SEBI passes directions against Southern Ispat and Energy, its officials, other entities


Markets regulator SEBI on Friday passed directions against Southern Ispat and Energy, its officials and certain other individuals and entities in a matter pertaining to manipulation in issuance of global depository receipts (GDR).

SEBI investigation

The matter emanates from an investigation by SEBI into the issuance of GDRs by certain Indian companies which were allegedly done with the intention of defrauding Indian investors.

It was observed that for many of the GDR issues, a loan was taken by a foreign entity for subscribing to the issue and the loan was secured against the proceeds of the same issue.

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The focus of the investigation was to ascertain whether the shares underlying the GDRs were issued with proper consideration and whether appropriate disclosures were made by Southern Ispat and Energy while issuing the GDRs.

Fraudulent issuance of GDRs

The scheme of issuance of GDRs was fraudulent as the company had entered into an agreement pledging the proceeds of the GDR issue with the European American Investment Bank AG (EURAM Bank) for a loan that had been availed by Vintage FZE for subscribing to the GDRs issued by it.

Mukesh Chauradiya had signed the loan agreement on behalf of Vintage, and Arun Panchariya was Director and Beneficial Owner of Vintage.

Thereafter, using certain foreign institutional investors (FIIs), the GDRs were converted into underlying shares and sold in the Indian securities market with the help of certain domestic entities connected to Arun Panchariya.

Penalties imposed

Golden Cliff and KBC Aldini Capital, registered FIIs, facilitated Highblue Sky Emerging Market Fund and Aspire Emerging Fund, as well as their sub-accounts to sell the illegally acquired shares in the Indian securities market.

Pan Asia Advisors, a UK based entity, was the lead manager for the firm’s GDR issue.

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The company has been directed to take measures for ensuring that the outstanding amount of $13.679 million is brought back to its bank account in India.

Arun Panchariya, Vintage FZE, Highblue Sky Emerging Market Fund and Aspire Emerging Fund also have to jointly and severally disgorge illegal gains of ₹23.06 crore, made by way of sale of equity shares after the conversion of GDRs, along with 12 per cent interest from the date of sale of equity shares till the payment of disgorgement amount.

Among other directions, SEBI has barred the firm, two of its officials, Pan Asia Advisors, Arun Panchariya, Mukesh Chauradiya and the funds from Indian markets for varying periods.

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