Order in respect of GHCL Ltd, Mr. Sanjay Dalmia, Mr. Ravi Shanker Jalan, Mr. Bhubaneshwar Mishra and the Promoter entities in the matter of GHCL Ltd

1. The Securities and Exchange Board of India (hereinafter referred to as SEBI), vide an ad-interim ex-parte order dated April 20, 2009 (hereinafter referred to as the Order) directed GHCL Limited (hereinafter referred to as GHCL), its Chairman Mr. Sanjay Dalmia, its Managing Director Mr. Ravi Shankar Jalan, its Company Secretary Mr. Bhuwneshwar Mishra and 43 promoter entities not to buy, sell or deal in the securities market until further orders. Further, GHCL was also directed to reconcile and file the correct shareholding details with the stock exchanges. The said directions were passed as it appeared to SEBI that GHCL had filed false shareholding of its promoters continuously for the four quarters of 2008 and thereby prima facie contravening Regulation 4(2)(f) and 4(2)(r) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as PFUTP Regulations) and Section 21 of the Securities Contracts (Regulation) Act, 1956 (hereinafter referred to as SCRA). Subsequently, SEBI, vide Order dated July 7, 2009 vacated the directions issued vide the Order, against 33 promoter entities, for the reasons stated therein.

Subsequently, an opportunity of hearing was granted to GHCL, its Chairman Mr. Sanjay Dalmia, its managing director Mr. Ravi Shanker Jalan and its company secretary Mr. Bhuwneshwar Mishra on May 22, 2009. On the said day, Mr. Joby Mathew, Advocate appeared on their behalf and made submissions. Mr. Deepak Khurana, Advocate, Mr. Umesh K. Khaitan, Advocate and Mr. Raman Chopra, Director (Finance), GHCL, were also present in the hearing. Thereafter, GHCL, Mr. Sanjay Dalmia, Mr. Ravi Shanker Jalan, Mr. Bhuwneshwar Mishra and the remaining ten entities (out of the forty three promoter entities) namely, Carissa Investment Private Limited, Dear Investment Private Limited, Dalmia Housing Finance Limited, Altar Investment Private Limited, Antarctica Investment Private Limited, Archana Trading and Investment Company Private Limited, Anurag Trading Leasing and Investment Company Private Limited, Comosum Investment Private Limited, Ilac Investment Private Limited and Lovely Investment Private Limited (hereinafter collectively referred to as the entities and individually by their respective names) filed a consent application dated June 9, 2009 for passing of a consent order in terms of SEBI Circular dated April 20, 2007. However, the same were rejected by SEBI and they were informed of the same, vide letter dated July 31, 2009. Subsequently, the entities had filed another application, vide letter dated August 26, 2010, for passing of a consent order.

The said application was also rejected and the same was communicated, vide letters dated September 17, 2010 and February 4, 2011 (in respect of Archana Trading and Investment Company Private Limited). In view of the pendency of the consent applications, the present proceedings were kept in abeyance. The entities were afforded opportunities of hearing and they finally appeared on December 3, 2010, when they were represented by Mr. F.E. Devitre, Senior Advocate, Mr. Sanjeev Kumar Singh, Advocate and Mr. Vinay Chauhan, Advocate, who made submissions. In the meanwhile, Mr. Sanjeev Kumar Singh, Advocate, vide separate letters dated December 1, 2010 had filed replies on behalf of the said entities. The replies are more or less similar in their contents and are considered in the later part of this Order.

2. I have examined the replies filed by GHCL, its Chairman Mr. Sanjay Dalmia, its managing director Mr. Ravi Shanker Jalan and its company secretary Mr. Bhuwneshwar Mishra and the submissions made by their counsel. I have also examined the submissions of the entities, the submissions made on their behalf by the learned senior counsel which were on the lines of the replies of the entities and other material available on record. The only issue to be considered at this stage is to decide whether the interim directions issued vide the Order against the aforesaid persons/entities need to be continued, modified or revoked, in the light of their submissions and the facts and circumstances of the case. Since the submissions of the entities are more or less similar in substance, the submissions of Carissa Investment Private Limited are considered for the purpose of this Order.

3. One of the prima facie observations made in the Order is that the disclosures made with respect to the promoters’ holding in GHCL were at significant variance with their actual holdings. In this regard, the entities have made a common submission that they are investment and finance companies, primarily engaged in trading of securities in secondary and primary market. According to them, their shareholding had almost remained consistent except for occasional gradual increase. It was further stated that during the course of its business activities, Carissa Investment Private Limited had raised Inter Corporate Deposits (ICDs)/loans from various Non Banking Financial Companies (NBFCs) by pledging its shares and that it had while trading, also kept certain shares of GHCL held by it with various stock brokers towards margin for taking exposure in the market. The other nine entities (except Carissa Investment Private Limited mentioned above in this Order) have also submitted that they had pledged the shares held by them towards the finances raised by Carissa Investment Private Limited from the lenders.

