SEBI move, lesson for many firms

SEBI move, lesson for many firms

Stock market regulator SEBI’s punitive action against India’s largest real estate company, DLF, for violation of listing norms and infringement of laws should send a message of warning to the entire sector.

In fact, it will serve as reminder to all companies on the need to observe norms and laws and practice the best forms of corporate governance. It has, till now, not often gone beyond verbal warnings or token actions against companies which violate the law. No major company of the size of DLF has been subjected to such action in the past. The regulator has now barred the company and its six top executives, including promoter and chairman K P Singh, from trading in the securities market for three years. This will constrain the company from raising funds from the market using equity or debt instruments. It will also be barred from listing a real estate investment trust which it had hoped to use for selling finished commercial property to investors. 

The SEBI has found that the company had indulged in fraudulent and unfair practices and suppressed important information, particularly relating to legal cases, when it made a public offering in 2007. The company’s IPO was the biggest in the country till then. It is surprising that it took so long for the regulator to investigate the charges against the company and to take action. But even the delayed action is welcome because it will help put the fear of law into other companies. DLF had earlier been fined Rs 630 crore by the Competition Commission of India for abuse of its dominant position in the market. India’s real estate sector needs a lot of cleaning up.

Charges of fraud, failure to keep promises and various kinds of violations of law are common. Only a few of the hundreds of developers in the country are listed on the stock exchanges. Since politicians and other influential people are also involved in the sector, it is difficult to bring the wrong-doers to book and for common people to get justice. The sector is also known for deployment and generation of large amounts of black money. The SEBI action might send out the message that companies in the sector should be transparent and law-abiding in their actions and operations. Companies from other sectors which are listed on the stock exchanges should also learn a lesson from this. Many of them are also guilty of concealment of facts, misinformation and fraudulent activities. Prompt and effective regulatory action will go a long way to enforce good standards of conduct and make the stock markets more attractive for investors. 

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