Proceeding in Compliance with the Directions of the Honourabl High Court of Delhi issued vide order dated July 21, 2011 in letters Patent appeals Nos. 436, 441 And 488 of 2010

Date of hearing: September 26, 2011 Appearance: Mr. Kimsuk Krishna Sinha in person along with Mr. Amit Sibal, Advocate, Ms. Priyanka Kalra, Advocate and Mr. Satish Gupta, Chartered Accountant For DLF Limited: Mr. Rohit Kapadia, Senior Advocate alongwith Mr. Ashish Ahuja, Advocate, Mr. K Swarup, Director (Legal), Mr. S.C.Setia, Company Secretary, Mr. Manish Kumar, Asst. Vice President (Legal) and Mr. Raju Paul, Asst. General Manager (Corporate Affairs) For Sudipti Estates Private Limited: No appearance

For the Securities and Exchange Board of India: Mr. Sanjay Purao, Deputy General Manager alongwith Mr. Vijayakrishnan G., Deputy Legal Adviser, Ms. Richa Goel, Assistant General Manager, Mr. T. Vinay Rajneesh, Assistant Legal Adviser, Ms. Chhavi Sinha, Assistant Legal Adviser and Mr. Prateek Arora, Assistant Manager.

1. The present proceeding is pursuant to the directions of the Honourable High Court of Delhi, issued vide an Order dated July 21, 2011 in Letters Patent Appeals Nos. 436, 441 and 488 of 2010. In the said Order, the Honourable High Court, observed and directed as follows:

“5. In view of the aforesaid, the order passed by the learned single Judge is set aside in entirety. SEBI shall examine the complaints and take a decision and communicate it to the parties. Needless to emphasize, SEBI, if so advised in law, can always call for documents. We hope and trust, the SEBI shall act with utmost objectivity regard being had to the law in the field and without being influenced by the counter affidavit filed by it in the writ petition. The decision shall be taken after hearing the parties within a period of three months from the date of receipt of the order passed today. It needs no special emphasis to mention that we have not expressed any opinion, even remotely, on the merits of the case. The appeals are accordingly disposed of without any order as to costs.”

2. Before proceeding further, it would be necessary to mention the background of the matter. DLF Limited (hereinafter referred to as the Company), earlier known as DLF Universal Limited, had through its merchant banker filed a Draft Red Herring Prospectus (hereinafter referred to as DRHP) during May 2006 with the Securities and Exchange Board of India (hereinafter referred to as SEBI). In the said DRHP, the Company had inter alia mentioned that the entity, Sudipti Estates Private Limited (hereinafter referred to as Sudipti) was its associate company. The said DRHP was withdrawn and thereafter, the Company had filed a fresh DRHP on January 2, 2007, wherein Sudipti was not mentioned as being associated with it. The said fresh DRHP was processed by SEBI and observations were given on May 7, 2007. The issue of the Company opened for subscription on June 11, 2007 and closed on June 14, 2007. Meanwhile, one Kimsuk Krishna Sinha (hereinafter referred to as the complainant), vide a letter dated June 4, 2007, which was received by SEBI on June 15, 2007 (a day after the closure of the public issue of the Company), stated that Sudipti had duped him of `34 crores (approx.) and that a First Information Report (FIR) was registered at the Connaught Place (New Delhi) Police Station.

It was also stated in the said letter that DLF Home Developers Limited and DLF Estate Developers Limited were the subscribers of shares of Sudipti and therefore the said three entities were part of the “DLF Group”. The complainant also stated that, he reliably learnt that the Company was to be listed on the Bombay Stock Exchange Limited and an Initial Public Offering (IPO) is also in the offing. He further stated that there is a likelihood of innocent, gullible investors being influenced to blindly invest in the Company, oblivious of the criminal conduct of the persons actually controlling it and requested SEBI to terminate/cancel the listing of the Company with immediate effect. The said complaint, as per the established procedure for handling complaints, was forwarded by SEBI, vide letter dated June 25, 2007 to the Merchant Bankers handling the public issue of the Company. In reply to the said letter, the Merchant Bankers, vide letter dated July 12, 2007 informed SEBI that the Company had replied to the complainant wherein it had denied the allegations made by the complainant and also stated that as on date, the Company or its subsidiaries has no connection with Sudipti.

