SECURITIES AND EXCHANGE BOARD OF INDIA
ORDER
WTM/GA/3/ISD/5/05
UNDER SECTIONS 11B AND 11(4) OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 IN THE MATTER OF
PENTAMEDIA GRAPHICS LTD.
1.0. During the period March – May 2005, SEBI received complaints from Oriental Bank of Commerce, Mylapore Branch (erstwhile Mylapore Branch of the Global Trust Bank Ltd.) [hereinafter referred to as “OBC”], against Cameo Corporate Services Ltd., Chennai, (hereinafter referred to as “Cameo”) Share Transfer Agents for Pentamedia Graphics Ltd. (hereinafter referred to as “PGL”). In their complaints, OBC, inter alia, stated that they had sent to Cameo, share certificates for 34,00,000 equity shares of PGL, held in the name of Vijay Advertising Private Limited (hereinafter referred to as “VAPL”), for transfer in the name of the Bank. OBC alleged that Cameo did not respond, despite repeated follow-up by OBC over a period of four months. OBC further informed that these shares were pledged in favour of the Bank as security for the huge dues payable by PGL.
1.1. Further to the above complaint of OBC, SEBI sought certain clarifications from Cameo. In response, Cameo stated as under:
“As the distinctive nos. and certificate nos., comprised in the documents sent to us for transfer of 34 lacs shares did not match with the records maintained at our end, we could not effect the transfer of shares in the name of Oriental Bank of Commerce. In view of the above, we had, vide our letter dated 5.5.2005 returned the transfer documents to Oriental Bank of Commerce”.
1.2. As the aforesaid reply given by Cameo raised doubts regarding the genuineness of the share certificates in question, SEBI advised Cameo to furnish certain additional information and the same were furnished by Cameo.
1.3. Further to the above SEBI obtained details relating to the major share holders of PGL and the allotment of shares to VAPL by PGL etc. from the depositories viz. National Securities Depository Ltd. (NSDL) and Central Depository Services (I) Ltd. (CDSL) and The Stock Exchange, Mumbai (BSE).
1.4. The facts of the matter are narrated in a chronological manner below:
2.1. PGL is a listed company. Its shares are listed on BSE, NSE and Madras Stock Exchange (MSE). As on June 30, 2003, the paid up capital of PGL consisted of 21,99,54,125 shares of Rs. 10/- each. PGL has also issued GDRs with underlying equity shares.
2.2. On September 12, 2003, PGL had issued 95,00,000 equity shares of Rs.10/- each on preferential basis at Rs.11.36 per share as approved by its Board of Directors. The details of the preferential allotment made to VAPL and Sathya Securities P Ltd. (hereinafter referred to as “SSPL”) are as under:
|
Sl.
No.
|
Name of the Allottee
|
No. of shares allotted
|
Rate
|
Amount
(Rs. In Lakh)
|
% of Post Issue Capital of PGL
|
|
1.
|
Sathya Securities P Ltd.
|
55,00,000
|
Rs.11.36
|
624.80
|
2.25%
|
|
2.
|
Vijay Advertising P Ltd.
|
40,00,000
|
Rs.11.36
|
454.40
|
1.63%
|
2.3. PGL originally issued the certificates in physical form (printing of certificate done by PGL directly) and sent the same to the allottees as above directly. PGL vide its letter dated September 18, 2003 sent details regarding the above allotment / allottees to Cameo, for master updation. These shares were subject to lock-in up to September 11, 2004.
2.4. These shares, which were in physical form, were pledged by VAPL with OBC as security for the huge dues payable to OBC by PGL.
2.5. Thereafter, while the physical shares were still under pledge to OBC, VAPL vide Demat Request Form No.3116548 dated July 17, 2004 sent another set of physical shares pertaining to the same distinctive number (as those pledged with OBC) to Cameo (the Registrar cum Share Transfer agent of PGL) for dematerialization of the shares. The said demat request was sent by VAPL through IL&FS Ltd., a Depository Participant.
2.6. Cameo seems to have effected the dematerialization and uploaded the data in the normal course.
2.7. The shareholding of PGL for the quarter ended September 30, 2004 shows that VAPL and SSPL do not appear amongst the significant (holding 1% or more) shareholders. During the earlier period i.e. quarters ended Sep. 2003, Dec. 2003, Mar. 2004 and Jun. 2004, VAPL and SSPL appear amongst the major shareholders holding 40,00,000 and 55,00,000 shares representing 1.63% and 2.25% of paid up capital (consisting of 24,47,54,125 shares of Rs.10/- each)
2.8. On December 30, 2004, OBC sent the original share certificates of PGL lying with it as pledged along with Transfer Deed to Cameo with a request to transfer the shares (which were in the name of VAPL) to its name.
