Sebi imposes penalty on Yashovardhan Birla, 6 others in Zenith Birla GDR case

Market regulator Sebi on Thursday imposed a penalty totaling ₹10.80 crore on seven entities including Zenith Steel Pipes & Industries and Yash Birla in the matter of irregularities in the global depository receipts issued by Zenith Birla.

Zenith Steel was penalised with ₹10 crore in the case, while a penalty of ₹20 lakh each was levied on P.V.R Murthy and Arun Panchariya. Further, a penalty of ₹10 lakh each was imposed on Yash Birla, MS Arora, AP Kurias, and Mukesh Chauradiya.

Sebi had conducted investigations into the alleged irregularities in the Global Depository Receipts (GDR) issued by Zenith Birla (India), which is now called Zenith Steel Pipes & Industries, from May 01, 2010, to June 30, 2010 period.

Zenith Birla shares are listed on BSE and NSE.

As per Sebi's statement, the investigation, prima facie, revealed that

ZBIL had issued 1.81 million GDRs (amounting to $22.99 million) equivalent to its 5,43,57,060 equity shares of Rs.10 each, and the said issue was subscribed by only one entity viz. Vintage FZE (now known as Alta Vista International FZE).

Sebi observed that the subscription amount was paid by Vintage by obtaining a loan from European American Investment Bank AG by entering into a Loan Agreement dated May 12, 2010, with EURAM Bank.

In view of this, Sebi's note stated that it was alleged that, ZBIL had pledged the GDR proceeds against the loan availed by Vintage for subscribing to GDRs of ZBIL, thus securing Vintage’s loan. The loan agreement and the pledge agreement enabled Vintage to avail loan from the EURAM Bank for subscribing to the GDR of the company.

"The said GDR issue would not have been subscribed, had the company not given such security towards the loan taken by Vintage. The bank account in which GDR proceeds were held was in the name of the company but the amount deposited in the account was not at the disposal of the company as the same was pledged as security against the loan availed by Vintage," Sebi's note stated.

Sebi's statement said, "Therefore, it was alleged that the scheme of issuance of GDRs was fraudulent."

Further, Sebi noticed during the investigation that the said issue was subscribed by one entity viz. Vintage. Also, Vintage paid the subscription amount by obtaining a loan from EURAM Bank and entering into a Loan Agreement dated May 12, 2010.

According to Sebi's finding, Arun Panchariya who was director and sole beneficial owner of Vintage signed the said Loan Agreement for the purpose of taking down the GDR issue and

transferring the amount to the EURAM Bank account of ZBIL and Mukesh Chauradiya had signed the Loan Redemption Letters, as Authorized Signatory of Vintage, addressed to EURAM Bank paying back the amount of loan taken by Vintage to the extent of $8.531 million.

Pan Asia Advisors (‘Pan Asia’), a UK-based entity was the Lead Manager for the GDR issue of ZBIL.

Sebi further noted that Pan Asia was incorporated on April 24, 2006, and Arun Panchariya was director during the period August 30, 2006, to September 29, 2011. In February 2012, Pan Asia submitted that Arun Panchariya held 100% shareholding in the company during the period July 2008 to January 2012.

"Subsequently, Vintage defaulted on loan repayment of GDR issue $14.505 million including interest, and the same amount was adjusted by EURAM Bank from the GDR proceeds of ZBIL as it had pledged GDR proceeds against this loan," Sebi observed.

Meanwhile, Sebi pointed out that the GDRs acquired by Vintage were later canceled and converted into shares and

subsequently sold through sub-accounts of FIIs in the Indian market. Hence, it was alleged that the shares converted and sold of ZBIL include shares acquired by Vintage free of cost as they defaulted on the loan repayment, causing a loss to the tune of $14.505 million to the shareholders of ZBIL.

G. Ramar, an adjudicating officer at Sebi said, "In the present case, I note that ZBIL had issued 1.81 million GDRs worth $ 22.99 million to Vintage on May 28, 2010. However, it had pledged the entire GDR proceeds as collateral against the loan availed by Vintage from EURAM Bank. The same was carried out through a Loan Agreement entered between Vintage and EURAM Bank, and Pledge Agreement entered between ZBIL and EURAM Bank."

Ramar said, out of the total loan amount, Vintage repaid to the extent of $8.53 million and thereafter defaulted on the loan repayment to the extent of $14,505,221 (including interest on the loan amount) which was adjusted by EURAM Bank from ZBIL’s GDR proceeds.

"Thereafter, the shares converted from these GDRs (i.e. $14,505,221) were sold in Indian Market and were effectively acquired by the Vintage free of cost. The said subscription of the GDRs by Vintage was funded by ZBIL itself," Ramar noticed.

In view of the same, Ramar said, the magnitude of the fraud committed by the Noticees is enormous as is evident from the issue size of $22.99 million.

On BSE, Zenith Steel shares are frozen at ₹10.47 apiece down by 4.99%.