Capital markets regulator Sebi on Tuesday imposed a penalty totalling Rs 1.25 crore on and four other persons in a case pertaining to fraudulent issuance of the company’s Global Depository Receipts (GDR). The four persons penalised by the regulator are — DB Jain, BG Jain, Arun Pachariya and Mukesh Chauradiya. They have been directed to pay the penalty within 45 days, the Securities and Exchange Board of India (Sebi) said in an order.
The regulator conducted an investigation against several Indian companies that had issued GDRs in overseas markets. It had probed the GDR issue of Nakoda during the issuance of such receipts in November- December 2010, to ascertain whether GDRs were issued with the intention of defrauding Indian investors and appropriate disclosures with respect to the Listing Agreement if any were made.
Nakoda came out with the issuance of 20,00,000 GDRs amounting to USD 24.25 million in November 2010.
In its probe, Sebi found that the scheme of issuance of GDRs was fraudulent as Nakoda had entered into a pledge agreement with European American Investment Bank or EURAM Bank for a loan that had been availed by Vintage towards the subscription of GDRs issued by the company.
The pledge agreement was not disclosed to the stock exchanges, which made the investors believe that the said GDR issue was genuinely subscribed by foreign investors. Vintage was a party to this fraudulent scheme.
Sebi noted that the fraudulent scheme of the GDR issue was carried out jointly by the noticees (Nakoda and four persons) and in close connivance with each other.
“…noticees had acted as one part of the entire fraudulent scheme by arranging for the subscription of the GDRs through Vintage using the pledge agreement to obtain a loan from the EURAM Bank and then to dispose of the shares acquired through such GDRs, thereby creating an elaborate facade of demand for the securities of Nakoda and mislead the Indian investors,” Sebi added.
Jains were directors of Nakoda at the time of violations, Chauradiya signed the loan agreement on behalf of Vintage for the subscription of GDRs of the company and Panchariya was the director and beneficial owner of Vintage.
Individually, Sebi levied a fine of Rs 30 lakh on Nakoda, Rs 20 lakh on DB Jain, Rs 15 lakh on BG Jain, Rs 10 lakh on Chauradiya and Rs 50 lakh on Panchariya.
Actions have been taken by Sebi in the past too against Chauradiya and Panchariya for their involvement in similar fraudulent GDR schemes.
In a separate GDR matter, Sebi has slapped a fine of Rs 25 lakh on
& Industries Ltd and Rs 5 lakh each on SK , AK Somany, P Bandopadhyay and Sunil Patel.
In its order, Sebi observed that Soma and these four persons orchestrated the fraudulent scheme of GDR issued in 2006.
These entities “misled the Indian investors by concealing the information of entering into Credit Agreement and Account Charge Agreement, change in ‘intended use of GDR proceeds’, not disclosing and also reporting misleading news to the stock exchange which contained information in a distorted manner and influencing the decision of investors and thereby fraudulently issuing shares underlying the GDRs and then selling those converted shares in Indian market by for an approximate amount of Rs 43.53 crore”.
Moreover, Soma made a false announcement that its GDRs were genuinely subscribed thus causing fraud on innocent investors, the regulator noted.
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