Sebi penalises 10 entities for diverting IPO proceeds in Birla Pacific Medspa case

Capital markets regulator Sebi has imposed penalties totalling Rs 3.42 crore on 10 entities, including Birla Pacific Medspa and Yashovardhan Birla, for violating listing agreements as well as diverting proceeds from the initial public offer of Birla Pacific Medspa Ltd.

The regulator imposed a fine of Rs 1.07 crore on Birla Pacific Medspa Ltd, Rs 32 lakh on Abhijit Desai, Rs 26 lakh on PVR Murthy and Rs 25 lakh each on Yashovardhan Birla, Venkateshwaralu Nelabhotla, Mohandas Adige, Anoj Menon, Rajesh Shah, Upkar Singh Kohli and Tushar Dey.

The order came after Sebi conducted an investigation into the initial public offer of Birla Pacific Medspa Ltd (BPML) for the period July 7-15, 2011.

The scrip of BPML was listed on BSE on July 7, 2011, after the IPO was open for subscription from June 20-23, 2011.

The price of the scrip had seen sharp volatility on the listing day, closing at Rs 25.35, 154 per cent more than the issue price of Rs 10 per share, Sebi said in an order on September 28.

BPML received IPO proceeds of Rs 65.17 crore, however, funds received in the IPO were not utilised for setting up of the 55 'Evolve' healthcare clinics across India as stated in the prospectus by the firm and funds to the extent of Rs 34.91 crores were actually siphoned off by the company.

Also it has been observed that out of the balance IPO proceeds, funds to the extent of Rs 31.54 crores were extended to various group companies as Inter Corporate Deposits (ICDs), out of which Rs. 18.54 crores were not paid back by the said companies to BPML.

Further, BPML also did not receive interest of Rs 6.39 crores from the said companies.

The regulator also holds that BPML, Desai and Murthy as signatories to the quarterly filings to the stock exchange and company, did not correctly portray the variations between projected utilization of funds made by it in the prospectus and the actual utilization of funds.

Therefore, BPML, Desai and Murthy violated provisions of SCRA (Securities Contracts and Regulations Act) rules.

It was also observed that BPML had extended funds to certain entities which were used to support the scrip price on the day of the listing, thereby violating PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) norms.

In addition, BPML has not filed any disclosure of deviation in the use of IPO proceeds along with its financial results to the stock exchanges and the fillings of the financial results were signed by Murthy on behalf of the company, thereby violating the listing agreements under SCRA.

Accordingly, the market watchdog imposed a fine of Rs 2 lakh on BPML.

However, this penalty would be subject to the outcome of Sebi's appeal pending before the Supreme Court. Section 23E in the SCRA pertains to listing conditions.

Meanwhile, in a separate order, Sebi slapped fines totalling Rs 71 lakh on 35 entities for violating market norms in the matter of First Financial Services Ltd.

The order came after Sebi conducted an investigation into trading and dealings in the scrip of First Financial Services Ltd and observed abnormal movement in the price and trading volume of the scrip on BSE during the period May 2012 to March 2014.