Individually, the regulator imposed a fine of Rs 1.5 crore on Sanjay Dhingra and Siddhant Gupta (former director and member of Quality’s audit committee) and Rs 75 lakh on Satish Kumar Gupta (Chief Financial Officer).
The regulator also barred these individuals from the securities market for two years.
The Income Tax Department (ITD), in March 2018, conducted a search and seizure operation against Quality Ltd and referred the matter to the Securities and Exchange Board of India (SEBI) to investigate possible violations of securities laws.
SEBI had initiated an inquiry for the period 2016-2018 into whether there had been any violation of the provisions of Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) and Listing Obligations and Disclosure Requirements (LODR) Rules.
The market watchdog noted that the amount of misrepresentation calculated by auditors Bagchi and Gupta in the show cause notice was Rs. 7,574.88 crore has been recorded.
“I note that the financial statements of Quality were fraudulent and the figures contained therein were materially misstated / misrepresented, including income and sales, expenses, capital assets, inventories, debtors payable, creditors receivable, etc., leading to the publication of false and misleading financial results of the company during the financial years 2016-17 to 2018-19,” SEBI Chief General Manager K Saravan said in the final order.
SEBI noted that if the instances of misstatement/misrepresentation had been properly reflected in the financial statements of Quality and published in actual financial form, the profit/loss and financial position of the company would have been different from the reported financial statements.
Accordingly, this violates the provisions of PFUTP Rules and LODR norms, Sebi said.
Apart from this, SEBI also observed that Dhingra was the promoter and MD of Quality during the period from FY 2016-17 to FY 2018-19 as per the disclosure in the company’s annual reports.
“…NOTICE 1 (Sanjay Dhingra) being the managing director of the company, is responsible for issuing false and fraudulent compliance certificates to the board of directors as required under the LODR Regulations,” Saravan said.
In its investigation, SEBI also found that Siddhant Gupta was also a member of the audit committee and attended meetings from FY 2016-17 to FY 2020-21. He was identified (in principle) by the regulator as one of the decision makers looking after the day-to-day affairs of Quality.
Siddhant Gupta’s involvement in the fraudulent schemes was crucial as he manipulated financial records as ordered and coordinated with various shell entities.
According to Sebi, Satish Gupta was the CFO of the dairy company for the period FY 2016-17, FY 17-18 and FY 18-19 and was instrumental in financial misreporting.
Gupta was responsible for overseeing the financial performance and ensuring the integrity of the financial statements. However, financial matters were grossly misrepresented by Satish, which contributed to the deceptive practice.
Accordingly, SEBI also barred Dhingra, Siddhant Gupta and Satish Gupta from holding any position of director or associating themselves with any listed public company or public company seeking to raise money from the public for two years.
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