The Bombay Dyeing and Manufacturing Company, Limited & Another vs. SEBI

IN THE SECURITIES APPELLATE TRIBUNAL AT
MUMBAI

TH
DATED THIS THE 16 DAY OF JANUARY 2026


CORAM : Justice P. S. Dinesh Kumar, Presiding Officer
Ms. Meera Swarup, Technical Member
Dr. Dheeraj Bhatnagar, Technical Member


Appeal No. 838 of 2022
And
Misc. Application No. 1789 of 2022
And
Misc. Application No. 1632 of 2022

Between


1. The Bombay Dyeing and









…. Appellants

Manufacturing Company Ltd.
Neville House, J. N. Heredia Marg,
Ballard Estate,
Mumbai – 400 001.

2. Durgesh Mehta
2402, Glenridge Cliff Avenue,
Hiranandani Gardens, Powai,
Mumbai – 400 076.

By Mr. Mustafa Doctor, Senior Advocate with Mr. Rohan
Kelkar, Mr. Abhay Jadeja, Mr. Varun Satiya, Mr. Arun
Unnikrishnan, Ms. Urvi Gulechha, Advocates i/b. Jadeja &
Satiya for the Appellants.

And

Securities & Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra
(East),
Mumbai - 400 051.




…. Respondent

2
By Mr. Gaurav Joshi, Senior Advocate with Mr. Sumit Rai, Ms.
Kajol Punjabi, Mr. Mihir Mody, Mr. Yash Sutaria, Mr. Tushar
Bansode, Advocates i/b. K. Ashar & Co. for the Respondent.

Mr. Amarpal Singh Dua, Advocate with Mr. Rangasaran
Mohna, Ms. Ashita Chawla, Advocates and Mr. Rohit
Mansukhani, Chartered Accountant for the Intervener.

With
Appeal No. 839 of 2022

Between


1. Nusli Neville Wadia
2. Ness Nusli Wadia
3. Jehangir Nusli Wadia

C-1, Wadia International Centre,
Pandurang Budhkar Marg, Worli,
Mumbai – 400 025.






…. Appellants


By Mr. Darius Khambata, Senior Advocate and Mr. Mustafa
Doctor, Senior Advocate with Mr. Rohan Kelkar, Mr. Tushar
Hathiramani, Mr. Abhay Jadeja, Mr. Varun Satiya, Mr. Arun
Unnikrishnan, Ms. Urvi Gulechha, Advocates i/b. Jadeja &
Satiya, Advocates for the Appellants.

And

Securities & Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra
(East),
Mumbai - 400 051.




…. Respondent

By Mr. Gaurav Joshi, Senior Advocate with Mr. Sumit Rai, Ms.
Kajol Punjabi, Mr. Mihir Mody, Mr. Yash Sutaria, Mr. Tushar
Bansode, Advocates i/b. K. Ashar & Co. for the Respondent.

3


With
Appeal No. 840 of 2022

Between

1. SCAL Services Ltd.
Raheja Point I,
Pandit Jawaharlal Nehru Road,



















…. Appellants

Vakola, Santacruz (East),
Mumbai – 400 055.

2. N. H. Datanwala
112, Beach Tower, P. Balu Road,
Prabhadevi, Mumbai – 400 025.

3. Shailesh Karnik
B- 108, New Sarvottam Society,
Irla Bridge, S. V. Road, Vile Parle
(W), Mumbai – 400 056.

4. R. Chandrasekharan
Raheja Point I,
Pandit Jawaharlal Nehru Road,
Vakola, Santacruz (East),
Mumbai – 400 055.
By Mr. Navroz Seervai, Senior Advocate with Mr. Abhishek
Venkatraman, Ms. Arti Raghavan, Ms. Sonam Pandey,
Advocates i/b. Sujit Lahoti & Associates for the Appellants.
And

Securities & Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex,
Bandra (East),
Mumbai - 400 051.




…. Respondent

By Mr. Sumit Rai, Advocate with Mr. Mihir Mody, Mr. Yash
Sutaria, Mr. Tushar Bansode, Advocates i/b. K. Ashar & Co.
for the Respondent.

4

With
Appeal No. 1016 of 2022

Between

1. Mr. R. A. Shah
Panorama, 209, Walkeshwar Road,










































Teen Batti, Mumbai – 400 006.

2. Mr. S. S. Kelkar
No. 1, Sindhula, N. Gamadia Road,
Mumbai – 400 026.

3. Mr. S. Ragothaman
33, Golden Gate Apartments,
11, Habibullah Road, T. Nagar,
Chennai – 600 017.

4. Mr. S. M. Palia
16, Ruchir Bungalows, Off Judges
Bungalows Road, Bodakdev,
Vastrapur, Ahemdabad – 380 054.

5. Mr. Ishaat Hussain
222-A, NCPA Apartments,
Nariman Point, Mumbai – 400 021.

6. Mr. Vinod Hiran
401, Anmol Prestige, Opp. Patel
Petrol Pump, Off. S. V. Road,
Goregaon (West),
Mumbai – 400 062.

7. Mr. Puspamitra Das
rd
Flat No. 305, B Wing, 3 Floor,
Serenity,
nd
2 Hasnabad Lande, Santacruz
(West), Mumbai – 400 054.

8. Mr. Vishnu Peruvamba
Flat No. 204, Tower 19, Orchid
Petals, Sohna Road, Gurgaon,
Haryana 122 018.

9. Parth Shah
st
Office No. 4, 1 Floor, Kala Vaidya
Sankul, Opp. Central Plaza Theatre,

5
Mumbai – 400 004. …. Appellants


By Mr. Rohan Kelkar, Advocate with Mr. Tushar Hathiramani,
Advocate i/b. Mr. Parth Shah, Advocate for the Appellants.

And

Securities & Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex,
Bandra (East),
Mumbai - 400 051.




…. Respondent

By Mr. Sumit Rai, Advocate with Mr. Mihir Mody, Mr. Yash
Sutaria, Mr. Tushar Bansode, Advocates i/b. K. Ashar & Co.
for the Respondent.

THESE APPEALS ARE FILED UNDER SECTION 15T OF
SEBI ACT, 1992 TO SET ASIDE ORDERS DATED
OCTOBER 21, 2022 (EX-A) PASSED BY WTM, SEBI AND
OCTOBER 31, 2022 PASSED BY AO, SEBI.

THESE APPEALS HAVING BEEN HEARD AND RESERVED
FOR ORDERS ON APRIL 3, 2025, COMING ON FOR
TH
PRONOUCEMENT OF ORDER THIS 16 DAY OF
JANUARY 2026, THE TRIBUNAL MADE THE
FOLLOWING :


O R D E R


The following four set of appeals are filed against order
dated October 21, 2022 passed by the learned WTM, SEBI
1
and the order dated October 31, 2022 passed by the AO of
SEBI, both of which are based on an investigation carried out

1
Adjudicating Officer

6
2
by SEBI in respect of BDMCL , in response to certain
complaints received by the SEBI:

a) Appeal No. 838 of 2022 has been filed by appellant
No. 1 BDMCL (Noticee No. 1) and Mr. Durgesh Mehta,
(Noticee No. 10) who was CFO, BDMCL (till October
2011) and Joint M. D. till February 15, 2014 (appellant
No. 2).

Appellant No. 1 (BDMCL) has been imposed penalty of
Rs. 2 crore under Section 15HA and Rs. 25 lakh under
Section 15HB. Appellant No. 2 (Noticee No. 10) has
been charged with penalty of Rs. 50 lakh under Section
15HA.

Appellant No. 2 has been restrained from being
associated with securities market including as director/
KMP of a listed company for 2 years.

One Mr. Rohit Mansukhani, an investor in BDMCL
shares since October 2017 has filed an intervention
application in respect of Appeal No. 838 of 2022,
seeking compensation for losses incurred to fall in share
prices of BDMCL.


b) Appeal No. 839 of 2022 has been filed by BDMCL’s
chairman Mr. Nusli N. Wadia (Noticee No. 3), its Non-
executive director, Mr. Ness N. Wadia (Noticee No. 4)
and Mr. Jehangir N. Wadia its managing director
(Noticee No. 5), who are family members as well.

2
Bombay Dyeing and Manufacturing Company Ltd.

7
Noticee Nos. 3, 4 and 5 have been charged with penalty
under Section 15HA of Rs. 4 crore, Rs. 2 crore and Rs.
4 crore, respectively.

Noticee No. 5 has additionally been charged with
penalty of Rs. 1 Cr. under Section 15HB. All of them
are debarred from accessing the securities market or to
act as director / KMP in a listed company for one year.


c) Appeal No. 840 of 2022 has been filed by M/s. SCAL
Services Ltd. (Noticee No. 2), a group company of
BDMCL, and its 3 non-executive directors, namely, Mr.
N. H. Daatanwala (Noticee No. 7), Mr. Shailesh Karnik
(Noticee No. 8) and Mr. R. Chandrasekharan (Noticee
No. 9).

Noticee No. 2 has been charged with penalty of Rs.
1 crore while Noticee Nos. 7 to 9 were levied penalty of
Rs. 25 lakh each under Section 15HA.

All four of them are debarred from dealing in
securities and/or accessing the securities market for
one year.

d) Appeal No. 1016 of 2022 has been filed by 9
appellants including 5 independent directors-cum-
Member of Audit Committee of BDMCL (Appellant Nos.
1 to 5) and its 3 CFOs- at different times (Appellant
Nos. 6 to 8), against the order dated October 31, 2022,
3
passed by the AO of SEBI, thereby imposing penalty
under Section 15HA of Rs. 10 lakh each on Appellants

3
Adjudicating Officer

8
No. 1 to 5, Rs. 2 lakh each on Appellants No. 6 & 8; and
Rs. 5 lakhs on Appellant No. 7.


2. Brief facts in the matter as per the records and
submissions of both sides are as follows:

2.1 BDMCL is the main company of Wadia Group, which is
engaged in the business of real estate, polyester and retail/
textile manufacturing. Equity shares of BDMCL are listed at
BSE and NSE. The company had promoters’ holding of
52.07% in FY 2011-12, which rose to 52.29% in FY 2012-13
and then to 52.35% in FY 2013-14 and 2014-15, and
thereafter remained static at 53.69%.

2.2 In addition, Wadia group includes Pentafil , Archway
and BDRECL , which are investment companies. SCAL , an
unlisted company of the group was primarily engaged in the
4
business of (a) Real Estate and (b) Trading during the IP .
Later, pursuant to an order dated February 21, 2019 passed
by the Hon’ble NCLT, Mumbai Bench, the Real Estate Business
Undertaking of SCAL got demerged and vested into BDMCL,
with effect from July 01, 2018.

5
2.3 Till March 29, 2012, BDMCL held 49% of SCAL’s shares,
when it sold 30% of SCAL’s shares to another group company
BDRECL, thereby, reducing its stake in SCAL to 19% with
effect from March 29, 2012.

2.4 BDMCL’s real estate division was engaged in developing
Project one ICC and Project Two ICC, at Dadar, Mumbai.


4
Inspection Period
5
SCAL Services Ltd.

9
2.5 Starting from March 30, 2012 to March 27, 2014, BDMCL
6
and SCAL signed eleven MoUs for bulk sale of flats/allotment
rights in respect of 325 flats in the said Project One ICC and
Project Two ICC schemes, with agreed sale consideration of
Rs. 3,033 crores over 2011-12 to 2017-18. This revenue was
recognised by BDMCL from FY 2011-12 to 2017-18 as per
Accounting Standard-7 (applicable for contractors) as per
percentage completion method, depending upon stage of
completion, stating with initial broking amount of 10%.

The year-wise revenue was recognised as under :-

Table 1: Revenue from Real Estate Segment recognised
by BDMCL (in Rs. Crore)

FY
Revenue
Out of
% of
revenue
Operatin
Profit
Before
Tax on








(A)
for real
which
Revenue
based on
g Profit
for Real
estate
segment
recogni
zed
from
SCAL
Estate
Segment
sales
made to





(B)
MoUs
entered




(E)
SCAL
with
SCAL1



(D=C/B



(F)

(C)
100) *
2011-12 566.27 341.32 60% 268.58 Not
provided
2012-13 665.70 339.47 51% 349.61 203.96
2013-14 803.28 670.13 83% 372.46 355.45
2014-15 444.23 301.11 68% 302.69 224.49
2015-16 470.23 239.26 51% 277.20 158.63
2016-17 296.95 156.07 53% 160.57 102.63
2017-18 1182.91 445.58 38% 586.43 257.04
2018-19 The real estate business undertaking of SCAL got merged
with BDMCL.
Total 4429.57 2492.94 56% 2317.54 1302.20


2.6 Out of total revenue from the Real estate segment of
Rs. 4429.57 crore, BDMCL recognized revenue of Rs.

6
Memoranda of Understanding

10
2,492.94 crore in respect of these MOUs with SCAL, which
accounted for 56% of total real estate segment revenue. This
7
resulted in PBT of Rs. 1,302.20 crore (56% of total profit of
BDMCL).

2.7 In its books, SCAL accounted for net profit/loss on sale
of such flats to ultimate buyers in its P&L account in the year
of purchase /sale of such flats.

2.8 One Mr. Rohit Mansukhani (intervener in Appeal No. 838
of 2022), who became an investor in BDMCL shares since
December 2017, asked for compensation from BDMCL for
losses incurred due to share price drop, which was rejected
by BDMCL, stating that market price of shares are driven by
8
fluctuations in market. He filed complaints with SEBI, BSE ,
9 10
NSE , and MCA , alleging improper accounting and concerns
regarding demerger or real estate business of SCAL and
merger with BDMCL.

11
2.9 On June 11, 2021, SEBI issued SCNs to the Appellants,
alleging that the MoUs between BDMCL and SCAL were
fraudulent, which artificially inflated reported revenue and
12
profits of BDMCL in violation of PFUTP Regulations.

2.10 The Appellants responded vide letter dated July 27,
2021 and August 9, 2021. On August 30, 2021, SEBI issued
another SCN to BDMCL’s Audit Committee, in which certain

7
Profit before tax
8
Bombay Stock Exchange Ltd.
9
National Stock Exchange Ltd.
10
Ministry of Corporate Affairs
11
Show Cause Notice/ Notices
12
SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003

11
allegations were omitted. It was alleged that through this
device, BDMCL inflated its profits and misled its investors.

2.11 Opportunity of hearing was given on January 10,
January 13, 2022 and January 17, 2022. Written submissions
were filed on February 3, 2022 and July 2022. The Appellants
accessed SEBI’s investigation records on April 12, 2022 and
filed additional submissions on August 3, 2022. Thereafter,
both impugned orders were passed.

3. Before us, BDMCL and its promoters (in Appeal
Nos. 838 and 839 of 2022 respectively) were represented
by Mr. Darius Khambata and Mr. Mustafa Doctor, learned
senior advocates with Mr. Rohan Kelkar, Mr. Abhay Jadeja,
Mr. Varun Satiya, Mr. Arun Unnikrishnan, Ms. Urvi Gulechha,
Mr. Tushar Hathiramani, Mr. Abhishek Venkatraman, Ms. Arti
Raghavan and Ms. Sonam Pandey. SCAL (Appeal No. 840
of 2022) was represented by Mr. Navroj Seervai, learned
senior advocate. In Appeal No. 1016 of 2022, appellants
were represented by Mr. Rohan Kelkar, with Mr. Tushar
Hathiramani, learned advocate.

Respondent SEBI was represented by Mr. Gaurav Joshi,
learned senior advocate along with Mr. Sumit Rai, Mr. Mihir
Mody, Mr. Yash Sutaria, Mr. Tushar Bansode, learned
advocates.

Intervener was given opportunity to plead in person.

4. Mr. Darius Khambata and Mr. Mustafa Doctor, learned
Senior Advocate and Mr. Rohan Kelkar, learned Advocate
representing in Appeal No. 838 of 2022 (by BDMCL) and
Appeal No. 839 of 2022 (by KMPs of BDMCL), made
submissions on the following lines:

12


Appeal No. 838 of 2022


4.1 Mr. Khambata submitted that BDMCL’s reduction of its
shareholding in SCAL to 19% in 2012, before the enactment
of the Companies Act, 2013, was lawful. Throughout the
investigation period from FY 2011–12 to 2018–19, SCAL did
not qualify as an “ associate company ” under Section 2(6) of
the Companies Act with 19% stake, being below 20%
threshold for holding existence of “ significant influence ”..
Hence, there was no statutory obligation on BDMCL to
consolidate SCAL’s financials under Section 129(3) or to
disclose it as a ‘related party’ under Section 2(76) of
Companies Act, 2013, both requirements being for ‘Associate
company’, which SCAL was not. The MoUs and other inter-
corporate arrangements cited by SEBI did not confer any
statutory control or influence of BDMCL over SCAL under the
Companies Act, 2013.

4.2 The SCN did not allege fraud or inducement to trade,
or diversion/mis-utilisation of funds, or any gain / loss to
investors. Further, there was no price impact analysis or
statistical correlation demonstrating any influence on
BDMCL’s share price due to alleged inflation of profits, by
such non-consolidation of financial statements of SCAL.

4.3 Mr. Khambata further submitted that the findings in
the order exceeded the scope of the SCN, thereby violating
principles of natural justice. While the SCN focused on two
core allegations i.e., (i) non-consolidation of SCAL’s accounts
and (ii) non-disclosure of related party transactions, it did not
allege deliberate orchestration of a fraudulent scheme, or

13
influence through MoUs, or assigned specific roles to the
individual appellants. The impugned order aided new grounds
inter-alia, reliance on Accounting Standards (AS-23/IndAS-
28), materiality of MoUs, and claims of a grand fraudulent
scheme, etc. which were not part of the SCN. This
jurisdictional overreach contravenes settled principles that an
inquiry cannot travel beyond the scope of the SCN. In this
regard, he relied on Nasir Ahmad v. Assistant Custodian
13
General and UMC Technologies v. Food Corporation of
14
India .

4.4 Mr. Khambata submitted that in case of conflict, the
provisions of Companies Act, 2013 must prevail over the
Accounting Standards. The WTM erred in relying on AS-23,
AS-18, IndAS-28, and Clause 49 of the Listing Agreement and
thereby imposing obligations for consolidation of financials of
SCAL and for related party disclosure, by disregarding specific
provisions of Section 2(6) read with Section 129(3) and
Section 2(76) of the Companies Act, 2013, under which SCAL
did not meet the statutory criteria for being held as an
‘associate company” or a “related party”. As per the ICAI
Preface and applicable accounting rules, if there is any conflict
between Accounting Standards and statutory provisions, the
latter must prevail. To support this, he relied on J. K.
15
Industries Ltd. & Anr. Vs. Union of India & Ors. and
16
Tata Sky Ltd. vs. State of Madhya Pradesh & Ors.

4.5 The learned senior advocate submitted that WTM’s
reliance on AS-21 to suggest elimination of cross-holding is

13
(1980) 3 SCC 1
14
(2021) 2 SCC 551
15
(2007) 13 SCC 673
16
(2013) 4 SCC 656

14
flawed, as AS-21 applies only to subsidiaries, and not to an
‘Associate company’. Further, AS-23 requires clear
demonstration of ‘ Significant influence’ , which the 19% stake
of BDMCL over SCAL does not establish. With regard to the
alleged holding of influence by BDMCL over ‘business
decisions of SCAL, he submitted that the MoUs merely reflect
commercial safeguards and do not give BDMCL power to
influence SCAL’s policies. Hence, the ‘significant influence’
argument lacks statutory force for invoking Accounting
Standards to override the express statutory provisions of
Companies Act, 2013.

4.6 Mr. Khambata submitted that there was no violation of
PFUTP Regulations, as there was no “ dealing in securities ” or
inducement to deal in securities, neither alleged or proved,
which are essential ingredients for establishing fraud under
the PFUTP Regulations. He submitted that SEBI’s theory of
artificial inflation of profits is speculative and unsupported by
actual investor behavior or share price movement. The IO
records the admission that “ no statistical analysis or empirical
data supported the claim of price impact or market
manipulation”. He submitted that reliance on a pre-SCN chart
in the impugned order that was not included in the SCN itself
is a breach of natural justice.

4.7 Further, with regard to reliance on the new Explanation
to Regulation 4(1) of PFUTP Regulations inserted in 2019, he
submitted that the same came into effect only in 2020 and
hence cannot be invoked retrospectively to criminalise non-
consolidation decisions taken several years earlier.

4.8 Learned senior advocate submitted that SEBI’s reliance
on judicial precedents such as N. Narayanan v. SEBI, SEBI

15
17
v. Rakhi Trading Pvt. Ltd. and SEBI v. PAN Asia
18
Advisors Ltd. is misplaced, as these cases involved
instances of actual trading in/pledging of securities and
demonstrable inducement or manipulation. In contrast,
admittedly, no actual securities transaction or inducement
has been shown in the present case. Relying on SEBI v.
19
Kanaiyalal Baldev Patel , he submitted that mere
misrepresentation in financial statements, does not constitute
PFUTP violation. Admittedly, there was no “dealing in
securities” as defined under Regulation 2(1)(b), neither was
there any finding of deceptions of investor’s or fraudulent
intent. Therefore, the IO’s conclusions rests on misapplication
of law and speculative reasoning.

Mr. Khambata contended that the amended provisions
of PFUTP Regulations were introduced on February 1, 2019
and October 19, 2020. These amendments broadened the
scope of “ dealing in securities ” “knowingly influencing
investor decisions” and introduced new grounds for liability.
Such retrospective application for FY 2011-12 to FY 2017-18
is impermissible in the absence of express legislative intent
and cannot be held as clarificatory in nature. Reliance was
placed on Pernod Ricard India (P) Ltd. v. State of
20 21
Madhya Pradesh , Ritesh Agarwal v. SEBI and
Federation of Indian Mineral Industries v. Union of
22
India .


17
((2018) 13 SCC 753)
18
(2015) 14 SCC 41
19
(2017) 15 SCC 1
20
(2024) 4 S.C.R. 664)
21
(2008) 8 SCC 205
22
(2017) 16 SCC 186

16
4.9 Without prejudice, substantive amendments that
enlarge the scope of liability cannot apply to prior conduct.
Further, the IO has misapplied Regulation 4(2)(k), to equate
the “alleged misstatements in financials” with “ planting
misleading news ”, disregarding that this clause applied to
‘misleading advertisements’ only during the relevant period
and not to ‘accounting practices’.

In this regards, the learned senior advocate also referred
to certain case laws relied upon by SEBI in respect of U.S.
23
jurisprudence such as Lorenzo v. SEC , Basic, Inc. v.
24 25
Levinson , Halliburton Co. v. Erica P. John Fund and
submitted that since these cases arose under a different
statutory framework and involved actual instances of
securities transactions and demonstrable price impact,
neither of which is alleged or proven in the present case.

4.10 With regard to the allegation of a “single and
continuous” scheme, Ld. Senior advocate submitted that the
WTM himself has held that there were no violations for FYs
2011–12, 2012-13, 2013-14 and 2017–18, and therefore, the
appellant orchestrating a “single and continuous” scheme is
untenable.

4.11 On facts, Mr. Khambata, submitted that the MoUs
between BDMCL and SCAL were bona fide , legally
enforceable, and were duly disclosed transparently in the
financial statements of BDMCL for each of the financial years.
He produced the extracts of Notes to accounts by which such
disclosures was made for each financial years. It was also

23
139 S. Ct. 1094 (2019).
24
485 US 224, 241 (1988).
25
573 US 1 (2014).

17
submitted that in terms of the MoUs, payments were made;
interest was duly charged on delays; and SCAL assumed ‘risk
and reward’ in the immovable properties being the subject
matter of such MOUs, which confirms commercial substance
of these MOUs. These MoUs allowed SCAL to sell each unit
independently and to bear all profits or losses. Further,
similar MoUs in respect of same projects were also executed
by BDMCL even with unrelated third parties such as Accord
and Mandhana. In case of Accord, disputes under the MoUs
signed with BDMCL arose which were adjudicated in formal
legal proceedings, which further evidences transfer of risks
and rewards and their enforceability.

4.12 Learned senior advocate submitted that the allegation
that the MoUs were a “ device ” to inflate profits or were sham,
is without evidence and baseless. Relying on the Azadi
26
Bachao Andolan , Phoenix Arc (P) Ltd. v. Spade
27
Financial Services Ltd and CIT v. Walfort Share and
28
Stock Brokers (P) Ltd. , he submitted that there is a high
burden of establishing a sham transaction or fraud, and none
of the applicable legal tests were met in the appellants’ case.
Moreover, the SCN issued by the SEBI admits their legal
validity for revenue recognition under the 2006 ICAI
Guidance Note.

Appeal No. 839 of 2022


4.13 Mr. Khambata, learned senior advocate representing
the Appellant Nos. 1 to 3, who are promoters of BDMCL,
submitted that no specific role was attributed to Appellants

26
(2004) 10 SCC 1
27
(2021) 3 SCC 475
28
(2010) 8 SCC 137

18
beyond their existing positions in the company but they were
charged for being aware of the transactions. The SCN did not
allege their active participation in decision making or being a
decision-making authority in the purported scheme.
Appellant No. 1 (Noticee No. 3), is the Chairman of BDMCL;
Appellant No. 2 (Noticee No. 4) is a non-executive director;
and Appellant No. 3 (Noticee No. 5) is the Managing Director
of BDMCL. All of them were held liable without any evidence,
by their alleged direct control over financial reporting of
BDMCL. No proof of delegated authority or specific
misconduct was shown, and SEBI’s reliance is solely on the
basis of their designations, which is legally insufficient as held
29
in Shubh Shanti Services v. Manjula Agarwalla :

“19... In the matter of company affairs, Directors
act as a body and collectively as a Board. Any
Director acting individually has no power to act on
behalf of the company in respect of any matter
except to the extent to which any power or powers
of the Board have been delegated to him by the
Board within the limit permitted by the Companies
Act or any other law. The position of the Chairman
of the Board of Directors is not substantially
different from an individual Director. Under the
Companies Act, the Chairman of the company does
not have any special or extraordinary rights to be
exercised by him without being authorised by the
Board of Directors.”


4.14 Ld. Senior advocate also submitted that the impugned
order ignores that it is the Board and Audit Committee
(majority comprised of independent directors) that approved
all financials, and similarly placed directors were neither
charged nor penalized. Further, the allegation relating to non-
disclosure of Related Party Transactions for FY 2014-15 to

29
[(2005) 5 SCC 30]

19
2016-17 is also flawed, being rested on the erroneous
premise that AS-23 could override statutory legal provisions
of Sections 2(6) and 2(76) of the Companies Act. Without
prejudice, there was full disclosure of transactions with SCAL
across all financial years.

5. Mr. Gaurav Joshi, learned senior advocate of the
respondent representing in Appeal No. 838 of 2022 and
Appeal No. 839 of 2022 made the following submissions:

5.1 The BDMCL, as a developer of the One ICC and Two ICC
projects, executed 11 unregistered and inadequately
stamped MoUs with SCAL during 2012 and 2014, through
which it booked fictitious revenue of Rs. 2,492.94 crores and
operating profit of Rs. 1,302.20 crores. As against this, SCAL
made cash payment of only Rs. 186 crores (only 7.46% of
transaction value). Further, these transactions were booked
during the period when there was stay on construction by the
Bombay High Court (2012-2015). SCAL had a negative net
worth and no capacity to enter into such transactions. SCAL
did not account for the flats as purchase, and incurred no
marketing or brokerage expenses. The MoUs signed with
SCAL were not enforceable, lacked essential legal formalities,
and were reversed in 2015, which evidences that these were
sham arrangements, and designed to inflate BDMCL’s
financials under the guise of legitimate sales.

5.2 Mr. Joshi also argued that by lifting of the corporate
veil, SEBI revealed BDMCL had absolute control over SCAL
through intricate web of group companies, making it an
instrumentality to misrepresent financial performance.
Further, common directorship amongst these group
companies, use of BDMCL’s premises and resources without

20
compensation and absence of independent operations by
SCAL indicate that these entities functioned as one. This
structure was deliberately designed to evade the application
of AS-23 and mislead stakeholders. He submitted that the
SEBI had valid authority to look through legal form, and in
this regard, placed reliance on Delhi Development
30
Authority v. Skipper Construction Co. , Vodafone
31
International Holdings BV v. Union of India and
32
Sahara Asset Management .

5.3 He also contended that these MoUs were unenforceable
under the Indian Registration Act, 1908 and the Maharashtra
Stamp Act, 1958, and were not acted upon or legally
enforced, unlike BDMCL’s legitimate MoUs with third-party
buyers, where disputes were resolved through arbitration. He
alleged that SCAL’s role was only to facilitate accounting
entries that inflated profits of BDMCL. He relied on Snook v.
33
London and West Riding Investments , NetJets
34
Aviation, Inc. v. LHC Communications and National
35
Westminster Bank PLC v. Jones in support of the
contention that the transactions were never intended to be
effectuated between parties but were created to mislead
investors by fabricating financial results.

5.4 Mr. Joshi submitted that these acts were in violation of
Section 12A(c) of the SEBI Act, 1992 and PFUTP Regulations
2(1)(c), 3, and 4 of the PFUTP Regulations, and such
provisions do not require establishing ‘actual inducement of

30
(1996) 4 SCC 622
31
2012) 6 SCC 613
32
(2017) SCC OnLine SAT 173
33
(1967) 2 QB 786
34
LLC (537 F.3d 168, 2d Cir. 2008)
35
[2000] 6 WLUK 556

21
investors’ nor “dealing in securities” to establish fraud. It
suffices that the issuer disseminates false information which
is likely to influence investor’ decisions and market prices. In
36
this regard, relying on N. Narayanan v. SEBI , SEBI v.
37
Kanaiyalal Baldev Patel and SEBI v. Pan Asia Advisors
38
Ltd. , he submitted that by misusing SCAL’s corporate
identity, BDMCL artificially inflated its financial statements,
which is a clear case of manipulative practices within the
PFUTP Regulations.

