Whistleblower Files 150-Page Complaint with SEBI about Sudhir Valia Group, Dilip Shanghvi and Sun Pharma
In a sensational 150-page document, a whistleblower has alleged numerous irregularities against Sun Pharma, its main promoter Dilip Shanghvi and his brother-in-law Sudhir Valia, Mr Valia’s independent financial operations, Fortune Financial and Investment Trust of India and Dharmesh Doshi, an associate of Ketan Parekh who has been convicted of wrongdoing in the stock market scam of 2001. 
 
Moneylife has a copy of this document filed with the regulator in mid-September.  Copies have been marked to the chairman of the Securities and Exchange Board of India (SEBI) Ajay Tyagi and whole-time directors Madhabi Puri Buch, G Mahalingam and Ananta Barua. Sun Pharma, in an official response to Moneylife has said that it has not received any query from the regulator so far. 
 
 
Separately, a note by Australian brokerage house Macquarie, which raised several questions about the practices by Sun Pharma and its curious connections with tainted entities, has already gone viral on social media. The Economic Times has since reported some of these along with a denial by Sun Pharma. When we shared the screenshots of the whistleblower’s note, the brokerage note and asked about the whistleblower’s document, sun Pharma's response was as follows:
 
1. "We have not been contacted by SEBI with regards to any such whistle blower complaint” 
 
2. “The points raised pertain to historic events, some of which are dated as far back as 10-15 years. Certain points raised are incomplete and have been presented in a negative manner. The supporting information to the points has been sourced from public domain and hence this information/data is already available in public domain. We believe we are in compliance with all the legal/regulatory provisions applicable to us.”
 
The document sent to SEBI goes far beyond the Macquarie note. It contains sensational allegations of insider trading, using State machinery to arm-twist target companies, using funds raise by opaque foreign currency convertible bonds, booking notional losses to save on tax payment among the charges. 
 
In this article, we are only mention that a whistleblower document has been sent to the regulator. We will leave the more sensational allegations for the regulator to investigate. 
 
Moneylife was the first to have flagged off the case of a possible insider trading during Sun Pharma’s takeover of Ranbaxy The whistleblower alleges that in the Ranbaxy insider trading case, there was a gain of as much as Rs8,000 crore. 
 
In 2017, the Times of India reported that Dilip Shanghvi, Sudhir Valia and others have settled the insider trading charge by paying a paltry Rs18 lakh. https://timesofindia.indiatimes.com/business/india-business/sun-pharma-10-others-settle-insider-trading-case-with-sebi/articleshow/60023171.cms
 
The SEBI settlement order, however, is extremely sketchy with minimal information about the nature of wrongdoing: https://www.sebi.gov.in/enforcement/orders/aug-2017/settlement-order-in-respect-of-sun-pharmaceutical-industries-limited-and-10-others_35604.html
 
The whistleblower now names a host of foreign entities such as Bomin Finance Ltd, First International Group PLC, Orbit Investments PLC, Sun Global Investments Ltd, Orange Mauritius Investments Ltd., Hypnos Fund Limited, Elm Park Fund Ltd, Asia Advantage Fund, ITF Mauritius, etc, as being involved in questionable transactions in the Indian equity market. 
 
He writes, “These are some direct links, and some others which are carried out through relationship arrangements. For example, I will deal on your behalf and you will deal on my behalf. We will settle our account at the end of year in net negative or net positive through international markets. There are other arms in International market as well which I am not covering here.”
 
Coming out of the shadows of Dilip Shanghvi, Sudhir Valia has charted an independent course for himself through a series of acquisitions of brokerage firms, investment banking firms, advisory firms such as Fortune Financial Services India Ltd (FFSlL), Inga Capital and Antique broking and Investment Trust of India (ITI). All these vehicles are allegedly used by the group for various questionable financial transactions, alleges the whistleblower.
 
The 150-page document has names, phone numbers, bank account statements and complex organisation charts of hundreds of companies, foreign investors and individuals that are acting in concert. 
 
In the covering letter to the SEBI chairman and the whole-time member, the whistleblower mentions that “for me to reach to this level of detailed letter to you along with the evidences gathered over a period, has taken an extraordinary level of efforts at my end and weeks of data compilation. Further it has added lot of risk to my family, my life and my family’s future."
 
The whistleblower claims to be “very closely connected to the people mentioned… My association with this set of people has been for more than 23 years now and I am directly working with them for 15 years and currently as a senior executive with the group. In my career with them, I have handled their Romania, Israel, USA and Mauritius operations directly.” 
 
