The Securities & Exchange Board of India (SEBI) order that prohibits Bombay Dyeing and its promoters, Nusli Wadia, Ness Wadia, and Jehangir Wadia from accessing the capital markets for two years and attracted heavy penalties were examining allegations that Bombay Dyeing was involved in publishing untrue financial statements and constitute manipulative and fraudulent and unfair trade practices against the minority shareholders of Bombay Dyeing and Manufacturing Company Ltd (BDMCL) and the market at large.

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 recognize the revenue based on MoUs entered into with Scal irrespective of whether or not the flats were further sold to retail customers by Scal.

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It has been alleged that BDMCL, along with Scal, executed a ‘well-thought out and deliberate’ fraudulent and manipulative scheme to record non-genuine sales made to Scal to the tune of Rs 2,492.94 crore and profits to the tune of Rs 1,302.20 crore during Financial Year (FY) 2011-12 to FY 2017-18 by fraudulently entering into MoUs with Scal.

The entire shareholding of Scal was structured in a manner to camouflage the actual shareholding of BDMCL in Scal. This structured manner of devising the shareholding pattern reflects a deliberate attempt on the part of BDMCL/ its promoters to mislead the non-promoter investors of the listed entity.

By holding its entire shareholding in Scal through various other investment companies of Wadia Group, BDMCL ensured non-consolidation of transactions carried out with Scal although exercising absolute control over Scal.

Based on the same, the consolidated financial statements of BDMCL are alleged to be untrue and misleading for the shareholders of the listed company.

Artificial inflation of sales and profits by any listed company impacts the market price of its scrip and has a direct bearing on the investment decision of an investor.

Thus it is alleged that the activity of inflation of sales and profits of BDMCL had interferred with the normal mechanism of price discovery and integrity of securities markets and created a misleading appearance with respect to share price movement of BDMCL, thus effectively manipulating the share price of BDMCL.

Financial statements published by BDMCL are relied upon by the investors in the securities markets to base their investment decisions and misrepresentation of the same is alleged to be fraudulent activity.

Based on the same and various other corroborative evidence, BDMCL is alleged to have control over Scal, and therefore, by non-consolidation of the same, BDMCL is alleged to have inflated its revenue and profit by Rs 2,492.94 crore and Rs 1,302.20 crore, respectively, during FY 2011-12 to FY 2017-18.

The net amount received to date with respect to MoUs entered into with Scal was Rs 186 crore which was 7.46 percent of the revenue recognized by BDMCL during FY 2011-12 to 2017-18 with respect to MoUs entered into with Scal.

Based on the same, BDMCL is alleged to have deliberately deferred the billing and actual receipt of revenue to the extent of 92.54 per cent by creating a schedule of billing in the MoUs in a manner that adversely affected the interest of shareholders of the company.