SEBI Orders Kwality Officials To Pay Rs. 3.75 Crores For Financial Misrepresentation

SEBI Orders Kwality Officials To Pay Rs. 3.75 Crores For Financial Misrepresentation

Bars Sanjay Dhingra, Sidhant Gupta and Satish Kumar Gupta from accessing the securities market for two years

The Securities and Exchange Board of India (SEBI) has imposed a fine on former senior management of Kwality Ltd for involvement in misstating financial figures between Financial Years 2017 and 2019.

It penalized Rs.3.75 crores for 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 were fined Rs.1.5 crores each, while Satish Kumar Gupta was fined Rs.75 lakh. They were also barred from accessing the securities market for two years.

SEBI observed that as a promoter of Kwality, Sanjay Dhingra was actively involved in the company's operations from FY 2016-2017 and FY 2018-2019.

He attended 26 out of 27 board meetings and certified the annual reports. However, he furnished fraudulent compliance certificates to the board of directors, thereby violating Regulation 17(8) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations (LODR), 2015.

Regulation 17(8) pertains to the responsibilities of the chief executive officer (CEO) and the CFO of a listed entity. It mandates that they must certify the financial statements and other documents submitted to the stock exchanges.

Sidhant Gupta attended 16 out of 17 board meetings and was a member of the audit committee during the investigation period. Along with Dhingra, he was one of the decision-makers overseeing the day-to-day affairs of Kwality.

The investigation stated that the company’s financial statements were misrepresented through inflated revenues and expenses, and misrepresentation of receivable accounts. Thus, Gupta's involvement meant he was equally responsible for non-compliance.

Satish Kumar Gupta was also held responsible for his acts from FY 2016-17 to October 2018. He was to certify that the financial results did not contain false or misleading statements. Despite that, the SEBI discovered significant misrepresentations.

The LODR Act holds directors and key managerial personnel accountable for violations committed by the company. Section 27 states that individuals in charge of the company's conduct are liable for any contraventions of the Act.

Further, Sections 179 and 166 of the Companies Act, 2013, mandate the directors to exercise their duties with due care, skill, and diligence, and ensure compliance with legal requirements.

The markets regulator’s investigation into Kwality began on receiving a reference from the Income Tax Department. The report revealed violations of securities laws, including misrepresentation of financial statements that influenced investors' decisions.