Tribunal’s split verdict raps regulator for ‘over-regulation’
The Securities Appellate Tribunal (SAT) on Friday quashed an October 2014 order Securities and Exchange Board of India (Sebi) order that had barred real estate major DLF and six top executives from accessing the capital market for three years. “As per the majority decision, impugned order dated 10.10.2014 is quashed and set aside and all appeals are allowed with no orders as to cost,” the SAT judgment on an appeal filed by DLF observed. While justice JP Devadhar was in favour of the Sebi order, the other two members, Jog Singh and AS Lamba, ruled in favour of DLF.
In his observations Devdhar said Sebi’s decision that DLF has resorted to sham transactions of divesting shares in three companies with a view to camouflaging its association with these companies as ‘dissociation’ cannot be faulted. Devdhar also noted that Sebi’s conclusions to the effect that DLF had concealed material information and misled investors by signing a declaration that the information disclosed were “true and adequate” could be seen to be in violation of the PFUTP (Prohibition of Fraudulent and Unfair Trade Practices).
The other two members were, however, of the view that this regulation should not have been applied to this case and had done so by the whole-time member in disregard of the due procedure.
The tribunal’s order concluded DLF had “duly disclosed each and every material aspect of its affairs in the Offer Documents” that was required for a reasonably prudent investor to take a well-informed decision to invest in its IPO. It said that the Sebi order has led to a “grave miscarriage of justice”. The order noted that while it is the duty of the merchant bankers or lead managers to ensure adequate disclosures in the offer document, Sebi has not sought to proceed against them.
The tribunal’s order observed that on the face of it, Sebi had conducted a threadbare analysis of the second DRHP (draft red herring prospectus) and compared it with the first DRHP.
It pointed out that had DLF intended to withhold from Sebi or from the public the facts relating to Shalika, Sudipti and Felicite being subsidiaries, it would not have mentioned these in the second DRHP. In fact DLF had “boldly crossed out names” of these companies in the second DRHP and spelt out all differences between the two DRHPs.
As such, the tribunal’s order noted, Sebi should have questioned DLF and particularly the merchant bankers on the facts relating to the three companies — Shalika, Sudipti and Felicite — if it believed that the relationship between DLF and these were in the nature of a holding and the subsidiary company. “This was not done for obscure reasons,” the order noted.
Shares of DLF rallied as much as 9.2% to Rs 162.60 each before closing at Rs 157.50, up Rs 8.55 or 5.74%. On October 14 last year, the DLF stock had plunged to Rs 104.95, wiping off Rs 7,440 crore of market capitalisation following the Sebi order. Friday’s order noted that Sebi’s “over-regulation” had resulted in investors suffering losses, following the order.
In an email statement, the company said it and its board were guided by and acted on the advice of eminent legal advisers, merchant bankers and audit firms while formulating its offer documents in 2007. “We have full faith in the judicial system and we always abide by its order,” added DLF.
In its order dated October 10, 2014, SEBI had barred India’s largest property developer and six of its top executives including its founder and chairman, Kushal Pal Singh from the capital market. The market watchdog cited DLF’s failure to provide key information on subsidiaries and pending legal cases at the time of its record-breaking 2007 initial public offering in which the company raised close to $2.3 billion.
In its order dated October 10, 2014, Sebi had barred India’s largest property developer and six of its top executives including its founder and chairman Kushal Pal Singh from the capital market. The market watchdog cited DLF’s failure to provide key information on subsidiaries and pending legal cases at the time of its record-breaking 2007 initial public offering in which the company raised close to $2.3 billion.