The Hindu Business Line : SAT upholds SEBI order against Gammon India

The Securities Appellate Tribunal (SAT) has upheld the SEBI order against Gammon India and entities, controlled by Mr Abhijit Rajan, relating to diversion of the company money to fund their own rights issue in 2001.

Mr Justice NK Sodhi ruled that the SEBI investigations revealed that Mr Rajan, Chairman and Managing Director of Gammon India, and the entities controlled by him (Nikhita Estate Developers and Devyani Estates and Properties) facilitated Gammon India to fund its own rights issue through a sham agreement, thereby perpetrating a fraud on the shareholders, besides violating the FUTP regulations of SEBI.

SEBI in its order of December 21, 2006, found the allegations and the show-cause notice established, and directed Mr Rajan and the entities controlled by him not to divest, transfer, sell or transfer their shareholding in Gammon. SEBI also restrained them from operating in the market for three years.

Routed thru’ group firms

SAT, upon hearing the matter, upheld SEBI’s finding that the inter-corporate deposit (ICD) from the appellant was ultimately transferred to the accounts of promoter group entities Nikita and Devyani on the same day. The amount of Rs 50 lakh, which came to another entity Reliance Silicones (India) Pvt Ltd (RSPL) from the appellant was routed through Nikita and Devyani for the subscription of the rights issue, thereby establishing the charges levelled in the show-cause notice.

SEBI on the basis of a complaint from Mr Y. Sachdev, Chairman and Managing Director of RSPL, investigated the funding of the Gammon India’s rights issue.

‘Sham document’

On inadequacies/infirmities in the agreement between Gammon India and the RSPL for setting up a Rs 96-crore power plant for which the said ICD was allegedly routed, the SAT observed, “We have no hesitation in holding that the parties to the agreement had no intention whatsoever to execute a genuine agreement for setting up a power plant and that it was a sham document, which could not be relied upon to justify the flow of funds from the appellant to RSPL and companies.”

“It was obviously a fraud played on the shareholders of the company by the appellant and its managing director, Mr Abhijit Rajan, who is, admittedly, the driving force behind the two entities Nikita and Devyani, which are also parties to the same,” Mr Justice Sodhi said.

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