FOURTH PROGRESS REPORT ON THE ACTION TAKEN …

Government of IndiaMinistry of Finance

FOURTH PROGRESS REPORT ON THE ACTION TAKEN

PURSUANT TO THE RECOMMENDATIONS OF

THE JOINT PARLIAMENTARY COMMITTEE ON

STOCK MARKET SCAM AND MATTERS RELATING THERETO

July 2005

INTRODUCTION

The Report of the Joint Parliamentary Committee on Stock Market Scam and mattersrelating thereto was presented to the Parliament on 19th December 2002. In Para 3.31, the JPCrecommended that the Government should present its Action Taken Report to the Parliamentwithin six months and, thereafter, a Progress Report every six months until action on all therecommendations has been fully implemented to the satisfaction of Parliament. The Governmenthas submitted the Action Taken Report to the Parliament on 9.5.2003. First Progress Report waspresented in the Lok Sabha/Rajya Sabha on 12.12.2003 and 16.12.2003 respectively. SecondProgress Report was presented to the Parliament on 10.6.2004. Third Progress Report waspresented to the Parliament on 9.12.2004.

2. JPC had made 276 recommendations/ observations/conclusions. In the ATR presented tothe Parliament during May 2003, final response of the Government in respect of 111recommendations had been given. In the Progress Report presented during December 2003,action was completed on 39 recommendations. In the Second Progress Report presented duringJune 2004, action was completed on 36 recommendations. In the Third Progress Report presentedduring December 2004, action was completed on 18 recommendations. In the Fourth ProgressReport action on further 23 recommendations has been completed which brings down the numberof pending recommendations to 49.

I N D E X

Sl. No. Para. No. Subject in brief Page Nos.

1. 2.15 Nexus between brokers, banks and corporate houses. 1-332. 2.17 Lack of will to implement the suggestions of the previous JPC. 34-363. 3.11 Need to set up adequate number of courts to ensure speedy disposal of cases. 36-374. 3.18 Disposal of disciplinary proceedings. 37-385. 3.21 Dual control and the role of RBI. 38-406. 3.33 List of recommendation of previous JPC which are analogous. 417. 4.44 Swiss Bank accounts of Shri Ketan Parekh. 41-448. 4.45 Action to recover dues from Ketan Parekh entities. 44-459. 4.68 Proceedings against defaulters brokers. 45-48

10. 4.69 Criminal proceedings initiated against Shri H.C. Biyani. 48-4911. 4.70 Transactions of H.C.Biyani with SHCIL. 49-5112. 4.117 Irregularities in SHCIL. 51-5713. 5.62 Duality of control. 57-5814. 5.63 Dubious role played by auditors. 58-6015. 5.64 Expeditious disposal of criminal cases against Administrator, MMCB & Ors. 60-6116. 5.66 Recommendations regarding MMCB and similar cooperative banks. 61-6717. 5.109 Irregularities in the City Cooperative Banks Ltd., Lucknow. 67-7118. 5.110 - do - 71-7219. 5.111 Laxity on the part of apex. regulators –the RBI and RCS. 72-7320. 5.112 Action against the erring executives of CCBL. 7321. 5.113 Recommendations of the JPC. 73-7522. 5.159 Action against CCBL. 75-7623. 5.174 Violation of rules/ norms by BOI and the observations of the JPC. 77-8124. 5.175 Recommendation of the JPC – action against officials of BOI. 8225. 5.197 Recommendations of the Committee. 83-8526. 6.94 Involvement of Banks in the payment crisis in CSE. In action of CSE and SEBI. 85-8927. 6.97 Software bug in CSE. 89-9028. 6.104 Proactive role by SEBI in the affairs of CSE. 9029. 7.4 Investigating role of promoters and corporate entities. 91-9230. 7.51 Expeditious action on involvement of promoters/corporate houses in manipulation of prices of scrips. 92-9431. 7.53 Corrective measures on professional allotment and private placement. 94-9532. 7.54 Non-availability of required support from concerned regulatory and marketing bodies to make purposeful

recommendation on nexus of corporate bodies-brokers banks and other. 95-9633. 8.76 Action against OCB’s and FII’s. 96-9734. 9.31 Role of EDs/ nominee director in Stock exchanges vis-à-vis demutualisation. 97

35. 10.11 Observations regarding amending Chartered Accountants’ Act 1949. 9836. 10.72 Lack of interest by RBI in making the systemic changes proposed in the ATRs on the last JPCs report. 9837. 10.75 Eternal vigilance and deterrent punishment- watchword of the regulator. 9938. 10.76 Expeditions disposal of the RBIs proposals and review of existing laws by MOF. 99-10139. 10.80 Suggestions for setting up independent board for ensuring quality audit to strengthening of penal

provisions against auditors. 102-10340. 10.85 Suggestion of the committee for implementation of the Ghosh and Mitra Committee Reports on Financial frauds

and for devising effective mechanism to deal with frauds. 103-10541. 10.86 Suggestion relating to the problems of dual control/overlapping jurisdiction of regulatory authorities. 105-10742. 10.87 Recommendation regarding merger of banks. 107-10843. 11.33 Expeditious decision for amendments in Cos. Act. 108-10944. 11.37 Rationalisation of penalties. 10945. 11.39 Amendments to Chartered Accountants Act. 11046. 11.41 Need for a healthy auditor-management relationship. 110-11147. 11.42 Tracing the Vanishing Companies. 111-11348. 11.43 Action against directors of vanishing companies. 114-11749. 12.74 Punishing guilty expeditiously. 117-11850. 12.76 Special Courts. 118-12051. 12.78 Investigation in RC 19(s)/2001 & RC 20(8)/2001. 120-12252. 12.121 Investigations against ZEE Telefilms. 122-12353. 12.199 Disposal Committee headed by custodian. 123-12954. 13.31 Delays in Government in processing the proposals for legislative changes. 129-13055. 13.52 Proposal for speedy amendment of Banking Regulation Act, 1949. 130-13156. 13.53 Repealing Public Debt Act – inordinate delay in implementing recommendations of previous JPC. 13157. 13.55 Steps taken in pursuance of last JPC report insufficient in forestalling present irregularities. 131-13258. 14.58 Unclaimed/undistributed funds such as dividends, principal amount, interest, debenture amount and fixed deposits

of any nature should be transferred to the Investor Education and Protection Fund. 132-13359. 14.60 Special courts for expeditious disposal of investor’s complaints. 133-13460. 16.21 Action against officials who were party to sanctioning inter-scheme transfers in violation of the policy guidelines. 13561. 16.28 UTI should formalize a comprehensive investment policy. 135-13662. 16.29 Investment by UTI in DSQ and Numero Uno International. 136-13763. 16.31 Action against officials involved in arbitrary decision making. 137-13964. 16.37 Thorough enquiry of the secondary market transactions in the shares of companies identified by the

Tarapore Committee. 139-14065. 16.47 Comprehensive audit and investigation into purchase of stocks by UTI. 140-14166. 16.50 Departmental proceedings against UTI officials. 141-142

(ii)


67. 16.53 -do- 142-14368. 16.56 IDBI should hold its appointees responsible for not framing UTI’s assured return schemes in compliance

with SEBI guidelines. 143-14469. 17.14 Quantum jump of inter scheme transfers from/to US-64. 14470. 18.19 Nexus between Chairman SHCIL, UTI, brokers, promoter of a group etc. 144-14771. 18.20 Recommendations relating to close nexus between corporate promoters, brokers, broker directors

of CSE and officials of SHCIL and UTI. 147-14872. 21.9 Accountability/departmental proceedings etc for UTI actions. 148-149

(iii)


As reported in May, 2003SEBI had conducted investigations into the alleged marketmanipulations. Based on investigations, SEBI had taken actionsas given below:1. SEBI vide Orders dated April 4, 2001 and April 10, 2001 undersection 11B of the SEBI Act debarred Classic Shares and StockBroking Services (CSSB), Triumph Securities Ltd (TSL), TriumphInternational Finance India Ltd (TIFL), NH Securities Ltd. (NHSec), V N Parekh Securities Ltd (VNP Sec), KNP Securities Ltd(KNP Sec), the entities controlled by and connected with Mr.Ketan Parekh, and their directors Mr. Ketan Parekh and Mr. KartikParekh from undertaking any fresh business as a stock brokeror merchant banker.2. SEBI has cancelled the certificate of registration granted toTriumph International Finance India Ltd to act as a stock broker.3. Adjudication order dated July 31, 2002 passed against KetanParekh entities namely Classic Credit Ltd, Panther InvestradeLtd for their dealings in shares of Aftek Infosys Ltd, levying apenalty of Rs. 5 lacs.4. Certificate of registration of Credit Suisse First Boston (I)Securities Pvt Ltd (CSFB Securities) has been suspended forthe period of two years w.e.f. April 18, 2001 for aiding, abetingand assisting Ketan Parekh entities in market manipulations.5. Applications submitted by M/s Credit Suisse First Boston (aForeign Institutional Investor), for renewal of its FII registrationand also renewal/registration of its sub-accounts viz. Kallar KaharInvestments Limited, Credit Suisse First Boston (Cyprus) Limitedand Credit Suisse First Boston, Singapore Branch have beenrejected by SEBI.6. Prosecutions have been filed on March 7, 2003 vide case no123/2003 in the court of Addl. Chief Metropolitan Magistrate, 8thCourt, Esplanade, Mumbai against the following entitiesconnected/associated with Ketan Parekh:

1. Classic Credit Ltd2. Shri Kirtikumar N. Parekh

FOURTH PROGRESS REPORT (JULY 2005) OF THE ACTION TAKEN PURSUANT TO THERECOMMENDATIONS OF JOINT PARLIAMENTARY COMMITTEE ON STOCK MARKET SCAM

AND MATTERS RELATING THERETO – 2002.

Sl.No. Para No.Observation/Recommendation of JPC Reply of Government/Action Taken Further Progress

1. 2.15 The Committee note that Ketan Parekhwho emerged as a key player in this scamreceived large sums of money from thebanks as well as from the Corporatebodies during the period when SENSEXwas falling rapidly. This led the Committeeto believe that there was a nexus betweenKetan Parekh, banks and the corporatehouses. The Committee recommend thatthis nexus be further investigated by SEBIor Department of Company Affairsexpeditiously.

DSQ SoftwareAction against promotersThe appeals against the SEBI Ordersdated 09.09.2004 issued against ShriDinesh Dalmia and M/s DSQ Softwareand its directors were heard by the Hon’bleSAT on 04.02.05. In the matter of DSQSoftware the matter is posted for hearingon 19.09.2005.In the matter of Shri Dinesh Dalmia, SAThad directed him to pay a deposit of Rs. 5crore before the matter could be admittedfor hearing and he has paid an amount ofRs. 2.5 crore. On the request of theappellant the sum was reduced to Rs.2.5crore. The matter is posted for hearing on19.09.2005.Adjudication in the case of M/s DineshDalmia Technology Trust, M/s HuldaProperties and Trade Ltd., M/s DSQHoldings Ltd., M/s Doe Jones Investmentand Consultants Pvt. Ltd. and M/sPowerflow Holding and Trading Co. Pvt. Ltd.completed and the details of the penaltyis as following:

DSQ Holdings Ltd Rs.10,00,000Powerflow Holding &Trading Co. Pvt. Ltd. Rs.25,000Hulda Properties &Trades Ltd Rs.10,00,000Dinesh Dalmia Tech Trust Rs.5,00,000Doe Jones Invest &Consult Pvt. Ltd Rs.15,000Herald Equities Pvt. Ltd. No Penalty

The orders in the case of M/s Dinesh


2

3. Shri Ketan V Parekh4. Shri Kartik K Parekh5. Panther Fincap & Mgt. Services Ltd.6. Shri Navinchandra Parekh7. Luminant Investment Private Ltd8. Shri Arun J Shah9. Chitrakut Computers Pvt. Ltd10. NH Securities Ltd.11. Shri V N Parekh12. Classic Shares & Stock Broker Ltd13. Shri Kaushik C Shah14. Shri Mukesh Joshi15. Saimangal Investrade Ltd16. Classic Infin Ltd17. Panther Investrade Ltd

7. SEBI has also taken actions against promoters wherever theviolations of SEBI Act and Regulations have been observed.Details of such actions given below:a. Actions against DSQ Software Ltd and their promoters· Orders were issued under section 11B of SEBI Act against

DSQ Software Ltd and Shri Dinesh Dalmia, which is as givenbelow:� DSQ to cancel this alleged acquisition of Fortuna

Technologies being done on swap basis after followingthe procedure laid down under the Companies Act.

� DSQ be prohibited from accessing capital market for aperiod of one year or completion of investigation andaction thereupon whichever is later.

� Mr Dinesh Dalmia, Managing Director, DSQ be debarredfrom dealing in securities for a period of one year orcompletion of investigation and action thereuponwhichever is later.

· Prosecutions have been filed on April 4, 2003 vide case no2776/2003 in the court of XIII Metropolitan Magistrate,Saidapet, Chennai against DSQ Software, Directors of DSQSoftware including Shri Dinesh Dalmia

· First Information Report (FIR) filed against DSQ Software,Directors of DSQ Software including Shri Dinesh Dalmia

b. Actions against Global Trust Bank promoters

Dalmia Technology Trust and M/s DSQHoldings Ltd. were duly served at therespective addresses on 08.02.2005. Inthe case of M/s Hulda Properties and TradeLtd. and M/s Powerflow Holding andTrading Co. Pvt. Ltd. the orders werepasted at the their respective addresseson 04.03.2005 and in case of M/s DoeJones Investment and Consultants Pvt.Ltd. the order was delivered andacknowledged. Order in the case of M/sHerald Equities Pvt. Ltd. was also servedat their respective address.Pursuant to the completion of adjudicationproceedings, the penalty amount has beenpaid by M/s Doe Jones Investments andConsultants Pvt. Ltd. in March 2005. Theother parties have not paid the penaltyamount within the stipulated time periodof 45 days and prosecution proceedingsare in the process of being initiated againstthe entities

DSQ Industries Ltd.Action against promotersOrder passed on 10/12/2004 against thefollowing entities prohibiting them fromaccessing the securities market anddealing in securities market for a period of10 years:

• DSQ Holdings Ltd.• Hulda Properties and Trades Ltd.• Cooltex Commodities Ltd.• Greenfield Investments P Ltd.• Arun Polymers P Ltd.• Aspolite Barter• Naina Barter• Dinesh Dalmia• Ashok Sharma.


3

Orders were issued under section 11B of SEBI Act againstpromoter entities not to buy, sell or transfer, pledge or disposeoff or deal in any other manner the shares of Global TrustBank Ltd, directly or indirectly.

· Ramesh Gelli· Premkala Gelli· Jayant Madhav· Girrish Gelli· Niraj Gelli· Sridhar Subasri· Annapurna Sridhar· Anjanaya Traders Pvt. Ltd.· Chiranjeevi Traders Pvt. Ltd· Gajanan Financial Services Pvt. Ltd.· Gajmukh Investments Pvt Ltd.· Kadrish Finance & Investments Pvt. Ltd.· Bombay Mahalakshmi Traders Pvt. Ltd.

c. Actions against Aftek Infosys promotersAdjudication order dated July 31, 2002 passed against promotersof Aftek Infosys, levying penalty of Rs. 5.50 lakh

· Ranjit Dhuru· Nitin Shukla· Ashutosh Humnanbadkar· Mukul Dalal· Pramod Broota· Charuhas Khopkar· Sandip Save· Ravindranath Malekar

8. SEBI has taken note of JPC observations/ recommendations.As reported in December 2003No change in the status.As reported in June, 2004SEBI has submitted the following progress:-DSQ SoftwareAction against stock brokers:The registration of following two brokers has been suspendedfor one year vide SEBI Order dated 04/03/2004

1. Mehta & Ajmera

Action against other entities1. Order dated 08/11/2004 passed

against M. Tibrewal & Co. prohibitingfor a period of 2 years from accessingcapital market.

2. Order dated 03/01/2005 passedagainst Classic Credit and PantherFincap and Management Services Ltd.to make public announcement underTakeover Regulation taking 01/03/2001 as the reference date forcalculation of offer price within 45 daysof the date of the order.

3. Order dated 19/01/2005 passedagainst Doe Jones Investments Ltd.and Arihant Exim Pvt. Ltd. prohibitingthem from accessing capital marketsfor 2 years

4. Order dated 27/01/2005 passedagainst Biyani Securities Pvt. Ltd. andits directors and Harish Biyaniprohibiting them from accessingcapital markets for 5 years.

Action against brokers1. Order dated 07/01/2005 passed

against Niraj Balasaria, stock broker,CSE suspending the certificate ofregistration for a period of 3 months.

2. Order dated 17/05/2005 passedagainst Indsec Securities Ltd. No caseagainst the broker under the definitionof fraud was observed.

Padmini Technologies Ltd. (PTL)Action against PTL and its whole timedirectorsPTL and Vivek Nagpal have appealedagainst the order of Adjudicating Officerbefore SAT. The appeals were admitted on15.3.2005 and 13.4.2005 respectively.


44

2. Himanshu AjmeraThe registration of following two brokers has been cancelled videSEBI Order dated March 8, 2004 for market manipulation whichincludes their dealings in DSQ Software Ltd.

1. N.H. Securities Ltd.2. Classic Shares and Stock Broking Services Ltd.

Actions against entities associated with/controlled by KetanParekhThe following nine entities which are associated with /controlledby Ketan Parekh have been prohibited from buying, selling ordealing in securities in any manner directly or indirectly and alsodebarred from associating with the securities market, for a periodof fourteen years vide SEBI Order December 12, 2003:

i. Shri Ketan V. Parekhii. Kartik K. Parekhiii. Classic Credit Ltdiv. Panther Fincap and Management Services Ltd.v. Luminant Investment Pvt Ltd.vi. Chitrakut Computers Pvt. Ltd.vii. Saimangal Investrade Ltd.viii. Classic Infin Ltdix. Panther Investrade Ltd.

Out of these 9, action against the following three entities wastaken for market manipulation which includes their dealings inDSQ Software Ltd.:

1. Classic Credit Ltd2. Panther Fincap and Management Services Ltd.3. Luminant Investment Pvt Ltd.

DSQ Industries Ltd.Against PromotersA show cause notice dated February 20, 2004 was issued to thefollowing entities under Regulation 11 and 11B of SEBI Act readwith Regulation 11 of SEBI (Prohibition of Fraudulent and UnfairTrade Practices) Regulations, 1995

· M/s. DSQ Holdings Ltd.· M/s. Hulda Properties and Trades Ltd.· Shri Dinesh Dalmia· M/s. Cooltex Commodities Ltd.· M/s. Greenfield Investments Pvt. Ltd.

SAT vide order dated 13.4.2005 directedSEBI not to take any coercive stepsagainst Shri Vivek Nagpal on the conditionthat he deposits a sum of Rs. 50,000/- withSEBI. The said payment has since beenreceived from Shri Nagpal. Subsequently,SAT vide its final order dated 28.06.2005has reduced the penalty amount from Rs.3 lac to Rs. 1.5 lac in case of Shri VivekNagpal and from Rs. 5 lac to Rs. 1.5 lac incase of PTL.Proceedings u/s11B of SEBI Act are underway; show cause notices were issued tothe company and its directors. Anopportunity for personal hearing wasgranted to PTL & its whole-time directorson 11.11.2004, which was not availed.Another oppor tunity was given on30.11.2004 and 15.12.2004. During thesehearings, their advocates soughtopportunity for cross examination. Thisaspect has been legally examined and ithas been decided to deny crossexamination in light of sufficientcorroborative evidences available withSEBI. While, the documents relied inpreparation of show cause notices havealready been provided, an opportunity offresh personal hearing is proposed beforepassing the order against them.

Action against Ketan Parekh Group

Panther Fincap and ManagementServices Ltd., Classic Credit Ltd. andtheir Directors (including Ketan Parekh)An opportunity for personal hearing wasgiven to Ketan Parekh entities/ theirdirectors on 24.11.2004, which was notavailed. Another opportunity was given on


55

· M/s. Arun Polymers Pvt. Ltd.· M/s. Aspolite Barter Pvt. Ltd.· M/s. Naina Barter Pvt. Ltd.· Shri Ashok Sharma

Show Cause Notices could be served only to two promoter groupentities, namely, DSQ Holdings Ltd. and Dinesh Dalmiya. Replyto the show cause notice is yet to be received. Exparte order willbe passed after giving one more opportunity. Show Cause Noticessent by courier and subsequently by speed post to the remainingsix entities, namely, Hulda Properties and Trades Ltd., CooltexCommodities Ltd., Arun Polymers Ltd., Aspolite Barter Pvt. Ltd.,Greenfield Investments Pvt. Ltd. and Ashok Sharma returnedundelivered. Show Cause Notices could not be served to theseentities. Exparte order will be passed after giving one moreopportunity.Other EntitiesA show cause notice dated February 19, 2004 was issued to thefollowing entities under Regulation 11 and 11B of SEBI Act readwith Regulation 11 of SEBI (Prohibition of Fraudulent and UnfairTrade Practices) Regulations, 1995

· M/s. Arihant Exim Scrip Pvt. Ltd.· M/s. Doe Jones Investments & Consultants Pvt. Ltd.

Reply to the Show Cause Notices has not yet been received.Letter has been received from the entity mentioning that theyare not in a position to reply because police authorities haveseized the documents. Exparte order will be passed.A show cause notice dated February 19, 2004 was issued foracquisition of shares/voting rights/control of DSQ Industries Ltd.(DSQ) by Classic Credit Ltd. and Panther Fincap & ManagementServices Ltd. in violation of SEBI (Substantial Acquisition ofShares and Takeovers) Regulations, 1997 (Regulations). Replyto the Show Cause Notice has not yet been received. Expartefinal order will be passed after giving one more opportunity.Prosecution No.4538 has been filed on August 13, 2003 (ChiefMetropolitan Magistrate’s Court at Kolkata) against Doe JonesInvestments Ltd., Arihant Exim Pvt. Ltd., M. Tibrewal & Co., andpromoter group entities and associates of DSQ Industries Ltd.namely DSQ Holdings Ltd., Hulda Properties and Trades Ltd.,Cooltex Commodities Ltd., Greenfield Investments P Ltd., Arun

15.12.2004 when their advocates soughtan opportunity for cross examination,which has been legally examined. It hasbeen decided that since SEBI hassufficient corroborative evidences, crossexamination shall be denied. Further, videletter dated 22.12.2004 a reply to the showcause notice has been received. Anopportunity of fresh personal hearing isproposed before passing the order againstthem.Adjudication proceedings have beencompleted and Adjudication Officer, videhis orders dated 23/24.08.04, has imposeda penalty of Rs.5 lac each on PantherFincap and Management Services Ltd. andClassic Credit Ltd.The entities have appealed against theorder of Adjudicating Officer beforeSAT. The matter came up for hearing on8.6.2005 before SAT and was adjournedto 3.8.2005.Triumph International Finance Ltd.(TIFL)A reply to show cause notice dated27.8.2004 has been received from TIFLvide its letter dated 12.1.2005. TIFL hashowever sought an oppor tunity forpersonal hearing, which is proposedbefore passing the order against them.It may be noted that registration of TIFL isalready cancelled for violations committedin other cases vide an earlier order dated16.5.02. The date of order was earlierinadvertently mentioned as 16.5.03 in the3rd Progress Report. Error is regretted.Action against Statutory Auditors(Kailash Chandra Agarwal, CharteredAccountant)


6

Polymers P Ltd., Aspolite Barter, Naina Barter, Dinesh Dalmiaand Ashok Sharma.Enquiry Proceedings have been Initiated against followingBrokers

1. M/s. SMIFS Securities Ltd.2. M/s. Titan Stock Broking Pvt. Ltd.3. M/s. Indsec Securities Ltd.4. M/s. Amartlal Gopalji Thacker5. M/s. Mehta & Ajmera6. M/s. Bissen Dayal Dayaram7. M/s. Ballabh Dass Daga8. M/s. Vishal J Shah9. M/s. Niraj Balasaria

Out of the nine brokers, enquiries have been completed against3 brokers and final show cause notices have been issued to themon April 29, 2004:

1. Titan Stock Broking2. Amritlal Gopalji Thacker3. M/s Niraj Balsaria

Padmini Technologies Ltd. (PTL)Against PTL and its whole-time directorsProsecution launched u/s 113(2) of Companies Act against thecompany and its whole-time directors in the Court of Addl. ChiefMetropolitan Magistrate, Tis Hazari, Delhi vide case no. 252 of2003 on March 26, 2003. The criminal case came up before thecourt on 20.11.03. Last hearing took place in March 2004, whenall the accused appeared. The case has been posted to 16.08.04.Prosecution u/s 24 and 27 of SEBI Act r/w Regulation 3, 4 & 6 ofSEBI (Prohibition of Fraudulent and Unfair Trade Practices relatingto Securities Market) Regulations, 1995 and Regulation 3(1)(c),3(3), 7 of SEBI (Substantial Acquisitions of Shares and Takeovers)Regulations 1995 against PTL and its whole-time directorslaunched on 28.05.04.Prosecution {u/s11C(6) of SEBI Act} against Shri Vivek Nagpal,CMD, PTL launched on 28.05.04.Adjudication (u/s 15A of SEBI Act) for non compliance ofsummons initiated against Shri Vivek Nagpal and PTL on 12.12.03and 13.02.04 respectively, show cause notices (SCNs) to VivekNagpal and PTL issued on 03.02.04 and 24.02.04 respectively,

In regard to proceedings u/s 11B of SEBIAct, the submissions of auditor vide letterdated 22.1.2004, 23.8.2004 and18.10.2004 have been examined. Freshopportunity of hearing was also grantedto auditor for 29.3.2005, which wasadjourned. Fresh hearing is proposedbefore passing the order.Action against OthersSanjay Kumar, Chartered AccountantIn regard to proceedings u/s 11B of SEBIAct, an opportunity for personal hearingwas granted to Shri Sanjay Kumar on15.3.2005, however he failed to appearciting medical problem and stating thatSEBI had already initiated prosecution onsimilar charge. Meanwhile, a reply dated17.6.2005 to the show cause notice hasalso been received from Shri SanjayKumar. Fresh hearing is proposed beforepassing the order against him.A reminder was issued to ICAI seekingstatus of reference dated 26.12.2003. ICAIvide its letter dated 4.11.2004 informedthat clarification has been received fromShri Sanjay Kumar and further action isbeing taken as per the provisions ofSection 21 of the Chartered AccountantsAct, 1949.Shri Sanjay Kumar had appealed againstthe order for imposition of penalty byAdjudicating officer. SAT vide its orderdated 24.11.2004 admitted the appeal byShri Sanjay Kumar against this order anddirected SEBI not to take any coercivesteps against the appellant on conditionsthat appellant deposit a sum of Rs.50,000.The said amount has been paid by the


7

reply from Vivek Nagpal received vide letter dated 17.03.04.Proceedings u/s11B of SEBI Act are under way; show causenotice has been issued to the company and its directors on20.02.04. PTL and Vivek Nagpal have raised issues like inspectionof records, depositions, cross examination etc. vide their lettersdated 28.02.04 and 25.03.04 respectively.Reference has been made to Department of Companies Affairs(DCA) on 09.01.04 for considering appropriate action under therelevant provisions of the Companies Act for irregularitiescommitted in regard to preferential allotment.Against Ketan Parekh groupPanther Fincap and Management Services Ltd., ClassicCredit Ltd. and their Directors (including Ketan Parekh)Adjudication proceedings u/s 15H of SEBI Act have been initiatedon 13.02.04, SCNs were issued on 24.02.04, replies receivedon 18.03.04 are under consideration of the Adjudicating Officer.KP entities have been debarred from capital market vide orderdated 12/12/2003 for fourteen years.Prosecution u/s 24 and 27 of SEBI Act r/w Regulation 3, 4 & 6 ofSEBI (Prohibition of Fraudulent and Unfair Trade Practices relatingto Securities Market) Regulations, 1995 and Regulation 3(1)(C),3(3), 7 of SEBI (Substantial Acquisitions of Shares and Takeovers)Regulations 1995 and u/s 23(1)(b) of Securities ContractRegulation Act launched on 28.05.04.Triumph International Finance LtdEnquiry proceedings under SEBI (Procedure for Holding Enquiryby Enquiry Officer and Imposing Penalty) Regulations, 2002 havebeen initiated on 16.12.03, SCN issued on 10.03.04, replyreceived on 25.03.04 are under consideration of the EnquiryOfficer.Against Statutory AuditorsReference has also been made to Institute of CharteredAccountants of India on 23.12.03.Proceedings u/s 11B of SEBI Act have been initiated against thestatutory auditor and show cause notice has been issued on22.12.03.Prosecution u/s 24 of SEBI Act has been launched on 28.05.04.Against OthersVarious preferential allottees and their associates

appellant. Subsequently, SAT on10.2.2005 has passed a final order andreduced the quantum of penalty to Rs.25,000/-.

• Kolkatta based preferentialallottees

Chairman, SEBI had granted opportunitiesof personal hearing to 18 Kolkata basedpreferential allottees on 22.12.2004 and30.12.2004 against whom proceedings u/s 11B of SEBI Act were initiated. None ofthese entities appeared for hearing.However, 3 allottees got stay from CalcuttaHigh Court against the proceedings bySEBI. Calcutta High Court vide its ordersdated 23.3.2005 has dismissed theappeals filed by 3 Kolkatta basedpreferential allottees. Another opportunityof personal hearing is proposed beforepassing order against the allottees.

• Delhi based preferentialallottees

Show cause notices were issued to 12Delhi based allottees/ their directors inOctober/ November 2004. Some entitieshad sought copies of documents relied inpreparation of show cause notices, whichwere duly provided. No reply has beenreceived from them.An opportunity for personal hearing wasgranted to these entities on 15.3.2005,however none of them appeared. SomeDelhi based entities namely VB Impex PLtd., Iris Infrastructurals P. Ltd., MikonaImpex & Traders P. Ltd., DKG Buildcon P.Ltd. and JP Promoters P. Ltd. soughtanother date of hearing. No reply wasreceived from others. Fresh hearing is


8

Proceedings u/s11B of SEBI Act are under way.Sanjay Kumar, Chartered AccountantAdjudication (u/s 15A of SEBI Act) for non compliance ofsummons initiated on 12.12.03. SCN issued on 03.02.04, replyreceived on 01.03.04 under consideration of the Enquiry Officer.SCN issued on 26.12.03 as part of proceedings u/s11B of SEBIAct, inspection of records granted on 19.02.04. He has furtherrequested for copies of various documents which is underconsideration.Prosecution u/s 11C(6) and 24 of SEBI Act has been launchedon 28.05.04.Reference has been made to The Institute of CharteredAccountants of India (ICAI) on 26.12.03.SBI Mutual FundReference has been made to Trustees of SBI Mutual Fund on18.12.03 requesting them to look into the issues raised by SEBI.A & A Finvest P Ltd. (a sub-broker)Enquiry proceedings have been initiated. SCN issued on15.03.04, reply received vide letter dt. 28.04.04 underconsideration of Enquiry Officer.Shonkh Technologies LtdAgainst Mr. Vivek Nagpal, promoters of M/s ShonkhTechnologies International LimitedAdjudication orders levying a penalty of Rs.1 Crore each waspassed on December 3, 2003 against Shri Vivek Nagpal and M/s Padmini Technologies. On an appeal filed by the above entitiesin SAT, SAT directed them to deposit Rs.1.5 lakhs each with SEBI.Rs.1.5 lakhs each was deposited by the parties with SEBI onMay 19, 2004.Against Shonkh Technologies International LimitedShow cause notice is to be issued by May 31, 2004.Prosecution proceedings are under consideration.Against Ketan Parekh EntitiesOrder against the KP entities prohibiting the KP entities frombuying, selling or dealing in securities in any manner, directly orindirectly and debarring them from associating with the securitiesmarkets, for a period of 14 years was passed on December 12,2003.The certificate of registration granted to broking entities

proposed before passing the order againstthem.A & A Finvest P. Ltd. ( a sub-broker)Fresh opportunity of hearing was grantedto A & A Finvest P. Ltd. for 29.3.2005, whichwas adjourned. Fresh hearing is proposedbefore passing the order against the entity.Shonkh Technologies Ltd.Action against Promoters/Company11B actions against Promoters of thecompany:Pursuant to Show Cause Notices issuedto the promoters and associated entities(15 entities) of Shonkh TechnologiesInternational Limited, 2 entities havesought inspection of documents and thesame have been provided in October 2004.The entities sought adjournment ofpersonal hearing fixed for 5th April, 2005.Subsequently, personal hearing beforeWhole Time Member has been fixed for2nd August, 2005.Adjudication against Shri Vivek Nagpaland promoters of Shonkh TechnologiesInternational Ltd.Adjudication orders levying a penalty ofRs.1 crore each against Shri Vivek Nagpaland Padmini Techologies Ltd. have beenpassed. Against the adjudication orders,Shri Vivek Nagpal and PadminiTechnologies Ltd. have filed an appealbefore SAT and as per the interim ordersof SAT dated 19th April, 2004 they havedeposited a sum of Rs.1,50,000/- each.SAT, vide its final orders dated 3rdFebruary 2005, reduced the penalty ofAdjudication Officer from Rs. 1 crore to Rs.10,000/- for M/s. Padmini Technologies Ltd.


9

associated with/controlled by Ketan Parekh viz, Classic Sharesand Stock Broking Services (CSSB), Triumph Securities Limited(TSL), NH Securities Ltd. (NH Sec.), Triumph InternationalFinance India Ltd., V N Parekh Securities Limited (VNP Sec)and KNP Securities Limited (KNP Sec) was cancelled on March8, 2004.Against M/s Iris Infrastructurals Private LimitedPenalty of Rs.1.5 lac was imposed on April 22, 2003 and Rs.1crore on December 3, 2003. The penalty amount is yet to bereceived. Recovery proceedings initiated.Against BrokersMilan Mahendra Securities Ltd.Show cause notice has been issued to the broker and reply hasbeen received.Adjudication proceedings have been completed against the entityand penalty imposed. Enquiry has been initiated against thebroker. Hearing in the case of M/s Milan Mahendra SecuritiesPrivate Limited stands rescheduled for June 14, 2004.Extempore Securities & Investments Ltd.(now called PioneerEquity Trade (India) Pvt. Ltd.)Show cause notice has been issued and reply received from theentity.Adjudication proceedings have been completed and penaltyimposed on the entity. The entity has paid the penalty.Enquiry proceedings have been completed and warning order waspassed on February 4, 2004 against M/s Extempore Securities(name changed to M/s Pioneer Equity Trade (India) Pvt. Ltd.Agroy Finance and Investments LimitedEnquiry proceedings have been initiated against the broker.A. Nitin Capital Services LimitedEnquiry proceedings have been initiated against the broker.Delhi Securities LimitedEnquiry proceedings have been initiated against the broker.Show cause notice under issue.Adjudication proceedings have been initiated against the entities.M/s Money Growth Financials and Consultants PrivateLimitedShow cause notice are to be issued by June 10, 2004.

and from Rs. 1 crore to Rs. 40,000/- forShri Vivek Nagpal. The penalties havebeen paid.Adjudication against associatedentities of the company/promotersPresent position is as follows:(i) Against 2 entities no penalty has

been imposed by the AdjudicatingOfficer. (On 31.12.2003,adjudication orders have beenpassed against Shri D.K.Jain andDelhi Securities Ltd.)

(ii) Against 15 entities penalty of Rs. 1crore each was levied by theAdjudicating Officer. Accordingly,the position stated in the 3rdProgress Report as 16 entitiesstands corrected. Error isregretted.

(iii) Out of the above, one entity (ShriMukesh Malhotra) has appealedbefore SAT against the adjudicationorder. SAT vide order dated 16thSeptember, 2004 directed ShriMukesh Malhotra to deposit Rs.25,000/- with SEBI and co-operatewith SEBI in the case. Shri MukeshMalhotra, vide letter dated20.10.2004, has deposited theamount with SEBI.

Names and dates of adjudication ordersof the above entities are given below:(i) On 28.11.2003, orders have beenpassed against the following entities: AnkurCultivators P Ltd., Saral Website & EximPvt. Ltd., Mikona Impex & Traders P Ltd.,Sanyo Finance P Ltd., Spectrum.com PLtd., Iris Infrastructure P Ltd., DKG


10

M/s A. Jain & Co. – Member DSEEnquiry Proceedings have been initiated against the broker.Shamit Finvest Private LimitedShow cause notice are to be issued by June 10, 2004.Investment by UTI in the shares of ShonkhInvestigation report received from UTI. UTI decided to initiateDepartmental and criminal action as may be appropriate againstthose indicted in the report.Ranbaxy Laboratories Ltd.Against promoterAdjudication proceedings for alleged contravention of section15A(a) of the SEBI Act read with Regulation 3(4) of the SEBI(Substantial Acquisition of Shares and Takeover) Regulations,1997 were initiated on 24.10.02 against the following 12 promotergroup entities of Ranbaxy Laboratories Ltd.:1. Astral Investments & Trading Company Pvt. Ltd.2. Divya Papers Pvt. Ltd.3. Shimal Investment & Trading Company4. Oscar Holdings Pvt. Ltd.5. Delta Aromatics Pvt. Ltd.6. Modland Wears Pvt. Ltd.7. Jupiter Investments Pvt. Ltd.8. Malvinder Mohan Singh9. Oscar Pharmaceuticals Pvt. Ltd.10. Oscar Investments Ltd.11. Fortis Financial Services Ltd.12. Dr. Parvinder Singh (HUF)Show cuase notices were issued on 10.11.2003.Against Stock BrokersEnquiry proceedings for alleged violation of the provisions of theSEBI (Prohibition of Fraudulent and Unfair Trade Practices relatingto Securities Market) Regulations, 1995, SEBI (Stock Brokersand Sub-Brokers) Regulations, 1992 and rules regulations andbye-laws of stock exchanges, were initiated on 24.10.02 againstthe following 41 stock brokers of different stock exchanges:1. Credit Suisse First Boston (India) Securities Pvt. Ltd.2. KNP Securities Pvt. Ltd.3. V.N. Parekh Securities Pvt. Ltd.

Buildcon P Ltd. and Churuwala Exports PLtd.(ii) On 10.12.2003, orders have beenpassed against Zodiac.com P Ltd. andNoted Infotech P Ltd.(iii) On 18.12.2003, order has been passedagainst Advance Hovercrafts andComposites (India) Ltd.(iv) On 22.12.2003, orders have beenpassed against Shri Ravi Krishnamoortiand Shri C.V.R. Rao.(v) On 31.12.2003, order has been passedagainst R. C. Gupta & Co. P Ltd.Also, adjudication order dated 10.06.2005has been passed against M/s. ShonkhTechnologies International Ltd. imposinga penalty of Rs. 50,000/-.The penalties are yet to be paid. Furtheractions for non payment of penalties areunder consideration.Prosecution proceedings againstpromoter entities and other entities:Prosecution proceedings have beenlaunched on 24th December, 2004 againstShri Vivek Nagpal, M/s. PadminiTechnologies Ltd. and the following 13entities before Additional ChiefMetropolitan Magistrate, New Delhi:1. M/s. Advance Hovercrafts and

Composites India Ltd.2. M/s. Ankur Cultivators Pvt. Ltd.3. M/s. Churuwala Exports Pvt. Ltd.4. M/s. DKG Buildcon Pvt. Ltd.5. M/s. Iris Infrastructurals Pvt. Ltd.6. M/s. Mikona Impex and Traders Pvt.

Ltd.7. M/s. Noted Infotech Pvt. Ltd.8. R C Gupta & Co. Pvt. Ltd.


11

4. Triumph Securities Ltd.5. Chandravadan J. Dalal6. Milan Mahendra Securities Pvt. Ltd.7. Mukesh Babu Securities Ltd.8. Bakliwal Securities Pvt. Ltd.9. M.P. Vora Shares & Securities Pvt. Ltd.10. Active Finstock Pvt. Ltd.11. Triumph International Finance India Ltd.12. NH Securities Ltd.13. Khandwala Integrated Financial Services Pvt. Ltd.14. Prashant Jayantilal Patel15. Wallfort Financial Services Ltd.16. Suresh Chand S Jain17. The First Custodian Fund (India) Ltd.18. Mahesh Kumar Damani19. Salasar Stock Broking Ltd.20. Dinesh Kumar Singhania & Co.21. Agbros Securities Pvt. Ltd.22. Ashok Kumar Poddar23. Prema Poddar24. Shyam Sundar Dalmia25. Sanjay Khemani26. Shankarlal Chokhany27. Shruti Mohta28. Kanodia Stock Broking (Pvt.) Ltd.29. J.V.S. Securities Pvt. Ltd.30. Kamal Kumar Dugar & Co.31. Lalit & Co.32. M/s Loknath Saraf33. S.P. Rakhecha & Co.34. Shree Harivansa Securities Pvt. Ltd.35. BLB Share & Financial Services Ltd.36. Dalmia Securities (P) Ltd.37. Herald Equities Pvt. Ltd.38. Naresh Chand Chandak39. Rajendra Kumar Chokhany40. Somani Stock Broking Pvt. Ltd.41. Tackel Stock Broking Services Pvt . Ltd.In the case of enquiry against Credit Suisse First Boston (India)

9. M/s. Sanyo Finance & Investment Pvt.Ltd.

10. M/s. Saral Website and Exim Pvt. Ltd.11. M/s. Shonkh Technologies Inter-

national Ltd.12. M/s. Spectrum.com Pvt. Ltd.13. M/s. Zodiac.com Pvt. Ltd.Adjudication against other entities:Adjudication orders have been passedagainst 4 other entities. The details of theorders are given below:Name of Entity Date of Penalty

Order Imposed(Rs.)

M/s. A Nitin Capital 11th March,Services Ltd. 2005 50,000/-M/s. Rajkar Electricals & 14th March,Electronics Pvt. Ltd. 2005 15,000/-Shri Baldev Raj 29th April,

2005 15,000/-M/s. Harpal Associates 31st May,Pvt. Ltd. 2005 15,000/-

The penalties are yet to be paid.Actions against BrokersEnquiry reports have been receivedagainst 8 brokers. Orders against two ofthem have been passed (vide order dated18th November, 2003, Latin Minarlal hasbeen suspended for 6 months and videorder dated 23rd February, 2004 C.J. Dalalhas been suspended for 2 years).Enquiry reports have been receivedagainst Hem Securities and MilanMahendra. Hearing for these two entitieshas also been completed. Orders underpreparation.Enquiry reports have been receivedagainst 4 other broking entities. The detailsof the same are given below:


12

Securities Pvt. Ltd., SEBI has passed an order dated March 05,2004, under Regulation 13(4) of the SEBI (Procedure for HoldingEnquiry by Enquiry Officer and Imposing Penalty) Regulations,2002, suspending the certificate of registration of the brokingentity for a period of one month. The order came into effect afterthree weeks from the date of the order.In the cases of enquiry against Bakliwal Securities Pvt. Ltd., M.P.Vora Shares & Securities Pvt. Ltd. and Active Finstock Pvt. Ltd.no action has been recommended in the enquiry report.Enquiry proceedings in the remaining cases are under progress.Against Ketan Parekh EntitiesAgainst the following 5 broking entities belonging to Ketan Parekhgroup, SEBI has passed orders dated 08.03.2004 canceling theircertificate of registration:

1. KNP Securities Pvt. Ltd.2. VN Parekh Securities Pvt. Ltd.3. Triumph Securities Ltd.4. Triumph International Finance India Ltd.5. NH Securities Ltd.

Against the following 3 CSE brokers, their registration has alreadybeen cancelled by SEBI.

1. Dinesh Kumar Singhania – vide order dated12.10.2001

2. Ashok Kumar Poddar – vide order dated 24.06.20023. Prema Poddar - vide order dated 24.06.2002.

In the case of another CSE broker, namely, Loknath Saraf, noenquiry could be proceeded as the broker had expired.Against 4 brokers, namely, Bakliwal Securities Pvt. Ltd., M.P. VoraShares & Securities Pvt. Ltd., Active Finstock Pvt. Ltd. andKhandwala Integrated Financial Services Pvt. Ltd., in the enquiryreports submitted by the Enquiry Officer, no action against thebrokers have been recommended by the Enquiry Officer.Names of the entities against whom prosecution proceedingswere under consideration are as follows:

1. Shri Ketan Parekh2. KNP Securities Pvt. Ltd.3. V.N. Parekh Securities Pvt. Ltd.4. Triumph Securities Ltd.

Name of Date of Reco-Intermediary Enquiry mmendation

Report of EnquiryOfficer

M/s. A Nitin Capital 31st May,Services Ltd. 2005 Censure

M/s. Agroy Finance 31st May,and Investment Ltd. 2005 Censure

M/s. Delhi Securities 20th June,Ltd. 2005 Censure

M/s. A Jain & Co. 29th June, NoPvt. Ltd. 2005 Penalty

The same are under consideration.Actions against other entities:Show cause notices issued against MoneyGrowth Investment and Consultants Pvt.Ltd. on 26th September, 2004, ShamitFinvest Pvt. Ltd. on 24th September, 2004and Shonkh Technologies InternationalLtd. on 17th September, 2004. MoneyGrowth Investment and Consultants Pvt.Ltd., replied vide their letter dated 25thOctober, 2004, Shonkh TechnologiesInternational Ltd. replied vide their letterdated 8th October, 2004 and ShamitFinvest Pvt. Ltd. replied vide their letterdated 12th October, 2004. As per theirrequest, inspection of documents hasbeen provided to Money Growth andShonkh Technologies in April 2005.Subsequently, Shonkh Technologies andMoney Growth have sought copies ofdocuments. The same are being provided.Further, Show Cause Notices dated 17thMay, 2005 under Section 11B of SEBI Act


13

5. NH Securities Ltd.6. Classic Credit Ltd.7. Panther Fincap and Management Services Ltd.8. Sai Mangal Investrade Ltd.9. Luminant Investments Pvt. Ltd.10. Panther Investrade Ltd.11. Upfront Investments12. Profile Investment13. Options Investments14. Ace Investment15. Linear Investments16. Online Investments17. A B Corporation18. Jayant N. Parekh

Out of the above entities, prosecutions have been filed on March7, 2003 vide case no 123/2003 in the court of Addl. ChiefMetropolitan Magistrate, 8th Court, Esplanade, Mumbai againstthe following entities connected/associated with Ketan Parekh.

1. Shri Ketan Parekh2. NH Securities Ltd.3. Classic Credit Ltd.4. Panther Fincap and Management Services Ltd.5. Sai Mangal Investrade Ltd.6. Luminant Investments Pvt. Ltd.7. Panther Investrade Ltd.Prosecution proceedings against the remaining entities areunder consideration.