Thereafter, the complainant sent another letter dated July 19, 2007 to SEBI and while admitting the receipt of the reply dated July 11, 2007 from the Company, had alleged that he was a victim of the manipulations indulged in by the DLF Group through its associates/group companies, particularly Sudipti. The complainant requested SEBI to address his complaints.

3. The complainant, prior to the appeals mentioned in paragraph 1 above, had filed a writ petition (in W.P. (C) No. 7976 of 2007) before the Honourable High Court of Delhi, seeking inter alia a writ of mandamus to SEBI to investigate the affairs of the Company. The said writ petition was disposed off by the Honourable High Court, vide an Order dated April 9, 2010 with a direction to SEBI to undertake an investigation into the complaints made by the complainant as well as his averments made in the affidavits and additional affidavits. The aforesaid Order was challenged before the Honourable High Court of Delhi, which passed an Order dated July 21, 2011, as mentioned in paragraph 1 above.

4. In compliance with the Order dated July 21, 2011 passed by the Honourable High Court, an opportunity of hearing was afforded by SEBI to the complainant, the Company and Sudipti on September 7, 2011. Pursuant to the receipt of requests from the aforesaid parties, the said hearing was adjourned to September 26, 2011. On the said date, the complainant was represented by Mr. Amit Sibal, Advocate who made submissions. The complainant was also present during the hearing. During the course of hearing, written submissions were also filed on behalf of the complainant. On behalf of the Company, Mr. Rohit Kapadia, Senior Counsel made submissions. As requested by the Company, one week’s time was granted to it for making written submissions, which was subsequently filed on October 3, 2011. No appearance was made on behalf of Sudipti and instead it had forwarded its written submissions on the date of the hearing.

5. I note that, in the complaint dated June 4, 2007 which was received by SEBI on June 15, 2007 i.e. a day after the closure of the issue of the Company, the complainant inter alia stated that Sudipti, an associate of the DLF Group, has duped him of `34 crores (approx.) and in that respect, FIR No. 249/2007 was registered on April 26, 2007 at the Connaught Place Police Station, New Delhi. It was further stated that DLF Home Developers Limited and DLF Estate Developers Limited were the subscribers of shares of Sudipti and that Mr. Arun Kumar Bhagat and Mr. Vipen Jindal were the first directors of Sudipti. It was also stated that Mr. Praveen Kumar (director) and Mr. Pradeep Singh (agent) were the other persons intrinsically linked to Sudipti and were blatantly indulging in criminal conduct and against whom the aforesaid FIR was also lodged. According to the complainant, it was apparent that Sudipti, DLF Home Developers Limited and DLF Estate Developers Limited are sister concerns and inextricably linked and that the said three entities were part of the DLF Group. The complainant also stated that he reliably learnt that the Company is slated to be listed on the BSE and that an IPO is also in the offing and in view of the likelihood of innocent, gullible investors being influenced to blindly invest in the Company oblivious of the criminal conduct of the persons actually controlling the Company, requested SEBI to disallow/terminate the listing of the Company. In the FIR lodged against Sudipti (a copy of which was enclosed with the complaint dated June 4, 2007), the complainant has alleged that Sudipti and its directors/agents had lured and compelled the complainant to deliver/transfer certain of his lands and ignored their promises to develop the lands and give him higher returns and also had cheated him by receiving an amount of `31,09,50,000/- and not delivering the property nor returning the said sums. In the complaint dated July 19, 2007, it was stated that the complainant was a victim of the manipulations indulged in by the DLF Group through its associates/group companies particularly Sudipti. The complainant referred to the DRHP filed in the year 2006 and submitted that in the said DRHP, Sudipti was listed under the head “Joint Ventures & Associates” at serial no. 268. In view of the same, he requested SEBI to address his complaint.

