SECURITIES AND EXCHANGE BOARD OF INDIA
Directions under Section 11 B of the SEBI ACT, 1992 read with Regulation 12 of SEBI (Prohibition of Fraudulent & Unfair Trade Practices relating to Securities Market) Regulations,1995 against Mr. Ashok Chawla in the case of his role in the Public Issue of M/s Bharthari Financial Services Ltd.
M/s Bharthari Financial Services Ltd. (now known as BT Technet Ltd.), hereinafter referred to as BFSL, came out with a Public Issue of 13,50,000 equity shares of Rs.10/- each for cash at par, aggregating to Rs.1.35 crores. The issue remained open from 29.09.95 to 05.10.95. As per 78 days report the issue was oversubscribed by 17.859 times. As per market reports, the listing of equity shares of BFSL was preceded by speculative grey market operations. It was suspected that the promoters and other persons associated with the promoters had indulged in grey market operations and allotments to the Public Issue were manipulated by using ante-dated stockinvests at higher amounts than issued by the banks. These manipulations were possibly done by promoters of BFSL and certain investors/financiers with the assistance of RTI and Bankers to the Issue. The stock brokers who traded in these shares had also possibly facilitated this process. In view of this SEBI, vide its order dated 24.7.97 ordered an investigation into the affairs relating to buying, selling or dealing in the shares of BFSL.
The investigations revealed that BFSL acting through its Chairman Mr. SK Gupta in connivance with Ashok Chawla, made irregular allotments in the Public Issue of BFSL involving irregular subscription for shares by way of applications accompanied by stock invests issued after closure of the Issue. These stockinvests issued for Rs.1 lac, Rs.1.1 lac and Rs.1.2 lac were fraudulently altered to higher amounts of Rs.10 lac, Rs.11 lac and Rs.12 lac respectively. Mr. Ashok Chawla had arranged for the security against which the stock invests were issued and made applications in the name of some persons who were not genuine investors. Certain investors of Ahmedabad also made late applications by way of back dated stockinvests & were allotted shares against their applications. The ante-dated stockinvests were arranged from Sangli Bank Ltd., Karol Bagh, New Delhi & State Bank of India, Ashram Road, Ahmedabad. The share applications which were made for higher amount and which were arranged after the closure of the issue were made to get the issue oversubscribed many times. Consequently, such applications affected the regular allotment process. It was also gathered during the investigations that shares irregularly allotted were sold prior to the approval of basis of allotments and listing of shares.
Pursuant to the investigation report, a Show cause notice dated 15.06.99 was issued to Mr. Ashok Chawla, Chartered Accountant and a reply dated 08.07.99 was received. Further vide letter dated 19.09.02 an opportunity of personal hearing was granted on 26.09.02 to Mr. Ashok Chawla who appeared before me and made submissions. He submitted that 27 applications were arranged for an interest of 6% for 3 months during the issue of BFSL. The 27 stock invests were obtained from Sangli Bank Karol Bagh to accompany these 27 applications. When he did not receive the consideration, he withdrew these applications and requested Bank to treat the stockinvests as cancelled. Mr. Chawla further stated that he did not know how these applications were altered to a higher amount. He contended that everything was done purely in good faith and that he suffered a lot on this account. Mr. Chawla has requested to take a lenient view in the matter.
Now I deal with the issues arising in the show cause notice, and the reply received from Shri Chawla as below:
ISSUE
Irregular allotment of 1,17,200 shares of BFSL involving irregular subscription for 27,00,000 shares with an application money of Rs.2.7 crores by way of stockinvests issued by Sangli Bank, Karol Bagh, New Delhi.
Investigations revealed that 27 applications for 1 lac to 1.2 lac shares each involving application money of Rs.10-12 lacs each were accompanied by stockinvests issued by Sangli Bank, Karol Bagh, New Delhi and were allotted 4000 - 4800 shares each as per the Basis of Allotment. While the issue of BFSL closed on 5.10.95, these stockinvests had been issued on 23.11.95. Further, these stockinvests had been issued for amounts ranging between Rs.1.00-1.20 lacs each and had been used at a multiple of 10 in the application forms. These stockinvests were got cancelled by Mr. Ashok Chawla on 5.12.95 as he had withdrawn the applications and had accordingly informed BFSL.
REPLY
It was stated by Mr. Ashok Chawla that these stockinvests were arranged by him from Sangli Bank, Karol Bagh, New Delhi at the request of Mr. S.K. Gupta, Chairman, BFSL as a financial accommodation on a commission of 6% on an amount of Rs.30 lacs. These stockinvests alongwith blank signed application forms were handed over to Shri S K Gupta or his staff members. He stated that all the stockinvests were dated 5.10.95 and could not explain why Sangli Bank had issued pre-dated stockinvests.
