The Securities Appellate Tribunal, in an appeal filed by DLF Limited and its officers, was divided on the validity of the SEBI order wherein, DLF was found to have made misrepresentations in its prospectus by not including necessary disclosures regarding Sudipti Estates Private Limited (such as details pertaining to an FIR filed against Sudipti). The primary issues were: (i) whether Sudipti was a subsidiary of DLF; and (ii) whether DLF’s failure to make the necessary disclosures pertaining to Sudipti during its IPO amounted to violations of the SEBI (DIP) Guidelines, 2000 and the SEBI (PFUTP) Regulations, 2003. While DLF took the stand that it had disposed its shareholding in Sudipti to independent investors prior to the IPO, the Whole Time Member observed that these transfers were sham transactions as the new shareholders were the wives of certain key management personnel of DLF and that DLF continued to control Sudipti.

During the appeal, two members of SAT constituting the majority, observed that the new shareholders of Sudipti, being women entrepreneurs, were legitimate shareholders of Sudipti, and that there was no evidence to show that DLF continued to exercise control. Accordingly, they held that the transfer of shareholding was not a sham and that the WTM’s order was entirely unsustainable and amounted to over-regulation. However, the Presiding Officer who constituted the minority, relying on an affidavit filed by the new shareholders stating that they were not involved in running the subsidiary, held that, DLF continued to exercise control over Sudipti as the transfers undertaken to the housewives of KMPs of DLF were sham transactions. Nevertheless, in light of certain mitigating factors in favour of DLF, he held the WTM order to be partially unsustainable. Owing to the conflicting views of SAT, it is likely that SEBI will prefer an appeal to the Supreme Court for a final pronouncement.