the allottee companies and also denied that loans were

given without the knowledge of the NRIs.

(14) The loans/funds given by the alleged promoter entities cannot be treated/equated as

loans/funds given by VEL.

(15) All the allottees are independent entities and investments made by them in the shares of

VEL cannot be treated as investment made by VEL in its own shares.


(16) The mother-in-law of Ms. Nirjhari Desai never held shares of VEL and at no point of

time made any deposits with VEL. In fact, shares of VEL were held in the name of Ms.

Nirjhari Desai only which were sold on her directions, with her knowledge and consent.

The deposits were placed by her with other companies (and not with VEL) with her

knowledge and consent. He has also denied the allegation of Ms. Nirjhari Desai about

liquidation of deposits for purchasing 79,575 shares of VEL by misusing the power of

attorney. He claimed that at all points of time, Ms. Nirjhari Desai was kept informed by

e-mails about the actions taken by him by using the power of attorney.

(17) All the funds transferred by Ms. Nirjhari Desai to her entities in India were utilized as

per her instructions and the profits earned by her out of the investments made from her

funds were also deposited in her bank accounts or the bank accounts of her entities.

(18) He has denied the allegation of Ms. Nirjhari Desai about the misuse of power of

attorney and ignorance of selling of the shares of VEL and stated that all along Ms.

Nirjhari Desai/Mr. Mehul Desai (her husband) were always informed and aware of the

same. To substantiate the same, he has submitted printouts of the e-mails exchanged

between Mr. Rajesh Pradhan (who was liasioning with them) and Mr. Mehul Desai.

(19) Sometime around July 2004 an "Agreement for Sale" dated July 01, 2004 was executed

between Ms. Padma Valecha, Mr. Jagdish Valecha and Ms. Reena Valecha (collectively

referred to as “sellers”) and Ms. Nirjhari Desai whereby the sellers had sold their

shareholding of 998 shares in Core (99.8% of the total equity capital). The said

agreement was duly executed by Ms. Nirjhari Desai and she had issued three different

cheques signed by her for a total amount of `99,800/- in favour of the sellers towards

the consideration for the shares purchased. Pursuant to the execution of the sale

agreement and payment of consideration, Ms. Nirjhari Desai became held of 99.8% of

share capital of Core. He further stated that Ms. Nirjhari Desai in her capacity as the

director of Core is the signatory to the Annual Report 2003-04 and annual return and

other documents.

(20) There is no evidence in the SCN to support the allegation regarding his role.

(21) Other entities viz., Mr. Rajesh Punjabi, Mr. Rajesh Pradhan, Mr. Giresh Melwani, Dr. F.

C. Nath, Mr. L. M. Gwalani, Ms. Vimla Gwalani, Mr. Ajay Deole referred in the SCN

have also carried out similar activities however, the noticee has been selectively


(22) No reliance can be placed on the statement of Mr. Dinesh Valecha recorded under

section 11C(5) of the SEBI Act, 1992, since as per the copies furnished by SEBI those




III. Valecha Investment Private Limited (VIPL):

(1) VIPL is one of the promoters of VEL, holding 78,25,000 shares of VEL and the

shareholding has almost remained static except occasional purchases. It has not sold the

shares of VEL for the last ten years and more. The alleged purchase of shares of VEL

was a delivery based trade.

(2) It purchased shares of VEL on market through its Techno. It has further submitted that

the deals in question were negotiated deal with Admire and Windmill. Since the deal was

negotiated and the Techno was the common stock broker, the deals were executed as

cross deals.

(3) It paid Techno out of its own funds for the purchase of shares and it received the shares

in its demat account. Therefore, the trades were delivery based and there was a change

of beneficial ownership.

(4) It was not aware that Mr. Rajesh Pradhan, an employee of VEL, was the sub-broker of

Techno. Since, Mr. Rajesh Pradhan was an employee of VEL and assisted it in the past

to open its accounts with the broker, it placed orders through him. VIPL denied that

Mr. Rajesh Pradhan facilitated it in creating artificial volume.

(5) With respect to fund transfers it has stated that it has been borrowing and lending funds

to various entities including VEL, Loop and Ms. Nirjhari Desai in the ordinary course

of business.

(6) It has denied funding or receiving funds from Occasion or Windmill. It was not aware

about the use of funds by Loop raised from it. It also denied having any control over

the entities as alleged.

(7) With regard to the transfer of funds between VEL and VIPL, it has stated that over the

years VEL has been raising/borrowing funds from VIPL for its temporary use and the

outstanding amounts from time to time are as follows:

Table 16: Details of liability of VEL to VIPL

Date Amount payable by

VEL to VIPL (`) Interest paid during the financial

year by VEL to VIPL (`) TDS Deducted(`)

31/03/05 15,28,727/- 1,62,675/- 3,65,050/-

30/09/05 6,65,37,249/-

31/03/06 1,60,51,462/- 24,22,576/- 54,366/-

31/03/07 2,78,81,462/- 13,16,411/- 17,86,873/- (VIPL to VEL)

2,95,403/- 4,00,974/-

20/04/07 81,462/-

(8) The payments received by it on October 17, 2005 (`75,00,000/-), on October 19, 2005

(` 1,00,00,000/-), on March 03, 2006 (` 1,50,00,000/- and ` 2,00,0000/-) , on February

13, 2007 (` 3,00,00,000/- and `3,00,00,000/- and `53,70,000/-), on April 18, 2007

(`1,80,00,000/-) were all part of receipt of outstanding amounts receivable from VEL. It

has also submitted copy of the ledger account for loan payment and interest received. It


has further submitted copies of TDS certificates submitted by VEL for interest paid to

it for amount borrowed from VIPL.

(9) It has stated that the payment of subscription amount towards preferential convertible

warrants was paid to VEL in the following manner:

Table 17: Details of payment by VIPL to VEL

Date Amount (`) Particulars

18-10-05

19-10-05

74,38,675/-

1,00,00,000/-

Towards 10% of value of 8,73,900 share warrants @ `199.55/-

03-03-06 2,00,00,000/-

1,12,31,570/-

Towards conversion of 1,73,900 warrants into shares

13-02-07 3,00,00,000/-

3,00,00,000/-

53,70,900/-


18-04-07 1,10,00,000/-

1,30,00,000/-

85,45,600/-

100,00,000/-

1,78,00,000/-


(10) It was neither given any power of attorney by any of the NRI Investors nor it has

gained any advantage out of the alleged power of attorney. It was not having any control

over the entities. It had given loan to the NRI investors in the ordinary course based on

their request.

(11) In its additional reply dated September 25, 2012, it has repeated its earlier submissions

and added that the interest received by it from VEL for the financial year 2004-05 and

2005-06 is `26,95,747/- and `25,85,251/-, respectively as against `1,62,675/- and

`24,22,576/- submitted in its initial reply.

(12) There is no mention of synchronized, circular or reversal of trades nor any evidence was

provided in the SCN, therefore, the issue of creating artificial volume cannot and does

not arise.

(13) The SCN was issued to 4 entities whereas annexure to the SCN indicating cross deals by

Techno provides more than 15 client codes. In absence of any information about the

identity of these clients (codes) in SCN, it cannot comment on the trades.

(14) It is not aware of any violation committed by Mr. Rajesh Pradhan and, therefore, cannot

be held responsible for the same. It has been selectively proceeded against to the

exclusion of the stock broker and other entities.

(15) Other entities viz, Mr. Rajesh Punjabi, Mr. Rajesh Pradhan, Mr. Giresh Melwani, Dr. F.

C. Nath, Mr. L. M. Gwalani, Ms. Vimla Gwalani, Mr. Ajay Deole referred to in the SCN

have also carried out similar activities. However, the noticee has been selectively



IV. F2Fun and Fitness (I) Pvt. Ltd. (F2Fun):

(1) VEL and VIPL are its promoter group company and it has neither subscribed to the

preferential warrants issued by VEL nor has been involved in trading in the scrip of

VEL at any point of time.

(2) The transfer of funds amounting to `20,00,000/- to Worth Buying was in the ordinary

course of business and had no nexus with the preferential allotment made by VEL. The

said amount was repaid by Worth Buying subsequently. It has submitted a copy of the

bank statement and ledgers evidencing repayment by Worth Buying.

(3) VEL and VIPL are its promoter group companies and not Mr. Jagdish Valecha or his

family members in their individual capacities.

(4) It has not connived with anybody including VEL to defraud the investors in any

manner and it was not involved in any manner in the alleged irregular issuance of

preferential convertible warrants through unfair manner.

(5) The other entities viz., Mr. Rajesh Punjabi, Mr. Rajesh Pradhan, Mr. Giresh Melwani,

Dr. F. C. Nath, Mr. L. M. Gwalani, Ms. Vimla Gwalani, Mr. Ajay Deole referred in the

SCN have also carried out similar activities. However, the noticee has been selectively


(6) Reliance cannot be placed on the statement of Mr. Dinesh Valecha recorded under

section 11C(5) of the SEBI Act, 1992, since as per the copies furnished by SEBI those



V. Loop Engineering Consultants Pvt. Ltd. (Loop):

(1) It has neither subscribed to the preferential warrants issued by VEL nor has been

involved in trading in the scrip of VEL.

(2) The receipt of `1,75,00,000/- on April 18, 2007 from VEL was the temporary advance

raised by it from VEL and the transfer of `1,79,00,000/- to VIPL on the same day was

as an extension loan to VIPL.

(3) The transfer of `1,43,00,000/- from Loop to Worth Buying was the temporary advance

given to Worth Buying which was repaid by Worth Buying subsequently and the receipt

of `1,43,00,000/- was the temporary advance availed from VEL.

(4) The transfer of `20,00,000/- from Loop to Admire was a temporary loan given to

Admire which was repaid subsequently.

(5) The transfer of funds (`17,50,000/- on January 07, 2006, `20,50,000/- on January 12,

2006 and `16,00,000/- on January 16, 2006) to Dr. F. C. Nath was towards repayment

of loan borrowed by it from Dr. F. C. Nath.

(6) The transfer of `6,00,000/- on October 15, 2005 from Loop to Windmill was a


temporary advance given to Windmill which was repaid subsequently.

(7) It was not controlled by VEL or the related entities of VEL and it was functioning

independently and the loans were raised/given in the ordinary course of business.




VI. Core Real Estate Pvt. Ltd. (Core):

(1) It has neither subscribed to the preferential warrants issued by VEL nor has been

involved at any point of time in trading in the scrip of VEL.

(2) The erstwhile promoters (Mr. Jagdish Valecha, Ms. Reena Valecha and Ms. Padma

Valecha) transferred their shareholding to Ms. Nirjhari Desai and since July 2004, Ms.

Nirjhari Desai was its promoter.

(3) The transfer of `45,00,000/- by Core to Occasion on October 18, 2005, was part of

business transaction carried out in normal course of business which was repaid

subsequently.

(4) The receipt of `43,00,000/- by it from VIPL was towards repayment of loan to the tune

of `16,00,000/- and the remaining `27,00,000/- was an extension of loan to it by VIPL.

(5) In July 2004, Ms. Nirjhari Desai acquired 99.98% of its shares from the erstwhile

promoters. Subsequently, Ms. Nirjhari Desai was involved as a director in the affairs of

Core and also signed the annual reports of Core for the financial year 2003-04. In

support of its claim it has submitted a copy of the agreement for purchase of shares and

copy of the annual report signed by Ms. Nirjhari Desai.

(6) At the relevant time its erstwhile director Ms. Sujita Pradhan had taken the decision for

transferring funds from time to time in consultation with Ms. Nirjhari Desai.

(7) Core has denied of being controlled by VEL or its related entities and has stated that it

was functioning independently and the funds were raised/ given in the ordinary course

of business.




VII. Brightword Consultancy Pvt. Ltd. (Brightword):

(1) The charges against it are based on transactions/fund transfer between it and

persons/entities viz. Windmill, GLM & Co., Mr. L. M. Gwalani, Ms. Vimla Gwalani,

M/s G. Umesh & Co. and Mr. Arvind Thakkar and that VEL had financed it for

subscribing to the preferential warrants.

