GDR manipulation case: Sebi levies Rs 1.2 cr fine on 2 individuals

By indulging in such activities, they violated the provisions of PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) norms, Sebi said in an order on Tuesday. In a separate order, the regulator suspended registration of Vishal Vijay Shah for a period of one year for failing to comply with stock brokers norms.

Markets regulator Sebi has imposed a penalty totalling Rs 1.2 crore on two directors of Beckons Industries Ltd for manipulation of global depository receipts (GDRs) issuance. In an order, the regulator levied a fine of Rs 1 crore on Gurmeet Singh and Rs 20 lakh on I S Sukhija.

Singh was Beckons' managing director, while Sukhija was the non-executive independent director at the time of violation, as per the order. The Securities and Exchange Board of India (Sebi) conducted an investigation into the GDR issue of Beckons to ascertain whether shares underlying GDRs were issued with proper consideration, and whether appropriate disclosures with respect to Listing Agreement, if any, were made by the company with respect to GDRs.

The period of investigation was June 1-30, 2010. The regulator, in its probe, found that GDRs were issued fraudulently by way of credit agreement and account charge agreement by Beckons.

It further said directors of Beckons -- Singh and Sukhija -- approved the board resolution and authorised EURAM Bank to use the company's GDR proceeds deposited with the bank as security in connection with loan, and Singh executed the pledge agreement. Sebi said the two directors employed fraudulent arrangement with regard to subscription of GDRs and had acted in a manner which was fraudulent and deceptive, thereby detrimental to the interest of investors.

"The Noticees (the two directors) actively played a role in defrauding the Indian investors by entering pledge agreement with respect to subscription of GDRs outside India and thereby inducing the Indian investors to deal in the shares of Beckons by deliberately making false/misleading statements, misrepresenting, actively suppressing and concealing material facts regarding GDR proceeds being available at Beckon's disposal when in fact GDR issuance, was just a facade to create underlying equity shares without receipt of consideration," it added. By indulging in such activities, they violated the provisions of PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) norms, Sebi said in an order on Tuesday.

In a separate order, the regulator suspended registration of Vishal Vijay Shah for a period of one year for failing to comply with stock brokers norms. Shah had received funds in client and settlement bank accounts from third parties in cash, and had made payments to third parties on behalf of clients.

It is further observed that Shah had also made withdrawal of cash from client bank accounts, Sebi noted. Under the norms, a responsibility has been cast on stock brokers to ensure that payments are received directly from respective clients and not from third parties.

Shah, in his submissions to Sebi, admitted to carrying out such irregular practices. PTI SP RVK.

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