Sebi bars Wadias, BDMCL from markets for 2 yrs for inflating financials

The Securities and Exchange Board of India (Sebi) barred Bombay Dyeing and Manufacturing Company (BDMCL), promoters Nusli Wadia, sons Ness Wadia and Jehangir Wadia from accessing the capital markets for two years for alleged misrepresenting financial statements. The market regulator has also slapped a cumulative penalty of Rs 15.75 crore on eight individuals and two entities, in the matter.

“I note that because of the misrepresentation of financial statements of BDMCL, the revenues and profit of BDMCL were inflated by Rs 2,493.94 crore and Rs 1,302.2 crore, respectively, during the period from FY2011-12 to FY 2017-18,” Sebi whole-time member Anant Barua has said in a 100-page order.

The regulator has charged the violators under the Prevention of Fraudulent and Unfair Trade Practices (PFUTP) Regulations. The individuals charged have also been prohibited from being associated with the securities market in any manner, including as director or key managerial personnel in a listed company or an intermediary registered with Sebi.

According to the Sebi order, BDMCL allegedly indulged in dubious real estate transactions with its associate real estate entity Scal Services. Though the company held 19 per cent stake in the company, BDMCL was directly or indirectly in control of the entire share capital of Scal.

“Scal was chosen as a bulk buyer by BDMCL and MoUs worth Rs 3,033 crore were executed with it, because the intention was never to consummate the complete sale of flats to Scal, rather the intention was to merely record the revenue from such dubious sales which were bound to fail,” the Sebi order said.

In his submissions to Sebi in March 2021, Nusli Wadia had said since FY06, Scal was a bulk purchaser and was successful in selling about 100 apartments in residential project of BDMCL. Further, while entering into MoUs with Scal amounting to Rs 3033 crore, he did not consider it necessary, at any point of time, to assess the current capability of Scal and merely relied on its past performance.

The Sebi order stateds that since both BDMCL and Scal were the companies of Wadia Group, the truncations between these two entities wouldn’t have happened “without Nusli’s knowledge and approvals.”

As per the Sebi order BDMCL showed the flats sold to Scal as ‘revenue’ in its books of accounts, but Scal had not shown these as ‘purchases’ in its books.

“I find that, if not for the sales to Scal, BDMCL would not have been able to put up the gloomy picture of a “consistent profit-making enterprise, showing the promise of a thriving real estate business,” Barua has said in the order.

He further noted that the company deliberately failed to comply with the stipulations under accounting standard, which would have mandated it to record the investments of Bombay Dyeing in Scal.

Scal’s real estate business was merged with BDMCL in July 2018. Shares of BDMCL had closed at Rs 96 on Friday. The company currently has a market cap of less than Rs 2,000 crore.

Source: Sebi order