The DLF v. SEBI saga continues: A Divided Tribunal, and more

In a lengthy 220-page Order, the Securities Appellate Tribunal (SAT) has set aside a SEBI order of October 2014, which had banned DLF and its promoters from accessing the securities market..SEBI had found that DLF resorted to sham transactions of share transfer with a view to camouflage the association of DLF with Felicite, Shalika and Sudipti as a dissociation and thereby misleading the investors by not disclosing the relevant information in the offer documents..Interestingly, DLF had filed a DRHP dated May 11, 2006, which was withdrawn by DLF and subsequently it filed the second DRHP dated January 2, 2007. While the first DRHP showed Sudipti, Shalika and Felicite as subsidiaries of DLF, the second DRHP did not..The majority (Per: Jog Singh and A.S. Lamba) set aside the SEBI order taking into account the fact that SEBI had cleared the Offer Documents after due application of mind before the same were converted into Final Prospectus for public’s consumption. On the other hand, Presiding Officer Justice J. P. Devadhar (in minority) while partially upholding the SEBI order and considering certain mitigating factors, recommended reducing the ban from 3 years to 6 months. Justice Devadhar also concluded that Investigating Officer of SEBI is guilty of gross misconduct and dereliction of duty and failure on his part to comply with the directions of Board Member led to miscarriage of justice..The majority commented on SEBI passing the Impugned Order after 7 years of the DLF IPO. It also came down heavily on SEBI for passing the order with delay. Although there is no limitation period given in the SEBI Act for initiating action or completing investigation, the Tribunal and High Courts have ruled in the past as well that delayed orders are prejudicial to the parties. In this case, the Tribunal has held that.“We, therefore, safely conclude that an undue delay of about nine months in writing the Impugned Order in the present case is fatal to the concept of fair hearing, rule of law and even violative of Article 21 of the Constitution of India read with Article 14 thereof. Prejudice to a litigant is inherent and writ large due to such unnatural and unexplained delay.”.The Tribunal was also concerned that investors of DLF lost to the tune of thousands of crores of rupees in the capital market on the day following the passing of the order. The SAT Order also took into account that there was no complaint made by any investor of DLF. It held that,.“In the present matter, no loss was caused to the investors by Sebi first allowing the IPO proceed as planned. The losses occurred only after Sebi passed the adverse Impugned Order.” (Emphasis supplied).Although DLF’s stand has been vindicated in SAT, it has still suffered a ban of around 5 months on account of the SEBI Order. In such cases where the party is able to make out a prima facie case, SAT should actively consider granting a stay, in the interest of investors..It is interesting that in a parallel penalty proceeding, an Adjudicating Officer (AO) of SEBI has also noted that the material made available on record had not quantified the amount of disproportionate gain or unfair advantage made by DLF and its promoters and the loss suffered by the investors as a result of their default. This AO Order that levied a penalty of Rs. 86 crore on DLF and its promoters could also meet the same fate at SAT in light of the Tribunal’s observations. As the Tribunal is going to be reconstituted soon, with one of the members who had decided in favour of DLF finishing his term, its going to be interesting to see how the case proceeds..There is a new trend of the Tribunal members frequently taking conflicting views, and this is likely to lead to confusion if there are only two members in the Tribunal. The SEBI Act as well as SAT (Procedure) Rules, 2000 are silent on the issue of what will happen when one member decides in favour of the appellant and another against it. It is time the Government addresses this issue by amending these Rules. Since there is a minority dissent by the Presiding Officer of the Tribunal in the DLF Order and there are important issues involved on which there are considerably contradictory views of minority and majority, it is likely that the matter will reach the Supreme Court..(Vaneesa Agrawal is an independent lawyer and former legal officer, SEBI. Views expressed are personal. vaneesa.agrawal@gmail.com)