TaxTMI 
TaxTMI 
2015 (4) TMI 65
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....ed with filed with Registrar of Companies 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 allegation....
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....a Show Cause Notice dated June 25, 2013 (hereinafter 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 (K....
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.... were subject to the control of DLF due to their „employee and employer 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 al....
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....sidiaries. Therefore, it has been alleged that DLF has violated provisions of clause 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 ....
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....The relevant portion of these provisions of the SEBI Act, PFUTP Regulations, ICDR Regulations and DIP 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, ....
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.... the issuer company has subsidiaries, the report shall: (a) so far as regards profits and losses, deal separately with the issuer company?s profits or losses 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....
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....ecurities for a particular duration should not be issued against them. 10. Vide letter dated November 1, 2013, DLF submitted its reply to the SCN and the other Noticees also filed their separate replies 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 complain....
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....he DRHP on several occasions. DLF, thus, had the legitimate expectation that SEBI, while acting in its regulatory capacity and issuing comments, has reviewed all the documents placed before it, and having already 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 ....
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.... land reserves of DLF. This percentage of 37.9% included the sole development rights procured from Sudipti by DCPC. These commercials pertaining to risk factors, land reserve disclosure, etc. would not have changed even if 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....
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.... of Sudipti for the purposes of valuation, failed to take into account the outstanding liabilities of Sudipti, which exceeded the value of its assets. 13) The allegation that Shalika did not have the funds to purchase the shares 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 nor....
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....hifting of the office address of Shalika. 18) The SCN does not indicate why DLF would go through the various processes set out in the SCN merely to avoid disclosure of Sudipti as its subsidiary. The SCN does not allege any motive behind 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" a....
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....ectly or indirectly, any equity share capital in Felicite, Shalika and/or Sudipti nor enjoying any voting rights, directly or indirectly, qua these three companies. As a matter of law, from and with effect from November 29- 30, 2006, Felicite became the 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 h....
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....4 of the Companies Act, 1956 and AS-21. 27) The three entities (Felicite, Shalika and Sudipti), pursuant to the divestment of equity stake by DEDL, DHDL and DRDL, ceased to be a „related party? to DLF. Further, there is nothing to show that DLF had 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 Sudi....
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.... against Sudipti. 31) Since, the above three entities, at the relevant time, were not the subsidiaries of DLF, no disclosures were required to be made in the RHP/Prospectus about them. Therefore, DLF has not violated provisions of Clauses 6.2, 6.10.2.3, 6.11.1.2, 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....
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....ng the correspondence exchanged between the Merchant Banker and SEBI, and other relevant documents and the same was in violation of the principles of natural justice. Further, the show cause notice affixes the liability on him solely on account of the fact that he was the director 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 ....
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....ation. He also submitted that at the relevant point of time he was also a director in DHDL, DEDL and DRDL and these companies had divested their equity interest in Felicite, Shalika and Sudipti in November, 2006 and thereafter no agenda items were presented before the Board of Directors 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 Noti....
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....the same. 14. The second preliminary contention of the Noticees is that SEBI cannot invoke the provisions of PFUTP Regulations since the Order dated October 20, 2011 passed by SEBI had confined the investigation to the violations of DIP Guidelines read with relevant provisions of Companies Act. 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 SC....
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....legations/issues: (i) Whether entire share transfer process in Sudipti, Shalika and Felicite was executed through sham transactions by DLF and they continued to be subsidiaries of DLF? And, if yes, whether the Noticees employed a scheme by camouflaging the association of Sudipti with DLF as dissociation? (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 ....
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....under: "Companies Act, 1956- Section 4. MEANING OF "HOLDING COMPANY" AND "SUBSIDIARY" (1) For the purposes of this Act, a company shall, subject to the provisions of sub-section (3), be deemed to be a subsidiary of another if, but only if, - (a) that other controls the composition of its Board of directors ; or (b) ......................................................................................... (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 follow....
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....e composition of Board of directors of another company by virtue of its right to appoint or remove majority of directors in the later depends upon facts and circumstances of each case. In light of above provisions, I now proceed to examine the facts on the basis of which the SCN alleges that even after the transfer of shareholding of three subsidiaries of DLF 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, ....
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....establishment/personnel, rent, electricity, etc. during the financial years 2006-07 and 2007-08 which indicates that some other entity was incurring/absorbing such costs.These facts and circumstances further corroborate the inference that DLF did not lose association with Sudipti, Shalika and Felicite even after such transfer of shareholdings in them. 26. In addition 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....
