Had the correct picture of the financial position of Bombay Dyeing been made public, the share price would not have maintained the same trajectory as it did for the period from 2011-12 to 2017-18, a SEBI order has said.
The real estate segment of Bombay Dyeing and Manufacturing Company (BDMCL) was single-handedly responsible for the profits of BDMCL during this period, the order noted.
"I note that more than 50 per cent of sales in the real estate segment were shown to be from Scal in all the FYs under review. I note that though the �Polyester' and �Textile' business segments of BDMCL had volumes in sales, these segments did not translate into profits, rather they incurred losses/negligible profits during the period under investigation," SEBI wholetime member Ananta Barua said in the order.
Thus, when the financial statements of BDMCL for the period from FY 2011-12 to 2017-18 are found to present inflated figures of sales and profits, their disclosure as �true and fair' is an act patently fraudulent and unfair trade practice for the investors in securities, because investors rely on the financial disclosures made by the company, to make their investment/disinvestment decisions, the order said.
The alleged manipulation of financial statements by BDMCL has interfered with the normal mechanism of price discovery and integrity of securities market and created a misleading appearance of the share price movement of BDMCL, the order said.
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 in fact constituted on an average more than 50 per cent (it ranged from 84 per cent to 38 per cent across different FYs) 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?
The 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 was 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 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 recognise the revenue based on MoUs entered into with Scal irrespective of whether the flats were further sold to retail customers by Scal.
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 from FY 2011-12 to FY 2017-18 by fraudulently entering into MoUs with Scal, a group company.
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 interfered 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 evidences, 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, from FY 2011-12 to FY 2017-18.
Also, net amount received till date with respect to MoUs entered into with Scal was Rs 186 crore which was 7.46 per cent of the revenue recognised 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.