The dealings of Centurion Bank Ltd. in the scrip by way ofarbitrage/trading transactions through the brokers connected/associated with the Ketan Parekh entities during this period whichare in violation of RBI guidelines, have been referred to RBI forsuitable action vide letter dated November 12, 2002.Global Trust Bank Ltd.A show cause notice dated October 21, 2003 was issued to thefollowing entities under Regulation 11 of SEBI (Prohibition ofFraudulent and Unfair Trade Practices) Regulations, 1995 readwith Section 11 and 11B of SEBI Act, 1992. Final order hasbeen passed on 23.03.2004 debarring Sh. Ramesh Gelli, Ms.

issued against the following 8 entities:1. Mukesh Gupta2. FNS Consultants Pvt. Ltd.3. Baldev Raj4. Rajkar Electricals & Electronics

Ltd.5. Gopi Ram Gupta6. Harpal Associates Pvt. Ltd.7. Baldev Harish Elect Pvt. Ltd. and8. Ms. Simmy Gupta

Reply has been received from Ms. SimmiGupta (on behalf of Ms. Simmi Gupta andShri Gopi Ram Gupta) vide her letter dated16th June, 2005 and the same is underexamination. Replies from other entitieshave not been received so far.Actions relating to Listing of shares onBSE and DSEBSE and DSE were advised to investigateinto the listing of shares on their exchangesin August 2000. BSE and DSE havesubmitted their reports. The same havebeen perused and issue of SCN to DSEhas been approved in April 2005. DraftSCN has been prepared and is under legalvetting.Ranbaxy Laboratories Ltd.Against promoter group entities/companyi) 11 B action against Vidyut InvestmentLtd. - Show cause notice was issued toVidyut Investment Ltd., a subsidiary ofRanbaxy Laboratories Ltd., on December31, 2004. Reply was received on 24thFebruary 2005. The reply is beingexamined before putting up for personalhearing.Similarly, supplementary Show CauseNotices were issued to the following (Ketan


14

Premkala Gelli etc. from dealing in the scrip of GTB for 18 months.Enquiry against the following brokers has been completed andshow cause notices issued on dates mentioned against them:1. SS Corporate Securities Ltd. – March 31, 20042. Visaria Securities (P) Ltd. – May 26, 20043. SBM Investments Ltd. – May 26, 20044. Wood Stock Securities (P) Ltd. -March 31, 20045. Wood Stock Broking (P) Ltd. – March 31, 20046. Ind Sec Securities and Finance Ltd.-Feb.5, 20047. ICICI Brokerage Services (P) Ltd.- Feb.5, 20048. CSFB Securities (P) Ltd. – February 5, 20049. Mukesh Babu Securities (P) Ltd.-Feb. 5, 2004In the case of SS Corporate Securities Ltd., hearing is scheduledto take place on June 7, 2004.Reply to the SCN has not yet been received from VisariaSecurities (P) Ltd. and SBM Investments Ltd.Reply to the SCN has not yet been received from Wood StockSecurities (P) Ltd. and Wood Stock Broking (P) Ltd. These brokershave sought more time to furnish the reply. In the cases of Ind Sec Securities and Finance Ltd., ICICIBrokerage Services (P) Ltd. and Mukesh Babu Securities (P)Ltd., hearing took place before the Chairman, SEBI on March12, 2004.In the case of CSFB Securities (P) Ltd., hearing took place beforethe Chairman, SEBI on May 12, 2004.Aftek InfosysActions against promotersDebarred from dealing in securities for 1 year vide Order dated8/3/2004.Zee TelefilmsActions against promotersFor the breach of the provisions of SEBI (Substantial Acquisitionof Shares and Takeovers) Regulations, 1997, penalty of Rs.60,000 was imposed on 19.08.02 and paid on 12.02.2003.Global TeleActions against promotersFor the breach of the provisions of SEBI (Substantial Acquisitionof Shares and Takeovers) Regulations, 1997, penalty of Rs.1,20,000 was imposed on 17.3.03 and paid.

Parekh related) entities on 16th May 2005for their dealings with Vidyut InvestmentsLtd.:

1. Classic Credit Ltd.2. Panther Fincap & Management

Services Ltd.The replies have not been received so far.Action against stock brokersBroking entities other than KP entities25 broking entities –Enquiry reportssubmitted in 24 cases and subsequentlyshow cause notices have been issued toall the 24 entities. Replies have beenreceived in response to post enquiry showcause notices from all entities. Personalhearing proceedings are under progress.Global Trust Bank LtdAction against other entitiesReply to show cause notice issued undersection 11 of SEBI Act, 1992 has beenreceived from the following 14 entities. Thehearing before the Member – SEBI isscheduled on July 27 and 28, 2005

1. 20th Century Securities Ltd.2. Ashok Mittal3. Ashok Mittal & Co.4. Brentfield Holdings Ltd.5. Claridges Investment and Finance

Pvt. Ltd.6. Kallar Kahar (sub account of FII –

CSFB)7. European Investments Ltd.8. Far East Investments Ltd.9. Kensington Investments Ltd.10. Phulchand Sons Investmnets11. RP&C International A/c Coral

Reef Inv. Co, Pvt. Ltd.12. TCFC Securities Ltd.


15

Pentamedia GraphicsActions against promotersFor the breach of the provisions of SEBI (Substantial Acquisitionof Shares and Takeovers) Regulations, 1997, penalty of Rs.90,000 was imposed on 2.5.03 and paid.Adani Exports LtdActions against promotersFor the breach of the provisions of SEBI (Substantial Acquisitionof Shares and Takeovers) Regulations, 1997, penalty of Rs.60,000 was imposed on 7.4.03 and paid.Lupin Lab. PromotersActions against promotersThe investigation in the case of violation of Securities ContractsRegulations by the Lupin Lab promoters is complete.KP entities barred from capital market vide order dated 12/12/03for 14 years. The registration certificates granted to these entitieshave been cancelled.Criminal complaint filed against various entities indulged in marketmanipulation on 07/03/03.Action against other entities in the above six casesEntities associated with /controlled by Ketan ParekhFollowing persons/ entities have been prohibited from buying,selling or dealing in securities in any manner directly or indirectlyand also debared them from associating with the securitiesmarket, for a period of fourteen years.

1. Shri Ketan V. Parekh2. Kartik K. Parekh3. Classic Credit Ltd4. Panther Fincap and Management Services Ltd.5. Luminant Investment Pvt Ltd.6. Chitrakut Computers Pvt. Ltd.7. Saimangal Investrade Ltd.8. Classic Infin Ltd9. Panther Investrade Ltd.

Other brokersi. CSFB Securities-Suspended for two yearsii. Chardravadan J. Dalal- Suspended for two yearsiii. Latin Manhalal Securities Ltd- Suspended for six monthsiv. Quasi-judicial proceedings against 18 brokers are in

13. Vidyut Invt.14. DITC/DBMG (sub account of

DITC)Aftek Infosys Ltd1. Progress of enquiry proceedings

against the brokers is as follows:Broker StatusHem SecuritiesLtd Enquiry proceedings

were initiated on3.10.2001. Enquiry officersubmitted the report on3.7.2003 recommendingthe suspension ofregistration for a period oftwo years. Hearing wasgranted to Hem Securiteson 12/01/2004 by ex-Whole Time Member.After his retirement, thematter is proposed to beheard de-novo.

Milan MahendraSecuritiesPvt Ltd Enquiry proceedings

were initiated on3.10.2001. Enquiry officersubmitted the report on3.7.2003 recommendingthe suspension ofregistration for a period oftwo years. Hearing wasgranted to MilanMahendra on 14/06/2004by ex-Whole TimeMember. After hisretirement, the matter isproposed to be heard de-novo.


16

progress.Cyberspace Ltd.Investigations into trading in the scrip have been completed.· Adjudication proceedings against the said company and their

promoters have been initiated on 16.4.2004 for their noncompliance with the summons issued by SEBI.

· Prosecution has also been launched against the companyand its promoters in August 2003 for violation of SEBI(PFUTP) Regulations.

· Directions have been issued to M/s Prabodh Arth Sanchay,a related entity of M/s Cyberspace Ltd. directing them to becareful in future while trading.

· Enquiry proceedings against M/s. Century Consultants Ltd.(a BSE and NSE member) for violation of Code of Conductlaid down under Regulation 7 of the SEBI (Stock Brokersand Sub-Brokers) Regulations, 1992 completed. Thecertificate of registration of the broker has already beencancelled by the BSE, NSE and SEBI.

· Directions have been issued to Shri Shashikant G. Badanito restrain from associating with any corporate body inaccessing the securities market and prohibited him frombuying, selling or dealing in securities, directly or indirectly,for a period of one year.

· The matter of issuing directions to Shri S. K. Barasia underthe provisions of the SEBI Act and Rules and Regulationsmade thereunder is under process.

· Action for issuing directions u/s 11 (4) of the SEBI Act against19 associate/shell companies which were found to have aidedand abetted the company in the manipulation of the scripare in the process of being issued. Similar directions againstM/s. Cyberspace Ltd., M/s. Century Consultants Ltd. and theirpromoters are also in the process of being issued.

Silverline Technologies Ltd.Investigations into the price movement in the scrip of SilverlineTechnologies Ltd. have been completed. In the course ofinvestigations, adjudication proceedings u/s 15 A were initiatedagainst the company as well as its promoters for non-complianceof SEBI summons. The Adjudicating Officer vide his Orders dated10/10/2003 and 24/10/2003 has levied monetary penalties ofRs.19,00,000 and Rs.21,00,000 on the company and its

2. Progress of action under Section 11Bof SEBI Act is as follows:

Name of entity StatusMividhaInvestments Ltd Show cause notice was

issued on 30/9/2002asking them to showcause why suitabledirections including adirection restraining fromaccessing the capitalmarket/buying, selling ordealing in securities for aparticular duration shouldnot be passed againstthem. Hearing wasgranted on 22/10/2003 byex-Whole Time Member.After his retirement, thematter is proposed to beheard de-novo.

VidyutInvestment Ltd Show cause notice was

issued on 5/2/2003asking them to showcause why suitabledirections including adirection restraining fromaccessing the capitalmarket/buying, selling ordealing in securities for aparticular duration shouldnot be passed againstthem. Hearing wasgranted on 17/6/2003 byex-Whole Time Member.After his retirement, thematter is proposed to beheard de-novo.


17

promoters respectively for this default. As no penalty has beenpaid, recovery proceedings have been initiated. SAT vide itsorder dated January 20, 2004 has directed the parties to pay thepenalty amount.Since the company is also listed on NYSE, SEBI has informedthe NYSE as well as the SEC about the violations of IndianSecurities Laws committed by the company.Enquiry proceedings against the following 5 brokers have beeninitiated on 11.3.2004:1. M/s Latin Manharlal Securities (P) Ltd2. M/s Milan Mahendra Securities (P) Ltd3. M/s Triumph International Finance Ltd4. M/s Classic Shares and Stock Brokers Ltd5. M/s Triumph Securities Ltd.Similarly, adjudication proceedings u/s 15 A read with Section15 HB of the SEBI Act have been initiated against the following 3out of the above 5 broking entities for their failure to comply withthe summons issued by SEBI:1. M/s Latin Manharlal Securities (P) Ltd –

11/3/042. M/s Milan Mahendra Securities (P) Ltd –

11/3/043. M/s Subhkam Securities (P) Ltd - 15/3/04Three warning letters have been issued:(i) M/s Subhkam Securities (P) Ltd. – 17.5.04(ii) JP Morgan India (P) Ltd. – 16.3.04(iii) Kotak Securities – 16.3.04.SSI Ltd.Investigations into the trading in the scrip of SSI Ltd. have beencompleted. The promoters of SSI and 3 individuals are found tohave violated the provisions of Sections 13, 16 read with Section2(i) of the SCRA read with notification dated March 1, 2000.Prosecution proceedings u/s 23(1) (b) of the SCRA are beinginitiated against the concerned parties. Reference is also beingmade to CBDT to look into the aspect of evasion of tax (CapitalGains on sale of shares by promoters etc.) involved in the matter.Investigations have also revealed that the following 4 brokingentities (including those belonging to KP) had indulged in tradeswith a view to creating artificial volumes thereby violating the

3. SEBI vide order dated March 8, 2004prohibited the promoters of Aftek Infosys Ltdfrom buying, selling and dealing in securitiesfor a period of one year. SAT vide order dated12.01.2005 set aside the SEBI order.Zee Telefilms LtdProgress of enquiry proceedings initiatedagainst the broking entities, who aided andabetted Ketan Parekh entities in marketmanipulation by entering into structuredand synchronized dealings is as follows:Broker Status of enquiry in the

case of Zee Tele-FilmsWoodstockBroking Pvt Ltd Enquiry initiated on 22/11/

2004. Enquiry officersubmitted the report dated29/6/2005 recommendingno penalty.

Mukesh BabuSecurities Ltd Enquiry initiated on 20/10/

2004. Enquiry officersubmitted the report on May24, 2005 recommendingsuspension of brokingregistration for a period ofone month. Based on therecommendation, showcause notice was issued onJune 7, 2005 asking themwhy action should not betaken against them asrecommended by theEnquiry officer. Replyreceived from them is beingexamined before putting upfor personal hearing beforeWhole Time Member.

Mangal KeshavShares & StockBrokers Ltd Enquiry initiated on 20/10/

2004. Enquiry proceedingsunder progress


18

SEBI (PFUTP) Regulations:1. M/s Triumph Securities Limited2. M/s Triumph International Finance Ltd.3. M/s Classic Shares and Stock Brokers Ltd.4. M/s Milan Mahendra Securities (P) Ltd

Enquiry proceedings were initiated on 2.4.2004.Adjudication proceedings u/s15A read with Section 15HB of theSEBI Act have been initiated on 2.4.2004 against M/s MilanMahendra Securities (P) Ltd. and M/s Triumph InternationalFinance Ltd. for their failure to comply with the summons issuedby SEBI.Reference to prosecution has been made against six individuals:

1. K.S. Aghoram2. K.S.Ganesh3. K.S. Suresh4. V.Kalaiselvi5. K.V.Prakash6. S.Venkatesh

Out of 15 corporates referred in Chapter VII of JPC Report,corporates/promoter–brokers (KP entities) nexus has beenestablished in 7 cases. SEBI has debarred/initiated proceedingsagainst these companies/promoters from accessing the capital/dealing in securities and also filed prosecution. The certificatesof registration granted to 6 of the broking entities associated withKetan Parekh were cancelled by SEBI. Ketan Parekh and 8entities related to him were also debarred from dealing insecurities market in any manner for a period of 14 years andprosecution have also been filed against these entities. SEBIhas also suspended the certificates of other Brokers who haveaided and abetted Ketan Parekh entities in market manipulations.As reported in December, 2004DSQ SoftwareAction against promotersSEBI has issued the following directions vide two Orders dated9.9.04 to (1) DSQ Software Ltd., and Shri Dinesh Dalmia (2)Other directors of the company with immediate effect.Shri Dinesh Dalmia is prohibited from buying, selling or otherwisedealing in securities in any manner, directly or indirectly, for aperiod of 10 years and is also prohibited from holding any officeof responsibility in a company/entity or other institution associated

MilanMahendra Ltd Enquiry initiated on 20/10/

2004. Enquiry proceedingsunder progress

Visaria SecuritiesPvt Ltd Enquiry initiated on 20/10/

2004. Enquiry officersubmitted the report on May31, 2005 recommending nopenalty.

Show cause notice was issued to Zee Tele-Films on 22.3.2005 under Sections11(4)(b) and 11B of SEBI Act 1992 askingthem to show cause why suitabledirections including a direction restrainingfrom accessing the capital market/buying,selling or dealing in securities for aparticular duration should not be passedagainst them. Zee Tele-Film sought list ofdocuments and material relied upon bySEBI. Accordingly, their authorizedrepresentatives have inspected thedocuments at SEBI office on June 10,2005. Further documents as desired bythem were given to them on July 11, 2005.Reply to the show cause notice awaited.Action against Essel Group (promotersof Zee Tele-Films): Show cause noticeissued to 6 promoters of Zee Tele-Filmson February 11, 2005. The promotercompanies have sought list of documentsand material relied upon by SEBI.Accordingly, their authorizedrepresentatives have inspected thedocuments at SEBI office on June 10,2004. Further documents as desired bythem were given on July 11, 2005. Replyto the show cause notice awaited.


19

with the securities market for a period of 10 years.DSQ Software Limited is prohibited from accessing the securitiesmarket and buying, selling or otherwise dealing in securities inany manner, directly or indirectly in securities for a period of 10years.Shri Dinesh Dalmia and DSQ Software Ltd. shall deposit a sumof Rs.630 crore (being the value of 1.30 crore shares calculatedby taking into account the average price of the scrip in the relevantsettlement) within a period of 45 days in a separate escrowaccount to be maintained with a nationalized bank, till completionof investigation by various Police agencies including CalcuttaPolice and Central Bureau of Investigation.Shri Dinesh Dalmia shall buy 1.30 crore shares of DSQ SoftwareLtd, circulated into the secondary market within a period of 45days and retain the same in a separate demat account to beopened for the purpose, till permission for reduction in capital isobtained by the company from the competent authority.The amounts deposited in the escrow account and sharesretained in the demat account shall not be withdrawn withoutprior permission in writing from SEBI.Mohammed Ghulam Ghouse, B.K. Pal, K.M. Venkateshwaran, andBrig(Retd.) V.M. Sundaram directors of DSQ Software during thematerial period are prohibited from buying, selling or dealing insecurities, in any manner, directly or indirectly for a period of 5years and also prohibited from holding any office of responsibilityin a company/entity or other institution associated with the securitiesmarket for a period of 5 years.Shri Dinesh Dalmia, DSQ Software Ltd. and other directors viz.Mohammed Ghulam Ghouse, B.K. Pal, K.M. Venkateshwaran andBrig. (Retd.) U.M. Sundram have filed appeal against theabovesaid two SEBI orders dated 9.9.2004 at Securities andAppellate Tribunal (SAT). The appeal has been admitted and thehearings will commence from 24.11.2004.Adjudication against the following entities are completedand penalty collected:

Name of entities Penalty levied Collection detailsDinesh Kumar Rs.25,000 Collected in theSinghania month of August 2004

Global Tele-Systems Ltd (now newname GTL Ltd)Progress of enquiry proceedings initiatedagainst the stock brokers for aiding andabetting Ketan Parekh entities in marketmanipulation by entering into structuredand synchronized dealings is as follows:Broker Status of enquiry

proceedings in the case ofGlobal Tele-systems Ltd

1. Vyomit Stock &InvestmentPvt Ltd Enquiry initiated on 20/10/

2004. Enquiry proceedingsunder progress.

2. Omega EquitiesPvt Ltd Enquiry initiated on 20/10/


3. Mangal KeshavShares & StockBrokers Ltd Enquiry initiated on 20/10/


4. ChandravadanJ Dalal Enquiry initiated on 20/10/

2004. Enquiry officersubmitted the report on May19, 2005 recommendingsuspension of brokingregistration for a period ofthree months. Based on therecommendation, showcause notice issued on May24, 2005 asking them whyaction should not be takenagainst them as recommen-ded by the Enquiry officer.Reply received from them isbeing examined beforeputting up for personalhearing before Whole TimeMember.


20

Arihant Exim Scrip Rs.15,000 Collected in the monthPvt. Ltd. of August 2004SEBI vide Order dated 4.10.04 prohibited the following entities/persons from accessing the securities market and dealing insecurities for a period of 10 years with immediate effect:a) New Vision Investment, UK,b) Dinesh Dalmia Technology Trust,c) Softec Corporation Trust,d) New Vision Investment Private Ltd.,e) DSQ Holdings Ltd.,f) Hulda Properties & Trades Ltd.,g) Powerflow Holdings Pvt. Ltd,h) DSQ Industries Ltd. andi) Mrs. Radha DalmiaAction against the following broker has been taken who hadindulged in synchronized transactions in the shares of DSQSoftware Ltd.

Name Broker SEBI Order Date Suspension period& w.e.f.

Millennium 13.09.04 w.e.f. 6 monthsEquities Ltd. 04.01.2004DSQ Industries Ltd.Against promotersFinal Order is being issued.Other EntitiesFinal Orders against Arihant Exim Scrip Pvt. Ltd. and Doe JonesInvestments and Consultants Pvt. Ltd. are being issued.Ketan Parekh entities have been banned for a period of 14 yearsfor dealing in securities market for market manipulation in variousscrips.Prosecution has been filed.Enquiry proceedings against the BrokersEnquiry has been completed against 5 broking entities namely,1. Amrut Gopalji Thacker2. Titan Stock Broking3. Niraj Balasaria4. SMIFS Securities Ltd.5. Mehta & Ajmera (Already suspended for one year on 4.3.04)

5. Hem SecuritiesLtd Enquiry initiated on 20/10/


�� Enquiry initiated on 20/10/

2004. Enquiry officersubmitted the report on May19, 2005 recommendingsuspension of brokingregistration for a period ofone month. Based on therecommendation, showcause notice issued onJune 7, 2005 asking themwhy action should not betaken against them asrecommended by theEnquiry officer. Replyreceived from them is beingexamined before putting upfor personal hearing beforeWhole Time Member.

7. Mukesh BabuSecurities Ltd Enquiry initiated on 20/10/



21

Final Orders are being issued.Padmini Technologies Ltd. (PTL)Against PTL and its whole time directorsAdjudication proceedings (u/s 15A of SEBI Act) initiated for noncompliance of summons have been completed and AdjudicationOfficer, vide his order dt. August 16/17, 2004, has imposed apenalty of Rs.5 lacs and Rs. 3 lacs on PTL and Shri Vivek Nagpalrespectively.Proceedings u/s11B of SEBI Act are under way; show causenotice has been issued to the company and its directors. Personalhearing which was scheduled for 11.11.04 was not availed.Another opportunity for personal hearing is scheduled for30.11.2004.Against Ketan Parekh groupPanther Fincap and Management Services Ltd., ClassicCredit Ltd. and their Directors (including Ketan Parekh)Adjudication proceedings have been completed and AdjudicationOfficer, vide his orders dated 23/24.08.04, has imposed a penaltyof Rs.5 lac each on Panther Fincap and Management ServicesLtd. and Classic Credit Ltd.Triumph International Finance Ltd.Enquiry Officer vide his report dated 23.8.04 has recommendedcancellation of registration. Show cause notice based on theEnquiry Officer’s report was sent on 27.8.04. No reply has beenreceived so far. An opportunity for personal hearing is porposed.It may be noted that the registration of Triumph International hasalready been cancelled vide an earlier order dated 16.5.2003.Against Statutory AuditorsThe auditor was given opportunities of personal hearing on24.08.04, 17.09.04 and 20.10.04 which were not availed. FinalOrder is being issued.Against OthersSanjay Kumar, Chartered AccountantAdjudication proceedings (u/s 15A of SEBI Act) initiated for noncompliance of summons have been completed and AdjudicationOfficer, vide his order dated 18.08.04, has imposed a penalty ofRs.2 lac on Shri Sanjay Kumar.As regards the show cause notice issued on 26.12.03 as part ofproceedings u/s11B of SEBI Act, another inspection of records

8. �� Enquiry initiated on 20/10/


9. VisariaSecuritiesPvt Ltd Enquiry initiated on 20/10/

2004. Enquiry officersubmitted its report on May31, 2005 recommending nopenalty.

10. Pravin V ShahStock Broking Enquiry initiated on 20/10/

2004. Enquiry officersubmitted the report on May31, 2005 recommendingminor penalty of censure.Show cause notice issuedon June 7, 2005 askingthem why action should notbe taken against them asrecommended by theEnquiry officer. Replyreceived from them is beingexamined before putting upfor personal hearing beforeWhole Time Member.

11. WoodstockSecuritiesPvt Ltd Enquiry initiated on 22/11/

2004. Enquiry officersubmitted the report datedJune 30, 2005 recommend-ing no penalty.

Adani Exports Ltd.1. Show Cause Notice issued under

Section 11 B of SEBI Act on January4, 2005 to Abhinav Investments Ltdasking them to show cause whysuitable directions including a direction


22

was granted on 02.08.04. He has further requested for copies ofvarious documents which have been provided. He was asked tosubmit his reply by 4.10.04. No reply has been received. Ex-parte order is being processed.SBI Mutual FundReference has been made to Trustees of SBI Mutual Fund on18.12.03 requesting them to conduct a thorough investigationon the issues raised by SEBI and submit a report thereof.Reminder was issued to the Trustees on 28.5.04, who have repliedvide letter dated 09.06.04 that a firm of reputed charteredaccountants have been appointed to look into the matter. Theauditors report has been received from the Trustees on 24.09.04which is under examination.SEBI inspection of systems and procedures of SBIMF conductedon 29/30.01.04. Systemic deficiencies observed during inspectionwere communicated to AMC vide letter dated 07.05.04 for takingcorrective action.A & A Finvest P Ltd. (a sub-broker)Enquiry proceedings under SEBI (Procedure for Holding Enquiryby Enquiry Officer and Imposing Penalty) Regulations, 2002 havebeen completed and Enquiry Officer vide his report dated13.08.04, has recommended for suspension of registration for aperiod of one year. Show cause notice based on Enquiry Officer’sreport has been issued on 27.08.04, reply received on 13.09.04.An opportunity of personal hearing is being given before passingthe order.Shonkh Technologies Ltd.Against promotersShow Cause Notices issued to the promoters and associated entities(15 entities) of Shonkh Technologies International Limited. Personalhearings before Chairman initiated. Hearing on two differentoccasions had to be postponed on the request of the parties. Thirddate fixed on 2.12.04.Against Mr.Vivek Nagpal and promoters of ShonkhTechnologies International Ltd.Adjudication orders levying a penalty of Rs.1 crore each againstShri Vivek Nagpal and Padmini Techologies Ltd. have beenpassed. Against the Adjudication Orders, Shri Vivek Nagpal andPadmini Technologies Ltd. have filed an appeal before SAT and

restraining from accessing the capitalmarket/buying, selling or dealing insecurities for a particular durationshould not be passed against them.Reply received on May 6, 2005. Theyhave sought personal hearing. Replyreceived from them is being examinedbefore putting up for personal hearingbefore Whole Time Member.

2. Progress of enquiry proceedingsinitiated against stock brokers foraiding and abetting Ketan Parekhentities in market manipulation byentering into structured andsynchronized dealings is as follows:

Broker Status in the case ofAdani Exports Ltd

1. Omega EquitiesPvt Ltd Enquiry initiated on 20/10/


2. WoodstockBroking Pvt Ltd Enquiry initiated on 22/11/

2004. Enquiry officersubmitted the repor trecommending no penalty.

3. ChandravadanJ Dalal Enquiry initiated on 20/10/

2004. Enquiry officersubmitted the report on May19, 2005 recommendingsuspension of brokingregistration for a period ofthree months. Based on therecommendation, showcause notice issued on May24, 2005 asking them whyaction should not be taken


23

as per the interim orders of SAT they have paid a penalty ofRs.1,50,000 each.Adjudication against associated entities of the company/promotersAgainst 16 entities penalty of Rs. 1 crore each was levied by theAdjudicating Officer.One entity (Shri Mukesh Malhotra) has appealed before SATagainst the adjudication order. SAT directed Shri MukeshMalhotra to deposit Rs.25,000/- with SEBI and co-operate withSEBI in the case. Payment is yet to be received. Legal action forrecovery is being processed.Action against othersShow cause notices issued against Money Growth Investmentand Consultants Pvt. Ltd., dated 26.9.04 and Shamit Finvest Pvt.Ltd. dated 24.9.04. Replies are yet to be received.Order against broker Millenium Equities (India) PrivateLimited:Order passed suspending the certificate of registration of the brokerfor a period of six months.Ranbaxy Laboratories Ltd.Adjudication proceedings against the 12 promoter groupentities.Orders exonerating the 12 promoter group entities have beenpassed by the Adjudicating Officer on 9.9.04.Other broking entities16 brokers - Final orders issued.24 broking entities – Ex-parte orders will be prepared by midDecember 2004.One broking entity – (Mukesh Babu Securities Ltd.- ordersuspending the broker for one year passed in the case of GTB.Separate enquiry proceedings initiated in this scrip and also inHFCL, Zee and GTL.)Global Trust Bank Ltd.Against the brokersEnquiry and other proceedings against the brokers:* Order has been passed against ICICI Brokerage Services

Ltd. discharing the broker from the irregularities on 9.9.04.* Order passed against M/s. Indec Securities and Finance Ltd.,

warning the broker to be more careful in future vide orderdated 10.9.04.

against them asrecommended by theEnquiry officer. Replyreceived from them is beingexamined before putting upfor personal hearing beforeWhole Time Member.

4. HemSecurities Ltd Enquiry proceedings under

progress. Enquiry initiatedon 20/10/2004.





7. VisariaSecuritiesPvt Ltd Enquiry initiated on 20/10/

2004. Enquiry officersubmitted its report on May31, 2005 recommending nopenalty.

8. Pravin V ShahStock Broking Enquiry initiated on 20/10/


24

* Order passed against M/s. Mukesh Babu Securities Pvt. Ltd.suspending the registration for a period of one year vide orderdated 14.10.04.

* Order passed against M/s. Woodstock Securities Ltd.,Woodstock Broking Pvt. Ltd. warning them to be more carefulin future.

* Order passed against CSFB Securities (I) Pvt. Ltd. on 10.9.04suspending the broker for a period of three months.

* Order passed against SS Corporate Securities on 21.9.04suspending the broker for a period of 3 months.

Final Orders have been passed against Visaria Securities Ltd.(suspension for 3 months) and SBM Investments (sub broker ofMukesh Babu Securities Pvt. Ltd.) (suspension for 4 months)also on 11.10.04 and 14.10.04 respectively.Aftek InfosysAdjudication proceedings were initiated against Classic CreditLtd., Panther Investrade Ltd., Mividha Investments Pvt. Ltd., JDPShare & Stock Brokers Ltd., for violation of SEBI (SubstantialAcquisition of Shares & Takeovers) Regulations, 1997. A penaltyof Rs.5.00 lakh was imposed and paid.Enquiry proceedings were conducted against TriumphInternational India Ltd., Triumph Securities Ltd. and NH SecuritiesLtd and certificate of registration granted to these entities werecancelled vide order dated 31.3.04.Enquiry proceedings were also conducted against broking entitiesC J Dalal, Hem Securities, Milan Mahendra and Latin Manharlal.C J. Dalal was suspended for two years and Latin ManhalalSecurities Ltd. was suspended for six months. Against other twobrokers, hearings held, orders are being passed.Adjudication proceedings were initiated against VidyutInvestments Ltd. for violation of SEBI (Substantial Acquisition ofShares & Takeovers) Regulations, 1997. Penalty of Rs. 3.00 lakhwas imposed and paid.Ketan Parekh entities have been banned from dealing in securitiesmarket for a period of 14 years.Criminal complaints filed against nine entities including KetanParekh.Zee TelefilmsEnquiry proceedings have separately been initiated against the

2004. Enquiry officersubmitted the report on May31, 2005 recommendingminor penalty of censure.Show cause notice issuedon June 7, 2005 askingthem why action should notbe taken against them asrecommended by theEnquiry officer. Replyreceived from them is beingexamined before putting upfor personal hearing beforeWhole Time Member.

9. KeynoteCapitals Ltd Enquiry initiated on 20/10/

2004. Enquiry officersubmitted the report on May24, 2005 recommendingsuspension of brokingregistration for a period ofone month. Show causenotice issued on June 7,2005 asking them whyaction should not be takenagainst them as recommen-ded by the Enquiry officer.Their request for inspectionof documents is beingexamined.

3. Enquiry proceedings were alsoinitiated on October 20, 2004 againstthe brokers - Prerak Capital, JBSSecurities Ltd, Moneycare Securities& Financial Services Ltd, MadhuvanSecurities Pvt Ltd and Investmart IndiaLtd for violation of regulation 4 of SEBI(Prohibition of Fraudulent and UnfairTrade Practices Relating to SecuritiesMarket), Regulations, 1995 andregulation 7 read with Schedule II of


25

following broking entities, who aided and abetted Ketan Parekhentities in market manipulation by entering into structured andsynchronized dealings:

Broker Action already taken

Woodstock Order dated 10.9.04 passed warning theBroking Pvt. Ltd. broker in the case of GTBMukesh Babu In the case of GTB, order dated 10.9.04Securities Ltd. passed suspending registration for 1 yearMangal Keshav Enquiry Proceedings under progressShares & StockBrokers Ltd.Milan Mahendra Ltd. Hearing complete. Order being passed.Visaria Securities In the case of GTB, order dated 11.10.04Pvt. Ltd. passed suspending registration for 3 months

Global TeleEnquiry proceedings have separately been initiated againstvarious following brokers, stock brokers for aiding and abettingKetan Parekh entities in market manipulation by entering intostructured and synchronized dealings :

Broker Action already taken

Vyomit Stock & Enquiry ProceedingsInvestment Pvt. Ltd. under progressOmega Equities Enquiry ProceedingsPvt. Ltd. under progressMangal Keshav Enquiry ProceedingsShares & Stock under progressBrokers Ltd.Chandravadan J Dalal Order dated 24.2.04 passed suspending

the broker for 2 years inthe case ofLupin, Aftek, Ranbaxy, Shonkh and GTB

Hem Securities Ltd. Order under preparationLatin Manharlal In the case of GTB, Aftek and Shonkh,Securities Pvt. Ltd. order dated 18.11.03 passed

suspending registration for 6 monthsMukesh Babu In the case of GTB,order dated 10.9.04Securities Ltd. passed suspending registration for 1 year

SEBI (Stock Brokers) Rules &Regulations, 1992. Enquiryproceedings under progress.

4. Show cause notice dated January 3,2005 under Section 11B issued tofollowing 7 promoters entities of AdaniExport asking them to show causewhy suitable directions including adirection restraining from accessingthe capital market/buying, selling ordealing in securities for a particularduration should not be passed againstthem:a. Adani Agro Ltdb. Adani Impex Ltdc. Shahi Property Developers Ltdd. Adani Properties Ltde. Advance Exports Ltdf. Intercontinental Indiag. Crown International

Promoter entities have sought furtherdocuments and inspection of documentsrelied upon by SEBI. Additional documentswere given to them on July 1, 2005.Himachal Futuristic CommunicationsLtd (HFCL)Actions against HFCL and itspromoters/associate companies andtheir directorsQuasi judicial proceedings are initiatedagainst HFCL, 14 promoters/associatecompanies and their 52 directors.The HFCL, promoter companies and theirdirectors have sought list of documentsand material relied upon by SEBI.Accordingly, authorized representatives offollowing entities have inspecteddocuments on various dates at SEBI office


26

Milan Mahendra Order is being passedSecurities Pvt. Ltd.Visaria Securities In the case of GTB,order dated 11.10.04Pvt. Ltd. passed suspending registration for 3

monthsPravin V Shah Enquiry ProceedingsStock Broking initiatedWoodstock Order dated 10.9.04 passed warningSecurities Pvt. Ltd. the broker in the case of GTB

Adani Exports Ltd.Action against promotersAdjudication proceedings are initiated on 15.9.04 against KetanParekh entities namely; Classic Credit Ltd., Classic Share & StockBroking Ltd. Panther Fincap, Panther Investrade Ltd., TriumphInternational India Ltd. and Triumph Securities Ltd. for violationof regulation 7 of the SEBI (Substantial Acquisition of Shares &Takeovers) Regulations, 1997.Show cause notice is being issued to Abhinav Investments fordebarring them from dealing in securities for violation of regulation4 of the SEBI (Prohibition of Fraudulent and Unfair Trade PracticesRelating to Securities Market), Regulations, 1995.Enquiry proceedings have separately been initiated againstfollowing brokers, stock brokers for aiding and abetting KetanParekh entities in market manipulation by entering into structuredand synchronized dealings :

Broker Action already takenOmega Equities Enquiry Proceedings underPvt. Ltd. progress.Woodstock Order dated 10.9.04 passedBroking Pvt. Ltd. warning the broker in the case of GTB.Chandravadan Order dated 24.2.04 passed suspending theJ Dalal broker for 2 years in the case of Lupin,

Aftek, Ranbaxy, Shonkh and GTB.Hem Securities Order under preparation.Ltd.Latin Manharlal In the case of GTB, Aftek and Shonkh,Securities order dated 18.11.03 passed suspendingPvt. Ltd. registration for 6 months.

viz. October 25, 2004, November 2, 2004,November 24, 2004, November 25, 2004,November 29, 2004 and December 3,2004:

1. Himachal Futuristic CommunicationsLtd

2. HFCL Trade Invest Ltd3. HFCL Infotel Ltd4. Mr.Vinay Maloo, director of HFCL5. Mr.Mahendra Nahata, director of

HFCL6. Dr.Deepak Malhotra, director of HFCL7. Mr.D R Baid, director of HFCL8. Mr.Sooraj Kapoor, director of HFCL9. Mr.C K Goushal, director of HFCL10. Mr.B B Chadha, director of HFCL11. Dr.R M Kastia, director of HFCL12. Y S Chaudhary, director of HFCLFurther, authorized representatives offollowing 12 promoter companies havetaken inspection of documents onDecember 22, 2004 and December 24,2004:1. Toplight Vinimay Pvt Ltd2. Vinson Brothers Pvt Ltd3. Vinson Trade & Commerce Pvt Ltd4. Amrit Sales Promotion Pvt Ltd5. Classic Services6. Sone Paper & Industries Ltd7. Shankar Sales Promotion Pvt Ltd8. Yashodham Merchants Pvt Ltd9. Kalyan Vyapaar Pvt Ltd10. Sungrace Merchandise Pvt Ltd11. Baldev Commercial Pvt Ltd12. Burlington Finance LtdAs requested by them, SEBI vide letter


27

Milan Mahendra Order under preparation.Securities Pvt. Ltd.Visaria Secu- In the case of GTB, Order dated 11.10.04rities Pvt. Ltd. passed suspending registration for 3 months.Pravin V Shah Enquiry proceedings initiated.Stock BrokingKeynote Capitals Enquiry proceedings initiated.Ltd.Enquiry proceedings initiated against Prerak Capital, JBSSecurities Ltd., Moneycare Securities & Financial Services Ltd.,Madhuvan Securities Pvt. Ltd. and Investmart India Ltd., forviolation of SEBI (Prohibition of Fraudulent and Unfair TradePractices Relating to Securities Market), Regulations, 1995, SEBI(Stock Brokers) Rules & Regulations, 1992.Lupin Lab. PromotersAfter completion of enquiry proceedings, certificate of registrationgranted to Triumph International India Ltd., Triumph SecuritiesLtd. and NH Securities Ltd. were cancelled vide order dated8.12.03.Enquiry proceedings were also conducted against variousbroking entities namely; C J Dalal, Milan Mahendra, HemSecurities and Pravin V. Shah Stock Broking. C J. Dalal wassuspended for two years vide order dated 23.02.04. Proceedingsin case of other brokers are on.Criminal complaints filed against 14 entities in the Court of Addl.CMM, Mumbai (CC No. 630/W/03).Cyberspace Ltd.Enquiry was initiated against 28 brokers. With regard to other 26entities, action is completed. Enquiries initiated against M/sRenaissance Securities Ltd. and M/s Mangala Capital ServicesLtd. are in progress.Directions have been issued against Shri Rakesh Mehtaprohibiting him from accessing the securities market and dealingin securities in any manner till investigation/inquiry is complete.The investigations into the dealings of Shri Rakesh Mehta areunder progress.Directions have been issued to Shri Jugal Kishore Barasia on17.08.2004, restraining him from accessing the securities market

dated January 14, 2005 has given copiesof documents which have been relied uponby SEBI for evidence. The above entitiesand their directors have been advised toreply to the show cause notice within 15days. As desired by them fur therdocuments were given on March 11, 2005.The above entities now replied to the showcause notice on June 3, 2005 and June 6,2005. They have sought a personal hearingbefore the appropriate authority of SEBI.2. Progress of enquiry proceedingsinitiated against stock brokers for aidingand abetting Ketan Parekh entities inmarket manipulation by entering intostructured and synchronized dealings isas follows:Broker Status in the case of HFCL1. ChandravadanJ Dalal Enquiry initiated on 20/10/

2004. Enquiry officersubmitted its report on May19, 2005 recommendingsuspension of brokingregistration for a period ofthree months. Based on therecommendation, showcause notice issued on May24, 2005 asking them whyaction should not be takenagainst them as recommen-ded by the Enquiry officer.Reply received from them isbeing examined beforeputting up for personalhearing before Whole TimeMember.

2. HemSecurities Ltd Enquiry initiated on 20/10/



28

and prohibiting him from buying, selling and dealing in securitiesfor a period of one year.44 show cause notices have been issued against the 19associate/shell companies (and their directors) which were foundto have aided and abetted the company in the manipulation ofthe scrip. Show cause notices have also been issued to thethree promoters of M/s Cyberspace Ltd. and the CenturyConsultants Ltd. Hearings in the case of 13 entities/individualsheld on 27.11.2004. 5 entities/individuals attended the hearingand 4 entities/individuals furnished written submissions. Theprocess of service of show cause notices against the otherdirectors/entities out of the 19 associate/shell companies andtheir directors and the three promoters of Cyberspace Ltd. &Century Consultants Ltd. is under progress.Silverline Technologies Ltd.Enquiry show cause notices issued to the five broking entitieson 13.08.2004.Adjudication proceedings against M/s Silverline HoldingsCorporation, M/s Subra Maruitius Limited and M/s ShreyasHoldings Ltd. under progress.Adjudication proceedings u/s 15A were initiated against thecompany as well as its promoters for non-compliance of SEBIsummons. The Adjudicating Officer vide his orders dated10.10.03 and 24.10.03 has levied monetary penalties ofRs.19,00,000 and Rs.21,00,000 on the company and itspromoters respectively for this default. Appeal was filed by thethree promoter entities against the penalty imposed by SEBIwhich was heard by SAT on 9.7.04 and the penalty amount hasbeen reduced from Rs.21 lakh to Rs.1.5 lakh. Payment not yetmade. Recovery proceedings are being initiated.Prosecution was filed against M/s Silverline Technologies Ltd.for non payment of Adjudication penalty of Rs.19 lakh on17.08.2004.Adjudication proceedings against 04 brokers completed. Penaltylevied of Rs.1 lakh on Milan Mahendra Securities Pvt. Ltd., Rs.2lakh on Latin Manharlal Securities Pvt. Ltd. and Rs.1 lakh onTriumph International Finance India Ltd. vide orders dated23.08.2004 and 24.08.2004.

3. Indsec Enquiry initiated on 20/10/Securities & 2004. Enquiry proceedingsFinance Ltd under progress.

4. Keynote Enquiry initiated on 20/10/Capitals Ltd 2004. Enquiry officer

submitted its report on May24, 2005 recommendingsuspension of brokingregistration for a period ofone month. Show causenotice issued on June 7,2005 asking them whyaction should not be takenagainst them asrecommended by theEnquiry officer.Their request for inspectionof documents is beingexamined.

5. Latin Manharlal Enquiry initiated on 20/10/ �� 2004. Enquiry officer

submitted its report on May19, 2005 recommendingsuspension of brokingregistration for a period ofone month. Based on therecommendation, showcause notice issued onJune 7, 2005 asking themwhy action should not betaken against them asrecommended by theEnquiry officer. Replyreceived from them is beingexamined before putting upfor personal hearing beforeWhole Time Member.


29

SSI Ltd.Enquiry show cause notices have been issued to the three entitieson 06.08.2004.Adjudication proceedings completed. The Adjudication Officerhas imposed a penalty of Rs.1 lakh on Milan Mahendra SecuritiesPvt. Ltd. and Rs. 1 lakh on Triumph International Finance IndiaLtd. vide orders dated 23.08.2004 and 24.08.2004. Proof ofpayment of adjudication penalty not furnished by the entities.Recovery proceedings are in the process of being initiated.Prosecution proceedings u/s 23(1)(b) of the SCRA initiatedagainst the promoters of SSI and three individuals. The processof issuing directions against the three promoters of SSI Ltd. andthree individuals for violation of provisions of SCRA is underprogress.Reference made to Chief Commissioner of Income Tax, Chennaion 31.5.04 to look into the aspect of evasion of tax (Capital Gainson sale of shares by promoters etc.) involved in the matter.Enquiry proceedings against 4 brokers initiated on 2.4.2004. Itmay be noted that the certificate of registration of 3 of thesebrokers, which were KP entities, have already been cancelled bySEBI.Himachal Futuristic Communications Ltd. (HFCL)Actions against HFCL and its promoters/associatecompanies and their directorsShow cause notices under Sections 11(4)(b) and 11B of SEBIAct 1992 read with Regulation 11 of SEBI (Prohibition ofFraudulent and Unfair Trade Practices relating to SecuritiesMarket) Regulations, 2003 have been issued to HFCL/its directorsand following mentioned promoters/associate companies ofHFCL and their directors on 30.8.04.

• HFCL Infotel Ltd.• HFCL Trade Invest Ltd.• Burlington Finance Ltd.• Toplight Vinimay Pvt. Ltd.• Vinson Brothers Pvt. Ltd.• Vinson Trade & Commerce Pvt. Ltd.• Amrit Sales Promotion Pvt. Ltd.• Classic Services (Partnership firm)• Sone Paper & Industries Ltd.

6. �� Enquiry initiated on 20/10/ �� 2004. Enquiry�� proceedings under

progress.

7. �� Enquiry initiated on 20/10/ �� 2004. Enquiry Proceedings

under progress.

8. Millenium Enquiry initiated on 20/10/Equities (I) 2004. Enquiry officerPvt Ltd submitted the report on

June 30, 2005recommending no penalty.

9. Aldan Enquiry initiated on 20/10/Investment 2004. Enquiry officerPvt Ltd submitted the report on

June 30, 2005recommending no penalty.

10. Mukesh Babu Enquiry initiated on 20/10/ �� 2004. Enquiry officer

submitted its report on May24, 2005 recommendingsuspension of brokingregistration for a period ofone month. Based on therecommendation, showcause notice issued onJune 7, 2005 asking themwhy action should not betaken against them asrecommended by theEnquiry officer. Replyreceived from them is beingexamined before putting upfor personal hearing beforeWhole Time Member.


30

• Shankar Sales Promotion Pvt. Ltd.• Yashodham Merchants Pvt. Ltd.• Kalyan Vyapaar Pvt. Ltd.• Sungrace Merchandise Pvt. Ltd.• Baldev Commercial Pvt. Ltd.

Enquiry proceedings have separately been initiated againstvarious following stock brokers for aiding and abetting KetanParekh entities in market manipulation by entering into structuredand synchronized dealings in HFCL :

Broker Actions already taken

Chandravadan Order dated 24.2.04 passed suspending theJ Dalal broker for 2 years in the case of Lupin,

Aftek, Ranbaxy, Shonkh and GTB.Hem Securities Ltd. Order under preparation.Indsec Securities In the case of GTB, vide order dated 10.9.04,& Finance Ltd. warning has been issued.Keynote Capitals Enquiry initiatedLtd.Latin Manharlal In the case of GTB, Aftek and Shonkh, orderSecurities Pvt. Ltd. dated 18.11.03 passed suspending

registration for 6 monthsMangal Keshav Enquiry ProceedingsShares & Stock under progress.Brokers Ltd.Milan Mahendra Order under preparation.Securities Pvt. Ltd.Millenium Equities In the case of GTB, Order dated 13.9.04(I) Pvt. Ltd. passed suspending for 6 monthsAldan Investment Enquiry ProceedingsPvt. Ltd. under progressMukesh Babu In the case of GTB, Order dated 10.9.04Securities Ltd. passed suspending registration for 1 year.Omega Equities Enquiry ProceedingsPvt. Ltd. under progressPravin V Shah Enquiry ProceedingsStock Broking under progressSubhkam Securities In the case of Silverline,warning has been

issued.

11. Omega Enquiry initiated on 20/10/Equities 2004. EnquiryPvt Ltd proceedings under

progress

12. Pravin V Shah Enquiry initiated on 20/10/Stock Broking 2004. Enquiry officer

submitted its report on May31, 2005 recommendingminor penalty of censure.Show cause notice issuedon June 7, 2005 askingthem why action should notbe taken against them asrecommended by theEnquiry officer. Replyreceived from them is beingexamined before putting upfor personal hearing beforeWhole Time Member.

13. Subhkam Enquiry initiated on 20/10/Securities 2004. Enquiry officer

submitted its report datedDecember 29, 2004recommending no penalty.

14. Vidyut Enquiry initiated on 20/10/Devendrakumar 2004. Enquiry officer

submitted its report on May24, 2005 recommendingsuspension of brokingregistration for a period ofone month. Show causenotice issued on June 7,2005 asking them whyaction should not be takenagainst them asrecommended by theEnquiry officer. Their replyis awaited.


31

Vidyut Devendra Enquiry ProceedingsKumar under progressVisaria Securities In the case of GTB, Order dated 11.10.04Pvt. Ltd. passed suspending registration for 3 months.Vyomit Stock & Enquiry Proceedings under progressInvestment Pvt. Ltd.Woodstock Broking Order dated 10.9.04 passed warningPvt. Ltd. the broker in the case of GTBWoodstock Order dated 10.9.04 passed warningSecurities Pvt. Ltd. the broker in the case of GTB.

15. Visaria Enquiry initiated on 20/10/Securities 2004. Enquiry officerPvt Ltd submitted the report on May

31, 2005 recommending nopenalty.

16. Vyomit Stock Enquiry initiated on 20/10/& Investment 2004. Enquiry proceedingsPvt Ltd under progress

17. Woodstock Enquiry initiated on 22/11/Broking Pvt Ltd 2004. Enquiry officer

submitted the report onJune 29, 2005recommending no penalty.

18. Woodstock Enquiry initiated on 22/11/ �� 2004. Enquiry officer

submitted the report onJune 30, 2005recommending no penalty.

Based on the findings of investigations inthe case of HFCL, Zee Telefilms Ltd, AdaniExports Ltd and Global Tele-Systems Ltd,a consolidated show-cause notice datedJanuary 31, 2005 has been issued to ShriKetan Parekh, Shri Kartik Parekh and 9entities connected with them viz. PantherFincap & Management Services Ltd,Classic Credit Ltd, Panther Investrade Ltd,Classic Infin Ltd, Saimangal InvestradeLtd, Chitrakut Computers Pvt Ltd,Luminant Investments Pvt Ltd, GoldfishComputers Pvt Ltd and NakshatraSoftware Pvt Ltd. They have been askedto show cause why suitable directionsincluding a direction restraining fromaccessing the capital market/buying,selling or dealing in securities for a


32

particular duration should not be issuedagainst them. Ketan Parekh entities weregranted inspection of documents reliedupon by SEBI on 17/5/2005 and 18/5/2005.As desired by them, copies of additionaldocuments, apart from the documentsalready given while issuing show causenotice, were given to them on July 11, 2005.Reply to the show cause notice awaited.Cyberspace LtdInvestigation Report in the case of M/sRenaissance Securities Ltd. and otherbrokers has been approved on May 09,2005. Follow up actions in this regard areunder progress.The SCNs are served on the followingentities :1. M/s Cyberspace Ltd. : April 08, 20052. M/s Century Consultants Ltd. : April

08, 2005.The SCN to Ms. Vandana Srivastava isbeing served.First Global Stock Broking Ltd.The matter is yet to come up for hearingbefore the Hon’ble High Court.SSI Ltd.Enquiry proceedings have been completedagainst the following entities on April 30,2005:• Classic Share and Stock Broking

Services Ltd.• Triumph International Finance India Ltd.• Triumph Securities Ltd.The Enquiry Officer has recommendedsuspension of registration certificate for aperiod of 6 months in all the three cases.Since the registration certificates of theseentities have already been cancelled, aview is being taken regarding the same.SAT, in its combined order dated April 15,


33

2005 in the matter of SSI Ltd. and SilverlineTechnologies Ltd. has set aside theAdjudication Order levying penalty ofRs.1,00,000/- on M/s Milan MahendraSecurities Pvt. Ltd. in one case whereasreduced the penalty from Rs. 1,00,000/-to Rs.10,000/- in the other which hasalready been deposited by the broker.M/s Triumph International Finance Ltd. hasappealed against the adjudication orderbefore SAT levying penalty of Rs. 1,00,000.The process of issuing directions againstthe three promoters of SSI Ltd. and threeindividuals for violation of the provisionsof SCRA is under progress.Silverline Ltd.The enquiry proceedings against the 5broking entities are in progress.M/s Silverline Technologies Ltd. has paidthe penalty of Rs.19,00,000/- on March 15,2005. Further , penalty of Rs.1,50,000/- ,as per the Order of SAT dated July 09,2004 has been paid by M/s Subra MaritiusLtd. and M/s Shreyas Holdings Ltd. on June29, 2005.As mentioned above, SAT, in its combinedOrder dated April 15, 2005 in the matter ofSSI Ltd. and Silverline Technologies Ltd.has set aside the adjudication order levyingpenalty of Rs.1,00,000/- on M/s MilanMahendra Securities Pvt. Ltd. in one casewhereas reduced the penalty from Rs.1,00,000/- to Rs.10,000/- in the other whichhas already been deposited by the broker.M/s Latin Manharlal Securities Pvt. Ltd. andM/s Triumph International Finance Ltd.have appealed against the adjudicationorders before SAT levying penalties of Rs.2,00,000/- and Rs. 1,00,000/- on themrespectively.


34

2. 2.17 The proceedings before the Committeethemselves acted as a catalyst for manyreforms in the system, which were put inplace during the Committee’s pendancy.These actions by regulators like SEBI andRBI and by the Ministry of Finance havebeen touched upon in various chapters.The Committee feel that after thepresentation to Parliament in August andDecember 1994 of the Action TakenReports (ATRs) on the scam relating toirregularities in securities and bankingtransactions, the will to implement varioussuggestions of the previous Committeepetered out. But, as soon as thisCommittee began its sittings andsearching questions were asked, SEBI,RBI and other regulatory authoritiesincluding Ministry of Finance, went intoactive mode. Had this state of affairsprevailed after the Action Taken Report,the probability of the present Scam wouldhave been negligible.

As reported in May, 2003Out of the 273 individual items of observations/conclusions/recommendations listed in the report of the Joint ParliamentaryCommittee set up in 1992 to enquire into the irregularities insecurities and banking transactions, Government had identified107 items which involved specific recommendations for action.In the Action Taken Report submitted by Government in July 1994Government had accepted 87 recommendations and reportedthat 20 recommendations could not be accepted or were onlypartially accepted. Subsequently, Government has modified itsposition on some of the points to conform with the JPC’srecommendations and in some areas the original response ofGovernment was elaborated to report further steps taken byGovernment for implementation after the presentation of ActionTaken Report in July 1994. The revised response of Governmentto 147 items of the observations/ conclusions/ recommendationsof the JPC were presented to Parliament in December 1994.The action in respect of certain recommendations is long drawnby its very nature such as those involving amendment to Acts,action against officials involved in irregularities, action againststatutory auditors who failed in their duties while auditinginstitutions involved in the irregularities. Action in regard to somerecommendations is of continuous nature. Improvement insupervision and control over banks/financial institutions,improvement in the internal control in banks/financial institutions,toning of vigilance machinery in banks etc. are being made on acontinuous basis.The RBI is monitoring departmental action being taken againstofficials of banks/financial institutions involved in irregularitiesconnected with securities transactions. Out of the 285 officialsidentified, departmental action has been completed against 263officials and is pending in respect of 22 persons on account ofpendancy of court cases/stay given by the court etc. The CBI hadregistered 72 cases relating to irregularities in securitiestransactions out of which in 47 cases, charge sheets have beenfiled in courts and in the remaining 25 cases, the CBI afterinvestigation had recommended departmental action againstconcerned officials or closure of cases or cases were otherwise

On the request of Chief Minister ofMaharashtra, Ministry of Home Affairshave issued orders on 19th May, 2005approving creation of four new posts ofAdditional Judges in the Bombay HighCourt. Action completed.


35

disposed off. Out of the 47 cases where charge sheets were filedin the court judgments were delivered in respect of 9 cases. 27cases are at pre charge stage and 11 are at evidence stage. Inorder to expedite disposal of cases pending before the SpecialCourt (Trial of Offences Relating to Transactions in Securities) Act1992, the Chief Justice of India has once again been requested toconsider appointment of 2 more additional Judges in the SpecialCourt, Mumbai for which staff has already been provided for. TheChief Justice of India has also been requested to take up with therespective High Courts for expediting CBI cases pending beforethe Special Judges (Anti Corruption) in their respective jurisdiction.After presentation of ATR in July 1994, copies of these reportswere circulated to various departments concerned withimplementation/follow up action on the recommendations of theJPC for compliance. Action was also taken to monitor progressin the matter and after ascertaining the position from theDepartments/agencies concerned a consolidated report showingthe action taken was reported to Rajya Sabha on 24th March1999. The Assurance Committee of the Rajya Sabha had alsotaken evidence of Finance Secretary and other officials duringNovember 1999 and the Committee was apprised of the actiontaken by Government.In regard to the number of recommendations in the present reportwhich are analogus to the recommendations of earlier JPCrevealing the extent of non-implementation, it is stated that therecommendations of the earlier JPC relating to the irregularitiesin security and banking transactions and the failure to detectthese irregularities, the systemic weaknesses, the system ofempanelment of brokers by banks for inter-bank transactions,punishment of erring brokers, effective system of handlinginvestors complaints, role of nominee directors on the boards ofnationalised banks/stock exchanges etc. have been implemented.Similarly the recommendations of the earlier JPC relating tosetting up of Board for Financial Supervision, action againstbanks, toning up of vigilance machinery, reform in the system ofaudit and empowering RBI to impose graded penaltycommensurate with the seriousness of the irregularities havealso been implemented. The irregularities brought out in the


36

present Stock Market Scam do not reveal any systemicweaknesses but are basically violation of RBI norms and involvetransactions of a fraudulent nature by a few private/co-operativebanks.As reported in December 2003RBI has reported that departmental action is still pending against22 persons on account of pendency of court cases/ stay given bythe courts, etc.Regarding appointment of 2 additional Judges in the SpecialCourt, Mumbai, the Registrar General, Supreme Court of Indiahas again been reminded on 20.10.2003 to intimate the actiontaken in the matter. The matter is being pursued.As reported in June, 2004RBI has reported that departmental action is still pending against22 persons on account of pendency of court cases/ stay given bythe courts, etc.CBI has reported that there is no change with regard toregistration, chargesheeting and disposal of securities scamcases pending in various courts. As regards disposal, out of 47cases, 3 more cases have been disposed off after December2003 totaling 12 cases. Out of 12, 08 cases ended in convictionwhile 03 cases ended in acquittal and 01 case was otherwisedisposed off.Regarding appointment of 2 additional Judges in the SpecialCourt, Mumbai, two more reminders were sent to RegistrarGeneral, Supreme Court of India from Secretary, on 23.03.2004and 12.05.2004.As reported in December, 2004CBI has reported that one more case has been disposed off,totalling the number to 13.

As reported in May, 2003Already covered in reply to para 2.17As reported in December 2003The Registrar General, Supreme Court of India has again beenreminded on 20.10.2003 to intimate the action taken regardingappointment of additional Judges in the Special Court, Mumbaiand to take up with the respective High Courts for expediting CBIcases pending before the Special Judges (Anti-corruption) in theirrespective jurisdiction.

3. 3.11 Lack of urgency on the par t of theGovernment has led to a stage whereafter more than 9 years, 66 out of 72 casesof 1992 scam have yet to be adjudicated.This clearly sends out a signal that futurewrong doers can evade theconsequences of their wrongs and canalso enjoy their ill-gotten gains. TheCommittee emphasize that adequate

On the request of Chief Minister ofMaharashtra, Ministry of Home Affairshave issued orders on 19th May, 2005approving creation of four new posts ofAdditional Judges in the Bombay HighCourt. Action Completed.


37

As reported in June, 2004As reported against para 2.17, the Departmental action against22 persons is pending on account of pendency of Court Cases/stay given by the Courts etc. Further, out of 47 cases with CBI, 12have been disposed off. Regarding appointment of two AdditionalJudges in the Special Courts, Mumbai the reference is pendingwith the Supreme Court.As reported in December, 2004Reference is pending with the Supreme Court for appointmentof two additional Judges in the Special Court, Mumbai.

As reported in May, 2003ICAI has clarified and stated that they were aware of 17 caseslisted by the JPC as Appendix No XVIII in Volume II of its report.Apart from these 17, ICAI had also identified 48 other entitiesbased on other reports such as the Janakiraman Report. Thestatus with regard to these 65 entities is as follows;-1.Filed on prima facie stage –352.Referred to Disciplinary Committee – 30Out of the above (2)(a) Number of entities where the Respondents are exonerated(at the Council level) – 13(b) Number of entities in which there is punishment (at the Councillevel) – 06(c) Pending with Disciplinary Committee – 02(d) Pending with Council for consideration ofDisciplinary Committee Report – 09Out of the said 17 entities, in the case of 8 entities, there wascase for the year 1990-91 as well. The relevant data is as under: -1.Filed on prima facie stage – 032.Referred to the Disciplinary Committee – 05Out of the above (2)(a) Number of entities where the Respondents are exonerated(at the Council level) – 01(b) Number of entities in which there is punishment (at the Councillevel) – 03(c) Pending with Disciplinary Committee – NIL(d) Pending with Council for consideration of

number of courts should be set up toensure final disposal of cases within twoyears.

4. 3.18 The Department of Company Affairsexercises supervision over the affairs ofInstitute of Chartered Accountants of Indiaand 6 members nominated by the CentralGovernment are on the Council whichmanages the affairs of the Institute. Thedelay in adjudicating 23 out of 27disciplinary proceedings and the approvalof the names of 3 firms to conduct auditof banks even though the disciplinaryproceedings are pending in their caseshows complete lack of urgency anddisregard of the promises on the JPC’srecommendations by the Institute ofChartered Accountants of India (ICAI), thegovernment as well as the RBI. ThisCommittee have also come acrossfailures on the part of certain auditors inthe present scam. Auditors have a greaterresponsibility and if they themselvesbecome a part of malaise, the financialchecks and balances would collapse.Department of Company Affairs shouldensure expeditious disposal of disciplinaryproceedings.

ICAI have informed that the CharteredAccountants Act, 1949 and theRegulations framed thereunder prescribethe following procedure to be followed fordealing with/disposing of allegationsagainst any member of the Institute:-

I. Forming prima facie opinion by theCouncil of the Institute on theallegation of misconduct.

II. Conduct of detailed enquiry by theDisciplinary Committee of the Institute(on the basis of prima facie opinionformed, against the memberconcerned, by the Council of theInstitute).

III. Consideration of the Report of enquiryof the Disciplinary Committee by theCouncil of the Institute andrecommending punishment to theconcerned High Court after affordingopportunity to the par ty(ies)concerned for submission of oral and/or written submission(s).

�� !��"��

!�� #��


38

Disciplinary Committee Report – 01As reported in December 2003No change in the status.As reported in June, 2004The cases are pending with the Council and in the Hon’ble Courts.These are ongoing judicial processes.As reported in December 2004Action initiated in respect of 216 firms concerning the 65 entitiesby ICAI.Pending with ICAI - 1

As reported in May, 2003Duality of control over cooperative banks emanates fromconstitutional provisions. Cooperatives are a state subject under

5. 3.21 Dual control (that of RBI and the Registrarof Cooperative society of the State) is amatter of serious concern. RBI should

��$$��

��%�� $��"��

��%��

&'��%��%%��

$�(��%��

��$�#�� $��

��)�

*��#�� *��%��+,�

�� $�� -� �� *��

��$%��%��.��

�� +,-� �� $�� '�� %��

��+,-��$��/

No. of No. ofEntities firms of

CAsReports of DisciplinaryCommittee consideredby the Council and 09 15punishmentrecommended forHigh Court

confirmation

Cases closed/filed(i) at prima 36 173

facie stage(ii) On consideration

of the Reports 19 27of DisciplinaryCommitteeTotal 65 215

In remaining one case the Hon’ble HighCourt of Andhra Pradesh has stayed theproceedings. Action completed.

A comprehensive amendment in theBanking Regulation Act has been


39

introduced in Lok Sabha on 13.5.2005. Thefollowing amendment relating toCooperative Banks have been proposedin the Bill.1. To protect the interest of the depositorsand also to ensure that only theCooperative Society that have beenlicensed by the Reserve Bank of India, theprimary cooperative societies should begiven a time frame within which they haveto either stop the business of banking orfulfill all requirements specified by ReserveBank and obtain a license to carry on thebusiness of banking.2. Reserve Bank of India is being giventhe power to order a Special Audit ofCooperative Banks in public interest for amore effective supervision of CooperativeBanks. The proposed legislation aims tomake the regulatory powers of ReserveBank more effective.The Bill has been referred to the StandingCommittee on Finance. Since the matteris now before the Parliament, action on thispara may be treated as complete.

have followed it up with financial penaltyor such like punishment.

the Constitution. Their formation, registration, operation andwinding up are all governed by State laws and regulations. TheReserve Bank does not control their management, order theirwinding up nor can it impose penalty on them. Measures whichenable RBI to safeguard interests of depositors and general publicdo not apply to cooperatives. The Task Force on RuralCooperatives under Shri Jagdish Capoor, the then DeputyGovernor, RBI and the High Power Committee on UrbanCooperative under Shri K. Madhva Rao, former Chief Secretary,Andhra Pradesh have examined this issue and recommendedremoval of duality of control over cooperative banks by way ofeither replacing the existing State Cooperative Societies Act withthe Model Cooperative Societies Act recommended byChoudhary Brahm Perkash Committee or by way of incorporatingessential features of the Model Act in their respective CooperativeSocieties Act by the State Governments. Ministry of Finance isalso of the view that removal of duality of control is essential forproper regulation and management of cooperative banks.Therefore, the above legislative change has been made aprincipal pre-condition for taking up revitalization of cooperativebanks as announced in the Union Budget for the year 2002-2003to usher reforms in the cooperative banking sector. Therevitalization scheme with contribution of 60:40 from Central andState Governments is under consideration of Government. Thisscheme is expected to encourage State Governments toundertake the above legislative exercise for availing revitalizationassistance by the cooperative banks.Amendments to various Acts is an on-going process andsuggestions/proposals received from RBI are dealt with in theMinistry of Finance with due care and alacrity. Thus, since itsenactment in 1949, the Banking Regulation Act has beenamended 33 times. Amendments have also been carried out tothe RBI Act, NABARD Act, Small Industries Development Bankof India Act and may other Acts administered by the Ministry ofFinance. RBI proposal regarding setting up an apex supervisorybody for supervising urban cooperative banks did not find favourwith the Government since it did not address the basic issue ofduality of control on the cooperatives. Even the proposalssubmitted by RBI in May 2001 to the Ministry of Finance werenot found to be adequate in tightening the supervisory control of


40

RBI over the cooperative banks. These proposals have beenfurther discussed with RBI and NABARD and amendments toBanking Regulation Act are now being finalized which would giveRBI adequate powers to effectively supervise cooperative banks.These proposals are in the final stages and Government expectsto introduce a Bill in the Parliament in this regard in the ensuingMonsoon Session.As reported in December 2003A Bill to amend the Banking Regulation Act, 1949 has beenintroduced in the Lok Sabha on 13.8.2003. The Bill has beenreferred to the Standing Committee on Finance.As reported in June, 2004With the dissolution of 13th Lok Sabha, the Bill to amend theBanking Regulation Act, 1949 has lapsed. Its reintroduction inthe 14th Lok Sabha is under consideration.As reported in December, 2004Though comprehensive amendments to Banking Regulation Actfor empowering the RBI to have greater regulatory control overthe Urban Cooperative Banks is under consideration, anOrdinance was promulgated on 24.9.2004 empowering RBIgreater regulatory control over UCBs. The RBI, now, cansupersede the Board of Directors of multi-State cooperative banksand appoint an Administrator, if it is satisfied that it is necessaryto do so in public interest or for preventing the affairs of a multi-State cooperative bank being conducted in a manner detrimentalto the interest of the depositors or of the multi-State cooperativebank or for securing the proper management of the bank. Suchaction of the RBI shall not be liable to be called in question in anymanner. Additionally, the deposit insurance cover has also beenextended for deposits in the urban cooperative banks registeredunder the MSCS Act in the interests of small depositors.As for the comprehensive amendments to the Banking RegulationAct 1949, for ending duality of regulatory control over CooperativeBanking Institutions, while a Bill was introduced in the lastParliament, it could not be passed and has lapsed. The provisionsof the proposed Bill are presently being reviewed by a Task Forceunder the Chairmanship of Prof. Vaidyanathan (Prof. Emeritus,Madras Institute of Development Studies) and RBI. The exerciseis expected to be completed by March, 2005.

Sl. No. Para No. Observation/Recommendation of JPC Reply of Government/Action Taken Further Progress

41

6. 3.33 At Appendix-III is given a chart which setsout how many recommendationscontained in this Report are analogousto the recommendations of the earlierJPC, starkly revealing the extent of non-implementation which characterises thesystem.

7. 4.44 The various acts of omission andcommission having been clearlyestablished, the Committee urge that theGovernment should take all necessarysteps to finalize proceedings againstKetan Parekh entities and to ensure thatsuitable action is taken against themwithout delay. The Committee also urgethat expeditious action should be takento ascertain the facts regarding the Swissbank account of Shri Ketan Parekh andto follow up the matter.

As reported in May, 2003As against 2.17As reported in December 2003As against para 2.17As reported in June 2004The position regarding implementation of recommendations ofJPC, 1992 is explained in reply to para 2.17. Action taken on theother recommendations of this JPC is explained against therespective paras.As reported in December, 2004As against para 2.17.

As reported in May, 2003SEBI has indicated that the action taken by SEBI against KetanParekh entities for involvement in price manipulation of certainscrips, inter-alia, include debarring Ketan Parekh and all entitiesconnected with him from undertaking any fresh business as stockbroker/merchant banker and cancellation of the certificate ofregistration of Triumph International Finance (I) Ltd., one of thebroking entities of Ketan Parekh.Prosecution proceedings against Ketan Parekh entities are beinginitiated for the violation of securities laws.CBI have intimated that the chargesheet in the case relating toBank of India has already been filed in the competent court.Regarding Madhavpura Mercantile Cooperative bank,investigation is at an advanced stage and is lkely to be finalizedshortly. Regarding Swiss Bank accouonts of Ketan Parekh, theSwiss authorities had intimated in December, 2002 that the LetterRogatory sent in this matter cannot be executed because of thedirections of the High Court at Zurich.Enforcement Directorate have intimated that certain OCB's whichSEBI has designated as KP entities, have already been chargedfor offences under FERA/FEMA through issue of SCN, as, hasbeen pointed out in the JPC report. The Adjudicating Authorityhas been advised to expedite the proceedings.As reported in December 2003Enforcement Directorate has issued Show Cause Notices forcontraventions of the provisions of FERA/FEMA to the following

The position regarding implementation ofrecommendations of JPC, 1992 isexplained in reply to para 2.17. Actiontaken on the other recommendations ofthis JPC is explained against therespective paras. Action completed.

CBDT have informed that theCCIT(Central-I), Mumbai had beenrequested to expedite the ten cases whichare pending before CIT(A) in which anamount of Rs. 938.29 lakhs is disputed.The Income Tax Department has alsorequested the ITAT to take up the pendingcases on priority. It has also beenreported that there has not been anysignificant progress in the collection ofoutstanding tax arrears due to followingreasons:

· Shri Ketan Parekh is a notifiedperson under Section 3(1) of theSpecial Cour t Act, 1992.Recovery of taxes from him canonly be through the SpecialCourt.

· Ketan Parekh and his eightconcerns have been barred bySEBI from trading for 14 years.Besides, the SEBI has cancelledthe registration of his mainconcerns.


42

OCB's designated by SEBI as KP entities: -1. Global Trust Bank, the custodian in all the cases.2. Brentfield Holdings Ltd (BHL)3. Europian Investments Ltd., (EIL)4. Wakefield Holdings Ltd. (WHL)5. Far East Investment Corp. Ltd (FIL)6. Kensington Investments Ltd. (KIL)In all these cases, the matter is now at the adjudication stage.The Adjudicating Authority has been advised to expedite theproceedings.In additions, a fresh reference was received by the EnforcementDirectorate from the RBI dated 9.01.03 regarding the affairs ofU.K. subsidiary of Triumph International Finance India Ltd.designated by SEBI as a KP entity. Investigation by the Directorateof Enforcement has so far revealed that the company and itsDirectors Shri Jatian Sarviya and Shri Ketan Parekh appear tohave violated the provisions of Section 3(a) r/w Section 2(v)(iv)of FEMA r/w Regulation 3 of Foreign Exchange Mangement(Transfer or Issue of any Foreign Security Regulations 2000) bydivesting the holding of their Mauritius Subsidiary InternationalHoldings (Triumph) Ltd. in the UK subsidiary, for a totalconsideration of US$ 7,25,000/- without the approval of the RBI.The investigation is being pursued.With regard to completion of the investigation by Income TaxDepartment in Ketan Parekh Group of cases in which a searchwas conducted by the Department in March 2001, investigation/assessment proceedings have been completed in October 2003and undisclosed income has been assessed at Rs.1,993.26 croreraising the tax demand of Rs.1365.37 crore.As regards Madhavpura Mercantile Cooperative Bank Ltd. case,investigation in India has been completed and order of HeadOffice of CBI on the investigation repor t since beencommunicated to the branch. Charge sheet in the case wouldbe filed shortly.As reported in June, 2004The chargesheet in the case relating to complaint of Bank ofIndia has already been filed in the competent court. As regardsMadhavpura Mercantile Cooperative Bank Ltd. case, investigationin India has been completed and Charge sheet in the case has

· The Debt Recovery Tribunal hasinitiated proceedings in respect ofsome of the individuals and 6major concerns of the group.Recovery of taxes from suchconcerns is subject toproceedings before the DebtRecovery Tribunal.

· The claim of the Department hasbeen rejected by the DRT. On therecommendations of Ministry ofLaw & Justice, the Deparment isconsidering filing Writ Petitionagainst the order the DRAT.

· Shri Ketan Parekh & ShriNavinchandra Parekh are bothnotified persons. Even thoughonly these two persons have beennotified under the Special Court(TORTS) Act, 1992, theCustodian, however, is objectingto recovery from other entitieswherein Shri Ketan Parekh orNavinchandra Parekh have anyinterest or connection.

· Some of the sundry debtors havebeen summoned and examined.As per the details filed before theTax Recovery Officer (TRO), theaccounts were settled long back.Therefore, there is no possibilityof recovery from these sundrydebtors. However, summonshave been issued in some morecases for further examination.


43

been filed in the court of Chief Metropolitan Magistrate,Ahmedabad on 1.12.2003.Enforcement Directorate has informed that out of 6 Show CauseNotices (SCNs) issued to these companies, two SCNs have beenadjudicated. As a result of Adjudication penalty has been imposedin one SCN. In the other case, charge was not established.As regards finalisation of proceedings by the Income TaxDepartment against Ketan Parekh, the position has beenexplained in reply to para No.4.42.As reported in December, 2004The omissions and commissions which have been establishedare mainly relating to banking regulation and share marketregulations. The tax implications of the transactions wereexamined during the block assessments and the regularassessments.After making investigations, block assessments have since beenfinalized. Assessments have been finalized on discrepanciesfound in the accounts wherein substantial additions ofundisclosed income have been made after getting the accountsaudited u/s 142 (2A). The Appellate Authority has also upheldsubstantial addition of undisclosed income computed by theAssessing Officer.In addition, other scrutiny assessments were also completed inSeptember, 2003 after getting the accounts audited u/s 142 (2A).Further, some assessments were also completed in March, 2004.First appeals for the cases completed in September, 2003 havebeen disposed off in March, 2004.The details of Swiss Bank Account of Sh. Ketan Parekh werecalled for from the CBI. The Additional Director, CBI, New Delhiinformed Member (Inv.), CBDT, New Delhi vide his D.O. No.1420/4/39/2001-BSFC/LO dated 21.5.2003 as under:

"Office of the District Public Prosecutor-IV of Canton Zurichvide letter dated 29.10.2002 through Embassy of India intimatedthat the High Court of Zurich had granted appeal against theorder dated 24.4.2002 of District Public Prosecutor-IV of Zurich,in pursuance of which they could not transfer the details of theaccount of Firm Elista Ltd., Nassau, Bahamas to India. Theoffice of the Public Prosecutor-IV of Canton Zurich was alsodirected by the High Court to intimate the Indian authorities that

· An amount of Rs. 938.29 lakh isdisputed before the CIT (A) andan amount of Rs. 75394.42 lakhis disputed before the ITAT. Cashcollection of Rs. 1447 lakh is onaccount of refund adjustment.The Hon’ble ITAT and CIT (A)have been requested to take uphearings of the pending appealson priority basis.

Regarding Swiss Bank Account of ShriKetan Parekh, the CBDT have nowinformed that they have no further recordsor information about the same; hence theyare not in possession of any adverseevidence to warrant making addition in thecomputation of income.

In view of above, action from the CBDTon this para may be treated as complete.

Enforcement Directorate have informedthat the investigation in this matter hasalready been completed and Show CauseNotices have been issued. Their positionis as under:

1. SCN issued 062. Total Adjudicated 023. Cases pending adjudication 04

As regards the remaining 4 cases pendingadjudications, the adjudicating officer havebeen advised to expedite the adjudicationproceedings.


44

no money of MMCB derived from the illegal accounts of the tenfirms in which Mr. K. Parekh has been holding shares has beentransferred to the Accounts in question for which the Indianrequest for legal assistance dated 25.9.2001 was forwarded. Ithas also been intimated that from the documents examined bythe High Court, it has been found that all transfers have beendone as certificates before 4.7.2000. Therefore, they haveconcluded that documents of Elista cannot prove any over duecredit gone to MMCB."In view of this position, the Income Tax Department is not inpossession of any material relating to the Swiss account and noaddition could be made on this account.Enforcement Directorate has informed that on completion ofinvestigation a Show Cause Notice has been issued on 03.9.2004to M/s Triumph International Finance (India) Ltd. and others.

As reported in May, 2003As per the information available with Reserve Bank of India (RBI),as on 31.3.2003 Bank of India, Global Trust Bank Ltd (GTB) ICICIBank Ltd., Centurion Bank Ltd. and Bank of Punjab Ltd. haverecovered an amount of Rs.137.31 crores from Ketan Parekhentities as against a total exposure of Rs.424.87. RBI has advisedthe banks in January 2003 to take effective steps to recover theentire amount from the Ketan Parekh entities expeditiously. Legalaction for recovery has already been initiated by GTB, ICICI Bank,Centurion Bank, Bank of Punjab Ltd. Bank of India has beenpermitted by Government to enter into a compromise settlementin respect of Ketan Parekh Group of companies subject toinclusion of a clause in the compromise agreement that theagreement is without prejudice to the criminal case against KetanParekh and others.As reported in December 2003Follow up action is in progress.As reported in June, 2004RBI is following up the recovery of the amounts on a continuousbasis.As reported in December, 2004As per the information available with RBI, as on 31st October,2004, the six commercial banks (viz., Bank of India, Global Trust

8. 4.45 Ketan Parekh entities owe considerablesum of money to Banks. Expeditiousaction should be taken to recover thisamount from Ketan Parekh entities.

RBI has informed that the six commercialbanks viz. BOI, GTB, ICICI Bank,Centurian Bank, Bank of Punjab andRatnakar Bank Ltd. could recoverRs.145.34 crore whereas in the 3rd

Progress Report the amount recoveredwas erroneously reported as Rs.159.13crore. The error is regretted.

These Banks have written off Rs.215.95crore and balance outstanding in respectof all these banks taken together stood atRs.143.76 crore.

The six banks have intiated legalproceedings against the defaultingborrowers and the process of recovery willtake its own legal course. Therefore,action on this para is treated as complete.


45

Bank Ltd. (GTB), ICICI Bank Ltd., Centurion Bank Ltd., Bank ofPunjab Ltd. and Ratnakar Bank Ltd.), which had exposure to KetanParekh entities, could recover in total Rs. 159.13 crore and thebalance outstanding in respect of all these banks taken togetherstood at Rs. 265.74 crore).RBI is following up the recovery of the amounts on a continuousbasis.

As reported in May, 2003Pursuant to investigations against Singhania Group, PoddarGroup, Biyani Group and Khemani groups, SEBI has filedprosecutions as follows:

Kolkata Police have informed that theinvestigation made so far has prima-facieproved the allegation of cr iminalconspiracy and cheating against all thebrokering entities connected with KetanParekh & Dinesh Dalmia. In all 21accused persons have been arrested.Although Dinesh Dalmia, one of the key-players behind the fraud perpetrated bythe Biyani Group could not be arrestedas yet. Some of the accused persons arestill absconding. The aspect regardingviolation of exposure limits and therebybuilding up of large concentration positionin a few scrips is being fur therinvestigated to ascertain how grossexposure margin could remain faulty inthe computer system maintained by CMCfor a long time.

9. 4.68 The Committee note that the threebroking groups belonging to Shri D.K.Singhania, Shri A.K. Poddar and ShriH.C. Biyani were primarily responsiblefor the payment problem in March 2001in CSE. Their default in pay-inobligations in three settlements in March-2001 was about Rs.107 crore. D.KSinghania Group and A.K. PoddarGroup along with Sanjay KhemaniGroup received over a period a sum ofRs. 3191 crore from Ketan Parekhentities for taking deliveries on behalfof the latter and had close linkages withShri Ketan Parekh. The Committee findthat these broker groups exploited theweaknesses in the working of CalcuttaStock Exchange as discussed inanother section of this Report and builtlarge concentrated position in a fewscrips in violation of exposure limits. Thebrokers' plea of ignorance about thedefects in the CSE margin system is notconvincing. The Committee urge that thecivil and criminal proceedings initiatedagainst the defaulted brokers should beexpeditiously completed and the guiltypunished at the earliest.

No. Name of the Case Filed against Case No. Filed at Date of filing1. SEBI vs. Smt Prema Poddar Prema Poddar 4910/02 Chief Metropolitan Magistrate, Kolkata November 30, 2002.2. SEBI vs. Tripoli Consultancy Tripoli Consultancy Services Pvt. Ltd., 4908/02 Chief Metropolitan Magistrate, Kolkata November 30, 2002.

Services Pvt. Ltd. Shri B P Singhania,Shri Pravin Kumar Agarwal

3. SEBI vs. Shri Ashok Kumar Poddar Shri Ashok Kumar Poddar 4909/02 Chief Metropolitan Magistrate, Kolkata November 30, 2002.4. SEBI vs. Shri Raj Kumar Poddar Shri Raj Kumar Poddar 4911/02 Chief Metropolitan Magistrate, Kolkata November 30, 2002.5. SEBI vs. Shri Ratanlal Poddar Shri Ratanlal Poddar 4912/02 Chief Metropolitan Magistrate, Kolkata November 30, 2002.6. SEBI vs. Doe Jones Investments Doe Jones Investments and Consultants Pvt. Ltd., 4913/02 Chief Metropolitan Magistrate, Kolkata November 30, 2002.

and Consultants Pvt. Ltd. Shri Raj Kr. Patni,Shri Raj Kr. Jain,Shri Gopal Singhania

7. SEBI vs. Biyani Securities Pvt. Ltd Biyani Securities Pvt. Ltd., 4914/02 Chief Metropolitan Magistrate, Kolkata November 30, 2002.Shri Aloke Biyani,Shri Ravindra Biyani

8. SEBI vs. Arihant Exim Scrip Arihant Exim Scrip Pvt. Ltd., 4915/02 Chief Metropolitan Magistrate, Kolkata November 30, 2002.Pvt. Ltd. Shri Basudeo Singhania,

Shri Sanjay Kr. Jain9. SEBI vs. Shri Dinesh Kr. Singhania Shri Dinesh Kr. Singhania 4916/02 Chief Metropolitan Magistrate, Kolkata November 30, 2002.10. SEBI vs. Shri Harish Chandra Biyani Shri Harish Chandra Biyani 4917/02 Chief Metropolitan Magistrate, Kolkata November 30, 2002.11. SEBI vs Sanjay Khemani Shri Sanjay Khemani C/1429/03 Chief Metropolitan Magistrate, Kolkata March 27, 200312. SEBI vs Sanjay Khemani Shri Sanjay Khemani C/1429/03 Chief Metropolitan Magistrate, Kolkata March 27, 200313. SEBI vs. N. Khemani Shri N. Khemani C/1428/03 Chief Metropolitan Magistrate, Kolkata March 27, 2003

� Registration of the following stock broking entities of CSE has been cancelled by SEBI under Stock Brokers Regulations:1. Dinesh Kumar Singhania & Co.2. Doe Jones Investments & Consultants P Ltd.3. Arihant Exim Scrip P. Ltd.4. Tripoli Consultancy Services Pvt. Ltd.5. Biyani Securities P. Ltd.6. Harish Chandra Biyani7. Raj Kumar Poddar8. Ratan Lal Poddar9. Ashok Kumar Poddar10. Prema Poddar

� SEBI vide order dated October 18, 2002 issued under Section 11 and 11B of the SEBI Act, 1992 debarred following persons from associating with securities marketactivities and dealing in securities till the completion of investigation proceedings against Shri Ketan Parekh and some entities associated with him. During the period,they have been directed not to buy, sell or deal in the securities market directly or indirectly.1. Shri Ashok Kumar Poddar2. Mrs. Prema Poddar3. Shri Raj Kumar Poddar

46

As reported in December 2003Investigation of Kolkatta Police is in progress.As reported in June, 2004� Sanjay Khemani's certificate of registration has been

suspended for a period of two years vide SEBI Order datedFebruary 26, 2004.

� N. Khemani's certificate of registration has been suspendedfor a period of fourteen months vide SEBI Order datedFebruary 26, 2004.

� Investigation of Kolkata Police are in progress.

As reported in December, 2004SEBI is following up with Chief Metropolitan Magistrate, Kolkatafor early disposal of prosecution proceedings filed against the 21persons of Singhania Group, Poddar Group, Biyani Group andKhemani group of brokers.The registration of two brokers namely, Man Mohan Damani andShree Harivansha Securities Pvt. Ltd. has been suspended forsix months for their large scale off-market transaction with threedefaulter brokers and with Khemani Group vide order dated July2, 2004 and March 12, 2004 respectively.

47

4. Shri Ratan Lal Poddar5. Shri Dinesh Kumar Singhania6. Doe Jones Investments & Consultants Pvt. Ltd.7. Shri Raj Kumar Patni alias Raj Kumar Jain, Director, Doe Jones Investments & Consultants Pvt. Ltd.8. Shri Gopal Singhania alias Gopal Krishna Singhania, Director, Doe Jones Investments & Consultants Pvt. Ltd.9. Arihant Exim Scrip Pvt. Ltd.10. Shri Basudeo Singhania, Director, Arihant Exim Scrip Pvt. Ltd.11. Shri Sanjay Kumar Jain, Director, Arihant Exim Scrip Pvt. Ltd.12. Tripoli Consultancy Services Pvt. Ltd.13. Shri Bhagwati Prasad Singhania, Director, Tripoli Consultancy Services Pvt. Ltd.14. Shri Praveen Kumar Agarwal ,Director, Tripoli Consultancy Services Pvt. Ltd.15. Biyani Securities Pvt. Ltd.16. Shri Aloke Biyani, Director, Biyani Securities Pvt. Ltd.17. Shri Ravindra Biyani, Director, Biyani Securities Pvt. Ltd.18. Shri Harish Chandra Biyani

As advised by SEBI, CSE has also filed FIR against Singhania Group, Poddar Group and Biyani Group of brokers with Kolkata Police Authorities (Case Ref. - Hare StreetP.S./DD Case no. 476 dated 24.09.2002 U/s 120B/420/409/467 /468 /471/477A IPC).



48

Kolkatta Police have informed that it hasbeen established during investigation that10 lakh fictitious shares of DSQ SoftwaeLimited was deposited with the CSE foradjustment of the pay-in obligation of M/sBiyani Securities Pvt. Ltd. and Mr. HarishChandra Biyani, who had varioustransactions with the associatecompanies/entities of DSQ SoftwareLimited. These fake shares, which are thevital exhibits of this case, are yet to berecovered from the absconding accusedDinesh Dalmia and his associates forwhich their custodial interrogation isrequired. The ‘Red Corner Notice’ hasalready been issued against the saidaccused Dinesh Dalmia for hisapprehension and extradition abroad. Theinvestigation on this part will be completedas soon as the said accused DineshDalmia and his associate accusedpersons are apprehended for theircustodial interrogation in the interest ofrecovery of the material exhibits and

Action against the following broker has been taken by SEBI whohad done large scale off-market transaction with three defaulterbrokers and with Khemani Group:Name of Broker SEBI Suspension

Order Date periodAmitabh Sonthalia 21.07.2004 4 MonthsKolkatta Police have informed that different officials of SEBI,Banks, ROC, Stock Exchanges, Auditors, officials of CMC Ltd.etc. are being examined with reference to the revelations of variousfacts, documents and reports. Further follow up actions are beingmade to complete the investigation at the earliest.The fund flow and its end use among the entities are being verified.A Red Corner Notice has been issued against Shri Dinesh Dalmiaof DSQ Software Ltd. & others who are still absconding.

As reported in May, 2003SEBI have informed that Biyani Securities Pvt. Ltd., had tendered10,00,000 shares of DSQ Software to CSE for meeting its pay-inobligations. It was stated by the broker in correspondence to theCSE that these shares were obtained from one of its clientsagainst the dues of the clients towards the broker. However, later,broker changed his version in investigation before SEBI and saidthat the entity from whom these shares were obtained did not actas client and was merely an entity of a friend who wanted to helpit tide over payment difficulties. However, this was contradictedby the stated friend. Accordingly, criminal proceedings wereinitiated against Biyani Group by CSE with Detective Department,Kolkata Police vide case Ref. - Hare Street P.S./DD Case no. 476on 24.09.2002 u/s 120B/420/409 /467/468/471 /477A of IPC.Kolkatta Police have informed that investigation is in progress.As reported in December 2003Investigation of Kolkatta police is in progress.As reported in June, 2004Investigations of Kolkatta Police are in progress.As reported in December, 2004The matter of deposit of ten lacs shares of DSQ Software Ltd. byShri Harish Chandra Biyani and Biyani Securities Ltd. is underinvestigation by Kolkata Police. One of the FIR named accusedin this case Dinesh Dalmia - promoter of DSQ Group of

10. 4.69 Shri H.C. Biyani had deposited 10 lakhshares of DSQ Software Ltd. as securitytowards his pay-in dues to CSE on21.3.2001. It transpired during theCommittee's examination that Shri Biyanidid not have ownership of those shareswhen he deposited them and could nothave transferred the shares to CSE. It wasa fraud on CSE by Shri Biyani CSE hasreportedly filed an FIR against Shri Biyaniand Biyani Securities in this regard. TheCommittee expect that the matter beinvestigated and on the basis of outcomethereof, appropriate criminal proceedingswill be initiated.


49

companies, a proclaimed offender and others who had playedrole into this matter are still absconding.Alok Biyani, Director of M/s Biyani Securities Pvt. Ltd. and defaulterbroker of the Calcutta Stock Exchange, who evaded police arrestsince long, was arrested while he was about to leave the countrythrough Netaji Subash Chandra Bose International Airport,Kolkatta. Investigation revealed that Alok Biyani had dishonestlyand frequently deposited 10 lakhs shares of DSQ Software assecurity towards his pay-in dues in CSE on 21.3.2001 with someulterior motive. These fake shares were shown have been allottedin the names of some bogus companies. He has been producedbefore the Chief Metropolitan Magistrate, Kolkatta on 1.9.2004and remanded to police custody for fifteen days. Investigationson different aspects are being made.SEBI has informed that the registration of two brokers namely,Man Mohan Damani and Shree Harivansha Securities Pvt. Ltd.has been suspended for six months for their large scale off-markettransaction with three defaulter brokers and with Khemani Groupvide order dated July 2, 2004 and March 12, 2004 respectively.Action against the following broker has been taken by SEBI whohad done large scale off-market transaction with three defaulterbrokers and with Khemani Group:Name of Broker SEBI Suspension

Order Date periodAmitabh Sonthalia 21.07.2004 4 Months

As reported in May, 2003SEBI has ordered investigation to ascertain as to whether therewas any nexus among SHCIL officials, Dinesh Dalmia promoterof DSQ Industries, Biyani Group in relation to the transactionsdone by Biyani Group through SHCIL and more particularly toascertain whether any provisions of the SEBI Act, 1992 andvarious Rules and Regulations made there under have beenviolated. Investigation is currently in progress.As reported in December 2003Investigation has been completed and the same has not foundany evidence to prove the nexus among SHCIL officials, DineshDalmia, promoter of DSQ Industries and Biyani group. However,in view of gross negligence/irregularities in the transactions

11. 4.70 In another instance, Shri H.C. Biyani hadentered into a transaction with StockHolding Corp. of India Ltd. (SHCIL) whichwas classified by CSE as trade in thenature of accommodation and expungedthe same. The trade in question relatedto his sale of DSQ Industries shares underSell--n-Cash scheme of SHCIL on2.3.2001 for Rs.24.45 crore where thecounter party broker was Shri Biyanihimself. This matter has since been lookedinto by an independent inquiry appointedby SHCIL as discussed in the section on

collection of other evidences.

