Regulator Sebi on Tuesday barred Finalysis Credit & Guarantee Co. Ltd and 13 other entities from capital markets for up to five years for defrauding public shareholders by issuing forged consolidated share certificates.
Further, the entities have been restrained from holding any position as director or key managerial personnel in any listed company or any registered intermediary for up to five years, Sebi said in an order.
Besides, four of these entities have been asked to disgorge illegal gains made by them.
The regulator conducted an investigation in the matter in November 2014, and found that these entities had devised a scheme to defraud original public shareholders by issuing forged consolidated share certificates in 2012.
Thereafter, they fraudulently sold forged consolidated share certificates to purchasers brought by one of the entities, making the original public shareholders believe that the shares transferred to them were original, though they were not so, it added.
Accordingly, the regulator has imposed a five year market ban on Finalysis and five individuals -- Dilip Shah, his son Jiger Shah; Bipin Divecha, Sharad Ghadi and Sham Gandhi.
In addition, the regulator has restrained eight persons -- Mohammad Rafi, Roma Khan, Mohd Salim Khan, Amir Hamza Hakim Khan, Abdul Hakim Khan, Abdul Zameer Hakim Khan, Talat Wahadatali and Mohamad Rehana Khan -- from the market for three years.
Further, Dilip Shah has been asked to disgorge Rs 3.9 crore, while Jiger Shah has been asked to disgorge Rs 66.42 lakh.
Sebi asked Ghandi to disgorge Rs 45.55 lakh and the disgorgement amount for Divecha is Rs 9.45 lakh.
The probe found that Shahs and Gandhi, even though had limited number of shares, with the aid and abetment of other entities fraudulently undertook sale of shares held by public shareholders, without the knowledge or consent of those public shareholders.
The underlying motive included liquidation of Finalysis shares held by these entities themselves.
Sebi, in its 86-page order, said that two Shahs and Gandhi got in touch with Vinayak Sarkhot, the compliance officer and director of Finalysis, to get the company relisted on BSE and to sell 93 per cent of shares, which were held by public shareholders.
Consequent to the same, Divecha was brought in for getting buyers who would buy the 93 per cent shares.
This scheme is clearly evident from a collective reading of the emails exchanged and from the draft MoU circulated amongst the entities, where Shahs, Gandhi, Sarkhot and Gadhi have been shown as the sellers and Divecha as the buyer for sale of 93 per cent shares held by public shareholders.
Further to the scheme, the share certificates held by genuine public shareholders were counterfeited or forged without authorisation by these entities to make illegal gains.
"The counterfeiting/forgery/consolidation without authorisation of the shares emerge from the facts that the Company was not following any norm for processing of transfer requests; a common witness was used to witness the transfer deeds; the Noticees namely Jiger Shah, Dilip Shah, Sham Gandhi, Vinayak Sarkhot and Bipin Divecha, and not the transferors mentioned in the transfer deeds were seen to be taking decisions with respect to the sale of the shares; the said Noticees determined the price for the sale of the shares, which was lower than the then market price," Sebi said.
It, further, said that sale consideration for the sale of the shares explicitly moved to these entities and not to the transferors or original shareholder.
Sebi said that the company's the then managing director Sajjad Pavne, even though may not have been involved in counterfeiting or forgery of share certificates, allowed the transfer of shares to eight entities with the knowledge that there were complaints filed from original shareholders.
The regulator has not imposed any restrictions on two important links to the matter, Pavne and Sarkhot, as they have passed away.
"The acts of the directors and promoters culminated in the share certificates of public shareholders being forged/counterfeited/consolidated without authorization and transferred unauthorizedly to certain persons other than the original shareholders, thereby making the company liable," Sebi said.
By indulging in such activities, the entities violated the provision of PFUTP (Prohibition of Fraudulent and Unfair Trade Practice) norms, it added.