Binny, its top executives in the dock as Sebi finds diversion of funds and other violations

The Securities and Exchange Board of India has directed textile maker Binny Ltd to bring back over ₹700 crore of diverted funds into its accounts and imposed a penalty of ₹27.5 crore on the company and some of its key executives for repeated violations.

The regulator also barred Binny’s executive chairman M. Nandagopal, managing director Arvind Nandagopal, and chief financial officer T. Krishnamurthy from accessing the securities market and or being associated with any listed company or intermediary in any capacity for three years.

Sebi executive director Babitha Rayudu in a 31 July order said the regulator had established that ₹712 crore had been diverted from Binny as advances to related parties. The amount remains outstanding even after more than 10 years, indicating the repetitive nature of the violations, Rayudu said in the order.

Sebi has instructed Binny to bring back the diverted amount into the company’s books along with an interest of 12% per annum from the date of such transactions, which allegedly took place over three months in 2014-15.

It also barred former Binny director Nate Nandha from accessing the market or being associated with any listed company. 

Diversions and misstatements

Sebi began an investigation into Binny’s accounts after receiving several complaints of siphoning or diversion of the company’s funds, misstatements in its financial statements, and unauthorised related party transactions. 

One allegation was that advances of ₹329.29 crore were given to vendors involved in business activities not related to the company. 

Another allegation was that ₹383.35 crore had been diverted to Mohan Breweries and Distilleries Ltd, a related party of Binny, for the purchase of land parcels and a windmill farm.

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The regulator found such transactions had no underlying legal agreement signed, which was crucial because the dealings involved the money of public shareholders. 

“Such transactions in the commercial space involving such huge amounts without documentation raise concerns regarding their authenticity,” Sebi’s order reads. 

Undisclosed transactions 

Another allegation was that Binny’s board of directors had set off ₹528.77 crore owed by Mohan Breweries by acquiring land parcels worth ₹554 crore from it. The difference of the amount payable was waived off. 

Sebi found that documents provided by Binny in support of the purported settlement were deficient in substantiating its claims and could not be taken into consideration. However, it found that an amount of ₹6.61 crore had been received in Binny’s account from Mohan Breweries. 

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Sebi also found that Binny had violated its Listing Obligations and Disclosure Requirements (LODR) Regulations by not disclosing related party transactions with RRB Energy Ltd and non-recognition of income from sale of land. 

Binny had also not provided documents for advances paid to Malgudi Township Developers for the purchase of land, Sebi found.

Sebi exonerated S. Natarajan, a non-executive director of Binny, finding that he was either absent from the board meetings or, when present, had raised objections during discussions on related party transactions.