demat scam-corporate law

8/3/2019 Demat Scam-corporate Law

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STERLING INSTITUTE OF MANAGEMENT STUDIES

SUB – CORPORATE LAW

Presentation Topic – Cases on SEBI

PresentedBy:-

Ganesh Bhat(A) 52

ShrikantJadhav(B) 70

Sunil Jain(B) 71

NileshThakare(B) 92

Pravin Barge(B) 104

Abhishek Jain

(B) 105Presented to:-Prof. Anjana Menon



INTRODUCTION

The Securities and Exchange Board of India, setup in 1988under an administrative arrangement ,given statutory powers

with the enactment of the SEBI Act 1992.

The act provides for the establishment of the board to protectthe interest of investors in securities market.

The board consists of a chairman , two members from the govt.

of India, ministries of law and finance, one member from the

RBI and two other members

It describe the manner in which SEBI Act 1992,the SCRA

1956,thecompanies Act 1956 and the depository act 1996



OBJECTIVES OF “SEBI”

The three main objectives are:-

To protect the interest of the investors in securities

To promote the development of securities market

To regulate the securities market



FUNCTIONS OF SEBI

Regulating business in stock exchanges and any other

securities market

Registering and regulating the working of depositories,

custodian of securities, FIIs, credit rating agencies

Promoting investor‟s education and training intermediaries

of securities market

Prohibiting insider trading in securities



INSIDER TRADINGREGULATIONS & PRACTICES



INTRODUCTION

Insider trading essentially denotes dealing in acompany „s securities on the basis of confidential

information relating to the company which is notpublished or not known to the public used to make

profit or loss



WHO ARE INSIDER TRADERS?

Corporate officers, directors , and employees whotraded the corporations securities after learning ofsignificant , confidential corporate developments.

Friends , business associates, family members ,and other types of such officers , directors , andemployees, who traded the securities afterreceiving such information.



REGULATORY ASPECTS OF PROHIBITION OF INSIDER TRADING

SEBI prohibition of Insider Trading regulation 1995.

Section 11(2) E of companies act 1956 prohibits the

Insider Trading

What is Insider Trading is not defined in thecompanies act -1956



CASE STUDIES

o RAKESH AGARWAL vs. SEBI

o SAMIR ARORA vs. SEBI



RAKESH AGARWAL VS. SEBI




One of the most famous case highlighting the

vulnerability of the SEBI‟s 1992 regulations.

Rakesh Agarwal, MD of ABS Industries Ltd was involedin negotiations with Bayer A.G, regarding their intention

to takeover ABS.

SEBI alleged that prior to the announcement of acquisition, Rakesh Agarwal, through his brother-in-law,

had purchased shares of ABS and tendered the said

shares in the open offer made by Bayer.




Pursuant to Bayer‟s condition to acquire at least 51% shares of

ABS, he, through his brother-in law bought the shares and

later sold them to Bayer.

The SEBI directed Rakesh agarwal to “deposit Rs 34,00,000

with Investor Education & Protection Funds of Stock

Exchange, Mumbai and NSE.

SAT held that the SEBI order directing Agarwal to pay Rs 34

lakh couldn‟t be sustained, on the grounds that Rakesh

Agarwal did that in the interests of the company.



SAMIR ARORA VS. SEBI




Sameer Arora was star fund manager of Alliance Capital

Mutual Fund (ACM) and the poster boy of the Indian Mutual

Fund Industry.

He was managing Rs 2264 crores with ACAM invested in

Indian equity and fixed income markets as of 31st August

2003.

The fund which was launched in 1995, had been generating areturn of 2.463 % since inception under the growth option.




In April 2003, there were talks about the consolidation of

Digital Global Soft LTD (DGL) with the Hewlett Packard

Indian Software Operations(HPISO), a 100% subsidiary of

HP.

On May 8, 2003 an internal analyst of Alliance recommended

reducing position in the stock.

ACMF sold 1.19 lakh shares and ACM sold 2.18 lakh shares.

On May 12, 2003 ACMF sold 3.35 lakh shares while ACM

sold 2.5 lakh shares.




In August 2003, SEBI charged Samir Arora of insider trading

under Section 11B and 11(4)(B) of the SEBI Act.

SEBI indicted Arora on many serious charges i.e -

A. Trading DGL shares on the basis of Unpublished price

sensitive information.

B. Non-disclosure after crossing 5% limit in several

companies

C. Causing panic in the market by making public his decision to

quit Alliance Capital, leading to the redemption of Rs 1300

Crore.




In April 2004, SEBI debarred Arora from dealing in securities

directly or indirectly for five years.

SEBI charged the penalty of Rs 15 Crore on ACM and two

associated Alliance entities.

October 2004, the Securities Appellate Tribunal set aside the

order of SEBI on grounds of insufficient evidence to prove the

charges of insider trading and professional misconduct againstMr. Arora.



