SEBI Orders Forensic Audit on Nitesh Estates, Suspecting Accounting Manipulation and Diversion of Funds
Moneylife Digital Team 18 February 2022
The Securities & Exchange Board of India (SEBI) has sent notices to NEL Holdings South Ltd, popularly known as Nitesh Estates, in October 2021 and December 2021. This comes after a series of shenanigans such as criminal cases and auditor’s qualifications.
NEL Holdings South is a first-generation real estate company headquartered in Bengaluru, India. The company has been plagued by poor performance over the years. While this is blamed on business conditions, there are suspicions of serious financial irregularities. 
On 12 October 2021, SEBI appointed Protiviti India Member Pvt Ltd as forensic auditor in respect of financial statements of the company for FY17-18, FY18-19, FY19-20 and FY20-21, to assist the investigating authority Sareena PU, deputy general manager, SEBI.  
The scope of the audit was to conduct forensic audit of consolidated financial statements of the company with special focus on impairment of subsidiaries, wholly-owned subsidiaries, associates, loans and advances granted to related parties and other entities, negative net worth, ability of the company to continue as a going concern, diversion or siphoning of funds and disclosed/potential related-party transactions.  The forensic auditors are supposed to verify: 
Manipulation of books of accounts; 
• Misrepresentation of financials and / or business operations;
Wrongful diversion or siphoning off of company funds by promoters, directors and key management persons;
Impairment of investment in subsidiaries, wholly-owned subsidiaries/associates and disclosed/potential related-party transactions.
On 28 December 2021, SEBI issued summons to submission of a long list of accounting records and documents. 
We tried reaching the company officials on e-mail and phone about their reactions to the forensic audit and summons but our queries remain unanswered. Retail investors held a 48% stake in this company as of 31 December 2021. A closer look at financial analysis and auditor’s report in FY20-21 annual report raises suspicions of misdeeds. Several of these qualifications go back several years. 
Below is a partial listing of qualifications from the FY20-21 annual report:
Likely default in payment of dues to banks and financial institutions;
Unsecured advances to other parties with inability to execute the purpose for which advances were given or pay them back;
Collection of advance from customers on closed/suspended/ abandoned projects, lack of provision for impairment losses; 
Non-provision of year-end balance confirmation certificates in respect of trade payables, vendor and other advances for verification and record;
Irregularity in depositing the undisputed statutory dues including provident fund, employees’ state insurance, income-tax, sales-tax, service tax, duty of custom, duty of excise, value added tax, goods and services tax, cess.
The company and its subsidiaries also have a history of questionable records.  On 21 June 2021, YES Bank has also filed a criminal case against Nitesh Estates Limited and its subsidiaries for allegedly defaulting repayment of borrowings to the tune of Rs712 crore. This real estate development agency had been previously booked by the central crime branch police in Bengaluru in March 2019 for allegedly cheating many of its investors. 
Nitesh Estates was promoted by Nitesh Shetty, who is the chairman. The board includes Mahesh Bhupathi, former tennis star. The company’s website boasts marquee investors Goldman Sachs, Och-Ziff Capital Management, Apollo Group, Citigroup, Housing Development Finance Company, HDFC Asset Management and Yes Bank. The company made an initial public offer (IPO) in 2010. 
At that time Moneylife had written, “it is quite audacious of Nitesh Estates to even think of coming up with the IPO. For the nine months ended 31 December 2009, the company suffered a loss of Rs1.32 crore. For the financial year ended March 2009, it had a negative cash flow of Rs46.87 crore.” 
We also pointed out that “the company has made a pre-IPO placement to Brand Equity Treaties Ltd (BETL), owned by Bennett, Coleman & Company Ltd, owners of the Times Group, at Rs143 per share on 19 February 2010 for 10 lakh shares aggregating to Rs15 crore. This is the main reason one can see large advertisements by the company in various publications of the group.
"Under such deals—called private treaties—the Times Group takes a stake in an upcoming company in return for low-rate advertisements.” Listed on 13 May 2010, the IPO closed at Rs49.70. At the time of writing this piece the stock was quoted at 3.93."
4 months ago
Promoters are magic entrepreneurs like Unicorns creating cash out of thin air and attract cash on Holographic images
4 months ago
The spate of IPO recently and their valuation does not augur well for a stable market. When the regulator is candid in advising investors to make due diligence before putting their money in such issues, who else can vouch for the correctness of figures published.
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