DLF IPO disclosure case: Sebi imposes Rs 85-cr penalty

In its biggest-ever penalty, The Securities & Exchange Board of India (Sebi) on Thursday imposed fines of Rs 52 crore on realty giant DLF and seven others, including Chairman K P Singh, for "fraudulent and unfair trade practices", while penalties totalling Rs 33 crore were slapped on 33 related entities.

These orders come after Sebi in October last year barred DLF and its six top executives from markets for three years for suppressing key information at the time of its IPO in 2007, including about certain "sham transactions" involving an associate company named Sudipti Estates.

While the earlier order did not involve any monetary penalties and has been challenged before the Securities Appellate Tribunal, the regulator on Thursday passed two fresh orders, for related irregularities, to impose penalties totalling Rs 85 crore on as many as 41 entities. Proceedings against one person has been abated because of his death.

As per the first order running into 53 pages, DLF has been asked to pay a fine of Rs 26 crore, while a similar amount has to be paid collectively by seven persons-Chairman K P Singh, his son and Vice Chairman Rajiv Singh, daughter Pia Singh, T C Goyal, Ramesh Sanka, G S Talwar and Kameshwar Swarup.

This itself is the biggest ever penalty imposed by Sebi in a single case, barring the amount asked by the regulator in its 'disgorgement' or refund orders in which cases the concerned entities are asked to return the money illegally raised by them.

In the second 55-page order, Sudipti Estates has been asked to cough up Rs 1 crore, its two directors have been fined Rs 3 crore, while fines ranging from Rs one crore to Rs five crore have been imposed on 19 other entities. The fines are between Rs 5-15 lakh for others.

The fines need to be paid within 45 days, as per orders issued by the Securities and Exchange Board of India (Sebi).

DLF had raised Rs 9,187 crore in its IPO, the biggest ever till that time. Sebi had began a investigation after allegations were levelled by one Kimsuk Krishna Sinha about DLF and Sudipti Estates Limited (Sudipti), wherein he had alleged that Sudipti had duped him of Rs 34 crore in relation to a transaction between them for purchase of land, and he had registered an FIR against Sudipti.

It was also stated by Sinha in the said complaints that Sudipti, DLF Housing Development Limited and DLF Estate Development Limited were sister concerns and inextricably linked and all of them were part of DLF Group, as per Sebi order.

Sebi said that even after the sale of entire shareholding in Sudipti, Shalika and Felicite by the wholly owned subsidiaries of DLF, there was no change in the composition of Board of Directors of the three entities, while there was no change in any of the authorized signatories of bank accounts.

Their registered offices and statutory Auditors also remained unchanged.

The scrutiny of the bank account statements of Madhulika Basak, Padmaja Sanka and Niti Saxena revealed that those three bank accounts were in the name of those three housewives jointly with their respective spouses.

Even though these three housewives claimed that the purchase of shares of Felicite was as part of their investment decision, the details from CDSL and NSDL showed otherwise.

Madhulika Basak had no demat account during 2005-2007, Padmaja Sanka had no shareholding in her demat account during 2005-2007 and Niti Saxena had a demat account jointly with her husband Joy Saxena with nil shares in November 2006 and few hundred shares of Cairn India in December 2006.

"This showed that these three housewives were not regular investors/traders in equity shares," Sebi said, while adding that the series of transfer of shares from the subsidiaries of DLF to Sudipti to Shalika and to Felicite were shown to have taken place, that too, in a matter of just two days.

"I have therefore, no hesitation to conclude that the purported transfer of shares which took place in November, 2006 was nothing but a sham transaction," Adjudicating Officer A Sunil Kumar said, while ruling that "Sudipti, Shalika and Felicite were, undoubtedly, subsidiaries of DLF at the relevant time within the meaning of the Companies Act".

In the second order, Sebi said that its investigation revealed that as many as 34 entities/persons "aided and abetted DLF, its non-independent directors and CFO in the said scheme of camouflage".

Out of these 34, proceedings were abated against one because of his death, while other 33 who have been fined include the three "housewives", K P Singh's nephew Praveen Kumar, Sudipti, Shalika, Felicite, nominees, bank account signatories, shareholders and directors of these three companies, Key Management Personnel and directors of DLF and its group companies.

Sebi said that "various entities/individuals had played different roles, some of them might have been passively silent, to be part of the artifice employed by DLF so as to camouflage the association of Sudipti, Shalika and Felicite with DLF as dissociation."

Sebi also found certain "fund flows also to the account of Felicite from the accounts of the key employees of DLF".

"Sudipti, Shalika and Felicite gave effect to such sham transfers, that too in a matter of just 1 or 2 days without even ensuring that the transactions were backed by adequate consideration. Also, Shalika and Felicite played their part as buyers of shares.

"Though knowing full well that they were in effect subsidiaries of DLF, they remained silent and did not think fit to raise objections, when their names are excluded from the list of subsidiaries as disclosed by DLF in their DRHP/Prospectus," Sebi said.

About the "housewives", the regulator said they became shareholders despite being novice to securities market and apparently having no income of their own, depending on their husbands.

DLF said it did not violate any law and will challenge the Sebi order.

DLF further said that the company and its board were guided by and acted on the advise of "eminent legal advisors, merchant bankers and audit firms" while formulating its IPO documents.

The orders passed by Sebi can be challenged before the Securities Appellate Tribunal, which is already hearing a plea by DLF against another order passed by the capital markets regulator in October 2014.

The earlier order is also related to the same case, wherein Sebi had barred DLF and six others from capital markets for three years for "suppression of material facts" in its IPO documents.

"We have been made aware of adjudication orders passed by SEBI under Section 15 of the SEBI Act, 1992 against DLF, its directors and other noticees. We are presently reviewing the said Orders and after taking appropriate legal advice, we will challenge the said Orders in appeal," DLF said in a statement about today's orders.

Reassuring investors and all other stakeholders, DLF said "it has not acted in contravention of law either during its initial public offer or otherwise".