The Board of Directors of IDBI Ltd. at itsmeeting held on January 6, 2005considered the action taken by StockHolding Corporation of India Limited(SHCIL) against Shri B.V. Goud, its formerManaging Director. The Board noted thatSHCIL had conducted a fact-findingenquiry into the matter and appointed ShriS. Doreswamy, former CMD, Central Bankof India and former Member, AdvisoryBoard for Banking and Commercial andFinancial Frauds, as the Enquiry Officer.It was noted that, based on the report of


50

conducted by SHCIL with Biyani group, SHCIL board has beenadvised to take action as they deem fit against the followingofficials of SHCIL who had executed/approved the transactionsof Biyani group:a) Former MD and CEO of SHCILb) Four committee members who approved the transactions with

Biyani group.c) Branch Head of Kolkata office of SHCILDepartmental enquiry proceedings have been initiated againstthe six persons. Charge-sheets were issued to the six officialswho have submitted replies. The Board of Directors of SHCILhas approved appointment of an enquiry officer to conduct enquiryin these cases.Prosecution (No.4537 filed on August 13,2003 filed at ChiefMetropolitan Magistrate's Court at Kolkata) has been filed againstShri Dinesh Dalmia, Shri Harish Biyani and Shri Ravindra Biyani.As reported in June, 2004Domestic enquiry against all the six officials viz. Shri B.V. Goud,Dr. J.V. Murthy, Shri R.H. Mewawala, Shri L.Vishwanathan, ShriK.S. Murthy and Shri A.S. Bagchi has been completed by end-April, 2004. The Enquiry Officer is in the process of preparing thereport on the proceedings of the enquiry.As reported in December, 2004The enquiry conducted by Shri S. Doreswamy, former Chairmanand Managing Director of Central Bank of India and formerMember of Advisory Board for Banking and Commercial andFinancial Frauds, has come to the conclusion that charges inrespect of five officials were either not established or notconclusively established. Accordingly, the Competent Authorityfelt that charges levied against the five officials of SHCIL had notbeen established. Therefore, the matter was treated as closed.The Competent Authority has directed that the charge-sheetedofficers should be advised in writing to be more careful and vigilantin the performance of their duties. The above order was passedby the Competent Authority in respect of the five chargesheetedemployees on September 28, 2004.Regarding Shri B.V. Goud, IDBI have advised that the Board ofSHCIL, as Competent Authority, unanimously resolved that in sofar as SHCIL's fact finding enquiry was concerned, the matter be

the Enquiry Officer, the Board of SHCIL,the Competent Authority, had resolved thatthe matter might be treated as closed. Italso retained an option that in case ShriGoud was found guilty by a final order ofthe Court pursuant to the investigationsby the Kolkata police into the transactions,SHCIL would be at liberty to take suchaction as it may deem fit.

The Board of IDBI Ltd, noted that duringthe period in which the transactions inquestion were put through, Shri Goud wasneither in the service of IDBI nor did hefunction as its nominee. Shri Goud was aformer employee of erstwhile IDBI and wasreceiving pension benefits from IDBI. Ashe was not found guility in the fact-findingenquiry, the Board felt that it would not bepossible to withhold or withdraw hispension payment. The Board of IDBI Ltd,therefore, concurred with therecommendations of SHCIL. Actioncompleted.

SHCIL.


51

treated as closed. It was also resolved that in the event of ShriGoud being found guilty by a final order of the Kolkatta High Courtpursuant to the investigation by the Kolkatta Police into the abovetransactions, SHCIL shall be at liberty to take such action as itmay deem fit at that stage. Since Shri Goud was originally anExecutive of IDBI, IDBI has been advised to place the whole matterin their board and then send their recommendations to theGovernment.

As reported in May, 2003SEBI have informed the following action taken by it.A. First Global GroupBased on investigation findings in the case of First Global Group,an enquiry was conducted against First Global Stock BrokingPvt. Ltd. (FGSB) and Vruddi Confinvest India Pvt. Ltd. (VCIP).The Enquiry Officer, vide report dated January 09, 2002,recommended cancellation of registration as Stock Broker andPortfolio Manager and cancellation of registration as Sub-broker,granted earlier to FGSB and VCIP.The Board, in pursuance of the directions of the Hon'ble HighCourt of Bombay and in exercise of the powers conferred bysection 4(2) of SEBI Act, 1992 read with Regulation 13 of SEBI(Prohibition of Fraudulent and Unfair trade practices relating tosecurities market) Regulations, 1995 read with Regulation 29(3)of SEBI (Stock Brokers and sub-brokers) Regulations, 1992, andRegulation 35 (3) of SEBI (Portfolio Managers) Regulations, 1993,cancelled the certificate of Registration granted to FGSB as Stockbroker (SEBI Reg. No. INB230722136 and INB010722152) andPortfolio Manager (SEBI Reg. No. INP000000381) and VCIP (SEBIReg. No. INS010647738/01-07221) as a Sub-broker.Pursuant to Board's order, Prosecution has been filed on January15, 2003 (vide C. C. no 23/S/ 2003) against FGSB, VCIP, Shri.Shankar Sharma and Ms. Devina Mehra, for violating SEBI(Prohibition of Fraudulent and Unfair trade practices relating tosecurities market) Regulations, 1995.Further, SEBI has filed for Prosecution against FGSB, VCIP, VirtaTrade Agencies Pvt. Ltd., First Global Finance Pvt. Ltd., Shri. ShankarSharma and Ms. Devina Mehra on January 15, 2003 (vide C. C. no23 A /S/ 2003), for non-compliance to SEBI Summons.

12. 4.117 SEBI has not so far provided conculsiveevidence to substantiate its conclusionsin regard to the brokers/groups mentionedin Section 3 above. Accordingly, theCommittee recommend fur therinvestigations in this regard.

A. First Global GroupSTATUS OF APPEAL NO. 90/2002 –FIRST GLOBAL STOCK BROKING PVTLTD VS. SEBI – PENDING BEFOREHON’BLE SECURITIES APPELLATETRIBUNAL, MUMBAI.

The final order of SAT in this matter waspronounced on 03.12.04. By this order,SAT has set aside the order of SEBI dated12.09.02 cancelling the appellantscertificate of registration, on the groundthat the order was not passed within aperiod of 30 days of receiving the reply tothe show cause notice issued by SEBI asrequired under the then Regulation 29 (3)of SEBI (Stock Broker and sub-broker)Regulations, 1992.

SEBI has decided not to file an appealbefore the Supreme Court against theorder of the SAT.

STATUS OF W.P (LODG) NO. 845 OF2004 – SHANKAR SHARMA ANDANOTHER VS. SEBI – PENDINGBEFORE THE HON’BLE HIGH COURTOF BOMBAY

The matter was heard by Hon’ble


52

B. CSFB Securities: Credit Suisse First Boston (I) SecuritiesPvt. Ltd. (CSFB Securities) had transacted in a big way on behalfof entities connected associated with Ketan Parekh, certain OCBsnamely Wakefield, Brentfield, Kensington, FII sub-account-KallarKahar Investment Ltd., Mackertich Consultancy Services Pvt. Ltd.and also on its own account.SEBI's investigation have concluded that CSFB Securities andCSFB proprietary account aided and abetted Ketan Parekh entitiesin putting fictitious and non-genuine trades with a view to createmisleading appearance of trading. Credit Suisse First Boston alsoaided, assisted and abetted Ketan Parekh entities in creatingartificial volumes and market in certain scrips through circulartrades. Shares were being rotated from one entity belonging toKetan Parekh to other entities belonging to him. There was nochange in beneficial ownership. These transactions were put witha view to induce others to purchase and sell the securities.Based on the findings of investigations, SEBI had issued ordersagainst CSFB asking it not to undertake fresh business as a brokerand enquiry proceedings were initiated against the broker. Enquiryproceedings have been completed against the broker and SEBIhas suspended the certificate of registration of Credit Suisse FirstBoston (I) Securities Pvt Ltd (CSFB Securities) to act as a stockbroker for the period of two years w.e.f. April 18,2001 for aiding,abeting and assisting Ketan Parekh entities in marketmanipulations.C.DKB Securities: SEBI's investigation have concluded thatDresdner Kleinwort Benson Securities (India) Ltd., (DKBSecurities), a foreign brokerage registered with SEBI aided andabetted Ketan Parekh entities in putting fictitious and non-genuinetrades with a view to create misleading appearance of tradingand in creating artificial volumes and market in certain scripsthrough circular trades. Shares were being rotated from one entitybelonging to Ketan Parekh to other entities belonging to him. Therewas no change in beneficial ownership. The transactions wereput with a view to induce others to purchase and sell the securities.SEBI conducted enquiry against DKB Securities and EnquiryOfficer has recommended suspension of certificate of registrationof DKB Securities to act as a stock broker for the period of twoyears. Show cause notice has been issued.

Securities Appellate Tribunal on 11.10.04.During the hearing, the appellant hadraised a preliminary issue viz. that theimpugned order was not passed within thespecified time limit. In view of this, SATdesired to hear and decide the preliminaryissue and thereafter proceed to hear thematter on merits. SAT has passed its finalorder on 3.12.04 setting aside the orderof SEBI dated 12.09.02 cancelling theappellant’s certificate of registration, on theground that the order was not passedwithin a period of 30 days of receiving thereply of the show cause notice issued bySEBI as required under the thenRegulation 29(3) of SEBI (Stock Brokersand Sub Brokers) Regulations, 1992.

The matter came up before the Hon’bleHigh Court of Bombay on 06.05.05 andhas been posted for hearing once theHon’ble High Court reconvenes aftervacation.


53

E. Khemani GroupThe investigation of Khemani Group has revealed the violation ofthe following provisions by Sanjay Khemani and N Khemani:� Section 19 of Securities Contracts (Regulation) Act, 1956� Regulation 4 (b) of SEBI (Prohibition of Fraudulent and Unfair

Trade Practices relating to Securities Market) Regulations,1995

� Rule 4 (b) of SEBI (Stock brokers and Sub-brokers) Rules,1992

� Regulation 7 of SEBI (Stock brokers and Sub-brokers)Regulations, 1992

For the above violations, SEBI vide its Order dated January 21,2003 issued under Section 11 & 11B SEBI Act, 1992 has debarredSanjay Khemani and N. Khemani from associating with securitiesmarket activities and dealing in securities till the completion ofenquiry proceedings against them and the completion ofinvestigation proceedings against Shri Ketan Parekh and someentities associated with him. During the period they are directednot to buy, sell or deal in the securities market directly or indirectly.H. Bang Group of EntitiesIn the light of the findings of investigation and after consideringthe findings of the enquiry officer, in exercise of powers conferredupon under Section 4(3) of SEBI Act, 1992 read with Regulation29 (3) of SEBI (Stock Brokers and Sub Brokers) Regulations,1992 read with Regulation 13 of SEBI (Prohibition of Fraudulentand Unfair Trade Practices Relating to Securities Market)Regulations, 1995 SEBI passed an order dated July 30, 2002cancelling the registration of M/s Nirmal Bang Securities Ltd.(NBS), M/s Bang Equity Broking Pvt. Ltd. (BEB), Bama SecuritiesLtd. (BSL) - all stock brokers registered with SEBI and BangSecurities Pvt. Ltd. (BS), sub brokers registered with SEBI.As reported in December 2003Pursuant to enquiry proceedings initiated against DKB Securities(DKB), an opportunity of hearing before Whole time Member ofSEBI was granted to DKB Securities on 28th July, 2003. Finalorder is being issued.The enquiry has been completed against Sanjay Khemani andN. Khemani. The brokers through their counsel appeared beforethe Chairman, SEBI for a personal hearing on October 20, 2003.


54

During the personal hearing, Chairman granted permission toKhemani group's counsel to make further written submissions.Accordingly, the written submission from the Khemani Group'scounsel has been received and Chairman's final order in thematter is being issued.SEBI investigation into the activities of the R.S. Damani Grouphave been completed. Pursuant to the findings of investigation,enquiry proceedings were initiated against 3 broking entities ofM/s R.S. Damani group, namely, Damani Shares & Stock BrokersPvt. Ltd., Maheshwari Equity Brokers Pvt. Ltd. and Avenue StockBrokers (I) Pvt. Ltd. for alleged violations of the provisions of theSEBI (Stock Brokers and Sub-brokers) Regulations, 1992 andthe SEBI (Prohibition of Fraudulent and Unfair Trade Practicesrelating to Securities Market) Regulations, 1995. The enquiryofficer has submitted his report and the same is underconsideration.SEBI investigation into the activities of the Shailesh Shah Grouphave been completed. Pursuant to the findings of investigation,enquiry proceedings were initiated against 4 broking entities of M/s Shailesh Shah group, namely, Shailesh Shah Securities Ltd.,Dolat Capital Markets Ltd., Pankaj D Shah and Nirpan SecuritiesLtd. for alleged violations of the provisions of the SEBI (StockBrokers and Sub-brokers) Regulations, 1992 and the SEBI(Prohibition of Fraudulent and Unfair Trade Practices relating toSecurities Market) Regulations, 1995. Also, adjudicationproceedings were initiated against M/s Shailesh Shah Group ofcompanies for alleged contravention of Section 15A of the SEBIAct read with the SEBI (Substantial Acquisition of Shares andTakeover) Regulations, 1997. The Enquiry and Adjudication officerhas submitted his report and the same is under consideration.Regarding Nirmal Bang Group, the entities filed an appeal beforethe SAT against SEBI's order. SAT, vide order dated October 31,2003 modified SEBI's order dated July 30, 2002, by reducing thepenalty of cancellation to suspension of registration of M/s NirmalBang Securities Ltd. for two years and in case of Bang EquityBroking Pvt. Ltd. (BEB) and Bama Securities Ltd. (BSL) for threeyears. The order in case of Bang Securities Pvt. Ltd. (BS) hasbeen set aside. SEBI is considering filing of appeal in SupremeCourt against SAT order.


55

As reported in June, 2004The matter of issuing directions against the promoter-directorsof FGSB and Vruddhi Confinvest India Pvt. Ltd, namely, ShriShankar Sharma & Smt. Devina Mehra under the provisions ofthe SEBI Act and the Rules and Regulations made there underhas been approved by the Board and is under progress.C. DKB Securities:Show cause notice has been issued and hearing has been grantedbefore Whole-Time Member, SEBI. Final Order is being issued.E. Khemani GroupEnquiry against Sanjay Khemani and N. Khemani, membersCalcutta Stock Exchange was completed. Based on the EnquiryOfficer's recommendations, Chairman vide Order dated February26, 2004, suspended the registration of Shri Sanjay Khemani fortwo years and N. Khemani, for 14 months.Action against the following 22 brokers has been taken who havedone large scale off-market transaction with three defaulterbrokers and with the Khemani group:

Name of the Suspension SEBI Orderbroker period Date

1. MEHTA & AJMERA & One year 04/03/2004Himanshu Ajmera

2. VIKASH SOMANI SEC P LTD 6 Months 03/03/20043. DEEPAK JHUNJHUNWALA 6 Months 09/02/2004

& CO4. MKM SHARE BROKING (S) P LTD 6 Months 09/02/20045. PRADEEP KAYAN & CO 6 Months 09/02/20046. DINESH KUMAR MODI & CO 6 Months 17/12/20037. S P RAKECHA 6 Months 17/12/20038. SHREE KANT PHUMBHRA & CO 6 Months 17/12/20039. RAMA SECURITIES PVT LTD 6 months 16/12/200310. RENU PODDAR 6 Months 15/12/200311. SANJEEV B PHUMBRA & CO 6 Months 15/12/200312. NAGAR MULL KEJRIWAL 4 months 20/10/200313. KANDOI SECURITIES One year 26/08/2003

PVT LTD14. GAUTAM BAJORIA One year 13/08/200315. SHIVAM STOCK BROKING P LTD One year 13/08/200316. SKC SHARE &ST BR One year 13/08/2003

SER P LTD


56

17. KRISHNA KUMAR DAGA 3 months 12/08/200318. VIJAY KR PATNI 4 months 12/08/200319. PRAKASH CHAND BAID 4 months 29/07/200320. PRAMOD KR DROLIA & CO 4 months 04/07/200321. MATHRAN SECURITIES 4 months 29/05/200322. LOKNATH SARAF Case closed as broker

expired on 01/08/2003.Action against these 22 brokers is, therefore, completed.

As reported in December, 2004A. First Global GroupSTATUS OF APPEAL NO. 90/2002 - FIRST GLOBAL STOCKBROKING PVT. LTD. Vs. SEBI - PENDING BEFORE HON'BLESECURITIES APPELLATE TRIBUNAL, MUMBAI.The order of SEBI dated 12.09.02 was challenged before theHon'ble Securities Appellate Tribunal and the Hon'ble Tribunal videits ad-interim order dated 29.10.02 stayed the operation of thesaid impugned order subject to the condition that the appellantsshall not carry on any business as stock brokers, portfoliomanager and sub broker and the same was extended till the finaldisposal of the appeal by the Tribunal vide its order dated 06.03.03.The appellant had filed a detailed compilation of documents on31.08.04. The said appeal was taken up for hearing on 02.09.04and the counsel for the respondent sought a short adjournmentfor the purpose of perusing the compilation of documents filed bythe appellant, which was opposed by the counsel for the appellant.Finally, the Hon'ble Tribunal was pleased to grant a shortadjournment and posted the matter on 09.09.04 for hearing. On09.09.04, Shri Justice Kumar Rajaratnam, Presiding Officer andShri B. Samal, Member were only present and the other memberShri N.L Lakhanpal was not present. In view of the above, theHon'ble Tribunal observed that the matter be heard by the fullbench. Accordingly, the matter was adjourned to 11.10.04 forhearing. The matter was heard on 11.10.04. During the hearing,the appellant had raised a preliminary issue viz. that the impugnedorder was not passed within the specified time limit. In view ofthis, SAT desired to hear and decide the preliminary issue and

Name of the Suspension SEBI Orderbroker period Date


57

13. 5.62 The question of duality of control engagedthe consideration of the Committee. Thisaspect is covered in detail under thechapter relating to RBI.

As against para 3.21. Action completed.

thereafter proceed to hear the matter on merits. On account ofthis, the matter was adjourned to 19.10.04, when the preliminaryissues were argued and as it remained part heard then, the matterwas fixed for further hearing on 21.10.04. The matter remainedpart heard on 21.10.04. The oral hearing on the preliminary issueof limitation was concluded on 11.11.2004 and the SAT askedboth the parties to file written submissions, which was done bySEBI on 22.11.2004. SAT has reserved its orders in the case.STATUS OF W.P. (LODG) No.845 OF 2004 - SHANKARSHARMA AND ANOTHER Vs. SEBI - PENDING BEFORE THEHON'BLE HIGH COURT OF BOMBAY.A Show Cause Notice dated 09.03.2004 u/s 11B of the SEBI Act,1992 was issued to individuals Shri Shankar Sharma and Smt.Devina Mehra. A writ petition was filed challenging the said ShowCause Notice in the Hon'ble High Court of Bombay. The Hon'bleCourt vide its order dated 27.04.2004 held that SEBI's -Counselviz Shri Goolam Vhanavati's (the Learned Advocate General)statement that SEBI would not proceed further till the matter isdecided by the court would continue till further orders andadjourned the matter to 23.08.2004. However, the matter cameup before Hon'ble High Court on 31.08.2004 and the advocateappearing on behalf of the petitioners sought for an adjournmentas their appeal before the Hon'ble Securities Appellate Tribunalis fixed for final hearing on 02.09.2004. The matter now standsadjourned to 26.11.2004.E. Khemani GroupAction against the following brokers has been taken who haddone large scale off-market transaction with three defaulterbrokers and with Khemani GroupName of Broker SEBI Suspension

Order Date periodAmitabh Sonthalia 21.07.2004 4 Months

As reported in May, 2003As against para 3.21As reported in December, 2003As against para 3.21.As reported in June, 2004With the dissolution of 13th Lok Sabha, the Bill to amend the


58

14. 5.63 The Committee also note the dubious-roleplayed by the auditors who failed to pointout serious irregularities while conductingaudit for the year 1998-99 and 1999-2000.A formal complaint is reported to havebeen lodged in this regard by the RCSGujarat with the Institute of CharteredAccountants of India in March, 2002. Evenin the absence of the calculation of theCD ratio, discrepancy between credit todeposit were evident from the face of therecords.

Banking Regulation Act, 1949 has lapsed. Its reintroduction inthe 14th Lok Sabha is under consideration.As reported in December, 2004As against para 3.21.

As reported in May, 2003Department of Company Affairs have informed that two complaintshave been received by the Institute of Chartered Accountants ofIndia, against auditors, from RCS Gujarat, in the context of the2001 'scam'. The Council of the ICAI has come to the prima facieopinion that a disciplinary inquiry be conducted. Accordingly boththe complaints have been referred to the Disciplinary Committeefor enquiry.As reported in December 2003No change in the status.As reported in June, 2004The hearing in the enquiry instituted against Shri SN Valera andShri Manubhai A Panchal, Chartered Accountants, who were theAuditors of the MMCB for the years 1999-2000 and 1998-1999respectively was started on 25th and 26th March, 2004 atAhmedabad. The Counsel for the complainant requested foradjournment on certain grounds. The Disciplinary Committeeacceded to the request for adjournment and the said matterswere adjourned to be fixed in the beginning of May 2004. Due tounavoidable circumstances, the hearing could not be held in theMonth of May 2004. The hearings are tentatively fixed for themonth of July, 2004.As reported in December, 2004The hearing in the enquiry instituted against Shri SN Valera andShri Manubhai A Panchal, Chartered Accountants, who were theAuditors of the Madhavpura Mercantile Co-operative Bank forthe years 1999-2000 and 1998-1999 respectively has beenconcluded. Decision of the Council is awaited.

ICAI have informed that the CharteredAccountants Act, 1949 and theRegulations framed thereunder prescribethe following procedure to be followed fordealing with/disposing of allegationsagainst any member of the Institute:-

I. Forming prima facie opinion bythe Council of the Institute on theallegation of misconduct.

II. Conduct of detailed enquiry by theDisciplinary Committee of theInstitute (on the basis of primafacie opinion formed, against themember concerned, by theCouncil of the Institute).

III. Consideration of the Report ofenquiry of the DisciplinaryCommittee by the Council of theInstitute and recommendingpunishment to the concernedHigh Court after affordingopportunity to the party(ies)concerned for submission of oraland/or written submission(s).

IV. Consideration of the case by theHon’ble High Court concernedtogetherwith the recommendationof the Council on the respectivecase and the former’s orders ondisposal of the case.


59

(The aforesaid procedure is applicable tomajor offence cases and the procedure issomewhat different for minor offencecases).

The aforementioned stages I and II hadalready been completed in respect ofdisciplinary cases pending against Shri SNValera and Shri Manubhai A Panchal,Chartered Accountants who were thestatutory auditors of MadhavpuraMercantile Cooperative Bank Ltd. for theyears 1998-99 and 1999-2000 and for thepurpose of consideration at Stage III, thematter(s) was/were first brought before theCouncil of the Institute in November, 2004and January, 2005 initially. Thereafter, therespondents moved the Hon’ble HighCourt of Gujarat on 31st January, 2005.Subsequently, they had withdrawn theirrespective case from the cour t andaccordingly reports of the DisciplinaryCommittee on complaints made by theJoint Registrar (Audit), CooperativeSocieties, Gandhinagar against ShriManubhai A. Panchal and Shri S.N. Valera,Chartered Accountants, have beenconsidered by the Council of the Instituteat its meeting held on 23.3.05.

The Council held them guilty ofprofessional misconduct on cer taincharges and on that count, it has decided,in terms of the provisions of the CharteredAccountants Act, 1949 to recommend tothe High Court that the name of therespondent be removed from the Registrarof Member for a period of two years andfive years respectively.


60

15. 5.64 The Committee were informed that acriminal complaint was lodged by the RBIin the cour t of Chief MetropolitanMagistrate, Ahmedabad against theMMCB, its Chairman and ManagingDirector on 14.3.2001 under section 46of the Banking Regulation Act 1949, readwith section 58(B) of the Reserve Bankof India Act, 1934, for having made falsestatements to RBI with respect to callmoney borrowing and also failing to meetits assurance for submitting the requiredinformation. A criminal complaint had alsobeen lodged by the Administrator ofMMCB Ltd. with Madhavpura PoliceStation, Ahmedabad on 21.4.2001. Later,in terms of the order of the High Court ofGujarat, Ahmedabad dated 2.5.2001, CBIhas been directed to investigate thedeeds/misdeeds of the ex-Chairman andManaging Director and other officialsinvolved in the mismanagement of theBank. In pursuance of court orders, thecase was transferred to CBI, Mumbai, andan FIR has been registered with SpecialPolice Establishment, Mumbai Branch on18.5.2001. On 1.6.2001, charge sheet inthe case has been filed againstKetan.V.Parekh, Kar tik.K. Parekh,Ramesh Parekh, Chairman, MMCB,Devendra B. Pandya, Managing Director,MMCB and Jagdish.B.Pandya, BranchManager u/s 120-B,420,467,468 and 471

As reported in May, 2003The criminal complaint lodged by the Administrator of MMCBon 21.4.2001 with Madhavpura Police Station, Ahmedabad, wasregistered as CR No.67 of 2001 and the same has since beentransferred to the CBI, BS&FC, Mumbai in its RC.4(E)/2001-CBI-BS&FC Mumbai on 18.5.2001 vide orders dated 2.5.2001of the High Court of Gujarat, Ahmedabad. The chargesheet filedon 1.6.2001 against Sh. Ketan Parekh and Others relates toRC.3/E/2001-BSFC/MUM registered on 30.3.2001 by CBI BSFCMumbai and the same is pending trial in the Hon'ble Court ofCMM Mumbai as CC No.60/P/2001. The draft charges have beensubmitted by the prosecution to the court. The CBI has appointedan exculsive special counsel to conduct the trial of this caseand all efforts are being made by it with the court to expeditethe trial.As reported in December 2003As against para 5.59As reported in June, 2004In RC.4/E/2001-BSFC/MUM i.e. the MMCB case charge sheethas been filed in the court of CMM Ahemdabad on 1.12.2003.With the permission of the Govt. of India, LRs to Mauritius andUK issued by the Court have been forwarded to the Legal CellMHA on 17.12.2003 for onwards transmission to CompetentAuthorities in these countries. In the light of outcome thereof followup action in the matter would be taken. In RC.3/E/2001-BSFC/MUM i.e. Bank of India case charge-sheet was filed in the courtof CMM Mumbai on 1.6.2001, and the case is still at the stage offraming of charges.As reported in December, 2004In RC.4/E/2001-BSFC/MUM i.e. the MMCB case, the CBI hasinformed that the Assistant Director Interpol has reminded PRO(EXT), MEA, New Delhi on 5.10.2004 to ascertain the presentposition from concerned authorities of Mauritius. As regards the

With the following of above procedure,ICAI’s action in context of this para onStages I,II and III have been fullycompleted with the aforesaid action.Action completed.

CBI has informed that Letter Rogatory(LR) to Mauritius the examination ofwitnesses was to take place on 7.6.2005at Port Louis before His Honour the Masterand Registrar of Supreme Court, PortLouis, Mauritius. Subsequently, theMauritius Authorities through the IndianHigh Commission, vide theircommunication dated 2.6.05 haveintimated that the examination has nowbeen postponed to 21.10.2005. It isproposed to depute Supdt. of Police, CBI,BS&FC, Branch Mumbai to be present atthe time of examination of witnesses.

As regards the Letter Rogatory to the UK,there is no change in the status.


61

queries raised by the UK Serious Fraud Office vide their fax dated16.4.2004 and 31.4.2004 regarding the Letter Rogatory sent toUK, the matter has been examined in CBI. As per the informationavailable with the CBI, the defrauded amounts connected withthis case have been received in the account of M/s AlmelInvestment Ltd., account being maintained with the Nat-WestBank, PLC, London. Interpol Wing of CBI was requested to informthe authorities at UK accordingly and to collect the documentsand examine the witnesses as requested vide Letter Rogatorysince the Hon'ble CMM, Ahmedabad has already given hisauthorization.In RC.3/E/2001-BSFC/MUM i.e. Bank of India case, charge-sheetwas filed in the court of CMM Mumbai on 1.6.2001.

As reported in May, 2003As against para 3.22

As reported in May, 2003Ministry of Agriculture has informed that(a) Immediately after the problem of Madhavpura Mercantile

Cooperative Bank surfaced, the Board of Directors of theBank was superseded and an Administrator was appointed.In order to assist the Administrator, an Advisory Committeeconsisting of the RCS, Gujarat, representatives of GujaratState Urban Cooperative Banks, one Chartered Accountantand representatives of the creditors, consumers andshareholders was constituted. An inquiry under section 69 ofthe old MSCS Act, 1984 was instituted and a snap scrutinyof the bank was conducted by the RBI and based on the RBIreport further action was taken.

(b) A criminal complaint against the then Chairman of the Bank,Sh. Rameshchandra Nandlal Parikh, the Chief Executive ofthe Bank Sh. Devendra Pandya and Branch Manager of theMandavi Branch, Mumbai, Sh. Jagdish Pandya was lodgedwith the Police, Ahmedabad on 21.4.2001 under Section 405,406, 408, 409 and 120B IPC for committing acts of omissions

of IPC. The case is stated to be pendingin the Court of the Chief MetropolitanMegistrate, Mumbai. The Committeedesire that these cases be decidedexpeditiously.

16. 5.66 It will be seen that almost everything wasbeing wrongly done in MMCB and almosteveryone was involved. This casetherefore deserve severest action. TheCommittee recommend the following:

i. The Committee is of the opinion thatin the gross irregularities committed inthe functioning of the MMCB, everyonewas involved. The Committee believethat all those involved must be dealtwith severely and expeditiously. TheCommittee recommend that RBI, StateRegistrar of Co-operative Societiesand Central Registrar of Co-operativeSocieties should fix responsibilities forwrong doings and proceedexpeditiously against all those who arefound involved. Had such misdeeds notbeen committed, the fabric of co-operative Banking system could nothave been affected to this extent.

As against para No.5.63. Actioncompleted.


62

and commission in 19 loan accounts of K.P. Group. Thesecases were subsequently transferred to the CSI by an orderof the Hon'ble High Court of Gujarat.

(c) The then Managing Director of the bank and the BranchManager of the Mandvi Branch who were primarily responsiblefor the debacle have already been dismissed from the service.

(d) 13 more criminal cases were filed in June 2002 and another35 cases on 5-12-2002 against the firms for irregulartransactions which are under investigation by the State Police.

(e) Recovery proceedings with regard to the loans outstandinghave been launched and so far an amount of Rs.142 croreshas been recovered from the defaulters. From Mr. KetanParikh, an amount of Rs. 16 crores has been recovered.For the remaining amount, the civil court at Ahmedabadhas given him a period of 3 years.

f) The Institute of Chartered Accountants of India has alreadybeen requested to take disciplinary action against theChartered Accountants of the bank who failed to point outthe serious irregularities committed by the bank.

As reported in December 2003Government of Gujarat has reported that an amount of Rs. 173.96crores has been recovered from the defaulters of the Bank. TheBank has admitted 801 "Money" suits in various courts worthRs.1498.56 crores and 56 criminal cases are lodged againstdefaulters of the Bank. An enquiry against S/Shri S.N. Valera &Co., Chartered Accountants and M/s Manubhai A. Panchal & Co.,Chartered Accountants, who were the auditors of the MadhavpuraMercantile Cooperative Bank Ltd. for the years 1999-2000 and1998-1999 respectively is under progress and the final hearingin the matter is fixed on 17th/18th January, 2004.So far as RBI's role is concerned, RBI has informed that OneMan Committee under the former MD, NABARD and formerBanking Ombudsman for Madhya Pradesh was appointed to lookinto the involvement, if any, on the part of the officials of the RBIin dealing with the Madhavpura Mercantile Co-op. Bank Ltd.,Ahmedabad.The Committee, after examining the records available in the RBIhas observed that the bizarre misdeeds in the MMCB are a uniquecase of management's own design to defraud the bank. The


63

Committee has observed in its report that the bank's managementhas effectively blocked the way for the Reserve Bank to get anyinsight into the fraudulent activities of the management inconducting the affairs of the bank as under:(i) During the course of the RBI inspection carried out in September-

October 1999 i.e. immediately before the unearthing of thescam, all the advances were for small amounts and groupedunder advances against composite securities or fixed assetsand parked under hypothecation advances, therebyincapacitating the Inspecting Officers from locating theseadvances which are violative of the RBI directives.

(ii) Supplemental sources of information like concurrent audit/internal inspection reports were conspicuous by absence.

(iii) Further, these advances were fraudulently closed by the bankduring the period of the inspection [i.e. September 30 toOctober 20, 1999] only to be re-opened with enhanced limits[much above the RBI stipulated exposure norms] soon afterthe RBI inspection.

The Committee has observed that these actions on the part ofthe bank's management clearly indicated its malafide and criminalintentions. This was clearly evident from the written statementfurnished on March 13, 2001 [i.e. after the scam was discovered]by the bank's CEO to the RBI denying sanction of such advances.Further, the stipulated quarterly statements of advances todirectors have either not been periodically furnished to ReserveBank or were given with undue delay and with incompleteinformation. As the advances to directors also violated theexposure norms of the Reserve Bank, apart from defying thenormal prudence of sound banking, the information relating tothis area has also been concealed, deliberately, from the ReserveBank as pointed out in the inspection reports on the bank by theReserve Bank, from time to time.The Committee has noted that the RBI had advised the bank inAugust 1998 to call back Chairman's group advances in view ofthe very unsatisfactory operations in these accounts and toclassify them as 'NPAs', pending recovery. Despite this instruction,the bank had not only continued to renew the limits to theseconcerns, year-after-year, but also enhanced them, ignoring itsviolation of the exposure norms for granting of such advances,


64

as stipulated by the Reserve Bank. As soon as the scam wasdiscovered, RCS has conducted a "re-audit" of the bank for theyears 1998-99 and 1999-2000, which endorsed all the majorirregularities pointed out by RBI's quick scrutiny of March 2001.The Committee has come to the conclusion that in thecircumstances, particularly in view of the criminal misconduct ofthe bank's own management, RBI's interventions get blurred andin the given frame of its regulatory and supervisory controlsystems it cannot be said that there were any lapses on the partof the RBI or its officers in dealing with the MMCB, facilitating theperpetration of fraud by the bank's management.As reported in June, 2004The hearing in the enquiry instituted against Shri SN Valera andShri Manubhai A Panchal, Chartered Accountants, who were theAuditors of the MMCB for the years 1999-2000 and 1998-1999respectively was started on 25th and 26th March, 2004 atAhmedabad. The Counsel for the complainant requested foradjournment on certain grounds. The Disciplinary Committeeacceded to the request for adjournment and the said matterswere adjourned to be fixed in the beginning of May 2004. Due tounavoidable circumstances, the hearing could not be held in theMonth of May 2004.As reported in December, 2004The Institute of Chartered Accountants of India (ICAI) haveinformed that hearings in the case of Madhavpura MercantileCo-operative Bank (MMCB) Ltd. have been concluded on October25, 2004. The Reports of the Disciplinary Committee will be shortlysent to the parties concerned and thereafter, the matter will beplaced before the Council for consideration of the Reports of theDisciplinary Committee in the said matter. ICAI have further statedthat they shall inform the position as soon as the matters areconsidered by the Council.Govt. of Gujarat have informed that an amount of Rs.195 croreswas recovered out of recoverable advances of Rs.320 crores fromthe defaulters of the bank. The bank has admitted 992 Lawadisuits in the Board of Nominees and Arbitral Tribunal worth Rs.2030crores and 79 criminal cases are lodged against defaulters of thebank with the State Police authorities.


65

As reported in May, 2003As in para 3.21As reported in December, 2004As against para 3.21.As reported in June, 2004With the dissolution of 13th Lok Sabha, the Bill to amend theBanking Regulation Act, 1949 has lapsed. Its reintroduction inthe 14th Lok Sabha is under consideration.As reported in December, 2004As against para 3.21.

As reported in May, 2003The Reserve Bank of India has informed that it is contemplatingto impose a complete ban on loans and advances to the Directorsof the banks and their relatives including the secured loans.As reported in December, 2003In accordance with the announcement made in this regard in theMonetary and Credit Policy 2003-04, instructions have been

ii. The Ministry of Finance must give aserious thought to the problem ofduality of control in the case of co-operative banks which in fact is notonly resulting in cross directivesadversely affecting the working of theco-operative banks but also sincemost of the State Registrars are notexercising proper control andsurveillance over these banks, it isnoticed that the co-operative banksoften flout rules with a sense of totalimpunity without the fear of any kindof accountability. The Committeetherefore are inclined to agree with therecommendations made by the HighPowered Committee and desire thatthe bank-related functions of the co-operative banks should be broughtfully under the purview of BankingRegulation Act, 1949, so as to bring aclear demarcation of areas of activitiesof co-operative banks which will fallunder the domain of RBI vis--a-vis theRegistrar of Co-operative Societies.The legislative proposals submitted bythe RBI to the Ministry of Finance aswell as the proposal regarding settingup a separate apex body for regulatingthe entire urban co-operative sectortherefore, merits early consideration.

iii. In order to prevent irregularities of thetype surfaced in the case of some ofthe co-operative Banks which wereexamined by the Committee they areof the view that full ban on granting ofloans and advances to the directorsand their relatives in concerns in which

As against Para 3.21. Action completed.

With the imposition of complete ban onloans and advances to the directors ofUrban Cooperative Banks, acion on thispart was earlier treated as complete in 1st

Progress Report (December 2003).However, based on the recommendationsof the Reserve Bank of India, it has now


66

issued to UCBs.

As reported in May, 2003Penal provisions for submitting false returns and for non-compliance with RBI instructions are provided in the proposedamendments to the Banking Regulation Act, 1949.As reported in December 2003As against para 3.21As reported in June, 2004With the dissolution of 13th Lok Sabha, the Bill to amend theBanking Regulation Act, 1949 has lapsed. Its reintroduction inthe 14th Lok Sabha is under consideration.As reported in December, 2004As against para 3.21.

As reported in May, 2003Penal provisions for submitting false returns and for non-compliance with RBI instructions are provided in the proposedamendments to the Banking Regulation Act, 1949.As reported in December 2003As against para 3.21.As reported in June, 2004With the dissolution of 13th Lok Sabha, the Bill to amend theBanking Regulation Act, 1949 has lapsed. Its reintroduction in

they are interested needs to beimposed. Appropriate legalprocedures may be initiated to ensurethat there is no conflict of interest inthe grant of loans and advances to thedirectors and their relatives in theconcerns in which they are interested.

iv. The Committee recommend thatstringent laws be put in place to dealwith fraudulent transaction like theones that have come to light in relationto the affairs of MMCB and conductof it Chairman and other seniorfunctionaries. The laws must ensurethat those guilty be brought to bookexpeditiously and disgorge their ill-gotten gains through confiscation ofproper ty and other appropriatemeasures.

v. Penalties under the BankingRegulation Act, 1949 for false return/information must be enhanced toserve as a deterrent.

been decided to relax the ban on sanctionof loans and advances by UrbanCooperative Banks (UCBs) to theirDirectors in the following cases:

a) Regular employee related loansto staff Directors on Board ofUCBs.

b) Normal loans as applicable tomembers to the Directors on theBoard of salary earners’cooperative banks.

c) Normal employee-related loans toManaging Directors of multi-statecooperative banks.

Action completed.




67

the 14th Lok Sabha is under consideration.As reported in December, 2004As against para 3.21.

As reported in May, 2003RBI has reported as follows:-The City Co-operative Bank, a non-scheduled bank based inLucknow was inspected with reference to its position as on March31, 1999, during May-June, 1999. The statutory inspection did notreveal any serious irregularities: the irregularities revealed were ofrectifiable in nature, such as, absence of any loan policy, deficiencyin credit appraisal system, laxity in post- disbursement supervision,unsatisfactory functioning of management and loan committees,lack of effective internal control system and control over branches.These irregularities did not warrant any immediate drastic actionagainst the bank. As per the normal procedure followed, thesedeficiencies were discussed by the inspecting officers with theChairman and the board on the concluding day of the inspectionand the board was asked to take expeditious action to rectify thedeficiencies and submit specific compliance to RBI.Inspection report pointed inter-alia, that the bank had violatedthe Reserve Bank of India guidelines on credit exposure ofindividual exposure norm of 20% of its capital funds and groupexposure norm of 50% of its capital funds in several cases andthe bank had defaulted in maintenance of Cash Reserve Ratio(CRR).The irregularities observed in the bank's functioning wereperpetrated after the statutory inspection of the bank conductedby the RBI during May-June 1999 and indicates a clear case ofnexus of the board with firm/s connected with the directors.2. In the light of the findings of the scrutiny, RBI has taken thefollowing measures:(i) With a view to prevent preferential payment to depositors

and to contain the run, a Directive by RBI under Section 35 Aof the Banking Regulation Act, 1949 (As Applicable toCooperative Societies), was imposed on March 22, 2001directing the bank not to accept fresh deposits or give freshloans and not to repay more than one thousand rupees toany single depositor.

17. 5.109 The Committee regret to note that the CityCooperative Bank flouted all prudentialnorms of the RBI. This became clearduring the investigation conducted by theRBI. The Bank had no investment policy,loan disbursement policy and creditappraisal system. Carrying out aconcurrent audit was also missing. TheBank had opened deposit accounts inrespect of four front companies of thepromoter of M/s Century ConsultantsGroup viz. Shri Anand Krishna Johari whowas also a Director on the Board of theBank. The accounts were opened withoutobserving the usual safeguards such asintroduction, obtaining of Memorandumand Articles of Association etc. The Boardhad vested full powers of investment onShri Anand Krishna Johari and allinvestment decisions were taken by him.The result was that between 5th and 15thMarch, 2001, the Bank's funds to theextent of Rs. 6.50 crore were utilized forinvestments in bonds of Cyber SpaceInfosys-a concern of Shri Johari, contraryto RBI instructions prohibiting equityinvestment in such companies. There wasalso a total absence of any loan policy/committee and all credit decisions toowere taken only by Shri Anand Johari. TheBank had invested funds to the extent ofRs. 15.68 crore in term deposits andreceipts aggregating to Rs. 2.62 crorecould not be produced to RBI forverification during the investigations. It

Shri V.K. Mittal, the then Member, Boardof Revenue, who was appointed as Inves-tigation Officer to look into the laxity ofRegistrar of Cooperative Societies and hisofficers in discharging their duties, haspointed out serious irregularities on thepart of officers of Finance Department andCooperative Department. Besides, CBIhad also recommended action againstcertain Government officials.

Two Senior Auditors and two Distt. AuditOfficer (since retired) have been sus-pended and charge sheets have beenserved. Besides, charge sheet have alsobeen served to Chief Audit Officer and twoDy. Chief Audit Officers. Enquiry Officer(s)have been appointed in all the abovecases.

Government of UP have further informedthat action against the officers of the Co-operative Department would be taken onthe basis of the findings of the enquirybeing conducted by Economic OffencesWing (EOW) of Criminal InvestigationDepartment (CID) of UP Police and it isexpected that the enquiry will be com-pleted within a month.


68

(ii) The Registrar of Cooperative Societies, Uttar Pradesh hadbeen requested on April 03, 2001 to supersede the Board ofManagement of the captioned bank and to appoint anAdministrator for securing proper management by invokingthe provisions of Sub-section (iii) of Section 90 B of the U.P.Co-operative Societies Act, 1965. Accordingly, the Registrarof Cooperative Societies issued an order on April 09, 2001superseding the Board and appointing the District Magistrate,Lucknow as the Administrator of the bank.

iii) In view of the serious irregularities in the functioning of thebank as revealed in the interim report on scrutiny of books ofaccount of the bank, a criminal complaint was filed by theReserve Bank against the Chairman, Directors and ChiefExecutive Officer of the bank in the Court of JudicialMagistrate, Lucknow on April 03, 2001.

(iv) The City Co-operative Bank Ltd., Lucknow, has filed twoCriminal cases with Police Authorities against Shri GorakhNath Srivastava, the ex-Secretary of the bank and ShriAnand Krishna Johari, then Director of the bank, forsiphoning of bank's funds to the tune of Rs.3230.22 lakh(approximately) in the form of fictitious investments andbenami loans.

3. The City Co-operative Bank Ltd. was allotted four centres foropening of branches (no licence was issued for opening thesebranches) on February 27, 2001. This was based on the bank'sfinancial position as on March 31, 2000 and the then prescribedeligibility norms for allotment of centres to UCBs. A scrutiny waslater carried out in March 2001 on media reports concerning arun on the bank. Certain irregularities were detected and thecentres allotted were cancelled on May 09, 2001 well before issueof licences for opening the branches at the allotted centres.4. A scheme of revival of the bank is under consideration of theGovernment of Uttar Pradesh.5. The CBI had registered two cases pertaining to defraudingof City Cooperative Bank to the tune of Rs.28.97 crores and Rs.1.71 crores respectively. The investigation in the first case hasrevealed that out of the total amount of Rs.28.97 crores, anamount of Rs.17.16 crores was transferred to Mumbai andutilised for meeting the pay-in obligations of M/s. Century

was noticed that these were howeverencashed but not accounted for and theproceeds had simply been siphoned off.Similarly, the Bank did not have anydocumentary evidence in respect of alarge amount of investment amounting toRs. 21.40 crore indicating that the moneyhad been misutilised by Shri AnandKrishna Johari. The advances weredisbursed on the orders of the Secretarycum CEO. In addition, advances againstshares in physical form were granted inexcess of the ceiling of Rs. 10 lakh perindividual as prescribed by the RBI whichresulted in turning the entire portfolio tothe tune of Rs. 1.53 crore into NPAs.Furthermore, the Bank had violated RBIdirectives on unsecured advances bysanctioning limits in excess of Rs. 50,000in a number of cases, in blatant violationof the RBI directive on maximum limit inrelation to unsecured advances. Duringthe period January-March, 2001, the Bankhad sanctioned large advances to thetune of Rs. 5.88 crore to 15 borrowerswithout the backing of any tangiblesecurity in blatant violation of RBIdirectives. Astonishingly loans weresanctioned even against blankapplications and without obtainingsignatures on the necessary documents.Advances and funds were released byway of demand draft without ensuring theirend use.


