SAT grants relief to Zenith directors

Tribunal upheld Sebi interim order with respect to market ban on six entities

The Securities Appellate Tribunal (SAT) today granted relief to the board of directors of Zenith Infotech from furnishing bank guarantees worth $33.93 million (around Rs 184 crore) till the next hearing, slated for May 7.

Admitting the plea filed by the technology firm, the tribunal, however, upheld the Securities and Exchange Board of India’s (Sebi) interim order with respect to the market ban on six entities. Through an interim order dated March 25, the market regulator had barred Zenith Technologies, with its promoters, Rajkumar Saraf and Akash Saraf, from accessing the capital market on grounds of fraud, manipulative and unfair practices. Zenith moved SAT against the Sebi order.

Sebi, for the first time, had also held the board of the company liable and directed it to furnish a bank guarantee of $33.93 million by April 25. While allowing FCCB holders of Zenith to become an intervener, SAT directed Sebi and the bondholders to file a reply within two weeks on the plea filed by the company.  Zenith had defaulted on its FCCB repayment obligation, due in 2011.

Sebi in its order has noted the promoters of the company chose to default on the FCCB obligation despite knowing it had terms of cross default and yet didn’t make adequate disclosures to the stock exchange. Besides inadequate disclosures, Sebi has also charged Zenith’s promoters and directors with misleading disclosures. Sebi had also alleged that of the $48 million sale proceeds of the company’s managed services business division, $33.93 million was “diverted for  purposes that were not even remotely connected to the authorisation of the shareholders”.