Sebi says RBI should've handled BoR case better

 BS :Jayshree P Upadhyay  |  Mumbai  

September 30, 2014 Last Updated at 00:50 IST

Stung by allegations of going easy in the Bank of Rajasthan(BoR) case, market regulator Securities and Exchange Board of India (Sebi) has shifted the blame on the Reserve Bank of India (RBI).

In a letter to the department of economic affairs (DEA), Sebihas said merger between the erstwhile BoR and ICICI Bank was approved by the banking regulator despite being "fully aware" of the "surrogate acquisitions" made by the former's promoter entities.

"When the amalgamation was approved, Reserve Bank of India was fully aware about the surrogate acquisitions by the promoter entities and despite the same, it was decided to extend the full benefit of the amalgamation to the promoters of Bank of Rajasthan without any caveats," Sebi has said in its letter to DEA, the contents of which have been seen by Business Standard.

Sebi's letter was with reference to the series of complaints received by the Central Vigilance Commission and the finance ministry against the market regulator in the matter of BoR questioning the low penalty and quality of investigation.

Sebi has said its job centred around probing whether there was any market manipulation by the promoters, while theRBI was the agency which had primary grievance against the promoters and could have handled the matter more seriously.

An email seeking comments on the matter to Sebi and RBI didn't elicit any response.

The violations in the case of BoR date back to 2009, where the promoters - the Tayal group - had actually increased their shareholding through front entities, while disclosures made by them to the exchanges showed that they had reduced their holdings. These violations had occurred ahead of the merger between BoR and ICICI Bank in 2010.

Sebi in March 2010 had passed an order against 100 promoter entities of BoR, banning these from accessing the capital market for acquiring shares under fictitious and benami names beyond the limit permitted by RBI. The order followed a February 2010 order by RBI, imposing a penalty of Rs 25 lakh on BoR.

THE BANK OF RAJASTHAN CASE

2007 June: Bank of Rajasthan promoters’ shareholding stands at 44.18%, which they had to bring down to 10%, according to RBI guidelines 2009 November: RBI refers matter to Sebi for examination of violations of the Securities Act December: Promoters declare to stock exchanges their shareholding has been reduced to 28.61%. But RBI inspection reveals promoter holding increased via surrogate acquisitions 2010 February: RBI imposes Rs 25-lakh penalty on bank March: Sebi passes ex-parte order against BoR promoters, barring them from the securities market. Sebi investigation reveals promoters increased their shareholding to 63.15% August: RBI approves merger of Bank of Rajasthan with ICICI Bank; Sebi issues no-objection certificate 2012 March: Final order by Sebi lifts ban on 118 entities; refers matter to adjudication officer for penalty 2013 February: Sebi imposes Rs 30-crore penalty  on 118 entities 2014 February: SAT revises penalty to Rs 20 crore on 103 entities

"The additional shareholding of the promoters through their front entities could have been considered an unlawful gain, as the amalgamation was a subsequent event and could have also resulted as a loss for the shareholders of BoR as in the case of Global Trust Bank, where the shareholders of Global Trust Bank were not allotted shares of Oriental Bank of Commerce," Sebi has said.

Sebi has also pointed out that the penalty levied by RBI was only Rs 25 lakh even as the penalty in the Banking Regulations Act can be twice the amount involved in such contravention or default.

The regulator in the letter has said it has treated this matter very seriously to check for instance of price or volume manipulation but "no such instance came to light and the offence was limited to wrong disclosure".

The market regulator has also observed that RBI had approved the merger in 2010 even before completion of investigation. However, interestingly, even Sebi granted a no-objection certificate to the merger in 2010, stating that its March 2010 order would not come in the way of the proposed merger.

Sebi has told the DEA that it could not direct the promoters of BoR to make an open offer despite their violating the creeping acquisition limit of 5 per cent as by the time the adjudication proceedings got initiated, the lender was already merged with ICICI Bank.

Last week, the Central Bureau of Investigation (CBI) initiated a preliminary enquiry against Sebi's executive director R K Padmanabhan, who had investigated the case. Also, the minority shareholders of BoR have filed a writ petition in the Bombay High Court against Sebi for imposing an inadequate penalty of just Rs 30 crore on the promoter entities, who the petitioners allege made unlawful gains of more than Rs 700 crore. Sebi's Rs 30-crore penalty was later revised downwards to Rs 20 crore by the appellate tribunal.

HC asks Sebi to decide on Tayal stake in 2 months

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.