The Securities and Exchange Board of India (Sebi) has barred nine entities from securities markets for up to five years in a case involving fund diversion and fictitious transactions. According to reports from Rediff Money, the regulator found that Tarapur Transformers and its promoters were involved in fraudulent activities that affected fairness in the securities market. The order was issued on Monday by Santosh Shukla, Quasi-Judicial Authority, SEBI, following Sebi's investigation into the affairs of Tarapur Transformers for the period April 1, 2018, to March 31, 2023.
As reported by Rediff Money, Sebi imposed a ₹30 lakh fine on Rajendra Kumar Choudhary, a promoter of Tarapur Transformers Ltd (TTL), and ₹2 lakh on Ganesh Gangaram Madhari. Choudhary has been prohibited from the markets for five years, while Madhari faces a three-year ban. The regulator found that the company transferred ₹31.46 crore in the form of interest-free loans and advances to connected and related entities, with funds allegedly diverted by writing off, creating provisions for or not recovering such loans and advances. Sebi described Choudhary as the 'mastermind of all plans and acts' in the case, stating he had violated his legal and fiduciary duties towards the company and its shareholders and abused his position.
According to Rediff Money, Sebi's investigation revealed that ₹22.48 crore was diverted through three related entities, including ₹8.67 crore to Choudhary Global, ₹3.87 crore to Veedhata Towers and ₹9.94 crore to Lorraine Finance. The regulator found that ₹8.98 crore was diverted through Rohit Steel Lamination, where TTL transferred ₹9.75 crore but received only ₹0.77 crore. Of this, ₹5.51 crore was written off as trade receivables while another ₹3.47 crore represented the net impact of fictitious purchases and sales. The investigation also found corporate governance lapses, including non-disclosure of related-party transactions and misleading disclosures regarding audit committee meetings and its constitution, besides non-compliance with Sebi summons by Ganesh Madhari.
Besides Tarapur, the entities debarred from the securities market for three years are Choudhary Global Ltd (a promoter group entity), Veedhata Towers, Lorraine Finance, Rohit Steel Lamination, Deekay Iron and Steel, Kumudini Engineering and Ashadeep Multitrade, as reported by Rediff Money. Sebi did not impose a monetary penalty on Tarapur Transformers, observing that any such penalty would ultimately be borne by shareholders. The regulator also refrained from levying monetary penalties on the other entities, describing them as non-operational paper companies, while retaining the market ban. During site visits, the regulator found that some premises were locked while others were occupied by unrelated businesses, with these entities having no physical presence.
According to Rediff Money, QJA Shukla described the case as a 'classic case of complete disrespect to the ethics and morals of corporate governance'. He noted that the connected entities at various stages had 'catalysed the flouting' of the law to the detriment of investors and the integrity of the securities market, while acting for their own benefit through a 'web of make-believe trickery' intended to mislead and obfuscate. The regulator also found failures relating to the disclosure of related-party transactions, Audit Committee meetings and its constitution, besides non-compliance with summons and failure to provide complete information during the investigation. Sebi stated that the diversion of funds, fictitious transactions and manipulation of the company's books of accounts demonstrated fraudulent behaviour that affected fairness in the securities market.
