INVESTIGATION REPORT IN THE MATTER OF MARKET … · Annexure 2 5 The investigations conducted into the case have clearly revealed that in the case of Asahi, Avon, IKF, K Sera, CAT

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INVESTIGATION REPORT IN THE MATTER OF MARKET

MANIPULATION USING GDR ISSUES.

Contents

Contents ..................................................................................................................................... 1

Background ................................................................................................................................. 4

PART 1 - SCHEME OF MANIPULATION OF INDIAN MARKETS USING GDRS BY ARUN

PANCHARIYA ............................................................................................................................... 6

Definitions .................................................................................................................................. 6

Associations of Entities ............................................................................................................. 10

AP GDR Scheme ........................................................................................................................ 14

Step 1:- Issuance of GDRs ..................................................................................................... 15

Step 2:- Cancellation of GDRs ............................................................................................... 19

Step 3:-Sale of Shares to group of Indian clients and utilisation of GDR issue proceeds by

Examined Companies. .......................................................................................................... 20

Detailed Investigation of Issuer Companies ............................................................................. 23

(I) ASAHI INFRASTRUCTURE AND POJECTS LTD. ................................................................... 23

Summary of GDR issue:- ................................................................................................... 23

Subscribers of GDR Issue:- ................................................................................................ 23

Loan & Pledge Agreement signed among Asahi, Vintage & Euram. ................................ 24

Acquisition Cancellation and Sale of GDRs:-..................................................................... 27

Utilisation of GDR proceeds by Asahi:- ............................................................................. 31

Misleading Submissions by Asahi:- ................................................................................... 35

(II) AVON CORPORATION LTD. .............................................................................................. 37



Loan & Pledge Agreement signed among Avon, Vintage & Euram. ................................. 38


Utilisation of GDR proceeds by Avon:- ............................................................................. 45

Misleading Submissions by Avon:- ................................................................................... 48

(III) CAT TECHNOLOGIES LTD ................................................................................................ 50



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Loan & Pledge Agreement signed among CAT, Vintage & Euram:- ................................. 52


Utilisation of GDR proceeds by CAT:- ............................................................................... 60

Misleading Submissions by CAT ....................................................................................... 62

(IV) IKF TECHNOLOGIES LTD ................................................................................................. 64



Loan & Pledge Agreement signed among IKF, Vintage & Euram:- ................................... 65


Utilisation of GDR proceeds by IKF:- ................................................................................. 73

Misleading Submissions by IKF ......................................................................................... 76

(V) K SERA SERA LTD ............................................................................................................. 78



Loan & Pledge Agreement signed among K Sera, Vintage & Euram:- .............................. 80


Utilisation of GDR proceeds by K Sera:- ........................................................................... 87

Misleading Submissions by K Sera .................................................................................... 89

(VI) MAARS SOFTWARE INTERNATIONAL LTD ...................................................................... 91



Loan & Pledge Agreement signed among Maars, Vintage & Euram:- .............................. 92


Utilisation of GDR proceeds by Maars:- ........................................................................... 97

Summary of role of entities involved in the market manipulation using GDRs ..................... 100

PART 2 - SCHEME OF MANIPULATION OF INDIAN MARKETS IN CALS REFINERIES ............ Error!

Bookmark not defined.

A. Summary of Cals GDR Issue:- ........................................... Error! Bookmark not defined.

B. Cals Shareholding & Ownership Structure:- .................... Error! Bookmark not defined.

C. Loan Agreement:- ............................................................ Error! Bookmark not defined.

D. Honor Finance Ltd:- ......................................................... Error! Bookmark not defined.

E. Account Charge Agreement:- .......................................... Error! Bookmark not defined.

F. Subscriber to the Cals GDR Issue:-................................... Error! Bookmark not defined.

G. Utilisation of GDR proceeds by Cals:- .............................. Error! Bookmark not defined.

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H. Analysis of transaction regarding Asiatexx Enterprises Limited ..... Error! Bookmark not

defined.

I. Misleading submissions made by Cals & Mr. Devanathan Sundararajan, MD of Cals.

Error! Bookmark not defined.

J. Summary of role of entities involved in the market manipulation using GDR issue of

Cals Error! Bookmark not defined.

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Background

Based on alerts received by SEBI in its IMSS system regarding a few scrips like IKF Technologies Ltd, Avon Corporation Ltd, Cat Technologies Ltd, Asahi Infrastructure Ltd and K Sera Sera Ltd, preliminary examination of trading in these scrips was conducted. It was revealed in the preliminary examination that certain FIIs/Sub-Accounts were converting the GDRs held by them into shares (known as ‘cancelling’ GDRs) and selling the resultant shares in the Indian markets. Further investigation revealed that the complete process of GDR issuance by these companies was devised and structured by Arun Panchariya (hereinafter referred to as "AP") in connivance with the issuer companies to the detriment of the Indian Investors.

Investigations were initiated in the matter and an Interim Order was passed on September 21, 2011 against AP, 7 listed companies that issued GDRs, 4 Sub-Accounts, 1 FII, 5 Indian companies trading in these scrips, and 1 foreign based Lead Manager. Following are the entities against whom directions were issued in the said Order:-

Lead Manager:- 1. Arun Panchariya (AP) 2. Pan Asia Advisors Ltd (Panasia), Lead Manager

Sub-Accounts/FIIs:-

3. India Focus Cardinal Fund(IFCF), Sub-Account 4. MAVI Investment(Mavi), Sub-Account 5. KII Ltd (KII), Sub-Account 6. Sophia Growth - A share Class of Somerset India Fund (Sophia), Sub-Account 7. European American Investment Bank Ag (Euram), FII

Indian Clients

8. Basmati Securities Pvt. Ltd( Basmati) 9. Oudh Finance & Investment Private Ltd (Oudh) 10. Alka India Ltd (Alka) 11. SV Enterprises (SV) 12. JMP Securities Pvt. Ltd (JMP)

GDR Issuers

13. Asahi Infrastructure & Projects Ltd(Asahi) 14. IKF Technologies Ltd. (IKF) 15. Avon Corporation Ltd (Avon) 16. K Sera Sera Ltd (K Sera) 17. CAT Technologies Ltd (Cat) 18. Maars Software International Ltd (Maars) 19. Cals Refineries Ltd. (Cals)

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The investigations conducted into the case have clearly revealed that in the case of Asahi, Avon, IKF, K Sera, CAT and Maars, AP and other entities/companies/FIIs/Sub-Accounts connected to him or to his brother Satish Panchariya (collectively referred to as AP Entities), including Panasia have played key role in structuring of GDR issues of Indian Companies. These GDRs were issued by companies (Issuer Companies) with the help of AP, wherein AP arranged for loans for the subscription of GDRs and thereafter converted the GDRs into underlying shares. The underlying shares were sold to Indian investors with the help of FIIs/Sub-Accounts as well as certain Indian entities connected to AP. The activities of AP along with AP Entities involved in the whole scheme have resulted in Indian retail investors ultimately bearing the cost of these GDRs. The Part 1 of this investigation report deals with this fraudulent scheme perpetrated by AP to defraud Indian retail investors.

Part 2 of the report deals with the fraud perpetrated by promoters and directors of

Cals Refineries Ltd. in Indian Stock Market. Cals announced a huge project of shifting

and relocating a refinery from Germany in West Bengal. However, as investigations

revealed, the GDR issuance was organized to defraud Indian investors and dump the

shares generated out of conversion of GDRs on Indian retail investors.

The detailed investigation of creation of false market by clients connected to AP and

sale of shares by FIIs to such clients and Indian retail investors is dealt in a

supplementary report which will be soon completed. The period of investigation is

from January 01, 2009 to September 21, 2011. In the case of Maars, the examination

period for trading by the FIIs and Counterparty Group is from January 01, 2007 till

September 21, 2011.

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PART 1 - SCHEME OF MANIPULATION OF INDIAN

MARKETS USING GDRS BY ARUN PANCHARIYA

Definitions

Alka Alka India Ltd., a company listed on BSE has the following family

members of AP acting as promoters,

1. Ramswaroop Panchariya 2. Ashok Panchariya 3. Gopikishan Panchariya 4. Geetabai M Purohit 5. Satish R Panchariya 6. Arun R Panchariya 7. Ramswaroop B Panchariya 8. Shantidevi Panchariya 9. Saritadevi Panchariya 10. Madhudevi Panchariya 11. Radhadevi Panchariya 12. Shantidevi R Panchariya 13. Radhadevi S Panchariya 14. Arun Ramswaroopji Panchariya 15. Ramswaroopji B Panchariya 16. Satish R Panchariya

Alkarni Alkarni Holdings Ltd, a company registered in British Virgin Island

(BVI) with following shareholders:-

1. Arun Panchariya 2. Ashok Panchariya 3. Radhadevi Satish Panchariya 4. Sarita Arun Panchariya 5. Madhudevi Ashok Panchariya

AP Mr. Arun Panchariya

AP GDR Scheme The scheme devised by AP wherein Structured GDRs are issued by Indian companies with the help of AP and ultimately offloaded in Indian markets to unsuspecting retails investors.

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Ashok Mr. Ashok Panchariya, brother of AP & Satish Panchariya

Atique Atique Al Aqadi Trading Company was one of the investor in Class A shares of India Focus Cardinal Fund. It was also one of the shareholders of Panasia.

Banco Banco Efisa SFE, A bank based in Portugal, which financed the first GDR issue of IKF in 2007.

Cancelling GDRs As GDRs are issued, equivalent numbers of shares are issued in India and kept frozen with the Indian custodian. When GDRs are cancelled by any entity, it tenders GDRs to the Overseas Depository Bank (ODB) and equivalent number of shares are issued by the Indian Custodian to that entity.

CCPL Cardinal Capital Partners Ltd, a company owned 100% by AP and it is Investment manager of IFCF. CCPL is also 100% owner of IFCF.

CP Group Counterparty Clients Group, Group of Indian companies/individuals which has acted as major counterparty to selling of shares by FIIs in Indian markets only to gradually sell these shares to genuine retail investors by creating false volumes in Indian markets.

Euram European American Investment Bank AG, Austria , It is a bank based in Vienna Austria which was also registered as an FII with SEBI in INDIA till November 20, 2011.

Euram Accounts

The bank accounts of Issuers and other entities maintained with Euram.

Euram Asia European American Asia Ltd, A joint venture in Dubai between Euram and Panasia. The Joint Venture after its incorporation acts as a Loan agent for Euram and Listing agent for GDR issuing

Examination Period

Period of January 01, 2009 to September 21, 2011 (unless otherwise mentioned)

Examined Companies1

Following 6 companies which were examined for their GDR issues

and trading in Indian markets :-

1. Asahi Infrastructure & Projects Ltd 2. Avon Corporation Ltd 3. CAT Technologies Ltd

1 GDR issues of 7 companies were investigated by SEBI which included CALS Refineries Ltd. A separate report has been prepared for CALS. Therefore, in this report Examined Companies refers to only six companies in which Mr. Arun Panchariya was found to be involved.

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4. IKF Technologies Ltd. 5. K Sera Sera Ltd 6. Maars Software International Ltd

GDR Accounts The Bank Account of an Issuer maintained with a foreign bank to deposit the proceeds of GDR issue. In all the GDR issues investigated and discussed in this report (except the first GDR issue of IKF in 2007 which had Banco as the bank maintaining GDR Accounts) the GDR accounts have been maintained with Euram.

GDR Guidelines Scheme for issue of Foreign Currency Convertible Bonds (FCCB) and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and guidelines issued by the Central Government there under from time-to-time.

IFCF India Focus Cardinal Fund, a fund based in Mauritius and is registered with SEBI as a Sub-Account. AP is 100% owner of IFCF through its company Cardinal Capital Partners Ltd. AP and its family members are major investors in the fund through their associated companies. AP was director of the IFCF until October 28, 2010.

Interim order SEBI Interim Order dated September 21, 2011 passed against 19 entities due to their role in Structuring of GDRs

Issuers / Issuer Companies

Indian companies which issue GDRs.

KII Ltd KII, A Sub-Account which has similar pattern of trading like IFCF

LM Lead Manager to GDR Issues

Loan Agreement A Loan Agreement signed between the subscriber of GDR issuance and a foreign bank (Euram or Banco) for the purpose of financing of the GDR issues.

Mavi Mavi Investment Fund Ltd., Sub-Account

ODB Overseas Depository Bank; In a GDR issuance the GDRs are issued by the issuer in the name of the overseas depository bank and the overseas depository Bank or ODB subsequently issues the GDRs to non-resident investors, known as GDR holders.

Panasia Pan Asia Advisors Ltd, a lead manager based in UK which was founded by AP. AP is 100% shareholder of Panasia. AP was also

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director of the fund until September 29, 2011.

Pledge Agreement

An Agreement signed between foreign bank (Euram or Banco ) with issuer companies wherein the issuer pledges its accounts with bank against the loan provided by bank for subscription of GDR issuance.

Sophia Sophia Growth – A share Class of Somerset Fund, Sub-Account

SP Mr. Satish Panchariya, brother of AP

Structured GDRs GDRs issued by companies with the help of AP wherein AP arranged for loans for the subscription of GDRs (due to insufficient investor appetite, domestic or overseas) and sold to Indian investors with the help of FIIs and Indian clients connected to AP.

Vintage Vintage FZE, a company established in Jebel Ali Free Zone, Dubai on January 02, 2001. AP is founder and director of Vintage and management and control are vested with AP. Alkarni is 100% shareholder of Vintage. Subsequent to Interim order, name of Vintage has now changed to Alta Vista International FZE.

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Associations of Entities

Following chart depicts the associations and connections of different entities which

are part of AP GDR Scheme, amongst themselves. The connections pertain to period

of investigation, until otherwise mentioned:-

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1. Alkarni Holdings Ltd. (Alkarni) is a company registered in British Virgin Island with following family members of Arun Panchariya as shareholders :-

Name of Share Holder

% of shareholding

Arun Panchariya

52.50%

Radhadevi Satish Panchariya

15.00%

Sarita Arun Panchariya

15.00%

Madhudevi Ashok Panchariya

15.00%

Ashok Panchariya

2.50%

2. Vintage FZE, a company established in Jebel Ali Free Zone, Dubai on January

02, 2001. Alkarni is 100% shareholder of Vintage. The founder and director

of Vintage is AP, who also controlled its management. Subsequent to Interim

order, name of Vintage has now changed to Alta Vista International FZE.

3. Vintage is the initial investor of the GDR issues of all the Examined

Companies. By way of its holding of GDRs, Vintage was also the single largest

shareholder of the Examined Companies, after issuance of GDRs. The

association between Vintage and Examined Companies is also evident from

the fact that Examined Companies pledged their funds (GDR proceeds) to

Euram as collateral against the loan taken by Vintage.

4. Credo Investments Holding Ltd (Credo) and KII are group companies of Credo

group. Vintage signed a loan agreement with Credo, wherein it provided loan to Credo to further lend it to KII so that KII can deal in GDRs and shares of Examined Companies.

5. AP was the chief investment officer of CCPL. AP is also 100% shareholder of CCPL.

6. CCPL is 100% shareholder of IFCF. CCPL also acts as Investment manager of

IFCF. CCPL is registered as an FII with SEBI since June 20, 2011 and IFCF is

registered as its Sub-Account in India. Prior to registration of CCPL with SEBI,

Euram was the FII for IFCF.

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7. Vintage, through Euram, is the largest investor (63.11%) in Class A shares of

IFCF 2.

8. AP is the founder and director of Panasia. He is also 100% shareholder of

Panasia.

9. Atique was also one of the major shareholders of Panasia along with AP prior to AP acquiring Atique's stake in Panasia.

10. IFCF deals in GDRs, exclusively under Class A of its investment. As per information filed by IFCF, following are the investors in Class A shares of IFCF as on September 30, 2011:-

Name of Investors % of investment

Euram Bank 63.11%

Atique Aqadi Trading LLC (Atique)

29.06%

Citco Bank 7.82%

11. Euram Asia is joint venture in Dubai, between Euram and Panasia. AP is

holding 49% in Euram Asia by way of his investment in Panasia.

12. AP and SP were also directors of Euram Asia.

13. Euram holds 51% shareholding in Euram Asia.

14. Vintage signed Loan Agreements with Euram wherein, Euram provided loan

to Vintage for the sole purpose of subscription of GDR issue of Examined Companies.

15. Examined Companies signed Pledge Agreements with Euram. According to

the Pledge Agreements, the proceeds of GDR issuance were deposited and

pledged by the companies with Euram.

16. As per the KYC documents of Rexflec, AP is the director and beneficial owner

of Rexflec.

17. Rexflec is supposedly one of the initial investors in GDR issues of CAT, K Sera

and Maars. Rexflec has the same address as that of one Seychelles based

company called Premier Management Consultancy Ltd. IKF made a payment

to Premier Management Consultancy Ltd as placement fees of GDRs. The

name of Rexflec is now changed to Pan Asia Management Ltd.

2 Class A of IFCF is exclusively investing in the GDRs of Indian companies and subsequently selling in Indian Markets.

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18. Ababil Star General Trading (Ababil) is shown as one of the initial investors in

GDR issue of K Sera by Panasia. However, from the documents available, it is

found that GDRs were actually issued to Vintage and payments were made to

the issuer from the bank account of Vintage. From this, it is inferred that

Ababil is also connected to AP/AP related entities. Investigations revealed

that Ababil received funds from companies like Avon and Asahi. Asahi and

Avon have transferred funds to Ababil out of GDR issue proceeds.

19. Ababil transferred funds to one of the subsidiary of K Sera in Dubai.

20. Alka India Ltd., a company listed on BSE has the following family members of

AP acting as promoters:-

a) Ramswaroop Panchariya b) Ashok Panchariya c) Gopikishan Panchariya d) Geetabai M Purohit e) Satish R Panchariya f) Arun R Panchariya g) Ramswaroop B Panchariya h) Shantidevi Panchariya i) Saritadevi Panchariya j) Madhudevi Panchariya k) Radhadevi Panchariya l) Shantidevi R Panchariya m) Radhadevi S Panchariya n) Arun Ramswaroopji Panchariya o) Ramswaroopji B Panchariya p) Satish R Panchariya Mr. Satish Panchariya was appointed as the Chairman of company K Sera Sera Ltd in October 2012.

21. Alka India and Oudh were among the shareholders of Basmati. Together, they

held 37.68% of the shares of Basmati. Basmati in turn held 27.8% of the

shares of Oudh. (source: MCA website).

22. SV is the proprietary firm of Sarfaraz Khan Pathan. As per the KYC details provided by the Depository Participants of SV, one of the brothers of AP (Ashok Panchariya) is mentioned as nominee for the demat account of SV. Ashok Panchariya is also mentioned as introducer on the KYC documents for the bank accounts of Sarfaraz Khan.

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AP GDR Scheme

The following chart depicts the scheme of GDRs wherein AP arranges loans for the subscription to GDRs, subscribes to GDRs, sells the GDRs to FIIs/ Sub accounts (FIIs) who, in turn, sell shares received from conversion of GDRs in Indian securities market. A large portion of shares sold by FIIs are purchased by a set of counterparties (CP Group), who in turn, sell these shares to Indian retail investors. In addition to purchasing shares from FIIs and selling to retail investors, CP Group also creates/maintains liquidity in the scrip by trading among themselves. The GDRs thus issued and sold to Indian investors through steps explained below are hereinafter referred to as Structured GDRs and the complete scheme is referred to as GDR Scheme.

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Step 1:- Issuance of GDRs

1.1 Step 1 of the GDR scheme is shown in following chart:-

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1.2 As the Issuer Company is ready to issue GDRs in the Luxembourg market, Vintage

signs a loan agreement with Euram for issue of loan (Subscription Loan) for the purpose of subscription of GDRs. This loan agreement is signed by AP on behalf of Vintage.

1.3 The nature and purpose of the agreement states clearly that the loan is being provided to enable Vintage to take down the specified GDR issue of the Issuer Company. Further, according to the Loan Agreement, the amount may only be transferred to the account of that Issuer Company maintained with Euram. The aforesaid account of the Issuer Company mentioned in the loan agreement of Vintage is the same account where Issuer Company shows its GDR subscription proceeds as deposited (GDR Account).

1.4 Simultaneously, Issuer company also signs a Pledge Agreement with Euram wherein interalia, following is pledged by the issuer company to Euram. "...all of its right title and interest in and to, and the balance of funds existing from time to time at present or hereafter on the account no ... (GDR Account) kept by Bank (Euram) and all amounts credited at any particular time therein."

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Further, the pledge agreement is also part of the loan agreement and vice versa. The pledge agreement in its preamble states that, "...The Pledgor (Issuer Company) has received a copy of the Loan Agreement and acknowledges and agrees to its terms and conditions."

1.5 The following is also secured as per the Loan agreement:- a. "...In order to secure all and any of the Bank's claims and entitlements against the Borrower (Vintage).......... it is hereby irrevocably agreed that the following securities and any other securities which may be required by the Bank from time to time shall be given to the Bank as provided herein or in any other form or manner as may be demanded by the Bank.....

Pledge of certain securities held from time to time in the Borrower's account no ... at the Bank as set out in a separate pledge agreement which is attached hereto as Annex which forms an integral part of this Loan Agreement.

Pledge of the GDR Account of the Borrower held with the Bank as set out in a separate pledge agreement which is attached hereto as Annex and which forms an integral part of this Loan Agreement.

The GDR account referenced above is the same account wherein the issuer company has deposited the subscription proceeds of the GDR issue. From the above, it is observed that the GDR Account is held in the name of the issuer company while, for all intents and purposes, the actual control of said account ultimately vests with Vintage (effectively AP), as the account is kept as collateral for the loan availed by Vintage.

1.6 As a result of the Loan Agreement and the Pledge Agreement, the Subscription Loan provided to Vintage by Euram is used to acquire the GDRs of Issuer Company by Vintage. This Subscription Loan is thus deposited as Subscription fund in the GDR Account of Issuer Company which is pledged by the Issuer Company with Euram as security against the Loan provided to Vintage.

1.7 The Issuer company then issues GDRs to Initial investors through ODB. In the cases investigated by SEBI, it is observed that the GDRs were transferred not to the account of initial investors but to the security account of Vintage maintained with Euram. The issuer companies and Panasia have provided a list of initial investors to whom GDRs were issued. However, as per documents available with SEBI, it is observed that GDRs have been credited to the securities account of Vintage held with Euram on the day of GDR issuance and a payment for GDRs is made from the Euram Account of Vintage to the GDR Account of Issuer Company. From the foregoing it is clear that the GDRs were directly issued to Vintage. The list of initial investors of GDRs provided to SEBI by the issuer companies, therefore is a list designed to camouflage the name of the actual investor i.e. Vintage and mislead the shareholders of the company and the market.

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1.8 Effectively, there is no real movement of funds involved from Step 1.1 to 1.7. By

way of entries in the books of Euram, funds are released from loan account of Vintage to GDR account of issuer company and are kept as collateral with Euram. Thus, without any actual inflow of funds into the company, the issuer Company is successful in issuing large amount of GDRs which gives a respectable appearance to the financial statement of the company, which is misleading. In reality, few book entries result in large surge in the capital of the company. Thus, these GDRs are created without any purchase transactions or for any cost (apart from interest and commission earned by Euram).

