While Indian blue chip companies such as Tata, Reliance, Ambit and the Bombay Stock Exchange have all entered the Islamic asset management space in the last year or so with the launch of Islamic equity funds and the BSE TASIS Shariah 50 Index, the plight of one local company, purporting to be an Islamic finance and brokerage company but whose operations were deemed wholly unethical, has passed almost unnoticed.
On Jan. 12 the Securities Appellate Tribunal (SAT) of the Securities and Exchange Board of India (SEBI), the securities regulator, dismissed Appeal No. 146 of 2010 by Parsoli Corporation Ltd. against a ruling by SEBI that Parsoli and its promoters/directors violated several provisions of the regulations and perpetrated “fraud of the worst kind on the shareholders of this company who were deprived of their shares and when caught, the directors compensated the shareholders by crediting shares in their demat accounts through off market transactions.”
Parsoli could have gone to the Supreme Court of India to appeal against the SAT judgment, but it is unlikely it would go down this route because in such cases appeals are usually lodged immediately.
The directors (or unsuccessful appellants) in question are no other than Parsoli and the two the main promoters and joint-managing directors who are also brothers, Zafar and Uves Sareshwala. In a web of fraud, deceit, illegal share manipulation, bouncing checks, non-disclosure, misinformation and forgeries, according to the SAT judgment, Parsoli had left a trail of victims including its main foreign shareholders such as Baader Bank AG of Germany whose chairman is Uto Baader and Gulf Investment Services (GIS) from Oman, who between them invested Rs.720 million (just over $10 million) in two tranches, and ordinary Indian expatriates and origin people living in the UK, Saudi Arabia and other GCC countries.
Baader, Pradeep Asrani representing GIS and Mushtaq Al-Saleh from Oman — who between them owned up to 18 percent of the shares of Parsoli Corporation — resigned as members of Parsoli’s board of directors after the initial action by SEBI who also raided the company’s offices in Ahmedabad and Mumbai.
A number of Indian expatriate investors living in the Kingdom lost their life savings, stressing that Zafar Sareshwala never made good his promises of paying back their investments and even issued the off check that bounced. In the end, when forced, Sareshwala dismissed the losses due to market forces and the impact of riots in Ahmedabad a few years ago.
Parsoli even had a UK company called Parsoli UK Ltd. through which it even launched a Parsoli Global Islamic Equity Fund, which never really took off or attracted much funds from investors and yet curiously won an award for the Best Asian Islamic Equity Fund from a regional magazine soon after it was established. No doubt, Parsoli clients who were largely concentrated in Yorkshire amongst the Gujarati community in the towns of Dewsbury and Batley, were not amused and are still hopeful that they would somehow get their money back. Unfortunately, Parsoli UK does not exist anymore because it merged with the Parsoli operations in India to form Parsoli Corporation Ltd.
In a damning 11-page judgment, Presiding Officer Justice N.K. Sodhi and P.K. Malhotra, the other member of the tribunal, stressed that “since all the allegations against the appellants which have been discussed herein above stand established, the adjudicating officer was justified in imposing the penalties. The only argument of the learned counsel for the appellants is that the amounts of penalties imposed are highly excessive in the circumstances of this case. We do not agree with her. Having regard to the heinousness of the conduct of the appellants which has adversely affected the interest of the investors/shareholders and the integrity of the securities market, we do not think that any amount of penalty could be excessive. We are not inclined to reduce the amounts. For the reasons recorded above, all the appeals fail and they stand dismissed with no order as to costs.”
SEBI imposed record fines on Parsoli, its directors and their front entities. These include:
i) A consolidated penalty of Rs.2.5 million on Parsoli Corporation Ltd., Zafar Sareshwala and Uves Sareshwala.
ii) A consolidates penalty of Rs.30 million on the promoters’ family of Sareshwalas including Zafar, Uves, younger brother Talha and father Saleha Mohammed Yunus.
iii) A consolidated penalty of Rs.7 million on the Kothawalas family comprising Mohammed Alibhai, Amena Maksud, Fatema Mukthar, Maksud Yusufbahi, Mariam Yusuf, Mukhtar Yusufbhai and Yusufbahi Umarbhai. The Kothawalas were partners with Zafar Sareshwala ands his family in Parsoli.
iv) A penalty of Rs.1 million each on Gulam Rasool Mohiuddin Bombaywala; Iftekar Mohammed Yusuf Mansoori; Aslamkhan Rehmatkhan Pathyan; Abdul Hameed Abdul Gaffer Memon and Adulsamad Abdul Gaffer Memon.
Parsoli’s share registrar, Pinnacle, has also been banned as a share registrar and has been ordered to off load its existing clients to other registered share registrars. The three Parsoli brothers — Zafar, Uves and Talha have also been banned from being directors of public companies for seven years.
For the Parsoli shareholders, other than the perpetrators of the fraud, there is a glimmer of hope that they may recoup some of their estimated $10 million investments. SEBI has ruled that Parsoli Corporation make a public offer for the rest of the shares at a price set by a tried and tested Bombay Stock Exchange mechanism. The Sareshwalas and Kothiwalas would then have to buy back these shares and use the proceeds to pay the shareholders that were defrauded.
Parsoli is a public limited non-banking finance company and its shares are listed, amongst others, on the BSE. It also has a stock broking seat on the National Stock Exchange Ltd. (NSE) and on the BSE.
Zafar Sareshwala and his brothers in the meantime are still in business. In recent trips they have made separate business trips to Canada and Kazakhstan trying to interest potential investors and partners in new ventures and investments. The hapless and seemingly unassuming Uto Baader even introduced the Parsoli family to the prestigious German car manufacturer BMW. In fact, Parsoli BMW is a flourishing business in Ahmedabad after the family got the exclusive franchise for the up market German car in the states of Gujarat and Uttar Pradesh, two of the largest markets for the brand in India. Perhaps, not surprisingly, the names of Zafar and Uves do not appear anywhere on the documentation of Parsoli BMW.