WTM/SR/IVD/ID- 2/77/04/2015

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI

CORAM: S. RAMAN, WHOLE TIME MEMBER
ORDER
Under Regulation 28(2) read with Regulation 35 of the Securities and Exchange Board of India
(Intermediaries) Regulations, 2008 in respect of Rikhav Securities Ltd. (PAN-AADCR3067Q
and SEBI Registration Nos. INB011280436 -BSE and INB231280430 -NSE) in the matter of IPO
of Vaswani Industries Limited.

1.

Securities and Exchange Board of India (hereinafter referred to as "SEBI"), vide an interim Order
dated July 11, 2011, inter alia, prohibited Rikhav Securities Ltd. (hereinafter referred to as " Rikhav
Securities"), who was a sub- syndicate member in respect of the Initial Public Offer (IPO) of the
company, Vaswani Industries Ltd. (hereinafter referred to as 'VIL'), from acting as a syndicate
member/sub-syndicate member for any future issues till further directions. The said Order was
passed on the basis of the prima facie findings that Rikhav Securities had inflated the bid book to a
large extent in the IPO of VIL and thus appeared to have induced the investors in the Retail
Individual Investor (RII) category to subscribe to the issue.

2. Before dealing with the specific charges alleged against Rikhav Securities, the factual background in
the context of which charges have been levelled against it, may be mentioned. VIL came out with an
IPO for 100 lac equity shares of face value of 10/- each at a premium of 39/- per share. The
IPO of VIL was a book-built issue and bidding started on April 29, 2011 and closed on May 3,
2011. The level of subscription for Qualified Institutional Buyers (QIBs), on closure of bids, was at
0.16 times, and oversubscription levels of Non-institutional Investors (NIIs) and RIIs were at 11.29
times and 6.82 times respectively. Based on these figures the oversubscription in the issue was
calculated at 4.16 times.

However, after taking into consideration, the cheques returned,

withdrawals and technical rejections, the oversubscription level fell to 1.28 times. The issue price
was fixed at 49/- and the securities issued through the IPO were allotted to investors on May 10,
2011.

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2.1. SEBI received several complaints from applicants pointing out large scale withdrawals/rejections
in the issue, alleging that certain applications were submitted only to artificially inflate the
subscriptions in QIB/NII/RII categories with a view to attract and mislead investors. Based on
such complaints from applicants alleging deliberate huge withdrawals and rejections after the
closure of the IPO of VIL, SEBI, vide Order dated May 26, 2011, inter alia directed detailed
investigations in the matter. While the investigations were in progress, SEBI passed the aforesaid
interim order dated July 11, 2011 inter alia against Rikhav Securities, who was a sub-syndicate
member in respect of the IPO of VIL. The said Order also directed VIL to give withdrawal
option to all the investors who were allotted shares in the NII and RII categories for such number
of shares by which the allotment ratio was impacted due to withdrawals/rejections in the aforesaid
categories.
2.2. After completion of investigation in the matter, SEBI initiated Section 11B proceedings against
Rikhav Securities. On the basis of findings made in the investigation a SCN dated December 13,
2012 was issued to Rikhav Securities, calling upon them to show cause as to why appropriate
action including directions restraining them from buying, selling or dealing in securities for a
specified period should not be issued against them. During the intervening period, SEBI also
initiated enquiry proceedings against Rikhav Securities under Chapter V of the SEBI
(Intermediaries) Regulations, 2008 ("Intermediaries Regulations") and appointed a Designated
Authority ("DA") in respect thereof. Both the proceedings are for the violation of the provisions
of Section 12A(a), (b), and (c) of the SEBI Act, 1992 and Regulation 3(b) and 3(d), 4(1) and 4(2)
(a) and (b) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to
Securities Market) Regulations, 2003 (hereinafter referred to as "PFUTP Regulations") and
Clause 6(a) of Schedule XI of SEBI (Issue of Capital and Disclosure Requirements) Regulations,
2009 (hereinafter referred to as "ICDR Regulations") by the entity.
3. The main allegations levelled against Rikhav Securities are stated below:
i.

Rikhav Securities was one of the largest brokers/sub-syndicate members with respect to
bidding in both NII and RII categories, and contributed to about 82% of the issue size.

