TaxTMI 
TaxTMI 
TaxTMI 
2015 (4) TMI 65
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.... on June 18, 2007. After the completion of allotment in the IPO, the shares of DLF were listed on Bombay Stock Exchange Ltd. and National Stock Exchange of India Ltd. on July 5, 2007. 2. With regard to the above IPO of DLF, one Mr. Kimsuk Krishna Sinha ("Mr. Sinha") had filed two complaints with SEBI on June 4, 2007 and July 19, 2007. Mr. Sinha in his complaint dated June 4, 2007, inter alia, stated that Sudipti Estates Private Limited ("Sudipti") and certain other persons had duped him of ?34 crore (approx.) in relation to a transaction between them for purchase of land, and he had registered an FIR No. 249/2007 dated April 26, 2007 at Police Station, Connaught Place, New Delhi against Sudipti, one Mr. Praveen Kumar and others in that regard. He also stated that Sudipti had only two shareholders namely, DLF Home Developers Ltd. ("DHDL") and DLF Estate Developers Ltd. ("DEDL") (both companies being the wholly owned subsidiaries of DLF) holding 5000 equity shares each. He further stated that Sudipti, DHDL and DEDL are sister concerns and are inextricably linked and these companies are a part of the DLF group. In view of the said allegations, Mr. Sinha requested that considering the....
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....ter referred to as the "SCN") to DLF, Mr. K. P. Singh (Executive Chairman of DLF), Mr. Rajiv Singh (Vice Chairman), Mr. T.C. Goyal (Managing Director), Ms. Pia Singh (Whole Time Director), Mr. Kameshwar Swarup (Executive Director-Legal), Mr. G. S. Talwar (Director) and Mr. Ramesh Sanka (CFO). All these persons are hereinafter collectively referred to as "the Noticees" and individually by their respective names. 6. The facts and circumstances described in the SCN and the allegations leveled against the Noticees therein are, inter alia, as under: a) Mr. K. P. Singh, Mr. Rajiv Singh, Mr. T. C. Goyal, Ms. Pia Singh, Mr. Kameshwar Swarup, Mr. G. S. Talwar and Mr. Ramesh Sanka were part of the top management of DLF during the years 2006-07 and 2007-08. b) Mr. Praveen Kumar is the nephew of Mr. K. P. Singh and at the relevant time he was the director of DLF's subsidiaries viz. DEDL, DLF Land Ltd., DLF Golf Resorts Ltd., Newgen Medworld Hospitals Ltd. and Nilayam Builders & Developers Ltd. Further, he was a director of a promoter group company of DLF viz. Nachiketa Real Estates Pvt. Ltd. He was also a key management personnel (KMP) of DLF and reported to the Board of Directors of DL....
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....oyer relationship?. Due to this set of arrangement, DLF was in a position to control the boards of these three companies. Therefore, it has been alleged that in terms of SAST Regulations, these three companies were under the control of DLF even after November 29-30, 2006 i.e. after the date of claimed dissociation. Therefore, Sudipti, Shalika and Felicite were related parties of DLF in terms of AS-18. It has been alleged that DLF has failed to disclose its related party transactions. (ii) The three shareholders who, pursuant to purchase of shares of Felicite from DHDL, DEDL and DRDL on November 29, 2006, became 100% shareholders of Felicite, which in turn became 100% shareholder in Shalika and which in turn became 100% shareholder in Sudipti, were spouses of KMPs of DLF. These three shareholders were not regular investors / traders in the securities market though they claimed that they purchased entire shares of Felicite for the purpose of investment in real estate sector. All the three transferees were "Housewives" and they held bank accounts jointly with their respective husbands. On this basis, it was alleged that their purchases of shares in Felicite were funded by their respe....