2.9. On receipt of the said request for transfer from OBC, Cameo noted that the physical shares sent by OBC had already been dematerialized by it (based on the earlier request by VAPL).
2.10. Cameo forwarded OBC’s request along with the original documents to PGL and sought PGL’s advice in the matter.
2.11. PGL wrote to OBC offering to replace the share certificates pledged with OBC with some other shares for the same value.
2.12. Apparently, OBC did not agree and instead sent reminders to Cameo for effecting transfer. However, Cameo did not respond to OBC’s letters till May 5, 2005. Cameo replied to OBC only after SEBI took up the matter with Cameo.
2.13. Cameo, vide its letter dated May 5, 2005 returned to OBC the original share certificates, along with other documents received by it stating that the distinctive numbers mentioned in the subject share certificates did not tally with its records.
3.1. From the above facts, SEBI has found prima facie as under:
PGL has apparently issued physical share certificates in 3 sets in the name of Vijay Advertising P Ltd., against a single allotment, as detailed below:
|
Set
|
Folio
No.
|
Certificate
No.
|
Dist. Nos.
|
No. of Shares
|
Remarks
|
|
1.
|
076601
|
178197
|
From
235254126
to
239254125
|
40,00,000
|
As per information given by the Company to Cameo, along with copy of share certificate for master updation
|
|
2.
|
076601
|
178240
|
From
235254126
to
238654125
|
34,00,000
|
Submitted by the allottee through their DP for demat
|
|
178241
|
From
238654126
to
239254125
|
6,00,000
|
|
3.
|
076601
|
178240
|
From
235254126
to
238654125
|
34,00,000
|
Sent by OBC for transfer in their name.
|
3.2. PGL vide letter dated February 15, 2004 informed Cameo that the share certificate no.178197 (listed at sr.no.1 in the above table) has been cancelled and fresh certificate no.178240 for 34,00,000 equity shares bearing distinctive nos.235254126 to 238654125 and certificate no.178241 for 6,00,000 equity shares bearing distinctive nos.238654126 to 239254125 in lieu of the older certificate have been issued. However, it is seen that there is no superscription on the second or the third set of certificates to indicate that the certificates in question have been issued in lieu of the certificates of the first set.
3.3. One set of Certificate (Sl.No.3 in Table above) were pledged by VAPL with OBC as security for the dues payable by PGL to OBC.
3.4. Another set of certificate (Sl.No.2 in table above) were dematerialised by Cameo at the request of VAPL, while the physical shares pertaining to the same distinctive numbers were still under with OBC.
3.5. As per data obtained from NSDL and CDSL, the preferential allottees viz. VAPL and SSPL do not appear to hold any share of PGL as on May 24, 2005. As on Sep. 30, 2004, the shareholding pattern of PGL does not show VAPL and SSPL amongst its major (holding 1% or more) shareholders. It appears that the shares at Sl.No.2 in the table above were sold by VAPL in the market after dematerializing the shares, while another set of shares with the same distinctive numbers were still under pledge.
3.6. The annual reports of PGL for the years ended March 2003 and March 2004 reveal that the following are the directors of PGL. (The addresses of the respective directors as furnished by BSE are also indicated alongside the name of the respective directors)
PGL:
Registered Office: “Taurus”, No.25, First Main Road, United India Colony, Kodambakkam, Chennai 600 024.
|
Sr.No.
|
Name of Director
|
Designation
|
Address
|
-
|
Mr. V Chandrasekaran
|
Chairman & CEO
|
527, 6th Cross Street, Beasant Nagar, Chennai 600 090.
|
-
|
Dr S Ramani
|
Director
|
3/684, Sri Ram Layout, Kuppam Road, Kottivakkam, Chennai 600 041.
|
-
|
Mr. T V Kirshnamurthy
|
Director
|
701, D Building, Sri Sanakara Colony, P L Lohande Marg, Mumbai 400 004 (Office)
1C, Govindam Apartment, # 4, IV Cross Street, United India Colony, Kodambakkam, Chennai 600 024 (Residence)
|
-
|
Ms Usha Ganesarajah
|
Director (Resigned on March 22, 2004)
|
12750, Centre Court Drive, 400, Cerritors, California 90703, USA
|
-
|
Mr. S D Viswanathan
|
Director (w.e.f. May 29, 2003)
|
‘Anuggraha’, 34B, Ormes Road, Kilpauk, Chennai 600 010.
|
3.7. PGL (vide letter dated January 14, 2004) while applying for listing of the shares allotted on preferential basis has furnished the names and address of the directors of the preferential allottees.
