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The Securities Appellate Tribunal (SAT) quashed a SEBI order that barred Yashovardhan Birla from the securities market for two years for alleged mis-utilisation of IPO proceeds. Yash Birla was penalised by markets regulator SEBI for allegedly diverting IPO funds towards inter-corporate deposits of his own company.
Yash Birla is the great-grandson of Ghanshyam Das Birla, one of the founders of India’s leading business house and conglomerate. Later, the Birla family underwent many divisions. Businesses that fell under Yash Birla included Zenith Steel, Birla Power, Birla Lifestyle, Shloka Infotech, and Birla Cotsyn. Most of these firms are credit defaulters.
The SEBI order
SEBI acted against Birla nearly a decade after his company Birla Pacific Medspa raised more than ₹65 crore through an initial public offering. The company had said it will be investing the funds in 15 Spa centres. SEBI, however, found that the promise was never fulfilled. It said IPO proceeds worth ₹31.54 crore were deployed as ICDs to group companies, of which 60 per cent were never returned.
SAT, however, said that “it is settled law that a finding must be based on some facts but in the instant case the facts which have been brought on record show that there is no misstatement in the prospectus and, therefore, the question of having some ulterior design from the very inception to divert the proceeds through ICDs is in our opinion stretching it a bit too far.”
If the IPO proceeds were not utilised in the manner stated in the prospectus, it does mean that the subsequent action taken by the company indicates that there was a mis-statement in the prospectus, the tribunal noted.
“In our our view, merely because the word ICD was not mentioned in the interim use of funds in the prospectus does not become a case of mis-statement in the prospectus nor does it become a deliberate part of larger design to come out with an IPO and, thereafter, funding the operations of its group company through ICDs, thereby siphoning of the money from the genuine investors,” SAT said.
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