SAT sets aside Sebi's order on Bombay Dyeing and its promoters

SAT overturns Sebi's 2022 order against Bombay Dyeing and Wadia promoters, directs refund of penalties, cites lack of fraud and enforcement delay

The Securities Appellate Tribunal (SAT) has set aside the Securities and Exchange Board of India’s (Sebi’s) October 2022 order against Bombay Dyeing and Manufacturing Company (BDMCL), and its promoters Nusli Wadia and sons Ness and Jehangir.

 

The three-member SAT Bench directed that any penalty already paid by the appellants be refunded within four weeks.

 

“The amount of penalty paid by the appellants, if any, shall be refunded within four weeks of this order,” the tribunal said.

 

In its October 2022 order, Sebi had alleged that Bombay Dyeing, with the help of its associate company Scal Services, inflated revenues and profits between FY12 and FY18. 

Sebi had barred promoters from accessing the securities market for two years and imposed penalties of ₹15.75 crore on eight individuals and two entities. 

The long-running case saw divergent views within the Bench.

 

The tribunal was presided over by Justice P S Dinesh Kumar and includes two technical members — Meera Swarup and Dheeraj Bhatnagar.

 

The final verdict was delivered on the basis of the majority view of the technical members, the order noted. 

The tribunal held that there was “no fraudulent scheme in respect of the memorandums of understanding (MoUs)” signed between BDMCL and Scal Services, and that Scal could not be treated as a ‘related party’ of Bombay Dyeing for FY15, FY16 and FY17.

The SAT also blamed Sebi for the delay in initiating enforcement action.

 

“There is no valid explanation for the delay in taking action after nine years. We are at pains to note that Sebi, which is expected to play an important role in maintaining the integrity of the securities market, wakes up and acts only on receipt of certain complaints,” the order said.

 

Bombay Dyeing held a 49 per cent stake in Scal Services until March 28, 2012, which was reduced to 19 per cent from March 29, 2012. Sebi had alleged that despite the reduced shareholding, BDMCL continued to directly or indirectly control Scal and had entered into dubious real estate transactions with the associate entity to inflate financials. 

However, in a dissenting opinion, presiding officer Justice Dinesh Kumar said the transactions appeared questionable. “On the face of it, the transactions do not appear genuine. There was no real sale of flats. It was only on paper in the form of MoUs between the group. If the MoUs were between two different entities and genuine consideration had flown in, it could be termed as profit. The cross holdings in SCAL clearly shows that it was an extended arm of Bombay Dyeing group.”