sebi:WTM/SR/ISD/27/2013

SEBI · SEBI · 2009-01-13 · S. Raman, 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

Cals directed not to issue equity shares or any other instrument convertible into equity shares or any other security, for a period of ten years, with prohibition already undergone pursuant to Interim Order dated September 21, 2011 to be reduced while computing the period.

Provisions invoked

• s. 11
• s. 11(4)
• s. 19
• s. 12A
• s. 77
• s. 77(2)
• s. 77(4)

Regulations

• Reg. 3
• Reg. 4(1)
• Reg. 11(1)

Parties

• Cals Refineries Limited

Holding

Cals violated Section 77(2) read with Section 77(4) of the Companies Act, 1956, Clause 32 of the Listing Agreement, and the SEBI Act read with the PFUTP Regulations, and was therefore prohibited from issuing equity shares or any other instrument convertible into equity shares or any other security for ten years.

Full text

Page 2 of 24 Banco Efisa, a Portugal based bank (hereinafter referred to as "Banco"). The aforesaid Account Charge Agreement was an integral part of another agreement viz. Credit Agreement signed between Honor Finance Limited (hereinafter referred to as "Honor") and Banco. Honor was beneficially owned by Sanjay Rai Malhotra (hereinafter referred to as "Sanjay Malhotra"). These agreements enabled Honor to avail a loan of US $200 million from Banco for subscribing to the GDR issue of Cals. ii. In terms of the Account Charge Agreement, Cals deposited the GDR subscription proceeds received from the subscriber i.e. Honor, as security for the loan availed by Honor from Banco. The Account Charge Agreement contained a clause to the effect that all communications to be given under the Agreement were to be addressed to either Goorha or Devanathan Sundararajan (Director of Cals) (hereinafter referred to as "Sundararajan"). Goorha and Sundararajan were also authorised signatories for Cals. iii. As the Account Charge Agreement was expiring, an Extension Agreement was signed between Cals and Banco on January 13, 2009. The said Extension Agreement was signed by Ravi Chilikuri (Director and authorised signatory of Cals) (hereinafter referred to as "Chilikuri") on behalf of Cals. iv. The effect of these Agreements resulted in Cals itself financing the subscription of its GDR issue. Such an arrangement was specifically prohibited under Indian law in terms of Section 77(2) of the Companies Act,

Page 3 of 24 vi. Cals made repeated announcements regarding setting up of refinery in India and securing investment from foreign investors for this purpose through GDR issuances. However, the general public was not aware that the GDR subscription proceeds were locked with Banco and utilization of the same by Cals was totally dependent on the repayment of loan by Honor. Cals has therefore caused false information to be published and disclosed to the stock exchange (BSE in the instant case) in India that GDR issuances were successfully subscribed by foreign investors, and used this artifice and misleading information to induce the investors in India to deal in the shares of Cals. vii. Cals paid US $92 million to a promoter controlled entity viz. Asia Texx Enterprises Limited, Hong Kong (hereinafter referred to as "Asia Texx"). The beneficial owner of Asia Texx was Gagan Rastogi (hereinafter referred to as "Gagan"), who was one of the Promoters of Cals. Gagan is also the son of Deep Kumar Rastogi (hereinafter referred to as "Deep Kumar"), who was a Director of Cals. This related party transaction was required to be disclosed to the stock exchange by Cals, in terms of Clause 32 of the Listing Agreement. However, such disclosure was not made by Cals. viii. The transactions between Cals and Asia Texx are summarized below: Date Event 05-Feb-2009 Cals signs agreement with Asia Texx for sale of plants and machinery 26-Mar-2009 Asia Texx purchases 2,50,00,000 GDRs from Honor and pays U

Page 4 of 24 equipments have been received from Asia Texx. The money was ultimately used by Honor (owned by Sanjay Malhotra- promoter of Cals) to repay the outstanding loan to Banco. The entire transaction effectively amounted to siphoning of funds of Cals into the account of the promoters under the pretext of payment for refinery parts. The transaction between Cals and Asia Texx was structured to settle the outstanding liability of Honor to Banco using funds of Cals. x. Cals had furnished misleading submissions to SEBI and also concealed material information from SEBI.

Source: SecMarx — sebi:WTM/SR/ISD/27/2013. 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.