Entrepreneur-turned-housewives: Here's how SAT overturned Sebi's DLF ban

All in all the ruling comes as a blow to SEBI which has stepped up its efforts to curb market manipulation

FP Editors March 14, 2015 12:20:25 IST
Entrepreneur-turned-housewives: Here's how SAT overturned Sebi's DLF ban

Debt-laden Indian property developer DLF Ltd has won its appeal against a three-year ban from accessing capital markets imposed by the market regulator, a decision that overturned the country's harshest ever regulatory punishment.

Shares of the company surged about 9 percent reacting to the news.

Here is all you need to know about the development:

1) The market regulator, Securities and Exchange Board of India (SEBI), had last year banned DLF and its six top executives from accessing capital markets for three years for allegedly misleading investors by withholding information about some of its units and the criminal cases pending against them in its IPO prospectus. The company had garnered Rs 9,187 crore through the offering in 2007.

Entrepreneurturnedhousewives Heres how SAT overturned Sebis DLF ban

Reuters

2) “DLF has failed to ensure that the RHP/prospectus contained all material information which is true and adequate, so as to enable the investors to make an informed investment decision in respect of the issue. The Noticees actively and knowingly suppressed several material information and facts in the RHP/prospectus leading to misstatements in the prospectus," the Sebi order had said.

3) It was an individual complainant, seeking action against Rs 34 crore he was allegedly duped, and "sham transactions" involving three 'housewives' that led to regulator Sebi passing the order DLF and its six top executives.

4) However, the Securities Appelate Tribunal (SAT), which heard DLF's appeal against the Sebi ban, concluded on Friday that neither the company nor any of its officers derived any gains from withholding information, and, therefore, should not be penalised. This came as a two-member majority. Meanwhile, the tribunal's presiding officer passed his separate minority order, wherein he reduced the capital market ban on DLF and six others from three years to six months.

5) Sebi had in its investigation found that 'three housewives' were used as fronts in the group's alleged "sham transactions", but Securities Appellate Tribunal today termed them 'women entrepreneurs' and said that they cannot be condemned in this manner.

6) The Tribunal also said in its two-member majority order that Sebi "cannot suddenly be allowed to take a somersault after 7 years and come to a contrary view, particularly, at the instance of a complainant who had his own vested interest in the matter, and was not a share-holder of DLF or even an investor in the IPO or in the capital market in general."

7) SAT order also said the Sebi's order also led to "a grave miscarriage of justice" and termed it an "over-regulation". "...Investors have suffered a loss to the tune of thousands of crores of rupees in the capital market on the day following the passing of the order...," it said

8) Sebi had in its order said the 'sham transactions' were done through three entities named Sudipti, Felicite and Shalika while using as fronts the 'three housewives', who were spouses of three key management personnels (KMPs). "We do not find any legal infirmity in purchasing equity stakes by the three women entrepreneurs by utilizing the funds from the joint accounts in question," SAT has said, quashing the Sebi order. It further said "no legal bar has been pointed out by the '2nd WTM (Whole Time Member)' (a reference to Sebi's Whole Time Director Rajeev Agarwal) in any law debarring women entrepreneurs from utilizing the money from joint accounts held with their husbands for investment purposes."

9) The verdict will boost DLF in its struggle to reduce its net debt, which stood at $3.3 billion at the end of December. "This is a vindication of our stance and clearly states that we did not in any way (violate) any of the regulations in our disclosures," DLF executive director in charge of finance Saurabh Chawla told Reuters.

10) SAT also questioned the 'definition of control' used by '2nd WTM' (or Sebi's Agarwal) in the order because the case was initially being handled by another Whole Time Member of the regulator. All in all the ruling comes as a blow to SEBI which has stepped up its efforts to curb market manipulation and has called for better disclosures by listed companies.

With inputs from agencies

Updated Date:

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