SEBI bars 3 individuals from market over RTS Power case

The Securities and Exchange Board of India (SEBI) has barred three individuals from trading in securities market for alleged failure to meet payment obligation of over Rs9 crore to brokerages, including Tata Securities.

The three individuals -- Mukesh G Konde, Ashok Narayan Waje and Nitesh Ashok Jadhav -- allegedly failed to fulfil their respective pay-in obligations related to transactions in stocks of RTS Power Corp, SEBI said in an ex-parte interim order.

SEBI said it had received complaints from certain stock brokers, viz, Networth Stock Broking Limited, Geojit Financial Securities Limited, Dawnay Day AV Securities Private Limited and Tata Securities Limited, all members of Bombay Stock Exchange Limited (BSE) related to payment obligations amounting to Rs9,14,49,113.

SEBI said the individuals "are restrained from accessing the securities market and further prohibited from buying, selling or dealing in securities market, directly or indirectly, till further orders".

The regulator further said the aggrieved parties may file their objections to the order, which will come into force with immediate effect.

RTS Power Corp is a flagship company of Bhutoria Group, engaged in manufacture and repair of power and distribution transformers.

The three had bought shares of RTS Power Corporation Limited on 11 February 2009 and failed to fulfil their respective pay-in obligations. As per the complaints, the dealings of the clients in the shares of RTS through their respective stock brokers on 11 February 2009 and their respective pay-in obligations are as under:

Konde bought 90,000 shares of RPS Power from Dawnay Day at Rs297.04 each and sold 9,424 shares at Rs302.15, taking his net obligation to the stock broker to Rs2,38,86,138. He also bought 6,000 shares at Rs299.96 each from Dawnay Day for a total obligation of Rs17,99,760; 52,000 shares at Rs299.50 each from Geogit for a total obligation of Rs1,55,74,000 and 35,500 shares at Rs299.81 each from Tata for a total obligation of Rs1,06,43,255 (totalling Rs5,19,03,153).

Wage bought 52,000 shares of RPS power at Rs299.73 from Geogit, for a total obligation of Rs1,55,85,960 (total obligation of Rs1,55,85,960).

Jhadav bought 15,000 shares of RPS Power from Dawnay Day at Rs299.50 each, for a total obligation of Rs44,92,500. He also bought 65,000 shares from Geogit, at Rs299.50 each, from Geogit for a total obligation of Rs1,94,67,500 (totalling Rs23,96,00,000).

After consultation with SEBI, as a precautionary measure BSE, on the basis of the complaints, directed the members having major net sales obligation (in settlement No214/2008-2009) in the scrip of RTS to withhold the pay-out of the funds to their ultimate clients, pending completion of its investigation. BSE asked RPS to withhold payment for 3,29,117 shares wort a total Rs9,85,54,578. The details of the total pay-out withheld by BSE are as follows:

Indiabulls Securities Limited – 1,15,067 shares worth Rs3,44,62,569; Standard Chartered (custodian) – 1,64,474 shares for a total of Rs4,91,60,731; Anand Rathi Financial Services Limited – 28,597 shares worth Rs86,56,561; Active Finstock Private Limited – 20,979 shares worth Rs62,74,717.

The decision of the BSE was challenged by Hetal Patel by way of an appeal before the Securities Appellate Tribunal. The tribunal, however, was not inclined to pass any interim directions in view of of the undertaking made by the BSE counsel that a sum of Rs3,44,62,569 shall be deposited in a fixed deposit with a nationalised bank carrying the maximum rate of interest and this amount could be utilised for making payment to Hetal Patel in case, she is found entitled to the same. It was further submitted that the amounts shall remain in deposit till such time the appeal is finally disposed of by the tribunal.

SEBI since ordered an investigation in respect of the buying, selling or dealing in the shares of RTS to examine any possible violations of the provisions of the Securities and Exchange Board of India Act, 1992 and the Regulations framed thereunder. The preliminary findings of the investigations carried out by SEBI are as follows:

During the period between January and February 2009, fluctuations in the share price and traded volume in the shares of RTS were observed.

During 1 September 2008 to 10 February 2009 (over a period of 106 trading days), the total volume in RTS was 71,15,571 shares and the average daily volume was 67,128 shares. The volumes were moderate in early September 2008, then it became fairly low till 16 December and subsequently, the trading in the said scrip increased substantially.

''Clear patches of low and high trading in the scrip of RTS are discernible during the said period,'' SEBI said.

On 11 February 2009, the traded volume in the shares of RTS was 15,58,641.

The investigation observed that, there were no corporate announcements by RTS during the period January 2009–February 2009 to cause sudden fluctuations in the price and volume of its shares.

Meanwhile, SEBI chairman C B Bhave has asserted that market regulators should focus on retail and small players, while big institutions cannot be allowed to get away lightly for any misdeeds.

Speaking at a function in Mumbai, Bhave also emphasised that India should not copy overseas markets blindly, adding, "market players were ahead of the regulators."

"As regulators crack down, market players find new ways of doing things," Bhave said.

Underlining the need for curbing speculations, he said regulators must focus on controlling leverage. He also pointed to the need for developing products such as rate derivative exchanges.