Appeal Nos. 331, 392, 393, 394, 395, 396 and 415 of 2014. Case: DLF Limited and Ors. Vs Securities and Exchange Board of India. Securities and Exchange Board of India

Case Number:Appeal Nos. 331, 392, 393, 394, 395, 396 and 415 of 2014
Party Name:DLF Limited and Ors. Vs Securities and Exchange Board of India
Counsel:For Appellant: Janak Dwarkadas, Gaurav Joshi, Vikram Nankani, Senior Advocates, Anannya Ghosh, Ritu Bhalla, Dhruv Dewan, Kostubh Devnani, Rajbeer Sachdeva, Advocates i/b. Amarchand, Mangaldas, Suresh A. Shroff & Co., B.M. Chatterjee, Senior Advocate, Pratik Malik and Swarnangshu Shekhar, Advocates and For Respondents: Rafique Dada, Senior ...
Judges:J.P. Devadhar, J. (Presiding Officer), Jog Singh and A.S. Lamba, Members
Issue:Code of Criminal Procedure, 1973 (CrPC) - Section 417(3); Companies Act, 1956 - Sections 210-A, 211(3-A), 211(3A), 227, 3, 4, 4(1), 4(1)(a), 4(2); Constitution of India - Articles 14, 21, 227; Income Tax Act, 1961 - Section 22; Indian Telegraph Act, 1885 - Sections 5, 5(1), 5(3)(b); Monopolies And Restrictive Trade Practices Act, 1969 - Section...
Judgement Date:March 13, 2015
Court:Securities and Exchange Board of India


Jog Singh and A.S. Lamba, Members

  1. The appellant, namely, 'DLF Limited', has preferred the present appeal against the Impugned Order dated 10th October, 2014, passed by the Whole Time Member (the WTM) of the respondent. By the said common Impugned Order, the appellant company and six of its Directors along with the Chief Financial Officer (CFO) have been restrained from accessing the securities market and in addition to it, have also been prohibited from buying, selling and otherwise dealing in securities directly or indirectly for a period of three years. The Impugned Order has been passed pursuant to a Show Cause Notice ('SCN') dated 25th June, 2013. All these appeals have been heard together and Appeal No. 331/2014 (DLF Ltd. Vs. SEBI) has been taken as the lead case in which detailed and exhaustive arguments have been advanced and its decision shall govern the fate of connected seven appeals.

  2. Antecedental facts leading to the issuance of the SCN as well as passing of the Impugned Order are relevant and hence succinctly narrated herein below:

  3. The Appellant is a Public Limited Company, registered under the Companies Act, 1956, with effect from 4th July, 1963, at New Delhi. It is mainly engaged in the business of real estate development since then. For the purpose of consolidation of fragmented pieces of land into a bigger chunk for development, the Appellant floats many subsidiaries or associate-companies which are divested after achieving the business objective. The appellant intended to make a public issue of 1,75,00,000 (one crore, seventy five lac) Equity shares of Rs. 21 - each for cash at a price of Rs. 525/- per equity share. With this objective in mind, the appellant approached various experts, including Auditors, Advocates and Merchant Bankers and with their advice and active involvement filed the first Draft Red Herring Prospectus (first DRHP) on 11.05.2006. On 31st August 2006, the first DRHP was withdrawn by the appellant and a second DRHP was filed by the appellant on 02.01.2007 with SEBI as per the then existing Disclosure and Investor Protection Guidelines, 2000 ('the DIP Guidelines'). Schedule-II in the Companies Act, 1956, read with these DIP Guidelines framed by Sebi prescribe exhaustive modalities and conditionalities for preparing and filing draft and final Prospectus, known as Offer Documents, with Sebi for its concurrence.

  4. It is worthwhile to note that the appellant had three wholly owned subsidiaries namely - DLF Estate Developers Limited ('DLF Estate'); DLF Home Developers Limited ('DLF Home') and DLF Retail Developers Limited ('DLF Retail') and many associate companies and/or subsidiaries mainly created for the purpose of consolidation of small pieces of land to be developed at a later stage. These three wholly owned subsidiaries, however, incorporated three more companies, namely - Sudipti Estates Private Limited ('Sudipti') and Felicite Builders and Constructions Private Limited ('Felicite') on 24.03.2006 whereas Shalika Estate Developers ('Shalika') on 26.03.2006. Pertinently, on 29th and 30th of November, 2006, i.e., more than a month before the second DRHP was filed on 02.01.2007, DLF Estate, DLF Home and DLF Retail transferred their shares in Shalika to Felicite, while DLF Estate and DLF Home transferred their shares in Sudipti to Shalika. Furthermore, DLF Estate transferred its equity stake in Felicite to Mrs. Neeti Saxena; DLF Home to Mrs. Madhulika Basak and DLF Retail to Mrs. Padmaja Sanka, who happened to be the wives of DLF employees. This entire exercise led to Sudipti becoming the subsidiary of Shalika and Shalika becoming the subsidiary of Felicite, which finally became the holding-company of about 281 subsidiaries/associate companies.

