WTM/SR/SEBI/EFD/145 /07/2015

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI

CORAM: S. RAMAN, WHOLE TIME MEMBER
ORDER
Under Sections 11 and 11B of the Securities and Exchange Board of India Act, 1992 read
with Regulations 3 (b), (c), (d), 4 (1) and 4 (2) (e) and (r) of the SEBI (Prohibition of
Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 in
respect of Zigma Software Limited .

1.

Securities and Exchange Board of India (SEBI) had conducted an investigation into the
sudden spurt in volume and price in the scrip of Zigma Software Limited (hereinafter as
"the Noticee") during the period June 01, 2005 to September 30, 2005 to ascertain any instances
of contravention of provisions of SEBI Act, 1992 (SEBI Act) read with SEBI
(Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market)
Regulations 2003 (PFUTP Regulations).

2.

The price spurt in the above said scrip took place in two sets of periods i.e. from June 01,
2005 to July 12, 2005 (the pre-stock split period) and July 13, 2005 to September 30, 2005
(the post stock split period). Investigations revealed that the Noticee had made various
positive corporate announcements during this period such as announcements of quarterly
results, dividend, stock splits, bonus issue of shares, real estate project at Bangalore and
preferential issue of shares. During the investigation it was noted that the Noticee made
several corporate announcements which were allegedly false and misleading and only aimed
at creating artificial demand for the scrip to attract the general investors to purchase the
shares.

3.

Based on the findings of investigation, a Show Cause Notice ("SCN") dated July 08, 2009
was issued to the Noticee under sections 11,11 (4) and 11B of the SEBI Act to show cause
as to why appropriate action including restraining it from buying, selling or dealing in
securities for a specified period, should not be issued against it for the violations alleged in
the SCN viz., Regulations 3 (b), (c), (d), 4 (1) and 4 (2) (e) and (r) of the PFUTP Regulations.
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4.

As per the SCN, it was inter alia alleged against the Noticee that
i.

The announcement made by ZSL pertaining to bonus issue, Real estate project at
Bangalore and the preferential issue of shares were not implemented.

ii.

The audited figure of the Noticee for year ended March 2006 shows a net profit of Rs. 3.13
crores after tax on a total income of Rs. 27.36 crore and the difference between the audited
and unaudited results was more than 20%. The Noticee did not give any explanation for
the variation in the quarterly results to the BSE in this regard as required under clause 41 of
the Listing Agreement.

iii.

The total shareholding of the Noticee as on Mach 31, 2005 and June 30, 2005 was
1,48,18,800 shares of face value of Rs. 10 each and became 14,81,88,000 shares of face
value Re.1 each as on September 30, 2005 on account of stock split from Rs. 10 to Re 1
per share. It is alleged that the promoter entity-G R Magnets Limited and associate
company of the Noticee - JRP Holdings Limited offloaded substantial shares in the market
by the end of the investigation period to innocent investors inducing them to purchase the
same by attractive announcements which were totally misleading and the same were not
implemented by the Noticee.

iv.

Therefore, it is alleged that the Noticee facilitated promoter and its associated entities to
dump shares of the Noticee by inducing uninformed investors to invest in shares of the
Noticee. In view of the various actions and omissions, it is alleged that the Noticee violated
the provisions of regulation 3 (b), (c), (d) & 4(1) and 4(2) (e) & (r) of SEBI (Prohibition of
Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003.

5.

In response thereto, the Noticee vide letter dated August 01, 2009 sought inspection of
relevant documents and its certified copies. The Noticee inspected the documents on
November 25, 2009 and on the same day, the certified copies of the relevant documents
were forwarded to the Noticee. Subsequently, SEBI vide letter dated November 26, 2009
issued a corrigendum to the SCN. As no reply to the SCN was received from the Noticee, a
reminder was sent vide email dated August 23, 2011.

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6.