(2) It has paid the consideration amount for subscription of warrants of VEL by raising


loans from various entities viz. Windmill, GLM & Co., Mr. L. M. Gwalani, Ms. Vimla

Gwalani, M/s G. Umesh & Co. and Mr. Arvind Thakkar which was repaid

subsequently.

(3) Raising loans/funds for the purpose of subscribing warrants is not unusual or abnormal.

(4) At all points of time, the decision to invest in the shares of VEL was its own

independent decision and post allotment of shares, it dealt with the shares

independently without any involvement of the lending entities or VEL.

(5) The funds given by the lending entities were in the ordinary course and cannot be

treated as funds given to it by VEL.

(6) In the SCN, there is not a single entry, wherein VEL has given funds to it. On the

contrary there are entries wherein it has only given funds to VEL. Thus, the allotment

made by VEL to it was neither irregular nor sham or fraudulent.

(7) It was not controlled by VEL or related entities of VEL.




(9) It had subscribed to the warrants issued by VEL by raising the funds or out of his own

funds. It did not receive any funds from VEL in this respect. It had sold the allotted

shares sometime in March 2007 to October 2009.

VIII. Occasion Impex Pvt. Ltd. (Occasion):

(1) It had carried out its purchase/sell transactions independently through its broker

Techno and without involvement of other entities.

(2) The trades were negotiated between Occasion and other entities (VIPL, Ms. Reena

Valecha, Ms. Padma Valecha and Ms. Nirjhari Desai) and Techno was the common

broker for all. Therefore, the deals were executed as cross deals.

(3) The transactions were delivery based and involved change in beneficial ownership.

(4) It was not aware that Mr. Rajesh Pradhan, an employee of VEL, was a sub-broker of

Techno. It placed orders through Mr. Rajesh Pradhan as in the past he had assisted it in

opening its trading account with the broker.

(5) It has been borrowing and lending funds to various entities including Windmill and

Worth in the ordinary course of business.

(6) It has denied having received funds from VIPL through layers of Loop and Windmill. It

has denied having received/given any funds from/to VIPL.

(7) It is not aware about the use of funds by Windmill raised from Occasion. Further, it is

not aware of the source of funds from which Windmill paid to Occasion.

(8) It has denied that VEL was having any control over it and that VEL was transferring

the funds for the purpose of issuing/conversion of convertible warrants and creation of


volume.

(9) It had paid the consideration amount towards subscription to convertible warrants to

VEL from its own sources and VEL had not funded the said amount. It has denied

having connived with other VEL related entities to defraud the investors.

IX. Worth Buying Trading Pvt. Ltd. (Worth Buying):

(1) Dr. F. C. Nath and Mr. Rajesh Punjabi are its promoters. It carried out its purchase/sell

transactions independently, in the ordinary course through its broker Techno, without

involvement of other entities.

(2) The trades between Worth Buying and Windmill were negotiated and Techno was the

common broker for all the entities and as such the deals amongst them were executed as

cross deal.

(3) The transactions were delivery based and involved change in beneficial ownership.

(4) It was not aware that Mr. Rajesh Pradhan, an employee of VEL was a sub-broker of

Techno. It placed orders through Mr. Rajesh Pradhan, as in the past Mr. Rajesh

Pradhan had assisted it in opening its trading account with the broker.

(5) It has denied that Mr. Rajesh Pradhan facilitated it in creating artificial volume.

(6) It has stated that the receipt of `19,38,000 from Occasion was a normal borrowing and

lending transaction and had no nexus with the purchase of shares.

(7) It was not controlled by VEL, VIPL or their management.

(8) It had paid consideration amount towards subscription of warrants and denied that

VEL was transferring the funds for the purpose of issuing/conversion of convertible

warrants.

(9) It has denied the charge of conniving with other related entities of VEL to defraud the

investors by subscribing the convertible warrants on preferential basis through unfair

manner and also denied of assisting VEL in investing in its own shares without getting

actual consideration.

X. Admire Consultants Pvt. Ltd. (Admire):

(1) It is promoted by Dr. F. C. Nath.

(2) It has carried out its purchase/sell transactions independently by Admire without

involvement of other entities. Its trades with VIPL were negotiated deals and Techno

was the common broker. Therefore, the deals amongst them were executed as cross

deal.

(3) The transactions were delivery based and involved change in beneficial ownership and it

also received payment from the broker for the sale of shares.

(4) It was not aware that Mr. Rajesh Pradhan, an employee of VEL, was a sub-broker of

Techno. Since, in the past Mr. Rajesh Pradhan assisted it in opening its account with the


broker, it placed orders through Mr. Rajesh Pradhan. It has denied that Mr. Rajesh

Pradhan facilitated it in creating artificial volume.

(5) It has been borrowing and lending funds from/to various entities including Loop and

Windmill in the ordinary course of business and has denied that the funds were

borrowed or lent for fraudulent/manipulative purposes.

(6) It is not controlled by VEL, VIPL or their management. It had paid the consideration

amount towards subscription of warrants from the funds received from its promoters.

(7) It has not connived with VEL or its related entities to defraud the investors by

subscribing to convertible warrants allotted on preferential basis.

XI. Windmill Export Pvt. Ltd. (Windmill):

(1) It had carried out its purchase/sell transactions independently without involvement of

other entities. It purchased 1,32,726 shares and sold 81,405 shares of VEL on market

through Techno in the ordinary course. Its deals with VIPL and Worth Buying were

negotiated deals and as Techno was the common stock broker in these transactions,

these were executed as cross deal.

(2) The transactions were delivery based. They have not traded with the other related

entities to create artificial volume.

(3) It was not aware that Mr. Rajesh Pradhan was a sub-broker of Techno. Since, Mr.

Rajesh Pradhan was an employee of VEL and had assisted it in the past to open its

account with the broker, it had placed the orders through him. It has denied that Mr.

Rajesh Pradhan facilitated it in creating artificial volume.

(4) It has been borrowing and lending funds to various entities including Loop, Admire and

Occasion in the ordinary course of business.

(5) It has further stated that the purchase transactions resulted in change in beneficial

ownership. It has not indulged in fraudulent transactions to create false and misleading

appearance of trading in the shares.

(6) It has not connived with other related entities for executing sham transactions with the

funds received from VEL/VIPL.

XII. Ms. Nirjhari Desai:

(1) She is an NRI investor who had executed power of attorney in favour of Mr. Jagdish

Valecha (the promoter of VEL) in the year 2004 with the bona fide intention of investing

her in-law's inheritance money and help her mother-in-law's assets in India.

(2) She is not related party to any of the companies viz. Core, Windmill, Admire and

Occasion.

(3) She had handed over her original PAN card, cheque book and pass book to Mr. Jagdish

Valecha with the faith and trust that the same would be used for the bona fide purpose of


investments on her behalf in India.

(4) She was allegedly made a director in Core (a company incorporated by Mr. Jagdish

Valecha), without her knowledge.

(5) She has never authorized Mr. Jagdish Valecha to set up Core and does not take onus of

any action carried out by Mr. Jagdish Valecha. Mr. Jagdish Valecha, subsequently,

invested in successive three companies viz. Occasion, Admire and Windmill through

Core through Techno.

(6) She has denied receiving any financial statements regarding any of these three

companies.

(7) She came to know about the existence of these companies and the transactions only on

receipt of a communication from SEBI.

(8) She had no knowledge about the trading done by VEL with the entities viz. VIPL,

Occasion, Worth Buying, Windmill, Loop, F2Fun and Brightword. She did not sign any

document ascertaining her directorship in Core.

(9) She knows Mr. Jagdish Valecha, Ms. Reena Valecha and Ms. Padma Valecha but was

completely unaware of the investments made by them in various holding companies.

Mr. Jagdish Valecha had never shared any communication with her apprising the

functioning of Core.

(10) Core invested in the aforesaid companies. She was never informed about the existence

of the companies and/or their financial status or transactions.

(11) Mr. Rajesh Pradhan assisted her in making investments in VEL. Mr. Rajesh Pradhan

had introduced her to Techno and an account was opened in her name. She was

unaware of the fact that Mr. Rajesh Pradhan was facilitating VEL related entities to

trade among themselves and thereby created artificial volume in the scrip.

(12) She denied having knowledge of any cross deal executed by Mr. Rajesh Pradhan. The

purchase of shares of VEL was effected by Techno without her approval.

(13) The transfer of funds reflected in the SCN pertain to her Non Resident Ordinary

(NRO) account with Canara Bank, however, the bank account was operated by Mr.

Jagdish Valecha and he never furnished any information to her regarding the use of her

account for pay-in and pay-out obligation.

(14) She never received any bank statement in USA and therefore was not aware of any

transactions taking place in her account. She denied having received any funds from

VIPL or joint account of Ms. Padma Valecha and Mr. Jagdish Valecha.

(15) She reiterated that Mr. Jagdish Valecha had adopted indirect route of investment and

various fabrications to make investments in VEL/ VIPL.

(16) She came to know about all the companies and their transactions on receipt of a letter

from SEBI. She immediately resigned from the directorship of Core.

(17) She issued a notice to Mr. Jagdish Valecha completely revoking all authority granted to


him under the power of attorney.

XIII. Ms. Reena Valecha:

(1) She is part of the promoter group of VEL and holds 1,23,134 shares of VEL. However,

she is not involved in the management affairs of VEL. Her shareholding in VEL has

almost remained static except occasional purchases and she never sold shares of VEL

for the last 10 years.

(2) On March 20, 2009 and March 24, 2009, she had purchased the shares of VEL in the

ordinary course through her stock broker Techno. However, these deals with Occasion

were negotiated deals. As the transactions were executed through a common stock

broker Techno, these deals were cross deals.

(3) She was not aware that Mr. Rajesh Pradhan, an employee of VEL, was a sub-broker of

Techno. She had placed orders through Mr. Rajesh Pradhan as he had assisted her in

the past to open her accounts with the stock broker, Techno.

(4) She has denied that the purchase transactions effected by her did not result in change in

beneficial ownership. She has also denied that the cross deals were executed with the

purpose of manipulating the volume in the scrip.

(5) She bought the shares out of her own funds, received delivery of purchased shares and

as on the date of reply she was holding the said shares. Further, she denied conniving

with other related entities in financing/executing sham transactions with the funds

received from VEL/VIPL.

(6) Considering the insignificant percentage of trading by her (1.36% on the buy side),

which was delivery based, these trades cannot be treated as creating artificial volume.

(7) There is no mention of synchronized, circular or reversal of trades nor any evidence of

the same has been provided in the SCN. Therefore, creation of artificial volume cannot

be alleged against her.

(8) While she was not aware of any wrong doing by the stock broker, she cannot be held

responsible for the cross deals, if any.

(9) She has further denied that Mr. Rajesh Pradhan was facilitating her to trade with other

entities.

XIV. Ms. Padma Valecha:

(1) She is part of the promoter group and holds 1,41,163 shares of VEL. However, she is

not involved in management affairs of VEL. Her shareholding in VEL remained almost

static except occasional purchases and has not sold the shares of VEL for the last ten

years.

(2) With respect to the allegation of purchase of 1,00,000 shares of VEL on May 07, 2009,

she has stated that the said purchase transaction was delivery based.


(3) The deals with Occasion were negotiated deals and as the transaction was executed

through the same stock broker, i.e., Techno, the deal was a cross deal.

(4) She was not aware that Mr. Rajesh Pradhan, an employee of VEL, was a sub-broker of

Techno. Since, Mr. Rajesh Pradhan was an employee of VEL and he had assisted her in

the past to open her accounts with Techno, she placed orders through him.

(5) The fund transfers to Ms. Nirjhari Desai have no nexus with the purchase transactions

and the said transfer was towards the repayment of money borrowed from Ms. Nirjhari

Desai in the past.

(6) She did not connive with other related entities of VEL or indulged in

financing/executing sham transactions with the funds received from VEL/VIPL

thereby creating artificial volume and defrauding the investors.

(7) Considering the insignificant percentage of trading by her (0.62% on buy side on BSE

and 0.48% on buy side on NSE), which is a delivery based, she cannot be charged for

creating artificial volume.