6. During the course of hearing, the learned counsel for the complainant had made submissions as to how the Company had duped his client. According to him, the Company had used Sudipti along with a maze of intermediary companies to purchase land which formed part of the land bank disclosed in the RHP, but did not disclose anything about the transaction or about Sudipti in its DRHP/prospectus. He further submitted that the Company cannot be permitted to conduct the IPO without disclosing that it had purchased lands through subsidiaries by using dubious means of cheating and the pending criminal proceedings. It was also submitted on behalf of the complainant that the Company had controlled Sudipti, which was its wholly owned subsidiary, and had funded the purchase of lands by Sudipti, using back to back debenture arrangements and back to back development agreements. It was further submitted that, to cover up, and create an explanation for the failure to disclose, the Company had made belated filings with the Registrar of Companies, to project that it had, on November 29th and 30th, 2006, transferred its 100% shareholding in Sudipti (indirectly held) to the spouses of three of its key managerial persons.

7. It was inter alia submitted on behalf of the Company that it was not aware of the FIR registered against Sudipti. It is the submission that the Company had not received any such complaints from the complainant till June 25, 2007, the date on which SEBI had forwarded the first complaint dated June 4, 2007 and therefore, it could not possibly disclose the same in its DRHP, RHP and Prospectus. The Company also submitted that it undertook an internal restructuring and that the same had nothing to do with the Complainant as his first complaint (by way of police complaint) was filed only during March 2007. It is the contention of the Company that there could not possibly be a misrepresentation of a fact or suppression of a fact when the Company itself had no knowledge of the allegations of the complainant. It is the case of the Company that it had dissociated with Sudipti in November 2006 and the FIR was registered during April 2007. The Company submitted that, it was not required for it to mention the FIR registered against Sudipti, in its DRHP filed in January 2007, as it was not associated with Sudipti.

According to the Company, the fact that Sudipti was controlled by the spouses of its employees, would not lead to a conclusion that it continues to control Sudipti. It was also stated that any claim or liability on Sudipti would not be a claim or liability on the Company and therefore the same would not adversely affect it. The Company further submitted that Sudipti is a separate legal entity owned and controlled by different individuals and therefore, the liabilities of Sudipti would not have any bearing on its business. The learned senior counsel for the Company contended that the requirement under the DIP Guidelines was only to disclose ‘litigation’ and according to him, the FIR cannot be treated as litigation. It was also submitted during the course of hearing that, in the complaints, no provisions of law were alleged to have been violated either by the Company or by Sudipti. 8. Though, Sudipti was not represented before me during the hearing, it had filed its reply, as stated above, and inter alia submitted that the complaints made by the complainant were against the Company and that it had not been made party to such complaints.

It was further contended that as it is an unlisted company, SEBI has no jurisdiction over it. It is the case of Sudipti that it had disassociated itself with the Company since November, 2006 and therefore, the complaint against it should be immediately dismissed. It was also submitted that the FIR filed against it by the complainant was subsequently investigated by the police and the allegations therein were found to be false. According to Sudipti, subsequent to a cancellation/closure report filed by the police, the Additional Chief Metropolitan Magistrate, Patiala House Court, New Delhi passed an order dated August 27, 2009. It was also submitted that the complainant has preferred a revision against the said orders, which is pending before the court and therefore sub-judice.

9. I have perused the complaints and the FIR, which was enclosed with one of the complaints. The alleged dispute between the complainant and Sudipti pertains to monetary transactions related to the purchase of lands and development rights related thereto and therefore the enforcement of such rights lies elsewhere and SEBI would have no locus to intervene and decide. One of the preliminary submissions made on behalf of the Company is that the mandate for SEBI is to examine only the complaints and to take a decision, as directed by the Honourable High Court, rather than making a roving enquiry. Further, it was submitted that the complainant does not have any locus to make the complaint as he is not an investor in the Company. It is also submitted that the complainant has not approached SEBI with clean hands and that he had not lodged any such grievances/complaints in this regard during the relevant period. The Company alleged that the complainant had filed the complaints at the belated stage. According to the Company and Sudipti, the complaints were lodged with malafide motives and in order to avoid income tax liability which had accrued to the complainant due to the short term gains from the sale of lands to Sudipti.