They have also submitted that they had also tendered their shares for replenishing the margin with the stock brokers which was consequent to the erosion in value of the securities pledged/kept as margin. It was the submission that since the entities wanted to maintain their shareholding in GHCL in order to avoid possible takeover of GHCL, they had come to an understanding with certain investors who were willing to buy the shares of GHCL from the market that they would buy back the shares at a later date. It was the submission of the entities that it was in this background that they had requested, on the basis of a legal opinion, GHCL to include shares of GHCL held by other entities as a part of its shareholding, while making disclosures to the stock exchanges under Clause 35 of the Listing Agreement. The entities further stated that the inclusion of shares held by other entities in their shareholding was not actuated by any sinister/fraudulent/manipulative intent or design and was guided by their interest in protecting GHCL from any takeover threat. It was added that, in the said circumstances, the disclosures regarding their shareholding were made by GHCL to the stock exchanges, which were at variance with the actual shareholding in their name.

The entities further stated that certain doubts were raised regarding the inclusion of shareholding of other entities in their shareholding, pursuant to an amendment to the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as the Takeover Regulations) on January 28, 2009 and therefore, they had sought another legal opinion in order to confirm whether they could still continue to include the shares held by other entities in their shareholding. On the basis of the legal advice so obtained, they had immediately filed the details of their shareholding inter alia specifying the shares pledged by them and excluding the shareholding of other entities, which hitherto was included by them in their shareholding and accordingly, GHCL had filed revised disclosures with the stock exchanges. It was also submitted before me that the alleged wrong reporting did not have any adverse impact on the shareholders interest and submitted that the same is borne out by the comparison of the price movement of the scrip during the pre and post period of SEBI Order (i.e.

January 2009 to December 2009). According to the entities, the clarification on their shareholding pattern was intimated to GHCL and the latter had also informed the same to the stock exchanges during February 2009 to April 9, 2009.

4. Further, with regard to the publication of the report dated June 11, 2008 in the Economic Times, it is submitted that the entities had no link/connection/nexus with either the publication of the report or the Al Rostomani group and that they had not traded in the shares of GHCL during the relevant period. It was submitted before me during the hearing that there was no unusual movement in the price/volume in the shares of GHCL, pursuant to the said media report. It was also submitted that the entities had already suffered complete prohibition from dealing in the securities market, for a period of almost nineteen months and that the alleged wrong reporting is a mere irregularity and not an illegality. Therefore, according to the entities, any further continuance of the directions would be unjustified. The entities further stated that they had been consistently co-operating with the ongoing investigation and had provided all the material/documents as and when called for. In view of the above, the entities requested that the directions passed against them be withdrawn.

5. GHCL submitted vide letter dated May 20, 2010 that the shareholding pattern filed by it during the period of investigation was based on the shareholding information provided by the share transfer agents and the declaration given by the entities supported by legal opinion and that at the relevant time there was nothing to suspect that there was something amiss or that there was the alleged incorrectness in the disclosures made by the entities. GHCL has also submitted that the alleged incorrectness in the disclosures had already been rectified by it and subsequently, all the disclosures have been filed regularly and properly. It is the submission of GHCL and its management (Mr. Sanjay Dalmia, Mr. Ravi Shanker Jalan and Mr. Bhuwneshwar Mishra) in the letter dated June 15, 2009 that there was no malafide intent on their part and none of them have derived any advantage or benefit out of the filing of the said shareholding pattern of GHCL.

6. The entities have submitted that they had not traded in the shares of GHCL during the relevant period. I also note the submission that Carissa Investment Private Limited and Dear Investment Private Limited have not traded in the market, as alleged in the Order. According to them, as a result of defaults in repayment of loans/shortfall in margins, the lenders/stock brokers started liquidating the shares pledged/kept as margin by the entities at various points of time as per their discretion based on the quantum of shortfall. The entities have subsequently rectified their shareholding in GHCL and made the relevant disclosures excluding the shareholding of others. The investigation in the matter is ongoing. Having considered the facts and circumstances of the case and the submissions made by the learned senior counsel for the entities and the submissions of GHCL and its management as aforesaid, in the interest of justice, I am of the considered view that the directions issued against them, vide the Order can be revoked. However, I am not giving any finding on merits as the investigation in the matter is in progress.

7. In view of the foregoing, I, in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 and Section 11(4) thereof, hereby revoke the directions issued against GHCL Limited, Mr. Sanjay Dalmia (Chairman, GHCL Limited), Mr. Ravi Shanker Jalan (Managing Director, GHCL Limited), Mr. Bhuwneshwar Mishra (Company Secretary, GHCL Limited) and the promoter entities, namely, Carissa Investment Private Limited, Dear Investment Private Limited, Dalmia Housing Finance Limited, Altar Investment Private Limited, Antarctica Investment Private Limited, Archana Trading and Investment Company Private Limited, Anurag Trading Leasing and Investment Company Private Limited, Comosum Investment Private Limited, Ilac Investment Private Limited and Lovely Investment Private Limited, vide Order dated April 20, 2009 in the matter of GHCL Limited, with immediate effect.

8. Copies of this Order shall be served on the depositories to enable them to take necessary steps for ensuring due compliance with this Order.

9. The direction at paragraph 7 above shall not prejudice the rights of the Securities and Exchange Board of India from taking any action as warranted, in accordance with law, on completion of the ongoing investigation in the matter.

10. The investigation initiated in the matter shall be concluded as expeditiously as possible but not later than May 31, 2011.

DR. K. M. ABRAHAM WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

PLACE: MUMBAI DATE: MARCH 14, 2011