Probing DLF, regulator Sebi found 'three housewives' were used as fronts in the group's alleged "sham transactions", but Securities Appellate Tribunal (SAT) on Friday ruled 'women entrepreneurs' cannot be condemned in this manner.
In another interesting takeaway from this high-profile case, the Tribunal has said in its two-member majority order that Sebi "cannot suddenly be allowed to take a somersault after 7 years and come to a contrary view, particularly, at the instance of a complainant who had his own vested interest in the matter, and was not a share-holder of DLF or even an investor in the IPO or in the capital market in general."
It was an individual complainant, seeking action against Rs 34 crore he was allegedly duped, and "sham transactions" involving three 'housewives' that led to regulator Sebi coming hard in October last year on the country's biggest real estate developer DLF and its six top executives.
The order was quashed on Friday by SAT through a majority order, although the Tribunal's Presiding Officer passed his separate minority order, wherein he reduced the capital market ban on DLF and six others from three years to six months.
As per the majority order, the Sebi order also led to "a grave miscarriage of justice in the present case, in as much as the investors have suffered a loss to the tune of thousands of crores of rupees in the capital market on the day following the passing of the order making it a case of over-regulation".
"This is certainly not the objective of conferring wide discretionary powers upon Sebi," the two SAT Members said, who also questioned the definition of 'control' used by Sebi in its order and said there was a difference between 'Key Managerial Personnel' and 'Key Management Personnel' (KMP).
With regard to Sebi's charges that 'sham transactions' were done through three entities named Sudipti, Felicite and Shalika while using as fronts the 'three housewives', who were spouses of three KMPs, the SAT members said, "We do not find any legal infirmity in purchasing equity stakes by the three women entrepreneurs by utilizing the funds from the joint accounts in question.
"It is trite law that joint account holders have equal rights to the money in the joint account and, hence, the three spouses cannot be condemned for utilizing the money from the joint accounts just by virtue of being housewives."
"No legal bar has been pointed out by the '2nd WTM (Whole Time Member)' in any law debarring women entrepreneurs from utilizing the money from joint accounts held with their husbands for investment purposes."
"Similarly, loans were obtained from the bank legally by the three ladies and no concurrence of a third agency was required for this purpose."
They also questioned the 'definition of control' used by Sebi's Whole Time Director Rajeev Agarwal, referred to as '2nd WTM' in the order because the case was initially being handled by another Whole Time Member of the regulator.
"The losses occurred only after Sebi passed the adverse Impugned Order. The findings as regards violation of clause...arrived at by 2nd WTM are faulty, irrational and hence cannot be sustained in the facts and circumstances of the present case," they added.
In its order, Sebi had talked about sale of shareholding in some related entities to three persons namely, Madhulika Basak, Niti Saxena and Padmaja Sanka.
"These three persons were wives of Surojit Basak, Joy Saxena and Ramesh Sanka, respectively who were the KMPs of DLF," Sebi had said.
"These three shareholders were not regular investors/ traders in the securities market though they claimed that they purchased entire shares of Felicite for the purpose of investment in real estate sector.
"All the three transferees were 'Housewives' and they held bank accounts jointly with their respective husbands," Sebi said.
On this basis, it was alleged that their purchases of shares in Felicite were funded by their respective husbands' joint accounts.
"Considering the fact that all these three shareholders were 'Housewives' and that the payment towards their purchases of shares of Felicite were made from the joint accounts held with their respective husbands, it has been alleged that DLF never lost control of Sudipti, Shalika and Felicite," Sebi had said.
In its submission before the regulator, DLF had said there is no disability in law barring a person from investing in shares merely because she is a "Housewife" by profession, nor can there be an adverse inference regarding the veracity and validity of the share acquisition by such person because the purchase consideration has been advanced from the joint account held by her and her spouse.
The regulator, however, maintained that "it is an undisputed fact that for the purchases of shares of Felicite by said three 'Housewives' the payments were made from the bank accounts held by them jointly with their respective husbands.
"It is further noted that these 'Housewives' were not regular investors/traders in the securities market and they did not have any income of their own," Sebi had said, while adding that DLF actually never lost control of the three companies.
DLF's use of 'Delta View' in the IPO document filed with Sebi also seems to been given reliance by the Tribunal in its order setting aside the regulator's directive. A 'Delta View' document helps identify differences between an earlier and the latest document.