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Withdrawals/rejections from its terminal were as high as 71% of the total issue size. The
entire bidding (i.e. 100%) under the NII category and 77% of the bidding under the RII
category, from the terminal of Rikhav Securities were withdrawn/rejected.
ii.

Majority of the bids received on the first two days i.e. April 29 and May 02, 2011 were either
withdrawn/rejected. The NII category contributed to majority of the rejections /
withdrawals in the first two days where as the Retail category contributed to the withdrawals
/ rejections on the third day i.e. May 03, 2011.

iii.

Rikhav Securities had acted in concert with their group companies viz. AHL Investment
Consultants Pvt. Ltd. and Rikhav Brokers Pvt. Ltd. (presently known as 4G Solutions P.
Ltd.) and placed large bids on behalf of them through its terminal under the NII category in
order to inflate the bid book; to give a misleading appearance of bidding in the issue and to
contribute towards discovering the price at the highest price band of 49/- per share. It is
further alleged that the entire bids placed on behalf of the group companies were
subsequently withdrawn.

iv.

With respect to 232 bids i.e. 230 bids in the RII category for 903360 shares (9.03% of total
issue size) and 2 bids in NII category for 8,16,240 shares (8.16% of total issue size) placed
through Rikhav Securities, the cheques submitted along with the bids were not banked.
Such huge "not banked"' applications from the terminal of Rikhav Securities contributed
17.2% of the Issue size. Such "not banked" applications were about 26.9% in the entire IPO
process. Out of these 230 clients, Rikhav Securities submitted copies of withdrawal letters
along with copies of cheques of only 163 clients, but did not furnish copies of the
application form. Most of these bids of clients were placed on the last day of bidding
particularly, in the last 3 hours and the said cheques of the clients were also dated May 3,
2011. Copy of "Not Banked" details was enclosed along with SCN.

v.

Rikhav Securities through its NBFC arm Total Holdings had financed 187 clients belonging
to the RII category. These 187 clients had placed their bids through Rikhav Securities and
their bids amounted to 7,62,960 shares. With respect to 112 applications, the bids were valid
for 4,56,950 shares and with respect to 75 applicants, the bids were invalid for 3,06,010

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shares as these bids were withdrawn subsequently. Further, of the above, 137 bids for
5,58,960 shares were placed on May 3, 2011 and of which only 76 bids for 3,10,080 shares
were valid.
vi.

In view of the above, it was alleged that such bids were made by the Rikhav Securities at the
highest price with an intent to raise the price of the Issue at the highest level of price band
and hence, were not bonafide in nature, but were done with a motive to artificially inflate
the bid book, to show good response in IPO and to create misleading appearance of
bidding.

4. The DA submitted the Report on July 11, 2014, recommending the certificate of registration of the
Rikhav Securities as stock broker at NSE and BSE be "suspended for a period of two months". The
observation made by the DA in the Report are summarized as under:
a. Rikhav Securities had placed large bids through their terminal under the NII category on
behalf of its group companies viz. AHL Investment Consultants Pvt. Ltd. (AHL
Investments) and Rikhav Brokers Pvt. Ltd. (Rikhav Brokers), presently known as 4G IT
Solutions Pvt. Ltd. knowing that the said companies did not have sufficient funds in their
respective bank accounts during the time of placing bids. The same was done by Rikhav
Securities, in order to inflate the bid book; to give a misleading appearance of bidding in
the issue and also to contribute towards discovering the price at the highest price band of
49/- per share. Placing bids for its two group company/clients accounted for 8.16% of

total Public Issue size on the first day of bidding itself (apart from other huge bids made
for its NII clients on the first day itself), cannot be termed as miniscule and certainly such
percentage is sufficient enough to have impact in the IPO bidding.
b. DA observed that under the NII category, on April 29, 2011 and May 02, 2011, 24.59%
and 32.37% to the total bids of the day in IPO were made through Rikhav Securities
respectively and the entire 100% of such bids were withdrawn as cheques returned/not
banked.

