Edelweiss must drop director under probe


Cogencis, Monday, Jan 13

By Chiranjivi Chakraborty

Edelweiss Group and its listed entity Edelweiss Financial Services Ltd, which have come under the lens of the Enforcement Directorate for alleged involvement in a 20-bln-rupee foreign exchange scam, have a lot to explain, besides the summons to its Chairman Rashesh Shah.

On Friday, the company clarified to stock exchanges that its Chairman and Chief Executive Officer Rashesh Shah was summoned by the Enforcement Directorate, but denied reports in the media that it had links to Capstone Forex Pvt Ltd, the firm being investigated for violation of foreign exchange rules.


According to India Today TV, the Enforcement Directorate is investigating the role of Sanjay Nathalal Shah, an independent director at some Edelweiss Group companies, in the alleged scam. Sanjay Shah reportedly has close links to owners of Capstone Forex.

The Enforcement Directorate's summons should not be the only headache for the non-bank lender.

According to the India Today TV report, the summons to Rashesh Shah were issued on Jan 3 for appearance before the probe agency on Thursday, a week prior to this being disclosed by the company to stock exchanges. An image of the summons displayed by India Today Deputy Editor Chaiti Narula confirmed this.

Given the "materiality" of the development, Edelweiss Financial Services ought to have disclosed the summons to stock exchanges on the date of its receipt, which would be any day between Jan 3 and Jan 9.

The listing and disclosure regulations of the Securities and Exchange Board of India require a board to disclose any fraud by the company's directors to stock exchanges upon ascertaining whether the information is material enough.

Edelweiss Financial's board may be well within its rights to term the summons a non-event. However, the reaction of the market to the India Today report on Friday showed investors believe the news is "material" enough.

Sources said the company might have chosen not to make disclosure to stock exchanges as the allegation against the independent director was personal in nature and had nothing to with the company.

In a letter to stakeholders on Sunday, Chairman Shah said, "The media has sensationally reported false allegations, conjecture and innuendo. Several have done so without following the standard, responsible practice of first speaking with Edelweiss."

Edelweiss, in the spirit of transparency, should have disclosed the receipt of the summons prior to the media reports, and the clarification sought by the stock exchanges. If the company did not have anything to hide, such action would have given credibility to its claim that it had no involvement in the scam.

Shooting the messenger is usually the practice of those who don't like the message. It is true that the unverified reports have caused notional losses to shareholders of the company, but the company first needs to question its own disclosure practices.

To restore the integrity and credibility of the board, independent director Sanjay Shah, who is facing allegations, must be asked to recuse himself from the board of Edelweiss group companies till the time the investigation is over.

Further, the regulator must take suo motu cognisance of the delay in disclosures by Edelweiss Financial Services and reprimand the company for this.  End


* SEBI directs exchanges to implement a framework to monitor margins (BS)

* SEBI puts in place operating guidelines for investment advisers in IFSC (PTI)

* SEBI comes out with system audit framework for exchanges, clearing corporations (PTI)

* SEBI tells invest advisers to take fees only via banking channels 


* National Stock Exchange under SEBI probe for document leaks (ET)

* SEBI restrains Vrise Securities from registering new clients for 6 months (PTI)

* SEBI gives NDTV promoters 4 weeks to respond in insider trading case 

* SEBI directs HBJ Capital Services, others to refund illegal fees collected from clients (PTI)

REGULATIONS (Announced in the past three months)

* SEBI asks rating agencies to downgrade cos if non-cooperative for 6 mos

* SEBI issues format to state deviation of proceeds from raised funds

* SEBI asks AMCs to give mgmt, advisory services to only select FPIs 

* SEBI eases norms for margin collection in commodity segment


 DateUnit LatestPrevious
FII/FPI net equity investment  Jan 9US$ mln21.92(-)47.87
FII/FPI net debt investmentJan 9US$ mln13.549.05
DIIs net equity investment#Jan 8bln rupees5.470.80
DIIs net debt investment#Jan 8bln rupees10.462.78



* Computer Age Management files papers with SEBI for 12-mln-shr issue 

* Nippon India MF seeks SEBI nod for Nifty Smallcap 250 Index Fund 

* Nippon India MF seeks SEBI nod for Nifty Midcap 150 index fund 

* ESAF Small Fin Bk files draft papers for 9.8-bln-rupee IPO 


* SEBI likely to fine-tune disclosure norms soon (IE)

* SEBI to extend deadline for listed companies splitting chairman, MD post by 2 yrs (BL)

* InGovern Research demands SEBI to direct Shapoorji Pallonji Group to give exit to minority shareholders (Moneycontrol)

* SEBI okay with brokers funding client margins, but only with their own money (Moneycontrol)

Sources - Television, Print, or Web Editions of: PTI--Press Trust of India, BS--Business Standard, ET--The Economic Times, Moneycontrol, CNBC TV-18, Mint, BL--The Hindu Business Line, TH--The Hindu, RTR—Reuters, Mint, BT--Business Today, IANS--Indo-Asian News Service, IE— The Indian Express, ToI--The Times of India

Internet links:

#--data not available for Jan 9


Compiled by Nivedita Yadav

Edited by Avishek Dutta

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