Sebi refuses to lift market ban on Transgene, promoters

The latest ruling comes after the market regulator in Nov 2014, had ordered a detailed probe in this regard

The Securities and Exchange Board of India (Sebi) has refused to lift a ban on Transgene Biotek and its promoters from the securities markets in a case related to alleged diversion of funds by the pharma firm through issuance of Global Depository Receipts (GDRs).

The latest ruling comes after Sebi, in November 2014, had ordered a detailed probe in this regard.

Sebi had barred the firm and its promoters -- K Koteswara Rao, K Nirmala Rao and K Srinivas -- and Directors Prashant Kumar Ghosh, Soma Sekhar Marthi, Narayana Murthy Pentyala from the securities markets till further directions.

At that time Koteswara Rao was the Chairman and MD.

Sebi had prima facie found that Transgene Biotek transferred $29.92 million out of total GDR proceeds of $40.5 million, through a subsidiary "for undisclosed and ulterior purposes under the garb of consideration for technology transfer and for other reasons".

After raising of funds, the money was first kept in a Switzerland-based bank and some parts were later transferred to other entities in Hong Kong and Canada, among others, including to a subsidiary.

Initial probe by the Sebi found the claims that Transgene used the GDR proceeds to acquire certain technology from Hong Kong-based Asia First Technologies Ltd was "false and misleading".

According to Sebi, Transgene had deposited $40.5 million GDR proceeds in Investec Bank, Switzerland and transferred a part of the funds to Asia First from the account.

From the balance sheet for financial year 2011-12 of Transgene, Sebi observed there was no addition of assets of the kind purportedly acquired by transferring the GDR funds.

"Transgene and its promoters/directors were in complicity with the other entities involved in the transfer and receipt of funds in the design to defraud the investors, the noticees had deliberately not disclosed price sensitive information on the stock exchange viz that full amount as stipulated in the service agreement was transferred to AFTL without receiving the purported technology and other services agreed for," Sebi said in its order passed yesterday.

"... The concealment of material facts and providing misleading information cannot be termed as violations of technical nature, but this constitutes the material information and hence the same ought to have been disclosed, therefore, the directors have failed to perform their fiduciary duties by not disclosing such material information," it added.

Sebi Whole Time Director Rajiv Agarwal said that "no intervention is called for, at this stage, in either vacating the interim directions or modifying it."

Accordingly, the directions issued vide the ad interim ex-parte order dated November 20, 2014 against the noticees would continue, he added.

On February 22, 2011, Transgene had issued 25 lakh GDRs and issued another 25 lakh GDRs on October 3, 2011, raising a total $40.5 million.

These GDR issues were purportedly to raise capital from overseas market for expansion of its present business activities.