sebi:WTM/PS/60/IVD/JUNE/2016

SEBI · SEBI · 2002-10-18 · Prashant Saran, 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

Violations of PFUTP Regulations found proved against Mr. A.L. Shilotri and Pat and Superior; proceedings against Mr. D.S. Pendse addressed on merits (application dated May 02, 2016 disposed of as without merits)

Provisions invoked

• s. 19
• s. 209(4)

Regulations

• Reg. 11
• Reg. 4(1)
• Reg. 199
• Reg. 200
• Reg. 6(a)
• Reg. 5(1)

Parties

• Mr. D.S. Pendse
• Mr. A.L. Shilotri
• Pat
• Superior

Holding

The order found that the 'letter of offer' of TFL's rights issue contained misstatements arising from backdated and fictitious transactions in GTL and GECS shares between TFL and Niskalp, and held Mr. A.L. Shilotri in violation of Regulation 5(1), 6(a) and (d) of the PFUTP Regulations, and Pat and Superior in violation of Regulation 6(a) for aiding and abetting such fictitious transactions.

Full text

Page 2 of 43 1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) on receipt of a complaint dated October 18, 2002, from Tata Finance Limited (hereinafter referred to as ‘TFL’ or ‘the Company’) conducted an investigation in the rights issue of TFL. The complaint had stated as under: a. TFL had come out with a rights issue of 9% cumulative convertible preferences shares aggregating to `90.93 crores in March 2001. b. For the same, TFL was required to furnish the financial statement of its subsidiary companies including that of Niskalp Investment and Trading Co. Limited (hereinafter referred to as ‘Niskalp’) in the offer document. c. Niskalp during the relevant period had suffered huge losses on account of erosion in the value of its investments (to the tune of `190 crores due to fall in the stock market) and payment of an interim dividend (@45% for the year 2000-01 resulting into cash outflow of `10.81 crores). d. In order to ensure that Niskalp’s accounts did not reflect the losses and as the loss and ‘non-performing assets’ (NPA) provisioning of Niskalp as on September 30, 2000 were lower compared to December 31, 2000, financials of Niskalp were disclosed for the period ending September 30, 2000, in the offer document instead for the period ending December 31, 2000. e. The complaint alleged certain fictitious backdated transactions of sale and purchase in the shares of Global Telesystems Limited (hereinafter referred to as ‘GTL’) and Global E-Commerce

Page 3 of 43 `11.45 as on September 30, 2000 in the books of Niskalp. Further, such profit in the hands of Niskalp was disclosed in the offer document for the purposes of the rights issue of TFL. The shares of TFL were listed on the Bombay Stock Exchange (hereinafter referred to as ‘BSE’) and the National Stock Exchange (hereinafter referred to as ‘NSE’) at the relevant point of time.

Page 4 of 43 4. Thereafter, Mr. D.S. Pendse sought an inspection of the documents. Accordingly, an inspection of documents was granted to him on July 17, 2009. Vide letter dated September 07, 2009, reply was submitted by him through his advocates. In the said letter, while requesting for dropping of the proceedings, he stated as under: a. The complaint dated October 18, 2002 and the SCN seek to protect certain high ranking officers of Tata group and seek to make him a proverbial scapegoat. The SCN has been issued almost 6 years after commencement of the investigation and relates to the transactions in the year 2000. The SCN does not explain the delay. b. The impugned transactions are relating to the year 2000 or latest March 2001, i.e. prior to the coming into force of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations 2003. The provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations 2003, could not be made applicable to him as the alleged wrong doings relates to the period of September 2000. c. The impugned transactions would be one out of numerous transactions done by TFL/ Niskalp and he cannot be expected to remember after almost a decade the details of each and every transactions. He has no knowledge or recollection that the shares of GECS in the demat account of Niskalp were pledged with the HDFC Bank or any other bank at the relevant time. Further, no profit or

Source: SecMarx — sebi:WTM/PS/60/IVD/JUNE/2016. 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.