Kailash Auto Finance Ltd, a company listed on BSE with a market capital of Rs37.57 crore, was finally suspended as a surveillance measure. The company, which was a part of S&P BSE SmallCap, and is engaged in hire purchase and lease financing business, was operating from a table space, reveals surprise inspection carried out by BSE. But more about this later. This stock is also dropped from indices including S&P BSE AllCap, S&P BSE Industrials, S&P BSE MidSmallCap and S&P BSE SmallCap.
Kailash Auto was also barred from markets along with 245 other entities for malpractice. In fact, in his order on 29 March 2016
, Rajeev Kumar Agarwal, whole time member of Securities And Exchange Board of India (SEBI), had said, "While SEBI would investigate into the probable violations of the securities laws, the matter may also be referred to other law enforcement agencies such as Income Tax Department, Enforcement Directorate and Financial Intelligence Unit for necessary action at their end as may be deemed appropriate by them."
"The whole picture on the canvas suggests tell-tale strands of how each one of the connected entities at various sequences in the chain has catalysed the routing of funds and shares, in a web of make believe transfers and transactions meant to mislead and obfuscate, to the final confluence in the market amidst artificial volume and price rise entrapping the unsuspecting and gullible investors. The connected entities, acting in concert under a premeditated plan, had acquired dominant market power for the shares of Kailash Auto. Their acts, conduct, behaviour and dealings connote a deceptive conduct designed to deceive or defraud investors by controlling or artificially affecting the price of shares of Kailash Auto since being in dominant position to control supply and demand both they interfered with free forces of supply and demand. By impeding in the natural interplay of market forces, they misled the investors by masking the fair price of the shares of Kailash Auto. When all the facts and circumstances of this case are considered holistically they prima facie emerge as ingredients in a fraudulent, deceptive and manipulative device, plan and artifice designed to tamper with free market forces and to damage the integrity of the securities markets. The manipulation in the traded volume and price of the scrip by a group of connected entities as observed in this case has potential to further induce unsuspecting and gullible investors to trade in the scrip and harm them. Further, these connected parties have grossly misused the stock exchange system to generate bogus long term capital gains (LTCG) to aid and help beneficiaries to convert their unaccounted income into accounted one with no payment of taxes as LTCG is tax exempt," the SEBI order says.
BSE, following directions from SEBI, conducted a surprise inspection at Kailash Auto's registered office at Kanpur in Uttar Pradesh. BSE reported, "the said premises was occupied by a chartered accountant firm - Ajay Kedia & Associates and only one office boy of Kailash Auto was available at the time of site visit. On further inquiry, it was learnt that the said chartered accountant firm had given Kailash Auto a small table space in its office for collecting posts, couriers, and other documents received in the name of the company for which one office boy Mr Atul Verma was appointed. BSE conducted inspection at corporate office of Kailash Auto (i.e., 'Room no. 10, Ground Floor, Rajsheela Premises Co-op Society Ltd, Building no. 597, JSS Road, Mumbai – 400 002') also and reported that the claimed corporate office was locked and no company officials were available at the time of visit of BSE officials at that address. Thus, it was gathered that no operation was carried out by Kailash Auto at the said registered office and corporate office addresses." This raises questions in this case, as to why Kailash Auto was included in several indices on the Exchange.
Earlier in 2013, Moneylife has pointed out how regulators were found sleeping when Kailash Auto share price rocketed a humungous 270%, to Rs40.65 from Rs11 between 17 January 2013 and 6 December 2013. (Read: Unquoted: Kailash Auto Finance
Even before that, the BSE in 2009 had suspended Kailash Auto for flouting listing norms as well as shareholding disclosure and corporate governance norms. Strangely, in March 2009, just a little over a month after the company was suspended, BSE revoked the suspension.
So the question is why Kailash Auto is allowed to be part of stock exchanges despite flouting norms regularly. Why it was not suspended earlier? Even in the recent episode, SEBI passed the order on 29 March 2016 and BSE suspended trading in Kailash Auto from 8 August 2016, almost five months from the market regulator’s directions.