sebi:WTM/TCN/ID3/13/JUNE/2008

SEBI · SEBI · 2007-03-01 · Dr. T. C. Nair, 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

M/s. Krishna Filaments and its directors S/Shri K.K. Agarwal, O.P. Agarwal, S.K. Agarwal and M/s. Krishna Vinyl Limited restrained from accessing the securities market and prohibited from buying, selling or otherwise dealing or associating with the securities market for a further period of 2 years in addition to period of debarment already undergone, and directed to make public announcements under Chapter III in terms of Regulation 11(2) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 taking March 31, 1998 as reference date within 45 days, with payment within 30 days under Regulation 22(12).

Provisions invoked

• s. 19

Regulations

• Reg. 4
• Reg. 11
• Reg. 4(a)
• Reg. 11(2)
• Reg. 14
• Reg. 6(3)
• Reg. 2(e)
• Reg. 22
• Reg. 44
• Reg. 117
• Reg. 254

Parties

• M/s. Krishna Filaments Ltd. (KFL)
• Shri O.P. Agarwal
• Shri K.K. Agarwal
• Shri S.K. Agarwal
• M/s. Krishna Vinyl Limited (KVL)

Holding

The noticees violated Regulation 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 1995 by artificially raising the price of KFL from Rs.153 to Rs.311 through front companies to fix a higher OFCDD conversion price, and violated Regulation 11(2) of the SEBI Takeover Regulations, 1997 by increasing promoter holding from 56.22% to 82.76% without public announcement.

Full text

Page - 2 - of 40 the period from May to June 1998 as it was noticed that the price of the scrip of KFL had increased from Rs.153/- at the Bombay Stock Exchange (hereinafter referred to as ‘BSE’) and Rs.154/- at the National Stock Exchange (hereinafter referred to as ‘NSE’) on May 15, 1998 to Rs.311/- on June 9, 1998 in BSE and Rs. 313/- on June 4, 1998 in NSE. Investigations revealed that KFL came out with a public issue of 33,45,000 Optionally Fully Convertible Discounted Debentures (hereinafter referred to as ‘OFCDDs’) during April - May 1997 of Rs. 200/- each for cash at a discounted price of Rs. 160/- aggregating to Rs. 5,352/- lac. These OFCDDs were convertible into equity share of Rs. 10/- each at the end of 17 months from the date of allotment at a discount of 33 1/3% to the average daily closing prices for the previous six months at the BSE subject to a maximum conversion price of Rs. 200/- per share and a minimum of Rs. 10/- per share. In case the conversion price was below Rs. 200/- per share, the balance had to be carried forward as 19% Non-Convertible Debentures, to be redeemed in three equal installments each at the end of 36, 48 and 60 months from the date of allotment. The other option with the debenture holders was to convert them into Non-Convertible Debentures of Rs. 200/- carrying interest at the rate of 19% and these could be redeemed in three equal installments each at the end of 36, 48 and 60 months from the date of allotment.

Page - 3 - of 40 Appeal no. 356/2004), Jiten Mehta (in Appeal no. 357/2004), Rajshri Mehta (in Appeal no. 358/2004), Pramila Mehta (in Appeal no. 359/2004), Dharamshi Capital Services (in Appeal no. 89/2005) before the Hon’ble Securities Appellate Tribunal (hereinafter referred to as ‘SAT’). However, S/ Shri Sunil R. Nair, Siji Nair, Jiten Mehta, Rajshree Mehta and Pramila Mehta preferred to withdraw their appeals which were pending before SAT. After considering the submissions of the appellants in the above said appeals, the Hon’ble SAT, vide its order dated March 01, 2007, set aside the order of SEBI on the ground that principles of natural justice were not adhered to and remanded the case back to SEBI for passing a fresh order in accordance with law against KFL, S/Shri Om Prakash Agarwal, Shri Krishna Kumar Agarwal, Shri Sharad Kumar Agarwal and KVL. Further, the said order had clarified that the impugned order is being set aside only against KFL, S/Shri O. P. Agarwal, K. K. Agarwal, S. K. Agarwal and KVL. The impugned order will stand final for S/Shri Sunil R. Nair, Siji Nair, Jatin Mehta, Pramila Mehra. However, the Hon’ble SAT had upheld the order with respect to M/s Dharamshi Capital Services vide

Page - 4 - of 40 ‘Satyanand’) bought the shares of KFL from the market to the tune of 6,39,500 shares on gross and 4,37,800 on net using the funds provided by KFL and its Directors. Besides dealing in shares of KFL, these companies also purchased shares of KVL an unlisted associate concern of KFL using the funds provided by KFL and its Directors. Details of purchase on gross are as follows:

Source: SecMarx — sebi:WTM/TCN/ID3/13/JUNE/2008. 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.