SAT Overturns SEBI Orders Against Bombay Dyeing, SCAL In Flat Sale MoU Case In 2–1 Verdict

In a 2–1 split verdict, the Securities Appellate Tribunal in Mumbai has overturned SEBI's orders against Bombay Dyeing and SCAL Services, holding that the regulator failed to establish that the flat sale agreements between the two group companies were sham transactions.

The majority ruling was delivered by Technical Members Meera Swarup and Dheeraj Bhatnagar. Presiding Officer Justice P. S. Dinesh Kumar dissented.

SEBI's case focused on 11 memoranda of understanding signed between 2012 and 2014 for bulk purchase of flats in two Dadar projects developed by Bombay Dyeing. Nine of these were executed when the Bombay High Court had stayed construction. SEBI alleged the MoUs were unregistered, executed on low-value stamp paper, and used to book revenue without any real transfer of risk or reward.

Bombay Dyeing and SCAL denied the allegations. They said the MoUs were genuine commercial arrangements that were fully disclosed in the company's accounts. They also pointed out that SCAL had sold some of the flats to end buyers and that similar arrangements had been used in earlier projects without objection.

Accepting this explanation, the tribunal said there was nothing unusual about entering into agreements during a construction halt. It noted that litigation-related delays are common in real estate and do not bring all business activity to a standstill.

“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,” the majority said.

The tribunal said the record did not support SEBI's claim of revenue inflation. It noted that SCAL's successful onward sale of some flats supported the genuineness of the MoUs.

“Evidence on record does not establish that the MOUs signed with SCAL were sham/non-genuine transactions to inflate revenue or profits,” it said.

Justice Dinesh Kumar took a different view. In his dissent, he said the transactions did not appear genuine on their face. He observed that “there was no real sale of flats” and that the arrangements existed “only on paper in the form of MOUs between group companies.”

The tribunal also flagged the long delay in SEBI's action over transactions dating back to 2012. By majority, it allowed all the appeals and set aside the market regulator's orders. SEBI has been directed to refund any penalties already paid within four weeks.

For Appellants: Senior Advocates Mustafa Doctor, Darius Khambata, Navroz Seervai, Advocates, Rohan Kelkar, Abhay Jadeja, Varun Satiya, Arun Unnikrishnan, Urvi Gulechha, Tushar Hathiramani, Abhishek Venkatraman, Arti Raghavan and Sonam Pandey

For Respondents: Senior Advocate Gaurav Joshi, Advocates Sumit Rai, Kajol Punjabi, Mihir Mody, Yash Sutaria, Tushar Bansode, Amarpal Singh Dua, Rangasaran Mohna, Ashita Chawla and CA Rohit Mansukhani