Sebi bans Falcon Tyres and Dunlop Tyres officials from capital market for two years

Mumbai: Pawan Kumar Ruia, who shot to fame after acquiring Dunlop Tyres from the late liquor baron Manu Chhabria in 2005, has been banned from accessing the capital market for two years by Sebi for not complying with the minimum public shareholding norms.

Ruia is the executive chairman of

Tyres. Falcon Tyres and Dunlop India were taken over by the Ruia Group in 2005.

The regulator has also banned Sunil Bhansali, executive director of Falcon Tyres for one year and S Ravi, a director on the board of both Falcon Tyres and Dunlop India, Mohan Lall Chauhan and Damodar Prasad Dani, directors on the board of Dunlop India for six months from accessing the securities market.

Sebi had conducted a probe into acquisition of shares of Falcon Tyres and Dunlop India by certain entities through preferential allotment for the period between April 26, 2012 and April 28, 2012.

After completion of the investigation, Sebi issued a show cause notice to Falcon Tyres and to the five directors.

In the notice the regulator alleged that Manali Properties & Finance Limited is one of the group companies of Falcon Tyres and it also forms part of the promoter group of Falcon Tyres and Dunlop India. Another company Stephens Financial Services Pvt. Ltd. is also one of the group companies of Dunlop.

Manali and Stephens had assigned loans of over Rs. 200 crore to three entities namely Suncap, Salputri and Regus, which as per the submissions of Manali and Stephens were unrelated to them, Sebi said.

“These three entities were hardly doing any business activity and their net worth was nowhere close to the amount of loan assigned to them. It was further observed that there was no collateral or other securities for the said loan,” Sebi said in an order on Wednesday.

Subsequently, Falcon and Dunlop made a preferential allotment of equity shares to Suncap, Salputri and Regus.

Following this, the shareholding of Suncap, Salputri and Regus, (i.e. total 56 % and 41% of shareholding held by them in Falcon and Dunlop respectively) were shown under the category of public. Accordingly, Falcon and Dunlop had declared their public shareholding as 68.38% and 61.65% and promoter shareholding as 31.62% and 38.35% respectively. However, Sebi observed that if the promoter shareholding of Falcon was taken along with the preferential allottees, it came to 87.62% of total shares. Similarly, in the case of Dunlop, the Promoter shareholding taken together with the preferential allottees came to 79.35% as on the date of allotment of preferential shares, the regulator said.

“..the entire scheme of assignment of loan by Manali and Stephens to three entiites namely Suncap, Salputri and Regus and subsequent conversion of the said loan into equity shares allotted by way of preferential allotment, was done by Falcon and Dunlop in collusion with their group companies and the three preferential allottees, with a view to avoid MPS (minimum public shareholding) requirement..” Sebi said.

Due to the issuance of preferential allotment of shares to these three entities, the public shareholding of Falcon and Dunlop had been claimed to have crossed the required minimum of 25%, Sebi alleged.