On 29 October 2020, SEBI had issued an order in this case, however, Mr Panchariya filed an appeal before the securities appellate tribunal (SAT). On 29 November 2023, SAT remitted the matter to SEBI to pass a fresh order after providing necessary documents to the show cause notice (SCN) and an opportunity of hearing to Mr Panchariya.
In the order, SAT says, "The impugned order in so far as it relates to the first leg of the transaction is affirmed. The impugned order relating to the second leg of the transaction is set aside. The matter is remitted to the adjudicating officer (AO) to redecide the matter in the light of the observations made above after giving due opportunity of hearing and after supplying the necessary documents to the SCN."
In the latest order, Barnali Mukherjee, AO of SEBI, says, "There are two legs to this convoluted transaction. The first leg is the issuance of the GDR in such a fraudulent manner, and the second leg is the liquidation of the GDRs. It is undeniable that Mr Panchariya had a role in both the legs. It is clear from the above that the entities have indulged in the issuance of GDRs in a fraudulent scheme, involving misleading investors, concealing crucial information and distorting GDR-related information away from the investing public. This has also been confirmed by the SAT in its order. This itself forms a large part of the manipulative enterprise of convoluted transactions."
"Whether Mr Panchariya has benefited from the device when the GDRs were sold or not is a question of level of evidence available on records. As per the preponderance of probabilities for which there is enough material on records, Mr Panchariya had no other incentive than to enter into such convoluted transactions with the prime objective to cash in on GDRS when they are sold. However, as now determined by SAT that the material available for the second leg is required to be beyond reasonable doubt and the trail of the money flow needs to be established to determine the complicity of Mr Panchariya in the second leg of these transactions," Ms Mukherjee says.
During the hearing, Mr Panchariya contended that he was not the beneficiary, nor was there any proof or evidence of benefit having gone to him with regard to the second leg of the transaction. He says Winsome had confirmed receiving the GDR proceeds, which was also held by SAT.
He further submitted that there is no connection nor any concrete evidence to prove a connection between him and Highblue Sky Emerging Market Fund (HBSF) and Aspire Emerging Fund (Aspire). He relied on SAT judgements in Winsome Textile Industries Ltd Vs SEBI to justify that he was not connected with the entities involved in the second leg of the transaction.
SEBI noted the presence of some connected entities. It says Anand Kailash Chandra Sharma (AKCS) and Mr Panchariya served as directors in Sai Sant Advisory (I) Pvt Ltd. Additionally, both were affiliated with Alka India Ltd and Ramsai Investment Holdings Pvt Ltd. AKCS holds directorships and beneficial ownership in foreign institutional investors (FIIs) sub-account HBSF and Golden Cliff (FII). Ashish Nanda and Aslam Kanowah were directors of Aspire, and Aslam Kanowah was also affiliated with HBSF.
Referring to connections and association of Mr Panchariya with other entities, the SEBI AO observed that Mr Panchariya orchestrated a fraudulent scheme in collaboration with connected entities and Winsome. "Winsome issued a significant number of GDRs, and Mr Panchariya, along with his connected entities, played a central role in structuring the GDR issue. Mr Panchariya and the connected entities were involved in various stages of the GDR issue, including subscribing to GDRs through loans and subsequently selling converted equity shares in the Indian securities market."
"The scheme involved misleading Indian investors by concealing crucial information and distorting GDR-related news. Mr Panchariya and his connected entities acted as conduits in defrauding Indian investors by subscribing to the GDRs and selling converted equity shares in the market. Despite the connection between Mr Panchariya and subaccounts like HBSF and Aspire, the exact flow of money from sub-accounts to Mr Panchariya is not fully elucidated in the available records. However, it is evident that the Mr Panchariya benefitted from the fraudulent scheme."
The crucial part of this scheme is that the proceeds of the GDR are placed as a FD which is kept under lien.
Incidentally that same bank loans the funds for subscribing to the GDRs.
So net - net the bank is not out of funds as the funds lent for the GDR end up as a FD and it r
Important point here is that the GDR issuing companies have not declared that the FD is under lien and show them as a humongous amount of FD from GDR proceeds awaiting deployment.
Besides Panchariya the auditors and BOD and promoters of the company too should be charged with fraud.