**Securities Appellate Tribunal Overturns Sebi’s Penalties on Bombay Dyeing**
The Securities Appellate Tribunal (SAT) has annulled the Securities and Exchange Board of India’s (Sebi) 2022 order, which accused Bombay Dyeing & Manufacturing Company Ltd, along with its promoters and associated entities, of misrepresenting financial statements. In a majority decision, SAT dismissed the penalties levied against the company and its promoters, including Nusli N. Wadia, Ness Wadia, and Jehangir Wadia, and mandated the refund of any amounts already paid within four weeks.
Sebi had previously barred ten entities, including Bombay Dyeing and its promoters, from participating in the securities market, imposing cumulative fines totaling ₹15.75 crore. The regulator claimed that the company engaged in fraudulent activities to misrepresent its financial statements from FY11-12 to FY17-18, inflating sales by ₹2,492.94 crore and profits by ₹1,302.20 crore through transactions with SCAL Services Ltd, a group company. Sebi also alleged that eleven memoranda of understanding (MoUs) signed between Bombay Dyeing and SCAL from March 30, 2012, to March 27, 2014, for the bulk sale of flats were fraudulent.
In reviewing four related appeals, SAT concluded that the evidence did not support the claim that the MoUs between Bombay Dyeing and SCAL were fabricated or intended to artificially inflate the company’s revenue or profits. The tribunal noted that SCAL had successfully sold some of these flats to end buyers, indicating the authenticity of the MoUs. Furthermore, SAT highlighted that similar agreements had been executed in previous years, with SCAL selling 100 flats under a different project in 2006-07.
The tribunal pointed out that Sebi had not identified any unusual fluctuations in Bombay Dyeing’s share price linked to the alleged misstatements, nor did it claim that the promoters or related entities profited from selling shares at inflated prices. The shareholding of the promoters remained stable or even increased during the period in question.
Sebi’s case also relied on the shareholding structure of SCAL Services, arguing that despite Bombay Dyeing’s direct stake being limited to 19%, indirect holdings allowed for complete control. SAT rejected this argument, stating that regulatory obligations could not be imposed based on inferred control and that Sebi could not retroactively classify SCAL as an associate or related party without a clear statutory basis at the time.
The decision was not unanimous, as presiding officer Justice P. S. Dinesh Kumar dissented, agreeing with Sebi’s position that the MoUs with SCAL were not genuine.
**FAQ**
**What was the outcome of the SAT ruling regarding Bombay Dyeing?**
The SAT overturned Sebi’s penalties against Bombay Dyeing and its promoters, ruling that the evidence did not support claims of financial misrepresentation.