SEBI Imposes ₹8 Lakh Penalty On Golden Tobacco CFO For Certifying Misleading Financial Statements

The Securities and Exchange Board of India (SEBI) on Monday penalised Pawan Kumar Malsaria, Chief Financial Officer of Golden Tobacco Ltd., Rs 8 lakh for signing off on financial statements that did not reflect the company's true financial position.

The action follows a probe into the company's accounts over more than a decade, from 2009–10 to 2020–21. Regulators examined whether what appeared in the books matched how the company's funds were actually used.

At the centre of the case is a flow of funds of about Rs.175 crore that Golden Tobacco sent over the years to its wholly owned subsidiary, Golden Realty and Infrastructure Ltd. The company's annual reports consistently described these as advances for acquiring development rights in land in Delhi for joint projects.

The investigation found no real development activity. A large part of the money was moved out of the subsidiary to entities such as WGF Financial Services Ltd. and General Export and Credit Ltd. From there, it reached companies linked to the promoter group, including Dalmia Finance Ltd., Rosebys Interiors India Ltd. and Pashupatinath Commercial Pvt. Ltd.

There was little to show that the subsidiary itself was carrying on business. It had no revenue, and the proposed project in Delhi had not received approval from the Delhi Development Authority. Even so, the company continued to disclose that the advances were being used for development rights and were recoverable.

SEBI said these disclosures created a misleading picture for investors and did not reflect the company's actual financial position.

Malsaria became CFO in February 2016 and certified the company's financial results for several subsequent years. Such certification is meant to confirm that the statements are accurate and do not contain anything that could mislead investors.

He argued that the transactions took place before he assumed the role and were decisions taken by the management. The adjudicating officer rejected this, noting that the issue was the certification of financial statements during his tenure.

His contention that there was no intent to mislead was also not accepted. The order states that for breaches of this nature, intent is not required once a statutory obligation is violated.

SEBI held that the disclosures did not present a true and fair view and found him in violation of the applicable listing regulations. While no specific gains or repeated defaults were established, the regulator said the lapse warranted a monetary penalty.

He has been directed to pay Rs. 8 lakh within 45 days, failing which recovery proceedings may be initiated in accordance with law.