CLB orders probe against 16 companies

The Company Law Board (CLB) has ordered investigation against 16 companies, including V N Parekh Securities, KNP Securities Ltd and Classic Credit Ltd, owned and controlled by the gilts scam-accused Ketan Parekh, for "defrauding" creditors and other stakeholders.

The investigation is expected to be conducted by the Serious Frauds Investigation office. The order, issued by CLB, said that various creditors and deposit holders of Madhavpura Co-operative Bank, Global Trust Bank and City Co-operative Bank had lost funds because of their transactions with the Parekh group of companies. The court has directed investigations under Section 237 (B) of the Companies Act.

"The Parekh group companies used funds to the tune of Rs 2,218 crore and played with the market sentiment. When the market collapsed, these entities could not repay more than Rs 1,274 crore to as many as six corporate groups," the order said.

Agreeing with the findings of the Securities and Exchange Board of India investigations and the Joint Parliamentary Committee report on the stock scam in 2001, the order said that the Parekh group's actions led to Madhavpura Mercantile Bank and City Co-operative Bank defaulting their depositors.

These entities had drawn more than Rs 800 crore from banks, but did not repay the amount due on them, the order said. It dismissed the argument of the defending counsel that Parekh's fault was to the extent that he crossed principles of risk management and business failure due to misjudgement could not be equated as fraud.

"Ketan Parekh should have been careful in taking risks on money actually belonging to the public, raised from banks and companies. He could have taken such huge risks with his own money," the order noted.

The government counsel, represented by Sanjay Aggarwal, had petitioned to the court that investigations under Section 237 (B) could bring out the nexus among various players, including the lending banks and corporates in the scam.