5.5 Mr. Joshi further submitted that provisions of
Regulations 4(1), 4(2)(c), (o), and (r) of the PFUTP
Regulations cover ‘ mis-statements in financial books’ as
fraudulent acts, and SEBI is empowered under Sections 11,
11B, and 12A of the SEBI Act, 1992 to act against such
misconduct. In this regard, reliance was placed on Pan Asia
Advisors (Supra) to assert that financial mis-statements
impact securities markets through price manipulation and
misrepresentation of BDMCL’s financials falls squarely under
Regulation 2(1)(c). He submitted that the “effects doctrine”
and “fraud on the market theory,” as endorsed in SEBI v.
39
Rakhi Trading Pvt. Ltd. and N. Narayanan (Supra) ,
establish that financial disclosures relied upon by the public
are presumed to influence investor behaviour, thereby
constituting unfair trade practices.

5.6 With regard to the 2019 and 2020 amendments to the
PFUTP Regulations, Mr. Joshi submitted that these
amendments were clarificatory in nature, which merely

36
(2013) 12 SCC 152
37
(2017) 15 SCC 1
38
(2015) 14 SCC 71
39
((2018) 13 SCC 753)

22
reinforce well-established position regarding SEBI’s existing
authority to treat financial misstatements and accounting
manipulations as violations. The clarificatory nature of these
amendments is established by SEBI’s own Consultative Paper
40
and the judgments in SBI v. V. Ramakrishnan and
41
Gottumukkala Venkata Krishamraju v. Union of India ,
which hold that acts such as misclassifying related parties or
concealing ‘associate relationships’ have always been treated
as fraudulent conduct under the SEBI framework.

5.7 Learned senior advocate submitted that BDMCL
deliberately avoided consolidation of SCAL’s accounts, in
violation of AS-21, AS-23, and the LODR Regulations, despite
exercising de facto ‘ control’ and ‘significant influence’ over
SCAL. BDMCL exercised 100% effective control over it via
direct and indirect holdings and operational control over
latter’s board decisions. He submitted that in view of the
Hon’ble Supreme Court’s interpretation of the terms “ control ”
and “ significant influence ” in Arcelormittal India (P) Ltd.
42
v. Satish Kumar Gupta and J. K. Industries Ltd. v.
43
Union of India , BDMCL was required to consolidate SCAL's
accounts.

Intervention Application No. 1789 of 2022


5.8 Pursuing his intervention application in Appeal No. 838
of 2022, Mr. Rohit Mansukhani submitted that BDMCL had de
facto control over SCAL,- a shell entity since its incorporation
in 1983. He submitted that BDMCL engaged in fraudulent real

40
(2018) 17 SCC 394
41
(2019) 17 SCC 590
42
(2019) 2 SCC 1
43
(2007) 13 SCC 673

23
estate transactions with SCAL in violation of arm’s length,
with a 25% discount and favourable terms like “ pay as you
re-sell ” and 10% upfront payment which enabled SCAL to
retain profits from subsequent sales, while causing significant
losses to BDMCL’s shareholders.

5.9 He submitted that BDMCL exercised ‘ significant
influence’ over SCAL, due to its powers to participate in
operational and financial decisions of SCAL, a fact recorded in
board meeting dated December 21, 2012. BDMCL’s
consolidated Revenues boosted by Rs. 2492.92 crores and
profits by Rs. 1799.09 crores by not cancelling out
transactions with SCAL by not classifying it as subsidiary.
Further, all transactions with SCAL were illegal in
contravention of ‘related party’ norms under Listing
agreement.

5.10 He also submitted that in this case, quantification of
diversion of funds and consequent losses suffered by the
investors (including the intervener) was submitted to SEBI
but no order for disgorgement was passed by SEBI to that
effect. It is untenable claim of SEBI that losses to the
Investors cannot be quantified. Accordingly, he prayed that
the application may be allowed.

Appeal No. 839 of 2022


5.11 Mr. Gaurav Joshi, learned senior advocate for the
respondent submitted that the promoters of BDMCL, namely;
Mr. Nusli Wadia, Mr. Ness Wadia, and Mr. Jehangir Wadia,
who exercised control over its Board, played active role and
were aware of the sham transactions with SCAL. Their

24
respective positions and knowledge of the SCAL transactions
establish complicity under Section 27 of the SEBI Act.
As promoters and directors, they are presumed liable even
without direct evidence of fraudulent conduct. To support this
contention, he relied on S.M.S. Pharmaceuticals Ltd. v.
44
Neeta Bhalla , Official Liquidator, Supreme Bank Ltd.
45
v. P.A. Tendolkar and National Small Industries
46
Corporation Ltd. v. Harmeet Singh Paintal .



Appeal No. 840 of 2022


6. Mr. Navroz Seervai, learned senior advocate for
appellants in Appeal No. 840 of 2022 submitted that SEBI
failed to establish the foundational jurisdictional facts
necessary to invoke Section 12A(c) of the SEBI Act and the
PFUTP Regulations. The MoUs signed by SCAL, an unlisted
company with BDMCL were commercial real estate
transactions within SCAL’s lawful objectives, and SEBI lacked
authority to question their business rationale. Relying on
47
Arun Kumar & Ors. v. Union of India & Ors. and Carona
48
Ltd. v Parvathy Swaminathan & Sons , he submitted
that failure of SEBI in passing a speaking order confirming its
jurisdiction renders the proceedings ultra vires and
procedurally improper.

6.1 Ld. Senior advocate also submitted that since MoUs
signed by SCAL pertained to immovable property and involve

44
(2005) 8 SCC 59
45
(1973) 1 SCC 602
46
(2010) 3 SCC 330
47
(2007) 1 SCC 732
48
(2007) 8 SCC 559

25
no “dealing in securities”, the jurisdictional requirement
under Section 12A and PFUTP Regulations 3 and 4 is not
satisfied. In this regard, he relied on the SAT’s judgment in
49
Price Waterhouse v. SEBI , holding that PFUTP
Regulations are not applicable to persons not ‘dealing in
securities’. As the impugned transactions were real estate-
related and not securities-related, SEBI’s findings are legally
untenable. He submitted that the Gujarat High Court in
50
Karnavati Fincap Ltd. v. SEBI affirmed that only persons
engaged in securities market activities can be covered under
section 11-B. In this regard, he also placed reliance on
authorities such as Siddheshwari Cotton Mills v. Union of
51 52
India and Bank of Baroda v. SEBI .

6.2 Mr. Seervai submitted that in the absence of any proof
of appellants’ role in the alleged manipulation of financial
statements of BDMCL, the SEBI’s assertion that SCAL’s
directors (Appellants Nos. 2–4) had knowledge of or had
participated in BDMCL’s accounting decisions, is unfounded.
He submitted that SEBI's reliance on circumstantial evidence
fails to meet the required legal standard of evidence for fraud,
in the absence of a complete and conclusive chain ruling out
innocence.

6.3 Mr. Seervai submitted that the charge of “ aiding and
abetting ” is not recognized under the SEBI Act except under
the penal provision in Section 24, and even if hypothetically
held as permissible, the Impugned order does not satisfy its

49
(2019 SCC OnLine SAT 165) PwC Case
50
(1996 SCC OnLine Guj 119)
51
(1989) 2 SCC 458
52
(2000) 26 SCL 532 (SAT)

26
53
evidentiary threshold. Relying on Churchill v. Walton , he
contended that liability for ‘aiding and abetting’ requires
knowledge of the entire fraudulent scheme, which SEBI failed
to demonstrate. Learned senior advocate further submitted
that SEBI failed to demonstrate as to how or when the
appellants acquired knowledge of the alleged fraudulent
scheme and contradicts itself by alleging that the appellants
harmed SCAL’s interest, while allegedly simultaneously
secured favorable terms for it. These inconsistent assertions
indicate arbitrary reasonings in the impugned order.

6.4 Mr. Seervai adopted the contentions of Mr. Khambata
in Appeal No. 839 of 2022 that SEBI has wrongly applied
provisions of the PFUTP Regulations as amended in 2019 and
2020 to the events that took place between 2011 and 2014.
These amendments, particularly the explanation to regulation
4(1), expanded the scope of fraudulent practices to include
‘ manipulation of financial statements’ , which was not part of
the pre-amendment regime. Applying these changes
retrospectively violates settled principles of statutory
interpretation.

6.5 On facts, he contended that the eleven MoUs executed
between SCAL and BDMCL during FY 2012-13 and FY 2013-
14 were lawful commercial transactions, in pursuance of
which SCAL made payments exceeding Rs. 450 crores,
incurred interest and bore the risk of profit and loss. These
were consistent with past similar practice between BDMCL
and SCAL since FY 2006-07 and were adequately disclosed in
BDMCL’s financials.


53
[(1967) 2 AC 224 (HL)]

27
6.6 Mr. Seervai further argued that the impugned order is
punitive and ultra vires SEBI’s remedial mandate under
Section 11. Relying upon the decision in PwC (supra) , he
submitted that SEBI cannot impose penal directions in the
guise of remedial action. Further, it was submitted that the
order was issued after nearly a decade with an inordinate
delay, which renders it arbitrary and disproportionate.

6.7 Learned senior advocate submitted that SEBI’s reliance
on Section 10 of the Indian Evidence Act to establish
jurisdiction to make conspiracy charges, is misplaced. Section
10 is a rule of evidence that allows co-conspirators’
statements to be admissible only after a prima-facie case of
conspiracy is established. It does not create substantive
jurisdiction or liability. In this case, SEBI has failed to lay out
any prima-facie conspiracy either in the SCN or in the
impugned order. Therefore, invoking Section 10 to extend or
establish jurisdiction is without legal foundation, and hence,
the proceedings initiated by SEBI are void and untenable.

7. Mr. Sumit Rai, learned Advocate for the respondent in
all the Appeals, made the following additional submissions:

7.1 Supporting the contentions of the Mr. Gaurav Joshi,
Senior advocate, Mr. Rai submitted that reduction of its
shareholding in SCAL from 49% to 19% on March 29, 2012
by BDMCL was only to circumvent requirement of
consolidation of financial statements under AS-23, which
presumes existence of “significant influence ” where voting
rights are 20% or more. This was strategically executed to
portray SCAL as a bulk buyer of flats in BDMCL’s real estate
projects in order to inflate BDMCL’s profits/revenue.
However, SCAL functioned either as an agent of Bombay

28
Dyeing, or as a propped-up entity with no independent
operations.

7.2 Mr. Rai also submitted that other Wadia group
companies held remaining shares in SCAL but these were
investment companies with no independent operations and
derived revenue primarily from dividends and interest on
inter-corporate deposits. When their inter-se cross-holdings
are eliminated, BDMCL emerges as the sole controlling
shareholder.

7.3 Ld. Advocate submitted that Bombay Dyeing exercised
complete control over SCAL through direct and indirect
shareholdings establishing itself as the ultimate beneficial
owner. SCAL’s directors were also employed by other Wadia
Group companies; they received no separate remuneration
from SCAL; and the company shared Bombay Dyeing’s
registered office and telephone numbers without incurring
rent or lease charges. Further, SCAL had no real estate
experience nor capacity to undertake the sale, being a
negative net worth company which relied on Bombay Dyeing
or its affiliates for payments, and played no role in marketing
or onward sales of flats under the MoUs.

7.4 He submitted that while Bombay Dyeing recognised
revenue of Rs. 3033 crores over a period of time under
Accounting Standard-7 in respect of 11 MoUs signed with
SCAL, the latter did not record these flats as purchases but
as commission income, reflecting only the profit/loss from
sales, indicating no genuine transfer of flats. Further, despite
a stay by Bombay High Court on construction from May 11,
2012 to January 2015, nine MoUs worth Rs. 2,290 crores
were signed between June 2012 and March 2014, allowing

29
Bombay Dyeing to book sales during a period while third-
party buyers would not have purchased at market rates.

7.5 Alleging that SCAL was wholly owned and controlled
by Bombay Dyeing, he submitted that during FY 2011-12 to
FY 2017-18, SCAL transacted exclusively with Bombay
Dyeing, with no other business dealings. SCAL’s registered
office was located at Bombay Dyeing’s Neville House, without
paying rent or lease charges. In FY 2018-19, SCAL shifted
office to a property owned by another Wadia Group entity
(Wadia Techno-Engineering Services Ltd.), without paying
rent.

7.6 Mr. Rai argued that SCAL had negative net worth of Rs.
(-) 3 crores, Rs. (-) 14 crores, and Rs. (-) 42 crores as on
March 31, 2012, March 31, 2013 and March 31, 2014,
respectively, which shows that it was incapable of meeting
the Rs. 3,033 crore payment obligations, out of which only
7.46% of committed payments were made during FY 2011-
12 to FY 2017-18. Further, Bombay Dyeing facilitated loans
for SCAL by issuing comfort letters, resulting in borrowings of
Rs. 113 crores and Rs. 266 crores from other Wadia Group
entities in 2014 and 2015, respectively to meet milestone
payments under the MOUs. Later, in December 2015,
Bombay Dyeing returned Rs. 271 crores to SCAL citing
construction delays and granted a payment moratorium until
June 2017, a concession not offered to other bulk buyers,
which further evidences violation of arm’s length principle.

7.7 Refuting the SCAL’s contention that it was not directly
associated with the securities market, Mr. Rai relied upon the

30
54
ratio in Anand Rathi & Ors. vs SEBI and contended that
if SCAL's alleged scheme with Bombay Dyeing to manipulate
revenue is proven, it links SCAL with the securities market
through impacting price discovery of a listed entity, thereby
influencing investor decisions. Thus, SCAL falls within SEBI’s
regulatory ambit under Sections 11 and 11B.

7.8 Mr. Rai further contended that the Appellant’s claim that
being an unlisted entity it falls outside SEBI’s regulatory
ambit under the SEBI Act, 1992, is untenable considering the
SEBI’s objectives of protecting investors and regulating the
securities market. The Appellants’ reliance on Price
Waterhouse (Supra) decision is misplaced, as in that case,
relying upon the Bombay High Court, SAT had held that
SEBI’s jurisdiction depends on case-specific facts, and in that
case, fraud was not proven due to lack of evidence of
collusion. In contrast, in the instant case, the Impugned
Order establishes that SCAL entered into MoUs with Bombay
Dyeing solely to facilitate revenue recognition under AS-7, by
acting as a counterparty in a sham transaction.

