The Securities and Exchange Board of India (SEBI) announced that it will issue a final order in the Royal Orchid matter after considering the response from the hospitality firm. SEBI’s decision follows a show cause notice it had issued on March 31st, which questioned Royal Orchid and its key personnel over alleged misstatement of the company’s consolidated financial statements for the fiscal year 2021-22. The regulator claimed that these misstatements led to an inflated profit figure of 167%.
SEBI’s show cause notice questioned why the company’s promoters and key individuals should not be issued directions to restrain them from accessing the securities market, associating with listed companies or registered intermediaries, and whether disgorgement of gains from the sale of shares should be pursued against them.
The case has seen developments in various stages. Initially, SEBI issued an ex-parte ad interim order on March 31st, prompting Royal Orchid to challenge it before the Securities Appellate Tribunal (SAT). Last week, SAT ordered a stay on the effect and operation of SEBI’s interim order until August 17th, providing temporary relief to the company.
As the matter progresses, Justice Tarun Agarwala has directed Royal Orchid to file a response to the show cause notice within three weeks. Once SEBI receives the company’s reply, a hearing will be scheduled by the regulator to further evaluate the situation.
In its interim order, SEBI required Royal Orchid to submit a report detailing the adjustments made to the consolidated financial statements for the fiscal year 2021-22 and the resultant impact. This report must be certified by a peer-reviewed chartered accountant who is separate from the statutory auditor.
The case centers around allegations that despite having control over Ksheer Sagar Developers Private Ltd, Royal Orchid did not consolidate it as a subsidiary, instead treating it as an associate. This allegedly inflated the company’s profits for the fiscal year ending March 2022 by 167%. SEBI’s order mandated Royal Orchid to restate its consolidated financial statements for FY22 and prepare similar statements for the fiscal year ending March 2023, taking into account Ksheer Sagar as a subsidiary. The situation underscores the importance of accurate financial reporting and transparency within the securities market.