SEBI imposes Rs20 lakh fine on Biren Shah in IPO fraud case

SEBI said Biren Kantilal Shah made a total ill gotten gain of Rs24.10 lakh while dealing as key operator in the IPOs of Suzlon Energy and IDFC

Mumbai: Capital market regulator Securities and Exchange Board of India (SEBI) has imposed a penalty of Rs20 lakh on one Biren Kantilal Shah for his alleged fraudulent trade practices in intial public offerings (IPOs) of Suzlon Energy and Infrastructure Development Finance Co Ltd (IDFC) in 2005, reports PTI.


SEBI said Shah acted as a "key operator", in concert with certain other entities and was involved in the scheme of cornering of shares in the IPOs.


"It is observed on the basis of investigation report that Biren Kantilal Shah made a total ill gotten gain of Rs24.10 lakh while dealing as key operator," SEBI said in an order dated 18th December.


SEBI said Shah "had indulged in fraudulent and manipulative activities and employed deceptive device and scheme to corner the shares reserved for retail individual investors in the aforesaid two IPOs with the intention to defraud retail individual investors".


The case relates to a SEBI probe in shares of certain companies during their IPOs between 2003 and 2005 wherein it was found that certain entities had opened large number of demat accounts and bank accounts which were in the names of fictitious persons or were benami.


The entities had acquired shares of various companies in the IPOs by making applications in fictitious names with each application being of a value so as to make it eligible for allotment under the retail category.


Following the allotment, the shares from such fictitious allottees were transferred in the demat account of key operators like Shah before the listing on stock exchanges, SEBI said.


The key operators then transferred the shares through off market deals to certain entities called the "financiers".


SEBI said it noted that in some cases the key operators retained a portion of shares for themselves which were then sold in the market, earning them huge gains illegally.


As per SEBI, the scheme was designed to corner shares from the quota reserved for retail investors in the IPOs of various companies and to make profit by selling the shares.


In August 2010, SEBI had directed Shah to disgorge an amount of Rs30.61 lakh which included the Rs24.10 lakh gains he allegedly made through the illegal trading IPO shares.


Thereafter, SEBI had imposed a penalty of Rs5 lakh on Shah for his failure to disgorge the said amount.


Midcap crash: SEBI relief to six companies, bar against two to continue

The companies which got relief from the ban are -- A to Z Steels, GN Credits, Premium Hospitality Services, 4a Financials Securities, Venus Infosoft and Neelanchal Mercantile

Mumbai: Market regulator Securities and Exchange Board of India (SEBI) revoked its earlier order barring six entities which were initially found involved in the share price plunge in some mid-cap stocks, including Parsvnath, Tulip Telecom and Pipavav Defence, reports PTI.


However, the board continued its gag order against two companies - Gajria Jaayna Precision Industries and Passion System Solution -- passed on 3rd August by confirming their suspension from trading after finding "prima facie" evidence against them.


The companies which got relief from the earlier securities market ban are -- A to Z Steels, GN Credits, Premium Hospitality Services, 4a Financials Securities, Venus Infosoft and Neelanchal Mercantile.


"In view of the foregoing, I, in exercise of the powers conferred upon me... hereby confirm the directions issued against Gajria Jaayna Precision Industries and Passion System Solution and revoke the directions issued against A to Z Steels, GN Credits, Premium Hospitality Services, 4a Financials Securities, Venus Infosoft vide ad-interim ex-parte order on 3 August 2012," said SEBI in an order passed by its wholetime member RK Agarwal on 19th December.


Passing a separate order, SEBI also revoked ban against Neelanchal Mercantile.


Meanwhile, the board made it clear that investigation in this issue is still going on and SEBI may take a final view and necessary actions after that.


Regarding the six entities, SEBI observed that at this stage, the case has not been made out that their trades were part of any alleged plan and the investigation in the matter was still in progress.


