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Showcause notice to Hiten Dalal
Manju Menon
Mumbai, Jan 23: The custodian appointed under the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, has issued showcause notices to notified broker Hiten P Dalal, and six other parties, asking why contracts between them during 1991-92 should not be cancelled.Dalal had entered into contracts with BSE member Virendra Kumar Jain, Oswal Agro Mills, Beverly Investment, Dew Investment, Karnataka Breweries and Distilleries and Mysore Fruit Products. According to the notices, Dalal's transactions with the six parties attract the provision of section 4(i) of the Special Court (TORTS) Act as it prima facie appears that transactions were an attempt to fritter away Dalal's assets "illegally and fraudulently". In one instance, Dalal, a member of the Kanpur Stock Exchange, sold 6 lakh Tisco shares for Rs 452 per share and one lakh for Rs 417.50 per share to Virendra Kumar Jain in March, 1992, for which he raised a total claim of Rs 31.29 crore. The notice says that the 7 lakh shareswere not delivered to Jain but were repurchased by Dalal for Rs 685 per share as per the contract dated April 2, 1992. An amount of Rs 47.95 crore was payable to Jain vide Dalal's bill dated May 18, 1992, but altered to April 2, 1992. Dalal paid Rs 16.65 crore to Jain by a cheque dated April 7, 1992, drawn on Andhra Bank. According to sources, the custodian heard both the parties on the matter recently. In the case of Oswal Agro Mills, the company received Rs 2.50 crore in December, 1991, from Dalal. Of this Rs 2 crore was the profit earned by speculating in the 200-crore 11.5-per cent 2010 securities of the government of India. The remaining amount of Rs 50 lakh represented the profit from speculation in 1 crore units of the Unit Trust of India (UTI). The securities and the units were purchased and sold on the same day. The company, in its letter dated September 1, 1997, has admitted that Dalal was instructed to purchase the government securities in anticipation of the price going up, with the
stipulation that the same be disposed of immediately if the price rose. The showcause notice was sent when both the parties, despite reminders, failed to submit details regarding the terms and conditions of the transactions. As regards Beverly Investment, around Rs 51.35 lakh profit was received from HP Dalal on March 3, 1992, from the purchase and sale of 100 crore GoI securities. Dew Investmen, too, instructed Dalal to purchase GoI securities and received a profit of Rs 65 lakh on March 3, 1992, which came by speculating in 50 crore securities. According to the custodian's notice, the company did not provide any information about the transaction even though the broker is required to maintain such records as per provision of the Securities Contract Regulation Act (SCRA) 1956 and the rules thereunder. Karnataka Breweries and Distilleries received around Rs 1 crore on May 28, 1991 from Dalal. According to the custodian's notice, the amount was shown as unsecured loan in the audited balance-sheet of
the company for 1991-92, whereas, in the next year's balance-sheet no amount was shown as unsecured loan indicating repayment. In a letter dated February 2, 1997, to the custodian, the company stated that Rs 1 crore was received on behalf of managing director DK Audikesavulu towards advance for the forward sale of his shares of Fairgrowth Financial Services (FFSL). The amount was transferred to Audikesavulu on April 8, 1992.The letter also mentions that the amount was paid by Dalal to the company as per the advice of Audikesavulu while his FFSL shares were handed over to Dalal as security. The shares were not transferred till September 30, 1993, due to a lock-in-period for such scrips. As per the notice, loan transactions between Dalal and the company is a prima facie fraudulent one and an attempt to hide the amount by routing it through the company's account attracts the provisions of section 4 (i) of the Act. In the case of Mysore Fruit Products, the company received Rs 3 crore from Dalal. The
company wrote to Dalal in April, 1992, indicating that the total advance arranged for the company and Karnataka Breweries Distilleries is Rs 5 crore, out of which around Rs 4 crore was received while the balance amount was to be remitted by Dalal. A May-1991 letter to Dalal indicates that the Mysore Fruit requested Dalal to take delivery of the securities lying with Canbank Mutual fund, to the extent of Rs 1 crore to cover a Rs 1-crore loan given to the company by Dalal. For the balance Rs 2-crore loan, the company has enclosed Rs 2.5 lakh shares of FFSL. The letter also mentioned that these shares are sold to Dalal for Rs 500 each as on April 8, 1992. The shares, however, carried a lock-in-period up to September 30, 1993.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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