The Hindu Business Line : CLB disposes Govt plea to recast boards of Ketan Parekh cos

THE Company Law Board (CLB) has not accepted the Central Government's application to revise the board composition of five Ketan Parekh Group (KPG) companies by inducting majority of Government directors.

While disposing of the appeal, the Board, however, gave liberty to the Central Government to approach it, if necessary, after conclusion of ongoing investigation proceedings against the KPG entities.

The CLB Principal Bench, comprising Mr K.C. Ganjwal, Member, observed, "No useful purpose will be served by appointment of directors on the board of directors of these companies by the Central Government for the reasons that these companies are non-functional at present, under the orders of the Securities and Exchange Board of India (SEBI) and other Government authorities."

A separate order for investigations into 16 KPG entities including these five companies by the Central Government has already been given, the Bench noted.

"In view of the investigations order made by this Board, these petitions are disposed of with liberty to the Government to approach the CLB, if necessary, after the conclusion of investigation proceedings," it said.

Accepting the argument of the Central Government that affairs of the companies have been conducted in a manner prejudicial to the investors' interest, the CLB Bench stated, "The companies also did not have the proper internal audit system and gave interest-free loans to the companies under the same management."

The five KPG companies dealing in buying and selling of stocks and shares at various stock markets were Panther Fincap & Management Services Ltd, Panther Industrial Products Ltd, Classic Credit Ltd, Classic Share and Stock Broking Services Ltd, and Panther Investrade Ltd.

Mr Sanjay Agarwal, Counsel for the Central Government, submitted that in view of SEBI's observations, the Ministry of Company Affairs had ordered inspection of accounts and other records of 16 KPG entities. The inspecting officer has pointed out that the companies have resorted to indiscriminate and arbitrary transfer of funds between its Group companies. The Government held that business of these companies has been conducted and managed by its directors with the intent to defraud its creditors.

In fact, the preliminary and subsequent investigation reports undertaken by SEBI against the KPG entities in the wake of allegations that these companies were involved in market manipulation in some scrips reveals that prices of scrips such as Aftek Infosys, Lupin, Zee Telefilms, HFCL, and DSQ were manoeuvred.

The SEBI investigation further revealed that Ketan Parekh was operating through a large number of entities associated or controlled by him that facilitated hiding of nexus between source of flow of funds from corporate houses, banks, financial institutions and foreign institutional investors to ultimate deployment of funds in stock market by KPG companies.

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