(8) There is no mention of synchronized, circular or reversal of trades in the SCN nor any

evidence has been provided in the SCN.

(9) She made payment to the broker out of her own funds for the purchase of shares, she

and post payment, she received shares in her demat account. Therefore, the transactions

were delivery based and there was a change in beneficial ownership.

(10) She was not aware of any cross deals executed by the stock broker, hence cannot be

held responsible.

(11) She has denied that Mr. Rajesh Pradhan was facilitating her to trade with other

connected entities.

8. I have carefully considered the SCNs issued to the respective noticees, their replies/submissions

and the relevant material available on record. I note that the respective SCNs have been issued

to the noticees on the basis of same facts including same set of transactions in the same scrip

during the same investigation period. I further note that the charge of alleged irregular

preferential allotment of convertible warrants by VEL and creation of artificial volume in the

scrip of VEL by all the noticees who are alleged to be connected/related to each other has been

leveled against them on the basis of alleged concerted trading amongst themselves in the scrip of

VEL and inter-linked financing transactions amongst them. Further, there are several

overlapping of charges in the three SCNs issued to the fourteen noticees. In view of the nature

of alleged transactions, connections/relations, other attendant facts and circumstances of this

case and to take a holistic view in this matter, I deem it appropriate to deal with the three SCNs

issued to all the fourteen noticees herein by way of this common order.

9. Before dealing with the merits of the instant case, I deem it necessary to deal with the


preliminary issues raised by some of the noticees in their respective replies/submissions. I note

that the noticees have sought copies of the Investigation Report. In this regard, I note that the

findings of the Investigation Report have been narrated in the respective SCNs which are self

contained document containing all the allegations and charges against the noticees. The SCNs

clearly mentions the provisions of law alleged to have been violated by the noticees and the basis

of charges against them. Further, the relevant extracts of the Investigation Report was part of

the SCNs issued to the noticees. In my view, therefore, no prejudice would be caused to the

noticees if the complete Investigation Report is not provided to the noticees. In this regard, I

note that in the case of M/s Haryana Financial Corporation vs. Kailashchand Ahuja [2008(9)SCC31]

the Hon'ble Supreme Court had observed that -"the theory of reasonable opportunity and principle of

natural justice have been evolved to uphold the rule of law and to assist the individual to indicate his just rights.

Whether, in fact, prejudice has been caused to an employee or not on account of denial to him of the report has to

be considered on the facts and circumstances of each case. Even in cases where procedural requirements have been

complied with, action cannot be ipso facto illegal or void, unless it is shown that non-observance has prejudicially

affected the delinquent."

10. Some of the noticees, namely, VEL, Mr. Jagdish Valecha and F2Fun, have also contended that

SEBI cannot place any reliance on the statement of Mr. Dinesh Valecha recorded under section

11C(5) of the SEBI Act, 1992, since as per the copies furnished by SEBI those proceedings were

neither before the Investigating Authority nor the Investigating Authority has signed them

during the statement recording. In this regard, I note that Mr. Dinesh Valecha had recorded his

statement under oath and had duly signed the same in accordance with section 11C(5) of the

SEBI Act, 1992 before the Investigating Authority. Accordingly, in my view, the facts stated by

him in his statement before SEBI cannot be denied merely on the ground that the Investigating

Authority has not signed the same. I, therefore, do not find any merit in this contention of the

noticees.

11. As regards the request for the copies of statements of Ms. Sujita Pradhan, Ms. Nirjhari Desai,

Mr. Ajay Deole, Dr. F. C. Nath and Mr. Rajesh Punjabi, and their correspondences to SEBI, I

find from the records that the same have been provided to the noticees by SEBI.

12. I note that VEL, VIPL, F2Fun and Mr. Jagdish Valecha have sought cross examination of the

NRI investors mentioned in the SCN. However, neither have they specified the name of the

NRI investor whom they seek to cross-examine nor have they specified any reason for seeking

cross-examination in the matter. I, therefore, find that these requests are open requests without

making out a case for cross-examination. In this regard, it is relevant to refer to the following

judgment of the Hon'ble Supreme Court in the matter of Transmission Corpn. of A. P. Ltd. and

others vs. Shri Rama Krishnan Rice Mil (2006) 3 SCC 74:


“In order to establish that the cross-examination is necessary, the consumer has to make out a case for the

same. Merely stating that the statement of an officer is being utilized for the purpose of adjudication would not

be sufficient in all cases. If an application is made requesting for grant of an opportunity to cross-examine any

official, the same has to be considered by the adjudicating authority who shall have to either grant the request

or pass a reasoned order if he chooses to reject the application. In that event an adjudication being concluded,

it shall be certainly open to the consumer to establish before the Appellate Authority as to how he has been

prejudiced by the refusal to grant an opportunity to cross-examine any official. As has been rightly noted by

the High court in the impugned judgment where the reliance is only on accounts prepared by a person, cross-

examination is not necessary. But where it is based on reports alleging tampering or pilferage, the fact

situation may be different. Before asking for cross-examination the consumer may be granted an opportunity

to look into the documents on which adjudication is proposed. In that event, he will be in a position to know

as to the author of which statement is necessary to be cross-examined. The applications for cross-examination

are not to be filed in a routine manner and equally also not to be disposed of by an adjudicator in casual or

routine manner. There has to be application of mind by him. Similarly, as noted above, the consumer has

show as to why cross-examination is necessary.”

13. In the facts and circumstances of this case, I find that such noticees have not made out a case

for cross-examination of any specific witness relied upon by SEBI and hence, the request is

denied. I further note that all the allegations in the SCNs are based upon material such as trading

details, bank accounts, etc. and the statement/reply of any other person are not relied upon in

the respective SCNs. Therefore, the question of cross-examination of any person does not arise.

I note that in her statement Ms. Nirjhari Desai, she had stated that she had executed Power of

Attorney in favour of Mr. Jagdish Valecha who allegedly misused it for allotment. I find that this

statement is not the only basis of charge against the noticees. The charge is based upon fund

transfers amongst connected/related entities irregular preferential allotment of convertible

warrants, there alleged fraudulent trading in the scrip of VEL. The said statement of Ms.

Nirjhari Desai is being relied upon in these proceedings for the limited purpose of the

corroborating connection amongst Ms. Nirjhari Desai and Mr. Jagdish Valecha who has not

disputed the Power of Attorney given by Ms. Nirjhari Desai in his favour. Further, the

connection amongst them is established on the basis of other factors including fund transfer

from Mr. Jagdish Valecha/Ms. Padma Valecha and from VIPL to her. In my view, therefore, no

prejudice would be caused if cross-examination, if requested, of Ms. Nirjhari Desai is not

allowed.

14. Having dealt with the preliminary submissions of the noticees as above, I now proceed to deal

with the allegations and charges leveled against the noticees vide the three show cause notices all

dated November 01, 2011 and the replies/submissions of the noticees in this regard. Before


dealing with the charges/allegations, I deem it necessary to refer to the provisions of the SEBI

Act and regulations alleged to have been violated by the respective noticees. Those provisions

are reproduced hereunder:

The SEBI Act, 1992 -

“Prohibition of manipulative and deceptive devices, insider trading and substantial

acquisition of securities or control.

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;

(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;”

The PFUTP Regulations, 2003 -

Regulation 3. Prohibition of certain dealings in securities

“3. 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.”

Regulation 4. Prohibition of manipulative, fraudulent and unfair trade practices -

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

trade practice in securities.”

15. In this case, I note that three SCNs have been issued to different noticees in respect of:

(a). the alleged irregular preferential allotment by VEL wherein it allegedly, directly and

indirectly, financed the preferential allotment of its warrants and equity shares on conversion

thereof to the extent of `22,42,47,500. These funds were allegedly transferred by VEL,

directly and indirectly through its connected/related entities to the 5 preferential allottees namely


VIPL, Occasion, Worth Buying, Admire and Brightword who in turn paid back the said

funds to VEL as part of the consideration towards the preferential allotment of warrants and

allotment of equity shares on conversion thereof;

(b). alleged financing of sham transactions in the scrip, later during January 2009 to December

2009, amongst connected/related entities; namely the 5 preferential allottees (who were sellers) and

Windmill, Ms. Nirjhari Desai, Ms. Reena Valecha and Ms. Padma Valecha (who were

buyers). These connected/related entities allegedly traded in the scrip from the finance received

from VEL,VIPL and other connected/related entities and indulged in illegal cross deals through

a common broker (Techno) and common sub- broker (Mr. Rajesh Pradhan an employee of

VEL) and created artificial volume in the scrip during that period.

16. On perusal of the respective SCNs, I note that the facts that are basis of the charges therein are

inextricably inter-connected and charges therein are also overlapping. I, therefore, in order to

arrive at a logical conclusion on the respective charges, deem it is necessary to deal with the facts

of the case at one place. I note that basis of allegations in the respective SCNs including the

allotment of the convertible warrants, allotment of equity shares on conversion thereof, the fund

transfers amongst the noticees and connected/related entities of VEL, their trades in the scrip of

VEL are matter of record and have not been disputed by any of the noticees. It is undisputed

fact that on October 19, 2005 VEL made preferential allotment of 14,23,900 convertible

warrants at the rate of `199.55 per warrant that were convertible into 14, 23,900 equity shares on

a later date to VIPL, Occasion, Worth Buying, Admire and Brightword. VIPL is admittedly

connected to VEL as a promoter group company and both have a common director, Mr. Umesh

Valecha. It is also undisputed fact that the remaining preferential allottees, namely, Occasion,

Worth Buying, Admire and Brightword were incorporated only in the year 2005 as described in

Table 1. I further find that all the preferential allottees, VEL, its MD Mr. Jagdish Valecha, the

entities who had allegedly transferred monies as described in the SCNs and the entities who had

traded in the scrip of VEL as alleged in the SCNs are connected/related to each other on the

basis of the factors described in Table 2.

17. Coming to the preferential allotment of warrants by VEL as aforesaid, it is relevant to mention

that as per clause 13.1.2.3 of the then applicable SEBI (Disclosure and Investor Protection)

Guidelines, 2000 (the DIP Guidelines), 10% of the price payable for the allotment of warrants

was payable by the concerned allottee to VEL on the date of allotment i.e. on October 19,2005

and remaining consideration was payable on acquiring the equity shares on exercising the option

to convert the warrants into equity shares. In this case, the total consideration payable by the

above 5 preferential allottees for the allotment of total 14,23,900 convertible warrants or equity

shares on conversion thereof was `28,41,39,245/-. Accordingly, an amount of `2,84,13,924.50/-


(being 10% upfront payment of part consideration as per the DIP Guidelines) was payable by

these preferential allottees on the date of allotment of the convertible warrants and remaining 90%

(i.e., `25,57,25,320/-) of the total consideration was payable on conversion of the warrants.

Allotment of warrants/shares to VIPL and payment therefor:

18. On October 19, 2005, VEL made a preferential allotment of 8,73,900 convertible warrants to

VIPL. Total consideration payable by VIPL for allotment of these 8,73,900 convertible warrants

and acquisition of equity shares on exercise option to convert them into equity shares was

`17,43,86,745/-. The 10% (i.e., `1,74,38,674.5/-) of the price payable for the allotment of

warrants was payable by VIPL on the date of allotment on October 19, 2005. The remaining

90% (i.e., `15,69,48,070.50/-) of the consideration for these 8,73,900 convertible warrants was

payable on exercise of option to convert those warrants into equity shares.

