Bombay Dyeing and Manufacturing Company and its promoters Nusli Wadia, his sons Ness Wadia and Jehangir Wadia won a relief from the Securities and Appellate Tribunal (SAT) on Thursday against an order by market regulator SEBI that had banned them from the capital markets and restricted them from holding any positions on companies for two years. The counsel of the Wadias argued that SEBI was targeting them. SEBI had also slapped a cumulative penalty of ₹15.75 crore on eight individuals and two entities, in the matter.

It is SEBI’s case that Bombay Dyeing, with the help of an associate company Scal, inflated revenues and profit by ₹2,494 crore and ₹1,302 crore, respectively, between FY2011-12 to FY2017-18. But the counsel for Bombay Dyeing argued that accounting standards did not require consolidation in accounting for Scal. They claimed there was no diversion of funds, no impact on share price, no findings of dealings in the securities, and there were no allegations of fraud in SEBI’s show-cause notice. The SEBI counsel alleged that it was an intelligent move to keep shareholding in Scal deliberately at 19 per cent to get through accounting standards. Bombay Dyeing counsel countered the argument that the shareholding was under a structure permissible by law and preferred by many companies.

Wadias targeted

Alleging that SEBI was targeting the Wadia family, the lawyers argued, “Why were these three people picked? There is nothing specifically alleged against them (promoters) than what any other director would have knowledge of. The accounts were audited year after year by a well-reputed auditor firm. There has been no charge against the auditor firm or show-cause notice against them.”

Senior advocate Darius Khambata and JP Sen represented the Wadias, while Somasekhar Sundaresan argued for Bombay Dyeing. SEBI was represented by Senior counsel Gaurav Joshi in SAT.

SAT will now conduct a further hearing on the matter in January 2023. 

‘Allow rights issue’

Bombay Dyeing also requested the tribunal to allow its rights issue offer to be processed without any influence of the SEBI order as the company is starved for funds. SEBI doesn’t process fund raise requests in case an order or a show-cause notice has been issued. On September 22, the company’s board had approved its rights issue draft to raise up to ₹940 crore.

SEBI counsel argued that the rights issue offer was ‘engineered before the order’.

As SEBI’s order has prohibited the promoters from holding director or key managerial positions in any listed company or an intermediary, the counsel argued that it will affect other companies like Britannia and National Peroxide where they hold such positions.