Investors of Orissa Sponge Iron and Steel (OSIL) claim to have hit upon a Rs 450 crore scam masterminded by the promoters of the company — P K Mohanty and Munir Mohanty.
And Sanjay Chandra, the promoter of Unitech Ltd, India’s second-biggest realtor, has been cited by the company as one of the promoters — off and on — through Unitech Holding.
Chandra happened to own 6.36% of the company stock as on
December 31, 2006. He exited the company recently.
In a letter to the Securities and Exchange Board of India (Sebi) on March 20, the Indian Council of Investors (ICI), a non-governmental organisation, has termed it “another Satyam kind of scandal.”
It has alleged that the promoters have engaged in a series of acquisitions of OSIL shares in repeated violation of Sebi takeover norms.
Also, OSIL has violated provisions of Section 77 of the Companies Act by misusing its funds to acquire its own shares, the letter said.
Section 77 prescribes restrictions on purchase by a company, or loans by a company for purchase, of its own or its holding company’s shares.
Of the Rs 450 crore scam, Rs 207 crore has already been encashed through passing book entries in various group companies and routing OSIL’s own funds back into OSIL by way of share subscriptions, claimed ICI. The remaining gains of Rs 242 crore are unrealised (See table).
These numbers have been calculated taking into account the stock price as March 19, 2009. As per the latest stock price the total gains of promoters of Orissa Sponge would have stood at Rs 436 crore.
Formed six months back, ICI primarily has chartered accountants as its members and is in the process of seeking registration from Sebi as a recognised investor association.
ICI secretary BL Maheshwari told DNA Money that P K Mohanty, vice-chairman and managing director of OSIL, has been taking preferential share allotments for the past five years without informing Sebi.
“This is a clear violation of Sebi’s disclosure guidelines and therefore, we have written a letter to C B Bhave to take action against the company with immediate effect.”
The Mohantys have increased their shareholding from 33,73,789 shares (28.38% of the share capital of OSIL) as on December 31, 2004 to 1,17,39,595 shares (43.48% of the existing share capital) as on date, said the letter.
“This clearly demonstrates a systematic plan by the promoters to increase their shareholding in OSIL over a period of five years by defrauding public shareholders and it appears from the facts on record that the management of OSIL, and more specifically the Company Secretary, Dileep Kumar Singh, too have aided the promoters in this fraud perpetrated on the public shareholders,” ICI has alleged.
Repeated attempts to get a comment from OSIL drew a blank.
On or about July 26, 2005, the Torsteel Research Foundation (TRF), owned by the Mohantys, acquired 12,15,100 shares (10.21% of the then expanded share capital) of OSIL when the aggregate shareholding of the promoter group of OSIL was already 62.70% prior to the said acquisition.
This increase in shareholding was not disclosed by OSIL in its shareholding pattern for the quarter ended September 30, 2005
Also, under Sebi takeover rules, acquisition of even one share beyond the prescribed 55% threshold should have triggered a mandatory open offer. However, no open offer was made by the promoters.
“It is the sale of these shares acquired illegally and fraudulently by the promoters that has resulted in the competitive bid and hence the said illegal acquisitions and fraudulent practices ought to be examined,” ICI said.
Currently, Bhushan Power, Bhushan Steel and Monnet Ispat are locked in a three-way battle to acquire OSIL through the open offer route.
On Unitech Holding, Maheshwari said there are several instances after March 2003 wherein the shareholding of the company is reflected as part of the “promoter group” in the shareholding pattern filed with the stock exchanges, whereas in other instances, the same has been excluded from the shareholding of the promoter group.
In the shareholding pattern of OSIL for the quarter ended December 31, 2005, Unitech Holding was shown as a person acting in concert (pac) with the promoter group and as such, the aggregate shareholding of the promoter group along with pac was shown as 62.75%.
However, for the quarter ended March 31, 2006, Unitech Holding’s shareholding is not shown as part of pac with the promoter group and therefore, the aggregate holding of the promoter group along with persons acting in concert is shown as 59.10%.
But Sanjay Chandra sought to play down his company’s role, responding to DNA Money’s queries.
“Orissa Sponge was just an investment by us in our personal capacity. We were never involved in the management of the company. Our consent was not taken by the promoters when they classified our investment as part of promoters’ holding. When we realised it, we took up the matter with the management and later on they rectified it and classified our holding as public holding. In fact, as per the last disclosure, just when we sold our stake in the company, our holding in Orissa Sponge was classified as public holding,” Chandra said.
Thereafter, on August 28, 2006, a further 14,10,000 shares (9.72% of the then expanded share capital) were allotted to TRF, increasing the promoter shareholding in OSIL from 59.10% to 62.94%.
Not only was no open offer made under Regulation 11(2) on account of the said acquisition, this change in shareholding was not even reflected in the shareholding pattern of OSIL for the quarter ended September 30, 2006, the letter said.
BSE data show the allotment of 14,10,000 equity shares was eventually reflected in the shareholding pattern of OSIL for the quarter ended December 31, 2006.
On December 20, 2007, OSIL has further allotted 70,00,000 warrants to TRFI, also promoted by the Mohantys. Each warrant is convertible into one share of OSIL. Of the said 70,00,000 warrants, 40,00,000 warrants were converted on March 9, 2009, after the announcement of the competitive bid, and 30,00,000 on March 12, 2009.
“There appears to be no notice of any resolution passed by the board of directors of OSIL declassifying Unitech as “promoters” of OSIL,” Maheshwari said.
“We apprehend that if immediate action is not taken in the matter by concerned authorities, the market may be forced to witness another Satyam kind of scandal,” the ICI letter said.