19. On October 17, 2005 VEL transferred an amount of `75,00,000/- to VIPL. VIPL had

transferred back an amount of `74,38,675/- on October 18, 2005 to VEL. Further, on October

19, 2005, VEL transferred an amount of `1,00,00,000/- to VIPL which paid the same amount to

VEL on the same date. It has been alleged that from the said amount of `1,75,00,000/- received

from VEL, VIPL paid the requisite upfront 10% (i.e., `1,74,38,675/-) of the total consideration

(i.e., `17,43,86,745/-) payable towards allotment of convertible warrants. The SCN further

alleges that prior and/or on the date of allotment of equity shares upon conversion of warrants

on March 20, 2006, February 27, 2007 and April 18, 2007, VEL had transferred, directly or

indirectly through Loop, a total amount of `15,56,70,000/-, (i.e., the amounts near to the

amount of balance consideration, i.e., `15,69,48,070.50 payable on conversion of 8,73,900

warrants into equity shares). Out of the said payment of `15,56,70,000/-, VEL had directly paid

an amount of `13,81,70,000/- to VIPL and an amount of `1,75,00,000/- through Loop. The

amounts so received by VIPL from VEL on different dates were in turn paid back by VIPL to

VEL as part of total balance consideration payable as and when VIPL exercised its option to

convert the warrants into equity shares as described hereinabove. Thus, out of the total

consideration of `17,43,86,745/- payable by VIPL for 8,73,900 convertible warrants or equity

shares in lieu thereof, an amount of `17,31,70,000/- was paid by VIPL from the funds received

by it from VEL (`15,56,70,000/- directly and `1,75,00,000/- through Loop) on various

occasions which accounted for 99.30% of the total consideration.

20. VEL and VIPL have claimed that over the years VEL has been raising temporary

loans/borrowings from VIPL from time to time in the ordinary course of business. They have

also claimed to have paid interest @11% p.a. for the amount borrowed from VIPL and to have

deducted TDS on the interest paid. They have further claimed that the payments made by VEL


to VIPL on October 17, 2005 (`75,00,000/-), on October 19, 2005 (`1,00,00,000/-), on March

03, 2006 (`1,50,00,000/- and `20,00,000/-), on February 13, 2007 (`3,00,00,000/-;

`3,00,00,000/-; `53,70,000/-), on April 18, 2007 (`1,80,00,000/-) were part of repayments of

outstanding amounts payable by VEL to VIPL. In support of such claims they have not

furnished any loan agreement. They have submitted copies the Annual Reports of VIPL for the

years 2004-05, 2005-06, 2006-07, 2007-08, 2008-09, 2009-10, copies of their ledger statements,

bank account statements, copies of the TDS certificates and the certificates of their respective

statutory auditors. It is noted that in its Annual Report for the Financial Year 2004-2005, VIPL

had disclosed an amount of `15,28,727 as loan to VEL as on March 31, 2005. On perusal of

ledger statements and bank account statements of VEL and VIPL together following fund

transfers between VEL and VIPL or vice versa have been observed during March 2005 to

September 2005 (i.e., prior to alleged fund transfers):

Table 18: Details of transactions between VIPL to VEL

SL. No. Date Transactions as per bank statement of

VIPL Amount payable By VEL As per Ledger Balance

(in `)

Cheque No.

Payment by VIPL to

VEL (in `)

Payment by VEL to

VIPL (in `)

1 31/03/2005 ------------ ---------------- -------------- 1528727

2 27/04/2005 ------------ ------------- 250000 1278727

3 07/05/2005 ----------- ------------ 10000 1268727

4 14/06/2005 553036 750000 ----------- 2018727

5 24/09/2005 553038 57000000 -------------- 7718249.5

6 27/09/2005 553042 2973000 ---------- 10691249.5

7 28/09/2005 ------------- ----------- 3000549 No entry in ledger

8 28/09/2005 553056 3000000 13691249.5

9 28/09/2005 ------------ ------------ 3045000 No entry in ledger

10 28/09/2005 553043 3045000 16736249.5

11 28/09/2005 ------------ ----------- 3250000 No entry in ledger

12 28/09/2005 553044 3250000 19986249.5

13 28/09/2005 ------------ ---------- 4500000 No entry in ledger

14 28/09/2005 553045 4500000 -------- 24486249.5

15 28/09/2005 ------------- ---------- 4500000 No entry in ledger

16 28/09/2005 553052 4500000 28986249.5

17 28/09/2005 ---------- ---------- 4500000 No entry in ledger

18 28/09/2005 553053 4500000 ---------- 33486249.5


20 28/09/2005 553054 4500000 ----------- 37986249.5

21 28/09/2005 ------------ -------------- 4500000 No entry in ledger

22 28/09/2005 553055 4500000 --------- 42486249.5



24 28/09/2005 553046 4500000 46986249.5

25 28/09/2005 120700 3500000 ----------- 50486249.5

26 28/09/2005 553057 1950000 ----------- 52436249.5

27 28/09/2005 553058 4000000 ----------- 56436249.5

28 28/09/2005 553060 2625000 ----------- 59061249.5

29 28/09/2005 553061 4000000 ----------- 63061249.5

30 28/09/2005 553062 1900000 ----------- 64961249.5

31 28/09/2005 553063 1576000 ----------- 66537249.5

21. As per the ledger statement of VIPL, as on September 27, 2005, total amount of

`1,06,90,700.5/- was payable by VEL to VIPL. As can be seen from the above table that on

September 28, 2005 there were nine instances wherein VEL transferred certain funds to VIPL

and the same amount were in turn transferred back to VEL by VIPL on the same day. In such

payments by VEL to VIPL and reversal of payment by VIPL to VEL effectively an amount of

only `549 was paid by VEL to VIPL and further an amount of `1,95,51,000/- were paid by

VIPL to VEL on September 28, 2005. Further, although the effective amount of `1,95,50,451/-

was paid by VIPL to VEL on September 28, 2005, in the ledger statement entries were made to

show an additional financing of `3,62,95,000/- by VIPL to VEL. It is, thus, observed that VEL

had overstated its debt by `3,62,95,500/- as on September 28, 2005. It is relevant to mention

that the ledger statements relied upon in this case are prepared by the entities themselves and are

not corroborated by their bank account statements. Even if it were to be assumed that VEL had

to pay VIPL outstanding loans before the alleged date of allotment, it is established that as on

September 28, 2005 it had to pay only an amount of `3,02,41,700/- to VIPL and not

`6,65,37,249.5/- as shown in its ledger statement. Further, the pattern of fund movements

wherein same or proximate amount was paid by VEL to VIPL in the garb of loan repayment is

being returned by VIPL to VEL as consideration towards preferential allotment repeatedly also

shows that such entries were created to camouflage the actual financing by VEL.

22. From the transactions mentioned at Table 18, it is noted that VEL had artificially created an

outstanding liability to the tune of `3,62,95,500/- towards VIPL in its ledger statement which is

immediately prior to the date of the preferential allotment on October 19, 2005. In my view,

these facts and circumstances corroborate that these transactions were done to camouflage the

fund transfers between VEL and VIPL as loan transaction. Further, the ledger statements

submitted by VEL and VIPL which are prepared by themselves do not state the fact as shown in

their bank account statements and they also fail to corroborate their contentions. I, therefore,

find that funds, at least to the tune of `3,62,95,549/-, have been transferred to VIPL under the

camouflage of old outstanding dues which have later been utilized by VIPL for payments for

subscription of preferential warrants or conversion thereof into equity shares.

23. With regard to the allegation fund transfer of `1,75,00,000/- to VIPL through Loop on April 18,


2007, VEL has contended that said fund transfer was a temporary loan given by it to Loop in

the ordinary course of business which was repaid subsequently within a period of 4 months by

Loop. VEL also claimed to be unaware of any fund movement between Loop and VIPL. Loop

has contended that the fund transferred to it by VEL was temporary advance which was

subsequently repaid. As regards transfer of funds to VIPL, Loop has submitted that the said

transfer was towards temporary advance and is part of a business transaction carried out in the

normal course. VIPL has contended that the fund transfer between it and others was done in the

ordinary course of business. In support of these claims, Loop and VIPL have relied upon copies

of their bank account statements and ledger statements. However, they have not furnished any

loan agreement to substantiate their claims regarding existence of loan transaction between

them. It is a matter of record that the payments from VEL, directly or through/by Loop, and

allotment of warrants or equity shares on conversion thereof had happened on the same day or

in close proximity of time and the amounts funded by VEL and Loop, was approximately the

same as payable by VIPL on allotment of convertible warrants and/or allotment of equity shares

on conversion of warrants. From the ledger and bank account statements of VEL and VIPL it is

observed that apart from the impugned transaction of `1,75,00,000, there have been other fund

transfers between VIPL and Loop as well. VIPL has also claimed to have repaid the money to

Loop. Apart from this fund transfer of `1,75,00,000 no other fund transaction is noticed

between VEL and Loop on the basis of the documents submitted by them. Even if I were to

agree with the contentions of the noticees that the funds were transferred in the ordinary course

of business, it is baffling to note that none of these entities have not furnished any detail

regarding their businesses that might require constant and continuous borrowing and lending of

funds form/to each other. The facts and circumstances such as-

fund received by Loop from VEL being immediately transferred by it to VIPL,

in close proximity with the time of preferential allotment of convertible warrants thereof;

without any loan agreement to that effect;

without any interest charge on the fund transferred;

indicate premeditated plan/device.

24. Further, for connected entities VEL-VIPL, the noticees have contended payment of interest on

the amount borrowed but for fund transfer between the unconnected entities (VEL-Loop or

Loop-VIPL) no interest has been paid, which is quite unusual in the “ordinary course of business”. It

is also interesting to note that VEL is lending `1,75,00,000 to Loop on April 18, 2007 and Loop

is transferring `1,79,00,000 to VIPL on the same day which in turn is making payment of

`1,10,00,000 to VEL as consideration towards conversion of share warrants. Apparently, Loop

is a borrower of funds from VEL on April 18, 2007 and on the same day it is a lender of similar

amount to VIPL for payment of consideration towards conversion of share warrants. All these


factors when read together point to the fact that such financial transactions can take place only

between connected entities for common object. In view of the foregoing, I find that the fund

transfers between VEL-Loop and thereafter between Loop-VIPL was intended for the purposes

of subscribing to the preferential allotment of convertible warrants by VIPL and Loop acted

merely as a conduit for such transfer of funds by VEL to VIPL.

25. In the facts and circumstances of this case as discussed above, I find that the entries of loan

from VIPL and repayment thereof loan in the ledgers of VEL is merely a book entry and

intended to camouflage the financing of the allotment of the convertible warrants or equity

shares on conversion thereof (allotted to VIPL) by VEL as loan transactions. In view of these

facts and circumstances, I reject the contention of VEL, VIPL and Loop that the funds as

alleged in the SCNs bearing nos. IVD/ID4/AM/MR/VEL/33717/2011 and

IVD/ID4/AM/MR/VEL/33718/2011 dated November 01, 2011 were transferred in the

ordinary course of business.

Allotment of warrants to Occasion:

26. On October 19, 2005, VEL made preferential allotment of 2,25,000 convertible warrants to

Occasion. The total consideration payable by Occasion for allotment of these convertible

warrants and acquisition of equity shares on exercise option to convert them into equity shares

was `4,48,98,750/-. The requisite 10% of the consideration amounting to `44,89,875/- was

payable by Occasion on the date of allotment of the convertible warrants. Valecha Infra, a group

company of VEL transferred an amount of `43,00,000/- to Core on October 18, 2005 and Core

in turn transferred an amount of `45,00,000/- to Occasion on the same day. Occasion

transferred an amount of `44,89,875/- (i.e., 10% of the consideration amount payable towards

allotment of the convertible warrants) to VEL on the same date.

27. Core has claimed that on September 23, 2005 it had given a loan of `16,00,000/- to Valecha

Infra and that out of `43,00,000/- received by it from Valecha Infra, `16,00,000/- was towards

repayment of the said loan and the remaining `27,00,000/- was a loan/advance from Valecha

Infra. Core claims to have subsequently repaid the loan of `27,00,000/- to Valecha Infra. Core

has submitted copy of its bank account statement in this regard. Core has further claimed that

`45,00,000/- given by it to Occasion was part of business transaction carried out in ordinary

course of business which was repaid subsequently. VEL has submitted the ledger statement of

Valecha Infra (in respect of transaction with Core) and corresponding bank statement for the

period September-February 2006.

