Disclosure violations: Sun Pharma, top execs seek Sebi's consent settlement

Sebi has initiated adjudication proceedings against the pharma major and its directors under Section 15 of the Sebi Act, which deals with penalty.
Drugmaker Sun Pharmaceuticals (Sun Pharma), its key managerial staffers, and directors have filed a consent plea before the Securities and Exchange Board of India (Sebi) for settling a dispute pertaining to alleged violations of disclosure norms involving its key distributor and subsidiary Aditya Medisales (AML).

Sebi has initiated adjudication proceedings against the pharma major and its directors under Section 15 of the Sebi Act, which deals with penalty.

It issued show-cause notices during the lockdown, alleging violation and seeking explanation as to why financial penalties should not be imposed, said two people with direct knowledge of the matter.

Under the consent mechanism, an alleged wrongdoer can settle a dispute with Sebi without admitting to the guilt or denying it.

 

Sources said Sun Pharma, along with at least 10 directors, had submitted the settlement agreement.
An email sent to Sun Pharma on Friday went unanswered.

Sebi’s investigation department, which concluded the probe in February, had recommended adjudication proceedings in the case. The probe suggested the drugmaker did not categorise AML as a related party. This ought to have been disclosed under the listing regulations.

AML, a super stockist, was declared a related party of the firm later.

Sources said Sebi was examining the procedural aspect of the consent application. Under the consent framework, a Sebi officer, after receiving an application, examines aspects of the case and makes observations. The application then goes to a high-powered advisory committee, which provides suggestions on whether it should be accepted. Thereafter, a panel of two whole-time members considers the recommendations and passes an order.

Sebi’s probe findings also highlight the non-disclosure of the trade arrangement between Sun Pharma and AML and that it classified the latter as a distributor, which was a clear violation of Sebi’s listing obligations and disclosure requirements.

Typically, the distributor is a third party that buys drugs from the manufacturer and sells them to customers. However, in this relationship, Sun Pharma was dealing with a distributor that was also its subsidiary. However, later Sun Pharma reveals its relation with AML, which is a pharma distribution firm. AML was classified as a promoter shareholder by Sun Pharma. It held 1.6 per cent in Sun Pharma as of December 31, 2018. Sun Pharma’s domestic formulation business is entirely routed through it.

This is the second time Sun Pharma has sought a settlement with Sebi. Earlier, the company, its managing director Dilip Shanghvi, and nine others had settled an insider trading probe, paying Rs 18 lakh as settlement charges in 2017.

In December 2018, Sebi had initiated the probe after several allegations were made by a whistle-blower, accusing Sun Pharma of offences related to corporate governance, tax matters, the securities market, fund diversion, etc.



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