An adjudicating officer of SEBI recently passed two orders in the matter of DLF Limited and Sudipti Estates Limited pursuant to an investigation that was initiated in response to a FIR against Sudipti. The AO found that during the Rs. 90 billion IPO undertaken by DLF in 2007, DLF had actively and knowingly suppressed information in the offer document. Particularly, the AO noted that DLF had camouflaged its association with Sudipti (found to be a subsidiary of DLF) and had subsequently failed to make necessary disclosures pertaining to the subsidiary in the offer documents.


In a DRHP filed by DLF initially, Sudipti had been disclosed as a subsidiary. However, this document was withdrawn and subsequent filings contained no such disclosure. On investigation, SEBI found that DLF had transferred Sudipti to the spouses of three of its KMPs through a set of complex transfers. The primary issue decided by the AO was in relation to whether Sudipti continued to be a subsidiary even after DLF had sold its shareholding. Based on the following findings, SEBI concluded that the transfers were nothing but a sham transaction and that Sudipti continues to be a subsidiary as DLF never lost control over it:




  • The new shareholders of Sudipti were the spouses of KMPs. The employee employer relationship between DLF and the KMPs ensured that DLF still exerted influence over Sudipti.

  • The new shareholders were inexperienced traders who had never traded in securities previously or had minimal experience in the same. They had no income of their own and funding for the investments came from their husbands, i.e., the KMPs of DLF.

  • Not only were the complex set of transfers undertaken in 2 days, but the funds for the payments were sourced from the sellers. Further, in one case, there was no evidence of any consideration at all.

  • The new shareholders of Sudipti never exercised their powers to change the composition of the board, the signatories to the bank accounts, the statutory auditors or the registered office.

  • The members of the board and the signatories to the bank accounts were the original appointees of DLF and were all either KMPs of DLF, directors in subsidiaries of DLF or employees of DLF. The employee employer relationship between DLF and these directors ensured that DLF still exerted influence over Sudipti.

  • Subsequent to the initial transfer, the shareholding in Sudipti was further distributed among the spouses of 10 KMPs. SEBI noted that the spouses retained shareholding only as long as their husbands were KMPs of DLF. In two cases, when the KMPs left their position in DLF, the spouses sold their shareholding to another spouse of a KMP or to a subsidiary of DLF.


The AO observed that these sham transactions were undertaken wilfully and deliberately by all parties involved to suppress material information pertaining to RPTs entered into between DLF and Sudipti, financial information pertaining to Sudipti and an FIR lodged against Sudipti, resulting in misstatements in the offer documents.


SEBI found DLF and its Directors to be in violation of the DIP Guidelines, the SEBI Act and the PFUTP Regulations and imposed penalties of Rs. 260 million each on the Company and against its directors. Additionally, the other companies, their directors, the KMPs and their respective spouses were found to have aided and abetted DLF in the whole sham transaction and violated the PFUTP Regulations and the SEBI Act. Penalties of Rs. 10 million were imposed on each of the companies involved and Rs. 30 million on their directors. Each of the KMPs, their spouses and other related individuals were penalised in the Rs. 0.5 to 1.5 million range.