Source :Livemint:Mon, Nov 8 2010. 1:00 AM IST
The Rajasthan high court has directed capital market regulator Securities and Exchange Board of India, or Sebi, to take a call on the fate of erstwhile Bank of Rajasthan (BoR) promoter Pravin Kumar Tayal’s holding of ICICI Bank Ltd shares worth at least Rs.1,000 crore within two months.
Maintaining that it is “not inclined to interfere” in the Sebi order that had barred at least 100 entities, including Tayal group firms, in March from accessing the stock market, the high court has asked Sebi to take a “proper view” on the matter.
Tayal had sought legal relief to unlock his holding in India’s largest private sector lender through some of his group companies that had received ICICI Bank shares following a Reserve Bank of India (RBI)-driven merger between the two banks in August.
He had argued that there was no case for Sebi to keep his shares in ICICI Bank frozen, given that the merger process was over and the entity—BoR—does not exist.
In its 29 October order, the high court allowed Tayal’s firms to submit their objections against the Sebi order within 10 days, “if they so choose”.
Sebi has to “pass appropriate orders” within two months from the date of submission of objections by the Tayals, “after hearing the parties”, the court said.
“We are of the view that the petitioners may raise their objections before Sebi itself, more so when (the) impugned order is interim in nature. We are accordingly not inclined to interfere therein,” said the order passed by a bench consisting of chief justice Jagdish Bhalla and justice M.N. Bhandari. “It is expected that Sebi would not guide itself by the interim order challenged herein and will take (a) proper view after hearing the parties.”
Tayal refused to comment on the development, but one senior official at the group confirmed on Saturday that the group was examining the order and preparing its response to the market regulator.
Four entities banned by Sebi —Jaybharat Textile and Real Estate Ltd,Eskay K‘n’IT India Ltd, 21st Century Entertainment Pvt. Ltd and Cyberinfo Zeebombia.com Pvt. Ltd—are among the petitioners that approached the high court to seek legal relief for Tayal.
Although Sebi had given 21 days to reply to the charges, Tayal had moved the court to quash the Sebi order arguing it was “illegal and arbitrary.”
One of the oldest private sector banks in the country, BoR was forced into a merger following a clampdown on the bank by Sebi and RBI early this year for alleged irregularities in its functioning and the misrepresentation of shareholding by promoters.
The merger, which came into effect on 13 August, valued BoR at Rs.3,000 crore and involved no cash changing hands. BoR shareholders received 25 shares of ICICI Bank for every 118 they held.
At least 100 entities, including those owned and controlled by the Tayals, received ICICI Bank shares in exchange for their BoR stock, but are unable to trade them because of the ban imposed by Sebi.
The Tayal group has debt running into several crores that it owes to state-run banks and it wants to encash the shares to repay the loans.
The eight firms directly promoted by the Tayal family are Jaybharat Textile and Real Estate, Eskay K‘n’IT India, KSL and Industries Ltd, Krishna Lifestyle Technologies Ltd, Asahi Fibres Ltd, Krishna Knitwear Technology Ltd, Rajasthan Bank Financial Services Ltd and Single Point Security Solutions Pvt. Ltd.
Of these, five are listed companies.
The Sebi order alleged that besides these, Tayals had indirect control of 100 different entities belonging to the Yadav group and the Silvassa group.
According to the Sebi order, the Tayals increased their stake in BoR and many of the promoter entities made fund or share transfers through off-market deals to various other entities “in a deceptive and fraudulent manner with the active connivance of others”.
According to the regulator, the Tayal group had falsely disclosed its shareholding in BoR as 28.61% at end-December 2009, while the promoters’ holding in the bank “had actually increased” and “stood at 55.01% as at quarter ending December 2009”.
The BoR had a total of 161.3 million shares outstanding. Based on the stated holding of 28.6%, the Tayal group entities held 46.1 million shares in the bank. The entities include 21st Century Entertainment, Ahmednagar Investments Pvt. Ltd, Cumballa Hill Property Developers Pvt. Ltd, Cyber Info Zeeboombia.com, Cyber Infosystems and Tech Ltd, EDC Securities Pvt. Ltd, Girganga Investments Pvt. Ltd and Sumander Property Development Pvt. Ltd.
Following the merger, these firms would have received at least 9.7 million shares in their demat accounts.
At Friday’s closing price of Rs.1,269.70, their holding in ICICI Bank would be worth at least Rs.1,240 crore.
If the Tayal group held 55.01% stake in BoR, as per Sebi, it would have received another 9.02 million ICICI Bank shares. At Friday’s closing price, these shares would be worth at least Rs.1,145crore, which would then take the total value of the Tayal group’s holding to at least Rs.2,385crore.
Ahead of the Sebi action, RBI had imposed a Rs.25 lakh penalty on BoR for allegedly violating various prudential norms, including the acquisition of immovable properties, deletion of records in the bank’s information systems and the conduct of some accounts, among others.
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