‘SEBI failed to act against Tata Finance’

The Securities Appellate Tribunal (SAT) has sharply criticised the June 2016 order in the Tata Finance Ltd. matter in which the Securities and Exchange Board of India (SEBI) had barred the then managing director Dilip Pendse from the capital markets for three years.

Quashing the regulator’s order, SAT hauled up SEBI for letting off the non-banking finance company (NBFC) even after investigations clearly showed that it had committed serious violations by making false disclosures in the draft document of its 2001 rights issue of convertible preference shares.

“SEBI has indulged in shielding the main culprits... which is detrimental to the interests of securities market,” said the appellate body in an 18-page order, adding that “it is obvious that for extraneous reasons, TFL (Tata Finance Ltd.) has been let off even after holding TFL guilty of committing serious violations.

“Even after holding that TFL is guilty of making false declarations in its letter of offer, SEBI has failed to take action against TFL which is not only unusual but also bound to send wrong signal to the securities market,” the appellate tribunal added.

The case was filed after a complaint was lodged with SEBI in April 2001 in which it was alleged that TFL had made false disclosures in the ‘letter of offer’ for the rights issue of 9% cumulative convertible preference shares (CCPS). According to the complaint, TFL did not disclose in its document the losses incurred by its subsidiary Niskalp Investment and Trading Company.

Back-dated transactions

When a clarification was sought, the NBFC said that there were indeed some discrepancies in the number and those were on account of certain back-dated transactions.

Later, a SEBI probe concluded that the back-dating and reversal of trades was done at the behest of the then managing director Mr. Pendse who was also a former director of Niskalp; A. L. Shilotri, the then chief executive officer of Niskalp, in connivance with broking firms, connected with Bharat Patel, director of Pat Financial Consultants, one of the entities which was barred by SEBI from accessing the securities markets.

A SEBI show-cause notice issued to Mr. Pendse and Mr. Shilotri said that the back-dating was done to give a better picture of the half-yearly accounts of the company. The capital markets regulator also sent notices to Pat Financial Consultants and Superior Financial Consultancy Services for ‘aiding’ and ‘abetting’ Mr. Pendse and Mr. Shilotri.

Post completion of probe, SEBI, in June 2016, barred all the four entities from the securities market for three years while further barring Mr. Pendse and Mr. Shilotri from holding any key managerial position in any listed company for three years.

SAT in its ruling quashed the directions issued against Pat Financial and Superior Financial while warning them “to be careful in future while dealing in securities.”