It continues to rain bad news at DLF . After recent run-ins with the Competition Commission of India and the Harayana government, the company now finds itself at the receiving end of the Securities and Exchange Board of India.The capital market regulator has barred the company and its key executives from accessing capital markets for three years, for suppressing certain material information in its initial public offering (IPO) prospectus and for sham transactions.
The executives who have been barred are KP Singh, Executive Chairman, Rajiv Singh, Vice Chairman, TC Goyal, Managing Director, Pia Singh, Whole Time Director, Kameshwar Swarup, Executive Director-Legal, and Ramesh Sanka, CFO.
The company is alleged to have executed a series of sham transactions to disown a subsidiary company accused of duping a person in a land transaction. Also, the company did not mention the FIR against its subsidiary and a key management personnel in this matter, in the final prospectus filed with the Registrar of Companies.
Also read: DLF moves SC against cancelled Haryana land allotment
In April 2007, one Kimsuk Krishna Sinha had filed a First Information Report (FIR) at Connaught Place police station against DLF subsidiary Sudipti Estates and Praveen Kumar, the nephew of DLF founder KP Sigh, for duping him of Rs 34 crore in a land transaction.
Sudipti had two shareholders, had only two shareholders, DLF Home Developers Ltd and DLF Estate Developers Ltd, both 100 percent subsidiaries of DLF.
The complainant wrote to Sebi on June 4, requesting that the listing DLF shares be disallowed and immediate action be taken. DLF shares were listed on the stock exchanges on July 5, 2007 after the completion of the IPO process.
Also read: Setback for DLF: Delhi HC allows CCI to investigate
A week later, the company wrote to DLF denying any connection with Sudipti.
Sudipti and two more subsidiaries of DLF—Shalika Estate Developers and Felicite Builders & Construction—were incorporated in March 2006.
The shareholders in Shalika and Felicite were DLF Home Developers, DLF Estate Developers and DLF Retail Developers.
On November 29,2006, 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. These three persons were wives of Surojit Basak, Joy Saxena and Ramesh Sanka, key management personnel of DLF.
The following day the three DLF arms sold their 100 percent stake in Shalika to Felicite, and the two DLF arms sold their entire stake in Sudipti to Shalika. This chain of transactions, ended DLF's association with Felicite, at least on paper, and also made Sudipti a 100 percent arm of Felicite.
Excerpts from the Sebi report:
"Even after the sale of entire shareholding in Sudipti, Shalika and Felicite by the wholly owned subsidiaries of DLF, there was no change in the composition of the Board of directors of these three companies. The directors in Sudipti, Shalika and Felicite, who were employees of DLF, continued to be the directors of these companies even after the aforesaid sale of shareholding. These directors were subject to the control of DLF due to their "employee and employer relationship‟. Due to this set of arrangement, DLF was in a position to control the boards of these three companies."
Also, the Sebi probe found that there was no change in any of the authorized signatories of the bank accounts of these three companies. Surojit Basak, husband of Madhumita Basak and a key executive of DLF continued to be the common authorized signatory for the three companies. Further, there was no change in their registered office and statutory auditors.
Sebi's view that non-disclosure of the FIR against Sudipti and Praveen Kumar amounted to suppression of material information.
Excerpts from the Sebi report:
"DLF had acquired sole development rights in the land owned by Sudipti, which DLF procured through DCPC (a Partnership in which DLF held 76% interest). Such development rights gave DLF substantially the right to all revenues from development including rent and the authority to transfer title to the land. RHP/Prospectus also disclosed the risk relating to the sole development rights constituting 37.9% of the total land reserves of DLF which included the sole development rights procured from Sudipti by DCPC. At the relevant time the FIR in question had a direct bearing on the activities of DLF for which the subscriptions were invited in its IPO."
Sebi has also charged DLF under the Prohibition of Fraudulent and Unfair Trade Practices Act.
"The process of share transfer of three subsidiaries of DLF in Sudipti, Shalika and Felicite was through sham transactions as alleged in the show cause notice and that the noticees employed a plan, scheme, design and device to camouflage the association of DLF with its three subsidiaries namely, Felicite, Shalika and Sudipti," wrote Sebo whole time member Rajeev Kumar Agarwal in the report.
"In this case under such plan, scheme, design and device, the noticees suppressed several material information in the RHP/Prospectus of DLF and actively concealed the fact about filing of FIR against Sudipti and others. In the facts and circumstances of this case, I find that the case of active and deliberate suppression of any material information so as to mislead and defraud the investors in the securities market in connection with the issue of shares of DLF in its IPO is clearly made out in this case," Agarwal said in the report.
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