Fore School Of Management

MERCHANT BANKING
GAMMON INDIA LTD.

SUBMITTED BY:NAME Aggarwal BATCH ROLL NO. :::Kankesh WMG XVII 82060

10.2001. Ltd. B. On 24. in the non-disclosure of the above case and the further stand taken by them during the enquiry. On 17. Abhijit Rajan.10 each at a premium of 20 in the ratio of 1:1.2001 and closed on 15.2001. Mr.11. Company will have to confirm the buyers that the securities which has proposed have not been disposed/ sold/ transfers by the promoters during the period starting from the date of filing the draft Letter of Offer with SEBI till date II. did not disclose in the letter of offer . complete details of the cases and to add the extra information to the shareholders and give an exit option to all the shareholders. (appellant) is appointed as a merchant banker or as Lead Manager to the rights issue of shares issued by Gammon (India) Ltd. one Prashant Glass Works Pvt. Ltd. Ltd. Imperial Corporate Finance and Services Pvt.2001. (hereinafter referred to as "the company"). The issue opened on 15. III. Chairman & Managing Director of the Gammon India Ltd. the company after completing all the formalities. The complaint was that the Chairman and Managing Director of the company. Examine the role of Imperial Corporate Finance and Services Pvt.10. IV. There will be a big impact on the IPO grading of the company in the offer letter. has been filed before the IV Additional Chief Judicial Magistrate. the rights issue letter came to be issued offering the shareholders 63.1996 against Shri Abhijeet Rajan. Varanasi on 15. Company will have to clearly mention the Outstanding Litigations & Disputes. It also has to ensure that the registration of all intermediaries named in the offer document are valid as on date and will have to tell that none of intermediaries have been debarred from functioning by any regulatory authority as on date. Justified? Support your answer. As a merchant banker what due diligence and skill you would have exercised? Ans. and the likely impact of its disclosure in the Letter of Offer. Ans.9. lodged a complaint not with the appellant but with SEBI. Nature of Criminal Case The criminal case for the offence of forgery etc.A. 20. Describe the nature of criminal case against the CMD of Gammon India Ltd.10. the grading of the company will be down. Impact of its Disclosure in the Letter of Offer I.572 shares of Rs.

Therefore the time that began to run was from 12th of November. Rajan had informed that a criminal case was pending against him in Varanasi. But it is the duty of merchant bankers to check all the litigations and dispute and to disclose them in letter of offer of the company for which they have appointed. So they became appellant in this case by SEBI. They said that their officers had gone down to office of the company and enquired with the Director Mr.2001. They told that we didn’t get information because the CMD of the company was not available during that period. They explained that the CMD was out of station on the business tour in those days so they called him there but from that place they came to know that the client was not in India and traveling from one person to another. Equally it is correct to state that on 12th of November 2001 SEBI forwarded a letter from the complainant dated 9th of November 2001. Dayal and also the company Secretary. Therefore it is clear that on the 12th of November 2001 Mr. gave details of the criminal case. II.C. C.10. It was also not possible for them under any law to obtain any certified copies of such complaint from any public office. the appellant forwarded the letter from SEBI. They also mentioned that on 12th of November 2001 SEBI forwarded to the appellant a copy of another letter by the complainant dated 9th of November 2001. which was received from the complainant. IV. In this letter of the 9th of November 2001 received on 12th of November 2001 by the appellant it was for the first time the details and number of the criminal case pending in Varanasi were brought to the notice of the appellant. On 18.with respect to a case pending against him. There is some further stand taken by merchant banker: I. nor do the provisions of the criminal procedure code give any right to them to obtain any certified copy of the proceedings files before the court. to Mr. The complaint by the complainant did not state particulars of the criminal case pending against Abhijit Rajan. Once the details were available on 12th of November. there was not any information available to contact him. SEBI forwarded the complaint to the lead manager (the appellant). for the first time. . who were associated with the issue and none of them. III. Rajan. were aware of the criminal case and couldn’t furnish the information. They told that there was no other way of obtaining information from any other person would expose them to unnecessary and avoidable litigation against them.

