SEBI bars Bombay Dyeing, Nusli Wadia, Ness Wadia from accessing securities market for 2 years

The Securities and Exchange Board of India (SEBI) on Friday barred textile producer Bombay Dyeing and its promoters Nusli Wadia, Ness Wadia and Jehangir Wadia from accessing security market for two years for misrepresentation of financial statements of the company. .The market regulator also prohibited them from being associated with the securities market in any manner, including as a director or key managerial personnel in a listed company or an intermediary registered with SEBI, for a period of one year.Similar prohibition was also imposed on Durgesh Mehta, who served as the joint managing director and chief financial officer of Bombay Dyeing.The SEBI also imposed a penalty of ₹2.25 crores on Bombay Dyeing, ₹ 4 crores on Nusli Wadia, ₹2 crores on Ness Wadia, ₹ 4 crores on Jehangir Wadia and ₹50 lakh on Mehta.Penalties were also imposed on Scal Services Limited, a Wadia Group company, and its directors.The order was passed by whole time member of SEBI Ananta Barua. .The SEBI had launched a probe based on complaints against Bombay Dyeing and Scal. The SEBI found that Bombay Dyeing and others were involved in a fraudulent scheme of misrepresentation of financial statements of Bombay Dyeing, by inflating sales of ₹2,492.94 crores and profit of ₹1,302.20 crores, arising from non-genuine sale of flats (through MoUs), by Bombay Dyeing to Scal, over a period of seven years 2011-12 to 2017-18. The scheme was fraudulent in that the shareholding structure of Scal was deliberately designed in such a manner that though Bombay Dyeing directly held only 19 percent in the share capital of Scal, it was able to exercise complete control over the entire share capital of Scal through its indirect holdings in other shareholders of Scal..Bombay Dyeing argued that it was not mandated under any provision of law or Accounting Standards, to consolidate Scal’s financial statements with itself and, thus, the question of misrepresentation by inflation of sales and profits of BDMCL, did not arise. It was contended that Scal was not an ‘associate company’ or a ‘subsidiary company’ of Bombay Dyeing, thus, according to them, there was no question of Bombay Dyeing being able to exercise significant influence / control over the affairs of Scal and consequent consolidation of financials of Scal with Bombay Deying. The SEBI, however, turned down the same stating that it was not the case that consolidation of financial statements of Scal with Bombay Dyeing was mandatory, "Rather the show cause notice (SCN) has a larger case that because of the deliberate design to directly hold 19% in the share capital of Scal and de facto entire share capital of Scal, Bombay Dyeing was able to eschew from the compliance of consolidation of financial statements, thereby being able to hatch a grand scheme of fraudulent misrepresentation of financial statements for inflating the sales and profits of Bombay Dyeing," the order said..The SEBI, therefore, ruled Scal ought to have been recognized as ‘an associate’ of BDMCL for the purpose of Indian Accounting Standards 28, as well, and consequently the financial statements of Bombay Dyeing ought to have been prepared and disclosed as per stipulations in AS-23 and IndAS 28.If that was done the transactions between Scal and Bombay Dyeing of sale of flats would not have been recorded in the consolidated financials of Bombay Dyeing and consequently, its sales and resultant profit would have been accordingly, reduced to that extent..[Read Order]