7.9 Refuting the contention that SCAL, its directors, and
other Noticees had no knowledge of fraud or manipulation,
learned advocate submitted that the Paragraph Nos. 11 and
27 of the impugned order establish that SCAL, its directors,
and other Noticees participated in the fraudulent scheme
involving sham MoU transactions.

7.10 Regarding the SCAL’s contention that it cannot be held
liable for conspiracy or for aiding and abetting without specific
knowledge of BDMCL’s accounting practices, Mr. Rai

54
(2002) 1 MhLJ 522

31
submitted that once it is prima-facie established that SCAL
and its directors engaged in sham transactions to artificially
inflate Bombay Dyeing’s revenue, all related actions are
relevant to prove their role in the conspiracy.

Appeal No. 1016 of 2022


8. Mr. Rohan Kelkar, learned Advocate representing the
appellants in Appeal No. 1016 of 2022 made following
submissions:

55
8.1 The Appellant Nos. 1-5 are Non-executive IDs and
Audit Committee Members of BDMCL, who allegedly failed in
exercising due diligence and independent judgment for
maintaining the accuracy of BDMCL’s financial statements,
and thus, violated provisions of Clauses 49(II)(D)(1) and
49(III)(D)(1) of the Listing Agreement, (as also relevant
56
provisions of the LODR Regulations, 2015 ).

Similarly, Appellant Nos. 6-8, who served as BDMCL’s
57
CFOs during the relevant period, were charged for making
inaccurate certifications regarding the truthfulness and
fairness of the company’s financial statements, thereby
breaching relevant provisions of the Listing Agreement /LODR
Regulations ( qua Appellants Nos. 7 & 8).

8.2 Mr. Kelkar also submitted that, the Impugned Order
penalizes the Appellants under Section 15-HB of the SEBI Act,
a residuary provision for contraventions without specific
default, alleging negligence rather than connivance. The sole
basis for action by AO against Appellants Nos. 1-5, (IDs and

55
Independent Directors
56
SEBI (Listing Obligation & Disclosure Requirements) Regulation, 2015
57
Chief Financial Officers

32
Audit Committee members of BDMCL), was their failure to
make assessment in respect of SCAL’s capability as a bulk flat
purchaser, and for not seeking explanation for payment
deferrals granted to SCAL, or for SCAL’s alleged non-payment
of rent. He submitted that the AO failed to adhere to the
principle against doubtful penalization, as reaffirmed by the
58
Supreme Court in SEBI v. Sunil Krishna Khaitan .

8.3 He submitted that AO’s allegations against the
Appellants are baseless, as SEBI’s investigation exonerated
BDMCL’s auditors M/s. Kalyaniwalla & Mistry, finding no
evidence of misrepresentation or non-disclosure in BDMCL’s
financial statements, as noted in their Emphasis of Matter
paragraphs referencing revenue recognition in respect of
MoUs with SCAL. He submitted that based on BDMCL’s own
disclosures under Section 128 of the Companies Act, 2013,
and presented before the Board under Section 129(2), should
absolve the Appellants on the same footing.

8.4 On merit, Ld. advocate submitted that the allegation of
misleading financial statements due to non-consolidation of
SCAL’s accounts ignores the fact that applicable statutory
provisions and Accounting Standards were dully followed by
BDMCL based on expert accounting advice. The financial
statements with detailed notes to accounts fully disclosed the
MoUs, SCAL’s group company status, and related income,
which demonstrates due compliance with applicable
accounting standards. Thus, there is no merit in holding that
the IDs failed in due diligence or independent judgment as
Audit Committee members, or that the former CFOs issued
inaccurate certifications, as their actions aligned with the

58
(2023) 2 SCC 643

33
auditors’ findings and professional advice. To support his
59
contention, he relied on Dovey v. Cory , Chintalapati
60
Srinivasa Raju v. SEBI and The Seksaria Cotton Mills
61
Ltd. v. The State of Bombay .

8.5 Ld. advocate also drew our attention to inordinate delay
in issuing the Show Cause Notice and in questioning duly
audited financial statements of five financial years after lapse
of another five years. This delay and SEBI’s persistence in
pursuing the proceedings contravenes public interest,
resulting in a miscarriage of justice and abuse of power. In
support, he relied on Sunil Krishna Khaitan (Supra) .

8.6 In his rejoinder submissions, learned advocate
questioned the merit of SEBI’s allegations stating that SCAL’s
non-payment of rent for maintaining its registered office in
BDMCL’s property was not illegal. Further, the impugned
order does not indicate that the MoUs between BDMCL and
SCAL were sham, yet it provides no clarification as to what
“explanation” were the Appellants expected to seek, as
referred to in paragraph 5(e) of SEBI’s Note. Further,
BDMCL’s financial statements did not represent the MoUs for
‘sales to SCAL’.

9 In response, Mr. Sumit Rai, learned advocate
representing respondent, made the following submissions:

9.1 Allegations Against Appellants 1-5 : The
Appellant Nos. 1-5 in Appeal No. 1016 of 2022 were Audit
Committee members who were charged for having failed to
exercise due diligence and independent judgment, resulting

59
[1901] A.C. 477
60
(2018) 7 SCC 443
61
1953 SCR 825

34
in financial statements containing material misstatements.
This violates relevant provisions of the Listing Agreement and
LODR Regulations.

9.2 Allegations Against Appellants 6-8 : Appellants 6-
8 were CFOs, were charged for certifying that BDMCL’s
financials were accurate and compliant, despite failure to
disclose SCAL as an associate and consolidate its financials.
This led to violation of Clause 49(IX) and Regulation 103 (in
case of Mr. Hiran), while there was violation of Regulations
17(8) and 33(2)(a) of LODR Regulations in case of Mr.
Peruvemba and Mr. Das, respectively.

9.3 Mr. Rai also submitted that non-consolidation of SCAL’s
accounts with Bombay Dyeing is only one aspect of a broader
scheme for inflating financial statements through non-
genuine sales to SCAL, which added no value to the supply
chain. The core issue is whether Bombay Dyeing inflated its
accounts by transacting with an entity it controlled. Prior to
FY 2014-15, Bombay Dyeing was not required to consolidate
financials under Clause 41(I)(e) and Clause 32(a) of the
Erstwhile Listing Agreement, as it had no recognized
subsidiaries. However, with effect from April 1, 2014, under
Section 129(3) of the Companies Act, 2013 upon declaring
Archway as a subsidiary, BDMCL was required to prepare
consolidated financial statements under AS-21 and AS-23 in
respect of all associates.

9.4 He submitted that BDMCL was obligated under Section
129(1), Clause 50(a) of the Listing Agreement and Regulation
48 of LODR Regulations to comply with AS-23, which
mandated consolidating SCAL’s financials due to Bombay

35
Dyeing’s ‘significant influence’ over SCAL through these
transactions, which were material to both BDMCL and SCAL.

9.5 Mr. Rai refuted the claim of appellants that the
impugned order overrides the Companies Act with Accounting
Standards by submitting that the impugned order aligns with
LODR Regulations, 2015, which harmoniously applies the
definitions of “Related Party” under both the Companies Act,
2013, and Accounting Standards. He also submitted that the
Appellants’ claim that SCAL’s non-disclosure as a ‘Related
Party’ exceeds the SCN’s scope is baseless, since the SCN
addressed the appellants’ failure to prevent
misrepresentation of financials, for which SCAL’s related-
party status was a key factor. SCAL’s board admitted its lack
of expertise and manpower to sell flats, yet it entered MoUs
worth hundreds of crores with Bombay Dyeing. This
evidences that SCAL was used as a conduit for non-genuine
sales to inflate Bombay Dyeing’s financials.

9.6 Ld. advocate submitted that the Appellants’ attempt to
equate their roles with those of statutory auditors is irrational,
as the Impugned Order clearly distinguishes their distinct
responsibilities under the SCN, holding them accountable for
their role in the scheme to inflate Bombay Dyeing’s financials
through non-genuine sales to SCAL.

10. We have carefully considered the facts of the case in
the light of the rival submissions and the documents placed
on record by both the parties as also by the intervener. The
appeals of BDMCL and SCAL and their respective
promoters/KMPs deal with the same issue and hence, are
being decided together through this common order. For this
purpose, we have framed the following two questions:

36

Issue - I Whether there was a ‘fraudulent scheme’ of
misrepresentation of financial statements of BDMCL
continuing from FY 2011-2012 to FY 2017-18,
comprising of (a) signing 11 non-genuine MOUs with
SCAL; (b) reducing BDMCL’s stakes from 49% to 19%
on March 29, 2012; and (c) non-consolidation of SCAL’s
financial statements, for inflating the financials of
BDMCL, with the intention to mislead its investors?

Issue-II- Related Party status for FY 2014-15, 2015-16
and 2016-2017

Question: Whether SCAL was correctly held as a
‘related party’ of BDMCL for the FY 2014-15, 2015-16
and 2016-2017, even though it was not held as a
related party for FY 2017-18 on the ground that it was
not an ‘Associate’ under section 2(6) of the companies
Act, 2013?


Issue-I (Fraudulent scheme)

11. In order to decide the issue-I, we have divided the same
in 4 sub-parts, which are being addressed as under:


A. Whether the 11 MOUs signed by BDMCL with SCAL
during FY 2011-12 to FY 2013-14 (From March 2012 to
June 2014) were non-genuine/sham and not legally
enforceable?

37
11.1 We note that BDMCL is engaged in various business
activities, with the real estate development contributing the
most to the operating profit. Even in the past, the company
had successfully developed and executed real estate projects.
There is no doubt that both the projects in question, namely,
One ICC and Two ICC at Dadar, Mumbai were actually got
developed and flats constructed thereunder, were eventually
sold out to the ultimate buyers (despite a halt during 2012-
14 due to litigation before Hon’ble Bombay High Court).
Thus, the credibility of these 2 real estate projects itself is not
in doubt. Evidently, the development cost of project and sale
proceeds of flats will have to be eventually captured in the
financial statements of BDMCL, irrespective of whether
certain number of flats were sold out to ultimate buyers
through SCAL/Third parties or directly by BDLCL. Evidently, it
is not a case of inflation of financials by creating fictitious
book entries.

11.2 Having acknowledged the genuine nature of
development and sales of flats by BDMCL in the one ICC &
Two ICC projects developed by it, we now examine the
second key issue, i.e. credibility of sales of 325 flats in these
schemes to SCAL. The SEBI has raised doubts on the
capability of SCAL based on its inadequate/ negative net
worth, sharing of office, staff and other logistics with group
companies, etc. We note that the sales made to M/s SCAL,
(an unlisted group company of Wadia Group) contributed
56% to the sales of flats in these two schemes. Based on this,
the charge of executing a fraudulent scheme for luring
(potential) investors of BDMCL (through misleading
financials) has been made.

38
In this regard the following observations are relevant:

(a) Undoubtedly, it is not the first occasion that BDMCL
entered into such MOUs with SCAL for sale of flats
developed by the former. In respect of another real
estate project namely; “Springwell”, which was
developed by BDMCL during 2005-06 to 2007-08,
around 100 flats were sold through similar arrangement
with SCAL. No adverse observations have been made by
the SEBI in this regard. This also shows that SCAL has
proven record of trading in real estates.

(b) In the same 2 schemes namely ‘One ICC’ and ‘Two ICC’,
BDMCL made sales through 3 unrelated third parties as
well by entering into similar MOUs as were signed with
SCAL. it is not the case of the respondent that sales to
SCAL was in any way, in violation of arm’s length price,
compared with the unrelated third-party buyers.

(c) While the main charge is that the transactions with SCAL
resulted in inflating the profits of BDMCL, no findings
have been recorded to suggest as to whether there was
any ‘ profit shifting’ from SCAL to BDMCL. This would
have been the case, if BDMCL’s profits were artificially
inflated at the cost of SCAL. Further, since sales to the
ultimate buyers (through SCAL or third party traders or
directly by BDMCL) is bound to be governed by market
only, any manipulation of price with SCAL (for inflating
profits of BDMCL) will lead to incurring of losses/
reduction of profits for SCAL, compared with third party
traders. No such findings have been given. On the other
hand, contrary observations were made in the IO

39
imputing that BDMCL was offering more favorable terms
and conditions to SCAL compared with Third Parties. If
these charges were correct, it should have implied
adverse impact on the profits of BDMCL and not inflating
the profits, which is contrary to the allegations of
inflation of its profits.

(d) Serious doubts have been raised on the SCAL’s capacity
to undertake these transactions based on certain
observations, inter alia, that SCAL too operated from the
same premise, where other Wadia group companies
operated; that it did not have sufficient staff; that it had
common directors; that it did not incur brokerage
expenses (but compensated BDMCL for that). In our
considered view, none of these observations point out
any element of illegality. It is not unusual for group
companies to operate in sync in such a way that their
overall overhead expenses are minimized. There is no
legal requirement that a group should work literally at
arm’s length, in physical terms from a different premise.
Therefore, in itself, findings such as having common
office space, sharing of staff, telephone, etc. could not
be held as cogent basis for doubting the veracity of MOUs
for effectuating sales through SCAL. Similarly, there is
nothing unusual in SCAL compensating BDMCL for
brokerage expenses incurred by the latter since BDMCL,
besides being is a real estate developer is also engaged
in direct sale of real estate, in addition to sales through
rd
traders including 3 parties and SCAL. Further, merely
because the directors of the company are common and
were not paid specific remuneration with respect to

40
SCAL, does not ipso facto imply that the MOUs between
the two companies were sham or not genuine.

(e) Net worth of a trader of real estate company per se is of
no great relevance for the selling developer, particularly
in case of a group entity, with a proven track record.
From a trader, what a developer expects is certainty of
sales and time-bound payment as per the agreed
schedule. Moreover, there is no risk to developer since
title is not passed till full payment in terms of agreed
schedule is made by the trader or the ultimate buyer.
Thus, low net/negative worth of SCAL, being the trader
of real estate and not investor, is of no great concern,
particularly for BDMCL, another group entity. What
matters is successful sale and SCAL had success story on
its sleeve of selling off 100 flats developed by BDMCL in
another scheme “Springwell” during 2005-06 to 2007-
08. The proof of pudding is in eating and the fact that
even in the instant case, no doubts were raised on the
genuineness of ultimate sale of flats by SCAL to the
buyers is sufficient to justify the bona fide of the MOUs.


rd
11.3 The 3 key issue in the matter is whether the MOUs,
signed by BDMCL were sham, as alleged by the learned senior
advocate for respondent on the grounds that these were
unregistered documents and did not carry transfer of risk and
reward, etc. We note that BDMCL signed similar MOUs with 3
unrelated third parties with regard to the same One ICC and
Two ICC projects. With regard to the finding that no ‘ risks
and rewards’ were transferred through the MOUs with SCAL,
the appellants have drawn our attention to Clause-4 of the
said MOUs signed with SCAL, which reads as under:

41

“ although the said apartments are yet to be
constructed by the developers, all risk and rewards
to said apartments shall be that of the
purchaser from the date of execution of this and
the obligation of the purchaser to pay the balance
consideration as per the Annexure II on the due dates
of the developers is final and absolute.”
[Emphasis supplied]

11.4 It was pointed out by the counsels of the appellants
that similar clauses did exist in the MOUs signed by BDMCL
with other unrelated third parties also, e.g. Clause-17 of the
MOUs signed with Mr. Purshottam Mandana and Mr.
Ghevarchand Jain and Clause-15 of MOU signed with Accord
Holding Pvt. Ltd relating to same schemes, are on same lines.
In fact, the ‘transfer of risk and reward’ got tested in the case
of Accord, where a dispute arose between the two parties and
the arbitration based on enabling provisions of MOUs reached
up to Hon’ble Bombay High Court. Thus, it cannot be said that
there was no transfer of ‘ risks or rewards’ and hence these
MOUs were not legally enforceable.

