Sebi bars DLF, six senior officials from market for 3 years

Written by fe Bureau | Mumbai | Updated: Oct 14 2014, 13:55pm hrs
DLFSebi has barred real estate firm DLF, chairman KP Singh and five key executives from accessing the securities market for a three years. PTI
The Securities and Exchange Board of India (Sebi) has barred real estate firm DLF, chairman KP Singh and five key executives from accessing the securities market for a three years for withholding material information on the companys subsidiaries and legal cases against them in the prospectus it filed for its initial public offering (IPO) in 2007. The order follows a show-cause notice issued by Sebi in June 2013 to the company and its executives in which it alleged DLF had failed to disclose related-party transactions.

The capital markets watchdog has prohibited the company and the executives from buying, selling or otherwise dealing in securities, directly or indirectly. The persons impacted by the ban are executive chairman Singh, Rajiv Singh, vice-chairman, Pia Singh, whole-time director, TC Goyal, managing director, Kameshwar Swarup, executive director (legal) and Ramesh Sanka, CFO. The violations relate to, among other laws, the Disclosure and Investor Protection (DIP) Guidelines and the PFUTP (Prevention of Fraudulent and Unfair Trade Practices) norms.

Rajeev Agarwal, whole-time member of Sebi, noted in his 43-page order he was satisfied that the violations were grave and had larger implications on the safety and integrity of the securities market. In my view, for the serious contraventions as found in the instant case, effective deterrent actions to safeguard the market integrity. It, therefore, becomes incumbent to deal with contraventions, digression and demeanour of the erring Noticees sternly and take appropriate actions for effective deterrence, Agarwals order read.

Among the transactions that drew the attention of the regulator were those in which three of DLFs subsidiaries, DLF Estate Developers (DEDL), DLF Home Developers (DHDL) and DLF Retail Developers (DRDL) subscribed to the share capital of three companies Sudipti, Shalika and Felicite to various extents and, subsequently, in November 2006, sold these stakes to three persons, Madhulika Basak, Niti Saxena and Padmaja Sanka.

These three persons were the wives of Surojit Basak, Joy Saxena and Ramesh Sanka, respectively, all key management personnel of DLF. However, even after the sale of the entire shareholding in Sudipti, Shalika and Felicite by the wholly owned subsidiaries of DLF, there was no change in the composition of the board of directors of these three companies.

The directors in Sudipti, Shalika and Felicite, who were employees of DLF, continued to be the directors of these companies even after the sale of shareholding.

The arrangement allowed DLF to control the boards of these three companies. Sebi had alleged that in terms of the Substantial Acquisitions and Shares and Takeovers Regulations, the three companies were controlled by DLF even after the date of claimed dissociation. Therefore, Sudipti, Shalika and Felicite were related parties of DLF in terms of AS-18 and the transactions needed to have been disclosed.

Sebis order noted that the process of share transfer of three subsidiaries of DLF in Sudipti, Shalika and Felicite was through sham transactions as alleged in the show-cause notice and that the noticees employed a plan, scheme, design and device to camouflage the association of DLF with its three subsidiaries namely, Felicite, Shalika and Sudipti. I find that the case of active and deliberate suppression of any material information so as to mislead and defraud the investors in the securities market in connection with the issue of shares of DLF in its IPO is clearly made out in this case, the Sebi order noted.

Hidden assets

* Directors of Sudipti, Shalika and Felicite were appointed by DHDL, DEDL and DRDL who were only shareholders in the companies prior to Nov 2006 n DHDL, DEDL and DRDL were wholly owned subsidiaries of DLF, hence control of DLF in the appointment of those directors via subsidiaries is apparent

* DLF was required to disclose related-party transactions pertaining to these companies