CHAPTER-1 Introduction: The investors form the backbone of any economy.

It is the investors who supply the much needed scarce resources to the users of resources the government and the corporate sector. The society at large, the authorities having the mandate, the market participants/intermediaries who help in the flow of funds and the users of funds, therefore, have a duty to create and sustain the interests and the confidence of the investors in the markets and the systems, so that there is an uninterrupted and increasing flow of funds for investment.

The Preamble to the SEBI Act, 1992 states that the Securities and Exchange Board of India (SEBI) has been established to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market. The efficacy of the investor protection mechanisms as well as the reforms ushered in by SEBI and other authorities is reflected in the number of investors in the securities market, while the nature and scale of the systems is determined by the number of investors 1.1 Prominence of clause 35 of the listing agreement: The Clause 35 of the Listing Agreement (Clause 35)indicates that, the listed domestic companies are required to file with the stock exchange the shareholding pattern on a quarterly basis within 21 days from the end of each quarter. There are two broad categories of shareholders prescribed by Clause 35: (i) the promoters; and (ii) the public. There are two main sub-categories under the promoters: (i) Indian; and (ii) foreign. The public shareholding has also been sub classified into mainly two categories: (i)institutions; and (ii) non-institutions. Mutual funds (MFs)/UTI, financial institutions (FIs)/banks, central/state government(s), venture capital funds (VCFs), insurance companies (ICs), foreign institutional investors (FIIs) and foreign venture capital investors (FVCIs) fall under the category of institutions, while bodies corporate and individuals have been put under the category named non-institutions

The listed domestic companies in India are closely held. The promoters and promoter groups owned the majority of the total issued share capital of the listed domestic companies. While they accounted for 54.46% of the total number of shares issued, the market value of their holding amounted to 56.35% of the total equity market capitalization. Only a few of the listed domestic companies had foreign promoters. As a result, the share of the foreign promoters and promoter groups stood only at 5.78% of the total number of shares issued and 7.63% of the total equity market capitalization.

1.2 Statistics of Shareholding Pattern In India

Chapter-2 Case Study Case 1: Vishvas Project Limited Explanation: Earlier known as Mefcom Agro Industries Limited, the company name was changed to Vishvas Projects Limited in 2006 ( appears as Mefcom Agro on the BSE website).

As of March quarter 2006, the company promoters, Mefcom Capital Markets Limited and Vijay Mehta together held an aggregate of 49.49% shares in VPL.

Shareholding Pattern
Scrip Code : 511276 Date Begin : 01 Jan 2006 MEFCOM AGRO INDUSTRIES LTD. Quarter Ending: March 2006 Date End : 31 Mar 2006

Category Promoter's Holding

Promoters Indian Promoters Sub Total

No.of Shares Held

% of Share Holding

1387595 1387595

49.49 49.49

Non Promoter's Holding

Institutional Investors Banks,Financial Institutions,Insurance Companies Sub Total Others Private Corporate Bodies Indian Public NRIs/OCBs Sub Total Grand Total 148884 1266939 37 1415860 2803855 5.31 45.19 0.00 50.50 100.00 400 400 0.01 0.01

During the period April 2006 to September 2007, the management and shareholding underwent rapid changes as evident from the announcements made by the company in the shareholding pattern. During this period, the promoters diluted their holding to less than 0.51%, new directors were appointed on the board of the company and the objects of the company also underwent a revision - all without seeking shareholder approval. Between April and June 2006, the shareholding of corporate bodies in the company increased from 5.31% to 46.26%. The entities involved were Master Finlease Ltd, Cosmo Corporate Services Ltd, ISF Securities Ltd, Vishvas Securities Ltd, Pioneer TCP Stock Brokers Ltd, SIC Stock & Services Pvt Ltd, Integrated Master Securities Pvt Ltd and Sam Global Securities Ltd. It has been found that these 8 entities who acquired 43.42% shares in the company during the June 2006 quarter were in fact associated with each other and hence, the acquisition so made was in violation of SEBI (SAST) Regulations. The relationship between the entities establishes the fact that they acted in concert with each other, apart from having a common business of broking and investments in shares. As per SEBI regulations, any person who together with a person acting in concert acquires shares of a company in excess of 15% is required to make a public announcement. However, no such announcement was made by said entities The complainant has pointed out that the company promoters have sold their holdings and almost exited from the company and new entities having acquired management control. All this has been done without taking requisite approval of shareholders and without giving them an exit opportunity as envisaged under SEBI takeover guidelines. After the acquisition of these shares by the new entities, the trading in the scrip witnessed a sharp rise as its price shot up in sharp contrast to the fundamentals of the company. By instrumenting the sharp spike in share price and volumes, these entities exited the company, offloading their shares to the general public in direct violation of SEBI (PFUTP) Regulations 2003.

