The curious case of UAE-based funds in India’s small-cap bubble

The Enforcement Directorate is investigating several companies with links to the United Arab Emirates. (AFP)
The Enforcement Directorate is investigating several companies with links to the United Arab Emirates. (AFP)


Obscure offshore funds may have played a role in running up the share price of certain small-cap companies in India. Several of these funds have links with Hari Tibrewala, the Dubai-based ‘hawala operator’ said to be behind the Mahadev Online betting app scandal

BENGALURU : Last summer, Marriott International, which operates hotels across 139 countries, agreed to start a 350-room hotel on Al Marjan Island, one of the four islands of Ras Al Khaimah, a city in the United Arab Emirates.

Set to open in 2026, under Marriott’s Le Méridien brand, the property is being developed by a company called Three Musketeers Hospitality. It is a wholly owned subsidiary of UAE-based Plus Holding Ltd.

Surendra Bagri, Ajay Halwasiya and Hari Shankar Tibrewala are the three founders of this hospitality company. The current turmoil in small-cap stocks can be better understood from the investments they, and family members of one of the three executives, made.

The S&P BSE SmallCap Index, which comprises 946 companies, is down nearly 5% since 1 March. Recently, Madhabi Puri Buch, chairperson of the Securities and Exchange Board of India, warned about a potential bubble forming in small-cap stocks. She pinned this on the role of some investors and the decisions some companies took.

Obscure offshore funds may have played a role in running up the share price of certain companies, Mint has discovered based on reviews of public filings and interviews with about half a dozen executives.

Many musketeers

First, a recap. Suraj Chokhani, a Kolkata-based resident, was arrested by the Enforcement Directorate earlier this month. The arrest resulted from the economic crimes agency’s investigation into the illegal Mahadev Online betting app scandal. The ED also seized the assets of 13 companies that it believes were used as vehicles to launder illicit money made from the betting app.

Chokhani owns eight of these companies, show documents reviewed by Mint.

The other five companies have links to Dubai.

Caterfield Global DMCC, owned by Jitendra Kumar and established in June 2020, buys and sells stocks, bonds and other financial instruments. It also trades in pearls and precious stones, according to registration filings with the Dubai Multi Commodities Centre, the UAE’s free trade zone.

JE Impex DMCC, which was set up in April 2016, calls itself a global cashew importer and exporter. It also buys and sells furniture and machine spare parts. But its business of owning and selling shares is what sets it apart. Its owner is Surendra Bagri, one of the co-founders of Three Musketeers Hospitality.

In his mid-40s, Bagri, apart from his interest in trading and hospitality, was also into films. A relative of Bagri is a scriptwriter and Bagri himself bankrolled Bombairiya, a 2019 Hindi film starring Radhika Apte.

Caterfield’s office is a 10-minute walk from JE Impex in Dubai.

The three remaining firms are Zenith Multi Trading LLC, Ecotek General Trading LLC, and Plus Commodities DMCC. These are owned by Hari Shankar Tibrewala, the Dubai-based co-founder of Three Musketeers Hospitality (the ED in its probe filings has spelt his last name as Tibrewal).

Zenith Multi Trading, set up in June 2013, and Ecotek General Trading, which came up five years later in 2018, share the same telephone number. Plus Commodities, which was started in October 2019, and Ecotek operate out of different offices but have the same person managing the two offices, according to filings made by these funds to Sebi.

Tibrewala, 46, claims to be conversant in Hindi, English and Gujarati. A bachelor of commerce graduate from the University of Calcutta, he worked at his father’s company for some years in the 2000s. Later, he moved to Dubai. He manages funds worth $2 billion for wealthy individuals in West Asia, his LinkedIn profile states.

Ajay Halwasiya, the third co-founder of Three Musketeers Hospitality, is the grandson of Madan Mohan Halwasiya, who founded the Kolkata-based Universal-Halwasiya Group.Ajay’s younger brother is Aditya Halwasiya, managing director of Cupid Ltd, a contraceptive maker (we’ll come to how the company’s ownership changed hands in a bit).

Ajay Halwasiya told Mint that the ED is not probing any of the Halwasiya family members.

Nonetheless, the executives mentioned above attempted to, or took control of, certain companies.

Cupid’s jump

On 8 September 2023, Universal-Halwasiya Group and Aditya Halwasiya agreed to spend 160 crore to buy out the 41.84% equity held by the promoters of Cupid Ltd.

Consequently, an open offer was triggered under which the Halwasiyas were to buy 26% of the shares in Cupid from the public, paying 325 apiece, translating to an additional 112.7 crore.

Shares of Cupid ended trading on 8 September at 392.03 each, up 3%.

Since the share price was more than what the new owners had offered to pay, the response to the open offer, which started on 12 December and ended on 26 December, was poor: Only 0.01% of the shares were tendered by public shareholders.

Four months later, on 5 January, the Nashik-headquartered Cupid announced that its board, in a meeting on 23 January, would take up a proposal for raising money by issuing shares on a preferential basis. The stock ended the day at 1,315.4 a share. About a fortnight later, Cupid announced it would issue warrants that would convert into shares at 1,750 apiece to raise 385 crore.

