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 alleging that Bombay Dyeing & Manufacturing Company Ltd, its promoters and related entities had misrepresented financial statements.
In the majority verdict, the SAT lifted the penalties imposed on the company, Wadia family members and others and directed that the amounts already paid be refunded within four weeks.
Sebi had banned 10 entities, including Bombay Dyeing and its supporters Nusli N. Wadia, Ness Wadia and Jehangir Wadia, from accessing the securities market and imposed a total fine of 1,000 TL. ₹15.75 crore.
The regulator had said that the company was involved in a fraud scheme to misrepresent its financial statements between FY11-12 and FY17-18 by inflating its sales. ₹2,492.94 crore and profit ₹Group company SCAL Services Ltd. 1,302.20 crore through transactions with
sebi He also alleged that eleven memorandums of understanding (MoUs) for bulk sale of flats/allotment rights in respect of 325 flats signed by Bombay Dyeing and SCAL from March 30, 2012 to March 27, 2014 were fake.
Allowing four interconnected appeals, the SAT held that the evidence on record did not show that the memorandums of understanding signed between BDMCL and SCAL for reservation of flats were fraudulent or intended to artificially increase the revenue or profits of BDMCL.
SCAL actually sold some of these flats to the end buyers, which clearly proves that the MoU is genuine.
In previous years too, SCAL had signed similar memorandums of understanding with BDMCL in 2006-07 and had successfully sold 100 flats under another project.
“The proof of the pudding is in the eating and the fact that even in the present case, no doubt has been raised as to the genuineness of the final sale of flats by SCAL to the buyers is sufficient to justify the good faith of the MoU,” the SAT judgment said.
The court noted that Sebi did not find any abnormal movement in Bombay Dyeing’s share prices in connection with the alleged misrepresentations and did not allege that the promoters or related entities made profits by selling shares at inflated prices. The court said promoter shares remained stable and even increased during the period under review.
Sebi’s case also relied heavily on SCAL Services’ shareholding structure, arguing that although Bombay Dyeing’s direct stake was capped at 19%, indirect stakes allowed it to have full control of the company.
The SAT rejected this approach on the grounds that regulatory obligations could not be imposed on the basis of inferential control. The court said Sebi cannot retrospectively treat SCAL as a partner or related party unless there was clear legal authority at the relevant time.
The decision was not taken unanimously. Presiding judge PS Dinesh Kumar agreed with Sebi that the MoUs with SCAL were not genuine and Bombay Dyeing had artificially inflated revenues and profits. However, two technical members disagreed and the majority opinion prevailed.
