ORDER
1.0 Background
1.1 Investigation in the case of M/s Anik Ship Breaking Industries Limited
(hereinafter referred to as ASBIL) was initiated by SEBI based on a complaint
received from M/s Skindia Finance Ltd., wherein it was alleged that unusual
trading took place in the scrip of the company from 25.06.97 to 23.12.97.
NSE was also requested to conduct an investigation. While carrying out
preliminary investigation it was found that certain entities related to ASBIL
had made applications in the public issue of ASBIL which was made in 1996.
It was suspected that the funding for these applications which were made
through stock invests came indirectly from ASBIL itself. Accordingly,
investigation was initiated into possible violations of DIP Guidelines and
Section 77 of the Companies Act in course of a public issue. The
investigation has been concluded.
2.0 Public issue of ASBIL
2.1 ASBIL came out with a public issue of 1,09,31,100 equity shares of Rs. 10/-each
for cash at par through its prospectus dated 31.01.1996. The issue
opened on 27.02.96 and closed on 09.03.96. After allotment the shares were
listed on NSE, BSE, Rajkot and Ahmedabad Stock Exchanges.
2.2 The terms of payment of the public issue was Rs 2.50 on application and Rs
7.50 on allotment.
3.0 NSE Report
3.1 On investigation, NSE found that there was a sudden spurt in trading
volumes during the period 25.06.97 to 23.12.97. It was found that the sellers
were persons or entities who were the original allottees in the public issue
who were likely to be connected with the promoters of ASBIL. It was also
found that the company had failed to mobilise allotment money from its
shareholders.
4.0 Manipulations in the public issue
4.1 On examination of the data, provided by the records of the registrar to the
issue and the banks which issued stock invests, the following facts came to
light.
4.2 Stock invest issued by Bank of Rajasthan – It was found that 8 stock invests
were issued by the Versova branch of the Bank of Rajasthan, Mumbai for the
public issue of ASBIL with which 8 applications were made, as given in the
following table.
Stock Invest Name and address Number of shares No. of shares Amount (Rs.)
No. of the applicant applied allotted
876178 Deepal Mehta Atit 400000 389300 1000000
Shopping Ent.Pvt.
Ltd. Shop No.10,
Off Apna Bazar,
D N Nagar,
Andheri (W)
Mumbai – 400 053
876179 Ramesh Shah 53, 400000 389300 1000000
Juhu Alaknanda,
Gulmohar, X -Road
No.10, Juhu-Vile-Parle
(W), Mumbai – 400 049
876180 Kaushal Mehta Atit 400000 389300 1000000
Shopping Ent.Pvt. Ltd.
Shop No.10,
Off Apna Bazar, D N
Nagar, Andheri (W)
Mumbai -400 053
876181 Kashmira Mehta Atit 400000 389300 1000000
Shopping Ent.Pvt. Ltd.
Shop No.10,
Off Apna Bazar, D N
Nagar, Andheri (W)
Mumbai -400 053
876182 Rajesh Mehta Atit 400000 389300 1000000
Shopping Ent.Pvt. Ltd.
Shop No.10,
Off Apna Bazar, D N
Nagar, Andheri (W)
Mumbai – 400 053
876185 Pina Shah 53, Juhu 200000 194700 500000
Alaknanda, Gulmohar,
X – Road No.10,
Juhu-Vile-Parle (W),
Mumbai – 400 049
876187 Dhayalal Shah 281, 600000 584000 1500000
New Reay Road,
Cabin No.11,
Darukhana, Reay Road,
Mumbai – 400 010
876188 Ramesh Shah 281, 200000 194700 500000
New Reay Road,
Cabin No.11,
Darukhana, Reay Road,
Mumbai – 400 010
TOTAL 3000000 2919900 7500000
These 8 applicants applied for 30 lakhs shares and were allotted 29,19,900
shares on 14.05.96. It was found from the bank records that at the time of
issue of the above stock invests, a single lien was marked on a fixed deposit
standing in the name of one Rajesh Mehta (fixed deposit a/c no 559). On
allotment, the amount of Rs. 75 lakhs was debited neither from this account
nor from the account of the applicants, but from the account of one M/s RR
Investments towards payment of application money for shares allotted to the
above mentioned 8 applicants. It is found from the account details of M/s RR
Investments that it is a partnership concern and that its partners are Ramesh
Shah, Pina Shah, Rajesh Mehta and Kashmira Mehta. These four people are
among the 8 applicants who made applications through stock invests as
mentioned above.
4.3 Stock invests issued by United Western Bank – Four stock invests for an
amount of Rs 25 lakhs were issued by the Lower Parel branch of the United
Western Bank, Mumbai in the name of 4 persons who have the same
address as given in the following table.
