G.S. ORGANICS LIMITED
 
INVESTIGATION, ENFORCEMENT AND SURVIELLANCE DEPARTMENT

G. S. Organics (GSO) came out with a public issue of 39,72,400 equity shares of Rs.10/- each for cash at par on September 17, 1996. The issue closed on the earliest closing date on September 21, 1996. M/s Vibra Financial Services Ltd. were the Registrars to the Issue and State Bank of Hyderabad, Indore were the Bankers to the Issue. The issue was lead managed by Premium Capital Market & Investments Ltd. 
 
Madhya Pradesh Stock Exchange (MPSE) had rejected the listing application of GSO, apprehending that the company had not received genuine subscription. An appeal was filed by GSO under Section 22 of Securities Contract (Regulations) Act against rejection of its listing application by the MPSE. Investigations were conducted by SEBI into the alleged irregularities in the public issue of GSO. 
 
The appeal was allowed directing MPSE to reconsider the listing based on certificate of Vijaya Bank that subscription money was received and kept in a separate account. Meanwhile, investigations brought out that certificate regarding realisation of stock invest and receipt of required minimum subscription was a forged document. Investigations also brought out that the company had not received genuinely the required minimum subscription and it had made financing arrangements with Phi Alpha Investments Pvt. Ltd. of Chennai who applied for 99.73% of the issue through power of attorney. It was noticed that applications from Phi Alpha were accompanied with stock invests which were marked payable to "Vijaya Bank A/c G.S.Organics Ltd." and these stock invests were not realised during their validity. These applications from Phi Alpha were deposited with Bankers to the Issue after the closure of the issue. The company went ahead with the allotment process without receiving any consideration for 99.73% of the shares allotted. 
 
Pursuant to the investigations, directions were issued to the company under Section 11 B of the SEBI Act to refund the issue proceeds. Enquiry proceedings were initiated against Lead Manager, Registrar and Banker to the Issue. Now the enquiry proceedings in respect to Registrar and Bankers to the Issue have got completed, while the proceedings against the Merchant Bankers are still pending. 
 
After completion of enquiry proceedings show cause notices were issued to the Registrar and the Bankers to the Issue and personal hearing before the Chairman was also granted. After taking into consideration the submissions made in writing as well as during the course of personal hearing, findings of the Enquiry Officer and material and evidence available on record, it was found that the charges mentioned in the show cause notice stood substantiated. It was found that Registrar colluded with the issuer company and Merchant Banker in making allotment of shares without receiving the minimum subscription as required under the terms and conditions of the prospectus, SEBI Guidelines and the provisions of the Companies Act. It was seen that even when stock invests were not realised and no consideration was received, yet the Registrars went ahead with the allotment process and despatch of shares, instead of devolving the issue for under subscription and refunding the subscription received. In view of this, Chairman, SEBI has passed an order under SEBI (Registrar to an Issue and Share Transfer Agents) Rules & Regulations 1993 read with the SEBI Act, 1992, suspending the registration of Vibra Financial Services Ltd. for a period of one month with immediate effect. As regards Bankers to the Issue, a warning has been issued to them to be more diligent and cautious in future and have been directed to ensure strict compliance with SEBI Guidelines in letter and spirit