SEBI imposed Penatly of Rs.2.46 Crore on Company and its Directors for Misreporting Financial Statements

Talwalkars Better Value Fitness Ltd (TBVFL) and the company’s top executives, including two chairpersons, have been fined Rs. 1.80 crore by market regulator Securities and Exchange Board of India (SEBI) for falsifying the financial statements and failing to make true and adequate disclosures.

In a separate order, SEBI imposed a Rs.66 lakh penalty on Talwalkars HealthClubs Ltd (THL) and the company’s four executive directors (EDS) and chief financial officer (CFO). In addition to TBVFL and THL, SEBI has penalised Girish Talwalkar, Prashant Talwalkar, Madhukar Talwalkar, Vinayak Gawande, Anant Gawande, Harsha Bhatkal (all executive directors), and Girish Nayak (chief financial officer-CFO). All six EDS and the CFO are also barred from trading for 18 months.

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

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).

After that, Sebi launched an investigation into the companies under the presumption that their financials were being fabricated to give investors a positive impression.

According to the order, TBVFL and THL misrepresented their financial statements by inflating the bank balance that was disclosed in the financial statements, inflating revenue through the revaluation of investments, giving illogical advances to affiliated companies that were not in the company’s best interests, improperly recognising revenue and expenses, making illogical investments in companies with low net worth, and failing to account for impairment losses.

After hearing all parties, the SEBI Executive Director concluded that the Talwalkars’ main point was that they were not responsible for managing affairs in banking, finance, and law, and that the Gawandes had defrauded them.

Essentially, the Talwalkars have denied all of the allegations against them in their responses, while putting the entire burden on the Gawandes. Furthermore, the company claims that in their submissions, they only made generic statements unrelated to the allegations in the SCN and did not provide any specific response on the merits of the allegations levelled against them in the SCN.

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