Stock Manipulation
Stock manipulation: Jyoti Resins & Adhesives

Jyoti Resins & Adhesives shot up by 954% from January 2015 to March 2016. Is anybody keeping an eye on such rampant manipulation?

 

Jyoti Resins & Adhesives produces synthetic resin adhesives for application on wood, under the brand name EURO 7000. The Ahmedabad-based manufacturer reported a total turnover of Rs38.97 crore for the year ended December 2015, up 68% from Rs23.19 crore for the same period a year ago. Sales may have improved in the past few years, but this has failed to translate into bottom-line growth. Over the same period, Jyoti Resins reported a net profit of Rs65 lakh (CY2015) and a loss of Rs37 lakh (CY2014). In May 2015, the promoters pledged nearly their entire stake, 35% of the total shareholding, to Kalupur Commercial Co-operative Bank for a loan. Coincidentally, since then, the share price price has moved up substantially. In March 2015, Jyoti Resins had total debt-to-equity ratio of 2.20 times. Despite high debt and weak financials, with about 1,400 shareholders, the stock price of Jyoti Resins shot up by an eye-popping 954%, or nearly 11 times, in just over a year to Rs102.25 on 16 March 2016 from Rs9.70 on 1 January 2015. The stock is quoting at a price-to-earnings of 59 times. Who is involved in this blatant price-rigging? In April 2003, the promoters were debarred from the capital markets for manipulating the price of Jyoti Resins. However, the debarment was just for a period of one year. Thanks to lax regulations, price manipulators are at it again.

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Private Bankers Are Public Servants, decrees the SC
There were anomalies between the two statutes which the SC has now clarified. This has huge implications for banks, regulators and consumers.
 
While IDBI Bank’s officers may launch an agitation to demand that government holding remains above 51%, the accountability of private bankers has been tightened significantly by a landmark judgement of the Supreme Court of India (SC). The case pertains to the Ketan Parekh scam that saw the collapse of Global Trust Bank (GTB). It is well documented that Ramesh Gelli, then a high-flying banker, was close to most of the scam-accused and the corporates which colluded with him. The egregious flouting of lending norms in order to bail out Ketan Parekh  destroyed GTB’s finances.
 
Investigations had shown that GTB lent money to corporate houses and allowed the funds to be transferred to Ketan Parekh via multiple transfers in a single day. While the details of the case are forgotten by the public and the corporate houses involved got away with their collusion, it is judicial orders that make us realise how and why cases drag on for decades. In GTB’s case, the Reserve Bank of India (RBI) quickly covered up its regulatory failure and avoided massive losses to depositors and shareholders by forcing a merger between GTB and a reluctant Oriental Bank of Commerce (OCB) in 2004. 
 
Mr Gelli and company almost evaded accountability by taking advantage of a loophole. Twelve years later, the SC has ruled that Mr Gelli, the Bank’s executive director, Sridhar Subashri, and others were public servants under the Prevention of Corruption Act (PCA) and are liable to be tried under its stringent provisions. In doing so, the SC bench of Justices Ranjan Gogoi and PC Pant, in separate but concurring orders, overturned a Bombay High Court judgement which had let them off because of a serious omission in a legal amendment. 
 
The apex court decided to go into the legislative intent in amending the PCA, which was to “make the anti-corruption law more effective and widen its coverage” by expanding it to cover whole-time “chairman, managing director, director, auditor, liquidator, manager and any other employee” for the purposes of Chapter IX of the Indian Penal Code (45 of 1860). 
 
Poor attention to detail by the law ministry meant that changes in the Indian Penal Code, in line with changes to the PCA, were not accompanied by a simultaneous amendment to Section 46A of the Banking Regulation Act (BRA). The SC order, in dealing with this omission said, “Section 46-A of Banking Regulation Act, 1949, cannot be left meaningless and requires harmonious construction.” Pertinently, the substance of Section 46A would not be defeated merely because the Prevention of Corruption Act deleted a few Sections from the Indian Penal Code without making corresponding changes to the BRA.
 
Sherbir Penang, a lawyer who specialises in white-collar crime and criminal compliance, says in his blog that the SC order “comes against the backdrop of India battling a major non-performing asset crisis, where several banks have been accused of sanctioning loans without following due process. It is highly likely (and hoped) that law enforcement will explore the ‘quid pro quo’ angle more seriously now that private bank officers can be charged with the PCA.” Following the judgement, Mr Penang says, “Officers of private banks must understand the nuances of criminal liability that the PCA would cast on them, which is a considerable departure from the earlier substantive position of the law.” In Ramesh Gelli’s case, the matter goes back to the trial court after SC’s clarification on the conflict between provisions of the PCA and BRA. However, the significance of the judgement lies in its timing, when bad loans of several large industrialists are set to come in for deep scrutiny. Will the government actually use PCA for cases like Kiingfisher, Bhushan Steels, Winsome Diamonds, etc?
 

