New Delhi, Sept. 26 -- The Securities and Exchange Board of India deliberated on several interesting cases over the past week, from a company whose promoters cited a novel excuse to divert proceeds from a public issue to a company insider who claimed to have profited by fluke and not by design, and a merchant banker who has been fined repeatedly over the past five years.
Here's a quick roundup.
A rights issue and Pintu kidnapper
Promoters of Seaport Shipping Services Ltd, a shipping and logistics company, cited a novel excuse for diverting Rs 43.42 crore raised from a rights issue. They said that the money was not used for working capital requirements and general corporate purposes, besides issue expenses, as cited in the Letter of Offer, but given as ransom following the kidnapping of their son. The promoters had given the money to an Akshay Patel, aka Pintu, and Utsav Patel.
The capital markets regulator noted that the kidnapping had not been reported to law enforcement officials and that the diversion of funds was a violation of its Prohibition of Fraudulent and Unfair Trade Practices Regulations.
The regulator had investigated Seaport Shipping's operations between April 1, 2020 and December 31, 2023, to check if the company had cooked its books after BSE's probe into the company showed that 61% of the company's revenue and 60% of its operating expenses in FY21 came from one related party. In the final order, the company and its two promoters were found to have misrepresented the financials to raise the value of the share price and then sell it in the market at these inflated prices.
The proceeds from the rights issue, which were subscribed to by non-promoter shareholders at these inflated prices, were transferred to Pintu and his associate through layered transactions.
Accidental profits
When investigated for insider trading in the shares of Nucleus Software Exports, the beneficiaries Anupam Gupta and Nitin Garg argued that they had incurred "accidental profits".
Gupta, a cousin of Garg's who is an employee of the company, had bought shares before the announcements of the company's financial results for the quarter ended March 2023 and sold it right after that. The company's standalone profits had risen 76.45% quarter-on-quarter, and 209.66% on a year-on-year basis. Soon after the declaration of the results on May 26, 2023, the scrip had risen by nearly 20% and then over four days went up by more than 58% from the date. Gupta had bought shares between April 13 and May 25 that year for an average price of Rs 629.73 per unit, and offloaded them between May 26 and May 30 for an average price of Rs 949.57.
The beneficiaries argued that they had asked the broker to make the sale of shares on May 26, 2023 but the sale was executed only on May 29 and May 30, which led to accidentally profiting from the rise in the share prices during this period. They submitted that these profits "could not be attributed to Anupam's [a beneficiary] conscious decision making based upon access to any UPSI [unpublished price sensitive information]".
The regulator rejected this submission by noting that the crucial point that they had traded on UPSI has not been rebutted.
Insider trading allegations at Torrent Power
A general manager of power generation and transmission company Torrent Power paid Rs 39 lakh to settle allegations of insider trading.
In a September 23 settlement order, the regulator noted that a showcause notice had been issued to Rishi Sudhirbhai Shah, General Manager-Finance, for allegedly communicating UPSI related to financial results of Torrent Power for the quarter ended December 2022.
At the end of December 2022, the share price was trading around Rs 490. The share price saw a significant rise from close to Rs 510 in March 31, 2023, to more than Rs 1,900 in October 2024, and now trades at close to Rs 1,200.
Four out of five
A merchant banker, Beeline Broking Ltd, has been fined a fourth time in the past five years. The fine imposed through the September 25 order was Rs 1 lakh, much smaller than the earlier penalties imposed through three orders issued in 2021, 2022 and 2023, in which the penalties ranged between Rs 12 lakh and Rs 33 lakh for various provisions including violation of PFUTP Regulations.
The latest incident involved not updating the track record of an IPO issue of IT service provider and consultancy Sigma Solve, in FY22 and FY23. Beeline Broking submitted various reasons that included disruption caused by the Covid-19 pandemic and winding up its business with the last mandate undertaken in July 2021.
To this, SEBI adjudicating officer Jai Sebastian noted that if the merchant banker shuts shop, then investors have no recourse but to check the track record of the issues posted on its website. Also, as long as their merchant banking registration was active, they have to comply with the norms prescribed for these entities.
Published by HT Digital Content Services with permission from VC Circle.