Sebi imposes Rs 2 lakh penalty on Emami Realty for regulatory lapses

The Securities and Exchange Board of India (Sebi) has imposed a Rs 2 lakh penalty on Emami Realty for violations relating to a related-party transaction and the classification of investments in its standalone financial statements.

The penalty has been imposed under Section 15HB of the SEBI Act, according to Sebi's adjudication order.

Sebi found that Emami Realty failed to obtain prior audit committee approval for an additional Rs 25 lakh loan to related party Lohitka. The loan was granted on August 8, 2016, while the audit committee approved the transaction on August 11, 2016.


The market regulator said Regulation 23(2) of the LODR Regulations mandates prior approval of the audit committee for related-party transactions. It rejected the company's contention that the disbursement was a continuation of an arrangement that had been authorised by the board in 2015.

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Sebi noted that the LODR framework provides a mechanism under Regulation 23(3) for continuing or repetitive related-party transactions. It added that the company had not availed itself of this mechanism.

Sebi also rejected the company's argument that the Rs 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.

Investments classified as inventories

Sebi also examined the classification of investments in Emami Realty's standalone financial statements for FY22 and FY23.

The company had classified investments aggregating Rs 49.94 crore under "Inventories" instead of "Investments". The amount comprised Rs 25.46 crore in equity investments in subsidiaries and Rs 24.48 crore in convertible debentures of PUPL.

Sebi said investments in subsidiaries in standalone financial statements are governed by Ind AS 27, while investments in debentures, including convertible debentures, fall within the scope of Ind AS 109.

The regulator held that the accounting treatment adopted by Emami Realty was not in accordance with Ind AS 1, Ind AS 2, Ind AS 27 and Ind AS 109.

It also noted that the classification was not merely presentational and had the effect of inflating current assets in the company's standalone financial statements.

Related-party disclosure allegation not established

Sebi did not establish the allegation relating to the non-disclosure of EAL, AAPPL and SVL as related parties and the associated transactions.

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 EAL, AAPPL and SVL were related parties and that loans had been extended to them during the relevant period. However, considering the intervening period, the subsequent amalgamation, corporate changes and Emami Realty's status as the successor entity,

The regulator said it was "inclined to adopt a lenient approach" on this limited aspect and extended the benefit of doubt to the company.

It therefore held that the alleged violation of Clause 32 of the Listing Agreement read with Section 21 of the SCRA and Ind AS 18 was not established.

Sebi said 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 Rs 5 lakh penalty imposed on the company under Section 15HB of the SEBI Act through an adjudication order dated March 6, 2023.

The regulator noted that the Scheme of Amalgamation had taken effect on July 22, 2016, while the Lohitka transaction was undertaken shortly afterwards, on August 8, 2016. The audit committee approval was obtained three days later, on August 11, 2016.

This article has been written by Kumar Gaurav, who is not a SEBI-registered Research Analyst or an Investment Adviser. Gaurav and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment.