SEBI has been clamping down on entities that have illegally raised money from the public. On a preliminary examination, the market regulator found that the issue was related to private placement of securities by Kolkata Weir
Market regulator Securities and Exchange Board of India (SEBI) has Kolkata Weir Industries (KWIL), its promoters and directors from raising money by issuing securities.
SEBI, citing the Sahara case and the Supreme Court's order in this regard, said Rs47.9 crore raised by Kolkata Weir from over one lakh investors amounted to a public offer and not a private placement.
"... KWIL is prima facie engaged in fund mobilising activity from the public, through the 'offer of redeemable preference shares,' which is a public issue made to 50 persons or more," the market regulator said in an order on 14th August.
SEBI has directed KWIL and its directors and promoters "not to collect any more money from investors through issuance of securities in any manner." This includes, Sahajahan Khan, Samsul Alam Khan, Ram Krishna Mondal, Prabir Haldar, Ratan Kumar, Ajay Kumar Srivastab, Selim Laskar, Lukaman Ansari, Chandan Chowdhury, Sahajamal Khan and Lakshmi Kanta Gayen.
The company has been barred from disposing of any of its properties without prior permission from SEBI. It also cannot divert any funds raised from the public, which are kept in bank account(s) and/or in the custody of KWIL, the order said.
SEBI noted that although the 'offer of redeemable preference shares' was stated to have been made on a private placement basis, "yet, through the same offer, KWIL had approached 105 lakh investors and mobilised funds amounting to Rs47.90 crore."
Since KWIL made the offer to 50 persons or more, the offer qualified as a public issue and had to be listed on a recognised stock exchange.
Indian Bullion Market Association-IBMA set up by NSEL, was also a member of the Exchange. IBMA has reportedly invested Rs1,200 crore in NSEL and the commodities market regulator has asked the Exchange to stop paying any dues to 146 shareholders of the Association without its permission
Commodities market regulator Forward Markets Commission (FMC), which is charged with supervising the handling of payment crisis at National Spot Exchange Ltd (NSEL), has found that Indian Bullion Market Association (IBMA), one of the members of the Exchange, has reportedly invested Rs1,200 crore in the NSEL ready-forward product. IBMA is an NSEL group company.
According to a report in The Times of India, the Association has facilitated a significant chunk of trades on NSEL, thus exposing risks in regulator architecture and raising possible conflict of interest. Moneylife had sought clarity about the role of IBMA in an interview with the top brass of NSEL some time ago. We had asked how IBMA was called an association, a term used by trade and industry lobbies, usually conceived as societies or non-profit companies. NSEL had replied that IBMA was called an 'Association' because it was promoted by NSEL “in a cooperative structure along with various stakeholders such as small jewellers and bullion traders, with an aim to work as an aggregator.” Please the read the whole interview here
NSEL had argued that IBMA, a member of NSEL, “has around 130 bullion dealers and jewellers from across the country as its shareholders. In addition to making representations on behalf of physical market participants, policy makers and market linkages services, IBMA also offers various services to its members such as sourcing of material, clearing and forwarding (C&F)."
According to the top management, IMBA was setup to represent matters relating to bullion trade and industry on the physical side, before various authorities and ministries, who are involved in policy formulation. This role has now been extended to agriculture-based commodities. The futures market’s views regarding policy formulation are being represented by several national and regional level commodity exchanges. It, however, lacked adequate representation by physical market participants (to which futures market is an adjunct). Due to this gap, physical market participants did not have enough say in policies formed by state governments, warehousing regulators and ministries related to commodities.
Shreekant Javalgekar, managing director and chief executive of Multi-Commodity Exchange Ltd (MCX) was also on IBMA board until recently. NSEL holds a 74% stake in IBMA, while the remaining shares are held by bullion traders, the Times report added.
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Following a complaint by a former chief executive of High Mark, the Vigilance Commission asked RBI for a factual report on granting licence to the credit bureau
The Central Vigilance Commission (CVC) has sought a factual report from the chief vigilance officer (CVO) of Reserve Bank of India (RBI) in granting licence to troubled and cash strapped High Mark Credit Information Services Pvt Ltd (High Mark).
