Fine of Rs. 2.46 Cr imposed by SEBI for flouting regulatory norms

The Securities Exchange Board of India (SEBI), the capital markets regulator, imposed penalties totaling Rs 2.46 crore on two companies and seven individuals, including promoters, on Friday for violating regulatory norms.

In addition to the penalties, the regulator barred Girish Talwalkar, Prashant Talwalkar, Madhukar Talwalkar, Vinayak Gawande, Anant Gawande, and Harsha Bhatkal from the industry for varying periods of time.

Talwalkars Better Value Fitness Ltd (TBVFL) and Talwalkars Healthclubs Ltd (THL) are the two companies, and the promoters are Girish Talwalkar, Prashant Talwalkar, Madhukar Talwalkar, Vinayak Gawande, Anant Gawande, and Harsha Bhatkal.

According to two separate orders, the penalties were imposed for violations of disclosure standards and the PFUTP (Prohibition of Fraudulent and Unfair Trade Practises).

The regulator fined Girish, Prashant, Anant, and Harsha Rs 36 lakh each; TBVFL, Vinayak, and Madhukar Rs 24 lakh each; Girish Nayak Rs 18 lakh; and THL Rs 12 lakh.

In the case of TBVFL, the regulator barred Girish Talwalkar, Prashant, Madhukar, Vinayak, Anant, Harsha, and Girish Nayak from participating in the securities market for 18 months and barred them from being associated with any listed company or Sebi-registered intermediary for the same period.

In addition, Sebi barred Girish Talwalkar, Prashant, Anant, Harsha, and Girish Nayak from the market for 18 months in the case of THL, and the debarment will begin after the period of restraints imposed on the entities in the case of TBVFL expires.

The order came after Sebi received several complaints against THL and TBVFL between August and October of this year. Despite a significant cash balance, the complaints indicated a failure to pay interest on term loans.

According to the financial results ending March 2019, both companies (TBVFL and THL) had a total cash balance of approximately Rs 77 crore, and the total default on interest payment by both companies as of July 2019 was only Rs 3.5 crore (Term Loan), raising concerns about the veracity of their books of accounts.

Following preliminary investigation, the regulator took up the matter for detailed investigation, and KPMG was appointed as forensic auditor to assist the investigating authority in conducting forensic examination of both TBVFL and THL books of accounts for four financial years (2016-17 to 2019-20).

Following that, when there was suspicion that the companies’ financials were being misrepresented to investors, Sebi launched an investigation.

According to the order, TBVFL and THL misrepresented their financial statements by inflating the bank balance disclosed in financial statements, inflating revenue through revaluation of investments, making unjustified advances to connected companies that are not in the best interests of the company, inappropriate revenue and expense recognition, unjustified investments in entities with low net worth, and failing to provide for impairment losses.