SEBI Penalises Majestic Auto for Not Obtaining Audit Committee, Shareholders' Approval on Related-party Transactions

Moneylife Digital Team 13 June 2024

Investor Interest

Securities and Exchange Board of India (SEBI) has imposed a penalty of Rs7 lakh on Majestic Auto Ltd for the company's failure to obtain approval from the audit committee and shareholders for related party transactions (RPTs) during FY18-19.

In an order last week, Amar Navlani, adjudicating officer (AO) of SEBI, says, "I note that apart from making mere statements, Majestic Auto did not demonstrate with relevant details and documents that Emirates Technologies Pvt Ltd (ETPL) was a wholly owned subsidiary of the Company or that any exemption was available with respect to transaction between Majestic Auto and ETPL considering that the Company only held 80% of the shareholding in ETPL and the remaining 20% in ETPL was held by OK Hosiery Mills Pvt Ltd. In this regard, I note that the submission of the Majestic Auto itself mentions that OK Hosiery was owned and controlled by its promoters, and the Company has not demonstrated with relevant details and documents that it also held shareholding in OK Hosiery. Therefore, I am of the view that the contentions of Majestic Auto in this regard are devoid of merit and hence not acceptable."

During the hearing, the AO pointed out that Majestic Auto placed security deposits with ETPL from FY19-19 to FY20-21. As of 31 March 2021, the company's deposits with ETPL were worth Rs15.38 crore with an interest rate of 10.25%.

SEBI sought a granular break-up of these transactions, which revealed that during FY18-19, Majestic Auto deposited Rs44.67 crore with ETPL which was much above the materiality threshold (of Rs6.5 crore) for such deposits based on the company's consolidated threshold during the previous year.

"I note that Majestic Auto had neither denied nor disputed that ETPL was its related party and that the transactions with ETPL during FY18-19, FY19-20 and April-May 2020 were related party transactions...Majestic Auto had failed to demonstrate that prior approval of the audit committee was obtained in terms of Regulation 23 (2) of LODR Regulations and that shareholders' approval was obtained for material-related party transactions during FY18-19 in terms of Regulation 23(4) read with Regulation 23(1) of LODR Regulations," the AO says.

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