About 11 months after the Securities and Exchange Board of India (Sebi) barred some companies from raising capital, owing to irregularities in the end-use of proceeds of initial public offerings (IPOs), most of these have not deposited the money in interest-bearing escrow accounts, according to officials privy to the development.
The money is with the companies and Sebi hasn't been able to ensure these companies to remit this in escrow accounts, as directed by its interim order in December 2011.
Hearing appeals by these companies, the Securities Appellate Tribunal (SAT) has directed Sebi to expedite the process and pass a final order by November 30.
"One company has deposited a portion. Most others have simply not complied with the order. Sebi is figuring how to get them to deposit the money," said an official.
An investment banker privy to the development said, "A couple of them have either got relief in this regard from SAT or the high court. Some companies are in correspondence with the regulator."
He added since the regulator had been "kept in the loop", this would not amount to non-compliance.
"It is not that anybody has not complied. The penalty for non-compliance is up to Rs 1 crore per day (Rs 10 million). The regulator has been kept in the loop," he said.
However, the regulator, in its final order passed against PG Electroplast (one of the seven companies pulled up), observed the company did not comply with the direction to deposit the money in an escrow account.
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Last year, Sebi had banned promoters and over 100 entities involved in these seven IPOs for irregularities
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One of the major irregularities detected was money was siphoned through inter-corporate deposits (ICD).
In many cases, Sebi found the status of clients and vendors of the company and the flow of funds between the company and these clients and vendors were abnormal. These funds were, in turn, used to boost the stock prices on listing.
In Taksheel Solutions, Sebi found "a part of the proceeds of the issue have been siphoned off in a circuitous route to certain entities and operators, which were the top net buyers on stock exchanges on the listing day."
Similarly, in the case of Brooks Labs, "Some of the funds received in the IPO have also observed to have been transferred through layers to Overall Financial, which traded in the scrip and made losses. Thus, prima facie, it indicates an exit has been given to motivated bidders," the Sebi order said.
Sebi has asked most of these firms to call back the ICDs placed with related firms and deposit those in escrow accounts.
While Taksheel was asked to call back Rs 23 crore (Rs 230 million) and place the proceeds in an interest-bearing escrow account, Brooks Labs was asked to call back the ICDs advanced by it to Suryamukhi Projects and Neo Power Universal FZ LLC.
Sebi also asked RDB Rasayan to call back Rs 31.60 crore (Rs 316 million) from RDBRIL.
Bharatiya Global was asked to call back the ICDs of Rs 12.5 crore (Rs 125 million) invested with Nihita Financials, Sanjukta Vanijya and Darshan Tradelink, along with all amounts transferred / paid from IPO proceeds to its directors, or the relatives of its directors, and other related parties.
Concerned about a large number of people and entities evading payment of penalties imposed on them, Sebi has asked the government to amend the regulations to provide it stronger recovery powers.
Recently, Sebi Chairman U K Sinha told PTI, "We need the support of the government on this Methods provided in the Sebi Act for recovery (of penalties imposed by us) is different from what is there in, for example, the CCI Act and the Income Tax Act."
He added, "Our provisions for recovery are less effective and, therefore, somebody can choose to ignore these. The actual actions against them can take years."