1.9 The initial investors to the GDRs appear to be just fictitious/front entities created by AP and Panasia. Efforts to contact these original investors were futile. Emails sent have bounced back. Letters sent to these investors have also returned undelivered. SEBI also sought help of regulators of respective jurisdiction where these investors have been stated to be based. Foreign regulators have been unable to locate these investors.

1.10 Following are the details of the GDRs issued by the companies examined by SEBI.

Sr. No Issuer

Date of GDR Issue

Pre GDR equity (‘000)

Shares issued under GDR

(‘000)

% GDR to Pre GDR

equity

Market Cap prior to GDR

issue( Rs Crore)

Capital raised by

GDR Issue(Rs.

Crore)

% Capital raised to pre GDR Market

Cap

1 IKF 31-03-07 1,06,690 1,32,000 123 79.60 47.96 60.25

2 CAT 27-07-07 5,750 25,286 440 3.00 26.13 871.20

3 Maars 10-08-07 66,160 73,800 112 29.71 72.93 265.02

4 K Sera 26-10-07 19,513 47,619 244 71.02 98.42 138.58

6 Asahi 29-04-09 37,196 2,99,100 804 2.64 32.99 1137.94

7 IKF 15-05-09 2,68,190 1,62,391 61 79.66 54.44 68.35

8 Avon 19-06-09 16,580 48,000 289 14.71 48.13 327.19

9 K Sera 16-10-09 67,131 1,34,257 200 137.95 138.73 100.57

10 CAT 06-11-09 31,576 47,860 152 50.81 46.83 92.17

1.11 From the above table, it is clear that the amount of capital raised via issuing GDRs

is significantly large when compared to existing capital of the companies.

1.12 For the purpose of subscription of the GDRs of the aforementioned Examined Companies, loan agreements were signed by various entities with the banks. This loan was then utilised for subscribing to the GDRs of the Examined Companies, as detailed in Para 1.1 to 1.7 and summarised in Para 1.8.

1.13 Following are the details of loan agreements signed for the purpose of

subscription of GDRs of Examined Companies.

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Sr. No.

Issuer

Date of GDR Issue

GDR Issue Size

($ '000)

Borrower Loan Amount ($ '000)

Date of Loan

Agreement

Lender Date of Pledge

Agreement

1 IKF 31-03-07 11,000 Seazun 14,000 27-03-07 Banco 27-03-07

2 CAT 27-07-07 6,457 Vintage 6,457 23-07-07 Euram 20-07-07

3 Maars 10-08-07 17,933 Vintage 17,933 27-07-07 Euram 27-07-07

4 K Sera 26-10-07 25,000 Vintage 25,000 30-10-07 Euram 30-10-07

6 Asahi 29-04-09 5,982 Vintage 5,982 21-04-09 Euram 21-04-09

7 IKF 15-05-09 10,988 Vintage 10,988 28-04-09 Euram 28-04-09

8 Avon 19-06-09 10,000 Vintage 10,000 10-06-09 Euram 10-06-09

9 K Sera 16-10-09 29,984 Vintage 29,984 06-10-09 Euram 06-10-09

10 CAT 06-11-09 10,003 Vintage 10,003 27-10-09 Euram 27-10-09

Step 2:- Cancellation of GDRs

2.1 The GDRs created at the end of Step 1 were transferred to the account of Vintage held with Euram. Subsequently, Vintage through over the counter transactions, sold the GDRs to FIIs such as IFCF, KII etc or other FIIs which had an agreement with AP for the purpose of purchasing GDRs. The GDRs were then converted into underlying shares and these shares were sold in the Indian market.

2.2 Euram Bank informed SEBI vide letter dated March 27, 2012 that their investment in IFCF is on behalf of Vintage. Similarly, Atique is also connected with AP. Thus 92.17% of Class A shares of IFCF was held by entities with established connection with AP and all the dealings of IFCF in the GDRs of Examined Companies were under control of AP.

2.3 Arrangements between Credo, KII and Vintage for dealing in GDRs of Examined Companies have been observed. Vintage signed a loan agreement with Credo, wherein it provided loan to Credo to further lend it to KII so that KII can purchase GDRs of Examined Companies and convert into shares to sell in Indian Markets. The market risk of these transactions was borne by Vintage. Thus, the dealings of KII in the GDRs of Examined Companies were also under control of AP.

2.4 It is observed that IFCF and KII started dealing in the GDRs of Examined Companies from June 2009 and after that no other FII/Sub-Account has cancelled GDRs of Examined Companies except KII and IFCF. Following table provides details of cancellation of GDRs of Examined Companies done by KII and IFCF as on June 30, 2012.

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GDR Issue Date

Total GDRs Issued

Total GDRs Cancelled till June 30, 2012

GDRs cancelled between June 01, 2009 to June 30, 2012

GDRs cancelled by IFCF

GDRs cancelled by KII

% of GDRs cancelled by IFCF & KII to total GDRs cancelled

% of GDRs cancelled by IFCF & KII to total GDRs cancelled between June 01, 2009 to June 30, 2012

Asahi 29-04-09 29,91,000 15,14,450 15,14,450 13,81,000 1,00,000 97.8 97.8

Avon 19-06-09 16,00,000 16,00,000 16,00,000 14,44,000 1,56,000 100.0 100.0

CAT 27-07-07 43,04,348 25,80,000 1,95,000 1,20,000 75,000 7.6 100.0

CAT 06-11-09 15,95,333 13,685 13,685 13,685 0 100.0 100.0

IKF 31-03-07 1,10,00,000 1,10,00,000 0 0 0 0.0 0.0

IKF 15-05-09 54,13,048 10,34,000 10,34,000 9,89,000 45,000 100.0 100.0

K Sera 26-10-07 47,61,900 47,61,900 33,41,900 13,96,757 19,45,143 70.2 100.0

K Sera 16-10-09 44,75,238 12,35,500 12,35,500 7,58,500 4,77,000 100.0 100.0

Maars 10-08-07 73,80,000 57,92,800 15,77,800 11,27,800 4,50,000 27.2 100.0

From the above table, it is clear that from June 01, 2009, the activity of cancelling

GDRs and converting to shares was done entirely under direct control of AP.

2.5 To summarise, the funds for the purchase of GDRs are provided by AP to FIIs, either by direct investment in the fund like IFCF or by entering into contractual agreement and providing loan to FIIs/Sub-Accounts (e.g. KII , etc). In reality, funds have only moved from one AP controlled company (IFCF) to another AP controlled company (Vintage) and vice versa.

Step 3:-Sale of Shares to group of Indian clients and utilisation of GDR issue

proceeds by Examined Companies.

3.1 The step 3 of the GDR scheme involves selling of shares (received post conversion

of GDRs of Examined Companies) on Indian stock exchanges by FIIs. It has been observed that the shares sold by FIIs are purchased in large quantities by certain set of Indian clients (CP Group) . These Indian clients then sell these shares purchased from FIIs to other retail investors. It has also been observed that the members of the CP Group traded in large quantities among themselves which increased the liquidity of the scrip of Examined Companies. SEBI in its interim Order dated September 21, 2011 identified one such group of clients which had connections with AP and made following observations in Para 5 on Page 3 of the aforesaid order:-

The average daily volume has increased significantly on the days when the entities, Sub-Accounts

and Group, have been observed to be trading in the scrip. In the case of Asahi it is nearly 26 times

the days when these entities have not trade , indicating the major role these entities have played

in creating liquidity in the scrip.

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On days when Sub-Accounts have sold the shares their concentration is ranging from 18% to 53%

of day’s net volume. On such days, the volume has increased from 7 times (Cat) to 74 times

(Maars) than compared to when Sub-Accounts are not trading. Thus the selling of the Sub-Account

is expected to have a huge downward pressure on the price of the scrip.

During the days the Group has traded its total trading is nearly 1/3rd

of the total trading in the

scrip on a gross basis.

3.2 Following chart explains the manner in which the shares received from

cancellation of GDRs are ultimately sold to Indian retail investors:-

3.3 The next step in the GDR scheme involves the CP Group selling shares to the Indian retail investors with a view to generate profit. Uptil now, each transaction has been controlled by AP or SP. In this last step, since the shares are being sold to the retail investors, the price paid by such investors goes to the sellers (CP Group or FIIs) and thereby to AP, as the CP Group, FIIs and AP are related/connected with each other. Thus, it is the Indian Investors, and not the foreign investors, who have ultimately paid for the GDRs.

3.4 As the investigations conducted by SEBI revealed that the GDR issue of Examined Companies were not a capital raising exercise as it was portrayed by these companies and Lead Manager, SEBI investigated the utilisation of GDR issue proceeds by the Examined Companies.

3.5 Investigations have revealed that all the Examined Companies have utilised majority of the GDR issue proceeds through their foreign subsidiaries in other countries. Majority of these foreign subsidiaries have following common aspects:-

3.5.1. Most of these are based in free zones of U.A.E. 3.5.2. In almost all the case, the major portion of the GDR issue (100% in one of

the case viz, CAT) is directly transferred to foreign subsidiary and is not repatriated to India.

3.5.3. Mostly, these have been incorporated during or after the period of GDR issue.

3.5.4. These are mostly trading companies generally dealing in commodities/ products unrelated to the business of parent company.

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3.5.5. They have financial transactions with Vintage, Initial investors of GDR issues of other companies and foreign subsidiaries of other companies which have issued GDRs managed by AP and Panasia.

3.6 None of the Examined Companies have provided SEBI with adequate explanation

of the transfer of funds to their foreign subsidiaries. Due to the non cooperation by companies, many aspects like bank accounts, financial transactions, nature of business and dealings with AP connected entities of foreign subsidiaries of Issuer companies could not be investigated in detail by SEBI. However, from the limited documents and material available with SEBI, it is revealed that foreign subsidiaries are being used to make payments to AP/AP related entities. The rationale for such transaction has not been explained to SEBI. However, in light of the findings of the investigation indicating that AP/AP related entities have colluded with the companies to issue GDRs fraudulently, it is probable that the financial transaction between the foreign subsidiary and AP/AP related entities could possibly be a route for the issuer company to compensate AP for services rendered by him.

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Detailed Investigation of Issuer Companies

(I) ASAHI INFRASTRUCTURE AND POJECTS LTD.

Summary of GDR issue:-

1. The GDR Issue of Asahi for US $ 5.98 Million closed on April 29, 2009 and was

fully subscribed. The allotment of 29,91,000 GDRs representing 299,100,000 equity shares of Rs 1/- each at USD 2.00 by the company was done on April 29, 2009.

2. Panasia was appointed as the LM to the GDR issue by the company.

3. Asahi consolidated equity shares on November 04, 2010 from 10 equity

shares of Rs. 1 each to 1 equity shares of Rs. 10 each. For ease of understanding, each share of Asahi transacted post consolidation of shares has been treated as 10 shares of face value Rs. 1.00 in our calculation in this report.

4. Prior to GDR issue, Asahi had 37,196,000 fully paid equity shares. Therefore, the equity shares represented by the GDRs were approximately 804.03% of Asahi's outstanding share capital at the time of GDR issue.

5. The total capital raised by Asahi vide GDRs was USD 5,982,000 which is equal to Rs. 30,04,16,040 considering conversion price of USD 1 = Rs. 50.22 as on April 29, 2009. The market cap of Asahi prior to GDR issue was Rs. 2,64,00,000. Therefore, the capital raised by GDR issue was 1137.94% of the market capital of the company prior to GDR issue.

6. The last traded price of Asahi on BSE on April 29, 2009 was Rs. 0.74. The highest and lowest price of Asahi for period of three months from January 29, 2009 to April 29, 2009 was Rs. 0.89 and Rs. 0.53 respectively. The price which subscribers paid for each share underlying GDRs was Rs. 1.04 (USD 1 = Rs. 50.22 as on April 29, 2009) which was 140.54% of the price of the scrip on same day.

Subscribers of GDR Issue:-

7. Following are the details of investors in the GDR issue of Asahi, as per the

submissions of the company:-

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Name of Subscriber GDRs Subscribed

Amount Paid (USD)

% of total GDR issue

Greenwich Management Inc (Greenwich)

14,91,000 29,82,000 49.85

Tradetec Corporation (Tradetec) 15,00,000 30,00,000 50.15

8. Greenwich and Tradetec were observed to be investors in several other GDR

issues of Indian companies. The address of these subscribers, which was made available to SEBI, is given below.

Name Address

Greenwich Floor - 18, One International Finance Centre, 1 Harbour view Street, Central, Hong Kong

Tradetec Level 47, Prudential Tower, 30 Cecil Street, Singapore - 049712 Email : [email protected]

9. In order to contact these initial investors emails were sent to available email

addresses of these entities and summons were issued to the contact address made available to SEBI. All the emails and summons issued to these investors returned back undelivered. The respective securities market regulator of the countries where these investors are located were requested contact these investors. However, the regulators have informed SEBI that the addresses of the investors are either non-existent or do not belong to these entities.

Loan & Pledge Agreement signed among Asahi, Vintage & Euram.

10. From the documents available with SEBI, it is observed that the issuance and

subscription of GDRs of Asahi was done using loan taken from Euram. The GDR issue of Asahi was managed and structured by AP with the Loan and Pledge Agreement signed among Asahi, Vintage and Euram, which is the key to the fraudulent issuance and subscription of GDRs in this case.

11. A loan agreement (Loan Agreement : K210409-003) dated April 21, 2009, was signed between Euram and Vintage on April 22, 2009. The agreement was signed by AP as Managing Director on behalf of Vintage on April 22, 2009.

12. The Loan agreement states that Euram has agreed to make available a loan of USD 59,82,000.00 to Vintage (referred to as ''the Borrower''). The nature and purpose of the loan facility is to provide funding enabling Vintage to take down GDR issue of Asahi's Luxemburg public offering and may only be transferred to Euram account no: 540030.

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13. The Euram account no: 540030 is the bank account of Asahi maintained with Euram for the purpose of depositing proceeds of GDR issue.

14. As security against the Loan provided to Vintage following is stated in the Loan Agreement. "6.1 In order to secure all and any of the Bank's claims and entitlements against the Borrower, arising now or in the future out of or in connection with the Loan or any other obligation or liability of the Borrower to the Bank, including without limitation other loans granted in the future , it is hereby irrevocably agreed that the following securities and any other securities which may be required by the Bank from time to time shall be given to the Bank as provided herein or in any other form or manner as may be demanded by the Bank

Pledge of certain securities held from time to time in the Borrower's account no. 540 030 at the Bank as set out in a separate pledge agreement which is attached hereto as Annex 2 and which forms an integral part of this Loan Agreement.

Pledge of the account no. 540 030 of the Borrower held with the Bank as set out in a separate pledge agreement which is attached hereto as Annex 2 and which forms an integral part of this Loan Agreement."

15. A Pledge Agreement dated April 21, 2009 was signed between Asahi and

Euram. The agreement was signed by Mr. Laxminarayan Rathi on April 28, 2009, on behalf of Asahi as Managing Director of Asahi. He and his other family members are also promoters of Asahi.

16. Mr. Laxminarayan Rathi did not inform Bombay Stock Exchange or shareholders or of the company about signing the Pledge Agreement.

17. According to the Pledge Agreement, Asahi has been referred to as "Pledgor'' while Euram has been referred to as ''Bank''.

18. The preamble of the Pledge Agreement states

"By loan agreement K210409-003 (hereinafter referred to as ''Loan Agreement'') dated April 21, 2009, the Bank granted a loan (hereinafter referred to as the ''Loan'') to Vintage FZE, AAH-213, Al Ahmadi House, Jebel Ali Free Trade Zone, Jebel Ali, Dubai, United Arab Emirates (''the Borrower") in the amount of $ USD 5,982,000.00 million3. The Pledgor has received a copy of the Loan Agreement and acknowledges and agrees to its terms and conditions."

19. From the above preamble of Pledge Agreement, it is clear that Mr. Laxminarayan Rathi and Asahi were also the party to the Loan Agreement.

20. The pledge created in the Pledge Agreement is stated below:-

3 It appears that 'million' has been wrongly inserted in the Loan agreement. The loan amount was only

USD 5,982,000.00.

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" 2. Pledge

2.1 In order to secure any and all obligations, Present and future, whether conditional or unconditional of the Borrower towards the bank under the Loan Agreement and any and all respective amendments thereto and for any and all other current or future claims which the Bank may have against the Borrower in connection with the Loan Agreement – including those limited as to condition or time or not yet due – irrespective of whether such claims have originated from the account relationship, from bills of exchange, guarantees and liabilities assumed by the Borrower or by the Bank, or have otherwise resulted from business relations, or have been assigned in connection therewith to the Bank (“the Obligations”) the Pledgor hereby pledges to the Bank the following assets as collateral to the Bank:

2.1.1 all of its rights, title and interest in and to the securities deposited from time to

time at present or hereafter (hereinafter referred to as the “Pledged Securities”) and

the balance of funds up to the amount of $ USD 5,982,000.00 existing from time to

time at present or hereafter on the securities account(s) no. 540 030 held with the

Bank (hereinafter referred to as the “Pledged Securities Account”) and all amounts

credited at any particular time therein.

2.1.2 all of its right, title and interest in and to, and the balance of funds existing from time to time at present or hereafter on the account(s) no. 540 030 kept by the Bank (hereinafter referred to as the “Pledged Time Deposit Account “) and all amounts credited at any particular time therein.

(the Pledged securities account and the Pledged Time Deposit account hereinafter referred to as the “Pledged Accounts”, the Pledged Securities and the Pledged Accounts hereinafter collectively referred to as “Collateral”)

2.2 The Pledgor agrees to deposit with the Bank all dividends, interest and other payments, distributions of cash or other property resulting from the Pledged Securities and funds."

21. Further, following condition have been put in the Pledge agreement for the realization of the pledge.

6. Realization of the Pledge

6.1 In the case that the Borrower fails to make payment on any due amount, or default in accordance with the Loan Agreement, The Pledgor herewith grants its express consent and the Bank is entitled to apply the funds in the Pledged Accounts to settle the Obligations. In such case the Bank shall transfer the funds on the Pledged Accounts, even repeatedly, to an account specified by the Bank

6.2 Notwithstanding the foregoing, in the case that the Borrower fails to make payment on any due amount, or defaults in providing or increasing security, the Pledgor herewith grants its express consent and the Bank is entitled to realize the

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Pledged Securities (i) at a public auction for those items of Pledged Securities for which no market price is quoted or which are not listed on a recognized stock exchange or (ii) in a private sale pursuant to the provisions of Section 376 Austrian Commercial Code unless the Bank decides to exercise its rights through court proceedings. The Pledgor and the Bank agree to Realize those items of the Pledged Securities for which a market price is quoted or which are listed on a stock exchange through sale by a Broker Publicly authorized for such transactions, selected by the Bank.

6.3 The Bank may realize the Pledge rather than accepting payments from the Borrower after maturity of the claim if the Bank has reason to believe that the Borrower’s payments may be contestable.

22. As the account no. 540030 is the account which Asahi has maintained with Euram to keep the proceeds of GDRs, it is clear that Asahi has pledged money received through issuance of GDRs to secure rights of Euram against the loan given by Euram to Vintage for subscription of GDR issue (as mentioned in Loan agreement of Vintage). This account (540030) is also referred to as borrowers (Vintage) account in the Loan Agreement. This common ownership of a bank account that belongs to both the borrower/subscriber and the Issuer Company in which the GDR proceeds are received added to a guarantee by Issuer Company for the loan taken by subscriber to its GDRs, are the central and determining features of this scheme to fraudulently raise capital by the Issuer Company

23. The fraudulent transformation of loan into GDR subscription in the name of different subscribers occur through the scheme between AP/Vintage and Asahi wherein the latter supports the former through pledging of GDR proceeds.

24. On June 01, 2009, Asahi informed BSE that the Company had allotted 29,91,00,000 equity shares of Rs 1/- each underlying 29,91,000 GDRs available for conversion, to the foreign entities namely, Greenwich and Tradetec. Subsequently, this information was made public to retail investors on BSE website. It is now clear from the investigation conducted that the said public announcement by Asahi was done to mislead retail investors in believing that the GDRs were subscribed by genuine foreign investors, whereas in reality, GDRs were subscribed by Vintage in connivance with Asahi and the proceeds simultaneously pledged with the Euram.

Acquisition, Cancellation and Sale of GDRs:-

25. After the issuance of GDRs, Vintage became the sole holder of the GDRs

issued, thereby becoming the majority share holder of Asahi. As on April 29, 2009, Vintage held 29,91,000 GDRs of Asahi, which made Vintage 88.94% shareholder of the company.

28

26. These GDRs were then transferred to IFCF and KII through over the counter

transactions. Following table gives the details of transfer of GDRs from account of Vintage (maintained with Euram) to that of IFCF and KII.

Date of Transaction

Name of Acquirer

Name of Seller

Quantity of GDRs acquired

Value of GDR Acquired ($)

Trading Platform

Value per GDR ($)

17-08-09 IFCF Euram 4 44,000 1,10,000 OTC 2.50

24-08-09 IFCF Euram 1,11,000 2,38,650 OTC 2.15

16-11-09 KII Euram 35,000 63,504 OTC 1.81

03-12-09 IFCF Euram 50,000 94,500 OTC 1.89

17-12-09 IFCF Euram 76,000 1,49,720 OTC 1.97

21-01-10 KII Euram 65,000 1,20,557 OTC 1.85

02-02-10 IFCF Euram 1,50,000 2,77,500 OTC 1.85

09-05-10 IFCF Euram 1,00,000 3,02,000 OTC 3.02

13-08-10 IFCF Euram 2,00,000 4,10,000 OTC 2.05

05-10-10 IFCF Euram 50,000 91,000 OTC 1.82

12-10-10 IFCF Euram 50,000 96,500 OTC 1.93

21-10-10 IFCF Euram 50,000 93,000 OTC 1.86

27-10-10 IFCF Euram 1,00,000 1,85,000 OTC 1.85

06-11-10 IFCF Euram 1,00,000 1,86,000 OTC 1.86

09-03-11 IFCF Euram 50,000 1,12,153 OTC 2.24

10-03-11 IFCF Euram 1,00,000 2,23,152 OTC 2.23

26-04-11 IFCF Euram 1,50,000 3,03,000 OTC 2.02

15-06-11 IFCF Euram 1,70,000 2,32,900 OTC 1.37

Total 16,51,000 32,89,136 1.99

27. Both IFCF and KII are connected to AP as Credo was found to be having an

agreement with Vintage for dealing in the GDRs of Asahi.

28. Credo, an associate company of KII was found to have an agreement with Vintage. According to this agreement, Vintage provided a Loan of USD 20,00,000.00 to Credo to further lend it to KII, to enable KII to purchase securities of several Indian companies including those of Asahi, either in India or overseas market. As per the agreement, KII got GDRs converted into underlying shares and sold the resultant shares in the Indian Markets. The sale proceeds were then to be used to purchase further securities to repeat the said process until KII decided to terminate the agreement.

