ORDER
14. The appeal is hereby dismissed without any order as to costs."
16. Based on the above, I note that no prejudice has been caused to the Noticees and hence their contention w.r.t delay is not tenable.
17. I now proceed to deal with the issues on merits as under;
ISSUE No. I: Whether Noticees have violated provisions of SEBI Act, SCRA, PFUTP Regulations, LODR Regulations and Clauses of listing agreement, as alleged in the SCN?
Findings
18. Transfer/demerger of Operation & Maintenance Business (OMS) from Noticee 1 to SGSL
18.1 I note from IR that Noticee 1 is a manufacturer and supplier of Wind Turbine Generators (WTGs) and its components, SGSL was engaged in operation and maintenance of WTGs and SSL was engaged in manufacturing of towers since 2004. Further, I note from the material available on record that another subsidiary of Noticee 1 viz, Senvion SE, (Senvion), a german subsidiary, is a manufacturer and distributor of wind energy turbines. With this background, I note from the
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minutes of meeting of the Board of Directors of Noticee 1 dated February 14, 2014, which mentioned that its board had decided to carve out the OMS business by sale to its own subsidiary for effective management. I note from the said minutes that the same was done as part of global practice, wherein companies carry on the operation maintenance services business as separate and distinct from the parent company.
18.2 Further, I note that para 2 of the said minutes mentioned that with the proposed transfer/ sale/ disposal, Noticee 1 would be able to organize its OMS vertical under a separate subsidiary with segmented service portfolio and separate management team to independently focus on growth and track financial performance, etc. Thus, from the above it is conspicuous that OMS business was sold as a part of internal restructuring plan of Noticee 1. Further, I note that Non- Disclosure Agreement dated January 23, 2014 was executed between Senvion and Noticee 1 for selling of OMS business to Senvion.However, the same did not materialize and thus, it was decided to sell the said OMS business to SGSL, wholly owned subsidiary of Noticee 1. I also note that due disclosure dated February 14, 2014 was made to the stock exchanges by Noticee 1 about the decision to sell OMS business to one of its subsidiaries.
18.3 In order to effect the slump sale of OMS business, I note that an approval dated February 14, 2014 and March 27, 2014 of the Board of Directors and shareholders respectively was taken by Noticee 1. Further, I note that a dislcosure dated February 14, 2014 was made by Noticee 1 to the stock exchanges, vide which it had informed that its board has approved to carve out the OMS divisions of the company by sale to one of the subsidiaries for its efficient management. I note that the valuation of Rs 2,000 crores of OMS business of Noticee 1, been sold to SGSL, was not random but was based on valuation report by one of the reputed experts i.e. Grant Thornton (GT). I note from page 6 of the said report that the value arrived by GT as on December 31, 2013 was in the range of Rs 2,000.9 Crores to Rs 2,428.1 Crores. Further, I note that on March 28, 2014, the Board of Directors of Noticee 1 had approved the transfer/ disposal of the OMS division of Noticee 1 by means of a slump sale to SGSL for a lump sum consideration of Rs 2,000 crores, in line with the
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abovementioned valuation. I note from the submission of Noticee 1 that a slump sale agreement dated March 28, 2014, was executed between Noticee 1 and SGSL and on March 29, 2014, the OMS business was transferred by Noticee 1 to SGSL.
18.4 I find that the Hon'ble National Company Law Tribunal ("NCLT"), Chennai Bench, in the matter of Medici Holdings Limited v. Photon Infotech Private Limited and ors. [CP/53/2017, IA/210/2018 in CP/53 of 2017, IA/414/2019 in CP/53 of 2017, IA/227/2018 in CP/53 of 2017 and Comp. App(CA)/5/CHE/2022 in CP/53 of 2017] dated May 02, 2022, while deciding on a case related to oppression and mismanagement arising from the slump sale of the software business of the parent company to one of its subsidiaries, had held in its order that, "Thus, it has already been established that the sale of the software by way of a slump sale by 1st Respondent Company to Respondent 5 was legal. Next in order to assess if the Board operated honestly, the imminent point which is required to be considered is that whether the valuation at which the software business was sold to Respondent 5 was done in a fair manner or not. The Board of Directors of the 1st Respondent Company, knowing fully the operational position of the 1st Respondent Company, arrived at a valuation of Rs. 40 Crore as the fair value of the software business. ... It is a well settled law that in the matter of commercial business, the Court or Tribunals should not second guess the commercial business judgement of the Board of Directors of a Company. Hence, this Tribunal is not inclined to interfere in the business decision as taken by Directors who are the ones with the most information about the operations of the 1st Respondent Company. Further in any case, the Petitioner has not made out a ground for this Tribunal to interfere in the business decision taken by the 1st Respondent Company..."
18.5 In the instant case also, the value was arrived at by an independent expert and the decision to sell OMS business was approved by Board of Directors, which is vested with powers to take decisions in the best interest of company and its stakeholders and also the same was disseminated by way of disclosure to the stock exchanges.
