SAT says DLF resorted to sham deals, but cuts SEBI’s mkt ban from 3 years to 6 months
Reuters | Photo Credit: K P Singh

The Securities Appellate Tribunal (SAT) has upheld capital market regulator SEBI's finding that the country's top listed realtor DLF resorted to sham transactions around a decade ago but said its contention that the company purposely failed to disclose it during the IPO and is held liable for the lapse is not fully sustainable.

SAT in an order on Friday quashed the previous order of SEBI which put a three-year ban on the company and its key management personnel including promoters from accessing the capital market. It has cut down the ban period to just six months which would expire on April 10, 2015.

"We welcome this order and have full faith in the country's judicial system. We are studying the order and will comment accordingly," the real estate developer said in a statement after the SAT judgment.

DLF's scrip closed at Rs 157.50, up 5.47 per cent on BSE in a weak Mumbai market on Friday.

SEBI’s lawyers said the market regulator will appeal against the SAT ruling in the Supreme Court.

If the apex court rules in favour of DLF, it would be able to initiate its plans to raise money through real estate investment trusts (REIT) among other securities issues to cut down its debt.

The case

SEBI had barred DLF, its billionaire promoter KP Singh, son Rajiv and daughter Pia, among three other group executives, from accessing the securities market for three years over lapses in making a material disclosure during its IPO filing.

The case dates back eight years ago when DLF filed its documents for its IPO in 2007. An individual Kimsuk Krishna Sinha had filed two complaints with SEBI on June 4, 2007 and July 19, 2007. He had stated that Sudipti Estates and certain other persons had duped him of Rs 34 crore in relation to a land transaction and he had registered an FIR against Sudipti and at that time it was a step down subsidiary of DLF.

In view of the said allegations, Sinha had requested that considering the imperative of safeguarding the interests of general public, the listing of DLF pursuant to the IPO be disallowed and immediate action be taken in this regard. DLF had replied to him that it was not connected with Sudipti at that point of time.

Sinha had later approached the Delhi High Court, which had called for an investigation by SEBI. SEBI had issued a show cause notice in June 2013 to the defendants, stating that DLF had transferred ownership of Sudipti to certain relatives of the company's employees through an allegedly sham transactions to camouflage its association with the privately held firm.

DLF and other defendants in the case had countered that at the time of filing IPO documents Sudipti was not a subsidiary and that SEBI had transgressed its authority in its investigation of the case as the complaint by Sinha did not specifically relate to disclosures.

SEBI ruled that even after DLF sold its stake in Sudipti, it continued to have significant control on its management as the new shareholders were spouses of key management personnel of DLF.

In an order dated October 10, Rajeev Kumar Agarwal, a whole-time director of SEBI, said DLF and six of the seven individuals named in the case failed to make requisite disclosures about related party transactions in its IPO documents and executed a 'sham' transaction to camouflage the case.

The SEBI order said that it was satisfied that the violations as found in this case are grave and have larger implications on the safety and integrity of the securities market.


SAT in its ruling noted that SEBI's findings that DLF executed sham transactions cannot be faulted and that it failed to disclose the same in the IPO documents.

The tribunal noted that given the issue at hand it was necessary for SEBI to send stern message to DLF and other listed companies by taking remedial action so that such dubious methods are not adopted hereafter.

But it observed that SEBI's decision that DLF had knowledge about the filing of FIR (mentioned above) and that it has actively concealed the same in the offer documents is baseless and devoid of any merit as there is no material whatsoever to back it up.

SAT said the investigating officer of SEBI was specifically directed in 2011 to investigate as to whether DLF had knowledge about the filing of FIR prior to June 2007. “Despite that specific direction, the investigating officer of SEBI has failed and neglected to investigate that issue which was an important issue having direct bearing on the merits of the case,” it said adding that the officer is guilty of gross misconduct and dereliction of duty and failure on his part to comply with the directions has led to miscarriage of justice.

“Hence the impugned order is held to be partially unsustainable and there are several mitigating factors in favour of the appellants as more particularly set out hereinabove, the restraint/prohibitory order imposed on the appellants for a period of three years is reduced to a period of six months commencing from the date of passing the impugned order on 10.10.2014,” SAT order reads.

(Edited by Joby Puthuparampil Johnson)

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