The Securities and Exchange Board of India (Sebi) has issued a show-cause notice to textile maker Raymond alleging multiple securities market violations.
The allegations include failure to obtain necessary approvals for related party transactions in JK House episode, corporate governance violation for non-disclosure of material information about litigations and non-compliance of shareholder reclassification norms.
ET has reviewed a copy of notice.The capital market regulator said Raymond did not take necessary approvals for related party transaction involving lease of JK House to some of promoters for a decade between 2007 and 2017.
Raymond had leased four duplex flats in JK House to an entity named Pashmina in 2003.Pashmina subleased flats to tenants including Gautam Singhania, Veena Devi Singhania, Anant Singhania and Akshaypat Singhania all of whom were part of promoter group of Raymond.
In 2015-16, property went for reconstruction and Raymond paid for rental expenses of all sub-tenants, including promoters, for alternative accommodation.
While promoters were paying Rs 7,500 a month for sub-lease with Pashmina, Raymond paid Rs 12 lakh a month for alternative accommodation of Singhanias.
Sebi said company had incurred an expenditure of Rs 270 crore.The company provided alternate accommodation to sub-tenants at approximately 99 per cent discount.
Such disparity in rent paid by sub-tenants and company indicates unfair economic benefit to promoters at cost of company and its shareholders funds, said adjudicating officer Jeevan Sonparote in showcause notice.As per Sebi listing obligations and disclosure requirements (LODR) regulations, all related party transactions need a prior approval of audit committee.The redevelopment agreement of JK House had a clause which said developer will offer existing tenants apartments of same size in redeveloped building.
Singhanias had filed a petition before Bombay High Court against Raymond seeking to exercise their option of purchase of new apartments.
However, company did not disclose this litigation to its shareholders.Sebi rules mandate each company to decide quantitative threshold for determining whether a transaction is a material development or not.
Raymond had decided that any litigation that amounts to 5 per cent of gross turnover of company or 20 per cent of its networth would be categorised as material development and needed to be disclosed to shareholders.
The lack of disclosure of matter despite falling into its definition of a material development was a violation of listing agreement.Raymond had reported consolidate gross revenue of Rs 5,632 crore in FY16 whereas amount of litigation as per Sebi estimates is Rs 623 crore.It is alleged that, if said four duplex apartments in JK House were sold to sub-tenants as per terms and conditions laid down in tripartite agreement, then it would have resulted in opportunity cost of over Rs 623 crore to company and its shareholders, Sebi said.The market regulator also alleged that company had excluded Ritwik Ruia from promoter group without following due procedures.
As on March 2017, Ruia owned 2,000 shares in company under promoter and promoter group category.
However, in exchange filing for quarter ended June 2017, Ruia was excluded from promoter group.
In September 2017, company modified shareholding pattern again, this time including Ruia under promoter group again.It is alleged that company has not followed any procedures specified under Regulation 21A of Listing Regulations, 2015 for reclassification of promoter to public shareholders and accordingly filed an incorrect information with stock exchange, Sebi said.In response to an email query, a Raymond spokesperson said, "The notice received from SEBI is being discussed with our lawyers and we will respond to it appropriately.