The entities who had acquired the shares previously greatly benefited from the interest generated in the company's scrip as a result. They subsequently offloaded their shares to the public at much higher prices. The shareholding of these corporate bodies went down from 43.42% in June 2006 to 14.65% by March 2007. A complaint has been made to SEBI requesting a detailed investigation into the acts of the company's promoters, management and related entity.

Case 2: Vertex spinning ltd Facts:

The shares of the vertex spinning ltd are listed on bse .the total paid-up equity share capital of VSL for the quarter ended march 2006 was 19,90,56,000.based on a report filed by bse,an examination of shareholding pattern of VSL was undertaken by SEBI during the period from February 01,2006 to April 30,2006.

Shareholding pattern: It was observed for the quarter ending 31st December 2005 the promoters held 4.42%,private corporate bodies held 68.36% and Indian public 27.18% of the paid up capital of VSL. during the quarter ended 31st march 2006,the promoter holdings were shown as73.26% and the entities who were shown in the non promoters entity for the quarter ended 31st December 2005 were shown under promoter category for the quarter ended 31st march 2006.

Shareholding Pattern

VERTEX SPINNING LTD.

Scrip Code : 531544 8 Quarter Ending: December 2005

Date Begin : 01 Oct 2005

Date End : 31 Dec 2005

Category Promoter's Holding

Promoters Indian Promoters Sub Total

No.of Shares Held

% of Share Holding

8793620 8793620

4.42 4.42

Non Promoter's Holding

Institutional Investors Banks,Financial Institutions,Insurance Companies Sub Total Others Private Corporate Bodies Indian Public 136073270 54109990 68.36 27.18 73000 73000 0.04 0.04

Any Other Employees Sub Total Grand Total 6120 190189380 199056000 0.00 95.55 100.00

Shareholding Pattern

VERTEX SPINNING LTD.

Scrip Code : 531544 Date Begin : 01 Jan 2006 Quarter Ending: March 2006 Date End : 31 Mar 2006

Category Promoter's Holding

Promoters Indian Promoters Sub Total

No.of Shares Held

% of Share Holding

145825355 145825355

73.26 73.26

Non Promoter's Holding

Others Private Corporate Bodies Indian Public Sub Total Grand Total 22753055 30477590 53230645 199056000 11.43 15.31 26.74 100.00

Violation of clause-35 of the Listing Agreement: Allegedly, there was a large scale dispensary in the shareholding pattern of the promoter category between two quarters that is the difference of 68.84% as filed by the company with the exchange as the quarter ended December 2005 and march 2006.further,the same does not appear to be in conformity with the requirements of clause 35 of the listing agreement read with section 21 of the Securities Contracts(Regulation)Act,1956( referred as SC(R)Act).

It was observed from the shareholding pattern of vsl that the holding of promoter entity Shri.Suresh Sharma has increased to 5.54% during quarter ended march 2006 as compared to his holdings of 1.16% during the quarter ended December 2005.allegedly,the disclosures were not filed with bse as required under SEBI (prohibition of insider trading )regulations,1992.

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It was alleged that the requisite disclosures as required under SC(R) Act 1956 and PIT regulations was not made by the noticee to bse. Thereby the noticee had allegedly violated section 21 of SC(R) Act read with clause 35 of the listing agreement & regulation 13(6) of SEBI PIT Regulations.

