Valecha Engineering stocks plummet on Sebi ban

Sebi has imposed a market ban of up to three years for violation of provisions of PFTUP regulations during a preferential allotment during 2005

Market regulator Securities and Exchange Board of India (Sebi) imposed a ban on Mumbai-based Valecha Engineering (VEL), its managing director and a dozen other entities for indulging in fraudulent trading.  The road builder’s shares saw its worst single-day fall in nearly five months. The stock, after falling as much as 15 per cent, ended at Rs 48.1, down 10.2 per cent.

Sebi has imposed a market ban of up to three years for violation of provisions of Prohibition of Fraudulent and Unfair Trade Practices (PFTUP) regulations during a preferential allotment during 2005.

VEL had made preferential allotment of 1.4 million convertible warrants, which were to be converted into equity shares at a later date to certain entities. The company and all preferential allottees are connected with each other. However, preferential allottees did not pay the full consideration for the allotment of such warrants and VEL allotted such securities to the allottees without getting actual consideration for that and as such was sham.

"...being the MD of VEL and having active role in its preferential allotment, Jagdish Valecha is liable for the acts of VEL with regard to the preferential allotment. The preferential allottees and other notices who acted in concert and in league with VEL and Valecha in the whole scheme of fraudulent preferential allotment are also equally responsible for such fraudulent acts," Sebi said in an order.

According to Sebi, some of the entities executed sham transactions in the scrip of VEL thereby creating artificial volumes in the company's shares. Some others have allegedly indulged in financing transactions and executed sham transactions with the funds received from VEL thereby creating artificial volumes in the company's shares.

Other entities had indulged in "non-genuine, fraudulent, and illegal trading" to crate false appearance of trading but did not involve in the preferential allotment. Sebi restrained 14 entities "from raising capital from public and further prohibit them from buying, selling or otherwise dealing in securities, directly or indirectly, in any manner..."

While, a ban of three years have been imposed on seven entities, three entities are banned for two years and the rest for one year. It further said the shares of VEL allotted during the preferential allotment and lying in the demat accounts of the allottees will remain frozen.  It also directed VEL not transfer any shares acquired and held by the allottees in that preferential allotment.

It also restrained the preferential allottees from exercising any voting or other rights attached to the shares acquired and held by them in that preferential allotment.