ORDER UNDER REGULATION 28 (3) OF SEBI (BANKERS TO AN ISSUE) REGULATION 1993 AGAINST M/S PUNJAB NATIONAL BANK- IN THE CASE OF M/S ELVIS INDIA LTD. A SEBI REGISTERED banker to the issue.
Elvis India Limited (EIL), an Ahmedabad based public limited company, came out with public issue of 65,43,900 equity shares at par aggregating Rs.654.39 Lac in 1994-95. The issue opened on 27/12/1994. The earliest closing date was on 30/12/1994 and the latest closing date was 07/01/95. The issue was lead managed by Jolly Leasing and Finstock Ltd, who was pre and post issue lead manager. The issue closed on 30/12/1994. The issue was over-subscribed by 4.49 times.
A reference was received by SEBI from the Deputy Director of Income Tax (Investigation), Ahmedabad, relating to irregularities in the applications accompanied by stock-invests in the issue of Elvis India Limited. It was observed that one of the bankers to the issue, Punjab National Bank, Navrangpura Branch, Ahmedabad had issued 40 stock-invests of Rs.5 lacs each, totalling to Rs.2 Crores, two months after the closure of the issue.
Income tax department found that some officials of the bank colluded with a few investors and EIL. Bank issued blank stock invests ( without filing them up) and without putting banker's stamp as to date of issue. These stock invests were issued on March 1st, 1995. The Stock Invests being blank were misused for making applications after the closure of the issue. Forty applications accompanied by these stock invests (stock invests which were issued on March 1st,1995) were made for subscription in the public issue of EIL. It was observed during the course of investigations by the Income Tax Department that names of the applicants in respect to these 40 stock invests, were different from the purchaser of the stock invests as per bank records. Further, some of the stock invests which were used for applying in public issues of EIL were actually issued for subscription in other companies (other than EIL). Subsequently all these stock invests were cancelled on 15th and 28th March 1995 and yet applications accompanied with these stock invests which were subsequently cancelled were considered for allotment.
The issuing bank in their first statement, given to the controlling branch, dated 16th January 1995 did not include the subscription received through these 40 stock invests (Rs.2 Crores) and showed receipt of subscription of only Rs 5.69 lakhs . However in their revised statement on the same date and with same reference number included the subscription to the tune of Rs.2 Crores received through these ante-dated stock invests in the total collection received by PNB (Navrangpura) in the issue of EIL. The controlling branch of the PNB issued final certificate accordingly and sent the documents to the Registrar to the issue for further necessary action. It was seen that these late applications accompanied with stock invests issued after closure of the issue i.e. on 1/3/95 were considered for allotment of shares. Allotment basis was finalised on 9th March 1995 which included applications accompanied by stock invests issued two months after the closure of the issue.
On the basis of these findings it prima facie appeared that Punjab National Bank, Navrangpura Branch, Ahmedabad issued blank stock invests even 2 months after the issue was closed and which were used for making applications(late ) with help of these ante-dated stock invests in the public issue of M/s. Elvis India Ltd. Punjab National Bank falsely certified the application money on 16/1/95 and 22/3/95 .These acts are in contravention of Regulations 12 and 16 read with the Code of Conduct 1,2,6(b) and 7 specified in Schedule III of SEBI(Bankers to the Issue) Regulations, 1994.
Pursuant to these above mentioned prima facie violations of investigations an enquiry was intiated against the Bank to look into the possible violations of SEBI (Bankers To An Issue) Rules And Regulation 1993. The enquiry officer issued a show cause notice to the bank asking it to reply to the charges levelled against it. The Bank filed its reply dated June 15, 2002 in which it was stated that an officer of the branch in collusion with the concerned party committed irregularities in the show cause notice which has tarnished the image and reputation of the bank. It was submitted that as soon as bank came to know of these irregularities disciplinary action against the concerned officers was taken. Shri V P Dixit, the then Manager was dismissed from service and Shri S C Jani, Officer of the Branch was awarded major penalty of the reduction in scale by four stages. It was further submitted that after the above incident, the Navrangpura Branch was not permitted to do any merchant banking business by the Head Office.Finally, it was submitted that since major penalty proceedings were already completed against the aforesaid officers of the bank, a lenient view may be taken.
The enquiry officer, after considering the findings of the investigation and the submissions made by the bank during the course of enquiry concluded that the bank has acted in contravention of Regulations 12 and 16 read with Code of Code 1,2,6(b) and 7 Specified in Schedule III of SEBI(Bankers to the Issue) Regulations, 1994. The enquiry officer levied a penalty of suspension for a period of 1 month against Punjab National Bank from acting as Bankers to an Issue.
Pursuant to the submission of the enquiry report a show cause was issued to the Bank asking it as to why the action as recommended by the Enquiry Officer should not be taken against it. The Bank was also advised to submit their reply, if any, within 21 days of the receipt of the show cause failing which it will be presumed that it has no explanation to offer.
The Bank replied to the show cause vide its letter dated July 19, 2002 stating that as soon as bank came to know of these irregularities disciplinary action against the concerned officers was taken. Shri V P Dixit, the then Manager was dismissed from service and Shri S C Jani, Officer of the Branch was awarded major penalty of the reduction in scale by four stages. It was further submitted that after the above incident, the Navrangpura Branch was not permitted to do any merchant banking business by the Head Office. They requested the Chairman to take a lenient view in this regard. They had also requested for a personal hearing before me which was granted to them on 17/08/02. The Bank was represented by Sri V Nagaraja and Sri S K Mohanty who presented their case before me. They reiterated whatever they had earlier submitted in their written submissions before SEBI.
On examination of material and evidence available on record, enquiry report and submissions made from time to time, I find that the bank has not disputed the findings of investigations i.e. issuing stock invest after the closure of the public issue, giving false certificate regarding receipt of the application money on 16/1/95 and 22/3/95 and the issuance of blank stock invests.
However, it was pleaded that bank as an institution must working and functioning within rules, guidelines framed by RBI and SEBI and only a few officers of its one of the branch, Navrangpura branch of Ahmedabad, had colluded with the party and committed these irregularities. It was submitted that as soon as bank came to know of these irregularities disciplinary action against the concerned officers was taken. Shri V P Dixit, the then Manager was dismissed from service and Shri S C Jani, Officer of the Branch was awarded major penalty of the reduction in scale by four stages. It was further submitted that after the above incident, the Navrangpura Branch was not permitted to do any merchant banking business by the Head Office. Bank therefore pleaded that a lenient view be taken of these irregularities.
After considering these submissions of Bank, I am of the view that the interests of justice would be fully met if a warning is issued to the Bank. I therefore in the exercise of powers conferred on me under section 4 (3) and section 11 B of SEBI Act, warn Punjab National Bank to be more careful in future and ask it to ensure compliance with the SEBI (Bankers to an Issue) Rules and Regulations 1992. It is further ordered that any violations in future in complying with SEBI Act, 1992, Securities Contracts Regulation Act 1956, the Regulations and the Guidelines framed/issued there under from time to time, would be viewed seriously.
G N BAJPAI
CHAIRMAN
SECURITIES AND EXCHANGE BOARD OF INDIA
Date :September 03, 2002
Place: Mumbai.