This follows a complaint from Ajay Kohli, former chief executive of High Mark, who earlier tried to raise the issue of violation of Credit Information Companies Regulations (CICR) Act, 2005 (CICRA) as well as Companies Act, while appointing Prof Dr Anil Pandya as executive chairman of the credit bureau.
The issue was first raised by Siddharth Das, former chief operating officer (COO) of High Mark, before the company board. But the High Mark board apparently ignored it. Subsequently, Das sent a legal notice raising this issue.
According the complaint filed by Kohli to the CVC, Dr Pandya, a US citizen promoted High Mark while being a full time professor employed at that time with North Eastern Illinois University at Chicago.
"He (Dr Pandya) did not bring any significant equity (his cash contribution to the equity capital of high mark is only Rs10 lakh) or any expertise in management of credit information bureaus, yet he was granted a license by the RBI. It is to be noted that large domestic or global corporations with relevant experience promoted the other three bureaus while Dr Pandya had no prior experience in managing a business let alone a credit information bureau," Kohli said in his complaint.
Dr Pandya has an employment contract with High Mark under which he was to devote his full time for the services of the company and was paid a salary of Rs60 lakh per annum. "However," Kohli said, "over and above this, he was also entitled to a huge sum of money (Rs12.5 million or about $230,000) towards 'procurement of the in–principle license from RBI' (clause 4(b). Further payment of Rs30.25 million (around $560,000) was also made to him under clause 4(c)."
"It is evident that payment of this huge sum of money was directly or indirectly towards 'costs' of procuring the license which means that either the license has been procured by Dr Pandya through corrupt means or he has siphoned off this money from High Mark under the pretext that this money was needed to be paid to someone. In either case, he is guilty of corrupt and criminal offences," Kohli alleged in his letter.
According to the former chief executive of High Mark, since the reputation of the RBI was at stake, he think it was imperative that the CVC immediately investigate as to why this payment was made for acquiring a license from the RBI which is done in the normal course of business if the applicant is eligible?
"Who were the real beneficiaries and whether there has been any irregularity in grant of this license to High mark. This is also a matter of concern as the funds belong to the shareholders of High Mark who are public sector banks, including State Bank of India (SBI), Punjab National Bank (PNB) and SIDBI," Kohli asks.
High Mark never appointed Prof Pandya on a full-time basis. The prefix ‘Executive’ before chairman was supposed to give the impression that he is a full-time employee in the nature of a CEO. Even as Dr Pandya continued to work on a part-time basis, the credit bureau also did not appoint any whole-time director or managing director. This clearly violates Regulation 9 (2) of the CICRA for which the board should be made responsible.
On 4 October 2012, High Mark’s former COO, Siddharth Das, sent a legal notice to the company demanding his dues. He also alleged serious violation of the CICR Act in the appointment of Prof Pandya as executive chairman.
Following the notice, Kohli, High Mark’s the then chief executive sent an email on 18 December 2012 to the company’s board of directors urging to deliberate in the alleged violation of CICR Act and Companies Act. “It is evident that Prof Dr Pandya was never appointed on a whole-time basis and continues to work on a part-time basis. As the company does not have any other whole-time director or managing director, regulation 9(2) seems to have been clearly violated. Das has already threatened to take this issue to Court as well as the RBI. Even if he does not, I feel it is my professional and moral duty to point out the illegality being committed by the Company to the Board for appropriate action to remedy the violations,” Kohli said in his email to the Board.
He said, “…there are only two options to cure the illegality for the future. Either Prof Dr Pandya should resign from the position of Executive Director or the Board should appoint a whole time director. This needs to be done as soon as possible. Otherwise, the RBI License would be under threat of cancellation/suspension. Legal advice should be sought as to the action to be taken for the past non-compliance.”
As per Regulation 9(5), the Reserve Bank of India (RBI) can supersede the company board for failing to follow Regulation 9(2) and also may cancel or suspend licence of High Mark. But so far nothing of this sort has happened.
One of the independent directors of High Mark was Vepa Kamesam, a former deputy governor of the RBI. In December 2012, he resigned from the High Mark board. Mr Kamesam was one of the four directors who along with Dr Pandya received 70% of the employee stock ownership plan (ESOP). Mr Kamesam was allotted 1.63 lakh shares in the credit bureau as ESOPs.