Market regulator Securities and Exchange Board of India has approached the Enforcement Directorate (ED) to look into alleged round-tripping of funds by large corporate houses. SEBI is also awaiting more data from the UK’s Financial Services Authority before taking any decision.

FEMA violation?

“We have written to ED to investigate whether there is any violation of Foreign Exchange Management Act (FEMA) in this matter,” a senior SEBI official told BusinessLine. On April 14, this newspaper had reported that the regulator had issued notices to at least five major Indian corporate houses — United Spirits, Unitech, Essar, GMR and Sterlite — on suspicions of stock price manipulation and possible insider trading through funds parked abroad.

When contacted for comment on the latest development, Essar and GMR reiterated that they had not done anything wrong while United Spirits declined to comment. Sterlite and Unitech did not respond to e-mails.

The show-cause notices sent to these entities were based on an unsolicited report sent by the erstwhile market regulator of the UK, Financial Services Authority (FSA) in 2010.

The official said the report enquired about a foreign bank UBS. The official admitted that the regulator did receive responses from the named corporates denying any wrongdoings. However, he said more information had been sought from the UK regulator before taking any action in the matter.

He said with the splitting of FSA into two authorities – the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) in 2013 — the effort to gather more information was taking time. SEBI is trying to find out whether the five corporate entities had raised funds abroad through external commercial borrowings (ECBs) or some other instruments and then ‘round-tripped’ the money through a fund that invested in their shares in India.

The Indian regulator will be looking at whether this violated RBI’s rules related to ECBs as well as whether this led to price manipulation through possible insider trading. The period under scrutiny is between 2005 and 2008.

Corporate responses

A spokesperson of Essar said, “We would like to reiterate and strongly refute any suggestion that Essar entities have ever dealt in its own shares through any FII/UBS banking channels. Further, we would like to state that necessary information as desired by SEBI has been provided to them and we haven’t heard from them since our last response in August.”

A GMR spokesperson said, “We wish to reiterate that we have not dealt in any transactions in GMR shares during 2005 to 2007. We communicated the same to SEBI in April this year and have not received any further communication from SEBI in this regard.”

Sterlite had categorically denied receiving any notice and termed the information as completely incorrect, while United Spirits declined to comment and Unitech, even at that time, did not respond to e-mails. (The Hindu Business Line)