Rs 24 crore from hot air? How to buy shares with land you don't have and sell a business that isn't one

Sebi investigators also found that the company was overstating its financials. (Photo by Bess Hamiti: Pexels)

Can anyone make Rs 20 crore out of little more than hot air?

Here’s a story of chutzpah—or fraud, depending on where your sympathies lie—drawn from an investigation by the  Securities and Exchange Board of India (Sebi).

It’s a story in three acts.

First, according to the regulator, Vikas Proppant and Granite Ltd's (VPGL) promoters and associates bought preference shares using lease rights over land they had no rights over.

Also read: Sebi's department heads to use Gen AI to help with compliance monitoring

Then, they released fake positive news about the company and caused the share price to appreciate considerably—by as much as 1,650 percent, from Rs 1.02 to Rs 17.85.

And then, in the final act, they dumped the shares.

During the investigation, the promoters—Bajrang Dass Aggarwal (now deceased), Bimla Devi Jindal (BD Aggarwal’s wife and managing director of VPGL) and Kamini Jindal (their daughter and executive director of VPGL)—and their associates were found to have offloaded around 8 crore shares for a profit of around Rs 24 crore. BD Aggarwal is also the founder of the National Unionist Zamindara Party. Kamini Jindal is a former MLA of the party from Ganganagar Constituency in Rajasthan.

Moneycontrol reached out to the company and its promoters through the email provided to the exchanges and the mail bounced back undelivered. We also tried to reach Kamini Jindal and Bimala Devi Jindal through the contact person mentioned in the documents submitted to the Ministry of Corporate Affairs but were informed that he does not work with any of the companies associated with them anymore. This article will be updated if the company or the directors or any of the noticees reach out to the publication.

The background
Sebi investigated activity in the VPGL stock between June 22, 2018, and August 30, 2019 to see if there were any violations under various regulations, including those prohibiting unfair trade practices and insider trading.

The regulator found that the company had issued 32.5 crore fully paid equity shares on a preferential basis to four people: promoters Kamini Jindal and Bimla Devi Jindal, and non-promoters Kanta Devi and Komal. The consideration received for these shares was recorded as ‘Lease rights over land”. Kanta Devi and Komal are mother and daughter.

The land was said to be in Village Kaparda, Tehsil Bilara, Jodhpur, Rajasthan, and the lease deed claimed that its value was Rs 81.25 crore.

Sebi investigators later found that the land was not in their name but in the name of M/s Mansarovar Industrial Corporation (MIDC).

Bimla Devi Jindal said that she was not aware of any such land and that she had signed documents given by BD Aggarwal without reading them. Kamini Jindal, too, stated that she had signed various documents given by her father, and they may or may not have pertained to the said land.

Kanta Devi said that she did not know about any such land in her name but added that she had signed documents at the request of a brother-in-law, Shri Ram, who she heard had received “some granite land” from BD Aggarwal. Komal, too, denied being aware of any such land and said that her paternal uncle (her mother Kanta Devi's brother-in-law) had taken signatures from her at various times. Both said that they were allotted shares of VPGL at the behest of Shri Ram but neither had submitted any document regarding the ownership of the land or having lease rights over the land.

Since none of the preferential-share allottees submitted any documents that proved their ownership or lease rights over the land, and since land records at the relevant sub-registrar showed that these allottees had no claim over the land, the order stated, “facts clearly establish the allegation that the preferential allotment was made by the company to the allottees viz. Bimla Devi Jindal, Kamini Jindal, Kanta Devi and Komal in a fraudulent manner and without proper consideration”.

The pump: How VPGL's financials were made to look good
The company made several announcements during the period under investigation, which saw the stock rise from Rs 1.02 on June 22, 2018, to Rs 17.85 on May 6, 2019. Thereafter, the stock started to fall.

Among the announcements were the company's claims that it had been issued mining licences from the Rajasthan government; received a Rs 29.08-crore order for fractured debris used for mining; received an LOI licence subject to environmental clearance for mining of granite and manufacturing of proppant (which is used to hold a fracking/mining opening); received a $62.29 million export order for 75,500 tonnes of proppant from a Russian oil and gas drilling company; and met with investors in Frankfurt to raise $15 million to part-finance a proppant project.

One of the claims was also that the directors possessed 160 acres near Jodhpur, having minable granite worth around Rs 10,000 crore.

But when the regulator's investigators asked the company to provide paperwork to back the claims, no documents were provided.

The company also stated that it could not provide several documents because the late BD Aggarwal was overseeing all of the business, and that none of these announcements were discussed during Board Meetings or Committee meetings.

Sebi investigators also found that the company was overstating its financials. For example, revenue of Rs 52.77 crore was reported for FY19 from sale of fractured debris to its own promoter, BD Aggarwal. Revenue was also claimed from mining activity without the company having a mining licence, and without any inventory or material consumed.

All of this had caused the stock to appreciate astronomically, by more than 1,600 percent, during the period under investigation.

The dump 

The stock was then offloaded on the market.

This was done through a network of associates, who were even funded through loans extended by the promoter and their associated entities.

The investigators found that BD Aggarwal transferred the shares to some of his associates, who then sold them in the open market and transferred the proceeds to him.

One of the associates, Ekta Mittal, a noticee in the Sebi order, was given loans that totalled to Rs 2.97 crore, without any documentation and interest. These loans were found to have been used to buy shares from other associates of BD Aggarwal. These shares were then offloaded in the market and Mittal made gains to the extent of Rs 1.28 crore from the sale.

Also read: Sebi to soon propose norms for funds, key personnel to stop misuse of AIF structures

Sebi’s order

In its January 15 order, Sebi did not pull any punches and stated, “such fraudulent, manipulative and deceptive acts, device, plan and artifice employed by the company, its directors/promoters and the Noticees taken together in this case have wider impact on the securities market and should be dealt with sternly”.

While submissions by various entities alleged that the late BD Aggarwal was the mastermind/kingpin of the operation, the Sebi order stated that the role of Bimla Devi Jindal and Kamini Jindal, the Managing Director and Executive Director of VPGL, respectively, cannot be ruled out.

Since they are also his legal representatives, they have been asked to disgorge wrongful gains made by him to the extent of Rs 21.51 crore, along with interest at 12 percent per annum, from August 26, 2019, till the date of payment.

Ekta Mittal  has been asked to disgorge the wrongful gain of Rs 1.28 crore made by her along with simple interest of 12 percent per annum from February 27, 2019, till the date of payment.

Puneet and Gaurav, two associates of the company, and Kanta Devi and Komal were also found to have acquired more than 5 percent of the voting rights, after acquiring shares that entitled them to more than 25 percent of the voting rights in the target company in the same year. Following this, they were required to make an open offer for the shares of VPGL, which they failed to do. They have been asked to complete the open offer and acquire the shares of VPGL, and to pay, along with the consideration amount, interest at the rate of 10 percent per annum from December 28, 2018 till the date of payment.

All the noticees, except the compliance officer, have been restrained from accessing the market for three years.