- SEBI accused Darjeeling Industries promoters of circular funding and stock manipulation
- The company was not found operating at its registered office addresses in Mumbai and Rajkot
- Ashok Jain allegedly funded preferential issue proceeds through connected entities and family
India's markets regulator, the Securities and Exchange Board of India (SEBI), has accused the promoters and associates of Darjeeling Industriies Ltd. of orchestrating an elaborate scheme involving circular funding, questionable use of preferential issue proceeds and suspected stock manipulation, in an interim order that also says the listed company could not be found operating from either of its registered office addresses.
SEBI, in a 62-page ex-parte interim order, alleged that Managing Director Ashok Dilipkumar Jain was the "mastermind" behind a network of connected entities and preferential allottees that enabled the company to raise Rs 11.76 crore through convertible warrants before allegedly routing much of the money through unrelated businesses. The findings are prima facie and remain subject to further investigation and responses from the noticees.
SEBI named ten noticees, including Jain, his daughter Viha Ashok Jain, Dilip Sanklecha, Sonali Parmar, Abhishek Prakash Jain, Kirti Ravi Kothari, Kalidas Magar, Joy Banerjee, Punyah Sachin Jain and director Pradeep Sutodiya. The regulator also linked Jain to Surendra Jain, who is being investigated separately in the Sunshine Capital case, citing WhatsApp conversations discussing Darjeeling, shareholder lists, company expenses and market operations.
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According to SEBI, the company allotted 70 lakh warrants to ten non-promoter investors. While the initial subscription amounted to Rs 2.94 crore, the regulator alleges that at least Rs 1.71 crore, or more than 58% of that amount, was funded directly or indirectly by Ashok Jain through family members and connected entities, raising questions over whether the purported investors were genuine independent subscribers.
The regulator further alleged that shortly after receiving the subscription money, Darjeeling Industriies transferred the entire Rs 2.94 crore to Jain before the funds returned to the company and were subsequently routed to multiple entities.
From there, SEBI alleges, the money was dispersed across a web of businesses whose activities bore little resemblance to the company's stated agricultural trading operations.
SEBI questioned payments of about Rs 3.09 crore to baby-care products maker Lifeway Hygiene LLP, around Rs 1 crore to scrap recycler Shree Adhyashakti Metals Pvt. Ltd., over Rs 1.28 crore to Antala Industries, Rs 40 lakh to Le Lavoir Ltd., where Jain is also a director, and Rs 40 lakh to newly incorporated Ghantiram Foods, where investigators said a substantial portion was withdrawn in cash soon after receipt.
The order raises equally serious questions about the company's existence on the ground. Investigators visiting Darjeeling Industriies' reported Mumbai registered office found the premises occupied by an unrelated finance company that had purchased the property earlier, even though the listed company continued to disclose the address for board meetings. A second inspection at the company's declared Rajkot office found the premises locked, with no signage or evidence that the company operated there. SEBI also said the company's disclosed website was non-functional.
The regulator further relied on WhatsApp chats recovered during a separate investigation involving Surendra Jain, in which Ashok Jain allegedly discussed deals relating to Darjeeling, company expenses, shareholder lists and market operations. SEBI said the conversations, along with trading patterns and fund flows, point to a coordinated arrangement aimed at manipulating the company's shares.
The findings are preliminary, and the interim order has been passed before hearing the noticees' defence. SEBI has issued immediate market restrictions while its investigation continues.
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SEBI said it moved with unusual urgency because the lock-in on a large portion of the preferentially allotted shares was due to expire on June 30, creating what it described as a risk that the noticees could sell their holdings and book wrongful gains at the expense of public investors. The regulator estimated that shares allotted to Ashok Dilipkumar Jain and connected entities could have fetched as much as Rs 29.05 crore at prevailing prices.
Pending completion of its investigation, SEBI has barred all ten noticees from buying, selling or otherwise dealing in Darjeeling Industriies' securities until further orders and directed them to cooperate with the ongoing probe. While the order cites prima facie evidence linking Surendra Jain to the alleged scheme, SEBI did not make him a noticee at this stage as it said he was not found to be holding shares in the company.
The regulator said its investigation will continue and reserved the right to initiate further enforcement action, including penalties, against the noticees and any other entities found to be involved.
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