Markets regulator Sebi has slapped a fine of Rs 1 crore on senior official of Avon Corporation Ltd in a matter related to manipulation in issuance of global depository receipts (GDR).
Pankaj Saraiya is chairman, managing director and chief executive officer of Avon.
Sebi noted that Avon had come up with GDR issues in June 2009 and Pan Asia Advisors Ltd was the book running lead manager for the GDR issue.
It was found that Arun Panchariya arranged the loans for the subscription of Avon's GDRs by Vintage FZE, another company wherein he was the managing director and 100 per cent shareholder.
Panchariya was the founder, director and 100 per cent shareholder of Pan Asia.
Avon, in turn, helped Panchariya in arrangement of those funds by signing a pledge agreement with Euram Bank, thereby, providing security for such loan taken by Vintage.
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Thereafter, using certain foreign institutional investors, he got the GDRs converted into underlying shares and sold them in the Indian securities market with the help of certain domestic entities connected to him.
Besides, Avon misled Indian investors by making false corporate announcements and by not disclosing information regarding pledge agreement signed by Pankaj whereby the funds received by Avon under the GDR issue were given as collateral for the loan taken by Vintage.
Sebi said, "The issuance of GDRs by adopting the... modus operandi and the consequential misleading disclosure renders the whole scheme of things a fraudulent act orchestrated by Avon and the Noticee with the help of AP (Arun Panchariya) and associates."
Regarding Saraiya, Sebi said, "As the managing director of Avon, in connivance with Avon, AP and his connected entities, involved in the whole scheme, created a wrong impression before the Indian investors that foreign investors were interested in investing in Avon due to its reputation and future prospects and therefore, defrauded them."