In this regard, they had also submitted a copy of the electronic mail correspondence between the complainant and the agent namely, Mr. Pradeep Singh. In this connection, it is to be noted that the Honourable High Court had inter alia directed SEBI to take a decision after hearing the parties. Liberty was also granted by the Honourable High Court to SEBI to call for documents, if so advised in law. The Honourable High Court has also observed that SEBI shall act with utmost objectivity regard being had to the law in the field and without being influenced by the counter affidavit filed by it in the writ petition. The Complainant, during the course of hearing, had produced copies of documents which were voluminous, but which did not specifically find a place in his original complaints. The same appears to be additional information in connection with his complaints. Therefore, SEBI is reasonably expected to consider not only the complaints but also the submissions and documents submitted during the hearing. As stated above, the counsel for the complainant had explained the manner of funding by the Company to Sudipti for the purchase of lands from the complainant.

The same were also detailed in the written submission filed on the date of hearing. However, at this stage, I do not want to reproduce the alleged manner of funding and purchase of lands by the Company as shown in the written submissions and to rely on the documents which were not part of the original complaints at this stage, so as to prejudice the interest of the Company as the same were not made available to the Company and Sudipti for counter submissions. No guilt, if any, can be fastened on the Company, at this stage, on the basis of the said documents without obtaining the submissions of the Company and Sudipti in that regard.

10. The grievance of the complainant is that the Company failed to make disclosures of the FIR registered against Sudipti. It is to be noted that SEBI does not approve or disapprove the prospectus filed before it in respect of a public issue. The role of SEBI is to require the issuer to make proper and relevant disclosures as required under the relevant Guidelines/Regulations in order to facilitate the investors to take an informed decision. Since the Company filed its DRHP during January 2007, the erstwhile Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000 (hereinafter referred to as the DIP Guidelines) would be the applicable statutory provisions which inter alia regulated the said public issue of the Company. While issuing observations on the draft offer documents, SEBI does not approve or confirm that the disclosures made in the offer documents are true or correct. In terms of clause 6.12.4 of the erstwhile DIP Guidelines, the disclaimer clause as mentioned therein, should be clearly stated in the offer documents. The said disclaimer clause provides that submission of offer document to SEBI should not in any way be deemed or construed that the same has been cleared or approved by SEBI. Thus, SEBI does not approve the correctness or veracity of the disclosures made in the offer documents. The matters to be specified in the prospectus are detailed in Schedule II of Companies Act, 1956 and clause VII thereof is mentioned below:

“ VII. (a) Outstanding litigation pertaining to- (i) matters likely to affect operation and finances of the company including disputed tax liabilities of any nature; and (ii) criminal prosecution launched against the company and the directors for alleged offences under the enactments specified in paragraph 1 of Part I of Schedule XIII to the Companies Act, 1956. (b) Particulars of default, if any, in meeting statutory dues, institutional dues, and towards instrument holders like debentures, fixed deposits, and arrears on cumulative preference shares, etc. (also give the same particulars about the companies promoted by the same private promoters and listed on stock exchanges). (c) Any material development after the date of the latest balance sheet and its impact on performance and prospects of the company.”

In addition to the disclosures as specified in Schedule II of Companies Act, 1956, Section I of Chapter VI of the DIP Guidelines (as existed at the time of the public issue of the Company) dealt with the contents of a prospectus. The relevant clauses are mentioned below:

Clause 6.11, of the DIP Guidelines states as under: “6.11 Legal and Other Information 6.11.1 Outstanding Litigations and Material developments 6.11.1.1 Outstanding litigations involving the issuer company: (a) Litigations against the issuer company or against any other company whose outcome could have a materially adverse effect on the position of the issuer company. (b) Further, all the litigations against the directors involving violation of statutory regulations or alleging criminal offence shall be furnished in the prospectus. (c) Pending proceedings initiated for economic offences against the issuer company or its directors shall be disclosed separately indicating their present status. (d) The details of the past cases in which penalties were imposed by the concerned authorities on the issuer company or its directors. (e) Outstanding litigations, defaults, etc., pertaining to matters likely to affect operations and finances of the issuer company, including disputed tax liabilities, prosecution under any enactment in respect of Schedule XIII to the Companies Act, 1956 (1 of 1956), etc., shall be disclosed.