69

Consultants Ltd. and its associate companies and persons withBombay Stock Exchange and National Stock Exchange. Thefunds were also used for trading in shares of Cyberspace InfosysLtd. which was done by the promoters themselves for artificiallyhiking up the price of its shares in the market. Ultimately, whenthe share price of Cyberspace Infosys Ltd. fell down drasticallythe money was lost. An amount of Rs 11.81 crores wastransferred to the accounts of Century Consultants Ltd. andassociate companies and were utilised for meeting variousobligations. Funds defrauded from City Cooperative Bank andinvestors of Century Consultants Ltd. and its group companiesare mixed up and were used as one entity as and when requiredto meet the pay-in obligations to Bombay Stock Exchange andNational Stock Exchange. In order to safeguard the interest ofCity Cooperative Bank and investors of Century ConsultantsLtd. the CBI had requested Securities and Exchange Board ofIndia for freezing the pay outs of 21 parties/persons which wasthe only means to ensure that the funds are not flounderedfurther. The operation of current accounts and depositoryaccounts of Century Consultants Ltd. and associate companieswere also stopped. The field investigation has been completedand is under scrutiny in the CBI for taking a final decision in thematter. The CBI has completed investigation in the casepertaining to defrauding of City Cooperative Bank, Lucknow tothe tune of Rs.1.71 crores and chargesheet has been submittedin the Court of Special Magistrate, CBI, Lucknow. The trial is atthe stage of admission. In this case the CBI had recommendedregular departmental action under major penalty against oneShri K. Srinivasan, officer State Bank of Hyderabad. Accordinglythe bank has initiated major penalty proceedings against him inconsultation with the Central Vigilance Commission.6. RBI has issued instructions making concurrent auditcompulsory for all urban cooperative banks. Instructions havealso been issued requiring urban cooperative banks to designatea compliance officer to ensure compliance with and apprise theprogress of compliance of the inspections reports of the RBI tothe Audit Committee/Board of Directors. The Audit Committee ofurban cooperative banks are also now required to monitorimplementation of RBI guidelines. A summary of important


70

findings of inspection of urban cooperative banks is sent to theconcerned State Government for further action. RBI has alsoissued instructions to urban cooperative banks that deficiencies/irregularities observed during the inspection should be fullyrectified by the banks and a certificate submitted. False certificatewould invite penalties. The Banking Regulation Act is beingamended to give greater powers to Reserve Bank of India fortaking action against Cooperative Banks for non-compliance ofits directives.7. Government of Uttar Pradesh has vide orders dated24.02.2003 set up a high level enquiry by Member, Board ofRevenue to look into the laxity of Registrar of CooperativeSocieties and his officers in discharging their duties regardinginspection of a bank. Law Department of Uttar Pradesh has senta request to the Hon'ble Allahabad High Court for constitution ofspecial court for expeditious disposal of these cases. The matteris under consideration of Hon'ble High Court.As reported in December 2003Chargesheet in RC.19/2001-LKO has been filed by CBI in theCourt on 30.8.2003.A Bill to amend the Banking Regulation Act, 1949 has beenintroduced in the Lok Sabha on 13.8.2003. The Bill has beenreferred to the Standing Committee on Finance.Government of Uttar Pradesh has reported that the enquiry reporthas since been received and action against concerned officershas already been initiated by obtaining their explanation. Thematter regarding constitution of Special Court for expeditiousdisposal of cases is still under consideration of Hon'ble AllahabadHigh Court.As reported in June, 2004Reply from Govt. of Uttar Pradesh is awaited. The last reminderwas sent on 1/6/2004.As reported in December, 2004Govt. of Uttar Pradesh has informed that on the basis of enquiryreport submitted by Shri V.K. Mittal, the then Member, Board ofRevenue who was appointed as Investigation Officer to lookinto the laxity of Registrar of Cooperative Societies and hisofficers in discharging their duties regarding inspection of a bank,adverse entries have been made against Chief Audit Officer,


71

18. 5.110 The Bank had reportedly violated RBIguidelines on credit exposure in respectof the individual exposure norms of 20%of its capital fund and group exposurenorm of 50% of its capital fund in severalcases. The liquidity position of the Bankwas extremely unsatisfactory as thedeposit liability of the Bank as on the dateof scrutiny i.e. 22.3.2001 stood at Rs.65.90 crore against the liquid assets ofRs. 8.14 crore. The Bank had alsocircumvented the CRR guideline as laiddown under Section 18 of the BankingRegulation Act, 1949. It had adopted anovel way of inflating its balances withnotified/eligible Banks in its books ofaccounts by booking fictitious debitentries. The Committee also note thatthere was no system of concurrent auditand the Bank had also violated RBIguidelines on income recognition, assetclassification and provisioning. Thisultimately resulted in systematically

Cooperative Committees and Panchayats, 3 auditors anddisciplinary proceedings have been started against two Dy. ChiefAudit Officers and two District Audit Officers of City Co-op. BankLtd. for not carrying out their duties efficiently. No action can betaken against remaining auditors/officers as they have retiredfrom the service and stipulated period of four years for actionhas already lapsed.Orders to get the investigation done by Economic Offences Wing(EOW) against the officials found guilty for dereliction of duty andperiodical inspection have been issued on 23.7.2004. Progressreport from EOW is awaited.Regarding constitution of Special Courts, Government of UttarPradesh have informed that CBI has filed a charge sheet in theSpecial Court designated for dealing CBI cases, there is no needof constituting Special Courts.

As reported in May, 2003As against para 5.109As reported in December, 2003As against para 5.109As reported in June, 2004Reply from Govt. of Uttar Pradesh is awaited. The last reminderwas sent on 1/6/2004.As reported in December, 2004RBI has issued instructions making concurrent audit compulsoryfor all urban cooperative banks. Instructions have also been issuedrequiring urban cooperative banks to designate a complianceofficer to ensure compliance with and apprise the progress ofcompliance of the inspections reports of the RBI to the AuditCommittee/ Board of Directors. The Audit Committee of urbancooperative banks are also now required to monitorimplementation of RBI guidelines.Govt. of Uttar Pradesh has informed that on the basis of enquiryreport submitted by Shri V.K. Mittal, the then Member, Board ofRevenue who was appointed as Investigation Officer to look intothe laxity of Registrar of Cooperative Societies and his officers indischarging their duties regarding inspection of a bank, adverseentries have been made against Chief Audit Officer, CooperativeCommittees and Panchayats, three auditors and disciplinary

As against para 5.109


72

proceedings have been started against two Dy. Chief Audit Officersand two District Audit Officers of City Co-op. Bank Ltd. for notcarrying out their duties efficiently. No action can be taken againstremaining auditors/officers as they have retired from the serviceand stipulated period of four years for action has already lapsed.Orders to get the investigation done by Economic Offences Wing(EOW) against the officials found guilty for dereliction of duty andperiodical inspection have been issued on 23.7.2004. Progressreport from EOW is awaited.

As reported in May, 2003As against para 5.109As reported in December, 2003As against para 5.109As reported in June, 2004Reply from Govt. of Uttar Pradesh is awaited. The last reminderwas sent on 1/6/2004.As reported in December, 2004As against 5.109.

siphoning off the Bank's funds to the tuneof Rs. 32.30 crore through the companiesof Shri Anand Krishna Johari and turningnegative the net worth of the Bank.

19. 5.111 Neither the State Registrar under whosedirect control the Bank functions nor theRBI which is an apex regulator in thecase of urban cooperative Banks cameto know of the misuse of powers andflagrant violation of regulations/directivesof the RBI until a public outcry and newsin the press. Though under the UPCooperative Societies Act, 1965 widepowers of conducting inspections,enquiry and audit are vested with theRegistrar of the Cooperative Societies,these powers were not exercised tocheck the functioning of the Bank. RBItoo surprisingly issued licences as lateas February, 2001 for opening four morebranches of the Bank, thereby giving animpression that the Bank was functioningwell. In fact even when in the annualinspection report of 1999, the RBI hadclearly indicated some glar ingirregularities and the auditors of the StateCooperative Department for the period1997-2000 had pointed out seriousirregularities, immediate steps were nottaken for rectifying the irregularities. Thisleaves the Committee with theimpression that both the RCS as well asRBI showed laxity in discharging their

As against para No.5.109.


73

duties even prior to March, 2001 whenthe run on the Bank surfaced.

20. 5.112 The Committee were informed that RBIhas filed criminal complaints against theChairman, Secretary-cum-ChiefExecutive Officer and 11 other Directorsin the Court of Chief Judicial Magistrate,Lucknow. In addition two FIRs dated 2ndMay and 18th May, 2001 were alsolodged against the erstwhile DirectorShri Anand Krishna Johari and erstwhileSecretary Shri Gorakh Nath Srivastavafor siphoning off funds from the Bank inthe form of fake investments etc. to thetune of Rs.30 crore approximately. Thesecond FIR related to siphoning offfunds in the form of cheque purchasefor Rs.1.71 crore. These two cases weresubsequently taken over by CBI in July,2001. Whereas in one case CBI has fileda charge sheet, investigations in theother case are not yet over.Departmental proceedings against ShriGorakh N. Srivastava have also beeninitiated.

21. 5.113 In view of the foregoing observations, theCommittee recommend the followingspecific action:-(i) In order to expedite action on the

cr iminal complaints which arepresently pending adjudication in theCourt of the Metropolitan Magistrate,Lucknow, it is recommended thatsuch case be tried by a SpecialCourt.

(ii) UP Government may be asked toinitiate further enquiry against the



CBI investigated the FIRs registered inrespect of City Co-operative Bank Ltd.(CCBL) scam. After investigation by CBIon the basis of information available onsectional level, a charge sheet was filedbefore Special Judicial Magistrate, CBICourt, Lucknow. The matter is subjudice.Former Secretary of CCBL, ShriGorakhanth Srivastva has since expired.Action completed.

Regarding constitution of Special Courts,Govt. of UP have informed that CBI hasfiled a charge sheet in the Special Courtdesignated for dealing CBI cases, thereis no need of constituting Special Courts.

A depar tmental enquiry was alsoconducted under section 65 of UP Co-operative Society Act 1965 for theirregularities in bank. And after the enquiry,a surcharge order for the value of Rs.


74

concerned State Registrars for notbeing vigilant and excercisingsupervision on the working of theBank even when the UP CooperativeSocieties Act, 1965 empowers theRegistrar to hold an enquiry into theworking of the co-operative society,carry out inspection on his own andeven supersede the Committee ofManagement in case it is found thatany act is committed which isprejudicial to the interest of the societyor its members or otherwise if thesociety is not functioning properly.This sohld be done expeditiously.

(iii) CBI must complete the investigationsexpeditiously in the case wherein FIRhas been filed for siphoning off fundsin the form of cheque purchase for Rs.1.71 crore.

(iv) RBI must introduce a system wherebythe irregularities pointed out in theannual inspection Reports areremoved by the Banks andcompliance report is submitted withina period of six months from the dateof inspection.

(v) Strict penal provisions be incorporatedin the Banking Regulation Act, 1949for non-compliance of the directives/guidelines issued by the RBI from timeto time and in case of default, strictdisciplinary action should be initiatedagainst the erring officials.

(vi) As an apex body, though it is notpossible for RBI to monitor each andevery transaction, it is essential thatconcurrent audit is conducted in theBanks on a regular basis. The

30,14,45,235.00 was passed against ShriAnand Krishan Johri vide Distt. AssistantRegistrar, Lucknow’s order No. 2873/co-op. dated 29.1.05 under section 68(2) ofthe Act. Out of the total 283 debtormembers of the bank, a sum of Rs. 3.86crore has been recovered, from 45members.

Information relating to enquiry against theconcerned State Registrar has been givenin reply to para No.5.109.


75

Reserve Bank of India may considermaking this mandatory.

(vii) Investigation must be conducted tounearth where the siphoned money(Rs. 32.30 Crore) has been deployed.Expeditious action is needed torecover the money.

22. 5.159 In view of the foregoing the Committeerecommend the following:-

(i) Action for recovery of the outstandingadvances which have been divertedand the other advances which havenow been categorized as NPAs beexpedited.

(ii) In case there is any dereliction of dutyon the part of the Bank Auditors, thesame may be referred to the Instituteof Chartered Accountants of India forfurther enquiry and appropriate action.

(iii) Even though there were no breach ofregulations, it was observed thatcertain loans were sanctioned withoutcomprehensive evaluation andtherefore, the bank must ensure thatproper credit appraisal and monitoringsystem is in place.

(iv) The procedural working of the banksmust be strengthened and the RBImust ensure that the rectification, ifany, takes place in a time-boundmanner.

As reported in May, 2003

(i) Global Trust Bank (GTB) has reported that they are initiatinglegal action in respect of all Ketan Parekh related NPAaccounts. As regards recovery in other NPA accounts, thebank has reported recovery of Rs.5.98 crores and Rs.9crores during January 2003 and February 2003,respectively.

(ii) As regards any dereliction of duty on the part of the BankAuditors, the matter has already been brought to the noticeof Institute of Chartered Accountants of India (ICAI) by RBI.

(iii) The bank has been directed by RBI to take correctiveaction.

(iv) RBI has issued Instructions to its regional offices on29.05.2002 to streamline and strengthen the system of follow-up action on the findings of Annual Financial Inspection ofbanks in a time bound manner. Details have given in reply toPara No.10.8.

(v) In order to review the capital market exposure of banks in auniform and consistent manner, the Reserve Bank of India isobtaining monthly reports on capital market exposure fromall banks.

As reported in December 2003Follow up action is in progress.

(i) All the concerned banks havefiled cases in DRT, Mumbaiagainst the companies concernedand their guarantors etc. As thenumber of cases pending againstcompanies of Ketan ParekhGroup is numerous, theproceedings in the DRT are slow.The process of recovery will takeits own legal course.

(ii) ICAI have informed that they havecalled the comments/explanations of the auditorsconcerned on 25.2.2005. Theconcerned statutory auditors forthe years 2001-02 and 2002-03have sent in their respectiveresponses dated 20th May, 2005which have been received by ICAIon 24th May, 2005.

The auditors have categorically stated in

their aforesaid responses that since the

RBI has neither provided the relevant

Annual Financial Inspection(s) and the


76

(v) In the immediate aftermath of the

Stock Market crash, RBI focused on

one new private bank although other

private banks also had large exposure

to the capital market including some

who had exceeded RBI limits. Now

that substantial information is available

about all the banks concerned, the

Committee recommend RBI

undertake a thorough review and

process matters relating to all

concerned in a uniform and consistent

manner.

As reported in June, 2004

RBI is following up the recovery of the amounts on a continuous

basis.

As reported in December, 2004

Bank of India - Recovered Rs. 17.62 lakh during the period and

the balance outstanding was Rs. 121.43 crore as on June 30,

2004. The bank is going ahead with compromise settlement in

respect of Ketan Parekh group entities with the approval of the

Government of India.

Global Trust Bank Ltd. - Classified the accounts as NPAs has

made 100% provision for the total exposure and filed criminal

cases as well as cases with DRTs against parties.

ICICI Bank Ltd. - Recalled the loan in one account and suit is

being filed.

Centurion Bank Ltd. - Has fully written off the outstanding

balance in accounts relating to Ketan Parekh entities and has

also initiated legal proceedings in DRT-II.

Bank of Punjab Ltd. - Has filed recovery suits in DRT and issued

notice under SARFAESI Act, 2002 for taking possession of

property mortgaged.

Ratnakar Bank Ltd. - Loan against fixed deposit has since been

fully adjusted.

The above banks have been advised by RBI to take effective

steps to recover the entire amount from the Ketan Parekh entities

expeditiously.

basis/parameters adopted by the special

auditors and has also restrained the ICAI

from parting with the Special Audit Report

for perusal/examination by the statutory

auditors for the year 2001-02, they are not

in a position to offer any view/explanation

thereon. They had expressed their inability

to offer their comments/explanation, in the

absence of the relevant data/information/

details. They have, however, added that

they have conducted the respective audits

in accordance with the generally accepted

accounting and auditing practices (GAAP)

and the various pronouncements and

accordingly requested the Institute to close

the matter.

Further examination of the matter is in

process at ICAI.


77

23. 5.174 The Committee take a serious note thatthe Bank of India did not follow laid downrules, procedures and norms. TheCommittee specifically note that the Bankof India :(a) delegated unlimited power to the

Branch Managers/officials of theBank in respect of discounting thepay orders without weighing eitherthe financial standings/status of thecounter party Bank or the trackrecord of the client. While observingthis, it is recognized that though thedelegated powers stood the test oftime over a period of about 15 years,the Bank could have revised thisand that the Reserve Bank of Indiacould not detect the unlimitedpowers so given by the bank, duringthe Annual Financial Inspectionsconducted by it for so many yearsand further that the Board of theBank which included representativesof Government and RBI hadapproved these delegations;

(b) did not prescribe any system ofreporting these transactions by theBranch to the controlling officethrough an omission with the resultthat the latter remained totallyoblivious of what transpired downbelow;

(c) despite detailed instructions issuedby the RBI, the Bank haddiscontinued concurrent audit of itsMumbai Stock Exchange Branchafter October, 2000 and the samewas not re-introduced till June, 2001;

As reported in May, 2003Bank of India has reported that at the time when the scam cameto light, Branch Managers had full powers to discount/ purchasepay orders issued by Scheduled Commercial Banks. The powerswere originally granted in 1986 and the Delegation of Powerswas being reviewed by the Bank from time to time and the fullpowers to Branch Officials to discount/ purchase pay orders ofScheduled Banks were retained as it had stood the test of time.However, in the light of Madavpura scam, the Bank has takenthe following precautionary measures:

- Discounting of instruments issued by Co-operative Bankshas been stopped.

- The full powers for discounting of pay orders of ScheduledBanks (other than Co-operative Banks) is now restricted toSenior Officials of the rank of Zonal Managers and aboveonly.

- Exposure limit on Indian Banks in Public Sector and PrivateSector have been fixed.

- Exposure Caps to the Capital Market has been fixed.- Delegation of powers pertaining to Stock Exchange Branch

was revised. The lending powers of the various delegateshave been curtailed.

- Bank of India has put in place a system of reporting oftransactions including reporting of bills/cheques purchasedon casual basis within delegated authority of the branchbeyond a certain monetary level.

- Bank of India has confirmed that they have restarted theconcurrent audit system in the sensitive areas of itsoperations including its Mumbai Stock Exchange Branch.Bank has reported that due to acute shortage of officerscreated in Bombay South Zone, concurrent auditors werenot posted in many branches including Stock ExchangeBranch. Concurrent Auditor was posted in the StockExchange Branch in June 2001 and Audit Committee ofBoard of Directors has directed that any disruption in theconcurrent audit of the branch is required to be reportedto the Audit Committee of the Board and all Zonal Managershave been advised to ensure that no disruption of audittake place.

No change in status.


78

(d) no regular audit of the branch tookplace after November, 1999;

(e) no effort was made to exercisecontrol and to put the r iskmanagement measures in placeand guidelines issued by the RBI onthe subject were flouted withimpunity. While observing this, it isrecognized that Bank of India hadin place r isk managementmeasures comparable to other peerbanks in the industry and that it didnot have a counter-party bankexposure limit for discounting of payorders, just as many other peerbanks;

(f) although the Mumbai StockExchange branch was handlinglarge volumes of business, mostlysensitive in nature being related tocapital market transactions, anofficer (Shri U.H. Somaiya) with atainted record was posted as AGMin this branch during November,2000 who in turn allowed large scalediscounting of high value pay-ordersissued particularly in favour of KetanParekh group of companies byMMCBL and ultimately this resultedin a big pecuniary loss to the Bankto the tune of Rs. 129.66 crore ason 25.7.2001. The fact that whilediscounting a large number of payorders, he even did not think itprudent to heed the advice tenderedby the Accountant of the branch andalso ignored the reports appearingat the point of time, in differentnewspapers regarding the financial

Consequent to November 1999 the Stock Exchange Branch wassubject to various audits like Statutory Audit, RBI Audit,Concurrent Audit, Internal Audit, Revenue Audit, System Auditduring the period from 31st March 2000 to 12.01.2001. Similaraudits were also conducted for the subsequent period.Bank of India has reported that it has Credit Risk ManagementDepartment to look after credit risks and operation risks andmarket risks are taken care of by the Asset Liability Committeeunder the Treasury Department. Risk management systems arebeing periodically reviewed by the bank based on experiencegained from time to time. The risk management measures asper guidelines issued by RBI have been put in place.Bank of India had filed a complaint with Central Bureau ofInvestigation, which filed a charge sheet against Ketan Parekhand others. Bank of India had suspended two officers viz. ShriU.H. Somaiya, Assistant General Manager, Mumbai StockExchange Branch and Shri A.D. Suvarna, the dealing Officer.Suspension of Shri Suvarna has since been lifted. Departmentalenquiry proceedings against Shri Somaiya has commenced andpreliminary hearing was completed in August 2002. Regularhearing is in progress. The bank also initiated legal action byfiling recovery suit with the DRT, Mumbai against the accountholder companies as also the Madhavpura Mercantile Co-op.Bank Ltd. (MMCBL). The bank has also put in place a system ofselection of officers in sensitive post after obtaining prior vigilanceclearance. The bank had also examined the role of the ZonalManager in consultation with the Central Vigilance Commission.The aspect of reported failure to appoint concurrent auditors wasdue to shortage of officers in the Zone consequent to VoluntaryRetirement Scheme was also reported to the Central VigilanceCommission. The Commission after considering all aspects hasadvised the bank in February 2002 that it would not pursue theaccountability of the controlling authority.Bank of India has since been given ‘No Objection’ by theGovernment for going ahead with a compromise settlement inrespect of Ketan Parekh Group of companies. The Governmenthas directed the bank to include a clause in the compromiseagreement mentioning that the agreement is without prejudiceto the criminal case against Ketan Parekh. Accordingly, Ketan


79

problems being faced by Shri KetanParekh, puts his role undersuspicion. While observing this, it isrecognised that the punishmentgiven to Shri U.H. Somaiya for lapsecommitted by him earlier in the Bankwas a minor one and that it did notbar him in being considered for thepost of AGM of the Stock ExchangeBranch as per internal rules of theBank and the Bank had posted himas AGM of the Branch having regardto his exposure as ManagingDirector of Bank of IndiaShareholding Corporation. In thisconnection, it should be necessaryto carry out further inquiry regardingfinancial benefits reaped by ShriU.H. Somaiya, his present wealthand the mode of acquisition.

(g) The Committee is unhappy that themanagement did not care to hold allthose responsible who were at thehelm of affairs and were moreresponsible to ensure that the Bankfunctioned on prudent businessprinciples and directions of the apexbank are followed stringently. Noaction, for instance, was takenagainst the Zonal Manager for hisfailure to alert the Head Office.Concurrent auditor was also notappointed for months together. Forthis lapse there is a case forproceeding against the ZonalManager.

Parekh is being advised by the bank, the terms of compromiseapproved by its Board and necessary consent terms will be filedin the court as per the terms of approval.Reserve Bank of India (RBI) has reported that in regard todelegation of powers, banks’ Boards have been provided withfreedom to take a decision on the extent of the delegations givento its various functionaries. RBI does not interfere when thesystem of delegation of powers authorised by the Board istransparent and adequate internal control measures are in placeto check the exercise of powers within delegated limits. Pay Ordersare expected to be issued against value received and there isgenerally no restriction on discounting the pay orders of otherbanks after taking proper safeguards on assessment ofcounterparty risk. The dishonour of the payment in the case ofMMCB is an individual deviation and restriction on discountingpay orders could affect the sanctity of such instruments.RBI has also reported that as far as technology up-gradation isconcerned, the requirement relates to the setting up of adequateinfrastructure at branches of banks. This would be achieved bymeans of computerization of the branches and connectivity ofthese branches to the controlling offices of banks, which wouldensure flow of data as part of the Risk Management Systems ofbanks. In respect of computerization and connectivity of publicsector banks, the status position is being monitored biannually.Electronic Funds Transfer (EFT) has already been introducedand covers 8500 branches of banks across 15 centres wherethe Reserve Bank manages the Clearing houses. CentralisedFunds Management System (CSMS) and NDS have been madeoperational while Real Time Gross Settlement System (RTGS)is expected to be implemented by the third quarter of 2003.Reforms in the payment and settlement systems – which hasbeen an area of high priority for the Reserve Bank is based onthe objective of creation of an efficient, safe and secure nationalpayment system. Further, as additional measures aimed atachieving this objective, a three pronged approach ofConsolidation, Development and Integration is being followed bythe Reserve Bank, viz., introduction of National EFT – to facilitateany branch of a bank to transmit EFT messages in a safe andsecure manner, introduction of National Settlement System for


80

clearing operation – in respect of settlements arrived at differentclearing houses, and providing a comprehensive legal base ofpayment and settlement systems in the form of a Payment andSettlement Systems Act, including EFT Regulations.As reported in December 2003Recovery suits filed in DRT, Mumbai against Ketan Parekh groupof companies and Madhavpura Mercantile Co-operative BankLtd. are in progress.System of selection of officers in sensitive posts after obtainingprior vigilance clearance, is being followed by the bank.The compromise proposal as approved by the Government wasconveyed to the advocates of Shri Ketan Parekh by the Bank. Ameeting was arranged with the advocates of Ketan Parekh on1.7.2003 when they have submitted certain changes in the termsconveyed by the Bank. The Board in its meeting held on 25.9.2003approved the modifications.In compliance of JPC recommendation, PE.BAI. 2003.A.0002was registered with ACB/ CBI/Mumbai. Enquiries did not revealthat Shri U.H. Somaiya’s assets are disproportionate to his knownsources of income. Accordingly the PE has been closed.However, Sh. Somaiya is facing departmental action for majorpenalty in respect of serious irregularities committed indiscounting pay orders issued by MMCBL, Mandvi Branch infavour of Ketan Parekh Group of Companies. Regular hearingagainst him has commenced from 16.7.03.As reported in June, 2004Bank of India has informed as below:Regular hearing against Shri U.H. Somaiya concluded on14.11.2003. Enquiry Report was received from CDI on 7.2.2004by Disciplinary Authority. A copy of findings was furnished to ShriSomaiya seeking his representation on enquiry findings. ShriSomaiya has submitted his representation and the matter is underconsideration of the Disciplinary Authority.CBI after enquiry regarding acquisition of wealth and mode ofacquisition by Shri Somaiya did not reveal that Shri U.S. Somaiyahas any assets which are disproportionate to his known sourcesof income and as he is already facing a departmental action formajor penalty, the Competent Authority in CBI after due evaluationof evidence has approved closure of the case.


81

The compromise proposal as approved by the Government wasconveyed to the advocates of Shri Ketan Parekh by the Bank. ShriKetan Parekh requested certain modification in the terms ofapproval. The Board in its meeting held on 25.9.2003 approvedthe modification in the terms of compromise proposal.Subsequently, Shri Ketan Parekh requested further modificationsin the terms of approval. Accordingly, at the meeting of Bank’sBoard of Directors held on 9.3.2004, approval was accorded formodification in terms of compromise proposal.After filing suit in the accounts, Bank has so far recoveredaggregate sum of Rs.21.60 crores, out of which amount of Rs.8.05crores is appropriated towards ledger outstanding, and amountof Rs.13.55 crores is deposited with Prothonotary & SeniorMaster, High Court, Mumbai as per Court Order. The presentbook outstanding in the account is Rs.121.61 crores.It has been informed by RBI that they have commencedimplementation of a RTGS system in a phased manner. As afirst stage, a demonstrable version of the RTGS system wasimplemented in June 2003, and hands-on practice was given tothe officials of 104 banks. The RTGS system has gone live from26th March, 2004.

As reported in December, 2004Bank of India has informed that departmental enquiry againstShri U.H. Somaiya has concluded with imposition of a majorpenalty on him.Shri Ketan Parekh has not agreed for inclusion of the clause inthe compromise agreement “without prejudice to criminal caseagainst him and other accused persons”. Bank’s advocates haveopined that legally it is not necessary to retain the clause in theconsent terms as such proceedings are separately prosecutedby CBI authorities and will not have any bearing regarding bank’sdues payable under the consent terms. The matter is under theconsideration of Bank of India in consultation with theGovernment.The Bank of India has so far recovered aggregate sum ofRs.21.78 crores. The present book outstanding in the account isRs.121.43 crores.


82

24. 5.175 The Committee note that though assubsequent corrective measures theBank has now stopped discountingpay-orders of any cooperative bank andhave fixed counter-party limits/prudentiallimits for different categories of personsin the case of demand drafts, the majorproblem of overcoming the settlement riskwhich is reported to be the main causebehind this huge loss still remains to beaddressed to by Reserve Bank of Indiaand the Indian Bankers’ Association. TheCommittee, therefore, recommend thefollowing action:--(a) Technology be improved with a view

to ensuring that counter-party riskgets minimized through theintroduction of real time grosssettlement system, so that thewhole payment and settlementsystem gets integrated. With a viewto ensuring that such failures do nottake place in future this must beaccorded top priority;

(b) Disciplinary action be taken againstall those who were supposed toexercise due diligence in thedischarge of their duties and havefailed to do so. Investigations bemade to find out if Shri Somaiya orany other official of the Bank hadcolluded with Shri Ketan Parekh andin case it is proved, criminalproceedings be launched against allthose who are responsible forcausing wrongful loss to the Bank;

(c) Efforts for recovering the balanceamount of Rs. 129.66 crore bespeeded up.


As reported in December 2003As against para 5.174

As reported in June, 2004The position has been explained in detail in reply to para 5.174

As reported in December, 2004As against para 5.174.

As against para 5.174.


83

25. 5.197 The Committee note that though criminalproceedings have been filed against theex-Chairman who has since beendismissed, but no such action has beentaken either against the Directors oragainst the Senior Manager of theInvestment Cell who is reported to beabsconding. The Committee recommend:(a) Appropriate action should be

initiated against Directors andsenior manager of the InvestmentCell for having committed a breachof trust and causing wrongful lossto the Bank.

(b) Expeditious action be taken torecover the balance amount of lossto the tune of Rs. 21.10 crorecaused to the Bank, from Shri R.K.

As reported in May, 2003The Reserve Bank of India has taken the following action in the matter:

(a) Criminal case of breach of trust and cheating have beenfiled at Kozhikode against the Ex-Chairman of NedungadiBank and the three broker firms engaged by the bank. TheCourt has since framed charges against the Ex-Chairman.

(b) The bank has applied to the Mumbai Stock Exchange forarbitration proceedings against the Broker Director forrecovery of the loss to the bank to the tune of Rs.21.10crores. The Senior Manager of the bank responsible forthe irregularities was dismissed from service after duedisciplinary process.

(c) Punjab National Bank, which has taken over the NedungadiBank has been advised to recover from the brokers thesum of Rs.8.72 crore due on account of delayed paymentof sale proceeds.

SEBI has informed that investigations have been completed andthe following actions have been initiated:-

1. Enquiry proceedings initiated against the brokersfor the above violations of SEBI Circulars, SEBI(Stock Brokers and Sub-broker) Regulations andSEBI ( FUTP ) Regulations.

2. Also, keeping in view of the serious nature ofviolations, show cause why action under Regulation11 and 12 of SEBI FUTP (Prohibition of Fraudulentand Unfair Trade Practices in the Securities Market)Regulations read with Sec 11 B of SEBI Act forprohibiting them and their directors namely ShrikantG Mantri, Sushil Mantri and Rajendra KumarBanthia in dealing in the Securities market directlyor indirectly have been issued.

3. Prosecution proceedings have been launchedagainst the three broking entities and the directorsunder Section 24 of the SEBI Act. Case Nos. 136,137 and 138/S/2003 in the Court of AdditionalChief Metropolitan Magistrate, 8th Court, Esplanade,Mumbai on 31/03/2003.

Brokers M/sShrikant GMantri, FirstC u s t o d i a nFund (India)Ltd.,Harvest DealSecu r i t i e sLtd.

Entities Actions initiated

RBI has informed that the Appeal Benchof Arbitrations of the Stock Exchange,Mumbai (BSE) vide its order dated 16th

July, 2004 had dismissed the appeal ofPunjab National Bank and upheld/confirmed the original award dismissingthe claim of the bank. The bank haschallenged the Award of the Appeal Benchof Arbitrations of BSE by filing petition inthe Hon’ble High Court on 5th October,2004 which has been admitted by theHon’ble High Court.

In view of the recommendations of RBI thatthe bank has already initiated legalproceedings against the brokers and theprocess of recovery will take its own legalcourse, action on this para is treated ascomplete.


84

Banthia, broker-Director, ShriSrikant G. Mantri, broker and ShriH. Ganesh, Senior Manager of theInvestment Cell, pending finaldisposal of their case.

(c) An amount of Rs. 8.72 crore asinterest due on account of delayedpayment of sale proceeds shouldalso be recovered from the brokersShri R.K. Banthia and Shri SrikantG. Mantri.

(d) The SEBI should expeditiouslycomplete their investigations inrespect of the brokers Shri R.K.Banthia and Shri Srikant G. Mantriand take appropriate action.

As reported December 2003SEBI has initiated following actions:

1. Enquiry proceedings initiated against the brokers namely,M/s Shrikant G. Mantri, First Custodian Fund (India) Ltd.and Harvest Deal Securities Ltd. under SEBI (Procedurefor Holding Enquiry by Enquiry Officer and ImposingPenalty) Regulations and the same are under progress.

2. The Chairman, SEBI has passed Interim Orders undersection 11(4) of the SEBI Act, 1992 on 14.07.2003 againstthe brokers, Harvest Deal Securities Ltd., First CustodianFund (India) Ltd. and M/s Shrikant G. Mantri and theirdirectors, directing them not to deal in securities in anymanner till further orders. Keeping in view the seriousnature of violations and in the interests of the investors,pending completion of enquiry, show cause notices wereissued against M/s Shrikant G. Mantri, First Custodian Fund(India) Ltd. and Harvest Deal Securities Ltd. underRegulation 11 and 12 of SEBI FUTP (Prohibition ofFraudulent and Unfair Trade Practices in the SecuritiesMarkets) Regulations read with Sec 11 B of SEBI Actprohibiting them and their directors from dealing in thesecurities market directly or indirectly. The parties werealso personally heard. Orders have subsequently beenpassed. All these broking entities appealed against theSEBI Chairman’s order before the Securities AppellateTribunal (SAT) for interim relief; however, the same wasdismissed by the SAT.

3. Prosecution proceedings have been launched against thethree brokers and the directors under Section 24 of theSEBI Act vide case No. 136, 137 and 138/S/2003 in thecourt of Additional Chief Metropolitan Magistrate, 8th Court,Esplanade, Mumbai on March 31, 2003.

As reported in June, 2004In addition to what has been mentioned against para 5.174, showcause notices were issued by SEBI to the individual directors ofthe three broking entities. The individuals were personally heardand the final orders are in the process of being passed.As reported in December, 2004RBI has informed that the Pubjab National Bank, which has taken


85

26. 6.94 The Committee find that the paymentproblem in CSE in March, 2001 wasprimarily due to high concentration in afew scrips by a few brokers and a generalfailure of the Exchange in terms ofsurveillance and risk management. Thesein turn owed their existence to theweaknesses in the system due to conflictof interest in the case of broker Directors.The total pay-in default of Rs.120 croreduring the crisis was met by utilising theSettlement Guarantee Fund and fromother resources of the Exchange. This isstated to have impacted the reserves ofthe Exchange to the tune of Rs.11 crore.

over the Nedungadi Bank Ltd. has been advised to recover fromthe brokers the sum of Rs. 8.72 crore due on account of interestfor delayed payment of sale proceeds. The bank has included anamount of Rs. 7.54 crore, in the total amount of arbitration andfiled a suit in Mumbai to recover the balance amount.The claim of the bank (as an applicant in the arbitration) wasdismissed by the Stock Exchange, vide its Award dated 27.4.2004.Pursuant to the above, the bank has filed an appeal before theMumbai Stock Exchange, Appeal Bench on May 11, 2004. Theappeal was heard on June 22, 2004 and the order is yet to begiven.Final orders have been passed on 5.3.04 after the enquiryproceedings against the brokers viz. Shrikant G. Mantri, FirstCustodian Fund (India) Ltd. and Harvest Deal Securities Ltd.,suspending their certificates or registration for 12 months w.e.f.14.07.2003. The individual directors of these entities werepersonally heard and final orders have been passed on24.6.2004 debarring them from dealing in securities for 12months w.e.f. 14.07.03.

As reported in May, 2003SEBI has informed that it was the then policy of SEBI to follow upthe compliance with the findings of the inspection and rectificationthrough off site reporting requirement. The compliance of previousyear’s inspection was checked in the subsequent year’s inspectionof the stock exchange. This was the policy and practice thenfollowed by SEBI in respect of all stock exchanges.The collection of margin compliance with exposure limit etc. wasa normal surveillance function of any stock exchange, for whichthe stock exchanges were supposed to have set up an accuratesystem for surveillance function. During a special inspection ofCSE conducted by SEBI in May 2001, the problem related toexposure limit and collection of margins were detected. Thisinspection was not the normal inspection to look into the routineaspects such as Rules, Regulations, Circulars etc. but also the

Kolkatta Police have informed that furtherinvestigation is being conducted with thehelp of SEBI, ROC, Stock Exchange andother regulatory bodies regarding softwareerror and role played by the accusedbroker directors who were aware of sucherror.


86

Although SEBI has claimed that allinvestors got their due amount orsecurities on time and that there was nopossibility of any adverse impact in realterms on other Stock Exchanges or theoverall Stock Market, the Committee notethat the payment crisis did affect marketsentiment all over the country. As isevident from the succeeding paragraphsof this section, there has been obviouslaxity in surveillance and gross violationof exposure controls and riskmanagement measures. Payment crisisin CSE was not an isolated incident. Itmust be viewed from the overallmanipulations of stock markets in Indiaby various players of which Calcuttabrokers became surrogates. Theseplayers included key brokers, corporatehouses behind the brokers and brokerdirectors of CSE. The payment crisis inCSE is due to wilful inaction of CSE andSEBI and involvement of banks.

surveillance system of CSE. This inspection, therefore, detectedthe deficiency in the exposure limit, the inaccuracy in thecalculation of margin, the algorithm in the system of margincollection and exposure limit.In case of CSE, these systems of surveillance were provided byCMC Limited, then Public Sector Undertaking which had alsosupplied software to Bombay Stock Exchange and other stockexchanges. It was expected that the system would have thecorrect algorithm to calculate margin, exposure limit and otherrisk management requirements. These were the basicrequirements which were to be ensured by the stock exchangewhile accepting the software. SEBI’s annual inspection of stockexchanges looked at whether the margin provided / calculatedby the system and the exposure limit were collected / maintainedby the stock exchange and accordingly the actions are beingtaken by the stock exchanges for non compliance . Such actionwould include penalty, switching off terminals etc.CSE had indicated that they had collected margin of Rs. 594crore to Rs. 656 crore during January / February 2001. Besides,CSE has also reported that between April 01, 2000 to March 31,2001, on 3607 occasions terminals of the brokers weredeactivated due to violation of intra day trading limits / exposurelimit, non payments of margins and other violations. Similarly,CSE had in the said period also imposed fines on 618 occasionson the members for non payment of pay-in / margins on due dates.When SEBI had detected in its own special inspection reportwhere cases of the terminals were not switched off, SEBI hadtaken action by calling explanation of Executive Director for nondeactivation of the terminals of the members in case of instancesof delay in collection of margin observed. It may also be mentionedthat after considering the SEBI’s special inspection report andthe comments of the Executive Director on the lapses anddeficiencies (including non-deactivation of trading terminals fornon-payment of margins on time) pointed out in the report, the


87

Board of CSE in its meeting held on August 11, 2001 decided toterminate the contract of the Executive Director of CSE withimmediate effect.SEBI thereafter asked CSE to conduct system audit. Other stockexchanges such as BSE, NSE, DSE, UPSE and ASE have alsobeen advised to conduct systems audit. CSE appointed Ernstand Young to conduct the audit of the systems of the exchange.The systems audit carried out by Ernst and Young pointed outseveral deficiencies in the trading system of the exchange.The findings of the system audit have been communicated byCSE to M/s. CMC Limited. Further M/s. CMC Limited has beenadvised by SEBI to conduct a formal enquiry in their organizationand fix responsibility for serious lapses. CMC has also beenadvised to confirm rectification of deficiencies pointed out in thesystem audit report has been completed.It may also be mentioned that CSE has initiated criminal andcivil proceedings (at the instance of SEBI) against the concernedbrokers of Singhania Group, Biyani Group and Poddar Group.Further, as advised by SEBI, CSE has also filed FIR againstSinghania Group, Biyani Group and Poddar Group of brokerswith Kolkata Police Authorities (Case ref. – Hare Street P.S/DDCase No. 476 dated 24.09.2002 U/s. 120B/420/409/467/468/471/477A IPC). The details have been given in reply to para no. 6.101.With regard to payment crisis and impacting the reserves of theexchange, SEBI have informed that the total turnover in CSE insettlement no. 148 was Rs. 8610 crore (daily average Rs.1700crore). The total turnover for settlement nos. 149 and 150 wasRs. 4744 crore and Rs.1275 crore respectively. Thus the totalbusiness done by CSE in the three settlements was Rs.14629crore against which the payment shortfall was Rs.96.59 croreonly. Thus while in absolute amount the shortfall is sizable, it isonly 0.66 % of the total business done on the CSE in the threesettlements.


88

Regarding the impact of the payment crisis in CSE on the stockmarket, SEBI have informed that the total turnover during therelevant 3 weeks period in the major stock exchanges viz. NSE,BSE and CSE was around Rs.119000 crore and the total paymentshortfall in the settlement nos. 148,149 & 150 at CSE was Rs.96.59 crore which is only 0.08 % of the total business done in themajor exchanges. Though the amount of shortfall of Rs. 96.59crore is sizable in absolute terms, this amount of shortfall is only0.08% of the total business done in the major 3 exchanges.CSE confirmed vide letter dated March 23, 2001 that the pay-out for settlement nos. 148, 149 and 150 was completed as perschedule by using SGF and General Reserves of the Exchangeand other recoveries. The exchange also confirmed that noinvestor was affected. Completion of pay-out of settlement no.148 was confirmed by the ED, CSE in the Emergency BoardMeeting of CSE held on March 12, 2001. As all investors gottheir due amounts or securities on time, there is no possibility ofany adverse impact in real terms on the other stock exchangesor the over all stock market. SEBI has not received any complaintfrom investors for non-receipt of pay out at CSE.The action taken against the various brokers and the ExecutiveDirector and the FIR lodged by CSE had been discussed in detail inreply to para no. 6.101.In addition, CSE had filed a case against IndusInd Bank beforethe National Forum of Consumer Protection for recovery ofdamage due to deficiency in service by IndusInd Bank. However,the Forum dismissed the application on the ground that the matterrequired examination of complex question of law evidence andcross evidence of documents of huge volume. The exchangepreferred an appeal being the Civil Appeal No 8435/2001 inSupreme Court.Surveillance inspection of Calcutta Stock exchange wasconducted in March 2002, wherein the stock watch system, itsbenchmarks, alert generation, follow up of alerts and investigationstaken up by the exchange were examined. Inspection findingswere communicated to the exchange with detailed commentson the above areas. Compliance report have been received from


89

27. 6.97 The margin money collected by CSE ongross exposure of brokers wassubstantially lower than the requiredamount due to a software error. Theprogramme module used to erroneouslyreport zero in place of all values largerthan Rs. 2.14 crore (approx.). The understatement of gross exposure marginvaried from day to day and it was as muchas Rs. 50.38 crore on 1.3.2001 out ofwhich the under-statement pertaining toone defaulter broker alone was to the tuneof over Rs.11 crore. The brokers includingbroker directors were aware of thesoftware error and avoided reporting thematter to the Exchange. This reveals thecollusion and connivance among allconcerned. The Committee cannot acceptthe then Executive Director’s plea that hehad no knowledge of the error which hadbeen prevalent since December, 1999.

the exchange and SEBI board has been apprised of the statuson various aspects.As reported in December 2003Regarding the FIR lodged with Kolkatta Police by CSE, theinvestigation is going on.Regarding the appeal filed by CSE in the Supreme Court againstthe order of National Forum of Consumer Protection for recoveryof damages from IndusInd Bank, there is no change in status.As reported in June, 2004Investigation of Kolkatta Police is in progress.As reported in December, 2004Investigations by Kolkata Police are in progress. SEBI is followingup with Kolkata Police authorities for early disposal of FIR filedby CSE.

As reported in May, 2003As at Para 6.94.As reported in December, 2003With regard to the alleged criminal negligence on the part of thethen Executive Director, CSE has been advised by SEBI to ensurethat during investigation of the matter by Kolkata Police orotherwise, if any offence or criminal act on the part of the thenExecutive Director and / or any other functionaries of theExchange is found out, the Exchange shall initiate immediateappropriate action including filing another complaint with theKolkata Police.As reported in June, 2004SEBI is co-ordinating with Kolkatta Police.As reported in December, 2004Investigations by Kolkata Police are in progress. SEBI is followingup with Kolkata Police authorities for early disposal of FIR filedby CSE.



90

The Committee, therefore, recommendthat this be thoroughly investigated andappropriate action taken.

28. 6.104 The Committee are concerned to learnthat the deficiencies in the working of CSEwere not of recent origin. SEBI’s report adecade ago had found numerousdeficiencies including absence of amechanism for monitoring margins. Onthe basis of an enquiry into the affairs ofCSE in April, 1994, it was recommendedthat the Board of the Exchange shouldbe suspended. The problems of CSE asseen by this Committee appear to flowfrom the culture of non-compliance withrules, regulations and transparentpractices. This appears to have developedover a period of time. In 1994 it wasrecommended that the Board of theExchange should be suspended becauseof gross malpractices. After reviewing theposition, however, the SEBI did notsuspend the Exchange or take any severemeasures as to shake up work culture ofthe exchange. The Committee’sexamination has, however, shown thatnothing changed in CSE. Instead, thingswent from bad to worse. It is clear thatdespite knowing the track record of CSE,SEBI did not take timely corrective action.The Committee are of the view that SEBIshould have played a more proactive role inthe affairs of CSE and curbed malpracticeswell in time. The SEBI failed to do so.Officials of Surveillance Department ofSEBI dealing with CSE are also similarlyresponsible. SEBI’s lapses should beinvestigated and accountability be fixed.

As reported in May, 2003Matter is under consideration of SEBI.As reported in December, 2003Explanation has been sought from Executive Director (SecondaryMarket Department) and the officers concerned. They havesubmitted their explanation. These are under consideration.Executive Director (Surveillance) has been repatriated to parentDepartment and relevant material has been sent to Central Boardof Direct Taxes (CBDT) for seeking explanation from the officer.As reported in June, 2004Explanations have been sought from the then ED and allconcerned officials in SEBI who were involved in the task ofinspection of CSE during 1999 and 2000. Replies received fromthem are being examined.As regards the then ED, Surveillance who was on deputationfrom CBDT, CBDT was requested to take further appropriateaction. A reminder has been sent on May 21, 2004 to intimateprogress in the matter.As reported in December, 2004The matter relating to the action against SEBI officials is in thefinal stage and action shall be completed shortly.As regards, action against the then Executive Director(Surveillance), SEBI is in touch with CBDT.

SEBI have informed that on examinationof the replies furnished by the concernedSEBI officials, the Competent Authority hasindicated that no further action need betaken. The matter is under review.

As regards, action against the thenExecutive Director (Surveillance), SEBIwho was on deputation from CBDT, CBDThave informed that the explanation of ShriL.K. Singhvi has been called videDepartment of Revenue’s OM dated26.3.05 and the reply furnished by ShriSinghvi has been forwarded to Chairman,SEBI vide their DO letter dtd 18/20.5.2005requesting them to examine and intimatewhether the facts stated by the officer inhis reply are correct and whether thesurveillance department of SEBI have norole in the inspections as stated by ShriSinghvi.


91

29. 7.4 The failure in investigating into the role ofpromoters and corporate entities whileshare prices of particular scrips werebeing artificially manipulated has beenattributed by SEBI to the absence ofauthority to investigate into their role underthe Securities and Exchange Board ofIndia Act, 1992. Under Section 11(2)(i),SEBI is charged with responsibility ofcalling for information, undertakinginspections, conducting enquiries andaudit of the stock exchanges, mutualfunds, other persons associated with thestock market, intermediaries andself-regulatory organizations in the stockmarket. Though it may be possible tocontend that SEBI did not enjoy theauthority to directly investigate corporateentities, which might have, through variouschannels, provided funding in the stockmarket. That the promoters and corporateentities were, at the relevant time, playinga significant role cannot be denied. TheDepartment of Company Affairs, one ofthe entities having regulatory authoritycould have, had it informed itself of this orbeen alerted to the role of promoters andcorporate entities, taken timely action inthe matter. Diversion of funds allocated tospecific projects for use in the stockmarket for the purchase of specific scrips,investment companies operating in thestock market through brokers, nexusbetween brokers and corporate entities inthe context of the interests of brokers inspecific corporate entities, which factshave now come to light, establish thenexus between brokers and corporateentities. The proximity of promoters and

As reported in May, 2003Department of Company Affairs have informed that somecorporate houses misused the liberalisation introduced byinsertion of section 372A to transfer large sums of money to theKP group. It is proposed to tighten the loopholes by carrying outseveral changes in section 372A. As a result of the lessonsdrawn from the stock market scams and as a consequence ofthe recommendations of the JPC, it is proposed to amend Section372A to close the loopholes noticed and to prescribe a moresevere punishment for its violation. Proposals have beenformulated as part of the amendments to the Companies Actunder consideration.Action taken by SEBI is reflected in reply to Para 2.15.As reported in December, 2003The Department of Company Affairs has introduced theCompanies Amendment Bill, 2003 in the Rajya Sabha on 7th May,2003. The Cabinet has now advised the Department that insteadof moving a number of official amendments to the Bill, DCA shouldbring a new legislation for consideration of the Cabinet.SEBI has taken following further action:a) against DSQ Software Ltd. and promoters :

A personal hearing has been granted to the DSQ SoftwareLtd., and its promoter Shri Dinesh Dalmia on 22/11/2003before Chairman, SEBI issues final order in the matter.

b) against Padmini Technologies Ltd:Prosecutions lodged against the company and its whole-time directors in the Court of Addl. Chief MetropolitanMagistrate, Tis Hazari, Delhi vide case no. 252 of 2003 onMarch 26, 2003.

c) against Zee Telefilms Ltd: Found violated the provisions ofSEBI (Substantial Acquisition of Shares and Takeover)Regulations, 1997. Penalty of Rs. 60,000 was imposed andpaid.

d) against Global Tele-Systems Ltd (GTL Ltd): Foundviolated the provisions of SEBI (Substantial Acquisition ofShares and Takeover) Regulations, 1997. Penalty ofRs.1,20,000 was imposed and paid.

e) against Pentamedia Graphics Ltd: Found violated theprovisions of SEBI (Substantial Acquisition of Shares and

As regards action by SEBI, the position isgiven in reply to para No.2.15.

The concept paper has been referred toJ.J. Irani Committee for examination. Thesaid committee has submitted its report tothe Government on 31.5.2005. The sameis under examination.


92

Takeover) Regulations, 1997. Penalty of Rs. 90,000 wasimposed and paid.

f) against entities of Ranbaxy Laboratories Ltd:Adjudication proceedings for alleged contravention of section15A(a) of the SEBI Act read with Regulation 3(4) of the SEBI(Substantial Acquisition of Shares and Takeover)Regulations, 1997 have been initiated against 12 promotergroup entities of Ranbaxy Laboratories Ltd. The adjudicationproceedings are in progress.

As reported in June, 2004DCA had introduced Companies (Amendment) Bill 2003 in theRajya Sabha on 07.05.2003. The previous Cabinet had directedthe Department that instead of moving a number of officialamendments to the Bill, DCA may bring a new legislation forconsideration of the Cabinet. The new comprehensive Bill is underpreparation.As regards action taken by SEBI, the position is given in reply topara No. 2.15.As reported in December, 2004Companies Bill was introduced. It was decided to take upcomprehensive review and revamp of the law. Decision endorsedby the new Govt. on assumption of office after Lok Sabha Election2004. Concept Paper was placed in Website on 04-08-2004.Time allowed for comments 3 months. Consultation with variousorganisations, Experts Professional bodies in progress.As regards action by SEBI, the position is given in reply to paraNo.2.15.

As reported in May, 2003Enforcement Directorate has informed that JPC has commentedon the suspect roles of 15 promoters and Corporate entities.Files in respect of 15 promoters / companies stated to be closeto Ketan Parekh were opened by them to determine the nexuswith brokers through OCB’s and FII’s and to trace violation ofRBI/SIA norms while transferring equity to OCB’s and FII’s. Thepromoter companies can be divided into two parts:-1. Out of the 15 companies mentioned in the JPC report, there

are companies, where certain enquiries which might have aFEMA angle were still pending. These comprise the a) DSQ

brokers is also established by thefrequency with which both acted incollusion by the use of circular trading inrespect of shares of certain companies,with the sole objective of creating animpression that the scrip in which circulartrading is effected was heavily traded;consequently enticing innocentpar ticipants in the stock market topurchase the scrip of that company. Theseand other factors contributed largely to theartificial inflation of share prices in specificscrips, particular known as the “K-10stocks” which, in turn, contributed in largemeasure to a sentiment being created inthe market which enthused others toinvest solely in these specific scrips andthe stock market in general.

30. 7.51 SEBI furnished four sets of interim reportsinclusive of its investigation regardingscrips of certain corporate bodies. TheCommittee’s insistence for SEBI’s finalfindings regarding the role of promoters/corporate bodies in the price manipulationof the scrips yielded yet another set ofreports most of which were again ofinterim nature and were received as lateas in November 2002. Due tonon-availability of Final Report from SEBI,

Enforcement Directorate has informed thatout of 23 companies, Show Cause Noticesagainst seven companies have beenissued. Investigation against remaining 16companies is at an advance stage.


93

the Committee could not have theopportunity to take oral evidence of thesecorporate bodies. The Committee urgeSEBI, the Department of Company Affairsand other investigative agencies toexpedite and complete their investigationsinto involvement of promoters/corporatehouses in manipulation of prices of scripswhich were found to have undergoneunusual volatility. The Government shouldtake appropriate action under theprovisions of the relevant laws on the basisof outcome of their findings. Expeditiousaction should be taken against thoseinvolved wherever the involvement ofpromoter/corporate house is established.

group, b)Zee Telefilms Ltd., c)HFCL, d)Global Telesytems,e)Global Trust Bank, f)Silverline Technologies, g)SSI Ltd.

2. With regard to the second group, the EnforcementDirectorate’s inquiries have been directed against thesepromoter companies where certain details have been calledfor. This group comprises a)Adani Exports, b)PadminiTechnologies c)Aftek Infosys, d)Satyam Computers e)Ranbaxy Ltd. f) Lupin Labs g) Pentamedia Graphics h)Shonkh Technologies.

In addition to the 15 promoters and corporate entities mentionedin JPC report, on the basis of SEBI report suggesting the specificinvolvement in market manipulation and their proximity to KetanParekh, the Enforcement Directorate has initiated investigationin respect of the following companies:a)Maars Technologies, b) Mascon Global, c) Mukta Arts, d) TipsIndustries, e) Balaji Telefilms , f) Kopran Group, g) Nirma Group,h) Cadilla group.Investigations by the Enforcement Directorate in respect of these23 promoters/companies are in progress.Action taken by SEBI is covered in Para 2.15.As reported in December, 2003The Enforcement Directorate had also initiated investigation inrespect of 8 more companies. Thus, the total number ofcompanies, which were under investigation by EnforcementDirectorate, was 23.Out of these 23 companies, in respect of one company i.e. DSQGroup, the investigation has been completed and Show CauseNotices have been issued under both FERA & FEMA. In respectof M/s Maars Technologies and Silverline Technologies Ltd.,investigation on one aspect i.e. non-realisation of export proceedshave since been completed and Show Cause Notices have beenissued under FEMA on 11.6.2003 and 8.10.2003 respectively.Investigations in respect of the remaining 20 companies are at avery advanced stage.As reported in June, 2004Investigations by Enforcement Directorate are in progress.As reported in December, 2004Out of 23 companies, Show Cause Notice (SCN) to one morecompany i.e. M/s Lupin Ltd. (apart from 04 companies against


94

31. 7.53 Having learnt about the ingenious waysof transferring funds by certain companiesto manipulate the market, SEBI has nowmade certain suggestions to preventproliferation of shell companies. In orderthat the scope of register ing shellcompanies with fictitious details abouttheir initial subscribers/promoters, theiraddresses etc., appropriate revisions inthe rules as well as in the forms prescribedunder the respective rules also need beeffected by Registrar of Companies andother statutory authorities in the existingones and introduce adequate verificationof the details furnished in applications forregistration of companies, without delay.The SEBI suggestions include yearlydeclaration by companies about floatingof subsidiary/associate companies, etc.,disclosure on quarterly basis aboutchange in investments by the subsidiaries/associate companies, restriction on

whom SCNs have already been issued) has been issued on 2/9/2004 leaving 18 companies against whom investigations areat a very advanced stage.Besides, part investigations have been completed against onemore company viz. M/s Shonkh Tech. Ltd. and a show causenotice for non-realisation of export proceeds has been issued.However, further investigations in this case are also being carriedout on the basis of documents received from the CBI.In another company of M/s Ketan Parekh, a show cause noticehas been issued to M/s Classic Credit Ltd. and M/s Panther FinCap Ltd. (both Ketan Parekh entities in India) alongwith ShriKetan Parekh. However, some more investigations are beingcarried out.Further, a show cause notice issued to M/s DSQ Software Ltd.has been adjudicated by imposing a penalty of Rs.2 crore onthe company and Rs.2 crore on Shri Dinesh Dalmia.

As reported in May, 2003DCA has informed that regarding multiple investment companies,a proposal has been formulated as part of the amendments tothe Companies Act presently under consideration of theDepartment.Regarding preferential allotment, DCA will shortly be making ruleson the basis of the recommendations of the Verma Committee.SEBI has informed that regarding preferential allotment of shares,SEBI has already amended SEBI (Substantial Acquisition ofShares and Takeover) Regulations 1997 thereby withdrawing theautomatic exemption (from open offer requirements) availableto shares acquired on preferential basis beyond the specifiedlimits. This amendment will prevent misuse of preferentialallotment to acquire control or substantial stake in a listedcompany.As regards the private placement of debt, the Secondary MarketAdvisory Committee of SEBI has inter-alia recommended thatthe same standards of disclosures as are applicable for publicissue of debt, should be made applicable to private placementof debt instruments, which are proposed to be listed. The matteris being pursued.In addition, SEBI has also laid down certain guidelines for

As against para No.7.4.


95

floating investment companies by a parentcompany and verification of theantecedents of the persons behind theinvestment companies. SEBI has alsosuggested regulation of reverse mergerwhere an unlisted company merges witha listed company on non-transparentmanner. The Committee are of the viewthat these suggestions merit urgentexamination and follow up action by theGovernment. The Committee also feel thatthe issues concerning preferentialallotment and private placement also needto be looked into afresh by DCA and SEBIin the light of the SEBI’s findings in thisregard with a view to take suitablecorrective measures.

32. 7.54 This Committee hold that even as thereare valid reasons to believe that thecorporate house-broker-bank-FIIs nexusplayed havoc in the Indian capital market

preferential issues to be made by listed companies.Thecompliance with SEBI (preferential offer guidelines) is a precondition for listing of the shares allotted on preferential basis,by listed companies. The guidelines inter-alia deal withdisclosures to be given in the notice for shareholders meeting,minimum price to be based on average market prices and otherrequirements. Listed companies are required to comply with theguidelines. Additionally Stock Exchanges are required to ensurecompliance of the guidelines before listing these shares.As reported in December, 2003The Department of Company Affairs has introduced theCompanies Amendment Bill, 2003 in the Rajya Sabha on 7th

May 2003. The Cabinet has now advised the Department thatinstead of moving a number of official amendments to the Bill,DCA should bring a new legislation for consideration of theCabinet.In regard to recommendations of Prof. Verma Committeeregarding preferential allotment, the Department is going to issue“Unlisted Public Companies (Preference Allotment) Rules”.Circular on private placement of debt securities by listedcompanies has been issued by SEBI on September 30, 2003.As reported in June, 2004DCA had introduced Companies (Amendment) Bill 2003 in theRajya Sabha on 7.5.2003. The previous Cabinet had directedthe Department that instead of moving a number of officialamendments to the Bill, DCA may bring a new legislation forconsideration of the Cabinet. The new comprehensive Bill is underpreparation.In regard to recommendations of Prof. Verma Committee, DCAhas notified the “Unlisted Public Companies (PreferenceAllotment) Rules” on 04.12.2003.As reported in December, 2004As against para 7.4.

As reported in May, 2003SEBI is looking into the matter.As reported in December, 2003No change in the status.

The position has been explained in replyto para No.2.15


96

quite sometime now through fraudulentmanipulations of prices at the cost of thesmall investors, this Committee wereseverely handicapped in the matter ofmaking any purposeful recommendationsbecause of non-availability of requiredsupport from concerned regulatory andother bodies with necessary material. Theissue acquires added importance in viewof the recommendations of the 1992 JPCregarding the urgent need to go into thisunhealthy nexus of corporateentities-brokers-banks and others.

33. 8.76 SEBI’s investigations have brought outseveral instances of violations by OCBssuch as non-delivery of shares, purchaseof shares on adjustment basis, bookingpurchase orders without sufficientbalances in their accounts, exceeding theprescribed ceiling of 5 per cent forindividual OCBs and violations of 10 percent aggregate ceiling, etc. Certain OCBsand sub-accounts of FIIs also violatedthe SEBI (Substantial Acquisition ofShares and Take Over) Regulations. SEBIhas mentioned five OCBs and twosub-accounts of FIIs which have aided,assisted and abetted in creation of artificialmarket and volumes, circular trading andbuilding up concentrated positions in a fewscrips. SEBI is reportedly taking actionagainst four OCBs and one sub-accountfor violation of its regulations regardingsubstantial acquisition of shares. Asregards market manipulations by OCBs,SEBI is stated to be examining the matterlegally. The Committee urge that SEBI’sremaining investigations as well as its

As reported in June, 2004The position has been explained in reply to para No. 2.15.As reported in December, 2004The position has been explained in reply to para No.2.15.

As reported in May, 2003SEBI has informed that Adjudication orders were passed by itagainst OCBs, viz. Kensington Investments Ltd, BrentfieldHoldings Ltd, European Investments Ltd and Far EastInvestments Ltd and sub-account viz. Kallar Kahar InvestmentsLtd for their dealings in the scrips viz. Mascon Global Ltd, ShonkhTechnologies Ltd, DSQ Biotech Ltd, Aftek Infosys and GlobalTrust Bank (GTB).Enforcement Directorate has informed that adjudicationproceedings in relation to four Show Cause Notices under FERAand two under FEMA comprising ten charges against custodianBank and OCB have already been and are being expedited.As reported in December, 2003The adjudication proceedings in relation to four SCNs underFERA and two complaints under FEMA comprising 10 chargesagainst Custodian Bank and the OCB’s have already begun. TheAdjudicating Authority has been advised to expedite theproceedings.As reported in June, 2004Adjudication proceedings in relation to four SCNs under FERAand two complaints under FEMA comprising 10 charges againstCustodian Bank and the OCB’s are in progress.As reported in December, 2004Adjudication proceedings are in progress.

Out of 6 SCNs issued under FERA/FEMA,adjudication proceedings into two SCNsissued under FEMA have been completed.As a result of adjudication, penalty hasbeen imposed in one case. In anothercase, charge was not established. TheAdjudicating Officers have been requestedto expedite completion of adjudicationproceedings in the remaining 4 casesunder FERA.


97

legal examination should be completedexpeditiously and appropriate action takenagainst offenders. The Committee notethat the Directorate of Enforcement hasalso since issued show cause notices tothe custodian bank and certain OCBs forFERA violations. The Committee hopethat final action in this regard would becompleted early.

34. 9.31 The Committee recommend the following:-(i) The role of Executive Directors incharge of the Secondary Market Divisionand the Surveillance Division in SEBIduring 1999 and 2000 needs to becritically looked into for not ensuringcompliance with various actionsrecommended in the inspection reportsof 1999 and 2000.(ii) Explanation be called for immediatelyfrom all concerned officials in SEBI whowere involved in the task of inspection ofCSE during 1999 and 2000 regarding theirfailure to detect non-inclusion ofcrystallised long position in theoutstanding position of the brokers andaction be taken for dereliction of duty.(iii) The poor attendance of SEBI nomineedirectors in the Board meetings of StockExchanges in the past puts a questionmark on the efficacy of the system ofnominee directors. Although SEBI hassince discontinued the system, theCommittee desire that the Ministry ofFinance should undertake a fresh reviewof the system of nominee directorskeeping in view the proposeddemutualisation and corporatisation ofstock exchanges.

As reported in May, 2003SEBI has informed that explanation has been already soughtfrom Executive Director (Secondary Market Department) andother officers concerned in this matter. SEBI is also obtainingthe explanation of the then Executive Director in charge ofSurveillance Division in 1999-2000 through his parentdepartment.Besides, it is envisaged that upon demutualisation andcorporatisation of the exchanges, there will be a majority ofindependent directors on the boards of each of the stockexchange.As reported in December, 2003As against para 6.104.As reported in June, 2004Explanations have been sought from the then ED and allconcerned officials in SEBI who were involved in the task ofinspection of CSE during 1999 and 2000. Replies received fromthem are being examined. As regards the then ED, Surveillancewho was on deputation from CBDT, CBDT has been requestedto take further appropriate action. A reminder has been sent onMay 21, 2004 to intimate progress in the matter.As reported in December, 2004As against para 6.104.



98

35. 10.11 The Committee regret that the saidproposals were kept pending by theCentral Government despite repeatedattempts at all levels to get thisconsidered. Ultimately, in October 2001Government asked the Institute to havea re-look at the proposals. The Institutehas since reviewed therecommendations afresh and wouldsubmit the same to the Government. TheCommittee stress that the amendmentsif carried out, will not only reduce the timetaken in disciplinary proceedingsconsiderably but would also ensureeffective and expeditious disposal.

36. 10.72 The committee, however, deplore thetardiness exhibited in rectifying theshor tcomings. Amendments to theexisting legislation, submitted by RBI toMinistry of Finance on 30.10.2001,months after the scam broke, shouldhave been proposed much earlier in thewake of the Action Taken Reports tostrengthen the regulatory system. Thatthese amendments had to wait for asecond major scam to break reveal thepetering out, within months of the ATRs,of the wil l of the Government toimplement the required systemicchanges.

As reported in May, 2003Department of Company Affairs have informed that proposalsfor relevant amendments in the Chartered Accountants' Act, 1949(CA Act) have been formulated. These will soon be introducedin Parliament after Government approval.As reported in December, 2003The Department of Company Affairs have informed that the Billsto amend the Chartered Accountants Act, 1949; the Cost WorksAccountants Act, 1959 and the Company Secretaries Act, 1980are getting ready to be introduced in Parliament.As reported in June, 2004The Bills to amend the Chartered Accountants Act, 1949, TheCost & Works Accountants Act 1959 and The CompanySecretaries Act 1980 have been introduced in Rajya Sabha on23.12.2003.As reported in December, 2004The Bills to amend the Chartered Accountants Act, 1949; TheCost & Works Accountants Act, 1959 and The CompanySecretaries Act, 1980 are under detailed scrutiny of the StandingCommittee which has commenced discussions.

As reported in May, 2003As against para 3.21As reported in December, 2003As against para 3.21As reported in June, 2004With the dissolution of 13th Lok Sabha, the Bill to amend theBanking Regulation Act, 1949 has lapsed. Its reintroduction inthe 14th Lok Sabha is under consideration.As reported in December, 2004As against para 3.21

The Bills to amend the CharteredAccountants Act, 1949, the Cost & WorksAccountants Act, 1959 and the CompanySecretaries Act, 1980 were referred to theParliamentary Standing Committee onFinance, which has tabled its reports inboth the Houses of Parliament in BudgetSession 2005. Notices for enactment ofamendments to the said Acts are proposedto be introduced in the Parliament duringthe Monsoon session, 2005.



99

37. 10.75 Though the Committee appreciate thesteps taken by RBI from time to time, theyare of the considered view that unless theregulator is ever--vigilant, rules/regulations/guidelines cannot bythemselves end aberrations in financialsystem. As with liberty, eternal vigilanceshould be the watchword of the regulator.Most importantly, the legal frameworkmust be such as to provide for strict lawswhich are enforced expeditiously so thata sense of fear is created in the minds ofwrong-doers. Sadly, existing laws do notinculcate such a deterrent sense of fearamong perpetrators of crime.

38. 10.76 Governor, RBI conceded that at presentour system is "non-functional". Yet, RBIhas been rather tardy in suggestingamendments to the existing legislativeprovisions to make them stronger andmore punitive. For instance, amendmentsto the Public Debt Act, 1944 in responseto the 1992 recommendations of theprevious JPC have been under processfor seven years since 1994 and are yet tobe effected. Similarly, it was not till afterthe present scam involving UCBs cameto light that amendments were proposedto the Banking Regulation Act, 1949 tobring some of the provisions regardingcooperative banks at par with those ofcommercial banks. Moreover, theenhancement of the penal provisions ofthe Banking Regulation Act, 1949 are yetto be mooted by the RBI. Legislativeamendments based on therecommendations of the Dr. L.N. Mitra

As reported in May, 2003As against para 3.21As reported in December, 2003As against para 3.21As reported in June, 2004With the dissolution of 13th Lok Sabha, the Bill to amend theBanking Regulation Act, 1949 has lapsed. Its reintroduction inthe 14th Lok Sabha is under consideration.As reported in December, 2004As against para 3.21

As reported in May, 2003The recommendations of the Joint Parliamentary Committeewhich looked into irregularities in securities transactions relatingto amendment in the Public Debt Act, 1944 for making bouncingof SGL transfer forms as a penal offence was considered and itwas decided to replace the Public Debt Act,1944 with a newlegislation called Government Securities Act. A provision hasbeen included in the draft bill by which dishonour of SGL transferform for insufficient balance will be a legal offence and the sellerwill be liable for punishment. Prior consent of the StateGovernments is required as the Act applies to the marketborrowings by RBI for both the Union and State Governments.The proposed legislation was delayed for want of concurrenceof the State Governments.As regards amendment to the Banking Regulation Act, 1949 theRBI had appointed a High Powered Committee on UrbanCooperative Banks under the Chairmanship of Shri K. MadhavRao in May 1999 and a Task Force under Shri Jagdish Capoor,the then Deputy Governor RBI which have inter-alia looked intothe question of duality of control over cooperative banks. TheCommittee has recommended removal of duality of control overCooperative Banks by way of either replacing the existing State


A comprehensive amendment in theBanking Regulation Act has beenintroduced in Lok Sabha on 13.5.2005. Thefollowing amendment relating tocooperative banks have been proposed inthe Bill.

1. To protect the interest of the depositorsand also to ensure that only thecooperative society that have beenlicensed by the Reserve Bank of India, theprimary cooperative societies should begiven a time frame within which they haveto either stop the business of banking orfulfill all requirements specified by ReserveBank and obtain a license to carry on thebusiness of banking.

2. Reserve Bank of India is being giventhe power to order a special audit of


100

Committee (2001) have also not seen thelight of day so far. The Committee deplorethe half hearted and casual manner inwhich these critical matters have beendealt with and desire that proposalsalready forwarded by the RBI to theMinistry of Finance be clearedexpeditiously. Particularly in the presentenvironment, when financial markets aregetting integrated, it is essential that athorough review be made of all existinglaws relating to the regulatoryresponsibilities of RBI.

Cooperative Societies Act recommended by Choudhary BrahamPrakash Committee or by way of incorporating essential featuresof the model Act in their respective Cooperative Societies Act bythe State Governments. The Ministry of Finance was also of theview that removal of duality of control is essential for properregulation and management of cooperative banks. Therefore theabove legislative changes have been made a pre condition fortaking up revitalisation of cooperative banks as announced inthe Union Budget for the year 2002-03 and a scheme is expectedto encourage State Governments to undertake the abovelegislation exercise for availing revitalisation assistance by thecooperative banks is under consideration of Government.The proposals of the Reserve Bank of India relating to settingup of an apex supervisory body did not find favour with theGovernment as it did not address the basic issue of duality ofcontrol on cooperative banks. The Reserve Bank of India hadsubmitted certain proposals in May 2001 to the Ministry ofFinance which were also not found to be adequate in tighteningthe supervisory control of Reserve Bank of India over thecooperative banks. The proposals have been further discussedwith RBI/NABARD and amendments to the Banking RegulationAct are now been finalised which will give Reserve Bank of Indiaadequate powers to effectively supervise cooperative banks.These proposals are in the final stage and soon a bill is likely tobe introduced in the Parliament. Recommendations made by Dr.L.N. Mitra Committee have been referred to the High PoweredCommittee set up by the Central Vigilance Commission to lookinto speedy action in respect of large value bank frauds. Therecommendations of the Committee are being examined inconsultation with Central Vigilance Commission and Ministry ofLaw.Accepted an Internal Working Group has been constituted inthe RBI to identify the existing constraints in our laws for regulationand supervision.As reported in December, 2003A Bill to amend the Banking Regulation Act, 1949 has beenintroduced in the Lok Sabha on 13.8.03. The Bill has been referredto the Standing Committee on Finance.

cooperative banks in public interest for amore effective supervision of cooperativebanks. The proposed legislation aims tomake the regulatory power of ReserveBank more effective.


101

Regarding the N.L. Mitra Committee Report, Ministry of Law,which was consulted by the Ministry of Finance, has desired forthe views of Department of Company Affairs, Ministry of HomeAffairs and Central Bureau of Investigation. The comments fromCBI and Department of Company Affairs have been receivedand from Ministry of Home Affairs are awaited.As reported in June, 2004With the dissolution of 13th Lok Sabha, the Bill to amend theBanking Regulation Act, 1949 has lapsed. Its reintorduction in14th Lok Sabha is under consideration.The N.L. Mitra Committee report is under consideration with theMinistry of Home Affairs and Department of Justice.As reported in December, 2004Though comprehensive amendments to Banking Regulation Actfor empowering the RBI to have greater regulatory control overthe Urban Cooperative Banks is under consideration, anOrdinance was promulgated on 24.9.2004 empowering RBIgreater regulatory control over UCBs. The RBI, now, cansupersede the Board of Directors of multi-State cooperativebanks and appoint an Administrator, if it is satisfied that it isnecessary to do so in public interest or for preventing the affairsof a multi-State cooperative bank being conducted in a mannerdetrimental to the interest of the depositors or of the multi-Statecooperative bank or for securing the proper management of thebank. Such action of the RBI shall not be liable to be called inquestion in any manner. Additionally, the deposit insurance coverhas also been extended for deposits in the urban cooperativebanks registered under the MSCS Act in the interests of smalldepositors.As for the comprehensive amendments to the Banking RegulationAct 1949, for ending duality of regulatory control over CooperativeBanking Institutions, while a Bill was introduced in the lastParliament, it could not be passed and has lapsed. The provisionsof the proposed Bill are presently being reviewed by a Task Forceunder the Chairmanship of Prof. Vaidyanathan (Prof. Emeritus,Madras Institute of Development Studies) and RBI. The exerciseis expected to be completed by March 2005.The comments received from Deptt. of Justice in respect of N.L.Mitra Committee report are under examination.

Sl. No. Para No. Observation/Recommendation of JPC Reply of Government/Action Taken Further progress

102

39. 10.80 Audit is the backbone of the bankingsystem. Whereas auditors of commercialbanks are appointed by RBI, forcooperative banks, the auditors areappointed by the Registrar of CooperativeSocieties. It has, however, been noticedthat the auditors in the case of theMadhavpura Mercantile Co-operativeBank and the City Co-operative Bankhave failed to discharge theirresponsibilities diligently resulting in asituation where there was a run on thebanks and the depositors were duped. Inmost cases these auditors are notqualified chartered accountants, and sothey fall outside the ambit of the Instituteof the Chartered Accountants and nodisciplinary action can be taken againstthem. Therefore, the RBI has nowproposed to amend section 30 of theBanking Regulation Act, 1949 so that infuture they are authorized to appoint theChartered Accountants even in the caseof the Co-operative banks. The Committeeare, however, shocked to find that theInstitute had failed to impose punishmenteven against a single auditor of the 17auditors whose names had figured in theJanakiraman Committee, during theinvestigations of 1992 scam. It is all themore disconcerting to find that so far noconcrete action has been taken to amendthe Institute of Chartered Accountants ofIndia Act, 1949 with a view to making itan effective instrument of deterrence andpunishment, although a proposal in thisregard is reported to have been forwardedby the Institute to the Government wayback in 1994. The Committee take a

As reported in May, 2003Recommendation in this regard has also been received from theNaresh Chandra Committee; it is proposed to amend the CAAct, 1949.With regard to action against 17 entities, reply to para No 3.18refers.With regard to comments on the quality of the audit carried outby the auditors and comment on the handling of the issues bythe Board of Directors, RBI has issued suitable instructions on25th January, 2003 to the inspectors of its Regional Offices tocomment on the quality of the audit in respect of urban co-operative banks.As reported in December 2003ICAI has furnished the latest status as under:a) Number of reports already included

in the Agenda for the Council and areyet to be considered by the Council 01

b) Number of hearing concludedby the Disciplinary Committee andits report is yet to be placed before the Council 01

c) Number of cases pending with theHigh Court because of stayobtained by the other party 01

As reported in June, 2004The Bill to amend the CA Act, 1949 has been introduced in RajyaSabha on 23.12.2003.As regards action taken against auditors, the position has beenexplained in reply to para No.3.18. The cases are pending withthe Council and in the Hon’ble Courts. These are ongoing judicialprocesses.As reported in December 2004As regards action taken against auditors, the position has beenexplained in reply to para 3.18.

As regards action taken against auditors,the position has been explained in replyto para No.3.18 and action on this part iscomplete.

The Bills to amend the CharteredAccountants Act, 1949, the Cost & WorksAccountants Act, 1959 and the CompanySecretaries Act, 1980 were referred to theParliamentary Standing Committee onFinance, which has tabled its reports inboth the Houses of Parliament in BudgetSession 2005. Notices for enactment ofamendments to the said Acts are proposedto be introduced in the Parliament duringthe Monsoon session, 2005.


103

serious view of such an apathetic attitude.They therefore recommend that anindependent Board should be constitutedunder a separate statute, which shouldbe responsible for ensuring quality inaudits and also be empowered to takespeedy disciplinary action against thedefaulting auditors. The members of theBoard should also comment on themanner in which transactions arehandled, adherence to prescr ibedsystems and procedures and whether allthe risk is getting recorded and reportedto the Board. Besides, RBI in theirinspection reports, needs to comment onthe quality of the audit carried out by theauditors and comment on the handling ofthe issues by the Board of Directors. Inorder to create a sense of responsibilityamongst auditors and also to deter thosewho either casually/negligently or inconnivance with the management hidevital information, the penal provisions inthe statute should be strengthened.

40. 10.85 Another related problem is the issue of'financial frauds'. During the year 2000-01, RBI in its report on Trend and Progressof Banking in India (2000-01) reported 50cases of large value frauds (Rs 1 croreand above) involving Rs. 506.34 crore. Themajor factors facilitating the perpetrationof frauds include non-observance of laid-down systems and procedures by bankfunctionaries, nexus or collusion of bankstaff with the borrowers/depositors,negligence on the part of the dealingofficials/branch managers, failure ofinternal control systems, inadequate

As reported in May, 2003The major recommendations of the Ghosh Committee havealready been implemented by the Banks. RBI has put in place aproper monitoring mechanism by calling for quarterly reports fromBanks regarding the status of implementation. The complianceof the implementation of Ghosh Committee recommendations isalso looked into by the Auditors as well as RBI Inspecting Officersduring Audits/Inspections.Regarding Committee on Legal Aspects of Bank frauds inSeptember 2000 under the Chairmanship of Dr. L.N. Mitra,recommendations in Part I were examined by an in-house groupin RBI and banks were advised to implement therecommendations of the Committee contained in Part I of MitraCommittee Report. The Mitra Committee had recommended in

Mitra Committee in Par t II of itsrecommendation had suggested theprohibitive aspect by criminalizing thefinancial fraud. Since theserecommendations required legislativechanges for its implementation, the matterwas referred to High Level Groupconstituted by CVC for prevention of fraudin banks. In the matter CVC has opinedthat the recommendations of MitraCommittee were made in 2001 andthereafter a number of decisions havebeen taken by the Government toeffectively monitor fraud cases. The


104

appraisal of credit proposals andineffective supervision. During the courseof the present examination, similarirregularities were noticed in the case ofprivate as well as co-operative banks.Moreover, there is no separate Act underwhich scamsters can be booked and evenin cases where criminal proceedings arelaunched cases drag on for years togetherin Cour ts, with the result that theperpetrators of frauds are seldompunished. The Committee were informedthat in 1991, the Ghosh Committee wasset up to enquire into various aspectsrelating to frauds and malpractices inbanks. The Committee had made about125 recommendations, most of whichwere accepted by RBI and implemented.However, with a view to examining certainlegal aspects including attempting adefinition of Financial Fraud and layingdown procedural guidelines to deal withfinancial frauds, recently anotherCommittee under the Chairmanship of Dr.L.N. Mitra was set up. Therecommendations of the Mitra Committeeare in two parts - Part I deals withrecommendations which can beimplemented without any legislativechanges and are preventive in nature andPart II requires legislative changes forimplementation. Some of the importantrecommendations contained in Part IIinclude a separate Act to deal withfinancial fraud, making financial fraud acr iminal offence, placing specialresponsibility on the regulator, setting ofa separate institution for investigation,special courts for trying cross-border

part II of its report proposing draft legislation on Financial Frauds(Investigation, Prosecution, Recovery and Restoration ofProperty) Bill and also suggested amendments to the Indian PenalCode 1860, Indian Evidence Act 1872, Criminal Procedure Code1973 etc. The Reserve Bank of India have forwarded the reportof the Mitra Committee along with draft legislation to the CentralVigilance Commission for examination by the High Level Groupset up by it to look into frauds in the banking sector. The ReserveBank of India has also forwarded these recommendations to theGovernment for taking further action so that the problem offinancial frauds could be dealt with effectively. Theserecommendations are now under examination in consultation withCentral Vigilance Commission and Ministry of Law.

As reported in December, 2003RBI has informed that they have received suggestions from theCentral Vigilance Commissioner (CVC) that a well defined role inmonitoring frauds should be assigned to the Board of the bankso that its accountability should be fixed; a Sub-Committee maybe constituted to monitor fraud cases exclusively. The suggestionmade by CVC has been accepted by the RBI and the matterregarding issue of guidelines to banks is under examination.Regarding Dr. L.N. Mitra Committee Report, Ministry of Law, whichwas consulted by the Ministry of Finance, has desired for theviews of Department of Company Affairs, Ministry of Home Affairsand Central Bureau of Investigation. The comments from CBIand Department of Company Affairs have been received andfrom Ministry of Home Affairs are awaited.As reported in June, 2004RBI has informed that they have received suggestions from theCentral Vigilance Commissioner (CVC) that a well-defined rolein monitoring frauds should be assigned to the Board of the bankso that its accountability should be fixed; a sub-Committee maybe constituted to monitor fraud cases exclusively. The suggestionmade by the CVC has been accepted by the RBI and RBI hasadvised the Indian Commercial Banks vide circular dated14.01.2004 to constitute a Special Committee for monitoring andfollowing up cases of frauds involving amounts of Rs.1 crore andabove exclusively, while Audit Committee of Board (ACB) may

commission has opined that there is noneed to take any action onrecommendation of Mitra Committee.

RBI has reported that they have advisedall the commercial banks to constitute aSpecial Committee for monitoring fraudcases involving amount Rs 1 crore andabove. RBI has also advised banks toformulate a transparent policy with theapproval of Board in order to initiatecriminal action against willful defaulters ona case-by-case basis under the provisionof Section 403 and 405 of IPC. RBI hasopined that the existing instruction will takecare of the concern on therecommendation of Mitra Committee.

The suggestions of CVC and RBI isunder consideration of the Government.


105

financial frauds as well as all offencesunder the proposed Financial Fraud Act.Though as reported by the RBI, all therecommendations under Part I have beenaccepted and instructions issued on 3/5/2002, the recommendations under PartII are yet to be implemented. TheCommittee desire that since theserecommendations have an importantbearing on the sound functioning of ourfinancial system, the same should beimplemented expeditiously. TheCommittee express regret at the tardymanner in which the issue of financialfraud has been addressed by the RBIalthough the Ghosh Committee (1991)and the L.N. Mitra Committee (2001) havehighlighted this issue. Despite therecommendations of the L.N. MitraCommittee in September 2001, noeffective mechanism has been put inplace including the enactment ofproposed Financial Fraud Act to deal withthis problem.

41. 10.86 At present, the regulatory/supervisoryframework for the Urban Co-operativeBanks is the responsibility of RBI, StateGovernments and the CentralGovernment (in the case of banks havingmulti-State presence). This results inoverlapping jurisdictions and also at timesin cross directives, which adverselyhamper the functioning of these co-operative banks. Besides, it has also beennoticed that State Registrars do notalways act expeditiously on directionsreceived from RBI, with the result that themanagements of these banks are enabled

continue to monitor all the cases of frauds in general.The L.N. Mitra Committee report is under consideration of theMinistry of Home Affairs and Department of Justice.

As reported in December, 2004The comments received from Deptt. of Justice in respect of N.L.Mitra Committee report are under examination.


As reported in December, 2003As against para 3.21

As reported in June, 2004With the dissolution of 13th Lok Sabha, the Bill to amend theBanking Regulation Act, 1949 has lapsed. Its reintroduction inthe 14th Lok Sabha is under consideration.




106

to take advantage of existing loop holesto commit irregularities leading eventuallyto pecuniary loss to the small depositors.In the past, this issue has beenconsidered by a number of committees,of which the Jagdish Capoor Committeeand the Madhav Rao Committee arerecent examples. These committees havealso recommended that there is need toclearly demarcate the banking-relatedfunctions and other functions ofcooperatives with a view to entrusting theregulatory responsibility separately to RBIand the Registrar of Co-operativeSocieties. The Madhav Rao Committeehad also recommended that the onlyeffective way of addressing the problemof dual control is to carry out amendmentsto the State Co-operative Societies Acts,the Multi-State Co-operative SocietiesAct, 1984 and the Banking Regulation Act,1949. They have suggested differentsections under the B.R.Act, 1949 whichare required to be amended, includingamendments to section 30 and 36ACunder which RBI will have the power toappoint chartered accountants to audit theaccounts and also be authorised toremove managerial and other personsfrom office or appoint additional directors.The Committee were informed that theissue relating to the amendments to theState Co-operative Societies Acts wasrecommended by RBI to the Governmentof India in the year 2000 with the requestthat the matter be taken up with the StateGovernments. However, the Ministry in2001advised RBI that it may be possibleto bring co-operative banks under the


107

discipline of RBI by making suitableamendments to the B.R.Act, 1949.Accordingly, RBI in May 2001 submittedproposed amendments to the Ministry ofFinance but these proposals are stillpending consideration. In the meantime,the RBI has mooted another proposal ofsetting up a separate apex body forregulating and supervising the co-operative banks, stressing that since alarge number of co-operative banks arewidely dispersed all over, RBI is not well-equipped to supervise them. Accordingto RBI, this apex body should haverepresentatives of the State Government,Central Government, RBI and otherprofessionals. It should be an independentexpert body to be able to discharge itssupervisory role more effectively. TheCommittee appreciate the problemswhich emanate from duality/ multiplicityof control in the case of the Urban Co-operative Banks but caution that theGovernment while considering theproposal of a separate apex body, shouldgive due consideration to the problem ofcoordination and ensure that there is nodilution of responsibility. The proposedamendments to the relevant Acts shouldbe carried out expeditiously so that aneffective regulatory/supervisorymechanism is established without furtherdelay.

42. 10.87 The Committee find that bank mergersis a recent phenomenon in our countryand before the merger, sanction of theReserve Bank of India is required asstipulated under section 44A of the

As reported in May, 2003Reserve Bank of India has constituted an Inter DepartmentalGroup to prepare pilot policy statement on take over/merger,transfer of shares of bank's as a priority area. It is examiningformulation of a framework for voluntary and other merger of

A Working Group was constituted by RBIto evolve guidelines for voluntary mergerof banking companies. Based on therecommendations of the Group and inconsultation with the Government, RBI has


108

Banking Regulation Act, 1949 and therole of the RBI is limited. No merger isallowed unless the scheme ofamalgamation draft has been placedbefore the shareholders of the bankingcompany and approved by a resolutionpassed by the majority representingtwo-third value of the shareholders. Assuch RBI does not have any role to playregarding the swap ratio arrived at andin case of any dissenting shareholder,the RBI has to determine the value ofthe share price which is final. Thispractice is at variance from that of themerger in the case of the companies,where as per the Companies Act, theapproval of the court is required beforethe amalgamation/merger between thetwo companies, which also ensures fairpr ice. The Committee therefore,recommend that RBI should dischargeproactive role in laying down theguidelines to process a merger proposalin terms of the abilities of investmentbankers, the key parameters that forma basis for determining swap ratios,disclosures, the stages at which Boardswill get involved in order to havemeaningful Board level deliberations,norms for promoter buying or sellingshares directly/indirectly, during, before/after discussion period etc. Without this,many mergers will become a subject ofpublic debate, which may not all the timenecessarily be constructive.

43. 11.33 The Committee note that 45 out of 58prosecutions for major offenses launched/ordered by the Department of Company

banks in the light of past experience. The framework would alsocover the observations of the Committe and requisite legalamendments would also be proposed.

As reported in December, 2003Matter is under consideration of the Inter Departmental Group.

As reported in June, 2004The matter is under examination of the RBI.

As reported in December, 2004The matter is still under examination of the RBI.

As reported in May, 2003Proposals are under finalization; it is hoped that soon theamending Bill will be introduced in the Parliament.

issued guidelines to banks vide circularDBOD.No.PSBS.BC.89/16.13.100/2004-05 dated May 11, 2005. The guidelinescover the process of merger proposal,determination of swap ratios, disclosures,norms for buying / selling of shares bypromoters before and during the processof merger and the Board’s involvement inthe merger process. The principlesunderlying these guidelines would also beapplicable as appropriate to public sectorbanks.Action completed.

As against para No. 7.4.


109

As reported in December , 2003The Department of Company Affairs has introduced theCompanies Amendment Bill, 2003 in the Rajya Sabha on 7thMay 2003. The Cabinet has now advised the Department thatinstead of moving a number of official amendments to the Bill,DCA should bring a new legislation for consideration of theCabinet.

As reported in June, 2004DCA have introduced Companies (Amendment) Bill 2003 in theRajya Sabha on 07.05.2003. The previous Cabinet has directedthe Department that instead of moving a number of officialamendments to the Bill, DCA may bring a new legislation forconsideration of the Cabinet. The new Comprehensive Bill is underpreparation.


As reported in May, 2003The recommendations of the Shroff Committee with regard torationalisation of penalties is still awaited. The Department ofCompany Affairs hopes to introduce amendments to CA, 1956soon in the Parliament.

As reported in December , 2003As against para 11.33

As reported in June, 2004The position has been explained against para No.11.33.


Affairs (DCA) against Companies involvedin the present scam relate to diversion offunds. The major reason for huge transfersof money from companies to Shri KetanParekh is stated to be removal ofrestriction on inter-corporate deposits twoyears ago. In order to check violations inthis regard, certain suggestions are underconsideration by the DCA viz., putting acap on the number of investmentcompanies that any individual can float,prohibiting a person from being a directorin more than the prescribed number ofinvestment companies, prescribing a limiton lending/borrowing by companies, etc.The Committee hope that DCA will arriveat expeditious decisions on thesesuggestions and bring forth suitableamendments in the Companies Act.

44. 11.37 The Committee note that penaltiesprescribed in the Companies Act arenominal and the offenses are easilycompoundable. For instance, violation ofrestriction on purchase of its own sharesby a company under Section 77 of the Actattracts a maximum fine of Rs.10,000even if funds involved are in crores ofrupees. The penalties, therefore, need tobe rationalised and prescribed as apercentage or multiple of the moneyinvolved in the offence. The Committeehope that the Shardul Shroff Committeewhich has been set up to look into thequestion of rationalising the penalties willgive its recommendations soon and earlyaction will be taken thereon.



110

45. 11.39 The Committee are unhappy to note thatno decision was taken by the DCA on theamendments on disciplinary mattersproposed by the Institute of CharteredAccountants of India (ICAI) two decadesago except for seeking a fresh set ofproposals from ICAI in 1994 and again in2001. Given this background, theCommittee are not convinced of the DCAexplanation attr ibuting the lengthydisciplinary procedure followed by ICAI asthe reason for the delay in takingdisciplinary action against auditing entitiesnamed by the previous JPC. TheCommittee note that a Working Group foramending the Chartered Accountants Act,1949 has recently given itsrecommendations which include varioussuggestions on disciplinary matters,particularly, the question of fixing a timeframe for proceedings in disciplinarycases. The Committee stress that asproposed by DCA, amendments to theChartered Accountants Act should bebrought before Parliament in the ensuingSession.

