sebi:WTM/GA/IVD/125/2007

SEBI · SEBI · 2004-01-15 · 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

Preferentially allotted shares of Aastha lying in the demat accounts of the 30 named entities directed to be frozen permanently with immediate effect.

Provisions invoked

• s. 11
• s. 11(4)
• s. 19

Regulations

• Reg. 11
• Reg. 5(1)

Holding

In exercise of powers under Section 19 read with Sections 11 and 11B of the SEBI Act, 1992, the preferentially allotted shares of Aastha held in the demat accounts of the 30 named entities shall be frozen permanently.

Full text

2 Thereafter, the share price fell to levels of Rs. 26 in June 2001. The report of BSE brought out that Aastha had issued 93,00,000 shares on a preferential allotment basis in August 2000 to several entities and some of these entities appeared to be related to each other / Aastha, and had traded in the shares of Aastha in significant quantities. Pursuant to the above report, SEBI conducted an investigation into the scrip of Aastha for possible violation of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 1995 (FUTP 95 Regulations) and SEBI (Disclosure and Investor Protection) Guidelines, 2000 (DIP Guidelines). SEBI investigation brought out that the shares issued on preferential allotment were earlier dematted without receipt of listing permission from the stock exchanges. Investigation also revealed that there was rerouting of preferential allotment funds from the company to the preferential allottees through layers of related entities. Same funds were re- circulated as preferential allotment consideration. It was also seen that a major portion of the shares issued in preferential allotment were transferred by the preferential allottees to related entities in off market transactions and 1,19,373 shares were off-loaded in the market.

3 were alleged to have violated Regulations 5(1) and 6(a) of FUTP 95 Regulations by virtue of recirculation of the preferential allotment subscription money among themselves and disseminating misleading information pertaining to preferential allotment. The company had received only a sum of Rs. 2.83 crore out of the total issue of Rs.9.30 crores and recirculated a portion of the Rs. 2.83 crores using layers of related entities to create an impression of subscription for the remaining Rs.6.47 crores. In effect, a total of Rs. 3.04 per share had been received as against the issue price of Rs. 10 per share. Aastha and the other entities have merely denied the allegations of fraud made against them and have submitted that no instances as suggested by the relevant regulations have taken place to result in fraud. Aastha has also submitted that, none of its shareholders have ever complained that a fraud has been perpetrated on them. When no fraud has occurred at all, there cannot be a situation of aiding, abetting or assisting of a fraud, as alleged.

4 against 13 entities viz., Shri Ajit Satyaprakash Gupta, Shri Arihant Jain, Shri Dilip Mohan Kejriwal, Shri Gunjan Jain, Ms. Lalita Jain, M/s. Martanda Finlease P. Ltd., Ms. Meera Jain, M/s. Natun Finlease P Ltd., Shri Pradeep Joshi, Shri Pramod Joshi, Ms. Sonal Jain, Shri Surendra Kumar Jain and Ms. Veena Dilip Kejriwal directing that the shares of Aastha that were frozen in the demat accounts of these 13 entities would continue to remain frozen in their demat accounts till 14th January, 2007, preventing further contamination of the securities market. SEBI vide said order, stated that it will be open for SEBI, in the meanwhile, to explore the possibility of taking up civil proceedings against the entities involved for appropriate remedies. The said order dated 06.09.2005 passed by SEBI was challenged by Aastha and other 39 entities before Hon’ble Securities Appellate Tribunal(SAT). The Hon’ble SAT after hearing the parties at length, while dismissing the appeals, held that “in this view of the matter, the Board was right in holding that the Appellant company played a fraud on the existing investors of the company who held 7 lac shares and that the investors in the market were let to believe that the preferential allotment was successful. This in turn would have increased the demand for the shares of the Appellant company and would have resulted in defrauding the innocent investors had the Board not passed the interim order on 15.1.2004 prohibiting the Appellant and its enti

Source: SecMarx — sebi:WTM/GA/IVD/125/2007. 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.