Thereafter, the Noticee was granted opportunities of personal hearings on January 14, 2015
and February 04, 2015. The Noticee vide e-mail dated February 04, 2015 sought extension of
time upto 4 weeks to prepare for the hearing. The same was allowed and vide hearing notice
dated March 04, 2015 the Noticee was granted another opportunity of hearing on April 15,
2015. During the hearing, the Notice was required to submit written submissions/ point
wise reply to the SCN along with supporting documents, more particularly the following:

Application by the Noticee for in-principle approval from BSE for the bonus issue
decided in the Board Meeting dated July 18, 2005;

Application by the Noticee for in-principle approval from

BSE for listing of

preferential warrants as proposed by the company in its Board Meeting dated August
20, 2005;

Information submitted by the Noticee to BSE that the real Estate project for Bennett
Coleman & Co was not implemented;

Explanation submitted by the Noticee to BSE under Clause 41 of the listing agreement
for the substantial variation in audited and unaudited financial results for the FY 200506;

7.

Income Tax Returns filed by ZSL for the financial years 2004-05, 2005-06, 2006-07.

Subsequently, the Noticee filed written submissions vide letter dated April 27, 2015
alongwith the supporting documents. The Noticee vide abovementioned reply and during
the aforesaid hearing inter alia made the following submissions:
i.

"SEBI has failed to provide us with complete list of supporting documents requested vide our
various letters in the year 2009 nor was the same shown to our representatives during physical
inspection. Almost 5 Years have passed. Hence, it gives us apprehension that the SEBI
Proceedings carried is incomplete and faulty and various assumptions of allegations so made in the
SCN are baseless and without any supporting evidences.

ii.

To term corporate announcements as misleading is wholly unjustified. Being a listed company, it

is bound to adhere to the listing agreement with the stock exchanges. To give corporate
announcement is a procedure normally carried out. The announcements which were made were
genuine and based on strategic decisions taken by the company for its growth and benefit to the
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investors. Our sincere efforts to successfully implement all the announcements made are apparently
visible through all our correspondences/annexures attached for your ready reference.
iii.

SCN talks about the announcements not carried out but it is deliberately silent about the
announcements which have been successfully carried out by the company. Hence, the Investigation
Report appears to be biased and failed in taking into consideration the scenario during the
investigation period, in totality. The Investigation Authority should not cherry pick only those
cases which appears to them to slap charges against the company and ignore events which have
really benefited the investors. We found this attitude of the Investigating Officers as prejudiced and
unacceptable to us. Hence, the SCN is based on the Investigation report, which itself is incomplete
and partial.

iv.

SCN fails to explain how company was involved in the so called fraudulent and unfair practice.
In fact, SEBI fails to explain whether there was any unfair trade practice by anyone.

v.

There is no evidence which suggests that company has any role in increase in price and volume. In
fact there is no charge against anyone for manipulation /price rise /spurt in volume.

vi.

Please note none of the Directors of the company was holding any shares in ZSL except Mr.
Yashwant Rampuria who was holding a very negligible number of shares in ZSL i.e. 800 shares
and has never traded or made any profits out of it and is also currently holding the same number of
shares.

vii.

There are no charges in SCN against anyone which suggests synchronized-structured-manipulatedreversal-cross Trades with meeting of Minds. No pattern of insider trading is established.

viii.

Promoter and its associate companies had no representation in the management of ZSL. Further
the AO in its Order (March 29, 2012)has clearly pronounced that promoter and its associates
has no nexus with ZSL and has no role in the corporate announcements made by the company.

ix.

There is duplication of proceedings. AO proceedings have been carried out against the Director,
promoters and its associates and WTM debarment proceedings against the company.
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x.

AO has found beyond reasonable doubt that the charges as leveled against the Directors, promoters
and its associates does not stand established. Vide the said order, all the charges of alleged
violation of

Regulation 3(b), (c), (d), & 4(1) and 4(2) (e) & (r) of SEBI (Prohibition of

Fraudulent and Unfair Trade Practices relating to securities Market) Regulations, 2003 has been
dropped against them.
xi.

Taking all our submissions and the AO order into consideration, the WTM Proceedings for the
same charges against the company does not hold any grounds and hence should be dropped
immediately.

xii.

