ORDER IN RESPECT TO M/S ICICI BANK LTD. (FORMERLY BANK OF MADURA), AHMEDABAD BRANCH IN THE CASE OF NORTH STAR GEMS (INDIA) LTD.

 The scrip of M/s North Star Gems (India) Ltd (hereinafter referred to as NSGIL) witnessed unusual spurt in the prices and volumes in the month of June 1996 and there was huge volatility in the price of the scrip from Rs. 90/- to Rs. 176/- during the said period in The Stock Exchange, Mumbai and whereas the Securities and Exchange Board of India (hereinafter referred to as SEBI) vide its order dated 25.9.96 initiated investigations into the high volatility in the prices and volumes in the said scrip.

Investigations revealed that, Dr. Amit Shah in connivance with Mr. Piyush Mehta, promoter of NSGIL, arranged for subscription in the public issue of NSGIL with an intention to corner the floating stock in the scrip. It was found that 31,24,000 shares out of total offer of 32,50,000 shares were delivered to Dr. Amit Shah and thus over 96% of the floating stock in the scrip of NSGIL, was cornered by Dr. Amit Shah prior to listing of the scrip. Investigations brought out that, Dr. Amit Shah also dealt in the scrip of NSGIL in large quantities on BSE in the names of M/s. Yashaswi Engg. Pvt. Ltd., M/s. Ekta Ceramics Ltd. and M/s. Mohan Investments with manipulative intentions to create an artificial market and rigging the price in the scrip.

Investigations also revealed that NSGIL opened an account at Bank of Madura, Ahmedabad Branch (CA 18700) immediately after the public issue and the funds of public issue were transferred to this account. It was seen that there were two authorized signatories for the bank account of NSGIL namely Shri. Piyush Mehta and Shri. Dipak Dalal, who was an associate and close confidante of Dr. Amit Shah. Investigations brought out that the aforesaid bank-branch had taken two specimen signatures of Shri. Dipak Dalal. It was stated by that it received a cheque signed by Shri. Dipak Dalal in the account of NSGIL where the signature of Shri. Dipak Dalal on the cheque was different from that available with the bank on the specimen card. It was seen that both the authorized signatories namely, Shri. Piyush Mehta and Shri. Dipak Dalal had confirmed in writing to SEBI that they never signed any cheque issued from the account of NSGIL at the above branch. It was seen that Dipak Dalal had another account in the same branch and specimen signature card showed the signature which did not tally with signature of Dipak Dalal on cheques issued by NSGIL (A/c 18700). It was also observed that, one cheque dated 1.6.1996 for an amount of Rs. 14,80,000/- was issued from the account of NSGIL which was signed by Shri. G. D. Shah, who was not an authorized signatory for the account of NSGIL. Investigations revealed that, these funds were transferred to the account of Multi Media Software Ltd., which was an associated/connected entity of Dr. Amit Shah. It was seen that, this amount of was further transferred to Bank of Madura, Mumbai branch in the account of Multi Media Software Ltd. and from this account funds were remitted to brokers of BSE for dealings in the scrip of NSGIL. It was seen that the allotment money account of NSGIL was opened at Bank of Madura (CA 19323). It was alleged by the company that funds from these accounts were transferred by the bank branch without proper authorization. Investigations revealed that, Dr. Amit Shah and his associate and close confidante Shri. Girish Shah had large number of bank accounts at Bank of Madura, Ahmedabad Branch and there were frquent transfer of funds through these accounts. It was seen that, funds transferred from the account of NSGIL to these accounts were used for buying back shares from applicants in the public issue. It was also seen that funds in the account of NSGIL were routed in the account of these company in a circuitous manner and were finally used for dealings in the shares of NSGIL. It was also seen that the Bank of Madura, Ahmedabad Branch had allowed Shri. Girish Shah to become authorized signatory for about 37 Bank Accounts, which included accounts in the names of corporate entities as well as accounts in individual accounts. In light of these, it appeared that, Bank of Madura, Ahmedabad Branch had assisted, aided and abetted Dr. Amit Shah and persons/entities associated/connected with him creation of false/artificial market in the scrip of NSGIL.

Pursuant to investigations, an enquiry officer was appointed in terms of Regulation 27 (1) of SEBI (Banker to an Issue) Regulations, 1994 to enquire into the alleged violations of Bank of Madura, Ahmedabad Branch.

