Markets regulator Sebi has slapped a total fine Rs 40 lakh fine on the managing director and the director of Sybly Industries in a matter related to manipulation in issuance of global depository receipts (GDR).
The ruling came after the regulator conducted a probe to investigate irregularities in the company's allotment of 1.51 million GDR amounting to USD 6.99 million on the Luxembourg Stock Exchange in June 2008.
Sebi noted that the entire 1.51 million GDR were subscribed by only one entity, Vintage FZE (now known as Alta Vista International FZE).
The subscription amount for GDR was paid by Vintage after obtaining loan from European American Investment Bank (EURAM).
It was observed that directors of Sybly in its board meeting in March 2008 passed a board resolution that authorised EURAM Bank to use Sybly's GDR proceeds as security in connection with the loan.
It also authorised the firm's managing director Mahesh Chand Mittal and director Umesh Kumar Mittal, to sign any application, agreement, etc., as may be required by EURAM Bank.
Following this, a pledge agreement was signed between Sybly and EURAM Bank whereby Sybly pledged the GDR proceeds against the loan availed by Vintage FZE for subscribing to Sybly's GDR.
Further, Sebi said the GDR issue would not have been subscribed if the Sybly had not given such security towards the loan taken by Vintage.
Besides, the company made misleading announcements that the GDR was successful whereas there was only one subscriber, the regulator noted.
It said the managing director and the director by approving the board resolution in the board meeting and by subsequently executing the pledge agreement have acted as a party to the fraudulent scheme and violated the PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) norms.
Accordingly, a fine of Rs 20 lakh each has been imposed on Mahesh Chand Mittal and Umesh Kumar Mittal through two separate orders.
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