Market regulator Securities and Exchange Board of India has issued notices to at least five major Indian corporate houses including United Spirits, Unitech, Essar, GMR, and Sterlite on suspicions of stock price manipulation and possible insider trading through funds parked abroad.

The notice, dated mid-March, has given a month’s time to the companies to respond. The notice is based on the report sent by erstwhile market regulator of the United Kingdom, Financial Services Authority (FSA) in 2010.

“It was an unsolicited report enquiring about a foreign bank called UBS,” a person associated with the development told Business Line .

GMR and Essar have categorically denied having any dealings with UBS in the period referred to by the notices, thereby implying that any suspicion of round-tripping was totally unfounded. While Sterlite categorically denied receiving any notice, United Spirits declined to comment on the issue and Unitech did not respond to an e-mail sent by Business Line .

UK regulator

It was the UK FSA’s report that led SEBI to investigate allegations that companies of the Anil Dhirubhai Ambani Group (ADAG) had used a Mauritius-based fund to make clandestine investments in another group company.

Following investigations, SEBI initiated proceedings, but ended up settling through a consent procedure in early 2011, which saw two ADAG companies (Reliance Infrastructure Ltd and Reliance Natural Resources Ltd) cough up ₹50 crore as the consent fee. A consent does not imply either an admission or a denial of wrongdoing.

The FSA was regulating stock market till April 2013 before being disbanded into two authorities — Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA).

SEBI is trying to determine whether the five corporate entities have raised funds abroad through External Commercial Borrowings (ECBs) or some other instruments and then ‘round-tripped’ the money through a fund that invested in their shares in India.

The Indian regulator will be looking at whether this violated the RBI rules related to ECBs as well as whether this led to price manipulation through possible insider trading. The period under scrutiny is between 2005 and 2008.

Companies’ denial

While not denying that the company had received a notice from SEBI, the Essar spokesperson in an e-mail response said: “We categorically deny information given in your queries. Essar entities have never dealt in their own shares through any FII/UBS banking channels.” Similarly, the GMR spokesperson said: “We have not dealt with any transactions in GMR shares during the period 2005 to 2007 through FII route using Mauritius, UK or any other channel facilitated by UBS.”

While the Sterlite spokesperson said the “information is completely incorrect”, his counterpart in the United Breweries Group said: “We do not wish to offer any comment.” United Spirits is a part of the UB group.

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