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Sebi is hot on Niskalp chief Talaulicar's trail

BS Markets Bureau

The Securities and Exchange Board of India suspects insider trading in Niskalp chairman J E Talaulicar's selling of his personal holdings of 100,000 shares of Tata Finance. Niskalp was till recently a subsidiary of Tata Finance Ltd.

In its ongoing investigations into the issue, Sebi suspects Talaulicar used inside information - in his capacity as chairman of Niskalp - to press sales of his own holdings in Tata Finance, with the full knowledge that Tata Finance would take a beating in the markets once the information of Niskalp's losses became public.

Here is the sequence of events, reconstructed: The Tata Finance rights issue, planned by its former managing director Dilip Pendse to prop up the capital adequacy ratio, opened for subscription on March 30, 2001.

Just one week before the opening of the rights issue, an anonymous letter was circulated in the market saying Tata Finance had incurred a huge loss of Rs 8 billion in its equity operations through its erstwhile subsidiary Niskalp Investments & Trading Company.

Taking serious cognizance of the allegations, Sebi instructed Tata Finance to reveal the true position by way of an amendment to the letter of offer and asked it to allow the shareholders, who had applied for the rights issue to withdraw their application, if they wished to, in the light of the additional disclosures.

Accordingly, a board meeting of TFL was hurriedly convened on March 28, and it was decided that a letter be sent to shareholders as per Sebi instructions, indicating the provisional loss of Niskalp Investment at Rs 800 million.

This fact was known only to the directors of Tata Finance till the letter was actually sent out on March 31.

Knowing well that the losses of Niskalp would depress the prices of Tata Finance, Niskalp chairman Talaulicar allegedly decided to sell his family's entire holding of 100,000 shares.

Sebi suspects that, as it was not possible to sell these shares in the market immediately in the run up to the rights issue, Talaulicar allegedly devised an ingenious method of transferring funds of Rs 7 million from Niskalp to the concerned sub-broker with a request to backdate the sale contract to September 6, 2000, when the Tata Finance share was around Rs 69.

Sebi feels the deal was struck on March 30, 2001, the day of opening of the rights issue.

The details of the beneficiaries of the family included J E Talaulicar -- 35,000 shares (worth Rs 2.4 million), Anant Talaulicar -- 10,000 shares (Rs 690,000), Sandeep Talaulicar -- 10,000 shares (Rs 690,000), Aparna Talaulicar -- 22,500 shares (Rs 1.5 million) and Usha Talaulicar - 22,500 shares (Rs 1.5 million).

But Sebi has found that the shares were transferred from the respective account of members to the broker's demat account only in the first week of April 2001, suggesting that the deal could not have been as far back as December 2000.

The shares were parked in the broker's account as these could not be sold in the market due to poor liquidity and the market price being only Rs 33.

Subsequently, in May, when Talaulicar realised that a detailed investigation was being planned by the Tatas to probe the Niskalp affairs, he immediately reversed the transaction and sold the shares at the prevailing price of Rs 34. He returned Rs 3.5 million (Rs 6.9 million minus Rs 3.4 million) to the broker who, in return, returned the money to Niskalp.

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