(f) The Lead Merchant Banker shall ensure to appropriately incorporate in the prospectus and as risk factor(s), information regarding pending litigations, defaults, non-payment of statutory dues, proceedings initiated for economic offences/civil offences (including the past cases, if found guilty), any disciplinary action taken by the Board/stock exchanges against the issuer company or its Directors. (g) The name(s) of small scale undertaking(s) or any other creditors to whom the issuer company owes a sum exceeding Rs. 1 lakh which is outstanding for more than 30 days. 6.11.1.2 The information about outstanding litigations as per clause 6.11.1.1(e) shall be furnished in respect of subsidiaries of the issuer company (if applicable). 6.11.1.3 Outstanding litigations involving the promoter and group companies: (a) All pending litigations in which the promoters are involved, defaults to the financial institutions/banks, non-payment of statutory dues and dues towards instrument holders like debenture holders, fixed deposits, and arrears on cumulative preference shares by the promoters and the companies/firms promoted by the promoters, shall be listed in the prospectus together with the amounts involved and the present status of such litigations/defaults.

The likely adverse effect of these litigations/defaults, etc., on the financial performance of the issuer company shall also be mentioned. (b) Further, the cases of pending litigations, defaults, etc., in respect of companies/firms/ventures with which the promoters were associated in the past but are no longer associated shall also be disclosed in case their name(s) continues to be associated with particular litigation(s). (c) Further, all the litigations against the promoter involving violation of statutory regulations or alleging criminal offence shall be furnished in the prospectus. (d) Pending proceedings initiated for economic offences against the promoters, companies and firms promoted by the promoters shall be disclosed separately indicating their present status. (e) The details of the past cases in which penalties were imposed by the concerned authorities. (f) The lead merchant banker shall ensure to appropriately incorporate in the prospectus and as risk factor(s), information regarding pending litigations, defaults, non-payment of statutory dues, proceedings initiated for economic offences/civil offences (including the past cases, if found guilty), any disciplinary action taken by the Board/stock exchanges against the promoters and their other business ventures (irrespective of the fact whether they are companies under the same management with the issuer company as per section 370(1B) of the Companies Act, 1956): [Provided that nothing contained in this clause shall apply to an issue made by any Government company, statutory authority or corporation or any special purpose vehicle set up by any of them.]

6.11.1.4 If any of the abovementioned litigations, etc., arise after the filing of the prospectus, the facts shall be incorporated appropriately in the prospectus (and as risk factors). 6.11.1.5 In case there are no such cases, a distinct negative statement is required to be made in this regard in the prospectus. ………. ………” 11. One of the submissions made on behalf of the Company was that, it was not aware of the FIR registered against Sudipti. Before dealing with the same, it is to be ascertained as to whether Sudipti was aware of the FIR registered against it. The fact that an FIR was registered against Sudipti is not in dispute. The said FIR was registered against Sudipti and Mr. Arun Kumar Bhagat, Mr. Vipen Jindal, Mr. Praveen Kumar and Mr. Pradeep Singh. Sudipti did not take a plea that it was not aware of the FIR. I also note that, in the closure report filed by the police, it was stated that they had interrogated the aforesaid individuals in connection with the FIR. Therefore, in all probability, Sudipti was aware of the FIR registered against it. The Company on the otherhand submitted that it was not aware of the said FIR and that it had not received any complaints from the complainant till June 25, 2007, the date on which SEBI had forwarded the complaint dated June 4, 2007 and therefore, it could not possibly disclose the same in its DRHP, RHP and Prospectus as the said documents were filed prior to June 25, 2007. I am unable to be convinced with the submission of the Company that it was not aware of the FIR registered against Sudipti, for certain reasons.

