SEBI Issues Notices to Essel Group’s Amit Goenka and 7 Others

SEBI Issues Notices to Essel Group’s Amit Goenka and 7 Others

The Securities Exchange of India (SEBI) has issued an interim order-cum-show cause notices against Shirpur Gold Refinery, its erstwhile chairman Amit Goenka, promoter Jayneer Infrapower and Multiventures Pvt. Ltd., and five others for allegedly siphoning off funds from the company and violating other rules.

Shirpur, a unit of the Subhash Chandra Goenka led-Essel Group and has been brought before National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code, 2016 by its lenders. Amit Goenka was the non-executive chairman and director of Shirpur till 2021-22.

The interim order was passed against Shirpur Gold Refinery Ltd (SGRL), its promoter Jayneer Infrapower and Multiventures, and six individuals namely — Amit Goenka (chairman), its directors Mukund Galgali, Vipin Choudhary, Dineshkumar Kanodia, and its CFOs Shravan Kumar Shah and Ashok Sanghvi (collectively referred to as ‘Noticees’).

On 10 February, 2021 SEBI had received a complaint against M/s. Shirpur Gold Refinery Ltd. (“Shirpur” or “the Company”) inter alia alleging that the loans taken by Shirpur from Banks and Financial Institutions had not been used for operations of the Company but instead were siphoned off to companies under the control of Mr. Subhash Chandra and his family. It was also alleged that Shirpur was not providing information to public shareholders with respect to its operations.

The complaint was forwarded to National Stock Exchange (NSE) for conducting an independent examination. Vide an Examination Report submitted to SEBI on 19 July, 2021, NSE inter alia had observed as under:

(a) The Company had carried out planned transactions with connected entities.

(b) Almost 100% of the Company’s debtors were connected to the Company/ Promoter Family of the Company. The debtors/ connected entities were also found to have not filed/ disclosed their financials.

(c) The connected entities had initiated insolvency proceedings against the major debtors.

The findings by the NSE indicated large scale siphoning of funds. Thereafter, SEBI initiated an investigation into the affairs of Shirpur.

The focus of SEBI’s investigation was to ascertain whether there were any misrepresentations in the published financial statements for the FY 2018–19, FY 2019–20 and FY 2020–21 (“Investigation Period”) and to identify diversion of assets/ funds from the Company through debtors along with any other violations resulting in contravention of the provisions of SEBI Act, 1992, SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (“PFUTP Regulations, 2003”) and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations, 2015”).

Ashwani Bhatia whole-time-member (WTM) of the SEBI observed, that the financial statements of Shirpur Gold Refinery were misrepresented to facilitate diversion of its assets to Jayneer via promoter-connected entities. Resultantly leading to the sale of assets to the connected entities without receipt of consideration from them.

The SEBI noted that, the diversion of Rs. 404 crores from Shirpur to the three debtors which were the Promoter connected entities, was calculated to be a large amount. Initially, the assets/ funds were sent to the connected entities/ debtors who were alleged to have been involved in a non–existent business operations (Altrarex, Balmukh and Magicstone) and thereafter, through a web of other Promoter connected entities, ended up with Jayneer.

In this regard, the SEBI observed, “It is thus clear that out of approximately Rs. 872 crores received by Jayneer that originated from the said debtors, at least Rs 404 crore was diverted from Shirpur through the debtors and ultimately reached Jayneer.”

The SEBI was of the view that the diversion of funds from these debtors to the promoter of Shirpur were part of an elaborate scheme orchestrated by Jayneer to divert assets of the company to itself and its connected entities.

Additionally, the market watchdog noted that SGRL and its directors had attempted to mislead the investigation and the forensic audit by failing to cooperate in providing the information sought by SEBI and the forensic auditor. Therefore, the SEBI deemed that conduct of the noticees during the investigation were not satisfactory.

It was pertinently observed by SEBI that, Amit Goenka was a direct beneficiary of the asset diversion from SGRL as he and his family members held 100 per cent shares in Jayneer. Hence, the scheme could not have been executed without the involvement of him, SEBI opined.

It further held that Galgali, Choudhary, Kanodia had failed in their fiduciary responsibilities as directors.

On investigating, it was brought on notice before the SEBI that Shah and Sanghvi, who were CFOs for different tenures during FY 2018-19 and 2019-20, had given certification with respect to untrue financial statements for the company. Since the company’s financials contained misrepresentations, it was thus, clear that the certificates provided by the CFOs were false. Through such acts, they had allegedly flouted the market norms, SEBI opined.

Accordingly, SEBI issued interim order cum show cause notice and directed that the Noticees 1 to 8 shall, jointly and severally, file a public disclosure to the stock exchanges as well as publish on the Company’s website within 3 days from the date of receipt of the Order, to ensure transparency.

It further ordered that Noticees 1 to 8 shall disclose the updated status of all undisclosed material events/ information mentioned in this Order, to the stock exchanges, within 15 days from the date of receipt of the Order.

Lastly, the SEBI ordered Goenka, Galgali, Choudhary, Kanodia, Shah, Sanghvi and Jayneer not to sell or dispose of their shareholding till further orders.