11.5 Secondly, it was alleged that the MOUs were merely
on Rs. 100 stamp papers and were not registered and, thus,
there was no real transfer of risk and rewards. It appears
that the learned WTM failed to appreciate the conspectus of
the transaction. While BDMCL is a developer of the projects
‘One ICC’ and ‘Two ICC’, SCAL is a trader in respect of the
flats under these developed by the BDMCL. There is no
requirement for traders/brokers of real estate to get the
trading assets first registered in their own name nor is the
prevailing practice in this regard, since they are not investors
but are traders for whom these flats are ‘stock in trade’.
Further, not registering MOUS could be for various reasons,

42
inter-alia, to reduce cost of acquisition in the hands of
ultimate buyer, by avoiding double incidence of stamp duty,
which is generally paid by the ultimate buyer. Therefore,
merely because the MOUs were not registered does not ipso
facto imply that the same were ingenuine.

11.6 Thirdly, the genuineness of MOUs was challenged on
the ground that all these 11 MOUs were signed between
March 30, 2012 to March 31, 2013, despite the fact that there
was a stay order of Hon’ble Bombay High Court on the
construction since May 2012, and the work at the site got
resumed only in January 2015. Secondly, doubts were raised
on the financial wisdom of refund of Rs. 271 crore to SCAL in
December 2015 on the ground of ‘rising operating cost on
unfavorable market conditions”, and as sales got stopped,
BDMCL granted moratorium on future payments till 2017 or
until sale of unsold flats.

11.7 Mr. Khambata, learned senior advocate for appellants
gave detailed account of the matter. It was submitted that
with the aim of stopping construction of balconies in the flats,
there was change in Development Contract Regulations vide
notification dated January 6, 2012, as a result of which
construction of these flats got delayed. The revised plans
(without balcony) were shared with customers on December
22, 2013 only, which resulted in litigation from customers and
BDMCL was issued stop-work notice. This litigation reached
up to Hon’ble Supreme Court, hence construction of projects
was halted for two years. Later, when the company received
approval for a revised IOD pursuant to change in compliance
on October 7, 2015, the construction got resumed.

43
11.8 Subsequently, keeping in view the huge delay in
construction, the board of BDMCL in its meeting on December
18, 2015 considered the request of SCAL, which had given
10% advance in terms of the MOUs, to grant certain
concession considering substantial mounting interest costs.
Accordingly, BDMCL board decided to grant certain
concessions, inter alia, reducing the initial booking amount in
terms of the signed MOUs by 7.5%, which resulted in refund
of around Rs. 271 crore in respect of advance booking
amounts.

11.9 In our considered opinion, no adverse view can be
taken in the matter. Generally, uncertainties prevail in
construction business and litigations are also one of the
common bottlenecks. However, a prudent business entity
does not stop entire gamut of activities except for the
activities for which injunction by a court / authority is
granted. Therefore, there is nothing unusual in BDMCL
entering MOUs with SCAL (or any third party) during the
period when construction was stopped. It is noteworthy that
BDMCL had already signed two MOUs with SCAL before the
legal halt on construction came in to operation.

th
11.10 The 4 key observation of the learned WTM is with
regard to differential accounting treatment of sales booked
by BDMCL compared with purchases shown by SCAL as per
their respective audited financial statements. In our
considered view, the possible reasons for the perplexity of the
learned WTM is failure to distinguish accounting norms in case
of a developer of Real Estate Projects in contrast with that of
a broker/trader of real estate.

44
In the case of a developer, revenue is recognized by
percentage completion method by applying provisions of
Accounting Standards-7, which read as under: -

Accounting Standard–7

“10. Contract revenue should comprise:

(a) the initial amount of revenue agreed in the
contract; and
(b) variations in contract work, claims and
incentive payments:

(i) to the extent that it is probable that they
will result in revenue; and
(ii) they are capable of being reliably
measured.”


Thus, revenue is recognized in the books of developers by
accounting for stage-wise payment schedule agreed upon
with the buyer as per the MOUs. The Annexure-II of various
MOUs signed by the BDMCL with SCAL, lay down the following
stage-wise payment schedule: -

Table 2: Stage-wise payment schedule under the MOUs

Sr.
No.
Schedule of payment Payment
Installments
1. Booking stage Booking Amount
2. Within 60 days of the MOU 10% of total
consideration
value less the
booking amount
3. Within 180 days of the MOU further 5% of total
consideration
value
4. Within 360 days of the MOU further 5% of total
consideration
value

45
5. On completion of Podium
10%
Slab
th
6. On completion of 6 slab
– 10%
(60% in 12 slabs)
th
7. On completion of 12 slab 5%
th
8. On completion of 18 slab 5%
th
9. On completion of 24 slab 5%
th
10. On completion of 30 slab 5%
th
11. On completion of 36 slab 5%
nd
12. On completion of 42 slab 5%
th
13. On completion of 48 slab 5%
th
14. On completion of 54 slab 5%
th
15. On completion of 60 slab 5%
th
16. On completion of 66 slab 5%
17. On completion of top floor
slab
5%
18. On possession 5%
Total Agreement Value


In view of the above, BDMCL was required to recognize
revenue under AS-7, based on the above schedule of the
MOU.

11.11 In contrast, in case of traders of real estate such as
SCAL, the profit/loss are accounted for by making entries for
purchase consideration and incidental expenses on the debit
side of Profit and loss account and by accounting for the sale
consideration on credit side on completion of sales, depending
upon the method of accounting consistently followed.
Alternatively, where both sale/ purchase of the same asset
are made within same financial year, a single entry after
netting off the sales consideration over purchase price, plus

46
expenses can be made. These are common accounting
practices. Further, it is not necessarily needed that at the
time of booking of sales, the entire scheduled payment is
actually made, as has been presumed in the IO. Till the
completion of sales, advances given are reflected in balance
sheet as assets and where title of an asset has been passed
on but further sale has not been made, the same is shown as
inventory in balance sheet.

It appears that the Ld. WTM did not appreciate this and
vaguely held it the profits shown by the SCAL in its books as
commission income, without any cogent basis. There is clear
difference between business profits and commission income.
commission income is fixed (as a % of sale price or
lumpsum), and cannot result in loss while trading income is
difference of sales and purchase price and not fixed and may
result in loss. Therefore, showing a single entry in books by
netting off corresponding sales and purchase price does not
mean that the nature of income becomes commission income.

11.12 Doubts were raised as to why there is no exact
matching in respect of entry made in SCAL’s P&L Account with
the corresponding entry in BDMCL’s books. We have already
held that due to difference in the respective accounting
methods for real estate developer in contrast with a
traders/broker of real estate, such a matching is not possible
nor required in law. Moreover, this in itself cannot be the basis
for deciding genuineness of MOUs.

11.13 The respondent has taken a plea that SCAL paid only
7.46% of revenue recognized. These statistics emerged after
reducing an amount of Rs 271 crores from the initial 10%
advance made to BDMCL, considering delay in construction.

47
However, this derived figure is not relevant for recognizing
revenue for BDMCL, as under the AS-7, revenue is recognized
on percentage completion method in terms of agreed
schedule, as referred to in Table 2 above. Moreover, in the
accrual system of accounting, (and also for issue of
dividends), the entire revenue recognized is not linked to cash
flow. Any receivable/payable amount is a separate subject
matter of financial transfers between the two entities and
does not determine the nature of income or expenses to be
recognized in profit & loss account. To the extent, it is duly
recognized in the books, it serves the interest of the existing
shareholders Therefore, these statistical presentations do not
have any bearing on delivering the genuineness of the MOUs.

11.14 In our considered view, evidences on record do not
establish that the MOUs signed with SCAL for booking of flats
by BDMCL to SCAL were sham / non-genuine transactions to
inflate revenue/profits of BDMCL. The fact that SCAL
successfully sold out some of these flats to ultimate buyers is
sufficient proof of genuineness of MOUs. In the past too,
SCAL had entered similar MOUS with BDMCL in 2006-07 and
sold 100 flats in another scheme “springwell”.

In view of the above, the sub-question-A is answered in
Negative.


B. Whether sale of 30% stakes in SCAL by BDMCL on
March 29, 2012 to BDREL thereby reducing its stake to
19% from 49% can be held to be part of alleged
fraudulent scheme?

48
12. We note that till March 29, 2012, BDMCL held 49% of
equity shares in SCAL, an unlisted company, out of which
30% of the SCAL shares were sold by BDMCL to another
group company, BDRECL on March 29, 2012. As a result, the
BDMCL’s equity in SCAL got reduced to 19%.

12.1 The crux of the allegation is that the said reduction in
equity in SCAL to 19% of BDMCL was part of fraudulent
scheme to circumvent consolidation of financial statements of
SCAL with BDMCL, post-enactment of Companies Act, 2013.
The Companies Act, 2013 for the first time introduced the
term “Associate company” as under:

“2(6). “Associate company”, in relation to another
company, means a company in which that other
company has a significant influence , but which
is not a subsidiary company of the company having
such influence and includes a joint venture
company.

Explanation.—For the purpose of this clause,—


(a) the expression “significant influence”
means control of at least twenty per
cent. of total voting power, or control of
or participation in business decisions
under an agreement;

(b) the expression “joint venture” means a joint
arrangement whereby the parties that have
joint control of the arrangement have rights
to the net assets of the arrangement.”
[ Emphasis supplied]


12.2 It is noteworthy that the new Companies Act, 2013
was assented and enacted only on August 29, 2013 and the
applicable provisions of Section 2(6) came into operation with
effect from September 12, 2013. In the instant matter,

49
undisputedly the transfer of 30% equity in SCAL by BDMCL
to BDRECL had taken place on March 29, 2012 itself. Under
the circumstances, the allegation that the transfer of equity
was to circumvent consolidation of financial statement of
SCAL in terms of Companies Act, 2013, has no ground.

12.3 Moreover, the said transaction of 30% equity shares
sales of SCAL between BDMCL and BDRECL being a
substantial investment for both, would have required due
process of approval by the respective Boards of the two
companies. Unless the board of BDRECL approves the said
transaction, BDMCL on its own, could not have unilaterally
transferred 30% of the shares of SCAL to BDRECL. We find
that neither the said BDRECL or its directors were charged in
the matter.

12.4 Further, while with respect to the MOUs, the learned
WTM has held the SCAL to be under control/significant
influence of BDMCL, no such finding has been given in respect
of BDRECL. The learned WTM, in a simplistic manner, has
cancelled the cross-holdings amongst Wadia group entities,
without examining their inter-se control in order to arrive at
100% control of BDMCL over SCAL, however without giving
any findings against group entities. We are in agreement with
the contentions of the appellants that the SEBI has failed to
recognize the principle of separate legal entity.

The appellants had relied on the ratio in Balwant Rai
62
Saluja vs. Air India Ltd. wherein, relying on an English
judgment, six principles for lifting of corporate veil have been
set out. The Fifth principle states that “to justify piercing the

62
(2014) 9 SCC 407

50
corporate veil, there must be both control of the company by
the wrongdoer(s) and impropriety, that is use or misuse of
the company by them as a device or façade to conceal their
wrongdoing;” .

Learned WTM has failed to establish as to how BDMCL
exercised control over BDRECL, Archway, Pentafil,
Springflower through which, it allegedly exercised control
over SCAL. The fact that all these companies are same group
entities and some of them are Investment companies, (which
is not unusual as was made out by Mr. Rai), does not ipso
facto imply that these were shell companies and passive
devices for alleged impropriety by BDMCL, another same
group entity. In our view, lifting of corporate veil as done by
Ld. WTM in the matter is untenable.

In view of the above, the sub-question-B is answered in
Negative.



C. Whether BDMCL was required to consolidate the
financial statements of SCAL for the FY 2014-15 to FY
2017-18, following AS-23/ Ind AS-18?

13. The learned WTM has noted that until FY 2013-14,
BDMCL did not have to prepare consolidated financial
statements in terms of Section 129(3) of Companies Act,
2013, because it did not have any subsidiary. Thus, AS-23
was rightly not followed by BDMCL until FY 2013-14.
However, from FY 2014-15 onwards, in terms of Section
129(3) it was required to consolidate the financials of all

51
‘associates’ and ‘subsidiaries’ as in that year BDMCL
recognized M/s Archway as its subsidiary, the only one.

13.1 In Para-21 of the IO, the learned WTM himself has
acknowledged that SCAL was not an ‘Associate’ within Section
2(6) of the Companies Act, 2013. This definition is based on
the concept of having ‘ significant influence’ , which is limited
to ‘control of at least twenty per cent. of total voting power,
or control of or participation in business decisions under an
agreement’. However, in his view the definition of ‘‘ significant
influence’ as per AS-23 is much broader than the definition in
Section 2(6) of the Companies Act, 2013. Therefore, he
preferred to choose the definition as per AS-23/ IndAs-18
(which were made applicable from FY-2014-15). In our view,
this is not in accordance with generally accepted principles of
legal interpretation.

13.2 As per Explanation to Section 2(6) of the Companies
Act, 2013, the expression “significant influence” reads as
under:-

“The expression “significant influence”
means control of at least twenty per cent. of
total voting power, or control of or
participation in business decisions under an
agreement.”


In contrast, AS-23, which was notified in pursuance of Section
133 of companies Act, defines the expression “Significant
influence” (later adopted as such in IndAs-18) as under:-

“ Significant influence” is the power to participate
in the financial and/ or operating policy decisions
of an associates but does not extend to control
over such policies.

52
Significant influence may be gained by share
ownership, statute or agreement. The existence of
significant influence is usually evidenced in one or
more ways:
a) representation on the Board of Directors or
corresponding governing body of the investee;
b) participation in policy making processes;
c) material transactions between the investor
and the investee;
d) interchange of managerial personnel; or
e) provision of essential technical information.
[ Emphasis supplied]”


The learned WTM has referred to above provisions of AS-23
above, which suggests certain illustrations of ‘existence of
significant influence’. Sub-para (c) thereof refers to ‘ material
transactions’ between the investor and investee. In the
learned WTM’s view, transactions between BDMCL and SCAL
were ‘ material’ based on which he held that BDMCL had
‘significant influence’ over SCAL, and hence SCAL was held to
be an ‘associate’ of BDMCL.

