The Securities and Exchange Board of India (Sebi) has intervened in the matter concerning alleged irregularities by Trafiksol ITS Technologies, which launched a Rs 45-crore initial public offering (IPO) on BSE’s small and medium enterprise (SME) platform last month.
In an ex-parte order, the market regulator has stated it will undertake a detailed examination into the disclosures made by the company in its draft offer document.
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BSE halted the listing of Trafiksol, a software provider for traffic systems, amid complaints regarding the use of issue proceeds and wrongful disclosures.
Sebi’s probe is expected to be completed within a month.
Trafiksol’s IPO had garnered 345-times oversubscription.
In its offer document, the company had disclosed it would use Rs 17.7 crore for a software contract to a third-party vendor.
Sebi’s initial investigation revealed that the third-party vendor had not filed financial statements with the Ministry of Corporate Affairs for more than three years and had no revenue in the last year for which financials were filed. Additionally, the vendor’s financial statements for the previous three years were signed on the same day, just a few days before the listing. The vendor’s registered office was also closed, and its Goods and Services Tax (GST) return did not match the disclosed business activities.
“It cannot be ruled out at this stage that the attempt to award the software contract to a vendor, who prima facie appears to be a shell entity without any prior experience in developing a software platform of the nature disclosed by the company in its draft red herring prospectus (DRHP), was an attempt to deliberately mislead investors and divert the IPO proceeds,” noted Sebi whole-time member Ashwani Bhatia in the order.
Asserting the need for action, Sebi’s order notes that allowing such IPOs to list could shake the confidence of investors in the listed SME ecosystem. The regulator has also highlighted lapses by the merchant banker.
While investors have sought refunds of their investments, Sebi has directed BSE to ensure that the proceeds from the IPO are placed in an interest-bearing escrow account until further orders. The company will have no access to these funds.
The documents of SMEs for listing are not vetted by the market regulator; instead, the exchanges grant approval. The SME segment has gained traction with exorbitant listing gains, which have now been capped by the exchanges.
Amid rising instances of irregularities, Sebi is considering stringent measures to curb any misuse of the SME platform. A consultation paper on this matter is expected, according to sources.
First Published: Oct 11 2024 | 5:40 PM IST
