October 30, 1998
PR No. 295/1998

Investigation on abnormal movement of prices and volumes especially during the months of April and May,1998 
Investigation, Enforcement and Surveillance Department

The scrips of BPL, Videocon International and Sterlite Industries Ltd showed abnormal movement of prices and volumes especially during the months of April and May, 1998. Further in the wake of declining trend in the stock indices during the latter part of May, 1998, there were sharp declines in the price of these scrips also. There were also reported payment problems of certain brokers dealing in these scrips at BSE and NSE. There were also allegations that a scam related broker viz. Harshad Mehta was also behind these manipulations. 

In the context of these developments, SEBI had undertaken investigation in the third week of June 1998 into the alleged manipulation of these scrips. Investigations have been carried out on priority basis. 

Investigations have prima facie revealed that a set of brokers mainly acted on behalf of common set of clients and cornered very large chunks of scrips both on BSE and NSE. These entities i.e. the brokers and the common set of clients acted in a concerted manner. They built up unusually large positions resulting in the distortion of the market equilibrium and the artificial creation of market. This act of these entities carried out in a calculated and concerted manner was detrimental to the interest of the investors and vitiated the integrity and safety of the market. The conduct of these brokers was not only unprofessional, reckless and unbecoming but was grossly manipulative. These brokers acted for the following common set of clients:

  1. Damyanti Finvest Pvt. Ltd.
  2. CDP Fincap & Leasing Pvt. Ltd.
  3. KRN Finvest & Leasing Pvt. Ltd.
  4. Rijuta Finvest Pvt. Ltd.
  5. Isku Finvest Pvt. Ltd.
  6. Burlington Finance Pvt. Ltd.
  7. Money Television Ind. Ltd.

All these entities are a common group having common directors/common office and investigations have revealed that they were acting merely as front for Harshad Mehta who was involved in the scam of 1992. These common set of entities mentioned above built up very large positions in these three scrips and cornered huge quantities of floating stock. For eg 70% of the total stock traded for delivery in BPL in cash and carry forward system was cornered by these entities through the set of brokers who indulged in manipulation in connection with these entities. In the scrips of Videocon and Sterlite they cornered 40%/50% quantity of deliverable trade. Investigations have also revealed that the brokers who dealt mainly with these brokers in these scrips had transferred funds to each other and also across the exchanges while dealing in these scrips. The exchange of kaplis was also resorted to very frequently. Another important feature that some of these brokers had built up huge carry forward position in these scrips and even exceeded the exposure limits prescribed for trading. It is established in the investigation that these entities including the set of Brokers in concert and connivance have been responsible for the manipulation in these scrips. 

As a result of these investigations enquiry proceedings as prescribed under SEBI regulations have been initiated in respect of 23 brokers of BSE and 11 Brokers of NSE. However, out of these brokers taking into consideration the gravity and seriousness of the involvement of the some of the brokers, extent of their dealing and also in some cases repeated involvement in manipulation in earlier cases also, in the interest of the investors and the securities market and with a view to prevent further damage it has been decided by SEBI under Section 11B of the SEBI Act to prohibit the following brokers from undertaking fresh activities of broking till the enquiry proceedings are completed and further orders are passed. These orders will come into effect from the start of the next settlement i.e. November 2, 1998 at BSE and November 4, 1998 at NSE. These 18 brokers comprise of 12 brokers of BSE and 6 Brokers of NSE are as under:

  1. GNH Global Securities Ltd � BSE broker
  2. Satyanarayan Nangalia � BSE broker
  3. R.R. Mohta � BSE broker
  4. M/s. Sharukh N. Tara & Co. � BSE broker
  5. PR Shah Share & Stock Brokers Pvt. Ltd � BSE broker
  6. M/s. Ramrakh R. Bohra � BSE Broker
  7. Mahico Pvt. Ltd � BSE broker
  8. M/s. Mefcon Securities Ltd � Broker BSE and Broker NSE
  9. Lalkar Securities Pvt. Ltd � BSE Broker
  10. Harvest Deal Securities Pvt. Ltd � BSE Broker
  11. Bharat J. Patel � BSE broker
  12. Sony Securities Ltd � NSE broker
  13. Digital Leasing & Finance Ltd � NSE broker
  14. Valfin Financial Services Pvt. Ltd � NSE broker
  15. Stenly Credit Capital Ltd � NSE Broker
  16. Asian Securities & Stocks Ltd � NSE broker
  17. Star Share & Stock Brokers Ltd � NSE broker
  18. Malar Share Shoppee Ltd 

Investigations have also prima facie established that the set of common clients mentioned earlier with whom these brokers were dealing in these scrips are the entities closely connected to Harshad Mehta and acted as front for him. The present directors in charge of these entities namely Shri Anil Doshi and Dinesh Doshi are the close relations of Harshad Mehta. These persons have no financial track record or worth of their own nor do they have experience or the professional expertise to undertake such securities transactions. The decision making was not done by them and evidence shows that their activities and decision making was in control with Harshad Mehta. 

While prima facie the role of Harshad Mehta is established there are some further aspects which need to be examined and therefore the report on the entire role of Harshad Mehta would be prepared separately and the action of Harshad Mehta and his front entities mentioned earlier would also be taken separately. 

On the alleged role of promoters/entities related to promoters also there are certain aspects which need to be further examined and therefore separate report would be completed and action would be taken accordingly. 

As regards the functioning of the exchanges and whether the surveillance mechanism was adequately applied and whether there were any lapses on their part has largely been examined and a further report would be shortly prepared for the same.