Can Sebi prosecute ex Pyramid Saimira boss further?

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Can Sebi prosecute ex Pyramid Saimira boss further?

After two years of investigations, market regulator SEBI has found listed company Pyramid Saimira guilty of fictitiously inflating its revenues and profits, making false corporate announcements regarding agreements with theatres.

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Excerpts from Your World at 10 on CNBC-TV18 Watch the full show » RELATED NEWS Sebi bans former Pyramid Saimira chairman from mkts SEBI bans Pyramid Saimira MD PS Saminathan from trading ALSO READ See latest News about Pyramid Saimira See previous management interviews See what other Experts & Brokerages are saying about Pyramid Saimira

After two years of investigations, market regulator SEBI has found listed company Pyramid Saimira guilty of fictitiously inflating its revenues and profits, making false corporate announcements regarding agreements with theatres, allotting convertible warrants to the promoter PS Saminathan and his wife on a preferential basis without payment and illegally allotting warrants to the promoter's wife as well.

Hence both Mr & Mrs Saminathan have been barred from the securities market for 10-years and they cannot serve as directors in any listed company either. The more interesting aspect of the Sebi's punishment, however, is that the promoter should make an offer to buy public shareholding of PSTL and potentially even delist the company.

Arindam Ghosh of Khaitan & Co, in an interview with CNBC-TV18's Menaka Doshi gave his views on this unique punishment approach.

Below is a verbatim transcript of his interview. Also watch the acompanying video for more.

Q: Let me read out what exactly SEBI said - 'It has directed Mr Saminathan the promoter to make a public offer through a merchant banker to acquire shares of Pyramid Saimira from public shareholders by paying them the value determined by regulation 23 of the Sebi's delisting regulations and to acquire the shares offered in response to the public offer within three-months of this order. It has also directed the Bombay Stock Exchange to facilitate the valuation of shares as well as compulsorily delist Pyramid if the public shareholding reduces below this stipulated minimum level.' What do you make of this punishment?

A: Pretty much novel. They have tried and used this once in Parsoli Corporation as well. I would definitely say the Sebi is coming out with these novel things pretty often now.

Q: Do you think because the company already isn't winding up proceedings and provisional liquidator has been appointed this is the Sebi's way of ensuring that at least shareholders get an opportunity to exit before there is any negative outcome to both, the company as well as the promoter's actions or misdeeds with the company?

A: Definitely yes. Now, if the promoters have done something wrong, then it is the promoters who pay. Just an apt way of doing it, you are punishing the promoters, you are asking them to go ahead and purchase shares from the public.

You rightly pointed out, the winding up proceedings, if there is anything against the company, it is not going to be affective sooner or later but if it is against the promoters, if they are the ones who have done wrong etc. So it is better they pay up.

Q: At what price is this public offer likely to happen if it is supposed to happen by the guidelines of regulation 23?

A: Regulation 23 talks about the valuations by a panel of valuer's by the stock exchange. It is not the normal delisting reverse book building.

Q: The stock is currently trading below par value, it is at somewhere between Rs 6-7 for a share of face value Rs 10. Is the value dependent on market capitalization or will it be an asset valuation of sorts?

A: Mark valuation of course. That is how it has to be done. There are some guidelines which are there under the delisting regulation for infrequently traded shares etc. So those things will apply here.

Q: I understand this is maybe the Sebi's way of offering investors an exit and not having to bear the burden of the promoters' misdeeds but what if the promoter puts his hands up and says - listen I don't have the money to do this offer. I am told the total market capitalisation of this company right now is roughly Rs 17 crore. If he has to buy the public shareholding which is Rs 76 crore, he at least will have to cough up between Rs 14-15 crore which is not a large amount. What if Mr Saminathan puts his hands up and says, "I have no money, I cannot go ahead and do this open offer," what happens then?

A: The Sebi has powers to prosecute him even further including criminal prosecution. We will have to wait and see if Mr Saminathan puts his hands up. Whether SEBI invokes the other powers it has, is something we will just have to wait and watch.