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COMMENTS

Zakir Hussein Inamdar

11 months ago

It is good that private bank official are covered under the the status of public servant but what about the co-operative banks more particularly multi-state co-op banks where corrupt directors and officials are looting without any problems as there is no stringent laws which makes banks weak thereby putting thousands of employees' jobs at risk apart from the money deposited by public more particularly Sr.citizens.

Mahesh S Bhatt

11 months ago

Excellent Show Sherbir Penang, a lawyer catch more white-collar crimes and criminal compliances.

God Bless Amen

Mahesh

Mohan Damodaran

11 months ago

Thanks to social media and greater public awareness our banking systems public or private are increasingly being made accountable.However working of one public institution SEBI still appears hush hush operating from behind the ivory towers of rich and powerful corporate caring a damn for retail investors.SEBI orders on insiders trading takes decades while the Rajat Gupta's case timeline from start to end of prison term was over in just 4-5 yrs!When can we expect our regulators too to be accountable to retail investors?



Gopalakrishnan T V

11 months ago

This article is well intended and carries lot of messages to correct the wrongs by the powers that be in abusing and misusing the powers taking advantage of the technical loopholes found in the interpretation of different acts. The Supreme Court has done a wonderful job in correcting the lapses observed in different acts and their applicability to private sector Undertakings. Mr Gelli played havoc and took the GTB bank depositors and shareholders for a ride and the Supreme Court's verdict finding him guilty in terms of the Provisions of PCA and BRA is a message for all to be careful in dealing with public money whether they are serving in Government or in private sector. However, the author is not fully right in saying that RBI as regulator covered up its regulatory failures and avoided losses to depositors my forcing the GTB's merger with the Reluctant Oriental bank of Commerce. In fact RBI has done its best to protect the banking system by eliminating the wrong doer and avoiding the systemic risk the GTB could have done had it been allowed to continue with all its irregularities and staggering bad assets. RBI is one of the strong Institutions the Country has produced and this has been recognised all over the world. RBI is also functioning in a weak Governance system the Country has in general and RBI has autonomy only on paper and not in Practice. There are two Nominee Directors on RBI's Board from the Central Government and RBI can be easily dictated by the Government. Even the pension updation agreed to by the Government way back in 1990 has not been implemented as on today is the reality. All said, the financial system in general and banking system in particular continue to remain strong and the credit definitely goes only to RBI for its strong professional approach to carry out its defined functions as per the RBI Act, 1934 with all limitations known to all those who matter in the area of Economy, Finance, Judicial system and administration.

Gopalakrishnan T V

11 months ago

This article is well intended and carries lot of messages to correct the wrongs by the powers that be in abusing and misusing the powers taking advantage of the technical loopholes found in the interpretation of different acts. The Supreme Court has done a wonderful job in correcting the lapses observed in different acts and their applicability to private sector Undertakings. Mr Gelli played havoc and took the GTB bank depositors and shareholders for a ride and the Supreme Court's verdict finding him guilty in terms of the Provisions of PCA and BRA is a message for all to be careful in dealing with public money whether they are serving in Government or in private sector. However, the author is not fully right in saying that RBI as regulator covered up its regulatory failures and avoided losses to depositors my forcing the GTB's merger with the Reluctant Oriental bank of Commerce. In fact RBI has done its best to protect the banking system by eliminating the wrong doer and avoiding the systemic risk the GTB could have done had it been allowed to continue with all its irregularities and staggering bad assets. RBI is one of the strong Institutions the Country has produced and this has been recognised all over the world. RBI is also functioning in a weak Governance system the Country has in general and RBI has autonomy only on paper and not in Practice. There are two Nominee Directors on RBI's Board from the Central Government and RBI can be easily dictated by the Government. Even the pension updation agreed to by the Government way back in 1990 has not been implemented as on today is the reality. All said, the financial system in general and banking system in particular continue to remain strong and the credit definitely goes only to RBI for its strong professional approach to carry out its defined functions as per the RBI Act, 1934 with all limitations known to all those who matter in the area of Economy, Finance, Judicial system and administration.

REPLY

B. Yerram Raju

In Reply to Gopalakrishnan T V 11 months ago

There can be no two opinions on the ability of the RBI to counter the pressures of the super regulator, Government of India. This is one of the reasons for insisting on RBI taking primacy in FSLRC that has not been heeded.
It is strange that the Supreme Court should take so long to give clarification on the status of the public servants. Better late than never is the philosophy we contend with. The country on growth path cannot afford the luxury of leisure in judiciary. By law, the decisions from the Courts should be ordained to be faster. Second, all cases of economic offences that are easier to prove shall be settled in no more than three years so that the evidence does not get jeopardised.

MG Warrier

In Reply to B. Yerram Raju 11 months ago

FSLRC report was a conscious effort to weaken RBI. Recently, RBI Governor Dr Raghuram Rajan had suggested a ‘Traffic Signal’ approach to monetary policy by all central banks. In my article “FSLRC recommendations on RBI: Stop, look and proceed!” posted @moneylife.in on April 10, 2013, I had suggested a similar approach while considering FSLRC report.