Adjudication by SEBI: SEBI has initiated adjudication proceedings under section 23H of SC(R) Act & section 15A (b ) of the SEBI Act,1992 to inquire into the alleged violation of section 21 of SC(R) Act read with clause 35of the listing agreement & regulation 13(6) of SEBI PIT Regulations against the noticee on account of their failure to make necessary disclosures. Findings: Considering the statistics it was observed that there is a large scale discrepancy in shareholding pattern of the promoter category which shows the difference of 68.84% as filed by the company with the exchange for the quarter ended December 2005 and march 2006.the same does not appear to be in conformity with the requirements of clause 35 of the listing agreement read with section 21 of the SC(R) Act,1956.

There was an error on the part of vsl in making correct submission to the stock exchange and the liability cannot be transferred to the registrar. By looking at the shareholding of the promoter category which had mostly remained unchanged though shown under non-promoter category,the violation can be considered to be technical ,even then the penalty has to follow.

Order: By taking all the facts and circumstances of the case into consideration the company vertex spinning ltd was imposed a penalty of Rs 50,000/- under section 23H SC(R) Act and 15(b) of the SEBI Act. Research Analysis: The promoter of the company has claimed that the mis representation of the shareholding pattern is not an intentional activity but a technical error and the erstwhile registrar was unable to produce the correct shareholding pattern to the company It is the responsibility of the company to perform due diligence and correctness of the disclosures before making such required disclosures to the stock exchange.
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The registrar is an agent of the company and is confined to assist the company in preparing the requisite disclosures The violation of the established statutory regulations will subject the company to penalty, even there is intention to manipulation. There is no due consideration for the company in any respect to get exemption from the penalty. Once the contravention is established, the penalty has to follow.

Case 3: Krishna Engineering Works Ltd. Facts: SEBI had conducted an investigation relating to buying,selling or dealing in the shares of the company Krishna engineering works ltd. for the period November 8,2004 to February 2,2005.in the investigation it was found that M/s Krishna engineering works ltd(referred to as Noticee/KEWL). which was listed on National Stock Exchange(NSE) had not submitted shareholding pattern for the quarter ended December 2004. Observation: It was observed that promoters of the company transferred 30,08,800 shares of kewl (which is 22% of equity capital) in off-market transactions on December 27,2004 to the entities who had given contact telephone number same as that of the noticee in the KYC forums submitted to their depository participants. Findings: It was observed that Shri Gurbachan Juneja ` chairman and managing director of KEWL sold 6, 94,600 shares of noticee which constituted 5.13% and promoter Krishna Wanti sold 6,79,200 shares of noticee which constituted 5.01%.it was evident that the promoters held more than 5% before sale of said shares.Regualtion 13(3) requires any person who holds more than 5% shares in any listed company to disclose to the company the number of shares held by him. The promoters disclosed the information to noticee.it was found that the noticee allegedly had not disclosed the information to the stock exchange on which its shares are listed.

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Violation of clause 35 of the listing agreement: Most of the said off-market transactions were entered by the promoters of the noticee in the month of December 2004 and the changes were not reflected in the shareholding pattern for the quarter ended December 31,2004 submitted with the exchange and thus it is alleged that noticee has violated clause 35 of the listing agreement.the noticee is liable for penalty under section 23E of Securities Contract Regulation Act (SCRA). Adjudication proceedings: SEBI has initiated adjudication proceedings under the SEBI Act and Securities Contract Regulation Act (SCRA) against the noticee on account of allegedly violating the provisions of regulations 13(6) of prohibition of insider trading (PIT)Regulation and Clause 35 of Listing Agreement.

Shareholding Pattern

KRISHNA ENGINEERING WORKS LTD.

Scrip Code : 522173 Date Begin : 01 Oct 2004 Quarter Ending: December 2004 Date End : 31 Dec 2004

Category Promoter's Holding

Promoters Indian Promoters Sub Total

No.of Shares Held

% of Share Holding

4527382 4527382

33.41 33.41

Non Promoter's Holding

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Institutional Investors Mutual Funds and UTI Banks,Financial Institutions,Insurance Companies FIIS Sub Total Others Private Corporate Bodies Indian Public NRIs/OCBs Sub Total Grand Total 1352843 5998679 567800 7919322 13550300 9.98 44.27 4.19 58.44 100.00 115200 963196 25200 1103596 0.85 7.11 0.19 8.14

Shareholding Pattern

KRISHNA ENGINEERING WORKS LTD.

Scrip Code : 522173 Date Begin : 01 Jan 2005 Quarter Ending: March 2005 Date End : 31 Mar 2005

Category Promoter's Holding

Promoters

No.of Shares Held

% of Share Holding

14

Indian Promoters Sub Total

896964 896964

6.62 6.62

Non Promoter's Holding

Institutional Investors Mutual Funds and UTI Banks,Financial Institutions,Insurance Companies FIIS Sub Total Others Private Corporate Bodies Indian Public NRIs/OCBs Sub Total Grand Total 2584454 8591997 622785 11799236 13550300 19.07 63.41 4.60 87.08 100.00 113900 715000 25200 854100 0.84 5.28 0.19 6.30

Order:
By taking all the facts and circumstances of the case into consideration a penalty of Rs 1,00,000/- for violation of regulation 13(6) of PIT Regulation and Rs 1,00,000/- for violation of Clause 35 of listing Agreement on the Noticee viz . M/s Krishna Engineering Works Ltd.thus, in all noticee has to pay Rs 2, 00,000/- by way of penalty.

Research Analysis The off-market transactions performed by the promoters of the company and the non-disclosure of the activity in the shareholding pattern , is an act of violation of statutory regulations on behalf of the entity ,the non-responsive approach of the entity to the adjudication process has resulted in presumption that the company has obliged to the charges alleged against them and is subjected to monetary penalty . The quantification of exact disproportionate gains on unfair advantage by the entity and the consequent losses suffered by the investors is difficult to predict in the case as the investigation did not dwell on the extent of specific gains made by the entity.
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Case 4: GHCL Ltd Facts: A complaint was received alleging that GHCL Ltd. (hereinafter referred to as GHCL) have been reporting false shareholding details of the promoters in their quarterly filing with the Stock Exchanges. The said filing is required under clause 35 of the Listing Agreement with each NSE and BSE As per disclosures made by GHCL to the BSE under the Listing Agreement, the promoters holdings were as follows:

An examination of the records of holdings of promoter entities of GHCL from the stock exchanges and the Registrar of the Company, Link Intime India Private Ltd. (LIIPL) was carried out to verify the authenticity of the disclosures made by GHCL.

Preliminary findings The disclosed shareholdings of the promoters by GHCL with the actual holdings as per the Registrar are as follow

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Observation: It is observed that the disclosures across the four quarters in the year 2008 made by the company with respect to promoters holding are at significant variance with the actual holdings of the promoters. The misleading difference in the holding is as divergent as
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17.65% being the actual and 40.30% being the disclosed holding for the quarter ended September, 2008 - a difference of more than 100%. The table given depicts the differences in the holdings

It was observed that out of 43 promoter entities, there are discrepancies in the shareholdings of 10 promoter entities. The details are as follows:

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In the disclosure dated February 16, 2009 made under Regulation 8A(4) of SEBI (Acquisition of Shares and Takeovers)Regulations, 1997, GHCL has disclosed that Carissa Investment Pvt. Ltd., a significant promoter entity, was holding 16,06,752 or 1.6% shares of GHCL whereas in the quarterly filing of shareholding pattern with the Stock Exchange for the quarter December 31, 2008, the share holding of Carissa Investment Pvt. Ltd. is shown at more than six times the actual holding or 10% of the capital (1,02,00,110 shares). There is a huge difference of 85,93,358 shares. The disclosure under Regulation 8A(4) gives the actual shareholding which tallies with the figures given by the Registrar. It is also observed that Carissa Investment Pvt. Ltd. has not made any disclosure under SEBI (Acquisition of Shares and Takeovers)Regulations, 1997 or SEBI (Prohibition of Insider Trading) Regulations, 1992 about selling/transfer of 85,93,358 shares. A further analysis of trading confirms it has not traded during January 01, 2009 to February 16, 2009. Hence, it can be concluded that GHCL has intentionally given wrong information to the Stock Exchanges about shareholding of promoter entities. It is pertinent to note that SEBI on April 25, 2007 had passed an ex-parte interim order in the matter of GHCL wherein 6 promoter group entities of GHCL, along with their respective directors and other apparently related entities, were directed not to buy, sell or deal in shares of GHCL., directly or indirectly for indulging in creation of false and misleading appearance in the trading of shares of GHCL.
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The six promoter entities are as follows: 1. Antarctica Investment Private Ltd 2. Altar Investment Private Limited 3. ILAC Investment Private Limited 4. Dalmia Housing Finance Limited 5. Comosum Investment Pvt. Ltd. 6. Carissa Investment Pvt. Limited