The enquiry officer thereafter proceeded with enquiry in accordance with the aforesaid regulations. A show cause notice dated March 20, 2001 was issued to to Bank of Madura, Ahmedabad Branch, for which a reply was furnished by the bank vide letter dated March 21, 2001. An opportunity for personal hearing was granted by the enquiry officer on June 20, 2001, which was attended by Shri. S. S. Natarajan, Branch Manager, who made submissions before the enquiry officer. The Enquiry officer stated that in regard the matter of two specimen cards in the name of Shri. Dipak Dalal, no specific findings could be given, however, the enquiry officer observed that the bank was not diligent in dealings in this regard and that the bank had not exercised due skill and diligence in regard the matter of two specimen cards in the name of Shri. Dipak Dalal. In regard to the issue relating to cheque signed by Shri. G. D. Shah, which was cleared by the bank, it was observed by the enquiry officer that, the bank had accepted lapse on their part and have submitted that this cheque was cleared by the passing officer due to inadvertence and was a genuine mistake. In view of this, the enquiry officer found that the bank had not exercised due skill diligence on this count. On the issue relating to transfer of funds from the account of allotment money, it was observed by the enquiry officer that the both the accounts belonged to NSGIL and hence no loss had occurred to the company on this count. The enquiry officer on the issue relating to 37 bank account operated by Shri. G. D. Shah, had observed that there is no evidence given by Reserve Bank of India to find that the bank abetted market manipulation in the scrip.

In view of the above, the enquiry officer on the issue relating to acceptance of two specimen cards and passing cheque signed by Shri. G. D. Shah, held that the bank branch as bankers to the issue violated Clause 1 and 2 of the Code of Conduct, under Schedule III, Regulation 16 of SEBI (Bankers to an Issue) Regulations, 1994. In view of this, the Enquiry Officer in terms of Sub Regulation (7) of Regulation 27 of SEBI (Bankers to an Issue) Rules and Regulations, 1994 recommended that the registration to operate as a banker to an issue in so far it relates to Ahmedabad Branch of Bank of Madura (presently ICICI Bank Ltd. as Bank of Madura merged with ICICI Bank Ltd.) be suspended for a period of 6 (Six) months.

Pursuant to submission of Enquiry Report, a show cause notice under Regulation 28 (1) of SEBI (Bankers to an Isue) Rules and Regulations, 1994 was issued to ICICI Bank Ltd. (formerly Bank of Madura), Ahmedabad Branch, in which a copy of the report of the Enquiry Officer was enclosed. A reply dated December 18, 2001 was sent by the bank. It was stated that, the account of NSGIL was introduced by M/s Atlantic Credit and Capital Ltd., a group company of Dr. Amit Shah and that, Shri. Piyush Mehta and Shri. Dipak Dalal were made authorized signatories by NSGIL. It was stated that, the bank was neither the Bankers to the issue nor appraised the project nor managed the issue. It was stated that, the allotment money account was opened by NSGIL and Shri. Piyush Mehta was made authorized signatory for this account and on the instructions of Shri. Deepak Dalal, a sum of Rs. 91,70,000/- was transferred from allotment money account to current account of NSGIL between 16.02.1996 to 20.05.1996. It was also stated that, NSGIL during 28.12.1995 to 16.12.1996 had transferred a sum of Rs. 1,91,50,000/- to the accounts of M/s Asian Finstock Ltd., during 23.02.1996 to 18.10.1996 had transferred Rs. 1,11,14,424/- to Atalantic Credit and Capital Ltd. and on 03.06.1996 transferred a sum of Rs. 14,80,000/- to Multi Media Software Ltd. All these aforesaid companies were group companies of Dr. Amit Shah. It was also stated that, all these amounts so transferred had been reflected in the first and Second Annual Reports of NSGIL as ICDs given to these companies. It is stated that, periodical statements of Accounts of NSGIL were sent to NSGIL, which have been acknowledged and confirmed by NSGIL. It was stated that, the current account of NSGIL was closed on 18.10.1996 and allotment money account was closed on 01.11.1996. It was stated that, NSGIL had confirmed the balance available in these accounts as on closure of these accounts. It was further stated that, since there was a change in the signature of Deepak R. Dalal, who was one of the authorized signatories of the said account, both the specimen signatures were available with the bank. It was contended that, Shri. Deepak R. Dalal had not disputed the sets of signatures. It was stated that, the bank was under obligation to honour the cheques issued either by Shri. Deepak R. Dalal under either of the signatures. It was stated that, NSGIL and Mr. Deepak R. Dalal had not disputed that these cheques had not been signed by their duly authorized personnel. It is stated that, these transactions have been reflected in the annual reports of NSGIL. It was contended that, the cheque for a sum of Rs. 14,80,000/- signed by Shri. G. D. Shah was cleared by passing officer carrying an impression that Shri. G. D. Shah was an authorized signatory for the account. It was stated that, the cheque was in favour of Multi media Software Ltd. and both NSGIL and Multi Media were treated by the bank as accounts forming part of Dr. Amit Shah group, who maintained 37 accounts with the bank and Shri. G. D. Shah was the authorized signatory for all these accounts, except the account of NSGIL. It was stated that, the aforesaid cheque was passed due to inadvertence and can not be branded as malafide, but a genuine mistake.