  5. At this stage, it is interesting to note that one Mr. Kimsuk Krishna Sinha ('KKS'), facilitated certain transactions between 'Sudipti', an associate company of the appellant as in October, 2006. Six independently registered sale deeds were executed between Sudipti as a Vendee and Shri Pramod Jain and M/s. Mahavir Global Coal Private Limited as the Vendors for purchasing a piece of land. All this was done with the good offices extended by KKS as the Conforming Vendor. As a consideration for this transaction, KKS received Rs. 34,27,31,188/- (Rupees: Thirty Four Crore, Twenty Seven Lac, Thirty One Thousand, One Hundred and Eighty Eight only) by way of cheque from Sudipti. This payment seems to be in addition to the sum of Rs. 6.34 crore paid by different cheques to the vendors separately by Sudipti. After acquiring the land in question, Sudipti entered into a Development agreement with DLF Commercial Project Corporation ('DCPC') on 09.10.2006 whereby DCPC acquired the rights to substantially all the revenues from the development of the land, the exclusive right to develop as well as to control the use and disposition of land and the authority to transfer the title to the land.

  6. KKS filed a criminal complaint on 26th March, 2007, mainly accusing Sudipti, its Directors and its authorized signatory of duping him of about Rs. 34 crore which he allegedly gave to Sudipti in cash and he got an FIR registered on 26th April, 2007, by naming one Mr. Pravin Kumar, who happened to be the nephew of the Chairman of the appellant and also its Key Managerial Employee ('KMP'). In the said FIR, KKS claimed that he had made cash payment to Sudipti on the basis of an oral understanding that Sudipti would undertake joint development of properties with him and that Sudipti later reneged. The appellant was not a party to this complaint and hence the appellant came to know of the lodging of the complaint on 25th June, 2007.

  7. On 29th March, 2007, the appellant's Merchant Bankers certified the accuracy and adequacy of the disclosures made in the Offer Documents as per the norms laid down by the respondent. It was, inter alia, certified that such disclosures made by the appellant were sufficient to enable prospective investors to make an informed investment decision. Thereafter, the respondent, having applied its mind to the Offer Documents for a few months, finally issued a letter dated 7th May, 2007, to the following Merchant Bankers/Lead Managers - Kotak Mahindra Capital Company Limited, DSP Merrilynch Limited, CITI Group Global Markets India Private Limited, Duetsche Equities India Private Limited, ICICI Securities Limited, Lehman Brothers Securities Private Limited, UBs Securities India Private Limited and SBI Capital Market Limited, calling upon them to ensure that various changes, as prescribed by SEBI in its letter dated 7th May, 2007, must be incorporated before the RHP could be filed with the Stock Exchange/ROC. The respondent made exhaustive observations for making suitable modifications in the offer document in accordance with DIP Guidelines, 2000, read with 13 circulars issued by SEBI from time to time in this regard. The applicant complied with the observations and suggestions as reflected in the Respondent's letter dated 7th May, 2007, and thereafter, filed the RHP with the Registrar of Companies (ROC). The IPO was, accordingly, opened for public subscription between 11th to 14th June, 2007. Similarly, the final Prospectus was filed by the Appellant with the ROC on 18th June, 2007 and the shares of the Appellant were ultimately listed on BSE and NSE on 5th July, 2007.

  8. In the meanwhile, the seeds of the present controversy appear to have been sown by KKS when the Respondent received a complaint dated 4th June, 2007 on 15th June, 2007, alleging that Sudipti, which was a sister concern of DLF Home and DLF Estate, had duped him of Rs. 34 Crore and that the Appellant was misguiding gullible investors by not following the law. KKS had also lodged an FIR with the Police on 26th April, 2007. Said complaint dated 4th June, 2007 of KKS was forwarded by the Respondent to the Appellant's Merchant Banker for appropriate action and the Merchant Banker, in turn, forwarded the said complaint to the Appellant on 25th June, 2007. The Appellant as well as the Merchant Bankers on 11th July, 2007 and 19th July, 2007, respectively replied to the Respondent to the effect that the complaint made by KKS was frivolous and hollow inasmuch as the three subsidiaries, i.e., Sudipti, Shalika and Felicite were not the subsidiaries of DLF Home, DLF Estate and DLF Retail after 30th November, 2006, and hence, there was no question of erstwhile subsidiaries or associates being mentioned in the second and fresh DRHP filed with the Respondent on 2nd January, 2007. Similarly, the claim for payment of about Rs. 34 crore in cash by KKS to Sudipti was also vehemently denied. Being dissatisfied, KKS approached the Hon'ble Delhi High Court by way of Writ Petition (C) No. 7976 of 2007 on 29th October, 2007, seeking a mandamus to the Respondent to investigate his complaint. Learned Single Judge of the Hon'ble Delhi High Court, allowed the said Writ Petition by its order dated 9th April, 2010. The operative portion of the said order is reproduced herein below for the sake of convenience:

    26. Accordingly, a direction is issued to the SEBI to undertake an investigation into the aforementioned complaints made by the Petitioner and also the averments made in the affidavits and additional affidavits filed by the Petitioner in the instant case. The said inquiry will be undertaken in accordance with law by the SEBI and completed within a period of three months from today. The SEBI will communicate to the Petitioner a copy of report of investigation together with its decision thereon within a further period of two weeks thereafter. If it comes to a conclusion that any consequential action is to be taken the SEBI will do so without awaiting further directions.

    27. It is clarified that this Court has not pronounced on the merits of the contentions of the parties. The SEBI will proceed in the matter independent of any observations that may have been made by this Court...

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