Order in respect of Almondz Global Securities Ltd.,Mr.Vinay Mehta and Mr. Sanjay Dewan in the matter of IPO of Bharatiya Global Infomedia Ltd

IN THE MATTER OF IPO OF BHARATIYA GLOBAL INFOMEDIA LIMITED In respect of Almondz Global Securities Limited, Mr. Vinay Mehta and Mr. Sanjay Dewan

Date of Hearing: April 26, 2012 Appearances: For Noticees: Mr. Ravichandran S. Hegde, Advocate Mr. Joby Mathew, Advocate Mr. Sanjay Dewan, Associate Director For SEBI: Mr. Biswajit Chaudhary, Deputy General Manager Ms. Geetha G., Deputy Legal Adviser Mr. Sugadev Chinnakkannu, Assistant General Manager Mr. Priyam Ray, Assistant Legal Adviser

ORDER UNDER SECTIONS 11(1), 11(4) AND 11B OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 1. Securities and Exchange Board of India (hereinafter referred to as 'SEBI') had issued certain directions in the matter of dealings in the Initial Public Offering (hereinafter referred to as 'IPO') of Bharatiya Global Infomedia Limited (hereinafter referred to as 'BGIL'), vide an ex-parte ad interim order dated December 28, 2011 (hereinafter referred to as the 'interim order'). Almondz Global Securities Limited (hereinafter referred to as 'Almondz') acted as the merchant banker/ lead manager in the IPO of BGIL. The said interim order inter alia prohibited Almondz, its Chief Executive Officer, Mr. Vinay Mehta and the Head of its Merchant Banking division, Mr. Sanjay Dewan (hereinafter collectively referred to as ‘the entities’ and individually by their respective names) from taking up any new assignment or involvement in any new issue of capital including an IPO, follow-on issue etc., from the securities market in any manner whatsoever till further directions. The entities/ persons against whom the interim order was issued, were advised that they may file their objections, if any, within twenty one (21) days from the date of the said order and also avail of an opportunity of personal hearing, if they so desire.

2. A brief of the background of the case is stated below. BGIL had come out with an IPO during the period of July 11, 2011 to July 14, 2011. The shares of BGIL were allotted at 82. SEBI initiated a preliminary investigation upon noticing wide fluctuations in the price of the scrip of BGIL, pursuant to the listing. The preliminary investigation inter alia revealed that the proceeds of the IPO of BGIL was transferred to various entities with a likely purpose of siphoning off and/ or diversion of funds. It was prima facie revealed that BGIL had suppressed material facts in the offer document pertaining to the company like utilization of proceeds of the issue, payment for Inter Corporate Deposits (hereinafter referred to as 'ICD'), payment to vendors etc. Further, Almondz was also prima facie found to have failed to exercise due diligence and aided and abetted the fraud committed by BGIL. 3. Pursuant to the passing of the interim order, the entities were granted inspection of documents on March 15, 2012, at their instance. Subsequent to the inspection, Almondz replied to the interim order vide its letter dated March 21, 2012. Mr. Sanjay Dewan and Mr. Vinay Mehta replied separately vide their letters dated March 30, 2012 and April 04, 2012. Thereafter, opportunities of personal hearing were granted to the entities on April 26, 2012. On the date scheduled for the hearing, Mr. Ravichandra S. Hegde, Advocate appeared for Almondz while Mr. Sanjay Dewan along with his advocate, Mr. Joby Mathew appeared for the hearing.

The submissions of the entities are summarized below:- a. Almondz’s submissions are as under:- - Almondz had periodic meetings with the promoters and the management of BGIL. It obtained various documents/ information/ certification/ undertakings from BGIL and properly verified those. Almondz relied on the audited statements provided by the auditor as auditor is an expert who certifies the financial position of the issuer. Almondz also independently audited the financial statements of BGIL. - The relevant clauses in the Regulations under which allegations have been made against Almondz do not contain any explicit processes for evaluation and uniform practices that a Merchant Banker is expected to follow while performing the due-diligence. The relevant information to be disclosed and updated in the prospectus had not been disclosed to Almondz by BGIL. - The interim order fails to establish fraud on the part of Almondz. Further, it denied aiding/ abetting fraud committed by BGIL. - BGIL had not informed Almondz about any relationship with SRG Financial and Management Consultants nor provided any information about this company.

