For being found guilty in a GDR (Global Depository Receipt) issue and loan related fraud, SEBI has barred Aptech Ltd from stock markets for six months. The company cannot raise any money from markets or even deal in stocks or derivatives segment.

Aptech’s former Managing Director Pramod Khera has been barred from markets for five years for violation of SEBI’s Prevention of Fraudulent and Unfair Trade Practices (PFUTP) norms. The fraud took place nearly 18 years ago in 2003.

SEBI found that Aptech and its former MD Khera created a complex maze of agreements to show that GDR issues were fully subscribed even though the loan to subscribe went from the company. The entity, which got the loan and bought GDR, later converted it into equity and sold it in the Indian markets. Khera resigned from the Aptech board more than 15 years ago. The company is now managed by Rakesh Jhunjhunwala-led management.

GDR is an instrument through which company raised money from overseas markets by selling receipts, which can be converted into equity and sold.

SEBI investigations found that Aptech pledged its entire GDR proceeds with Banco Bank as a security against the loan availed by another company Willow from Banco Bank for subscribing to GDR of Aptech.

For this purpose, Aptech entered into an Account Charge agreement refer to as Loan Agreement dated October 20, 2003 with Banco Bank. The agreement was signed by Khera, who was Aptech’s MD during 2003 when the fraud took place. SEBI also found forgery of documents in the matter.

Khera signed a board resolution dated July 31, 2003 on the letterhead of Aptech and on the strength of this board resolution submitted to Banco Bank, Khera on October 20, 2003 also signed the account charge agreement on behalf of Aptech which provided security to Banco Bank to allow avail of loan by Willow Brooks from Banco Bank for subscription of GDRs of Aptech.

As per account charge agreement, “Aptech deposited in its designated account with Banco Bank an amount not exceeding loan availed by Willow for subscription of GDRs of Aptech as security for all the obligations of Willow under the credited agreement (which was signed between Banco Bank and Willow by which Banco Bank agreed to lend Willow for subscription of GDRs of Aptech).”

SEBI said the account charge agreement was an integral part of credit agreement entered into between Willow and Banco Bank and vice versa and both were executed concurrently and on the same date — October 20, 2003.

Aptech could withdraw an equivalent amount from the bank account with Banco Bank only upon payment of all or part of the amounts due under the Credit Agreement.

“Aptech had pledged GDR proceeds to secure the rights of Banco against the loan given to Willow for subscription to GDR and corresponding GDR proceeds was utilised by Aptech only on repayment of loan by Willow,” SEBI found. This was not revealed to shareholders.

Later on, the loan against which the GDR proceeds of the company were used as security, turned out to be the loan taken by Willow to subscribe the entire quantity of GDR issued by the company. It was further observed that the GDR issued by the company to Willow were subsequently converted into equity shares and sold in Indian markets.

During the course of investigation, it was found that the Company had not disclosed to the stock exchange about the interconnecting agreements and also the company reported misleading news to the stock exchange which contained information in a distorted manner, which might have influenced the decision of investors thereby, the scheme of issuance of GDRs by Aptech was fraudulent, SEBI said.

During the investigation, it was noted that Banco had granted loan of upto $20,000,000 to Willow by way of a Credit Agreement dated October 20, 2003 for enabling them to subscribe to the GDR issued by Aptech Ltd and it was observed that the entire 38,40,000 GDRs were subscribed by only one entity, i.e. Willow.

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