Sebi bars four individuals in Birla Cotsyn's GDR issue manipulation case

Markets regulator Sebi has barred four individuals in connection with manipulation in the issuance of global depository receipts by Birla Cotsyn (India) Ltd back in 2010.

Currently, Birla Cotsyn (India) Ltd (BCIL) is facing liquidation proceedings under the Insolvency and Bankruptcy Code.

In a 55-page order passed on Tuesday, Sebi banned four former individuals -- P V R Murthy, Yashovardhan Birla, Y P Trivedi and Mohandas Adige -- who were associated with the company.

While a three-year ban has been imposed on Murthy, Birla will face a ban for two years. Trivedi and Adige have been barred from the securities market for one year each.

In September 2019, the National Company Law Tribunal (NCLT) ordered the commencement of liquidation of BCIL under the Insolvency and Bankruptcy Code.

Against this backdrop, Sebi said present the present proceedings initiated against the company stands disposed of.

"However, in the event that the order for liquidation passed by the NCLT is reversed in appeal, the noticee No. 1 (BCIL) shall be restrained from accessing the securities market..." for three years from the date of such reversal of liquidation order, the watchdog noted.

Sebi had conducted an investigation into the issuance of Global Depository Receipts (GDRs) by various companies, including BCIL.

In March 2010, BCIL issued 9.69 million GDRs worth USD 24.99 million.

It was found that Vintage was the only entity that subscribed to the GDRs and the subscription amount was paid by obtaining a loan from EURAM (European American Investment Bank), as per the order.

BCIL provided security towards the loan obtained by Vintage through a pledge agreement signed between BCIL and EURAM Bank in February 2010. Under the pact, BCIL pledged GDR proceeds against the loan availed by Vintage for subscription of its GDRs, according to Sebi.

Further, the regulator said the pledge agreement was signed by Murthy, then a director of BCIL who was authorised by a board resolution in December 2009. The company had also approved opening of a bank account with EURAM Bank for the purpose of receiving the GDR proceeds.

Birla, Trivedi and Adige had also attended that board meeting, as per the regulator.

The three individuals were also directors during the period when the corporate announcement were made by BCIL, which were false and misleading to the extent that its GDR issue was successfully allotted whereas the same was subscribed by only Vintage, according to Sebi.

The regulator noted that the announcement conveys that there was considerable demand for its GDRs in the overseas market and the same were successfully subscribed.

Thus, the investors in India were made to believe that BCIL has acquired a good reputation in terms of investment potential and, therefore, foreign investors have successfully subscribed to the GDR issue, it added.

The watchdog also said the act of BCIL in making misleading announcements regarding its GDR issue resulted in fraud under the prohibition of fraudulent and unfair trade practices.