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....6.10.2.3 of the DIP Guidelines. (viii) Both Sudipti and Shalika did not account for any expenses on account of operations, cost of establishment/personnel, rent, electricity, telephone, property tax or salary in their books of accounts during the financial year 2006-07 and 2007-08. It has been alleged that some other entity was incurring /absorbing such costs. (ix) Sudipti had entered into a development agreement during the year 2006 with DLF Commercial Projects Corporation (DCPC) a partnership firm of DLF. Pursuant to the said agreement, DCPC had provided performance deposit amounting to ?45 crore during the year 2006-07 to Sudipti. During the period September-October, 2006, Sudipti was funded by DLF?s subsidiaries / associates through a series of transactions through an entity named Vikram Electric & Equipments Pvt. Ltd. ("Vikram"). These funds were used for purchase of land and creation of development rights on the land so acquired. As per the annual accounts of Sudipti for the year 2011-12, this amount is appearing is as liability even after 6 years of claimed dissociation. (x) Clause 6.11.1.2 of DIP Guidelines read with regulation 111 of the ICDR Regulations, inter alia, re....
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....IP Guidelines are reproduced as under: "SEBI Act, 1992 Functions of Board. 11. (1) Subject to the provisions of this Act, it shall be the duty of the Board to protect the interests of investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit. Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control. 12A. No person shall directly or indirectly - (a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a recognised stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of this Act or the rules or the regulations made thereunder; (b) employ any device, scheme or artifice to defraud in connection with issue or dealing in securities which are listed or proposed to be listed on a recognised stock exchange; (c) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person, in connection with the issue, dealing in securities which are listed or proposed to be listed on a recognised stock....
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....osses as provided by 6.10.2.2 and in addition, deal either: (i) as a whole with the combined profits or losses of its subsidiaries, so far as they concern the members of the issuer company; or (ii) individually with the profits or losses of each subsidiary, so far as they concern the members of the issuer company; or, instead of dealing separately with the issuer company?s profits or losses, deal as a whole with the profits or losses of the issuer company, and, so far as they concern the members of the issuer company, with the combined profits or losses of its subsidiaries; and (b) so far as regards assets and liabilities, deal separately with the issuer company?s assets and liabilities as provided by 6.10.2.2 and in addition, deal either: (i) as a whole with the combined assets and liabilities of its subsidiaries, with or without the issuer company?s assets and liabilities; or (ii) individually with the assets and liabilities of each subsidiaries; and shall indicate as respects the assets and liabilities of the subsidiaries, the allowance to be made for persons other than the members of the issuer company. 6.11 Legal and Other Information 6.11.1 Outstanding Litigations and....
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....lies on different dates. Opportunities of personal hearing were granted to the Noticees on December 4, 2013 and January 15, 2014. On the said dates, the representatives of the Noticees appeared and made their submissions. Pursuant to the hearing, vide letter dated January 29, 2014, DLF filed additional written submissions. The other Noticees also filed their additional written submissions pursuant to the hearing vide separate letters. The replies / written submissions of the Noticees are summarized as under: I. Reply/submissions of DLF 1) It is a matter of record that the Hon?ble Delhi High Court in its Order dated 21.07.2011 had set aside in entirety the Order of the Ld. Single Judge dated 09.04.2010 which had directed SEBI to "undertake an investigation into the aforesaid complaints made by the (Respondent No. 2) and also the averments made in the affidavits and additional affidavits filed by the (Respondent No. 2)..." and instead directed that "SEBI shall examine the complaints and take a decision and communicate it to the parties" The expression "complaints" used in the Order dated July 21, 2011 refers to the complaints of Mr. Sinha where the allegation was of purported fraud....
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....y applied its mind to the disclosures and the sufficiency thereof for the IPO, it is not open for SEBI to contend otherwise. 5) No prejudice has been caused to any investor of DLF as a consequence of any purported non-disclosure in the RHP/Prospectus nor has any investor lodged any complaint with SEBI with regard to the veracity of the disclosures in the RHP/Prospectus or the same adversely affecting his/her interest. The SCN also does not contain any allegations in relation to any loss suffered or any illegal advantage attributed to DLF on account of the alleged non-disclosures.in fact, disclosures as alleged would amount to misstatement as it would suggest untrue facts. 6) SEBI has erred in invoking its statutory powers under the SEBI Act on the strength of complaints made by a person (i.e. Mr. Sinha) who, at the relevant point of time, was neither an investor nor a subscriber to the shares of DLF or in any other manner related to the securities market and therefore had no legitimate cause to take recourse to the jurisdiction vested in SEBI under the SEBI Act, 1992. 7) It would be entirely misplaced for SEBI to exercise its regulatory powers at such a distant point of time fro....
