Supreme Court to hear Sebi challenge to SAT relief for Nusli Wadia

Supreme Court to examine Sebi's challenge to SAT's split verdict clearing Nusli Wadia and Bombay Dyeing in a financial reporting case

The Supreme Court (SC) on Monday agreed to examine the Securities and Exchange Board of India’s (Sebi’s) challenge to a Securities Appellate Tribunal (SAT) decision that cleared Wadia Group Chairman Nusli Wadia, Bombay Dyeing, and several others of allegations of fraudulent financial reporting.

 

A Bench comprising Justices B V Nagarathna and R Mahadevan issued notice on Sebi’s appeals against the SAT's January judgment. While refusing the regulator’s plea to stay the ruling, the court clarified that the split verdict would not serve as a precedent for the tribunal in other matters.

 

“Since the impugned order is a split verdict, 2:1, we observe that the same shall not be a precedent in similar matters before SAT,” the Bench said.

 

 

The proceedings arise from 11 memoranda of understanding (MoUs) entered into between Bombay Dyeing and SCAL Services, both belonging to Wadia Group, for the bulk sale of residential flats in Mumbai.

 

According to Sebi, the agreements were structured to enable Bombay Dyeing to book revenue of ₹2,492.94 crore and pre-tax profits of ₹1,302.2 crore during the period from 2011-12 to 2017-18.

 

The regulator contended that the MoUs were not genuine commercial transactions but were devised to inflate the company’s financial results and mislead investors. It subsequently imposed penalties exceeding ₹15 crore on Bombay Dyeing, promoters Nusli Wadia, Ness Wadia, and Jehangir Wadia, SCAL, and several directors and senior executives.

 

In January, however, SAT overturned Sebi’s orders by a 2:1 majority. Technical members Meera Swarup and Dheeraj Bhatnagar held that the underlying real estate projects were genuine, the flats were eventually constructed and sold, and Sebi had failed to establish any fraudulent conduct or artificial inflation of profits.

 

Presiding Officer Justice P S Dinesh Kumar dissented, concluding that SCAL had effectively functioned as an extension of Bombay Dyeing and that the company had recognised revenue and profits through deceptive accounting practices.

 

Appearing for Sebi before the SC, Senior Advocate Arvind Datar argued that Bombay Dyeing had reduced its shareholding in SCAL from 49 per cent to below 19 per cent on March 29, 2012, causing SCAL to cease being classified as an associate company. However, he submitted that the divested 30 per cent stake had been transferred to another Wadia Group entity rather than to an unrelated third party.

 

The first MoU was executed the very next day, with 11 agreements worth about ₹3,333 crore signed over the following two years. Datar further submitted that while Bombay Dyeing recognised the transactions as sales in its accounts, SCAL did not record corresponding purchases, instead reflecting only an agency commission.

 

He argued that the case raises broader issues concerning the treatment of associate companies, lifting the corporate veil, and the doctrine of a single economic entity.

 

Counsel for the respondents opposed any interim stay, contending that SAT had exonerated them on factual findings and that Sebi had not challenged several conclusions affirming the legitimacy of the transactions.

 

They also pointed to an alleged delay of nearly nine years in initiating the enforcement proceedings. The SC granted the respondents time to file their replies and directed that all four connected appeals be heard together.