SEBI Closes Stock Manipulation Probe Against Unitech For Lack Of Evidence Against Promoters

SEBI Closes Stock Manipulation Probe Against Unitech For Lack Of Evidence Against Promoters

They were accused of routing funds through overseas accounts to manipulate their company’s shares

The Securities and Exchange Board of India (SEBI) has closed the investigation into allegations of stock manipulation against Sanjay Chandra and Ajay Chandra, the former promoters of Unitech Limited.

For several years, the investigation aimed to determine if the Chandra brothers engaged in fraudulent practices by routing funds through overseas accounts to manipulate the stock of their company Unitech.

SEBI initiated the investigation to discern the potential routing of funds to the securities market through the Switzerland-based UBS AG Bank from 01 April 2006-31 March 2008. The investigation focused on whether the brothers used the funds to manipulate stock prices of the company

The investigation revealed that employees of UBS AG communicated with the Chandra brothers, allegedly at their request, to subscribe to the Pluri Emerging Companies PCC Fund. The funds, transferred from Unitech's Indian accounts to its overseas subsidiaries, were parked in UBS accounts and later routed to Pluri to purchase Unitech shares.

However, G. Ramar, the SEBI’s Chief General Manager, who served as the adjudicating officer in the case, stated insufficient corroborative evidence to substantiate the allegations.

The markets regulator referred to the decision of the Supreme Court in the Bishundeo Narain & Anr vs. Seogeni Rai & Anr case, and the order of the Securities Appellate Tribunal (SAT) in the R K Global vs SEBI and Narendra Ganatra vs SEBI cases wherein it was held that substantial evidence was required in cases involving allegations of fraud and manipulation. General allegations, without specific particulars, were insufficient to substantiate serious charges.

SEBI had also examined bank statements and communications. A credit transaction of USD 8 million from Unitech's account with Canara Bank to the UBS account of Unitech Overseas Ltd in Zurich in September 2008 was scrutinized. The investigation inferred that the Chandra brothers regularly transferred funds to foreign subsidiaries, however, the end-use of the funds remained untraced due to a lack of documentary evidence.

The Chandra brothers contended that they had no control over United Corporate Parks (UCP) and that their involvement in entities like Fairway Advisory Services, which held stakes in UCP, was minimal. They added that UCP was an independent entity with no significant shareholding by Unitech during the investigation.

The probe referred to the transactions involving Nectrus Ltd, a foreign subsidiary of Unitech, and its dealings with other subsidiaries and entities including Candor Investment Ltd.

SEBI observed credit and debit transactions between Nectrus and various foreign subsidiaries of Unitech, including funds transfers from entities like DBML. Also, emails between UBS employees indicated discussions about subscribing to Pluri funds on behalf of the Chandra brothers.

However, despite these observations, the investigation could not definitively link the funds transferred from Unitech to the investment in shares by Pluri. The transactions between Pluri and other entities, such as the Sophia Growth Fund, occurred before USD 8 million was transferred from Unitech to its overseas subsidiary.

SEBI held that the evidence was insufficient to prove that the Chandra brothers manipulated and influenced Unitech's stock prices. The findings relied on inferences rather than concrete evidence.

Thus, the SEBI ruled that the allegations against Sanjay Chandra and Ajay Chandra could not be established. It stated that no further action was warranted under the provisions of the Securities and Exchange Board of India Act, 1992, and the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003.