No Penalty imposed in respect of 5 entities in the matter of Pine Animation Ltd.

No Penalty imposed in respect of 5 entities in the matter of Pine Animation Ltd.

Adjudication Order in respect of 5 entities in the matter of Pine Animation Ltd. has been disposed of without imposition of any penalty by the Adjudicating Officer (AO) of the Securities and Exchange Board of India (SEBI).

Herein, SEBI had conducted an investigation into the dealing/trading in the scrip of Pine Animation Limited (formerly known as Four K Animation Limited) (PAL or the Company), during the period from March 28, 2013 to January 30, 2015, since sharp rise in traded volume and price of the scrip of PAL was observed during the said period.

It was observed in the investigation that the Company had made two preferential issues (first on December 13, 2012 and second on March 15, 2013) for a total number of 2,47,000 shares at a price of ₹10 per share, just before trading resumed in the scrip on the stock exchange on March 28, 2013.

The investigation found that few preferential allottees who were found to have close nexus with the Company and its Promoters/Directors, and had allegedly played a role in the fraudulent and manipulative scheme, since the allotment of shares on preferential basis to them were funded by PAL itself.

These preferential allottees also benefited from the scheme by selling the shares allotted to them at artificially inflated price. The investigation also found that Unique Image Production Pvt., Ltd., (Noticee 1) and First Entertainment Pvt., Ltd., (Noticee 2) were the Promoters of PAL while the Noticees3, 4, and 5 viz., MuraliShanmugam, Prabu Sekar and Sekar Vasu respectively who were the Directors of the said Promoter companies, i.e., Noticees 1 and 2.

The investigation revealed that the Noticees 1 and 2 had transferred their entire shareholding in PAL to six entities,who in turn had facilitated further off-market transfers of the physical shares received by them from the Promoters of PAL to 49 other entities. These 49 entities spread across different parts of the country were found to have sold those shares at an artificially inflated price.

The Adjudicating Officer(AO) noted that there was no specific allegations against the promoter entities or their Directors, with respect to their role or collusive nexus, if any, with other Noticees who had allegedly manipulated the share price of PAL or sold the shares of PAL at artificially inflated prices.

The SCN merely stated the fact that the earlier Chennai based promoter entities and their Directors had transferred their shares in PAL in physical form to six entities located in Mumbai through off-market deals.

It was the contention of the promoter entities that on the basis of suggestion and reference from Nagaraja Sharma Rajagopalan, who was the Director of PAL, they came in touch with the prospective buyers of their shares in PAL and accordingly sold their shares to the said buyers located in Mumbai.

Rather, Mr. Nagaraja was the Director of PAL for the period of April 30, 2008 to December 02, 2013, and reportedly mediated between the promoter entities and the six buying entities in Mumbai, could be stated to have connection with the six buying entities who were introduced by him to the promoter entities. Thus, the nexus between the Mr. Nagaraja and the six buying entities became apparent on the basis of submissions made by the promoter entities.

The SEBI WTM had previously observed that the SCN had not been able to bring on record any evidence to implicate the promoter entities by establishing any nexus, with other Noticees who had either manipulated the share price of PAL or had been responsible for other violations alleged against them in the SCN.

In the absence of any evidence against the Noticees, the role of Noticees was limited only to the extent of transferring their stake in PAL to the Mumbai based six entities through the help of Mr. Nagaraja Sharma Rajagopalan, hence it would not be right to hold the Noticees as accountable for the scheme of manipulations in the scrip of PAL which occurred subsequent to their transfer whereby the buyers who purchased the shares of PAL through off-market deals from the 6 entities, could exit at a highly inflated artificial price.

The AO was in agreement with the reasoning given above by the Hon'ble WTM and found no reason to differ from the same.

Accordingly, the allegation that the Noticees were participants in the fraudulent scheme/device that was orchestrated for manipulating the price of scrip of PAL for the benefit of off-market recipients of the shares of the Company, thereby violating the provisions of Sections12A (a), (b) and (c) of the SEBI Act,1992 and Regulation 3 (a), (b), (c), (d)and 4(1) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 was not established.