The Securities and Exchange Board of India (Sebi) has imposed a ₹2 lakh penalty on Emami Realty for violations relating to a related-party transaction and the classification of investments in its standalone financial statements. According to Sebi's adjudication order, the penalty has been imposed under Section 15HB of the SEBI Act. The regulator found that the company failed to obtain prior audit committee approval for an additional ₹25 lakh loan to related party Lohitka, which was granted on August 8, 2016, while the audit committee approved the transaction on August 11, 2016.
Sebi rejected Emami Realty's contention that the disbursement was a continuation of an arrangement that had been authorised by the board in 2015. As reported by The Economic Times, the market regulator noted that Regulation 23(2) of the LODR Regulations mandates prior approval of the audit committee for related-party transactions. Sebi also rejected the company's argument that the ₹25 lakh amount was de minimis, noting that the LODR Regulations, as applicable at the time, did not provide an exemption based on a monetary threshold.
Sebi examined the classification of investments in Emami Realty's standalone financial statements for FY22 and FY23. According to the adjudication order, the company had classified investments aggregating ₹49.94 crore under "Inventories" instead of "Investments". The amount comprised ₹25.46 crore in equity investments in subsidiaries and ₹24.48 crore in convertible debentures of PUPL. Sebi held that the accounting treatment adopted by the company was not in accordance with Ind AS 1, Ind AS 2, Ind AS 27 and Ind AS 109, and noted that the classification had the effect of inflating current assets in the company's standalone financial statements.
Sebi did not establish the allegation relating to the non-disclosure of EAL, AAPPL and SVL as related parties and the associated transactions. As reported by The Economic Times, the alleged lapses occurred when the listed company was known as Emami Infrastructure. On July 22, 2016, Emami Infrastructure along with two wholly owned subsidiaries, Emami Realty and Emami Rainbow Niketan Pvt, merged under a Scheme of Arrangement for Amalgamation approved by the Calcutta High Court on June 14, 2016. Subsequently, the name of Emami Infrastructure was changed to Emami Realty. Sebi noted that considering the intervening period, subsequent amalgamation, corporate changes and Emami Realty's status as the successor entity, it was "inclined to adopt a lenient approach" on this limited aspect.
According to the adjudication order, Sebi noted that the available records did not specify any disproportionate gain or unfair advantage made by Emami Realty, or any loss suffered by investors due to the violations. The regulator also took note of an earlier ₹5 lakh penalty imposed on the company under Section 15HB of the SEBI Act through an adjudication order dated March 6, 2023. The penalty was imposed for violations relating to a related-party transaction and the classification of investments in its standalone financial statements.