28. It is observed from the copies of bank statement of Core that on September 23, 2005, Valecha

Investment and not Valecha Infra (as claimed by VEL and Core) had received `16,00,000/-


from Core. Further, on October 18, 2005 VEL had transferred an amount of `16,00,000/- to

Valecha Infra and the same was used by Valecha Infra to pay to Core. From the ledger and

corresponding bank statement of Valecha Infra it is noted that Core had transferred

`27,00,000/- to Valecha Infra during the months of December, 2005 and February 2006. VEL

and Core have claimed that `27,00,000/- was loan given by Core to Valecha Infra. Core has

claimed that the said loan of `27,00,000/- was repaid in due course of time. However, neither

Core nor Occasion have submitted any evidence in support of their contention regarding refund

of `45,00,000/- by Occasion to Core.

29. I have perused the ledger and bank account statements of Valecha Infra (pertaining to

transactions with Core) in respect of the alleged transfer of `43,00,000 by Valecha Infra to Core.

First of all, Valecha Investment and not Valecha Infra had received `16,00,000/- from Core on

September 23, 2005. Even if one were to agree that the money was transferred to Valecha Infra,

it is noted that apart from the impugned transactions Valecha Infra and Core did not have any

other transactions amongst themselves. It is also admitted fact that fund so received was further

transferred to one of the preferential allottees and who utilized the fund so received for

subscribing to the preferential allotment. I note that none of these entities have furnished any

detail regarding their businesses that required constant and continuous borrowing and lending of

funds form/to each other. Occasion has failed to give any explanation as to how and on what

account it had received `45,00,000/- from Core on October 18, 2005 out of which it paid

`44,89,875 being 10% upfront consideration for allotment of 2,25,000 convertible warrants.

Further, neither Core nor Occasion have submitted any evidence in support of their contention

regarding refund of `45,00,000/- by Occasion to Core. In fact all that has been contended by

the noticees is a ubiquitous reason “ordinary course of business”. Even if this contention of

VEL, Valecha Infra, Core and Occasion is to be accepted, it is surprising to note that:

the fund was borrowed and lent between supposedly connected (Valecha Infra-Core or

Core-Occasion) without any loan agreement or any interest on the fund transferred;

Core borrows `43,00,000 from Valecha Infra and on the same day lends `45,00,000 to

Occasion which is used for payment of consideration towards allotment of preferential

warrants;

there is nothing on record show that Occasion refunded the fund that it had received from

Core.

30. I find that other than the ipse dixit denial and submission that the fund transfers were in the

nature of loan repayment/fresh loan, neither Occasion nor Core have offered any plausible

explanation for the said financing transactions originating from Valecha Infra and culminating in

payment of `44,89,875/- to VEL on the date of allotment. Further, as discussed above, neither


Core nor Occasion has submitted any evidence in support of their contention regarding refund

of `45,00,000/- by Occasion to Core. I, therefore, reject the contention of Occasion, Core,

Valecha Infra and VEL that the funds were transferred amongst them in the ordinary course of

business. In view of the above, I find that VEL used a web of its related/connected companies

to transfer funds to Occasion and the amount so received was utilized by Occasion to subscribe

to the preferential allotment. These facts and circumstances indicate premeditated plan/device.

Allotment of warrants to Worth Buying:

31. The total consideration payable by Worth Buying for allotment of 1,00,000 convertible warrants

and acquisition of equity shares on exercise option to convert them into equity shares was

`1,99,55,000/- and the requisite 10% of the consideration payable by Worth Buying on the date

of allotment of these 1,00,000 convertible warrants was `19,95,500/-. The remaining 90% of the

consideration payable on exercise of option to convert those convertible warrants into equity

shares was `1,79,59,500/-. On October 18, 2005, F2Fun transferred an amount of `20,00,000/-

to Worth Buying which in turn transferred the requisite amount of `19,95,500/- to VEL on the

October 19, 2005. Further, prior to and/or on the date of allotment of equity shares upon

conversion of warrants on February 27, 2007 and April 18, 2007, Mr. Anil Harish (the Chairman

of VEL) transferred an amount of `18,00,000/- to Worth Buying and VEL transferred an

amount of `1,43,00,000/- to Worth Buying through Loop. The amount so received by Worth

Buying were in turn paid to VEL as part of the total balance consideration payable (i.e.,

`1,79,59,500/-) as and when Worth Buying exercised its option to convert the warrants into

equity shares.

32. Thus, an amount of `1,43,00,000/- (i.e., 71.67% of the total consideration payable for these

1,00,000 convertible warrants or allotment of equity shares on conversion thereof) was financed

by VEL through Loop and `38,00,000/- (19.04% the total consideration payable for convertible

warrants or allotment of equity shares on conversion thereof) was funded through F2Fun and

Mr. Anil Harish, Chairman of VEL (connected entities of VEL). In the above manner, out of

the total consideration, i.e., `1,99,55,000/- payable by Worth Buying for 1,00,000 convertible

warrants or allotment of equity shares on conversion thereof, an amount of `1,81,00,000/- (i.e.,

more than 90% of the total consideration payable) was transferred to Worth Buying by VEL

(through Loop), F2Fun and Mr. Anil Harish.

33. F2Fun has contended that the transfer of funds amounting to `20,00,000/- to Worth Buying

was in the ordinary course of business. The said amount was repaid by Worth Buying

subsequently. It has submitted a copy of the bank statement and ledgers in this regard. VEL has

contended that fund transfer of `1,43,00,000/- to Loop was a temporary loan given by it in the


ordinary course of business which was repaid subsequently within a period of 4 months by

Loop. However, it was not aware of fund movement between Loop and Worth Buying. VEL

has submitted its ledgers and bank statements in support of its contention. Loop has contended

that the amount received from VEL or that it transferred to Worth Buying was a temporary

advance which was subsequently repaid. With respect to the fund transfer between Loop and

Worth Buying, neither of these noticees has submitted any documentary evidence such as ledger

statement, bank account or TDS, etc. to substantiate its claim. Worth Buying has failed to give

any explanation as to how and on what account it had received funds amounting to

`1,81,00,000/- from F2Fun, Mr. Anil Harish and Loop out of which it had paid a part of

consideration towards the allotment of 1,00,000 convertible warrants or shares on conversion

thereof.

34. As regards transfer of funds by Mr. Rajesh Punjabi, Worth Buying has submitted that Dr. F.C.

Nath and Mr. Rajesh Punjabi are its promoters and hence transfer of fund by Mr. Rajesh Punjabi

cannot be termed as irregular. I have perused the ledger statements and bank account statements

submitted by these noticees. The SCN alleges that Worth Buying had received `1,43,00,000/-

from VEL and remaining `38,00,000/- from entities connected to VEL. Even if I were to agree

with these contentions of the noticees, these entities have not furnished any detail regarding

their businesses that might have required constant and continuous borrowing and lending of

funds form/to each other. The facts and circumstances such as-

fund received by Loop from VEL has immediately been transferred by it to Worth Buying:

in close proximity with the time of preferential allotment of convertible warrants thereof;


without any interest charge on the fund transferred;

indicate premeditated plan/device.

35. I also find that there is no loan agreement for lending/borrowing between unconnected entities,

viz., VEL-Loop or Loop-Worth Buying. Further, none of the noticees have submitted any

documentary proof regarding payment of interest on the amount borrowed or TDS thereon.

From the factors, as discussed above, it is very much clear that the fund transfers between VEL-

Loop and immediately thereafter the same amount between Loop-Worth Buying just before the

payment for conversion of 90,000 convertible warrants was due was just a decoy. In view of

these facts and circumstances, I find that Loop acted as a conduit for transfer of funds by VEL

to Worth Buying. In view of these facts and circumstances, I reject the contention of the

aforesaid noticees that the funds were transferred in the “ordinary course of business”.


Allotment of warrants to Admire and Brightword:


Admire. On October 17, 2005, Loop had transferred an amount of `20,00,000/- to Admire

which in turn transferred `19,95,500/- to VEL on October 18, 2005 towards upfront payment

of 10% consideration payable on the date of allotment of the said convertible. It is further

noted that prior to and/or on the date of allotment of equity shares upon conversion of the said

1,00,000 warrants on March 20, 2006, Mr. Giresh Melwani (an NRI investor in Admire and

personally known to Mr. Jagdish Valecha, MD of VEL) transferred an amount of `99,77,500/-

and Loop transferred an amount of `54,00,000/- through Dr. F.C. Nath (an NRI investor in

Admire, Loop and Worth Buying and personally known to Mr. Jagdish Valecha). The amount

so received by Admire was in turn transferred to VEL as part of the total balance consideration

payable (i.e., `1,79,59,500/-) as and when Admire exercised its option to convert the warrants

into equity shares. Thus, out of the total consideration (i.e., `1,99,55,000/-) payable by Admire

for 1,00,000 convertible warrants or allotment of equity shares on conversion thereof, an

amount of `1,73,77,500/- (around 87% of the total consideration payable by Admire) was

funded to Admire by Loop (`74,00,000/- directly or through Dr. F.C. Nath) and by Mr. Giresh

Melwani (`99,77,500/-).


Brightword. The total consideration payable by Brightword for allotment of these 1,25,000

convertible warrants and acquisition of equity shares on exercise option to convert them into

equity shares was `2,49,43,750/-. The requisite 10% (i.e., `24,94,375/-) of the consideration

amounting was payable by Brightword on the date of allotment and remaining 90% amount,

i.e., `2,24,49,375/- was payable on exercise of option to convert these warrants into equity

shares. On October 15, 2005, Windmill had transferred an amount of `25,00,000/- to

Brightword which in turn transferred an amount of `24,94,375/- to VEL on October 18, 2005.

Admittedly, there was no other payment made by Brightword to VEL on the date of allotment

of these convertible warrants. Thus, this payment of `24,94,375/- (i.e. towards the 10% of the

consideration payable towards allotment of convertible warrants) was paid by Brightword from

the amount of `25,00,000/- (i.e., approximately the 10% of the consideration payable on the

date of preferential allotment) transferred to it by Windmill. It is noted that prior to and/or on

the date of allotment of equity shares upon conversion of warrants on March 20, 2006,

Windmill transferred an amount of `56,00,000/- to Brightword. Similarly, Mr. L. M.

Gwalani/Ms. Vimla Gwalani (in-laws of Mr. Jagdish Valecha, MD of VEL) transferred an

amount of `30,00,000/- to Brightword. The amounts so received by Brightword were in turn

transferred to VEL as part of the 90% balance consideration payable (i.e., `2,24,49,375/-) as


and when Brightword exercised its option to convert the warrants into equity shares. Thus, out

of the total consideration payable by Brightword for 1,25,000 convertible warrants or allotment

of equity shares on conversion thereof, i.e., `2,49,43,750/-, an amount of `1,11,00,000/- (i.e.,

44.5% of the total consideration payable) was transferred to Brightword by Windmill

(`81,00,000/-) and by Mr. L. M. Gwalani/Ms. Vimla Gwalani (`30,00,000/-).

38. Loop has contended that the transfer of `20,00,000/- to Admire was a temporary loan which

was repaid subsequently. Loop has further contended that the transfer of funds (`17,50,000/-

on January 07, 2006, `20,50,000/- on January 12, 2006 and `16,00,000/- on January 16, 2006) to

Dr. F. C. Nath was towards repayment of loan borrowed from him. Admire has contended that

the fund transfers to it were in the ordinary course of business and Dr. F.C. Nath is one of its

promoters and as such the transfer of funds by him to Admire need not be considered irregular.

Brightword has contended that it had raised loans/funds from various persons/entities including

Windmill, M/s GLM & Co., Mr. L. M. Gwalani, Ms. Vimla Gwalani, M/s G. Umesh & Co. and

Mr. Arvind Thakker for the purpose of subscribing to the convertible warrants. It has also

submitted that the funds given by the lending entities was in the ordinary course of business and

cannot be treated as funds given by VEL. Brightword has claimed to have repaid the said loan

subsequently. However, none of these noticees, namely, Admire, Brightword, Loop or Windmill

have submitted any documentary evidence in support of their contention. Having said that the

conduct of the noticees, the circumstances, viz. the incorporation of the companies just prior to

the preferential allotment, the proximity of the fund transfers with the payment towards the

subscription to the preferential allotment of convertible warrants or conversion thereof, etc.

suggest that the funds transfers were not in the ordinary course of business. These funds

transfers to these preferential allottees, directly or indirectly, were utilised for subscription to the

preferential allotment of convertible warrants or for conversion thereof as part of the entire

plan/device as alleged in this case.