He claims not to be a beneficiary of the operations described “regularly drawing salary as my primary income and has never had anything beyond that during my entire tenure. The very reason I have decided to share this is because there are some deals that have gone bad and to cover them up from difficult questions coming along, now the management is asking the professional staff to front that event which I am not ready to do. Therefore, over a period of 6 months, I have gradually gathered all relevant evidences to present my case and bring out a rightful conclusion to this episode.”
 
Macquarie, in its note to clients had said, “Sun Pharma, its auditors, its subsidiaries and interesting links to certain individuals, FPI entities, market manipulation cases, lending activity.” It raised questions about who audits the Sun Pharma subsidiaries including Green Eco Development, Fastone Mercantile, etc. The auditor apparently is Valia and Timbadia whose partner Timbadia had been involved in a stock marketing rigging case. 
 
The note also asks why Sudhir Valia’s own chartered accountancy firm had been auditing the firm he controls, Lakshdeep Investments, till 2017. The firm now shows Sanjay Valia as the proprietor, who had been involved in a price manipulation case of a stock Maa Leafin & Capital and barred from the securities markets in 2002. https://www.sebi.gov.in/satorders/pareshparekh.html
 
The Macquarie note also questions why Sun Pharma appointed a “tin-pot financial services firm, Jermyn Capital,” to manage its landmark FCCB transactions from 2004-2007? 
 
“Sun Pharma raised $275m in the first tranche of FCCBs. Let’s just mull this over for a minute. In the biggest fund raising transaction, Sun Pharma hired a small shop based out of London to co-manage the issue. Even global brands like Macquarie struggle to get deals. That’s not it though… this Indian arm of this entity was found to have links with Ketan Parekh and Dharmesh Doshi (two of the biggest stock KNOWN market manipulators in India). As the SEBI order states: There are linkages between Jermyn Capital LLC, Jermyn Capital Partners Plc (hereinafter referred to as ‘Jermyn Plc’) and Dharmesh Doshi/Ketan Parekh.”
 
With his supposedly intimate knowledge of the operations of the group, the whistleblower claims to have the answer. “When the (2001 Ketan Parekh) scam was out and Dharmesh Doshi fled to London, UK, he would have never gained strength without the active assistance of Dilip Shanghvi who awarded the work of two to three major rounds of Foreign Currency Convertible Bonds of Sun Pharma during that period between 2002 to 2007 to Jermyn Capital LLC controlled by Doshi.” It is a fact that one of the promoter entities of Sun Pharma had previously lent to Ketan Parekh. https://indiankanoon.org/doc/128780206/?type=print
 
 
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COMMENTS

Praveenvegunta Babu

1 week ago

Reliable & trust worthy information in the site .

VIVEK SHAH

3 weeks ago

As has been pointed out earlier too the Consent machanism adopted by SEBI is utterly useless. The fraudster gets away paying peanuts as fine without admission of any wrong-doing.
Sun Pharma indulging in such questionable activities is surely shocking. One certainly prays that they aren't indulging in malpractices in their core business of selling medicines some of which are life saving drugs.

Ritesh SARAF

3 weeks ago

Let's not be judgmental and allow the authorities and Sun Pharma to interact and wait for the outcome. Sun Pharma is paying salaries via employment to more than 50000 Indians including the whistle blower.

Krishnan Hariharan

3 weeks ago

Sun Pharma was a highly respected and fast developing company, once. The whistleblower accusations show they too are no different than Malaysia and Chokshis. Slowly one gathers the impression that Indian corporates are only floating ventures to gain wealth by dubious and fraudulent means. It will not be surprising more and more skeletons of Kingfisher like scams tumble out of the corporate cupboards. This, by the way, proves that our regulators like SEBI are ineffective and show least interest in doing their job, rendering our investment in shares of these companies highly risky. Can we ever hope to see fair and honest dealings in the corporate world?

baldev aildas

3 weeks ago

Sunpharma cannot be trusted anymore. It has betrayed its Shareholders.

IL&FS Scandal: SFIO Uncovers Grave Irregularities on Corporate Governance and Financial Parameters, Says Report
The Serious Fraud Investigation Office (SFIO) has uncovered grave irregularities across corporate governance and financial parameters that led to a default crisis at Infrastructure Leasing & Financial Services (IL&FS) and forced the government to supersede the company’s board to contain the fallout, says a report.
 
Quoting a source privy to the SFIO findings, a report from the Financial Express, says, "SFIO has gathered enough evidence to show gross failure in corporate governance, several conflicts of interest and even undue personal enrichment of some key personnel who were running the show at IL&FS.” 
 
SFIO has questioned about 40-50 key people who were running IL&FS, the source told the newspaper. Based on its probe report, necessary and decisive action will be taken against the culprits irrespective of their status, he said, hinting the report will decide action against former directors as well. 
 
The government has already issued look out notices for former top executives of IL&FS, including Ravi Parthasarathy, Ramesh Bawa, Hari Shankaran and K Ramchand, fearing that they might flee the country.
 