Stock Invest Name and address of Number of shares No. of shares Stock Invest
No. the applicant applied allotted Amount (Rs.)
016494 Vaishali V Mehta 250000 243300 625000
B – 42, Mehta House,
Off New Link Road,
Andheri (W),
Mumbai – 400 058
016495 Suresh B Mehta 250000 243300 625000
B – 42, Mehta House,
Off New Link Road,
Andheri (W),
Mumbai – 400 058
016496 Jasumati Mehta 250000 243300 625000
B – 42, Mehta House,
Veera Ind. Estate,
Off Link Road,
Andheri (W),
Mumbai – 400 058
016493 Vipul Mehta 250000 243300 625000
B – 42, Mehta House,
Veera Ind. Estate,
Off Link Road,
Andheri (W),
Mumbai – 400 058
TOTAL 1000000 973200 2500000
The four persons made an application for 10 lac shares and were allotted
9,73,200 shares. The stock investor issued against a deposit of Rs 25 lakhs
made in stock invest deposit account no 95/30. This was a joint account held
by five persons including the four applicants and was introduced by M/s RR
Investments. On allotment of shares to these applicants, the application
money was debited not from this deposit account but from the account of M/s
RR Investment held in United Western Bank, Lower Parel branch.
4.4 Therefore, a total of 38,93,100 shares amounting to approximately 35% of
the public issue has been funded by M/s RR Investments through the above
stock invests.
4.5 On 14.5.96, the account of M/s RR Investments maintained with Bank of
Rajasthan received a credit of Rs 100 lacs from the account of one M/s
Deepal Corporation. One of the partners of M/s Deepal Corporation, Mr
Rajesh Mehta was also a partner of M/s RR Investments. Of this amount Rs
75 lakhs was debited against the issue of 8 stock invests mentioned in para
4.2 above and the balance of Rs 25 lakhs was transferred to the account of
M/s RR Investments maintained with United Western Bank, Lower Parel
Branch on 14.05.96. This amount of Rs 25 lakhs was later debited from that
account towards the four applications mentioned in para 4.3 above.
4.6 On the same day – 14.5.96, M/s Deepal Corporation received an amount of
Rs.100 lacs from ASBIL through instrument no 002154 drawn on Times
Bank.
4.7 On enquiry M/s Deepal Corporation had stated by its letter dated 18.06.2002
that the amount of Rs 1 crore received by it from ASBIL on 14.05.96 was in
part payment of a loan given by it to ASBIL. It also stated that the loan given
by it was secured by creating a lien on subscription money to be received by
Times Bank in connection with the public issue. However, they say that copy
of the lien letter is not available with them.
4.8 In the statement given to SEBI and recorded under section 11(3) of the SEBI
Act on 10.06.2002, Mr. Ramesh Shah and Mr. Rajesh Mehta on behalf of
themselves and as representing others have stated that the shares of ASBIL
allotted to them were sold to M/s Meeti Investments and Consultancy
Services Pvt. Ltd. This company was shown as a group company in the
prospectus of ASBIL.
4.9 In view of the above facts, summons were issued to the Managing Director
of ASBIL and to Shri IB Lakhani, Shri PP Bhuta, Shri RK Irani and Shri AB
Lakhani, who were directors of ASBIL as named in the prospectus, at the
addresses given in the prospectus, to appear in connection with the
investigation into the public issue of ASBIL. However, none of them have
chosen to appear in response to the summons.
4.10 In response to SEBI’ s queries, the Ahmedabad Stock Exchange has vide
its letter dated 1.7.2002 informed that ASBIL is “not complying with the
Listing Requirement of our Exchange since October, 1999. They have not
submitted the Annual Returns, Financial Results and any other documents
during the year : 2000 – 2001, 2001 – 2002 and all the letters forwarded by
our Exchange to the last known address of the company M/s. Anik Ship
Breaking Industries Ltd. are also being returned undelivered and therefore it
is a fit case to declare this company as a vanishing company”. The case of
ASBIL has accordingly been referred to the Vanishing Companies Cell of
SEBI for further action.
5.0 Show Cause Notice
5.1 Pursuant to the above findings of investigation, it was decided to initiate
action under section 11B of the SEBI Act against the directors of ASBIL.
Therefore, show cause notices dated 08.08.2002 were issued to the above
directors communicating to them the above facts and calling upon them to
show cause as to why directions under section 11B of the SEBI Act should
not be passed against them including directions debarring them from
accessing the capital market for a period of five years.
5.2 They were given a period of 15 days within which to submit their reply.
However, none of them have replied to the show cause notices so far nor
have communicated with SEBI.
5.3 They were also given an opportunity of personal hearing before the
Chairman on 14.09.2002, which was communicated to them by SEBI’ s letter
dated 28.08.2002. The date for hearing was later postponed to 16.09.2002
and communicated to them by SEBI’ s letter dated 30.08.2002. However,
none of them have chosen to appear before the Chairman despite the
opportunity granted to them.
