Market regulator Securities and Exchange Board of India (SEBI) has imposed a penalty of Rs1.80 crore on Talwalkars Better Value Fitness Ltd (TBVFL) and the company's top executives, including two chairpersons, for misrepresenting the financial statements and failing to make true and adequate disclosures. In a separate order, SEBI also slapped a penalty of Rs66 lakh on Talwalkars HealthClubs Ltd (THL) and the company's four executive directors (EDs) and chief financial officer (CFO). Besides TBVFL and THL, others who have been penalised by SEBI include: Girish Talwalkar, Prashant Talwalkar, Madhukar Talwalkar, Vinayak Gawande, Anant Gawande, Harsha Bhatkal (all executive directors) and Girish Nayak (chief financial officer-CFO). All the six EDs and the CFO are also barred from markets for 18 months.
In its order in the TBVFL matter, VS Sundaresan, executive director (ED) of SEBI, says, "By misrepresenting the financial statements, and by failing to make true and adequate disclosures, Girish Talwalkar, Prashant Talwalkar, Madhukar Talwalkar, Vinayak Gawande, Anant Gawande, Harsha Bhatkal and Mr Nayak, (the CFO) have not presented the true and fair view of the affairs of TBVFL, and thus have not only defrauded and misled the investors but have also impaired the integrity of the securities market. In view of the same and considering the violations committed by the said noticees, I find that it becomes necessary for SEBI to issue appropriate directions against them."
While TBVFL and all seven directors are asked to pay a penalty of Rs24 lakh each, Mr Nayak, the CFO, is slapped with a fine of Rs12 lakh by SEBI.
Mr Sundaresan, in his order in the THL case, says, "THL, Girish Talwalkar, Prashant Talwalkar, Anant Gawande, Harsha Bhatkal and Girish Nayak have not presented the true and fair view of the affairs of THL, and thus have not only defrauded and misled the investors but have also impaired the integrity of the securities market. In view of the same and considering the violations committed by them, I find that it becomes necessary for SEBI to issue appropriate directions against them."
THL and the four EDs are directed to pay a fine of Rs12 lakh each, while Mr Nayak is asked to pay Rs6 lakh penalty for these offences.
"While it may be true that the funds were disbursed by the bank directly to the supplier of the Company after verification, but the allegation is that the Company inflated its assets, liabilities and revenue through round-tripping of funds, and it recognised fictitious assets and revenue. The SCN records that TBVFL had obtained term loans from banks for its capital expansion and submitted work orders and pro-forma invoices of its capital creditors Nitash Engineering and Consulting Pvt Ltd (NECPL), Omnibus Infrastructure Pvt Ltd (OIPL) and Gympac Fitness Systems Pvt Ltd (GFSPL) for disbursement of loans. The disbursement requests and the corresponding transactions in the bank accounts were analysed during the investigation, which indicated that amounts paid by Axis Bank as term loans to the capital creditors were paid back by the capital creditors or by a related party-Growfitter Pvt Ltd (GPL) within ten days of the disbursements," the SEBI order in the TBVFL case noted.
On 20 February 2018, TBVFL was demerged into two entities, TBVFL and TLL, whose name was later changed to THL on 16 January 2019. According to the demerger, the entire gym business was hived off to TLL, whereas TBVFL focused on nutrition and wellness services. In FY17-18 (year of demerger), a select percentage of income, expenses, assets and liabilities were transferred from TBVFL's books of accounts to form THL's books of accounts.
SEBI had received several complaints against TBVFL and Talwalkar Lifestyle Ltd (THL) from August 2019 to October 2019. The complaints indicated a default in interest payment on term loans, despite a significant cash balance. As per the financial results ending March 2019, both the companies (TBVFL and THL) had a total cash balance of about Rs77 crore and the total default by both the companies on interest payment as of July 2019 was only Rs3.5 crore (term loan), which raised suspicion over the authenticity of their books of accounts.
SEBI, after preliminary examination, took up the matter for detailed investigation and, on 24 August 2020, appointed KPMG as forensic auditor to assist the investigating authority in conducting forensic analysis of books of accounts of both TBVFL and THL for four financial years (FYs) FY16-17 to FY19-20. The forensic auditor submitted the forensic audit report (FAR) on 12 July 2021, indicating that TBVFL had misrepresented its financials to provide a healthy picture to the investors and that the examined transactions under various heads of the company were non-genuine.
SEBI examined the FAR along with annual reports of the company, corporate announcements made to the stock exchanges, replies and statements of the directors, chief financial officer (CFO), compliance officer and statuary auditors. SEBI's investigation brought various violations of securities laws observed on the part of TBVFL and other entities, and a show-cause notice (SCN) was issued on 29 April 2022 to TBVFL and seven other entities. The said SCN forms the subject matter of the present order. A separate show-cause notice, dated 29 April 2022 has also been issued to THL and five other entities which has been dealt with in a separate order.
After hearing all parties, the SEBI ED observed that the pith and substance of the Talwalkars' submissions was that they were not responsible for managing affairs in banking, financial and legal matters and the Gawandes had defrauded them. Basically, the Talwalkars, in their replies, while putting the entire onus on the Gawandes, have denied all the allegations against them. Further, in their submissions, they have only made generic statements unrelated to the allegations contained in the SCN and have not provided any specific response on the merits of the allegations levelled against them in the SCN, he says.
Vinayak Gawande contended that both, TBVFL and THL, were managed by the Talwalkars. He says, "Prashant Talwalkar was earlier managing director and chief executive officer (MD&CEO) of TBVFL and later of THL. Girish Talwalkar became MD&CEO of TBVFL after Prashant stepped down. Both TBVFL and THL were chaired by Talwalkars. Girish Talwalkar was chairman of TBVFL till he became its MD&CEO and after that Madhukar Talwalkar became the chairman. Girish Talwalkar was chairman of THL."
Similarly, Anant Gawande, Harsha Bhatkal and Girish Nayak have also contended that they were lower in the hierarchy than the MD of TBVFL and, at all times, it was the MD who was be responsible for ensuring compliance with the applicable laws.
"I note that both the groups (Talwalkars and Gawandes) have essentially tried to put the blame on each other. The contention that only one group or person is responsible and not the other group (regardless of the positions that the members of the groups held in the Company), is baseless and without any merit. The fact that all the noticees were executive directors (other than Girish Nayak, who was the CFO) and were handling or involved in day-to-day affairs of the Company in one capacity or another makes them all liable for their respective roles for the lapses in part of the Company for their respective roles," SEBI says in the order.
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