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....the names of Sudipti, Shalika and Felicite were disclosed as subsidiaries or related parties. Such development rights gave DLF substantially the right to all revenues from development and the authority to transfer title to the land. Therefore, the transfer was done because these companies were no longer commercially relevant to DLF and not because by such transfer DLF would have continued to exercise control over these companies. 11) At page 72 of the RHP/Prospectus, it was disclosed that "... the commercial effect of sole development rights is to entitle us to substantially all the revenues from the relevant development". Further, at page 73 of the RHP/Prospectus, it was disclosed that "We acquire sole development rights pursuant to sole development agreements, under which the land owner grants us the right to develop the land for a fixed consideration. In addition, these agreements give us the right to substantially all the revenues from the development, and we would also have the authority to transfer the title to the land. Ordinarily, the cost of development of the land is borne by us. Out of 4,575 acres for which we have sole development rights, we have entered into arrangeme....
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....es of Sudipti and its own original shareholders advanced the monies to it in the garb of share subscription money is farcical. The cheques in respect of the consideration for purchase of shares of Sudipti were issued by Shalika itself and it had the requisite monies in its account to honour the said cheques. Further, Shalika being the beneficial interest owner had paid for all shares, including that held by it jointly with Mr. Gautam. The subscribers to the memorandum of association of Shalika (including DEDL and DHDL) remitted their share subscription money between November 29, 2006 to December 01, 2006 i.e. about 8 months after the incorporation of Shalika and thereafter the said money was used by Shalika to purchase shares of Sudipti. There is no legal infirmity in the delayed remittance of share subscription money by the original shareholders of a company. 14) Felicite had acquired shares of number of companies from DEDL, DHDL and DRDL and as per normal commercial practice a consolidated remittance for the purchase price was made by Felicite to DEDL, DHDL and DRDL The sums remitted by Felicite included payment towards purchase of shares of Shalika. Hence, the allegation that t....
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.... the alleged acts of DLF and its personnel. 19) Annexure XXI of the auditors certificate, as included in the RHP/Prospectus, contain clear and unequivocal recordal of the related parties and Key Management Personnel for the purposes of AS-18 and also enterprises under the control of KMPs and their relatives. It is respectfully submitted that the certificates and compliance documentation prepared in accordance with the Companies Act, 1956 and Accounting Standards are the only permissible records for discovery of issues concerning related party disclosures and KMPs in accordance with the Accounting Standards. The Financial Statements of DLF and the contents thereof were certified by the statutory auditors and were reviewed and recommended by the Audit committee in accordance with the applicable law. Thus, it is incorrect to subject DLF to a different test for determining if Felicite, Shalika or Sudipti had been a "related party" or "subsidiary" and such action is unsustainable under Companies Act, 1956 and the Accounting Standards. 20) A significant difference in relation to the DRHP dated May 11, 2006 ("first DRHP") and the DRHP dated January 2, 2007 ("second DRHP"), inter alia, r....
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....he ultimate holding company (parent) of both Shalika and Sudipti. It is neither SEBI?s case nor can it be countenanced on the basis of facts on record that the shareholders of Felicite, were holding the shares of Shalika (or Sudipti) beneficially for or on behalf of DLF. Thus, Felicite, Shalika and/or Sudipti cannot be regarded as subsidiaries of DLF under section 4(1)(b) and 4(1)(c) of the Companies Act, 1956 or under the first limb of the definition of „control? under AS-21. The statutory auditors also, while preparing the audited accounts of DLF for FY 2006-07 did not mention the names of Felicite, Shalika and Sudipti as subsidiaries of DLF. 25) The test of „control over the composition of Board of directors of a company? prescribed by Section 4(2) of the Companies Act, 1956 and AS 21 is not satisfied in the present case. There is nothing to suggest that the shareholders of Felicite, Shalika and/or Sudipti could not have appointed or removed a director without affirmation of DLF post November 29-30, 2006. 26) DLF was not in a position to control the Board of Felicite, Shalika and/or Sudipti as the conclusion has been arrived at de hors the letter and spirit of sect....
