The Securities and Exchange Board of India has barred the promoters of Aftek Infosys for a year from any dealings in the capital markets for violating Sebi regulations in their dealings with the securities of their company.
The promoters- Ranjit Mohan Dhuru, Pramod Broota, Nitin Kashinath Shukla, Sandip Save, Ashutosh Humnabadkar, Ravindranath Umakant Malekar, Mukul Suryakant Dalal and Charuhas Vasant Khopkar - were found guilty of violating the Sebi (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995.
According to Sebi, the share price of Aftek witnessed a marked increase during the period April 1999 to March 2000 on the BSE. In particular, the increase in prices is highly pronounced during November-December 1999.
The price of share increased from Rs 477.5 on November 12, 1999 to Rs 1,108.2 on December 3, 1999. This sharp increase of more than 100 per cent in such a short period of time coincided with some significant corporate events during this period.
Sebi conducted an investigation to find out whether there was an attempt by the promoters and others to bail out the issue and to manipulate the price of the scrip.
According to Sebi investigations, IDBI is holding 985,000 shares of Aftek which it got allotted when Aftek came out with IPO in 1995. In November 1999, IDBI offered to sell 900,000 shares to the promoters at prevailing market price of Rs 477.75 and called upon the promoters of Aftek to pay 10 per cent of the amount by Nov 15, 1999 and remaining 90 per cent by November 19, 1999.
The promoters of Aftek approached Ketan Parekh and Jayesh Parekh for obtaining finance to acquire the shares from IDBI and Ketan Parekh provided finance through three of his entities.
Passing the order the Sebi chairman noted that the "finance-cum-option agreement, in the event of default by the borrower (Promoters), the financier could sell or dispose off the shares without notice."
"Clause 6(h) of the agreement incorporates that in the event of default the financier shall also have the right to adjust or apportion the said security shares or part thereof towards outstanding financial assistance and interest thereon without any recourse to the borrower."
"As per the agreement, the principal amount of the loan along with interest 18 per cent per annum shall be payable on or before March 31, 2000. However, the financier had an option to purchase shares up to 15 December, 1999."
The Sebi order pointed out that on December 15, 1999, the share price of Aftek hit a high of Rs 1967 on BSE. "Purportedly, the price has been going up right from the time agreement was entered into."
"Any person of ordinary prudence will have either asked for adjustments of the loan towards market price or asked for difference and release of pledge even if he was unable to repay the loan."
"He could have even made alternative arrangements for repayment of the loan and taken possession of the shares which commanded much higher price over what acquirers had paid to IDBI."
"I am not able to persuade myself to believe that promoters of Aftek did not possess such prudence. In view of the aforesaid facts and circumstances, there appears to be sufficient preponderance of circumstances that the promoters of Aftek colluded with the KP Group entities in creation of artificial market and volumes in the scrip to corner tradeable securities in the market, thereby caused artificial shortage of shares to induce investor interest in the scrip."
"The acts of the promoters can be said to have disturbed the market equilibrium by creating artificial demand thereby distorting the price discovery mechanism of the exchange which would be detrimental to the interest of investors and orderly development of security market," the order said.