VAPL:
Registered Office: 28, North Usman Road, T Nagar, Chennai 600 017.
Corporate Office: 56, North Boag Road, T Nagar, Chennai 600 017.
|
Sr No.
|
Name of Director
|
Address
|
|
1.
|
Mr M Varadharajan
|
No.4, Plot No.16/B, Visalakshi Nagar Extension, Ekkattuthangal, Chennai 600 090.
|
|
2.
|
Mrs Bhuvaneswari
|
No.4, Plot No.16/B, Visalakshi Nagar Extension, Ekkattuthangal, Chennai 600 090.
|
SSPL:
Address: 1010, Maker Chamber No 5, Opp. Status Hotel, Nariman Point, Mumbai 400 021.
|
Sr No.
|
Name of Director
|
Address
|
|
1.
|
Mr Madanlal Chawla
|
728, Devi Nagar, New Sanganer Road, Jaipur
|
|
2.
|
Mr Uma Shankar Pareek
|
B – 14, Malvia Nagar, Khatipura, Jaipur
|
|
3.
|
Mr. Jai Deep Singh
|
H.No. 50-51, Ganesh Colony, Khatipura, Jaipur
|
|
4.
|
Mr. Kuldeep Singh Malik
|
H.No. 50-51, Ganesh Colony, Khatipura, Jaipur
|
|
5.
|
Mr. Ashiah Mittal
|
229, Mansarovar Colony, Kalwar Rd. Jhotwara, Jaipur
|
4.1. In view of existence 2 sets of physical share certificates at the same time bearing the same distinctive numbers, it stands to reason that at least one of them is a fake. Apparently, the shares have been issued directly by the company and not by / through the registrar.
4.2. One set of share certificate, in physical form, was pledged with OBC by VAPL apparently to secure the dues payable by PGL to OBC. Hence, it may be inferred that VAPL and PGL are related entities. It may also be noted that during September 2003 PGL allotted 40,00,000 shares to VAPL while the promoters of PGL held only 10,28,000 shares.
4.3. While the shares were thus pledged to OBC, VAPL (a preferential allottee) through its DP namely, IL&FS Ltd. (DP ID: IN 300095 Client ID 11085756) made a dematerialization request to Cameo enclosing another set of physical share certificates pertaining to the same distinctive numbers as those pledged with OBC. It appears that either the shares pledged by VAPL with OBC were fake or the shares sent to Cameo for dematerialization and subsequently sold in the market were fake.
4.4. If Cameo had responded promptly to the transfer request of OBC, the instant matter may have been brought to light much earlier. The delay on the part of Cameo raises suspicion regarding their bonafides and the same requires to be examined from the view point of their likely complicity in the whole matter.
4.5. It is also seen that after OBC (vide letter dated Dec. 30, 2004) lodged the shares with Cameo requesting for transfer in its name, PGL vide letter dated January 4, 2005 offered to replace the shares under pledge to OBC with some other shares having the same value stating that in view of change in management of VAPL, it (i.e.VAPL) has expressed its unwillingness to offer the shares of PGL held by it as security to OBC. It appears that VAPL had already (during September 2004) sold these shares, after getting the same dematerialized, in the market and the above offer by PGL to substitute some other shares as security to OBC appears to be a ruse.
4.6. VAPL has apparently sold the demat shares in the market during the period from September 12, 2004 (i.e. immediately after the lock-in period was over) to September 30, 2004, even though another set of original shares in the name of VAPL and pertaining to the same distinctive number continued to remain pledged in physical form with OBC.
4.7. The above act of VAPL would tantamount to a fraud on the investors of securities market besides being a fraud on the bank. PGL and its directors prima facie appear to have actively assisted VAPL in the above fraud by simultaneously issuing shares bearing the same distinctive numbers without canceling the earlier issued shares. In this context it may be reiterated that one set of shares were pledged with OBC as security towards dues payable by PGL to OBC.
4.8. Prima facie, the aforesaid facts, renders PGL /its directors/ the Allottees viz., Vijay Advertising Pvt. Ltd., guilty of violation of Regulation 3 and Regulation 4 (2)(h) of SEBI (Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003.
