In what is being seen as an exemplary punishment, the Securities and Exchange Board of India (SEBI) has banned DLF and six of its directors — KP Singh (Chairman), Rajiv Singh, TC Goyal, Pia Singh, Kameshwar Swarup and Ramesh Sanka — from trading in the securities market for three years.

The market regulator found them indulging in fraudulent and unfair trade practices and also held them guilty of suppressing important information, particularly on legal cases, in the red herring prospectus for DLF’s initial public offering (IPO). The company went on to raise $2.3 billion, in what was then a record-breaking sum.

In addition, SEBI, in its show-cause notice, has alleged that “the process of share transfer of three subsidiaries of DLF in Sudipti, Shalika and Felicite was through sham transactions”. It said the company and its directors employed a plan to camouflage the association of DLF with the three subsidiaries.

They also actively concealed the filing of an FIR against Sudipti and others, it said.

“This will impact the entire realty sector and stock negatively,” said Vivek Gupta, CMT–Director Research, CapitalVia Global Research. Companies such as HDIL, Indiabulls Real Estate and Unitech may continue to fall and investors should avoid these sectors for now, he cautioned.

Discharging a duty

The market regulator said it has to deal sternly with companies and directors indulging in manipulative and deceptive devices, insider trading etc., or else it will be failing in its duty to promote orderly and healthy growth of the securities market.

“People with power and money and in the management of companies, unfortunately, often command more respect in our society than subscribers and investors,” it said.

Reuters adds: The decision by SEBI marks its latest effort to bare its teeth, after long being criticised for failing to tackle violations by major market players.

“As far as non-disclosure cases are concerned, this is the biggest case in SEBI’s history and this is the biggest punishment they have imposed,” said JN Gupta, a former executive director at the regulator, who now runs a shareholder advisory firm. Monday’s ban means 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 ₹19,100 crore ($3.13 billion) at the end of June.

DLF founder KP Singh is the 21st richest Indian with a net worth of $3.3 billion, according to Forbes data.

The company, which has about 26 million square feet of leased assets in the country, will also be barred from listing a Real Estate Investment Trust (REIT).

SEBI finalised rules for REITs last month. “It will not have access to the REIT market for 36 months, and given DLF’s large portfolio of commercial assets, it would have been one of the biggest beneficiaries of REITs,” said Anubhav Gupta, sector analyst at Maybank Kim Eng India.

REITs, which invest mainly in commercial property and pay rent from their property to shareholders as dividends, provide developers with a new avenue for funding, allowing them to effectively sell finished commercial buildings to investors.

Earlier this year, the Supreme Court upheld a ₹630 crore fine against the company imposed by the Competition Commission of India. DLF has also been at the centre of a political controversy over sweetheart land deals.

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