SEBI| Monotonous modus operandi, modulated endgame |Issue of GDR, artificial arrangement, supported by the subscribing Company itself-Restrained and to disgorge

Securities and Exchange Board of India (SEBI)-G Mahalingam, Whole Time Member, in a detailed 95 paged order, while disposing off the proceedings against Noticee 1 without any directions, considering the order for winding up of the Company by the High Court of Calcutta, issued directions for Noticee 1 in case the same order is reversed, for any reason. Further, passed relevant directions against Noticees 2-11, for orchestrated acts of GDR issues by several listed companies in India, to reap benefits by sitting on the other side of the issuance and subscribing to the GDRs, through an arrangement.

In the instant matter it was alleged that the Noticees were involved in several other GDR (Global Depository Receipts) issues wherein loan was taken by a foreign entity and the security of the loan was provided by the GDR issuing company by signing an account charge/pledge agreement. And that the Noticee 5, Arun Panchariya (beneficial owner), was the main architect in the activation of the fraudulent scheme, having orchestrated the whole scheme, including the GDR issuance, subscription of GDRs, and conversion of the GDRs and sale of the equity shares through a concerted efforts of all in the scheme, with the intention of making illegal gains. And, the Noticees 9-13 acted as conduits by facilitating the sale of illegally acquired securities in the securities market.

Notably, the Tribunal also considered the relevant fact that this particular event was not an isolated occurrence, where it was observed that Noticee 5 was central to the fraud perpetrated on the investors in the Indian securities market. For the same,  Pan Asia Advisors Limited  v. SEBI Appeal No. 126 of 2013, was referred to where the  SAT while dismissing the appeal filed by the appellants therein, had inter alia observed,

 “Even though all GDRs were not converted and sold, it is apparent that the modus operandi adopted by the appellants was not only to create an artificial impression that the GDRs have been subscribed by foreign investors, but also to create an impression that after the GDR Issue, investors in India have started subscribing to the shares of issuer companies when in fact the shares were sold and acquired by the entities controlled by Arun Panchariya. In these circumstances inference drawn by SEBI that at every stage of the GDR Issue, the acts committed by the appellants constituted fraud on the investors in India cannot be faulted. …”

The Tribunal keeping all the above observations made in the past and the inference drawn from such observations, was of the opinion that,

“It appears that the whole series of GDR issues by several listed companies in India was an act orchestrated by Arun Panchariya to reap benefits by sitting on the other side of the issuance and subscribing to the GDRs through an arrangement with Vintage. The respective Indian companies have also apparently participated in such schemes. Accordingly, as brought in the foregoing paragraphs, in view of the repetitive nature of such acts along with the gravity of the offences that have been perpetrated by Arun Panchariya, I am of the considered opinion that stern measures need to be taken against him and his connected entities”.

Resultantly gave the following directions:

  • Noticee 2, 3, 4  to be restrained from accessing the securities market for a period of 3 years and restrained for a period of 3 years from holding any position of Director or key managerial personnel in any listed company or any intermediary registered with SEBI.
  • Noticee 5 to be restrained from accessing the Indian securities market for a period of 10 years and restrained for a period of 10 years from holding any position of Director or key managerial personnel in any listed company or any intermediary registered with SEBI.
  • Noticee 6 to be restrained from accessing the Indian securities market, for a period of 8 years.
  • Noticee 7 to be restrained from accessing the Indian securities market for a period of 3 years and restrained for a period of 3 years from holding any position of Director or key managerial personnel in any listed company or any intermediary registered with SEBI.
  • Noticee 8 to be restrained from accessing the Indian securities market for a period of 8 years.
  • Noticee 9  and Noticee 10 to be restrained from accessing the securities market, for a period of 8 years and
  • Noticee 11, Noticee 12  and Noticee 13 to be restrained from accessing the securities market for a period of 2 years.
  • While Noticees 5, 6, 9, 10 were further directed to disgorge illegal gains of Rs. 4,93,85,831.43, made by way of sale of equity shares, with an  interest of 12% per annum.

[Vikash Metal and Power Limited, In re,WTM/GM/IVD/ID4/13571/2021-22, decided on 29-09-2021]


Agatha Shukla, Editorial Assistant has put this report together 

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