Six foreign funds agreed to participate in the preferential allotment of regular shares. Combined, they would own 14.08% of the Cupid stock.

Cupid, in short, saw more than a four-fold increase in its share price in four months.

BLB’s control

BLB Ltd is a Kolkata-based firm that buys and sells shares. Sometime during January-March last year, Tano Investment Opportunities Fund made its first appearance on BLB’s cap table—with an 8.65% stake in the company.

Who owns this fund is not clear as disclosures made to the stock exchanges by two public companies point to two owners. Tano Investment has invested in Gensol Engineering Ltd, an Ahmedabad-based firm that installs ground-mounted and rooftop solar panels. Gensol, in a filing dated 9 February, mentions Hari Tibrewala as the beneficiary owner of Tano Investment.

But Cellecor Gadgets Ltd, a Delhi-based electronic goods company in which Tano has invested, says in a 12 March disclosure to the exchanges that Ashwanee Ramsurrun, a Mauritius-based lawyer, is the beneficiary owner of the fund.

Tano Investment Opportunities Fund is registered in the Mauritius. OFS Finserv Services Ltd, which counts Ramsurrun as the cofounder, manages Tano Investment, according to registration documents Tano filed with the Mauritius Financial Services regulator.

The Enforcement Directorate mentions Hari Tibrewala as a “hawala operator”.
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The Enforcement Directorate mentions Hari Tibrewala as a “hawala operator”.

Be as it may, Chokhani, whom the ED arrested and refers to as Tibrewala’s Indian counterpart, swooped into the company in December and made an open offer in January. He was expecting to spend 31 crore.

Shares of BLB, which were trading at 21.75 apiece at the end of March 2023, jumped to 52.55 a share by 29 February this year. The ED issued a statement on 1 March calling Tibrewala a “hawala operator".

Consequently, Chokhani’s plan of buying out BLB came to naught. The company informed the exchanges on 8 March about the arrest of Chokhani.

“The surprising thing is why would a person running an obscure fund look to buy a company?" asked a Delhi-based executive at an alternate investment fund, declining to be identified. “Running a listed company comes with more scrutiny from the regulator than merely running a fund."

The same faces

BLB may not have changed hands for now. But over the last 15 months at least five small-cap firms, valued at between 400 crore and 3,000 crore, have raised capital after issuing shares to a group of investors.

These companies are Specialty Restaurants Ltd, which runs the Oh! Calcutta and Mainland China restaurants; agro-processing firm BCL Industries Ltd; Ok Play India Ltd, which makes plastic-moulded toys; engineering firm Balu Forge Industries; and Gensol Engineering Ltd.

All these firms issued shares to some investors, a few of whom are now being probed by ED.

There is nothing wrong with a company raising capital through convertible warrants. These financial instruments allow investors to buy equity in a company or allow a company to issue shares to investors, enabling swift capital-raising.

So what was common in the above transactions? The same faces—Tibrewala, Bagri, Kumar, and Ajay Halwasiya and family—surface again and again.

Also, the share price of companies that issued preferential shares jumped.

Sample this. Speciality Restaurants, in December 2022, made a preferential allotment of shares. The group of investors included Tibrewala and Bagri. Ekta Halwasiya, the mother of Ajay and Aditya Halwasiya, also bought shares. Finally, Kumar, who owns Caterfield Global, too subscribed.

Gensol’s preferential share allotment saw participation from both Tibrewala and Bagri, while Balu Forge Industries’ preferential issue of equity saw both Tibrewala and Kumar investing in the shares.

The share price of many of these companies had already run up before the preferential allotment. Shares of Balu Forge Industries, for instance, had almost doubled in the 12 months to 21 June 2023, when its board agreed to raise money from the preferential allotment. Post the allotment, the share price further jumped 40% between 22 June and 7 March this year.

The share price of many of these companies had already run up before the preferential allotment.
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The share price of many of these companies had already run up before the preferential allotment.

To be sure, preferential allotment by these six small-cap firms was not limited to only these entities or individuals.

Gensol Engineering raised 900 crore through a preferential share allotment to 162 investors, who would own a 21.6% stake in the company. Speciality Restaurants raised 127.23 crore by issuing shares to two dozen investors. Balu Industries raised 158.5 crore from 14 investors. BCL Industries raised 210 from preferential allotment to 28 public investors.

“Anjan Chatterjee (founder of Speciality Restaurants) is a dear friend and the deal was formulated by Prabhudas Lilladher Investment Banking and preferential warrants were allotted to a Halwasiya family member," Ajay Halwasiya told Mint.

“BCL Industries deal was brought to Aditya by a reputed (investor relations) and brokerage firm and investment was done on the basis of its promising business and future prospects," he added.

“Having investments along with multiple other investors (30-60+ investors) in certain preferential allotments does not mean the Halwasiya family has business dealings with Hari Tibrewala if one or two of Hari’s connected entities are also listed as allottees in a specific deal," Ajay Halwasiya further said.

“All Indian investments are done from proprietary funds of the Halwasiya family from India and the Halwasiya family does not remit funds abroad into any foreign companies," he clarified.

