DLF awaits penalty order from Sebi

Company awaits Sebi penalty order

The Securities and Exchange Board of India (Sebi) has initiated penalty proceedings against real estate major DLF and its promoters. According to sources, the markets regulator is examining the role of over 40 entities in the matter of inadequate disclosures during the company’s initial public offering (IPO) in 2007.

These proceedings are on under the Sebi Act sections pertaining to penalty for fraudulent and unfair trade practices (FUTP) and where there is no provision of a separate penalty.

According to sources, these 40 entities are likely to include the promoter, key management personnel, intermediaries and entities connected with the subsidiaries — Sudipti, Shalika and Felicite — that were part of Sebi’s October 13 order.

A DLF spokesperson said: “The showcause notice dated August 28, 2013, was issued under Sections 15HA and 15HB of the Sebi Act, 1992, and under Rule 4 of the Sebi (procedure for holding inquiry and imposing penalties by adjudicating officer) rules, 1995. The hearing on the showcause notice issued under Section 15 of the Sebi Act has been completed. The company has filed its written submissions.”

In its result in November, DLF disclosed Sebi proceedings and stated the order was awaited.

“According to regulations, the adjudicating order needs to be passed within four months of the order that found the parties guilty of violating securities laws. Currently, the regulator is trying to ascertain what is the loss caused to investors in the matter and a penalty would be based on that. It could be three times the loss caused or Rs 25 crore, whichever is higher,” said a source.

The market regulator had in October passed an order to bar the real estate company and six other individuals from accessing capital markets for three years, as DLF had failed to provide key information on subsidiaries and pending legal cases at the time of its record-breaking 2007 IPO, which raised over Rs 9,187 crore.

Within a fortnight, the company approached the Securities Appellate Tribunal (SAT) for a relief in the matter. So far, DLF has been able to secure an interim relief in the matter, with SAT allowing it to redeem mutual fund units worth Rs 1,806 crore. SAT would next hear DLF’s appeal against the Sebi order on December 10.

Interestingly, the regulator has so far not initiated any formal proceedings against the merchant bankers involved in DLF’s offering and has restricted itself to penalising the company. However, in the matter of CARE Ratings’ IPO, the regulator had penalised six merchant bankers without going into the aspects of whether the company had violated securities laws.

According to the Sebi order, during personal hearing, DLF had sought copies of communications between Sebi and the merchant bankers during the IPO process.