Please note that company is regular in complying the various clauses of the listing agreement."

Consideration of Issues and Findings

8.

I have considered the SCN issued to the Noticee, corrigendum to the SCN and the
submissions made by his authorized representative during the personal hearing before me,
the written submissions filed vide letter dated April 27, 2015, correspondence between SEBI
and BSE all other relevant materials available on record. In light of the same, I shall now
proceed to deal with the charges levelled against the Noticee in the SCN.

9.

The relevant provisions of the PFUTP Regulations are reproduced hereunder for the ready
reference:-

Prohibition of certain dealings in securities

3. No person shall directly or indirectly
...
(b) use or employ, in connection with issue, purchase or sale of any securities listed or proposed to be listed in
a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the
provisions of the Act or the rules or the regulations made thereunder;
(c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which
are listed or proposed to be listed on a recognized stock exchange;
(d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon
any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on
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a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations
made thereunder.
4. Prohibition of manipulative, fraudulent and unfair trade practices:(1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair
trade practice in securities.
(2)Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and
may include all or any of the following, namely:(e) any act or omission amounting to manipulation of the price of a security;
(r) planting false or misleading news which may induce sale or purchase of securities
10.

As per SCN read with corrigendum, it is alleged that the Noticee made the following
corporate announcements out of which the announcements pertaining to Bonus Issue,
Preferential issue of shares and Real Estate project listed below were not implemented.
i.

On June 20, 2005, the Noticee announced the sub-division (split-up) of face value of
equity share capital from Rs.10/- per share to Re.1/- per share.

ii.

On July 12, 2005, the Noticee informed stock exchanges about the consideration
issue of bonus shares in the board meeting scheduled on July 18, 2005;

iii.

On July 18, 2005, the Noticee announced Issue of bonus shares in the ratio of 1:2;

iv.

On July 18, 2005 the Noticee considered to take up APDRP (Accelerated Power
Development and Reform Programme) project;

v.

On July 18, 2005, the Noticee announced its Quarterly Results for the period ending
June 30, 2005 (alleged variance of more than 20% in Unaudited and Audited
Results);

vi.

On August 25, 2005, the Noticee announced Issue of Preferential shares for Rs. 48
crores;

vii.

On August 25, 2005, the Noticee announced 20% Dividend for the year 2004-05;

viii.

On August 29, 2005, the Noticee announced taking up of a project for real estate
Development.

In this regard, I note that:

11.

The Noticee vide letter dated April 27, 2015 submitted the following explanation as regards
the alleged non implementation of corporate announcements:
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i. Bonus Issue:
"The Company has duly made an announcement (dated July 18, 2005) to issue of Bonus shares in the
ratio of 1:2. At EGM held on March 07, 2006, members passed resolution and approved issue of
Bonus shares in the ratio 1:2. Necessary ROC formalities regarding increase in Authorised Capital for
issuance of Bonus Shares, filing of Special Resolution, payment of applicable fees etc. were completed.
The company thereby applied to stock exchange for In-Principle approval which was not granted on
technical ground as the time period of application has lapsed. Thereby, the company made an application
(dated November 10, 2008) to SEBI for condonation of delay and grant NOC to issue bonus
shares. Company did not receive NOC from SEBI to enable it to issue Bonus shares. Hence, its proved
from all the facts and supporting documents enclosed that there were no mala-fide intentions on the part of
the Company to deceive the investors. Due and reasonable effort was made to execute the announcement
related to Bonus Shares, hence the same cannot be termed as misleading."
ii. Preferential Issue
"Preferential Issue was proposed in the Board Meeting held on August 24, 2005. Thereon, the company
put all the efforts to carry out preferential issue for which the Authorised Share Capital of the company
was also increased from Rs.16.5 Crores to Rs. 63 Crores after obtaining the shareholders approval.
Necessary fees were paid to ROC for increase in Authorized Capital to enable company to come out with
preferential allotment. It should be noted that company would not unnecessarily increase its authorized
share capital to a significant amount and pay relevant fees until and unless it is backed with some
corporate actions. In the present case, the company genuinely wanted to carry out preferential issue but it
could not happen as In-Principle approval not received from BSE. Series of letters were exchanged
between Company and BSE regarding preferential Issue. Due and reasonable effort was made to execute
the announcement related to issue of Preferential shares, hence the same cannot be termed as misleading.
Even the provision of SEBI (DIP) guidelines related to pricing of preferential shares requires that The
issue of shares on a preferential basis can be made at a price not less than the higher of the following:
i.

