Aptech, Khera face Enforcement Directorate probe over GDR misuse, loan fraud

Two weeks after the Securities and Exchange Board of India (SEBI) barred Aptech Limited from stock markets for six months, the Enforcement Directorate has started an investigation against the company and its former managing director Pramod Khera over the suspected misuse of Global Depository Receipt (GDR) instruments and loan-related fraud.

The agency is probing the misuse of the GDR issue by the company under the Foreign Exchange Management Act. The fraud took place nearly 18 years ago in 2003 when Khera was the managing director.

"After the SEBI order against Aptech and its erstwhile managing director Khera, the case has become stronger," an official source told Moneycontrol.

SEBI has barred Aptech for six months and Khera for five years from the capital market on April 1. Khera had moved out of the company in March 2009.

An email sent by Moneycontrol seeking the company’s comment on the subject remained unanswered.

In 2005, Aptech’s old promoters had sold their stake to Damani Investments and ASK Financial. The company is currently run by Rakesh Jhunjhunwala-led management. Jhunjhunwala and his wife Rekha Jhunjhunwala hold approximately 24 percent stake in the company.

A source in Aptech told Moneycontrol: "We were not aware of this
wrongdoing by the company when we bought the stake. Certainly, we will help the agency if they need any assistance from our side. But for the last fifteen years, the company has been functioning under different management. The suspected misuse happened in 2003 before we bought the stake."

The case so far

Aptech had issued 38,40,000 GDRs (amounting to around $14.40 million) on November 6, 2003, on the Luxembourg Stock Exchange, equivalent to 1,53,60,000 underlying equity shares of Rs 10 face value.

The market regulator, in its investigation, found Aptech pledging its entire GDR proceeds with Banco Bank as a security against the loan availed by another company named Willow from Banco Bank for subscribing to Aptech’s GDR. For this purpose, the company entered into an Account Charge Agreement, which was signed by Khera.

Khera signed a board resolution dated July 31, 2003, on the letterhead of Aptech and on the strength of this resolution submitted to Banco Bank, he signed the account charge agreement on behalf of Aptech on October 20, 2003, which provided security to Banco Bank to clear the loan by Willow from Banco Bank for GDR subscription.

“Aptech had pledged GDR proceeds to secure the rights of Banco against the loan given to Willow for subscription to GDR and corresponding GDR proceeds was utilised by Aptech only on repayment of the loan by Willow,” SEBI found.

The company later found using the loan against the GDR proceeds as a security, which was, in turn, the loan taken by Willow to subscribe to the entire quantity of GDR issued by Aptech. The SEBI investigation further revealed that the GDR issued by Aptech to Willow was converted into equity shares and sold in the Indian market.