ORDER
G.N. Bajpai, Chairman
1. M/s. Saket Extrusions Ltd. (hereinafter referred to as SEL/the company) having its registered office at 4, Synagogue Street, 9th floor, Calcutta – 700 001 came out with a public issue of 21,30,000 equity shares of Rs. 10/- each in February, 1994.
2. Whereas allegations were received about non-encashment of stock invest used for subscription to the public issue of M/s. Saket Extrusions Ltd. and therefore Securities & Exchange Board of India (hereinafter referred to as SEBI) vide its order dated December 15, 1999 initiated investigation into the irregularities in the public issue of SEL.
3. It was seen from the investigations that the public issue of SEL did not genuinely receive minimum subscription of 90% of the issue size from the public and an illusion of subscription to the public issue of SEL was created by M/s. Yashwant A Thakkar and Rashmikant A Thakkar, directors of Amrapali Spinning Mills Ltd., apparently acting in concert with the promoters of SEL.
4. Minimum subscription of 90% is mandatory for each issue of capital to public and if the company does not receive 90% of issued amount from public subscription before the closure of issue, as per the provision of Companies Act, SEBI Disclosure and Investor Protection Guidelines and terms of prospectus, the company is under obligation to refund the subscription to the public unless underwriting obligations have been invoked.
5. From the investigations, it was seen that the public issue of SEL was subscribed in the following manner:
6. Scrutiny of collection schedule of applications in the public issue of SEL revealed that 53 stock invests no. 577330 to 577379 for Rs. 1,00,000/- each (total 50 stock invests) and no. 577408 to 577410 for Rs. 5,00,000/- each (total 3 stock invests) aggregating to Rs. 65 lakhs issued by Punjab National Bank, Navrangpura branch, were used for subscribing to the issue.
7. The stock invests in question were issued on 30.3.1994 and 09.04.1994, i.e., much after the date of closure of the issue which was 25.02.1994. In fact the stock invests books bearing serial nos. 577351 to 577400 and 577401 to 577450 were issued out from the valuable securities register only on 22nd March, 1994 and 26th March, 1994
8. All the stock invests were issued to the account of Amrapali Spinning Mills Ltd. (Amrapali) of which M/s. Yashwant A Thakkar and Rashmikant A Thakkar were the directors.
9. The stock invests bear at least 3 to 4 different dates imprinted by rubber stamps over the bank’s handwritten date of issue. One of the dates is 22nd February, 1994, the date of opening of the public issue of SEL.
10. Some of the stock invests also showed visible alterations.
11. Persons other than the authorised signatories of Amrapali Spinning Mills Ltd. in whose account the stock invests were issued had signed these stockinvests.
12. Subscription through the said stock invests amounted to 61% of the issue size.
13. The stock invests were not encashed; and cancelled on 26.05.1994
14. The investigations thus revealed that the public issue of SEL was shown to be subscribed by putting in applications to the tune of 61% of the issue size after the closure date and the issue did not elicit minimum subscription of 90%.
15. In reply to the summons issued to Mr. Yashwant A Thakkar, he had vide his letter dated July 1, 2000 claimed that they had applied for shares in the public issue of SEL through stock invests but they had not been allotted any shares and their application for shares had been rejected by the company. He could not however produce any evidence to the effect. Whereas the investigations revealed that the public issue of SEL elicited only 98% subscription and there were no rejections. Hence, it was alleged that his claim that the stock invests stood cancelled because of non allotment was untrue and unsustainable.
16. Investigations further revealed that the 53 stock invests nos. 577330 to 577379 and 577408 to 577410 which were used for subscribing to the public issue of SEL were also used for putting in applications to the public issue of another company and that the same set of stock invests could have been used at least in one other issue, going by the dates on the stock invests. Findings of the investigation showed that Amrapali was the single largest stock invest client of Punjab National Bank, Navrangpura branch, Ahmedabad and almost all the stock invests purchased by them for subscribing to various public issues have been cancelled.
17. In view of the above, it was alleged that their modus operandi is to purchase stock invests in bulk, allow it to be used for subscribing to many issues by altering the date of issue of stock invests, payee’s name, etc. and once the allotment is over, get back the stock invests and have them cancelled. It was further alleged that the modus operandi of M/s. Yashwant A Thakkar and Rashmikant A Thakkar indicates their nexus with the company and the fraudulent nature of their transactions. It was also alleged that M/s. Yashwant A Thakkar and Rashmikant A Thakkar have, in arrangement with the promoters of various companies, had made applications after the closure of the issue, thus helping the promoters of companies in making dubious issues successful and conniving with the promoters in allotting the shares and cornering them.
18. Pursuant to the investigations, show cause notices (SCNs) dated 30/8/01 were issued to M/s. Yashwant A Thakkar and Rashmikant A Thakkar requiring them to show cause as to why directions under Section 11B of the SEBI Act, 1992 should not be issued against Mr. Yashwant A Thakkar and Mr. Rashmikant A Thakkar.