18.6 As regards allegation of payment of sale consideration of Rs 2,000 crores through circuitous entries worth ₹1,300 crores, which allegedly led to misstatement in the standalone and consolidated Financial Statements, I note
27
from copy of the slump sale agreement dated March 28, 2014 and another agreement dated June 30, 2014, provided by Noticee 1 that SGSL was required to discharge the sale consideration of Rs 2,000 crores within 90 days, failing which an interest to the tune of 11% was to be levied by Noticee 1 on it. In order to ascertain whether payment of Rs 2000 crores was made in full or not, I refer to para 5.1 of page 13 of the Forensic Audit report (FAR), which mentions that Noticee 1 had received part of the sale consideration amount of Rs 700 crores from SGSL during the period from 2014-15 to December 2016 through several transactions. Further, I note from FAR that the same were verified from the bank statements of Noticee 1.
18.7 From the above, I note that the Noticee 1 was unable to discharge the sale consideration of Rs 2000 crores within 90 days in terms of the slump sale agreement and there was an outstanding of Rs 1300 crores still to be paid by SGSL. In this regard, submission of Noticee 1 that it had decided to fund the outstanding sale consideration of Rs 1300 crores from the funds available within the Suzon group, and therefore, it had subscribed to the Compulsory Covertible Debentures (CCDs) of SGSL to the tune of Rs 400 crores and extended loan of Rs 900 Crores and the said amounts paid in multiple entries in the bank accounts of Noticee 1 did not violate any provisions of law, I note from FAR that loan of Rs 900 crores was disbursed to SGSL by Noticee 1 in 6 entires of Rs 150 crores each on March 21, 2017 into its SBI account number 00000033683165234 and subscription amount of CCD of Rs 400 crores, susbscribed by Noticee 1 was credited into the account of SGSL in 3 entries of Rs 100 crores on March 22, 2017 and 1 entry of Rs 100 crores on March 23, 2017. I also note that the entries as mentioned above were immediately reversed by SGSL on the same date as the date of credit by Noticee 1.
18.8 Further, I note from Section D on Disclosure of significant transactions with related parties on page 156 of the annual report of Noticee 1 for the financial year 2016- 17 that Noticee 1 had duly disclosed the CCDs and Inter Corporate loan given to SGSL. I note from the said page that under type of transaction valuing Rs 400 crores with SGSL, Noticee 1 had shown it as Purchase of CCDs. Similarly, on the same page of the Annual report, under type of transaction valuing Rs 1465.90
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crores with SGSL, Noticee 1 had shown it as loans given. Further, I note from Note no. 15 on Borrowings on page 46 of the Notes to financial statements for the year ended March 31, 2017 of the audited financial statements of SGSL, an amount of Rs 1344.39 crores was being reflected as Current loans and advances. Thus, I note that Rs 1300 crores amount disbursed in the form of CCDs and loans by Noticee 1 to SGSL was utilized by SGSL in paying the remaining sale consideration of OMS business and the said transactions effected between Noticee 1 and SGSL had no effect on the consolidated statement of Noticee 1.
18.9 I note that there is no provision in Companies Act or LODR Regulations that bars granting of loans by a parent company to its subsidiary and repayment of the same in multiple trenches. Further, I note that Accounting Standard 1, which deals with the disclosure of significant accounting policies followed in preparing and presenting the financial statements does not prohibit parties to transactions from settling their accounts in multiple tranches. Thus, I note that by funding SGSL, Noticee 1 had converted a short term liability of SGSL (sale consideration) into a long term loan.
18.10 In addition to the aforementioned, I note from FAR that SGSL had paid the amount of Rs 700 crores through operating cash flows generated over period of time and further, I note from FAR that the amount of Rs 700 crores was utilized by Noticee 1 to service its debts and meeting the expenses. I also note that Noticee 1 had duly disclosed the transactions with SGSL as a Related Party Transactions (RPTs), which is evident from page 152 of the Annual report of Noticee 1 for the FY 2016-17. Thus, I note from the above that the circuitous transactions as alleged were nothing but the short term liability of Rs 1,300 crores of SGSL converted into long terms loans in the form of CCDs and ICDs.