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c. The cases wherein the bid applications were not banked at all, Rikhav Securities failed to
provide the evidence that it has received the withdrawal applications from all such clients.
It is observed from the records that out of 230 instances (under RII category) of not
banked applications (contributing 17.2% of the Issue size from the terminal of the
Rikhav Securities), they could provide withdrawal application of only 163 applicants
wherein the applicants requested Rikhav Securities not to bank their applications. It is
admitted by Rikhav Securities that it could give copies of withdrawal letters along with
copies of cheques only for 163 clients out of 230 clients. DA observed that sub -syndicate
member is required to keep the entire relevant records in respect of its clients for placing
as well as for withdrawal of the bids. In view of this, DA rejected the explanation given
by Rikhav Securities that such records are not available with them and the same is
available with the sub brokers who dealt with the applicants/clients.
d. The bids for 75 applicants/clients which were financed by the NBFC arm of Rikhav
Securities, viz. Total Holdings, were also withdrawn.
e. For RII category, 8.42% and 48.75% to the total bids of the day in IPO were made
through the terminal of Rikhav Securities on May 02 & 03 of 2011 respectively and out of
this, 36.91% and 79.86% of the bids were withdrawn respectively as cheques
returned/not banked etc.
f.

On the basis of the aforesaid observations, DA concluded that placing first bid on the
opening day for huge number of shares for its connected/related clients (group company
i.e. Rikhav & AHL) with the knowledge that they are not having sufficient funds and not
banking the applications for other clients etc. are definitely not genuine activities, but,
were done by Rikhav Securities with an intent to artificially inflate the bid book at the
highest price and to create misleading interest for other investors/public to subscribe in
the Issue. Therefore, such activities of Rikhav Securities are in contravention of
provisions of Section 12 A (a) (b) & (c) of the SEBI Act, Regulation 3 (b) & (d), 4 (1)
and 4 (2) (a) & (b) of the PFUTP Regulations.

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g. As regards the violation of Clause 6 (a) of Schedule XI of the ICDR Regulations, DA was
of the view that the said Clause is applicable to Book Runner/Syndicate Member who
appoints a stock broker registered with SEBI (as Rikhav Securities is in the present case)
for the purpose of accepting bids, applications and placing orders with the Issuer. A
mandate is cast upon the Book Runner/Syndicate Member to ensure that the stock
brokers so appointed, are financially capable of honoring their commitments arising out
of defaults of their clients/investors. The DA has further observed that under Clause 11
(g) read with Schedule XI of ICDR Regulations, the stock broker is under an obligation
to make good the payment in case the client fails to pay for the specified securities
allocated as per ICDR Regulations. However, the same is applicable only upon allocation
of securities, and not in case of withdrawal/rejection before any allotment.
5. After considering the Report, a post enquiry SCN was issued to Rikhav Securities, on August 5,
2014, calling upon them to show cause as to why action as recommended by the DA should not be
taken against them or a higher penalty as deemed fit, should not be imposed upon them. In
response to the SCN, Rikhav Securities filed its written submissions dated December 9, 2014, vide
letter dated December 10, 2014. An opportunity of personal hearing was granted to Rikhav
Securities on December 10, 2014, which was postponed to December 29, 2014, on the request made
by Rikhav Securities. The entity reiterated the submissions already made in their earlier reply dated
June 13, 2013 (submitted during the personal hearing granted in the aforesaid 11B proceedings on
June 13, 2013), and requested time to file additional reply and supporting documents.
5.1. Rikhav Securities vide letter dated January 1, 2015 furnished some documents supporting their
contentions and vide letter dated January 12, 2015 filed additional submissions.
6.

During the personal hearing held on December 29, 2014, Rikhav Securities inter alia made the
following submissions

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i. The role of Rikhav Securities, as a sub-syndicate member is limited and falls between the role
of Syndicate member and sub-broker in the whole chain of IPO process. It was binding on
Rikhav Securities under ICDR Regulations to bid the application as early as possible and is
required to carry out the instructions of the applicant(s) scrupulously.
ii. Other than the bids of two group companies of Rikhav Securities namely, AHL Investment
Consultants Private Ltd. and Rikhav Brokers Private Ltd., the remaining six bids under the
NII category were received through the sub -brokers namely Nikita Manisha Shah and Rahul,
who were in no way connected to Rikhav Securities. The contribution of the aforesaid group
companies of Rikhav Securities amounted to 1.95% of the total applications bid in the IPO
i.e. 4.18 crores, which is a very negligible percentage to induce other investors to apply in the
IPO. The group companies withdrew their bids inter alia for the reasons such as, (i) no QIB
subscription was received for first two days, (ii) it remained undersubscribed even after the
closure of the IPO, (iii) there was another good investment opportunity available in the issue
of Power Finance Ltd. In addition to this, negative news in the market and in various
websites regarding the large withdrawals by investors etc. also contributed to the withdrawal
of applications by the group companies.
iii. In respect of the allegation regarding the failure to bank the cheques, submitted along with
the bids, Rikhav Securities submitted that under RII category, 230 applications with cheques
were received during 10 a.m. to 2 p.m. on the last day of bidding. As a routine practice, sub
brokers who collect applications from the day issue opens, lodge the applications on the last
day of the closing of the IPO and applicants put the closing date of the issue on the cheque.
Thus, bidding was done during the last hours. Incidentally, since investors wanted to
withdraw the applications, which were bid but not banked, they were instructed to give
withdrawal letter for the same. This is a prevalent procedure and standard practice adopted by
every sub-syndicate member for withdrawal of applications and Rikhav Securities also
followed the same practice. Cheques were not banked since all the 230 applicants (RII) had
requested in writing to Rikhav Securities for withdrawal of bids. Further, with regard to the
non-submission of copies of withdrawal letters along with copies of cheques and application