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....ated payment from Felicite, but they have failed to substantiate such claim by any evidence. I, therefore, am not inclined to agree with the contentions of the Noticees in this regard. Control of DLF through its KMPs over Felicite. 29. Admittedly, on November 29, 2006, the entire shareholding of Felicite was purchased by three 'Housewives' viz. Mrs. Madhulika Basak, 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....
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....th the contentions of the Noticees in this regard, it is relevant to mention the following facts found during investigation a. on November 29, 2006 entire shareholding of DHDL, DRDL and DEDL in Felicite was sold to the following persons- b. In the bank account statements of the aforesaid buyers, the fund flow is noted as under: i. Madhulika Basak (Canara Bank a/c no. 1046): This bank 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 a....
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....n, transferred the said amounts of Rs. 20 lakh each to their own bank accounts jointly held with their spouses on November 28,2006, November 10, 2006 and December 16, 2006, respectively. From these bank accounts money was transferred to ICICI bank account no. 000705016461 of Felicite. e. Similar loans were granted by Kotak Bank to other KMPs of DLF/Director of DLF Group Company's viz. Adesh Gupta, 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 particul....
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....and Mrs. Seema Sethi (9.95% each). Thus, the entire shareholding in Felicite remained with the 'Housewives' of KMPs of DLF. Further, the employees of DLF/its subsidiaries, who were subject to the control of DLF/its subsidiaries due to their „employee and employer relationship?, continued on the Board of Felicite as discussed above. Therefore, DLF never lost control of Felicite, Shalika and Sudipti. 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 sharehol....
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....ed transfer of shareholdings in Sudipti, Shalika and Felicite the shareholding/voting rights and control, directly or indirectly, remained with DLF through its subsidiaries and its/ its subsidiaries' employees. I, therefore, find that the purported transfers of shareholding in the said three companies were sham transactions devised as a plan, scheme, design and device to camouflage the association of DLF with these three 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 inv....
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....F and the said three companies were 'related parties'. Accordingly, DLF was required to disclose the 'related party transactions' pertaining to these three companies. I, therefore, find that the charge of violation of clause 6.9.6.6 against the Noticees is established in the present case. Non- Disclosure of financial details relating to subsidiaries. 37. I note that clause 6.10.2.3 of DIP Guidelines requires an issuer 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 ....
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....ich DLF procured through DCPC (a Partnership in which DLF held 76% interest). Such development rights gave DLF substantially the right to all revenues from development including rent and the authority to transfer title to the land. RHP/Prospectus also disclosed the risk relating to the sole development rights constituting 37.9% of the total land reserves of DLF which included the sole development rights procured from Sudipti by DCPC. I, therefore, 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 ....
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.... been disclosed therein. 42. I further note that in its RHP, DLF had disclosed an FIR filed by one Harish Kumar Puri against DLF and its directors. Further, in its DRHP filed on January 04, 2007 it had proposed to disclose an FIR no. 381/05 filed by one Leelu Ram, Surpanch of village Nathupur against J.L. Malik, Chief Manager (security) of DLF, despite the fact that the name of Mr. J.L. Malik, Chief Manager (security) of DLF does not appear in the 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....
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....ncludes an act of buying, selling or subscribing pursuant to any issue of securities or agreeing to buy, sell or subscribe any issue of any security. I, therefore, find that active and known/deliberate suppression of material information and facts in a RHP/Prospectus so as to mislead and defraud the investors in securities market in connection with the issue of shares would be covered within the scope of section 12A of the SEBI Act and regulation 3 and 4 of the 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....
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....sted companies so as to safeguard market?s integrity." 49. I note that the SCN has been issued to six directors and CFO of DLF on account of alleged violations by DLF as they were in charge of the affairs of DLF at the relevant time and were involved in the process of preparation of the RHP/Prospectus. In this case, the Noticees had authorised the RHP/Prospectus and signed the declarations certifying the compliance of DIP Guidelines, etc. and they cannot escape liability for the acts and omissions found in this case. In this regard, Mr. G.S. Talwar has submitted that while the other non-executive directors of DLF have been left out in the SCN, allegations have been leveled in the SCN only against Mr. Talwar. He also submitted that his role on the Board of directors of DLF is that of overseeing high-level strategy and he had no personal knowledge or involvement in the subject matter of the proceedings. Further, he played a similar non-executive role on the global boards of Schlumberger Limited, Fortis SV & NA, Peerson Plc. and the governing bodies of London Business School and the Indian School of Business. I note that at the time of filing of prospectus of DLF, Mr. G. S. Talwar ....