Market violations: Raymond calls Sebi notice procedural, technical in nature

In a clarification to reports that Raymond had received a show cause notice from the Securities and Exchange Board of India (Sebi) for alleged security market violations, the company on Tuesday told the stock exchanges that the notice was related to matters, which are “procedural and technical in nature”. The company is working with the legal advisors to resolve the issues, it added.

On November 27, 2018, a show cause notice was issued to Raymond by Sebi, which was based on the market violations, which include the failure to take required approvals from the related parties in the JK House leasing episode. The company had leased four duplex apartments in the JK House to Pashmina (a subsidiary of the company) in 2003, which the entity further sub-leased to four members of Singhania family, who were a part of the promoter group of Raymond.

In 2015-16, the property under scanner went for reconstruction, following a tripartite agreement signed by both Raymond and Pashmina.

The textile major had paid for all the expenses of the sub-tenants, including the promoters of the company, for their alternative accommodation during the period of reconstruction. The promoters staying in JK House paid a rent of `7,500 per month to Pashmina, which remained same for alternate accommodation provided to Singhanias, however, the expenditure incurred by the company to provide alternate accommodation to each of the sub-tenants increased to `12 lakh per month, mentioned the show cause notice by Sebi.

“It is alleged that the company provided alternate accommodation to sub-tenants at 99% discount,” said adjudicating officer Jeevan Sonparote in the show cause notice. This arrangement gave an unfair economic benefit to the promoters at the cost of company and its shareholders’ funds, he added.

According to the Sebi listing obligations and disclosure requirements (LODR) regulations, all the related party transactions require a prior approval from the audit committee of the company.

“There is no dispute that the tripartite agreement is a deemed related party transaction, thus any payment arising out of it should be termed as related party transaction. Therefore, audit committee approval was required for payment made pursuant to tripartite agreement,” the show cause notice stated.

The show cause notice also raised concerns over the required disclosures on the materiality of events or information to the shareholders. The company had defined a policy on determination of materiality of events or information, where it said that if the value involved exceeds 5% of the gross turnover or 20% of the net worth of the company, whichever lower, shall called a material development and has to be disclosed to the shareholders.

It is alleged the four duplex apartments were sold to the sub-tenants under the terms laid under tripartite agreement, hence, it would result to an opportunity cost of over `623 crore to the company and shareholders, while 5% of gross turnover of FY16 is `281.64 crore,” the notice said.