39. I note that out of the total consideration of `28,41,39,245/- payable by the aforesaid 5 preferential

allottees towards allotment of 14,23,900 convertible warrants and equity shares on conversion

thereof, `22,42,47,500 (78.92% of the total consideration) were paid by them from the funds

received from VEL itself (`18,74,70,000, i.e., 65.98% of total consideration) and its

connected/related entities (`3,67,77,500, i.e., 12.94% of total consideration) in the following manner:-

(a) VEL transferred an amount of `15,56,70,000 directly to VIPL.

(b) VEL transferred an amount of `1,75,00,000 through Loop to VIPL.

(c) VEL transferred an amount of `1,43,00,000 through Loop to Worth Buying.

(d) Valecha Infra transferred an amount of `43,00,000 through Core which in turn transferred

`45,00,000 to Occasion.


(e) F2Fun transferred an amount of `20,00,000 directly to Worth Buying.

(f) Mr. Anil Harish transferred an amount of `18,00,000 directly to Worth Buying.

(g) Loop transferred an amount of `20,00,000 directly to Admire.

(h) Loop transferred an amount of `54,00,000 through Mr. F.C. Nath to Admire.

(i) Mr. Giresh Melwani transferred an amount of `99,77,500 directly to Admire.

(j) Windmill transferred an amount of `81,00,000 directly to Brightword.

(k) L. M. Gwalani/Vimla Gwalani have transferred an amount of `30,00,000 directly to

Brightword.

40. I note from the above that the amount of `2,85,00,000/- received from VEL and its

connected/related entities on the date of preferential allotment or a date just near thereto by the said

5 preferential allottees was paid to VEL on the date of preferential allotment or a date near thereto.

This amount was approximately the same amount that was payable towards 10% upfront

consideration of `2,84,13,924.50/- payable by these preferential allottees on the date of preferential

allotment of convertible warrants. Similarly, as against payment of remaining 90% consideration,

i.e., `25,57,25,320/-) payable on conversion of the warrants held by respective preferential allottees

into equity shares on different dates, a total amount of `19,57,47,500/- was paid by the

preferential allottees, except Occasion, from the funds received from VEL and connected/related

entities of VEL and its MD Mr. Jagdish Valecha (viz., Mr. Anil Harish, Loop, Mr. Giresh

Melwani, Windmill and Mr. L. M. Gwalani/Ms. Vimla Gwalani).

41. I note that the convertible warrants had been allotted on a preferential basis to the

connected/related entities (viz., VIPL, Occasion, Worth Buying, Admire and Brightword) of which

VIPL is a promoter group company and the remaining preferential allottees, namely, Occasion,

Worth Buying, Admire and Brightword were incorporated in the year 2005 itself ( from February

2005 to October 2005 i.e. just prior to the preferential allotment). The informal funds circulation

as found in this case in the facts and circumstances discussed hereinabove further corroborate

connection amongst VEL, and the aforesaid entities who have acted in concert for such fund

circulation. It is also a matter of common knowledge that a preferential allotment is made to the

persons/entities on a one-to-one basis who are acquainted/familiar with the company and/or its

promoters/directors. A preferential allotment is always for the purposes of meeting fund

requirements of the concerned company and involves a covert, manifested and planned actions

by the concerned parties, i.e.,-

(a) the company to identify select persons/group of persons who are known to it or its

promoters/directors for investing in its share capital,

(b) select persons/ group of persons (preferential allottees) exercise due diligence and then


finance the fund requirements of the company and subscribe to its shares issued on

preferential basis;

(c) the company allots shares to the preferential allottees.

42. In view of the above, VEL and all preferential allottees are also connected with each other on the

basis of several factors as described in the SCNs and also on the basis of the preferential

allotement made by the company to them. It is noted that a significant part of the consideration

towards the subscription to the preferential allotment of convertible warrants or conversion

thereof paid by these preferential allottees was financed by VEL or its connected/related entities by way

of mobilization/recirculation of funds by VEL involving layers of connected/related entities, viz.

VIPL, F2Fun, Loop, Core, Windmill and Occasion in the garb of temporary loans/advances.

None of these noticees have been able to substantiate their claim as to what business transaction

they had with VEL and its connected/related entities who transferred such large amount of funds to

them in the garb of unsubstantiated loan transactions. I, therefore, find that the factors like the

connection between VEL, Mr. Jagdish Valecha, F2Fun, Loop, Core, VIPL, Admire, Worth

Buying, Occasion and Brightword, the transfer of funds amongst them for payment of

consideration for subscription of warrants or upon conversion thereof. The entire facts and

circumstances including transfer of the approximate amount of funds required for subscription

to the convertible warrants or conversion thereof, the proximity of date of such fund transfers

with time of allotment of warrants or shares upon their conversion, borrower becoming lender

on the same day, the connected /related entities i.e. the issuer, financier and allottees all acting in

league in this case are neither fortuitous nor coincidental. These facts and circumstances strongly

indicate a design in a sordid nexus of complicity and control of all these connected parties.

These factors clearly prove that these fund transactions were with a predetermined purpose for

the allotment of the convertible warrants or equity shares or conversion thereof.

43. In view of the above facts and circumstances, I find that the preferential allottees did not pay the

full consideration as alleged in the SCNs bearing nos. IVD/ID4/AM/MR/VEL/33717/2011

and IVD/ID4/AM/MR/VEL/33718/2011 dated November 01, 2011 for the allotment of

14,23,900 convertible warrants or equity shares on conversion thereof and VEL allotted the

convertible warrants or equity shares on conversion thereof to the preferential allottees without

receiving the full consideration therefor. I, therefore, find that the allotment of convertible

warrants or the allotment of equity shares in lieu thereof by VEL to the preferential allottees was

without getting actual consideration for the same and as such was sham.

44. Considering the facts and circumstances as discussed hereinabove, I am of the view that VEL

had, in a clever subterfuge, put in place a chain of connected/related entities for engineering a web of

transfers and retransfers among them in a bid to create a make-believe of fund-rolling the


preferential allotment, when there was actually no infusion of funds for the large part of the

allotment. The analysis of rotation of funds as brought on record, with supporting bank account

statements clearly indicates that there was an unseen thread, which was controlling the whole

fund movement back and forth, in what appears to be wizardry of creating an illusion of fund

flow, out of nothing. They are nothing but sham transactions without any underlying. The entire

exercise of circulating the same funds is part of colorable devise and “it will be difficult for judicial

process to accord its approval to it”. [McDowell & Co. Ltd v/s. CTO, (1985) 154 ITR 148 (SC)]. Such

sham and fraudulent transactions by way of subscription to preferential allotment cannot be a

legitimate which law would permit.

45. The aforesaid acts are fraudulent, unfair and manipulative in connection with dealing in/issue of

shares of VEL and are covered within the definition of "fraud" and “fraudulent” under regulation

2(1)(c) of the PFUTP Regulations which reads as follows:-

Definition of ‘fraud” – Regulation 2(1)(c).

(c)“fraud” includes any act, expression, omission or concealment committed whether in a deceitful manner or

not by a person or by any other person with his connivance or by his agent while dealing in securities in order

to induce another person or his agent to deal in securities, whether or not there is any wrongful gain or

avoidance of any loss, and shall also include—

(1) a knowing misrepresentation of the truth or concealment of material fact in order that another person may

act to his detriment;

(2) a suggestion as to a fact which is not true by one who does not believe it to be true;

(3) an active concealment of a fact by a person having knowledge or belief of the fact;

(4) a promise made without any intention of performing it;

(5) a representation made in a reckless and careless manner whether it be true or false;

(6) any such act or omission as any other law specifically declares to be fraudulent;

(7) deceptive behaviour by a person depriving another of informed consent or full participation;

(8) a false statement made without reasonable ground for believing it to be true;

(9) the act of an issuer of securities giving out misinformation that affects the market price of the security,

resulting in investors being effectively misled even though they did not rely on the statement itself or anything

derived from it other than the market price.

And “fraudulent” shall be construed accordingly;.”

46. Being fraudulent, unfair and manipulative the above acts are in contravention of provisions of

regulation 3 (a), (b), (c) and (d) and 4(1) of the PFUTP Regulations read with sections 12A(a), (b)

and (c) of the SEBI Act. In this regard, I note that in the matter of Gammon India Limited vs.

SEBI (Order dated June 20, 2008), the Hon'ble Securities Appellate Tribunal has also held that

providing funds to entities by the company for the purpose of buying/subscribing its own shares

amounts to violation of the PFUTP Regulations.


47. A company being a legal person having separate and independent existence than its shareholders

acts through its board of directors who individually and collectively hold the position of trust

and have fiduciary duties towards the company, the shareholders and other stakeholders. It is

settled position that while alleging vicarious liabilities on the directors, the company should also

be proceeded with for its defaults (U.P. Pollution Control Board vs. Modi Distillary AIR 1998 SC

1128). Thus, VEL cannot escape liability of its acts. In case of Managing Director, courts have

held that he is, prima facie, deemed to be in charge and responsible for the conduct of business

and management of the company and therefore liable for defaults.{Garda Chemical Pvt LTD V. R

Parthasarthy, Asst. Collector Central Excise [1984] 2 ECC 384 [Bom]}. In this case, during the

relevant period, Mr. Jagdish Valecha was the MD of VEL and was in charge or control of its day

to day affairs. He was connected/related with the preferential allottees and other noticees as

described hereinabove. Admittedly, he had been actively involved in the incorporation of those

preferential allottees who had been incorporated in 2005 prior to the preferential allotment. He also

actively involved in the preferential allotment to the five preferential allottees and the violations as

found in this case occurred with his knowledge and involvement. Therefore, being the MD of

VEL and having active role in its preferential allotment, Mr. Jagdish Valecha is liable for the acts

of VEL with regard to the preferential allotment. The preferential allottees and other noticess who

acted in concert and in league with VEL and Mr. Jagdish Valecha in the whole scheme of

fraudulent preferential allotment are also equally responsible for such fraudulent acts. I,

therefore, find that noticees number 1 to 10 have contravened the provisions of regulation 3 (a),

(b), (c) and (d) and 4(1) of the PFUTP Regulations read with sections 12A(a), (b) and (c) of the

SEBI Act with regard to the preferential allotment which was fraudulent to the extent it was

financed by VEL directly or through connected/related entities.

48. I now proceed to deal with the second allegation against VIPL, Occasion, Worth Buying and

Admire as mentioned in the SCN bearing no. IVD/ID4/AM/MR/VEL/33718/2011 dated

November 01, 2011. The charge in this regard is that these noticees have allegedly indulged in

financing transactions and executed sham transactions with the funds received from VEL

thereby creating artificial volumes in the shares of VEL. Admittedly, these noticees have traded

through the stock broker Techno and the sub-broker Mr. Rajesh Pradhan, who is an employee

of VEL and husband of Ms. Sujita Pradhan (common director of Core, Admire, Occasion,

Brightword and Windmill) with other connected/related entities. I note that these noticees, entered

into negotiated deals on 13 trading days on BSE, wherein VIPL traded on 1 day, Occasion

traded on 8 days, Admire traded on 1 day and Worth Buying on 5 days. Similarly, on NSE these

noticees had entered into negotiated deals on 13 trading days wherein VIPL traded on 1 day,

Occasion traded on 8 days and Worth Buying traded on 5 days.

49. On February 27, 2009, VIPL bought 2,35,860 shares (96.41% of market volume) at BSE. Of


these buy transactions of VIPL, counterparties in respect of 2,35,858 shares of VEL were

Admire (2,09,704 shares) and Windmill (26,154 shares). Time difference in the buy and sell

orders in their transactions was between 1-7 second only with the matching price and quantity.

