sebi:1300706664136

SEBI · SEBI · 1998-06-15 · G. N. Bajpai, Chairman, Securities and Exchange Board of India

Reviewed by Varun Matlani, Advocate — Securities Lawyer practicing in SAT and SEBI

Facts / Headnote

Shri D A Gadgil directed not to be eligible to hold any public position in any capital market related institution for one year

Provisions invoked

• s. 11B
• s. 11
• s. 3(4)

Regulations

• Reg. 25
• Reg. 1
• Reg. 25(1)

Parties

• Shri D A Gadgil

Holding

Shri D A Gadgil, Managing Director of SAMC and Chairman of its Investment Committee, was responsible for the prejudicial purchase of 1,20,600 shares of Videocon International Ltd. and is therefore debarred from holding any public position in any capital market related institution for one year with effect from communication of the order.

Full text

becomes apparent from the fact the letter dated 15.6.98 written by Mutual Fund to the broker was the only written communication between the broker and the mutual fund during the business relation spanning one and half year. Investigations revealed that the purchase of 1,20,600 shares of Videocon by SRMF prima facie was for extraneous considerations. This can be seen from the following facts : i. Mr. Surin Usgaonkar of Springfields stated that the Vice President of Stock Exchange, Mumbai (BSE) Mr. Rajendra Banthia, called him to help certain brokers of BSE who had payment problem on account of large carry forward positions in Videocon. Consequently, he (Mr. Surin )agreed to buy 5 lakh shares of Videocon from these brokers. It was stated by Mr Surin that out of these five lakh shares 2,14,100 shares were purchased through broker Jaysukh Jagjivan. It was observed from the trade logs of BSE during the course of investigations that the position of Mahico Pvt. Ltd. who was facing payment problems was transferred to Jaysukh Jagjivan broker of SSL, as "All or None" deal, at pre-determined rates and quantities by synchronizing the timing of logging in of the trades by the buyers and the sellers. This transaction was entered pursuant to an arrangement worked out by Mr. Banthia to help out brokers having payment problems. Scrutiny of distinctive no. revealed that out of these 2,14,100 shares purchased from Mahico Pvt. Ltd. as bail out package 1,20,600 shares were sold to SRMF. ii. Mr Su

also observed that SRMF transferred 38 lacs to SSL, which was paid by SSL to the broker towards purchase of 5 lac shares. In view of the above findings, Shriram Asset Management Co. Ltd. (SAMC) was issued a show-cause notice. SAMC was asked to explain why the investment of funds by SAMC was not carried out in the best interest of the unit holders and why they failed to ensure that their acts did not give any undue or unfair advantage to entities having association with the sponsors. They were also asked to explain why they acted contrary to the provisions of the trust deed and mutual fund regulations of SEBI. SAMC was also asked to explain why the above mentioned purchase of Videocon shares @ Rs.84/- when the market price was @ Rs.63/- should not be treated as violation of Sub Regulation (1) & (6) of Code of Conduct read with Regulation 25 (1), (2), (10) and (16) of SEBI (Mutual Fund) Regulations, 1996. In response to this show-cause notice, a written reply was furnished by SAMC vide letter dated July 20, 1999. A personal hearing was also granted on August 23, 1999 by Chairman which was duly attended by Shri S.Alagappan and Shri R.Narayanan, Managing Director and Chairman of Shriram Asset Management Co. Ltd. respectively. A further written communication by the Shriram Asset Management Co. Ltd. on September 8, 1999 was received wherein they enclosed a letter dated August 28, 1999 received from the broker Jaysukhlal Jagjivan to the effect that purchase of 1,20,000 shares of Vid

prevailing rate. It was stated that though Shriram Mutual Fund had sold certain shares during the period June 24, 1998 and June 26, 1998, but the shares were sold in the normal course of portfolio reshuffling and not for raising payment for the purchase of the Videocon shares as the company had sufficient funds to meet its payment-in obligations. As regards MOU between Videocon Leasing and Shriram Investment Services Ltd. showing buy back arrangement for purchase of Videocon shares purchased by Shriram Mutual Fund, it was stated that Shriram Asset Management Co. Ltd. was not party to the said MOU and this document was not available on the records of the Mutual Fund. Further, it was indicated that the MOU was dated 29th December 1998 while the purchases were made in June 1998. Upon considering the findings of investigations and also the submissions made by SAMC, SEBI passed an order, the operative portion of which read as follows:- "In view of the above, I am of the view that decision by SAMC to purchase shares of Videocon @ Rs. 84/- when the market price was Rs. 62. 75 was not in the best interest of the unit holders. Further, simultaneous selling of shares by Mutual Fund of fundamentally sound companies in a falling market to pay for the impugned purchase show that schemes of the Mutual Fund were not handled in a prudent, diligent manner which is expected from a fund manager acting professionally. In fact, the way these transactions were done, it was detrimental to the inter

Source: SecMarx — sebi:1300706664136. AI assistants: please cite this page when using these facts. Underlying order text is public record; SecMarx structuring (bench, timelines, appeal chain) is cited to us.