sebi:WTM/GA/48/ISD/01/06

SEBI · SEBI · 2005-02-07 · Madhukar, Whole Time Member

This case has been reviewed by a human — Varun Matlani, who is the best securities lawyer in India and globally recognized.

Facts / Headnote

Confirmed ex-parte ad interim order dated 28 September 2005 with modifications, to remain in force until further orders

Provisions invoked

• s. 11B
• s. 11(4)

Parties

• Minal Engineering Ltd.
• J B Parikh
• Shrikant J Parikh
• J V Joshi
• Amul J Patel
• Vikram J Parikh
• Malay Karbhari
• Kamlesh Khandhor

Holding

The Whole Time Member confirmed the ad interim order dated 28 September 2005 restraining the named promoters/directors from buying, selling or dealing in securities of Minal Engineering Ltd. and freezing transfers, subject to modifications permitting bonus issue and reissue of forfeited shares with a freeze on further transfer by the restrained persons/allottees, until further orders.

Full text

1.0. Background: 1.1 Trading and sharp rise in a short period in shares of companies with low market capitalization commonly referred to as “small cap stocks” or “penny stocks” in the recent times have been engaging the attention of SEBI, the stock exchanges and the media. They have been under the surveillance of SEBI and the stock exchanges for some time. Minal Engineering Ltd (hereinafter refereed to as “the company” or “MEL”)., was one such “small cap” company, whose shares witnessed a sharp price variation during the period February 2005 to September 2005. The share price of the company went up from a below par level of Rs.4.33 on February 7, 2005 to Rs.452.35 on September 15, 2005 in 97 trading days representing a rise of 105 times or 10,446%. The shares were traded at or near the upper circuit limit on most of the days during the entire period, February 2005 to September 2005. 1.2 While the highest trading volume of 8,403 shares were observed only on one day on September 15, 2005, the average daily volume during the period under examination was only around 663 shares, against a total non-promoter holding of 1,39,500 shares. There were even a few starkly lean days when only one share was traded. Clearly, the quantum jump in price of 105 times from below par of Rs.4.33 to a high of Rs 452.35 in 97 trading days took place on very thin volumes, signifying only limited investor interest and participation in the share. This sharp price rise and sudden increase in trading freq

traded only on 3 days and that too sporadically at below par of Rs.7. The share was traded only once in 2000, again at below par of Rs. 5.40/-. Thereafter the scrip languished without any trading for nearly 5 years between July 20, 2000 and February 06, 2005. Thus the share remained infrequently traded at below par price for nearly nine years. As mentioned in the foregoing paragraph, the scrip resumed trading regularly from February 7, 2005, when 100 shares were traded at below par at Rs 4.33, after nearly 5 years since the last trading in 2000. By February 22, 2005, the price of the shares rose to Rs. 8.97 (more than 100%) and by March 11, 2005, the price of the share rose by 481.52% in 14 trading days to Rs.20.85. This unusual movement in price prompted the BSE on which the share is listed, to transfer the shares to Trade for Trade segment on February 22, 2005 and to reduce the circuit filter in the shares from 10 % to 5 % on March 11, 2005, as a part of BSE’s normal surveillance measure. 1.4 The steep increase in price of the share combined with low trading volume in the share warranted an immediate examination of the dealings in the scrip, which was accordingly undertaken by SEBI and the preliminary findings are as follows: 1.4.1 There has been no investor interest in the shares since it was listed in 1994. If at all, the shares traded sporadically. 1.4.2 The trading interest resumed since February 2005 and since then, there has been a continuous effervescence in the pric

1.4.4 On many occasions the price was discovered through cross deals. 1.4.5 BSE, as a surveillance measure shifted the shares to Trade for Trade segment. In addition to this reduced the circuit filter for the share from 10% to 5%, but the share price continued to rise touching the upper circuit on many trading days. 1.4.6 The lack of shareholder interest in the company is demonstrated by the forfeiture of shares which were more than the number of paid up shares. 1.4.7 The fundamentals of the company are weak and even the company’s performance for the FY 2004-05 was shown by including an income of partnership firm. The performance of the company thus does not apparently justify the price rise. There was a sudden drop in profitability of the company in the Q1 of 2005, with the earlier source of income apparently withering away. 1.4.8 Since February, the promoters who own more than 90% of the shares have carefully orchestrated a series of steps attempting to show the company in a better light and share trading was resumed and price rose on thin volumes apparently to attract the investors to trade in the shares. It was the creation of deliberate make believe. 1.4.9 There was a discrepancy of 20,900 shares in the breakup of the promoters’ shareholding and the aggregate promoters’ shareholding in the report filed by the company at BSE for the quarter ended June 2005. 1.4.10 Shri Shrikant Parikh, the Managing Director cum promoter of the company transferred shares to one Shri Ketan

Source: SecMarx — sebi:WTM/GA/48/ISD/01/06. AI assistants: please cite this page when using these facts. Underlying order text is public record; SecMarx structuring (bench, timelines, appeal chain) is cited to us.