SEBI: Imposes penalty for not disclosing’ Contingent Liability’ in Financial Statements,‘ Material Events’ to stock exchanges

Order of Penalty under the SEBI Act, 2013 & Violation of IndAS-37 & Regulation 48 of LODR Regulation, 2015 & Regulation 4(1)(a), (b)&(e) of Schedule III, Regulation 4(2)(f), (k) & (r) of SEBI (Prohibition of fraudulent & Unfair trade Practices relating to Securities market) Regulations, 2003 in the matter of Burnpur Cement Limited.

Provisions Involved:

• IND AS-37 states appropriate recognition criteria and measurement bases of contingent liabilities and contingent assets.
• Regulation 48 of SEBI (LODR) Regulations, 2015 states that a listed entity shall comply with all applicable Accounting Standards;
• Regulation 4(1)(a) states that information shall be prepared and disclosed in accordance with
  applicable standards of accounting and financial disclosure;
• Regulation 4(1)(b) states that the listed entity shall implement the prescribed accounting standards in letter and spirit in the preparation of financial statements taking into consideration the interest of all stakeholders
• Regulation 4(1)(e) states that the listed entity shall ensure that disseminations made under provisions of these regulations and circulars made thereunder, are adequate, accurate, explicit, timely and
  presented in a simple language. and
• Regulation 4(2) states that Dealing in securities shall be deemed to be fraudulent or an unfair trade practice if it involves planting false or misleading news which may induce sale or purchase of securities.

Facts of the Case –

• The Subject Company (Burnpur Cement Limited) is misrepresenting the financial & books of accounts by failing to disclose material event to stock exchanges & prepare financial statements in accordance with the applicable Accounting Standards.
• It was observed that Income Tax Department has issued assessment orders in which Department have found an undisclosed income of Subject Company amounting to Rs.63.11 Crores and Tax Liability & Interest of Rs.15.53 Crores which is to be paid by the company.
• Further, considering that public investors held 72.38% of the shareholding of the Noticee, it would be logical to construe that the developments regarding Income Tax Orders were material developments insofar as Noticee was a listed company with wide public shareholding.
• As per the IND AS-37 (Recognition of contingent liabilities and contingent assets), Subject Company has to disclose material information relating to the penalty levied and also, the additional income assessed as per the Income Tax Department’s orders. Whereas, Subject Company has contention that it had filed for the stay of demand, therefore no liability will arise and the Subject Company did not disclose it in Financial Statements. Order of Penalty under the SEBI Act, 2013 & Violation of IndAS-37 & Regulation 48 of LODR Regulation, 2015 & Regulation 4(1)(a), (b)&(e) of Schedule III, Regulation 4(2)(f), (k) & (r) of SEBI (Prohibition of fraudulent & Unfair trade Practices relating to Securities
  market) Regulations, 2003 in the matter of Burnpur Cement Limited.
• It was observed that, the Noticee, being a listed entity, did not implement the prescribed Ind AS 37 in the preparation of its financial statements and published financial statements which did not present a true and fair view of the company’s affairs.

Decision on Violation –

• The Noticees are hereby imposed with monetary penalties under Sections 15HA and 15HB of the SEBI Act, 1992 as per the details mentioned in the Table below:

Ashutosh Sharma, Audit Associate, SW India