18.11 As regards allegation of selling of entire equity stake of Noticee 1 in SGSL to SSL for a consideration of Rs 927.83 crores, resulting into a gain of Rs 829.78 crores, I note from reply of Noticee 1 that the sale of shares of SGSL to SSL was approved by its board as SSL was also a wholly owned subsidiary of Noticee 1, which was having a positive net worth, had long history of business operations, profit track record, and could make listing successful, which was possible with better valuations. I note from copy of resolution dated March 29, 2014 of Noticee
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1, wherein it was resolved by its board to approve the divestment of its entire investment in SGSL to SSL on or before March 31, 2016 at a price of Rs 94.63 per equity share, a value determined by GT by issue of shares of Rs 10 each of SSL, issued at a premium of Rs 917.83 per share. Further, I note from the copy of the resolution dated March 29, 2016 passed by the Board of Directors of SSL, wherein it was mentioned that in terms of the approval of the shareholders at the Extra Ordinary General Meeting of SSL held on January 11, 2016 and consequent approval of the board at its meeting held on January 28, 2016, SSL would acquire equity shareholding of SGSL on or before March 30, 2016 and discharge the consideration towards purchase of shares to Noticee 1, through issue of fresh equity shares of Rs 10 each of SSL at a premium of Rs 917.83 per share and to Suzlon Wind international Limited and SB Blades Limited through cash; both for a purchase value being determined by an independent valuer, which was arrived at Rs 94.63 per equity share of SGSL.
18.12 I also note that a disclosure dated March 29, 2016 was made by Noticee 1 to the stock exchanges, which read as under:
"2. Transfer of entire 98% equity shareholding in Suzlon Global Dervices Limited(SGSL) to Suzlon Structures Limited (SSL), another wholly owned subsidiary of the company.
The operation, maintenance and services (OMS) business was separated from SEL to achieve a strategic and operational focus on the business and development of a qualitative enterprise and a sector leader for OMS operations. The business has gathered required critical mass and has good ans sustainable operating margins, since separation from SEL. Thus, with a view to rationalize the OMS business to optimize future fund raise or capital raise activities, this transfer has been approved."
18.13 I also note from page 32 of the valuation report dated March 28, 2016 of GT, who was appointed by Noticee 1 to obtain a fair value of SGSL that following was stated:
"We therefore estimate the fairvalue of Equity of Suzlon Global Services Limited as per DCF method at INR 9,467.7 Mn as on the caluation date, based on the methodologies described in this report and subject to the limitations stated in this report and our engagement letter."
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18.14 I note from the order of Hon'ble SAT in the matter of Rakesh Agarwal vs. SEBI, [(2004) 49 SCL 351 (SAT)], wherein while assessing whether the appellant was guilty of insider trading or not, it was noted by SAT that the actions of the appellant were motivated by the need to secure a joint venture partner for his company, which were in the best interests of the company and all its shareholders. It was reiterated that any action taken, that led to the appellant's benefit was only incidental and not driven by the intent for unfair personal gain. Therefore, the Hon'ble SAT held that while the actions of the appellant may not be in technical compliance, the intent of such actions was to further the best interests of the company. The Hon'ble SAT held, "154. In the instant case it is clear that the Appellant was frantically trying to get a joint venture partner to strengthen the company, when the particular industry was facing problems. The partner was Bayer. It put stiff condition of holding 51% capital in the company. The Appellant's intention in acquiring the share was to facilitate the entry of Bayer for the betterment of the company and its other shareholders, employees etc. The object was not to gain unfair personal gain. It is true that in the process the shares which he purchased at a lower price fetched a higher price when offered in the public offer. But this gain was only incidental, and certainly not by cheating others. If the Appellant's intention was to make money in the process, he could have cornered much more shares and profited considerably. His bonafide is evident from the fact that he had instructed Mr. Kedia to buy even 1,20,000 shares @ Rs.80/- when the public offer response was not that warm, so as to meet the deficiency, if any, in obtaining 20% shares by Bayer in the public offer.
155. From the facts of the case, it is clear that the Appellant was acting in the interest of the company and to protect the interest of the company shares were purchased and, therefore the Appellant cannot be considered to have violated the prohibition contained in regulation 3(i). The fact that the Appellant in the process of tendering the shares in the public offer, tendered the shares at a price higher than the rate at which he purchased the same cannot be viewed as an action to gain unfair advantage over other shareholders. The gain was incidental to the main objective of enhancing the interest of A B S. He was already in management of the control of the company. It is too presumptuous to say that he had traded in the securities to protect his interest. He has not retained his managerial position at the cost of any other person."
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18.15 Thus, I note that stake sale of shares of Noticee 1 in SGSL to SSL and corresponding acquiring of shares of SSL by Noticee 1 was a share swap, was apparently carried out in the interest of the Noticee 1 and its entire group , which was duly approved by the Board of Directors of Noticee 1, wherein fair value to sell and acquire stakes were arrived at by engaging expert independent valuers and requisite disclosures were also made to the stock exchanges and therefore, allegation that Noticee 1 misrepresented financials by generating profits of Rs 1922.92 crores through the circuitious entries by selling OMS business and Rs
829.78 crores by selling equity stake is not forthcoming and accordingly, further allegations of negative networth and widening of losses due to the alleged transactions also do not stand.
18.16 As regards allegation of issuance of 1,21,95,69,014 equity shares by Noticee 1 during FY 2014-15 for an aggregate amount of Rs 1,882 crores, comprising Rs 244 crores towards equity share capital and Rs 1,638 crores towards securities premium, I note from the material available on record that no specific provisions of LODR Regulations was alleged to have been violated owing to the above said issuance of shares.