46. 11.41 The Committee feel that the issue ofauditor-management relationship needsto be addressed with a view to ensuringa healthy professional relationshipbetween them. This could be achievedthrough rotation of auditors, restriction onnon-audit fee, etc. The DCA has sinceappointed Naresh Chandra Committee toexamine the entire gamut of issuesper taining to auditor-companyrelationship. The Committee urge that theNaresh Chandra Committee should

As reported in May, 2003Proposals for relevant amendments in the Chartered Accountants'Act, 1949 (CA Act) have been formulated. These will soon beintroduced in Parliament.

As reported in December, 2003As against para 10.11

As reported in June, 2004The Bills to amend the Chartered Accountants Act, 1949, TheCost & Works Accountants Act 1959 and The CompanySecretaries Act 1980 have been introduced in Rajya Sabha on23.12.2003.


As reported in May, 2003The Naresh Chandra Committee has since submitted its reportcovering inter alia issues such as rotation of audit partners,restriction on non-audit work and random scrutiny of auditedaccounts. These recommendations have been under examinationin the Department of Company Affairs. Proposals have beenformulated as part of the amendments to the Companies Actunder consideration.

As reported in December , 2003As against para 11.33.




111

As reported in June, 2004Report of Naresh Chandra Committee is under examination ofthe Department of Company Affairs.


As reported in May, 2003The Central Coordination Monitoring Committee (CMC)constituted in the context of vanishing companies has beenmeeting from time to time mainly to monitor the progress madeby various Task Forces in the matter of taking penal action againstdirectors of vanishing companies. The CMC is co-chaired bySecretary, Department of Company Affairs and Chairman, SEBI.Prosecutions have been launched against 117 such companiesfor non-filing of statutory documents. Police complaints have alsobeen filed in 42 cases. Further, prosecutions have been launchedagainst 149 companies for mis-statement in prospectus/fraudulently inducing persons to invest money/false statementmade in the offer documents, etc. under Sections 62/63/68 and628 of the Companies Act. The definition of vanishing companieshas also been clarified.As reported in December , 2003 The model FIR was finalised and given to the 4 RegionalDirectors of the Department of Company Affairs. FIRs have beenfiled in respect of 95 vanishing companies. It is a continuousprocess.As reported in June, 2004The break-up of 229 companies identified as vanished is asunder:No. of vanishing companies identified - 229earlierLess No. of companies traced out - 107No. of companies untraced - 122Action against these 122 companies

complete its work within a time frame andenable expeditious action by theGovernment on its recommendations. TheCommittee feel that the desirability ofhaving an arrangement in DCA forscrutiny of auditors' repor ts of allcompanies on regular basis needs to beexamined with a view to taking suitableaction on the qualifications made byauditors in their reports.

47. 11.42 The Committee note that the action bySEBI and DCA has enabled the tracingof 160 out of 229 companies which wereearlier treated as vanished. There are still69 companies which remain untraced.The Committee urge that the 'model' FIRwhich is at drafting stage should befinalised soon and the CentralCoordination and Monitoring Committeeshould ensure that FIR against all thevanishing companies are registeredwithout further loss of time and furtherensure that whereabouts of the vanishingcompanies are ascer tained. TheCommittee also desire that definition ofvanishing companies should be madecomprehensive.

Of the 229 companies earlier identified asvanished CMC, in its meetings, held on25.2.2003, 15.1.2004, 23.11.2004 and18.3.2005 deleted the names of 44, 63,07 and 01 companies repectively from thelist of vanishing companies, as thesecompanies were found to be regular infiling statutory returns, etc. resulting in thenumber vanishing companies beingreduced to 114.

FIRs have been filed against 100 of the114 vanishing companies. Out of the 100FIRs filed, 87 FIRs have been registered.FIRs have not filed against the remainingvanishing companies mainly for reasonssuch as these companies being liquidationor where the company has since startedfiling statutory returns.

The CMC discussed the definition ofvanishing companies in its meeting heldon 25.2.2003 and it was clarified that allconditions laid down for identifying thevanishing companies as vanishing and acompany satisfying one or more but notall the conditions may not be consideredas vanishing.


112

is as under:No. of companies against whomFIRs filed by DCA - 87No. of companies against whom FIRs - 35not filed by DCA as companiesare in liquidation or filing statutoryreturns/documents.

No. of companies against whom - 99prosecutions for failing to submitbalance sheets/annual returnshave been filed in the Court.

No. of companies against whom -107prosecutions u/s 62/63, 68 and 628of the Companies Act, 1956 for mis-statement in prospectus/fraudulentlyinducing persons to invest money/falsestatement made in the offerdocuments etc. have been filed.

It is submitted that the cases are pending with the Hon'ble Courtsand necessary FIRs have been filed.

As reported in December, 2004Prosecution filed in various courts against 111 vanishingcompanies filed under Sections 62/63, 68 & 628 of the CompaniesAct, 1956 for misstatement in prospectus/fraudulently inducingpersons to invest money/false statement made in the offerdocuments etc. 99 companies prosecuted for non-filing ofstatutory returns. 87 FIRs have been lodged for the offencespunishable under Sections 420, 406,403,415,418 & 424 of theIndian Penal Code. Out of this, 47 FIRs have been registered bythe police authorities of respective States. Matter taken up withChief Secretaries concerned.Arrest of directors made so farIn respect of one company viz. M/s. Thirth Plastics Limited(Gujarat), charge sheet was filed on 08.02.2004 against one ofthe Directors Viz. Shri Dilip N Talsaniya and the accused was


113

under judicial custody. The Gujarat Police authorities have alsoarrested three other Directors, Viz. Shri Vansh M. Doshi, ShriMadhusudan D. Rathod and Shri Mahendrabhai R. Patel.Refund of public issue moneyIn respect of one company, namely, M/s. Global Property Ltd.(Tamil Nadu), the public issue money has been refunded to theinvestors.Applications filed with the Company Law Board (CLB)SEBI had suggested the names of M/s. Nuline Glassware (India)Ltd. and AVI Industries Ltd. for filing the petition in the CLB forfilling petition under Sections 397 and 398 of the Companies Act,invoking the provisions of Section 542 (u/s 406) to disgorge theproperties/monies fraudulently obtained by promoters/Directorsof these two vanishing companies.Petitions have been filed by the Ministry of Company Affairs beforethe CLB in respect of M/s. Nuline Glassware (India) Ltd. and M/s.AVI Industries Ltd. Matter is under consideration of CLB.

Sl.No. Para No. Observation/Recommendation of JPC Reply of Government/Action Taken Further Progress

114

48. 11.43 Apart from SEBI’s action of debarring 87companies and 336 Directors fromaccessing the capital market, the DCAhas launched 79 prosecutions againstthese companies for non-compoundableoffences carrying the punishment ofimprisonment. What the Committee areseriously concerned is about how theinvestors may get their money back fromthe vanishing companies. The Committeeurge that SEBI, DCA, Company LawBoard and RBI should work seriouslytowards achieving this objective and takeall necessary steps, including attachmentof properties of directors of vanishingcompanies.

The concerned Registrar of Companieshave taken action against vanishingcompanies for violation of the provisionsof the Companies Act, 1956. Prosecutionshave been filed against 104 vanishingcompanies and their Promoter/Directiorsfor non-filing of Balance Sheet/ AnnualReturns.

Fur ther, prosecutions against 107vanishing companies and their promoters/Directors have filed under Sections 62/63,68 and 628 of the Companies Act formisstatement in prospectus/fraudulentlyinducing persons to invest money/falsestatement made in the offer documentsetc.

In this process ROCs have also tried toenlist assistance of police authorities andgeneral public to ascer tain thewhereabouts of such companies.

Petitions have also been filed with theCompany Law Board under Section 397/398/402/408 read with Section 406 of theCompanies Act, 1956 in respect of twovanishing companies to disgorge theproperties/monies fraudulently obtained bypromoters/ directors.

As reported in May, 2003As regards vanishing companies, the Co-ordination andMonitoring Committee (CMC) comprising Secretary DCA andChairman SEBI is the policy making body. Seven Regional taskforces comprising officials of DCA, SEBI and stock exchangeshave been constituted to make verification of compliance atoperational level.The Co-ordination and Monitoring Committee is examining andexploring various courses of action like monitoring the end useof funds, freezing assets of promoters / directors of defaultingcompanies and disqualification of persons in default. Feasibilityof introducing the concept of disorgement of illegally derivedbenefits, by way of amending the Companies Act, 1956 is alsobeing examined.Reserve Bank initiates the following action against the companieswhich are not traceable at their given address or not respondingto the Bank’s correspondence after efforts to locate the companyhave failed. The Bank rejects the company’s application forCertificate of Registration or cancels the Certificate of Registrationif already granted and issues public notices in the newspapers inboth – English & local languages, having wide circulation in thelocation of its registered office. In case the company had publicdeposits, the Bank also considers filing of winding up petitions,launching of criminal proceedings and lodging of FIR with the police.So far as RBI is concerned, while RBI Act does not contain anyprovisions regarding attachment of properties of directors ofvanishing companies, a provision [clause 24(14)] has been madein the Financial Companies Regulation Bill, 2000 (presently underconsideration of the Parliamentary Standing Committee onFinance) empowering the Company Law Board (CLB) to issueorders of conditional attachment of the whole or any portion ofthe property or assets of the NBFC, as specified by the aggrieveddepositor. The CLB shall also have powers to appoint a receiverfor recovery of the amount of unpaid deposit from the defaultingNBFC. In case of its disobedience, the CLB may order theproperties and assets of the person guilty of such disobedienceto be attached besides ordering such person to be detained inthe civil prison.


115

As reported in December, 2003As regards feasibility of, freezing assets of promoters / directorsof defaulting companies, SEBI has obtained the opinion of Mr.Justice S.P Bharucha, former Chief Justice of India. Mr. JusticeS.P Bharucha has not found any provisions in the CompaniesAct which empowers SEBI or the Central Government orAuthority constituted under that Act to attach the properties ofshell companies or their directors/promoters or to distribute theproceeds thereof to investors therein. The same has been sentto DCA for placing before CMC in its forthcoming meeting. Asregards disqualification of “persons in default”, Section 274(1g)of the Companies Act provides for disqualification of a personbeing appointed as a director of a company. SEBI has written toGovernment to include appropriate changes in Companies ActAmendment Bill , which should be acted upon.The Co-ordination and Monitoring Committee (CMC) (a jointmechanism of SEBI and DCA jointly chaired by Secretary DCAand Chairman SEBI), constituted in 1999, is the policy makingbody for vanishing companies. The CMC has held four meetingssince April 2002. Further, in order to ensure that companies donot vanish after raising money from public as well as a measureof good governance, as decided by the Co-ordination andMonitoring Committee (CMC), the following actions are beingtaken by DCA and SEBI: -- Including authenticated photographs, passport numbers,

PAN, bank account number, driving license number etc. ofthe promoters/directors at the time of incorporation and inthe prospectus while coming out with public/rights issuesSEBI has vide circular dated 14.8.2003 amended SEBI (DIP)Guidelines to provide for disclosures per taining tophotographs/ passport numbers/PAN etc. of promoters in theprospectus while coming out with public issue. This will helpin tracking the identity of promoters and also reduce thepossibility of fly by night operators accessing capital markets.

- Ensuring monitoring of end use of funds.- Exploring means of freezing assets of promoters, directors

of defaulting companies and disqualification of persons indefault.


116

- Besides the prosecution proceedings launched by DCA,SEBI has passed debarring orders under Sec.11B against96 vanishing companies and 361 directors.

- The Department of Company Affairs has introduced theCompanies Amendment Bill, 2003 in the Rajya Sabha on 7th

May 2003. The Cabinet has now advised the Departmentthat instead of moving a number of official amendments tothe Bill, DCA should bring a new legislation for considerationof the Cabinet.

- The Task Forces have since been reorganized from 7 to 4corresponding to the regions falling under the jurisdiction offour Regional Directors of DCA with directions to identify thecompanies which have disappeared, or misutilised fundsmobilized from the investors, and suggest appropriate actionin terms of Companies Act or SEBI Act.

- Besides, DCA in consultation with SEBI has also prepared amodel FIR for filing complaints against the vanishingcompanies and their promoters, directors, etc. for the offencespunishable under Section 420, 406, 403, 415, 418 & 424 ofthe Indian Penal Code. The model FIR has been given to theRegional Directors on 09-05-2003.

As reported in June, 2004DCA had introduced Companies (Amendment) Bill 2003 in theRajya Sabha on 07.05.2003. The previous Cabinet had directedthe Department that instead of moving a number of officialamendments to the Bill, DCA may bring a new legislation forconsideration of the Cabinet. The new comprehensive Bill is underpreparation.The Task Forces have since been reorganized from seven tofour corresponding to the Regions falling under the jurisdictionof four Regional Directors of DCA with directions to identify thecompanies which have disappeared, or misutilised fundsmobilized from the investors, and suggest appropriate action interms of Companies Act or SEBI Act. This is an ongoing process.As on date, 96 companies and 361 directors have been debarredby SEBI. SEBI has obtained a legal opinion stating that the existinglegislation does not empower SEBI, the Central Government orany Authority constituted under the Companies Act, 1956 to


117

attach the properties of shell companies or their directors/promoters or to distribute the proceeds thereof to investorstherein.

As reported in December, 2004SEBI has informed that as per the decisions taken by CMC in itsmeeting held on 27.7.04, the following actions have been carriedout by Ministry of Company Affairs (MCA) and SEBI:Chairman, SEBI and Secretary, MCA met the Chief Secretary,Govt of Maharashtra to expedite the process of registering theFIRs filed in the state of Maharashtra.A Monitoring Committee has been set up by MCA to closelymonitor all cases of prosecutions launched and FIRs filed /registered against the vanishing companies and their Directors.In addition, SEBI has proposed that FIRs against the vanishingcompanies and their promoters/ directors shall be filed directlywith the magistrate to expedite the process.The aforementioned proposal is being placed before Coordinationand Monitoring Committee in its forthcoming meeting fordeliberations.Second amendment to Companies Act, 1956 was enacted in2002 to set up National Company Law Tribunal (NCLT). However,legal issues arose in Madras High Court. Ruling against suchprovision of Second Amendment has been challenged by SLP,which is pending in Supreme Court of India.

As reported in May, 2003The CBI had registered 72 cases relating to irregularities insecurities transactions out of which in 47 cases charge sheetshave been filed in courts and in the remaining 25 cases the CBIafter investigation had recommended departmental action againstconcerned officials or closure of cases or cases were otherwisedisposed off. Out of the 47 cases where charge sheets werefiled in the court judgments were delivered in respect of 9 cases.27 cases are at pre charge stage and 11 are at evidence stage.In order to expedite disposal of cases pending before the SpecialCourt (Trial of Offences Relating to Transactions in Securities)

49. 12.74 The Committee note that out of the 72cases registered by CBI in relation to the1992 Security Scam, 42 cases werecharge sheeted, out of which only 6 casescould be disposed of and the rest arepending tr ial. One of the reasonscontributing to this delay is that initiallyonly one Special Court was set up andsubsequently, although four more Courtswere set up, but only two courts werereally functional. It is really shocking that

As against para No.2.17. Actioncompleted.


118

Act 1992 the Chief Justice of India has once again been requestedto consider appointment of 2 more additional Judges in the SpecialCourt, Mumbai for which staff has already been provided for.The Chief Justice of India has also been requested to take upwith the respective High Courts for expediting CBI cases pendingbefore the Special Judges (Anti Corruption) in their respectivejurisdiction. As reported in December, 2003CBI has reported that there is no change with regard toregistration, chargesheeting and disposal of securities scamcases pending in various courts.Regarding appointment of 2 more additional Judges in the SpecialCourt, Mumbai, the Registrar General, Supreme Court of Indiahas again been reminded on 20.10.2003 to intimate the actiontaken in the matter. The matter is being pursued.As reported in June, 2004Out of 47 cases, 3 more cases have been disposed off afterDecember 2003 totaling 12 cases. Out of 12, 08 cases ended inconviction while 03 cases ended in acquittal and 01 case wasotherwise disposed off.Regarding appointment of 2 additional Judges in the SpecialCourt, Mumbai, two more reminders were sent to RegistrarGeneral, Supreme Court of India from Secretary on 23.03.2004and 12.05.2004.

As reported in December, 2004CBI has reported that one more case has been disposed off,taking the total to 13 cases.

As reported in May, 2003CBI has informed that the case relating to MMCB is at an advancestage of investigation and likely to be completed shortly. Thoughan Interpol reference dt. 3.7.2001 had been sent to Interpol, AbuDhabi for freezing the accounts of Ketan Parekh at Merill LynchBank, Abu Dhabi but the CBI had not received any response inthe matter from Interpol, Abu Dhabi. The matter is being pursuedwith Interpol, Abu Dhabi further.Position regarding Special Courts has been explained in reply to

No change in the status.

the situation remains the same even ason date. The Committee desire that thisaspect needs to be taken up and resolvedwith a sense of urgency so as to ensurethat the laws are ultimately implementedeffectively and the guilty punished in anexpeditious manner.

50. 12.76 The Committee find that in case No.RC.3(E)/2001, which pertains to causinga wrongful loss to the tune of Rs. 137 croreto the Bank of India, CBI has filed a chargesheet in the Court of Special Judge,Mumbai on 1.6.2001 against Shri KetanParekh, Shri Kartik Parekh, Shri KirtiParekh, Shri Ramesh Parekh (the thenChairman, MMCB, Ahmedabad), Shri


119

Davendera Pandya (MD, MMCBAhmedabad), Shri J.B. Pandya (thenBranch Manager, MMCB, Mumbai).Another case No. RC 4(E)/2001 has alsobeen registered on the orders (dated2.5.2001), of the Hon’ble High Court ofGujarat by CBI against Shri RameshParekh, Ex-Chairman, MMCB, ShriDevendera B. Pandya, MD, MMCB andShri Jagdish Pandya, Branch Manager,MMCB Ahmedabad U/S 120-405,406,408,409,420 IPC & U/S 35(A) ofthe Banking Regulation Act, 1949 forconspiring together and making illegaladvances to the tune of Rs. 1030.04crores against the overall limit of Rs. 475crores by committing breach of law andvarious circulars/directives/rules andregulations of RBI. The charge sheet inthis case has not been filed so far. TheCommittee have also been informed thatthe Interpol reference has also been sentto Abu Dhabi for freezing the accounts ofShri Ketan Parekh maintained at MerillLynch Bank and his alleged Swissaccount is also being investigated. It hasalso been established that Shri KetanParekh had opened several accounts withthe Fort Branch of GTB and carried outhuge transactions with some of the OCBshaving a meagre paid up capital of US$550 to US $5000, for pumpingsubstantial amount of money into thestock market. The exact amount of moneywhich has been used in India after havingrepatriated some amount to the OCBsaccounts maintained outside India,particularly at Mauritius, is still being

Para 12.74. As reported in December, 2003In the case relating to MMCB, field investigations in India havebeen completed, order of Head Office of CBI on the investigationreport since been communicated to the Branch. Charge sheetwould be filed shortly in the case. Though an Interpol referencedt. 3.7.2001 had been sent to Interpol, Abu Dhabi, for freezingthe accounts of Ketan Parekh at Merill Lynch Bank, Abu Dhabi,but the CBI had not received any response in the matter fromInterpol, Abu Dhabi. The matter is being pursued with Interpol,Abu Dhabi, further.As reported in June, 2004In the case relating to MMCB field investigations in India havebeen completed and charge sheet has been filed on 1.12.2003.Interpol reference dated 3.7.2001 had been sent to Interpol, AbuDhabi for freezing the accounts of Ketan Parekh at Merill LynchBank, Abu Dhabi but the CBI had not received any response inthe matter from Interpol, Abu Dhabi. The matter is being pursuedwith Interpol, Abu Dhabi further.For appointment of 2 additional Judges in the Special Court,Mumbai, two more reminders were sent to Registrar General,Supreme Court of India by Secretary on 23.03.2004 and12.05.2004.

As reported in December, 2004In the case relating to MMCB field investigations in India hasbeen completed and charge sheet has been filed on 1.12.2003.Interpol reference dt. 3.7.2001 had been sent to Interpol, AbuDhabi for freezing the accounts of Ketan Parekh at Merill LynchBank, Abu Dhabi. Reply from Interpol Abu Dhabi has beenreceived vide ref. No. 2/22/IP/33-217/7946 dated 13.9.2004. Theauthorities concerned have informed that Sh. Ketan Parekh hasnot maintained any accounts or deposits with Merill Lynch Banknor have any ivestment in their country. Regarding Swiss Bankaccounts of Ketan Parekh, the Swiss authorities have sinceintimated in December, 2002 that the Letter Rogatory sent inthis matter cannot be executed because of the direction of theHigh Court at Zurich.


120

ascertained. Detailed investigation toconnect funds of MMCB to the tune of Rs.1030 crores alleged to have beendefrauded is also reported to be inprogress. The Committee desire that theinvestigations in this regard should becompleted expeditiously. Since the judicialprocess is a long drawn process, theCommittee desire that the cases whichhave already been filed or likely to be filedin the Courts by the CBI, should be triedby the Special Courts, so that the guiltyare brought to book expeditiously. TheCommittee hope that the issue of settingup adequate number of Special Courtswill be taken with due seriousness andwith a sense of urgency by theGovernment, and will not meet the old fateat least this time.

51. 12.78 In the case of City Co-operative Bank Ltd.,Lucknow, CBI had registered two casesi.e. RC.19(S)/2001 and RC. 20(S)/2001.In the former case it has been alleged thatShri Anand Krishna Johari, Director, CityCo-operative Bank Ltd., Lucknow enteredinto criminal conspiracy with Shri GorakhNath Srivastava, the then Secretary of theCity Co-operative Bank along with ShriArvind Mohan Johari and in pursuancethereof defrauded the Bank to the tune ofapproximately Rs. 29 crores byfraudulently transferring this amount to theaccount of the Century Consultants Ltd.,in which both Shri Anand Kumar Johariand Shri Arvind Mohan Johari happenedto be Directors by showing fictitiousinvestments and bogus loans in their

As reported in May, 2003CBI have informed that investigations into the case RC 19(S)/2001-LKO are at the final stages and would be finalised shortly.Government of Uttar Pradesh has vide orders dated 24.02.2003set up a high level enquiry by Member, Board of Revenue to lookinto the laxity of Registrar of Cooperative Societies and his officersin discharging their duties regarding inspection of a bank. LawDepartment of Uttar Pradesh has sent a request to the Hon’bleAllahabad High Court for constitution of special court forexpeditious disposal of these cases. The matter is underconsideration of Hon’ble High Court.As reported in December, 2003Charge sheet in RC.19(S)/ 2001-LKO has been filed in the Courton 30.8.2003.Government of Uttar Pradesh has reported that the enquiry reporthas since been received and action against concerned officershas already been initiated by obtaining their explanations. Thematter regarding constitution of special court for expeditious

Charge sheet in RC.19(S)/ 2001-LKO hasbeen filed in the Court on 30.8.2003.

Regarding constitution of Special Courts,Govt. of UP have informed that CBI hasfiled a charge sheet in the Special Courtdesignated for dealing CBI cases, there isno need of constituting Special Courts.Action completed.


121

records and thus benefited themselves.It has also been alleged that bogus loansamounting to Rs. 817.07 crore in the nameof 25 parties/persons associated with ShriA.K. Johari were sanctioned anddisbursed at the City Co-operative Bankwithout giving any security and observingany prescribed norms. The entire amountwas transferred ultimately in favour ofCentury Consultants Ltd. Theinvestigation in this case is reported to bestill in progress. In the second case viz.RC 20(S)/2001 the allegations are thatShri Gorakh Nath Srivastava, the thenSecretary, City Co-operative Bank Ltd.,Lucknow by misusing his positionpurchased nine cheques amounting to Rs.1,71,35,000 during Feb-March, 2001issued by the group companies of ShriAnand Krishna Johari in favour of his othergroup companies. He did not send thesecheques for clearing even afterdisbursement of the proceeds. Whenthese were sent for clearing the samewere returned unpaid for want of balancein the respected accounts. Investigationsin this case by CBI revealed that the entireproceed of Rs. 1,71,35,000 was utilisedby Shri A.K. Johari and Shri A.M. Joharifor furthering their business interest. Thecharge sheet against Shri Gorakh NathSrivastava, Shri Anand Krishna Johari,Shri Arvind Mohan Johari and Shri S.N.Mishra has since been fi led on13.11.2001 in the Court U/S 120-B, 420,467 and 471 IPC. Besides, regulardepartmental action for major penaltyhas been recommended against Shri

disposal of cases is still under consideration of Hon’ble AllahabadHigh Court.As reported in June, 2004Government of Uttar Pradesh has been reminded on 1.6.2004to intimate the latest position in the case.



122

Srivastava Rao, Officer, State Bank ofHyderabad, Lucknow for hisdepartmental misconduct. Taking intoaccount the ser iousness of theallegations, the Committee desire thatinvestigations in case No. RC19(S)/2001be completed as early as possible so thatprosecution proceedings could belaunched against the accused for havingdefrauded the Bank and the public atlarge in a dubious manner.

52. 12.121 The Committee note that theinvestigations against ZEE Telefilms havebeen inconclusive so far, as theDirectorate has not yet found any FERA/FEMA violations by the company. TheCommittee desire that the investigationsshould be pursued further with a view toascertaining if at all any violations werecommitted.

As reported in May, 2003Enforcement Directorate has informed that investigation withregards to Zee Telefilms shall be completed by 31-5-2003.As reported in December , 2003The investigation is at a very advanced stage.As reported in June, 2004Investigations by Enforcement Directorate are in progress.

As reported in December, 2004The investigations against M/s. Zee Telefilms have been finalizedand a Show Cause Notice under the following provisions of FEMA,1999 has been issued on 23.07.2004 to M/s. Zee Telefilms Ltd.and 6 others.Section 6(3) of FEMA, 1999 read with Regulation 4 & 5(1) &Para 1,2 & 3 of Schedule 1 under Regulation 5(1) of ForeignExchange Management (Transfer or issue of Security by a personresident outside India) Regulation, 2000 r/w 49(5) & 49(6) ofFEMA, 1999 for unauthorisedly transferring 1,94,18,800 equityshares valued at US$.470,589,000/- to the shareholders of M/s.ZMWL viz. Delgrada Ltd., Mauritius and Wakefield Holdings Ltd.,Mauritius for acquiring 100% stake of M/s. ZMWL and also its16127412 equity shares valued at US$.148.255 millions and cashremittances of US$.148.255 millions to the Star Group ofcompanies for acquiring the 100% stake of M/s. WinterheathCompany Ltd. BVI, without any proper valid permission from RBI.Section 3(d) of FEMA, 1999 r/w 49(5) & 49(6) of FEMA, 1999 for

Enforcement Directorate have informedthat the investigation against M/s ZeeTelefilm has been completed and ShowCause Notice has been issued. Now it ispending for adjudication.


123

53. 12.199 CBDT’s role is mainly confined to followup actions after a scam. If those actionsare swift the right message will go to theStock Market. The Committee note thateven after an expiry of almost a decade,the culprits of the 1992 Scam, have notbeen punished and the cases are stillpending adjudication in the SpecialCourts. The only penalty so far imposedis the monetary one which is reported tobe to the tune of Rs.700 crore, and thattoo has been imposed only on a singleGroup. Not a single case of HarshadMehta Group has been finalized andalthough the assessments in the case ofthe other group viz. Bhupen Dalal Grouphave been finalized, no criminalproceedings have been launched againstthe Group. It is equally serious that againstthe total outstanding demand of Rs.11,323 crore, an amount of only Rs.2203.70 crore, including Rs. 165.70 crorein the case of Fair Growth Financial

unauthorisedly transferring its 1,94,18,800 equity shares valuedat US$.470,589,000/- to the shareholders of M/s. ZMWL viz.Delgrada Ltd., Mauritius and Wakefield Holdings Ltd., Mauritiusin consideration of acquiring 100% stake of M/s. ZMWL and16127412 equity shares (of ZTL) valued at US$.148.255 millionsand cash remittance of US$.148.255 millions to the Star Groupof companies in consideration of acquiring the 100% stake of M/s. Winterheath Company Ltd., BVI, without any valid permissionfrom SIA/RBI.In the aforesaid SCN, it is also proposed to issue as providedunder Section 13(2) r/w 49(5) & 49(6) of FEMA, 1999 to M/s ZeeTelefilms Ltd. to repartriate sale proceeds of the aforesaid sharesas well as cash remittance of US$ 148.255 millions as the sameis liable to be confiscated to the Central Govt. A/c.

As reported in May, 2003The Central Board of Direct Taxes (CBDT) have reviewed thepending cases of assessment of notified persons in a meetingtaken by Member (Inv.), CBDT on 4.2.2003 and have decidedthat all pending cases would be disposed off by the end of May2003. In the case of Bhupen Dalal Group, the Department hasindicated that prosecution has been duly launched. However, theassessee has filed criminal revision petition before the Hon’bleHigh Court of Mumbai. The Court accepted the assessee’s prayerof quashing the criminal proceedings untill the assessee’s appealcases are decided by the Income Tax Appellate Tribunal with theobservation that if the Income Tax Appellate Tribunal dismissesthe assessee’s appeal the criminal prosecution shall proceed.An SLP against the said order of the Mumbai High Court ispending in Supreme Court.The Income Tax Department has made a demand for the taxdues of notified parties for the statutory period (01.04.1991 to06.06.1992) of Rs.3307.43 crores. So far a sum of Rs.925.84crores has been released or is in the process of being releasedto Income Tax Department by the Custodian in accordance withthe orders of the Special Court. The value of the property attachedis variable depending upon the value of shares which keepfluctuating according to the market trends. After making payment

CBDT have informed that out of the totalpriority demand, as defined by the Hon’bleSupreme Court, a sum of Rs. 1397.28crores has been recovered by variousreleases by the Hon’ble Special Court. Outof this, Rs. 1227.45 crores has beenreleased in Harshad Mehta Group and Rs.169.83 crores in Dalal Group. The balanceoutstanding priority demand for the priorityperiod is Rs. 2346.55 crores.Regarding pendency of appeals before theITAT, a total of 151 cases relating to thescam cases have been disposed off by theITAT up to 30.4.2005 (Orders have beenreceived in 104 cases so far). Out of this,82 cases belong to the Harshad Mehtagroup and 22 cases belong to Dalal Group.There are five appeals pending before CIT(Appeals) pertaining to the priority period.

The Committee of Disputes has decidedon the reference made by the SBI and hasdirected as follows: -


124

Services Ltd, has been confirmed, sincea large number of cases are reported tobe still pending with CIT (Appeals). Onlya paltry sum of Rs. 292 crore has so farbeen recovered. The property worth Rs.3106.80 crore which stands attached andwhich includes mostly shares has also notbeen disposed of despite the fact that ascheme in this respect stands approvedby the Special Court as far back as inSeptember, 2000 and a DisposalCommittee headed by the custodian forits proper implementation, was alsoconstituted.

to the Income Tax Department the value of the attached propertiesget reduced to that extent. Accordingly, the position assessed ason 31.12.2002 the value of attached assets is Rs.2735.32 crores.The progress of disposal of shares was slow on account ofbacklog and the procedures involved in the certification,registration and dematting of shares etc. and the process hasnow more or less been streamlined. As on date, an aggregatequantity of 2,59,45,779 shares have been sold or cleared forsale and the value of the same is Rs.464,25,53,333.74.The Chief Justice of India has been requested to considernominating 2 additional Judges to the Special Court for expeditingthe cases pending before the Special Court. As reported in December, 2003With regard to matters relating to Securities Scam of 1992, asagainst 87 appeals pending on 1.1.03, 79 appeals have sincebeen disposed off and only 8 are pending.As reported in June, 2004CBDT has informed that all scam related assessments have beenfinalized in respect of Harshad Mehta Group of Cases for theassessment year 1992-93 and 1993-94 (priority period/statutoryperiod as held by the Supreme Court in its judgement dated 13th

May, 1998). The total recovery made in this case so far comes toRs. 1227.43 crore, on the basis of decision/order by the Hon’bleSupreme Court and Hon’ble Special Court.With regard to the latest position in the case of M/s FairgrowthFinancial Services, the outstanding demand as on 30th April, 2004was Rs. 143.44 crore. While Rs. 24.64 crore of this demandrelates to A.Y. 1993-94 and earlier, which constituted the notifiedperiod, the balance demand relates to post-notification period.During May 2004, a further collection of Rs. 12.5 crore by way ofremittance from the office of the custodian was received as perorder issued by the Hon’ble Special Court. Hence the netoutstanding demand as on 31.5.2004 is Rs. 130.94 crore.With the receipt of this final instalment of Rs. 12.5 crore, theentire amount released by the Hon’ble Special Court to theIncome Tax Department vide Court’s order dated 2.5.2002 hasbeen fully received. Consequent to notification of M/s FairgrowthFinancial Services as a notified party under the Special Court

(a) SBI and the Department of Revenuewould move the Special Court as earlyas possible to initiate the process offinal/part final distribution of the fundsunder Section 11(2) of the SpecialCourts (TORT) Act, 1992.

(b) During the interim period i.e. pendingthe finalisation of claims, neither SBInor Department of Revenue wouldmake or press any application beforethe Special Court seeking interimpayments out of the funds with theCustodian and SBI would takeexpeditious steps to seek permissionof the Hon’ble Supreme Court of Indiato withdraw Civil Appeal No. 8228 of2003.

The CBDT again proposes to move CoD,seeking clearance, in order to press forthits claim for release of interim funds beforethe Hon’ble Special Court.

As regards M/s Fairgrowth FinancialServices, it has been stated that themiscellaneous application No. 693 hasbeen adjourned sine die till the decision ofthe Tribunal is received in the matter ofrestoration application filed by theassessee. It may be mentioned that therestoration application filed by theassessee has already been heard by thetribunal, and the order of the tribunal isawaited.

Similarly, miscellaneous application No. 79of 2004, filed by the ex-employees of M/s


125

(TORTS) Act, 1992 w.e.f. 2.7.1992, all assets of the assesseecompany passed into the custody of the custodian of SpecialCourt. Since that time, the custodian has with this specific ordersfrom the Special Court disposed of various assets of the company,the proceeds of which have been applied to discharge theliabilities of the assessee company as per the orders of theHon’ble Special Court, Mumbai.Out of the eight appeals pending in the cases pertaining to theSecurities Scam of 1992, three appeals relating to Shri A.D.Narottam could not be heard by the CIT (A), as the assessee iscurrently behind bars. As regards four appeals relating to ShriB.C. Dalal, two of these appeals have been disposed of. In thetwo appeals pending in this case, remand reports have beencalled for by the CIT (A) from the Assessing Officers. As regardsthe appeal in the case of Shri S. Ramaswamy, here again remandreport has been called for by the CIT (A). Figure of collection/reduction of priority demand in these cases are mentioned below:

(Amount in crores)S. Name of assessee Collection/ ReductionNo. of Prioirty Demand1 Jitendra R. Shroff Nil2. A.D. Narottam 0.223 Bhupen C. Dalal 0.644. Hiten P. Dalal 28.515. S. Ramaswamy 0.056. J.P. Gandhi Nil7. T.B. Ruia Nil8. M/s Dhanraj Mills Nil

As reported in December, 2004The total priority demand as defined by the Hon'ble SupremeCourt while interpreting the provisions of special court (TORTS)Act, 1992 is Rs. 2346.55 crore in the case of Harshad Mehtagroup and Dalal group. The remaining demand is a non-prioritydemand.Pursuant to the special court (TORTS) Act, 1992 all the assetsof Harshad S. Mehta and other notified parties have been attachedby the custodian. The recovery of income tax dues in respect of

Fairgrowth Financial services Ltd. has alsobeen adjourned till the Court reopens afterthe summer vacation. Fur ther, theCustodian has been informed about thelatest position as regards the demandoutstanding in this case.


126

these notified parties is subject to the release of funds by thespecial court/custodian.The special court in its order dated 22.2.1995, inter alia, heldthat the priority years for distribution of assets to the ITDepartment are in respect of assessment year 1992-93 and 1993-94 (part). The priority demand u/s 11 (2)(a) of the special court(TORTS) Act 1992 is available to the IT Department only for taxdemands raised and would not include interest and penalty evenin respect of assessment year 1992-93 and 1993-94 (part).Assessments for these assessment years have been completedin the cases of all the notified persons. So far as non-prioritydemands are concerned, it can be recovered out of the attachedassets only u/s 11(2)(c) of the special court (TORTS) Act, 1992.There is a total prohibition on the Department to recover thetaxes directly from the notified persons. All recovery matters aredependent on the special court adjudicating upon the rights andclaims of various parties including the Income Tax Department.The Department has been moving miscellaneous applicationsbefore the special court for release of funds towards the recoveryof priority demand on interim basis because in the normal course,the recovery even of the priority income tax demand is directlylinked with the distribution of assets lying attached with thecustodian. Such assets can be distributed only when the specialcourt finally determines the distribution. During the last eightyears, the special court has been releasing funds against someof the outstanding demands to the Department. The release offunds involves a lot of efforts by the officers in the field formations.The total recovery made in Harshad Mehta group and Dalal groupcomes to Rs. 1396.30 crore.In respect of the last interim release of Rs. 421.59 crore pursuantto the order dated 3.10.2003 of the Hon'ble special court, theSBI has gone in an appeal before the Hon'ble Supreme Court.The SBI also approached the Committee on Disputes, CabinetSecretariat. The Committee on Disputes has directed as follows:“(a) SBI and the Department of Revenue would move the SpecailCourt as early as possible to initiate the process of final/partfinal distribution of the funds under Section 11(2) of the SpecialCourts (TORT) Act, 1992;


127

(b) During the interim period, i.e., pending the finalization ofclaims, neither SBI nor Department of Revenue would make orpress any application before the Special Court seeking interimpayments out of the funds with the Custodian; and(c) SBI would take expeditious steps to seek permission of theHon'ble Supreme Court of India to withdraw Civil Appeal No. 8228of 2003."It may kindly be seen from above, that the CoD has directed thatneither SBI, nor Department of Revenue would make or pressany application before the special court, seeking interim paymentsout of the funds with the custodian and have directed the SBIand Department of Revenue to move the special court forspeeding up initiation of the process of final distribution of fundsu/s 11(2) of the special court (TORTS) Act, 1992. The Departmenthas now to await the final distribution u/s 11(2) of the specialcourt (TORTS) Act, 1992. That process may take a couple ofyears more.The appeal filed by the SBI before the Hon'ble Supreme Courtwas last heard on 6.8.2004 by the Hon'ble Chief Justice of India,Mr. Justice Lahoti and Mr. Justice Mathur. The Hon'ble SupremeCourt did not entertain the appeals filed by the SBI in view of thedirections given by the CoD in the matter. The learned ASGappearing on behalf of the Income Tax Department havingsubmitted that the Revenue Department has made somerepresentations in the matter before CoD which is awaitingconsideration, the Hon'ble Supreme Court have recorded thefollowing clarifications in the order:-"We make it clear that the disposal of these appeals would notpreclude the consideration of any representation before the CoDand such decision thereon as the CoD may be inclined to take."In view of the decision of the Hon'ble Supreme Court and theCoD's directions, the process of final distribution u/s 11(2) of thespecial court (TORTS) Act, 1992 is going to take time. Thecustodian and the court first have to ascertain the total assetsand liabilities of the notified parties. The process is in a nascentstage as of now and is likely to take quite a few years.As per the submissions made on behalf of the Income TaxDepartment before the Law Courts and also before the CoD, the


128

SBI has no locus standi to dispute Income Tax Department'sclaim before the special court, particularly when it is the matterof ad hoc interim release of funds.In view of the above, necessary steps are being taken to get theCoD's directions modified so that after following the due processof law, Department may be in a position to make further collection/Recovery.There are five appeals pending before CIT (Appeals) pertaining tothe priority period. Due to the substantial revenue involved in theHarshad Mehta group, Bhupen Dalal group and other connectedcases involved in the securities scam of 1992, the Senior Vice-President, ITAT and the President, ITAT were requested to appointa designated bench to deal with the cases related to the securityscam. Pursuant to such request, the ITAT has assigned majorhigh demand cases to a single bench. Moreover, after appreciatingthe urgency of the matter the ITAT has distributed the other casesrelating to security scam to various benches. The Departmenthas also undertaken a number of steps like appointing two standingcounsels exclusively for scam related cases, as well as monitoringat the level of CCIT and CIT and utilization of the services of CIT(Appeals) for assisting the standing counsel. Also, personalparticipation of the Assessing Officer and the Addl. CIT in thehearings before the ITAT has enabled completion of hearing in125 cases, out of which orders have been received in 48 cases.There are no penalties that are pending for disposal for the priorityperiod in the case of notified persons.M/s Fairgrowth Financial Services Ltd.The pending appeals in the case of M/s Fairgrowth FinancialServices Ltd. for assessment year 1991-92 to 1994-95 weredisposed of by the ITAT vide its order dated 28.7.2004. All theappeals filed by the assesee have been dismissed by the Tribunalalong with the cost of Rs. 4 lakh, @ Rs. 50,000 per appeal. Atthe same time, the appeals filed by the Revenue have beenallowed by the Tribunal. An additional demand of Rs. 97.71 crorehas been created after giving appeal effect to ITAT's order forassessment year 1993-94, which allowed the Department'sappeal. Due to this additional demand, the net outstandingdemand as on 31.10.2004 has increased to Rs. 226.22 crore.


129

54. 13.31 A number of legislative proposals havebeen initiated by RBI and have beendiscussed in detail under the chapter“Reserve Bank of India” of this report. TheCommittee are constrained to observethat there have been serious delays atboth the regulators’ end and in the Ministryof Finance and other Ministries concernedin processing legislative proposals forstrengthening the regulators andendowing them with more punitivepowers. The Committee deplore thedelays in Government in processing thelegislative changes proposed by the RBIwith the dispatch that they deserve.

The Department has filed miscellaneous petitions before theHon'ble Special Court praying for further release of moneytowards tax u/s 11(2)(a) of the Special Court (TORTS) Act 1992and u/s 11(2)(c) of the Special Court (TORTS) Act, 1992 forrelease of money towards interest. The said petitions have beenadmitted as MA No. 79/2004. The matter is likely to be taken upby the Hon'ble Court in the second half of November, 2004.A copy of the bank account mentioned in the custodian'sapplication has been obtained from the bank and action is beingtaken to withdraw the recognition granted to Fairgrowth FinancialServices Ltd. Employees Provident Fund under the provisions ofthe IT Act.

As reported in May, 2003Amendments to various Acts are an on-going process andsuggestions/proposals received from RBI are dealt with in theMinistry of Finance with due care and alacrity. Thus, since itsenactment in 1949, the Banking Regulation Act has beenamended 33 times. Amendments have also been carried out tothe RBI Act, NABARD Act, Small Industries Development Bankof India Act and many other Acts administered by the Ministry ofFinance. RBI proposal regarding setting up an apex supervisorybody for supervising urban cooperative banks did not find favourwith the Government since it did not address the basic issue ofduality of control on the cooperatives. Even the proposalssubmitted by RBI in May 2001 to the Ministry of Finance werenot found to be adequate in tightening the supervisory control ofRBI over the cooperative banks. These proposals have beenfurther discussed with RBI and NABARD and amendments toBanking Regulation Act are now being finalized which would giveRBI adequate powers to effectively supervise cooperative banks.These proposals are in the final stages and Government expectsto introduce a Bill in the Parliament in this regard in the ensuingMonsoon Session.As reported in December , 2003As against para 3.21.As reported in June, 2004The position has been explained against Para No.3.21.



130

55. 13.52 The Committee note that while theBanking Division monitors the overallfunctioning of public sector banks andrural cooperative banking system in thecountry besides reviewing circulars/instructions issued by RBI, it is notconcerned with individual operations ofthe banks as the same are carried out inaccordance with the guidelines of the RBI.As per the provisions of the RBI Act, thegeneral superintendence and direction ofthe affairs of the Banks has beenentrusted to the Central Board of Directorsof RBI on which the Government has anominee (generally Finance Secretary).Further, before taking a decision in amatter of larger public interest, RBIconsults the Government. However, theBanking Division is responsible forlegislative framework relating to theBanking Sector which includes RBI Act,1934, Banking Regulation Act, 1949, SBIAct, 1955, Banking Companies(Acquisition and Transfer of Undertakings)Act, 1970/1980, Regional Rural BanksAct, 1976, Public Debt Act, 1944 etc. TheCommittee however note that a largenumber of legislative proposals withrespect to the Commercial and urbanco-operative banks mooted by the RBI arepending consideration in the Ministry. Thedetails of the proposals have already beenmentioned in the Chapter on the ReserveBank of India of this repor t. TheCommittee recommend that the Ministry


As reported in May, 2003As against para 3.21 As reported in December, 2003As against para 3.21As reported in June, 2004The position has been explained against Para No.3.21. As reported in December, 2004As against para 3.21



131

should expeditiously finalise the proposedamendments in the Banking RegulationAct, 1949 and introduce the amendedlegislation in the Parliament at the earliest.

56. 13.53 The Committee express their concern atthe inordinate delay of almost 8 years bythe Government in implementing therecommendations of the earlier JPC of1992 on Securities Scam regarding theframing of statutory provisions with regardto making the bouncing of SGL transferforms as penal offence as in the case ofcheques. Although the saidrecommendation was accepted by theGovernment way back in 1994, but so farthe Government Securities Bill, in whichthe statutory provision is proposed to beincorporated is yet to be enacted and theBill is expected to be introduced inParliament only during the Winter Sessionof 2002. As the matter has already beeninordinately delayed, the Committeerecommend that the Government shouldexpeditiously repeal the Public Debt Act,1944 and enact the new legislation withoutfurther loss of time.

57. 13.55 According to the Banking Division, basedon the recommendations of the earlierJPC on Securities Scam, a number ofmeasures have been taken by theGovernment and the RBI to addresssystematic deficiencies which

As reported in May, 2003The Department of Legal Affairs have concurred in the draft Bill/draft Cabinet Note on Government Securities Bill and referredthe file to Legislative Department for concurrence on 8.11.2002.The Legislative Department have suggested few- modificationsin the draft Bill and draft Cabinet Note and forwarded the sameto Department of Economic Affairs (Budget Division) fornecessary action. The matter is being attended to in consultationwith RBI. After the needful is done, the draft GovernmentSecurities Bill/draft Cabinet Note will be referred back toLegislative Department for concurrence.It is expected that the Bill would soon be introduced in theParliament thereafter. As reported in December, 2003It is expected that the Government Securities Bill, 2003 wouldbe introduced in the Winter Session of Parliament.As reported in June, 2004The Draft Government Securities Bill, 2004 for replacing the PublicDebt Act, 1944 is proposed to be introduced in the ensuingsession of Parliament. As reported in December, 2004The Draft Government Securities Bill, 2004 for replacing the PublicDebt Act, 1944 and repealing the Indian Securities Act, 1920has since been approved by the Cabinet.The Bill is expected to be introduced in the Winter Session ofParliament.

