Market regulator Securities and Exchange Board of India (SEBI) has imposed a penalty of Rs25 lakh on eight entities, including DB Realty Ltd (DBRL) (now known as Valor Estate) (noticee 1), the company promoters and key officials, following significant violations of financial disclosure regulations.
The regulator imposed a fine of Rs5 lakh each on DB Realty, Vinod Kumar Goenka, executive director (ED), chairperson and managing director (CMD) of DBRL, Shahid Balwa Usman, ED/MD of DBRL.
SEBI also levied a penalty of Rs2 lakh each on Asif Yusuf Balwa, chief finance officer (CFO) (noticee 4), Jayvardhan Vinod Goenka (noticee 5), Salim Balwa Usman (noticee 6), Sunita Goenka (noticee 7) and Nabil Yusuf Patel (noticee 8).
According to
SEBI order, DBRL, in its financial statements for the financial years (FYs) ending between 31 March 2014 and 31 March 2021, has overreported the profits and underreported the losses to the extent of provision for financial guarantee or financial guarantee liability which the company did not recognise in accordance with Accounting Standard (AS)-29 and Ind AS 109. The reported profit (loss) after tax and the profit (loss) after tax after adjusting the financial guarantee provision and liability (ignoring the impact of taxation) is given below:
"The noticees failed to comply with AS 29 (FY13-14 to FY15-16) and Ind AS 109 for FY16-17 to FY20-21, in preparation and presentation of the financial statements in respect of guarantee given to Bank of India (BoI) on behalf of loan availed by Pune Buildtech Pvt Ltd (PBPL), which has resulted in the violation of the relevant provision of the Listing Agreement and LODR Regulations. Further, I find that event-based disclosures in respect of classification as non-performing asset (NPA), invocation of guarantee, symbolic possession of properties and issuance of recall notices are all material information which should have been appropriately disclosed," says G Ramar, chief general manager (CGM) of SEBI in the order.
According to SEBI, in addition to the guarantee given to loans obtained by PBPL, DBRL had also given financial guarantees to multiple banks and financial institutions on behalf of various entities which are either subsidiaries of DBRL or promoter-related entities.
Mr Ramar says, "I note that the noticees have in their submission stated that Realgem Buildtech Pvt Ltd, MIG (Bandra) Realtors & Builders Pvt Ltd and Horizontal Realty & Aviation Pvt Ltd are subsidiaries of DBRL and as such, they are accounted for in the financial statements. I am inclined to accept the submission of the noticees, however, with respect to guarantees provided to Majestic Infracon Pvt Ltd (promoter group company) and BD&P Hotels (I) Pvt Ltd (a subsidiary of Marine Drive Hospitality & Realty Pvt Ltd -MDHRPL), I find that the loans were classified as NPA as on 7 January 2014 and 29 May 2015 respectively and the invocation of guarantee is under process."
"In view of the default in timely repayments of the amounts by these borrowers due to lenders, DBRL should have recognised a provision for the best estimate of the obligation in the financial statements for the year ending 31 March 2014, 2015 and 2016. However, the company continued to disclose the same as contingent liability which is not in accordance with AS 29. For the subsequent years, the above developments are indicative of increase in credit risk. However, the company continued to disclose these guarantees as contingent liabilities which is not in accordance with Ind AS 109," the SEBI CGM added.
The case began with complaints in December 2020 alleging that DBRL provided a corporate guarantee for a Rs225-crore loan taken by PBPL from BoI in 2013. However, the loan, intended for project development, was diverted to settle debts of other group companies, and by June 2020, the outstanding amount surged to Rs516 crore.
SEBI launched an investigation scrutinising the period from 2013 to 2021 which revealed that DBRL failed to disclose crucial developments, such as the invocation of the corporate guarantee and the loan being classified as an NPA.
DBRL's failure to recognise provisions for the guarantee liability in its financial statements from 2014 to 2017 was identified as a violation of accounting standards. This misreporting led to the underreporting of losses and a misrepresentation of the company's financial standing.
SEBI's investigation also revealed fraudulent activities under the Prevention of Fraudulent and Unfair Trade Practices (PFUTP) Regulations, as funds from PBPL loans were misused for the benefit of promoter-related entities.
Further violations occurred as DBRL failed to disclose the true financial status of the loan and its associated guarantees, including the loan's NPA classification and related guarantees for loans taken by DBRL's subsidiaries. The company's inability to properly account for these guarantees and the misclassification of contingent liabilities led to non-compliance with accounting standards and breach of SEBI regulations.
In addition, key executives, including MDs Mr Goenka and Shahid Balwa, were found guilty of failing to disclose critical financial information to shareholders, violating SEBI's Listing Obligations and Disclosure Requirements (LODR) regulations.
The CFO Mr Balwa, was also held accountable for signing misleading financial statements, thus violating the certification provisions under LODR.