18.17 As regards, allegation of impairment of assets to the tune of Rs 6,026 crores by Noticee 1 allegedly resulting in erosion of its networth and corresponding submission of the Noticee 1 that impairment was done owing to the poor prospects of business and reduction in volumes in the wind industry due to changes in policy, such as, government's withdrawal of the accelerated depreciation benefit and expiry of the gross based incentive scheme of the government, I note from page 16 of FAR with respect to the impairment of assets in SEFL, which reads as under;
SEFL went into Corporate Debt Restructuring (CDR) in September 2012 and was incurring huge losses and going concern issues, SEL had impaired the investments worth Rs 566 crores in the FY 2013-14. Subsequently due to improved cash flows on sale of Senvion, fresh equity by Shangvi group, SEL had revived the SEFL and hence reversed the impairment of its investments in SEFL. SEFL made profit in 2016-17 after exiting CDR, however, subsequently due to adverse wind market condition the company
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agains suffered losses during FY 17-18 to FY 19-20. The reversal of impairments are done in compliance with the accounting standards
18.18 Further, I note from FAR that the impairment to the tune of Rs 566.96 crores and subsequent reversal was based on a valuation report by Duff & Phelps dated May 26, 2015. Similarly, impairments to the tune of Rs 560 Crores and Rs 194.27 Crores in FY 2018-19 and FY 2019-20 were carried out based on the valuation report of Hasmukh Shah & Co. LLP and Milan Rupchandani dated May 29, 2019 and June 26, 2020 respectively. Further, I note that the forensic auditor has categorically mentioned at point (d) and (i) of para 6.3 on page 21 of FAR that the reversal of impairment was in accordance with the clauses 941-100 of Ind AS 28 and hence impairment was considered in representing true and fair view of financials and no non-compliance was found with the applicable accounting standards.
18.19 Similalry, w.r.t impairments in SGWPL, I note that page 24 of FAR, mentions that based on the impairment indicators and in compliance with Accounting Standard 28 as applicable to the Noticee 1, its management had obtained valuation report from an external valuer and accordingly impairment in investment of Rs 245.9 crores in 2015 and impairment in ICD to the tune of Rs 1155.44 crores in 2018- 19 and Rs 363.30 crores in 2019-20 based on the valuation report of Hasmukh Shah & Co LLP & Milan Rupchandani dated May 29, 2019 and June 26, 2020 respectively was made and ultimately FAR concluded at point (f) of para 7.4 of page 27 that the impairment was made in accordance with the applicable accounting standards, duly supported by valuation report.
18.20 I note from paragraph 19 of Accounting Standard 13, which governs the accounting principles related to diminution, i.e., impairments in the investments, which in the instant case was done by Noticee 1 during FY 2012-2013 to FY 2015-2016. The said paragraph states, "Where there is a decline, other than temporary, in the carrying amounts of long- term investments, the resultant reduction in the carrying amount is charged to the profit and loss statement. The reduction in carrying amount is reversed when there is a rise in the value of the investment, or if the reasons for the reduction no longer exist". Similarly, I note from para 94 of Ind AS 36, which is applicable in the instant case, which reads as under:
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"An enterprise should assess at each balance sheet date whether there is any indication that an impairment loss recognised for an asset in prior accounting periods may no longer exist or may have decreased. If any such indication exists, the enterprise should estimate the recoverable amount of that asset".
18.21 From the above, I note that an entity (Noticee 1 in the instant case) was required to assess at the end of each reporting period whether there was any indication that an asset might be impaired. If any such indication existed, Noticee 1 was required to estimate the recoverable amount of the asset. If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is to be reduced to its recoverable amount. Thus, that reduction is an impairment loss. Also, I note that Noticee 1 was required to assess if there was any indication that an impairment loss recognised in prior periods for an asset may no longer existed or might have decreased. If any such indication existed, Noticee 1 was required to estimate the recoverable amount of that asset. Thus, an impairment loss recognised in prior periods for an asset is then reversed if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognized and if this is the case, the carrying amount of the asset is required to be increased to its recoverable amount. That increase is a reversal of an impairment loss.
18.22 Further, I note that both write off and impairment involve recognising decrease in asset value and an asset is eliminated from the books in the case of a write off, while on the other hand, impairment adjusts the value of the assets to reflect their diminished worth and the same is required to be reversed pursuant to change in conditions that effect the value of the asset.
18.23 Thus, in view of the foregoing, I note that FAR didn't point out any anomaly w.r.t the impairment of the assets and its subsequent reversal done by the Noticee 1. Further, I note that the same was within the ambit of the relevant accounting standards and was a decision taken by its management in the best interest of its shareholders as already established above.
18.24 Thus, in light of the above, I do not find any merit in allegation of mis- representation in financials of the Noticee 1.