In the FIR (submitted alongwith the complaint dated June 4, 2007), it was stated that Mr. Praveen Kumar represented himself to be a authorised signatory/director of Sudipti and related to the promoters of DLF Group and was also in the board of many DLF Group companies including DLF Estate Developers Limited, which according to the complainant is one of the two shareholders of Sudipti during the relevant period. During the course of hearing, it is submitted that Mr. Praveen Kumar is the nephew of Mr. K. P. Singh, the promoter/Chairman of the Company. In terms of the DRHP of the Company filed in 2007, Mr. Praveen Kumar is also mentioned as one of the key managerial persons in Company and reports to the board. The complainant further stated that Sudipti was incorporated on March 24, 2004 as a wholly owned subsidiary of the Company and that during the period of his transaction, Sudipti was controlled by the promoters through their key management personnel, namely, Mr. Praveen Kumar, Mr. Jaiprakash Gaur and Mr. Pradeep Singh. It was further stated by the complainant that Mr. Praveen Kumar and Mr. Jaiprakash Gaur were the signatories to the bank account of Sudipti and that the entire transaction (from price negotiation, payment of consideration for purchase of additional land till execution of sale deeds for and on behalf of the Sudipti) was done by Mr. Praveen Kumar and Mr. Pradeep Singh.

The complainant has also stated that as on the date of the complained transaction, 100% shareholding of Sudipti was owned by the two group companies of the Company. He further submitted that the two signatories to the bank account of Sudipti, i.e. Mr. Praveen Kumar and Mr. Jaiprakash Gaur hold a position of authority and power in many other subsidiaries/associate companies of the Company and therefore stated that it was apparent that the directors of Sudipti as well as the signatories to the bank account of the said entity were the senior executives in the employment with the Company. Besides, the complainant also submitted during the course of hearing that the control over Sudipti was transferred (in the year 2006) ultimately to the spouses of three employees of the Company who were mentioned in the DRHP of the Company, under the caption “Key Managerial Persons”. The aforesaid facts could lead to an inference that the Company was aware of the FIR, prior to the receipt of the copy of the complaint from SEBI.

12. Having prima facie observed that the Company was aware of the FIR registered against Sudipti, it is to be ascertained whether there was a duty on the part of the Company to disclose the same in the prospectus. The Company submitted that as it was not associated with Sudipti, it was not required for it to mention the FIR registered against Sudipti, in its DRHP filed in January 2007. The Company also submitted that it undertook an internal restructuring and that the same had nothing to do with the Complainant as his first complaint (by way of police complaint) was filed only during March 2007. It was submitted on behalf of the Company that, at the time of filing the DRHP in 2007, Sudipti was not its associate. According to the Company, the fact that Sudipti was controlled by the spouses of its employees, would not lead to a conclusion that the Company continues to control Sudipti. It was also stated that any claim or liability on Sudipti would not be a claim or liability on the Company and therefore the same would not adversely affect it. The Company further submitted that Sudipti is a separate legal entity owned and controlled by different individuals and therefore, the liabilities of Sudipti would not have any bearing on its business. The learned senior counsel for the Company contended that the requirement under the DIP Guidelines was only to disclose ‘litigation’ and according to him, the FIR cannot be treated as litigation. He further submitted that guideline 6.11.1.1 (a) is clear and unambiguous. The same is extracted below for reference:

“Litigations against the issuer company or against any other company whose outcome could have a materially adverse effect on the position of the issuer company.”

According to the Company, there was no litigation (between the complainant and the Company) against it during the time of DRHP and therefore the Company was not required to disclose the FIR. I note that, in terms of Clause VII (c) of Schedule II of Companies Act, 1956, a duty is cast upon the issuer company to disclose any material development which could impact its performance and prospects. For the said purpose, it would be necessary, in the interest of justice, to determine as to how Sudipti was related to the Company at the relevant period. It is an admitted fact that Sudipti was once an associate of the Company and ceased to be so since November 2006. Sudipti was originally promoted by two of the DLF group companies namely, DLF Home Developers Limited and DLF Estate Developers Limited. The said two companies were holding 50% each of the equity of Sudipti. Further, Mr. Praveen Kumar, who was disclosed as the key managerial person of the Company, was one of the directors of Sudipti and was one of persons against whom the FIR was registered. Mr. Praveen Kumar, who was closely associated with the Company through Sudipti and the DLF group companies before the Company’s dissociation with Sudipti, is also mentioned as a key managerial person of the Company in its DRHP (filed in 2007).

