In the biggest-ever penalty in a single case, Sebi on Thursday slapped fines totalling Rs 86 crore (Rs 860 million) on realty giant DLF, its top executives, their family members and various other related entities for entering into "sham transactions" to mislead IPO investors about eight years ago.
Those penalised include Chairman K P Singh, his son and vice chairman Rajiv Singh, daughter Pia Singh, as also three "housewives" married to 'key management personnel' of the DLF group for "fraudulent and unfair trade practices".
DLF later said in a statement it did not violate any laws and it would challenge the order. DLF also said it was guided by the advice of "eminent legal advisors, merchant bankers and audit firms" while formulating its IPO documents.
In the same case, Sebi in October last year barred DLF and its six top executives, including Singh and his two children, 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 firm, Sudipti Estates.
While DLF and others denied any wrongdoings in its submissions before Sebi, the regulator said they "knowingly suppressed material facts and information" in the IPO papers.
Debt-laden DLF is going through tough times with various regulators. Fair trade watchdog CCI, which has earlier imposed Rs 630 crore (Rs 6.3 billion) fine on it, recently ordered two fresh probes against the group for abuse of dominance. The Rs 630 crore penalty was also upheld by the Competition Appellate Tribunal, after which the company approached the Supreme Court.
DLF shares have also been under tremendous pressure for several months, while it has been monetising its assets to pay off debt, which stood at over Rs 20,000 crore (Rs 200 billion) at end of 2014.
While the earlier Sebi 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 86 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 fined Rs 26 crore (Rs 260 million), while a similar amount has to be paid collectively by seven persons -- Singh and his two children, T C Goyal, Ramesh Sanka, G S Talwar and Kameshwar Swarup.
This itself is the biggest-ever fine imposed by Sebi in a single case, barring the 'disgorgement' or refund orders in which cases Sebi directs return of the money garnered through ill-gotten means or illicit investment schemes.
In the second 55-page order, Sudipti has been asked to cough up Rs 1 crore (Rs 10 million), its two directors have been fined Rs 3 crore (Rs 30 million), while fines worth Rs 1-5 crore have been imposed on 19 others. The penalties are between Rs 5-15 lakh for the others.
All fines need to be paid within 45 days, the Securities and Exchange Board of India (Sebi) said.
DLF had raised Rs 9,187 crore (Rs 91.87 billion) in its IPO in 2007, the biggest ever till that time. Sebi began its probe after allegations were levelled by one Kimsuk Krishna Sinha about DLF and Sudipti having duped him of Rs 34 crore (Rs 340 million) in relation to a transaction between them for purchase of land.
In its order, Sebi said, "This is a clear case of suppression of material information by Noticees thereby depriving investors of important information at the relevant time. Further, Noticees had acted in a fraudulent manner to the detriment of investors and the market in general and had posed a great threat to safety and integrity of the market.
"Therefore, it is necessary that a justifiable penalty is imposed on the Noticees to meet the ends of justice."
Sebi said its investigation revealed that DLF and seven other noticees "had employed a scheme by camouflaging the association of Sudipti with DLF as disassociation and failed to ensure that the Offer Documents contained all material information which were true and adequate so as to enable the investors to make an informed investment decision..."
"It was also revealed that the Noticees had actively and knowingly suppressed certain material information and facts in the Offer Documents namely, history and nature of business of subsidiary, related party transactions, financial information pertaining to subsidiaries and outstanding litigation /FIR against Sudipti leading to misstatements in the Offer Documents", thus violating various Sebi norms, it added.
Sebi said that Sudipti was incorporated on March 24, 2006 and DHDL and DEDL were subscribers to its Memorandum and Articles of Association. The entire shareholding of Sudipti was equally held by DEDL and DHDL (50 per cent each). On the other hand, DHDL (DLF Home Developers Ltd), DEDL (DLF Estate Development Ltd) and DLF Retail Developers Limited (DRDL) were 100 per cent subsidiaries of DLF.
Shalika Estates Developers and Felicite Builders and Constructions were also incorporated on March 26, 2006. The entire shareholding of Shalika and Felicite were held by DHDL, DEDL and DRDL together and thus Sudipti, Shalika and Felicite were also subsidiaries of DLF, the market regulator said.
On November 29, 2006, the entire shareholding in Felicite held by DHDL, DEDL and DRDL was sold to three persons namely, Madhulika Basak, Niti Saxena and Padmaja Sanka who were house wives and spouses of the Key Management Personnel of DLF.
The next day, the entire shareholding of DHDL, DEDL and DRDL in Shalika was sold to Felicite. On the same day, DHDL, DEDL sold their entire shareholding in Sudipti to Shalika.
"One Praveen Kumar, nephew of K P Singh, was director of DLF's subsidiaries and also was a KMP of DLF and was reporting to the Board of DLF," Sebi said, while adding that the resolution for sale of shares of Sudipti was signed by this person and he was also an authorized signatory for the bank accounts of Sudipti and Shalika from April 05, 2006 onwards.
Praveen Kumar was also director of four DLF subsidiaries and was also a director of a promoter group company named Nachiketa Real Estates Pvt Ltd.
The scrutiny of the bank account statements of Madhulika Basak, Padmaja Sanka and Niti Saxena revealed that those three bank accounts were in the name of those three housewives jointly with their respective spouses.
Even though these three housewives claimed that the purchase of shares of Felicite was as part of their investment decision, the details from CDSL and NSDL showed otherwise.
"I have therefore, no hesitation to conclude that the purported transfer of shares which took place in November, 2006 was nothing but a sham transaction," adjudicating officer A Sunil Kumar said, while ruling that "Sudipti, Shalika and Felicite were, undoubtedly, subsidiaries of DLF at the relevant time within the meaning of the Companies Act".
In the second order, Sebi said that its investigation revealed that as many as 34 entities/persons "aided and abetted DLF, its non-independent directors and CFO in the said scheme of camouflage".
Out of these 34, proceedings were abated against one because of his death, while other 33 who have been fined include the three "housewives", K P Singh's nephew Praveen Kumar, Sudipti, Shalika, Felicite, nominees, bank account signatories, shareholders and directors of these three companies, Key Management Personnel and directors of DLF and its group companies.
Sebi said that "various entities/individuals had played different roles, some of them might have been passively silent, to be part of the artifice employed by DLF so as to camouflage the association of Sudipti, Shalika and Felicite with DLF as dissociation."
About the "housewives", the regulator said they became shareholders despite being novice to securities market and apparently having no income of their own, depending on their husbands.