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SEBI probe into Leel Electricals sees a twist

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The ongoing regulatory probe into the alleged siphoning off of funds in Leel Electricals, formerly Lloyd Electric and Engineering Ltd, has taken a new turn with the promoters filing a complaint with the Securities and Exchange Board of India (SEBI) against well-known investor Porinju Veliyath, who till recently was also one of the largest public shareholders of the company.

The listed entity had alleged Mr. Veliyath was trying to “arm-twist” the firm at a time when it is in the midst of a forensic audit — mandated by the SEBI — and wants the regulator to probe whether he was intentionally deflating the stock by spreading rumours before the probe was completed.

Further, the firm also sought SEBI to restrain him from speaking about the company till the probe was underway as the matter was sub-judice.

“SEBI may investigate specifically that the price of the scrip has been falling and he has been deflating, depressing the price of stocks of LEEL by spreading baseless allegations,” stated the complaint by Leel Electricals, highlighting that the share price fell from ₹56 to ₹12 in a short duration.

“We would therefore be grateful if the SEBI could investigate and in the interim, using its wide powers in the interest of investors and securities market, restrain Mr. Porinju Veliyath from speaking to the media on the complaint in this matter,” added the letter written on May 14.

Sale to Havells

This assumes significance as the company is under the regulatory radar for alleged siphoning off of funds by entities after it sold its consumer durables business to Havells India in 2017 for about ₹1,600 crore.

Incidentally, the complaint regarding alleged siphoning was made by Mr. Veliyath whose investment firm Equity Intelligence India owned almost 7.5% in the firm till December 2018. While the current holding of Mr. Veliyath’s firm in Leel Electricals could not be ascertained, disclosures on the exchange show he had been consistently paring his holding.

When contacted, Mr. Veliyath declined to comment. Meanwhile, an e-mail query sent to SEBI remained unanswered till the time of going to the press. Bharat Punj, MD, Leel Electricals, did not respond to calls and messages.

The company is of the view that since SEBI is a civil court under Section 11(3) of SEBI Act and a civil proceeding is currently underway in the matter, any comment by an individual could impede or influence the inquiry and hence, a restraining order is required.

“SEBI has wide powers under the SEBI Act, 1992 to put reasonable restrictions on anyone,” said Sumit Agrawal, founder, Regstreet Law Advisors and a former law officer of SEBI.

“Under SEBI’s Insider Trading Regulations, there is a fine balance sought to be drawn by SEBI by prohibiting communication of inside information. Communication and procurement of UPSI (unpublished price sensitive information) is prohibited, except for legitimate purposes, performance of duties or discharge of legal obligations.

“Even under RTI Act, exemption from releasing information is granted if it would impede the process of investigation or the prosecution of the offenders,” added Mr. Agrawal.