13.3 In our considered view, in case of conflict, provisions
of Accounting Standards cannot over-ride the explicit
provisions of Companies Act. It is settled position of law that
rules framed under any Act cannot supersede the Act, at the
same time they are to supplement the Act and not to supplant
it, as has been laid down by the Hon’ble Supreme Court of
India in J. K. Industries Ltd. (Supra) . We have already held
that in terms of Section 2(6), SCAL is not an ‘associate
company’ of BDMCL, as the former holds less than 20% of
voting rights. The same is acknowledged by the WTM in the
IO as well. In view of the above, keeping in view the explicit
provisions of Section 2(6) of Companies Act, 2013, BDMCL
was not required to consolidate financials of SCAL from FY

53
2014-15, since it was not in control of or was participating in
business decisions of SCAL under an agreement.

13.4 Moreover, in contra-distinction with the unambiguous
definition of ‘significant influence’ under Section 2(6), based
on percentage of voting power, the definition in AS-23
requires determination based on share ownership, statute or
agreement. The existence of significant influence is illustrated
by one or more ways such as representa tion on the Board of
Directors or corresponding governing body of the investee;
participation in policy making processes; material
transactions between the investor and the investee;
interchange of managerial personnel, etc. Being rebuttable
propositions, these illustrative circumstances require making
findings upon gathering facts and providing opportunity in
terms of principles of natural justice.

13.5 Undisputedly, these MOUs were signed in 2012-14 and
duly disclosed in the financial statements filed before the
stock exchanges, and in the opinion of SEBI, AS-23 was
applicable in this case since FY 2014-15. However, till June
2021 these rebuttable propositions were not framed and
appellant was not confronted. Moreover, the sectoral
regulator, the Registrar of Companies (ROC) before whom
annual/quarterly returns with financial statements were
regularly filed since 2012, has accepted the accounting
practices of the appellant without making any adverse
observations. No adverse observation has been made by
National Financial Reporting Authority (NAFRA) in the matter.
No doubts were raised by the Stock Exchanges/SEBI either,
even though similar disclosure of financial statements was
being made on quarterly basis before the Exchanges since

54
quarter ending March 31, 2012. No reference was made to
ROC.

13.6 In view of the above, SCAL cannot be held as an
“Associate company” of BDMCL considering the express
provisions of Companies Act, 2013 which, in our view cannot
be over-ridden by the rebuttable illustrative criteria contained
in AS-18.

We, therefore, answer this question in Negative.


D. Whether the alleged manipulation of financial
statements by BDMCL by not consolidating SCAL’s
financials could be charged as manipulation of
fraudulent and unfair trade practices in securities?

14. The crux of the allegation is that through a fraudulent
scheme of non-genuine MOUs, that continued over several
years, BDMCL avoided consolidation of financial statements
of SCAL resulting in inflation of its revenues/ profits, which
could have potentially impacted the investors’ decisions. This
was allegedly made possible through inter-twining web of
cross-holding amongst various Wadia group companies,
which allowed reduction of BDMCL’s stakes in SCAL to 19%
Since we have already held that consolidation of SCAL’s
financials was not called for, no case for violation of PFUTP
Regulations is made.

14.1 We also note that admittedly, there is no evidence of
any impact on market price of BDMCL shares, which was
allegedly the underlying motive. The learned WTM in the
impugned order has himself held as under: -

55
“I note that the impact of ‘concealment of a real
picture and postulation of artificial picture’, on the
share price of a scrip, can hardly be assessed and
recreated without the actual events taking place
in reality. In the instant case, BDMCL is accused
of inflating its sales and profit over a consistent
period of seven years, so the only question that
needs to be answered is, had these sales to SCAL,
not been recorded in the books of BDMCL, [which
infact constituted on an average more than 50%
(it ranged from 84% to 38% across different FY’s)
of the real estate sales and real estate was the
single handed profit making venture for BDMCL
during the Investigation Period], then what would
have been the impact on the share price of
BDMCL. I note that no statistical analysis can
be made on this aspect. It may not be
possible to assess as to how a rational
investor would have made his decision on
the basis of such an information being made
public by the company.”
(Emphasis supplied)


14.2 It is also noteworthy that promoter’s shareholding in
BDMCL has not changed during the inspection period. There
is no evidence that through the alleged price manipulation,
the promoters of the company may have made any unlawful
profits by offloading their stakes to manipulated investors.
Undoubtedly, there is no such allegation in the impugned
order either of promoters getting benefitted through the
alleged potential price rise. The show-cause notice did not
point out any price rise due to the said manipulation device,
presumably to impress upon the potential investors, despite
allegedly having continued over several years. An exercise
was also got carried out in this regard by the SEBI which
resulted in no negative finding.

14.3 We have no opinion on the credibility or accuracy of
the exercise. However, absence of any findings in this regard

56
belies the alleged existence of any grand fraudulent scheme
executed by BDMCL, allegedly aided and abated by SCAL.
There is no finding of any price rise in BDMCL shares
noticeable/attributable to the alleged device. Secondly, the
ultimate objective of price manipulation does not stand
substantiated as generally through artificial price
manipulation, promoters and related entities tend to make
unlawful gains by offloading their equity. However, in the
instant case, the promoters’ holding, which was at 52.07% in
FY 2011-12, rather rose to 52.29% in FY 2012-13 and then
to 52.35% in FY 2013-14 and 2014-15, and thereafter
remained static at 53.69%. There was clearly no dilution of
shares of promoters at the strength of allegedly manipulated
price. In view of the above, none of the elements of the
alleged fraudulent scheme could be established.

In view of this, this question too is replied in Negative.


Issue-II (Related Party Disclosures)


Question: Whether SCAL was correctly held as a
‘related party’ of BDMCL for the FY 2014-15, 2015-16
and 2016-2017, even though it was not held as a
related party for FY 2017-18 on the ground that it was
not an ‘Associate’ under section 2(6) of the companies
Act, 2013?

15. The second major issue is with regard to alleged non-
disclosure of ‘Related party transactions’ by BDMCL in respect
of FY 2014-15 to FY 2016-17 for which penalty under Section
15HB has been for violation of Listing Agreement/LODR

57
Regulations levied separately on BDMCL and Mr. Jehangir N.
Wadia, its Managing Director (Noticee No. 5).

15.1 Learned WTM noted that SCAL was shown as a ‘Related
party’ of BDMCL during FY 2011-12 to FY 2013-14 which, in
the admission of BDMCL was out of abundant caution.
Further, the learned WTM was of the view that in terms of the
Ind-AS, which was effective from FY 2017-2018, SCAL was
not a ‘related party’ in FY2017-18 onwards keeping in view
the definition of ‘Related party’ in Ind-AS-24 being an
‘associate’ of another entity with LODR Regulations and
Section 2(6) of the Companies Act, 2013. The learned WTM
categorically held that since BDMCL held 19% share capital
of SCAL it was not an ”associate”. Based on this, learned
WTM restricted the examination of the ‘related party’ status
for FY 2014-15 to FY 2016-17 only.

15.2 For the three financial years i.e. FY 2014-15, 2015-16
and 2016-17 in learned WTM’s view SCAL is ‘related party’ of
BDMCL by applying the provisions of the AS-18 read with
LODR Regulations / Clause 49(vii)(B) of the erstwhile Listing
Agreement. With regard to the LODR / Listing Agreement,
the learned WTM is of the view that BDMCL is in control of
SCAL / exercises ‘significant influence’ in making the financial
/ operating decision of the SCAL.

15.3 We note that the learned WTM has made heavy reliance
on the AS-18 which reads as under :-

“ Parties are considered to be related if at any
time during the reporting period one party has
the ability to control the other party or
exercise significant influence over the
other party in making financial and/or
operating decisions.”

58


In holding existence of significant influence, Learned WTM
has held the transactions between two as material by
following the illustration given in paragraph-13 of AS-18: -

“13. What constitutes ‘significant influence’,
is also defined in AS- 18 itself as- “participation
in the financial and/or operating policy
decisions of an enterprise, but not control of
those policies.”


Para 13 of AS-18 further states that,
“Significant influence may be exercised in
several ways, for example, by representation
on the board of directors, participation in the
policy making process, material inter-
company transactions , interchange of
managerial personnel, …………………………….”
[Emphasis supplied].


15.4 We note that based on Table-3 of the impugned order,
transactions of BDMCL with SCAL for three relevant financial
year, i.e. FY 2014-15, 2015-16 and 2016-17, amounted to
12.92%, 12.59% and 9.10% of total revenue of BDMCL. It
does not justify how BDMCL exercised control or exercise
significant influence over SCAL in its financial / operational
decision making. No other evidence has been brought before
us.

15.5 Moreover, “Related Party” can be held keeping in view
specific provisions of Section 2(76) of the Companies Act,
2013, which reads as follows:- :

“2(76). “related party”, with reference to a
company, means—

59
(i) a director or his relative;

(ii) a key managerial personnel or his relative;

(iii) a firm, in which a director, manager or
his relative is a partner;

(iv) a private company in which a director or
manager [or his relative] is a member
or director;

(v) a public company in which a director or
manager is a director [and holds] along
with his relatives, more than two per
cent. of its paid-up share capital;

(vi) any body corporate whose Board of
Directors, managing director or
manager is accustomed to act in
accordance with the advice, directions
or instructions of a director or manager;

(vii) any person on whose advice, directions
or instructions a director or manager is
accustomed to act:

Provided that nothing in sub-clauses (vi) and (vii)
shall apply to the advice, directions or
instructions given in a professional capacity;

(viii) any body corporate which is—


(A) a holding, subsidiary or an
associate company of such
company;

(B) a subsidiary of a holding company
to which it is also a subsidiary; or

(C) an investing company or the
venturer of the company.

Explanation.—For the purpose of this clause, “the
investing company or the venturer of a company”
means a body corporate whose investment in the
company would result in the company becoming an
associate company of the body corporate];

60
(ix) such other person as may be prescribed.”


15.4 In our view, it is clear that the appellant is not a
“Related party” under Section 2(76) of the Companies Act.
Similarly, appellant is not a ‘Related party’ under SEBI LODR
Regulations, 2015 either, which defines a ‘related party’ to
mean a ‘Related party’ as in Section 2(76) of the Companies
Act, 2013.

15.5 We have already held in Paragraph 13.6 that where
express provisions of the Companies Act are applicable,
conflicting accountings standards cannot be given
precedence. Keeping in view the above, and taking into
consideration the provisions of Section 2(76) of the
Companies Act, 2013 read with Section 2(zb) of the LODR
Regulations, we hold that SCAL cannot be held as “Related
Party” of BDMCL for FY 2014-15, 2015-16 and 2016-17.

In view of the above, we answer this question in Negative,


Inordinate Delay


16. Mr. Seervai took strong objection to inordinate delay in
issuing SCN in June, 2021 and passing impugned order on
October 21, 2022, while the alleged violations took place as
early as FY 2011-12.

16.1 SEBI’s explanation is two-folds;

(a) there was no delay as proceedings were initiated in
January 2019 upon receipt of complaint; and

61
(b) the violation is ‘single and continuous one’ for a long
period of time i.e., FY 2011-12 to FY 2018-19.

16.2 In our considered view, both explanations are hollow.
Firstly, based on the strength of Quarterly/yearly disclosure
to the Exchanges, SEBI was already aware of the relevant
information since 2012-14 but made no observations, leave
aside taking any action. Undisputedly, MoUs were signed
during 2012-2014 and alleged reduction in SCAL shares by
BDMCL to 19% took place in March 2012, both of which are
the only crucial piece of information in the matter. However,
SEBI took action only after 9 years statedly, on receipt of
certain complaint.

The second argument of ‘single and continuous violation’ too
fails as both reduction of SCAL Shares and signing of MOUs
had taken place before March 2014 and there is admittedly
no further chargeable action in subsequent years.

Therefore, there is no valid explanation for delay in taking
action after 9 years. we are at pains to note that the SEBI,
which is expected to play an important role in maintaining
integrity of securities market, wakes up and acts only on
receipt of certain complaints.

16.3 This Tribunal in Ashlesh Gunvantbhai Shah vs.
63
SEBI has consistently taken an adverse view in case
of inordinate delay in initiating proceedings without
reasonable cause. This Tribunal has held as under:-

"12. Having considered the matter we are of
the view that there has been an inordinate
delay on the part of the respondent in

63
Appeal No. 169 of 2019 decided on January 31, 2020

62
initiating proceedings against the appellants
for the alleged violations. The controversy in
this regard is squarely covered by a decision
of this Tribunal in Mr. Rakesh Kathotia & Ors.
vs SEBI in Appeal No. 7 of 2016 decided by
this Tribunal on May 27, 2019.”

16.4 In view of the above, we find no merit in the
explanation given by the SEBI and hold that there was
inordinate delay in initiating action after 9 years, without
reasonable cause.


Other Grounds


17. Appellants have taken several other legal grounds such
as jurisdiction of SEBI on unlisted companies and SCAL not
“ dealing in securities ”; and legality of retrospective
application of amendments in PFUTP Regulations. However,
since we have already held that there was no fraudulent
scheme in respect of MOUs signed by BDMCL with SCAL, we
keep these legal issues open for deliberation in some other
case in future.

64
18. With regard to the intervention application filed by a
complainant in respect of Appeal No. 838 of 2022, seeking
compensation for alleged losses due to fall in share prices of
BDMCL, we note that the applicant became an investor in
BDMCL in October 2017 only, while the alleged violations took
place in FY 2012-14. Further, due disclosure was undisputedly
made in the relevant annual financial statements of BDMCL.
Even in subsequent years, disclosure of income recognized

64
Miscellaneous Application No.1789 of 2022 in Appeal No.838 of 2022

63
from such MOUs was made through the Notes to accounts to
BDMCL’s financial statements.

18.1 It is expected that being a well-informed person, who
pleaded at length before us, the applicant would have made
decision to invest in BDMCL based on information available in
public domain. Moreover, his contention of loss to investors
of securities of BDMCL and accordingly plea for disgorgement,
rather contradicts the key allegation of inflation of BDMCL’s
profit for misleading investors. Accordingly, the intervention
application is dismissed.

19. As we have already answered issue Nos. I in negative
and held that there was no fraudulent scheme, the appeal
filed by the CFOs and Audit Committee Members of BDMCL
too deserves to be allowed.

20. There would be something amiss in this order, if we do
not place on record the able and arduous assistance rendered
by Learned Senior Advocates, Mr. Darius Khambata, Mr.
Navroz Seervai, Mr. Gaurav Joshi, Mr. Mustafa Doctor and
their teams and other advocates on either side in appreciating
this complex issue involving interplay of finance, accounting
standards, Company laws and Securities laws, and in dealing
with voluminous records, lengthy arguments and catena of
judgements relied upon.


