sebi:WTM/GA/20/IS

SEBI · SEBI · 2005-05-05 · G Anantharaman, 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

Confirmed the ad interim order dated 27 May 2005 with all directions therein with immediate effect

Provisions invoked

• s. 11

Regulations

• Reg. 3

Parties

• Pentamedia Graphics Ltd.
• Mr. V Chandrasekaran
• Dr. S Ramani
• Mr. T V Krishnamurty
• Ms. Usha Ganesarajah
• Mr. S D Viswanathan
• Vijay Advertising P Ltd.
• Mr. M Vardharajan
• Mrs. Bhuvaneswari

Holding

The ad interim order dated May 27, 2005 is confirmed with all directions, prohibiting PMGL, VAPL and their respective directors from dealing in securities and restraining PMGL from issuing shares or altering share capital, with VAPL's sale proceeds impounded.

Full text

2.11.  Apparently, OBC did not agree and instead sent reminders to Cameo for effecting transfer. However, Cameo did not respond to OBC’s letters till May 5, 2005. Cameo replied to only after SEBI took up the matter with Cameo. 2.12.  Cameo, vide its letter dated May 5, 2005 returned to OBC the original share certificates, along with other documents received by it stating that the distinctive numbers ment in the subject share certificates did not tally with its records. 2.13.  From the aforesaid facts, it prima facie, appeared that there existed two sets of shares certificates of PMGL with the same distinctive numbers and hence at least one set h be fake. In view of the above, SEBI vide an ex-parte interim order dated May 27, 2005, issued the following directions: “ OBC., Mylapore branch and Cameo were directed to preserve the original records available with them. An opportunity for post decisional hearing was granted to the ag parties. PMGL, VAPL and their respective directors were granted 15 days time to file their objections to the ex-parte ad interim order. 3.0.Reply of PMGL: 3.1. PMGL vide letter dated June 6, 2005 and reiterated through letter dated June 9, 2005 enclosing supporting documents, inter alia, made the following submissions: PMGL had various facilities from Global Trust Bank Limited (hereinafter refereed to as “GTB”). The total outstanding as on 31 March 2005 payable to the OBC (in which G Trust Bank Limited was merged) was Rs. 82.31 Crores. To settle the due

4.4.VAPL was one of the primary managers of PMGL's advertisement campaign in respect of this project and all other advertisements, assignments of various nature carried o PMGL. In view of this, VAPL thought it fit that certain investments in PMGL would have synergies with their business plan and was able to understand the potential of the ind where internet based activity and keeping this in mind, made an investment of RS.454.40 lacs in PMGL for which 40 lacs shares were allotted at RS.11.36 per share on Septe 12, 2003 on preferential basis as approved by the Board of Directors and share holders of the company. But, in the meantime, the software boom started to recede and a slu the whole industry saw many software companies closing down their operations resulting in a drastic reduction in the business of the Company thus shrinking their revenues 4.5.However, VAPL, in view very strong business relationship with PMGL and also PMGL obliging the Company by giving a preferential allotment of the abovementioned shares always looking up to PMGL for its business development as it was the main source of revenue for the company. Hence, when PMGL started to have certain issues with b particularly, Global Trust Bank Limited, PMGL approached VAPL and requested for 34 lacs shares of PMGL, belonging to VAPL to be pledged with GTB temporarily and as VAPL that it was only to enable them to bide time for providing alternate security. VAPL and its Directors had no option, in view of the company

6.6  In this case, the consequences of the above action of PMGL are serious. While the allottee i.e. VAPL has illegally enriched itself through the sale of shares it was not rightf entitled to, the bank is left with genuine share certificates which it finds unable to get transferred in its name to secure / recover its advances to the company. Considering grave consequences of PMGL’s actions, I do not agree with the contentions of PMGL that the violations committed by it are mere procedural omissions. 6.7  I find that VAPL had executed a tripartite agreement as a guarantor to secure the dues payable by PMGL to GTB. Pursuant to the tripartite agreement, VAPL had offered the loc shares held by it as pledge to GTB to secure the dues of PMGL. During July 2004, VAPL received the shares back from PMGL. VAPL in terms of prudent commercial sense sho have insisted on a certificate from GTB discharging its liability. The fact that the share certificates were handed over to VAPL by PMGL without any covering letter from GTB / O should have raised the suspicion of VAPL regarding the genuineness of the certificates being returned to it. VAPL chose to overlook the suspicious circumstances in which shares were returned to it, since VAPL is always seen to be as an adjunct to PMGL in the attendant circumstances of the case.  Admittedly, VAPL had substantial busin relationship with PMGL, which was amongst its major clients. PMGL had made preferential allotment to VAPL and VAPL offered these shar

Source: SecMarx — sebi:WTM/GA/20/IS. 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.