The Securities and Exchange Board of India (Sebi) on February 11 directed Sun Pharmaceutical Laboratories Ltd (SPIL) founder and Managing Director Dilip Shanghvi to pay Rs 62.35 lakh towards settling the charges by a whistleblower that the drug manufacturer had diverted funds through related-party transactions.
Sebi has conducted a probe against Shanghvi, the company, and its directors over the whistle-blower complaint. In his letter to the regulator, the whistle-blower alleged that Sun Pharma and its subsidiary, Sun Pharmaceutical Laboratories (SPLL), had diverted funds through Aditya Medisales Ltd (AML), its sole distributor in India. The probe found out that Sun Pharma had not made the relevant disclosures and AML was a related party of SPIL even before the scheme of amalgamation.
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"Disclosure of related-party transactions with AML in the Annual Reports for FY 2015-16 and FY 2016-17, was not made,” SEBI observed in its order, adding that, "prior approval of the audit committee for transactions with AML, as required under regulation 23(2) of SEBI (LODR) Regulations, 2015, was not obtained."
Considering that the transactions with AML would have qualified as material related-party transactions, it required approval of shareholders under regulation 23(4) of SEBI (LODR) regulations, 2015, which was not obtained. The regulator called this a violation of provisions of regulations 4(2)(f), 23(2) and 23(4) of SEBI (LODR) Regulations, 2015.
A company acts through its board of directors and the directors are responsible for all the acts of omission and commission by the company, the Sebi order said.
According to reports, Shanghvi has filed a settlement order with Sebi, without admitting or denying the findings of fact and conclusions of law.
"SEBI's probe against Sun Pharma, its managing director Dilip Shanghvi and its directors was not entirely baseless and infact had adequate grounda for looking into the alleged diversion of funds through Aditya Medisales. It was observed that AML was a related party of SPIL even before the scheme of amalgamation. That by virtue of being a related party of Sun Pharma, the company was required to adhere to several complainces such as prior approval of shareholders and the audit committee, but violated in its entirety. The settlement plea accepted by Sun Pharma sets an example for other violators existing across industries," KS Legal and Associates' Managing Partner Sonam Chandwani said.