Thus, Mr. Praveen Kumar continues to be closely associated with the Company even after the alleged dissociation of Sudipti from the Company. As stated above, the complainant has alleged that Suditpi is now being indirectly controlled by the spouses of certain key managerial persons of the Company whose names were mentioned in the DRHP of the Company filed during January 2007. The Company has in its written submission stated that three of its subsidiaries who were holding shares in Felicite Builders and Constructions Private Limited had transferred their holding to several persons who were unconnected to the promoters of the Company. However, there is no dispute to the fact that the spouses of the key managerial persons of the Company are the shareholders in Felicite Builders and Constructions Private Limited which in turn holds shares of Shalika Estate Developers Private Limited. The entire shareholding of Sudipti is being held by Shalika Estate Developers Private Limited. It is an admitted fact that the erstwhile shareholders of Felicite Builders and Constructions Private Limited,

Shalika Estate Developers Private Limited and Sudipti were the wholly owned subsidiaries of the Company and were shown as entities under the control of the key management personnel of the Company and their relatives in the DRHP filed by the Company during May 2006, which DRHP was subsequently withdrawn. In the DRHP filed in the year 2007, the aforesaid companies were not shown as the entities under the control of the key management personnel of the Company and their relatives. The submission is that between the filing of the aforesaid DRHPs, the Company had dissociated itself from the said companies due to internal restructuring. It is also stated that in the DRHP filed during 2006, 357 companies were mentioned as the associate companies of the Company and that out of such companies, 336 companies (including Sudipti) ceased to be the associates of the Company by time the Company filed its fresh DRHP dated January 2, 2007 with SEBI. Though, during the course of hearing, the Company was specifically advised to submit the details of its dissociation with the companies, no such details were submitted by the Company in the written submissions or thereafter.

13. It is the case of the complainant that the Company used Sudipti along with a maze of intermediary companies to purchase land which formed part of the land bank disclosed in the DRHP, but did not disclose anything about the transaction or about Sudipti. The complainant also stated that the Company purchases land indirectly by channelling funds through a maze of intermediary companies controlled by it, through a series of back to back purchases of debentures through which the purchase money flows to an entity that purchases the land and that the Company enters into a series of back to back development rights agreements whereby it acquires the development rights in the land so purchased, by paying the same amount of money to the entity purchasing the land in lieu of the development rights, which money is then used to redeem the back to back debentures. The complainant has also alleged that the Company does not, in the DRHP, disclose this modus operandi for the purchase of lands, and selectively avoids disclosure of information about the intermediary companies it uses to purchase lands, so as to avoid disclosure of any potential liability or civil or criminal proceedings that have arisen or may arise in connection with land purchases.

This is more relevant, as according to the complainant, the Company had, in its DRHP filed in the year 2007, disclosed that out of the total land holdings of approximately 10,000 acres, only 0.5% holding was held by the Company and the balance holding was held in the name of the Company’s subsidiaries/associate/group company/companies under the control and management of key management personnel of the Company. The complainant submitted that from the investor point of view, the said information could be material for them to take an informed decision about their investment in the Company which is involved in the development of real estate. Further, according to the complainant, on this land holding, the Company declared that it holds sole, irrevocable and exclusive development rights. The complainant has also submitted that the Company had funded Sudipti, which was its wholly owned subsidiary, to purchase lands using back to back debenture arrangements and back to back development agreements. The complainant has named the entities and the method and manner of channelizing funds through them for the purchase of lands by Sudipti from him.

In brief, the allegation of the complainant is that the funds for the purchase of lands were provided to Sudipti by the Company in a circuitous manner, as explained in detail in his written submissions. According to the complainant, he had gathered such information from the filings of various companies (which were involved in the fund transactions) made with the Registrar of Companies. His grievance is that the said information were not disclosed in the RHP. In this regard, I note that the same were also not specifically explained in the complaint. At this stage, I do not want to reproduce the alleged manner of funding and purchase of lands by the Company as shown in the written submissions and to rely on the same in order to find out any violations, if any, as the same would prejudice the interest of the Company.

