Markets regulator Securities and Exchange Board of India (Sebi) on Wednesday penalised seven entities linked to the erstwhile Bank of Rajasthan (BoR) promoter family for violating insider trading norms.
Sebi imposed a monetary penalty of R1.6 crore for alleged unlawful gains derived from dealing in BoR shares by obtaining unpublished price sensitive information ahead of its merger with ICICI Bank.
Sebi has directed all seven noticees — Rohit Premkumar Gupta, Sanjay Kumar Tayal, Navin Kumar Tayal, Jyotika Tayal, Advik Textiles and Realpro, Kulwinder Kumar Nayyar, and Azam Mohmmed Ashan Shaikh — not to dispose of or alienate any of their assets, properties or securities till they credit the amount in an escrow account.
The regulator also highlighted the possibility that the noticees may divert the unlawful gains, and ordered all banks and depositories to ensure that no debits are made from the bank and demat accounts.
“Non-interference by the Regulator at this stage would therefore result in irreparable injury to interests of the securities market and the investors. It, therefore, becomes necessary for Sebi to take urgent steps of impounding and retaining the proceeds (unlawful gains) allegedly made by the above noticees, by way of an interim measure,” Sebi’s whole time member Prashant Saran said in a 13-page order.
Sebi has also ordered the noticees to provide, within seven days, full inventory of all the assets and properties and details of all their bank accounts, demat accounts and holdings of securities and details of companies in which they hold substantial or controlling interest.
In its investigations, Sebi observed that the announcement with regard to the agreement was made by BoR to the stock exchanges between 5:12 pm and 5:25 pm on May 18, 2010, after receiving intimation of the same from one of its directors, Sanjay Tayal, as BoR was not a signatory to the agreement.
Sebi had investigated into possible insider trading in the scrip of BoR prior to announcement of the agreement executed on May 18, 2010, between the dominant shareholders of BoR with ICICI Bank for agreeing to merge the two banks.
The Tayal family-run BoR had informed the NSE on May 18, 2010, after market hours at 5.12 pm that it received a communication from Sanjay Tayal, a director of BoR and related to the dominant shareholding group, requesting BoR to convene a board meeting urgently that day, Sebi said.
The stock exchange intimation also mentioned that dominant shareholders of BoR had entered into an agreement the same day with ICICI for proposing an amalgamation of both the banks and ICICI was convening its own board of directors meeting that day for considering the proposed amalgamation and for approving several actions necessary for the process.
As per the submissions of ICICI, the agreement was signed at 4.30 am on May 18, 2010. The agreement mentioned that subject to valuations, 25 shares of ICICI will be allotted for every 118 shares of BoR, i.e. a shareholder holding 4.72 shares of BoR would be entitled to receive one share of ICICI.
ICICI disseminated the aforesaid information to the stock exchanges between 20:10 hours and 20:18 hours on May 18, 2010. The share price of BoR was R55 on the BSE and R54 on the NSE on April 1, 2010 and increased to R99.50 on the BSE and R99.45 on the NSE on May 18, 2010. Although, the merger announcement was made after market hours on May 18, 2010, it was observed that on the day of the announcement, the share price of BoR increased by 20% on BSE and NSE with huge trading volumes.
The price of the scrip of BoR increased further on the next trading day, May 19, 2010, by 20% and by another 10% each on the next three trading days.
(with agency inputs)