Zenith Birla's Penalty From SEBI Has Been Reduced By SAT To Rs 25 Lakh In The GDR Manipulation Case

Zenith Birla's Penalty From SEBI Has Been Reduced By SAT To Rs 25 Lakh In The GDR Manipulation Case
Zenith Birla's Penalty From SEBI Has Been Reduced By SAT To Rs 25 Lakh In The GDR Manipulation Case

In a case involving the manipulation of global depository receipts (GDR), the Securities Appellate Tribunal lowered the fine imposed by SEBI on Zenith Birla (India) Ltd (ZBIL) to Rs 25 lakh from Rs 10 crore. Zenith Steel Pipes & Industries Ltd. is currently known as ZBIL.

The punishment imposed, in our judgement, is "excessive," disproportionate to the infraction, and discriminatory, the panel said in its decision on Tuesday.

Public stockholders and employees both exist. The business is still active. It is not appropriate, particularly for an operating corporation, to punish the shareholders by imposing such severe penalties on the organisation.

The SAT, however, rejected the appeals made by Mahendra Singh Arora, Yashovardan Birla, and European American Investment Bank AG (EURAM Bank). The judgement by the tribunal follows challenges by ZBIL, Birla, EURAM, and Arora against the SEBI's directives from March 2021 and June 2022.

Six people and seven businesses have been permanently prohibited from the securities markets as of March 2021 by SEBI's whole-time member (WTM), who also ordered some of them to forfeit illicit earnings in the GDR manipulation case. ZBIL was also given a three-year ban, while the chairman and managing director of the firm, Yash Birla and M. S. Arora, were both given a one-year ban.

Also, the WTM ordered the disgorgement of Rs 59.06 crore from the India Focus Cardinal Fund and other parties. This organisation is registered with SEBI as a subaccount of EURAM Bank. In a different decision issued in June 2022, SEBI fined ZBIL Rs. 10 crore and Yash Birla and M. S. Arora Rs. 10 lakh apiece.

The lawsuit concerns Zenith Birla's issue of GDRs. In May 2010, it had issued 1.81 million GDRs for USD 22.99 million, and Vintage FZE had subscribed for the issuance after obtaining a credit from EURAM Bank. As Vintage's MD, Arun Panchariya signed the loan agreement on the company's behalf, and only Vintage subscribed to the issuance.

According to SEBI, ZBIL had placed all of the GDR earnings with Euram Bank as collateral for the loan Vintage had obtained for purchasing the GDRs. Also, it was discovered that all 1.81 million GDRs had been cancelled and turned into equity shares. Following cancellation, it was discovered that India Focus Cardinal Fund sold 4.77 crore Zenith shares on conversion of 13.77 lakh GDRs in the stock market (IFCF).

In addition, Panchariya served as a director at Pan Asia Advisors Ltd., the issue's lead manager for Zenith's GDR. The money obtained via GDRs has, however, been received by the business and has not been stolen, according to SAT's ruling. The fact that this was used for the intended purpose for which the GDR was given has not been contested. Hence, there has been no misappropriation of money.

We decrease the penalty against the ZBIL to Rs 25 lakh and the debarment of the business for a term of three years is reduced to the penalty endured. This was said in a statement confirming the decision of the SEBI's Adjudicating Officer for the breaches committed by the company. The punishment for the Chairman and Managing Director is upheld, however the 1-year ban is not arbitrary nor harsh. As a result, we affirm the WTM's instructions," SAT added.