SAT Quashes SEBI Order Directing Prabhat Dairy To Deposit Rs 1,292 Crore
A woman carries a pail of milk. (Photographer: Prashanth Vishwanathan/Bloomberg)

SAT Quashes SEBI Order Directing Prabhat Dairy To Deposit Rs 1,292 Crore

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The Securities Appellate Tribunal quashed an order by securities regulator SEBI asking Prabhat Dairy Ltd. to deposit over Rs 1,292 crore. SAT also directed the regulator to process the delisting application of the firm and pass appropriate orders within six weeks.

"The direction of the WTM to deposit a sum of Rs 1,292.46 crore is wholly arbitrary and has been passed without any application of mind," the tribunal said.

WTM refers to whole-time member of the Securities and Exchange Board of India.

In October, SEBI had directed Prabhat Dairy to deposit over Rs 1,292 crore proceeds from the sale of its key business in a nationalised bank pending a forensic audit. Prabhat’s management was allegedly un-cooperative with the auditor.

The regulator had appointed Grant Thornton Bharat LLP as forensic auditor in July to ascertain facts and circumstances in relation to financials of the firm with respect to its financial statements for the financial years ending March 31, 2019, and March 31, 2020.

In January 2019, Prabhat Dairy told bourses that its board has approved the sale of the firm's shareholding in its wholly-owned subsidiary Sunfresh Agro Industries Pvt. Ltd to Tirumala Milk Products Pvt. Ltd for a total consideration of nearly Rs 1,227 crore.

It also approved the sale and transfer of its dairy product business for about Rs 473 crore.

Subsequently, the company said it intended to distribute the net proceeds of the transaction, approx. Rs 1,000 -1,200 crore to shareholders. A committee was set up to advise on this.

In September 2019, the firm said certain promoters intended to acquire 49.9% stake currently being held by public shareholders, and consequently voluntarily delist the equity shares of the company from the exchanges.

Aggrieved by the regulator's interim order, Prabhat Dairy and its two officials appealed to the SAT.

The tribunal noted that the sale consideration has to be admittedly distributed to the shareholders after meeting liabilities. The total amount comes to Rs 1,026.44 crore and the balance left for distribution of the shareholders is Rs 854.40 crore. Of this, 50% -- Rs 427 crore -- will go to the promoter group and about Rs 427 crore would go to minority shareholders comprising 49%.

Thus, the direction to deposit the entire sale consideration of Rs 1,292 crore is "neither appropriate nor beneficial to the survival of the company at this stage", the tribunal said.

Accordingly, the tribunal quashed SEBI's order and asked the company to deposit Rs 500 crore in a separate escrow account within 10 days as well as share requisite information with the forensic auditor.

Among other directions, SEBI has been asked to process the delisting application of Prabhat Dairy within six weeks.

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