BackEmpowered to lift corporate veil: Sebi
Sebi’s comments came while arguing in the Bombay Dyeing matter before the Securities Appellate Tribunal. A bench led by Justice Tarun Agarwala was hearing Bombay Dyeing’s petition challenging Sebi’s October 2022 order against the company.
PremiumMUMBAI : The Securities and Exchange Board of India (Sebi) on Wednesday said it is statutorily empowered to lift the corporate veil and find out the truth whenever the interests of the investors are affected or likely to be affected.
Sebi’s comments came while arguing in the Bombay Dyeing matter before the Securities Appellate Tribunal (SAT). A bench led by Justice Tarun Agarwala was hearing Bombay Dyeing’s petition challenging Sebi’s October 2022 order against the company.
According to the order, Bombay Dyeing & Manufacturing, its promoter Nusli Wadia and his sons Ness and Jehangir, Scal Services, and five other people were banned from the capital market by Sebi. Besides, the regulator had also imposed a penalty of ₹15.75 crore for alleged fraud in falsifying the company’s financial statements.
The SAT, however, stayed the operation of the Sebi whole-time member’s order during the pendency of the company’s appeal.
On Wednesday, Gaurav Joshi, senior counsel for Sebi in the matter argued that “In the securities market, Sebi Act empowers Sebi to take actions in the interest of protecting the interests of the investors and hence lifting the corporate veil to the extent to identify who controls a regulated entity cannot be faulted. Without such a power Sebi will be a mute spectator to many of the corporate misdeeds which may jeopardize the interests of investors."
“Given the mandate of Sebi to protect the interests of investors in the securities market Sebi is statutorily empowered to lift the corporate veil and find out the truth whenever interests of the investors are affected or likely to be affected," the senior counsel said while citing an earlier SAT order in the Sahara Asset Management Co. and Ors. vs. Sebi matter.
Joshi informed the court that between 2011–12 and 2017–18, Bombay Dyeing falsely inflated its profit by purportedly selling its apartments to Scal Services Ltd. (another Wadia Group firm) as part of a memorandum of agreement. The profit was overstated at ₹1,302 crore, and sales were overstated at ₹2,493 crore. “The company’s promoters were aware of such transactions... these transactions are not genuine", he added.
One of the major contentions by Bombay Dyeing was that they were not directly dealing in securities and therefore the violation of PFUTP (Prohibition of Fraudulent and Unfair Trade Practices )would not apply to them.
Citing the case of Sebi vs Kanhaiyalal Baldevbhai Patel, the senior counsel pointed out that Supreme Court considered such a situation that even if the entity is not dealing in securities but based on the information/misinformation someone else deals with it then such person/entity is “equally liable" under PFUTP violations.
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