21. In view of the above,-


(a) The Appeal Nos. 838 of 2022, 839 of 2022, 840 of
2022 and 1016 of 2022 are allowed and impugned

64
orders dated October 21, 2022 and October 31,
2022 are set aside.

(b) The amount of penalty paid by the appellants, if
any, shall be refunded within 4 weeks of this order.


(c) The intervention application (Misc. Application
No.1789 of 2022 in Appeal No.838 of 2022) is
dismissed.

(d) No costs.

(e) All (pending) interlocutory application(s), if any,
stand disposed of.


Dr. Dheeraj Bhatnagar
Technical Member



I agree.



Ms. Meera Swarup
Technical Member



16.01.2026
PTM

65

Per: Justice P. S. Dinesh Kumar, Presiding Officer

22. I have read the opinion rendered by the learned Hon’ble
Technical Member Dr. Dheeraj Bhatnagar allowing these
appeals, but unable to agree with the same. Hence, this
separate judgment.

23. These four appeals are filed by Bombay Dyeing &
Manufacturing Company Limited (‘Bombay Dyeing’ for short),
Scal Services Limited (‘SCAL’ for short) and other individuals.

24. Undisputed facts are, Bombay Dyeing had taken up
65
two real estate projects . It had 49% share in SCAL till 2012.
On March 29, 2012, Bombay Dyeing transferred 30% of its
shareholding in SCAL to another group company and retained
19% shareholding. In May 2012, Hon’ble Bombay High Court
stayed the construction in the projects and it was resumed in
January 2015. During investigation period, 11 MoUs were
executed between Bombay Dyeing and SCAL and out of them
nine were executed during the continuance of stay order
passed by the Hon’ble Bombay High Court.

25. Based on the complaints alleging bogus sale and
purchase by the said two companies, SEBI issued a show
cause notice dated June 11, 2021, to 10 noticees alleging that
 during the investigation period (FY 2011-12 to FY 2018-
19) Bombay Dyeing was directly or indirectly owned the
entire shareholding of SCAL;
 during that period Bombay Dyeing entered into
memoranda of understanding (MoUs) with SCAL, under

65
One ICC and Two ICC, Dadar, Mumbai.

66
which SCAL agreed to make bulk purchase of flats for
an aggregate value of ₹3,033 Crore;
 of the said aggregate value, Bombay Dyeing recognised
a sum of ₹2,492.94 Crore as its revenue which
represented 56% of its total revenue;
 throughout the investigation period, Bombay Dyeing
booked a total profit of ₹2,317.54 Crore from the real
estate segment, of which ₹1,302.20 Crore was Profit
Before Tax on account of the said MoUs; and
 SCAL being an extended arm of Bombay Dyeing, the
MoUs were not ‘principal to principal agreements’ and
the revenue and profit were artificially inflated and
disclosure profit figures to the public had resulted in
violation of SEBI Act, PFUTP Regulations and LODR
Regulations.

26. Noticee No.1 and 2 filed separate replies. Noticees
No.3, 4, 5 and 10 adopted the reply filed by Noticee No.1.
Noticee No.6, 7, 8 and 9 adopted reply filed by Noticee No.2.
After adjudication, the learned WTM has passed the impugned
order, issuing various directions and imposing monetary
penalties resulting in these appeals.

27. The sum and substance of submissions made on behalf
of Bombay Dyeing and Mr. Nusli Neville Wadia are as follows:

28. The show cause notice alleges two kinds of wrong doings
namely
 Allegation of misrepresentation of financial
statements of Bombay Dyeing; and
 Allegation of violation of related party transaction
Regulations.

67
29. Misrepresentation of financial statements was
premised on Bombay Dyeing’s failure to ensure consolidation
of SCAL’s accounts with Bombay Dyeing. To achieve this, the
shareholding in SCAL was brought down to 19%, so that SCAL
may not be shown an ‘associate company’.

30. The show cause notice also alleged that Bombay
Dyeing and SCAL executed a well thought out and deliberate
fraudulent scheme to record a non-genuine sales made to
SCAL to the tune of ₹2,492.94 Crores and profits to the tune
of ₹1,302.20 Crores for FY 2011-12 to FY 2017-18 were
declared. The entire shareholding of SCAL was structured in
a manner to camouflage the actual shareholding of Bombay
Dyeing in SCAL. The entire shareholding in SCAL was held
through various investment companies of Wadia Group to
ensure non-consolidation of transactions and the financial
statements of Bombay Dyeing were untrue and misleading to
the shareholders of the listed company during the inspection
period.

31. Appellants have raised several contentions challenging
the findings in the impugned order. The principal allegation
against Bombay Dyeing is, that it had booked a revenue of
₹2,492.94 Crores during the investigation period and this is
an admitted position. It is also an admitted position that
during the investigation period Bombay Dyeing has entered
into 11 agreements with SCAL. Further that, SCAL being an
extended arm of Bombay Dyeing, the MoUs were not
‘principal to principal’ rather SCAL acted as Bombay Dyeing’s
agent.

32. In the facts of the case, the point that arises for
consideration is whether the financials declared by

68
Bombay Dyeing during the investigation period were
untrue with inflated profits?

33. To examine the point for consideration, we have to
determine who is ‘SCAL’ and what is the transaction?

34. SCAL is an unlisted limited company. Bombay Dyeing
held 49% shares in SCAL till March 28, 2012. With effect from
March 29, 2012, its shareholding was reduced to 19%. SCAL’s
shareholders during different financial years is noted in Table
Nos.6 to 10 of the impugned order, which are as follows:
Table 6
2010-11 Shares held in
Shares
held by
Scal Pentafil Archway
1 Scal - 25.50% 25.50%
2 Pentafil 25.50% - 25.50%
3 Archway 25.50% 25.50% -
4 BDMCL 49% 49% 49%
Total 100% 100% 100%

Table 7
2011-12
And 2012-
13
Shares held in
Shares
held by
Scal Pentafil BDRECL Archway
1 Scal - 25.50% 10% 25.50%
2 Pentafil 25.50% - 40% 25.50%
3 BDRECL 30% - - -
4 Archway 25.50% 25.50% 10% -
5 BDMCL 19% 49% 40% 49%
Total 100% 100% 100% 100%


TABLE 8

2013-14 Shares held in
Shares
held by
Scal Pentafil BDRECL Archway BDS Spring
flower
1 Scal - 25.50% 10% 25.50% -
2 Pentafil 19% - 40% 25.50% 81%
3 BDRECL 19% - - - -
4 Archway 19% 25.50% 10% - -
5 BDS 19% - - - -

69
6 Springflo
5% - - - - -
wer
7 Havenkor
- - - - - 100%
es Real
Estate
Pvt. Ltd.
8 BDMCL 19% 49% 40% 49% 19%
Total 100% 100% 100% 100% 100% 100%

TABLE 9
2014-15
to 2017-
18
Shares held in
Shares
held by
Scal Pentafil BDRECL BDS Springflower
1 Scal - 45.50% 45% 47% -
2 Pentafil 19% - - 19% -
3 BDRECL 19% - - 15% -
4 BDS 38% 5.50% 15% - -
5 Springflo
5% - - - -
wer
6 Havenkor
- - - - 100%
es Real
Estate
Pvt. Ltd.
7 BDMCL 19% 49% 40% 19% -
Total 100% 100% 100% 100% 100%

TABLE 10
2018-19 Shares held in
Shares
held by
Scal Pentafil BDRECL BDS
1 Scal - 45.50% 45% 47%
2 Pentafil 19% - - 19%
3 BDRECL 19% - - 15%
4 BDS 43% 5.50% 15% -
5 BDMCL 19% 49% 40% 19%
Total 100% 100% 100% 100%

The above tables show the cross-holdings of Wadia Group
companies. Bombay Dyeing did not have any subsidiary till
2014-15 and during that financial year, when Archway
Investment Company Limited (‘Archway’ for short) became
its subsidiary. Consequently, Bombay Dyeing started
preparing consolidated financial statements in which the
financials of Archway, Pentafil Textile Dealers Limited

70
(‘Pentafil’ for short), Bombay Dyeing Real Estate Company
Limited (‘BDRECL’ for short) and PT Five Star (Associate
company) were consolidated.

35. The next admitted position is, Bombay Dyeing has
entered into 11 MoUs with SCAL during the investigation
period. The first MoU is dated March 30, 2012 and the last
one is dated March 27, 2014. The MoU details are as follows:
Table No.4
MoU
No.
MoU Date Project No. of
Flats
sold
Consideration
for sale (Rs.
In Crores
1 March 30, 2012 One ICC 52 450
2 March 30, 2012 Two ICC 40 293
3 June 30, 2012 One ICC 9 82
4 June 30, 2012 Two ICC 8 61
5 September 27,
2012
One ICC 5 46
6 December 31,
2012
One ICC 10 91
7 March 29, 2013 One ICC 18 189
8 March 29, 2013 Two ICC 25 233
9 June 28, 2013 One ICC 12 127
10 March 27, 2014 One ICC 50 523
11 March 27, 2014 Two ICC 96 938
325 3,033

36. The first MoU is executed on a non-judicial stamp
paper of ₹100, under which Bombay Dyeing agreed to sell 52
flats for a consideration of ₹450.36 Crores and received an
advance sale consideration of ₹13 Crores. Similar are the
other MoUs.

37. In its reply dated July 27, 2021, in response to the
show cause notice, Bombay Dyeing has asserted that the MoU
transactions were entirely lawful and could not be termed as
non-genuine or fraudulent. The reply also stated that the
revenue recognition from the project commenced prior to
April 1, 2012. Therefore, Bombay Dyeing was following the

71
guidance provided in the Guidance Note on Recognition of
Revenue by Real Estate Developers issued by the Institute of
Chartered Accountants of India in 2006.

38. Another crucial fact which requires to be noted is the
first MoU was executed on March 30, 2012 i.e. during the FY
2011-12. By taking shelter under Guidance Note 2006,
Bombay Dyeing was booking profits. In note No.37 of its
Annual Report for FY 2015-16, Bombay Dyeing has declared
that based on SCAL’s inability to sell the flats, Bombay Dyeing
had refunded ₹270.35 Crores retaining only 7.5% of the
advance amount. The said note contained in Bombay
Dyeing’s reply to the show cause notice reads thus:

"The Company has agreed to sell several
apartments in the proposed residential
towers being constructed at Island City
Centre to SCAL Services Ltd, a Group
company, in terms of various
Memorandum of Understanding (MOUs)
entered between the companies till March
31, 2016. Based on the method of
accounting (percentage of completion)
followed by the company, net revenue of
₹239.26 crores (March 2015 ₹301.11
crores) and the resultant profit before
tax of ₹158.63 crores (March 2015
₹224.49 crores) has been recognised
during the year ended March 31, 2016 in
respect of the sales to SCAL. During the
year, SCAL has requested the company for
certain concessions on grounds that due to
the huge delays in construction by the
Company, it had incurred substantial
interest costs on account of its borrowing
against the unsold inventory of flats, which
could not be sold due to the delays in the
project. Pursuant to the request, the
Company considering the facts and
circumstances that led to SCAL's inability
to sell the flats, has granted SCAL

72
deferment to milestone payments till June
2017 or till the sale of all the unsold flats,
and also considering that SCAL was a bulk
customer who had purchased a large
number of flats and had not received the
discounts given to other bulk purchasers,
the Company reduced the advance
payment made by SCAL 7.5% resulting in
refund of about 270.35 crore to SCAL ."


39. A careful analysis of the above annual report reveals
that Bombay Dyeing declared Profit Before Tax of ₹158.63
Crores for March 2015. In one breath, Bombay Dyeing says
in its annual report that it refunded ₹270.35 Crore to SCAL
and retained 7.5% of advance consideration, in the other
breath, it says that it recognises a profit of ₹158.63 Crores
(before tax) in March 2015. It is relevant to note that the
construction was resumed only in January 2015. Therefore,
the plea that Bombay Dyeing made a profit of Rs.158.63
Crores by March 31, 2015 cannot be countenanced.

40. Another crucial aspect to be noted is that by March 31,
2017, SCAL was having an outstanding borrowing from HDFC,
Archway and Pentafil, of ₹169.98 Crores, ₹216.55 Crores and
₹18 Crores respectively. It is significant to note that during
2013-14, Archway and Pentafil were holding 19% share each
in SCAL. During 2014-17, Pentafil was holding 19% in SCAL.
It is interesting to note that during FY 2017-18, all the
borrowings were repaid by SCAL availing term loan from
DHFL and to avail that loan from DHFL, Bombay Dyeing gave
‘a comfort letter’ to DHFL on behalf of SCAL stating that
‘Bombay Dyeing shall ensure that SCAL shall duly and
punctually observe and perform all its obligations under the
aforesaid ‘term loan’. It is further interesting to note that
Bombay Dyeing gave an undertaking to the DHFL stating that

73
till the time the aforesaid term loan is repaid in full, it shall
not, without DHFL’s prior approval, dispose of any part of its
shareholding in SCAL. Based on such a comfort letter, DHFL
sanctioned ₹404.53 Crores (169.98+216.55+18 Crores). It is
surprising to note that DHFL sanctioned ₹404.53 Crores to
SCAL who had a negative net worth of ₹237.70 Crores.

41. To reiterate, in substance, here is a company called
SCAL in which Bombay Dyeing initially held 49% shareholding
and later reduced to 19%. The remaining shareholders of
SCAL are group companies of Wadia Group. Bombay Dyeing
envisaged a real estate project and the construction was
stayed by a court order. Bombay Dyeing entered into 11
MoUs purporting to sell the flats in bulk and collected a
meagre sum of ₹13 Crores as advance sale consideration out
of a total sale value of ₹450 Crores in respect of the first
66
MoU . Within three years, Bombay Dyeing collected further
sums from SCAL and refunded ₹270.35 Crores by retaining
only 7.5% of advance consideration. Bombay Dyeing has
reported this fact in its annual report for FY 2015-16. By then,
it had achieved its goal declaring a net revenue of ₹239.26
Crores and profit before tax of ₹158.63 Crores.

