Authority: Adjudicating Officer, Securities and Exchange Board of India (SEBI)

Order Date: November 04, 2026

Order No.: Order/AK/BK/2026-27/32841-32844

Case Overview

This adjudication order stems from a SEBI investigation into Som Distilleries and Breweries Ltd (Noticee 1), a company listed on BSE and NSE, and its officials for the period from FY 2021 to FY 2024. The investigation was initiated to ascertain if the company's books of account were manipulated or misrepresented, violating the SEBI Act, 1992, and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations).

The principal allegations were twofold:

1. Related Party Transaction Violation: Noticee 1 had extended a corporate guarantee of ₹21.36 crore in favour of the State Bank of India (SBI) on behalf of Aryavrat Projects and Developers Private Limited (APDPL), a related party. This guarantee, issued in FY 2020-21, remained outstanding during the investigation period. It was alleged that the company failed to obtain the prior approval of its Audit Committee for this transaction, as mandated by Regulation 23(2) of the LODR Regulations. A subsequent communication in June 2024 to SBI, seeking a 50% reduction in exposure to APDPL and a waiver of the guarantee, was also alleged to be a material modification undertaken without prior Audit Committee approval.

2. Undertaking Disposal Violation: Woodpecker Distilleries and Breweries Private Limited (WDBPL), then a wholly-owned subsidiary contributing 43.12% and 47.34% to Noticee 1's consolidated revenue in FY 2021-22 and 2022-23 respectively, undertook a rights issue in FY 2023-24. Noticee 1 subscribed to 50 lakh shares for ₹10 crore and renounced its remaining entitlement. Promoters Jagdish Kumar Arora (Noticee 2) and Deepak Arora subscribed to 1 crore shares (₹20 crore) and 50 lakh shares (₹10 crore) respectively. This reduced Noticee 1's stake in WDBPL from 100% to 78.87% (a 21.13% dilution). This was alleged to be a disposal of substantially the whole of an undertaking without the prior special resolution of shareholders and without the approval of a majority of public shareholders, violating Regulation 37A(1) of the LODR Regulations.

Noticees 2 (Jagdish Kumar Arora, Chairman & MD) and 3 (Nakul Kam Sethi, Whole-Time Director) were charged with failing to ensure a sound compliance framework and exercise due diligence, violating LODR Regulations 4(2)(f) and Section 27 of the SEBI Act. Noticee 4 (Om Prakash Singh, Company Secretary & Compliance Officer) was charged with failing to ensure regulatory conformity, violating LODR Regulations 6(2).

The Noticees contested the allegations. For the guarantee, they argued it did not constitute a 'transfer of obligations' as it was never invoked, and relied on older shareholder resolutions under the Companies Act. For the WDBPL dilution, they argued that not subscribing to a full rights issue did not equate to a 'disposal' and that WDBPL was a self-created business, not a transferred undertaking. Noticee 4 claimed the guarantee was issued without his knowledge and that his role was advisory, not decision-making.

Findings and Reasoning

The Adjudicating Officer rejected the Noticees' defenses:

  • On Violation 1 (Corporate Guarantee): It was held that a corporate guarantee involves an immediate "transfer of obligations" upon execution, creating a contingent liability, and does not require invocation to be classified as a Related Party Transaction (RPT). IND AS 24 was cited, which includes providing guarantees as an example of an RPT. Prior Audit Committee approval under LODR Reg. 23(2) is a preventive, ex-ante measure and cannot be substituted by approvals under other statutes (e.g., Companies Act, 2013) or by disclosure in annual reports. The request to SBI in June 2024 was confirmed as a material modification also requiring prior approval. Consequently, Noticee 1 was found guilty of violating LODR Regulation 23(2). Noticees 2 and 3, as executive directors (with Noticee 3 chairing the committee that approved the guarantee), were found to have failed in their duties under LODR Reg. 4(2)(f) read with Section 27 of the SEBI Act. Noticee 4 was found to have violated LODR Reg. 6(2) as the Compliance Officer, as the ongoing nature of the guarantee meant it could not have remained outside his knowledge, and no evidence was produced showing he advised on rectifying this specific non-compliance.
  • On Violation 2 (WDBPL Dilution): It was held that WDBPL, contributing over 20% of consolidated revenue, qualified as an "undertaking" as per the Explanation to LODR Reg. 37A. The conscious decision by Noticee 1's Board to renounce its rights entitlement in favour of promoters, resulting in a 21.13% reduction in its interest, fell within the ambit of "otherwise disposal" of substantially the whole of an undertaking. The continued majority control was irrelevant as the regulation is triggered by the reduction of interest itself. The commercial necessity of the fund infusion (a failed QIP and a ₹70 crore capex plan) was noted but deemed a mitigating factor, not a cure for the lack of prior shareholder approval. Noticee 1 was found guilty of violating LODR Regulation 37A(1). Noticees 2 and 3, as responsible directors and with Noticee 2 being a direct beneficiary, were found liable. Noticee 4 was again found liable for failing to ensure compliance with this regulatory requirement.

Final Outcome

The Adjudicating Officer held that the violations attract penalty under Section 15HB of the SEBI Act. Considering the factors under Section 15J, it was noted that no quantifiable disproportionate gain or investor loss could be ascertained, but the repetitive nature of defaults by Noticee 1 was acknowledged. A penalty of ₹1,00,000 (One Lakh Rupees) each was imposed on Noticees 2, 3, and 4. Noticee 1 (the company) was not levied a monetary penalty in this specific order. The penalties are to be paid within 45 days of receipt of the order, failing which SEBI may initiate recovery proceedings.

Topics: SEBI Enforcement, Corporate Governance, Related Party Transactions