Chinese walls exist between different businesses: Kotak

The Kotak Mahindra Group on Thursday said that its personal loan business was independent from other companies in the group, including its investment bank, and that personal loans given to DLF executives did not require any end-use specification.

The statement is in response to a Business Standard query regarding the observation made by the Securities and Exchange Board of India on Friday that the bank (group entity, Kotak Mahindra Capital, was one of the managers to the DLF public issue in 2007) had given personal loans of Rs 20 lakh each to eight DLF executives whose wives used the money to buy the holdings of DLF's subsidiaries in three other subsidiaries - Sudipti, Felicite and Shalika - around the time of DLF's initial public offer in 2007.

"Given that the bank has a number of subsidiaries involved in different business operations, the bank had clearly defined Chinese walls between companies of the group", a bank spokesperson said in a written statement.

The spokesperson said Kotak Mahindra Capital Company, the investment banking subsidiary, was part of a consortium of eight merchant bankers who were book running lead managers on the issue. The consortium carried out independent due diligence on the company and adopted best practices and international standards of diligence. Disclosures made in the prospectus were in full compliance with regulations.

DLF was found by Sebi to have suppressed material information at the time of its 2007 IPO including about a First Information Report (FIR) lodged against a subsidiary called Sudipti Estates. One Kimsuk Krishna Sinha had accused the subsidiary being involved in a deal which resulted in him being duped of Rs 34 crore.

"It is noteworthy that even the sanction of loan shows a particular pattern that same amount of loan were sanctioned and granted to each…without any apparent collaterals at the same point of time," said the Sebi order.

Spokespersons for Sebi and DLF did not immediately respond to a request for comment.

(Kotak Mahindra and associates are significant shareholders in Business Standard Limited)