42. In my view, these stark facts lead to one and only
inference that in order to show profits in the balance sheet,
Bombay Dyeing executed MoUs purporting bulk sale of flats
to SCAL owned by it and other Wadia Group Companies. This
resulted in Bombay Dyeing booking a revenue of ₹4,429.57
Crores in the real estate segment and recognising revenue of
₹2,492.94 Crores. It is significant to note that Bombay
Dyeing did not have any notable revenue from other

66
March 30, 2012

74
segments namely textile and Polyester. The segment wise
revenue and profit during the investigation period is as
follows:

Table 3
(Rs. in Crores)

Financial
Year
Segment Segment
Revenue
Segment
Profit
2011-12 Textile 423.18 8.90
Polyester 1241.18 (0.86)
Real Estate 566.27 268.58
Total 2230.73 276.62
2012-13 Textile 454.65 (12.34)
Polyester 1208.82 (27.04)
Real Estate 665.70 349.61
Total 2329.17 310.23
2013-14 Textile 535.16 15.15
Polyester 1317.59 (110.01)
Real Estate 803.28 372.46
Total 2656.03 277.60
2014-15 Textile 578.09 25.1
Polyester 1366.75 (9.77)
Real Estate 444.23 302.69
Total 2389.07 318.02
2015-16 Textile 310.11 (26.3)
Polyester 1069.12 (22.66)
Real Estate 470.23 277.2
Total 1849.46 228.24
2016-17 Textile 306.97 (19.65)
Polyester 1110.15 82.02
Real Estate 296.95 160.57
Total 1714.07 222.94
2017-18 Textile 257.89 (14.4)
Polyester 1251.95 39.68
Real Estate 1182.91 586.43
Total 2692.75 611.71
2018-19 Textile 263 1.84
Polyester 1439.28 18.54
Real Estate 2727.48 1742.42
Total 4429.76 1762.8

43. This is a classic case of fraud in the securities market.
A careful analysis of the above table clearly shows that the
major and significant revenue is only from the real estate
segment based on the ostensible sale to SCAL. On the face of
it, the transactions do not appear genuine. There was no real

75
sale of flats. It was only on paper in the form of MoUs
between the group. If the MoUs were between two different
entities and genuine consideration had flown in, it could be
termed as profit. The cross holdings in SCAL clearly shows
that it was an extended arm of Bombay Dyeing group. If it
were not an extended arm of Bombay Dyeing, a company
with such financial status could never venture to make an
offer of purchase nor Bombay Dyeing agree to make bulk sale
of its flats worth several hundred Crores to a company which
had a net worth of ₹2.90 Crores during FY 2011-12 and
negative net worth from FY 2012-13 to 2018-19. At the end
of the day, SCAL was merged with Bombay Dyeing. This is
another significant but ironic fact to note.

44. Thus, by entering into non-genuine MoUs, profits were
booked by Bombay Dyeing. This gave an impression to the
genuine investors that the Company was making profits of
hundreds of crores of rupees, where in fact, there was none.

45. Elaborate arguments were addressed by the learned
Senior Advocates for the appellants with regard to Bombay
Dyeing holding 19% share in SCAL and thus, not under
obligation to consolidate the financials. It was urged in their
67
written submissions that WTM’s contempt for principle of
‘separate legal identity’ itself calls for this Tribunal’s
interdiction. It was also argued that SCAL being an
independent legal entity, the WTM ought to have recognised
its juridical status. It was further contended in the written
submissions that not recognizing SCAL as a legal entity is
done by applying the doctrine of ‘piercing the veil’, which

67
Paragraph Nos.61 to 63 Consolidated written submissions filed on
22.11.2024 in Appeal No.839 of 2022

76
could not have been done. In substance, it was argued that
corporate veil could not have been pierced. In support of this
contention, reliance was placed on Balwant Rai Saluja v. Air
68
India Limited . Mr. Khambata pointed out relevant portions
of the authority and submitted that the Hon’ble Supreme
court of India has approved two English cases describing the
contingency, when the corporate veil can be pierced.

69
46. In Ben Hashem v. Ali Shayif , six principles have been
stated. The fifth principle is relevant and it states that ‘to
justify piercing the corporate veil, there must be both control
of the company by the wrongdoer(s) and impropriety, that is,
use or misuse of the company by them as a device or facade
to conceal their wrongdoing. In the case on hand, misuse of
company as a device to conceal their wrong doing is largely
writ on its face. Therefore, it is an eminently fit case to pierce
the corporate veil to know who are the owners of SCAL.

47. The learned Senior Advocates for the appellants also
made submissions with regard to the common Directors in
Wadia Group companies also being Directors in SCAL without
remuneration; SCAL having its registered office in Neville
house of Wadia Group. It was urged that there was no legal
bar to be a Director in more than one company and also
having registered office in the same address. To that extent
appellants may be correct. But, I may hasten to add that in
the facts of this case, those aspects, in fact, reinforce the case
of the Regulator.

48. Appellants also seriously contended that explanation
to Regulation 4 of PFUTP Regulations was inserted on

68
(2014) 9 SCC 407
69
2008 EWHC 2380 (Fam)

77
19.10.2020 and the alleged transactions are prior to that date
and therefore, the said provision has no application. This
argument is wholly devoid of merit because, firstly the
explanation is for removal of doubts, secondly, it is settled
that fraud unravels everything. In N. Narayanan v.
Adjudicating Officer, Securities and Exchange Board of
70
India , in somewhat similar set of facts namely serious
irregularities in its books of accounts and showing inflated
profits, the Hon’ble Supreme Court of India has held that
prevention of market abuse and preservation of market
integrity is the hallmark of securities law. In that case, SEBI
had observed manipulated accounts by fictitious entries, false
disclosure and other violations to hold that the appellant and
others therein had violated the SEBI Act and Regulations.
Apropos to the conduct of pledging the shares at artificially
inflated prices based on inflated financial results, the Hon’ble
Supreme Court of India has held in that case that the
appellant therein had committed illegality and the principle of
‘acta exteriora indicant interiora secreta’ (meaning
external actions reveal internal secrets) was applicable in all
force. In my considered view, that principle is applicable in
no less measure in this case. The detailed facts recorded
herein lead to an irresistible inference that Bombay Dyeing
had booked a revenue of ₹2,492.94 Crores based on the
71
MoUs and a profit before tax of ₹1,302.20 Crores in a
deceitful manner. Such artificial profits lure gullible investors
to invest in the scrip and such market abuse cannot be
countenanced.


70
(2013) 12 SCC 152
71
Table No.5 in the Impugned Order

78
49. It was also vehemently contended on behalf of the
appellants that there was no requirement for consolidation of
Bombay Dyeing and SCAL’s accounts because Bombay
Dyeing was holding only 19% stake in SCAL. Before this
argument is dealt with, it is relevant to note the findings
recorded in paragraph 2.17 to 2.21.8. It is noted by the
learned WTM in para 2.17 that during each financial year from
FY 2011-12 to FY 2017-18, Bombay Dyeing recognised a
revenue on the basis of MoUs on ‘percentage completion
method’ in accordance with AS-7 which prescribes accounting
treatment of revenue and costs associated with construction
contracts. Bombay Dyeing recognised a revenue and
operating profit of ₹2,429.57 Crores and ₹2,317.54 Crores
respectively for the real estate segment during FY 2011-12 to
FY 2017-18 and posted a profit of ₹1,302.20 Crores. It is
further noted by the WTM that Bombay Dyeing vide its letter
dated October 17, 2019, has admitted that with respect to
the MoUs entered into with SCAL, it had received only ₹186
Crores which was 7.46% of the revenue recognised during FY
2011-12 to FY 2017-18. In para 2.21.1 and 2.21.2, it is stated
thus:

“2.21.1. Scal was having negative net worth of
Rs.3 crores, Rs.14 crores and Rs.42 crores as
on March 31, 2012, March 31, 2013 and March
31, 2014, respectively, still BDMCL entered into
various MoUs with Scal under which Scal was
expected to make a payment of Rs.3,033
crores over several years based on the physical
stage of construction of Project One ICC and
Project Two ICC. With respect to the due
diligence for selling flats to Scal considering its
weak balance sheet, BDMCL submitted that
Scal was a bulk purchaser and as per its
business model, it was required to sell these
apartments to retail customers (i.e. individuals
and entities) and make payments to BDMCL. It

79
is alleged that BDMCL was aware that Scal
would not be able to pay to BDMCL if the flats
are not actually sold by Scal to third parties.
The same is also confirmed from the Annual
Report of BDMCL for FY 2015-16 wherein
BDMCL granted Scal deferment to milestone
payments till June 2017 or till the sale of all the
unsold flats. In this way, it is alleged that
BDMCL fabricated a fraudulent scheme
whereby it sold flats/allotment rights to Scal, a
group company, and ensured that it continues
to recognise the revenue based on MoUs
entered into with Scal irrespective of whether
or not the flats were further sold to retail
customers by Scal.

2.21.2. As required under various MoUs, Scal
was required to pay an amount equivalent to
10% of the total consideration within 60 days
of the date of MoU. Being a negative net worth
entity, Scal did not have funds of its own. The
payment made by Scal towards booking
amount was financed through borrowings from
various group companies of BDMCL and
external entities. As submitted by the Statutory
Auditor of BDMCL vide letter dated February
12, 2021, till March 31, 2014 and March 31,
2015, Scal had made payment of Rs.262 crores
and Rs.436 crores, respectively, to BDMCL
towards purchase of flats under various MoUs.
For making the aforesaid payments, funds to
the tune of Rs.113 crores and Rs.266 crores
were borrowed by Scal from various Wadia
Group Companies as on March 31, 2014 and
March 31, 2015, respectively. As seen from the
financial statements of Britannia Industries
Limited ("BIL") "another group company of
Wadia group" for FYs 2014-15 and 2015-16,
the loan was advanced by BIL to Scal based on
comfort letter from BDMCL.”




50. One of the principal contentions of Bombay Dyeing is
that it was following the ‘percentage completion method’ and
accordingly posted profits of ₹2,492.94 Crores based on the

80
MoUs with the SCAL and profit before tax of ₹1,302.02
Crores. It is admitted by Bombay Dyeing that the total money
72
received was ₹186 Crores . Therefore, declaring profit of
₹1,302.02 Crores appears ex facie false. Though elaborate
arguments were addressed with regard to accounting
standards, in view of facts noted hereinabove, it is
unnecessary to consider that aspect any further. Resultantly,
these appeals fail and liable to be dismissed.


51. The connected Appeal No.840 of 2022 is by SCAL and
its Directors. It was argued that SCAL is an unlisted company
and not amenable to SEBI’s jurisdiction. It is no more res
integra that a person or entity involved in manipulation is
liable for action (See: Price Waterhouse & Co. and Anr v.
73
SEBI ). Hence, the said argument is noted only to be
rejected.


52. The appellants in Appeal No.1016 of 2022 are
Independent Directors and Chief Financial Officers of Bombay
Dyeing. They have challenged the order dated October 31,
2022, passed by the AO, SEBI imposing penalties in the range
of ₹2 Lakhs to ₹10 Lakhs on the appellants.



53. The main allegations levelled against the noticees are:

(i) That Noticee Nos.1 to 5 were the Independent Directors
of Bombay Dyeing and failed to exercise due diligence

72
Page 434 in Vol-II in Appeal No.838 of 2022
73
2010 SCC OnLine Bom 1197

81
and independent judgment as members of the Audit
Committee of a listed company to ensure that the
financial statements are free from material
misstatement; and they had violated Clause
49(III)(D)(1) of the Listing Agreement (post
amendment dated April 17, 2014) read with Regulation
103 of the SEBI (LODR) Regulations, 2015 and
Regulation 18(3) read with Clause A (1) under Part C of
Schedule II of SEBI (LODR) Regulations, 2015.

(ii) With regard to Noticee Nos.6 to 9, it is alleged that
they were working as CFOs with Bombay Dyeing and
issued certificate in Bombay Dyeing’s Annual Reports
certifying that the financials of Bombay Dyeing
presented true and fair view of its affairs and did not
contain any misleading statement; and thus, Noticee
No.6 had violated the provisions Clause 49(V) of the
Listing Agreement and Noticee No.7 had violated Clause
49(IX) of the Listing Agreement (post amendment
dated 17.04.2014) read with Regulation 103 of the
SEBI (LODR) Regulations, 2015 and Noticee Nos.8 and
9 had violated Regulation 17(8) & 33(2)(a) of the SEBI
(LODR) Regulations, 2015.


54. In their written submissions, appellants have urged
that the subject matter of the appeal substantially overlaps
with Appeal Nos.838 and 839 of 2022, these appellants have
stated that they adopt the contents of each of the notes
submitted in those two appeals and have prayed that they
may be read in support of their appeal. It is further stated
that though technically, the impugned order challenged in this

82
appeal is different, the cause of action being one and the
same, the submission on merits are worthy of adoption.

55. It is relevant to note that I have dealt with the
manipulation in the accounts and held that inflated revenues
were posted in the financials and huge profits were declared.
Having upheld the violations, those appeals are liable to be
dismissed. Admittedly, appellants in this appeal have
adopted the arguments advanced on behalf of the appellants
in Appeal Nos. 838 and 839 of 2022. In view of the admitted
position that the appellants herein are the Independent
Directors and CFOs, their respective violations stand
established. They were holding high positions with high pay
packets. They cannot be heard to contend that they are not
responsible for the acts and omissions. The only aspect that
may remain for consideration is doctrine of proportionality.
The Learned AO has imposed a penalty ranging between ₹2
Lakhs to ₹10 Lakhs. Keeping in view the fact that the
misstatements in the financials displayed an incorrect profit
of ₹1,302.20 Crores before tax, I find no ground to interfere
even with the quantum of penalties imposed. In the result,
this appeal also fails.


74
56. So far as the intervention application is concerned,
the same is filed by a complainant. In view of dismissal of
these appeals, it is unnecessary to consider the said
application.




74
Miscellaneous Application No.1789 of 2022 in Appeal No.838 of 2022

83
57. In the light of above discussion, in my considered
opinion, Appeal Nos.838 and 839 of 2022 are liable to be
dismissed with costs of ₹50 Lakhs and ₹10 Lakhs
respectively payable to the Investor Protection Fund. Appeal
Nos.840 and 1016 of 2022 are liable to be dismissed without
any order as to costs. The intervention application (Misc.
Application No.1789 of 2022 in Appeal No.838 of 2022) does
not survive for consideration. Ordered accordingly .








Justice P.S. Dinesh Kumar
Presiding Officer

16.01.2026
RHN

84

58. In view of the differing views of Hon’ble Members,
based on the majority view, the

ORDER OF THE TRIBUNAL

i. Appeal Nos. 838 of 2022, 839 of 2022, 840 of 2022
and 1016 of 2022 are allowed and impugned orders
dated October 21, 2022 and October 31, 2022 are
set aside.

ii. The amount of penalty paid by the appellants, if any,
shall be refunded within 4 weeks of this order.

iii. The intervention application (Misc. Application
No.1789 of 2022 in Appeal No.838 of 2022) is
dismissed.

iv. All (pending) interlocutory application(s), if any,
stand disposed of.

v. No costs.


Justice P. S. Dinesh Kumar
Presiding Officer



Ms. Meera Swarup
Technical Member



Dr. Dheeraj Bhatnagar
Technical Member
16.01.2026
PTM
MRS
PRAMILA
Digitally signed
by MRS PRAMILA
Date: 2026.01.16
12:37:10 +05'30'