The matter relates to CNE’s February 2013 IPO, in which the company allotted 46.86 lakh shares. SEBI had alleged that the IPO would not have achieved the minimum subscription requirement without funding provided to applicants by a group of connected entities. According to the order, the company raised ₹117.15 crore through the IPO, of which ₹114 crore was transferred to various entities, including ₹50 crore to entities belonging to the funding group.
SEBI alleged that CNE and its directors, in connivance with the funding group, had employed a scheme to ensure the successful subscription and listing of the IPO by directly or indirectly funding IPO applicants. Mr Dubey was identified as one of the funding group entities and was alleged to have funded applicants not only in the CNE IPO but also in two other IPOs.
According to SEBI, Magnum Industrial Corporation issued 20 cheques of ₹150,000 each, totalling ₹30 lakh, on behalf of 20 non-ASBA (application supported by blocked amount) retail investors who subsequently received allotments. These investors were allotted an aggregate of 120,000 shares. The order further notes that Magnum Industrial Corporation received ₹30 lakh from NV Sales Corporation, another proprietorship firm of Mr Dubey on 28 February 2013, which was allegedly used to fund the 20 IPO applicants.
During the proceedings, Mr Dubey denied any involvement in the alleged funding arrangement. He submitted that he had worked as a driver for the late Vijay Jindal and alleged that his credentials and documents had been misused to open and operate the proprietorship firms and bank accounts. He also claimed that there were no transactions between his personal bank account and Magnum Industrial Corporation or other entities connected with the IPO.
SEBI, however, rejected these submissions. The adjudicating officer noted that the ₹30 lakh transaction from NV Sales Corporation to Magnum Industrial Corporation was reflected in the bank statement provided to Mr Dubey during the proceedings. The order also observed that the allegations concerned funding through Magnum Industrial Corporation, rather than transactions in Mr Dubey’s individual bank account and, therefore, his contention regarding the absence of transactions in his personal account was considered out of context.
The adjudicating officer also noted that both the firms, Magnum Industrial Corporation and NV Sales Corporation, were proprietorship concerns standing in Mr Dubey’s name. SEBI observed that Mr Dubey had not claimed to be unaware of the existence of the two proprietorships. His contention that the firms had been opened and operated by his former employer was considered unsubstantiated. SEBI further noted that he had neither filed a police complaint nor approached the bank to close the accounts, despite becoming aware of their alleged misuse.
SEBI also rejected a handwriting expert's report submitted by Mr Dubey which compared his signatures on his PAN card and a State Bank of India certificate with signatures appearing on the know-your-customer (KYC) documents of Magnum Industrial Corporation. The adjudicating officer observed that the report had been prepared by a privately engaged expert and was not corroborated by other evidence.
The order records that eight funding group entities had been made part of the proceedings in the CNE IPO matter. Collectively, these entities were shown as having funded ₹5.07 crore, involving 92 allottees and 19.80 lakh shares. Mr Dubey's contribution was recorded at ₹30 lakh, involving 20 allottees and 120,000 shares.
Based on the material available on record, SEBI concluded that Mr Dubey was one of the funding group entities that had funded CNE IPO applicants and had participated in the scheme to get the IPO subscribed. The adjudicating officer held that Mr Dubey had violated Regulations 3(a), (b), (c) and (d) and Regulation 4(1) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003, read with Sections 12A(a), (b) and (c) of the SEBI Act, 1992.
While determining the penalty, SEBI noted that the material on record did not specifically quantify any disproportionate gain, unfair advantage, investor loss or profit made by Mr Dubey from the violations. However, the order also took into account previous proceedings involving him, including penalties of ₹5 lakh in the Esteem Bio Organic Food Processing IPO matter, ₹6 lakh in the ECO Friendly Food Processing Park IPO matter and ₹10 lakh in the HPC Biosciences IPO matter.
Consequently, SEBI imposed a ₹5 lakh penalty on Mr Dubey and his proprietorship firm, Magnum Industrial Corporation, under Section 15HA of the SEBI Act.
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