The search conducted by Almondz on various websites about the group companies and the Legal Due Diligence Report dated November 09, 2010 did not reveal any linkages of BGIL to SRG Financial and Management Consultants.

- Almondz relied upon the work of experts and believed that an independent valuation of software or retention of invoices of hardware purchased by the company or an exercise to bifurcate hardware and software or to separately indentify all assets in the fixed assets register of BGIL was not warranted.

b. Mr. Vinay Mehta, the Chief Executive Officer of Almondz, vide his letter dated April 04, 2012 submitted as under: - There is no role of omission or commission attributed to him in his individual capacity. The responsibility may be imputed to an individual on behalf of an entity, if that entity is itself not amenable to the imposition of penalty. - He was a commercial banker since the year 1976 and joined Almondz in the year 2006. Since joining Almondz, his main role was to grow the organization strategically. - The Board of directors of Almondz and its Managing Director and CEO are primarily engaged in providing strategic leadership to Almondz and are not actively involved in managing the day to day affairs of its various business lines. - The Merchant Banking activity was managed by a team of senior experienced professionals who had complete autonomy in functioning. The due diligence aspect of the business was headed by the Merchant Banking compliance officer and he ensured that due diligence process was strictly followed in accordance with the SEBI prescribed rules and regulations. Neither the compliance officer nor the head of Merchant Banking (who also signed the due diligence certificate) directly reported to him. - He was not involved in the origination, marketing, execution or compliance activity relating to the IPO of BGIL or for that matter, relating to any IPO. - He had no supervisory role in relation to the Merchant Banking division in Almondz.

c. Mr. Sanjay Dewan, the Head of the Merchant Banking division, replied as under: - He mainly relied upon the reply submitted by Almondz. It was submitted that he has been associated with Almondz for over nine years. He is a victim to the alleged fraud perpetrated by BGIL and not a party to the fraud. - During the due diligence process, periodic meetings were held with the promoters and management of BGIL and various documents/ information were sought and properly verified. They had relied upon the various certifications and undertakings given by BGIL in respect of the disclosures made in the Offer Document. - They had obtained the ‘Due Diligence Report’ and ‘Supplementary Due Diligence Report’ of the Legal Advisor to the IPO. - Almondz had relied upon the confirmations/ submissions of BGIL’s Statutory Auditor (Comfort Letters) specifically intended to provide an update of any material developments in BGIL.

4. While the proceedings were in progress, Almondz approached Hon'ble Securities Appellate Tribunal for setting aside the directions against it, contained in the interim order. The Hon'ble Securities Appellate Tribunal, after considering the facts and circumstances of the case, vide its order dated September 12, 2012 directed as under: "..., we dispose of the appeal with a direction to the Board that appropriate order, qua the appellant, may be passed within a period of two weeks from today. In case no such order is passed, the ex-parte ad interim order qua the appellant, shall stand vacated..." 5. I have taken note of the aforesaid order. I have considered the replies/ objections filed by the entities, the submissions made on their behalf during the personal hearing and the relevant material available on record. The limited issue to be considered and decided at this stage is whether, based on the material available on record and after considering the submissions made by the entities, the ad interim ex-parte directions issued vide the interim order dated December 28, 2011 needs to be continued, revoked or modified in any manner, in so far as it relates to the entities herein.