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.... the power to direct the financial and/or operating policies of the three companies. In the present case, the tests of "related party", "control" or "key management personnel" provided under AS-18 are not satisfied 28) On a composite reading of the definitions of the expressions 'related party', 'significant influence' and 'control' under AS-18 it emerges that Felicite, Shalika and Sudipti were not related parties of DLF as on the date of the Second DRHP or any time thereafter since after November 29-30, 2006, DLF did not directly or indirectly hold any shareholding/voting power in Felicite, Shalika and/or Sudipti nor did it have any control over the composition of Board of directors of Felicite, Shalika and/or Sudipti, directly or indirectly. Further, there is nothing to show that DLF had the power to direct, by statute or agreement, the financial and/or operating policies of Felicite, Shalika and Sudipti. 29) The shareholders of Felicite are the spouses of certain employees who have been named in the prospectus as "Key Managerial Employees" in accordance with the requirements in clause 6.9.5.8 of the DIP Guidelines. Clause 6.9.5.8 of the DIP Guidelines r....
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...., 6.15.2, 9.1 of the SEBI (DIP), Guidelines. 32) The gravamen of the allegations of SEBI is disassociation of Sudipti by the subsidiaries of DLF. In view of the fact that the transfer of shareholding in Sudipti by DLF?s subsidiaries stood consummated on November 30, 2006 i.e. much prior to DLF?s second DRHP, the said act bears no correlation to the securities market. Further, „dealing in securities? (as defined under regulation 2(b) of the FUTP Regulations) is an essential ingredient of the definition of „fraud? (as defined under regulation 2(c) of the FUTP Regulations) and it cannot be said in the instant factual matrix that any act, omission or concealment was caused by any of the Noticees while „dealing in securities?, which would satisfy the definition of „fraud? for the purposes of the FUTP Regulations. While, the allegations of fraud, etc. require a higher standard of proof, allegations in the SCN are not substantiated and are based on mere surmises, conjectures and ipse dixit. 33) The SCN is conspicuously silent as the effect of the purported non-disclosures or wrong disclosures made by DLF in the Offer Documents on the investors who subscribed to D....
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....ctor of DLF and there is no evidence whatsoever of hi complicity with such the alleged contraventions. The SCN is silent on setting out the particulars of the purported contraventions. He also submitted that while approving the Financial Statements contained in the Offer Document, he was largely guided by expert advice required, and the contents of the Offer Document had been certified to be true, correct and in due compliance with all disclosure requirements by relevant expert advice. Further, no cognizance of alleged violation of PFUTP Regulations can be taken in the absence of satisfaction of the fundamental jurisdictional premise for invocation of PFUTP Regulations, i.e. intent to defraud, deceive or otherwise cause an intentional manipulative or misleading practice. Furthermore, the SCN does not adduce any particulars as to the existence of any intention on his part to defraud or deceive the investors or indulge in any manipulative or misleading practice, as indeed there was none. IV. Mr. T.C. Goyal adopted the replies of DLF vide letters dated November 27, 2013 and January 30, 2014. He, inter alia, submitted that the SCN does not delineate the ingredients of the alleged viol....
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....rs of DEDL, DHDL and DRDL pertaining to Sudipti, Shalika and Felicite till such time he was a director in DHDL, DRDL and DEDL. Further, his wife Mrs. Padmaja Sanka was a 'Housewife' with an independent source of income. The decisions of Mrs. Padmaja Sanka were independent of his employment with DLF. He was never a KMP of DLF within the meaning of AS-18 and therefore the transaction was not disclosed in the financial statements of DLF. VIII. Mr. G.S. Talwar, vide letter dated August 8, 2013 and January 30, 2014 submitted that he is a non-executive director of DLF. His role on the board of directors is that of overseeing high-level strategy and he had no personal knowledge or involvement in the subject matter of the proceedings. Further, all the Noticees in the SCN (apart from DLF itself) are either promoters or senior employees of DLF. No other non-executive director has been listed as a Noticee and the same treatment ought to be extended to Mr. Talwar as well. He had no personal knowledge or involvement in the subject matter of the proceedings contained in the Show Cause Notice and is unable to respond to any aspect of the facts set out therein or comment on the submission....
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....ct. In this regard, it is pertinent to mention that the investigation ordered by SEBI vide order dated October 20. 2011 had to focus on the probable violations of DIP Guidelines and Companies Act because the complaints filed by Mr. Sinha related to certain alleged non-disclosures in the Prospectus filed by DLF in respect of its IPO. I note that SEBI's investigation powers under the SEBI Act are wide enough to include any possible violation of SEBI Act and Regulations made thereunder. In my view, the observation to focus on the violations (if any) of DIP Guidelines or Companies Act cannot be construed to limit the scope of investigation. I, therefore, do not find any infirmity in the proceedings as sought to be contended by the Noticees. 15. The third preliminary contention raised by the Noticees is that SEBI provided them inspection of only those documents which were appended to the SCN, whereas their request for inspection of other documents including the correspondence exchanged between the Merchant Banker of DLF and SEBI at the time of processing of DLF's IPO was denied. In this regard, I note from the material available on record that SEBI granted the Noticees inspecti....
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....tion? (ii) Whether the Noticees have failed to ensure that the RHP/ Prospectus contained the material information which is true and adequate, so as to enable the investors to make an informed investment decision in the IPO of DLF? and (iii) Whether the Noticees actively and knowingly suppressed several material information and facts in the RHP/Prospectus so as to mislead and defraud the investors in securities market in connection with the issue of shares of DLF? 18. In view of the above allegations/ issues, this order is limited for determination of these allegations/issues in the context of probable violations of the securities laws as charged in the SCN on the basis of facts and circumstances described therein. For determining the alleged violations, in the instant case, it is important to mention the relevant dates on which the probable violations are to be determined in this case. These dates are - (i) the date of second DRHP / date of its filing with SEBI i.e. January 02, 2007, (ii) the date of RHP i.e. May 25, 2007; and (iii) the date of Prospectus i.e. June 18, 2007. I note that in this case, following facts are undisputed:- a) Prior to November 29-30, 2006, entire shar....
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............................................................................................ (2) For the purposes of sub-section (1), the composition of a company's Board of directors shall be deemed to be controlled by another company if, but only if, that other company by the exercise of some power exercisable by it at its discretion without the consent or concurrence of any other person, can appoint or remove the holders of all or a majority of the directorships ; but for the purposes of this provision that other company shall be deemed to have power to appoint to a directorship with respect to which any of the following conditions is satisfied, that is to say - (a) that a person cannot be appointed thereto without the exercise in his favour by that other company of such a power as aforesaid ; (b) that a person's appointment thereto follows necessarily from his appointment as director or manager of, or to any other office or employment in, that other company ; or (c) that the directorship is held by an individual nominated by that other company or a subsidiary thereof." "SAST Regulations, 1997. Regulation 2 (1)(c) "control" shall include the right to appoint majority ....
