SEBI rules charges against Regency Hospital are baseless

SEBI rules charges against Regency Hospital are baseless

Auditors are specialists ensuring the validity and legality of the financial records of the companies, the AO said

The Securities and Exchange Board of India (SEBI) on 21 January 2021 provided a major relief to the Regency Hospital Limited while observing that the proceeding qua the Noticees was not sustainable, since the allegation and charge that the Noticees made funds available to its employees for the purpose of fraudulent activities, failed.

This adjudication proceeding had arisen from the order of the Securities Appellate Tribunal (SAT), wherein the SAT had set aside the Adjudication Order and remitted back the matter to the Adjudicating Officer (AO) with the direction that the appellant was permitted to file additional documents to SEBI, as filed before SAT and such other documents.

Herein, AO vide its impugned order had found that Regency Hospital Limited (RHL/Noticee No. 1), Dr Atul Kapoor (Noticee No. 2) and Dr Rashmi Kapoor (Noticee No. 3) were found in violation of the SEBI (Prohibition of Fraudulent and Unfair Trade Practice Relating to Securities market) Regulations, 2003 (PFUTP Regulations) and imposed a penalty of ₹15 lakh on Noticee No. 1 and ₹25 lakh each on the Noticee No. 2 and 3.

Seven suspected entities every month used to get a regular credit of approximately equal amount from the company, there were other "credits" which could be one to one correlated to the payments made to the brokers by the entities for settlement of trades, exact/approximately equal amounts were credited in the respective entities bank accounts by the Noticee No. 1.

The seven suspected entities had mainly traded in the scrip of the Noticee No. 1 during the investigation period and payments to their respective brokers were allegedly funded by the Noticee No. 1

In this case, the AO opined that the auditor held that the amount credited in the bank accounts of the employees were in nature of the loan advances given by the Noticee No. 1. Further, these were duly reflected in the Annual Return filed with ROC, IT Returns including its assessment done by the Deputy Commissioner of Income Tax (Assessing Officer) and in the books of accounts of the Noticee No. 1 as certified by the auditor.

Considering the extensive procedures followed by the auditors before giving certificate to the Noticee, confirming that the alleged advances were in the nature of loans, the Adjudicating Officer (AO) was of the view that not much was left for the undersigned to inquire further in the matter as to whether these credits were loans or not.

The AO was also of the view that the auditors are specialists who review the accounts of companies to ensure the validity and legality of their financial records. In the instant matter, the auditor had also verified Annual Returns, Income Tax Returns and Provident Fund records, which clearly authenticated the auditor's claim.

Therefore, the AO was inclined to form a view that the alleged advance given to the four employees by the Noticee No. 1 were in the nature of loans and were in the usual course of their employment. Further, if the main issue of the advancing the loan to four employees by the Noticee No. 1 was not in question then the instant proceeding qua the Noticees was not sustainable, since the allegation and charge that the Noticees made funds available to its employees for the purpose of fraudulent activities, failed. In view of the aforesaid, the Show Cause Notice qua the Noticees was disposed of.