6. Almondz was the lead manager, appointed to manage the IPO of BGIL. The entities in their replies have submitted that being a lead manager they relied upon various certifications and undertakings given by BGIL, audited statements provided by the auditor, due diligence reports given by the Legal Advisors to the IPO and conducted the due diligence for the said IPO. It also expressed its inability of knowing about the alleged fraud by the BGIL. I note that the interim order discusses in detail about the prima facie violations of Almondz. It is seen that BGIL had raised various ICDs before signing the Red Herring prospectus (hereinafter referred to as 'RHP') and that these ICDs were in the nature of financial arrangement to be repaid out of the IPO proceeds. Further, the RHP does not contain complete list of relatives of the directors of BGIL and the details regarding related party transactions. I note that these facts require independent verification. 7. Almondz in its reply has submitted that fraud and lack of diligence cannot co-exist. To this, I note that fraud cases are often the result of a failure to conduct a comprehensive analysis which in the present case was primarily the responsibility of the entities.

I am of the view that Almondz is responsible for the disclosures in an offer document. Almondz, in carrying out its functions was expected to act in an independent and professional manner and was also expected to independently verify the facts and figures of such certificates/ reports. I note that Almondz had failed to act diligently and the investors were put in grave danger by providing mis-statements and having material omissions in the aforesaid offer documents. The investor trusts the merchant banker to have conducted due diligence when he decides to invest in the company. Therefore, the various responsibilities associated with the due diligence are to be discharged with care and caution. 8. Almondz in its reply has submitted that the failure was entirely on the part of BGIL, which failed to disclose certain details and also provided misleading statements. However, according to me, Almondz cannot escape from its duty and responsibility as a Merchant Banker, by making such a submission. Almondz in its submission has also said that the charges were not clearly demonstrated as to how it has failed to exercise due diligence and professional skill and care.

I note that the interim order has demonstrated the charges on the basis of prima facie findings of investigations such as the non-disclosure of ICDs which were to be repaid out of IPO proceeds, finalization of a different set of vendors, advances paid to some of the vendors, incomplete list of relatives of the directors etc. 9. Mr. Vinay Mehta in his reply has submitted that he was not involved in the origination, marketing, execution or compliance activity relating to the IPO of BGIL and he had no supervisory role in relation to the Merchant Banking division of Almondz. The Managing Director of a company is responsible for the overall conduct of the company and therefore, he cannot escape the responsibility simply by saying the day to day operations were not looked after by him. I note that there are omissions and mis-statements in the RHP and the Prospectus of BGIL, details of which were specified in the interim order and the same have not been contested by the noticees. I note that Mr. Sanjay Dewan, the Head of the Merchant Banking division is responsible for the activities of Almondz, being the authorized signatory of Almondz for the purpose of the due-diligence certificate.

10. I note that the investigation in the matter is still in progress and the findings thereof would reveal the specific role of the entities in the dealings in the IPO of BGIL. I note that the directions issued vide the interim order are interim in nature and were issued on the basis of prima facie observations. Thus, at the present stage, I am of the considered view that it would not be appropriate to give any conclusive findings as to any fact or submissions made by Almondz. It is to be noted that the activities of Almondz was found to be prima facie in violation of the provisions of the SEBI (Issue of Capital and Disclosure Requirement) Regulations, 2009, SEBI (Merchant Bankers) Regulations, 1992, SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 read with the SEBI Act, 1992 as mentioned in the interim order. 11. Therefore, I do not find it fit to modify/ revoke the ad interim directions issued vide Order dated December 28, 2011. I am convinced that the directions in the interim order in respect of the entities need to be continued, till further directions.

Needless to say, the same would be reviewed upon conclusion of all the proceedings in the matter. 12. In view of the foregoing, I, in exercise of the powers conferred upon me in terms of Section 19 of the Securities and Exchange Board of India Act, 1992 read with Sections 11(1), 11(4) and 11B thereof, hereby confirm the directions issued in respect of Almondz Global Securities Limited, Mr. Vinay Mehta and Mr. Sanjay Dewan vide ex-parte ad interim Order dated December 28, 2011. 13. I also note that SEBI vide its order dated September 11, 2012 in the matter of IPO of P.G. Electroplast Limited has also confirmed the interim direction issued vide ex-parte order dated December 28, 2011 issued in respect of Almondz Global Securities Limited, Mr. Vinay Mehta and Mr. Sanjay Dewan.

PLACE : MUMBAI PRASHANT SARAN DATE : 21/SEPTEMBER/2012 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA