SEBI asks Zenet Software to cough up Rs31 crore; bars it for one year

The market regulator has held Zenet Software guilty in the IPO scam for manipulating the demand for shares in the RII category of IPOs and distorting market integrity

Market regulator Securities and Exchange Board of India (SEBI) has barred Zenet Software Ltd from the securities markets for one year and also asked the company to disgorge Rs30.88 crore, including interest, in the initial public offering (IPO) scam. 

The case relates to the IPOs for 12 companies made during 2003 to 2005. After noticing certain irregularities in the transactions in the shares that were issued through the IPOs before their listing on the stock exchanges, SEBI, on 27 April 2006, issued an ad interim ex-parte order.

The order, which itself was a show-cause notice, directed certain persons, including Zenet Software, Tauras Infosys Ltd (Tauras), Excell Multitech Ltd (Excell), Seer Finlease Pvt Ltd (Seer) and Sujal Leasing and Finance Pvt Ltd (Sujal) (collectively referred to as ‘noticees’) not to buy, sell or deal in the securities market, including in IPOs, directly or indirectly, till further directions.

MS Sahoo, whole-time member, SEBI, in an order dated 23 April 2010, said: “I find that the noticees financed the key operators (KOs) to make applications under the retail category of 12 IPOs and received the shares on allotment from the KOs as per the prior understanding with them. By doing this, they deprived the retail individual investors (RIIs) of their legitimate share in the allotment in the IPOs and made unlawful gains of Rs22.39 crore to the detriment of the RIIs. The noticees, therefore, manipulated the demand for shares in the RII category of IPOs and distorted the market integrity. I, therefore, conclude that the noticees employed fraudulent, deceptive and manipulative practices to corner the shares meant for RIIs in 12 IPOs stated in tables above, and made unlawful gains by selling the shares so cornered."

After completing the investigation, SEBI issued five separate notices to the companies named above. In the show-cause notices (SCNs), it was alleged that the noticees acted as financiers to two key operators (KOs), namely, Roopalben Panchal (Roopal) and Sugandh Estates and Investment Pvt Ltd (SEIPL) to enable them to apply for shares in the retail category in 12 IPOs. The companies were IL&FS Ltd (ILFS), IDFC Ltd (IDFC), FCS Software Solutions Ltd (FCS), Gateway Distriparks Ltd (Gateway), Shoppers Stop Ltd (Shoppers), Datamatics Technologies Ltd (Datamatics), Nandan Exim Ltd (Nandan), Yes Bank Ltd (YBL), SPL Industries Ltd (SPL), National Thermal Power Corp Ltd (NTPC), Dishman Pharmaceuticals Ltd (Dishman) and Tata Consultancy Services Ltd (TCS).

In the mean time, Tauras, Excell, Seer and Sujal amalgamated with Zenet in terms of a scheme of amalgamation approved by the Gujarat High Court.

It is alleged that the KOs transferred the shares received on allotment in these IPOs to the demat accounts of the noticees. They either transferred the corresponding refunds received from the issuers to the noticees or retained the same for making applications in the subsequent IPOs. Thus, the noticees, in collusion with the KOs, employed fraudulent, deceptive and manipulative practices to corner the shares meant for retail individual investors (RIIs) in 12 IPOs. They collectively made an unlawful gain of Rs21.94 crore on sale of the shares so cornered.


Heavy mettle: Here come the Russians!

Russian steelmakers are eyeing the Indian market. Top Russian steelmakers like MMK are interested in joint ventures with Indian companies

Russian companies plan to prove their mettle in the Indian steel market. Major Russian steel companies including Magnitogorsk Iron & Steel Works (MMK) are looking for joint ventures in the country.

MMK, one of the largest enterprises in the Russian steel sector, is already on the lookout for an Indian steel company for a joint venture. Novolipetsk Steel, Severstal Russian Steel and the Evraz Group are the other major steelmakers in Russia.

Severstal is Russia’s largest steel producer. Certain sections of the media have said that Severstal plans to sell one of its units in Italy to Tata Steel or ArcelorMittal. In 2005-06, the same company was looking for a partnership with Arcelor, while Arcelor later partnered with Mittal Steel.

The Evraz Group has a strong presence across the various verticals of the steel & mining businesses in Russia. In FY2009, the group’s crude steel production was 15.3 million tonnes (MT).

Novolipetsk Steel is among the four largest steel companies in Russia. The company recorded 10.6MT steel production and sales in FY2009. For 2010, the company’s total crude steel production is expected to grow 10% year-on-year to over 11.6MT. No definite Indian company has been identified for the joint venture.

However, these companies are believed to be looking out for end-to-end steel companies, not just steel product suppliers. Most end-to-end steel companies in India belong to big corporate houses and may not be willing to enter into a joint venture with another player. Thus it remains to be seen if the Russians succeed in finding Indian partners.


In the doldrums

As we have been predicting, the market will continue to hover around 17,600. Keep an eye out for global cues and domestic profit-booking for any possible dips

The market was sluggish on the rollover of the derivatives position from the April 2010 to May 2010 series by traders ahead of the expiry of the near-month April contracts. The Sensex was down 54 points (0.3%) at 17,690 and the Nifty ended 14 points lower (0.26%) at 5,308. The market was on an upswing in the early trading session, touching the intraday high of 17,769.25. However, it slid from there and traded in a narrow range with a negative bias.

Asian stock markets declined on Tuesday after a directionless day on Wall Street on Monday and as commodity prices declined. Key benchmark indices in China, Hong Kong, Indonesia, South Korea, Singapore and Taiwan fell by 0.14% to 2.07%. Japan’s Nikkei rose 0.42%. South Korea’s economic growth accelerated more than estimated in the three months through March 2010. Gross domestic product increased 1.8% in the first quarter.

Most US stocks edged lower on Monday largely due to decline in banking shares on fears that the financial reform package making its way through Congress will curb profits, but Caterpillar’s strong results buoyed the Dow. The Dow Jones Industrial Average edged up 0.75 points (0.01%), to close at 11,205. The S&P 500 dropped 5 points, (0.43%) to 1,212. The Nasdaq lost 7 points, (0.28%) to 2,523.  

Closer home, the trade mister said that there is no need for the Reserve Bank of India (RBI) to intervene and stem rupee appreciation. The bond market welcomed the announcement of the launching of the new 10-year bond. With the current 2020 bond losing popularity, the new bond cheered the market.

Foreign institutional investors were net buyers on Monday of Rs234 crore. Domestic buyers were net sellers of Rs73 crore. The rupee pared its losses against the dollar. The US Democrats were three votes short in the 100-seat Senate, preventing them from introducing a Bill which would have stopped banks from trading in unrelated instruments with clients and which would have devised a new process for dismantling troubled financial firms. The Bill was supposed to take action against the unregulated derivatives market, which had triggered the 2008 financial meltdown. US treasury secretary Timothy Geithner said on Monday that there is a recovery in the job market. However, he conceded that Americans still face difficult economic conditions. 

Jay Shree Tea & Industries (up 0.23%) has acquired three tea gardens in East Africa.  Autoline Industries (down 0.7%) has revised the terms and conditions of its stock-purchase agreement of 9 May 2007 with the CEO and the promoters of DEP Autoline, USA (DEP), by entering into a supplemental agreement, by which promoters of DEP will increase their stake from 49% to 60%. Shree Renuka Sugars (down 1.5%) posted a growth of 380% and 267% in sales and operating profit respectively in the March quarter, over the year-ago period. ONGC (up 2.8%) has added 83 million tonnes (MT) of oil & gas reserves in the fiscal year ended March 2010, the highest in two decades, even as production was lower than the target. Tech Mahindra (down 2.2%) and Wipro (down 0.2%) are reportedly in discussions with Telecom Corp, New Zealand’s biggest phone firm, for a contract potentially worth up to $1billion. SpiceJet (up 2.9%) which plans to raise $75 million through a share-sale, has received responses from half-a-dozen institutional investors for a possible investment. Punj Lloyd (up 0.2%) plans to divest part of its holding in unit Punj Lloyd Engineering, and is hoping to rope in an equity partner for the unit. Retail store operator Trent (down 0.9%) has decided to raise Rs500 crore by issuing shares to existing shareholders on a rights basis.


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