Mumbai: In a suspected case of round tripping through a web of cryptic deals running across India, Hong Kong and Switzerland, the Securities and Exchange Board of India (Sebi) has ordered a detailed probe into the alleged diversion of funds raised by pharmaceuticals company Transgene Biotek through issuance of global depository receipts (GDRs).
Capital market regulator Sebi has prima facie found that the firm, Transgene Biotek, transferred $29.92 million, out of total GDR proceeds of $40.5 million, through a subsidiary "for undisclosed and ulterior purposes under the garb of consideration for technology transfer and for other reasons".
After raising of funds, the money was first kept in a Switzerland-based bank and some parts were later transferred to other entities in Hong Kong and Canada, among others, including to a subsidiary.
Sebi said that "there is a need for a detailed investigation in the entire GDR issues of Transgene till the end utilisation of the funds".
Initial probe by Sebi also found that the claims that Transgene used the GDR proceeds to acquire certain technology from Hong Kong-based Asia First Technologies Ltd were "false and misleading".
According to Sebi, Transgene had deposited $40.5 million GDR proceeds in Investec Bank, Switzerland, and transferred a part of the funds to Asia First from this account.
From the balance sheet for financial year 2011-12 of Transgene, Sebi observed there was no addition of assets of the kind purportedly acquired by transferring the GDR funds.
"Thus, the disclosure in annual report claiming that Transgene had made payment out of GDR proceeds was false and misleading," Sebi said.
Sebi observed that the annual report was signed by Transgene chairman and managing director (CMD) K Koteswara Rao and director Narayana Murthy Pentyala.
Accordingly, pending a detailed probe in the matter, Sebi has directed Transgene "not to issue equity shares or any other instrument convertible into equity shares or any other security till further orders".
Other promoters and directors who have been barred include Prashant Kumar Ghosh, Soma Sekhar Marthi, Narayana Murthy Pentyala, K Nirmala Rao and K Srinivas.
As part of its probe that Sebi wants to be "completed expeditiously", the regulator would look into the role of allottees of the GDRs like FIIs/Sub Accounts as well as that of Asia First, among others.
The regulator said that Transgene had "never informed its shareholders that the technology transfer from Asia First to Transgene never took place for which $29.92 million were transferred to them from the proceeds of GDRs".
Sebi observed that Transgene and its directors had "deliberately shown a rosy picture to the investors in Indian securities market by making GDR issue and then making false and misleading disclosures about the utilisation of the GDR proceeds".
"Further, prima facie, they actively concealed the fact that the Transgene had never received the technology and other purportedly agreed services from the entities to whom the GDR proceeds were transferred," Sebi said.
These GDR issues were purportedly to raise capital from overseas market for expansion of its present business activities.