SEBI Closes Unitech Stock Manipulation Probe, Cites Insufficient Evidence Against Chandra Brothers

SEBI initiated the investigation to find out the potential routing of funds to the securities market through the Switzerland-based bank UBS AG between April 1, 2006, and March 31, 2008. The investigation focused on whether the Chandra brothers used these funds to manipulate Unitech's stock prices.

The investigation revealed that employees of UBS AG communicated with the Chandra brothers, allegedly at their request, to subscribe to the Pluri Emerging Companies PCC Fund. It suggested that funds transferred from Unitech's Indian accounts to its overseas subsidiaries were parked in UBS accounts and later routed to Pluri for purchasing Unitech shares. However, SEBI Chief General Manager G. Ramar, who served as the adjudicating officer in the case, stated that there was insufficient corroborative evidence to substantiate these allegations.

SEBI referred to the decision of the Supreme Court in Bishundeo Narain & Anr vs. Seogeni Rai & Anr and the Securities Appellate Tribunal's orders in R K Global v/s SEBI and Narendra Ganatra v/s SEBI, and held that there is a need for a high degree of probability and substantial evidence in cases involving allegations of fraud and manipulation. It held that general allegations without specific particulars are insufficient to substantiate such serious charges.

During the investigation, SEBI examined several bank statements and communications. A credit transaction of USD 8 million from Unitech's account with Canara Bank to Unitech Overseas Ltd.'s UBS account in Zurich in September 2008 was scrutinized. While the investigation inferred that the Chandra brothers regularly transferred funds to foreign subsidiaries, the end-use of these funds remained untraced due to a lack of documentary evidence.

The Chandra brothers contended that they had no control over United Corporate Parks PLC (UCP) and that their involvement in entities like Fairway Advisory Services, which held stakes in UCP, was minimal. They further argued that UCP was an independent listed entity with no significant shareholding by Unitech during the investigation period.

The investigation referred to the transactions involving Nectrus Ltd., a foreign subsidiary of Unitech, and its dealings with other subsidiaries and entities like Candor Investment Ltd., a subsidiary of UCP. It observed that there were credit and debit transactions between Nectrus Ltd. and various foreign subsidiaries of Unitech, including funds transfers from entities like DBML. Additionally, emails between UBS employees indicated discussions about subscribing to Pluri funds on behalf of the Chandra brothers.

Despite these observations, the investigation could not definitively link the funds transferred from Unitech to the investment in Unitech shares by Pluri. Transactions between Pluri and other entities, such as the Sophia Growth Fund, occurred before the transfer of USD 8 million from Unitech to its overseas subsidiary.

The investigation held that the evidence was insufficient to prove that the Chandra brothers engaged in manipulative and deceptive practices to influence Unitech's stock prices. The findings relied heavily on inferences rather than concrete evidence.

Therefore, SEBI held that that the allegations against the Chandra brothers could not be established. Consequently, it held that no further action was warranted under the provisions of the SEBI Act, 1992, and the PFUTP Regulations, 2003.