On April 22, 2009, VIPL bought 26020 shares of VEL at NSE where Occasion was the

counterparty in respect of 25960 shares. Time difference in the buy and sell orders of VIPL and

Occasion was 0 second only. During November 30, 2009 to December 16, 2009 Windmill and

Worth Buying altogether bought 64450 shares at BSE and 63400 shares at NSE and were

counterparty for each other for 62325 shares and 63400 shares respectively. Time difference

between orders placed at BSE was ranging 1-6 seconds while at NSE it was 0 seconds. Further,

price and quantity were also matching for these orders. Admittedly, these trades were negotiated

deals and executed through the common broker Techno and sub-broker Mr. Rajesh Pradhan

(who was an employee of VEL and husband of Ms. Sujita Pradhan, the common director of

Core, Admire, Occasion, Brightword and Windmill). I, therefore, find that these trades amongst

the connected/related entities of VEL were cross deals.

50. I note from the SCN that VIPL had traded on 1 day on February 27, 2009 during the

investigation period and the counterparties to its trades were Admire, Windmill and Occasion.

It is also noted from the bank account statements that VIPL had received `61,00,000/- from

VEL and transferred `61,66,924.59/- to Techno to meet its pay-in obligation towards shares

bought on February 27, 2009 (Friday) where counterparties were Admire and Windmill.

Subsequently, on March 04, 2009, VIPL received `61,00,000/- through layers of Windmill,

Admire and Loop. The pictorial representation of a typical movement of funds is given below:

51. Similarly, when Occasion bought shares, the ultimate source of funds was VIPL through layers

of Loop and Windmill. The sale proceeds of these shares were transferred by Occasion to VIPL

through Loop and Windmill. Also, sale proceeds of Admire were transferred to VIPL through

Loop.

52. I note that these VIPL, Occasion, Admire and Windmill have not disputed their trades or the


fund transfers. The aforementioned noticees have only contended that the flow of funds among

the group entities were in the normal course of lending and borrowing. From the perusal of the

ledger statement (for Loop A/c) and bank statement of VIPL, it is noted that apart from the

alleged transaction, VIPL and Loop have been borrowing and lending money but have failed to

provide any explanation of fund movement between other entities. However, as discussed

above, they have failed to give cogent reasons as to what required constant and continuous

borrowing and lending of funds form/to each other. Further, fund received by VIPL from VEL

has immediately been transferred by it to Techno which has transferred the said amount to

Admire and Windmill who have transferred fund to Loop:

in close proximity with the time of trade;


without any interest charge on the fund transferred.

53. In this regard, I note that the connection amongst these noticees has been established beyond

any doubt and has not been disputed by these noticees. Further, the proximity of amount of

funds transferred by/to these connected/related entities and the proximity of time of such transfers

clearly point out that these fund transfers were meant to finance the pay-in obligations of the

connected/related entities. It is also admitted fact that VIPL, Occasion, Admire and Windmill had

traded through Mr. Rajesh Pradhan and the trade orders matched with little or no time

difference, price and quantity. I note that these noticees have not been able to offer any plausible

explanation for the series of transactions executed through layers of connected/related entities of

VEL, except for the ipse dixit denial. In view of these attendant circumstances, the contention of

these noticees that the fund transfers amongst them were in the ordinary course of business is

lame and afterthought and hence rejected.

54. As found hereinabove, the trades by these noticees were cross deals amongst the connected/related

entities themselves without any intention to transfer the beneficial ownership and those

transactions created large volumes (in the range of 21.74% to 96.41%) when these

connected/related entities had traded. It is noted that the transactions amongst the connected/related

parties were through a common stock broker and sub-broker who was also connected/related

with the transacting parties. The transactions were executed by the stock broker by putting buy

and sell orders for the same quantity at the same price and with negligible time difference (less

than a minute). These facts indicate that the transactions of these four noticees with other

connected/related entities were not genuine cross deals but were intended to create artificial volume

in the scrip of VEL. Further, the shares transacted in these trades remained within the group of

connected/related entities and the pay-in obligations of the purchase transactions of these

connected/related entities were financed by VEL and VIPL and the sale proceeds were also

transferred to VIPL, directly or through layers. These facts further reinforce the finding that


such cross deals were not genuine and were illegal and were meant to create false appearance of

trade and artificial volumes in the market transactions. With regard to cross deals I deem it

relevant to refer to the following findings of Hon’ble SAT in its order dated August 05, 2011 in

Appeal no. 113/2011 - in the matter of GIR Marketing & Trading Co. Pvt. Ltd. vs SEBI:

“......As already observed, the seven appellants had a common broker and, therefore, the trades executed by them were

cross deals. Cross deals per se are not illegal but the common broker executing the buy and sell orders is not expected to

match those orders by putting in orders for the same quantity, at the same price and at the same time. The learned

counsel appearing for the respondent Board has placed before us a chart depicting the trades executed by the appellants

on the Calcutta Stock Exchange. We find from the chart that in most of the cases the buy and sell orders had been put

into the system for the same price, same quantity and at the same time. In other words, it was the common broker who

by manipulation was matching the trades on behalf of the appellants and did not allow the price order mechanism of the

exchange to match the trades. Proceedings were initiated against the broker as well and a statement of its representative

was recorded. He stated that the buy and sell orders had been placed on the specific instructions of the clients who were

the appellants. Having regard to the trading pattern of the appellants and the manner in which the trades had been

matched, we are satisfied that the trades executed by them were non genuine which were meant to create artificial

volumes in the market. We are also satisfied that the appellants have violated Regulations 3 and 4 of the aforesaid

Regulations which prohibit persons from directly or indirectly buying, selling or otherwise dealing in securities in a

fraudulent manner. These regulations also prohibit persons from indulging in fraudulent or unfair trade practices in

securities. In this view of the matter, no fault can be found with the findings recorded by the adjudicating officer.

55. In view of the above, I, find that these noticees number 7, 8, 9 and 10 have executed sham

transactions in the scrip of VEL thereby creating artificial volumes in the shares of VEL and

have contravened the provisions of regulation 3 (a), (b), (c) and (d) and 4(1) of the PFUTP

Regulations read with sections 12A(a), (b) and (c) of the SEBI Act in this regard as alleged in the

SCN No. IVD/ID-4/AM/MR/VEL/33718/2011 dated November 01, 2011.

56. In the SCN no. IVD/ID4/AM/MR/VEL/33719/2011 dated November 01, 2011 it has been

alleged that the noticees number 11, 12, 13 and 14 namely, Windmill, Ms. Nirjhari Desai, Ms.

Reena Valecha and Ms. Padma Valecha, in connivance with the other connected/related entities, had

indulged in financing/executing sham transactions with the funds received from VEL/VIPL

thereby creating artificial volumes and defrauding investors. It has been further alleged that such

acts were fraudulent, unfair intentional and not co-incidental and have lead to artificial

appearance of trading at the stock exchange and also artificial appearance of discovery of price,

thereby misguiding the genuine investors.

57. In this regard, I note from the tables above that these noticees, entered into cross deals on 13

trading days on BSE, wherein Ms. Nirjhari Desai entered on 3 days, Ms. Reena Valecha on 2

days, Ms. Padma Valecha on 1 day and Windmill on 7 days. Similarly, on NSE these noticees

entered into negotiated deals on 10 trading days wherein Ms. Nirjhari Desai entered on 2 days,


Ms. Padma Valecha on 1 day and Windmill on 7 days. Admittedly, the deals in question were

negotiated and executed through Techno and these transactions were entered into through Mr.

Rajesh Pradhan, who is an employee of VEL and also acted as sub-broker of Techno for these

transactions.

58. The role of Windmill in the transfer of funds to Occasion to meet its pay-in obligations and

thereafter in the transfer of the sale proceeds to VIPL has already been discussed above. Ms.

Nirjhari Desai had received `10,00,000/- from VIPL on April 17, 2009 and paid

`10,05,236.60/- to Techno on April 18, 2009 to meet her pay-in obligation towards shares

bought on April 15, 2009 where the counterparty was Occasion as mentioned earlier. Techno

transferred `9,94,738.40/- to Occasion on same day towards sales proceed and Occasion

`10,00,000/- to VIPL on April 21, 2009 through layer of Windmill and Loop. The pictorial

representation of the movement of fund is given below:

59. Similarly, on other days when Ms. Nirjhari Desai bought shares she received funds from VIPL

or the joint account of Ms. Padma Valecha and Mr. Jagdish Valecha to meet her pay-in

obligation. The fund was later on returned to VIPL through layers in all the cases. VIPL has

submitted its ledger statement (for Ms. Nirjhari Desai), bank statement, its Annual Report for

the year 2008-09 and 2009-10. Mr. Jagdish Valecha has also submitted the account statement

forwarded by Mr. Rajesh Pradhan to Ms. Nirjhari Desai on 2 occasions. On the perusal of the

documents, it is noted that VIPL had taken some money on loan and this payment of

`10,00,000 was a repayment for loan and the same is disclosed in the account statement of Ms.

Nirjari Desai as the source of funds for the purchase of these shares. It is also noted that apart

from the alleged transaction, VIPL and Loop have been borrowing and lending money in the

normal course of business. It was also observed that Ms. Padma Valecha had transferred funds

to Ms. Nirjari Desai who in turn transferred funds to the stock broker Techno to meet her pay-

in obligation. As regards the transfer of funds to Ms. Nirjhari Desai on August 01, 2009, August

11, 2009 and August 18, 2009, Ms. Padma Valecha has submitted that the transfer of funds to

Ms. Nirjari Desai was towards repayment of monies borrowed by her from Ms. Nirjari Desai in

the past. Though, Ms. Padma Valecha failed to submit any such loan agreement substantiating

her claim but have submitted her ledger statement (for Nirjhari Desai) and bank statement

showing the corresponding entries and the same was made as a repayment for a loan. Further,


Mr. Jagdish Valecha has also submitted the demat account statement of Ms. Nirjari Desai to

demonstrate that the shares were in fact transferred to her account. It is also noted from the

SCN that there is no allegation that there was any impact on the price as a result of these trades.

60. However, these noticees have not been able to offer any plausible explanation for the series of

transactions executed through layers of connected/related entities of VEL, excepting for the ipse dixit

of a mere denial of the commission of a fraud on the investors and general public and that their

transactions were bona fide. In view of the above, I find that these noticees have executed sham

transactions through the stock broker Techno and sub-broker Mr. Rajesh Pradhan who is an

employee of VEL and husband of Ms. Sujita Pradhan (common director of Core, Admire,

Occasion, Brightword and Windmill) with the funds received from VEL and its connected/related

entities thereby creating artificial volumes in the shares of VEL.

61. As regards the contention of Ms. Nirjhari Desai that she had executed a power of attorney in

favour of Mr. Jagdish Valecha in good faith for the bona fide purpose of making investments and

that she was unaware of her directorship in Core, I note that Ms. Nirjari Desai has signed the

annual account of Core for the financial year 2003-04. Therefore, the statement of Ms. Nirjari

Desai that she never signed any documents as a director of Core is factually incorrect. In view of

these facts and circumstances, I find that Ms. Nirjari Desai was aware of the fund transfers

from/to Core and utilization of monies received by Core. Ms. Nirjari Desai has also contended

that her mother-in-law had deposited some money with VEL which was liquidated and used for

purchase of shares of VEL. In this regard, I note from the documents submitted by VEL and

Mr. Jagdish Valecha and the fund transfers to her by the connected/related entities (viz., VIPL, Mr.

Jagdish Valecha and Ms. Padma Valecha) that these fund transfers were utilised to meet the pay-

in obligations for the cross-deals with the connected/related entities where Ms. Nirjhari Desai was

one of the counterparties. I also note from the submissions of VEL and Mr. Jagdish Valecha

that the shares so purchased were held in the name of Ms. Nirjhari Desai only, which were sold

pursuant to her directions, with her knowledge and consent. Further, Mr. Jagdish Valecha has

stated that at all points of time he had acted within the powers conferred on him by the power

of attorney given by Ms. Nirjhari Desai and that all along Ms. Nirjhari Desai/Mr. Mehul Desai

(her husband) were kept informed about the selling of the share of VEL. In support of his claim,

Mr. Jagdish Valecha has submitted copies certain e-mails exchanged between Mr. Rajesh

Pradhan and Mr. Mehul Desai. These facts have not been disputed by Ms. Nirjhari Desai in any

of her later submissions. In view these facts and circumstances, Ms. Nirjhari Desai cannot feign

ignorance.

