No immediate relief for DLF on MF redemptions

The Securities Appellate Tribunal on Thursday asked DLF to file an affidavit by November 3, explaining why it wants to redeem investments in mutual funds and how much money it is planning to draw.

The real estate giant has investments worth Rs 2,500 crore in mutual funds. It has appealed to the Securities Appellate Tribunal (SAT) against a order of Securities and Exchange Board of India (Sebi) banning it from accessing the capital market for three years.

SAT will take a decision on DLF’s plea on November 5, when the matter will be next heard. In a blow to the company, the tribunal also accepted Sebi’s stance that mutual fund units are securities and cannot be redeemed as per the legal standing of the order.

“We cannot dispute that mutual fund units are securities,” said J P Devadhar, the presiding officer at SAT.

While arguing the case, Sebi counsel Rafique Dada said the market regulator would allow DLF to redeem their mutual fund investments if the company states the amount and the purpose. However, he asked the tribunal to take a call on the issue.

“As Sebi is party to the case, it cannot offer any further clarification on the quasi-judicial order. Only SAT can grant an interim relief,” said Dada.

Acknowledging Sebi’s stance, the SAT directed DLF to make a written submission about the intended purpose for the mutual fund investments.

“We will submit an affidavit before the tribunal on Monday, stating why we need the money, how much we need and what purpose it would be used for. It would also be backed by an auditor certificate,” said Janak Dwarkadas, a senior advocate and the counsel for DLF.

SAT, which has outlined a timeline for redressing DLF’s appeal, directed Sebi to file an affidavit by November 30 on the order it has passed against the company and six other entities.

DLF would file a rejoinder by December 8 and the appeal against the order would be heard on December 10, SAT stated on Thursday.

Dwarkadas reiterated that the Sebi order has had a “cascading effect” on DLF’s business activities.

He also stated that DLF has been unable to access pledged shares held by two of its subsidiaries in thirteen demat accounts, as they have been frozen by Central Securities Depository and National Securities Depository.

Shares lying in these demat accounts have been pledged with banks and financial institutions.

These shares have been frozen resulting in the peldgee not being able to enforce it, stated Dwarkadas.

DLF also stated that the recent downgrade by rating agencies following the Sebi order is proving to be a hindrance for the company to secure lending.

Earlier this month, Sebi passed an order against DLF and six others for “active and deliberate suppression” of material information at the time of its IPO over seven years ago.

DLF's initial public offering in 2007 had fetched Rs 9,187 crore — the biggest IPO in the country at that time.

While the regulator did not impose any monetary penalty, the prohibition has barred DLF and six persons, from any sale, purchase or any other dealings, including for raising funds, in the securities markets for a period of three years.