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forms of the remaining 69 clients, they submitted that the said copies of withdrawal letters
have been forwarded to SEBI vide letter dated December 10, 2014.
iv. No connection was established between the issuer company-VIL, BRLM-Ashika Capital Ltd.,
NII applicants (Manba Group and other 4 individual applicants) and Rikhav Securities.
Investigation by SEBI has given clean chit to the company in its Order dated July 11, 2011. If
there were manipulation, the company should be the sole beneficiary.
v. At Para 14 of the SCN, it was stated that only 26 bids were submitted by Rikhav Securities
during last two hours and that under no circumstances, bids in last two hours influence
others. The bids put in the last 2 hours of bidding could not inflate the bid book or lure
others to apply. Further, according to the details of timing of placement of bids, only 26 bids
were submitted by Rikhav Securities during last two hours which indicated contradiction in
the investigation by SEBI.
vi. In the instant case, as soon as NII and RII applicants discovered that QIB portion was
heavily undersubscribed, they rushed to withdraw. Thus, they were not misled to apply but
were rather correctly led to withdraw.
vii. In the NII category, five sub -syndicate members, other than Rikhav Securities, namely Karvy
Stock Broking Ltd., Ashika Stock Broking Ltd., Enam Securities Pvt. Ltd., Amit Jasani and
Matalia Stock Broking Ltd. had 100% bids resulting into invalid applications. Similarly,
comparing the ratio of invalid applications by Rikhav Securities in the RII category, Motilal
Oswal Securities Ltd. had large number of invalid applications in absolute numbers and KIFS
Securities Pvt. Ltd. had higher percentage of invalid applications.
viii. Withdrawal of the 75 applications (out of total 187 applications), financed by Rikhav
Securities through its NBFC arm namely Total Holdings and Finvest Pvt. Ltd. were to the
extent of about 40% only and withdrawals were at the option and decision of the respective
applicants. The company had received about 7500 bids. Therefore, 187 bids could not
inflate the order book in any meaningful way.

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ix. It is a well settled law that when there is a charge of fraud, mens rea/intention is material.
Under the facts and circumstances of the given case, no intention is evident.
x. Alleged contravention of Clause 6 (a) of Schedule XI of SEBI (ICDR) Regulations, 2009 is
the obligation of BRLM/Syndicate member. It is a statutory obligation and not transferable
and hence Rikhav Securities, as a sub- syndicate member, ought not to have been alleged to
have contravened the same.
xi. SEBI has not allowed inspection of certain document,
xii. SEBI denied opportunity to cross examine various applicants who bid through Rikhav
Securities and their statements were recorded during investigation,
xiii. The two group companies of Rikhav Securities were having sufficient sources of funds at
the relevant time and the same was communicated along with documentary evidence in the
course of investigation.
xiv. Noticee has no prerogative to either accept or reject the application, if it is duly filled.
xv. No connection established between the Noticee and,

the issuer company,

Merchant Bankers,

Syndicate members,

Other sub-syndicate members,

Client groups.

xvi. As soon as the NII and RIIs learnt that the QIB portion in the IPO of Vaswani Industries
Ltd. was undersubscribed (only 8,00,040 shares were subscribed under QIB category against
50,00,000 shares reserved for them in IPO), they rushed to withdraw their applications. This
is a common trend in primary market, hence no fault can be attributed to Rikhav Securities.

