The Securities and Exchange Board of India (Sebi) has barred Bombay Dyeing and Manufacturing Company (BDMCL) and its promoters -– Nusli Wadia and sons, Jehangir and Ness -– from accessing the capital markets for up to two years for alleged misrepresentation of financial statements.
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It has also imposed a penalty of ₹15.75 crore on eight individuals and two entities, who have been directed to pay the fine within the next 45 days.
As per the Sebi order issued late Friday, BDMCL had allegedly indulged in dubious real estate transactions with its associate, real estate entity Scal Services. The market watchdog’s investigation into BDMCL’s affairs for FY 2011-12 to FY 2018-19 is said to have found ‘misrepresentations’ of the financial statements of BDMCL.
“BDMCL is alleged to have inflated Scal’s revenue and profit by ₹2,492.94 crore and ₹1,302.20 crore, respectively, during FY 2011-12 to FY 2017-18,” Sebi said in its show-cause notice, adding that BDMCL is alleged to have control over Scal.
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“Also, the net amount received till date with respect to memorandum of understanding (MoUs) entered into with Scal was ₹186 crore, which was 7.46% of the revenue recognised by BDMCL during FY 2011-12 to 2017-18. BDMCL is alleged to have deliberately deferred the billing and actual receipt of revenue to the extent of 92.54% by creating a schedule of billing in the MoUs in a manner that adversely affected the interest of shareholders of the company,” the order said.
The others who were penalised include Scal Services (a Wadia Group company), and its former directors DS Gagrat, NH Datanwala, Shailesh Karnik, R Chandrasekharan, and Durgesh Mehta. While the ban for Bombay Dyeing, Wadia and his sons is for two years, for Scal and its then directors, it is one year.
“It is alleged that BDMCL was involved in publishing untrue financial statements and constitute manipulative and fraudulent and unfair trade practices against the minority shareholders of BDMCL and the market at large,” Sebi said in its order.
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As per the order, the annual reports of BDMCL showed that a major part of the real estate revenue of BDMCL was derived from bulk sales made to Scal under the various MoUs. As submitted by BDMCL, a total 11 MoUs worth Rs 3,033 crore were entered into between BDMCL and Scal for the bulk purchase of flats and allotment rights between March 30, 2012, and March 27, 2014.
Sebi also said the shareholding structure of Scal was deliberately designed in such a manner that though BDMCL directly held only 19% stake in Scal, through its indirect holdings in other shareholders of Scal, BDMCL was able to exercise complete control over the company.
In the show-cause notice issued in the process of the investigation, Sebi has alleged that direct shareholding of BDMCL in Scal was deliberately kept at 19% to ensure that the definition of ‘associate company’ is not attracted and consequently, the financial statements of Scal would not be mandated to be consolidated with that of BDMCL.
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Further, BDMCL also failed to disclose all material transactions with Scal in the quarterly corporate governance compliance report, it said.
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Sebi has levied a fine of ₹2.25 crore on Bombay Dyeing, ₹4 crore on Nusli Wadia, ₹5 crore on Jehangir Wadia, ₹2 crore on Ness Wadia, ₹50 lakh on Mehta, ₹1 crore on Scal and ₹25 lakh each on the former directors of Scal.A Bombay Dyeing statement on Saturday said the company will be exercising its statutory right to appeal the Sebi order and “believes it would get justice and stand vindicated”.
“The company is in receipt of Sebi’s order, making remarks about finalised accounts dating back to a decade ago. Sebi has sought to interpret accounting standards and the depiction of validly prepared, approved and properly presented unqualified accounts between FY 2011-12 and FY 2018-19. Sebi has categorically noted that no benefits were made by the promoters and there is no diversion of funds, and yet, has issued a far-reaching set of directions. The accounts in question had been presented by the management, reviewed by the audit committee and opined on by statutory auditors. The company is quite firm in its view that all transactions were entirely legitimate and in compliance with law. They did not, and could not have, by any reasonable interpretation or extrapolation violated Sebi regulations,” the statement added.