The average of the weekly high and low of the closing prices of the related shares quoted on the
stock exchange during the six months preceding the relevant date; OR

ii.

The average of the weekly high and low of the closing prices of the related shares quoted on a
stock exchange during the two weeks preceding the relevant date."
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iii. Real Estate Development Project

"It is pertinent to note that the Company duly made announcement to BSE on August 29, 2005
regarding the real estate project in Bangalore. in the case of Intimation to BSE made on August 29,
2005 to consider and decide taking up a project at Bangalore for Real Estate. The area has been
declared as Green Belt and construction of apartment not permitted. Substantial Payment of Rs.76 lakhs
has been made to reputed and esteemed organization M/s Bennett, Coleman & Co. Ltd., (Times of
India group) for the development project. Company has invested substantial amount in the project,
however still not received refund of the amount. The intimation by Bennett, Coleman & Co. Ltd. to
BSE regarding frustration of contract is its unilateral decision and hence the same should not be
considered as valid. The continuity to hold the said amount of Rs. 76 lakhs itself proves that the contract
is still subsisting and not revoked. Copy of agreement is already given to SEBI and the same is confirmed
by Bennett, Coleman & Co. Ltd. Proof of Payment of Rs. 76 lakhs to Bennett Coleman & Co. Ltd.
is enclosed".
iv. Variance of more than 20% in Unaudited and Audited Results
"There is no difference in any actual item of Income-Expenditure between unaudited and audited result
beyond 20%. Profit before Tax as per total of 4 quarter is Rs. 2.87 crores and as per annual result it is
Rs. 3.23 crores. Difference is Rs.0.36 crores i.e 12.54%, which is less than 20%. There was no change
in income. In expense there is variance of Rs.0.12 Cr. i.e 0.60%. There was change in operating profit of
Rs.0.16 Cr. i.e. 2.10%. Change in depreciation by Rs.0.51 Cr. i.e 10.76%. Hence all variance is
within 20% in compliance of clause 41 of listing agreement. The difference in PAT is due to change in
figure of Income Tax. There is no major variance in any item. During the year only provision for Income
Tax is made in Accounts. There can be difference in provision for Income Tax and actual figure of
Income Tax. This difference could be due to many reasons such as different rule of depreciation as per
Income Tax Act and as per Companies Act, MAT calculations, various deductions, exemptions,
differential tax rates head wise, item wise and region/area wise etc.
12.

I have noted the submissions of the Noticee that the company had applied to BSE for inprinciple approval for the bonus issue. In support of the same, the Noticee submitted a
letter (Ref no. ZSL/BSE/Bonus /05-06 dated March 27, 2006 addressed to BSE wherein
the Noticee requested BSE to grant the in principle approval for issue and allotment of
bonus shares which was approved by its board on July 18, 2005 and its shareholders on
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March 07, 2006. The Noticee also submitted a copy of letter dated November 10, 2008 (Ref.
No. ZSL/SEBI/NOC/BONUS/2008) addressed to SEBI which bears the stamp of SEBI
dated November 11, 2008 i.e. Application for NOC pertaining to Bonus Issue of Zigma
Software Ltd. The said letter inter alia contained the following: After the necessary
correspondence & communications with the authorities of the Bombay Stock Exchange Ltd (BSE), the
authorities of BSE required an No objection Certificate (NOC) from the Regulatory Authorities i.e.
SEBI". The Noticee vide the said letter requested SEBI "to condone the delay on part of execution
of issue and allotment of aforesaid Bonus issue in the 2005 and to grant us NOC to proceed with the matter
to re-gain the shareholder's confidence in the company". There is no other evidence available on
record to contradict the genuineness and veracity of the documents and submissions of the
Noticee. I find from an extract copy of the public announcements dated November 4, 2008
as available on record that ZSL had informed BSE regarding issuance of bonus shares
subject to the necessary NOC from regulatory authorities.
13.