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19. Contingent liabilities w.r.t Stand-by Letter of Credit (SBLC) issued by State Bank of India (SBI), which secured loan credit facility availed by AE Rotor Holding B.V. (AERH) and contingent liability of USD 569.40 million as at 31st March, 2018 not shown in the Annual Report for FY 2017-18
19.1 With respect to allegation on Noticee 1 of non-compliance of applicable and notified accounting standrads by non-provisioning of SBLC and corressponding submission of the Noticee 1 as mentioned above, I find pertinent to refer to the relevant extracts of Ind AS, viz. Ind AS 37, IndAS 104 and Ind AS 109:
A. The relevant extract of definition of 'contingent liability, as defined under 'IndAS 37 - Provisions, Contingent Liabilities and Contingent Assets', is reproduced as under:
"A contingent liability is:
"(a) a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity; or
(b) a present obligation that arises from past events but is not recognised because:
(i)it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or
(ii) the amount of the obligation cannot be measured with sufficient reliability." B. Relevant extracts from IndAS 104 are as under:
"……2 An entity shall apply this IndAS to:
(a) insurance contracts (including reinsurance contracts) that it issues and reinsurance contracts that it holds.
(b) financial instruments that it issues with a discretionary participation feature (see paragraph 35). Ind AS 107, Financial Instruments: Disclosures, requires disclosure about financial instruments, including financial instruments that contain such features."
As per Appendix A of IndAS 104, insurance contract is defined as "A contract under which one party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder. (See Appendix B for guidance on this definition.)"; Insurer is defined as "The party that has an obligation under an insurance contract to compensate a policyholder if an insured event occurs."
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And policyholder is defined as "A party that has a right to compensation under an insurance contract if an insured event occurs."
Ind AS 109 -Definition of Financial guranatee
A contract that requires the issuer to make specified payments toreimburse the holder for a loss it incurs because a specifieddebtor fails to make payment when due in accordance with theoriginal or modified terms of a debt instrument.
19.2 From the above provisions, I note that Noticee 1 was required to mention the liability of Rs 4,050 crores with respect to SBLC under Ind AS 109 and not under Ind AS 104 for the FYs 2016-17 and 2017-18, as the said liability was a type of financial guarantee, wherein Noticee 1 was required to pay to SBI in the event of invocation of the SBLC. Further, I note that Ind AS 37 categorically mentions exception to what is already covered under other accounting standards, which in the instant case SBLC, being a financial guarantee, was covered under Ind AS 109 and thus, the liability w.r.t SBLC was not required to be disclosed under contingent liability nor under insurance contract for both the years, rather, it should have been accounted under Ind AS 109. Further, it is on record that Noticee 1 had disclosed the said liability as Contingent liability for the FY 2016- 17 and had also mentioned the same in Note 6 to the standalone financial statements for the said year. I also note that the said liability was disclosed in Note 3 of the standalone financial statements for the FY 2017-18 as Insurance Contract under Ind AS 104. The relevant extracts of which are mentioned hereinbelow:
Notes to financial statements for the year ended March 31, 2017
6. Suzlon Energy Limited and its identified domestic subsidiaries (collectively 'the Group') and Suzlon Generators Limited, a jointly controlled entity ('SGL') are obligors under the Onshore Stand by letter of credit ('SBLC') Facility Agreement and have provided security under the 'Offshore SBLC Facility Agreement in connections with a SBLC issued by State Bank of India of USD 655 Million 122 SUZLON ENERGY LTD., ANNUAL REPORT 201 -1 6 7 123 for securing the credit facility and covered bonds availed by AE Rotor Holding B.V. (AERH), a step-down wholly owned subsidiary of the Company. The Group has classified the Onshore facility availed amounting to USD 538 million as a financial guarantee contract. AERH has a borrowing of USD 626 million as
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at March 31, 2017, which is due for repayment in March 2018, as per original schedule. The Group has obtained No Objection Certificate from the SBLC lenders as well as approval from Reserve Bank of India for extension of SBLC from April 2018 to April 2023. The Group believes that based on the strength of extended SBLC, the outstanding borrowing of AERH can be extended/refinanced by the existing lenders or by new lenders. AERH and its subsidiaries are engaged in dealing of WTGs in international markets and the cash-flows generated from these business activities will be used for serving the finance cost as well as towards part repayment of outstanding debt of AERH. The ability of AERH to repay the outstanding debt is primarily dependent on generation of cash-flows from business operations in overseas market. The Company management believes that AERH has reasonable business forecast over the next few years and estimates that AERH will be able to refinance the outstanding debt, if required and meet the debt obligations as and when they fall due and hence they believe that the financial guarantee obligation of USD 538 million is not required to be recognised in financial statements and it has been disclosed as contingent liability Notes to financial statements for the year ended March 31, 2018
3. Significant accounting judgements, estimates and assumptions The preparation of the Company's financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
a. Significant judgements in applying the Company's accounting policy
In the process of applying the Company's accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the financial statements:
Guarantee classified as an insurance contract
The Company, together with its three Indian subsidiaries and a joint venture are obligors to the State Bank of India and other Indian lenders and have given security in connection with loan availed by AE Rotor Holding B.V. ('AERH'), The Netherlands, a step down
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wholly owned subsidiary of the Company. The Company has treated the said guarantee as an insurance contract under Ind AS 104. Please refer to Note 4 for further details.