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....LF in Sudipti, Shalika and Felicite, DLF remained in 'control' over these three companies and thus they remained its subsidiaries. Directors of the three companies were the employees of DLF/its subsidiaries and were subject to the control of DLF. 22. It is an undisputed fact that following employees of DLF or its subsidiaries were the directors of Sudipti, Shalika and Felicite before and after November 29-30, 2006 i.e. the dates of claimed transfer of shareholdings and as on the date of RHP/Prospectus :- 23. The directors of Sudipti, Shalika and Felicite as mentioned in the above table were appointed by DHDL, DEDL and DRDL who were the only shareholders in the said three companies prior November29-30,2006. Admittedly, DHDL, DEDL and DRDL were the wholly owned subsidiaries of DLF at the relevant times. Therefore, the control of DLF on the appointment of those directors through its wholly owned subsidiaries is apparent. I further note that under the heading 'Key Managerial Employees' at page 120 of the Prospectus, DLF had disclosed Vipen Jindal as its key managerial employee. It is further noted that the 'Key Managerial Employees', other employees of DLF an....
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....to the above facts, the SCN narrates another fact that during the period September-October, 2006, Sudipti was funded by DLF?s subsidiaries / associates through a series of transactions through Vikram and these funds were used for purchase of land and creation of development rights on the land so acquired. It is noted that this transaction was prior to issuance of RHP/DRHP when Sudipti was admittedly a subsidiary of DLF. Funding of the purchase of shares of Sudipti by Shalika from DEDL and DHDL who were sellers of those shares. 27. With regard to purchase of 100% shares of Sudipti by Shalika from DEDL and DHDL on November 30,2006, it has been alleged in the SCN that for purchase of those shares, the payments were made by the said two sellers themselves. The basis of this allegation is fund transfer amongst Sudipti and the said two sellers. I note from the bank account details of Shalika that it had received ?30,000/- from DHDL on November 29, 2006 and ?30,000/- from DEDL on December 1, 2006. Further, Shalika had issued cheques for ? 50,000/each to DHDL and DEDL November 30,2006 which were encashed later by them on December 20, 2006 and April 3, 2007. According to the Noticees, the ....
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....Mrs. Padmaja Sanka and Mrs. Niti Saxena. Further, pursuant to transfer of shares on November 30, 2006 in Shalika and Sudipti, Felicite came in control of Shalika and Sudipti as it held 100% shareholding of Shalika which in turn held 100% shareholding of Sudipti. It has been alleged in the SCN that the purchases of shares of Felicite by these three 'Housewives' were funded by their respective husbands who were KMPs of DLF and were under its control because of 'employee-employer' relationship. On this basis also, it has been alleged that DLF had control over Sudipti, Shalika and Felicite even after the aforesaid transfer of shares. The Noticees have contended that the said three persons namely, Mr. Ramesh Sanka, Mr. Surojit Basak and Mr. Joy Saxena were not KMPs of DLF. They were disclosed as 'key management employees' in the Prospectus under clause 6.9.5.8 of the DIP Guidelines. According to them the 'KMP' is relevant for the requirements of clause 6.9.6.6 of the DIP Guidelines that requires disclosure of 'Related party transactions as per the Financial Statements'. As per the DIP Guidelines, the Financial Statements, that are to be prepared a....
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....nk account was in her name jointly with her husband Mr. Surojit Basak. Considering that the said purchaser is a "Housewife", it is observed that the aforesaid payment of Rs. 30,000/- towards her purchase of shares of Felicite was made by her husband Mr. Surojit Basak to DHDL. There was one credit entry of Rs. 20 lakhs on December 16, 2006, making a balance of Rs. 21, 98,944.28 in this account and a sum of Rs. 20 lakh was transferred from this account to Felicite on December 19, 2006. It is further noted that on November 28, 2006 initially a cheque for Rs. 20 lakhs was deposited in this account and a cheque no. 452935 was issued to Felicite for Rs. 20 lakh. From the bank account statements of Felicite, it is noted that this cheque no. 452935 was returned twice by the bankers on November 30, 2006 and again on December 06, 2006 due to insufficient funds. ii. Padmaja Sanka: (Citibank a/c no. 5971883229): Ramesh Sanka (spouse of Padmaja Saka) was the first holder of this joint bank account. It was noted that during the period July 2006 to April 2007 there were credit entries in this account around month end/ first day of the month, which read as "salary/DLF Ltd.". Besides, there were "....
