The promoters of Gitanjali Gems — accused of defrauding Punjab National Bank — were being probed by commodity and capital market regulator SEBI for stock price manipulation.
In March last year, a whole-time member of SEBI had passed an order calling for an investigation into the alleged manipulation of Gitanjali Gems shares, and also for violation of Takeover Regulations.
“SEBI shall endeavour to complete the investigation within six months from the date of this Order and thereafter, to conclude the matter expeditiously,” SEBI whole-time member S Raman had said in the order.
However, SEBI has not passed the final order in the case yet. Worse still, the regulator approved the initial public offering application of Nakshatra, a group company of Gitanjali Gems in June 2017 even while the investigation was on. Nakshatra is yet to go public, though.
On receipt of a market alert, SEBI had conducted a prima facie examination of the trading in the scrip of Gitanjali Gems for the period from July 18, 2011 to January 25, 2012.
An analysis of the Know Your Client (KYC) documents, bank, financial statements of 16 entities who had traded or funded certain transactions in the Gitanjali Gems stock had revealed their connection with the promoter entities through common phone numbers, residential address, electronic mail, inter se transfer of funds.
Excerpts from the SEBI order:
“….huge concentration (of positions in Gitanjali shares, derivatives) indicated that the Choksi Group was acting as front for the promoters of Gitanjali Gems and while acting as such, the promoters remained invisible to the public in so far as their trades were concerned.
The trading pattern in the scrip of Gitanjali Gems, prima facie indicated that the promoters used the Choksi Group to build up substantial large position in the scrip of Gitanjali Gems in the derivatives segment, thereby circumventing the position limit prescribed by SEBI.
The disclosures made by Gitanjali Gems to BSE regarding shares pledged by the Promoter and Promoter Group for the quarter ended September 2011 and December, 2011, was found to be different from that obtained by SEBI from the Depositories.
The promoters’ holding in Gitanjali Gems as on March 31, 2011 was 54.73% of the share capital. In terms of Regulation 11(1) of the Takeover Regulations, 1997 and Regulation 3(2) of the Takeover Regulations, 2011, the Promoters together with persons acting in concert cannot acquire more than 5% of voting rights in any financial year (creeping acquisition) unless they make a public announcement to acquire shares. Considering the relationship between the Choksi Group and the Promoters of Gitanjali Gems, the Choksi Group were persons acting in concert with the Promoters. During the financial year 2011–2012 (till March 21, 2012), the Choksi Group along with the Promoter of Gitanjali Gems, Shri Mehul Choksi, acquired 65.36% of the shares of Gitanjali Gems.”
On Friday, SEBI had called Gitanjali management for questioning related to PNB disclosures and in price rigging case, a source told Moneycontrol. “SEBI may pass final order in the price rigging case in coming days. Now focused come on the Gitanjali companies in the light of new developments in PNB fraud case,” another source said.
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The Rs 11,400 crore banking fraud unearthed at Punjab National Bank on Wednesday has raised glaring concerns on the irregularities and lacunae in Indian auditing and banking systems.
Experts say that there are concerns around the auditing standards given that PNB could not detect an unauthorised transaction that bypassed core banking solutions and fraudulently issued letters understakings (LoUs) to a borrower for almost seven years.
A former Reserve Bank of India official said, “Of course, auditors should be responsible for it, especially the internal and concurrent auditors. Auditors always do audits based on what the banks present to them. But often given the way risks are increasing, they have to be more careful.”moneycontrol