The Hindu Business Line : BSE to probe pref issues of 5 cos

EMBOLDENED by a ruling by the Securities Appellate Tribunal (SAT) in its favour, the Bombay Stock Exchange (BSE) has decided to probe preferential issues of five companies.

According to BSE sources, a chartered accountant firm has been appointed to look into whether there was a genuine flow of money at the time of allotment of the preferential shares by these companies. Though the sources declined to name the companies, they said the chartered accountant would look into the consideration and valuation of assets as part of the preferential issues made for acquisition of assets.

The sources also said that the decision to appoint CA firm follows findings of the exchange that there was a possibility of circular flow of funds.

The SAT recently upheld the BSE's action denying listing of preferential shares of Parekh Platinum Ltd (PPL) on the ground that there was no genuine flow of funds from the issue of shares.

PPL is engaged in manufacturing and dealing in products of gold, platinum and silver.

Last year, in a letter dated June 30, 2001, the BSE had informed PPL that it was rejecting its application to list the shares on the exchange on the ground that there was no genuine inflow of funds into the company from a preferential allotment, which was made to associate companies.

An independent chartered accountant appointed by the exchange found that the company had also not utilised the money for the purpose for which it was raised. The CA firm in its report revealed the subscription money was circulated among PPL and two of its main intermediary partnership firms — Sonal Enterprises and Jamnadas Nathalal and Co — with whom PPL trades on a regular basis.

According to the BSE, the entire exercise was a mere circular book-entry transaction. The preferential allotment of 2.1 crore equity shares of Rs 10 each at a premium of Rs 22 per share was made in February 2000. Currently, the shares of PPL are traded at around Rs 9.

Mr C. Achuthan, Presiding Officer, SAT, said in his order, ``in light of the facts before me, there is every reason to believe that the preferential allotment did not really bring additional funds to the company and in the light of the same, BSE's decision rejecting PPL request for listing is tenable''.

The order further stated that the factual position clearly indicated that the transactions were structured/designed to meet the particular requirement. ``It is difficult to believe that it was just a coincidence that the date of payments, the number of cheques issued by the parties, the value of each cheque etc. are identical,'' it said.

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