TaxTMI 
TaxTMI 
2026 (8) TMI 934
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....ek Venkatraman, Ms. Arti Raghavan, Ms. Sonam Pandey, Advocates i/b. Sujit Lahoti & Associates, Mr. Parth Shah, Advocate For the Respondent : 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 Intervener : Mr. Amarpal Singh Dua, Advocate with Mr. Rangasaran Mohna, Ms. Ashita Chawla, Advocates and Mr. Rohit Mansukhani, Chartered Accountant ORDER The following four set of appeals are filed against order dated October 21, 2022 passed by the learned WTM, SEBI and the order dated October 31, 2022 passed by the AO (Adjudicating Officer) of SEBI, both of which are based on an investigation carried out by SEBI in respect of BDMCL (Bombay Dyeing and Manufacturing Company Ltd.), 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....
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....ares 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 business of (a) Real Estate and (b) Trading during the IP (Inspection Period). 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. 2.3 Till March 29, 2012, BDMCL held 49% of SCAL's (SCAL Services Ltd.) 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. 2.5 Starting from March 30, 2012 to March 27, 2014, BDMCL and SCAL signed eleven MoUs (Memoranda of Understanding) for bulk sale of flats/allotment rights in respect of 325 f....
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.... On June 11, 2021, SEBI issued SCNs (Show Cause Notice/ Notices) to the Appellants, alleging that the MoUs between BDMCL and SCAL were fraudulent, which artificially inflated reported revenue and profits of BDMCL in violation of PFUTP (SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003) 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 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 ....
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....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 General [(1980) 3 SCC 1] and UMC Technologies v. Food Corporation of India [(2021) 2 SCC 551]. 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 con....
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....been shown in the present case. Relying on SEBI v. Kanaiyalal Baldev Patel ((2017) 15 SCC 1), 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 Madhya Pradesh ((2024) 4 S.C.R. 664)), Ritesh Agarwal v. SEBI ((2008) 8 SCC 205) and Federation of Indian Mineral Industries v. Union of India ((2017) 16 SCC 186). 4.9 Without prejudice, substantive amendments that enlarge the sc....
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....Spade Financial Services Ltd ((2021) 3 SCC 475) and CIT v. Walfort Share and Stock Brokers (P) Ltd. ((2010) 8 SCC 137), 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 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 miscon....
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.... 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 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 Authority v. Skipper Construction Co. ((1996) 4 SCC 622), Vodafone International Holdings BV v. Union of India (2012) 6 SCC 613) and Sahara Asset Management ((2017) SCC OnLine SAT 173). 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, un....
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....ely 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 and the judgments in SBI v. V. Ramakrishnan ((2018) 17 SCC 394) and Gottumukkala Venkata Krishamraju v. Union of India ((2019) 17 SCC 590), 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. v. Satish Kumar Gupta ((2019) 2 SCC 1) and J. K. Industries Ltd. v. Union of India ((2007) 13 SCC 673), BDMCL w....
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....ppeal 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 Arun Kumar & Ors. v. Union of India & Ors. ((2007) 1 SCC 732) and Carona Ltd. v Parvathy Swaminathan & Sons ((2007) 8 SCC 559), 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 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 Price Waterhouse v. SEBI ((2019 SCC OnLine SAT 165) PwC Case), 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 f....
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....13-14 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. 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 or....
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.... were signed between June 2012 and March 2014, allowing 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 m....
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....022 made following submissions: 8.1 The Appellant Nos. 1-5 are Non-executive IDs (Independent Directors) 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 provisions of the LODR Regulations, 2015 [SEBI (Listing Obligation & Disclosure Requirements) Regulation, 2015]). Similarly, Appellant Nos. 6-8, who served as BDMCL's CFOs (Chief Financial Officers) 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 Audit Committee members of BDMCL....
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....egations 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 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 ....
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....cheme 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: 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 'Associat....
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....e 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 othe....
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....ul 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. 11.3 The 3rd 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: "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 c....
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....ld 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. 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 ....
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.... 10% 6. On completion of 6th slab (60% in 12 slabs) - 10% 7. On completion of 12th slab 5% 8. On completion of 18th slab 5% 9. On completion of 24th slab 5% 10. On completion of 30th slab 5% 11. On completion of 36th slab 5% 12. On completion of 42nd slab 5% 13. On completion of 48th slab 5% 14. On completion of 54th slab 5% 15. On completion of 60th slab 5% 16. On completion of 66th 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 s....
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....s, 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? 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 e....
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....up 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 Saluja vs. Air India Ltd. [(2014) 9 SCC 407] 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 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-q....
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....ipation 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 ho....
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....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: - "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,....
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....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 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 be....
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....2013, which reads as follows:- : "2(76). "related party", with reference to a company, means- (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....
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....e 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. SEBI (Appeal No. 169 of 2019 decided on January 31, 2020) 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 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 Grou....
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....1, 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 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 two real estate projects (One ICC and Two ICC, Dadar, Mumbai.). 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 ....
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....n 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 Rs. 2,492.94 Crores and profits to the tune of Rs. 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 Rs. 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 ....
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....50% 15% - - 5 Springflo wer 5% - - - - 6 Havenkor es Real Estate Pvt. Ltd. - - - - 100% 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 ('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....
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....s till March 31, 2016. Based on the method of accounting (percentage of completion) followed by the company, net revenue of Rs. 239.26 crores (March 2015 Rs. 301.11 crores) and the resultant profit before tax of Rs. 158.63 crores (March 2015 Rs. 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 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 ....
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....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 Rs. 239.26 Crores and profit before tax of Rs. 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 Rs. 4,429.57 Crores in the real estate segment and recognising revenue of Rs. 2,492.94 Crores. It is significant to note that Bombay Dyeing did not have any notable revenue from other 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 ....
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....graph Nos.61 to 63 Consolidated written submissions filed on 22.11.2024 in Appeal No.839 of 2022) 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 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 India Limited [(2014) 9 SCC 407]. 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. 46. In Ben Hashem v. Ali Shayif [2008 EWHC 2380 (Fam)], 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 misus....
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....s and a profit before tax of Rs. 1,302.20 Crores (Table No.5 in the Impugned Order) in a deceitful manner. Such artificial profits lure gullible investors to invest in the scrip and such market abuse cannot be countenanced. 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 Rs. 2,429.57 Crores and Rs. 2,317.54 Crores respectively for the real estate segment during FY 2011-12 to FY 2017-18 and posted a profit of Rs. 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 re....
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....ritannia 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 Rs. 2,492.94 Crores based on the MoUs with the SCAL and profit before tax of Rs. 1,302.02 Crores. It is admitted by Bombay Dyeing that the total money received was Rs. 186 Crores (Page 434 in Vol-II in Appeal No.838 of 2022). Therefore, declaring profit of Rs. 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. SEBI (2010 SCC OnLine Bom 1197)). Hen....