"It is noted that the notice has already undergone restraint for more than four months pursuant to the interim order. In my view, in the facts and circumstances of the case, the balance of convenience is in favour of the A to Z, GN Credits, Premium, 4a Financials' and Venus at this stage," said SEBI.


However, regarding the two entities, SEBI said, "Gajria and Passion have not been able to make out a prima facie case for revocation of the interim order as against them and the material available on record justifies the continuation of the directions passed against 'Gajria' and 'Passion' issued under the ad interim ex-parte order dated 3 August 2012".


Passing an interim order on 3 August 2012 SEBI had barred 19 entities from the securities market after an initial probe into share price plunge in some mid-cap stocks, including Parsvnath, Tulip Telecom and Pipavav Defence.


The entities were restrained from accessing market and prohibited from buying, selling or dealing in securities in any manner whatsoever included 4a Financials Securities, A To Z Steels, Ajit Kumar Jain, Cheminare Trade Comm, GN Credits, Gajria Jayna Precision Industries, Kuvam Plast Pvt Ltd, Littlestar Vanijya Pvt Ltd, Manish Agarwal and Milestone Shares & Stock Broking Pvt Ltd.


The others among the 19 barred entities include Neelanchal Mercantile Pvt Ltd, North Eastern Publishing & Advertising Co, Passions System Solution, Premium Hospitality Services, Ramkripa Securities, Umang Nemani, Venus Infosoft, White Horse Trading Co and Yashika Holding Pvt Ltd.


The matter relates to a sharp plunge of 20-26% in the shares of Parsvnath Developers, Pipavav Defence and Offshore Engineering, Tulip Telecom and Glodyne Technoserve on 26th July at the BSE and NSE.


SEBI in its interim order had said that a sharp downward movement was noticed in these stocks between 0915 and 0949 hours on that day. These stocks witnessed sharp intra-day price volume movement on both BSE and NSE on 26th July, although no major corporate announcements or price sensitive information was disclosed to the exchanges by these companies during previous 15 days.


After analysing the trading activity of major clients, NSE and BSE found that some of these clients were not only common across these scrips but they also traded on both the exchanges.


A further probe into the matter found that the top identified clients whose sell volume constituted a significant share of the total sale transactions in these stocks accounted for up to 95% of the total sale transactions.


SEBI had said the analysis of trade data showed that these traders were instrumental in pushing down the prices of the concerned stocks, as they were observed to be placing the sell orders below the best sell prices as well as the best buy prices available on various occasions.


Also, during the day, many entities related to the some of the traders were top net sellers in these scrips.


The regulator further said relationships have been established among some of the clients as per information available in its surveillance system, KYC details available with the stock exchanges, MCA databases and other publicly available sources.


Poor show of PFC tax-free bonds is a hurdle for the deluge of new offerings about to come

PFC bonds, offering 7.86% tax-free, have managed to get only Rs497 crore till one day before the issue closes. This is much below the Rs1,000 crore issue size and no where close to Rs4,590 crore that it wants to mop up by the end of the financial year. Find out what is going wrong

Power Finance Corporation (PFC) has launched its public issue of secured, redeemable, non-convertible tax-free bonds at an interest rate ranging from 7.69%-7.86% per annum (p.a.) for 10 and 15 year terms for retail investors. Non-retail investors will get 0.5% p.a. less. Both retail and non-retail categories are struggling to entice investors. The issue has opened on 14th December and will close on 21st December.



Subscription (in crores)

Issue reserved (in crores)

Category-1 (Qualified Institutional Investors) – 30%



Category-2 (Non Institutional Investors) – 15%



Category-3 (High Net Worth Individuals) – 15%



Category-4 (Retail Investors) – 40%



Subscription details at the end of 20th December


The PFC issue of Rs1,000 crore has option to retain an oversubscription up to the shelf limit of Rs 4,590 crore. It has managed to get only Rs497 crore till one day before the issue closes. This is much below the Rs1,000 crore issue size and no where close to Rs4,590 crore that the company wants to mop up by end of financial year. It means there will be future tranches from PFC to compete with tax-free bonds from other companies.