19.3 Thus, I note that for both the years, there was adequate disclosure but not under the relevant accounting standards. Since, adequate disclosures were made to investors, which is the primary objective to enable investors to take informed decision, I am inclined to take lenient view on this issue.
20. Findings w.r.t investments made in and loans given to SE Forge Limited
20.1 As regards allegation w.r.t. impairment of investment in SEFL, I note that the same has already been dealt with in the pre-paragraphs. I also note from para 6.3(a) of page 21 of FAR, wherein it has been concluded that due to the incapability of management of SEFL to source funds, Noticee 1 had done the imparments of its investments in SEFL in 2014-15 and the same was in compliance with applicable accounting standards and backed by independent valuation as and when the impairments were made or reversed. Further, as regards allegation of infusion of Rs 150 crores and writing off of Rs 128 crores, which was returned by SEFL to Noticee 1, I note from the Revenue and EBITDA in the audited financial statements of SEFL from FY 2016-17 to FY 2018-19 that there was a significant reduction in the said values, which as per submission of the Noticee 1 was owing to the challenges been faced by the wind industry worldwide. The deductions in the said values during the FYs 2017-2019 is tabulated below:
Amount in Crores:
| Particulars |
FY 2017 |
FY 2018 |
FY 2019 |
| Revenue |
491 |
360 |
357 |
| EBITDA |
151 |
70 |
39 |
| EBITDA % |
31% |
20% |
11% |
20.2 Owing to the above deduction in the values, I note from submission of the Noticee 1 that as SEFL needed more funds to meet its business operations and financial commitments (debt servicing) during FY 2015-16, Noticee 1 had infused Rs 150 crores and during FY 2015-16 had infused Rs 328 crores into SEFL. In this regard, I note from FAR that SEFL had returned Rs 128 crores to Noticee 1 after
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receipt of funds from Noticee 1 and similarly, I note that the amount of Rs 328 crores was also returned by Noticee 1 after infusion of the same as mentioned above. In this regard, I note that the infusion of capital in SEFL was duly authorised by the Board and approved by the shareholders and disclosures to the stock exchanges were also made. Further, I note from page 113 of the Annual report of Noticee 1 for the FY 2015-16 that a requisite disclosure w.r.t purchase of equity shares of SEFL to the tune of Rs 328 crores was duly disclosed in the said report, which shows that the investors were made aware of the infusion.
20.3 Further, I note from para 6.3(f) of FAR, wherein it has been concluded that if the loans and advances were not converted into equity, ICDs amounting to Rs 355 crores would have been shown as loans given to subsidiary and interest would have been charged on it as income in the books of Noticee 1. I note from FAR that there was no effect on impairments in loans or investments and the said conversion had resulted in improved networth and debt to equity ratio and that no fresh borrowings were made based on those improved financials. Thus, from the above, I note that FAR has not concluded violation of any provision of accounting standards or LODR Regulations owing to the conversion of loans into equity.
20.4 Further, I note that the decision to infuse the capital was backed by board approval and requisite disclosures were made to the stock exchanges. Further, as regards allegation of conversion of loans into equity, I note that there is no law that bars a company to convert the loans into equity. I also note that, the said transactions were with wholly owned subsidiary, which had no effect on consolidated statement.
20.5 Thus, I do not find any irregularity w.r.t the transactions as alleged.
21. Findings w.r.t investments made in and loans given to SGWPL
21.1 As regards allegation of equity infusion of Rs 1200 crores in SGWPL by Noticee 1 and returning and adjustment of the said funds by SGWPL to Noticee 1 through 16 circular entries of Rs 75 Crores each, I note that the issue of lending by a parent company and subsequent repayment by a subsidiary has been dealt with in the pre-paragraphs and as already established above, the said mechanism of
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lending and repayment is not barred under any law and was a decision taken by the management of Noticee 1.
21.2 Further, I note from submission of the Noticee 1 that from FY 2012 to 2016, it had provided temporary loans to support SGWPL's operational requirements. However, in 2015-16, the working capital of SGWPL had increased and there was no near-term visibility of repayment by SGWPL. Thus, in order to overcome the situation, it had invested Rs 1,200 Crores on March 19, 2016. In this regard, I note from page 113 of the Annual report for the FY 2015-16, Noticee 1 had shown Rs 1,200 crores as purchase of equity shares of SGWPL for the year ended on March 31, 2016 and similarly, I note from the cash flow statement of SGWPL for the year ended on 2015-16, SGWPL had shown Rs 1200 crores as amount w.r.t issue of equity shares under cash flow from financing activities. I also note from page 115 of the Annual report of Noticee 1 that it had shown an outstanding amount of Rs 676.35 crores as at March 31, 2016. Thus, both the Noticee 1 and SGWPL had made adequate disclosures in their respective financial reports. Further, as already discussed above, lending by Noticee 1 and repayment by SGWPL was within the ambit of law not barred in Companies Act and LODR Regulations.