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....a, Saurabh Chawla, Shiv Kumar Gupta, Manik Khanna, Vipen Jindal, Atul Goyal and Sanjay Sethi. The confirmations from Citibank dated May 09, 2013, have revealed that a sum of Rs. 20 lakhs each was transferred to Felicite from the bank accounts of Adesh Gupta (jointly held with his wife Meenakshi Gupta) and Atul Goyal (jointly held with his wife Nishi Goyal). As per the confirmation from Axis Bank dated May 09, 2013, a sum of Rs. 20 lakhs was transferred to Felicite from the bank account of Manik Khanna (jointly with his wife Saroj Khanna). Similarly, as per the confirmation of Delhi Nagarik Sahkari Bank Ltd. dated May 13, 2013 a sum of Rs. 20 lakhs was transferred to Felicite from the bank account of Sangeeta Gupta. f. It is noteworthy that even the sanction of loan shows a particular pattern that same amount of loan were sanctioned and granted to each of the above mentioned KMPs of DLF/ employees/directors of Group Company of DLF without any apparent collaterals at the same point of time. Further, the receipt of said amounts and transfer thereof to Felicite show a pattern that the said amounts were transferred from the accounts of those KMPs/employees/ directors jointly held with ....
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....l. Subsequently, Niti Saxena sold her shares in Felicite to DHDL on June 19, 2008 and, in turn, as on June 19, 2008 DHDL was holding 10.10% shares of Felicite. Thus, those shares held by Niti Saxena were once again held in the name of DHDL the wholly owned subsidiary of DLF. Mr. Joy Saxena was KMP of DLF till August 2008. Thus, after Niti Saxena ceased to be the shareholder of Felicite her husband ceased to be the KMP of DLF m. Similarly, when Mr. Sanjay Sethi ceased to be the KMP of DLF in March 2007, shares held by his wife Mrs. Seema Sethi in Felicite were sold to Mrs. Rima Hinduja (w/o Mr. Gaurav Monga) on April 04, 2007. Mr. Gaurav Monga was the Vice-President, Finance, DLF and was disclosed as KMP of DLF in its RHP. Thus, Seema Sethi continued to be the shareholder of Felicite as long as her husband continued to be the KMP of DLF and once he ceased to be the KMP, shares held by her were transfered to another KMP of DLF. n. The personal loans taken by the spouses of shareholders of Felicite in Nov/Dec 2006 were repaid by all in November 2009 except by Mr. Joy Saxena and Mr. Sanjay Sethi who repaid the same in June 2008 and May 2007, respectively. Thus, even bank loans taken ....
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....companies as holding -subsidiary. This view is further strengthened by the fact that broadly similar pattern was employed by DLF in case of 355 subsidiary companies- out of which 281 (including Sudipti) became subsidiaries of Felicite as mentioned in para 32(o) above- to give a false impression that they no more remained DLF's subsidiaries. 34. With regard to the second issue, the SCN alleges that the Noticees have violated clauses 6.2, 6.9.6.6, 6.10.2.3, 6.11.1.2, 6.15.2 and 9.1 of the DIP Guidelines. I note that clause 6.2 of the DIP Guidelines, that was applicable at the relevant time, provided a generic obligation and required that the prospectus shall contain all 'material information' which shall be true and adequate so as to enable the investors to make informed decision on the investments in the issue. Similarly, clause 6.15.2 obligated the directors, CEO i.e. the Managing Director or Manager and the CFO to sign the RHP/Prospectus and certify that all disclosures made in the Prospectus are true and correct. Other clauses of DIP Guidelines charged in this case provide for specific obligations. Since the charge with regard to alleged violation of clauses 6.2 and ....
