SAT sets aside Sebi's Aftek order

The Securities Appellate Tribunal (SAT) has set aside an order passed by the Securities and Exchange Board of India (Sebi) against the promoters and directors of Aftek Infosys prohibiting them from any dealing in the market. The tribunal has also allowed an appeal against the order.

Sebi had barred the eight promoters in an order issued on March 8, 2004, under the Prohibition of Fraudulent and Unfair Trade Practices saying that they had colluded with the Ketan Parekh (KP) group entities in creating an artificial market in the company's shares. The tribunal has, however, said that "there is no case against them."

Aftek Infosys had made a public issue of 37,30,000 equity shares in June, 1995, which was oversubscribed. Of this issue, 10,00,000 shares were allotted to the Industrial Development Bank of India (IDBI) as venture capital.

The subscription agreement was entered into between the promoters and the IDBI as per which the promoters had the first right of refusal for buyback of shares whenever IDBI decided to sell the same after a lock-in of three years.

In January 1999, the company raised additional funds through a private placement of 15,00,000 shares at Rs. 36.50 a share, thus, raising its paid-up capital to Rs 5,74,07,000. For this issue, the company had appointed Triumph International Finance (India) as lead managers.

On August 26, 1999, IDBI wrote to the promoters expressing its desire to divest the shares held by it at market-related prices in terms of the subscription agreement dated April 5, 1995. The promoters agreed to buy back the shares and offered a price of Rs 150 a share.

However, by its letter dated November 12, 1999, IDBI wrote to the company and its directors to purchase the shares at Rs 477.75, which was the closing price on the bourses on November 12, 1999, by November 15, 1999 and to pay the advance amount of 10 per cent of the total consideration, aggregating Rs 4,29,97,500 by that evening and the balance of about Rs 39 crore within a week thereafter.

If the deal didn't happen IDBI would be free to sell the shares in the market or otherwise.

IDBI also filed a caveat in the Delhi High Court on November 15, 1999. According to the appellants, they were taken by surprise by the developments and suspected a hostile takeover attempt by some competitors with the help and connivance of IDBI.

To prevent this, the appellants approached Triumph, which had helped them in the private placement of 15,00,000 shares of the company in January 1999.

Triumph and its related entities, all Ketan Parekh entities, agreed to provide necessary finance and entered into financing-cum-option agreements with the promoters.

As per the arrangement, the financiers had the option to purchase the shares at Rs 477.75 a share and the option was to be exercised by December 15, 1999.

Sebi's main case against the appellants was that by entering into an agreement with the "KP entities", the appellants enabled the latter to corner stocks, thus, causing an artificial shortage in the scrip.

The price of the scrip, which was Rs 477.75 on November 12, 1999, increased to Rs 1,108.2 on December 3, 1999 and further to Rs 1,815 on December 14, 1999.