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The Supreme Court (SC) on Friday issued a notice to real estate major DLF on a plea filed by the Securities and Exchange Board of India (Sebi), challenging a Securities Appellate Tribunal (SAT) order in the matter pertaining to alleged disclosure norm violations by DLF in its 2007 initial public offering (IPO).
A bench headed by J Chelameshwar issued the notice after hearing the Sebi counsel and objections by DLF. The regulator had moved the apex court last week, for an interim stay on the SAT order. And, for expunction of certain observations by SAT, which it contends could have an impact on other cases before it.
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Though the court did not grant a stay, the admission and notice is seen by the market as a blow for DLF. Any fresh capital raising through instruments such as Qualified Institutional Placement or public offers would need Sebi clearances and these might not come during the matter's pendency, lawyers said.
After the notice, DLF's shares fell around five per cent to Rs 130.2 on the BSE before recovering to close at Rs 131.25, a loss of 3.8 per cent. Last month, the shares had gained a little over five per cent on the day SAT set aside a Sebi order banning DLF from the capital market for three years.
The apex court also decided to allow Kimsuk Krishna Sinha, the former business partner of DLF on whose complaint Sebi had initiated investigations against the company, to become a party in the matter.
DLF is contesting a Sebi order that said the former had used sham transactions to “dissociate” itself from 281 entities, including a Sudipti Estates. Sinha, who had a dispute in his business dealings with Sudipti, had filed a case in a Delhi police station against it in 2007. Sinha complained to Sebi after he found this was not disclosed in DLF's IPO documents.
DLF’s lawyers argued the value of these transactions at about Rs 8 lakh were not big enough to merit disclosure for a company of its size. Sinha’s petition contends SAT's overturning of the Sebi order is based on an erroneous construction of the concept “and would have the effect of condoning large scale violations”.
Sebi’s petition on the sham transactions contends ownership was transferred to wives of key executives without corresponding changes in address, bank accounts, etc, and presented a misleading picture before investors because these entities owned 90 per cent of the 4,575 acres of land bank claimed by DLF in its offer document.
Sebi has contended that SAT erred in holding that the Sebi order was passed without complying with mandatory procedures under the Prevention of Unfair Trade Practices Regulations. It also contested SAT’s observation that the regulator had done a somersault on the case by initially not taking action and then doing so after seven years. The Sebi order on the 2007 IPO came in October 2014.
It argued there was no undue delay and investigation began immediately after a direction in this regard by the high court here.
Sebi also contested SAT’s assertion that Sebi ‘approves’ IPO offer documents. And, that action under the Disclosure and Investor Protection (DIP) guidelines may only be taken against a company if this is also preferred against its merchant bankers, auditors and legal experts. Such a position taken by SAT , which has no basis in law, would seriously prejudice several ongoing and concluded proceedings, and open numerous litigation, argues Sebi.