21.3 As regards allegation of selling equity holdings worth Rs 1200 crores to SPIL at Rs 191.60 crores at a loss of ₹1054 crores on the sale transaction, I note from the copy of resolution dated March 29, 2016, passed by the Board of Directors of Noticee 1 that the sale of equity holding by Noticee 1 in SGWPL to SPIL was for consolidation of divisions and based on a valuation report dated March 18, 2016 from Resurgent India, which had assessed SGWPL's equity value as negative Rs 1,008.40 Crore. Thus, I note that the value arrived of Rs 191.60 crores was based on the valuation from an expert independent valuer and not decided by Noticee 1 on its own.
21.4 Further, I note from point 7.4 (b) at page 26 of FAR that FAR has concluded that there were no cash flows and Noticee 1 had booked huge losses due to roundtripping entries and hence had misled the users of financial statements. It further concluded that the investments of Rs 1200 crores through circuitous entries had inflated the networth of SGWPL and had effect on the consolidated
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Audited Balance sheet of Noticee 1 and that these circuitous transactions had effect of misstatement of facts and were not depicting the true and fair view of the financial affairs of Noticee 1 and were in violations of the Ind AS 1 and Schedule II, Part B of Regulation 17(8) of LODR Regulations.
21.5 With respect to the above, I note that while alleging violation of Regulation 17(8) of LODR Regulations and Ind AS 1, which provides for Certification by CEO and CFO that the financial statements represent true and fair view of the affairs of a company and preparing and presenting general purpose financial statements in accordance with Ind AS by company respectively, it has not been informed how true and fair view has not been presented despite adequate disclosures.
21.6 Further, I note that Noticee 1 in its disclosure to the stock exchanges dated March 29, 2016 had mentioned that its board had approved the following as mentioned below:
"Transfer of equity shareholding in Suzlon Gujarat Wind Park Limited (SGWPL), a wholly owned subsidiary of the company, to Suzlon Power Infrastructure Limited (SPIL), another wholly owned subsidiary of the company. Pursuant to this transfer, SGWPL would become a wholly owned subsidiary of SPIL and would continue to be s step-down wholly owned subsidiary of the company"
21.7 Thus, from the above, I note that the transactions were effected with board approvals dated March 29, 2016 of both the companies i.e. Noticee 1 and SPIL and disclosures dated March 29, 2016 were made in this regard to NSE and BSE. Further, as detailed above, the mechanism of converting loans into equity and repayment of borrowings by subsidiary to its parent company is not barred under any law and Noticee 1 had undertaken those decisions with approval of the board and had disseminated the same to the stakeholders.
21.8 In view of the foregoing, I do not find merit in the allegations.
22. I note from the certification of statement of impact of non-compliances in connection with the Standalone financial statements for the FYs 2013-14, 2014-15, 2015-16, 2016-17, 2017-18, 2018-19, 2019-20, 2020-21 and 2021-22 dated March 21, 2024, issued by SARC & Associates (Chartered Accountants), provided by the Noticees, that no non-compliance with respect to the alleged transactions in the standalone financial
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statements was observed. To sum it all up, I note that the action by the Noticees i.e the company and its management, were taken after due approvals and adequate disclosure to the shareholders was made in order to enable the investors to take informed decisions regarding their investments.
23. In this regard, I find relevant at this juncture to refer to the order of Honb'le SAT in the matter of D-Link (India) Limited v. SEBI, wherein it was observed that SEBI cannot interfere with the business decisions taken by the company unless its affects the securities market, the relevant extract is as under;
"8…. As already observed, this is a reasonable explanation furnished by the company and we cannot lose sight of the fact that the company and its board of directors are the best judges of the interest of their shareholders, and it was primarily a business decision which the company took and neither the Board nor we can substitute our own views for theirs. We wonder how the Board is concerned whether the company increases the investor wealth of its shareholders through the buy-back process or by making investments in infrastructure. This is not a matter which affects the securities market. The Board is primarily a market regulator, and its duty is to ensure that the market remains a safe place for the investors to invest. It cannot interfere with the business decisions taken by the company so long as they do not prejudicially affect the securities market."
24. Similalry, Honb'le Apex Court in the matter of S.A. Builders Ltd. v. Commissioner of Income Tax, held that authority cannot assume the role of businessman, the relevant extract is as under;
"36. We agree with the view taken by the Delhi High Court in CIT v. Dalmia Cement (B) Ltd. that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the Board of Directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximise its profit. The Income Tax Authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own viewpoint but that of a prudent businessman. As already stated above, we have to see the transfer of the
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borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits."