Since he did not receive the promised consideration, the applicants withdrew the applications and asked for return of the stockinvests. He also informed Sangli Bank on 5.12.95 about the withdrawal of his applications and requested them to treat the stockinvests as cancelled. Vide letters dated 14.12 95 addressed to the applicants, BFSL returned the original stockinvests but stated that the application forms were still with the Bankers to the Issue or Registrar to the Issue. Despite the withdrawal of their applications much before the date of finalisation of allotment, BFSL/RTI allotted and dispatched 1,16,400 shares to the applicants “under some clerical mistake”. The applicants returned the shares to BFSL and did not pay any application/allotment money. He stated that Mr. S.K. Gupta or his staff filled up or caused to be filled up falsely writing 10 times the amount of stockinvests in the application forms.
FINDINGS
In his reply Mr. Ashok Chawla has denied that ante-dated stockinvests were arranged by him. This is contrary to his statement recorded u/s 11(3) of SEBI Act, 1992 on 5.9.97, where it was admitted by him that 27 stockinvests were got issued from Sangli Bank, Karol Bagh in the first week of November, 1995 after the close of Public Issue of BFSL on 5.10.95 at the request of Mr. S.K. Gupta. The explanation given by him is also not very convincing as he could not produce any document in respect of:
a) Arrangement with Shri S.K.Gupta for procuring these stockinvests
b) Handing over of blank signed applications forms alongwith original stockinvests to Shri S K Gupta
He also could not explain how the applications were made at amounts higher than the stockinvests. Mr. Ashok Chawla connived with Sh. S.K. Gupta, Chairman of BFSL in arranging finance for purposes of obtaining ante-dated stock invests which were used at higher amount for subscribing to the Public Issue of BFSL after its close and thus facilitated irregular allotments to the detriment of the general investing public.
I therefore hold Mr. Ashok Chawla guilty of this charge.
ISSUE
Allotment of 7,000 shares against applications accompanied by anti-dated stockinvests issued by Sangli Bank
Investigations revealed that about 80-90 stockinvests of Rs.10,000/- each were issued to Mr. Ashok Chawla by Sangli Bank, Karol Bagh after the close of Public Issue of BFSL. This was also admitted by him and confirmed that 7000 shares allotted against these applications were sold through M/s. Gautam Rothagi, Member DSE.
REPLY
Mr. Ashok Chawla stated that the ante-dating of these stockinvests can be best explained by the bank. He further stated that this allotment constituted a very small portion of the total shares allotted by BFSL on which the applicants had earned a meagre profit of only Rs.39,294/-.
FINDINGS
The fact of obtaining ante-dated stockinvests was admitted by Mr. Ashok Chawla in his statement recorded on 5.9.97. Not only did he connive with Mr. S.K. Gupta in facilitating irregular allotments in BFSL, he also ensured wrongful allotments for himself which were disposed of by him at a profit of about Rs.40,000/-
I therefore hold Mr. Ashok Chawla guilty of this charge.
From the aforesaid I find that Mr. Ashok Chawla connived with Mr. S.K. Gupta, Chairman of BFSL in arranging finance for purposes of obtaining ante-dated stockinvests which were fraudulently altered at higher amount and used for subscribing to the Public Issue of BFSL after the close of its Public Issue and thus facilitated irregular allotments to the detriment of the general investing public. He also obtained wrongful allotments to himself, relatives and friends in the public issue of BFSL by way of ante-dated stock invests. Had these irregular allotments not been made, the general investing public would have got an opportunity to invest in the shares of BFSL.
Mr. Ashok Chawla, Chartered Accountant, being a person associated with the securities market has, therefore, not acted in the interest of the investors in the securities and the securities market. The above conduct of Mr. Ashok Chawla has been fraudulent and thus in violation of Regulation 3 of the SEBI (Prohibition of Fraudulent & Unfair Trade Practices relating to Securities Market) Regulations,1995. Further they indulged in falsification of the stock invest with a view to deceive by way of fraud committed towards the general investors and thus violated Regulations 6(a) and 6(d) of the SEBI (Prohibition of Fraudulent & Unfair Trade Practices relating to Securities Market) Regulations,1995. It may be added that though the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 came into effect from 25.10.95, many of the irregularities were committed after the notification of the said regulations.
I also observe that in the case of Manu Finlease Ltd., Shri Ashok Chawla had acted in concert with Shri SK Gupta in fraudulently altering the stockinvests and backdating the applications resulting in irregular allotments for which appropriate directions are being considered u/s 11B of SEBI Act, 1992.
In view of above and taking into account all the material available on records I find it to be a fit case for passing of an appropriate direction u/s 11B of the SEBI Act, 1992 read with Regulation 12 of the SEBI (Prohibition of Fraudulent & Unfair Trade Practices relating to Securities Market) Regulations,1995. I therefore in exercise of powers conferred upon me under section 4(3) of the SEBI Act, 1992 debar Shri Ashok Chawla in any capacity whatsoever from associating with the capital market related activities, dealing in securities, accessing the capital market and associating with any of the intermediaries in the capital market for a period of 5 years. This order shall come into force with immediate effect.
Place : Mumbai
Date : 12.12.2002
G.N. BAJPAI
CHAIRMAN
SECURITIES AND EXCHANGE BOARD OF INDIA