As reported in May, 2003As against para 2.17 As reported in December, 2003As against para 2.17As reported in June, 2004The position has been explained against Para No.2.17.

The Government Securities Bill 2004 forreplacing the existing Public Debt Act, 1944and repeal of Indian Securities Act, 1920was introduced in the Lok Sabha onDecember 21, 2004. The Bill has beenreferred to the Standing Committee onFinance for examination and repor tthereon. Action completed.



132

contributed to the irregularities. However,the steps taken thus far have notforestalled irregularities which have ledto large amounts of money beingpumped into the stock market and itsconsequent misuse by certain entities,as detailed in this Report.

58. 14.58 Investor education plays a vital role inenabling investors to take informeddecisions and to ensure that theirinterests are protected. It appears thatnot much has been done in this area bySEBI except issuing someadvertisements, circulation of a bookletand funding of seminars by InvestorAssociations. At present SEBI, DCA andRBI have their parallel independentinvestor awareness campaigns. TheCommittee feel that coordinated andorganized efforts are needed to educateinvestors about their r ights andresponsibilities and to impart awarenessabout common pitfalls and mistakes thatlead to investor losses and SEBI shouldbe vested with this responsibility. Further,the Committee feel that to enable SEBIto undertake this task effectively, theInvestor Education and Protection Fundestablished under Section 205 (c) of theCompanies Act and Investors EducationResources of RBI should be shifted toSEBI and a joint campaign under theleadership of SEBI be undertaken. TheCommittee also recommend thatunclaimed/undistributed funds such asdividend, principal amount, interest,debenture amount and fixed deposits of


As reported in May, 2003For promoting investor awareness and education in securitiesmarket, SEBI has launched nation wide Securities MarketAwareness Campaign which was inaugurated by the Hon’blePrime Minister of India. The Campaign is held in various partsof the country. SEBI has set up an Apex Committee for thispurpose which has wide representation of all securities marketparticipants and regulators viz. RBI, DCA and MOF, as also ofthe Investors’ Associations. The policy for the campaign isformulated by this Apex Committee.Recommendation related to shifting of investor protection fundestablished under Section 205 (c) of the Companies Act andinvestor education resources of RBI to SEBI the matter will beexamined keeping into mind the need for greater coordinationamongst concerned agencies.As reported in December, 2003No change in the status.As reported in June, 2004The matter is under examination. As reported in December, 2004Matter is under consideration.

The matter of transfer of Investor Education& Protection Fund (IEPF) to SEBI wastaken up with the Ministry of CompanyAffairs (MCA) which was of the view thatthe IEPF having been set up under theprovisions of the Companies Act 1956, isappropriately administered by MCA.Accordingly, a Committee on IEPF of MCA,after duly examining the proposal fortransfer of IEPF to SEBI did not approvethe proposal. Action completed.


133

any nature and instrument with limitedcompanies, cooperative banks, banksmutual funds and insurance companiesshould be transferred to this InvestorEducation and Protection Fund.

59. 14.60 There also appears to be a need to havean independent look at resolution ofinvestor complaints against companiesand market intermediaries. TheCommittee recommend that the conceptof Ombudsman, which is already beingused in the banking sector, should alsobe extended to the capital market. Theissue of power, duties and responsibilitiesof the Ombudsman should be suitablyworked out. As regards investorcomplaints against Brokers and othermarket intermediaries, arbitration councilsat exchange level can be used forresolution of investor complaints. Suchbodies would be independent of marketintermediaries, particularly the brokers.The Committee are of the opinion thatultimately Special Cour ts dealingexclusively with the investor complaintsof the financial sector would be a realsolution to the expeditious disposal ofcomplaints. Such courts could havejurisdiction for all kinds of financialirregularities, frauds in the case of thecapital market, chit funds, NBFCs,plantation companies. Etc.

As reported in May, 2003The SEBI (Amendment) Act, 2002 has enhanced the existinglevel of penalties prescribed for violations of the Act. Moreover,penalty for new violations has been included with a view tostrengthen the existing mechanism to act as an effective deterrentto violations of the Act.SEBI has a mechanism to redress investor grievances. Courtscan take cognizance of the offences under the Act only on acomplaint of the Board. In addition to the efforts of SEBI, anInvestor Redressal Cell is functional in the Department ofEconomic Affairs. Moreover, the Department of Company Affairsand all the Stock exchanges address investor grievances.Individual investors can be compensated upto the limitsprescribed from the Investor Protection Fund set up under thebye-laws of the Stock exchanges.As regards concept of Ombudsman SEBI, has already prepareda draft concept paper on Ombudsman. The whole issue of powers,duties and responsibilities of Ombudsman is also beingdiscussed in the Legal Advisory Committee set up by SEBI whichis headed by a Supreme Cour t Justice Mr. Hon’bleVenkatachaliah. To the Venkatachaliah Legal Advisory Committee issue oninvestor grievance redressal has also been referred. As reported in December, 2003The SEBI (Ombudsman) Regulations 2003 have been notifiedon 21st August 2003.Regarding the arbitration councils, it was decided that theprovision of the rules or articles of association, as the case maybe, and bye-laws of the stock exchanges shall provide that inrespect of dispute between members and non-members, thearbitration committees/ arbitration councils / arbitration panelsshall consist of persons other than members of the stock

Interviews for the post of Ombudsmanwere held in the month of December 2004and further action is under process.

For the cost and expenses of the office ofthe Ombudsman the matter wasdiscussed by Legal Advisory Committeeof SEBI at its meeting held on 29.6.2003when the Committee was of the view thatthe cost of administering the ombudsmanscheme should be met through theInvestors Education and Protection Fundestablished under section 205C of theCompanies Act, 1956 and hence SEBIshould approach the Central Governmentfor allocating appropriate amount out ofthe said fund.

After approval by the Board, SEBIrequested the Central Government on18.6.04 to allocate necessary funds fromthe Investors Education and ProtectionFund constituted under section 205 C ofthe Companies Act. However, in themeeting of the Committee of IEPF held on28.10.04, the Committee has rejected theproposal of SEBI for funding from IEPF.

Vide circular No. SEBI/SMD/SE/CIR-19/2003/02/06 dated 02.06.03, SEBI directedthe stock exchanges to make necessaryamendments to their rules, bye laws etc in


134

exchange who shall be nominated with prior approval of theBoard.Accordingly, the exchanges vide circular SEBI/SMD/SE/Cir- 19/2003/02/06 dated June 2, 2003 were directed to make necessaryamendments to the rules or Article of Association / byelaws forthe implementation of the above decision within two months fromthe date of circular.The exchanges were also directed to reconstitute the arbitrationcommittees/ arbitration councils/ arbitration panels for theresolution of disputes between members and non-members, inthe manner specified above, within a period of three months fromthe date of the circular.As reported in June, 2004Chairman, SEBI has written a letter dated 04 March, 2004 to theChief Justice of the Bombay High Court for allocating all SEBIcases in Mumbai to a designated Court. This letter has beenwritten based on the positive response received from theRegistrar, BHC, Principal Secretary, Finance Department andPrincipal Secretary, Law and Judiciary of the Government ofMaharashtra.As reported in December, 2004In response to our proposal for designated court, SEBI received aletter dated May 13, 2004 from Shri R.C.Chavan, Registrar General,Mumbai High Court, addressed to the Principal Secretary & R.L.A.,Government of Maharashtra, Mumbai and copy marked to them,vide which they have requested for sanctioning a post ofMetropolitan Magistrate and a post of Judge, City Civil andSessions Court, exclusively for SEBI cases. The matter is nowunder consideration before the Government of Maharashtra.A similar proposal/request has been given to the Hon'ble ChiefJustice of Delhi High Court for setting up of a designated Courtfor dealing with SEBI cases. The response in this regard isawaited.For the purpose of appointing the Ombudsman SEBI has issuedadvertisement. The last date for submitting application was08.03.04. The applications received have been scrutinized byHRD and 15 applicants have been shortlisted. The interviewsfor selection will be held shortly.

this regard. All the stock exchanges haveimplemented the provisions of the circular.

Vide letter No. LGL/DNR/3402/03 dated11.02.03, SEBI had requested CentralGovernment to take necessary steps forestablishment of Special Courts. Theinternal Group of SEBI has also suggestedamendments in the SEBI Act in this regard.

MUMBAIThe Maharashtra Government hasdecided to set up a Special Court for SEBIcases and has also decided to allocateRs.18 Lakh per year for the setting up ofSpecial Court in Mumbai. The proposal forallocation of funds for setting up of SpecialCourt is pending with Government ofMaharashtra.

DELHIThe Delhi High Court vide its order dated1.12.04 ordered for transfer of all SEBIprosecution cases pending in differentcourts in Delhi to a court of AdditionalSession Judge. In pursuance of the saidorder the Session Judge, Delhi vide orderdated December 3, 2004 transferred allSEBI prosecution cases to the Court of Ms.Asha Menon, Additional Session Judge,Delhi. The Special Court designated to tryoffences under Securities Laws hasstarted functioning in Delhi.


135

60. 16.21 The Committee note that the UTImanagement sanctioned inter-schemetransfers to boost the income and liquidityof some schemes, that these decisionswere not taken by individual fundmanagers but by the Chairman andExecutive Directors and that brokeragewas paid on these transfers in violation ofUTI’s own guidelines. The Committee findSh. Subramanyam’s explanationsregarding these transactionsunacceptable and since these decisionswere taken and ratified by him, he mustbe dealt with in accordance with law. TheCommittee also recommend that UTI takeaction against other officials who werepar ty to sanctioning inter-schemetransfers in violation of the policyguidelines regarding inter-schemetransfers laid down by the Board ofTrustees.

61. 16.28 The Committee recommend that UTIshould conduct a review of instances ofinvestments going into default within ashort period of their sanction indicatingpossible deficiencies in the investmentdecision-making process, Investmentsand Fresh Exposures in companiesclassified as NPAs, Investments made in

As reported in May, 2003The Administrator of the Specified Undertaking of UTI hasreferred the matter to the internal Vigilance Cell for examiningthe role of officials who were party to sanctioning the inter schemetransfers (IST) in violation of UTI’s laid down policy guidelines onIST. Inquiry is in progress.As reported in December, 2003The internal Vigilance Cell of Specified Undertaking of Unit Trustof India is examining the transactions for the purpose ofdetermining accountability of individual officials and framecharges as may be applicable. Considering the large numberand complex nature of transactions involved that have to bescrutinized, Specified Undertaking of Unit Trust of India isexpected to take some more time to complete the enquiry.

As reported in June, 2004Over 15,000 transactions identified as ISTs besides 133transactions routed through stock exchanges/brokers having thecharacteristics of ISTs have been examined. The investigationreport is currently under preparation. As reported in December, 2004An enquiry was carried out by the internal vigilance cell inpursuance of the recommendation of the JPC in Para 16.21 and17.14 of their report. The Vigilance Report alongwith the Reportof the JPC and Tarapore Committee Reports have been referredfor the recommendation of the Board Level Committee on August24, 2004 by SUUTI for recommending further course of action.The recommendations of the Board Level Committee are awaitedby SUUTI.

As reported in May, 2003Administrator, UTI-I has informed that the matter has alreadybeen referred to the internal Vigilance Cell for reviewing the saidinstances of investments as reported by Tarapore Committee.Regarding formalizing a comprehensive investment-policy, theposition has been clarified in reply to Para 15.9. As reported in December, 2003Inquiry by the Internal Vigilance Cell is in progress.

The Board Level Committee haverecommended that the officers be welladvised to conduct themselves in amanner that will prevent recurrence of anysuch action in the cases referred. TheCommittee have recommended issue ofwarning letters to many employees/ex-employees who did not exercise duediligence in their working, but did notcontribute to decision making process inthese cases. Accordingly, with the approvalof the Competent Authority, case againstthose employees has been closed. TheCommittee has not taken any view on therole played by the then Chairman, Shri P.S.Subramanyam.

SUUTI have been requested to place thematter before the Board of Advisors in thenext metting.

Of the 20 cases identified under thiscategory, vigilance enquiry has beencompleted in two cases, viz. M/s. KopranLtd. and M/s. Ganesh Benzoplast Ltd. Thevigilance findings in respect of M/s. KopranLtd. have been examined by the BoardLevel Committee and they haverecommended issue of warning letters to


136

one company of the group while there wasalready a default in another company ofthe same group, payment of brokerageon inter-scheme transactions andapplications for acquisition of shares atrates higher than the prevailing marketrate as identified by the TaraporeCommittee. As a part of this review, itshould isolate instances where there hasbeen a violation of administrativeprocedures or due diligence and conducttime bound departmental enquiries insuch cases. The Committee alsorecommend that UTI formalize acomprehensive investment policy.

62. 16.29 Based on their examination of written andoral evidence of the off market investmentin the shares of DSQ Software andNumero Uno International, the Committeeagree that both decisions weredetrimental to the interests of UTI and itsinvestors.

As repoted in June, 2004The vigilance enquiry has been completed in the case of M/s.Kopran Ltd. and departmental proceedings have been orderedby the Administrator. Besides, three cases, viz. Essar SteelLtd., Jindal Vijaynagar Steel and DSQ Software were in the listof cases earlier referred to the Advisory Board on Banking,Commercial and Financial Frauds (ABBCFF) in line with therecommendations of the Tarapore Committee. These cases havenow been referred to SEBI for enquiry. The outcome of theseenquiries is awaited. The vigilance enquiry in respect of theremaining cases is in progress.As repoted in December, 2004Of the 20 cases identified under this category, vigilance enquiryhas been completed in the case of M/s. Kopran Ltd. The Board ofDirectors of UTI AMC and Advisory Board of SUUTI, in theirmeetings held on March 26, 2004 approved the formation of a Boardlevel committee which will study the vigilance reports, JPC reportand Tarapore Committee report and all relevant material andrecommend the further course of action. The findings of theinvestigation have, therefore, been referred for the recommendationof the Committee. In addition, seven cases, viz. Essar Steel, Jindal Vijaynagar Steel,DSQ Software, Elbee Services, Dewan Housing Finance, RamaPhosphates and Jenson & Nicholson which also figure in the listof 89 companies identified by the Tarapore Committee, have beenreferred to SEBI for enquiry by the Government of India. Theoutcome of these enquiries by SEBI is awaited. In order to avoidduplication, further action will be pursued on the basis of SEBI'sfindings. The vigilance enquiry in respect of remaining cases is inprogress.

As reported in May, 2003These cases were referred to the Advisory Board on Banking,Commercial and Financial Frauds (ABBCFF) in line with therecommendations of the Tarapore Committee. Further action isunder consideration of the Government. As reported in December, 2003As recommended by JPC in para 16.37, cases of Secondary

employees/ex-employees who did notexercise due diligence in their working, butdid not contribute to decision makingprocess in the case. Accordingly, with theapproval of the Competent Authority, caseagainst those employees has been closed.The Committee has not taken any view onthe role played by the then Chairman, ShriP.S. Subramanyam.

SUUTI have been requested to place thematter before the Board of Advisiors in thenext meeting.

The vigilance findings in respect of M/s.Ganesh Benzoplast Ltd. will be referred tothe Board Level Committee.

In addition, seven cases, viz. Essar Steel,Jindal Vijaynagar Steel, DSQ Software,Elbee Services, Dewan Housing Finance,Rama Phosphates and Jenson &Nicholson which also figure in the list of89 companies identified by the TaraporeCommittee, have been referred to SEBI forenquiry.

The audit is in progress.


137

63. 16.31 Though the ERC was set up in 1997, it isonly during Shri Subramanyam’s tenurefrom September 1998 that onwards theERC’s comments were overlooked. Thisis further compounded by the fact that inall these cases UTI’s investment portfoliodepreciated after the investment. In the

Market transactions of UTI in the shares of 89 companiesidentified by Tarapore Committee have been referred to SEBI forinquiry DSQ Software and Numero Uno International are includedin the list of 89 companies. Position regarding Numero UnoInternational has also been explained in reply to para 16.53.As reported in June, 2004The recommendations require a thorough examination of theinvestment/divestment decisions made by erstwhile UTI in 89companies (88 cos., 1 name repeated) (identified by the TaraporeCommittee) during the period 1992-1993 to 2000-2001, inter-alia,in light of the internal norms prevailing in the UTI at the time ofinvestment / divestment (as required under the procedure ofTarapore Committee) and responsibility be fixed for any incidentsof criminal nexus, viz., broker-UTI dealer nexus, front running,benchmarking etc. SEBI had written to the GOI for appointing ateam of Chartered Accountants for the purpose to whichGovernment has conveyed their consent. Accordingly, SEBI hasappointed a team of 17 Chartered Accountants to carry out thenecessary examinations. The auditors have been chosen fromthe RBI panel based on certain specific criteria. A detailed guidancenote has also been given to the auditors alongwith specific termsof reference and the reporting format. The auditors were advisedto get in touch with the office of the Administrator, SpecifiedUndertaking of the Unit Trust of India (SUUTI) and commence theassignment. Further, they were advised to maintain strictconfidentiality in all respect of the assignment.As reported in December, 2004All the audit firms have commenced the audit work in respect ofall 88 companies.

As reported in May, 2003The Administrator of the Specified Undertaking of UTI hasreferred the matter to the internal Vigilance Cell for examiningthe role of officials who were party to sanctioning the inter schemetransfers in violation of UTI’s laid down policy guidelines on IST.Inquiry is in progress.

Out of 15 companies, vigilance inquiry inrespect of 10 companies is completed andthe reports submitted. The investigationreport is finalised in respect of one morecompany. The Board Level Committee hasexamined the vigilance findings in five outof the ten cases submitted. The Committee


138

specific case of Cyberspace Infosys, theERC’s comments were first accepted andsubsequently reversed to clear theinvestment. Worse, there are cases (oneof which, Numero Uno International, hasbeen examined by Tarapore Committeein detail) in which the ERC’srecommendations were not taken at all.In the light of this, the explanation of Sh.Subramanyam is not convincing. All thisclearly indicates that the decisions tobypass the ERC’s recommendations werenot in the interest of UTI. Given the factthat in all these cases, UTI’s investmentshave recorded a decline, the decisionswere prima facie wrong and possiblymalafide. The Committee recommend thatUTI conduct a departmental vigilanceenquiry regarding the decisions where theERC’s views have not been taken or theERC’s views have been overruled toascertain whether the decisions weretaken after following proper proceduresor were arbitrarily made without duediligence. The Committee recommendsuitable action against officials who arefound to be involved in arbitrary decisionmaking. The Committee also recommendthat the delegation of authority to makeinvestment decisions in UTI should bedecentralised and a comprehensiveinvestment policy should be formalised.

As reported in December, 2003Out of 15 companies, identified under this category, vigilanceinquiry in respect of 4 companies is completed. The companiesare (a) Cyberspace Infosys, (b) Broadcast Worldwide, (c) ShonkhTechnologies and (d) Padmini Polymer. On the basis of thevigilance findings, Departmental proceedings have been initiatedagainst two of the officials involved viz. (Shri S.K. Basu, ExecutiveDirector [under suspension] and Smt. Prema Madhu Prasad,General Manager) and an ex-official [Shri S.K. Saha, Chief GeneralManager], a part of whose terminal benefits are with held by theUTI Asset Management Company for their role in transactions inCyberspace Infosys. Formal complaints have been lodged bySUUTI with the Central Bureau of Investigation in respect of thetransactions in Broadcast Worldwide, Padmini Polymers andShonkh Technologies Ltd.As reported in June, 2004Out of 15 companies, vigilance inquiry in respect of 5 companiesis completed. The companies are (a) Cyberspace Infosys, (b)Broadcast Worldwide, (c) Shonkh Technologies, (d) PadminiPolymer, and (e) Ambica Agarbattis & Aroma Industries. Theinquiry is in progress in respect of 2 more cases. On the basis ofthe vigilance findings, Departmental proceedings have beeninitiated against two of the officials involved viz. (Shri S K Basu,Executive Director [under suspension] and Smt. Prema MadhuPrasad, General Manager and an ex-official [Shri S K Saha, ChiefGeneral Manager], a part of whose terminal benefits are withthe UTI-Asset Management Company,for their role in transactionsin Cyberspace Infosys. Formal complaints have been lodged bythe SUUTI with the Central Bureau of Investigation in respect ofthe transactions in Broadcast Worldwide, Padmini Polymers andShonkh Technologies Ltd. FIR has been registered by CBI inrespect of M/s. Padmini Polymers Ltd. and M/s. ShonkhTechnologies Ltd. Departmental proceedings have been orderedagainst officials in all cases. The Board of Directors of the UTIAMC and Advisory Board of SUUTI in their meetings held onMarch 26,2004 approved the formation of a Board level committeewhich will study the vigilance reports, JPC reports and TaraporeCommittee reports and all relevant material and recommend thecourse of action.

have recommended as under:1. The Committee have not taken any

view on the role played by the thenChairman, Shri P.S. Subramanyam.

2. As regards Shri S.K. Basu, undersuspension, the Committee haverecommended that the CompetentAuthority may take appropriate action.

3. As regards Shri S.K. Saha, ex-CGM,his retirement benefits are withheld.The Committee has recommendedthat the Competent Authority may takeappropriate action.

4. As regards, Smt. Prema MadhuPrasad, GM, the Committee hasrecommended that the CompetentAuthority may take appropriate actionfor her role in case of M/s. CyberspaceInfosys Ltd.; warning letter to be issuedfor her role in case of M/s. BroadcastWorldwide Ltd.

5. As regards other employees who didnot contribute to decision makingprocess in these cases, theCommittee have recommended issueof warning letters for not exercising duediligence in their working. Accordingly,cases against those officials havebeen closed with the approval of theCompetent Authority.

SUUTI have been requested to place thematter before the Board of Advisiors in thenext meeting.


139

64. 16.37 The lack of a proper risk managementsystem in secondary market operations,the absence of any laid down guidelinesfor dealer authority and stop-loss limitsto liquidate loss making positions, theabsence of any documentation of therationale for secondary markettransactions in particular shares, theconcentration of power for both fundmanagement as well as dealing roomoperations in one person and the lack ofany security system to preserve theconfidentiality of the dealing room’s voicerecording mechanism lead theCommittee to conclude that the absenceof laid down procedures for secondarymarket transactions allowed the UTImanagement to purchase and sell anyquantity of any share in the secondarymarket without any accountability. TheCommittee recommend a thoroughenquiry of the secondary markettransactions in the shares of the 89

The vigilance findings in respect of the fiveother completed cases stand referred tothe Board Level Committee. Twocompanies (Marwar Hotels and GujaratAdani Port) are being examined by theSEBI appointed auditors. Vigilance enquiryin respect of transactions relating to theremaining two companies is in progress.

SEBI have intimated that the audit reportin respect of 26 companies has beensubmitted by the auditors. Regarding theinspection on secondary markettransactions of the companies, all theauditors have been authorized to approachthe stock exchanges/brokers to collect thefollowing information required by them:(a) Price volume data on scrips, annualreports, transactions done by particularbrokers etc., counterparties, reasons forcertain scrips not being traded etc.(b) Registration and history of brokers,names of proprietors/partners/directorsincluding the information on blacklisting.A meeting of the auditors was alsoconvened on January 5, 2005 by SEBI toascertain the progress made and toimpress upon the auditors to expedite theinspectionsSEBI have also advised certain stockexchanges to furnish the auditors suchdata and information as may be required

As reported in December, 2004Out of 15 companies, vigilance inquiry in respect of 7 companiesis completed. The Vigilance Report in respect of five companies,alongwith the Report of the JPC and Tarapore Committee Reporthave been referred for the recommendation of the Board LevelCommittee on August 24, 2004 by SUUTI. The recommendationsof the Board Level Committee are awaited by SUUTI.In one case, viz. Geometric Software Solutions Ltd., no casesustainable from the vigilance angle could be made out. Thevigilance repor t in respect of other company is underconsideration of SUUTI. Besides, two companies (Marwar Hotelsand Gujarat Adani Port) are being examined by the SEBIappointed auditors. Vigilance enquiry in respect of transactionsrelating to the remaining six companies is in progress.

As reported in May, 2003The matter is under consideration of the Government.As reported in December, 2003Cases of Secondary Market transactions of UTI in the shares of89 companies identified by Tarapore Committee have beenreferred to SEBI for enquiry.As reported in June, 2004The position has been explained against Para No.16.29.As reported in December, 2004The corrective action taken in respect of systems, procedures,delegations of powers, risk management etc. has been reportedagainst para No.15.9 of the first ATR. As regards, accountabilityaction, the position is given as against para No.16.29.


140

companies identified by the TaraporeCommittee. This enquiry may beconducted by SEBI for the period1992-1993 to 2000-2001 by looking atthese transactions at the level of UTI’sdealing room and at the level of individualbrokers and responsibility be fixed for anyincidents of broker-UTI dealer nexus,front running, benchmarking, etc. As thelack of any documentation of secondarymarket transactions will make an audittrail difficult, the Committee desire thatSEBI devise suitable mechanisms foridentifying wrongdoing. Steps may betaken thereafter by SEBI and UTI to takeaction against the wrongdoers includingreferring appropriate matters to anindependent investigative agency.

65. 16.47 The Committee deplore the imprudentmanner in which stocks were purchasedand retained, leading to a host ofmalpractices which require comprehensiveaudit and pre-investigation by a suitablyempowered body before proceeding to theinvestigative level. The Committee aresatisfied with the process adopted by UTIin respect of the investment decisions inthe case of 19 companies. The AdvisoryBoard on Bank, Commercial and FinancialFrauds should expeditiously take a finaldecision on these. The Committeerecommend that the procedure suggestedby the Tarapore Committee also beadopted in the case of investmentdecisions in the remaining 70 cases, asthis meets the ends of natural justice. TheCommittee desire that the entire process

by them. They have also written to SUUTIto furnish such information and documentsas may be required by auditors.Subsequent to the meetings held by SEBIwith the Auditors on 5.1.2005 and 9.2.2005and with the officials of SpecifiedUndertaking of UTI [SUUTI] on 1.2.2005and 1.4.2005, respectively, SEBI held ameeting with the Auditors and SUUTI on19.4.2005 to ascertain the current statusof the inspection work.The mater was followed up with auditors.3 auditors have informed that informationis still pending from SUUTI whereas, 10Auditors have informed that information isyet pending from BSE/ NSE/ otherexchanges.

As against para No. 16.37.As reported in May, 2003The matter is under consideration of the Government.As reported in December, 2003As in para 16.37As reported in June, 2004The position has been explained against Para No.16.29.As reported in December, 2004As against para 16.29.


141

should be completed within six months ofthe presentation of this repor t toParliament. There is no cause for furtherdelay in this matter.

66. 16.50 The Committee put on record, theirdisapproval of the decision makingprocess, rather the lack of it, in this privateplacement. The Committee conclude thatUTI’s investment in sanctioning Rs 32.08crore towards the purchase of 3,45,000shares of Cyberspace (of a face value ofRs. 10) at a price of Rs.930 per share wasirregular and violated norms of prudentialdecision making and notwithstanding ShriSubramanyam’s denials, possiblyinfluenced by extraneous considerations.The Committee are aware that criminalproceedings in this matter are pending,but see no reason why departmentalproceedings should not be initiatedsimultaneously in case of the officialsconcerned. In this regard RBI’s recentcircular dated 3/5/2002 addressed to allcommercial banks regarding bank frauds,specifically states, “...departmental actionagainst officials involved in bank fraudsshould invariably be initiatedsimultaneously with criminal action witha view to ensuring that internal fraudstersare immediately punished even if criminalcases against them drag on. At present,there is a tendency among banks to waitfor the outcome of criminal action againstofficials involved for taking departmentalaction. In view of the salutary effect of thisprinciple, we advise that you initiatedepartmental action against officials

The case of Cyberspace Infosys has alsobeen examined by the Board LevelCommittee for recommending furthercourse of action. The Committee haverecommended as under:

The Committee have not taken any viewon the role played by the then Chairman,Shri P.S. Subramanyam.

As regards, Smt. Prema Madhu Prasad,GM, the Committee have recommendedthat the Competent Authority may takeappropriate action.

As regards Shri S.K. Saha, ex-CGM, hisretirement benefits are withheld. TheCommittee have recommended that theCompetent Authority may take appropriateaction.

As regards Shri S.K. Basu, undersuspension, the Committee haverecommended that the CompetentAuthority may take appropriate action.

The Central Bureau of Investigation havefiled a chargesheet in the competent courtbased on their investigation and haverecommended regular depar tmentalaction against certain officials and one ex-official.

As reported in May, 2003The Administrator of UTI-I has informed that the matter hasalready been referred to the internal Vigilance Cell for a timebound departmental vigilance enquiry in the instant case asrecommended by JPC. The Vigilance enquiry is in progress.As reported in December, 2003The Vigilance enquiry has since been completed and based onthe findings, the Administrator of the Specified Undertaking ofthe UTI has ordered departmental action against Shri S.K. Basu,Executive Director (under suspension), and other officials. A copyof the internal vigilance report has also been forwarded to theCBI for their information and necessary action.Shri M.L. Pendse, former Justice, Bombay High Court & retired ChiefJustice, Karnataka High Court has been appointed as Enquiry Officerand the enquiry proceedings under the Staff Rules are in progress.As reported in June, 2004Shri M L Pendse, former Justice, Bombay High Court & retiredChief Justice, Karnataka High Court has been appointed asEnquiry Officer and the enquiry proceedings under the Staff Ruleshave also been completed. The Enquiry Officer’s findings areunder consideration of the Competent Authority for imposingpenalty.As reported in December, 2004As against para No.16.31.The SUUTI has informed that the vigilance report alongwithReports of the JPC and Tarapore Committee have been referredto the Board Level Committee on 24.8.2004 for recommendingfurther course of action.


142

involved in fraud cases simultaneously withcriminal action.” The Committee are of theopinion that UTI should also follow thisprinciple, and initiate a time bounddepartmental vigilance enquiry in thismatter. As recommended earlier thisshould also be done in all cases whereERC’s recommendations were not soughtor its recommendations were overruled.

67. 16.53 The Committee highlight this transactionas another serious violation of norms inUTI and accordingly recommendinvestigation into the entire transaction,including possible extraneousconsiderations which might have actuatedit. Moreover, the Committee deplore thefailure of UTI to pursue recoveryproceedings against a corporate, whichsought investment from UTI on the basisof an undertaking that it would compensateUTI for any loss in the transaction. TheCommittee recommend that UTI shouldvigorously pursue all civil and criminalavenues to recoup its investment inNumero Uno International in a time boundmanner. UTI should review the role of bothNumero Uno International as well as thecompany that arranged the transaction andtake action against them in case there isevidence that they misrepresented the trueaffairs of the company while seekinginvestment from UTI. The Committee alsorecommend that UTI should takeimmediate steps to hold the concernedofficials who processed this transactionaccountable and take action against suchofficials. Besides other actions, law

As reported in May, 2003Legal notice has been issued to M/s. Numero Uno by UTIMF forrecovery. As regards civil proceedings against the ex-Chairmanand officials of the Trust, UTI is seeking legal opinion of an externallegal specialist and further action would be considered based ontheir advice.As reported in December, 2003UTI AMC (Pvt.) Ltd. and the Administrator, Specified Undertakingof the Unit Trust of India (SUUTI) have filed petition before theDebt Recovery Tribunal, Mumbai against Numero Uno internationaland others for recovery of amount. Similarly, civil suit has beenfiled in the High Court of Mumbai against the ex-Chairman ShriP.S. Subramanyam. Both the matters have been filed on July 24,2003. Based on the initial findings of the vigilance enquiry, furthercivil action for damages has been approved by the Administratoragainst other officials viz. ex-official Shri Basudeb Sen, ExecutiveDirector, Shri S.K. Basu, Executive Director (under suspension)and ex-official Shri S.K. Saha, Chief General Manager who shareresponsibility for putting through the transaction.As reported in June, 2004The vigilance enquiry has been completed and further action isin progress.As reported in December, 2004SUUTI has informed that vigilance report alongwith the Reportof the JPC and Tarapore Committee Reports have been referredto the Board Level Committee on August 24, 2004 forrecommending further course of action.

UTI AMC and the Administrator, SpecifiedUndertaking of the Unit Trust of India filedpetition on July 24, 2003 before the DebtRecovery Tribunal, Mumbai againstNumero Uno International and others forrecovery of amount. Similarly, civil suit hasbeen filed in the High Court of Mumbaiagainst the ex-Chairman Shri P SSubramanyam. Further civil action fordamages has been initiated against otherofficials, viz. ex-official Dr. Basudeb Sen(ED), Shri S K Basu (ED-undersuspension) and ex-offcial Shri S K Saha(CGM), who share responsibility for puttingthrough the transaction.The findings of the internal vigilanceenquiry have been examined by the BoardLevel Committee. The Committee haverecommended as under:The Committee have not taken any viewon the role played by the then Chairman,Shri P.S. Subramanyam.As regards Shri S.K. Saha, ex-CGM, hisretirement benefits are withheld. TheCommittee have recommended that theCompetent Authority may take appropriateaction.As regards Shri S.K. Basu, under


143

permitting, UTI should initiate civilproceedings of damages against itsconcerned officials including the thenChairman to recover the losses sustainedby its unit holders for a decision which theytook without due diligence and in violationof UTI’s norms and procedures.

68. 16.56 The Committee are of the view that UTIcannot escape its responsibility to investorsin its guaranteed assured return schemes.Those responsible for launching theseassured return schemes must be heldaccountable for their actions andproceeded against. Moreover, theCommittee does not find the position takenby IDBI as guarantor of UTI to be inconsonance with the canons of soundcorporate governance. The ExecutiveCommittee of the Board of UTI whichsanctioned these schemes in 1996-97 and1997-98 in violation of SEBI guidelinescomprised Chairman, UTI appointed withthe concurrence of IDBI; CMD, IDBI as itsnominee; Executive Trustee appointed byIDBI; and another trustee functioning asthe IDBI nominee. It is therefore clear thatall functionaries who participated in thisdecision represented IDBI. Therefore theCommittee cannot accept IDBI’s claim thatUTI did not frame its assured returnschemes within the knowledge of IDBI asguarantor. IDBI should hold its appointeesresponsible for not framing UTI’s assuredreturn schemes in compliance with SEBIguidelines.

As reported in May, 2003The Administrator of the Specified Undertaking of the Unit Trustof India has informed that UTI fully acknowledges its responsibilitytowards investors of its guaranteed return schemes and will fullypursue all available options to satisfy claims of investors as theyaccrue. The shortfall in these schemes arose on account ofvarious factors such as (i) decline in equity values due to a generaldecline in the stock market. (ii) interest rate also declined duringthis period (iii) economic slowdown, income distribution tax andincrease in NPAs also affected the NAVs of these schemes. Aspart of the restructuring package announced by the Government,the shortfall, if any, on maturity in assured return schemes wouldbe met by the Government.All members of the Executive Committee and Board during theperiod 1996-97 and 1997-98 have long since relinquished theiroffice. None of them are receiving any continuing monetary benefitsfrom UTI. UTI had taken up with IDBI regarding action on the JPCrecommendations. IDBI, in its reply, has mentioned that it had norole in the transactions of business of UTI. IDBI has also advisedUTI to ascertain whether the Trustees could claim protection underprovisions of Section 37 of the UTI Act. Further action in this regardwill be taken after obtaining appropriate legal opinion.As reported in December, 2003The recommendation of JPC has been brought to the attentionof IDBI. Also, the list of all Assured Return Schemes launchedby the erstwhile UTI along with the names of Trustees whoparticipated in the Board/Executive Committee meetings wherethe schemes were approved, have been furnished to IDBI onApril 04,2003. IDBI has stated that the UTI Act did not confer anypowers on IDBI to take action against the Trustees appointed by

suspension, the Committee haverecommended that the CompetentAuthority may take appropriate action.As regards, Dr. Basudeb Sen, ex-ED andSmt. Prema Madhu Prasad, GM, theCommittee have not recommended anyaction.

The matter was put up to the Board ofAdvisors of SUUTI, who have directed thatan independent legal opinion in the mattermay be obtained. The Office of the ChiefLegal Advisor of UTI AMC Pvt. Ltd. hasbeen advised to co-ordinate in the matter.


144

69. 17.14 The Committee concur with theobservation of the Tarapore Committeethat the quantum jump in the inter schemetransfers from/to US-64 in the last threeyears raises concerns about thebonafides of such transactions andwhether they were for window dressingthe results of different schemes.

70. 18.19 The Committee have had occasion toexamine the CSE, Stock HoldingCorporation of India (SHCIL), SEBI, UTIand their officials in different sittings whilelooking at the crisis on CSE. The sharetransaction funding schemes of SHCILwere extensively used by one of thedefaulting CSE brokers, Shri HarishChandra Biyani to fund transactions in theshares of DSQ group. As there was primafacie evidence before the Committee thatSHCIL had violated prudential norms andinternal procedures to facilitate thesetransactions, SEBI was asked by theCommittee in June 2002 to prepare aninspection report focusing on SHCIL’s

IDBI for their acts of commission or omission.As reported in June, 2004Further course of action is under consideration.As reported in December, 2004SUUTI has informed that in view of the response of the IDBI thatUTI Act did not confer any powers on IDBI to take action againstthe Trustees appointed by IDBI for their acts of commission oromission, the matter will be put up to the Board of Advisors ofSUUTI for direction in the matter.

As reported in May, 2003As against 16.21As reported in December, 2003As against para 16.21As reported in June, 2004The position has been explained against Para No. 16.21.As reported in December, 2004As against 16.21.

As reported in May, 2003SEBI has ordered investigation to ascertain as to whether therewas any nexus among SHCIL officials, Dinesh Dalmia, promoterof DSQ Industries, Biyani Group in relation to the transactionsdone by Biyani Group through SHCIL and more particularly toascertain whether any provisions of the SEBI Act, 1992 andvarious Rules and Regulations made thereunder have beenviolated. Investigation is currently in progress.As reported in December, 2003As against para 4.70As reported in June, 2004The position has been explained against Para No.4.70.As reported in December, 2004As against para 4.70.


Kolkatta Police have informed that thetransactions carried out by the accusedBiyani Group through SHCIL under theschemes “Sell-n-Cash” and “Cash on Payout” was investigated and it has beenestablished that there was a connivanceand nexus between the accused BiyaniGroup, the absconding accused DineshDalmia, the MD of DSQ Group and someofficial of SHCIL. For such purpose and inthe interest of this case, most of thefunctionaries of Biyani Group exceptingaccused Ravinder Biyani against whomproclamation has been published, B.V.Goud, the then MD of SHCIL werearrested. The investigation relating to the


145

funding transactions as its earlier reportof May 2001 was silent on these aspects.The findings of SEBI’s report have beendiscussed in detail in Chapter IV of Part Iof the report. The Committee have insifting through the reports, depositionsand evidence placed before them,observed a disturbing nexus which standsestablished by the following facts:-

1 Shri P.S. Subramanyam was Chairmanof UTI as well as SHCIL at the time ofthe transaction. UTI is one of thepromoters of SHCIL.

2 Shri B.G. Daga was the ExecutiveDirector of UTI as well as UTI’srepresentative on the Board of Directorsof SHCIL.

3 Shri H.C. Biyani and his related entitieswere the brokers involved in bothtransactions.

4 As per the report of SHCIL’s VigilanceAdvisor and later confirmed in SEBI’sinspection report, Shri H.C. Biyani is thebroker of Shri Dinesh Dalmia who is themain promoter of the DSQ group.

5 As per the report of SHCIL’s VigilanceAdvisor, oral evidence tendered to theCommittee and later confirmed by SEBIin its inspection report. Shri DineshDalmia lobbied with SHCIL to fund thetransaction involving the scrip of DSQIndustries.

6 The transactions of both SHCIL and UTIinvolved the shares of DSQ group.

7 These transactions took place on CSEin the first and second week of March2001.

8 UTI had the choice of buying either the

involvements of arrested accused personsare in concluding stage. The prolongedabsconsion of accused Dinesh Dalmia andhis associates caused serious hindrancein completing the investigation andcolleting more material evidences.The CBIhas been requested to expedite the arrestand extradition of said accused DineshDalmia who has been reportedly stayingin USA.


146

scrip of DSQ Software or HFCL but wentahead and bought the former eventhough there was a specificrecommendation by its Equity ResearchCell that it should sell its existingholdings of the share.

9 Shri H.C. Biyani and related entitiesentered into circular transactions onCSE in the scrip of DSQ Industries. Theyobtained funding from SHCIL through itssell and cash scheme bymisrepresenting these transactions asbeing at arms length. The transactionswere later annulled by CSE as onenquiry they found that they werebetween entities belonging to the samegroup of persons and appeared to beaccommodation transactions.

10 Another large transaction in the scrip ofDSQ Industries undertaken by H.C.Biyani and his related company wasfunded by SHCIL through its cash onpayout scheme. SHCIL violated itsprocedures to facilitate this transactionas well as Shri H.C. Biyani’s subsequentdiscounting of SHCIL’s postdatedcheque by issuing letters of comfort toInduslnd Bank, which had never beendone in any other transaction.

11 According to the SEBI inspection report,companies linked to the promoter ofDSQ group provided the shares of DSQgroup to Sh. Biyani through off marketdeals, which he then traded on the CSE.

12 Both UTI and SHCIL’s decisions werefound to be imprudent, in violation of laiddown procedures and have extracted aheavy price in terms of financial loss and


147

loss of reputation and customerconfidence.

13 The damage to the vital dealing roomtapes recording UTI’s transaction withCSE is suspicious.

71. 18.20 The Committee see that all these eventspoint to a close nexus between thecorporate promoter, defaulting brokersacting on behalf of the promoter, brokerdirectors on CSE and public officials inSHCIL and UTI. The Committeerecommend that the followingconsequential steps may be taken:(ii) The Committee have been informed by

the IDBI, one of the promoters ofSHCIL, that its nominee is currently theChairman of SHCIL and that it hasdecided to carry out a specialinvestigation of SHCIL’s role, fixaccountability and punish the guilty. TheReport has now been received and theCommittee desire that it should befollowed up expeditiously.

(iii) SEBI’s inspection report on SHCIL haspointed out a number of irregularities.The Committee desire thatinvestigation be concluded withoutdelay and suitable action taken againstthe concerned persons.

(v) Chairman, SEBI should institute anindependent enquiry regardingwhether there was any improperconduct by any SEBI official deputedby it to handle the payment crisis at

As reported in May, 2003(ii) The matter is under consideration of IDBI.As reported in December, 2003ii) As against para 4.70.As reported in June, 2004The position has been explained against Para No.4.70.As reported in December, 2004As against para 4.70.

As reported in May, 2003(iii) The matter is under consideration of SEBI.As reported in December, 2003(iii) As against para 4.70.As reported in June, 2004The position has been explained against Para No.4.70.As reported in December, 2004As against para 4.70.

As reported in May, 2003v) The matter is under consideration of SEBIAs reported in December, 2003(v) The Officer concerned has filed his explanation. Investigationis under progress.



The report is at the final stage.


148

CSE, specifically the antecedents of thedeputed official, whether he was sent inthe normal course of the responsibilitiesassigned to him, and if he had any rolein facilitating UTI’s off market purchasefrom CSE. Chairman, SEBI should takeappropriate administrative action on thebasis of the report.

(vi) SEBI, Enforcement Directorate andDCA have already instituted enquiriesin case of the DSQ group, which are atdifferent stages. These should beexpedited.

The Committee hope that swift action asdetailed above will send the right signals tothe stock markets and other financialinstitutions.

72. 21.9 The Committee would like to put on recordthe following observations andrecommendations:

(ii) There are a number of civil, criminal,departmental and vigilance proceedingspending in UTI with regard to theirregularities in its investment decisions. TheCommittee have also recommendedcertain actions to enforce accountability forprevious misdemeanors. The Committeerecommend that legislation regarding UTIas well as Government policy should take

As reported in June, 2004Investigation is under progress.As reported in December, 2004The report is at the final stage of completion.

As reported in December, 2003vi) Enforcement Directorate’s investigation into DSQ group havebeen completed. Letter Rogatory has been issued by court inrelation to FERA complaint. Investigations in relation to FEMAperiod transactions, have been completed with the issuance of aSCN to the company, Shri Dinesh Dalmiya and others.Investigations in relation to DSQ Biotech have been completedand two SCNs have been issued.As reported in December, 2004One show cause notice issued to M/s. DSQ Software Ltd. hasbeen adjudicated by imposing a penalty of Rs.2 crore on thecompany and Rs.2 crore on Shri Dinesh Dalmia. The adjudicatingauthority is being requested to finalise the pending adjudication.As reported in June, 2004The matter is under consideration of Enforcement Directorate.

As reported in May, 2003Section 21(c) of the Unit Trust of India (Transfer of Undertaking &Repeal) Act, 2002 provides that notwithstanding repeal of UTIAct, 1963 any action done or purported to have been done underthe repealed Act shall, in so far, it is not inconsistent with theprovisions of the Act, be deemed to have been done or takenunder the corresponding provisions of this Act. This section takescare of the civil, criminal, departmental and vigilance proceedingspending in the erstwhile UTI with regard to irregularities in itsinvestment decisions.As reported in December, 2003Pending legal actions continue to be pursued.

Enforcement Directorate have informedthat Show Cause Notice issued to M/sDSQ Software and its officials underFERA, 1973 has also been adjudicatedimposing a penalty of Rs.64,00,05,000 onM/s DSQ Software Ltd. andRs.65,03,05,000 on its officials. Besides,an amount of Rs.4,62,015.15 alongwithinterest accrued thereon has also beenordered to be confiscated. This completesthe proceedings intitiated by theEnforcement Directorate against M/s DSQGroup of Industries. Action completed.

Pending legal actions continue to bepursued in respect of one Civil Suit filed inthe High Court of Mumbai against the ex-Chairman Shri P.S. Subramanyam andother officials, claiming damages for theirrole in purchase of shares of M/s. NumeroUno International Ltd.

The CBI have filed FIR in respect of thefollowing cases:M/s. Cyberspace Infosys Ltd.M/s. Padmini Polymers Ltd.


149

these proceedings into account so thatthey are concluded expeditiously and arenot hampered by the fact that the UTI Actof 1963 has been repealed.

As reported in June, 2004Pending legal actions continue to be pursued by SUUTI.As reported in December, 2004Pending legal action continue to be pursued.

M/s. Shonkh Technologies Ltd.M/s. Eonour Software Ltd.

The CBI have filed chargesheet in specialcour t for CBI cases in respect ofinvestment of UTI in M/s. CyberspaceInfosys Ltd. The findings of the CBI inrespect of the other three cases areawaited.

FOURTH PROGRESS REPORT ON THE ACTION TAKEN …

Documents

Transcript of FOURTH PROGRESS REPORT ON THE ACTION TAKEN …