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6.1. In its written submissions dated January 12, 2015, Rikhav Securities inter alia made the following
additional submissions:
i. "We were being appointed as sub syndicate members (SSM) and used to enter into agreement with Syndicate
Member (SM)
ii. The applications were even withdrawn from the Book Running Lead Manager (BRLM), viz. Ashika
Capital, even though they were also Syndicate Member in the said IPO.
iii. The applications filed through us were genuine and bonafide. Withdrawal of applications were made in the
interest of Investors /Clients.
iv. A copy of the bank statements of AHL & RBPL have been provided.
v. As regards application made by the group companies viz. Rikhav Brokers Pvt. Ltd and AHL investment
Consultants Pvt. Ltd. it is submitted that the size of application amounted to only 1.95% of the total
application received in the IPO of VIL and it is very miniscule percentage of applications to induce other
investors to apply for the shares in the IPO of VIL. In these companies only directors were common and not
shareholders. The said group companies whose applications were bid through us had enough funds at the time
of bidding.
vi. They were only collecting agents for the SM and their role is merely to enter the bid details on the terminals
wherein the connectivity is provided by the stock exchange.
vii. Regulation 28(3) & 102 read with Schedule XI of SEBI (ICDR) Regulations, 2009 (hereinafter referred
to as ICDR Regulations ) allows RII category of investors to revise their bids and it is his right to withdraw
the application as and when he would like to.
viii. SSM has a ministerial role in the entire IPO operations and when other agencies have been let off, it is
difficult to comprehend as to why we are being targeted.
ix. We have neither been provided with copy of the complaints received by SEBI nor provided with an
opportunity to cross examine them despite repeatedly being sought by us.

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x. The allegation that the bidding done by us in the last two hours have inflated the book is completely erroneous
allegation. At the outset we state that in most of the IPOs majority of bidding is done in the last few hours.
xi. As regards the adjudicating proceedings carried out for other entities in the scrip, the learned AO has held
that bids of Noticees which were made only on the last day of IPO that too after 1.30 PM cannot influence
other investors to bid in the said IPO. Further, para 24, 25 and 26 the Learned Adjudicating Officer has
narrated the grounds and justification to arrive at a conclusion that the withdrawal of the bids by the Noticee
therein cannot be considered to have placed in order to create misleading appearance of bids in the IPO by any
act/practices/device/artifice and therefore, no contravention of provisions of SEBI Act and PFUTP
Regulations is proved against them.
xii. Submitted that in most of the IPOs the allotment is always done at the highest price.
xiii. In the IPO of VIL withdrawals took place at large through all SSM. The details of such withdrawal
through other SSM is given.
xiv. In NII category other than Noticeee, other 5 Sub Synidicate members viz. Karvy Stock Broking Ltd.,
Ashika Stock Broking Ltd., Enam Securities Pvt. Ltd, Amit Jasani and Matalia Stock broking Ltd had
100% bids resulting into invalid applications. Further on an overall basis in NII category, 93% of the bids
were invalid applications. So there was a pattern of invalid applications in NII category in the IPO of VIL.
xv. Similarly in RII category, in comparision to Noticees 943 invalid application for 37, 80,720 shares out of
1221 bids for 48,76,680 share (77.53%), 1361 application for 45,89,760 shares were invalid. Similarly,
281 bids for 9,97,560 shares (85.50%) were invalid out of 326 bids for 11,66,880 shares bided by KIFS
Securities Pvt. Ltd (KIFS) and 191 bids for 7,56,840 shares (78.11) were invalid out of 243 bids for
9,69,000 shares bided by Shri Parasram Holdings Pvt. Ltd. So comparing ratio of Noticees invalid
applications in RII category, KIFS and Shri Parasram Holdings Pvt. Ltd. had higher percentage of invalid
applications.

