Securities market tribunal criticizes SEBI and lifts the ban on DLF

The tribunal related to the securities market-SAT (Securities Appellate Tribunal) has quashed the three year ban imposed by SEBI on real estate firm DLF. In a divided verdict, the SAT has heavily criticized SEBI’s action and noted that it “has completely failed to approach the issue in the matter pragmatically”. 

Securities and Exchange Board of India (SEBI), has imposed ban on DLF in October last year for hiding information in its IPO notification about some of its units which have some criminal cases pending against them.

The 2007 IPO of DLF, has fetched nearly Rs 9000 crores and was the largest of that time, and as a result, the company became one of the corporate biggies and its promoter, KP Singh became one the richest in the country.

The verdict by the tribunal will have many implications rather than just giving relief to the DLF.

SEBI’s action is against the interest of the investors- SAT

  A major outcome is that it will put pressure on SEBI to ‘rightsize’ punishments of corporate misbehavior in proportion with the nature of the fault made by the firms. The SAT has noted that many of the shareholders have lost money after SEBI has made somewhat harsh treatment to the company. The verdict clearly questions SEBI’s mandate as the market regulator’s primary responsibility is to protect the interest of the shareholders.

Not a sham transaction

Another dimension of the verdict is on the manner of running of the family oriented corporate business in India.

SEBI in its ban has accused the wives of DLF board members as housewives producing ‘sham transactions’. On the other, the SAT has described them as women entrepreneurs.

Some of the associate firms of DLF were under the ownership of wives of DLF board members. Many corporate promoters including DLF’s KP Singh are transferring a part of their corporate assets to the name of their wives to get benefits. The treatment of such transactions is differently done by the SEBI and the SAT in this case. 

Now in the future, when SEBI goes to the Supreme Court against the SAT verdict, how the apex court approaches this issue will be interesting.

Dissent within SAT and the possibility of SC review

The three member SAT has produced an interesting divided verdict where its President, JP Devadhar issuing his own verdict in favour of SEBI. He called for a review of the case by the Supreme Court.

The manner in which the President revolted against the other two members and his call for the SC review questions the credibility of tribunals like the SAT. It is the responsibility of the SEBI to go to the SC. Here, the President’s call casts doubts about the tribunal’s utility and it becomes just an intermediary between SEBI and the SC rather than to lighten the work of the apex court.

Implication on DLF

The verdict will considerably help the real estate firm to go ahead with its two planned Real Estate Investment Trusts. The REITs is a major development in the sector, booming prospects of the company to mobilize funds from outside. It may help it mobilize funds at a time when its debt size is very big. 

DLF is one of the largest debt ridden companies in the country with a debt size of nearly Rs 20000 crores. In the past the Delhi based firm has sold many of its prize properties to wind up the debt.