Sebi to refer DLF lapses to ministry, I-T department

In what could spell more trouble for DLF, the Securities and Exchange Board of India (Sebi) is planning to write to other regulatory bodies about the lapses at the real estate firm.

According to sources familiar with the development, Sebi has decided to make references to the Ministry of Corporate Affairs (MCA) and the Department of Revenue, citing violations of the Acts these bodies govern. The market regulator came across these violations while investigating the DLF case between December 2012 and May 2013.

In its 43 page-order that barred DLF from accessing the capital market, Sebi had on Monday observed that there were probable violations of the Companies Act by the company. "For non-disclosures, mis-statements, untrue statements in the RHP (red-herring prospectus), the Companies Act also recognises civil and criminal liability of persons authorising the issuance. Thus... the legislative and regulatory scheme in this regard is clear and the consequences for wrong disclosures, or engaging in fraudulent activities in the IPO (initial public offering) processes, even if noticed or revealed after the issuance of RHP/prospectus, as provided in the Sebi Act and the Companies Act would follow," Sebi Whole-time Member Rajeev Agarwal said in the order.

DIFFICULT PATH

• Non-disclosure: DLF failed to make disclosure about three companies that Sebi findings indicate were the company’s subsidiaries
• Violation: Failure to make disclosures violates provisions of the Companies Act, 1956, and fair price valuation norms of the I-T Act

When contacted, a DLF spokesperson said: "The Sebi order does not make references to violations of the Companies Act or Income-Tax Act, plus there is no mention of misrepresentation of information. So we would not offer any further comments."

An email sent to Sebi seeking its comments did not elicit any response. However, the regulator is of the view that the violations at DLF are not merely disclosure-related. "Sebi's findings point to violations of not just the Sebi Act but certain provisions of the Companies Act, 1956. These include misrepresentation of facts that might concern the corporate affairs ministry," said a person privy to the development.

Sebi's references to MCA and the I-T department could include violating the fair price valuation norms in the I-T Act.

On Monday, Sebi barred DLF, its promoters and other related entities, from accessing the capital market for three years for "active and deliberate suppression" of material information at the time of its Rs 9,000-crore IPO in 2007.

Sebi's probe had revealed DLF used wives of key management personnel to buy shares of subsidiaries. In a showcause notice to DLF, dated June 2013, Sebi had noted that three real estate firms, Sudipti Builders, Felicite and Shalika, were at the heart of the controversy.

And even after divesting stake in these companies, DLF continued to retain control in those, one of which was accused of fraud.

Vaneesa Abhishek, a legal expert, said the DLF case could be referred to the Serious Fraud Investigation Office of the corporate affairs ministry for non-disclosure of related-party transactions.

"The role of the merchant banker and the law firm issuing due-diligence certificate on the prospectus should also be questioned by the regulatory authorities," she said.

Some legal experts, who have analysed the Sebi order, said DLF could have violated certain clauses in the Companies Act.

Some of the provisions that were violated include Section 297, which relates to getting into a contract with related entities without the consent of the board.

DLF loses Rs 7.5k cr in market value as shares tank 28%
Shares of DLF, India's largest real estate developer, on Tuesday plunged nearly 30 per cent to hit a life-time low, wiping out nearly Rs 7,500 crore (a fourth of total) of its market value. The stock tanked 29.99 per cent to hit an all-time low of Rs 102.70 before recovering a little to close at Rs 104.95 on BSE. On the National Stock Exchange, the DLF shares fell 27.98 per cent to close at Rs 105.8.