19. Mr. Yashwant A Thakkar replied to the SCN vide his letter dated 12/9/01 denying all allegations and stating that they had applied for shares in the public issue of SEL but they had not been allotted any shares and their application for shares was rejected by the company. He further stated that they had no arrangement with the company and they merely intended to invest in equity shares of the company as investors. Mr. Rashmikant A Thakkar vide his letter dated 12/9/01 sought 15 days to one month’s time to reply but did not write thereafter.
20. In view of the above facts and after examination of the statement of Mr. Yashwant A Thakkar, records of proceeding, the investigation reports, the manner in which the public issue of SEL was shown to be subscribed, in my opinion, the activities of M/s. Yashwant A Thakkar and Rashmikant A Thakkar were fraudulent in nature, detrimental to the interest of genuine investors in the public issue of SEL and to the integrity of the capital market. M/s. Yashwant A Thakkar and Rashmikant A Thakkar have connived with and abetted the promoters of SEL in creating an illusion of successful issue; helped the promoters of SEL to allot shares without any consideration being received and to corner shares in the public issue.
21. An opportunity of personal hearing was granted to M/s. Yashwant A Thakkar and Rashmikant A Thakkar to appear before me on 18/4/02. Mr. Yashwant A Thakkar attended the personal hearing both on his behalf and on behalf of Mr. Rashmikant A Thakkar and made oral submissions. He stated that they had invested in SEL as investors but were not allotted any shares and, therefore, the stock invests were cancelled. As regards visible alterations in the stock invest which were used for subscription to the public issue of SEL, he alluded that once the applications were submitted by him, the stock invests came in the custody of the bankers to the issue and registrars to the issue and alterations could have been taken place at their end also. He continued to maintain that they were mere investors in various public issues and were not party to any wrongdoings.
22. When specifically questioned, he could not give a credible reply as to how the 53 stock invests no. 577330 to 577379 for Rs. 1,00,000/- each (total 50 stock invests) and no. 577408 to 577410 for Rs. 5,00,000/- each (total 3 stock invests) aggregating to Rs. 65 lakhs issued by Punjab National Bank, Navrangpura for subscribing to another public issue were used for subscribing to the issue of SEL; nor could he give an acceptable reply as to how in any of the public issues that they had chosen to invest, they were not allotted any shares and how almost all the stock invests that they had purchased had been cancelled, as revealed from the bank records.
23. I have carefully examined Mr. Yashwant A Thakkar’s reply, oral submission made during personal hearing and also taken into account relevant material available on record. I find from the records that Mr. Yashwant A Thakkar and Mr. Rashmikant A Thakkar have subscribed to other public issues using similar modus operandi. I also find from the stock invests used for subscription to the issue of SEL that they are payable to the public issue of GSL and not for the public issue of SEL, there are visible alterations and it is signed by persons other than the purchaser of the stock invest. In view of the irrefutable evidence on record, it is difficult to accept the explanation that they were mere investors in various public issues.
24. From the mode and manner in which the applications were made, there emerges a clear pattern – that is to purchase and give stockinvests to promoters of companies for making applications, thus aiding and abetting the promoters to show attainment of minimum subscription and to corner shares; and once allotment process is over, receive back the stock invests and get them cancelled. Though Mr. Yashwant A Thakkar claimed that the stock invests were cancelled because of non-allotment, I find from the records that the issue of SEL was subscribed to the extent of 98% only and there were no rejections. Their modus operandi clearly is to purchase stock invests, allow them to be used to subscribe to many issues by altering the date of issue of stock invests, payee’s name, etc. and once the allotment is over, get back the stock invests and have them cancelled. This is not possible unless they were acting in collusion with the promoters of issuer company, stock invest issuing bank, the bankers/ the registrar to the issue. In fact, I observe from the records that the collusion of the bank officials of the stock invest issuing bank has been established and the bank has taken disciplinary action against the officials concerned. I also note from the records that in case of SEL, the moment specific details of subscription against the stock invests and receipt of consideration thereof were sought from the SEL, the company and its promoters have become untraceable.
25. In view of the foregoing discussions, I have no doubt in my mind that the action of M/s. Yashwant A Thakkar and Rashmikant A Thakkar is fraudulent and enables dubious issues to show minimum subscription and get listed. They have connived with the promoters in allotting shares without receipt of consideration and in cornering the shares. This is detrimental to the orderly development of the capital market and is against the interest of genuine investors.
26. In the light of foregoing discussions and facts as recorded, I hold M/s. Yashwant A Thakkar and Rashmikant A Thakkar, Directors, Amrapali Spinning Mills Ltd., guilty of the charges leveled against them in the show cause notices and I conclude that their activities are detrimental to the interest of genuine investors and orderly development and integrity of the capital market and if left unchecked could undermine faith of the investors in the securities market.
27. Therefore, in exercise of powers conferred under Section 11B of Securities and Exchange Board of India Act, 1992, I, G N Bajpai, direct that Mr. Yashwant A Thakkar, Director, Amrapali Spinning Mills Ltd. and Mr. Rashmikant A Thakkar, Director, Amrapali Spinning Mills Ltd. both residing at 19-21, Narayan Chambers, Bh Patang Hotel, Ashram Road, Ahmedabad be hereby prohibited from dealing in securities market for a period of two years with immediate effect.