29. Credo was paid a definite amount as commission by Vintage for providing service of dealing in the securities of Indian companies. The agreement also ensured that Vintage take full liability of the dealings of KII in the GDRs of

4 Euram has informed SEBI that all the transactions executed by Euram in GDRs of Indian companies

are on behalf of Vintage.

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Indian companies and any loss incurred by KII to be borne by Vintage only. The agreement was signed by AP on behalf of Vintage.

30. The cancellation of the GDRs of Asahi started from August 19, 2009 till June 14, 2011. Following are the details of cancellation requests completed till June 30, 2012.

Transaction Date Entities cancelling GDRs on

behalf of FIIs/Sub-Accounts GDRs

Cancelled Shares Released

19-08-2009 Euram 44,000 44,00,000

25-08-2009 Euram 1,11,000 1,11,00,000

23-11-2009 J.P. Morgan Clearing Corp. 35,000 35,00,000

04-12-2009 Euram 50,000 50,00,000

18-12-2009 Euram 76,000 76,00,000

27-01-2010 Jefferies & Co, Inc 65,000 65,00,000

02-02-2010 Euram 1,50,000 1,50,00,000

09-08-2010 Euram 30,000 30,00,000

11-08-2010 Euram 20,000 20,00,000

12-08-2010 Euram 50,000 50,00,000

24-08-2010 Euram 20,000 20,00,000

09-09-2010 Euram 50,000 50,00,000

20-09-2010 Euram 25,000 25,00,000

22-09-2010 Euram 35,000 35,00,000

05-10-2010 Euram 50,000 50,00,000

01-03-2011 Euram 1,00,000 1,00,00,000

20-04-2011 SIX SIS AG 33,450 33,45,000

26-04-2011 Euram 65,000 65,00,000

31-05-2011 Euram 1,45,000 1,45,00,000

03-06-2011 Euram 1,45,000 1,45,00,000

07-06-2011 Euram 74,500 74,50,000

14-06-2011 Euram 1,40,500 1,40,50,000

Total 15,14,450 15,14,45,000

31. The shares were released and credited to the demat accounts of IFCF and KII as detailed below.

Date of receiving shares

Name of entity receiving shares from GDR cancellation

No. of shares received

20-08-2009 INDIA FOCUS CARDINAL FUND 44,00,000

26-08-2009 INDIA FOCUS CARDINAL FUND 1,11,00,000

25-11-2009 KII LTD 35,00,000



28-01-2010 KII LTD 65,00,000

30


Name of entity receiving shares from GDR cancellation













27-04-2011 BANK SARASIN AND CO. LTD 33,45,000





Total 15,14,45,000

32. 14,81,000 GDRs (49.51% of total 29,91,000 GDRs issued) were cancelled by IFCF and KII during the period August 20, 2009 to June 15, 2011, of which 13,81,000 GDRs were cancelled by IFCF.

33. The following chart depicts the complete process of acquisition of GDRs by IFCF and KII from Vintage and cancellation and conversion of these GDRs into underlying shares.

31

34. The underlying shares received by IFCF and KII were sold in the Indian Markets.

35. The details of the counterparties to these sales during the period January 01, 2009 to September 21, 2011 are given below:-

FII CP PAN CP NAME Sell Volume Sell Value (Rs.) % of Total

sale by IFCF

IFCF AACCI3088H INDRAVARUN TRADE IMPEX PVT LTD (INDRAVARUN) 65,99,900 3,39,36,012

28.53

IFCF AAACB4324K BASMATI 1,90,52,069 2,80,81,895 23.60

IFCF ACRPP5552H SV 34,11,300 35,02,024 2.94

Others 3,54,18,377 5,34,47,388 44.93

Total sale by IFCF 6,44,81,646 11,89,67,319 100.00

FII CP PAN CP NAME Sell Volume Sell Value (Rs.) % of Total sale by KII

KII ACRPP5552H SV 20,00,000 20,00,000 57.14

KII AAACB4324K BASMATI 7,50,755 7,50,755 21.45

Others 7,49,245 7,49,245 7.09

Total Sale by KII 35,00,000 35,00,000 100.00

36. Considering the consolidation of shares by Asahi on November 04, 2010, IFCF sold 12,39,71,646 shares of Asahi for Rs. 11,89,67,319, out of 13,81,00,000 shares received by it post cancellation of GDRs.

Utilisation of GDR proceeds by Asahi:-

37. The proceeds of GDR issue received by Asahi were also analyzed to

determine the manner in which the company has utilized the funds. Documents were sought from Asahi in support of the utilisation of the GDR proceeds. Most of the information and documents submitted by Asahi are inconsistent with the statements made by Asahi to SEBI or with statements available in public domain. Details of the same are provided in following paragraphs

38. Summons were issued to Asahi seeking details regarding utilisation of GDR proceeds by the company. The information and documents sought in the summons are detailed below:-

38.1. Details of usage of proceeds of the GDR Issues by Asahi, along with the documentary proof in support of the utilization of the funds.

38.2. Copies of bank account statements of Asahi maintained with Euram Bank.

38.3. Copies of bank account statements of Asahi in India highlighting transactions related to repatriation of GDR proceeds.

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38.4. Chronology of events leading to the issue of GDRs along with a certified true copy of the resolution passed by Board of Directors.

38.5. Rationale for the appointment of Panasia as LM for GDR issue of Asahi.

38.6. Copies of all the agreements between Asahi and Panasia 38.7. Copies of agreements with Euram. 38.8. Details of the conditions that were laid upon Asahi for the

withdrawal of GDR proceeds from bank accounts maintained with Euram.

38.9. Copy of any other agreement that Asahi had with Euram apart from those related to GDR issues.

38.10. Details of any agreement of Asahi regarding financing for the purpose of subscription by initial investors of GDRs.

38.11. Copies of agreements that Asahi had with Vintage and AP. 38.12. Details of nature of business of the subsidiary of Asahi in U.A.E

viz, Asahi Infrastructure & Projects Ltd FZE (Asahi FZE). 38.13. Copies of Bank Account Statements of Asahi FZE. 38.14. Details of payments made to Panasia or companies associated

with Panasia. 38.15. Name of the directors and promoters of Asahi at the time of

issue of GDRs. 38.16. Details of money paid by Asahi FZE, be it on account of

purchases or expenses or loan, to other entities for more than USD 25,000 from incorporation. Asahi was specifically asked to provide details like name of entities to which payments were done, purpose of payments and amount paid by Asahi FZE.

38.17. Audit Report of Asahi FZE along with financial statements for the year ending March 2010 and March 2011.

38.18. Detail of remittance of USD 60,798 done to Pan Asia Management by Asahi on July 15, 2010.

38.19. Contact details, Nature of business and Bank Account statements of Asahi FZE

39. Summons dated March 28, 2012 was issued to Managing Director of Asahi to appear in person on April 16, 2012 before Investigating Authority at SEBI head office. On April 16, 2012, Mr. Ravi Ramaiya, Practicing Chartered Accountant appeared on behalf of Asahi with authorisation letter signed by Mr. Laxminarayan Rathi, MD of Asahi and the representative's statement was recorded before Investigating Authority.

40. From the perusal of the documents submitted in response to the summons and statement given by the representative of Asahi, following are observed:-

40.1. Asahi submitted the details of utilisation of GDR proceeds. Summary of the same is given below:-

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Utilisation Amount (in Rs. crore)

Transferred to Asahi FZE 20.96

GDR Expense. 1.369

Utilised in India 5.886

Dividend Payment 1.7

Total Capital Raised 29.91

40.2. Rs. 20.96 crore out of total issue size of Rs. 29.91 crore i.e. around 70% was transferred by Asahi to its subsidiary in Dubai Asahi FZE.

40.3. It was submitted by Asahi that Rs. 20.96 crore was transferred to Asahi FZE for trading purpose. Asahi FZE received and paid money for trading in cement, aluminium, iron, construction and so on.

40.4. The account statement of Asahi FZE reflected transactions with K Sera Sera Production FC LLC (Asahi FZE received USD 19,97,955 ), Ababil Star General Trading (Ababil)5 , CAT Technologies, Vintage etc.

40.5. Asahi FZE had transactions with companies like Beckons Industries Ltd, Cybermate Infotek and CAT that have issued GDRs with Panasia as LM. Asahi has not been able to explain the rationale behind such financial transactions with these companies.

40.6. According to submissions by Asahi, Asahi FZE paid USD 20,73,000 to Vintage and USD 600,000 to Ababil from its Dubai Bank accounts. However, Asahi was unable to provide an explanation for these transactions.

41. On adding USD 26,73,000 transferred to Vintage and Ababil by Asahi FZE to

the funds which Vintage received by selling the GDRs (USD 32,89,136) to FIIs, the total amount comes to be USD 59,62,136, which is around 99.66% of total loan taken by Vintage from Euram for subscribing to GDR issue of Asahi.

42. Out of Rs. 20.96 crore (approx USD 4.7 million) transferred to Asahi FZE, USD 2.67 million was transferred back to AP Entities like Vintage and Ababil. Thus Asahi transferred 44.68% of the GDR issue proceeds back to AP entities which is suspected to be utilised to repay the loan taken by Vintage under Loan Agreement.

43. Following documents/information sought vide summons/emails/letters were not provided by Asahi.

5 Ababil was a company based outside India with which Avon had an agreement worth USD 4 million to purchase second hand machinery. Ababil was also one of the initial investors of GDR issue of K Sera.

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43.1. Important details with respect to Asahi FZE viz. address, contact person and contact no. was not provided by Asahi to SEBI.

43.2. Asahi was specifically asked to explain the rationale behind all the payments done by Asahi FZE which were above USD 25,000. However, Asahi did not provide rationale for payments done by Asahi FZE.

43.3. Details of purchases and expenses incurred by Asahi FZE were not provided.

44. Due to the fact that Asahi did not provide the specific details like purpose of payments done by Asahi FZE with proper documentary proof, it was not possible for SEBI to investigate the end use of the GDR proceeds by Asahi FZE and establish complete cycle of flow of funds. It is suspected, due to reasons explained above, that Asahi FZE was used by AP to route funds back to Vintage and other AP entities. The same is explained in chart below:-

35

Misleading Submissions by Asahi:-

45. Apart from not providing aforementioned critical information to SEBI, wrong

information was also provided by Asahi. The wrong submissions of Asahi were particularly related to Pledge and Loan Agreements to which Asahi was one of the party.

46. It was confirmed by Asahi in its submissions that there were no conditions prescribed under any Agreement with Euram with regard to withdrawal of funds from GDR Account.

47. Asahi denied having any other agreement with Euram other than Escrow Account agreement.

48. Asahi also denied having any agreement with Vintage or AP.

49. Asahi denied having any agreement with any entity regarding financing of subscription of GDR Issues.

50. The submission by Asahi that it did not have any other agreement with Euram, Panasia, Vintage or AP is false as Pledge was signed by the Managing Director of the company with Euram. Further, this Pledge Agreement is part of the Loan Agreement between Vintage and Euram. Similarly it is mentioned in the Pledge Agreement that the Pledgor has received the Loan Agreement and agrees to its conditions.

51. Asahi also made a false submission of no restriction/condition on its GDR Account for withdrawal of funds. From the perusal of Pledge Agreement it is observed that the GDR Account is a collateral against the Loan taken by Vintage and therefore funds can only be withdrawn when the loan is repaid by Vintage

52. Asahi did not disclose details of outstanding GDRs in its quarterly disclosure of share holding pattern to exchanges. As per BSE website, the equity held with custodians is shown as nil for Asahi even after issuance of GDR issue.

53. The above explained falsification of information regarding Pledge and Loan Agreements and concealment of information regarding utilisation of funds by foreign subsidiary supports the suspicion of SEBI that part of the proceeds of GDR issue were routed back to AP entities.

54. In conclusion, it may be said that Asahi having executed the fraudulent

transaction of claiming subscription of GDRs by two foreign investors while it was only purchased by the LM/AP related entity and finding the proceeds being encumbered due to the underlying loan taken by AP, finally received, in India, not more than 30% of the money raised. The remaining funds were paid out to various parties without any clear purpose of such transfers

36

mentioned in the books of the company. These highly material events are not explained clearly in the financial statements of the company nor were ever disclosed to the market. The shareholders of Asahi were adversely and without warning impacted due to the slide in prices on account of the large sale of shares upon cancellation of GDRs.

37

(II) AVON CORPORATION LTD.


1. The GDR Issue of Avon for US $ 10 Million closed on June 19, 2009 and was

fully subscribed. The allotment of 16,00,000 Global Depository Receipts representing 4,80,00,000 equity shares of Rs 10/- each at $6.25 by the company was done on June 19, 2009.


3. Prior to GDR issue, Avon had 1,65,80,317 fully paid equity shares. Therefore, the equity shares represented by the GDRs were approximately 289.50% of Avon's outstanding share capital at the time of GDR issue.

4. The total capital raised by Avon vide GDRs was USD 1,00,00,000 which is equal to Rs. 48,13,00,000 considering conversion price of USD 1 = Rs. 48.13 as on June 19, 2009. The market cap of Avon prior to GDR issue was Rs. 14,71,00,000. Therefore, the capital raised by GDR issue was 327.19% of the market capital of the company prior to GDR issue.

5. The last traded price of Avon on BSE on June 19, 2009 was Rs. 8.87. The highest and lowest price of Avon for a period of three months from March 19, 2009 to June 19, 2009 was Rs. 10.30 and Rs. 3.95 respectively. The price which subscribers paid for each share underlying GDRs was Rs. 10.02 (USD 1 = Rs. 48.13 as on June 19, 2009) which was 112.05% of the price of the scrip on same day.


6. Following are the details of investors in the GDR issue of Avon, as submitted

by the company.


Amount Paid (USD)


Flamboyant International Ltd (Flamboyant) 2,40,000 15,00,000 15.00

Trendsetter Enterprises Cops.(Trendsetter) 3,20,000 20,00,000 20.00

Green Management Inc (Greenwich) 2,88,000 18,00,000 18.00

Flagstaff Investments LTD (Flagstaff) 2,24,000 14,00,000 14.00

Imagination Network Inc.(Imagination) 2,40,000 15,00,000 15.00

Figura Group LTD (Figura) 2,88,000 18,00,000 18.00

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7. All the above subscribers were observed to be investors in several other GDR issues of Indian companies which were managed by Panasia. The addresses of these subscribers which were made available to SEBI are as following.

Name of Subscriber Address

Flamboyant 21st

Floor, ICBC Tower, Citibank Plaza No: 3, Garden Road, Hong Kong

Trendsetter Level 42, Suntec 4, 8 Temasek BLVD, Singapore - 038988

Greenwich Floor - 18, One International Finance Centre, 1 Harbour view Street, Central, Hong Kong Email : [email protected]

Flagstaff 10th Floor, Al Odaid Office Tower, Airport Road, P.O. Box 128161, Abu Dhabi, UAE

Imagination Level 39, One Exchange Square, Central HongKong

Figura 15 A, West Road, West Cliff Onsea, Essex SS09AU

8. All the attempts to contact these subscribers were unsuccessful, just like in

all the other cases where LM to the GDR issue is Panasia. None of the letters, emails or summons got delivered to these subscribers due to wrong email addresses and other contact addresses. Even the financial market regulators regulating the region where these subscribers were located could not trace these subscribers. In most of the cases SEBI got a reply from the respective regulators that no such address exist that have been provided by SEBI.

Loan & Pledge Agreement signed among Avon, Vintage & Euram.

9. From the documents available with SEBI, it is observed that the issuance and

subscription of GDRs of Avon was done using loan taken from Euram. The GDR issue of Avon is issued using AP GDR Scheme and Loan and Pledge Agreement signed among Avon, Vintage and Euram is the key to issuance and subscription of GDRs in this case.

10. The Pledge and Loan agreements among Avon, Vintage and Euram are similar to that of Asahi and other companies examined by SEBI. These agreements are part of AP GDR scheme.

11. A loan agreement (Loan Agreement : 100609-002) dated June 10, 2009, was signed between Euram and Vintage on June 12, 2009. The agreement was signed by AP as Managing Director on behalf of Vintage on June 12, 2009.

12. The Loan agreement states that Euram has agreed to make available a loan of USD 1,00,00,000.00 to Vintage (referred to as ''the Borrower''). The nature and purpose of the loan facility is to provide funding enabling Vintage to take down GDR issue of Avon's Luxemburg public offering and may only be transferred to Euram account no: 540084.

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13. The Euram account no: 540084 is the bank account of Avon maintained with Euram for the purpose of depositing proceeds of GDR issue.




15. A Pledge Agreement dated June 10, 2009 was signed between Avon and Euram. The agreement was signed by Mr. Pankaj Saraiya on June 12, 2009 on behalf of Avon, as CEO of Avon. He and his other family members are promoters of Avon.

16. According to the Pledge Agreement, Avon has been referred as "Pledgor'' and Euram has been referred to as ''Bank''.


"By loan agreement K210409-003 (hereinafter referred to as ''Loan Agreement'') dated June 10, 2009, the Bank granted a loan (hereinafter referred to as the ''Loan'') to Vintage FZE, AAH-213, Al Ahmadi House, Jebel Ali Free Trade Zone, Jebel Ali, Dubai, United Arab Emirates (''the Borrower") in the amount of $ USD 10,000,000.00. The Pledgor has received a copy of the Loan Agreement and acknowledges and agrees to its terms and conditions."

18. From the above preamble of Pledge Agreement, it is clear that Mr. Pankaj Saraiya and Avon were also the party to the Loan Agreement between Vintage and Euram.


40

" 2. Pledge


2.1.1 all of its rights, title and interest in and to the securities deposited from time to time at present or hereafter (hereinafter referred to as the “Pledged Securities”) and the balance of funds up to the amount of $ USD 10,000,000.00 existing from time to time at present or hereafter on the securities account(s) no. 540 084 held with the Bank (hereinafter referred to as the “Pledged Securities Account”) and all amounts credited at any particular time therein.





"6. Realization of the Pledge


6.2 Notwithstanding the foregoing, in the case that the Borrower fails to make payment on any due amount, or defaults in providing or increasing security, the Pledgor herewith grants its express consent and the Bank is entitled to realize the Pledged Securities (i) at a public auction for those items of Pledged Securities for which no market price is quoted or which are not listed on a recognized stock exchange or (ii) in a private sale pursuant to the provisions of Section 376 Austrian Commercial Code unless the Bank decides to exercise its rights through court

41

proceedings. The Pledgor and the Bank agree to Realize those items of the Pledged Securities for which a market price is quoted or which are listed on a stock exchange through sale by a Broker Publicly authorized for such transactions, selected by the Bank.

6.3 The Bank may realize the Pledge rather than accepting payments from the Borrower after maturity of the claim if the Bank has reason to believe that the Borrower’s payments may be contestable. "

21. As the account no. 540084 is the account which Avon has maintained with Euram to keep the proceeds of GDRs, it is clear that Avon has pledged money received through issuance of GDRs to secure rights of Euram against the loan given by Euram to Vintage as borrower of funds for subscription of GDR issue (as mentioned in Loan agreement of Vintage).

22. The account no. 540084 is also mentioned as the account of the borrower in the Loan Agreement. This common ownership of a bank account that belongs to both the borrower/subscriber and the Issuer Company in which the GDR proceeds are received added to a guarantee by Issuer Company for the loan taken by subscriber to its GDRs, are the central and determining features of this scheme to fraudulently raise capital by the Issuer Company.

23. The fraudulent transformation of loan into GDR subscription in the name of different subscribers occur through the scheme between AP/Vintage and Avon wherein the latter supports the former through pledging of GDR proceeds.

24. On June 19, 2009, Avon made a public announcement on BSE that the GDR issue of the Company for US $ 10 Million was fully subscribed and closed on June 18, 2009 and the Board of Directors at its Meeting held on June 19, 2009 allotted 16,00,000 GDRs underlying equity shares 4,80,00,000 at Rs 10/- per share at par. It is now clear from the investigation conducted that the said public announcement by Avon was done to mislead retail investors in believing that the GDRs were subscribed by genuine foreign investors, whereas in reality, GDRs were subscribed by Vintage in connivance with Avon.


25. After the issuance of GDRs, Vintage became the sole holder of the GDRs

issued, thereby becoming the majority share holder of Avon. On June 19 2009, Vintage was holding 16,00,000 GDRs of Avon, which means it was 74.34% shareholder of the company.

26. These GDRs were then transferred to IFCF and KII through over the counter transactions. Following table gives the detail of transfer of GDRs from account of Vintage (maintained with Euram) to that of IFCF and KII.

42

Date Name of Acquirer

Name of Seller

Quantity of GDRs Acquired

Value of GDRs Acquired ($)

Trading Platform

Value per GDR($)

27-Jul-09 IFCF Euram 34,700 1,99,525 OTC 5.75

04-Aug-09 KII Euram 78,000 4,52,088 OTC 5.80

07-Aug-09 IFCF Euram 90,500 5,79,200 OTC 6.40

12-Aug-09 KII Euram 78,000 4,52,088 OTC 5.80

20-Nov-09 IFCF Euram 30,000 1,47,000 OTC 4.90

18-Jan-10 IFCF Euram 22,000 99,000 OTC 4.50

19-Jan-10 IFCF Euram 1,00,000 4,45,000 OTC 4.45

02-Feb-10 IFCF Euram 33,000 1,49,160 OTC 4.52

10-Mar-10 IFCF Euram 80,000 2,88,000 OTC 3.60

04-May-10 IFCF Euram 1,05,000 4,29,450 OTC 4.09

27-May-10 IFCF Euram 2,00,000 6,60,000 OTC 3.30

01-Sep-10 IFCF Euram 1,70,000 5,27,000 OTC 3.10

01-Sep-10 IFCF Euram 35,000 1,08,500 OTC 3.10






01-Oct-10 IFCF Euram 23,800 72,828 OTC 3.06

Total 16,00,000 61,20,639

27. The cancellation of the GDRs of Avon started from July 31, 2009 till

November 02, 2010. Following are the details of cancellation requests that were completed by ODB till June 30, 2012.

