Realty major DLF and six senior executives are barred from entering the securities market and from buying or selling securities for three years after finding that the company didn’t adequately disclose information to investors before its 2007 initial public offering.
In a 43-page order published on Monday, SEBI said DLF, its billionaire founder and chairman Kushal Pal Singh and five other company executives would be barred from "buying, selling or otherwise dealing in securities".
The ban, a blow to the heavily indebted real estate firm, follows what the regulator said was DLF's failure to provide key information on subsidiaries and pending legal cases at the time of its record-breaking 2007 initial public offering. DLF is also currently facing a tussle with the tax department over an evasion issue.
In its order issued Friday and made public Monday, the Securities and Exchange Board of India said DLF didn’t properly disclose certain transactions and outstanding litigation has been barred by SEBIfor DLF management's failure to disclose material information to investors during the firm's maiden equity offer in 2007.
The controversy that culminated in the final SEBI order was sparked just before DLF launched its IPO.
A few days before the Rs 9,187.5-crore IPO opened in 2007, SEBI had received complaints from one Kimsuk Krishna Sinha, who alleged that DLF group entity Sudipti Estates and other persons had duped him of Rs 34 crore in a land deal.
The complainant, Kimsuk Krishna Sinha, had pointed out that Sudipti had only two shareholders — DLF Home Developers and DLF Estate Developers — which were wholly owned subsidiaries of DLF. The DLF management had then denied that Sudipti was part of the group. Sinha subsequently filed a writ petition before the Delhi High Court, which then directed SEBI to examine the matter. At the high court's direction, SEBI issued show-cause notices (SCN) to DLF and its seven senior officials.
The SEBI ban may prevent the proposed merger of DLF Cyber City Developers (DCCDL) into DLF. Moreover, refinancing its total non-bank debt, which amounts to ~45 per cent of its FY14 net debt of Rs 198 billion, may come under pressure, say analysts at Edelweiss.
"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," SEBI's whole-time member Rajeev Agarwal said in his 43-page order.
As per the order, those facing the ban include T C Goyal (managing director), KameshwarSwarup and Ramesh Sanka. All of these persons, including K P Singh and his two children, were part of the top management at the time of filing IPO documents.
DLF could now struggle to pay down its debt using equity or debt instruments regulated by SEBI. Its debt, which swelled as the firm ramped up land acquisitions before the financial crisis, stood at 191 billion rupees ($3.13 billion) at the end of June.
DLF is likely to challenge the order before the Securities Appellate Tribunal.