SEBI Fines Rs 3.75 Crore On Former Kwality Ltd. Executives For Financial Misrepresentation
The Securities and Exchange Board of India (SEBI) has imposed a fine against former senior management of Kwality Ltd for their involvement in misstating financial figures between FY 2017 and FY 2019.
SEBI has imposed fines totalling Rs 3.75 crore on Sanjay Dhingra, the former Chairman and Managing Director; Sidhant Gupta, former Executive Director and non-executive Director; and Satish Kumar Gupta, former Chief Financial Officer (CFO). Sanjay Dhingra and Sidhant Gupta have been fined Rs 1.5 crore each, while Satish Kumar Gupta has been fined Rs 75 lakh. Additionally, they have been barred from accessing the securities market for a period of two years.
The investigation by SEBI noted that Sanjay Dhingra, as the promoter and Managing Director of Kwality Ltd, was actively involved in the company's operations from FY 2016-17 to FY 2018-19. During this period, he attended 26 out of 27 board meetings and certified the annual reports. However, it was found that Dhingra was responsible for furnishing fraudulent compliance certificates to the board of directors, thereby violating Regulation 17(8) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations (LODR).
Regulation 17(8) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR) pertains to the responsibilities of the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO) of a listed entity. This regulation mandates that the CEO and CFO must certify the financial statements and other documents submitted to the stock exchanges.
Sidhant Gupta, who served as a Non-Executive Director, attended 16 out of 17 board meetings and was a member of the audit committee during the investigation period. He, along with Dhingra, was found to be one of the decision-makers overseeing the day-to-day affairs of Kwality Ltd. The investigation stated that the financial statements of Kwality Ltd were misrepresented through inflated revenues and expenses, and misrepresentation of receivable accounts. Gupta's involvement as a director made him equally responsible for these non-compliances.
Satish Kumar Gupta, the CFO of Kwality Ltd from FY 2016-17 to October 2018, was also held responsible. As CFO, he was required under Regulation 17(8) of the LODR Regulations to certify that the financial results did not contain any false or misleading statements. Despite certifying that the financial statements were accurate and compliant, the investigation found significant misrepresentations during his tenure.
The SEBI Act holds directors and key managerial personnel accountable for violations committed by the company. Section 27 of the SEBI Act states that individuals in charge of the company's conduct are liable for any contraventions of the Act. Further, the Companies Act, 2013, under sections 179 and 166, mandates directors to exercise their duties with due care, skill, and diligence, and to ensure the company's compliance with legal requirements.
SEBI's investigation into Kwality Ltd began after receiving a reference from the Income Tax Department. The investigation report stated numerous violations of securities laws, which included the misrepresentation of financial statements that influenced investors' decisions.