INVESTIGATIONS ENFORCEMENT AND SURVELLIANCE DEPARTMENT

In the wake of sudden payment crisis in the month of June 1998, on The Stock Exchange, Mumbai (hereinafter called BSE) and National Stock Exchange of India Limited (hereinafter called NSE) and allegations of manipulation in the scrips of BPL Limited, Videocon International Limited (Videocon) and Sterlite Industries Limited, investigations were initiated by Securities and Exchange Board of India (hereinafter called SEBI). There were media reports also that some Mutual Funds were involved in bail out of brokers of BSE having payment problems and that shares were purchased by Mutual Funds in pursuance to buy-back arrangement. 

Investigations revealed that Shriram Mutual Fund purchased 1,20,600 shares of Videocon on BSE in June 1998, through broker Jaysukhlal Jagjivan Stock Brokers Pvt. Ltd. (JSBL). This transaction was by way of a cross deal between SRMF as buyers and M/s. Springfield Securities Ltd. (Springfield), an associate concern of Shriram group and operating from the same premises, as sellers. Investigations revealed that transaction took place on 24/6/98 when market price was Rs.63/- per share. The purchase price of these shares, however, was shown to be Rs.84/- per share. Investigations also revealed that Mutual Fund sold simultaneously shares of fundamentally sound companies in a falling market to pay for the impugned purchase. Investigations brought out that these purchases were made by Shriram Mutual Fund as part of arrangement, which Shriram Group (which is promoter of Shriram Mutual Fund) had worked out to help out selected brokers of BSE facing payment problems. Springfield purchased 5 lakh shares of Videocon from these selected brokers who were involved in price manipulations in the scrip of Videocon investors connivance with Damayanti Group, a front for Harshad Mehta. Out of these purchases, 1,20,600 shares were sold by Springfield to its associate Shriram Mutual Fund. It was also observed during the course of investigations that around Rs.1 crore was received from Videocon Group by Springfields. Further, a Memorandum of Understanding between Videocon Group company and Shriram Group company was also noticed, which showed that there was a buy back arrangement for purchase of these Videocon shares by the Videocon Group. Pursuant to these findings, show-cause notices were issued to Shriram Asset Management Co. Ltd. and Trustees of Shriram Mutual Fund. Replies to these show-cause notices were received and an opportunity of personal hearing was also granted to the Asset Management Co. and Trustees of Shriram Mutual Fund. 

After considering the findings of the investigations, submissions made by Asset Management Co. and Trustees, materials and evidences available on record, it was concluded that the purchase of 1,20,600 shares of Videocon at a price much higher than the market price was not in the best interest of the investors and were made for extraneous considerations . The schemes of the Mutual Fund were not handled in a prudent, diligent manner which is expected from a fund being run on professional lines. It was held that the way these transactions were done, it was detrimental to the interest of the investors. In the light of these, it was held that Shriram Asset Management Co. Ltd. and Trustees violated the provisions of SEBI Act, 1992 read with SEBI (Mutual Fund) Regulations and Code of Conduct under these Regulations. SEBI, therefore, in the interest of fostering investor confidence, promoting transparency and integrity of the market , has issued the following directions under Section 11 and 11B of the SEBI Act :- 

1. Sponsors of SRMF are directed to pay towards the corpus of the concerned schemes of SRMF, sum of Rs.25,62,750/- (i.e. difference between the purchase price of Rs.84/- and market price on the rate of Rs.62.75) with 15% interest per annum, being the loss caused to the unit holders of the mutual fund.

2. Shri Gadgil, who has resigned from the office of Managing Director and Directorship of Shriram Group consequent to initiation of proceedings has been directed not to hold any public position in any capital related public institution for a period of three years with immediate effect. It is also directed that, Shri. Shenoy and Shri Prakash, who assisted Shri Gadgil in these purchases and are still with SAMC should resign with immediate effect. 
   
   It has also been directed that composition of the Board of Trustees should be changed. Three trustees out of existing four trustees have been asked to step down within a period of one month. The fourth trustee will continue to hold office for a period of one year to ensure smooth takeover by the new board and will step down after the expiry of one year from the date of constitution of new board of trustees.