The regulator also barred Mallya from having any direct or indirect association with any listed company for the next three years.
The SEBI investigation is based on the findings of SEBI’s UK counterpart, the Financial Conduct Authority, for the period January 1, 2006 to March 31, 2008.
The regulatory investigation revealed that Mallya had used Motherhorn Ventures, a sub-account of foreign institutional investors (FIIs), as an investment vehicle to indirectly trade shares of his group companies Herbertsons and United Spirits in India.
Sebi alleged that the amount paid to Matterhorn Ventures was transferred by Mallya through opening various beneficiary accounts.
They deposit funds in UBS accounts and transfer funds indirectly through these accounts.
Indian securities market. This financial route was used by Mallya in the names of various overseas registered entities to conceal the true nature of his investments in the Indian securities market, SEBI said. Also, the FII was listed as a non-promoter general shareholder in the shareholder structure of Herbertsons, but his 9.98% shareholding in Matterhorn Ventures actually fell under the promoter category, the regulator said.
On April 23, 2023, Sebi had issued a show cause notice to Mallya for indulging in fraudulent and unfair trade practices.
Mallya told SEBI that the show cause notice pertains to trade and financial transactions which appear to be at least 15 years old.
“Therefore, in the case of the person concerned (Mary),
“There has been delay in initiating SEBI inquiry and investigation into the aforesaid securities and monetary transactions dating back 15 years,” Mallya said in a filing to SEBI.
The regulator countered that the investigation required collection of data from cross-border regulators on foreign companies and that the entire fact-finding process in the matter was complex, cumbersome and time-consuming.
“For trading in shares of USL (United Spirits) and Herbertson, the notified person (Malliya) devised a scheme to open multiple accounts with UBS under various names including Bayside, Suncoast, Birchwood etc., of which the notified persons were the ultimate beneficial owners. These three entities remitted a total of $6.15 million to VNHL (Venture New Holdings Limited), the beneficial owner of which was also the notified person,” the SEBI adjudicator said in his order.
VNHL then further transferred this amount to Matterhorn Ventures, which promptly bought shares in Herbertsons, which was then a publicly listed company and was promoted by Mallya, Sebi alleged.
“…the notified person (Malliya) had indirectly used Matterhorn Ventures, a sub-account of an FII, as an investment vehicle to indirectly trade shares of Herbertsons and USL, its group companies in India, and provided funds to the said FII,” Sebi said.
As per Sebi regulations, investment through the FII route is only for individuals resident outside India to invest in the Indian securities market.
“…it is clearly established that the notified person (Malliya) had systematically misused the FII route to invest the surplus funds parked abroad and had not disclosed the same to the investors in these companies in India,” Sebi said.
