Sebi board to decide fate of Rathi group firms next month

Our Markets Bureau

Mumbai, Oct 17: The fate of Anand Rathi group is expected to be decided early next month at the Securities and Exchange Board of India (Sebi) board meeting, which will deliberate, in detail, the contents of the reply filed by the Rathi group last week.

The regulator has banned four firms of the Anand Rathi group under section 11 and 11 (B) of the Sebi Act following its alleged involvement in the sharing of price sensitive information during the March 2001 stock market crash.

After initiating probe in the activities of the Rathi group, Sebi had issued a show-cause notice to which the group had submitted its response last week.

Said a top Sebi source: "The final decision as regards the recommendation of the Sebi official will be taken by the board members on the basis of the reply filed by the Rathi group."

Rathi group was given three weeks’ time to reply to this notice. The decision by the Sebi board is to be taken within 10 days of the reply filed by the group.

The Sebi show-cause notice has recommended that Navratna Capital and Securities Ltd (NCSL), one of the Rathi group company, should be left out from imposing any penalty. This is because the ownership pattern of the company shows that NCSL is actually owned by the Gupta family, which holds 82 per cent of the equity of this company while the Rathi group is the minority shareholder with only 18 per cent equity in the firm.

The Rathi group was also cleared by the Sebi enquiry official of violation of Insider Trading Regulations, Prohibitions of Fraudulent and Unfair trade Practices Regulations and Portfolio Managers Regulations.

In this regard, the Sebi enquiry officer’s report said: "It is not clear whether any trading was done on the basis of information obtained by Mr Anand Rathi. Therefore, it cannot be said with certainty that the said trading by Mr Rathi and his companies had been done on the basis of said information. Thus, there is no violation of Sebi (Insider Trading) Regulations 1992."

Further, the report said: "There is inadequate material to show that this particular information was used for any trading by Mr Rathi or his companies. Further, the preliminary investigation also does not clearly indicate use of the information for artificially depressing or increasing the prices of stocks. Therefore, there is no violation of Sebi (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations."

However, the officer recommended a penalty of suspension for a period of nine months with retrospective effect from March 12, 2001, on three Rathi group firms, the day from which these firms were banned from undertaking any fresh business as brokers/sub-brokers. The three firms included Anand Rathi Securities Pvt Ltd, Rathi Global Finance Limited and Rathi Capital and Securities Pvt Ltd.

Sebi official has also recommended to adjust this period
of suspension from March 12, 2001.