New Delhi: SEBI barred 10 entities, including Bombay Dyeing & Manufacturing Company Ltd and its promoters – Nusli N Wadia, Ness Wadia and Jehangir Wadia – from the securities markets for up to two years and fined them a total of Rs 15.75 crore for being involved in a fraudulent scheme to misrepresent the company’s financial statements, PTI reported.
SEBI conducted a detailed investigation into the affairs of Bombay Dyeing and Manufacturing Company Ltd (BDMCL) for the period covering FY 2011-12 to FY 2018-19, on the basis of certain complaints.
In its probe, the regulatory body found that these entities were involved in a fraudulent scheme of misrepresentation of financial statements of BDMCL, by inflating sales of Rs 2,492.94 crore and profit of Rs 1,302.20 crore arising from the alleged sale of flats (through memoranda of understanding or MoUs) by BDMCL to Scal during FY 2011-12 to 2017-18, a PTI report said.
Others banned by the Securities and Exchange Board of India are – Scal Services Ltd, a Wadia Group company, its then directors D S Gagrat, N H Datanwala Shailesh Karnik, R Chandrasekharan, and Durgesh Mehta, who was Joint-MD and CFO of Bombay Dyeing. They have been directed to pay the penalty within 45 days, SEBI said in its order passed on Friday.
Scal’s shareholding structure was deliberately designed in such a manner that through its indirect holdings in other shareholders of Scal, BDMCL was able to exercise complete control over the entire share capital of Scal, though BDMCL directly held only 19 per cent stake, SEBI said.
The direct shareholding of BDMCL in Scal was deliberately by design kept at 19 per cent so as to ensure that definition of ‘Associate Company’ is not attracted and therefore, the financial statements of Scal would not be mandated to be consolidated with that of BDMCL.
“Had the financial statements of Scal been consolidated with BDMCL, the aforesaid sales and profits of BDMCL from transactions with Scal, would not have been reflected in the consolidated financial statements of BDMCL, since inter-se transactions between the two entities would have been eliminated from being reported in the consolidated financial statements,” SEBI said in its order.
Now, SEBI has prohibited Bombay Dyeing, Nusli N Wadia, his sons – Ness and Jehangir – and Durgesh Mehta from the securities markets for two years, while the same for Scal and its then directors is one year.SEBI has also restrained Wadias and Mehta from being associated with the securities market, including as a director or key managerial personnel in a listed company, for a period of one year, PTI reported.
The regulator also levied a fine of Rs 2.25 crore on Bombay Dyeing, Rs 4 crore on Nusli Wadia, Rs 5 crore on Jehangir Wadia, Rs 2 crore on Ness Wadia, Rs 50 lakh on Mehta, Rs 1 core on Scal and Rs 25 lakh each on the then directors of Scal.
“The planned reduction of shareholding in Scal to 19 per cent to avoid consolidation of financial statements of Scal, execution of non-genuine sales to Scal through MoU’s, granting deferment of payment to Scal (and not any other bulk buyer), inflation of sales and profit of BDMCL, non-realization of payments from Scal etc, were all different legs of the broad ‘scheme of fraud’ perpetrated under the supervision and control of Noticee no. 3, 4 and 5, (Wadias) while they were at the helm of affairs at BDMCL,” SEBI order stated.