SAT stays Sebi securities market ban on Bombay Dyeing, Nusli Wadia and sons

Nusli Wadia (File image)

In a relief to Bombay Dyeing & Manufacturing Company Ltd and its promoters Nusli N Wadia and his sons, the Securities Appellate Tribunal (SAT) has stayed a Sebi order that banned them from the securities market for two years.

The matter would be listed for the next hearing on January 10, 2023, as per an order passed by the appellate tribunal.

The regulator, through its order last month, barred 10 entities, including Bombay Dyeing & Manufacturing Company Ltd (BDMCL), Nusli N Wadia and his sons — Ness Wadia and Jehangir Wadia — from the securities markets for up to two years. Besides, it imposed fines totalling Rs 15.75 crore on them for being involved in a fraudulent scheme of misrepresenting the company's financial statements.

Further, Sebi had restrained Wadias from being associated with the securities market, including as a director or key managerial personnel in a listed company, for a period of one year.

Sebi found that these entities were allegedly involved in a fraudulent scheme of misrepresentation of financial statements of Bombay Dyeing by inflating sales of Rs 2,492.94 crore and profit of Rs 1,302.20 crore arising from the alleged sale of flats (through memoranda of understanding) by Bombay Dyeing to Scal Services Ltd, a Wadia Group company, during FY 2011-12 to 2017-18.

The shareholding structure of Scal was deliberately designed in such a manner that though BDMCL directly held only 19 per cent stake, through its indirect holdings in other shareholders of Scal, BDMCL was able to exercise complete control over the entire share capital of the company, as per the Sebi order.

The direct shareholding of BDMCL in Scal was deliberately by design kept at 19 per cent so as to ensure that definition of 'Associate Company' is not attracted and therefore, the financial statements of Scal would not be mandated to be consolidated with that of BDMCL, it had said.

In its ruling, SAT noted that Bombay Dyeing had 19 per cent of the share capital of Scal and this was continuing since the financial year 2011-12 whereas Section 129 of the Companies Act, 2013 came into effect from April 2014.

Section 129(3) required consolidation of the financial statement of the company and its subsidiaries. Associate companies were added with effect from May 2018.

"Considering the fact as to whether the company Bombay Dyeing was obligated to consolidate the financials of its Associate Company Scal in view of Section 2(6) of the Companies Act, 2013 read with Section 129(3) of the Companies Act coupled with the fact that there was no diversion of funds nor there is any finding of any disproportionate gains or loss caused to any investor nor we find that there was any market impact regarding the financials of the company Bombay Dyeing," SAT said in its order.

Consequently, the tribunal has directed that "the effect and operation of the impugned order shall remain stayed during the pendency of the appeal".