PFC tax-free bond offering is as follows -


10 year PFC bond

15 year PFC bond

Face value



Minimum application

5 bonds (Rs5,000)

5 bonds (Rs5,000)

Interest coupon for RII



Interest coupon for others



Interest payment option



Credit rating

AAA by Crisil, CARE, Icra

AAA by Crisil, CARE, Icra

Demat and Physical

Both options available

Both options available

Individual investment up to Rs10 lakh will be considered as retail application


Last fiscal, PFC raised Rs5,000 crore through the public issue of tax-free bonds with coupon rate of 8.2%-8.3% for 10 and 15 years term, respectively. Buoyed by the triumph of raising Rs30,000 crore last year, the government decided to issue Rs53,500 crore this year. The success of last year does not seem to be working so far.


Here are the possible reasons for lacklustre performance of tax-free bonds till now -


  • Last year only REC, IRFC and Hudco bonds had a step-down clause. All the tax-free bonds this year will come with the step-down feature. The rate will go down by 50 basis points automatically once the individual investor sells the bond in the secondary market. The flip side is that the seller will have to offload bonds at a little discount. The step-down feature is obviously, to encourage real investors to subscribe for the issue, instead of someone trying to make a quick buck, by swiftly selling it in the secondary market.
  • The coupon for this year has not broken the psychological barrier of 8% tax- free. Non-retail investors were getting 8.1%-8.2% coupon last year, but are offered only 7.19%-7.22% coupon this year. It has made a big difference in non-retail participation.


  • The intermediary commission has been reduced this year. It is kept minimal for non-retail investors. NHAI was the most successful bond issue last year. It received Rs25,000 crore for its bond offering of Rs10,000 crore. For some reason, last year NHAI was offering same intermediary commission for retail and non-retail subscription. The correlation is obvious.


  • Instead of approving the bond issues earlier in the financial year, the government approved it too late. In the next three to four months, ten companies will be competing to grab investor money. With less than Rs3,500 crore raised by REC and PFC combined, it will be a herculean task to raise another Rs50,000 crore at a time when interest rates are expected to fall. With lower coupon bond issues coming in Jan-Mar 2013, it will be even more difficult for companies.

India Infrastructure Finance Company (IIFCL) bond issue will remain open from 26th December 2012 to 11th January 2013. The company is planning to raise Rs1,500 crore with a green-shoe option up to the shelf limit of Rs9,215 crore. It is proclaiming to offer a rare opportunity to invest for up to 20 years in tax-free bonds at 7.90% coupon for retail investors. No other company is allowed to offer 20-year bonds in the current financial year.


Name of Company

Bond Issue Size in Rs crore

NHAI (National Highways Authority of India)


IRFC (Indian Railway Finance Corporation)


IIFCL (India Infrastructure Finance Company)


HUDCO (Housing and Urban Development Corporation)


NHB (National Housing Bank)


PFC (Power Finance Corporation)


REC (Rural Electrification Corporation)


Jawaharlal Nehru Port Trust


Ennore Port


Dredging Corporation of India


Ten companies authorised to issue tax-free bonds this fiscal.


The interest from these bonds is tax-free to investors. Today, it is difficult to get more than 9%p.a for long-term fixed deposits (FDs) from banks. Those earning more than Rs10 lakh annually are in the highest tax bracket (30%). This means that effective post-tax return from long-term FDs is only 6.3%. ‘AAA’ rated tax-free bonds giving 7.86% are a much better option. Yet, the interest is subdued as compared to last year. It could be that investors have not warmed up to the series of tax-free bonds issues or they don’t find it as much attractive as last year. The coupon for this year has not broken the psychological barrier of 8% tax-free.


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