SAT sets aside Sebi’s order against Bombay Dyeing, Wadia family

The Securities Appellate Tribunal (SAT) on Friday set aside the market regulator’s 2022 order, which alleged that Bombay Dyeing & Manufacturing Company Ltd, its promoters, and related entities had misrepresented financial statements.

In a majority ruling, SAT set aside the penalties imposed on the company, members of the Wadia family and others, and directed that any amounts already paid be refunded within four weeks.

Sebi had barred 10 entities, including Bombay Dyeing and its promoters Nusli N. Wadia, Ness Wadia and Jehangir Wadia, from accessing the securities market and imposed cumulative penalties of ₹15.75 crore.

The regulator had said that the company was involved in a fraudulent scheme to misrepresent its financial statements during FY11-12 to FY17-18 by inflating sales of ₹2,492.94 crore and profits of ₹1,302.20 crore through transactions with group company SCAL Services Ltd.

Sebi also alleged that the eleven memorandum of understanding (MoU) signed by Bombay Dyeing and SCAL starting 30 March 2012, to 27 March 2014, for bulk sale of flats/allotment rights in respect of 325 flats were a sham.

Allowing four connected appeals, SAT held that the evidence on record does not show that the MOUs signed between BDMCL and SCAL for booking flats were fake or meant to artificially increase BDMCL’s revenue or profits.

SCAL actually sold some of these flats to final buyers, which clearly proves that the MoUs were genuine, it said.
In earlier years as well, SCAL had entered into similar MOUs with BDMCL in 2006–07 and successfully sold 100 flats under another project.

“The proof of pudding is in eating and the fact that even in the instant case, no doubts were raised on the genuineness of ultimate sale of flats by SCAL to the buyers is sufficient to justify the bona fide of the MOUs,” read the SAT order.

The tribunal noted that Sebi had not found any abnormal movement in Bombay Dyeing’s share price linked to the alleged misstatements, nor had it alleged that the promoters or related entities profited by selling shares at inflated prices. Promoter shareholding, the tribunal said, remained stable or even increased during the period under scrutiny.

Sebi’s case had also relied heavily on the shareholding structure of SCAL Services, arguing that although Bombay Dyeing’s direct stake was capped at 19%, indirect holdings allowed it to exercise complete control.

SAT rejected this approach, holding that regulatory obligations could not be imposed on the basis of inferred control. The tribunal said Sebi could not retrospectively treat SCAL as an associate or related party in the absence of a clear statutory mandate at the relevant time.

The decision was not unanimous. Presiding officer justice P. S. Dinesh Kumar, dissented, agreeing with Sebi that the MoUs with SCAL were non-genuine and that Bombay Dyeing had artificially inflated revenues and profits. However, the two technical members disagreed, and the majority view prevailed.