The Noticee also submitted correspondence with BSE on the issue of prior in-principle
approval for preferential issue of warrants. The Noticee furnished letter dated September 20,
2005 addressed to BSE and BSE's letter dated October 04, 2005 in respect of in-principle
approval for issuing /allotting the proposed warrants on preferential basis. The Noticee has
also submitted copy of its letter dated October 13, 2005 to BSE on the same subject, which
bears the stamp of Inward Section of BSE showing October 17, 2005 as the date of receipt.
The Noticee further submitted a series of correspondence in this regard i.e. BSEs letter
dated December 23, 2005, Noticee's replies vide letters dated December 26, 2005, January
06, 2006 and January 19, 2007.
It is noted that vide e-mail dated May 14, 2015, BSE confirmed "the 2 letters dated 4th October
2005 and 23rd December 2005 sent to you by the Company (that are addressed to the company by BSE official Shri
Prakash Kamath) seem to be genuine as the signing officer is a former official of the Exchange.

14.

It is noted from the copy of documents furnished by the Noticee that they proposed to
implement the real estate project for which it paid `76 lacs to Bennett. Coleman & Co. Ltd.
It is stated that the project got delayed as the area has been declared as Green Belt and
construction of apartments are not permitted. Further, the amount paid to Bennett. Coleman
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is still lying with them. Hence, the Noticee claims that the contract is still subsisting and not
revoked. The Noticee submitted a copy of its bank statement of the bank account with
Kotak Mahindra Bank showing a payment of `76 lakhs to Bennett. Coleman & Co. Limited
on September 21, 2005. However, it is noted that no further action has been taken in the
matter.
15.

As regards the non compliance of Clause 41 of the Listing Agreement, it is noted from the
Noticee's submissions that there was no variance in income beyond an itemized variance of
20% which was then allowed between the Unaudited and Audited Financial Results as per
extant Clause 41 of the Listing Agreement. (The said limit was allowed till the SEBI circular
dated July 10, 2007 whereafter the said limit was reduced to 10%.).

16.

In sum, the main allegation levelled against the Noticee is that, of the corporate
announcements made by the Noticee referred in para 10 page 6, three announcements
pertaining to Bonus Issue, Preferential issue of shares and Real Estate project were not
implemented. However, the Noticee has submitted evidence to show that at least some steps
were taken to implement the announcements. The Noticee submitted details of the measures
taken, such as series of correspondence made with BSE for getting the in-principle approval
for the issuance of Bonus shares and preferential warrants, bank statement regarding
payment made to Bennett. Coleman & Co. Limited for real estate projects, etc. It is
noteworthy, however, that the promoter entities and associate entities did engage in trades
and substantially diluted their stakes in the company in proximity with the series of corporate
announcements. It is also noted that Adjudication proceedings were initiated against the said
promoter and associate entities and the Adjudication officer vide Order dated March 29,
2012 exonerated them from the allegations of PFUTP violations. Considering all the facts
and circumstances as narrated above and the evidence furnished by the Noticee in respect of
the steps taken to implement the corporate announcements, I am of the view that the matter
may be allowed to rest with a warning to be more cautious and careful in future in making
such corporate announcements.

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17.

In view of the foregoing, I, in exercise of the powers conferred upon me by virtue of section
19 read with section 11 and 11B of the SEBI Act and regulation 11(1) of the PFUTP
Regulations, 2003, issue a strong warning to the Noticee, to be careful and cautious of
making corporate announcements and their implementation. Any future lapse shall invite
stringent action.

18.

The Show Cause Notice dated July 08, 2009 read with corrigendum issued on November 26,
2009 is disposed of accordingly.

Place: Mumbai
Date: July 15, 2015

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

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