Order against Yes Investments

ORDER AGAINST M/S Yes Investments AND ITS PARTNER/PROPRIETOR Shri. Deepak Chudasma, UNDER SECTION 11B OF SEBI ACT, 1992 READ WITH REGULATION 11 OF THE SEBI (PROHIBITION OF FRAUDULENT AND UNFAIR TRADE PRACTISES RELATING TO THE SECURITIES MARKET) REGULATIONS, 1995, IN CASE OF SURYADEEP SALTS, REFINERY & CHEMICALS WORKS LTD.

1. M/s. Suryadeep Salts, Refinery & Chemicals Works Ltd. (hereinafter referred as "SSRCL") came out with a public issue of 58,50,000 equity shares at par. The issue opened for subscription on 06/03/1996 and closed on 09/03/1996. It was gathered from the statutory reports filed with SEBI that the issue was subscribed to the extent of 94.52% and 8 applicants were allotted 48,80,000 equity shares (which was 88.24% of the total) out of total 55,29,900 shares allotted to the public.

 

2. Investigations were conducted by SEBI into the alleged price manipulations and irregularities in the public issue of M/s. Suryadeep Salts, Refinery & Chemicals Works Ltd. (hereinafter referred to as "SSRCL"). Investigations revealed that above referred eight applications were made through stock invests which were issued by the Global Trust Bank, Bandra Branch. The eight applicants were Surendra Somani, Rakesh Naval, Chandra M. Singhi, Raj Basantani, Seema Basantani, Madhukar Patil, Ajay Verma and Kewal Verma. Investigations with the aforesaid applicants revealed that this was a financing arrangement and and it was not a case of genuine subscription in the public issue of SSRCL. These 8 applicants entered into an arrangement with one Yes Investments, according to which, they were to apply for shares in the public issue of M/s Suryadeep Salt Refinery and Chemicals Works Ltd and on allotment, shares were to be returned to M/s Yes Investments who would pay back the amount subscribed in the shares alongwith interest @ 18% pa . It was stated by the applicants that they had received back their money alongwith the interest and in turn they had issued power of attorney in favour of the nominee of M/s. Yes Investments. If the shares allotted to these financiers namely, Surendra Somani, Rakesh Naval, Chandra M. Singhi, Raj & Seema Basantani, Madhukar Patil, Ajay and Kewal Verma are excluded from the total subscription, then the public issue is subscribed only to the extent of 6.28% while the requirement is that subscription to the extent of 90% of shares offered to the public should be received .

  

3. The fact that these 8 applicants were not genuine subscribers but it was merely a financing arrangement is evident from analysis of bank accounts. It was also seen during the course of investigations that Rs. 2.44 crores was repaid to the applicants (principal amount alongwith interest on the same for the period of date of subscription and date of repurchase) vide cheques bearing Nos.249801 to 249821 dated 17.5.96 drawn on Global Trust Bank, Bandra. These cheques were issued by M/s. Yes Investments. Investigations showed that fund for payment to M/s Yes Investments came from the current account of SSRCL (CA 1180) at Vijaya Bank, Alkapuri branch, Vadodara. The amount was transferred through an account of Prarthana Engg. (CA No.1272), Vijaya Bank, Alkapuri branch. Rs.2,55,95,000/- was transferred from the public issue account of SSRCL to the account of Prarthana Engineering which in turn transferred Rs.2,49,70,000/- to the account of M/s. Yes Investments by way of demand draft Nos.844993 to 845000, 845651 to 845655, 845663 to 845674, 845676 and 845730, out of the money received from SSRCL . Thus, it is seen that Prarthana Engineering charged Rs. 6,25,000 (Rs. 2,55,95,000 minus Rs.2,49,70,000/)for arranging finance in the guise of subscription to SSRCL. It was also seen that M/s Yes Investments also charged Rs.5,70,000 to act as a conduit in arranging these loans disguised as subscription.