5.4 In above circumstances, it has been decided to proceed exparte against the
above-named directors.
6.0 Consideration of the issues
6.1 The facts stated in paragraph 4 of this order have been established by
contemporaneous records and books of account of the Registrar to the Issue,
and the records of the Bank of Rajasthan and the United Western Bank,
which are maintained by them in the ordinary course of their business.
6.2 The flow of funds has taken place as follows:
Account of _M/s ASBIL maintained with Times Bank ?
Transferred an amount of Rs. 100 Lacs to the account of M/s Deepal Corporation,
on 14.05.96 maintained with Bank Of Rajasthan (BOR) vide cheque no. 002154.
Account of Deepal Corporation with BOR ?
Received an amount of Rs. 100 lacs on 14.05.96 from Times Bank ?
Transferred an amount of Rs. 100 lacs on 14.05.96 to the account of M/s R R Investments maintained with BOR.
Account of M/s R R Investments with BOR ?
Received a credit of Rs. 100 lacs from Deepal Corporation on 14.05.96. ?
Transferred an amount of Rs. 25 lacs to the account of M/s R R Investments maintained with UWB on
16.05.96 ?
Balance of Rs. 75 lacs was debited against the payment for the issue of 8 stock invests in the Public
Issue of M/s ASBIL on 14.05.96
Account of M/s R R Investments with UWB ?
Recd the credit of Rs. 25 lacs on 16.05.96 ?
This amount was debited against the payment for the issue of 4 stock invests by UWB Funding of 12 stockinvests to the tune of 100 lacs by Ramesh Shah and Group through M/s R R Investments.
6.3 In this case, the entire issue has been staged managed by the company
and its promoters. If 35% of the issue was not subscribed by the above
mentioned applicants, the entire issue would have failed. 35% of the
allotments have been made through finances indirectly made available by
ASBIL itself. If the issue had failed due to non receipt of minimum
subscription, the company would have been required to repay the
application moneys paid by the other innocent investors as per section
69(4) of the Companies Act within the time specified therein. In default,
the directors would have become jointly and severally liable to repay the
money to the investors. This provision was intended to safeguard the
amounts paid by the appellants until such time as the minimum
subscription as disclosed in the prospectus is received by the company.
6.4 The SEBI (Disclosure and Investor Protection) Guidelines, 2000 specify
that a minimum of 90% of the issue should be disclosed as the minimum
subscription. Though the genuine subscriptions received (after excluding
the above mentioned applicants) was way below this mark, the company
has proceeded to make the allotments. This is a gross violation of section
69 of the Companies Act and the DIP Guidelines. The Supreme Court
has held that retention of subscription money in violation of section 69(4)
may amount to offences on part of the directors and promoters under
sections 405 and 409 (Criminal breach of trust) of the Indian Penal Code
where mens rea is established 1 .
6.5 Section 77(2) of the Companies Act prohibits any public company from
directly or indirectly financing the purchase or subscription by any person
of its own shares. This provision was made to prevent trafficking by a
company in its own shares, thereby influencing the price of its own shares.
1 Radhey Shyam Khemka v. State of Bihar, [1993] 73 Com Cases 356.
In view of the facts found as detailed above, it is clear that the company
and its directors have grossly violated this section.
7.0 Conclusion
7.1 In view of the grave nature of the violations, such events have the
potential to destroy the investors confidence in the integrity of the primary
markets. I am of the considered view that if the investor’ s interest in the
primary market is to be revived, it is absolutely essential that in the future
such occurrences do not take place.
7.2 It is felt in the above circumstances that unless the directors of ASBIL are
debarred from accessing the capital market for a period of five years, they
may again raise money from the investors through a similar bogus issue
and the investors will be taken for a ride. However notwithstanding such
direct debarring, the directors of ASBIL may resort to floating new
companies, acquiring existing companies or using companies in which
they hold substantial interest to raise money from the public. Hence, it is
necessary to take preventive measures debarring companies in which
directors of ASBIL have controlling or substantial interest from directly or
indirectly raising moneys from the capital market.
7.3 Therefore I, in exercise of the powers conferred upon me under section
11(1) and 11B read with Sub Section (3) of Section 4 of the SEBI Act,
hereby direct the directors of ASBIL, Shri A. B. Lakhani, Shri P.P. Bhuta,
Shri C.P. Bhuta, Shri I.B. Lakhani and Shri R.K. Irani to disassociate
themselves in every respect from the capital market related activities and
not to access the capital market for a period of five years. I also direct
more specifically that the public companies in which the above directors
hold controlling or substantial interest shall not be allowed to raise funds
from the capital market for a period of five years.