14. It is the allegation that since the Company was acting through Sudipti and the Company’s own key managerial personnel and their transactions had resulted in a dispute and a potential huge claim by the complainant, the Company did not want to be held responsible for those actions or to disclose the proceedings and liabilities that would arise therefrom. According to the complainant, the Company claimed not to have any connection with Sudipti “as on date” and for not revealing any further details and to cover up and create an explanation for the failure to disclose, the Company allegedly, as an afterthought through highly belated filings with the Registrar of Companies, projected that, it had, on 29th and 30th of November 2006, transferred its 100% indirectly held shareholding in Sudipti to the spouses of its three key managerial persons. It is the case of the complainant that, if the Company did not actually transfer the shares on 29th and 30th of November 2006, then it had made false statements and if the Company did transfer the shares, the timing of the transfer would make it clear that the transfer was made in a desperate attempt to avoid disclosure of the liabilities arising from the transactions with the complainant. Since, the Complainant had made the submissions in respect of the alleged manner of fund transfer and the land bank arrangements, which according to him was based on the filings made by the entities concerned, before the Registrar of Companies and which appears to be an additional submissions to the allegations made in the complaints, I do not deem it fair to discard the same without testing the veracity of such submissions, in the interest of justice and also in the interest of the securities market and the investors. Though, the Company claimed that Sudipti was disassociated from itself as part of its internal restructuring exercise, it had not produced any document in respect of the same, inspite of advising the Company to produce such documents in the hearing. Having considered the submissions and the fact that the first DRHP (filed in May 2006) was withdrawn and a fresh DRHP was filed in January 2007 after the sale of stake in Sudipti, an examination is required as to whether Sudipti was dissociated for the purpose of avoiding any relevant disclosures that could arise if the entity continued to be part of the DLF group.

15. I would also like to make it clear that the original complaints dated June 4, 2007 and July 19, 2007 did not contain any allegation of the Company funding Sudipti indirectly through a series of transactions involving its subsidiaries/associates and the manner of purchasing lands and creating development rights on the lands acquired by the Company’s subsidiaries by indirectly funding such purchases, as submitted by the complainant during the hearing. The same, on the face of it, appears to be additional information in support of the complaints, which according to the complainant were based on the filings made by the respective entities before the Registrar of Companies. Therefore, in the fitness of things and considering the interest of the securities market, the investors and also in the interest of justice, it would not be proper on the part of SEBI to dispose off the complaints by holding that those additional submissions are extraneous to the original complaints filed by the complainant. However, the material submitted by the complainant during the hearing cannot be relied upon, at this stage, to find out whether there was any contravention of the provisions of the securities laws. The same needs to be examined and if any allegations are made out, the Company should be afforded an opportunity to make its submissions in respect of such allegations and material. I would also like to make it very clear that, no observations are made, at this stage, on the merits of the documents submitted by the Complainant during the hearing. However, since the said documents are not examined, it is all the more relevant to undertake an investigation to ascertain whether there were any violations of the provisions of the erstwhile DIP Guidelines or the relevant provisions of the Companies Act, 1956. Therefore, on a consideration of the complaints and the submissions of the complainant during the hearing, the counter submissions made on behalf of the Company and Sudipti, I am of the considered view that the ends of justice would be effectively met if an investigation into the matter is ordered. 16. In view of the foregoing, the following decision is taken in respect of the complaints dated June 4, 2007 and July 19, 2007:

I. The Securities and Exchange Board of India shall investigate into the allegations levelled by the complainant, Mr. Kimsuk Krishna Sinha in respect of DLF Limited and Sudipti Estates Private Limited. II. The said investigation shall focus on the violations, if any, of the provisions of the erstwhile Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000 read with the relevant provisions of the Companies Act, 1956.

17. A formal order would be issued appointing the Investigating Authority. The said Officer shall investigate the matter without being prejudiced by any observations made hereinabove and shall complete the same as expeditiously as possible. If any violations are brought out in the investigation, the Securities and Exchange Board of India shall proceed in accordance with law.

18. As directed by the Honourable High Court of Delhi, vide the Order dated July 21, 2011, a copy of this decision shall be furnished to Mr. Kimsuk Krishna Sinha, DLF Limited and Sudipti Estates Private Limited.

PRASHANT SARAN WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

PLACE: MUMBAI DATE: OCTOBER 20, 2011