Sebi probe finds violation of listing and disclosure norms by Sun Pharma

The Securities and Exchange Board of India (Sebi) has found that Sun Pharmaceuticals had violated its listing and disclosure norms by not revealing the related-party transaction with Aditya Medisales (AML), an entity owned by the drugmaker’s promoters that distributed its formulation in India. 

The probe, however, did not confirm the alleged misappropriation of funds to the tune of Rs 42,000 crore, said two people privy to the development. 

According to them, the Sebi's investigation department in its findings has recommended adjudication proceedings against the pharma major under Section 15 of the Sebi Act, which entails financial penalty if found guilty. 

The Sebi's investigation concluded last week following a forensic audit report submitted to the regulator a fortnight ago. The market regulator had in September 2019 ordered the audit to examine the whistle-blower complaints on corporate governance lapses and alleged fund diversion. 

"The company has complied with all information requests from Sebi and is cooperating with the regulator," said a Sun Pharma spokesperson in an email query. "In regards to your specific query, we have not received any communication from the regulator. Therefore, we are not in a position to comment on the same," it said. 

The investigation report submitted to the Sebi board said the drug maker did not categorise AML as a related party even though the ultimate beneficiary of it was promoter of Sun Pharma, which ought to have been disclosed in public under the prescribed listing regulations, said one of the two persons cited above. 


The non-disclosure of the trade arrangement between the AML and Sun Pharma and classified the former as a distributor is a clear violation of Sebi's listing obligations and disclosure requirements. Typically, the distributor is a third-party which buys drugs from the manufacturer and sells them to customers for a margin. However, in this relationship, Sun Pharma was dealing with a distributor which was also its subsidiary.

The forensic audit is learnt to have scrutinised the detailed methodology of AML's operations such as its agreement with the pharma major.

However, later Sun Pharma did reveal its relationship with AML, which is a pharma distribution company. AML was classified as a promoter shareholder by Sun Pharma. It owns a 1.6 per cent stake in Sun Pharma as of December 31, 2018. Sun Pharma's domestic formulation business is entirely routed through it. AML, a super stockist, was declared as a related party of the company only during FY'18. 

Further, the Sebi investigation and even the audit report did not find the alleged transactions of Rs 42,000 crore or siphoning off/personal profits of Rs 10,000 crore as highlighted by the whistle-blower in the complaint letter to Sebi. The findings cited the annual accounts filed by AML, which showed it never had earned profits or borrowings that could substantiate charges made by the whistle-blower.

According to the disclosure, the turnover for FY18 was a little over Rs 8,000 crore. In FY17, it was Rs 7,800 crore; in FY16, Rs 6,000 crore; in FY15, Rs 4,300 crore; and in FY14, the turnover was about Rs 2,000 crore.

Sebi initiated the probe after several allegations were made by the whistle-blower in a 150-page complaint to the regulator accusing Sun Pharma of committing corporate governance and tax-related offences and securities market-related violations.



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