SEBI bans LS Industries, promoter, 4 others from securities markets till further orders

SEBI on Tuesday restrained Himachal Pradesh-based LS Industries, its promoter Profound Finance and four others from the securities markets till further orders following allegations of fraudulent activities and stock price manipulation.

The markets regulator also directed Jahangir Panikkaveettil Perumbarambathu (JPP), a Dubai-based NRI public shareholder, to impound unlawful gains of ₹1.14 crore from the sale of shares as part of a prima facie fraudulent scheme, the order said.

Suresh Goyal, Alka Sahni, Shashi Kant Sahni HUF and JPP were also prohibited from the securities market by SEBI till further orders. The regulator directed the entities to cooperate with SEBI’s investigation by furnishing all relevant information.

The matter pertains to LS Industries and its key associates were involved in artificially inflating the company’s share price despite negligible revenue and financial instability.

In an interim order passed on Tuesday, SEBI noted that LS Industries Ltd (LSIL), a BSE-listed entity, and its promoter devised a scheme in which the former director of the company, Suet Meng Chay, initially transferred a 12.12% stake in the company to JPP for just $1.

Subsequently, entities, including Multiplier Share & Stock Advisors Pvt Ltd, Setu Securities, Paresh Dhirajlal Shah and Ruchira Goyal were involved in triggering a sharp spike and fall in the company's scrip.

Further, contrary to all the positive announcements made by LS Industries, when the stock hit a high of ₹267.50 on September 27, last year, JPP offloaded some of its shares at the peak price.

His trading pattern also indicated that he sold most of his shares only during the period when there was a price rise, particularly in two patches between July and September (Patch -I) and November to December (Patch-III), the order said.

"It was prima facie observed that LSIL, its promoter Profound Finance, JPP, Suresh Goyal, Alka Sahni and Shashi Kant Sahni HUF were part of a manipulative scheme designed to defraud the investors.

"Accordingly, they are alleged to have prima facie violated the provisions of PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) regulations," SEBI's whole time member Ashwani Bhatia said in the order.

Further, the regulator analysed the bank statements of JPP and observed that soon after selling his shares, he remitted the following funds to Dubai. SEBI noted that JPP, who acquired 10.28 crore shares of the company for just $1, sold only a fraction of shares, by making ₹1.14 crore in the process.

As of February 10, he continues to hold 10.27 crore shares, valued at ₹698 crore based on the stock's closing price of ₹67.95, the order said.

Further, Ashwani Bhatia said the regulator has raised concerns over a questionable share transfer in LSIL. The new shareholder saw an astronomical paper gain, with the stake worth ₹2,752 crore at the company's peak market capitalisation of ₹22,700 crore. At a dollar-rupee conversion rate of ₹83.75, this translated into a windfall of $328.60 million.

The transaction, appearing too good to be true, has raised suspicions of possible violations under FEMA regulations.

The facts of the case raise other red flags, which cannot be overlooked as LSIL has declared its intention to acquire Robochef. SEBI emphasised that certain relatives of directors of Robochef including Suresh, Alka and Shashi Kant Sahni HUF, who are also the shareholders of LSIL, have utilised this opportunity to dump shares of the company and have made windfall gains. Such patterns of trading definitely raise concern regarding more mischief happening behind the scenes, Bhatia said.

The matter has also painted a picture of absurdities and anomalies, the regulator examination is still in progress and there is a need to act before another pump and dump happens and more innocent investors, who invest without knowing what is happening behind the scenes, lose money and burn their fingers, he added.

It is noted that the number of public shareholders has increased from 3,892 on June 30, 2024, to 6,106 on December 31, 2024.

Following a media report that highlighted the abnormal valuation of LS Industries worth ₹5,500 crore despite having zero revenue, SEBI conducted a preliminary check, which suggested irregularities.

The stock's price movement appeared inconsistent with the company's reported financials, and thereafter the matter was taken up for a deeper examination.

The examination aims to determine possible violations of SEBI's rules, including the PFUTP rules and the LODR (Listing Obligation and Disclosure Requirements) norms.