Capital markets regulator Sebi on Tuesday imposed a penalty of Rs 10.25 crore on Commex Technology in a case related to manipulation of GDR (Global Depository Receipts) issued by the company. In addition, Sebi levied a fine of Rs 5 lakh each on Adi Cooper and Kishor Hegde in the matter.
"Commex along and its directors (noticees) have misled the Indian investors by concealing the information of entering into pledge and loan agreement to facilitate and finance the issue of its own GDRs and not informing the same to the stock exchanges," Sebi said in its order. "Moreover, Commex made false announcement that its GDRs were genuinely subscribed thus causing a fraud on the innocent investors. Commex and its directors, through their fraudulent scheme of issue of GDR, mislead the investors to believe that Commex has an international market," it added.
The Securities and Exchange Board of India (Sebi) conducted an investigation into the GDR issued by Commex Technology for the period May to June 2009. It was observed that Commex had issued 19,06,790 GDRs raising USD 9.99 million in May 2009 and the entire GDR were subscribed by only one entity — Vintage FZE.
European American Investment Bank AG (EURAM Bank) granted loan to Vintage by way of a loan agreement for payment of USD 9.99 million towards subscription of the GDRs of Commex, which in turn pledged its entire GDR proceeds, as a security for the loan availed by Vintage from EURAM Bank for subscribing to GDRs of Commex, by separately entering into a pledge agreement with EURAM Bank. Sebi noted that loan agreement and pledge agreement, enabled Vintage to avail loan from EURAM Bank for subscribing to GDRs of Commex. Further, the GDR issue would not have been subscribed, had Commex not given such security towards the loan taken by Vintage.
In a separate order, the regulator has levied a fine totalling Rs 60 lakh on four persons in the matter of GDR issue of Edserv Softsystems Ltd. Individually, Sebi slapped a fine of Rs 20 lakh each on S Giridharan and Mukesh Chauradiya, Rs 10 lakh each on G Gita and Arun Panchariya.
Sebi noted that these four persons had "jointly and in close connivance with each other, had acted as one part of the entire fraudulent scheme by arranging for the subscription of the GDRs through Vintage using the pledge agreement signed on behalf of Edserv to obtain a loan from the EURAM Bank and then to dispose the shares acquired through such GDRs, routing of the monies received from Edserv, thereby creating an elaborate faade of demand for the securities of Edserv". The order comes after the regulator conducted investigation into the alleged irregularities in the GDRs issued by Edserv during the period from July to August 2011.
The investigation, prima facie, revealed that Edserv had issued 1.60 million GDRs amounting to USD 23.89 million in August 2011 equivalent to 8 million equity shares and the issue was subscribed by one entity — Vintage FZE. The subscription amount was paid by Vintage via obtaining a loan from EURAM Bank and the pledge agreement was executed by the company with EURAM Bank pledging GDR proceeds as collateral against the loan availed by Vintage for subscribing to GDRs of Edserv, thus securing Vintage's loan.
Through such acts, these four persons violated the provisions of PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) rules.