SAT Upholds SEBI Penalty on Nakoda Directors for Fake GDR Investments

Case Details: D. B. Jain vs. Securities and Exchange Board of India - [2025] 177 taxmann.com 371 (SAT - Mumbai)

Judiciary and Counsel Details

• Justice P.S. Dinesh Kumar, Presiding Officer
• Ms Meera Swarup & Dr Dheeraj Bhatnagar, Technical Member
• Jaimin Dave, Jitendra Sharda & Sukrut Mahtre, Advs. for the Appellant
•  Sumit Rai, Bhushan Shah, Akash Jain & Abhishek Nair, Advs. for the Respondent

Facts of the Case

In the present case, Nakoda Ltd., a listed company, issued Global Depository Receipts (GDRs) amounting to USD 24.25 million. The SEBI initiated an investigation into several Indian companies that had issued GDRs and found the issuance by Nakoda to be fraudulent.

The appellant, a director of the company, had entered into a pledge agreement with a foreign bank for a loan taken by an entity, Vintage FZE. The funds from this loan were used to subscribe to Nakoda’s GDR issue. The pledge arrangement was not disclosed to the stock exchange, creating a false impression that the GDRs were genuinely subscribed by foreign investors.

It was further noted that the appellant accepted changes in the terms of the pledge agreement by signing before a notary public, and that the company secretary sought transfer of only the interest portion two years after the GDR issuance.

SAT Held

The SAT observed that the GDRs were issued merely to project that USD 24.25 million was invested by foreign investors, whereas in reality, no funds were received by the company.

Accordingly, SEBI’s order restraining the appellant from accessing the securities market for three years and imposing monetary penalty for violation of Section 12A of the SEBI Act and Regulation 4 of the PFUTP Regulations was held to be justified.