SC stays SAT order on Pan Asia, promoter over GDR violations

The Supreme Court on Friday stayed the Securities Appellate Tribunal’s (SAT) majority decision that set aside a Sebi order, barring Pan Asia Advisors and its promoter Arun Panchariya from capital markets for 10 years for alleged manipulation in global securities by six Indian firms.

A bench headed by Justice SS Nijjar, while staying SAT’s September 30 judgment, issued notices to Pan Asia Advisors and Panchariya.

The case relates to alleged irregularities in issuance of global depository receipts of Asahi Infrastructure & Projects, Avon Corporation, Cat Technologies, IKF Technologies, K Sera Sera and Maars Software International. These entities were found to have been involved in dabba trading or off-market transactions.

According to Sebi, it had received alerts about large-scale off-market transactions in its integrated market surveillance system (IMSS) regarding trading in scrips of certain companies. A preliminary examination revealed that some FII/sub-accounts were converting global depository receipts (GDRs) held by them in those companies into equity shares to sell in the Indian markets.

It was also observed that such conversions had occurred within a short period after the issue of GDRs by those companies. Pan Asia and Panchariya, by employing fraudulent arrangement with regard to the subscription of GDRs and thereafter monetising them through the sale of underlying shares of the GDRs, have violated various rules, it said.

Panchariya arranged loans for the subscription to GDRs, and sold the GDRs to FIIs /sub accounts who, in turn, sold the shares received from the conversion of GDRs in the Indian securities market, Sebi senior counsel CU Singh and counsel Pratap Venugopal argued.

They said the conclusion of the majority in the impugned judgment, it is the RBI and/or the ministry of finance, government of India which have exclusive jurisdiction in respect of the issuance, trading and conversion of GDRs into shares abroad and cannot come within the purview of the Sebi Act thereby ousting the jurisdiction of Sebi. While two SAT members, Jog Singh and A S Lamba, quashed Sebi ‘s direction on the ground that the market regulator does not have the jurisdiction over the creation and issuance of GDRs abroad, presiding officer Justice J P Devadhar in his judgment upheld the Sebi’s order that barred Pan Asia Advisors and its promoter from accessing the capital market, directly or indirectly, for 10 years.

?The decision of Sebi that appellants (Pan Asia Advisors and Panchariya) in connivance with issuer companies have committed fraud upon the investors in India and therefore, as persons associated with the transactions in the securities market in India, appellants are liable for action under Sebi Act, 1992, and the regulations made thereunder cannot be faulted.?

However, senior counsel Gopal Subramanium, appearing for the company, argued that Sebi?s jurisdiction is limited to the territory of India and acts or omission committed by a party therein.

It does not extend to transactions executed by its promoters in countries outside India with respect to the issuance of GDRs since the same are governed by the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (through Depository Receipts Mechanism) Scheme, 1993 issued by the finance ministry, and the Master Circular on Foreign Investment issued by the RBI periodically, adding that Sebi has not framed any regulation governing GDRs for the simple reason that it lacks jurisdiction to do so.