Sebi action against SHCIL on the cards

The long arm of the law is finally catching up the Stock Holding Corporation of India Ltd (SHCIL). The market regulator Securities and Excha...

The long arm of the law is finally catching up the Stock Holding Corporation of India Ltd (SHCIL). The market regulator Securities and Exchange Board of India (Sebi) will be shortly taking action against SHCIL for violating various laws in 2000-01.

“Sebi has informed that enquiry conducted by Haribhakti & Co and its findings were sent to SHCIL to obtain their comments and calling for an explanation as part of natural justice before taking further action. The comments have since been received and have been examined. Further action including conducting an enquiry in accordance with Sebi Regulations 2002 or any other action would be taken shortly,” says the Action Taken Report brought out by the Finance Ministry on the Joint Parliamentary Committee (JPC) report on stock scam of 2000-01.

Sebi’s report to JPC has highlighted that SHCIL did not follow prudential norms and regulations while conducting its business. “The ’Sell-N-Cash’ Scheme envisaged for small investors has been used by SHCIL as an avenue for financing brokers and used as a funding mechanism for creating artificial market in scrips,” the Finance Ministry report said. It said there was also lack of internal control procedures. JPC had earlier asked SHCIL to look into these issues and devise appropriate norms to ensure that its schemes/ activities do not result in market manipulation or promote unfair trade practices.

Story continues below this ad

SHCIL, at the instance of JPC, instituted an independent enquiry to look into this case. The enquiry — conducted by Haribhakti & Co — concluded that though the ’Sell-N-Cash’ scheme was not meant for brokers, SHCIL extended the facility to brokers and the procedures laid down were not followed.

“The limits laid down were exceeded and such excesses were ratified by the then managing director and CEO (B.V. Goud). The enquiry has concluded that while they have not come across any evidence to indicate malafide intention on the part of SHCIL officials, there was negligence in operation of the schemes and lack of proper judgement on the part of the managing director in approving the transaction and not keeping the board informed in advance,” JPC said.

According to Sebi investigations, some of the irregularities are: exposure of one-third of its net worth (exposure of about Rs 43 crore) for one scrip and one broker group (Biyani group); trade of 7.2 lakh shares when there were only 1.1 lakh shares in the beneficiary account; negotiating with promoter-director of the traded scrip for extension of a facility to a broker etc. Goud was recently arrested by the Kolkata police for his alleged involvement in the CSE (Calcutta Stock Exchange) scam.

Meanwhile, the Finance Ministry is considering a proposal that Chief Vigilance Officers in public sector bank should be made accountable to the Committee on Audit of the banks and through this committee to the entire board of directors.