The regulator separately imposed a fine of Rs 15 million each on Sanjay Dhingra and Siddhant Gupta (former directors and audit committee members of Kwality) and Rs 7.5 million on Satish Kumar Gupta (Chief Financial Officer).
Regulators also banned the individuals from the securities market for two years.
The Income Tax Department (ITD) of India conducted a search and seizure operation against Kwality Ltd in March 2018 and referred the matter to the Securities and Exchange Board of India (Sebi) for investigation into possible violations of securities laws.
The Securities and Exchange Board has initiated an investigation into the period 2016-18 to ascertain whether there has been any violation of the provisions of Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) and Listing Obligations and Disclosure Requirements (LODR) Rules. The market watchdog noted that Rs 7,574.88 crore has been recorded in the show cause notice as amount of misstatement calculated by auditors Bagchi and Gupta. “I am aware that the financial statements of Kwality have been fraudulently manipulated and figures contained therein including revenue and turnover, expenses, capital assets, inventory, debtors payable, creditors receivable etc. have been materially misstated/misrepresented leading to publication of false and misleading financial results of the company for the financial years 2016-17 to 2018-19,” Securities and Exchange Board chief executive officer K Saravanan said in the final order. Sebi noted that if the instances of misstatement/misrepresentation in the financial statements of Kwality had been properly reflected and published in the form of actual financial statements, the profit and loss and financial position of the company would have been different from the financial statements reported.
This is therefore in violation of the provisions of the PFUTP Rules and LODR Norms, Sebi said.
Sebi further observed that Dhingra was the promoter and MD of Kwality as per disclosures in the company’s annual reports for financial years 2016-17 to 2018-19.
“…Noticee No. 1 (Sanjay Dhingra) is the Managing Director of the company and is liable for submitting false and fraudulent compliance certificates to the board as required under the LODR regulations,” Saravanan said.
During the investigation, SEBI also found that Siddhant Gupta was also a member of the audit committee and attended its meetings from financial year 2016-17 to financial year 2020-21. He (Siddhant) had been identified by the regulator as one of the decision makers managing the day-to-day operations of Kwality.
Siddhant Gupta’s involvement in the fraud scheme was highly significant as he acted on orders to facilitate the manipulation of financial records and associated himself with various shell companies.
Sebi said Satish Gupta was the chief financial officer of the dairy company during financial years 2016-17, 2017-18 and 2018-19 and played a key role in misstatement of financial statements.
Mr Gupta was responsible for overseeing the financial operations and ensuring the integrity of the financial statements, but Satish made material misstatements in the financial statements which contributed to the fraud.
In response, SEBI has barred Dhingra, Siddhant Gupta and Satish Gupta from holding any directorship or association with any listed company or company planning to raise funds from the public for a period of two years.
