Relief for Prabhat Dairy as SAT quashes Sebi order to deposit Rs 1,292 cr

Tribunal asks the company to deposit Rs 500 cr in separate escrow account within 10 days

The Securities Appellate Tribunal (SAT) quashed the Securities and Exchange Board of India’s (Sebi’s) order directing Prabhat Dairy to deposit Rs 1,292 crore in connection with a dispute over payment to shareholders.

Instead, the tribunal directed the company to deposit just Rs 500 crore in a separate escrow account within 10 days, asking it to not utilise the money till a decision is taken on distributing the amount to its minority shareholders.

In an ex-parte order on October 20, Sebi directed Prabhat Dairy to deposit Rs 1,292 crore in an escrow account and pulled up the company for not cooperating with forensic auditor Grant Thornton.

The directions were issued after some shareholders accused the company of misuse and wrongful diversion of funds raised through the sale of its core dairy business for Rs 1,700 crore to French multinational Groupe Lactalis in April 2019.

SAT asked Prabhat Dairy to provide all documents and information sought by the forensic auditor within 10 days, following which, the audit firm will have to submit its findings within a month. 

Simultaneously, SAT asked Sebi to process Prabhat Dairy’s delisting application.

SAT said Sebi’s direction “would cripple the company and bring it to down to its knees which is neither in the interest of the company nor in the interest of its shareholders.”

The tribunal said Sebi’s order was not just as there was no specific finding on diversion of funds.

In its submission, Prabhat Dairy said the amount left to be distributed after meeting tax liabilities, indemnity, transaction cost, debt outstanding and promoter’s share was about Rs 427 crore. As a result, Sebi’s direction was arbitrary. 

The company also said the suspicions raised by stock exchanges and Sebi over the low floor price fixed for its delisting bid was erroneous. It said public shareholders were free to submit bids at any price. 

Prabhat Dairy said it was unable to provide the requisite documents to the forensic auditor because of the Covid-19 pandemic, and asked for time.

In July, Sebi appointed Grant Thornton to conduct a forensic audit to ascertain manipulation of accounts and wrongful diversion of funds by promoters and key managerial persons.

Sebi’s counsel told SAT that the directions it had passed were “solely to protect the interest of the shareholders of the company”. He further said the company had indicated that it would distribute substantial portion of the sale proceeds to shareholders but was yet to do so. 

Also, the company had failed to declare its March quarter results before the stipulated time, which led to the inference that there was something suspicious. 

Sebi’s counsel also argued that the distribution of the sale consideration to shareholders should not be mixed with the consideration of payment to be made under the delisting application. 

He said the sale consideration was required to be paid by the company, while the promoter is required to pay to delist. Shares of Prabhat Dairy surged nearly 13 per cent on Tuesday.