  

4. Investigations revealed that the account of M/s Prarthana Engineering was introduced by Dr. Rajendrasinh Rathod-Director of SRCCL and it appeared that this account was opened merely to facilitate transfer of money from SSRCL to M/s Yes Investments. The credit entries in the account of Prarthana Engineering are on account of transfer of monies from SSRCL. A sum of Rs.1.19 crore was transferred on 10.5.96 from account of SSRCL to account of Prarthana Engineering This amount in turn was transferred by Prarthana Engineering by way of demand draft to the account of M/s Yes Investments on the same day. Likewise, further funds have been transferred from account of SSRCL to account of Prarthana Engineering first and then from the account of Prarthana Engineering to the account of M/s Yes Investments almost simultaneously. It is clear from analysis of the bank accounts of SSCRL, Prarthana Engineering, Yes Investments and these 8 applicants that the company i.e SSRCL purchased its own shares in violation of Section77 of Companies Act, 1956 and didn’t utilise the funds for which it had approached public. SSRCL and its Directors thus colluded with M/S Yes Investments and M/S Prarthana Engineering in violating the provisions of Section 69 of Companies Act, 1956, the terms of the prospectus and the provisions of SEBI - DIP Guidelines 1992 by giving a misleading impression that public issue received the required minimum subscription.

  

5. Investigations further revealed that promoters cornered approximately 89% of total shares allotted through buy - back of shares from financiers by using public issue proceeds. This cornering by promoters led to a condition of artificial scarcity. Investigations brought out that M/s Yes Investments as a nominee of Dr. Rathod, Director of SRCCL started trading in SSRCL shares through various brokers. The shares were transacted for Yes Investments, promoters of SSRCL by Aash Infin & Agrowth Pvt. Ltd., Scallop Investment and Allbless Trading. The trading of these entities affected the prices and these entities were the market movers. The trading of these entities accounted for approximately 60% of total transactions in the scrip at the exchange.
   
   
   
6. Investigations brought out that, shares delivered after "no delivery" period were in the name of persons who actually sold those shares during settlement prior to book closure and were not transferred in the name of last holder as should have been. This shows that buyer and seller were acting in collusion and shares purchased by the buyer were being passed on to the seller for circulation in the system. Consequently same share certificates were being routed in the market through various brokers. It was also found that some of the shares sold in the market belonged to promoters and these were issued to them prior to public issue. This further corroborates the nexus between promoters and the operators who were offloading shares in the market i.e. Yes Investment, Albless, AIAPL, Scallop, etc.
   
   
   
7. It was also noticed that when the BSE Sensex was falling, share price of SSRCL was showing upward movement. The company had not started production and there was no justification for a rise in price to the extent of Rs.41/- for the maiden issue. Directors of SRCCL in connivance with AIAPL, Scallop, Albless, M/s. Yes Investments and Prarthana Engineering. created a false market in the shares of SRCCL by first cornering the shares through buy back arrangement with the financiers and then indulging in large trading through various brokers knowing fully well that they was hardly any floating stock.
   
   
   
8. In view of the above, show-cause notices were issued to M/sYes Investments and its partner /properitor Shri Deepak Chudasma for having violated Regulation 4(a) (b) (c) and (d) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 read with Section 11(1) and 11(2)(b) & (e) of SEBI Act, 1992. M/s Yes Investments and its partner /properitor Mr. Chudasma were asked as to why suitable directions including directions prohibiting Yes Investments from accessing the capital market for a suitable period and debarring its partner /properitor Mr. Chudasma from dealing in shares, under Section 11 B of the SEBI Act read with Regulation 11 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to securities market) Regulations should not be issued. No replies to the above mentioned show cause notices were received. An opportunity for personal hearing before me was given to M/s Yes Investments and its partner /properitor Mr. Chudasma on 24/05/2002. However, this opportunity was not availed either by M/s Yes Investments or its partner /properitor Mr. Chudasma. I therefore proceed in the matter on the basis of material available on record.
   
   
   
9. I have considered the finding of investigations, material and evidence available on record and I am satisfied that charges levelled in the show cause notices are fully substantiated. I find that M/s Yes Investments violated the provisions of Sec. 69 of Companies Act, 1956, the terms of the prospectus and the provisions of SEBI - DIP Guidelines 1992 by giving a misleading impression that the public issue received the required minimum subscription. I also find that M/s Yes Investments was involved in price manipulation in connivance with Directors of SRCCL, AIAPL, Scallop, Allbless and Prarthana Engineering.
   
   
10. In view of the above, I in the exercise of powers conferred upon me by Sec. 4 (3) and 11 B of SEBI Act 1992 read with Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995, direct that M/s Yes Investments be prohibited from accessing the capital markets for a period of (three) 3 years. I also direct that its partner /properitor Shri. Deepak Chudasma be debarred from dealing in securities for a period of three (3) years. This order shall come into force with effect from August 19, 2002.

 

G. N. BAJPAI

CHAIRMAN

SECURITIES AND EXCHANGE BOARD OF INDIA

Date:

Place: Mumbai