SEBI Investigates Som Distilleries And Key Officials Over Alleged Disclosure And Governance Lapses

The Securities and Exchange Board of India (SEBI) initiated regulatory proceedings against Som Distilleries and Breweries Limited and several key managerial personnel following an investigation covering financial years 2021 to 2024 [1]. The regulatory probe examined potential manipulations and misrepresentations concerning corporate guarantees and shareholding reductions in a subsidiary [1].

Investigation Scope and Noticees

SEBI carried out an investigation into Som Distilleries and Breweries Limited, a company listed on both the Bombay Stock Exchange (BSE) and the National Stock Exchange of India Limited (NSE) [1]. The regulatory review spanned financial years 2021 through 2024 to determine whether the company's books of account were manipulated or misrepresented in violation of the SEBI Act, 1992, and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, commonly known as LODR Regulations [1].

Alongside the listed entity, the adjudication proceedings involve Chairman and Managing Director Jagdish Kumar Arora, Whole-Time Director Nakul Kam Sethi, and Company Secretary and Compliance Officer Om Prakash Singh [1]. SEBI appointed an Adjudicating Officer on February 20, 2026, subsequently issuing a show cause notice to the noticees on March 24, 2026 [1].

Allegations Concerning Corporate Guarantees and Subsidiaries

The regulatory notice detailed specific transactions that allegedly bypassed mandatory approvals [1]. During the 2020-21 financial year, Som Distilleries extended a corporate guarantee of ₹21.36 crore to the State Bank of India (SBI) for credit facilities availed by Aryavrat Projects and Developers Private Limited (APDPL) [1]. APDPL was disclosed as a related party under Indian Accounting Standard 24 (IND AS 24) due to significant influence exercised by key managerial personnel [1]. The company also awarded civil contracts totaling ₹14.40 crore to APDPL [1]. SEBI alleged that the company failed to obtain prior approval from its Audit Committee for this related party transaction, and similarly omitted required audit committee clearance when requesting a 50% exposure reduction and waiver from its banker in June 2024 [1].

A second major allegation centered on Woodpecker Distilleries and Breweries Private Limited (WDBPL), previously a wholly-owned subsidiary of Som Distilleries [1]. Because WDBPL contributed 43.12% and 47.34% of the consolidated revenue of Som Distilleries during the 2021-22 and 2022-23 financial years respectively, it qualified as an undertaking under the Companies Act, 2013 and LODR Regulations [1]. In financial year 2023-24, WDBPL executed a rights issue where Som Distilleries subscribed to 50 lakh shares for ₹10 crore while renouncing the remaining entitlement [1]. Chairman Jagdish Kumar Arora subscribed to 1 crore shares for ₹20 crore, and another promoter, Deepak Arora, subscribed to 50 lakh shares for ₹10 crore [1]. This reduced Som Distilleries' stake in WDBPL from 100% to 78.87%, which regulators argue constituted the disposal of substantially the whole undertaking without prior special resolutions or public shareholder approvals [1].

Responses From the Company and Officials

egin{itemize} - Noticees 1 through 3 requested and were granted an inspection of documents on May 7, 2026, through their authorized representative [1]. - The noticees submitted a common reply defending the corporate guarantee, arguing that it involved no actual transfer of resources, services, or obligations as required under LODR definitions, and noting that the guarantee was never invoked or crystallized into a liability [1]. - The defense also cited prior shareholder special resolutions under the Companies Act for borrowing limits and pointed to an Executive Legal and Borrowing Committee resolution where members overlapped with the Audit Committee [1]. - Noticee 4 submitted an independent reply following the issuance of the show cause notice [1].

Governance Responsibilities

SEBI's adjudication framework addresses the corresponding responsibilities of directors to maintain sound compliance frameworks and exercise due diligence, alongside the specific statutory duties of the company secretary and compliance officer to adhere strictly to regulatory standards [1]. Hearings and formal evaluations continue under the established adjudication rules [1].

Som Distilleries and Breweries Limited is a publicly listed enterprise trading on the BSE and NSE [1]. Under Indian securities regulations governed by SEBI, listed entities must adhere to strict disclosure norms, obtain prior audit committee approvals for related party transactions, and secure special shareholder majorities before disposing of material subsidiary undertakings.

This case highlights regulatory scrutiny over related party transactions, corporate guarantees, and subsidiary rights issues in Indian listed companies. It underscores the legal responsibilities of executive directors and compliance officers in upholding corporate governance and disclosure standards.

The adjudication proceedings could set important precedents regarding whether uninvoked corporate guarantees qualify as related party transactions under LODR regulations and how subsidiary rights issues involving promoter participation are treated under asset-disposal rules.

The final penalties or directions from SEBI remain undetermined as the adjudication process proceeds. The defense arguments regarding the absence of resource transfers for uninvoked guarantees are yet to be definitively evaluated by the regulator.