Sebi-DLF case may have wider ramifications for realty sector

As realty giant DLF fights a three-year capital markets ban imposed by regulator Sebi, the case is being seen as one having wider ramifications for the entire real estate sector and the regulatory framework applicable to them.

Sebi barred DLF and six others, including the company's chairman and other top executives, earlier this month from accessing capital markets for three years for "active and deliberate suppression" of material information at the time of its public offer more than seven years ago in 2007.

The company has challenged the order through an appeal before the Securities Appellate Tribunal (SAT), which would hear the case next on October 30.

During the first hearing last week, the company sought an interim relief from the Tribunal, while the regulator faced the flak for delay in passing the order and also for the adverse impact suffered by minority shareholders of DLF in the form of a huge 30 per cent plunge in the company's market valuation in a single day post the order.

While promoters own 74.93 per cent stake in DLF, foreign institutional investors have close to 20 per cent and retail shareholders have about 4 per cent among others.

As the case progresses, the industry experts are of the opinion that it could potentially become a watershed case for the capital markets and other regulations applicable to the real estate companies.

Without willing to be named, as the matter is currently before SAT, top executives from real estate sector and capital markets intermediaries said the case needs to be seen in a different perspective from those pertaining to sectors other than real estate.

At the same time, the role of merchant bankers, legal advisors and others involved in the process of making IPO-related disclosures also needs to be examined, they said.

The case has also brought to limelight 'technicalities' involved in the practice of Sebi giving 'observations' and not 'approval or clearance' for an IPO, they added.

There is a view that regulators need to understand that the business practices tend to be different in real estate sector, from manufacturing or other segments of the economy.

However, others feel that regulations cannot be overlooked to accommodate certain 'prevailing practices' in one particular sector, such as those related to use of 'friendly' entities for purchase of land or development rights in the name of ease of doing business.

In his order, Sebi's Whole-Time Member Rajeev Agarwal said violations were "grave and have larger implications on safety and integrity of the securities market" and accused DLF and the six top management persons (at the time of filing IPO documents) of non-disclosure of certain dealings with three subsidiaries through "sham transactions".