SEBI fines Rana Kapoor with Rs. 1 crore for violation of disclosure norms; ED attaches his London property

The Securities and Exchange Board of India (SEBI) has imposed a fine of Rs. 1 crore on former Yes Bank Managing Director and CEO Rana Kapoor for violating disclosure regulations regarding a transaction of Morgan Credits Pvt Ltd., an unlisted promoter entity of Yes Bank.

The action was taken pursuant to Section 15-I of Securities and Exchange Board of India Act, 1992 read with Rule 5 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995.

SEBI undertook examination in the matter about possible requirements of disclosure in view of the transaction by Morgan Credits of raising Rs. 950 crore from Reliance Mutual Fund through unlisted zero-coupon non-convertible debentures on April 19, 2018.

The SEBI in its order held that,

a. "Noticee (Rana Kapoor) being a guarantor to the said transaction was aware of all aspects of the transactions.

b. Said transaction/ condition were in 'nature of encumbrance' on the Company shares held by Morgan and such encumbrance are required to be disclosed under the provisions of Regulation 31 of SAST Regulations.

c. The Noticee was holding the post of MD and CEO in the Company, when the said transaction took place. Further, as per the provision of Regulation 4(2)(f)(i)(1) of the LODR Regulations, a key managerial personnel ("KMP") have responsibility to disclose to the board of directors whether they, directly, indirectly or on behalf of the parties, have a material interest in any transaction or matter directly affecting the listed entity.

d. On account of being a guarantor, the Noticee had a substantial material interest in the said transaction which directly affects the listing entity and therefore, being a KMP of the Company, he had a responsibility to disclose said transaction to the board of directors of the Company. Further, Regulation 4(2)(f) (i)(1) of the LODR Regulations also obligates the Noticee, being a Director, to be more transparent to stakeholders by disclosing the details of the said transactions."

The stock market regulator sought information from stock exchanges BSE and NSE with respect to the transaction who informed that they had not received any disclosures under the LODR Regulations and the SAST Regulations from Yes Bank or its promoters.

SEBI also sought comments from the company and was informed that its promoter Morgan had raised Rs. 950 crore from Reliance Mutual Fund which was not in the nature of encumbrance of shares by promoters. There has been no requirement of disclosures under the LODR Regulations and SAST Regulations.

The SEBI order issued by Adjudicating Officer Amit Pradhan read, "This is a case where by not disclosing the substantial material interest in the transaction to the Board of Directors of the Company, the Noticee has created an opaque layer between him and stakeholders. The law does not permit any allowance to be made for such defaults as found in this case. The brazen failure with regard to disclosures of material information and cardinal principles of corporate governance as found in this case, had clearly defeated the purposes of the Regulations i.e. investor protection and protection of integrity of the securities markets. Therefore, no lenient view should be taken in this matter and the case deserves imposition of monetary penalty proportionate to the default as found in this case. I am of the considered opinion that the deliberate defiance of the mandatory obligations and hiding the crucial and material information, as found in this case should be dealt with sternly and the penalty in such cases should serve as effective deterrence."

"Therefore, having regard to the factors listed in section 15J and considering the facts and circumstances of the case and the findings arrived in the matter, I, in exercise of the powers conferred upon me under section 15I of the SEBI Act read with rule 5 of the Adjudication Rules, hereby impose a consolidated monetary penalty of total Rs. 1,00,00,000/- (Rupees One Crore Only) on the Noticee, Mr. Rana Kapoor, for the violations of Regulations 4(2)(f)(i)(1) and 4(2)(f)(i)(2) of the LODR Regulations, under section 15HB of the SEBI Act. In my view, the said penalty is commensurate with the violations committed by the Noticee as found in this case."

The Enforcement Directorate (ED) attached Rana Kapoor's London flat as they suspected that Kapoor is trying to alienate this property in London and that he has hired a reputed property consultant for the same. The ED said that the property was in the name of DOIT Creations Jersey Limited, where Kapoor is the beneficial owner.

The overseas property has been attached as ED alleges that the flat was bought through laundered money.