After finding that Brightcom Group Ltd (BGL), its promoter, chairman and managing director (CMD) M Suresh Kumar Reddy and chief financial officer (CFO) Narayan Raju were involved in round-tripping of BGL's own funds in a circular fashion to falsely portray receipt of consideration from allottees of preferential allotments and siphoning off of proceeds of preferential allotments, Securities and Exchange Board of India (SEBI) barred top executives of the company as well as investor Shankar Sharma from offloading or disposing their shareholding in the company.
In a
second interim order, Ashwani Bhatia, a whole-time member (WTM) of SEBI, says, "It is perhaps for the first time that SEBI is resorting to issuing a second Interim Order for the same entity. This has been done with much thought and deliberation, considering the scale and gravity of manipulation. The modus operandi adopted suggested a pattern that was repeated multiple times in the preferential allotment. Further, while the auditors are
prima facie found to be involved in the irregularities committed by BGL, action, as deemed fit, in respect of them would follow after the conclusion of detailed investigation."
According to SEBI, while payments by 60 allottees to BGL are still under examination, there is a prima facie case that noticees 4 to 25 were allotted shares against partial or no consideration in the preferential allotments. "There is a real possibility that once this interim order is issued, noticees 4 to 25 may sell the shares allotted to them and make an exit. Thus, they need to be restrained from doing so. In the case of the remaining 60 allottees, suitable action would follow after the examination in respect of them is completed."
Brightcom's CMD and CFO would cease to hold the position of a director or a key managerial person in any listed company or its subsidiaries until further orders, SEBI says. The company is directed to place the order before its board of directors within seven days from receipt.
SEBI asked BGL to ensure that P Murali & Co and PCN & Associates, including their past and present partners, are not engaged with the company or its subsidiaries in any capacity or manner whatsoever until further order.
Noticees 4 to 25 are Sarita Commosales LLP, Kalpana Commosales LLP, Sahitay Commosales LLP, Shalini Sales LLP, Aradhana Commosales LLP, Palace Heights Avenues LLP, Kishan Prakash, Ishan Prakash, P Bhuvaneswari, Hansraj Commosales LLP, MLS Sudheer, Subrato Saha, Manju Shivkrishna Damani, Varun Shivkrishna Damani, Prerna Varun Damani, Pooja Rajendra Prasad Poddar, Rajendra Prasad Poddar, Sushila Devi Poddar, Ankit Kumar Alya, Sanjib Hirendra Chakraborty, Shivkrishna Harakchand Damani and Shankar Sharma.
SEBI received two complaints on 6 October 2022 and 12 May 2023 about preferential allotments made by Brightcom Group in the financial years (FY)19-20 and FY20-21, alleging that the company had raised money through preferential issue of shares to entities that were directly or indirectly connected to it and that the funds raised in the preferential issues were given as loans and advances to its subsidiaries.
It was further alleged that proper disclosures were not made in the company's annual report regarding utilisation of the proceeds of the preferential issues.
SEBI, in its order, says Suresh Kumar Reddy and Narayan Raju were responsible for submitting forged and fabricated bank account statements to SEBI with an intent to mislead the investigation and cover up the irregularities. "The observations and findings clearly show the manipulations carried out by BGL and other noticees, in respect of BGL's preferential allotments, which involve fictitious receipts of the share application money from allottees and siphoning of funds from BGL."
However, the market regulator says BGL has brazenly attempted to cover up its misdeeds by submitting forged and fabricated bank statements to SEBI. "The blatant acts of the company and other noticees raise serious concerns about the affairs of the company and also raise doubts as to whether the financial statements prepared by the company and various disclosures made on the stock exchange platform or in annual reports in the past are correct."
Further, SEBI says it given ample opportunities to Mr Sharma to provide the correct position of payments made to BGL. “However, he has failed to provide the same. Interestingly, one of the reasons for non-submission of payment details, cited by Shankar Sharma in his email dated August 15, is that 'we have been constrained by the delay on part of the company to reconcile all the remittances'," the order says.
Mr Sharma, along with other allottees in the preferential allotment, has been restrained from selling Brightcom shares.
He was allotted 1,50,00,000 warrants (subsequently converted into shares on 9 March 2022), with a face value of Rs2 each, at Rs37.70 per share during FY21-22, for Rs56.65 crore. The company claimed that it had received the total amount of Rs56.65 crore.
However, even after repeated reminders, SEBI says, BGL failed to provide documentary evidence of receipts of warrant or share application money from Mr Sharma in its bank accounts.
SEBI observed that BGL received Rs25.79 crore from Mr Sharma. Subsequently, he vide emails dated 25th July and 26 July 2023 informed SEBI that he paid Rs14.19 crore towards warrant application money to BGL’s account in HDFC Bank.
"Therefore, it appears that BGL has only received Rs39.98 crore, iincluding Rs14.19 crore which could not be verified, as against total consideration due of Rs56.65 crore and has not received the entire share application money from Mr Sharma and that BGL’s claims in this regard are false," SEBI says.
Earlier in April, exposing manipulative accounting adopted by BGL and its promoters and directors, the market regulator had issued an interim order-cum-show-cause notice to them. SEBI also barred M Suresh Kumar Reddy, BGL's whole-time director and promoter Vijay Kancharla, independent director and group CFO Yerradoddi Ramesh Reddy and CFO Y Srinivasa Rao, from offloading or disposing their shareholding in the company.
In a hard-hitting order, Mr Bhatia, the SEBI WTM, had said, "The scale of fraud is indeed large. The noticees attempted to camouflage accounting entries in excess of Rs1,280 crore during FY18-19 and FY19-20 to give a distorted picture of the company's financial position. By all yardsticks, the accounting shenanigans and dubious accounting practices, which the noticees resorted to, were to mislead investors."
"The fact that the promoters gave themselves preferential allotment of shares which led to them increasing their shareholding from 3.51% to over 18.47% after the start of the SEBI investigation, speaks volumes of their intent to mislead and their brazen approach towards self-enrichment. Further, considering that the scrip of BGL is currently trading at around Rs16.23 (closing price at BSE on 12 April 2023), there is a real risk that the promoters may offload their shares and exit the company. It is thus imperative that the promoters be restrained or prohibited from offloading/ disposing their shareholding in the company having regard to their conduct in these proceedings," SEBI says in the order. (
Read: SEBI Raps Brightcom Group, Promoter-Directors for Manipulating Account Books; Asks To Submit Statement of Impact of Non-compliances)