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.... to disclose financial details relating to its subsidiaries. As already found hereinabove, Sudipti, Shalika and Felicite continued to be subsidiaries of DLF consequent to the sale of shareholding by the wholly owned subsidiaries of DLF in them and on the relevant dates there was " holding -subsidiary " relationship between DLF and those three companies. I, therefore, find that the DLF failed to make disclosures in its RHP/Prospectus in terms of clauses 6.10.2.3 of the DIP Guidelines as alleged in the SCN. Non- Disclosure of outstanding litigation against subsidiaries. 38. It has been alleged that the Prospectus of DLF did not provide any information of FIR (No. 249/2007) registered by Mr. Sinha on April 26, 2007 against Sudipti, Mr. Praveen Kumar (KMP of DLF) and others. On this basis it has been alleged that DLF has violated clause 6.11.1.2 of the DIP Guidelines. I note that as per clause 6.11.1.2 of the DIP Guidelines information about outstanding litigations as per clause 6.11.1.1 (e) in respect of subsidiaries of the issuer should be disclosed in the Prospectus. In terms of clause 6.11.1.1(e) of the DIP Guidelines outstanding litigations, defaults, etc., pertaining to matters....
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....e, am of the view that at the relevant time the FIR in question had a direct bearing on the activities of DLF for which the subscriptions were invited in its IPO. 40. It is further noted that for the purposes of disclosures of details of KMPs, Mr. Praveen Kumar was disclosed in the RHP/Prospectus of DLF as its Key Managerial Employee of DLF. He was also director of Nachiketa Real Estates Pvt. Ltd. (a promoter group company of DLF) and of DLF's subsidiaries viz. DEDL, DLF Land Ltd., DLF Golf Resorts Ltd., Newgen Medworld Hospitals Ltd. and Nilayam Builders & Developers Ltd. Of these companies, Nachiketa Real Estates Pvt. Ltd, Nilayam Builders & Developers Ltd. DEDL and DLF Land Ltd. were in the business of real estate, acquisition and development of real estate, maintenance of properties and real estate development activities, respectively, which were similar to the businesses of DLF disclosed under 'Objects of the issue' in the Prospectus. In my view, the information regarding the filing of FIR against Mr. Praveen Kumar was material for the purpose of IPO of DLF since the charges alleged in the said FIR, if proved against Mr. Praveen Kumar, would have affected his posi....
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....list of its Key Managerial Employees. Thus, on the one hand it had proposed to disclose the FIR filed against an employee who is not a KMP, it chose to hide the one filed against its subsidiary and KMP. This fact clearly indicates a design to conceal the material fact. 43. In terms of clause 6.2 of the DIP Guidelines, the Prospectus should contain 'all material information' which shall be true and adequate so as to enable the investors to make informed decision on the investments in the issue. The test of materiality of the information as envisaged in clause 6.2 of the DIP Guidelines is that the information should be true and adequate so as to enable the investors to make informed decision on the investments in the issue. In my view, this test depends upon facts and circumstances of each case. In this case, all the information which were not disclosed as found hereinabove, were material information. I, therefore, find that by not disclosing material information in the Prospectus and actively concealing them from the prospective investors, DLF misled them and violated clause 6.2 also. 44. As mentioned hereinabove, clause 6.15.2 of the DIP Guidelines required the directors/....
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....he PFUTP Regulations. I, therefore, do not agree with the contentions of the Noticees in this regard. 47. In this case, I have already found that the process of share transfer of three subsidiaries of DLF in Sudipti, Shalika and Felicite was through sham transactions as alleged in the SCN and that the Noticees employed a plan, scheme, design and device to camouflage the association of DLF with its three subsidiaries namely, Felicite, Shalika and Sudipti. In this case under such plan, scheme, design and device, the Noticees suppressed several material information in the RHP/Prospectus of DLF and actively concealed the fact about filing of FIR against Sudipti and others. In the facts and circumstances of this case, I find that the case of active and deliberate suppression of any material information so as to mislead and defraud the investors in the securities market in connection with the issue of shares of DLF in its IPO is clearly made out in this case. Therefore, the charge of violation of provisions of section 12 A(a), (b) and (c) of SEBI Act read with regulations 3 (a), (b), (c), (d) 4(1), 4(2)(f) and (k) of PFUTP Regulations against the Noticees is also established. 48. I am ....