Is Really Big Companies Like Sahara, DLF are Culprit

Everyone loves it when a regulator acts tough against large corporations. So when the Securities and Exchange Board of India (Sebi) banned DLF Ltd and six senior officials, including its chairman and founder, it expectedly won plaudits. Shekhar Gupta, a senior journalist, tweeted, “Sahara, now DLF, Sebi stature grows…”

However, Sebi’s conduct in the DLF case has been vastly different compared with its handling of Sahara. It took more than seven years to pass its judgement. During this time, the original complainant against DLF, K.K. Sinha, was forced to take Sebi to court alleging “deliberate inaction”. Besides, the Delhi high court castigated the regulator on more than one occasion for dragging its feet on the case.

 And while many have been enamoured by the ‘housewives’ plot allegedly used by DLF to hide its association with some subsidiaries, as shown in Sebi’s order, the truth is that Sinha informed the Delhi high court about this way back in September 2008.

 For some perspective, Sinha first sent a complaint directly to Sebi, alleging that DLF hadn’t disclosed an ongoing litigation between him and a DLF subsidiary in its initial public offering (IPO) prospectus. Sebi’s order suggests that this complaint was forwarded to DLF for its response. The developer, obviously, denied the allegations, saying that the said company wasn’t a subsidiary.

 Because of Sebi’s inaction at the time, Sinha filed a writ petition before the Delhi high court in 2007. Some of Sebi’s arguments during the hearing of this case are worth noting. Sebi objected that since the petitioner was not an investor in the securities market, he had no locus standi to file the petition. It also contended that since the subsidiary company in question was an unlisted company, it wasn’t amenable to the Sebi regulations and guidelines. Note that in the Sahara case, Sebi took the exact opposite stand, which is that it acted against an unlisted company.

Sebi didn’t exactly cover itself with glory with those statements, and the high court judge observed, “In the instant case, as the facts reveal, Sebi was inexplicably slow in reacting to the petitioner’s complaints. Its subsequent failure to initiate further steps to investigate the transaction in question was also not consistent with its statutory obligation.” In his judgement in April 2010, the judge directed Sebi to undertake an investigation into the complaints made by Sinha.

Although it dithered on the DLF case, Sebi has done well to bring closure to the case (although, of course, it will now be fought at the Securities Appellate Tribunal and perhaps, even the Supreme Court). But it should go further and look at the role of investment bankers and other related issues. To stop at only Sinha’s complaint will be quite an inadequate response, considering all that its investigations have unearthed thus far.

For more info : http://www.livemint.com/Money/HEzLkPp0o1LgcEaUNLlHML/Sebi-Reluctant-hero-in-the-DLF-case.html