The Securities and Exchange Board of India (SEBI) has issued an interim order against LS Industries Ltd (LSIL) and five associated entities after uncovering a shocking share transfer scheme and stock manipulation. A 12.12% stake in LSIL, nominally valued at Rs10.28 crore, was sold to a non-resident Indian (NRI) for a mere US$1. This transaction ultimately made the purchaser, Jahangir Panikkaveettil Perumbarambathu (JPP), richer by about US$328.60mn (million) (about Rs2,752 crore) when LSIL's market-capitalisation peaked at Rs22,700 crore. While impounding illegal gains of Rs1.14 crore from JPP, SEBI barred all six entities from markets with immediate effect.
In
the hard-hitting order, Ashwani Bhatia, whole-time member (WTM) of SEBI says, "The facts emerging out of the instant case present an intriguing situation where shares of a listed company having NIL revenue and no business activity for the past many years have traded or are trading at prices giving the Company (LSIL) a market capitalisation worth thousands of crores."
He says, "What has added more intrigue to the story is the fact that Suet Meng Chay, an ex-director of LSIL, having 12.12% shares, nominally valued at Rs10.28 crore in total, sold her entire shareholding to an NRI (JPP) for a token amount of US$1 only, allowing the new shareholder to have astronomical paper wealth in a short period of time. At the US dollar-rupee conversion rate of Rs83.75, this made the purchaser richer by US$328.60mn at the Company's peak market capitalisation of Rs22,700 crore. The said transaction not only appears to be too good to be true but also raises the possibility of FEMA violations."
The SEBI order barred from markets, JPP, Profound Finance Pvt Ltd (promoter entity of LSIL, owned by Dharam Pal Goel and Ramesh Chander), Suresh Goyal, Alka Sahni and Shashi Kant Sahni Hindu undivided family (HUF).
Apart from those mentioned above, Mr Bhatia from SEBI says the facts of the case raise other red flags which cannot be overlooked. He says, "While the Company has declared its intention to acquire Robochef, certain relatives (Mr Goyal, Ms Sahni and Shashi Kant Sahni HUF), of directors (Chandan Sahni and Karan Goyal) of Robochef India Pvt Ltd who are also the shareholders of LSIL, have utilised this opportunity to dump shares of the Company and have made windfall gains. Such a pattern of trading definitely raises concern regarding more mischief happening behind the scene."
"While the facts of the case have painted a picture of absurdities and anomalies, the examination by SEBI is still in progress. However, as the proverb goes, 'a stitch in time, saves nine', there is a need to act before another pump and dump happens and more innocent investors, who invest without knowing what is happening behind the scene, lose money and burn their fingers. It is noted that number of public shareholders has increased from 3,892 on 30 June 2024 to 6,106 on 31 December 2024. Before the noticees are able to offload their holding in any significant manner, it is imperative to take preventive action to protect market integrity and investor interest..." the SEBI WTM says.
SEBI's investigation revealed that following the revocation of LSIL's trading suspension on 23 July 2024, the stock price surged from Rs22.50 to a high of Rs267.50 within two months—a staggering increase of 1,089%. However, this surge was not backed by financial fundamentals, as LSIL had reported negligible revenue and consistent losses over the past several years.
A group of investors allegedly coordinated their trading activities to inflate LSIL's share price. SEBI's trade log analysis identified multiple instances where certain entities placed aggressive buy orders at market open, driving prices higher. This artificial inflation was followed by a sharp decline, with the share price plunging to Rs42.39 by 21 November 2024.
SEBI's probe revealed that JPP, the NRI, had minimal investment history in Indian securities and was employed in Dubai. Further investigations showed links between JPP and LSIL's promoters, indicating that the share transfer might have been a part of a premeditated scheme.
Additionally, LSIL's corporate announcements during this period—including ventures into artificial intelligence (AI) technology and the appointment of foreign directors—appeared to have no direct impact on the company's stock performance. Instead, SEBI found a coordinated effort by specific traders to manipulate the stock price through controlled buying and selling.
SEBI has issued strict directives:
• LSIL, its promoters and involved entities are prohibited from buying, selling, or dealing in LSIL shares until further notice.
• JPP's trading accounts have been frozen and he has been ordered to disclose all assets and bank accounts.
• SEBI has impounded Rs1.14 crore in alleged unlawful gains from JPP's stock sales.
• Banks have been instructed to restrict debits from JPP's accounts to prevent further movement of funds.
SEBI has warned that the case is under active investigation, with a final report expected by 15 May 2025. The regulator has also urged investors to exercise caution before investing in stocks with questionable fundamentals.
"This case underscores the importance of due diligence. Investors must be wary of companies with little revenue but skyrocketing valuations. Investors in blind pursuit of profit through investment in a company without any fundamentals are like children following the proverbial pied-piper of Hamelin. Markets can be generous at times but cannot be so generous to give outlandish gains. In a market where unscrupulous elements seem to be casting their net wide by indulging in various manipulative practices, the investors must not allow the lure of easy profits get the better of them," Mr Bhatia, the SEBI WTM, says.