2001 the appellant wrote to SEBI that corrective measures like disclosure must be made. Examine the role of Imperial Corporate Finance and Services Pvt. As soon as the draft was approved by SEBI on 5th of December." C. Although the draft letter was sent on 29th of November by the appellant. On 13. From 29th of November 2001 to 5th of December 2001 SEBI there was no response from SEBI. These letters were dispatched to the shareholders much before the allotment of shares. Regulation 7(a) reads as follows: "A merchant banker shall always endeavor to ensure that the investors are provided with true and adequate information without making any misguiding or exaggerated claims and are made aware of attendant risks before any investment decision is taken by them. On 5th December 2001 SEBI replied to merchant banker and on the next it was dispatched to the shareholders giving exit option and all such letters were dispatched between 6th and 7th of December 2001. a brief mention needs to be made of the duties of a merchant banker in this case are: I. Regulation 5(b) reads as follows: "A merchant banker shall always endeavor to ensure that all professional dealings are affected in a prompt." II. On 5th of December 2001 SEBI approved the draft letter to be circulated giving shareholders an exit option on the reason of not disclosing the full details about the Mr.As per the SEBI regulations.? Ans." III. efficient and cost effective manner. On 29th of November 2001. the appellant went one step further and sent a draft letter to SEBI for approval to be circulated to the shareholders for exit option for non-disclosure. in protecting the interest of the investors after getting a copy of the complaint lodged by Prashant Glass Works Pvt. SEBI approved the draft letter to be circulated to the shareholders giving exit option only on 5th of December. Ltd. Ltd. rules and Regulations and which may be applicable and relevant to the activities carried on by the merchant banker. This helped them to protect the interest of the investors and in result of that only 9 . by 6th and 7th exit options were given to the shareholders.11.? Connivance of Imperial with Gammon India Ltd. Abhijit Rajan. Regulation 9 reads as follows: "A merchant banker shall abide by the provisions of the Act. It was not possible for the appellant to have taken corrective measures till the sample of the draft exist offer was approved by SEBI.

merely on a finding of a bare nonperformance of a duty or some default in performing it.e. But in regarding of that SEBI said that professional misconduct on the part of the person exercising one of the technical professions cannot fairly or reasonable be found. but of misconduct and in an allegation of misconduct an imputation of a certain mental condition is always involved. to the fullest possible extent. It can be ascribed from the submissions of the merchant banker that it didn’t show any additional efforts apart from contacting the company in writing to ascertain about the details of the criminal case pending against the chairman & managing director of the company. It would be possible for any professional man to exercise his profession if he was to be held guilty of misconduct simply because he had not. 485 shares withdrew their applications. particularly when the issue was open for . I do not agree with the contention of the merchant banker that they could not contact CMD since he was abroad. A clarification letter was issued to the investors informing them of the pending criminal case against the chairman and managing director of the issuer company whereby an exit option as given to the investors before the allotment was made. Adequate? Ans. M/s Prashant Glass Works Pvt. Ltd. 78. The merchant banker had also received a copy of the complaint from the complainant i. distance cannot be an excuse for failure to get information/explanation from the CMD. In this age of information revolution. D. Examine the stand taken by the SEBI chairman in his verdict. A reference was also made to the judgment of the Delhi High Court reported in AIR 1968 Delhi 283. there had also been a failure to act honestly and reasonably. been able to do all that was required in the circumstances or that had misconceived his duty or failed to do the duty. The merchant banker chose not to disclose this fact at any stage of the proceedings. The merchant banker failed to write to the complainant itself seeking the details of the complaint. directly as in the said letter it was explicitly shown as copy marked to the merchant banker. The merchant banker chose not to disclose this fact at any stage of the proceedings. The merchant banker failed to act reasonably during the period when the company’s issue was open. The merchant banker apart from writing to the company seeking the confirmation and details of the criminal case pending against the company seeking confirmation and details of the criminal case pending against the chairman and managing director of the issuer company didn’t show necessary efforts in fulfilling the criteria of proper care and due diligence. in a given case. 1992. as prescribed under SEBI Regulations.applicants for 958 shares out of 3511 applicants for 64. The charge is not one of inefficiency. The merchant banker has not exercised due diligence. partial or entire which had happened.

the Chairman and this Tribunal has been taken in this case. can SEBI meet its objective of development of a healthy and orderly capital market? Comment. Ans. what will happen of their growth in investment and future prospects. We are not suggesting that action be taken against Mr. Rajan or the company fails to provide the information. the considered view that ends of justice would be met if suspension of 15 days is imposed instead of 3 months as recommended by the enquiry officer. In these facts and circumstances of case and also keeping in view of the fact that a clarification letter was issued to the investors informing them of the pending criminal case again the CMD of issuer company whereby an exit option was given to the investors before the allotment was made. it will prevent the investors to lose their money and will motivate the merchant banker to work more accurately and to follow all d rules and regulation which will help in improving capital market. With working like this. But what can the lead Manager do if Mr. This time could have been more profitably used for catching hold of the big sharks in security market who attempt to ruin the economy of the country.subscription. No it is not justified that it is taking so much long time to decide the case because so many people have invested money in these securities den how they will sure about whether they will get their money back or not. A lot of time of the Enquiry Officer. By no stretch of imagination can the conduct of the appellant be described as lacking in due diligence. it appears. E. Rajan or the company as it might have been a bona fide mistake. In this case. . which he ought to have disclosed or against the company and yet action is taken against the Lead Manager. who promptly advised the exit option for non-disclosure. no action has been taken against the very person who did not disclose the information. In this case SEBI gave the good decision by seeing all the facts and information but by working with very slow speed SEBI can’t meet its objectives of development of a health and orderly capital market for that they will have to make their process fast so that they can do decision in very less span of time which. Is SEBI justified in taking more than 17 months to decide the case? Examine the professional efficiency of SEBI in discharging the case.

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