Order against Bank of Madura (Now merged with ICICI Bank)

ORDER UNDER SECTION 11 AND 11 B OF THE SEBI ACT IN THE CASE OF BANK OF MADURA (NOW MERGED WITH ICICI BANK)

1. Investigations were conducted into the abnormal trading pattern in the scrip of Bank of Madura (BOM) just prior to the announcement of its merger with ICICI Bank. During the course of investigations it was observed that BOM was not a very liquid scrip. The average volume of this scrip in BSE in the period of September 4, 2000 to December 1,2000 was to the tune of 1550 shares per day (the price was Rs.85/- per share on close of December 1, 2000). However from December 4,2000 the price started moving up and it was accompanied with increased volumes. The price touched Rs.131.60 on BSE.___ and Rs.132.25 on NSE on the day when proposed merger was intimated to exchanges i.e. on December 8, 2000. It was also observed that on December 6,2000 there was a huge volume of 5,87,970 shares in BSE even though as mentioned above the scrip was by and large ill liquid.

 

2. On analysis of this unusual volume on December 6,2000, it was observed that out of 5,87,970 shares traded, M/s LKP Shares & Securities Ltd. (Clearing Code D0408) was the largest purchaser as well as seller. On this day LKP had sold 5,64,250 shares and purchased 5,08,250 shares. The shares were sold on behalf of SPIC group of companies/associated entities, which sold 5,64,250 shares and B. Arun Kumar Credit and Capital Limited (BACCL) was one of the major purchaser who has purchased 5,08,250 shares. The transaction was a cross deal

 

3. Analysis of order log for December 6,2000 shows that it was a negotiated deal and a buy order of 5,85,000 shares @Rs.96.25 as well as a sell order of 5,64,250 shares were placed almost simultaneously. The buy order was placed at 10:11:20 & the sell order was put 57 seconds later at 10:12:17 even when there were pending buy orders of 56000 shares at BSE and 1,19,000 shares at NSE @ Rs.113/-. It was also admitted by the broker (LKP) that it was actually a negotiated deal but was put through the system.

 

4. It was gathered that on account of differences between buyers and sellers, the deal was not completed i.e. shares contracted for were not delivered in full (only a part delivery was made) and no payment was received by seller (though cheque was given by the buyer to the broker). In view of this and suspicion of trading on unpublished price sensitive information, BOM was asked not to allow transfer of shares to the three transferees i.e, BACCL (5,08,250), Bharat J. Patel (30,750) and S. A. Deshpande (25,250) till further orders from SEBI. Later, ICICI Bank informed SEBI that only BACCL had lodged 3,30,425 shares for transfer in its name.

 

5. A writ petition was filed by BACCL before the Hon. High Court of Mumbai wherein a prayer was made by the petitioner to set aside/quash/stay the directions of SEBI to Bank of Madura/ICICI Bank stopping the transfer of the said shares in the name of BACCL or in alternate issue a writ or direction directing SEBI to withdraw the restraint order. The Hon. High Court in the hearing held on August 5,2002 directed SEBI to pass final order/direction with respect to the transaction, within one month.

 

6. Both the parties i.e buyer (BACCL) and sellers (SPIC and its associates) have expressed their willingness to cancel the contract vide their letters dated September 3,2002. Based on the same the stock broker LKP Share and Stock Brokers Limited who executed the transaction on behalf of both the buyer as well as sellers has requested BSE and SEBI vide letters dated August 31,2002 and September 3,2002 to annul the said transaction. This would restore status quo ante and remove the cause of unfairness of the transaction.

 

7. In view of the above, I hereby, in exercise of powers conferred upon me under section 4(3) read with 11 and 11B of SEBI Act, direct BSE to annul the trade of 5,08,250 shares of BOM executed through LKP Share and Stock Brokers Limited on December 6,2000. This is without prejudice to any action, which may be taken by SEBI against any of the parties, involved in the said transaction under SEBI Act/Regulations.

 

G.N. BAJPAI
CHAIRMAN
SECURITIES AND EXCHANGE BOARD OF INDIA

Place : Mumbai

Date : September 3,2002