4.9. Lapses on the part of Cameo in complying with the relevant provisions of SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 and the relevant Rules/ Circulars/ Guidelines issued from time to time cannot be ruled out, in the attendant circumstances of the case casting a suspicion on their conduct.
4.10. With a view to ascertain the facts of the matter and determine whether the concerned entities have violated the provisions of the Securities Contracts (Regulation) Act, 1956 as well as that of the SEBI Act, 1992 and the rules and regulations made thereunder, SEBI has initiated formal investigations into the matter.
5.1. In the light of the above, I find that, prima-facie, the conduct of the above entities is not in consonance with the high standards of integrity, fairness and professionalism expected from securities market participants. Such conduct by the said entities saps the investors’ confidence and is detrimental to investor interests as well as the safety and integrity of the securities market.
5.2. Allowing PGL, the preferential allottee viz. VAPL and their respective directors to continue their dealings in the securities market without any restrictions would be prejudicial to the interests of the investors and the safety and integrity of the securities market.
5.3. Issuing fake shares is a major offence. Fake shares will lead to artificial increase in shares of a company available for trading thus seriously impairing the value of securities held by genuine investors. Also fake shares will lead to artificial increase in trading volumes. Fake shares will also undermine the confidence of investors in securities market and seriously hinder the orderly development of securities market.
5.4. In the case of PGL, the GDRs issued by the company are listed and traded in foreign countries. In case of such companies, it is all the more essential for companies to adhere to the highest standards of corporate governance in keeping with global benchmarks.
5.5. It is the responsibility of SEBI as market regulator to curb reprehensible practices such as issuing fake shares and trading in fake shares. Serious and deterrent penalties are called for to prevent recurrence of frauds such as issuing fake shares
5.6. As noted earlier, SEBI has initiated formal investigations into the matter. In the interim, in view of the grave emergency and to save the investors and the securities market from further fraudulent acts of the concerned entities, I, in exercise of the powers delegated to me by the SEBI Board in terms of Section 19 of the Securities and Exchange Board of India Act 1992 read with Section 11B and 11(4)(b), pending investigations and passing final order, hereby issue the following directions, by way of ad interim, ex-parte order:
- Pentamedia Graphics Ltd. and its directors – PGL is directed not to issue any further shares or alter its share capital in any manner till further directions. The company and its directors, namely Mr. V Chandrasekaran, Dr. S Ramani, Mr. T V Krishnamurty, Ms. Usha Ganesarajah and Mr. S D Viswanathan are prohibited from accessing capital market or dealing in securities, in any manner, directly or indirectly, till further orders in this regard by SEBI.
- Vijay Advertising P Ltd. (Preferential Allottee) – The sale proceeds accruing to VAPL from the above dubious deal is directed to be impounded and VAPL is further directed to retain the impounded sale proceeds in its account and the same should not be utilized in any manner for any purpose. VAPL and its directors namely Mr. M Vardharajan and Mrs. Bhuvaneswari should not deal in securities market in any manner directly or indirectly till further directions by SEBI in this regard.
The entities listed above may file their objections, if any, to this order within a period of 15 days from the date hereof and also avail an opportunity of personal hearing, if they so desire, on the following date and time:
1. Pentamedia Graphics Ltd. and its directors – At 11:30 a.m. on June 16, 2005
2. Vijay Advertising P Ltd. and its directors – At 3:00 p.m. on June 16, 2005
The said opportunity of personal hearing will be granted at the Securities and Exchange Board of India, Head Office, First Floor, Mittal Court ‘B’ Wing, Nariman Point, Mumbai 400 021, failing which it shall be presumed that he has nothing to say in the matter.
OBC., Mylapore branch is directed to retain all the original documents pertaining to the transaction including the share certificates and the loan documents in its possession, in a sealed and secure place. OBC is directed not to tamper with or part with any of the aforesaid documents until further specific directions in writing in this regard by SEBI.
Cameo is directed that it should keep in a safe and secure location all the documents pertaining to the transaction including the original defaced certificate received by it for dematerialization and all correspondence and documents received from the company regarding the preferential allotment to Vijay Advertising P Ltd. and Sathya Securities P Ltd. Cameo should not tamper with or part with any of the documents pertaining to the transaction until further specific directions in writing in this regard by SEBI.
This order shall come into force with immediate effect.
G ANANTHARAMAN
WHOLE-TIME MEMBER
SECURITIES AND EXCHANGE BOARD OF INDIA
Place: Mumbai
Date: 27-5-2005