OBSERVATION

Inability of SEBI in proving its cases.

Proving Insider Trading – a bizarrely difficult task.

Lack of assistance from Central Economic Intelligence

Bureau (CEIB) to investigate the cases.

Absence of an adequate remedy available to the investors at

large.



IPO-DEMAT SCAM – STORY OF SCAM – SHAME

Industries and finance sector always tried to tap the primary market

during a boom. Mobilize the financial resources through PublicIssues and IPOs. In 2004-05, more than Rs.24,000 crores have been

mobilized from the primary market through Public Issues and IPOs.

It is the sad part of the Indian Capital Market that every IPO boom

has a scam. It was during 1986-88, the primary market momentum

had a mini-scam of mini-steel plants and mini-cement plant public

issues. These companies tapped the market, fooled the Small

Investors, collected hundreds of crores of Rupees, diverted the

funds. Small Investor was the loser.



STORY OF GREED, FAILURE OF SYSTEM

Started in August 2004

Loot & Cornering Small Investors Quota by Syndicate of Broker,

Investor, Bank, DP

Failure of Surveilance & Vigilance of Regulators

53 Ipo‟s 5 crore Shares, 1 Lac Bogus Demat a/c

The Roopalben, Sungandh Investments, Zaveri’s, Budhwani’s

& Sakseria’s, along with the Broker-Investors, with support of

Banker & DP run the ‘Show-Scam’ for 18 months.



STORY OF PANCHALS

Failure of SEBI, NSDL, CDSL, RBI,BSE

Connivance of all of the above made 43,982 applications infictitious names in IDFC Public Issue. Got alloted 1,17,05,872shares. Roopalben & Budhwani were allowed to open 5,000Bogus Demat A/c on the last day of IDFC issue by Karvy &

Bharat Overseas Bank.



MASTERMIND TO CORNER SMALL INVESTORS

SHARE

The entire game plan, is well designed,

The syndicate “shared” the “Share Allotment Benefit” Investor to get 50% of Bogus Allotment – „Panchals‟ & Broker, theShell Investment Co‟s remaining 50%. Karvy put – added

further thousands application.



IPO OF IDFC

IPO of IDFC opened on July 15, 2005 and closed on July 22,

2005.

Basis of allotment finalized on Aug 04, 2005.

Shares credited to IPO allottees on August 05/06, 2005.

Shares got listed on the Stock Exchanges on August 12,

2005.

Yes, before listing the Scamsters use to transfer shares to theBeneficiaries accounts. Mutual understanding. Unsigned

Moll.



SMALL INVESTORS PORTION / QUOTA

IDFC came out with public issue of 403,600,000 equity sharesof Rs. 10 each for cash at a price of Rs. 34 per equity share .

141,260,000 equity shares were to be offered to SmallIndividual Investors (defined as Individual Bidders who bid for

equity shares for an amount less than or equal to Rs. 1,00,000 asper prospectus).



TRANSACTIONS IN IDFC SHARES BY

ROOPALBEN PANCHAL & ASSOCIATES

Roopalben have their demat a/c with Karvy Stock Broking Ltd.

Panchals also have thousands of Fictitious-Bogus-Benami DematAccounts & Banks A/C at the same address

34 Ketan Tower, Camp Road, Shahibaugh, Ahmedabad-380004.

402-403, Shashwat, Opp. Gujarat College, Ellisbridge,Ahmedabad ,

bank accounts with Bharat Overseas Bank, C G Road,Ahmedabad.



SEBI FINDINGS ON IDFC IPO

Thousands of applications are fictitious / benami names. IPO applicants merely name-lenders or non-existent

These Bogus allottees transferred shares to Panchals,Budhwanis the Syndicate

Transfer of shares before listing

Sold shares on the first day of listing

Bank in depositories allowed syndicate to open benami/ fictitious Demat and bank accounts



ORDER OF SEBI – ACTION ON IDFC

Panchals, Investors, Syndicate & Others directed not to

buy, sell in the securities market, directly or indirectly

NSDL and CDSL to ensure that the demate a/c which

served as conduit for Roopalben, Sugandh, Budhwani arenot utilized for manipulation of IPO allotment in future.

SEBI is directed to conduct immediately inspection of

Karvy



ROOPALBEN & INVESTORS

Roopalben received funds from 8 entities

Prior to the IPO of Yes Bank Ltd.

Devangi Dipak Panchal, Rajan Dapki, ZenetSoftware Ltd., Excell Multitech Ltd., Taurus Infosys

Ltd., Seer Finlease P Ltd., Barghav Panchal (HUF)and Jayantilal Jitmal

She in turn transferred these funds to 6315 entitieswho had utilized these funds for makingapplications in the IPO of YBL.



THANK YOU

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