Transaction Date

Entities cancelling GDRs on behalf of FIIs/Sub-Accounts

GDRs Cancelled Shares Released

31-07-2009 Euram 25,000 7,50,000

05-08-2009 Euram 9,700 2,91,000

10-08-2009 Euram 90,500 27,15,000


20-11-2009 Euram 30,000 9,00,000


20-01-2010 Euram 22,000 6,60,000

21-01-2010 Euram 50,000 15,00,000

03-02-2010 Euram 33,000 9,90,000

04-03-2010 Euram 50,000 15,00,000

10-03-2010 Euram 50,000 15,00,000

17-03-2010 Euram 30,000 9,00,000

07-05-2010 Euram 73,000 21,90,000

27-05-2010 Euram 40,000 12,00,000

19-07-2010 Euram 33,000 9,90,000

26-07-2010 Euram 45,000 13,50,000

03-08-2010 Euram 50,000 15,00,000

10-08-2010 Euram 50,000 15,00,000

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Transaction Date



30-08-2010 Euram 14,000 4,20,000

01-09-2010 Euram 60,000 18,00,000

07-09-2010 Euram 30,000 9,00,000

08-09-2010 Euram 76,000 22,80,000

15-09-2010 Euram 76,000 22,80,000

20-09-2010 Euram 35,000 10,50,000

22-09-2010 Euram 30,000 9,00,000

28-09-2010 Euram 50,000 15,00,000

29-09-2010 Euram 1,00,000 30,00,000

01-10-2010 Euram 70,000 21,00,000

05-10-2010 Euram 30,000 9,00,000

06-10-2010 Euram 30,000 9,00,000

07-10-2010 Euram 30,000 9,00,000

12-10-2010 Euram 40,000 12,00,000

12-10-2010 Euram 18,000 5,40,000

15-10-2010 Euram 25,300 7,59,000

19-10-2010 Euram 16,700 5,01,000

25-10-2010 Euram 16,600 4,98,000

02-11-2010 Euram 33,200 9,96,000

Total 16,00,000 4,80,00,000

28. Subsequently, shares were released into the demat accounts of Sub-Accounts in India by custodian of shares. Following are the details of the same.

Date of receiving shares Name of entity receiving shares from GDR cancellation


03-Aug-09 INDIA FOCUS CARDINAL FUND 7,50,000



12-Aug-09 KII LTD 23,40,000

23-Nov-09 INDIA FOCUS CARDINAL FUND 9,00,000

01-Jan-10 KII LTD 18,00,000

21-Jan-10 INDIA FOCUS CARDINAL FUND 6,60,000


04-Feb-10 INDIA FOCUS CARDINAL FUND 9,90,000

05-Mar-10 INDIA FOCUS CARDINAL FUND 15,00,000



10-May-10 INDIA FOCUS CARDINAL FUND 21,90,000

28-May-10 INDIA FOCUS CARDINAL FUND 12,00,000

20-Jul-10 INDIA FOCUS CARDINAL FUND 9,90,000

27-Jul-10 INDIA FOCUS CARDINAL FUND 13,50,000



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Date of receiving shares Name of entity receiving shares from GDR cancellation



02-Sep-10 INDIA FOCUS CARDINAL FUND 18,00,000







01-Oct-10 INDIA FOCUS CARDINAL FUND 30,00,000





13-Oct-10 KII LTD 5,40,000






Total 4,80,00,000

29. 16,00,000 GDRs (100% of total GDRs issued) were cancelled by IFCF and KII

during the period July 31, 2009 to November 03, 2010. 14,44,000 out of 16,00,000 GDRs were cancelled by IFCF and rest 1,56,000 GDRs were cancelled by KII.

30. The following chart depicts the complete process of acquisition of GDRs by IFCF and KII from Vintage and cancellation of these GDRs.

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31. The shares thus received by FIIs were then sold by them in the Indian

Markets. As seen in the case of other Examined Companies, a high percentage of these shares then go to certain set of clients in Indian Stock Markets.

32. The following are the details of counterparties of sale of shares by IFCF and KII to Indian clients for the period of January 01, 2009 to September 21, 2011.

FII CP PAN CP NAME Sell Volume Sell Value (Rs.) % to total Sale

IFCF AACCD7366D Delight Financial 2,21,56,688 12,68,65,267 51.38

IFCF AEUPN9210P VInod Amrutlaal Naai 82,35,444 4,98,64,172 19.10

IFCF AAACB4324K Basmati 31,46,551 2,48,58,504 7.30

IFCF ACRPP5552H SV Enterprises 23,11,178 2,30,72,059 5.36

IFCF AAACO3597K Oudh 17,96,694 1,50,22,854 4.17

IFCF Others 54,73,445 3,32,01,956 12.69

IFCF Total 4,31,20,000 27,28,84,812 100.00


KII AACCD7366D Delight Financial 14,69,688 81,10,078 31.40

KII AEUPN9210P VInod Amrutlaal Naai 9,29,835 54,82,870 19.87

KII ACRPP5552H SV Enterprises 6,51,286 65,42,180 13.92

Others

16,29,191 1,11,18,347 34.81

KII Total 46,80,000 3,12,53,475 100.00

33. IFCF and KII sold 4,78,00,000 shares out of 4,80,00,000 shares they received

post cancellation of GDRs. Total proceeds they received post sale of these shares is Rs. 30,41,38,287.

34. 87.31% of the shares sold by IFCF have been sold to five clients which includes Basmati, SV and Oudh. Similarly, 65.19% of the shares sold by KII have been purchased by top three counterparties.

Utilisation of GDR proceeds by Avon:-

35. The utilisation of GDR proceeds by Avon was investigated to determine the manner in which Avon has utilised GDR issue proceeds. It was observed from the investigation that similar to the case of Asahi, the major part of the GDR proceeds (66.27% of total capital raised via GDRs) was not received by Avon in India. The funds were transferred directly to either subsidiary in U.A.E. or to other foreign based entities which are also linked with AP GDR Scheme.

46

36. Summons and e-mails were sent to Avon seeking details regarding utilisation of GDR proceeds by the company. The information and documents sought in the summons are detailed below:-

36.1. Details of usage of proceeds of the GDR Issues by Avon, along with the documentary proof in support of the utilization of the funds.

36.2. Copies of bank account statements of Avon maintained with Euram Bank.

36.3. Copies of bank account statements of Avon in India highlighting transactions related to repatriation of GDR proceeds.


36.5. Rationale for the appointment of Panasia as LM for GDR issue of Avon.

36.6. Copies of all the agreements between Avon and Panasia 36.7. Copies of agreements with Euram. 36.8. Details of the conditions that were laid upon Avon for the


36.9. Copy of any other agreement that Avon had with Euram apart from those related to GDR issues.

36.10. Details of any agreement of Avon regarding financing for the purpose of subscription by initial investors of GDRs.

36.11. Copies of agreements that Avon had with Vintage and AP. 36.12. Details of nature of business of the subsidiary of Avon in U.A.E

viz, Avon Corporation FZE (Avon FZE). 36.13. Copies of Bank Account Statements of Avon FZE. 36.14. Details of payments made to Panasia or companies associated

with Panasia. 36.15. Name of the directors and promoters of Avon at the time of

issue of GDRs. 36.16. Details of money paid by Avon FZE, be it on account of purchases

or expenses or loan, to other entities for more than USD 25,000 from incorporation. Avon was specifically asked to provide details like name of entities to which payments were done, purpose of payments and amount paid by Avon FZE.

36.17. Audit Report of Avon FZE along with financial statements for the year ending March 2010 and March 2011.

36.18. Contact details, Nature of business and Bank Account statements of Avon FZE

37. From the perusal of documents submitted by Avon to SEBI, following has

been observed:-

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37.1. Out of the USD 1,00,00,000 raised by Avon, USD 92,83,114 was transferred to Avon FZE and rest USD7,16,886 was either utilized as GDR expense or transferred to Avon in India. USD 26,55,404 was then transferred from Avon FZE to Avon in India. Thus, on a net basis USD 66,27,710 or around 66% of GDR proceeds were transferred to Avon FZE. Avon has not been able to provide SEBI with any document which can be relied upon for examining utilisation of this USD 66,27,710 by Avon FZE.

37.2. Avon FZE was floated as a 100% subsidiary of Avon in Dubai in March 2010 and is in the business of trading in metal sheets and mechanical structures.

37.3. Avon FZE entered into an agreement with an AP related entity viz, Ababil Star General Trading LLC6 (Ababil). As per the Agreement Avon was to pay USD 40,00,000 to Ababil for the purchase of second hand machinery.

37.4. On August 18, 2009, a payment of USD 15,00,000 was made by Avon to Ababil under the aforesaid agreement. However, no other payment was made to Ababil by Avon after that.

37.5. Ababil was also one of the front entity portrayed as initial investor by Panasia/AP in the 2nd GDR issue of K Sera. Ababil was shown to have invested USD 36,71,600 in the GDR issue of K Sera on October 16, 2009 as initial investor.

37.6. As per the clarification given by Mr. Pankaj Saraiya, MD & CEO of Avon, aforementioned agreement with Ababil was entered into for buying second hand machinery under the planning of manufacturing products using this machinery in Dubai. Later on Ababil was not able to meet its commitment. Thereafter, Avon has been trying to recover the payment made to Ababil.

38. From the above, it is seen that Avon transferred USD 1.5 million to AP

related entity viz, Ababil. The explanation provided by Avon does not appear to be plausible in view of the connection between Ababil and AP (Ababil is mentioned as initial investor in the GDR issues). This appears to be a case of the issuer company compensating AP through its subsidiary

39. Mr. Pankaj Saraiya also appeared in person on April 13, 2012 at SEBI Head Office for recording of statements under oath wherein, he reiterated the submissions which was made by the company in response to SEBI summons.

40. No information has been provided till date by Avon with respect to the following:

40.1. Bank Account Statements of Avon FZE required to examine the flow of funds transferred out of bank account of Avon FZE.

6 Ababil is a company based in Dubai, with which Asahi was found to be having financial transactions.

Ababil was also one of the investors in GDR issue of K Sera

48

40.2. Avon was specifically asked to provide details (including name of entity to which payment has been done, purpose of payment and amount paid) of money paid by its foreign subsidiary. However, Avon did not provide any such detail to SEBI.

41. The fact that Avon did not provide crucial documents such as bank account

statements of Avon FZE only strengthens the suspicion that the proceeds of the GDR issue of Avon have not been utilised in a legitimate manner.

42. It is suspected by SEBI that the last stage of AP GDR scheme involves repayment of GDR Issue proceeds to AP by Avon through its foreign subsidiary viz, Avon FZE. However, Avon did not provide any such information which would have helped SEBI in determining the actual flow of funds back to AP or AP related entities (other than USD 1.5 million transferred to Ababil).

Misleading Submissions by Avon:-

43. It is also observed that false submissions were made by Avon to SEBI. The

false submissions were particularly with respect to the Pledge Agreement and Loan Agreement having Euram, Vintage (signed by AP) and Avon as parties. Following are the submissions by Avon which were found to be false:-

44. Avon made false submission that it did not have any agreement with Vintage. It is clearly mentioned in the Loan Agreement signed between Vintage and Euram that Pledge Agreement signed between Avon and Euram is part of the Loan Agreement. Similarly it is mentioned in the Pledge Agreement that the Pledgor has received the Loan Agreement and agrees to its conditions.

45. Avon made submissions that it did not have any arrangement with AP for subscription of GDRs. As explained in the preceding paragraphs, the complete GDR issuance was done on the basis of AP GDR Scheme.

46. Avon denied having any agreement with Euram. This is clearly an attempt by management of Avon to mislead SEBI investigations by providing false information as Mr. Pankaj Saraiya himself had signed the Pledge Agreement with Euram which stated that the GDR proceeds are kept as security against the loan taken by Vintage. Despite Pledge and Loan Agreements signed among Euram, Avon and Vintage, Avon denied that that the company had any agreement with Euram other than the Escrow account agreement.

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47. Avon denied having any agreement with any entity for the purpose of financing of the GDR issue. However, it is clear from the facts that the GDR issue was subscribed and financed by AP in connivance with the company.

48. All of the above false submissions were reiterated and confirmed, under oath, by Mr. Pankaj Saraiya, MD & CEO of Avon, during the personal hearing held on April 13, 2012 in SEBI HO.

49. The above explained falsification of information regarding Pledge and Loan Agreements and concealment of information regarding utilisation of funds by foreign subsidiary strongly supports the suspicion of SEBI that part of the proceeds of GDR issue were routed back to AP entities.

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(III) CAT TECHNOLOGIES LTD


1. There were two GDR issues by CAT. First in 2007 and then in 2009. Panasia was appointed as the LM to both the GDR issue by the company. 1st GDR Issue

2. First GDR Issue was of USD 6.46 Million and it closed on July 27, 2007 with full subscription. The allotment of 43,04,348 Global Depository Receipts representing 2,58,26,088 equity shares of Rs 10/- each at USD 1.50 by the company was done on July 27, 2007.

3. Prior to GDR issue, CAT had 57,50,400 fully paid equity shares. Therefore, the equity shares represented by the 1st GDR issue were approximately 449.11% of CAT's outstanding share capital at the time of GDR issue.

4. The total capital raised by CAT vide 1st GDR issue was USD 64,56,522.00 which is equal to Rs. 26,13,60,010.60 considering conversion price of USD 1 = Rs. 40.48 as on July 27, 2007. The market cap of CAT prior to GDR issue was Rs. 3,00,00,000. Therefore, the capital raised by GDR issue was 871.20% of the market capital of the company prior to GDR issue.

5. The last traded price of CAT on BSE on July 27, 2007 was Rs. 5.22. The highest and lowest price of CAT for period of three months from April 27, 2007 to July 27, 2007 was Rs. 6.03 and Rs. 4.37 respectively. The price which subscribers paid for each share underlying GDRs was Rs. 10.12 (USD 1 = Rs. 40.48 as on July 27, 2007) which was 193.87% of the price of the scrip on July 27, 2007.

2nd GDR Issue

6. Another allotment of 15,95,333 GDRs representing 4,78,59,990 equity shares of Rs 10/- each at USD 6.27 was done by the company on November 06, 2009.

7. Prior to 2nd GDR issue, CAT had 31,576,488 fully paid equity shares. Therefore, the equity shares represented by the 2nd GDR issue were approximately 151.57% of CAT's outstanding share capital at the time of GDR issue.

8. The total capital raised by CAT vide 2nd GDR issue was USD 1,00,02,737.91 which is equal to Rs. 46,83,28,190 considering conversion price of USD 1 = Rs. 46.82 as on November 06, 2009. The market cap of CAT prior to GDR

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issue was Rs. 50,81,00,000. Therefore, the capital raised by GDR issue was 92.17% of the market capital of the company prior to GDR issue.

9. The last traded price of CAT on BSE on November 06, 2009 was Rs. 16.09. The highest and lowest price of CAT for period of three months from August 06, 2009 to November 06, 2009 was Rs. 17.43 and Rs. 5.95 respectively. The price which subscribers paid for each share underlying GDRs was Rs. 9.79 (USD 1 = Rs. 46.82 as on November 06, 2009) which was 60.82% of the price of the scrip on November 06, 2009.


10. Following are the details of investors in the 1st GDR issue of CAT, as provided by the company.

Name of Subscriber GDRs

Subscribed

Amount Paid

(USD)

% of total

GDR issue

Rexflec Ltd (Rexflec) 7,00,000 10,50,000 16.26

Trendsetter 8,00,000 12,00,000 18.59

Futura Group Ltd (Futura) 8,00,000 12,00,000 18.59

Tradetec 10,04,348 15,06,522 23.33

Imagination 10,00,000 15,00,000 23.23

11. Following are the details of investors in the 2nd GDR issue of CAT, as provided by the company.


Subscribed

Amount Paid

(USD)

% of total

GDR issue

Futura 4,95,333 31,05,738 31.05

Tradetec 6,00,000 37,62,000 37.61

Trendsetter 5,00,000 31,35,000 31.34

12. These investors are common to other GDR issues managed by Panasia.

Following addresses of these entities were made available to SEBI by CAT.

Name of Subscriber Address

Rexflec Level 41, Emirates Towers, Sheikh Zayed Road,

Dubai

Trendsetter Level 42, Suntec 4, 8 Temasek BLVD, Singapore -

52

038988

Futura 15A, West Road, Westcliff-on-sea, Essex SSO 9AU

Tradetec Level 47, Prudential Tower, 30 Cecil Street,

Singapore - 049712

Email: [email protected]

Imagination Level 39, One Exchange Square, Central HongKong

13. As in the case of other GDR issues examined by SEBI, none of the initial

investors could be contacted. SEBI received confirmation from regulators of respective jurisdictions that these entities/firms named as initial investors could not be traced.

Loan & Pledge Agreement signed among CAT, Vintage & Euram:-

14. From the documents available with SEBI, it is observed that the issuance and subscription of both the GDR issues of CAT was also done using loan taken from Euram. The Loan and Pledge Agreement signed among CAT, Vintage and Euram is the key to issuance and subscription of GDRs.

15. The pledge and Loan agreements among CAT, Vintage and Euram are similar to that of other companies investigated by SEBI. These agreements are part of AP GDR scheme.

16. Euram provided the copy of the Pledge and Loan agreements for GDR issues of CAT to SEBI. However, from the perusal of the documents provided, it appears that there are several typographical errors in the agreements which have been ignored by the signatories to the agreements and which have been described in subsequent paragraphs.

17. The Loan and Pledge Agreement signed for 1st and 2nd GDR issue of CAT contain similar clauses. The agreement signed for 2nd GDR issue in 2009 are discussed in detail below. ISSUE 2 (2009)

18. A loan agreement (Loan Agreement: K271009-002) dated October 27, 2009 , was signed between Euram and Vintage. The agreement was signed by AP as Managing Director on behalf of Vintage.

19. The Loan agreement states that Euram has agreed to make available a loan of USD 1,00,02,737.91 to Vintage (referred to as ''the Borrower''). The nature and purpose of the loan facility is to provide funding enabling Vintage

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to take down GDR issue of 15,95,333 Luxemburg public offering and may only be transferred to Euram account no: 540013 for CAT Technologies Ltd..




21. The Euram account no: 540012 is the bank account of Vintage maintained with Euram. On perusal of this account it was found that the account is used by AP to borrow a Loan from Euram for subscription to GDRs of Issuer companies and receiving those GDRs from the companies.

22. The Euram account no: 540013 is the bank account of CAT maintained with Euram for the purpose of depositing proceeds of GDR issue.

23. A Pledge Agreement was also signed between CAT and Euram. The agreement was signed by Mr. Dhiraj Jaiswal on October 27, 2009 on behalf of CAT as Managing Director of CAT. He and his other family members are promoters of CAT.

24. There is no announcement to the Exchange or market regarding the Pledge and Loan Agreement by the company.

25. According to the Pledge Agreement, CAT has been referred as "Pledgor'' and Euram has been referred to as ''Bank''.

26. The preamble of the Pledge Agreement states "By loan agreement K271009-002(hereinafter referred to as ''Loan Agreement'') dated October 27, 2009, the Bank granted a loan (hereinafter referred to as the ''Loan'') to Vintage FZE, AAH-213, Al Ahamadi House, Jebel Ali Free Trade Zone, Jebel Ali, Dubai, United Arab Emirates (''the Borrower") in the amount of $ USD

54

1,00,02,737.91. The Pledgor has received a copy of the Loan Agreement No.

K2710009-002and acknowledges and agrees to its terms and conditions."

27. From the above preamble of Pledge Agreement, it is clear that Mr. Dhiraj Jaiswal and CAT were also the party to the Loan Agreement.


" 2. Pledge


2.1.1 all of its rights, title and interest in and to the securities deposited from time to time at present or hereafter (hereinafter referred to as the “Pledged Securities”) and the balance of funds up to the amount of $ USD 1,00,02,737.91 existing from time to time at present or hereafter on the securities account(s) no. 540 013 held with the Bank (hereinafter referred to as the “Pledged Securities Account”) and all amounts credited at any particular time therein.

2.1.2 all of its right, title and interest in and to, and the balance of funds existing from time to time at present or hereafter on the account(s) no. 540 013 kept by the Bank (hereinafter referred to as the “Pledged Time Deposit Account “) and all amounts credited at any particular time therein. The interest rate on deposit in the amount of the facility amount of the loan will be fixed at 2.5% p.a.




''6. Realization of the Pledge

6.1 In the case that the Borrower fails to make payment on any due amount, or default in accordance with the Loan Agreement, The Pledgor herewith grants its express consent and the Bank is entitled to apply the funds in the Pledged Accounts to

55

settle the Obligations. In such case the Bank shall transfer the funds on the Pledged Accounts, even repeatedly, to an account specified by the Bank

6.2 Notwithstanding the foregoing, in the case that the Borrower fails to make payment on any due amount, or defaults in providing or increasing security, the Pledgor herewith grants its express consent and the Bank is entitled to realize the Pledged Securities (i) at a public auction for those items of Pledged Securities for which no market price is quoted or which are not listed on a recognized stock exchange or (ii) in a private sale pursuant to the provisions of Section 376 Austrian Commercial Code unless the Bank decides to exercise its rights through court proceedings. The Pledgor and the Bank agree to Realize those items of the Pledged Securities for which a market price is quoted or which are listed on a stock exchange through sale by a Broker Publicly authorized for such transactions, selected by the Bank.

6.3 The Bank may realize the Pledge rather than accepting payments from the Borrower after maturity of the claim if the Bank has reason to believe that the Borrower’s payments may be contestable. ''

30. As the account no. 540013 is the account which CAT has maintained with Euram to keep the proceeds of GDRs, it is clear that CAT has pledged money received through issuance of GDRs to secure rights of Euram against the loan given by Euram to Vintage as borrower of funds for subscription of GDR issue (as mentioned in Loan agreement of Vintage). CAT and Vintage are partners to the scheme of converting a loan into GDR proceeds and the latter is then used to secure the former. The objective is of misleading the market that capital has been raised abroad.

31. The account no. 540013 is also mentioned as the account of the borrower in the Loan Agreement. This common ownership of a bank account that belongs to both the borrower/subscriber and the Issuer Company in which the GDR proceeds are received added to a guarantee by Issuer Company for the loan taken by subscriber to its GDRs, are the central and determining features of this scheme to fraudulently raise capital by the Issuer Company.

ISSUE 1 (in 2007)

32. A Loan agreement was also signed between Vintage and Euram previously on July 23, 2007 in relation to first GDR issue of CAT.

33. Similarly, a Pledge Agreement was signed between CAT and Euram on July 20, 2007.

34. The Loan agreement and Pledge Agreement signed 1st time were exactly similar to the 2nd Loan Agreement and Pledge Agreement except following differences:

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34.1. The loan agreement mentions the name of Kohinoor Broadcasting Corporation Ltd's (Kohinoor) as the issuer company for which the loan is provided. The nature and purpose of the Loan Agreement states that, " to provide funding enabling Vintage to take down GDR issue of Kohinoor Broadcasting Corporation Ltd's (Kohinoor) Luxemburg public offering and may only be transferred to Euram account no: 540013 for CAT Technologies Ltd...''

34.2. Thus the Loan and Pledge Agreement were signed for the subscription of 1st GDR issue of 43,04,348 GDRs of CAT Technologies Ltd which closed on July 27, 2007 but mentioned the name of Kohinoor, presumably due to a typographical error.

34.3. The Loan amount was USD 64,56,522.00, as was the size of GDR issue.

35. It seems that the Loan agreement signed between Vintage and Euram,

inadvertently, mentioned GDR issue of Kohinoor instead of GDR issue of CAT. The GDR issue of Kohinoor also closed on July 20, 2007 and the capital raised was USD 70,08,000. The GDR issue of Kohinoor was also managed by Panasia. The repetitiveness and gravity of the fraudulent methodology used by Panasia is apparent.

