Mumbai, Nov 20 (IANS) An investigation by the Securities and Exchange Board of India (SEBI) has found that Raymond Ltd failed to take necessary approval for certain related party transactions in the matter of leasing or renting JK House in the city, among other violations of regulations.
In its order, the capital markets regulator said that during the course of examination, it was observed that Raymond had allegedly failed to take necessary approval for certain related party transactions, thereby violating the provisions of Regulation 23(2) of LODR Regulations read with Clause 49(VII)(D) of the erstwhile equity listing agreement (amendments introduced vide SEBI circular dated April 17, 2014).
It further found that the company had allegedly failed to disclose litigation filed by Akshaypat Singhania, Veenadevi Singhania and Anant Singhania in January 2017 along with brief details of litigation and expected financial implications, thereby violating LODR norms.
The noticee had allegedly reclassified a promoter to public shareholder in June 2017 without following the due process of reclassification, thereby violating the provisions of Regulation 31A of the LODR Regulations, SEBI said.
SEBI has alleged that Raymond failed to take necessary approvals for related party transactions. It has been observed that during FY 2006-2007 to FY 2016-2017, JK House, situated at 59A Bhulabhai Desai Road, Mumbai, was leased or rented to the promoter or director of Raymond through a tripartite agreement between Pashmina Holdings Ltd, the sub-lessor, and Raymond (lessor).
The probe found that the sub-tenants were paying a paltry sum of Rs 7,500 per month as rent, whereas the expenditure incurred by the company for providing alternate accommodation to each of the sub-tenants was Rs 8 lakh per month.
Further, in FY 2015-16, rent paid by sub-tenants remained the same but expenditure incurred by the company for providing alternate accommodation to each of the sub-tenants increased to Rs 12 lakh per month.
“Thus, it is alleged that the company provided alternate accommodation to sub-tenants at approximately 99 per cent discount. Such disparity in rent paid by the sub-tenants and the company indicates that the intent of the tripartite agreement was to provide unfair economic benefit to the promoters at the cost of the company and its shareholders’ funds,” said the 72-page SEBI order.
The company through a letter dated June 6, 2017 had submitted that “no approval of audit committee was required as payments with respect to alternate accommodation were made directly to the licensors, being unrelated third parties (under relevant leave license agreements), who were and are in (no) way related parties (as defined under Companies Act, 2013)”.
Further, as per listing obligations and disclosure norms, all related party transactions shall require prior approval of the audit committee.
The SEBI order said that the tripartite agreement is a deemed related party transaction, thus any payment arising out of the tripartite agreement should also be considered as a related party transaction. Therefore, audit committee approval was required for payments made pursuant to the tripartite agreement from December 1, 2015 under LODR Regulations.
The probe also found from the shareholding pattern for the quarter ended March 2017 that Ritwik A. Ruia held 2,000 shares of the company under the category ‘Promoter and Promoter Group’.
For the quarter ended June 2017, Ruia was not reflected as part of the ‘Promoter and Promoter Group’ of the company. However, vide letter dated September 7, 2017, the company in its reply has confirmed that “Ritwik Ruia continues to be part of Promoter and Promoter Group of the Company”.
It was also observed that the company has subsequently modified the holdings of the Promoter and Promoter Group for the quarter ended June 2017, by including Ruia as part of the promoters, holding ‘nil’ shares of the company.
Thus, it is alleged that the company has not followed any procedures specified under Regulation 31A of Listing Regulations, 2015 for reclassification of promoter to public shareholders and accordingly filed an incorrect information with stock exchange, SEBI said.
The order by K. Saravanan, Chief General Manager and Adjudicating Officer, said: “I note that considering the stature of the Noticee I (Raymond), I expect the noticee to maintain a higher level of due diligence in its compliance with the provisions related to corporate governance.
“However, the noticee has not only failed to do so, but also allowed the sub-lessees to unduly benefit at the loss of itself and its public shareholders. While not alleged in the SCN (show-cause notice), I clearly note that the noticee has failed to adhere to the best practices of corporate good governance.”
The regulator said that in the event of failure to pay the penalty of Rs 7 lakh within 45 days of the receipt of the order, recovery proceedings may be initiated under Section 28A of the SEBI Act for realisation of the said amount of penalty along with interest thereon, by attachment and sale of movable and immovable properties.