Earlier in October 2018, SFIO officials took control of IL&FS' main server, to ensure that no documents or emails or information were destroyed or tampered with. 
 
While IL&FS has always presented itself as a quasi-government entity, two of its largest shareholders are ORIX Corporation of Japan, which has a 23.54% stake, and Abu Dhabi Investment Authority with 12.56% stake. 
 
Strangely, these large foreign shareholders do not seem to have questioned the management about its poor performance and lavish perks. While some investors have been trying to claim that top management hid issues from them; this is clearly false. 
 
According to Financial Express, the findings of SFIO give credence to the government’s prima facie suspicion of a collapse in governance standards and financial wrong-doing at IL&FS.
 
"The charges against some of the former directors include masking the true state of the group’s financial stress, suppression and misrepresentation of key facts, siphoning off of funds via excessive executive package and gross financial mismanagement. If it’s proved that some of these were done deliberately, especially misrepresentation of facts, then that act could be defined as fraud," the report says.
 
Moneylife has been reporting on the IL&FS mess since past several months. You may want to check our other stories on IL&FS here
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NFRA to now regulate audit and auditors of vulnerable entities
With the objective of arresting the financial scams that the nation has witnessed of late, the ministry of corporate affairs (MCA) has finally rolled out the National Financial Reporting Authority Rules, 2018 (Rules), from 14 November 2018, ostensibly along the lines of independent audit regulators in global economies. The enforcement of the Rules is followed by the coming into force of the third and final phase of section 132 on 24 October 2018.

With the Rules coming into force since 14 November 2018, the corporate and auditor fraternity is hit by a common fear that companies that are not to be regulated by NFRA, will have to file the form before 13 December 2018, which is extremely close. The reason for the apprehension seems to be the use of the uncommon phrase "body corporate, other than a company" in clause (2) and (3) of Rule 3.
 
Had this been the case, the entire galaxy of companies incorporated in India would have to file the said Form. However, this is neither the purport nor the interpretation of the provision of Rule 3(2).
 
It is to be noted that NFRA-1 is nothing but the filing of particulars of the auditors. We should note that all the companies are anyway required to file these particulars in e-form ADT-1. It is only the body corporates other than companies which were so far not doing this filing, and therefore this Rule is mandating the filing of the said particulars by body corporates.

The NFRA conceived as the single independent authority regulating the audit of the companies and the auditors, has been endowed with wide ranging powers, inter alia, to monitor and enforce compliance of both accounting and auditing standards, to investigate into matters of professional misconduct of the auditors and to initiate disciplinary proceedings towards an auditor. 

 
Applicability and filing particulars of the auditor 
 
There are certain classes of entities (companies, body corporates and persons) who shall be regulated by the NFRA. Of the entire gamut of entities that will be regulated by NFRA, the “body corporates other than company” will be required to file the particulars of appointment of auditors with the MCA in form NFRA-1. This filing has to be done once by all such body corporates before 13 December 2018 and going forward, within 15 days of the appointment of the auditor. 
 
Body corporates that will be required to file NFRA-1
 
a. body corporates like State Bank of India (SBI), Life Insurance Corp of India (LIC), UTI and also their foreign associates and subsidiaries
b. associates and subsidiaries of listed companies (both Indian and foreign)
c. associates and subsidiaries of those unlisted public company that are being regulated by NFRA
 
Continued governance 
 
 It is to be noted that, pursuant to Rule 3(4), an entity within the ambit of NFRA that eventually ceases to fall within the criteria, “will continue to be governed by NFRA” after such cessation. 
 
Big sized foreign companies, incorporated in a private company set up, still out of the ambit of NFRA
 
Foreign companies that set up subsidiaries in India in a private company format and are big size in terms of turnover. However, since these companies are neither listed nor public companies, the audit of such companies remain unregulated. 
 
Requirement of Global Location Number (GLN) by the body corporates for filing
 
Since the filing is mandated for body corporates only (other than companies), it is to be noted that such body corporates will require a GLN to do the filing. Body corporates that are not companies, do not have a corporate identity number (CIN) allotted by the ministry of corporate affairs and therefore will have to necessarily obtain a GLN so as to proceed with the filing. 
 
With the last date of filing nearing, and considering that obtaining of GLN may also take some time, it is advisable that the body corporates should obtain the same soonest. 
 
Also, since the filing is to be done by body corporates, it is quite likely for the e-form (not yet available) to have practical gaps, which will be detected only once the form is being filled and filed. 
 
(CS Nitu Poddar is Senior Associate in the Corporate Law & Resolution Division at Vinod Kothari & Company)
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COMMENTS

Ramesh Poapt

3 weeks ago

good step, hopefully.

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