36. The Pledge Agreement was once again signed by Mr. Dhiraj Jaiswal without the knowledge of shareholders.

37. All other terms & conditions of the Loan and Pledge Agreement were same .

38. The fraudulent transformation of loan into GDR subscription in the name of different subscribers occur through the scheme between AP/Vintage and CAT wherein the latter supports the former through pledging of GDR proceeds.

39. On July 28 , 2007 , CAT informed BSE that that the Board of Directors of the Company at its meeting held on July 27, 2007 approved the Placing Agreement, Deposit Agreement, Escrow Agreement and offering circular in respect of GDR issue and allotted 2,58,26,088 Equity Shares of Rs 10/- each underlying 43,04,348 GDR's Issued in the name of Depository i.e. Deutsche Bank Trust Company Americas. It is now clear from the investigation conducted that the said public announcement by CAT was done to mislead retail investors in believing that the GDRs were subscribed by genuine foreign investors, whereas in reality, GDRs were subscribed by Vintage in connivance with CAT.

40. CAT did not make any public announcement regarding the GDR issue in 2009.

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41. After the issuance of GDRs, Vintage became the sole holder of the GDRs issued, thereby becoming the majority share holder of CAT.

42. These GDRs were then transferred to other FIIs mostly through over the counter transactions. Following table gives the detail of transfer of GDRs of CAT from account of Vintage (maintained with Euram) to that of other FIIs.

Issue 1 (2007)

Date of Acquisition

Name of Acquirer

Name of Seller Quantity of GDRs

acquired


Trading platform

Value per GDR($)

11-Dec-07 Sophia Euram Via Kas Bank Netherland

8,00,000 10,01,801 Exchange 1.25

03-Jan-08 Rhodes Euram via Athena 7,00,000 10,02,702 Exchange 1.43

08-Jan-08 Rhodes Euram via Athena 5,00,000 9,01,401 Exchange 1.80

24-Jan-08 Mavi Not Available 2,25,000 2,59,459 Exchange 1.15

04-Apr-08 Rhodes Euram via Athena 10,00,000 7,52,502 Exchange 0.75

16-Nov-09 IFCF Euram Bank 1,00,000 1,55,000 OTC 1.55

16-Nov-09 KII Euram Bank 75,000 1,17,180 OTC 1.56

20-Nov-09 IFCF Euram Bank 20,000 24,000 OTC 1.20

Total 34,20,000 42,14,045

Issue 2 (2009)

Date of Acquisition

Name of Acquirer

Name of Seller Quantity of GDRs acquired


Trading platform

Value per GDR($)

10-11-2009

IFCF

Euram Bank

13,685

1,30,008

OTC

9.5

43. The cancellation of the GDRs of CAT for the first GDR issue started from December 20, 2007 and continued till November 20, 2009. Following are the details of cancellation requests that were completed by ODB till June 30, 2012.

Transaction Date



20-12-2007 Brown Brothers Harriman 2,50,000 15,00,000


02-01-2008 Brown Brothers Harriman 50,000 3,00,000









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Transaction Date




28-01-2008 Investec Bank (Switzerland) AG 2,10,000 12,60,000





22-05-2009 KAS Depository Trust Company 2,50,000 15,00,000

17-11-2009 Euram Bank, Vienna 1,00,000 6,00,000


20-11-2009 Euram Bank, Vienna 20,000 1,20,000

Total 25,80,000 1,54,80,000

44. Therefore, for the first GDR issue of CAT, out of 43,04,348 GDRs issued, 25,80,000 (59.99% of GDR issued) were cancelled . There was no cancellation of the GDRs of the company after November 20, 2009 till June 30, 2012.

45. For second GDR issue of CAT in 2009, cancellation happened only on one occasion by IFCF. Following is the detail of cancellation of GDR for second issue of CAT.

Transaction Date



12-01-2010 Euram Bank, Vienna 13,685 4,10,550

46. Subsequently, shares were released into the demat accounts of Sub-Accounts in India by custodian of shares. Following are the details of the same.

Issue 1 (2007)


Name of entity receiving shares from GDR cancellation No. of shares received

4-Dec-2007 RHODES DIVERSIFIED 15,00,000

31-Dec-2007 RHODES DIVERSIFIED 12,00,000

04-Jan-2008 RHODES DIVERSIFIED 3,00,000


07-Jan-2008 SOPHIA GROWTH 15,00,000








29-Jan-2008 MAVI INVESTMENTS FUND LTD 12,60,000

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11-Feb-2008 RHODES DIVERSIFIED 3,00,000

18-Feb-2008 SOPHIA GROWTH 6,00,000

15-Apr-2008 RHODES DIVERSIFIED 4,50,000

22-May-2008 SOPHIA GROWTH 7,50,000

25-May-2009 ARES DIVERSIFIED 15,00,000


23-Nov-2009 KII LTD 4,50,000


Total 1,54,80,000

Issue 2 (2009)


Name of entity receiving shares from GDR cancellation No. of shares received


47. For second GDR issue of CAT, out of 15,95,333 GDRs issued, 4,10,550 (0.85%

of GDRs issued) were cancelled.

48. The shares thus received by FIIs were then sold by them in the Indian Markets. As seen in the case of other Examined Companies, a high percentage of these shares then go to certain set of Indian clients.

49. The following are the details of counterparties to the sale of shares by Sub-Accounts to Indian clients during the period January 01, 2009 to September 21, 2011.


IFCF AAACO3597K Oudh 1,49,999 18,10,488 61.17

IFCF AAACB4324K Basmati 94,990 10,49,662 38.74

IFCF Others 211 3,753 0.09

IFCF Total 2,45,200 28,63,902 100.00


Mavi AACCE0781B

ESPIRIT TECHNOLOGIES

PRIVATE LTD 5,31,732 13,32,932 42.20

Mavi ABSPJ3747J DINESH KUMAR JAISWAL 3,62,695 9,66,131 28.79

Mavi ADTPB3843L LAXMIPERSHAD JAISWAL 3,21,076 8,58,100 25.48

Mavi Others 44,497 1,16,137 3.53

Mavi Total 12,60,000 32,73,300 100.00

FII CP PAN CP NAME Sell Volume

Sell Value (Rs.) % to total Sale

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FII CP PAN CP NAME

Sell

Volume

Sell Value

(Rs.) % to total Sale

Rhodes AAACB4324K Basmati 5,92,150 31,85,993 39.5

Rhodes AACCE0781B


PRIVATE LTD 5,94,465 16,85,895 39.6

Rhodes AACCN3776H

NEWGEN INTERNATIONAL

PRIVATE LTD 1,50,000 8,11,500 10.0

Rhodes AABCA6702F Alka 1,50,000 4,47,000 10.0

Rhodes

Others 13,385 67,059 0.9

Rhodes Total 15,00,000 61,97,446 100.0

FII CP PAN CP NAME Sell Volume

Sell Value (Rs.) % to total Sale

Sophia AACCE0781B


PRIVATE LTD 6,03,268 17,10,572 40.2

Sophia AAACB4324K Basmati 3,00,000 17,50,500 20.0

Sophia ACLPJ8528K DHIRAJ KUMAR JAISWAL 2,22,900 5,94,916 14.9

Sophia ADTPB3843L LAXMIPERSHAD JAISWAL 1,77,100 4,51,584 11.8

Sophia AABCA6702F Alka 1,50,000 4,47,000 10.0

Sophia

Others 46,732 1,15,428 3.1

Sophia Total 15,00,000 50,70,000 100.0

50. From the counterparty analysis of the sell trades of Sub-Accounts, it is

observed that Indian entities like Alka, Basmati and Oudh have been the major counterparties, apart from promoter related entities.

Utilisation of GDR proceeds by CAT:-

51. The utilisation of GDR proceeds by CAT was investigated to determine the

manner in which CAT has utilised GDR issue proceeds. Similar to the case of other Examined Companies, almost 100% of GDR proceeds was not received by CAT in India. The funds were transferred directly to either subsidiary in U.A.E. or to other foreign based entities for which no explanation was provided to SEBI.

52. Summons and emails were sent to CAT seeking details regarding utilisation of GDR proceeds by the company. The information and documents sought in the summons are detailed below:-

52.1. Details of usage of proceeds of the GDR Issues by CAT, along with the documentary proof in support of the utilization of the funds.

52.2. Copies of bank account statements of CAT maintained with Euram Bank.

52.3. Copies of bank account statements of CAT in India highlighting transactions related to repatriation of GDR proceeds.

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52.5. Rationale for the appointment of Panasia as LM for GDR issue of CAT.

52.6. Copies of all the agreements between CAT and Panasia 52.7. Copies of agreements with Euram. 52.8. Details of the conditions that were laid upon CAT for the


52.9. Copy of any other agreement that CAT had with Euram apart from those related to GDR issues.

52.10. Details of any agreement of CAT regarding financing for the purpose of subscription by initial investors of GDRs.

52.11. Copies of agreements that CAT had with Vintage and AP. 52.12. Details of nature of business of the subsidiary of CAT in U.A.E viz,

CAT Technologies FZE (CAT FZE). 52.13. Copies of Bank Account Statements of CAT FZE. 52.14. Details of payments made to Panasia or companies associated

with Panasia. 52.15. Name of the directors and promoters of CAT at the time of issue

of GDRs. 52.16. Details of money paid by CAT FZE, be it on account of purchases

or expenses or loan, to other entities for more than USD 25,000 from incorporation. CAT was specifically asked to provide details like name of entities to which payments were done, purpose of payments and amount paid by CAT FZE.

52.17. Audit Report of CAT FZE along with financial statements for the year ending March 2010 and March 2011.

52.18. Contact details, Nature of business and Bank Account statements of CAT FZE

53. Summons dated April 16, 2012 was issued to the Managing Director of CAT to compel appearance in person on April 27, 2012. Company vide email dated April 20, 2012, sought extension of time for the compliance of summons. On such request, date of personal appearance was changed. However, CAT once again vide email dated April 23, 2012 sought extension beyond April 30, 2012. Vide email dated April 25, 2012, new date for personal appearance was given as May 02, 2012. However, CAT has till date not complied with this summon.

54. From the perusal of partial information submitted by CAT, following has been observed:-

54.1. That all of USD 64,56,522 raised by CAT in its first GDR issue was

transferred to its foreign based subsidiary CAT FZE.

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54.2. USD 98,00,000 out of USD 1,00,02,737.90 raised by CAT in its second GDR issue(i.e. 98% of total GDR issues size) was transferred to CAT FZE. Rest of the GDR proceeds were utilized as GDR expense

54.3. Thus CAT did not receive any funds out of their GDR proceeds in India and all of it was transferred to entities based outside India.

55. CAT like other Examined Companies was also unable to provide any reliable

document to show the proper utilisation of the GDR proceeds. Mostly the information regarding CAT FZE was not provided to SEBI. Following information was not provided to SEBI despite being asked specifically in summons dated January 12, 2012 and email dated April 20, 2012:-

55.1. Information like the account statement of the Euram bank account of CAT was incomplete. According to submissions of CAT, approximately Rs. 22.31 crore was transferred to CAT FZE from its Euram bank account during the period January 2008 to March 2008. However, these transactions do not get reflected in the bank account statement provided by CAT. Vide letter dated July 19, 2012, CAT was, once again asked to provide the complete bank account statement i.e. for the period January 09, 2008 to March 31, 2008, which would reflect the transfer of funds to CAT FZE. CAT has not replied to the aforesaid letter of SEBI, till date.

55.2. Documentary proof of the utilisation of GDR proceeds. 55.3. Bank Account Statements of CAT FZE required to examine the

flow of funds transferred to CAT FZE. 55.4. Details of nature of business and Audit reports of CAT. 55.5. Details of payments done to Panasia and other AP Entities. 55.6. Details (including name of entity to which payment has been

done, purpose of payment and amount paid) of money paid by CAT FZE.

55.7. Details with respect to subsidiary of CAT viz. address, contact person and contact no.

55.8. Name of the directors of CAT at the time of issuance of GDRs

Misleading Submissions by CAT

56. It is also observed that false submissions were made by CAT to SEBI, particularly with respect to the Pledge Agreement and Loan Agreement having Euram, Vintage and CAT as parties. Following are the submissions made by CAT which were found to be false:-

57. CAT submitted that it did not have any agreement with Vintage. It was clearly mentioned in the Loan Agreement signed between Vintage and Euram that Pledge Agreement signed between CAT and Euram is part of the

63

Loan Agreement. Similarly it is mentioned in the Pledge Agreement that the Pledgor has received the Loan Agreement and agrees to its conditions.

58. CAT submitted that it did not have any arrangement with AP for subscription of GDRs. As explained, the complete GDR issuance was done on the basis of arrangement between AP and companies like CAT.

59. CAT denied having any agreement with Euram which puts condition on withdrawal of GDR issue proceeds. This is again false as the GDR issue proceeds were pledged by CAT against loan taken by Vintage.

60. CAT also denied having an agreement with Euram other than Escrow account agreement which is false due to the fact that Pledge Agreement was signed between CAT and Euram.

61. CAT denied having any agreement with any of the entity for the purpose of financing of the GDR issue. It specifically denied having any agreement with Vintage and AP.

62. It is suspected by SEBI that the last stage of AP GDR scheme involves repayment of GDR Issue proceeds to AP by the Examined Company through its foreign subsidiaries. Despite the fact that almost entire GDR proceeds of the two GDR issues of CAT were transferred to CAT FZE, it did not provide any such information which would have helped SEBI in determining the actual flow of funds back to Vintage.

63. The above explained falsification of information regarding Pledge and Loan Agreements and concealment of information regarding utilisation of funds by foreign subsidiary of CAT strongly supports the suspicion of SEBI that part of the proceeds of GDR issue were routed back to AP entities.

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(IV) IKF TECHNOLOGIES LTD


1. There were two GDR issues by IKF. First in 2007 and then in 2009.

2. Panasia was appointed as the LM to both the GDR issue by the company. 1st GDR Issue

3. First GDR Issue was of USD 11 Million and it closed on March 30, 2007 with full subscription. The allotment of 1,10,00,000 Global Depository Receipts representing 13,20,00,000 equity shares of Rs 1/- each at USD 1.0 by the company was done on March 30, 2007.

4. Prior to GDR issue, IKF had 10,66,90,000 fully paid equity shares. Therefore, the equity shares represented by the 1st GDR issue were approximately 123.72% of IKF's outstanding share capital at the time of GDR issue.

5. The total capital raised by IKF vide 1st GDR issue was USD 1,10,00,000.00 which is equal to Rs. 47,96,00,000 considering conversion price of USD 1 = Rs. 43.60 on March 30, 2007. The market cap of IKF prior to GDR issue was Rs. 79,60,00,000. Therefore, the capital raised by GDR issue was 60.25% of the market capital of the company prior to GDR issue.

6. The last traded price of IKF on BSE on March 30, 2007 was Rs. 7.46. The highest and lowest price of IKF for period of three months from December 30, 2006 to March 30, 2007 was Rs. 10.89 and Rs. 3.89 respectively. The price which subscribers paid for each share underlying GDRs was Rs. 3.63 (USD 1 = Rs. 43.60 as on March 30, 2007) which was 48.70% of the price of the scrip on March 30, 2007. 2nd GDR Issue

7. Another allotment of 54,13,048 GDRs representing 162,391,440 equity shares of Rs 10/- each at USD 2.03 was done by the company on May 15, 2009.

8. Prior to 2nd GDR issue, IKF had 268,190,000 fully paid equity shares. Therefore, the equity shares represented by the 2nd GDR issue were approximately 60.55% of CAT's outstanding share capital at the time of GDR issue.

9. The total capital raised by IKF vide 2nd GDR issue was USD 1,09,88,487.44 which is equal to Rs. 54,44,79,552.70 considering conversion price of USD 1 = Rs. 49.55 as on May 15, 2009. The market cap of IKF prior to GDR issue was

65

Rs. 79,66,00,000. Therefore, the capital raised by GDR issue was 68.35% of the market capital of the company prior to GDR issue.

10. The last traded price of IKF on BSE on May 15, 2009 was Rs. 2.97. The highest and lowest price of IKF for period of three months from February 15, 2009 to May 15, 2009 was Rs. 3.20 and Rs. 2.02 respectively. The price which subscribers paid for each share underlying GDRs was Rs. 3.35(USD 1 = Rs. 49.55 as on May 15, 2009) which was 112.80 % of the price of the scrip on May 15, 2009.


11. Following are the details of investors in the 2nd GDR issue of IKF, as per the submissions of the company.

Name of Subscriber

Echelon India Investments Ltd (Echelon)

Imagination Network (Imagination)

Knightbridge Management Inc.(Knightbridge)

Tradetec

Trendsetter

12. Most of these investors are common to other GDR issues managed by Panasia. As in the case of other GDR issues examined by SEBI, none of the initial investors could be contacted at the addresses provided by the company to SEBI.

Loan & Pledge Agreement signed among IKF, Vintage & Euram:-

13. From the documents available with SEBI, it is observed that the issuance and subscription of both the GDR issues of IKF was also done using loan but taken from separate Banks.

14. The Loan and Pledge Agreement signed by IKF for its first GDR issue were with a Portugal based bank, Banco Efisa ("Banco'').

15. The Loan and Pledge Agreement for second GDR Issue were signed among IKF, Vintage and Euram and are similar to that of other companies investigated by SEBI. These agreements are part of AP GDR scheme. The same are discussed in detail below:-

66

ISSUE 2 (in 2009)

16. A loan agreement (Loan Agreement No. K040509-002) dated April 28, 2009, was signed between Euram and Vintage. The agreement was signed by AP as Managing Director on behalf of Vintage.

17. The Loan agreement states that Euram has agreed to make available a loan of USD 1,09,88,487.44 to Vintage (referred to as ''the Borrower''). The nature and purpose of the loan facility is to provide funding enabling Vintage to take down GDR issue of IKF Technologies Ltd. Luxemburg public offering and may only be transferred to Euram account no: 540040 for IKF Technologies Ltd.




19. The Euram account no: 540040 is also the bank account of IKF maintained with Euram for the purpose of depositing proceeds of GDR issue.

20. A Pledge Agreement dated April 28, 2009 is also signed between Mr. Sunil Kumar Goel and Euram. The agreement is signed by Mr. Sunil Kumar Goel on behalf of IKF as Whole Time Director of IKF. He is also one of the promoters of IKF.

21. There is no announcement to the public regarding the Pledge and Loan Agreement by the company.

22. According to the Pledge Agreement, IKF has been referred as "Pledgor'' and Euram has been referred to as ''Bank''.


67

"By loan agreement K040509-002(hereinafter referred to as ''Loan Agreement'') dated April 28, 2009, the Bank granted a loan (hereinafter referred to as the ''Loan'') to Vintage FZE, AAH-213, Al Ahamadi House, Jebel Ali Free Trade Zone, Jebel Ali, Dubai, United Arab Emirates (''the Borrower") in the amount of $ USD 1,09,88,487.44. The Pledgor has received a copy of the Loan Agreement and

acknowledges and agrees to its terms and conditions."

24. From the above preamble of Pledge Agreement, it is clear that Mr. Sunil Kumar Goel and IKF were also the party to the Loan Agreement.


" 2. Pledge








68




27. As the account no. 540040 is the account which IKF has maintained with Euram to keep the proceeds of GDRs, it is clear that IKF has pledged money received through issuance of GDRs to secure rights of Euram against the loan given by Euram to Vintage as borrower of funds for subscription of GDR issue (as mentioned in Loan agreement of Vintage).

28. The account no. 540040 is also mentioned as the account of the borrower in the Loan Agreement. This common ownership of a bank account that belongs to both the borrower/subscriber and the Issuer Company in which the GDR proceeds are received added to a guarantee by Issuer Company for the loan taken by subscriber to its GDRs, are the central and determining features of this scheme to fraudulently raise capital by the Issuer Company ISSUE 1 (in 2007)

29. A Loan Agreement (titled as Credit Agreement) was signed between Seazun Ltd7 ("Seazun"), as Borrower, and Banco Efisa , S.F.E., S.A., as Bank, for a loan term facility of USD 1,40,00,000 on March 27, 2007.

30. The purpose of the Credit Agreement is stated as;

7 In the aforesaid Credit Agreement, Seazun Ltd is mentioned as a company incorporated in the British

Virgin Islands with registered number 400452 (the Borrower). It has come to the notice of SEBI, that Seazun later changed its name to Clifford Capital Partners AG SA.

69

" The Borrower shall use the proceeds of the Advance to subscribe for global depository receipts to the value of up to $14,000,000 issued by IKF on the terms of the Listing Particulars to be delivered to the Luxembourg Stock Exchange."

31. Similarly another agreement with the title Account Charge Agreement is signed between Banco and IKF. The agreement was signed by Mr. Mukesh Kumar Goyal on March 27, 2007 on behalf of IKF. He was director of the company at the time of signing of Account Charge Agreement.

32. The Account Charge in the agreement is stated as below:-

"Account Charge

Subject to the terms of this Agreement, IKF deposited in its designated account with the Bank (hereinafter the Account) an amount not exceeding US$ 14,000,000 as security for all the obligations of Seazun under the Loan Agreement (hereinafter the Secured Obligations), and with full title guarantee hereby assigns to and charges by way of first fixed charge in favour of the Bank all the rights, title, interest and benefit in and to the Account as well as all the moneys from time to time standing to the credit thereof and all interest from time to time payable in respect thereof. Such assignment and charge shall be a continuing security for the due and punctual payment and discharge of the Secured Obligations.

Upon payment of all or part of the amounts due under the Loan Agreement, IKF may withdraw from the Account the equivalent amount.

IKF covenants with the Bank that it will on demand pay and discharge the Secured Obligations when due to the Bank.

At any time after the Bank shall have demanded payment of all or any of the Secured Obligations the Bank may without further notice apply all or any part of the Deposit against the Secured Obligations in such order as the Bank in its discretion determines.

IKF hereby irrevocably appoints by way of security the Bank as the attorney of IKF with full power in the name and on behalf of IKF to sign, seal and deliver any deed, assurance, instrument or act in order to perfect this charge and at any time after an event of default by IKF to sign, seal and deliver any deed assurance, instrument or act which may be required for the purpose of exercising fully and effectively all or any of the powers hereby conferred to the Bank to take all necessary action whether in the nature of legal proceedings or otherwise to recover any moneys which may be held in the Account and to give valid receipts for payment of such moneys and also for the purpose of enforcement and realisation of the security hereby created."

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33. On September 28, 2007, IKF wrote a letter to Banco, requesting Banco to close its account maintained with the bank and transfer the amount of USD 46,49,000 in its account to the account of Seazun maintained with Banco.

34. The fraudulent transformation of loan into GDR subscription in the name of different subscribers occur through the scheme between AP/Vintage and IKF wherein the latter supports the former through pledging of GDR proceeds.

35. On April 02, 2007, IKF made a public announcement on the website of BSE that the board of IKF has approved and authorized to execute documents for the GDR issue of USD 11 million.

