Sebi penalises Yashovardhan Birla, 6 others in Zenith Birla GDR case

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Capital markets regulator Sebi on Thursday imposed a penalty totalling Rs 10.80 crore on seven entities, including Zenith Steel Pipes & Industries Ltd (erstwhile Zenith Birla (India) Ltd and Yash Birla), in a case pertaining to alleged irregularities in the global depository receipts issued by Zenith Birla.

In its order, the regulator levied a fine of Rs 10 crore on Zenith Birla India Ltd (ZBIL), Rs 20 lakh each on PVR Murthy and Arun Panchariya, and Rs 10 lakh each on Yashovardhan Birla, MS Arora, AP Kurias and Mukesh Chauradiya, and asked them to pay the fine within 45 days.

These four persons -- Murthy, Birla, Arora and Kurias -- were on the board of the directors of ZBIL during the entire process of issue of GDRs (Global Depository Receipts).

While Panchariya was director and sole beneficial owner of Vintage which signed the loan agreement of GDR issue and Chauradiya was the authorised signatory of Vintage addressed to EURAM Bank paying back the amount of loan taken by Vintage.

All of them were part of the fraudulent scheme and arrangements of ZBIL in facilitating the subscription of its own GDR, as per the order.

The order came after the Securities and Exchange Board of India (Sebi) conducted an investigation into the alleged irregularities in the GDRs issued by ZBIL during the period from May 2010 to June 2010.

The regulator in its investigation found that ZBIL had issued 1.81 million GDRs (amounting to $22.99 million) and the issue was subscribed by one entity Vintage FZE (now known as Alta Vista International FZE).

"It is observed that ZBIL had pledged the entire GDR issue proceeds as collateral against the loan availed by Vintage from EURAM Bank. However, the same was carried out through a loan agreement between Vintage and EURAM Bank, an pledge agreement entered between ZBIL and EURAM." "Out of the total loan amount, Vintage repaid to the extent of USD 8.53 million and thereafter defaulted on the loan repayment to the rest of the amount (USD 14.5 million) which was further adjusted by EURAM from ZBIL's GDR proceeds," Sebi adjudicating officer G Ramar said.

He also noted, the shares were converted from these GDRs which were further sold in the Indian market and effectively acquired by Vintage free of cost. The subscription of the GDRs by Vintage was funded by ZBIL itself.

According to Sebi, the GDR subscription was structured in a manner whereby Panchariya controlled subscriber, Vintage acquired the GDRs without spending a penny through pledge of the GDRs and GDR proceeds against the loan used for subscription.

"Therefore, the entire scheme of issuance of GDRs was fraudulent and noticees No. 1 to 7 (ZBIL and other entities) have acted as party to the fraud and have violated ... PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) and listing conditions," the order said.

In another order, the regulator slapped a fine of Rs 30 lakh on Anand Rathi Share and Stock Brokers Ltd for misutilisation of clients' securities.