Tourist inflow

Tourism Finance Corporation of India, a company financing hotels, travel and tour operators, announced it would issue preferential shares on 21 February this year.

The same day, Aditya Halwasiya picked up a 13.06% stake in the company at an average price of 209.75 a share. Five days later, Halwasiya, Cupid (the company he bought), and Columbia Petro Chem (the flagship company of Universal Halwasiya Group) were the only three investors that, together, agreed to buy an additional 7.79% equity in Tourism Finance Corp., at 225 a share announced under the preferred share allotment.

Halwasiya gained control of a fifth of the Tourism Finance Corporation of India. The total Bill? 450 crore.

The shares of Tourism Finance surged from 82.25 a share on 1 January 2023 to 251.5 on 29 February this year.

By now, many in the market were questioning the price rise in small-cap stocks and the role of offshore funds, especially the Dubai-based entities.

In an interview to Mint on 5 March, veteran investor Shankar Sharma said returns from small caps had gone “into a different planet". “This (small cap) is the only train (from) which you should jump off when it is going at high speed rather than when it is slowing down," he had said.

In the second week of March, a friend of Aditya Halwasiya posted a note on a WhatsApp group of investors, many of whom them shareholders in Tourism Finance Corp.

“Fact check, stop rumours, dig deeper unless proven otherwise," read the headline of the message, seen by Mint. The executive defended the participation of some public Mauritius-based funds, including Elara India Opportunities Fund, Aries Opportunities Fund, and Nova Global Opportunities Fund in the preferential share allotment of some of the small-cap companies.

“All the funds are Mauritius based where the government has already done severe scrutiny… None of these have any Dubai DMCC link which is the case where the current fiasco is happening," wrote the executive in the post.

On 22 March, Cupid, in a U-turn, informed the stock exchanges that it had withdrawn its plan to invest in Tourism Finance.

“The change of mind has come about after a lot of deliberation and is a strategic decision to ensure we utilise capital where it is most value-accretive for Cupid," Aditya Halwasiya told Mint.

“One of the reasons why Cupid decided to walk away from the preferential share issue of Tourism Finance Corp., which was not a good decision because they were investing in an unrelated business, could be that the spotlight is on them over the promoters’ ties with Hari Tibrewala," said Shriram Subramanian, founder and managing director of proxy advisory firm InGovern Research.

While the ED is not probing any of the Halwasiya family members, remember, Ajay Halwasiya owns or owned one-third of The Three Musketeers. His partner, Tibrewala, is being probed. Over an e-mail response, Ajay Halwasiya said he has quit The Three Musketeers.

“As of 24 March 2024, I (Ajay Halwasiya) have resigned and stepped down from Plus Holding (PH) and Three Musketeers (TM) as a director," he told Mint. “I am overseeing the contract termination process with Marriott International and will only be able to legally and contractually relinquish my shareholding once Marriott signs off on the mutual termination of agreements."

Meanwhile, the ED probe can be troubling for the future of some of the funds and their India operations.

Caterfield Global DMCC’s current registration ends on 27 June. Any revocation of its licence as a registered foreign portfolio investor by Sebi, considering that the ED has seized its assets, will spell trouble for Jitendra Kumar. Same for Tibrewala, whose two funds—Ecotek and Zenith—come up for renewal in 2025 and 2026, respectively.

Don’t know them

Following the ED’s decision to seize the shares owned by the funds, at least a dozen small companies told the exchanges they didn’t know much about the funds participating in the preferential allotment of shares; that these funds were merely shareholders and that the promoters had nothing to do with the owners of these offshore funds. These companies include Ok Play India, Balu Industries, BCL Industries and Gensol Engineering.

“Zenith (fund owned by Hari Tibrewala), a passive shareholder since September 2022, holds less than 1.5% in Gensol and holds neither decision-making rights nor any involvement in the business and operational strategies of the company," Gensol Engineering told the exchanges on 13 March. “The company does not exercise control over or have access to its shareholders’ business dealings or private transactions," it further added.

“We have already submitted our clarification on the subject matter on NSE & BSE on 13/03/2024, that neither the company nor its promoters have any personal association with any of the alleged entities including M/s. JE Impex DMCC or its promoters except that it has been allotted 10,00,000 equity shares on preferential basis by the company in January 2023, which is not even 2% of the total allotments," BCL said in a clarification to Mint.

Not everyone buys this defence.

“Any fund managing even a few hundred crores does good due diligence of the company before participating in preferential shares," said the executive at the Delhi-based financial firm cited above. “From meeting with the management to having factory visits or speaking with vendors and employees, the due diligence process is elaborate."

Similarly, a company also does background checks on investors and funds. “After all, a company will not just share information with any fund claiming to have money," the executive said.

An email sent to Tibrewala and Surendra Bagri went unanswered. Jitendra Kumar could not be reached. None of the companies that offered preferential shares, except BCL Industries, replied to Mint’s questionnaire seeking clarifications.

“So far, we have not received any query from ED or Sebi about the investments made by M/s. JE Impex DMCC in the company," BCL stated in its clarification, adding that the company had completed all due diligence required by Sebi.

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