It was stated that, the bank had accepted the lapse on their part and this transaction was reflected in the first and Second Annual Report of NSGIL. As regards the uttilisation of funds from the aforesaid accounts for rigging the price of NSGIL, bank had contended that it has no knowledge and the amounts were transferred as per the instructions of the account holder. It was also stated that, the transfer of funds from the allotment money account was done at the instructions of Shri. Deepak R. Dalal, who was not an authorized signatory, it was stated that, such instructions were issued by Shri. Deepak R. Dalal on behalf of NSGIL. It was stated that, subsequently NSGIL had acknowledged this transaction by confirming the statement of account. It was stated that the bank was not aware that funds transferred to the accounts of companies controlled by Dr. Amit Shah were misused by Dr. Amit Shah, to rig price of shares of NSGIL in violations of SEBI Regulations. It was stated that, there was no intention on the part of the bank or its officials to aid or abet the manipulations of price of shares of NSGIL. It was stated that, the bank had not deliberately or knowingly violated any provisions of SEBI Regulations.

An opportunity for personal hearing was granted to the aforesaid bank branch on August 26, 2002, which was attended by Shri. Natarajan who made written submissions. A letter dated August 27, 2002 was received ICICI Bank Ltd. in which it was requested to allow to make a written submission in this regard.

A written submission was received from ICICI Bank Ltd. on September 12, 2002 in which the sequence of events and actions taken by ICICI Bank Ltd. had been given. It was stated that, investigations carried out by other regulatory authorities including Reserve Bank of India, found that there were no malafide intentions on the part of erstwhile Bank of Madura. It was stated that, since there was prima facie evidence of neglegince in respect to operations in the account, actions have been initiated against the erring officials. It was stated that, a total amount of Rs. 3,25,62,500/- was deposited in both the accounts of NSGIL during the period December 1995 to February 1996. It was stated that, a sum of Rs. 3,17,44,424/- was allowed to be withdrawn from the said two accounts during December 1995 to June 1996 and were transferred to the associate companies, viz., M/s Asian Finstock Ltd., Atalantic Credit and Capital Ltd. and Multi Media Software Ltd. controlled by Dr. Amit Shah as ICDs. These ICDs have been shown in the audited balance sheet of NSGIL for the year 1995-96.

It was stated that, one of the signaturies to the cheques Shri. Deepak R. Dalal denied that he signed any cheques. It was stated that, there were two specimen signature cards on record bearing two different signatures of Mr. Deepak R. Dalal and cheques bearing both the types of signatures were passed for payment by the officials of the branch. It was admitted that, this was an act of gross negligence on the part of branch officials for which disciplinary action has already has been initiated. It was stated that, in all six employees viz., Shri. P. S. Bhat Bhat, Shri. R. M. Nagappan, Shri. P. L. Palliniappan, Shri. SDanjiv Mahulikar, Shri. K. R. Natarajan and Shri. N. Thiagarajan were involved in the matter. It was stated that, due to criminal complaint of Shri. Piyush Mehta, Shri. P. S. Bhat Bhat, Shri. R. M. Nagappan, Shri. P. L. Palliniappan, Shri. SDanjiv Mahulikar, Shri. K. R. Natarajan were arrested by Crime Branch, EOW, Mumbai in February/March 2002. It was stated that, ICICI Bank Ltd. initiated departmental action immediately after the arrested employees were released on bail. It was stated that, a charge sheet was issued to all the employees and replies have been received. It was stated that investigations carried out by various authorities including RBI did not indicate any malafide action on the part of these employees yet, departmental action has been initiated for gross negligence. It was stated that, considering the irregularities committed by these employees, appropriate financial penalties are being imposed against four officers. It was also stated by ICICI Bask Ltd. that major penalty proceedings have been initiated against two officers for which departmental enquiry has been ordered and is expected to be concluded in about one month. It is stated that, the incident happened in the year 1995-96 and ICICI Bank Ltd. took over Bank of Madura only in March 2001 and there being no threat of tampering with the documents as the relevant original documents are with the police and all the concerned employees have been transferred out of Ahmedabad City, these officials have not been placed under suspension. It was requested that, in view of fact that action has been taken against four employees and major penalties is likely to be imposed on two other employees against whom departmental enquiries are in progress, no penal action should be taken by SEBI.

I have carefully examined the enquiry report, submissions made orally as well as in writing, material and documents on record. I find that there were irregularities in the operations of account of NSGIL with erstwhile Bank of Madura, Ahmedabad Branch. I find that, the ICICI Bank Ltd. had taken appropriate disciplinary actions against the concerned employees in terms of imposition of financial penalties, initiation of departmental enquiries and transfer of all the concerned employees from the Ahmedabad City. I also find that, inspection by Reserve Bank of India, which is the Regulatory Authority for banks, did not indicate any malafide actions on the part of the bank officials. In view of these facts, I find that, the ends of justice would be met if a warning is issued to ICICI Bank Ltd. Bhadra Branch which is the present entity consequent to merger of Bank of Madura and ICICI Bank Ltd. It is further directed that ICICI Bank Ltd., Bhadra Branch would act with due skill, care and diligence while acting as Banker to an Issue.
 
 

DATE : 16 October 2002
PLACE : Mumbai 

G. N. BAJPAI
Chairman
Securities and Exchange Board of India