The regulator has also restrained Mallya from associating with any listed company directly to indirectly for three years.
SEBI’s investigation is based on the findings of Financial Conduct Authority, its counterpart in UK , for the period from January 01, 2006 to March 31, 2008.
The regulator’s probe revealed that Mallya used a sub-account Mattherhorn Ventures, a foreign institutional investor(FII), as an investment vehicle to indirectly trade in the shares of his own group entities in India — Herbertsons‘ and United Spirits.
Sebi alleged that the amounts paid to Matterhorn Ventures were routed by Mallya by opening various beneficiary
accounts with UBS and routing these funds through these accounts, indirectly, to the
Indian securities market.This financial route was taken by Mallya in the names of various overseas registered entities to conceal the true identity of his investments in Indian securities market, Sebi said.Also, the said FII was shown as a non-promoter public shareholder in the shareholding pattern of Herbertsons whereas, Matterhorn Venture’s holding of 9.98% shares actually belonged to the promoter category, the regulator said.
On April 23, 2023, Sebi issued a show cause notice to Mallya for indulging in fraudulent and unfair trade practices.
Mallya responded to SEBI saying the show cause notice pertains to transactions and purported monetary dealings which appear to be atleast 15 years old.
“Therefore, it is the case of the Noticee (Mallya) that there has been an egregious
delay in SEBI initiating an inquiry or investigation in relation to the aforesaid 15 years old purported securities transactions and money dealings,” Mallya said in his submission to Sebi.
The regulator countered it by saying its investigation required collection of data from cross border regulators with respect to foreign entities and that the entire fact finding process in the matter was complex, tedious and time consuming.
“I find that, in order to trade in the shares of USL (United Spirits) and Herbertson, the Noticee(Mallya) devised a scheme of opening multiple accounts in various names with UBS including the names of Bayside, Suncoast, Birchwood, etc. of which the Noticee was the ultimate Beneficial owner. These three entities had transferred a total amount of $6.15 mn to VNHL (Venture New Holding Limited) whose beneficial owner was again the Noticee,” SEBI’s adjudicating officer said in her order.
Later, VNHL further transferred this amount onward to Matterhorn Ventures. Matterhorn immediately purchased the shares of Herbertsons, which a listed company at that time and was promoted by Mallya, Sebi alleged.
“… the Noticee (Mallya) had indirectly used the sub-account of the FII i.e. Matterhorn Ventures as an investment vehicle to indirectly trade in the scrips of his own group companies in India i.e. Herbertsons and USL by way of funding the said FII,” Sebi said
As per Sebi rules, investments through the FII route are only meant for persons resident outside India to facilitate them to have an exposure in the Indian securities market.
“…it is clearly established that the Noticee (Mallya) has, by way of a design, abused the FII route for investing his surplus funds kept abroad and had not revealed the same to the investors of these companies in India,” Sebi said.
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