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xvi. The Sub Syndicate member or their sub-agents are not required to obtain any certificate of registration with
SEBI or any other authorities. In fact Sub-syndicate member is appointed by way of a Private arrangement
/agreement between the Syndicate and the Sub-syndicate member.
xvii. As and when the withdrawals were taken place same was in the knowledge of SM/Ashika Capital and it is
quite surprising to know despite being overall in charge of the issue process, they did not take any corrective
steps.
xviii. SEBI has taken action against the entity for each of the activity that they have been carrying and not
debarred all the operations of the entity for violations. In this regard, we would like to bring to your kind
notice that Almondz was found guilty in two IPOs simultaneously, then also it was debarred from taking
new assignments in the area of merchant banking only and not across their other area of operations.
xix. As per inspection report in respect of Rikhav Securities, there were no major discrepancies except few minor
observations in Know your Client (KYC) forms. We submitted our reply to said inspection and pursuant we
have not received any observation letter from SEBI.
xx. Further, it is SEBI own case that each activity of the intermediary should be separated by a Chinese wall
and this aspect is usually verified by SEBI in its inspection of the intermediaries."
Consideration of Issues and Findings
7. I have considered the findings of DA in the Report and the written submissions/reply filed by
Rikhav Securities along with the documents contained therein and the submissions made by the
entity during the personal hearing, etc. and other relevant materials available on record.
8. I note that the present proceedings under the Intermediaries Regulations arise out of the same facts
and circumstances in which the proceedings under Section 11 and 11B of the SEBI Act were
initiated and concluded. I note that in the 11B proceedings, Rikhav Securities was given opportunity
of hearing on June 13, 2013 and also on December 29, 2014. Rikhav Securities had submitted
common submissions for both 11B and enquiry proceedings initiated against them during the

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hearing held on December 29, 2014. It is also relevant to note that most of the relevant documents
have been furnished by Rikhav Securities after the post enquiry SCN was issued against the entity.
9. The proceedings initiated against Rikhav Securities under Sections 11 and 11B of the SEBI Act,
1992 has been concluded by me, vide Order dated March 13, 2015 restraining them from acting as
syndicate/sub-syndicate member for four years for the violation of the provisions of Section 12 A
(a) (b) & (c) of the SEBI Act, Regulation 3 (b) & (d), 4 (1) and 4 (2) (a) & (b) of the PFUTP
Regulations. A detailed findings on the charges alleged against Rikhav Securities in the 11B
proceedings have been given after considering the oral submissions made by the entity during the
hearing held on June 13, 2013 and December 29, 2014 and also the written submissions/reply filed
by the entity on June 13, 2013, December 9, 2014, January 1, 2015 and January 12, 2015. In the
present proceedings also, as observed earlier, an opportunity of being heard has been provided to
Rikhav Securities in accordance with Section 12(3) of the SEBI Act read with Regulation 28 of the
Intermediaries Regulations. Rikhav Securities filed their written submissions in these proceedings on
the same lines as in the proceedings initiated under Section 11 and 11B of the SEBI Act.
9.1. Rikhav Securities, during the hearing held on December 29, 2014 submitted that SEBI has not
allowed inspection of some documents and has not allowed cross examination of various
applicants who bid through Rikhav Securities and their statements were recorded during
investigation. Rikhav Securities also requested for cross examination of the applicants who bid
through Rikhav Securities. In this regard, it is observed from the available records, that Rikhav
Securities was granted inspection of documents on November 07, 2014 and November 10, 2014
and all the materials relied upon by SEBI have been provided to the entity. Further, in respect of
the contention that opportunity to cross examine was not given, it is observed that SEBI has not
relied upon statements of any person or entity in the proceedings against Rikhav Securities. In view
of this, I am of the opinion that the issue of cross-examination does not arise in the instant matter.
It is also pertinent to note that ample opportunities have been granted to Rikhav Securities to
adduce evidence in the matter. Most of the relevant documents such as the withdrawal letters of all
the 230 applicants etc. have been furnished by Rikhav Securities only after receipt of the SCN in
respect of the enquiry proceedings initiated against Rikhav Securities.

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9.2. Further, with regard to the contention put forth by Rikhav Securities in respect of the requirement
of mens rea, it is observed that fraudulent or manipulative trade practices in securities market can
be proved on the basis of "preponderance of probability" and not "beyond reasonable doubt" as
held by the Hon'ble Securities Appellate Tribunal (SAT) in Kanchan Gaurav Raimalani v A.O.,

