GHCL brass banned by Sebi over stake gaps

The Securities and Exchange Board of India (Sebi) has banned GHCL Ltd, its promoter Sanjay Dalmia, two top officials and 43 promoter group entities from the securities market until further orders for allegedly violating various securities market laws including insider trading rules.

The regulator found the company guilty of filing false shareholding information of the promoters repeatedly over the four quarters of 2008. In fact, in the last three quarters of the year, the overstatement was by over 100%.

While the actual promoter shareholding according to the data given by the company’s registrar, Link Intime, was 19.4%, 18.02% and 18.74% at the end of June, September and December 2008, the company had informed the exchanges that the promoters held 40.4%, 40.3% and 38.32%, respectively during these periods.

In the first quarter of 2008, the overstatement was lower.

On March 31, 2008, the company had said the promoters held 47.6% stake, while they actually held just 32.4%, according to registrar data.

DNA Money had on April 15 reported the anomaly in filing of shareholding details by the company, wherein the promoter holding fell by as much as 20% as on March 31.

“This is an extremely grave offence by a listed company and its management… That the company has knowingly shared false information is a conduct not behoving of a listed company and utterly reprehensible. Filing false and patently inaccurate information about the promoters’ holding gives a misleading picture about promoters’ interest in running the affairs of the company,” KM Abraham, whole time member of Sebi, said in an order on Monday.

Sebi has given 15 days for the aggrieved parties to represent against the ex-parte, ad interim order.

Sanjay Dalmia said, “We are studying the order. We will reply to Sebi. I cannot comment as the matter is sub-judice.”

A top GHCL official told DNA Money, “The promoters had pledged over 20% shares with financial institutions and these shares have been invoked in the fourth quarter of FY09.”

The official confirmed that no money has come into the company from the shares pledged and the promoters had used the money for personal reasons. “The margin call was triggered which led to the shares being invoked,” he maintained.

Experts, however, feel the new pledge disclosure norms that came into effect after the
Satyam scam broke have nailed the company.

According to the new norms, companies have to declare any pledging of shares by their promoters on a continuous basis whenever such pledges are made and also at the end of the quarter.

A corporate law expert said, “The company management seems to have happily fudged the exchange filing for the past four quarters. The company secretary appears to have ignored or forced by the management to ignore the information from the registrar.”

Company secretary Bhuwaneswar Misra and managing director Ravi Shanker Jalan are the two officials banned by Sebi.

The expert said the pledging mechanism is such that the depository data which the registrar gets will show the shares in the promoter’s account unless they are invoked by the lender.

“The fact that registrar’s data shows that shares did not lie in the promoter’s account makes it clear that the lender has invoked the pledge last year itself. But since the promoter was under no obligation to declare pledges, he must have entered into some informal agreement with the lender wherein he would repay the loan and take back the shares at a later date,” he said.

But, this arrangement could not continue in the March, 2009 quarter due to the share pledging rules introduced by Sebi. So, the company tried to reconcile the holding as per exchange filing.

“The actual holdings of the promoters for the quarter ended December 31, 2008 was at 18.74% and as on March 31, 2009, the promoter holding as reported to BSE is 18.16%. This shows that the promoters have tried to reconcile their wrong holdings reported by them in last four quarters by giving the supposedly correct holding for the March 2009 quarter,” says the Sebi order.

The head of a large institutional lender pointed out that GHCL has not been able to raise finances from any structured financing entity from the time it was implicated in a Sebi order in 2007. “They are forced to take loans from private financiers as none of the institutions in the markets would touch their shares after the Sebi proceedings in 2007.”

Six promoter entities of GHCL were debarred by the regulator vide an order dated April 25, 2007 for creation of false and misleading appearance of trading in GHCL.

GHCL is said to have taken a loan of Rs 53 crore against its land and property in Connaught Place, New Delhi and has also raised a loan of Rs 75 crore from its primary bankers.

A top official from IDBI, one of the bankers of the company, said, “I cannot disclose specific details about any client. But, we don’t have any issues with Gujarat Heavy (GHCL).”

GHCL shares fell nearly 1% to Rs 32.05 on Monday on the BSE.