Supreme Court issues notice to DLF, SEBI on non-disclosure of key information in QIP

India's largest real-estate developer DLF has been put in the dock yet again for suppressing material information from shareholders.

The Supreme Court has issued a notice to the company based on a petition that highlighted how DLF had suppressed key information regarding judicial proceedings against its largest chunk of land-bank in Haryana. A copy of the petition and SC order issuing notice was seen by BusinessLine .

A notice has also been issued to SEBI, which too is party to the case. DLF and SEBI did not respond to email query sent to them twice on the matter.

Petitioner KK Sinha, on whose complain SEBI had earlier barred DLF promoters from markets and imposed a penalty, has told SC that DLF failed to mention key cases regarding the violation of the Haryana Land Ceiling Act, 1972, where adverse orders were passed by the Punjab and Haryana High Court, and the matter is pending with the SC.

An adverse decision by the apex court could have huge ramifications for DLF investors.

DLF will now have to file its response to the petition, which prays that the company be asked to return more than ₹5,000 crore that it raised via two qualified institutional placements (QIPs), one of which was in 2019.

The petition seeks an investigation by SEBI on the suppression of material information, as the regime under SEBI Act is strictly disclosure based, with the sole intent of protecting the interest of the investors in the securities market.

What disclosures were omitted by DLF?

DLF failed to disclose a material amalgamation that renders one of DLF’s flagship subsidiaries liable in the matters arising out of the court orders with regard to M/s Aaliyah Real Estates.

The petition says that prospectus of 2006 and 2007, DLF New Gurgaon Home Developers (DNGHDPL), formerly known as Caitlin Builders and Developers, was listed as a subsidiary and a DLF associate. The prospectus of 2013 shows that DLF held 94.43 per cent stake in DNGHDPL.

Court had ordered directed investigation into DLF group companies and its admitted subsidiaries, like the said DNGHDPL, for violation of land ceiling laws and other laws, which presumably include matters concerning benami purchases, licensing, stamp duty payment and transfer pricing issues.

All this was omitted in 2019 QIP prospectus.

The Punjab and Haryana High Court had ordered an inquiry against DLF and a few other companies, and directed that the matter be clubbed with another writ petition, related to Aaliyah Real Estate vs State of Haryana.

The petition says DLF’s QIPs prospectus did not disclose anything about its subsidiaries, or DLF itself challenging the High Court order.

“Hundreds of companies holding land for DLF are registered in DLF’s own offices. These companies have DLF’s Key Management Personnel or higher officials as their directors. Their land is purchased through DLF funds. They apply for development and other licenses through DLF subsidiaries. They have given unto DLF all their rights including the right to alienate. For all practical purposes, these shell companies serve only one purpose — to keep the name of DLF away from DLF’s operations. Most of these averments are admitted by DLF Ltd in its appeal being Securities Appeal no. 331 of 2014, before the Securities Appellate Tribunal, Mumbai (SAT),” the petition states.

As per Sinha, DLF said these companies belonged to them during legal arguments when it suited them, but the pending litigation against them and other corporate actions were not disclosed in the QIP documents.

SEBI had earlier found that DLF had violated shareholder disclosure norms during its ₹7,000 crore IPO in 2007, and the charges, if upheld, makes DLF a repeat offender, lawyers involved with the matter said.

“Litigation suppressed by the DLF has a direct nexus with its most important assets, its land bank. The suppressed litigation could, on a negative result for DLF, erode a substantial part of DLF’s land bank, and open DLF to the possibility of heavy penalties leading to thousands of crores in payments of stamp duty and applicable penalties. The reasons for such suppression are therefore clear,” the SC petition says.

Lawyers said that a lenient view on non-disclosures, especially the committing of fraud during the pendency of litigation arising out of similar fraud, would defeat the purpose of the disclosure-based regime under SEBI Act and other subordinate legislation.

COMMENT NOW