Cals Refineries Ltd, a penny stock, is again in the limelight with a special court under the Prevention of Money Laundering Act (PMLA) directing the Mumbai anti-corruption bureau (ACB) to register a first information report
(FIR) against top officials of the Securities and Exchange Board of India (SEBI) and the Bombay Stock Exchange (BSE). The complainant alleged that officials from SEBI and BSE failed to comply with essential regulatory norms, including disclosure requirements and due diligence procedures and allowed Cals Refineries to list in 1994. Both SEBI and BSE decided to challenge the court order in this matter.
In a release, the market regulator says, "Even though these officials were not holding their respective positions at the relevant point of time, the court allowed the application without issuing any notice or granting any opportunity to SEBI to place the facts on record. The applicant is known to be a frivolous and habitual litigant, with previous applications being dismissed by the Court, with imposition of costs in some cases."
"SEBI would be initiating appropriate legal steps to challenge this order and remains committed to ensuring due regulatory compliance in all matters," it added.
In a statement, BSE says the court has allowed the application without issuing any notice or granting any opportunity to the Exchange to place the facts on record. "The named company, Cals Refineries, was listed at BSE in 1994. The officials named in the application were not in their respective positions at the time of listing and were not connected with the company at all. The application is frivolous and vexatious in nature. BSE is initiating necessary and appropriate legal steps in this regard."
On 5 June 2009, SEBI banned 26 entities allegedly 'connected' with KP which had traded in Cals Refineries, Confidence Petroleum India, Bang Overseas, Shree Precoated Steels and Temptation Foods. In doing so, the regulator officially declared what was well known to the market, as
Moneylife repeatedly pointed out that KP has been active in the market and in manipulating the prices of small and medium scrips, despite the 14-year ban imposed on him and his associates in 2003. (
Read: Re-discovery of Ketan Parekh?)
As reported by
Moneylife in July 2010, Cals Refineries was attracting millions of trades, but there was no scrutiny. "Internet message boards and forums around this company are very active (a true understatement) and range from outright attempts to lure more investors into this share to half-hearted attempts to console shareholders who have bought at higher prices, possibly by trapped shareholders themselves. Most hopes are centred around the promoter company coming out with some fantastic announcement that is going to save all the trapped investors and make the speculators rich." (
Read: Massive trading in penny stock Cals Refineries)
In September 2011, SEBI barred seven companies, including Asahi Infrastructure & Projects, K Sera Sera and Cals Refineries, from issuing any fresh shares or altering their capital structure in a matter relating to manipulation of GDR issues.
During 2009-10, SEBI received alerts regarding large-scale off-market transactions in its IMSS system regarding a few scrips like IKF Technologies, Avon Corporation, Asahi Infrastructure and K Sera Sera.
The companies had issued the GDRs, a financial instrument used by private markets to raise capital denominated in either dollars or euros, between 2007 and 2009.
"A preliminary examination revealed that foreign institutional investors (FIIs) like India Focus Cardinal Fund and Mavi Investment Fund, were converting the GDRs held by them into normal shares (known as cancelling GDRs) to sell in Indian markets. It was also observed that most cancellations were happening within a short period from the issue of the GDRs by the company," it said. (
Read: SEBI bars 7 companies from issuing fresh shares)
In December 2014, SEBI barred eight entities from the markets for 10 years in the Cals Refineries GDRs issue. SEBI, in its final order, also asked Gagan Rastogi and Asiatexx Enterprises Ltd to repay unlawful gains of US$92mn (million) along with an interest of 6%pa (per annum)
Those barred by SEBI from accessing markets include: Devanathan Sundararajan (chief financial officer of Spice Energy, the promoter of Cals Refineries), Sarvesh Goorha, Ravi Chilikuri (chief executive officer-CEO of Spice Energy), Sanjay Rai Malhotra, Honor Finance Ltd, Asia Texx Enterprises Ltd, Gagan Rastogi (promoter of Spice Energy) and Deep Rastogi.
SEBI said its investigation into the manipulation of GDR issuance by Cals Refineries found several irregularities. "Funds of Cals were siphoned off to the accounts of its promoters under the pretext of payment for refinery parts. Certain directors and promoters of Cals enabled the company to provide financial assistance in the form of a guarantee to create an illusion of successful GDR subscriptions. All these activities were done without the knowledge of other shareholders of Cals. In addition, the persons in charge of the affairs of Cals who were aware of the fraudulent activities related to GDR issuance of Cals concealed material information regarding its GDR issue to mislead investors of Cals and SEBI," the market regulator said. (
Read: SEBI bars eight entities from markets for 10 years in Cals GDR issue)