36. On May 15, 2009, IKF informed BSE that the Board of Directors of the Company approved the allotment of 16,23,91,440 equity shares of Rs 1/- each underlying 54,13,048 GDR's issued in the name of Depository (The Bank of New York Mellon).

37. It is now clear from the investigation conducted that the aforesaid public announcements by IKF were done to mislead retail investors in believing that the GDRs were subscribed by genuine foreign investors, whereas in reality, GDRs were subscribed by Seazun/Vintage in connivance with IKF.


38. After the issuance of GDRs, the GDRs were purchased by FIIs registered in India for conversion and sale in Indian markets.

39. These GDRs were transferred to FIIs mostly through over the counter transactions. Following table gives the detail of transfer of GDRs of IKF to the FIIs.

Issue 1 (2007)

Date of Acquisition

Name of Acquirer


acquired


Trading platform

Value per GDR ($)

21-May-07 Mavi Investec Bank 3,00,000 6,33,000 OTC 2.11

25-May-07 Mavi Investec Bank 4,00,000 9,24,000 OTC 2.31

22-Jun-07 Mavi Investec Bank 5,00,000 11,80,000 OTC 2.36

25-Jun-07 Mavi Investec Bank 5,00,000 11,60,000 OTC 2.32

18-Jul-07 Rhodes NA* 10,00,000 24,80,000 OTC 2.48

27-Jul-07 Rhodes NA 10,00,000 23,70,000 OTC 2.37

30-Jul-07 Rhodes NA 4,00,000 8,85,768 Market 2.21

06-Aug-07 Rhodes NA 1,00,000 2,21,442 Market 2.21

29-Aug-07 Mavi Investec Bank 5,00,000 10,15,000 OTC 2.03

14-Sep-07 Mavi Investec Bank 5,00,000 11,45,000 OTC 2.29

21-Sep-07 Rhodes NA 10,00,000 10,04,003 Market 1.00

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Date of Acquisition

Name of Acquirer


acquired


Trading platform

Value per GDR ($)

28-Sep-07 Rhodes NA 11,00,000 11,02,201 Market 1.00

03-Oct-07 Rhodes Euram Via Kas Bank 5,00,000 5,01,501 Market 1.00

Total 78,00,000 1,46,21,915

*NA- Not available

40. Apart from the above FIIs, Lotus Global Investments Ltd, Sub-Account, also

purchased and cancelled GDRs of 1st GDR issue of IKF. Total 32,00,000 GDRs of IKF were purchased by Lotus Global Investments Ltd between June 12, 2007 to September 19, 2007.

41. Details of purchase by FIIs of second GDR issue.

Issue 2 (2009)

Date of Acquisition

Name of Acquirer


acquired


Trading platform

Value per GDR($)

22-Jul-09 KII Euram Bank 45,000 1,00,699 OTC 2.24

27-Jul-09 IFCF Euram Bank 4,70,000 11,75,000 OTC 2.50

07-Aug-09 IFCF Euram Bank 2,00,000 5,00,000 OTC 2.50

24-Aug-09 IFCF Euram Bank 40,000 96,000 OTC 2.40

07-Sep-09 IFCF Euram Bank 1,70,000 3,65,500 OTC 2.15

19-Nov-09 IFCF Euram Bank 44,000 1,10,000 OTC 2.50

17-Dec-09 IFCF Euram Bank 65,000 1,52,100 OTC 2.34

09-May-10 IFCF Euram Bank 6,50,000 14,75,500 OTC 2.27

12-May-11 IFCF Euram Bank 15,00,000 34,50,156 OTC 2.30

Total 31,84,000 74,24,955

42. The cancellation in the GDRs of IKF for first GDR issue started from May 29, 2007 and continued till November 02, 2007. Following are the details of cancellation requests that were completed by ODB.

Transaction Date

Entity cancelling GDRs GDRs Cancelled

29-May-07 INVESTEC BK (SWITZ)/CL,ZURICH, SWITZERLAND (96780) 4,00,000

04-Jun-07 INVESTEC BK (SWITZ)/CL,ZURICH, SWITZERLAND (96780) 3,00,000

12-Jun-07 INVESTEC BK (SWITZ)/CL,ZURICH, SWITZERLAND(96780) 2,00,000

14-Jun-07 INVESTEC BK (SWITZ)/CL,ZURICH, SWITZERLAND (96780) 5,00,000

17-Jul-07 GOLDMAN SACHS AND CO NY, UNITED STATES (90004) 10,00,000

18-Jul-07 INVESTEC BK (SWITZ)/CL,ZURICH, SWITZERLAND (96780) 5,00,000

18-Jul-07 INVESTEC BK (SWITZ)/CL,ZURICH, SWITZERLAND (96780) 5,00,000

10-Aug-07 INVESTEC BK (SWITZ)/CL,ZURICH, SWITZERLAND (96780) 5,00,000


16-Aug-07 BK JULIUS BAER,ZUR, SWITZERLAND (90258) 5,00,000


05-Sep-07 INVESTEC BK (SWITZ)/CL,ZURICH, SWITZERLAND (96780) 5,00,000


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Transaction Date

Entity cancelling GDRs GDRs Cancelled

17-Sep-07 BK JULIUS BAER,ZUR, SWITZERLAND (90258) 5,00,000

18-Sep-07 BROWN BROTHERS HARRIMAN CO,NY, UNITED STATES (94276) 4,00,000





02-Nov-07 BROWN BROTHERS HARRIMAN CO,NY, UNITED STATES (94276) 2,00,000





Total 1,10,00,000

43. 100% of the GDRs issued by IKF in March 2007 were cancelled by November 2007. The cancellation of GDRs was done on behalf of Sub-Accounts Mavi, Rhodes and Lotus Global investments Ltd. Details of shares received in India by the Sub-Accounts post cancellation are as given below:-


Sub-Account receiving shares from GDR cancellation


01-Jun-2007 Mavi 48,00,000

05-Jun-2007 Mavi 36,00,000

13-Jun-2007 Lotus 24,00,000

14-Jun-2007 Lotus 60,00,000

18-Jul-2007 Rhodes 1,20,00,000

19-Jul-2007 Lotus 60,00,000

19-Jul-2007 Mavi 60,00,000

13-Aug-2007 Lotus 60,00,000

14-Aug-2007 Mavi 60,00,000

21-Aug-2007 Lotus 60,00,000

21-Aug-2007 Rhodes 48,00,000

30-Aug-2007 Rhodes 60,00,000

07-Sep-2007 Mavi 60,00,000

11-Sep-2007 Lotus 60,00,000

20-Sep-2007 Rhodes 12,00,000

24-Sep-2007 Lotus 60,00,000

24-Sep-2007 Mavi 60,00,000

24-Sep-2007 Rhodes 60,00,000

28-Sep-2007 Rhodes 96,00,000

03-Oct-2007 Rhodes 24,00,000

04-Oct-2007 Rhodes 84,00,000

05-Oct-2007 Rhodes 24,00,000

12-Oct-2007 Rhodes 36,00,000

05-Nov-2007 Rhodes 48,00,000

Total 13,20,00,000

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44. The cancellation of the GDRs of IKF for second GDR issue started from May 15, 2009 and continued till December 18, 2009. Following are the details of cancellation requests that were completed by ODB.

Transaction Date

Brokerage cancelling GDRs

GDRs Cancelled

Shares Released

Sub-Account receiving shares

Date of receiving

shares

30-Jul-09 JPM CL CORP.,BK , UNITED STATES 45,000 13,50,000 KII 31-Jul-09

30-Jul-09 Euram 4,70,000 1,41,00,000 IFCF 31-Jul-09

10-Aug-09 Euram 2,00,000 60,00,000 IFCF 11-Aug-09

25-Aug-09 Euram 40,000 12,00,000 IFCF 26-Aug-09

08-Sep-09 Euram 1,70,000 51,00,000 IFCF 09-Sep-09

20-Nov-09 Euram 44,000 13,20,000 IFCF 23-Nov-09

18-Dec-09 Euram 65,000 19,50,000 IFCF 21-Dec-09

Total 10,34,000 3,10,20,000

45. 10,34,000 GDRs of IKF out of total 54,13,048 issued( 19.10% of the GDRs issued) in May 2009 were cancelled between July 30, 2009 to December 18, 2009. No other cancellation was observed in the GDRs of IKF after December 2009.

46. The following are the details of counterparties to the sale of shares by IFCF to Indian clients during the period January 01, 2009 to September 21, 2011.

FII CP PAN CP NAME Sell Volume Sell Value (Rs.)

% to total Sale


IFCF AAACO3597K Oudh 38,80,064 1,66,88,888 19.8

IFCF AAACM6094R Infin Ltd Angel 27,27,931 1,18,53,432 13.9

IFCF AAACJ8850C JMP 18,61,726 81,07,007 9.5

IFCF AABCA6702F Alka 10,94,788 47,07,588 5.6

Others 29,29,468 1,27,26,629 14.9

IFCF Total 1,96,07,456 8,67,92,834 100.0

47. From the counterparty analysis of the sell trades of IFCF, it is observed that Indian clients like Alka, JMP, Basmati and Oudh have been the major counterparties. In total, Alka, JMP, basmati and Oudh have purchased 71.2% of shares sold by IFCF.

Utilisation of GDR proceeds by IKF:-

48. The utilisation of GDR proceeds by IKF was investigated to determine the

manner in which IKF has utilised GDR issue proceeds. It was observed after

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the investigation that similar to the case of other Examined Companies, the major portion of GDR proceeds was not received by IKF in India. The funds were transferred directly to either subsidiary in U.A.E viz, Biofel FZE (Biofel)or to other foreign based entities which are also linked with AP GDR Scheme.

49. Summons were issued to IKF seeking details regarding utilisation of GDR proceeds by the company. The information and documents sought in the summons are detailed below:-

49.1. Details of usage of proceeds of the GDR Issues by IKF, along with the documentary proof in support of the utilization of the funds.

49.2. Copies of bank account statements of IKF maintained with Euram Bank.

49.3. Copies of bank account statements of IKF in India highlighting transactions related to repatriation of GDR proceeds.


49.5. Rationale for the appointment of Panasia as LM for GDR issue of IKF.

49.6. Copies of all the agreements between IKF and Panasia 49.7. Copies of agreements with Euram. 49.8. Details of the conditions that were laid upon IKF for the


49.9. Copy of any other agreement that IKF had with Euram apart from those related to GDR issues.

49.10. Details of any agreement of IKF regarding financing for the purpose of subscription by initial investors of GDRs.

49.11. Copies of agreements that IKF had with Vintage and AP. 49.12. Details of address, Contact person and contact number of

subsidiary of IKF viz, BIOFEL.

50. There were two bank accounts of IKF where GDR proceeds were deposited by the company. The proceeds of first GDR issue (in 2007) were deposited in Banco and that of second GDR issue (in 2009) were deposited in Euram. All the summons and queries made to IKF were with regard to both the Bank Accounts.

51. In response to summons dated April 9, 2012, Mr. N. V. Simhadri, independent director of IKF, appeared in person on April 18, 2012 at SEBI Office. However, Mr. Simhadri could not provide information on any of the question asked by the Investigating Authority. On expressing his inability regarding having any information about the company and its subsidiary Biofel, he was asked to seek information from IKF and submit to SEBI by April

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12, 2012. Following are the questions which were asked from Mr. Simhadri, which he could not reply and agreed to provide later to SEBI:-

51.1. Name of directors/promoters of IKF during the issuance of GDRs in 2007 and 2009

51.2. Purpose of payments done to a U.A.E. based company Citigate Trade FZE.

51.3. Details of any agreement IKF had with Euram other than already provided to SEBI by the company.

51.4. Details of any agreement IKF had with any entity regarding financing of GDR issues.

51.5. Details of any agreement that IKF had with Vintage. 51.6. Details of payments made to Panasia or companies associated

with Panasia. 51.7. Details of end use of GDR proceeds which were transferred to

U.A.E. based subsidiary of IKF viz, BIOFEL FZE (Biofel). 51.8. Details of debit and credit in the statement of bank accounts of

IKF with Banco. 51.9. Details of Bank account of Biofel with explanation of all the

debits and credits. 51.10. Details of nature of business of Biofel. 51.11. Details of purchases and expenses done by Biofel from

incorporation till date containing details viz, entity name, entity address, purpose of payment and amount.

51.12. Further details concerning Biofel like Audit reports and bank account statement was also sought.

52. Thereafter IKF provided partial information vide letter dated April 24, 2012.

However, the most crucial information, i.e. regarding the utilisation of GDR proceeds by Biofel which were transferred directly from Euram account of IKF, was not provided. This information has not been provided to SEBI till date by the company.

53. From the perusal of the partial information made available to SEBI, following has been observed:-

53.1. Out of total USD 1,09,88,487.44 raised through second GDR issue, USD 75,49,000 (68.70% of total capital raised via second GDR issue)was transferred to Biofel.

53.2. IKF made a payment of USD 16,75,000 to Citigate Trade FZE on August 12, 2009. As per the remarks in Bank statement of IKF with Euram, the transfer was on account of the payment as per contract of BIO fuel plant. No detail of this contract was provided by IKF to SEBI. SEBI also examined the bank account of Vintage with Euram. On same day i.e. August 12, 2009, USD 16,75,000 was transferred to the loan account of Vintage as part repayment of the loan taken by Vintage.

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53.3. USD 1,75,000 was transferred to Premier Management Consultancy Ltd, by IKF as payment against invoice of placement fees. The address of Premier Management Consultancy Ltd and Rexflec(the beneficial owner of Rexflec is AP and it is one of the initial investors in the GDR issue of CAT, K Sera and Maars) is same i.e. 306, Victoria House, Victoria Mahe, Seychelles.

53.4. IKF did not provide information like bank account statements and utilisation of funds regarding Biofel FZE to SEBI. However, in the annual report of the company for the year 2011-12, following is mentioned;

''During the year the Company has received / transferred its full GDR proceeds. There is a Foreign Exchange Fluctuation loss of Rs. 56,324,255.02 in respect of Advances given to BIOFEL, FZE on account of BIO Fuel Project and amount repatriated into India. Out of the Loss a sum of Rs. 34,127,526 is adjusted from Capital Reserve and the balance amount of Rs. 22,196,729.02 is adjusted from Profit & Loss Account.''

54. Thus, it appears that IKF has tried to write off the funds transferred to Biofel

as losses, as suspected by SEBI. However, as explained in following Para, IKF did not provide adequate information to SEBI to examine this issue.

55. IKF like other Examined Companies was unable to provide any reliable document to show the proper utilisation of the GDR proceeds by its subsidiaries. Critical information sought regarding Biofel was not provided to SEBI. Following information was not provided to SEBI:-

55.1. Bank Account Statements of Biofel required to examine utilisation of GDR proceeds by Biofel.

55.2. Details of nature of business and Audit reports of Biofel. 55.3. Details like name of entities involved, amount used, and purpose

behind the purchases, expenses and payments done by Biofel. 55.4. Contact details of Biofel.

Misleading Submissions by IKF

56. Investigation has revealed that IKF like all other Examined Companies also provided false information and concealed material information to SEBI to mislead the investigation. Following false information was furnished to SEBI by the company:-

57. IKF made wrong submission that it did not have any agreement with Vintage. The Loan Agreement signed between Vintage and Euram clearly mentions that Pledge Agreement signed between IKF and Euram is part of the Loan

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Agreement. Similarly it is mentioned in the Pledge Agreement that the Pledgor has received the Loan Agreement and agrees to its conditions.

58. IKF made wrong submissions that it did not have any arrangements with AP for subscription of GDRs. As explained the complete GDR issuance was done on the basis of AP GDR Scheme.

59. IKF denied having any agreement with Euram which puts condition on withdrawal of GDR issue proceeds.

60. IKF also denied having an agreement with Euram other than Escrow account agreement.

61. IKF denied having any agreement with any of the entity for the purpose of financing of the GDR issue. It specifically denied having any agreement with Vintage and AP. Further, IKF did not mention about its Account Charge Agreement with Banco. IKF also did not provide any information regarding the Credit Agreement of Seazun which was signed between Seazun and Banco.

62. IKF authorised transfer of funds (US $ 46,49,000) from its account with Banco where GDR proceeds were deposited to the account of Seazun. On September 28, 2007, a letter signed by Mr. Mukesh Kumar Goel, director of IKF , was sent to Banco with following instructions:-

"We request you to transfer the same amount of USD 4,649,000 from our account towards closure of deposit, to the account of Seazun Limited with Banco Efisa. We hereby also authorize the bank to transfer from our current account the necessary amounts to face payments of interest and fees due in the referred company account resulting from loan granted by the bank."

It is clearly a transaction done by IKF from its own reserves to settle the outstanding liabilities of Seazun which had taken loan from IKF. However, IKF did not provide SEBI details of this transaction when IKF was asked to provide the details of utilisation of the GDR proceeds. On the contrary, IKF informed SEBI that it has repatriated and utilised 1,00,00,000 out of the GDR proceeds of first issue. This is false as it transferred US $ 46,49,000 from its account to the account of Seazun to settle its loan liability.

63. The above explained falsification of information regarding Loan and Account Charge Agreements signed with respect to first GDR issue and Pledge and Loan Agreements signed with respect to second GDR issue and concealment of information regarding utilisation of funds by Biofel strongly supports the suspicion of SEBI that the funds transferred to Biofel were routed back to AP entities/Vintage/Seazun for repayment of loan taken for the purpose of subscription of GDRs

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(V) K SERA SERA LTD


1. There were two GDR issues by K Sera. First in 2007 and then in 2009.

2. Panasia was appointed as the LM to both the GDR issue by the company. 1st GDR Issue

3. First GDR Issue was of USD 25 Million and it closed on November 02, 2007 with full subscription. The allotment of 47,61,900 Global Depository Receipts representing 4,76,19,000 equity shares of Rs 10/- each at USD 5.25 by the company was done on November 02, 2007.

4. Prior to GDR issue, K Sera had 1,95,12,625 fully paid equity shares and 38,40,524 fully paid redeemable preference shares of Rs. 10.0. Therefore, the equity shares represented by the 1st GDR issue were approximately 203.91% of K Sera's outstanding share capital at the time of GDR issue.

5. The total capital raised by K Sera vide 1st GDR issue was USD 2,49,99,975 which is equal to Rs. 98,42,49,015.8 considering conversion price of USD 1 = Rs. 39.37 on November 02, 2007. The market cap of K Sera prior to GDR issue was Rs. 71,02,00,000. Therefore, the capital raised by GDR issue was 138.58% of the market capital of the company prior to GDR issue.

6. The last traded price of K Sera on BSE on November 02, 2007 was Rs. 38.20 The highest and lowest price of K Sera for period of three months from August 02, 2007 to November 02, 2007 was Rs. 17.05 and Rs. 38.20 respectively. The price which subscribers paid for each share underlying GDRs was Rs. 20.67 (Rs. 39.37 as on November 02, 2007) which was 54.11% of the price of the scrip on November 02, 2007. 2nd GDR Issue

7. Another allotment of 44,75,238 GDRs representing 13,42,57,140 equity shares of Rs 10/- each at USD 6.70 was done by the company on October 16, 2009.

8. Prior to 2nd GDR issue K Sera had 6,71,31,624 fully paid equity shares. Therefore, the equity shares represented by the 2nd GDR issue were approximately 199.99% of K Sera's outstanding share capital at the time of GDR issue.

9. The total capital raised by K Sera through 2nd GDR issue was USD 2,99,84,094.60 which is equal to Rs. 1,38,73,64,057 considering conversion price of USD 1 = Rs. 46.27 as on October 16, 2009. The market cap of K Sera

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prior to GDR issue was Rs. 1,37,95,00,000. Therefore, the capital raised by GDR issue was 100.57% of the market capital of the company prior to GDR issue.

10. The last traded price of K Sera on BSE on October 16, 2009 was Rs. 21.40. The highest and lowest price of K Sera for period of three months from July 16, 2009 to October 16, 2009 was Rs. 12.31 and Rs. 22.05 respectively. The price which subscribers paid for each share underlying GDRs was Rs. 10.33 (USD 1 = Rs. 46.27 as on October 16, 2009) which was 48.28% of the price of the scrip on November 06, 2009.


11. Following are the details of investors in the 1st GDR issue of K Sera as per the submissions of the company:-.


Amount Paid (USD)


Rexflec 5,00,000 26,25,000 10.50

Figura 4,21,900 22,14,975 8.86

Tradetec 9,90,000 51,97,500 20.79

Knightsbridge Management Inc. 10,00,000 52,50,000 21.00

Flamboyant 9,00,000 47,25,000 18.90

Greenwich 9,50,000 49,87,500 19.95

12. Following are the details of investors in the 2nd GDR issue of K Sera, as per the submission of the company:-


Amount Paid (USD)


Dynamic holding Investment Corp 5,75,000 38,52,500 12.85

Greenwich 4,75,000 31,82,500 10.61

Ababil 3,25,000 21,77,500 7.26

Figura 5,48,000 36,71,600 12.25

Flagstaff 5,23,000 35,04,100 11.69

Tradetec 4,69,238 31,43,895 10.49

Imagination 5,25,000 35,17,500 11.73

Echelon 5,50,000 36,85,000 12.29

Flamboyant 4,85,000 32,49,500 10.84

13. Most of the above subscribers were observed to be investors in several other

GDR issues of Indian companies which were managed by Panasia. The

80

addresses of these subscribers which was made available to was used to contact them. However, all the attempts to contact these subscribers were unsuccessful, just like in all the other cases where LM to the GDR issue was Panasia. Ababil Star Trading company could also not be contacted. It may be noted that Avon entered into agreements with Ababil. However, SEBI was unable to locate and contact Ababil on addresses provided to SEBI by K Sera or Avon.

Loan & Pledge Agreement signed among K Sera, Vintage & Euram:-

14. From the documents available with SEBI, it is observed that the issuance and subscription of both the GDR issues of K Sera was also done using loan taken from Euram. The Loan and Pledge Agreement signed among K Sera, Vintage and Euram is the key to issuance and subscription of GDRs.

15. The pledge and Loan agreements among K Sera, Vintage and Euram are similar to that of other companies investigated by SEBI. These agreements are part of AP GDR scheme.

16. The second GDR issue of K Sera which happened in 2009 is discussed in detail below. ISSUE 2 (in 2009)

17. A loan agreement (Loan Agreement: K061009-002) dated October 06, 2009, was signed between Euram and Vintage. The agreement was signed by AP as Managing Director on behalf of Vintage.

18. The Loan agreement states that Euram has agreed to make available a loan of USD 2,99,84,094.60 to Vintage (referred to as ''the Borrower''). The nature and purpose of the loan facility is to provide funding enabling Vintage to take down GDR issue of 44,75,238 Luxemburg public offering and may only be transferred to Euram account no: 540019, K Sera Sera Productions Ltd8.


8 K Sera Sera Ltd was earlier known as K Sera Se ra Productions Ltd.

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20. The Euram account no: 540019 is the bank account of K Sera maintained with Euram for the purpose of depositing proceeds of GDR issue.

21. A Pledge Agreement is also signed between K Sera and Euram. The agreement is signed by Mr. Hussain Sattaf on October 08, 2009 on behalf of K Sera as Director of K Sera.