25. Further, I note that the importance of Consolidated statements was highlighted by the Honb'le Patna High Court in the matter of JMC Projects (India) Limited v. State of Bihar, which reads as under;
"With respect to the aforesaid issue regarding qualifying the criteria laid down in Clause 4.5
(D) of the NIT, this Court finds that reference has been made by the learned counsel for the petitioner to Section 129 of the Companies Act, 2013, which also stipulates that all the listed and unlisted companies, having one or more subsidiaries, including associate companies and joint ventures must compulsorily prepare the consolidated financial statements and the said concept of Consolidated Financial Statement was brought with an objective of achieving the true and fair view of reporting the position of the company for the financial year, since the consolidated financial statements are generally considered as primary financial statements from an economic entity perspective, whereas the standalone financial statement projects only the position of the company in its individual performance and does not provide the true and fair view to the shareholders about the overall performance of the company with its subsidiaries. In fact Accounting Standard-110 also provides that consolidated financial statement is required to be mandatorily compiled in preparation of financial statement and accounting policies. The petitioner is stated to be having 4 (four) 100% subsidiaries and has associates with 49.57 % holding, hence, in the case of holding company, the financial health can only be derived after consolidation of, financial statements of the subsidiaries and associates. This Court also finds that the Technical Tender Committee of the respondent No. 2 had analyzed the standalone financial statements and consolidated financial statements of the petitioner, whereafter it was of the view that the standalone EPS was positive and EPS derived on the basis of consolidated financial statement was negative from the financial year 2013- 2014 to 2016-2017. Thus, this Court is of the view that the employer i.e the respondent No. 2 in the present case, is duty bound to ensure that the bidder is sound from all corners, hence, if the Respondent No. 2 has considered the financial health of the petitioner company in totality along with its subsidiaries, in order to satisfy itself with regard to the right picture of the financial liabilities of the petitioner company, there is nothing wrong in it and in fact, the Respondent No. 2 has in the process found out that the petitioner company is in a bad shape
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on account of its subsidiaries, which poorly reflects on the financial health of the petitioner company, hence, the Technical Tender Committee has rightly held that the petitioner does not fulfil/qualify Clause 4.5(D) of the NIT dated 10.6.2019. Thus, the decision of the Technical Tender Committee of the Respondent No. 2 to hold the petitioner guilty or submitting misleading/false information, in light of Clause 4.8 of the instruction to bidders, cannot be faulted with, consequently this Court finds that the bid of the petitioner has rightly been rejected by the Technical Tender Committee of the Respondent No. 2 on this ground as well."
26. I note that the Indian wind energy sector has experienced significant turbulence over the past two decades due to policy shifts, fluctuating tariffs, and challenges in securing land and approvals. The sector faced periods of stagnation and uncertainty. The shift from feed-in tariffs to competitive bidding (auctions) impacted the sector, leading to lower tariffs and squeezing profit margins for manufacturers. This transition also altered the project development landscape, shifting focus from Original Equipment Manufacturers (OEMs) to Independent Power Producers. Fluctuating policies and inconsistent support mechanisms hinder long-term planning and development. The competitive bidding process, while intended to drive down costs, introduced volatility and financial risks. Revenue losses due to grid constraints and policy-driven tariff adjustments also posed challenges. Acquiring suitable land for wind farms and ensuring grid connectivity has been a persistent challenge, often leading to project delays. These challenges were beyond the control of a company operating in the wind energy sector and the companies were on their own to run the show. This also shows that the policy changes and the withdrawal of the incentives by the government were one of the reasons that forced the companies to go for internal restructuring plans, increased losses, thinning margins, etc.
27. Under such turbulent circumstances, it is best left to the management, which has been entrusted by the stakeholders with the task of steering the ship. I note that the decisions taken by the management of a company should not be questioned as they are the better judges of the challenges being faced by them. The key issue is whether the decisions are in compliance with the applicable provisions, taken with due approvals and whether the same have been disclosed adequately to the stakeholders, which in this case I find has been done. The same exhibits clear intention of the
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company that nothing is being hidden by them and dissemination to the public at large has been made. After a disclosure is there in the public domain, it is then upto the investors whether they want to continue or not.
28. As already established above, Noticee 1 had taken board and shareholders' approval as and when required and had also made requisite disclosure to the stock exchanges. Hence, I do not find any merit in the allegations against the Noticees.
29. Since, violations as alleged are not established, therefore, ISSUE-II and ISSUE-III do not require any consideration.
ORDER
30. Accordingly, the Adjudication proceedings initiated against the Noticees vide SCN dated November 09, 2022 stands disposed of.
31. In terms of Rule 6 of the SEBI Adjudication Rules, a copy of this order is sent to the Noticees and also to SEBI.
Place: Mumbai AMIT KAPOOR Date: June 27, 2025 ADJUDICATING OFFICER
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