Markets regulator Sebi on Friday slapped fines totalling Rs 3.75 crore on former promoter and MD of dairy firm Kwality's Sanjay Dhingra and other entities for misrepresenting the financials of the company.

Kwality went into insolvency process in December 2018 and was acquired by Sarda Mines through the liquidation process in 2022.

Individually, the regulator imposed a fine of Rs 1.5 crore each on Sanjay Dhingra and Sidhant Gupta (former director and member of Kwality'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 search and seizure operations of Kwality Ltd and referred the matter to the Securities and Exchange Board of India (Sebi) to examine possible violations of the securities law.

Sebi initiated an investigation for the 2016-2018 period to ascertain whether there was any violation of the provisions of the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) and the Listing Obligations and Disclosure Requirements (LODR) rules.

The market watchdog noted that the show cause notice has recorded Rs 7,574.88 crore as the amount of misrepresentation as calculated by auditor Bagchi and Gupta.

"I note that the financial statements of Kwality were fraudulently manipulated and the figures contained therein were significantly misstated/ misrepresented, including revenue and sales, expenses, capital assets, inventories, debtors payable, creditors receivable, etc, leading to the publication of untrue and misleading financial results of the company during FY 2016-17 to 2018-19," Sebi's Chief General Manager K Saravanan said in the final order.

Sebi noted that if the instances of misstatement/ misrepresentation in the financial statements of Kwality had been correctly reflected and published in the form of actual financials, the profit/ losses and financial position of the company would have been different from the reported financial statements.

Accordingly, this violated the provisions of PFUTP rules and LODR norms, Sebi said.

In addition, Sebi has also observed that Dhingra was the promoter and the MD of Kwality as per the disclosures in the annual reports of the company during the period FY 2016-17 to FY 2018-19.

"...Noticee 1 (Sanjay Dhingra) being the managing director of the Company, is responsible for furnishing untrue and fraudulent compliance certificates to the board of directors as required under the LODR Regulations," Saravanan said.

In its probe, Sebi also found that Sidhant Gupta was also a member of the audit committee and attended meetings from FY 2016-17 to FY 2020-21. He (Sidhant) was identified by the regulator as one of the decision-makers looking after the day-to-day affairs of Kwality. Sidhant Gupta’s involvement in the fraudulent schemes was critical as he facilitated the manipulation of financial records and coordinated with various shell entities, as per the order.

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 played an important role in the financial misreporting. Gupta was responsible for overseeing the financial operations and ensuring the integrity of financial statements. However, the financials were grossly misstated by Satish, which contributed to the deceptive practices.

Accordingly, Sebi also restrained Dhingra, Sidhant Gupta, and Satish Gupta from holding any position of director or associating themselves with any listed public company or a public company, which intends to raise money from the public for two years.

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