Securities Appellate Tribunal quashes Sebi bar on DLF

The Securities Appellate Tribunal (SAT) today quashed an order by market regulator Securities and Exchange Board of India (Sebi) that barred realty major DLF and six of its top executives from capital markets for three years.

SAT has modified Sebi's prohibitory order against DFL and its directors to a period of six months commencing from the date of passing the impugned order, on 10 October 2014.

The Sebi order was based on complaints filed by three aggrieved investors in DLF, namely, Felicite, Shalika and Sudipti, for allegedly misleading investors by withholding information about some of its units and the criminal cases pending against them in its IPO.

SAT had, last month, reserved its order on appeals filed by DLF, chairman K P Singh and five others, including his son Rajiv Singh and daughter Pia Singh.

DLF and its directors were restrained from accessing the securities market and prohibited from buying, selling or otherwise dealing in securities for three years for resorting to sham transactions they have violated Sebi regulations on disclosures (See: Sebi bars DLF and its 6 directors from markets for 3 years).

According to SAT, the restraint / prohibitory order for three years was passed against the appellants by taking into consideration different facets of the very same violation.

Apart from that, there are several other mitigating factors which are in favour of the appellants, SAT said.

''Although resorting to sham transaction deserves stern action, in the facts of present case, since the material information relating to Felicite, Shalika and Sudipti were insignificant, even if the same were disclosed in the offer documents, it would have had little impact on the investor decision to invest in the shares of DLF, SAT noted.

Also, the tribunal said, there is nothing on record to suggest that the investors were prejudiced on account of DLF failing to disclose material information relating to Felicite, Shalika and Sudipti.

According to SAT, ''there is nothing on record to suggest that failure to disclose material information relating to three companies in violation of various clauses under Chapter VI of DIP Guidelines / PFUTP Regulations has led to any direct or indirect benefit or advantage to DLF or its directors.

''DLF has already borrowed huge funds for acquiring lands / development rights and further funds would be necessary for development of the said lands. If DLF is restrained / prohibited from accessing the securities market for a long period, it would seriously cripple the functioning of DLF and consequently, the interests of 4.5 lakh investors in DLF would be seriously prejudiced, SAT said while quashing the Sebi order.

Also, SAT said, since the object of passing restraint / prohibitory order is to ensure that no such violations are committed in the future and not to stifle the violator, the restraint / prohibitory order imposed on the appellants for a period of three years would have to be modified accordingly.

Shares of DLF soared higher by about 8 per cent. The stock was trading at Rs157. 99 per share after hitting a high of Rs163.80 on the BSE in early afternoon trade.

"We welcome this order and have full faith in the country's judicial system. We are in the process of studying the order and will comment accordingly," DLF said in a statement after the SAT judgement.

Sebi had passed the prohibitory order in October last year after finding DLF guilty of "active and deliberate suppression" of material information at the time of its IPO in 2007, which had fetched Rs9,187 crore.

While the original order did not include any monetary penalty, the Sebi passed another directive last month, in the same case, imposing penalties totalling Rs86 crore on DLF, its top executives and a host of related persons and entities, including spouses of some executives who were "housewives".

DLF challenged the Sebi's earlier order, passed in October the same month. DLF is yet to challenge the second order from Sebi.