SEBI, Mumbai, decided on January 5, 2010 and Prashant J. Patel, Mumbai v. SEBI, decided
on August 17, 2010. The Hon'ble SAT further observed that, proof of mens rea in manipulation
cases need not be direct, but rather may be inferred from circumstantial evidence and is generally
based on a course of conduct showing an intentional interference with the normal functioning of
the securities market and not based on a solitary action.
9.3. As has been discussed in the Order dated March 13, 2015, the proof of manipulative intent is
evident from the series of activities of Rikhav Securities and disclose a clear manipulative conduct,
such as placing bids on behalf of Rikhav Securities' own group companies at highest price band
and then withdrawing/cancelling the entire bids under the NII category; arranging the finance and
controlling of bids placed by RII clients and subsequent withdrawal/rejection of a substantial
portion of the bids, etc. It is noted that in the IPO of VIL, the oversubscription level on closure of
bids was initially at a level of 4.16 times, however, after taking into account the withdrawals and
technical rejections, the oversubscription level fell to 1.28 times. In these circumstances and
applying the aforesaid principles, I am of the view that all the charges against Rikhav Securities are
established.
10. The instant proceedings initiated against the entity under Section 12 (3) of the SEBI Act, 1992 and
Regulation 28(2) of the Intermediaries Regulations are mainly disciplinary proceedings initiated
against intermediaries registered with SEBI. As has been observed in the forgoing paragraphs, the
present proceedings arise out of the same facts and circumstances in which the proceedings under
Section 11 and 11B of the SEBI Act were initiated and concluded, restraining Rikhav Securities
from acting as syndicate/sub-syndicate member for a period of four years. In the present
proceedings, DA has given recommendation to suspend the certificate of registration of Rikhav
Securities as stock broker at NSE and BSE for a period of two months. Rikhav Securities in their
reply vide letter dated January 12, 2015 stated that SEBI, vide Order dated July 11, 2011 debarred
them from acting as syndicate and sub-syndicate member and they are undergoing the debarment

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for the last three and a half years. It was further submitted that inspection conducted by SEBI in
respect of the broking operations of Rikhav Securities did not observe any major discrepancies.
They also contended that SEBI has taken action against entities for the violations committed by
them in respect a particular business activity and not in respect of all the business operations of the
entities.
11. The charges established against the Rikhav Securities (a SEBI registered stock broker) in both 11B
and enquiry proceedings are in respect of their activities as a sub-syndicate member. The charges are
that, while acting in the capacity of a sub-syndicate member, they were found to have been
instrumental in inflating the bid book without actual inflow of funds from the applications bid
through their terminal and with the sole intention to falsely show a good response to the IPO,
thereby violating the provisions of Section 12 A (a) (b) & (c) of the SEBI Act and Regulation 3 (b)
& (d), 4 (1) and 4 (2) (a) & (b) of the PFUTP Regulations. I have considered all the facts and
circumstances which are the basis of instant proceedings and have given my findings thereon in the
Order dated March 13, 2015 (referred in Paragraph No.9 above) passed against Rikhav Securities
under Section 11 and 11B of the SEBI Act. In the aforesaid Order dated March 13, 2015, I have
held that the activities of Rikhav Securities, such as placing bids on the on the first day of the issue
by its own group companies, without having sufficient funds available in their respective accounts,
arranging funds through its NBFC arm for 187 clients who had placed bids under RII category,
without any formal agreement, of which 75 applications were withdrawn subsequently, were all
evidently instrumental in inflating the bid book without any actual inflow of funds from those
applications and with the sole intention to show a good response to the IPO. As an interim measure
to protect the interests of investors, SEBI had vide interim order dated July 11, 2011 restrained
Rikhav Securities from acting as syndicate/sub-syndicate member till further Orders. SEBI, vide
final Order dated March13, 2015 restrained Rikhav Securities from acting as syndicate/subsyndicate member for a period of four years. (The period of prohibition already undergone by
Rikhav Securities in terms of the aforesaid Interim Order dated July 11, 2011, was also to be taken
into account for the purpose of computing the four year period of prohibition as directed in the
order dated March 13 2015). My findings in the instant proceedings also remain the same.
12. Under the facts and circumstances of the case as discussed above and also considering that

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Rikhav Securities presently is undergoing the prohibition to act as a syndicate/sub-syndicate

member since July 11, 2011, I am of the considered view that no further direction needs to be
issued in these proceedings.
13. The show cause notice dated August 5, 2014 is accordingly disposed of.

Place: Mumbai
Date: April 06, 2015

S. RAMAN
WHOLE TIME MEMBER
SECURITIES AND EXCHANGE BOARD OF INDIA

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