62. I note that the contentions of Ms. Reena Valecha and Ms. Padma Valecha are identical. Both of

them have contended that their trades in the scrip of VEL was carried out without the


involvement of other entities, was miniscule/insignificant (Ms. Reena Valecha – 1.36% on the

buy side and Ms. Padma Valecha – 0.62% on BSE and 0.48% on NSE on the buy side) and was

delivery based. They have also contended that there is no allegation or evidence in the SCNs of

these trades being synchronized or circular. Further, they have contended that the transaction in

question were delivery based transactions and same involved a change in beneficial ownership.

Also, there is no allegation in the SCN as a result of these trades there was any impact on the

price.

63. In this regard, I note that Ms. Reena Valecha had bought 1,00,100 shares (93.77% of market

volume recorded at BSE) on March 20, 2009 and 8,295 shares (41.89% of volume) on March 24,

2009 and major counterparty was Occasion for 1,08,295 shares and time difference was ranging

from 0-7 seconds with matching rate and quantity. Admittedly, the orders were placed through

Mr. Rajesh Pradhan, an employee of VEL and a sub-broker of Techno. Similarly, Ms. Padma

Valecha had bought 1,00,000 shares (49,525 shares at BSE and 50,475 shares at NSE)

constituting 67.25% of total volume recorded at exchanges (combined) and of these the

counterparty for 98,900 shares (49,000 shares at BSE and 49,900 shares at NSE) was Occasion.

Further, the time difference between these orders was 0 second at NSE and 1 second at BSE

with matching price and quantity. Hence, in both the instances, Occasion, a connected/related entity

of VEL was the counterparty for their trades. Admittedly, these trades were executed through

the common stock broker Techno and common sub-broker Mr. Rajesh Pradhan who was an

employee of VEL with matching time, price and quantity. Therefore, these trades were executed

as cross deals the details of which trades have been provided in the SCN.

64. As regards the contention of these noticees that their trades formed miniscule/insignificant part

of the trades, I note that the trades of Ms. Reena Valecha on March 20, 2009 constituted 93.77%

of market volume at BSE and her trades on March 24, 2009 constituted 41.89% of volume.

Similarly, trades of Ms. Padma Valecha constituted 67.25% of total volume recorded at BSE and

NSE. In view of these facts, I do not find any merit in contentions of these noticees.

65. As regards the transfer of funds to Ms. Nirjhari Desai on August 01, 2009, August 11, 2009 and

August 18, 2009, Ms. Padma Valecha has submitted that the transfer of funds to Ms. Nirjhari

Desai was towards repayment of monies borrowed by her from Ms. Nirjhari Desai in the past.

However, Ms. Padma Valecha failed to submit any such loan agreement substantiating her claim.

Further, from the bank account statements, I note that on receipt of funds from Ms. Padma

Valecha on the aforesaid occasions Ms. Nirjhari Desai had transferred the funds to Techno to

meet her pay-in obligation. In view of these facts, the arguments of Ms. Padma Valecha do not

merit consideration and are rejected.

66. I note that the transfer of funds has also been established amongst these noticees and others


connected/related entities of VEL and these funds were invariably used to meet the pay-in

obligations. Further, the sale proceeds of these transactions have also been transferred back to

VIPL on the same day, directly or through layer. In view of these facts and circumstances, the

contention of these noticees that the fund transfers amongst them were in the ordinary course

of business is just an afterthought and claptrap and as such does not merit consideration. As

regards the contention of these noticees that the beneficial ownership of the shares so purchased

has changed, I note that the shares were transferred from one connected/related entity of VEL to

another through market transaction and the funds for the pay-in obligations also came from the

connected/related entities. In effect, these shares remained with connected/related entities and the

beneficial ownership of traded shares remained within the connected/related transacting parties.

The transactions amongst these connected/related parities were through a common stock

broker and sub-broker who was also connected/related with the transacting parties. The

transactions were executed by the stock broker by putting buy and sell orders for the same

quantity at the same price and with negligible time difference (less than a minute). Such repeated

transactions amongst connected/related entities repeatedly cannot be just a co-incidence. These facts

indicate that the transactions of these four noticees with other connected/related entities were not

genuine cross deals but were intended to create artificial volume in the scrip of VEL. Further,

the shares transacted in these trades remained within the group of connected/related entities and the

pay-in obligations of the purchase transactions of these connected/related entities were financed by

VEL and VIPL and the sale proceeds were also transferred to VIPL, directly or through layers.

These facts further reinforce the finding that such cross deals were not genuine and were illegal

and were meant to create false appearance of trade and artificial volumes in the market

transactions. I, therefore, find that these noticees number 11, 12, 13 and 14 have executed sham

transactions in the scrip of VEL thereby creating artificial volumes in the shares of VEL and

have contravened the provisions of regulation 3 (a), (b), (c) and (d) and 4(1) of the PFUTP

Regulations read with sections 12A(a), (b) and (c) of the SEBI Act in this regard.

67. With regard to the sham/fraudulent transactions of noticees number 7 to 14 as found

hereinabove, I deem it relevant to refer to the following observations of the Hon’ble SAT, in the

matter of Ketan Parekh Vs. Securities and Exchange Board of India (Appeal No. 2 of 2004):

“.......................Any transaction executed with the intention to defeat the market mechanism whether negotiated or not

would be illegal. Whether a transaction has been executed with the intention to manipulate the market or defeat its

mechanism will depend upon the intention of the parties which could be inferred from the attending circumstances

because direct evidence in such cases may not be available. The nature of the transaction executed, the frequency with

which such transactions are undertaken, the value of the transactions, whether they involve circular trading and whether

there is real change of beneficial ownership, the conditions then prevailing in the market are some of the factors which go

to show the intention of the parties. This list of factors, in the very nature of things, cannot be exhaustive. Any one

factor may or may not be decisive and it is from the cumulative effect of these that an inference will have to be drawn.”


68. The following rulings of the Hon’ble SAT in matter of V. Natarajan vs. SEBI (Order dated June 29,

2011 in Appeal no. 104 of 2011) would also be relevant in the context of this case:-

“… we are satisfied that the provisions of Regulations 3 and 4 of the Securities and Exchange Board of India

(Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market), Regulations, 2003 were

violated. These regulations, among others, prohibit any person from employing 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 an exchange. They also

prohibit persons from engaging in any act, practice, and 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 that are listed on stock exchanges."

69. From the above facts and circumstances it is noted that charge with regard to irregular , sham

and fraudulent preferential allotment as alleged in the SCN no. IVD/ID-

4/AM/MR/VEL/33717 dated November 01, 2011 and SCN no. IVD/ID-

4/AM/MR/VEL/33718 dated November 01, 2011 has been established against VEL, Mr.

Jagdish Valecha, F2Fun, Loop, Core and the aforesaid five preferential allottees; viz; VIPL,

Occasion, Worth Buying, Admire and Brightword. In addition to this charge, the charge of non-

genuine, fraudulent, and illegal trading to crate false appearance of trading as alleged in SCN no.

IVD/ID-4/AM/MR/VEL/33718 dated November 01, 2011 has also been established against

the preferential allottees except Brightword. It is further noted that VEL and VIPL, Loop have also

been found to have been involved in financing these trading. During the relevant period, Mr.

Jagdish Valecha was the MD of VEL and he actively participated in the execution of this whole

scheme of transactions. Mr. Jagdish Valecha, the MD of VEL, is the common thread and the

dramatis personae in this whole sorority of VEL and its connected/related entities who used VEL, its

connected/related entities and the preferential allottees to execute this irregular, sham and fraudulent

allotment of the convertible warrants or equity shares on conversion thereof. Mr. Jagdish

Valecha was also connected/related to the entities that transferred the funds to the preferential

allotteees for payment for the convertible warrants or equity shares in lieu thereof and to the

entities who were counterparties to the cross deals and the entities that funded the pay-in

obligations of some of the connected/related entities.

70. I further note that the SCN No. IVD/ID4/AM/MR/VEL/33719/2011 dates November 01,

2011 has charged noticees number 11, 12, 13 and 14 i.e., Windmill, Ms. Nirjhari Desai, Ms.

Reena Valecha and Ms. Padma Valecha that they had indulged non-genuine, fraudulent, and

illegal trading to crate false appearance of trading and there is no charge of their involvement in

the preferential allotment. In addition, this SCN has made another allegations against these

noticees that their acts also created artificial appearance of discovery of price, thereby misguiding

the genuine investors. In this regard, I find that this SCN does not mention any basis of such

allegation. Further, no material has been brought on record to indicate any price manipulation in

the scrip of VEL on account of the transactions of any of the noticees. I, therefore, find that

such allegation has not been made out in this SCN on the basis of any evidence or even on


preponderance of probability.

71. It is established that the large number of shares were allotted to preferential allottees in this case

without receipt of full consideration/allotment money as discussed hereinabove. In this case, the

allotment was made in the year 2005, i.e., 10 years ago. Thereafter, these preferential allottees

converted warrants into shares. These tainted shares are already dematerialised and are fungible

and might have changed hands by way of sale/purchase since they were allotted and a part of

the shares allotted to the preferential allottees that were sold through cross deals remained within

the group of connected/related entities. However, such transfers had taken place long back in the

year 2009. At present, it is not brought on record as to what number of such shares are still

within the hands of connected/related entities. At the same time, the connected/related entities cannot be

permitted to get unjust enrichment on account of holding any such shares of which they

acquired without paying consideration. Therefore, they should face the consequences of such

fraudulent acquisition and shares held by them, if any, in VEL to the extent of the number of

shares acquired by them without paying consideration should be frozen.

72. Considering the above, I, in order to protect the interest of investors and the integrity of the

securities market, in exercise of the powers conferred upon me under section 19 of the Securities

and Exchange Board of India Act, 1992 read with sections 11 and 11B thereof and regulation 11

of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade

Practices Relating to Securities Market) Regulations, 2003 hereby:

(a) restrain the following entities from raising capital from public and further prohibit them

from buying, selling or otherwise dealing in securities, directly or indirectly, in any manner,

whatsoever, for the period as mentioned in the following table:-

Sl. No. Name of the Noticees PAN Period

1. Valecha Engineering Limited AAACV2288G 3 years

/2015

2. Mr. Jagdish K. Valecha AAAPV6661L 3 years

3. F2Fun & Fitness (I) Pvt. Ltd. AABCS3522M 2 years

4. Loop Engineering Consultants Pvt. Ltd. AAACL5624Q 3 years

5. Core Real Estate Pvt. Ltd. AAACC6003A 2 years

6. Brightword Consultancy Pvt. Ltd. AACCB6976B 2 years

7. Valecha Investment Private Limited AAACV2759G 3 years

3 years

/2015

8. Occasion Impex Private Limited AABFO3272H 3 years

9. Worth Buying Trading Private Limited AAACW6052B 3 years

10. Admire Consultants Private Limited AAFCA3804N 3 years

11. Windmill Exports Pvt. Ltd. AAACW1526E 1 year

/2015

12. Ms. Nirjhari Desai ALDPD0455A 1 year

13. Ms. Reena Valecha AACPV8423E 1 year

14. Ms. Padma Valecha AAFPV7356K 1 year


(b) direct that the shares of VEL allotted pursuant to the preferential allotment dated October

19, 2005 and lying in the demat accounts of the preferential allottees shall remain frozen;

(c) direct VEL not to give effect to transfer of any shares acquired and held by the preferential

allottees in the preferential allotment dated October 19, 2005;

(d) restrain the preferential allottees from exercising any voting rights (including through nominee

or proxy) or other rights attached to the shares acquired and held by them in the preferential

allotment dated October 19, 2005.

73. This order shall come into force with immediate effect. A copy of this order shall also be served

upon the depositories and stock exchanges for necessary action on their part.

Sd/-

DATE: JANUARY 5TH, 2016 RAJEEV KUMAR AGARWAL

PLACE: MUMBAI WHOLE TIME MEMBER

SECURITIES AND EXCHANGE BOARD OF INDIA

wtm/rka/efd-dra-i/9-11/2016 before the securities and exchange board of ... · before the...

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