SEBI fined Fedders Electric's ex-chiefs ₹4.15 crore over inflated circular turnover

In December 2023 SEBI imposed penalties of over ₹4 crore on five former officials of Fedders Electric and Engineering Ltd and barred them from the securities market for two years, also restraining them from director or key-managerial roles at any listed company. SEBI found FEEL had shown inflated turnover by booking sales and purchases with related entities including LEEL Electricals — where the corresponding figures were less than what FEEL recorded. The fictitious-transaction arrangement was possible, the regulator said, because both FEEL and LEEL were managed by a common group of persons.

The individuals: CFO-cum-whole-time director Akhter Aziz Siddiqi, fined ₹1.25 crore; whole-time director Sham Sunder Dhawan, who signed FEEL's financials from FY2007-08 to FY2016-17, fined ₹1.2 crore; promoter Bharat Raj Punj, fined ₹1 crore; and independent directors Bindu Dogra and Ritushri Sharma, who sat on the audit committee from FY2013-14 to FY2017-18, fined ₹35 lakh each. SEBI said the KMPs instrumental in the company's affairs failed to comply with governance requirements.

The securities order sat inside a larger collapse: in July 2021 the CBI registered an FIR against FEEL and its promoters for allegedly cheating an SBI-led consortium of banks of ₹1,028.94 crore — producing fabricated account books, misrepresenting figures to borrow, and siphoning off loan proceeds, based on a forensic audit. The NCLT's Allahabad bench had admitted FEEL to insolvency resolution in August 2019, and in October 2021 approved a resolution plan that shifted control to new management.

Turnover was inflated through fictitious sales and purchases with related entities, and LEEL's own books did not corroborate FEEL's side of the trades.

The scheme worked because a common group of persons managed both FEEL and LEEL, letting the company trade with itself and present it as revenue.

The audit committee's independent directors were part of the failure: SEBI fined them for the years their committee oversaw the manipulated accounts.

The same books backed bank borrowing: the CBI alleged fabricated accounting was used to raise funds that were then siphoned.

Common management on both sides of a trade is how turnover gets inflated: when the counterparty is a sister, the sales are only as real as the cash behind them.

The five officials were directed to pay the penalties within 45 days, with two-year prohibitions from the securities market and from director or KMP positions at listed companies and registered intermediaries. FEEL's resolution plan was approved in October 2021 and control passed to new management; the CBI's criminal case over the ₹1,028.94 crore bank fraud remained the subject of investigation at the time of the SEBI order.