B. Yerram Raju

In Reply to MG Warrier 11 months ago

Congratulations. I wish Rajan would be allowed a free hand to implement the Traffic Signal approach to Monetary Policy.

manoharlalsharma

11 months ago

all the regulators r to take permission for action against the all kinds of culprits because both culprit and regulators r Governed by Politicization and this section of society not littered in the subject material.

Simple Indian

11 months ago

When it comes to regulating, SEBI is among the most powerful bodies in India, but exercises its powers in the least productive ways. Instead of going after big guns who flout rules and cause massive losses to financial institutions, SEBI often ties itself up in petty issues of administrative nature. Neither RBI nor SEBI have ever stood up for millions of Banking or Retail investors' interests, making them either shun secondary markets or use other means of investments outside the purview of RBI/SEBI, such as real-estate, gold, etc.
Time to make our regulators accountable and more consumer/investor-friendly.

Parimal Shah

11 months ago

All this is fine but where is the money?
Our judicial system and democracy system may be desirable.
However, the results are disgusting.
In most of such white collar crimes the money is recovered (if at all) at the end. The right thing to do is to freeze the accounts while the case is decided.
This will automatically reduce interminable postponements (by petty excuses) of case proceedings by the people in the dock.

B. Yerram Raju

11 months ago

As long as Banks do business with public deposits, whether private or public sector, or cooperative sector, the officials involved are to be treated as public servants and the laws uniformly apply.

Law takes its course and its own course and now at its own pace too. Laws are constructed with such ambiguity in India that judges exercise the prerogative of interpreting them depending upon the knowledge of English, concurrent legal provisions of other laws that the lower courts are well within their right to ignore while passing the judgements. Unless there is time limit for any case to be adjudicated to its finality, the persons involved would suffer the agony in addition to the ignominy as long as the case runs. Quicker the cases are adjudicated quicker would be the prospect of exemplary punishments that would prevent others to follow suit in economic offences. Unfortunately in our country there is no economic offence that has been adjudged even in less than a decade unlike in the developed nations where the punishments would have run that much period within a year or less for settling on the issue.

S.S.A.Zaidi

11 months ago

Build a Strong Credit Culture is the lesson that needs to be learnt.What needs to be done vigorously is to
develop and sustain a strong credit culture, make savvy credit and risk management decisions, create profitable loan portfolios, and enhance their value proposition in a fiercely-competitive marketplace.

Babubhai Vaghela

11 months ago

Govt Initiate Criminal Prosecution of Rs 10 Crore RBI Fined Culprit Directors of ICICI Bank; HDFC Bank; Axis Bank for Money Laundering and KYC Violations.
https://groups.google.com/forum/#!searchin/right-to-information-act-2005/rbi$20kyc$20axis$20hdfc/right-to-information-act-2005/8ahrE6ZczWk/jV_1UELYYG8J
And, also Recover Fine of Rs 10 Crore from Directors of these Banks.

Babubhai Vaghela

11 months ago

Govt Initiate Criminal Prosecution of Rs 10 Crore RBI Fined Culprit Directors of ICICI Bank; HDFC Bank; Axis Bank for Money Laundering and KYC Violations.
https://groups.google.com/forum/#!searchin/right-to-information-act-2005/rbi$20kyc$20axis$20hdfc/right-to-information-act-2005/8ahrE6ZczWk/jV_1UELYYG8J
And, also Recover Fine of Rs 10 Crore from Directors of these Banks.

SuchindranathAiyerS

11 months ago

Does this mean that Private Bankers are freed of all accountability and entrusted with the sacred Constitutional task of fostering reservations, extortion and incompetence?

REPLY

Babubhai Vaghela

In Reply to SuchindranathAiyerS 11 months ago

In What Way Extortion a Constitutional Task?

MG Warrier

11 months ago

This is yet another occasion when one feels proud of being part of the efforts moneylife make to spread awareness about implications of legal decisions affecting financial sector. The judicial process and the law books passed on to us by the British have not, even after several decades of legislative action, undergone the kind of Indianisation needed to serve a growing economy like ours. If common man has to benefit from the several provisions of law intended to protect his interests, there has to be more transparency and speed in judicial procedures. In most of the court cases affecting financial interests of citizens, the legal battle is between the citizen on the one side and government or corporate body on the other side. Governments and corporates can fight endlessly using public funds(yes, for me the funds with corporates also come under the broad classification ‘public funds’). This results in prolonged litigations and sometimes even small issues reach the Supreme Court.
As regards the subject covered in this article, the differentiation between public sector and private sector banks for enforcement of laws like Prevention of Corruption Act by itself does not stand to reason. Both categories of banks in India mobilise resource from the same source (public deposits) and do business in similar areas/sectors.

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