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Relief to DLF as SAT quashes Sebi order

SAT’s ruling came on an appeal filed by DLF challenging the Sebi order that found DLF and the six executives, including chairman K.P. Singh, guilty of concealing material information while selling shares to the public in 2007. Photo: Priyanka Parashar/Mint (Priyanka Parashar/Mint)Premium
SAT’s ruling came on an appeal filed by DLF challenging the Sebi order that found DLF and the six executives, including chairman K.P. Singh, guilty of concealing material information while selling shares to the public in 2007. Photo: Priyanka Parashar/Mint
(Priyanka Parashar/Mint)

SAT quashed Sebi’s order saying it’s not pragmatic, thereby lifting the three-year capital market ban on DLF

Mumbai/Bengaluru: The Securities Appellate Tribunal (SAT) on Friday quashed an October order by the Securities and Exchange Board of India (Sebi) that banned DLF Ltd, India’s largest property developer, and six of its top executives from accessing the capital market for three years.

A minority view of the tribunal was in favour of a six-month ban on the developer and its top officials since the date of the Sebi order, delivered on 10 October. A majority of SAT members rejected the proposal. The SAT bench comprises one presiding officer and two members.

“We completely set aside the Sebi order," said Jog Singh, a member of SAT, reading out the majority view.

He said Sebi’s order was a case of “over-regulation" by the capital market regulator and had led to a “grave miscarriage of justice".

DLF shares surged as much as 9.2% intraday to 162.60 apiece on Friday after the ruling by SAT, which held that the ban was “not pragmatic". The shares ended 5.74% higher at 157.50 apiece on a day BSE’s benchmark Sensex fell 1.48% to 28,503.30 points.

SAT’s ruling came on an appeal filed by DLF challenging the Sebi order that found the company and the six executives, including chairman K.P. Singh, guilty of concealing material information while selling shares to the public in 2007.

“DLF 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," said a DLF spokesperson.

Sebi’s lawyers said the market regulator will appeal against the SAT ruling in the Supreme Court. Sebi did not immediately respond to an email on the regulator’s next course of action.

The fact that the tribunal did not pass a unanimous order may strengthen Sebi’s case for obtaining a stay on the ruling from the Supreme Court, said R.S. Loona, managing partner at Alliance Corporate Lawyers, a law firm.

The SAT order said DLF had “sufficiently" disclosed material aspect of its affairs in its offer documents for investors to take an informed decision while investing in its public issue, contrary to Sebi’s finding.

“The central theme underlying the DIP (Disclosure and Investor Protection) Guidelines, 2000, is true and adequate disclosures in the offer documents. It means there should be sufficient, and not arithmetically accurate, disclosures by a company...," said the order.

A Sebi probe found that DLF had camouflaged its association with three subsidiaries—Felicite Builders and Construction Pvt. Ltd, Shalika Estate Developers Pvt. Ltd and Sudipti Estates Pvt. Ltd.

It found that material information had been suppressed in the IPO prospectus of DLF, which went public in 2007. The IPO raised 9,187.5 crore, which was the largest public offering by an Indian company till then.

“This could serve as a test case for the capital markets since the crux of the matter is disclosure and what constitutes sufficient disclosures. There is a view that the kind of compliance that Sebi insists scares away many companies. The Supreme Court order could clear many grey areas," said Loona, a former executive director (legal) at Sebi.

The appellate tribunal on Friday also pulled up Sebi for not raising its concerns over the alleged non-disclosure of information by DLF about its three subsidiaries at the time of clearing its public offer.

“Detailed antecedents of all the erstwhile associate companies were duly analysed by the respondent (Sebi) in 2006-2007 and no such shortcoming was found therein which could in any manner adversely affect the decision making process of investors. In fact, that was the correct stage when the respondent, as a responsible regulator, should have taken a view to protect the interest of investors to regulate the market, if in its opinion the appellant (DLF) was not making proper disclosures," said the SAT order.

The minority view of presiding officer J.P. Devadhar was that while Sebi’s stand that DLF resorted to sham transactions for avoiding and concealing material disclosures cannot be faulted, the Sebi investigating officer was also guilty of “gross misconduct and dereliction of duty and failure on his part" in ascertaining if DLF was aware of a first information report filed against the company in April 2007.

On 26 February, Sebi imposed a total penalty of 86 crore on DLF, seven executives and some of the developer’s subsidiaries for allegedly engaging in unfair trade practices.

While DLF was directed to pay a total penalty of 26 crore, a similar penalty was imposed on chairman K.P. Singh, Rajiv Singh, Pia Singh, T.C. Goyal, Ramesh Sanka, G.S. Talwar and Kameshwar Swarup. Sebi also imposed a penalty of 34 crore on Sudipti Estates and 33 other entities, including DLF subsidiaries.

With the ban removed, DLF can now formulate a proper strategy for 2015 in terms of exploring different avenues to raise capital and refinance or reduce debt, according to Sandipan Pal, analyst at Motilal Oswal Securities Ltd.

“DLF may tap the CMBS (commercial mortgage-backed securities) route again, through which they had planned to raise nearly 3,500 crore this year. They had also expressed their desire to do another QIP (qualified institutional placement)," said Pal.

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