Capital markets regulator Sebi has issued a show cause notice to textiles major Raymond citing several violations of the securities market.
The Securities and Exchange Board of India (Sebi) has alleged that Raymond failed to obtain necessary approvals for related-party transactions involving the lease of a city property and that the company did not comply with shareholder reclassification norms.
It specifically referred to the transaction involving lease of JK House in Mumbai to some of the promoters between 2007-2017.
Raymond had leased four flats in JK House to an entity named Pashmina in 2003 which the latter sub-leased to some individuals in the promoter group of Raymond, including Gautam Singhania, Veena Devi Singhania, Anant Singhania and Akshaypat Singhania.
The Sebi show cause notice says that in 2015-16, when the property was being reconstructed, Raymond paid the rent of all the sub-tenants, including the promoters, in alternative accommodation.
According to Sebi, while the promoters were paying Rs 7,500 a month for the sub-lease with Pashmina, Raymond paid Rs 12 lakh per month for the alternative accommodation of Singhanias.
"The company provided alternate accommodation to sub-tenants at approximately 99 per cent discount. Such disparity in rent paid by sub-tenants and the company indicates unfair economic benefit to promoters at the cost of company and its shareholders funds," Sebi Adjudicating Officer Jeevan Sonparote said in the show cause notice.
Under Sebi's Listing Obligations and Disclosure Requirements (LODR), all related party transactions need a prior approval of the audit committee.
Besides, the redevelopment agreement of JK House had a clause under which the developer was to offer the existing tenants apartments of the same size in the redeveloped complex.
Sebi's charge of non-disclosure against the Singhanias is on the ground that they had filed a petition before the Bombay High Court against Raymond, seeking to exercise their option to purchase the new apartments, which litigation the company did not disclose to its shareholders.
"It is alleged that, if the said four duplex apartments in JK House were sold to sub-tenants as per the terms and conditions laid down in the tripartite agreement, then it would have resulted in opportunity cost of over Rs 623 crore to the company and its shareholders," Sebi said.
Another charge against Raymond is that it had excluded Ritwik Ruia, who owned 2,000 shares in the company under the promoter and promoter-group category as on March 2017, from the promoter group without following due procedures. Ruia was excluded from the promoter group in the exchange filing for quarter ended June 2017.
"It is alleged that the 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," the show cause notice said.
Raymond on Tuesday said it is working with its legal advisors to resolve the issues raised in the Sebi show cause notice.
Referring to a media report on Monday, Raymond said in a stock exchange filing that the matters raised in the Sebi show cause notice are "procedural and technical" in nature and the company is in the process of resolving the issues.
"Please note that the subject show cause notice received from Sebi is in respect of matters which are procedural and technical by nature. We are working with our legal advisors and are in the process of resolving the said issues," Raymond said.
"The company has complied and shall continue to comply with provisions of applicable laws, including Regulation 30 of Sebi (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR)," it added.