Capital market regulator Securities and Exchange Board of India (SEBI) has barred Bombay Dyeing & Manufacturing, its promoters Nusli, Ness and Jehangir Wadias, Scal Services and five other persons from tapping the capital market and levied a cumulative fine ₹15.75 crore for indulging in fraudulent schemes to misrepresent the company’s financial statements.

They have been directed to pay the penalty within 45 days, SEBI said in its order passed on Friday.

Alleged scheme

Bombay Dyeing entered into a memorandum of understanding with Scal, a Wadia Group company, to sell the real estate projects being developed.

Scal had a negative net worth of ₹3 crore, ₹14 crore and ₹42 crore in FY12, FY13 and FY14, but Bombay Dyeing signed a pact with Scal, which entailed payment of ₹3,033 crore over several years based on the construction of Project One ICC and Project Two ICC, said SEBI in its 100-page order on Saturday.

Bombay Dyeing informed that Scal was a bulk purchaser and as per its business model, it was required to sell these apartments to retail customers and make payments to it despite knowing that Scal would not be able to pay Bombay Dyeing if the flats are not sold to third parties.

In this way, it is alleged that Bombay Dyeing fabricated a fraudulent scheme to transfer rights to sell flats to Scal and ensured that it continues to recognise the revenue irrespective of flats were further sold to retail customers, said SEBI.

Despite having a negative net worth, Scal was required to pay 10 per cent of the total consideration within 60 days of the date of MoU.

The payment made by Scal for the booking amount was financed through borrowings from various group companies of Bombay Dyeing and external entities.

Scal had made payment of ₹262 crore and ₹436 crore for purchasing the flats. Britannia Industries, another listed entity of Wadia Group, extended loan to Scal based on a comfort letter from Bombay Dyeing.

An analysis of the shareholding patterns of Wadia Group companies revealed that in all these complex and changing landscapes of shareholding structures, Bombay Dyeing acted as a common point and held the entire share capital of Scal indirectly through a number of entities, said SEBI in its order.