Sebi notes CA’s 'staggering disclaimer' on over Rs 55 lakh due to investors

In 2019, Sebi initiated recovery proceedings against DDL and its directors when it found that the refunds were not carried out.

A chartered accountant asked to verify if the promoters of an illegal collective investment scheme (CIS) had paid back over Rs 2.5 crore to investors made a “staggering disclaimer”, according to the market regulator.

While the CA could not account for over Rs 46.7 lakh, the accountant issued a certificate for the remaining Rs 2.03 crore--saying that it has been paid to investors--but without having any “substantial evidence” for the payment of over Rs 55 lakhs. The accountant seemed to have issued the certificate by merely trusting the penalised company.

This was observed in an order issued by the Securities and Exchange Board of India (Sebi), which has asked the penalised company Dhanolty Developers (DDL) and its directors/promoters to submit a certificate from another CA and for the whole Rs 2.5 crore. The order has also banned the company and its promoters from the market for four years subject to conditions.

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According to the order, the CA submitted that they had payment details of more than Rs 1.47 crore but that they relied on the “explanation” provided by the company for the remaining.

The Sebi order, dated July 3, quoted the CA’s “staggering disclaimer”: “Further in absence of any supporting evidence, vouchers, books of accounts or details of investors and repayment details, we have relied on the information and explanation provided by the company.”

The background

This order has come after nearly a decade of back-and-forth with the company and its promoters.

The market regulator started investigations into DDL for “illegal fund mobilizing” from the public and which was found to be CIS-like.

In 2014, Sebi passed an interim order against DDL and seven of its directors for floating a CIS without registration. The order also found the fundraising to be in violation of Sebi (Prohibition of Fraudulent and Unfair Trade Practice Relating to Securities Market) Regulations, 2003 or PFUTP Regulations.

In November 2015, a final order was passed which found the entities in violation of CIS regulations and PFUTP Regulations. The company was asked to wind up the scheme and refund the money collected from investors.

The company challenged the order in the Securities and Appellate Tribunal (SAT), which passed an order in 2017 asking the company to detail the amount refunded to investors and to provide company balance sheets and details of the amount collected to Sebi.

The company submitted that it had collected Rs 2.5 crore from 250-300 investors, and in its 2019 order, Sebi asked the company and its directors to refund this amount to the investors.

In the same year, Sebi initiated recovery proceedings against DDL and its directors when it found that the refunds were not carried out. In another order passed in 2021, the defaulters were prohibited from disposing or transferring their assets.

The company and one of its directors challenged the notice of attachment of bank accounts in the High Court of Jharkhand, which asked Sebi to dispose off the petition.

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In 2020, Sebi asked the defaulters to obtain a certificate from a peer-reviewed CA that the amount due to investors has been repaid. The regulator also asked the defaulters to publish adverts in dailies inviting claims complaints and claims from investors.

In 2022, DDL informed Sebi that the adverts have been published and submitted the CA-issued certificate. The company asked for the vacation of directions in Sebi’s final order in 2015 and the directions to recover dues. It even filed an appeal in SAT, which in May 2023 asked Sebi to pass an appropriate order on the application.

Following a hearing attended by the DDL representative, Sebi has passed the current order.