Mumbai: Sun Pharmaceutical Industries Ltd founder and managing director Dilip Shanghvi and his brother-in-law Sudhir Valia engaged in financial irregularities with Dharmesh Doshi, a key figure from the 2001 Ketan Parekh scam, a whistleblower alleged. The whistleblower made the allegations in a 150-page letter sent to the Securities and Exchange Board of India (Sebi), which had banned Doshi and Parekh following the 2001 scam, India’s second biggest stock exchange scandal. Doshi is a former associate of Parekh.
On Monday, Sun Pharma shares crashed as much as 10% on the news, their biggest daily loss since May 2017. The stock hit an over six-month low and was the top decliner on NSE. More than 10.3 million shares traded in the first 15 minutes, 1.5 times their 30-day moving average.
The stock ended the day 7.53% lower at ₹ 455.20 on the NSE even as the benchmark Nifty closed flat at 10883.75. The stock also dragged Nifty Pharma index lower by 2.4%.
A whistleblower has also written to Mint with a similar set of allegations. It could, however, not be ascertained whether it was the same person who wrote to Sebi. Mint also couldn’t independently verify the allegations and is reproducing the whistleblower’s account. Moneylife, on its part, on Saturday published excerpts of the 150-page complaint to Sebi.
According to the person who wrote to Mint, the irregularities involved two or three major rounds of foreign currency convertible bonds (FCCBs) issues by Sun Pharma during 2002-2007, which was managed by Jermyn Capital LLC.
According to Sebi’s order in 2001 on the Ketan Parekh scam, “There are linkages between Jermyn Capital LLC, Jermyn Capital Partners Plc (hereinafter referred to as ‘Jermyn Plc’) and Dharmesh Doshi/Ketan Parekh."
“These FCCBs were primarily subscribed by Bomin Finance Ltd, First International Group PLC, Orbit Investments PLC and Sun Global Investments Ltd, and through layered transactions, were allotted to Orange Mauritius Investments Ltd and Hypnos Fund Ltd," the whistleblower added.
In 2016, Mint had raised questions on whether First International Group Plc was allegedly a front for Doshi, based on another whistleblower complaint.
At the time, Mint had also submitted all the documents to Sebi to investigate the allegations. The status of the probe could not be ascertained.
“Starting with huge funds created from the initial FCCB of Sun Pharma, the group (Doshi, Valia, Sanghvi and Sun Pharma) started to acquire larger stakes in different companies by FCCB conversion, or money obtained from FCCB conversions," the whistleblower wrote.
According to the whistleblower, acquisitions by Sun Pharma Group of overseas pharmaceutical companies and many Indian brokerage firms were carried out in a “totally illegal way". The group used the infrastructure of brokerage firms to identify target companies and then started manipulating stock prices in direct or indirect ways, he alleged.
Separately, the market regulator has taken cognizance of Australia-based investment banking and securities firm Macquarie’s note on Sun Pharma circulated on 27 November which alleged irregularities in the issue of FCCBs.
In response to an email sent to a Sun Pharma spokesperson, the company said: “We have not been contacted by Sebi in this regard."
Responding to the Macquarie note, Sun Pharma informed the stock exchanges on Thursday: “The points raised in this note pertain to historic events, some of which are dated as far back as 10-15 years. Certain points raised in the said note are incomplete and have been presented in a negative manner. The supporting information to the points raised in the note has been sourced from the public domain and hence this information/data is already available in the public domain. Further, there is no material impact of the said news article on the company."
“The modus operandi is to get a good chunk of shares, preferably through the FCCB route since the investor face is not visible. Use stock market controllers and investors base to reduce the price of the stocks," the whistleblower wrote.
One such case of alleged irregularity involved the Ranbaxy acquisition, during which the whistleblower alleged, the trio made unlawful gains of ₹ 8,000 crore.
“Silverstreet Developers LLP, a Sudhir Valia entity, booked ₹ 275 crore of notional loss by cancelling the investment made by insider trading to save huge tax payment. Dharmesh Doshi alone, through Orange Mauritius Investment Ltd, made ₹ 500 crore profit on stock investments in Ranbaxy by strategically investing in advance before the merger announcement," he further alleged.
In 2017, Sun Pharma, Shanghvi, and nine others had settled the insider trading probe for ₹ 18 lakh. According to norms, Sebi can reopen a case ‘if the terms of settlement have been violated’. The whistleblower has also detailed the connection of the three entities via Investment Trust of India.
Investment Trust of India, formerly Fortune Financial, is owned by Sudhir Valia and lists Orange Mauritius as a shareholder. Orange is an FII sub-account of First International Group, which has links with Doshi and Jermyn Capital, the whistleblower alleged.
Another allegation is that a promoter group company of Sun Pharma, Virtuous Finance Pvt. Ltd, which holds a 4.04% stake, had lent to Ketan Parekh.
As per the Income Tax Appellant Tribunal (ITAT) of 2011, Virtuous had lent to Oxford 21st Century Services Pvt. Ltd. Oxford is a Parekh company, according to the ITAT order.
“A sum of ₹ 324,483 is due from Oxford 21st Century. The amount has been advanced in the earlier year. There is no transaction with this party in the current year. Copy of account filed by the appellant shows that the appellant has written off this amount in the AY 2004-05. The appellant is claiming that the funds were lent to this party during 1997-98 and 1998-99 at an interest of 26-27%. This company belongs to the Ketan Parekh Group (stock broker) of companies. Later this party turned out to be defaulter," said the ITAT order.