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Tribunal Overturns SEBI Allegations
The Securities Appellate Tribunal (SAT) today delivered significant relief to Bombay Dyeing and Manufacturing Company Ltd (BDMCL) and its promoters, including Nusli, Ness, and Jehangir Wadia. The tribunal, by a 2-1 majority, quashed penalties totaling over ₹15 crore previously imposed by the Securities and Exchange Board of India (SEBI).
SEBI had accused Bombay Dyeing of orchestrating a fraudulent scheme to artificially inflate its profits. The regulator alleged that from FY 2011-12 to FY 2017-18, the company booked ₹2,492.94 crore in revenue and ₹1,302.20 crore in pre-tax profit through 11 Memoranda of Understanding (MoUs) with SCAL Services Ltd, another Wadia Group entity, for bulk flat sales. SEBI deemed these transactions sham, violating its anti-fraud regulations.
Majority Ruling Cites Lack of Evidence
However, SAT's technical members, Meera Swarup and Dheeraj Bhatnagar, found SEBI's case wanting. They concluded that the regulator failed to establish any fraudulent scheme or artificial profit inflation. The majority noted that the MoUs pertained to real projects where flats were constructed and sold, adhering to applicable accounting standards. They stated that Bombay Dyeing's disclosed financials were not fictitious simply because SEBI disagreed with the accounting treatment.
The tribunal also pointed out that promoter shareholding in Bombay Dyeing remained stable or increased during the inspection period, contradicting SEBI's theory that promoters aimed to profit from inflated numbers. Furthermore, SEBI did not provide evidence of a price impact on investors due to these alleged inflated profits. The majority also flagged an "inordinate delay" by SEBI, with show-cause notices issued nearly nine years after the alleged violations.
Presiding Officer Dissents
Presiding Officer Justice PS Dinesh Kumar dissented, upholding SEBI's findings. He viewed SCAL Services as an "extended arm" of Bombay Dyeing and concluded that the company booked revenue and profits in a "deceitful manner." Justice Kumar argued that such artificial profits lure investors and constitute market abuse, recommending dismissal of the appeals.
Despite the dissent, the majority ruling prevailed. All four appeals were allowed, and SEBI's October 2022 orders were set aside. The tribunal directed the refund of any penalties paid by the appellants within four weeks.