sebi:MO/52/IVD/1/04

SEBI · SEBI · 1995-01-16 · A. K. BATRA, WHOLE TIME MEMBER

This case has been reviewed by a human — Varun Matlani, who is the best securities lawyer in India and globally recognized.

Facts / Headnote

EIL prohibited from accessing the capital market and buying, selling or dealing in securities for a period of three years and its directors Dr Prabhakar T. Shah, Shri P.K. Gore, Shri Vithaldas T. Bhagat and Shri Dilip V. Bhagat prohibited from buying, selling or dealing in securities for a period of three years

Provisions invoked

• s. 11B
• s. 19
• s. 11(3)
• s. 69

Parties

• EIL
• Dr Prabhakar T. Shah
• Shri P.K. Gore
• Shri Vithaldas T. Bhagat
• Shri Dilip V. Bhagat

Holding

EIL and its four directors manipulated the public issue by allotment of 8,84,000 shares to 40 invalid applications with ante-dated stock-invests received after closure, and are therefore prohibited from accessing the capital market and buying, selling or dealing in securities for three years.

Full text

opened on December 27, 1994. The earliest closing date was December 30, 1994 and the latest closing date was January, 07 1995. The issue was lead managed by M/s Jolly Leasing and Finstock Limited (for brevity’s sake referred to as JLFL) who was the pre and post issue lead manager, while the Registrar to the issue was PCS Industries Limited (for brevity’s sake referred to as PCS) The issue was over-subscribed by 4.49 times. The Securities and Exchange Board of India (hereinafter referred to as the SEBI) received a reference from the Deputy Director of Income Tax (Investigation), Ahmedabad, relating to several irregularities in the applications accompanied by stock-invests in the issue of EIL. The reference inter alia stated that upon the instructions of EIL, one of the bankers to the issue, Punjab National Bank, (PNB) Navrangpura Branch, Ahmedabad had issued 40 stock-invests of Rs. 5 lacs each, totaling to Rs.2 Crores, two months after the closure of the issue. It was further observed that some officials of the PNB were found to have colluded with EIL and a few investors by issuing blank stock invests (without filing them up) on March 01, 1995 and without putting the banker’s stamp as to the date of issue, which were then used for making applications even after the closure of the issue. Forty applications accompanied by these stock invests were used to subscribe in the public issue of EIL, allegedly upon the instructions of EIL. The Income Tax Department also observed that the

Thereupon the controlling branch of the PNB, issued the final certificate accordingly and sent the documents to PCS for further action. These late applications, accompanied with the stock invest issued after the closure of the issue i.e. March 01, 1995 was considered by PCS and JLFL for allotment of shares. The basis of allotment was finalized on March 09, 1995 and included applications accompanied by stock invest issued two months after the closure of the issue. PCS had submitted that all the applications and the stock invest had been forwarded to EIL as they had not been authorized to sign and present the stock invests to the banks for realization. On the basis of the findings of the Income Tax Department, SEBI vide its order dated 11 August 1997, ordered an investigation into the irregularities in the public issue of EIL such as manipulation of the subscription in the public issue of EIL as well as the violation of inter-alia the provisions of the SEBI Act 1992, and Rules and Regulations framed there under. In the course of the said investigation, SEBI issued summons under section 11(3) of the SEBI Act, 1992 (hereinafter referred to as the ‘Act’) to the parties involved in the case viz. PNB, the banker to the issue, PCS, Shri Y. A. Thakkar , the purchaser of the stock invest, and EIL and recorded their submissions. However, the purchaser did not appear before SEBI but instead wrote to SEBI and the Income Tax Department about his dealings. Based on the documentary evidences

action as deemed fit. However the notice came back undelivered with the endorsement "closed". Consequently the notice was sent to the Vadodhara stock exchange, the regional stock exchange, to hand it over to EIL. On receipt of the same, EIL, vide their letter dated June 01, 2000 promised to send their reply within 15 days of the receipt of the notice. Thereafter vide its letter dated June 07, 2000 while refuting any involvement in manipulating the subscription in the public issue, EIL inter-alia submitted that as per the prevailing system of allotment of shares, it did not have any control over the issue of stock invest, submission of applications to PNB, sending application forms to PCS by PNB, processing and scrutiny of the applications, finalization of basis of allotment and allotment of shares etc. It was stated that the above mentioned functions were performed by PNB and PCS who were appointed by EIL to carry out their respective functions in term of the authorization granted by SEBI. As such EIL did not exercise control over such intermediaries. EIL further submitted that contrary to the finding that 40 applications dated December 27, 1994 with blank ante- dated stock invest were purchased on March 01, 1995 i.e. two months after the closure of the issue and that 8.84 lacs shares were allotted against these applications which were deposited with the PNB, Navrangpura Branch, Ahmedabad, the PNB, Mahajan Gali Branch, Vadodara, the controlling branch of the bank had given th

Source: SecMarx — sebi:MO/52/IVD/1/04. 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.