Pass fresh order in Religare Finvest's fund diversion matter: SAT to Sebi

The Securities Appellate Tribunal (SAT) on Wednesday directed markets regulator Sebi to pass a fresh order in Religare Finvest's fund diversion matter.

Also, it has asked Religare Finvest Ltd (RFL) to maintain its assets worth Rs 200 crore for a period of three months.

The order comes following an appeal filed by RFL against an interim order passed by the capital markets watchdog in October 2018 as well as against the confirmatory ruling of Sebi in March 2019.

RFL is a subsidiary of the Religare Enterprises (REL). Shivinder and Malvinder Singh were promoters of REL.

The issue pertains to the affairs of Fortis Healthcare Ltd (FHL), which were being managed by the erstwhile promoters -- the Singh brothers. It was alleged that the Singh brothers siphoned off the funds of Fortis Healthcare to promoter related entities through layers of companies which were controlled by them.

Sebi, in October 2018, had directed Fortis Healthcare to recover Rs 403 crore, along with interest, from RFL and other entities. Also, it had said that RFL was jointly and severally liable to pay this amount along with other entities. Besides, RFL and other entities were also restrained from disposing of the assets pending investigation.

The regulator had noted that as per the forensic auditor report, RFL had received a sum of Rs 200 crore from three companies -- Best Healthcare, Fern Healthcare and Addon Realty. Thus, RFL was a beneficiary of the Rs 200 crore which they were liable to refund. However, RFL had vehemently contended that the three companies had not transferred the funds to it.

After giving them an opportunity to present their case, Sebi in March 2019 had said RFL failed to rebut the prima-facie findings and the allegations made against it in the interim order and had asked RFL along with REL to recover over Rs 2,000 crore that were diverted to Singh brothers and 21 other entities.

"It was observed that funds amounting to Rs 2,315.09 crore had been diverted from the books of RFL for the utilisation of promoters and promoter group entities of REL," the regulator had said in the order.

Further, Sebi had said that the detailed investigation in the matter was still in progress which was supposed to reveal all the layers of the alleged fraud as well as expose the specific role of each entity.

It was contended by RFL that in one order Sebi directed the company to refund Rs 200 crore and in another ruling it had asked RFL to recover over Rs 2,000 crore from the same companies and, therefore, urged that contradictory orders have been passed without considering the material and evidence provided by it.

However, Sebi justified its interim order on the grounds that the objections raised by RFL were considered. The regulator's counsel further contended that the second order passed by Sebi was in relation to another investigation against another entity.

"Whereas in the impugned order the order was passed in relation to the affairs of the FHL and the second order of the same date was passed in the matter of REL and, therefore, the issue relates to two different, distinct companies even though some of the entities may be common," Sebi contended.

After hearing both parties, the tribunal said, "the WTM (Whole time member) has passed two orders which appears to be contradictory to each other. In the impugned order, the appellant (RFL) is required to refund a sum of Rs 200 crore which is alleged to have been paid by the three companies. In another order the WTM has directed the appellant to recover more than Rs 2,000 crore some of which from two of the companies mentioned in the impugned orders".

"The impugned orders cannot be sustained and are quashed in so far as it relates to the appellant. The matter is remitted to the WTM to pass a fresh order if they so desire after giving an opportunity of hearing to the appellant," it added.

In order to balance the equities, SAT has directed RFL to maintain its assets worth Rs 200 crore for a period of three months.

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