23. According to the Pledge Agreement, K Sera has been referred as "Pledgor'' and Euram has been referred to as ''Bank''.

24. The preamble of the Pledge Agreement states "By loan agreement K061009-002 (hereinafter referred to as ''Loan Agreement'') dated October 06, 2009, the Bank granted a loan (hereinafter referred to as the ''Loan'') to Vintage FZE, AAH-213, Al Ahamadi House, Jebel Ali Free Trade Zone, Jebel Ali, Dubai, United Arab Emirates (''the Borrower") in the amount of $ USD 2,99,84,094.60. The Pledgor has received a copy of the Loan Agreement and

acknowledges and agrees to its terms and conditions."

25. From the above preamble of Pledge Agreement, it is clear that Mr. Hussain Sattaf and K Sera were also the party to the Loan Agreement.


" 2. Pledge


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2.1.1 all of its rights, title and interest in and to the securities deposited from time to time at present or hereafter (hereinafter referred to as the “Pledged Securities”) and the balance of funds up to the amount of $ USD 2,99,84,094.60 existing from time to time at present or hereafter on the securities account(s) no. 540 019 held with the Bank (hereinafter referred to as the “Pledged Securities Account”) and all amounts credited at any particular time therein.

2.1.2 all of its right, title and interest in and to, and the balance of funds existing from time to time at present or hereafter on the account(s) no. 540 019 kept by the Bank (hereinafter referred to as the “Pledged Time Deposit Account “) and all amounts credited at any particular time therein. The interest rate on deposit in the amount of the facility amount of the loan will be fixed at 2.5% p.a.



27. Further, following conditions have been put in the Pledge agreement for the realization of the pledge.





28. As the account no. 540019 is the account which K Sera has maintained with Euram to keep the proceeds of GDRs, it is clear that K Sera has pledged money received through issuance of GDRs to secure rights of Euram against

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the loan given by Euram to Vintage as borrower of funds for subscription of GDR issue (as mentioned in Loan agreement of Vintage) ISSUE 1(in 2007)

29. A Loan agreement was also previously signed between Vintage and Euram on October 30, 2007 for providing funding for the 1st GDR issue of K Sera.

30. Similarly, a Pledge Agreement was signed between K Sera and Euram on October 30, 2007.

31. The Loan agreement and Pledge Agreement signed 1st time were exactly similar to 2nd Loan Agreement and Pledge Agreement except following differences:

31.1. The Loan Agreement and Pledge Agreement were signed for the subscription of 1st GDR issue of 47,61,900 GDRs of K Sera Sera Ltd which closed on November 02, 2007.

31.2. The Loan amount of USD 2,49,99,975 was exactly equal to the size of GDR issue.

31.3. The Pledge Agreement was signed by Mr. Rajesh Pavithram, as Managing Director of K Sera Sera Productions Ltd.

32. All other terms & conditions of the Loan and Pledge Agreement were same

as that of the 2nd issue.

33. The fraudulent transformation of loan into GDR subscription in the name of different subscribers occur through the scheme between AP/Vintage and K Sera wherein the latter supports the former through pledging of GDR proceeds.

34. On November 02, 2007, K Sera informed BSE that the Company successfully concluded placement of 47,61,900 GDRs and received about US $ 25 Million through the GDR issue. The Board of Directors of K Sera at its meeting held on November 02, 2007 approved and allotted 47,61,900 Global Depository Receipts and 4,76,19,000 Equity Shares of Rs 10/- each represented in the said GDR.

35. On October 16, 2009 K Sera informed BSE that the Company successfully concluded placement and allotment of 44,75,238 GDRs.

36. It is now clear from the investigation conducted that the aforesaid public announcements by K Sera were done to mislead retail investors in believing that the GDRs were subscribed by genuine foreign investors, whereas in reality, GDRs were subscribed by Vintage in connivance with K Sera.

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37. The GDRs of K Sera were purchased by Sub-Accounts in overseas market . The detail of the purchase of 1st GDR issue of K Sera is given below:-

Issue 1( in 2007)


Name of Seller



Trading Platform

Value per GDR($)

27-Dec-07 Rhodes NA 1,50,000 11,26,876 Exchange 7.51

15-Jan-08 Sophia NA 1,50,000 10,51,801 Exchange 7.01

17-Jan-08 Rhodes NA 1,50,000 10,51,801 Exchange 7.01


1-Apr-08 Sophia NA 2,60,000 9,01,801 Exchange 3.47

23-Apr-08 Rhodes NA 1,50,000 9,76,726 Exchange 6.51

05-Aug-08 Rhodes NA 94,000 5,00,138 Exchange 5.32

12-Dec-08 Sophia NA 20,000 61,800 OTC 3.09

29-May-09 KII Euram 9,25,000 20,04,660 OTC 2.17

9-Jun-09 KII Euram 3,00,000 9,97,970 OTC 3.33

14-Jul-09 KII Euram 1,75,000 3,96,900 OTC 2.27


26-Nov-09 IFCF Euram 98,000 2,30,300 OTC 2.35

30-Nov-09 IFCF Euram 1,45,000 3,30,600 OTC 2.28

4-Dec-09 IFCF Euram 76,000 2,05,200 OTC 2.70

17-Dec-09 IFCF Euram 1,26,000 2,98,620 OTC 2.37

4-Jan-10 KII Euram 2,36,000 5,28,111 OTC 2.24



13-Jan-10 KII Euram 3,09,143 7,16,717 OTC 2.32

Total 44,30,900 1,49,26,329

38. The purchases by FIIs for second GDR issue of K Sera were as follows:-

Issue 2 (in 2009)


Name of Seller



Trading Platform

Value per GDR($)


14-Jan-10 KII Euram 17,000 1,23,379 OTC 7.26



20-Jan-10 KII Euram 1,90,000 13,78,944 OTC 7.26

20-Jan-10 KII Euram 1,25,000 9,05,940 OTC 7.25

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Name of Seller



Trading Platform

Value per GDR($)


26-Jan-10 KII Euram 80,000 5,78,995 OTC 7.24

27-Jan-10 KII Euram 65,000 4,29,156 OTC 6.60

21-Nov-10 IFCF Euram 1,30,000 10,10,100 OTC 7.77

Total 13,85,500 1,00,43,434

39. The details of cancellation of GDRs for receipt of underlying shares is given below:-

Issue 1 (in 2007)

Transaction Date


GDRs Cancelled

Shares Released

Sub-Account receiving

shares


17-01-08 BROWN BROTHERS HARRIMAN CO 1,50,000 15,00,000 Rhodes 17-01-08

22-01-08 BROWN BROTHERS HARRIMAN CO 1,50,000 15,00,000 Sophia 23-01-08

25-01-08 BROWN BROTHERS HARRIMAN CO 1,50,000 15,00,000 Rhodes 28-01-08

11-03-08 BROWN BROTHERS HARRIMAN CO 1,50,000 15,00,000 Sophia 13-03-08

24-04-08 BROWN BROTHERS HARRIMAN CO 45,000 4,50,000 Sophia 07-05-08

06-06-08 BROWN BROTHERS HARRIMAN CO 60,000 6,00,000 Rhodes 09-06-08




15-12-08 JULIUS BAER, ZUR, SWITZERLAND 20,000 2,00,000 Sophia 16-12-08

22-05-09 KAS DEPOSITARY TST/CUST, 2,99,000 29,90,000 ARES 25-05-09

03-06-09 KAS DEPOSITARY TST/CUST, 2,46,000 24,60,000 ARES 04-06-09

03-06-09 JPM CL CORP.,BK, UNITED STATES 3,25,000 32,50,000 KII 04-06-09


08-09-09 Euram 85,000 8,50,000 IFCF 09-09-09

25-11-09 Euram 85,000 8,50,000 IFCF 26-11-09

27-11-09 Euram 98,000 9,80,000 IFCF 30-11-09

01-12-09 Euram 1,45,000 14,50,000 IFCF 02-12-09

04-12-09 Euram 76,000 7,60,000 IFCF 07-12-09

18-12-09 Euram 1,26,000 12,60,000 IFCF 21-12-09




07-01-10 Euram 1,80,000 18,00,000 IFCF 08-01-10


13-01-10 Euram 6,01,757 60,17,570 IFCF 14-01-10

15-01-10 JEFFERIES CO INC, 3,09,143 30,91,430 KII 18-01-10

Total 47,61,900 4,76,19,000

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Issue 2 (in 2009)

Transaction Date


GDRs Cancelled

Shares Released

Sub-Account receiving

shares

Date of receiving

shares

15-Jan-10 Euram 1,37,500 41,25,000 IFCF 20-01-10

19-Jan-10 JEFFERIES CO INC 17,000 5,10,000 KII 21-01-10

20-Jan-10 Euram 1,64,000 49,20,000 IFCF 21-01-10

21-Jan-10 Euram 1,25,000 37,50,000 IFCF 22-01-10

21-Jan-10 JEFFERIES CO INC 1,90,000 57,00,000 KII 22-01-10

25-Jan-10 Euram 2,00,000 60,00,000 IFCF 27-01-10

26-Jan-10 Euram 75,000 22,50,000 IFCF 27-01-10

27-Jan-10 Euram 57,000 17,10,000 IFCF 28-01-10

27-Jan-10 JEFFERIES CO INC 1,25,000 37,50,000 KII 28-01-10



Total 12,35,500 3,70,65,000

40. On receipt of the underlying shares, the Sub-Accounts sold the shares in the

Indian market and interestingly, as has been observed for other Examined Companies, the main counterparties to these sales were AP related entities such as Basmati and Oudh:-

FII CP PAN CP Name Sell Volume Sell value (Rs.)

% to total Sale


IFCF AAACO3597K Oudh 54,37,005 6,80,62,401 19.9

IFCF AACCN3776H Newgen International 27,66,800 3,44,53,906 10.1

IFCF Others 1,06,44,646 13,40,04,591 39.1

IFCF Total 2,70,12,750 34,21,13,600 100.0


% to total Sale

KII AACCN3776H Newgen International 57,18,100 8,30,76,318 25.8

KII AAACB4324K Basmati 43,31,324 5,46,65,391 17.0

KII AAACO3597K Oudh 24,92,795 3,12,28,167 9.7

Others 1,21,19,211 15,26,73,849 47.5

KII Total 2,46,61,430 32,16,43,725 100.0


% to total Sale

Rhodes ACRPP5552H SV 11,35,560 1,34,10,847 36.2

Rhodes AAACO3597K Oudh 5,87,765 70,53,180 19.1

Rhodes AAACB4324K Basmati 5,82,642 70,06,128 18.9

Rhodes AABCA6702F Alka 2,27,550 38,79,728 10.5

Others 4,66,483 56,68,654 15.3

Rhodes Total 30,00,000 3,70,18,536 100.0

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% to total Sale

Sophia AAACO3597K Oudh 4,11,236 55,62,066 20.2

Sophia AAACE2875N Jitendra Patel (Excel Paints Pvt Ltd) 3,17,730 43,00,528 15.6

Sophia ACRPP5552H SV 1,95,695 20,61,398 7.5

Others 7,50,545 1,07,07,248 38.9

Sophia Total 20,00,000 2,75,22,638 100.0

Utilisation of GDR proceeds by K Sera:-

41. The utilisation of GDR proceeds by K Sera was investigated to determine the manner in which K Sera has utilised GDR issue proceeds. It was observed after the investigation that similar to the case of other Examined Companies, the major portion of GDR proceeds was not received by K Sera in India. The funds were transferred directly to either subsidiary in U.A.E. or to other foreign based entities which are also linked with AP GDR Scheme.

42. Summons and emails were sent to K Sera seeking details regarding utilisation of GDR proceeds by the company. The information and documents sought in the summons are detailed below:-

42.1. Details of usage of proceeds of the GDR Issues by K SERA, along with the documentary proof in support of the utilization of the funds.

42.2. Copies of bank account statements of K SERA maintained with Euram Bank.

42.3. Copies of bank account statements of K SERA in India highlighting transactions related to repatriation of GDR proceeds.


42.5. Rationale for the appointment of Panasia as LM for GDR issue of K SERA.

42.6. Copies of all the agreements between K SERA and Panasia 42.7. Copies of agreements with Euram. 42.8. Details of the conditions that were laid upon K SERA for the


42.9. Copy of any other agreement that K SERA had with Euram apart from those related to GDR issues.

42.10. Details of any agreement of K SERA regarding financing for the purpose of subscription by initial investors of GDRs.

42.11. Copies of agreements that K SERA had with Vintage and AP. 42.12. Details of nature of business of foreign subsidiaries of K SERA.

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42.13. Bank Account Statement of all the subsidiaries of K Sera including K Sera Sera Production FZE (K SERA FZE), a U.A.E based subsidiary of K Sera.

42.14. Details of payments made to Panasia or companies associated with Panasia.

42.15. Name of the directors and promoters of K SERA at the time of issue of GDRs.

42.16. Details of money paid by the foreign subsidiaries, be it on account of purchases or expenses or loan, to other entities for more than USD 25,000 from incorporation. K SERA was specifically asked to provide details like name of entities to which payments were done, purpose of payment and amount paid by its foreign subsidiaries.

42.17. Audit Reports of foreign subsidiaries of K Sera along with their financial statements for the year ending March 2010 and March 2011.

42.18. Contact details, Nature of business and Bank Account statements of foreign subsidiaries

42.19. The end use of the funds transferred to Foreign subsidiaries of K Sera.

43. From the perusal of the information made available to SEBI by K Sera, following has been observed:-

43.1. K Sera FZE is engaged in the business of general trading. 43.2. USD 10,65,750 was paid by K Sera to Panasia and companies

associated with Panasia. 43.3. From the Euram Bank account statement of K Sera it is observed

that they had received USD 5,000,000/- on 17.11.10 from Alkarni Holdings Ltd. and repaid same on 10.01.11. Alkarni Holdings Ltd is connected to Arun Panchariya.

43.4. USD 70,50,000 out of USD 2,49,99,975 raised by K Sera in its first GDR issue was transferred to foreign based entities including K Sera FZE.

43.5. USD 2,02,27,143 out of USD 2,99,84,094.60 raised by K Sera through its second GDR issue was transferred to foreign based entities including K Sera FZE

43.6. There are several occasions when K Sera FZE has received funds from Ababil. As mentioned earlier, Ababil has received funds from Asahi and Avon on few occasions. Asahi and Avon did not provide rationale behind these transactions.

44. The Managing Director of K Sera was summoned to appear at SEBI Head Office on March 26, 2012 and June 18, 2012 for recording of statement under oath. On March 26, 2012 Mr. Shrikanth Maheshwari, CFO of K Sera appeared and on June 18, 2012, Brigadier Vinod Ahuja, Whole Time Director

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of the company appeared for recording of statement. During the recording of statement on June 18, 2012 Brigadier Ahuja submitted under oath that records at Dubai offices are missing due to malafide conduct of the previous MD of K Sera.

45. K Sera like other Examined Companies was also unable to explain the purpose behind payments made by its U.A.E based subsidiary. On being summoned to provide details of all the payments made by K Sera FZE, company submitted that; "the records at Dubai are missing due to malafide conduct of the previous MD who replaced our manager for just 7 days. FIR No. 70/2012 has been registered in Amboli Police Station in Mumbai as also case has been registered in Dubai. "

46. Like all other companies examined by SEBI, K Sera also did not cooperate with SEBI in providing critical information required to determine the manner in which GDRs were ultimately utilized. Following information/documents were not provided to SEBI by K Sera:-

46.1. Complete Bank account statements of its subsidiaries from inception till date. Vide email dated June 26, 2012, K Sera was once again asked to provide complete bank account statements of its subsidiaries , yet it did not provide the same.

46.2. K Sera also did not provide details like name of payee entity, purpose of money paid by foreign subsidiaries.

47. Thus , from the above sequence of events its is observed that K Sera failed to provide critical information like the particulars of end use of GDR proceeds by its foreign subsidiaries. Since majority of GDR proceeds were transferred to K Sera FZE, it was important to examine the usage of funds by K Sera FZE.

Misleading Submissions by K Sera

48. Investigation has revealed that K Sera like all other Examined Companies also provided false information and concealed material information to SEBI to mislead the investigation. Following false information was furnished to SEBI by the company:-

49. K Sera made wrong submission that it did not have any agreement with Vintage. It was clearly mentioned in the Loan Agreement signed between Vintage and Euram that Pledge Agreement signed between K Sera and Euram is part of the Loan Agreement.

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50. K Sera has submitted that it did not have any arrangement with AP for subscription of GDRs. As explained the complete GDR issuance was done on the basis of AP GDR Scheme.

51. K Sera denied having any agreement with Euram, other than the Escrow account agreement.

52. K Sera denied having any agreement with any of the entity for the purpose of financing of the GDR issue. It specifically denied having any agreement with Vintage and AP.

53. All the above mentioned false submissions were again reiterated by Brigadier Vinod Ahuja during statement of recording held on June 18, 2012. Brigadier Vinod Ahuja also denied that K Sera has any agreement with AP, his brother SP or any of the entities related to both of them. It is Interesting to note that, SP was appointed as the chairman of K Sera in October 2012.

54. As per the submissions of K Sera they have denied any transaction with any of the companies mentioned in interim order of SEBI dated Sept. 21, 2011 or any of subsidiaries of such companies except transactions with Maars Infratech Pvt. Ltd. & Maars. However, as per the submissions of Asahi, transactions were observed between Asahi FZE and K Sera FZE, which is Dubai based 100% subsidiary of K Sera.

55. The above explained falsification of information regarding Pledge and Loan Agreements and concealment of information regarding utilisation of funds by foreign subsidiary strongly supports the suspicion of SEBI that part of the proceeds of GDR issue were routed back to AP entities.

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(VI) MAARS SOFTWARE INTERNATIONAL LTD


1. The GDR Issue of Maars for US $ 17.22 Million closed on August 10, 2007 and

was fully subscribed with allotment of 73,80,000 GDRs representing 7,38,00,000 equity shares of Rs 10/- each at USD 2.43.


3. Prior to GDR issue, Maars had 6,61,60,200 fully paid equity shares of Rs. 10 each and 1,12,60,000 Preference shares of Rs. 10 each. Therefore, the equity shares represented by the GDRs were approximately 95.32% of Maars outstanding share capital '(including Preference Share Capital) at the time of issue.

4. The total capital raised by Maars through GDR issue was USD 1,79,33,400 which is equal to Rs. 72,93,51,378 considering conversion price of USD 1 = Rs. 40.67 as on August 10, 2007. The market cap of Maars prior to GDR issue was Rs. 27,52,00,000. Therefore, the capital raised by GDR issue was 265.02% of the market capital of the company prior to GDR issue.

5. The last traded price of Maars on BSE on August 10, 2007 was Rs. 4.16. The highest and lowest price of Maars for period of three months from May 10, 2007 to August 10, 2007 was Rs. 4.35 and Rs. 3.2 respectively. The price which subscribers paid for each share underlying GDRs was Rs. 9.88 (USD 1 = Rs. 40.67 as on August 10, 2007) which was 237.57% of the price of the scrip on August 10, 2007.


6. Following are the details of investors in the GDR issue of Maars as submitted

by the company.


Subscribed Amount Paid (USD)


Rexflec 13,80,000 33,53,400 18.70

Figura 15,00,000 36,45,000 20.33

Tradetec 14,50,000 35,23,500 19.65

Imagination 14,80,000 35,96,400 20.05

Trendsetter 15,70,000 38,15,100 21.27

7. All the above subscribers were observed to be investors in several other GDR issues of Indian companies which were managed by Panasia. All the attempts to contact these subscribers were unsuccessful, just like in all the other cases where LM to the GDR issue is Panasia. None of the letters, emails or

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summons got delivered to these subscribers due to either email or contact addresses being wrong. Even the financial market regulators regulating the region where these subscribers were located could not trace these subscribers. In most of the cases reply was received from the respective regulators that the address does not exist.

Loan & Pledge Agreement signed among Maars, Vintage & Euram:-

8. The issuance and subscription of GDRs of Maars was done using loan taken from Euram. The GDR issue of Maars is also issued using AP GDR Scheme and Loan and Pledge Agreement signed among Maars, Vintage and Euram is the key to issuance and subscription of GDRs.

9. A loan agreement dated July 27, 2007, was signed between Euram and Vintage. The agreement was signed by AP as Managing Director on behalf of Vintage on July 31, 2007.

10. The Loan agreement states that Euram has agreed to make available a loan of USD 1,79,33,400.00 to Vintage (referred to as ''the Borrower''). The nature and purpose of the loan facility is to provide funding enabling Vintage to take down GDR issue of Maars' Luxemburg public offering and may only be transferred to Euram account no: 540016 of Maars .

11. The Euram account no: 540016 is the bank account of Maars maintained with Euram for the purpose of depositing proceeds of GDR issue.




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13. A Pledge Agreement was also signed between Maars and Euram. The agreement was signed by Mr. Pravin Jain on behalf of Maars as Director of Maars.


15. According to the Pledge Agreement, Maars has been referred as "Pledgor'' and Euram has been referred to as ''Bank''.

16. The preamble of the Pledge Agreement states "By loan agreement (hereinafter referred to as ''Loan Agreement'') dated July , 2007, the Bank granted a loan (hereinafter referred to as the ''Loan'') to Vintage FZE, AAH-213, Al Ahmadi House, Jebel Ali Free Trade Zone, Jebel Ali, Dubai, United Arab Emirates (''the Borrower") in the amount of $ USD 17,933,400.00 million. The Pledgor has received a copy of the Loan Agreement and acknowledges and agrees to its terms and conditions."

17. From the above preamble of Pledge Agreement, it is clear that Mr. Pravin Jain and Maars were also the party to the Loan Agreement.


" 2. Pledge




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6. Realization of the Pledge



6.3 The Bank may realize the Pledge rather than accepting payments from the Borrower after maturity of the claim if the Bank has reason to believe that the Borrower’s payments may be contestable.

20. As the account no. 540016 is the account which Maars has maintained with Euram to keep the proceeds of GDRs, it is clear that Maars has pledged money received through issuance of GDRs to secure rights of Euram against the loan given by Euram to Vintage as borrower of funds for subscription of GDR issue (as mentioned in Loan agreement of Vintage).

21. The fraudulent transformation of loan into GDR subscription in the name of different subscribers occur through the scheme between AP/Vintage and Maars wherein the latter supports the former through pledging of GDR proceeds.

64. On August 16, 2007, Maars informed BSE that the Board of Directors of the Company at its meeting held on August 10, 2007 approved the allotment of underlying Equity shares of 7,38,00,000 of Rs 10/- each fully paid-up against issue of 7,380,000 GDRs favoring Deutsche Bank Trust Company Americas. It

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is now clear from the investigation conducted that the aforesaid public announcement by Maars was done to mislead retail investors in believing that the GDRs were subscribed by genuine foreign investors, whereas in reality, GDRs were subscribed by Vintage in connivance with Maars.