Statistics of Shareholding: As per the latest Shareholding pattern for the quarter ended March 31, 2009, GHCL has reported that the promoters holding is 18.16%, against the promoters holding for the quarter ended December 31, 2008 at 38.30%. The holding of the promoters has since decreased by 20.14%. However, there have been no disclosures under the SEBI (AST) and SEBI (PIT) regulations by GHCL about any sale/transfer of the shares of the promoters during the quarter, as would be prima facie expected to be disclosed upon the promoter holding decreasing by 20.14%. The actual holdings of the promoters for the quarter ended December 31, 2008 was at 18.74% and as on March 31, 2009 the promoter holding as reported to BSE is 18.16%. This shows that the promoters have tried to reconcile their wrong holdings reported by them in last four quarters by giving the supposedly correct holding for the March 2009 quarter. This change in promoter shareholding came to light due to the disclosures of pledged shares by the promoters under the recent amendment of SEBI (Acquisition of Shares and Takeovers) Regulations, 1997. The conduct of GHCL by not giving true information to the stock exchange under Clause 35of the listing agreement is in violation of Section 21 of Securities Contracts (Regulation) Act, 1956 which states that, Where securities are listed on the application of any person in any recognized Stock Exchange, such person shall comply with the conditions of the listing agreement with that stock exchange

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Order: Under Section 19 of the Securities and Exchange Board of India Act 1992 read with Section 11(4) of the said Act, it was directed by way of ad interim, ex-parte order, direct GHCL Ltd, its promoter entities,Sanjay Dalmia, Chairman, Ravi Shanker Jalan, Managing Director, Bhuwneshwar Mishra, Company Secretary of GHCL Ltd. not to buy, sell or deal in the securities market until further orders. GHCL is directed to reconcile and file the correct shareholding details with the Stock Exchanges. The aggrieved parties may file their objections, if any, to this order within 15 days from the date of this order.

Research Analysis: GHCL has intentionally filed false shareholding of the promoters repeatedly over the four quarters of 2008, thereby misleading the investors about commitment of the promoters towards the company. This is an extremely serious offence by a listed company and its management, since the investors have to rely only on the public disclosures made by the company on the Exchange websites while making their investment decisions. The company has knowingly shared false information is a conduct not behoving of a listed company and absolutely reprehensible. Filing false and patently inaccurate information about the promoters holding gives a misleading picture about promoters interest in running the affairs of the company. Promoters holding are one of the comfort factors for investors to invest in the shares of the company. The fabrication of GHCL has ultimately resulted in restraint on the transactions of all its 33 promoter entities.

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Chapter -3 Conclusion: The shareholding pattern is a defined base of statistics which reflect the performance status of a company that was listed on the exchanges ,under the regulations of SEBI.The shareholding pattern provides transparency in viewing the possession of shares hold by an individual in the company. The shareholding pattern of a company is a fundamental statistics. By its disclosure, the augmentation of the company in the secondary market can be predicted .Any manipulation or misrepresentation of the shareholding pattern will result in the violation of the clause-35 of the listing agreement and the violator will be subjected to legitimate scrutiny by SEBI.

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Chapter-4 Bibliography: 1. Shareholding Pattern in India- by Venkateswaran R 2. www.watchout investors.com 3. www.nseindia.com 4. www.bseindia.com 5. www.sebi.gov.in

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