Mumbai: In a major relief for DLF, the Securities Appellate Tribunal Friday passed a 'majority order' quashing the three-year market ban imposed on the realty giant by regulator SEBI, even as the Presiding Officer dissented.
SEBI's orders imposing similar ban on DLF's six top officials, including Chairman K P Singh and his children Rajiv Singh and Pia Singh, were also set aside by the same majority order, passed by two members of the SAT.
The SAT Presiding Officer, J P Devadhar, however passed a separate 'minority' order, wherein he proposed reducing the ban from three years to six months.
Amid an unprecedented argument between Presiding Officer and one of the Members, Devadhar pronounced another direction for staying the operation of the SAT order for a period of four weeks "in view of the conflicting views in the matter', but another majority order by the two members again rejected SEBI's plea for stay on the first 'majority decision'.
In its order dated October 10, 2014, SEBI had barred DLF and six others from the capital markets for three years, alleging "active and deliberate suppression of material facts" during its over Rs 9,000-crore IPO more than seven years ago.
While DLF has already gone through five months of debarment, the SAT order will help it tap the markets for raising necessary funds for business, including through REITs and mortgage-backed securities.
Welcoming the order, DLF Executive Director Rajeev Talwar told PTI that any further decision on fund raising from the markets would be taken after the company's board is apprised of the matter by the legal counsel and experts.
DLF shares soared higher by about 10 per cent immediately after the SEBI order was quashed by SAT. The stock finally closed with a gain of 6 per cent at Rs 157.5 at the BSE.
In their strongly-worded majority order running into 85 pages, the two SAT Members -- Jog Singh and A S Lamba -- ruled that SEBI "has completely failed to approach the issue in the matter pragmatically.
"Viewed from any angle, the impugned order is like a troubled sea whose waters only cast up mire and dust and, therefore, the same is liable to be quashed and set aside."
They also pulled up SEBI for lapses in its investigation into the case, while stating that it was the job of merchant bankers to ensure proper disclosures in IPO documents.
The order also said DLF suffered huge losses, to the tune of thousands of crores of rupees, in its market value after SEBI's ban, and therefore such directions could not be seen as those aimed at protecting the investors' interest.
It also questioned a 'somersault' done by SEBI after seven years of the IPO and said the entire case was based on a complaint filed by a person with 'vested interest'.
SEBI can challenge the SAT order in the Supreme Court.
The Presiding Officer, in his 134-page minority order, however said that SEBI's decision that "DLF has resorted to sham transaction of divesting shares of Felicite, Shalika and Sudipti with a view to camouflage association of DLF with those three companies as dissociation cannot be faulted.
He also ruled that it was necessary for SEBI "to send stern message to DLF and other listed companies by taking remedial action" to ensure that such dubious methods are not adopted hereafter, including by way of resorting to sham transactions.
Devadhar, however, observed that the SEBI order was held to be partially unsustainable and there were "several mitigating factors in favour of the appellants", and therefore he was reducing the ban to six months, commencing from the date of the SEBI directive (October 10, 2014).
After pronouncement of the order, Devadhar suggested that the majority direction be stayed for a period of four weeks, because of conflicting views.
Jog Singh, however, objected and said that the Presiding Officer can stay his own minority view, to which Devadhar said the matter should then be decided by the apex court.
However, these arguments were not recorded in the written order from SAT, which ended with Devadhar's minority direction for a four-week stay on the Tribunal's majority order quashing the SEBI order against DLF.
SAT had reserved its order last month on appeals filed by DLF and others.
While this SEBI order did not include any monetary penalty, the regulator passed another directive last month, in the same case, wherein penalties totalling Rs 86 crore were imposed on DLF, its top executives and a host of related persons and entities for entering into "sham transactions" to mislead IPO investors.
The SEBI order passed in October was challenged by DLF the same month before the tribunal. DLF is yet to challenge the second order from SEBI.
In the case, apart from Singh, his son and daughter, Managing Director T C Goyal, former CFO Ramesh Sanka and Kameshwar Swarup, who was ED-Legal at the time of the company's public offer in 2007, were also barred by the SEBI.
After its over four-year-long probe, SEBI had said that a "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."
The case related to dealings DLF had with various companies, including three entities named Sudipti, Felicite and Shalika, which it was also alleged that shares were purchased by three "housewives" from the bank accounts held by them jointly with their respective husbands, who happened to be employees of DLF group entities.
SAT's Members however said in their majority order that they "do not find any legal infirmity in purchasing equity stakes by the three women entrepreneurs by utilizing the funds from the joint accounts in question.
"It is trite law that joint account holders have equal rights to the money in the joint account and, hence, the three spouses cannot be condemned for utilizing the money from the joint accounts just by virtue of being housewives."
Quashing the three-year market ban imposed on DLF by regulator SEBI, SAT said that the realty giant has already borrowed huge funds for acquiring lands/development rights and further funds would be necessary for development of these lands.
"If DLF is restrained/prohibited from accessing the securities market for a long period, it would seriously cripple the functioning of DLF and consequently, the interests of 4.5 lakh investors in DLF would be seriously prejudiced," the order said.
The tribunal also said that there is nothing on record to suggest that failure to disclose material information relating to three companies--Felicite, Shalika and Sudipti--,in violation of various clauses under PFUTP Regulations, has led to any direct or indirect benefit or advantage to DLF or its directors.
It observed that since the material information were insignificant even if the same were disclosed in the offer documents, it would have had little impact on the investor decision to invest in the shares of DLF.
Further, the SAT pulled up the capital markets regulator for lapses in its probe into the case stating that it was the job of merchant bankers to ensure proper disclosures in IPO documents.
DLF had acted on the basis of advice received from merchant bankers and legal advisors who had minutely and rigorously scrutinised the offer documents to ensure compliance with all applicable norms.
The realty giant has acted on professional advice, in the absence of sufficient evidence to establish the charge of misleading the public, it cannot be held that the said company has wilfully failed to disclose material information.
The merchant bankers are governed by and subject to stringent regulations made by SEBI and in case of any violation, the regulator is empowered to proceed against them.
"SEBI has not proceeded against the merchant bankers in relation to DLF's offer documents...," the order said.
There is a difference between the two categories-- 'Key Managerial Personnel' and the 'Key Managerial employees', the majority order said while questioning the difference between control and significant influence.
