Sebi issues Rs 1.6-cr impounding order in BoR case

Trades took place shares of Bank of Rajasthan ahead of its merger with ICICI Bank in 2010

The Securities and Exchange Board of India (Sebi) has issued an impounding order of Rs 1.6 crore against seven entities that made alleged unlawful gains by trading on inside information. The trades took place in shares of Bank of Rajasthan (BoR) ahead of its merger with ICICI Bank in 2010.

The order was passed on Wednesday under sections 11(1), 11(4)(d) and 11B of the Sebi Act, 1992. The market regulator also asked all banks and depositories to ensure that no debits are made from the bank and demat accounts of these seven persons/entities, who in turn have been directed not to dispose of or alienate any of their assets, properties or securities till they credit the amount in an escrow account.

They have also been asked to provide, within seven days, to Sebi a full inventory of all their assets and properties and details of all their bank accounts, demat accounts and holdings of securities and details of companies in which they hold substantial or controlling interest.

The entities facing Sebi action include Rohit Premkumar Gupta, Sanjay Kumar Tayal, Navin Kumar Tayal, Jyotika Sanjay Tayal, Advik Textiles and Realpro Pvt Ltd, Kulwinder Kumar Nayyar and Azam Mohmmed Ashan Shaikh.

The Sebi had investigated into possible insider trading in the scrip of BoR prior to announcement of agreement executed on May 18, 2010, between the dominant shareholders of BoR with ICICI Bank Limited for agreeing to merge the two banks.

The Tayal family-run BoR had informed the National Stock Exchange on May 18, 2010, after market hours at 5.12 pm that it received a communication from Sanjay Tayal, a Director of BoR and related to the dominant shareholding group, requesting BoR to convene a board meeting urgently that day.

The stock exchange intimation also mentioned that the dominant shareholders of BoR had entered into an agreement the same day with ICICI for proposing an amalgamation of both the banks and ICICI was convening its own Board of Directors meeting that day for considering the proposed amalgamation and for approving several actions necessary for the process.

As per the submissions of ICICI, the agreement was signed at 4.30 am in the early morning on May 18, 2010. The agreement mentioned that subject to valuations, 25 shares of ICICI will be allotted for every 118 shares of BoR, that is a shareholder holding 4.72 shares of BoR would be entitled to receive one share of ICICI.

In its investigations, Sebi observed that the announcement with regard to the agreement was made by BoR to the stock exchanges between 17:12 hours and 17:25 hours on May 18, 2010, after receiving intimation of the same from one of its directors, Sanjay Tayal, as BoR was not a signatory to the agreement.

ICICI disseminated the aforesaid information to the stock exchanges between 20:10 hours and 20:18 hours on May 18, 2010.

The share price of BoR was Rs 55 at BSE and Rs 54 at NSE on April 1, 2010 and increased to Rs 99.50 at BSE and Rs 99.45 at NSE on May 18, 2010. Although, the merger announcement was made after market hours on May 18, 2010, it was observed that on the day of the announcement, the share price of BoR increased by 20 per cent on BSE and NSE with huge trading volumes.

Further, the price of the scrip of BoR increased even on the next trading day, May 19, 2010, by 20 per cent and by another 10 per cent each on the next three trading days.

On account of huge trading volumes in the scrip of BoR and the delayed announcement of the merger, "insider trading" in the scrip of BoR was suspected.