SEBI slaps $14M penalty on DLF and related parties in IPO disclosure lapse case

By PTI

  • 26 Feb 2015

In its biggest-ever penalty, Sebi today 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 today 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. 

In its first order, Sebi said that DLF and its Executive Chairman (K P Singh), Vice Chairman (Rajiv Singh), Managing Director (T C Goyal), Whole Time Director (Pia Singh), Executive Director - Legal (Kameshwar Swarup), Director (G S Talwar) and CFO (Ramesh Sanka) were in charge of the affairs of DLF at the relevant time.

"In the instant case... there was suppression of material facts and information by DLF about its subsidiaries in the offer documents (for IPO). Therefore, I find that the disclosures in the offer documents were not true, correct and complete and the certificate given by the Noticees in this regard is false," Sebi's Adjudicating Officer said in the order.

"A company being a legal entity cannot act by itself, rather it acts through its directors and officers. As such, directors of the company are expected to exercise utmost care, skill and diligence in all the activities of the company," he added.

"... I note it has been clearly established herein above that DLF and its top management including Talwar had chosen not to disclose Sudipti, Shalika and Felicite as its subsidiaries, thereby, actively and knowingly suppressed material information in the Offer Documents...

"(This includes)... information regarding related party transactions, financial information pertaining to subsidiaries and outstanding litigation /FIR against Sudipti leading to misstatements in the Offer Documents," the Officer said.

Sebi said that violation of the provisions of Disclosure and Investor Protection Guidelines, as also with ICDR (Issue of Capital and Disclosure Requirements) Regulations, SEBI Act and PFUTP (Prevention of Fraudulent and Unfair Trade Practices) Regulations have been established against DLF and others and it was "a fit case for imposing monetary penalty".

The penalties have been imposed for fraudulent and unfair trade practices under the section 15HA of the Sebi Act, which calls for a penalty of Rs 25 crore or three times the amount of profits made out of such practices, whichever is higher.

A further penalty has been imposed for "contravention where no separate penalty has been provided" under the section 15HB, which provides for a maximum penalty of Rs 1 crore.

Sebi said that the material made available on record has not quantified the amount of disproportionate gain or unfair advantage made by the entities and the loss suffered by the investors as a result of the default.