Market regulator Securities and Exchange Board of India (SEBI), in an interim order-cum-show-cause notice, has barred Essel group company, Shirpur Gold Refinery Ltd, its promoter Amit Goenka, who is the son of the group chairman Subhash Chandra Goenka and six others, from selling, disposing of or diluting their shareholding in the company, for misrepresenting the company's financial statements and diverting its funds.
SEBI had received a complaint alleging that the loans taken by Shirpur Gold from banks and financial institutions had not been used for the operations of the company but, instead, were siphoned off to companies under the control of Subhash Chandra and his family. It was also alleged that Shirpur Gold was not informing public shareholders about its operations.
In an order, Ashwani Bhatia, whole-time member (WTM) of SEBI, says, "What has been observed during the investigation of Shirpur Gold is a set of dodgy transactions that are meant to mislead. We have a curious case of one promoter-connected entity taking another entity from the same arrangement into bankruptcy, effectively taking it to the gallows or cleaners to take benefit of bankruptcy provisions. It is unusual to see a corporate sibling taking one of its own down this path. Shirpur Gold shot itself in the foot and self–destructed through its own well–orchestrated machinations. It is also noted that many of the companies within the Essel group are the subject matter of disputes as per publicly available information."
"...after being cognizant of the fraudulent manner in which the noticees have conducted their affairs to misrepresent Company's financial statements and to divert its funds or assets, in flagrant violations of all canons of corporate governance, in order to protect the interests of shareholders of the company and that of other investors and the integrity of the securities market...noticees 2 to 8 are hereby directed not to sell, dispose of or dilute their shareholding in the Company, held directly or indirectly through family members or through companies in which they or their family members are directors, till further orders," the WTM says.
The noticees are Shirpur Gold Refinery Ltd (noticee no1), Amit Goenka (noticee no2), Mukund Galgali (noticee no3), Vipin Choudhary (noticee no4), Dineshkumar Kanodia (noticee no5), Sharvan Kumar Shah (noticee no6), Ashok Sanghavi (noticee no7) and Jayneer Infrapower And Multiventures Pvt Ltd (noticee no8), which is the promoter of Shirpur Gold with 43.66% stake. Amit Goenka and Punit Goenka held a 48.80% stake each in Jayneer Infrapower.
Shirpur Gold was listed on BSE in FY85-86 and on the National Stock Exchange (NSE) in FY2000-01. However, for non-payment of listing fees, the scrip is suspended for trading on both exchanges. In February 2020, Shirpur Gold's stand-alone operations were suspended.
Underscoring that, for a company with paid-up capital of only Rs29.13 crore, the promoter had pocketed Rs20.01 crore by the sale of shares, which is almost 68.70% of the Shirpur Gold's initial paid-up capital, which the promoter received through the sale of 23.08% of the company's shareholding. SEBI says that the facts and circumstances present a strong likelihood that the notices, unless expressly prohibited, could perpetuate their designs by indulging in such malpractices in other listed entities, which would prima facie be detrimental to market integrity and investors' interest.
In its examination report on 19 July 2021, NSE observed that Shirpur Gold carried out planned transactions with connected entities. "Almost 100% of the company's debtors were connected to the Company or promoter family of the company. The debtors or connected entities were also found to have not filed or disclosed their financials. The connected entities had initiated insolvency proceedings against the major debtors."
After receiving the report, SEBI asked KPMG Assurance and Consulting Services LLP to conduct a forensic audit of Shirpur Gold.
The WTM also observed that the sale transactions of Shirpur Gold with Altarex Traders Pvt Ltd, Balmukh Goldjewel & Multitrading Pvt Ltd and Magicstone Traders Pvt Ltd, which are promoter-connected entities and debtors, the subsequent filings in the Insolvency and Bankruptcy Code (IBC) against these debtors coupled with diversion of funds from these debtors to the promoter of Shirpur Gold and other promoter connected entities were part of an elaborate scheme orchestrated by the promoter of Shirpur Gold to divert assets of the company to the promoter and its related entities.
Further, asserting that Shirpur Gold also failed to report to its shareholders that it was not a part of the IBC process against Altratex, even when provisions had been fully made in this regard, SEBI opines that the published financial statements of the company failed to provide a true and fair view of its financials, and were manipulated financial statements.
The market regulator also emphasised that it is the duty and responsibility of the directors to ensure that proper systems and controls are in place for financial reporting and to monitor the efficacy of such systems and controls, and that directors are expected to exercise the powers in a bona fide manner and in the interest of all stakeholders of the company.