22. After the issuance of GDRs, Vintage became the sole holder of the GDRs issued, thereby becoming the majority share holder of Maars. As on August 10, 2007, Vintage was holding almost 95.32% of the capital of Maars.

23. The GDRs held by Vintage were then transferred to other FIIs which then cancelled and converted these GDRs into shares and sold it in Indian Markets. The transactions were mostly OTC. But in the case of Sub-Accounts like Mavi, Sophia and Rhodes, SEBI has been informed by the respective Sub-Accounts that the acquisition of GDRs has happened through transactions on exchanges, therefore the details of seller is not available with the FII/Sub-Account. Following are the details of acquisition of GDRs of Maars by the Sub-Accounts:-


Name of Seller



Trading Platform

Value per GDR($)

20-Nov-07 Rhodes NA 11,00,000 8,81,980 Exchange 0.80

19-Dec-07 Rhodes NA 12,50,000 10,02,251 Exchange 0.80


08-Jan-08 Rhodes NA 6,00,000 10,51,651 Exchange 1.75

24-Jan-08 Mavi NA 4,50,000 5,40,990 Exchange 1.20

15-Sep-08 Rhodes NA 3,25,000 2,47,572 Exchange 0.76

15-Sep-08 Sophia NA 6,75,000 5,14,189 Exchange 0.76


03-Sep-09 KII Euram 4,50,000 2,26,800 OTC 0.50


Total 74,75,000 62,17,434

24. The cancellation of the GDRs of Maars started from December 07, 2007 till

September 22, 2009. Following are the details of cancellation requests that were completed by ODB till June 30, 2012 along with the name of Sub-Accounts which received shares post cancellation of GDRs.

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Transaction Date

Sub-Account receiving shares after cancellation of GDRs

GDRs Cancelled

Shares Released


07-12-07 Rhodes 6,00,000 60,00,000 10-Dec-07

13-12-07 Rhodes 2,00,000 20,00,000 14-Dec-07

20-12-07 Rhodes 3,00,000 30,00,000 24-Dec-07

24-12-07 Rhodes 3,75,000 37,50,000 27-Dec-07

28-12-07 Rhodes 3,00,000 30,00,000 31-Dec-07

02-01-08 Rhodes 3,75,000 37,50,000 04-Jan-08

04-01-08 Sophia 2,00,000 20,00,000 07-Jan-08

09-01-08 Rhodes 4,00,000 40,00,000 10-Jan-08

09-01-08 Sophia 6,00,000 60,00,000 10-Jan-08

14-01-08 Rhodes 75,000 7,50,000 15-Jan-08

14-01-08 Sophia 75,000 7,50,000 15-Jan-08

28-01-08 Mavi 2,60,000 26,00,000 29-Jan-08

19-09-08 Sophia 4,55,000 45,50,000 22-Sep-08

04-09-09 IFCF 6,25,000 62,50,000 07-Sep-09

10-09-09 KII 4,50,000 45,00,000 11-Sep-09

22-09-09 IFCF 5,02,800 50,28,000 23-Sep-09

Total 57,92,800 5,79,28,000

25. The shares received by Sub-Accounts such as, Rhodes, Sophia, IFCF and KII were then sold in the Indian Stock markets. Following table provides the details of the top counterparties of the sale of shares by these Sub-Accounts during the period January 01 2007 to September 21, 2011.

FII CP PAN CP Name Sell Volume

Sell value (Rs.)

% to total Sale

Mavi AAACB4324K Basmati 16,59,858 67,52,550 63.8

Mavi AABCA6702F Alka 6,47,500 26,61,225 24.9

Mavi ACRPP5552H SV Enterprises 1,92,318 7,82,707 7.4

Mavi Others 1,00,324 4,06,797 3.9

Mavi Total 26,00,000 1,06,03,279 100

FII CP PAN CP Name

Sell Volume

Sell value (Rs.)

% to total Sale

Rhodes ACRPP5552H SV Enterprises 17,78,870 1,31,86,581 20.7

Rhodes AAACJ8850C JMP 10,82,219 76,21,952 12.6

Rhodes AADPS8309K Bharat C Shah 8,83,913 69,29,878 10.3

Rhodes AAVPR5584R Ajay Roongta 9,21,143 40,12,300 10.7

Rhodes Others 39,45,858 2,77,76,936 45.7

Rhodes Total 86,12,003 5,95,27,647 100

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FII CP PAN CP Name Sell Volume

Sell value (Rs.)

% to total Sale

Somerset ACRPP5552H SV Enterprises 8,00,000 65,69,000 17.9

Somerset AAACC4789R Cherry Cosmetics 6,22,505 31,68,550 13.9

Somerset Others 30,52,495 2,26,83,950 68.2

Somerset Total 44,75,000 3,24,21,500 100

FII CP PAN CP Name

Sell Volume

Sell value (Rs.)

% to total Sale

Sophia AALCS3212Q SPM Financial Advisory 14,84,983 57,22,244 17.3

Sophia ACRPP5552H SV Enterprises 19,37,625 49,88,506 22.5

Sophia AABCA6702F Alka 5,80,290 23,50,175 6.7

Sophia Others 45,97,102 1,38,96,537 53.5

Sophia Total 86,00,000 2,69,57,462 100

26. Rhodes and Sophia ( both are separate classes of investment of Somerset India Fund (Somerset)) in total purchased 49,50,000 GDRs of Maars (67.07% of total GDRs issued by Maars). Out of these, 39,55,000 GDRs (79.90% of GDRs purchased by Rhodes and Sophia) were cancelled by Rhodes and Sophia resulting in 3,95,50,000 shares. Somerset (including Rhodes and Sophia) sold off 2,16,87,003 shares. Indian Clients like SV, JMP, Ajay Roongta, Alka and SPM Financial Advisory were the major CP to all of these trades.

27. Mavi cancelled GDRs of Maars and received 26,00,000 shares. It sold all of it in Indian markets. 96.1 % of the shares sold by Mavi were purchased by Basmati, Alka and SV.

28. IFCF also sold 61,31,239 shares of Maars. 60.2 % of shares sold by IFCF were purchased by Basmati, SV, JMP and SPM Financial Advisory Ltd.

Utilisation of GDR proceeds by Maars:-

29. Summons and emails were sent to Maars in relation to the GDR issuance by the company. The information sought from the company was specifically to determine the end use of GDR proceeds by the company.

30. Maars has not provided any of the information sought vide summons dated January 12, 2012. Two reminders were also sent by SEBI to them. Maars repeatedly requested for additional time, but never provided the information which was sought from the company. Following information was sought from the company vide aforesaid summons:-

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30.1. Details of usage of proceeds of the GDR Issues by Maars, along with the documentary proof in support of the utilization of the funds.

30.2. Copies of bank account statements of Maars maintained with Euram Bank.

30.3. Copies of bank account statements of Maars in India highlighting transactions related to repatriation of GDR proceeds.


30.5. Rationale for the appointment of Panasia as LM for GDR issue of Maars.

30.6. Copies of all the agreements between Maars and Panasia 30.7. Copies of agreements with Euram. 30.8. Details of the conditions that were laid upon Maars for the


30.9. Copy of any other agreement that Maars had with Euram apart from those related to GDR issues.

30.10. Details of any agreement of Maars regarding financing for the purpose of subscription by initial investors of GDRs.

30.11. Copies of agreements that Maars had with Vintage and AP. 30.12. Details of nature of business of foreign subsidiaries of Maars. 30.13. Bank Account Statement of the foreign subsidiaries of Maars. 30.14. Details of payments made to Panasia or companies associated

with Panasia. 30.15. Name of the directors and promoters of Maars at the time of

issue of GDRs. 30.16. Details of money paid by the foreign subsidiaries, be it on

account of purchases or expenses or loan, to other entities for more than USD 25,000 from incorporation. Maars was specifically asked to provide details like name of entities to which payments were done, purpose of payment and amount paid by its foreign subsidiaries.

30.17. Audit Reports of foreign subsidiaries of Maars along with their financial statements for the year ending March 2010 and March 2011.

30.18. Contact details, Nature of business and Bank Account statements of foreign subsidiaries

31. The managing director of Maars was also summoned to appear in person at SEBI Head Office with documents sought. The summon was acknowledged by the company and an extension of two months was sought.

32. Despite seeking repeated extensions of deadlines to reply to the summons, Maars did not provide any information to SEBI. Further, no representative of company appeared in SEBI office for recording of statement as summoned.

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Due to non compliance by Maars in providing information to SEBI, the end use of the GDR proceeds by the company could not be determined. This strengthens the suspicion of SEBI that the company routed the GDR proceeds back to AP entities for repayment of loan taken by Vintage.

33. It is also observed that the company did not disclose details of outstanding GDRs in its quarterly disclosure of share holding pattern to exchanges. As per BSE website, the equity held with custodians as Depository Receipts is shown as nil for Maars even after issuance of GDR issue.

34. Considering the non cooperation by Maars in the investigation conducted by SEBI, non compliance of summons issued by SEBI and using tactics to hamper investigation (seeking repeated extensions but not replying to summons) along with the material and documents made available to SEBI by Euram, it is clear that the GDR issue of Maars was orchestrated in connivance with AP after employing the AP GDR Scheme as explained in the case of other Examined Companies.

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Summary of role of entities involved in the market manipulation using

GDRs

Arun Panchariya & his associate companies

1. AP and his associate companies like Vintage, Alkarni, Alka and IFCF have

been the key players in the whole GDR scheme. It is observed that AP is involved in each successive step in orchestrating the GDR scheme through one of these companies. The subscription of GDR issue is happening through Vintage. GDRs are then transferred to IFCF and other FIIs/Sub-Account. These FIIs/Sub-Accounts sells it to Indian clients/CP Group, Alka being a part of it. There are other financial transactions in overseas markets which involves Alkarni.

2. Vintage has played the most important role in the AP GDR Scheme. The loan for the subscription of GDR Issues of Examined Companies was taken by Vintage against the collateral provided by the Issuer Company.

3. On perusal of the account statement of Vintage maintained with Euram (540012), two way transactions were observed on the day of the issuance of the GDRs. The securities (GDRs) issued were credited to the securities account of Vintage (maintained with Euram) and the corresponding funds were credited to the GDR account of issuer company (maintained with Euram) from the Loan account of Vintage (maintained with Euram). This GDR account of the issuer company, maintained with Euram, is also pledged with Euram.

4. Following table provides the details of credit of funds to the account of Vintage as a result of Loan Agreement with Euram. Issuer Company

Date of GDR issuance

Date of Credit of funds to Vintage Account

Total capital raised by company (in US $)

Loan received by Vintage

Asahi 29-04-2009 29-04-2009 29,91,000 29,91,000

IKF 15-05-2009 15-05-2009 54,13,048 54,13,048

Avon 19-06-2009 19-06-2009 16,00,000 16,00,000

K Sera 16-10-2009 16-10-2009 44,75,238 44,75,238

CAT 06-11-2009 06-11-2009 15,95,333 15,95,333

5. Following table provides the details of credit of securities (GDRs) into the

securities account no. 5400012 of Vintage maintained with Euram from January 2009 onwards:-

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Issuer Company

Date of GDR issuance

Date of Credit of GDRs to Vintage

No. of GDRs issued by Company

No. of GDRs received by Vintage

Asahi 29-04-2009 29-04-2009 29,91,000 29,91,000

IKF 15-05-2009 15-05-2009 54,13,048 54,13,048

Avon 19-06-2009 19-06-2009 16,00,000 16,00,000

K Sera 16-10-2009 16-10-2009 44,75,238 44,75,238

CAT 06-11-2009 06-11-2009 15,95,333 15,95,333

6. Therefore, for each of the GDR issuance, the securities (GDRs) were credited to the account of Vintage as it is the actual investor in the GDRs of the Examined Companies.

7. As discussed, all the foreign entities stated to be the initial investors in the GDR issue of Examined Companies were not traceable by even the regulators of their jurisdictions where these foreign entities were supposed to be residing.

8. Panasia is the LM in all of the GDR issue which were examined in this matter. Panasia which was under control of AP at the time of issuance of GDRs of Examined Companies has furnished wrong information regarding initial investors of the GDRs of the Examined Companies. Panasia also did not comply with SEBI summons dated January 13, 2012. Panasia denied providing information regarding initial investors of all the GDR issues which were managed by it.

9. In response to SEBI email dated June 15, 2010 seeking information on trades

done by IFCF in the GDRs of Indian companies, AP, on behalf of IFCF, vide email dated July 12, 2010, had interalia, made following false submissions:

a. All the investors in IFCF are exclusively non-Indian. b. IFCF is not aware of the identity of the counterparties to the GDRs

purchased by it. 10. AP and Panasia also made several false submissions in their replies dated

December 05, 2011 and November 29, 2011, respectively, to SEBI.

Examined Companies & their Directors/ Promoters

11. The Examined Companies and their directors and promoters pledged the funds received through the issuance of GDRs to Euram/Banco to securitize the loan taken by Vintage/Seazun to subscribe to the GDRs of the company.

12. The companies were aware of the fact that the subscription of the GDR issue was done using loan taken by Vintage/Seazun. Examined Companies made misleading public announcements and provided false information to BSE and SEBI with the intention of disguising their structured GDR issue as genuine

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capital raising exercise. Following are the misleading information provided by all the Examined Companies:-

12.1. Examined Companies informed BSE and general public regarding the raising of capital through issuance of GDRs for utilisation by the company . The information was misleading as the capital was raised using loan taken from foreign banks and was pledged with the same bank by the company. Thus there was nil funds available with the Examined Companies for utilisation post GDR issue.

12.2. Companies filed information regarding initial investors of GDR issue with BSE. However, as explained earlier, the names of initial investors provided was false as the real subscriber to the GDR issues was Vintage/Seazun.

13. Examined Companies were non-compliant to summons issued by SEBI in

many ways. Examined Companies furnished wrong information and concealed material information from SEBI either in their replies to SEBI or by way of statements given under oath, in person, before Investigating Authority. There was, thus, malafide intention on the part of directors/promoters/officials of the Examined Companies, to hamper the investigation carried out by SEBI.

14. The directors/promoters/officials of the Examined Companies are as much responsible for the fraudulent issuance of GDRs with the help of AP, as AP himself. India Focus Cardinal Fund

15. IFCF acted as the main link between the trading of GDRs in overseas market and the sale of the underlying shares resulting out of conversion of GDRs in the Indian markets. Following is the summary of trading done by IFCF during the period January 01, 2009 to September 21, 2011 in the examined scrips.

Company Buy

Volume Sell

Volume Buy

Value Sell Value

(Rs.)

Asahi 0 6,44,81,646 0 11,89,67,319

Avon 0 4,31,20,000 0 27,28,84,812

CAT 0 2,45,200 0 28,63,902

IKF 0 1,96,07,456 0 8,67,92,834

K Sera 0 2,70,12,750 0 34,21,13,600

Maars 0 61,31,239 0 2,17,12,348

Total 84,53,34,814

16. As explained earlier IFCF was totally under the control of AP during the

period of investigation. It was disclosed to SEBI by Euram that IFCF was a broad based fund. However, during the course of investigation it was

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revealed that IFCF is not a broad based fund. Following are the details of investment in Class A shares of IFCF.

Name of Investors

% holding in Class A shares of IFCF

Euram 63.11%

Atique 29.06%

Citco Bank 7.82%

17. Euram informed SEBI that it has invested in Class A shares of IFCF exclusively on behalf of Vintage. Vintage is owned by Alkarni which in turn is owned by AP and his family members. Therefore, IFCF does not appear to be a broad based fund and its major investors are actually Indian citizens. IFCF cannot distance itself from the actions of AP, as;

AP is 100% shareholder of CCPL. CCPL is in turn 100% shareholder of IFCF.

AP is chief investment officer of CCPL. CCPL is Investment manager of IFCF. CCPL is also the FII and IFCF is registered as its Sub-Account in India.

AP and family members are investors in Alkarni which in turn is investor in Vintage. Vintage is the exclusive investor in Class A shares of IFCF.

Other FIIs/Sub-Accounts.

18. Other FIIs/Sub-Accounts were also observed to be repetitively cancelling GDRs of Examined Companies and selling in Indian markets. The counterparties to these FIIs/Sub-Accounts were also CP Group members related to AP.

19. Sophia, Rhodes and Mavi have been mainly observed to be actively trading in a manner similar to that of IFCF. Following table provides the details of major counterparties of sale of shares of Examined Companies by Mavi, Sophia & Rhodes.

Scrip FII CP PAN CP NAME Sell Volume

Sell Value (Rs.)

% to total Sale

CAT Mavi AACCE0781B ESPIRIT TECHNOLOGIES PVT LTD 5,31,732 13,32,932 42.2

CAT Mavi ABSPJ3747J DINESH KUMAR JAISWAL 3,62,695 9,66,131 28.8

CAT Mavi ADTPB3843L LAXMIPERSHAD JAISWAL 3,21,076 8,58,100 25.5

CAT Mavi Others 44,497 1,16,137 3.5

CAT Mavi Total 12,60,000 32,73,300 100.0

Maars Mavi AAACB4324K Basmati 16,59,858 67,52,550 63.8

Maars Mavi AABCA6702F Alka 6,47,500 26,61,225 24.9

Maars Mavi ACRPP5552H SV Enterprises 1,92,318 7,82,707 7.4

Maars Mavi Others 1,00,324 4,06,797 3.9

Maars Mavi Total 26,00,000 1,06,03,279 100.0

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Scrip FII CP PAN CP NAME Sell Volume

Sell Value (Rs.)

% to total Sale

CAT Rhodes AAACB4324K Basmati 5,92,150 31,85,993 39.5

CAT Rhodes AACCE0781B ESPIRIT TECHNOLOGIES PRIVATE LTD 5,94,465 16,85,895 39.6

CAT Rhodes AACCN3776H NEWGEN INTERNATIONAL PRIVATE LTD 1,50,000 8,11,500 10.0

CAT Rhodes AABCA6702F Alka 1,50,000 4,47,000 10.0

CAT Rhodes Others 13,385 67,059 0.9

CAT Rhodes Total 15,00,000 61,97,446 100.0

K Sera Rhodes ACRPP5552H SV 11,35,560 1,34,10,847 36.2

K Sera Rhodes AAACO3597K Oudh 5,87,765 70,53,180 19.1

K Sera Rhodes AAACB4324K Basmati 5,82,642 70,06,128 18.9

K Sera Rhodes AABCA6702F Alka 2,27,550 38,79,728 10.5

K Sera Others 4,66,483 56,68,654 15.3

Rhodes Total 30,00,000 3,70,18,537 100.0

Maars Rhodes ACRPP5552H SV Enterprises 17,78,870 1,31,86,581 20.7

Maars Rhodes AAACJ8850C JMP 10,82,219 76,21,952 12.6

Maars Rhodes AADPS8309K Bharat C Shah 8,83,913 69,29,878 10.3

Maars Rhodes AAVPR5584R Ajay Roongta 9,21,143 40,12,300 10.7

Maars Rhodes Others 39,45,858 2,77,76,936 45.7

Maars Rhodes Total 86,12,003 5,95,27,647 100.0

Scrip FII CP PAN CP Name Sell Volume

Sell value (Rs.) % to total Sale

Maars Sophia AALCS3212Q SPM Financial Advisory 14,84,983 57,22,244 17.3

Maars Sophia AABCA6702F Alka 5,80,290 23,50,175 6.7

Maars Sophia Others 45,97,102 1,38,96,537 53.5

Maars Sophia Total 86,00,000 2,69,57,462 100.0

K Sera Sophia AAACO3597K Oudh 4,11,236 55,62,066 20.2

K Sera Sophia AAACE2875N Jitendra Patel 3,17,730 43,00,528 15.6

K Sera Sophia ACRPP5552H SV 1,95,695 20,61,398 7.5

K Sera Others 7,50,545 1,07,07,248 38.9

K Sera Sophia Total 20,00,000 2,75,22,638 100.0

CAT Sophia AACCE0781B ESPIRIT TECHNOLOGIES PRIVATE LTD 6,03,268 17,10,572 40.2

CAT Sophia AAACB4324K Basmati 3,00,000 17,50,500 20.0

CAT Sophia ACLPJ8528K DHIRAJ KUMAR JAISWAL 2,22,900 5,94,916 14.9

CAT Sophia ADTPB3843L LAXMIPERSHAD JAISWAL 1,77,100 4,51,584 11.8

CAT Sophia AABCA6702F Alka 1,50,000 4,47,000 10.0

CAT Sophia Others 46,732 1,15,428 3.1

CAT Sophia Total 15,00,000 50,70,000 100.0

20. Mavi has not provided the details of all the beneficial owner (natural person)

of the respective funds that have dealt in the GDRs of Examined Companies.

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21. KII has also acted in a manner similar to IFCF. KII also provided SEBI copy of their agreement with Vintage and AP. From the perusal of the aforesaid agreements, it clear that KII had done dealings in the GDRs of Examined Companies on directions from Vintage/AP. Credo Capital PLC is an FII related to Credo Investments Holding Ltd and has KII as its Sub-Account. Thus it is clear that Credo Capital PLC was aware of the agreements between Credo and Vintage. Thus Credo Capital PLC failed, as an FII, to prevent KII from dealing in the GDRs and shares of Examined Companies despite being aware of the agreements among, Credo, KII and Vintage.

22. Apart from the above, the trading of shares received by the Sub-Accounts after cancellation in Indian Stock and offloading of such shares by these Sub-Accounts/FIIs to Indian retail investors with the help of AP related entities is explained in the interim order dated September 21, 2011.

23. With regards, to other Sub-Accounts, viz, Mavi, Sophia and Rhodes, although

they have denied any links with AP, their trading conduct as explained in this report and in Interim Order dated September 21, 2011 and the above data suggests that many of their orders were also matched with AP entities. However, a detailed examination regarding these sub-accounts would be dealt in a supplementary report.

Indian Counterparty Group members (CP Group)

24. SV, Alka, Oudh, Basmati and JMP were also observed to be repetitively appearing as counterparties to the sell trades of Sub-Accounts. Apart from JMP, rest four of the said clients have been found to be related to AP. These clients after purchasing from the Sub-Accounts sold the shares to Indian retail clients and thus completed the disposing of the GDRs.

25. These CP Group members have provided liquidity to the shares of Examined Companies to let Sub-Accounts successfully offload their holdings.

26. SV, who is having connections with Ashok, brother of AP and SP has not complied to the summons issued to it. SV did not reply to the Interim Order and letters sent thereafter in this regard. Mr. Sarfaraz Khan Pathan, proprietor of SV, appeared in SEBI on May 28, 2012 and assured that a reply to the Interim Order and summons will be submitted to SEBI. However, SEBI has not received any response from Mr. Sarfaraz Khan Pathan after May 28, 2012. Thus, SV and Mr. Sarfaraz Khan Pathan have not complied to the summons issued by SEBI.

27. Apart from the aforementioned CP Group members which were identified in the Interim Order, certain trading entities are also found to be purchasing shares from Sub-Accounts in large concentration and selling to Indian retail clients within a short period of time. The detailed investigation of these entities is covered in supplementary report.

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