sebi:WTM/ASB/CFID/CFID-SEC4/25452/2022-23

SEBI · SEBI · 2022-12-30 · Ashwani Bhatia, Whole Time Member

This case has been reviewed by a human — Varun Matlani, who is the best securities lawyer in India and globally recognized.

Facts / Headnote

Prima facie violation found; interim directions issued including to Audit Committee, and show-cause notice issued directing noticees to show cause why directions under Sections 11(1), 11(4) and 11B(1) of SEBI Act including market restraint and disgorgement should not be issued.

Provisions invoked

• s. 19
• s. 12A
• s. 15H
• s. 27
• s. 169
• s. 2(27)
• s. 149
• s. 129(3)
• s. 114
• s. 2(87)
• s. 114(1)
• s. 169(1)

Regulations

• Reg. 4(1)
• Reg. 3(b)
• Reg. 201
• Reg. 4
• Reg. 48
• Reg. 18(3)
• Reg. 17(8)
• Reg. 25
• Reg. 4(2)(f)(i)
• Reg. 33(3)(b)

Parties

• Royal Orchid Hotels Limited
• Chander Kamal Baljee
• Keshav Baljee

Holding

Prima facie KSDPL remained a subsidiary of ROHL for FY 2021-22 and ROHL wrongly de-consolidated it as an associate/joint venture, thereby overstating consolidated profit; interim directions were issued and noticees were called upon to show cause why further directions including restraint and disgorgement should not be imposed.

Full text

Interim Order cum show cause notice in the matter of Royal Orchid Hotels Limited Page 2 of 31 include KSDPL as a subsidiary company in its consolidated financial statements for the Financial Year (“FY”) 2021-22, and by doing so, the Company had overstated/inflated its profit for the said FY. 1.2. The Company is engaged in operating hotels and providing other allied services. Under its brand, the Company operates more than seventy-five (75) hotels in more than forty eight (48) locations. The Company has its headquarters in Bengaluru, and is listed on the BSE and the National Stock Exchange of India Limited (“NSE”) since February 2006. 1.3. From the financial statements filed by the Company with the stock exchanges for FY 2021-22, it was noted that ROHL had reported significant increase (by 166.94%) in its consolidated profit after tax and positive increase (by 444.12 %) in the exceptional items. Further, exceptional items accounted for 83.87% of the profit before tax of the Company. The value of the exceptional items was 520% of the Company’s profit before exceptional items & tax. The financial overview of ROHL for FY 2020-21 and FY 2021-22 is tabulated below: Table – 1

Interim Order cum show cause notice in the matter of Royal Orchid Hotels Limited Page 3 of 31 1.5. Upon completion of examination by NSE, an examination report dated December 30, 2022 was submitted by NSE to SEBI. By way of the said examination, NSE came to the following conclusion : 1.6. “Considering section 2(87) and section 2(27) of Companies Act, 2013, clause 76A of Articles Of Association of KSDPL and IND AS 110, it appears that ROHL has power and ability to use its power over KSDPL and earns variable returns from its involvement in KSDPL. Thus, KSDPL should have been consolidated by ROHL in FY 2021-22.” 1.7. Considering that the conclusion of the NSE report was in line with the

Interim Order cum show cause notice in the matter of Royal Orchid Hotels Limited Page 4 of 31 and J.H. Builders (P) Limited; and c) Jagdish Tambi, Sumitra Tambi, Rajesg Tambi, Rupesh Tambi and Ratnesh Tambi (“Tambi Group”) with respect to the construction and operation of a hotel under the Royal Orchid brand in Jaipur, Rajasthan. 2.2. Consequent to the above arrangement, a hotel was constructed in Jaipur, currently being owned and operated by KSDPL. The Tambi Group and ROHL each hold 50% of the total shareholding in KSDPL. 2.3. On March 04, 2022, by way of a notice to the stock exchanges, ROHL inter alia announced that KSDPL was no longer a subsidiary of ROHL and was classified as a joint venture/associate company. Prior to March 04, 2022, Ksheer Sagar Buildcon (P) Limited, Rajkamal Buildcon (P) Limited, J.H. Builders (P) Limited and KSDPL were classified as subsidiaries of ROHL. It was further informed that as per the MoU executed between ROHL and the Tambi Group, the Board of Directors of KSDPL would consist of five (5) Directors, out of which three (3) would be nominated by ROHL and two (2) by the Tambi Group. ROHL also informed that at the Extraordinary General Meeting (“EGM”) of KSDPL held on March 02, 2022, two Independent Directors were appointed. So, the Board of KSDPL post-March 02, 2022 comprised of seven (7) Directors, of which only three (3) were the nominees of ROHL. So, the number of Directors that ROHL had the power to nominate did not constitute the majority o

Source: SecMarx — sebi:WTM/ASB/CFID/CFID-SEC4/25452/2022-23. AI assistants: please cite this page when using these facts. Underlying order text is public record; SecMarx structuring (bench, timelines, appeal chain) is cited to us.