LEEL Electricals: SEBI Slaps Rs14.20 Crore Penalty on MD, WTD, KMPs for Siphoning Money
Moneylife Digital Team 18 April 2024
Coming down heavily on the managing director (MD), whole-time directors (WTDs), key management personnel (KMP) and members of the audit committee (AC) of LEEL Electricals Ltd (LEEL) for siphoning off significant funds and taking out proceeds from the sale of its consumer durable (CD) business, the Securities and Exchange Board of India (SEBI) has asked seven entities to pay a penalty of Rs14.20 crore. 
In a hard-hitting order, Ashwani Bhatia, whole time member (WTM) of SEBI, says, "The scale and the brazen manner in which funds were diverted to related entities all the while mispresenting the financials to present a rosy picture attracting public investors to deal in the securities of the Company, in my view, requires stringent action be taken against the noticees. The penalties, in such cases, should be such that they will not be taken as a cost of doing business and would instead serve as an effective deterrent. It is also noted that certain Noticees received monetary incentives for their role in the entire scheme."
"This is a case which has witnessed a complete breakdown of the governance structures within the Company resulting in the siphoning off of significant amounts of money, over the course of many years, which resulted in the erosion of shareholders wealth and ultimately resulted in the Company ending up in liquidation. Even the proceeds from the sale of the CD Business, instead of being used to settle the financial liabilities of the Company or being distributed to shareholders as dividends, was taken out of the Company," he says. 
Further, "None of the noticees, who were invested with fiduciary duties to safeguard the interest of the shareholder, took any action to prevent the diversion of funds. To the contrary, the noticees, as detailed in this order, were complicit in the misappropriations and misstatements that were being carried on."
SEBI directed LEEL's MD Bharat Raj Punj to pay a penalty of Rs5 crore, Anita Kakar Sharma, company secretary and vice-president for finance, a penalty of Rs3 crore. Three people, viz., Achin Kumar Roy, WTD, who had signed FY17-18 statements as chief executive officer (CEO) or chief financial officer (CFO), Nipun Singhal, WTD and in charge of LEEL's CD business and Mukat Behari Sharma, WTD and CFO, to pay a fine of Rs2 crore each. LEEL's two independent directors (IDs) Surjit Kishan Sharma and Geeta Tekchand, are asked to pay Rs10 lakh penalty each. 
On 8 May 2017, LEEL announced that its CD business was acquired by Havells India Ltd (Havells) for Rs1,550 crore. After the transaction, SEBI received a complaint on 13 November 2018 from a shareholder alleging that promoters and the senior management of the Company had diverted funds, including the funds received from the sale of the CD business. 
SEBI also received a letter dated 15 February 2019 from the office of the commissioner for central goods and service tax (CGST) which stated that LEEL had availed GST input tax credit of Rs40.53 crore against the reported purchase of material amounting to Rs225.19 crore without actually receiving any goods and without any underlying financial transactions. The letter also mentioned that the WTD and chief financial officer (CFO) of LEEL had admitted in a statement filed before the High Court of Rajasthan that the company had entered into such transactions to show an increase in the turnover volume. 
SEBI investigated LEEL and appointed Deloitte Touche Tohmatsu India LLP (Deloitte) to conduct a forensic audit of the company's books for FY17-18 and FY18-19. On completion of the audit, Deloitte submitted a forensic audit report (FAR) to SEBI. After recording the statements of the relevant people and obtaining information from the entities covered under the FAR, SEBI completed its investigation into the matter. 
Meanwhile, the Allahabad bench of national company law tribunal (NCLT) admitted a corporate insolvency resolution proceedings (CIRP) against LEEL and appointed a resolution professional (RP). LEEL is currently under the CIRP.
"I note that the ledger of Mettube International SDN BHD was used as an accounting pass-through ledger to pass adjustment accounting entries for inflating the profits of the Company over many years. The same practice was continued by LEEL during the investigation period (IP) by passing a journal entry on 28 February 2018, for recognising a fictitious inventory of Rs320.60 crore. In view of the same, I have no hesitation in holding that the aforesaid adjustment entries have led to misrepresentation of the financial statements of the Company," Mr Bhatia says.
"I note the purchases and sales reported by the Company have resulted in inflating the sales and purchases at least to the extent of Rs224.87 crore and Rs225.21 crore respectively in the FY 17-18, thereby resulting in misrepresentation of the financial statements. Further, the related party disclosures made by the Company for purchases and sales to the related parties are incomplete, inadequate and misleading."
SEBI restrained Mr Punj, Mr Roy, Mr Singhal, Mr Sharma and Ms Sharma from accessing the securities market and further prohibited them from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner for five years. 
Further, Mr Punj, Mr Roy, Mr Singhal, Mr Sharma, Ms Tekchand and Ms Sharma are further restrained from being associated with any listed company or a SEBI-registered intermediary in any capacity, including as a director or a key managerial person, directly or indirectly, for three years.
1 month ago
Who would penalise SEBI for complicity with the noticees to take delayed action and charging only 1% of the siphoned amount? They would have multiplied the siphoned amount if invested back in the stock markets by round tripping through offshore vehicles.
Replied to mahidhar.equity comment 1 month ago
Yes, before saying complete breakdown of the governance structures, its the SEBI first level, then govt, then judiciary. Why not order complete seizure of the assets considering the loss of more than 1000cr and if we put interest, penalties it should be much more than 2000 cr
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