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NEW DELHI: Market regulator Sebi on Friday announced a detailed investigation into the disclosures made by SME firm Trafiksol ITS Technologies Ltd in its draft IPO documents and instructed the Bombay Stock Exchange to halt the company’s share listing.
The Securities and Exchange Board of India, in its interim ruling, has directed the BSE to ensure that the IPO proceeds are held in an interest-bearing escrow account, with Trafiksol and its affiliates prohibited from accessing them until further notice.
The Sebi’s investigation would take a month’s time to complete.
The order came almost a month after the Bombay Stock Exchange postponed the listing of Trafiksol ITS Technologies on its SME platform after investor concerns. The decision was made following a request from the Securities and Exchange Board of India (SEBI) for the exchange to look into the complaints.
The Trafiksol ITS Technologies’ issue, priced between Rs 66 and Rs 70 per share, was open for subscription from September 10 to 12. The Rs 45-crore IPO was oversubscribed by over 345 times, attracting bids worth more than Rs 10,000 crore.
The company raised funds to utilize in software purchases, borrowing repayment, working capital and general corporate purposes.
Certain complaints were received by Sebi and BSE after the closure and allotment of shares regarding discrepancies in Trafiksol’s IPO. These complaints were particularly concerned with the use of funds for software procurement alleging that the third-party vendor chosen by Trafiksol was incapable of fulfilling the contract.
Sebi and BSE responded to the allegations and initiated an investigation, and deffered the listing of the IPO.
The investigation revealed that no financial statements were filed by the vendor in three years. Furthermore, for the years it was filed, the statements showed NIL revenue. It was prima facie that the vendor was a retail trader, not a software developer, as per the order.
As the investigation proceeded, irregularities, such as missing financial document identification numbers and a non-operational office of the vendor were also revealed.
“Given the above facts, 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 DRHP, was an attempt to deliberately mislead investors and divert the IPO proceeds,” Sebi said in its order.
The market regulator, in order to safeguard investor’s interest, decided to order require a detailed investigation.
Accordingly, “a detailed examination shall be made by Sebi into the disclosures made by Trafiksol ITS Technologies Ltd, in its DRHP (draft red herring prospectus) filed with BSE on May 30, 2024, including the issues identified in this order”.
BSE has been “directed not to proceed with the listing of shares of the company”.
The company, however, suggested taking new quotes from at least three suppliers, seeking shareholder approval before making any payments, and allowing the BSE to appoint a monitoring agency to supervise the procurement process.
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