Trace Your Case


DLF Limited v. SEBI, SAT Order in Appeal No. 331 of 2014.


  • If transactions were carried out with the aim to defraud, and if DLF had any connections that would have allowed it to have reasonable control over the subsidiaries?
  • Should DLF have included these subsidiaries and the FIR in its prospectus, or was the information in the red herring prospectus insufficient for the investors to make an informed choice about the IPO? Does the IPO’s impact from these FIR and subsidiaries matter?
  • Whether the directors had knowledge of those transactions and knowingly withheld it prior to the IPO with the intent to deceive investors?


  • When the court overrides a company’s restricted liability to hold investors or directors personally accountable for any fraud committed, this is known as piercing the corporate veil. The ability of the courts to impose personal culpability on directors and investors must be exercised with extreme caution because doing so would compromise a company’s fundamental characteristics of being a separate legal entity with limited liability.


  • Three firms, Sudipti Estates Private Limited, Felicite Builders and Constructions Private Limited, and Shalika Estate Developers, were incorporated by the three wholly-owned subsidiaries.
  • The shares of these subseries were changed so that as of November 30, 2006, Felicite became the holding company of both the other companies and the shares of Felicite Builders and Construction Pvt. Ltd. were held by the spouses of some members of the top-level management at DLF.
  • This change occurred a few days before DLF filed the second draught Red Herring Prospectus with SEBI. DLF effectively lost all control over these subsidiaries as a result, and as a result, there was no obvious need for it to disclose them in a prospectus for its firm.
  • Due to DLF’s continued close contact to the aforementioned companies, SEBI said that this sale was a sham, and DLF still maintained complete control over them. The second draught of the prospectus was returned to DLF by SEBI with minor changes made to its content, but no comments were made on disclosing the change in the subsidiaries’ ownership status or any other pertinent information.
  • Before presenting the proposal to the wider public, DLF complied with the aforementioned changes and suggestions. The final prospectus approved by SEBI open for public subscription was listed on the BSE and NSE by the Registrar of Companies on July 5th, 2007, along with the red herring prospectus.
  • When Mr. Kimsuk Sinha filed a complaint with SEBI against one of these subsidiaries, alleging that the business had cheated him of Rs. 35,000,000, SEBI became aware of the matter.
  • The oral agreement for the start of a development project that Sudipti failed to honour was the subject of the fraud. Following the following finds and orders, SEBI issued a “show cause notice” to DLF in response to this complaint.


  • The securities appellate tribunal held that Companies still regard the concept of a separate legal entity as sacred, so any exercise of authority to breach this line must be done very carefully and judiciously. The courts must, however, simultaneously ensure that the board members of a corporation are constantly monitored to ensure that their own criminal behavior does not spread to the company without their own personal liability.
  • The judgment determined that, under the presumption that the law must be read quite mechanically, the hurdle for piercing the corporate veil is high. Regarding disclosure, the case suggested that these transactions had no meaningful effect on the IPO because the entities involved had no genuine connection to DLF. As a result, there was no need for disclosure because the transactions had no material effect on DLF or its IPO.
  • Further it was held that by restricting who has the right to file a lawsuit to only genuine investors, the range of parties who might have legitimate claims to defend investor rights but would be disqualified because they are not investors themselves is greatly reduced. Although investors are a company’s most important stakeholder, there are numerous other types of stakeholders that interact with the business on a regular basis and who should be permitted to file legal claims if their rights are violated.