Market regulator Securities and Exchange Board of India (SEBI), while imposing a total penalty of Rs45 lakh on nine entities, including the company, its promoter and managing director (MD) and non-executive director, directed six of them to disgorge Rs2.28 crore, the unlawful gains earned by manipulating the share price of Gokul Solutions Ltd (GSL), with an interest of 12%pa (per annum). SEBI also barred these nine entities from markets for six months.
In an order, Babitha Rayudu, executive director (ED) of SEBI, says, "Noticees 1 to 6 have been unjustly enriched at the cost of the investing public and hence, it is only fair and just that noticees 1 to 6 should be ordered to disgorge the gains made by them in violation of the provisions of the SEBI Act, 1992 and PFUTP Regulations, 2003 which were made at the cost of gullible investors who traded in the securities market."
The nine entities who were charged with a fine of Rs5 lakh each are: Arrowline Distributors Pvt Ltd (noticee 1), Aryavrat Suppliers Pvt Ltd (notice 2), Metrocity Suppliers Pvt Ltd (noticee 3), Sourav Builders (noticee 4), Sourav Management Pvt Ltd (noticee 5), Sourav Nursing Home Pvt Ltd (noticee 6), Gokul Solutions (noticee 7), Sanjay Kumar Agarwal (noticee 8), the promoter and MD of GSL and Sunita Agarwal (noticee 9), the promoter and non-executive director of the company.
A preliminary examination into the trading in the shares of GSL by BSE was forwarded to the SEBI on 28 June 2019 which revealed that a group of clients connected with the company contributed to the unnatural increase in the price and volume of the scrip of GSL.
The shares of GSL were listed on the SME-ITP platform of BSE through a direct listing on 9 December 2014. The price of the GSL scrip opened at Rs38 on 9 December 2014 and closed at Rs349 on 23 February 2018 after touching a high of Rs355 on 4 August 2017. GSL made no corporate announcements during the investigation period.
As per the financial results filed with the Exchange, GSL registered a net profit of Rs13 lakh for the year ended March 2015. However, its net sales and profit kept declining compared to the previous year's. In FY16-17, GSL registered a loss of Rs5 lakh.
On 31 March 2014, GSL allotted 4.29mn (million) shares at Rs10 on a preferential basis to 23 entities. It again allotted 5.7mn shares on a preferential basis to 10 entities on 6 May 2014 and 7 June 2014 at Rs10 i.e. in total, 33 entities were allotted shares on a preferential basis.
SEBI investigation found that certain entities traded in the scrip of GSL during the investigation period, and of them, 31 entities were identified as being connected or related to each other in a certain manner and also with the company or its promoters and directors who had traded in the scrip of GSL during the investigation period. Noticees 1 to 6 were recipients of the shares allotted on a preferential basis.
According to SEBI, of the 33 preferential allottees, noticees 1 to 6 were allotted a total of 3.21mn shares, out of which they sold 357,650 shares for Rs307.97 lakh during the investigation period (IP). The connected entities bought 239,400 shares for a total of Rs251.92 lakh through trades, of which 25 were matched in terms of price and quantity and were found to have resulted in a positive last-traded price (LTP) contribution of Rs111, which enabled them to book profits.
SEBI says considering the scheme of events, i.e., issuance of such shares on a preferential basis to certain entities, listing of the scrip at the BSE-SME-ITP platform, inflating the price of the scrip by the company-related entities and subsequently granting an exit to the allottees at artificially increased prices by the company related entities, GSL, it's MD Mr Agarwal and non-executive director Ms Agarwal appeared to have played an active role in the adoption of such manipulative devices. Mr Agarwal also appeared to have indirectly contributed to the price manipulation by providing funds to another entity, Wakeeta Commercial Pvt Ltd, who had actively traded in the scrip of GSL during the investigation period.
"The fact that the orders for these 25 trades were placed pre-mediated in an illiquid scrip by matching the price and quantity indicates that the same was facilitated only on account of a prior meeting of minds. To add to their fraudulent activity, the connected entities kept raising the LTP while matching trades with the other connected entities, thus unfairly and fraudulently booked profits," Ms Rayudu says in the order.