The Hindu Business Line : Market regulator prohibits Subhash Capital City from dealing in securities

SEBI has barred Subhash Capital City (SCCL), part of Kolkata's Subhash Projects group, from dealing in securities and accessing the market. Mr A.K. Batra, Whole Time Member, has passed an order under SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003, read with SEBI Act against the company in the matter of group flagship, Subhash Projects & Marketing (SPML).

The company (listed on BSE, CSE and various regional exchanges) had earlier come out with two simultaneous but unlinked rights issues, including an offer of non-convertible, redeemable debentures. SEBI received complaints regarding the issue, alluding to irregular subscription, pre-issue price manipulation, non-disclosure and misstatements in the letter of offer etc.

SEBI's assessment suggests that during the relevant point of time, when the rights offer came about, very thin trading was reported in the scrip of SPML at all the exchanges except BSE and CSE, and of these two, major volumes and trading were noted at CSE.

The regulator noted that applications had been received after the closure of the issue, to make up for the deficit in meeting 90 per cent subscription.

SEBI felt that the rights issue did not actually receive genuine minimum subscription. SPML and its directors/associates created an illusion that the rights issue of SPML had genuinely received mandatory minimum subscription. It was also mentioned that the Sethi family funded the subscription (with associates like Zoom Industrial and SPML India). Further, money was advanced through various entities to an outfit called Raj Investments to creating "illusory volumes and trading" in the SPML scrip.

Against SCCL, it was alleged that it had funded the application made by SPML India. SCCL had also acted as a conduit for fund flow from SPML to Raj Investments.

Incidentally, a response from Mr Subhash Sethi, VC & MD of SPML, denied all the allegations.

This act of SCCL (funding the application of SPML India Ltd, at the behest of SPML) goes against the terms of offer document, the regulator has mentioned. Price volume data provided by the BSE and CSE made it clear that the daily volumes around the rights issue time were high. Broker-wise analysis showed that mainly two BSE brokers were active at the counter and their client was Raj Investments.

Raj Investments had dealt in the shares of SPML through many brokers at CSE as well. It was found to be one of the largest clients of Mr D.K. Singhania (DKS), a Kolkata broker.

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