Market Regulator Securities and Exchange Board of India (SEBI) has imposed a fine of Rs62 lakh on Cerebra Integrated Technologies Ltd (CITL) and its key management, including the managing director (MD), whole-time director (WTD) and chief financial officers (CFOs), following an investigation into financial misrepresentation, fund misappropriation and regulatory violations. In addition to the fines, the company and its directors have been barred from participating in the securities market for periods ranging from one to five years due to multiple lapses from FY18-19 to FY22-23.
The individuals involved in the violations were Ranganathan Venkatraman (MD) (noticee2), Vishwamurthy Phalanetra (WTD and CFO) (noticee 3), Kishan S Rao (CFO) (notice 4), H S Venkatesh (CFO) (noticee 5)
In the order, G Ramar, chief general manager (CGM) of SEBI, says, "Cerebra Integrated Technologies misrepresented its financials and violated both the LODR Regulations and the SEBI Act. Additionally, there were instances where rules, regulations, and accounting standards were not followed, resulting in violations of the PFUTP Regulations over a span of four financial years."
"...Mr Venkatraman, MD of CITL, during the violations, continues in the same role, while Mr Phalanetra served as the WTD and CFO at that time and still holds the position. Mr Rao was CFO from 4 January 2021 to 20 November 2021, and Mr Venkatesh held the same role from 1 January 2022 to 30 August 2022. Each of them was responsible for ensuring accurate financial reporting but failed in that duty. Their actions led to the deliberate misrepresentation of the company's financials and manipulation of CITL's stock price, defrauding investors and violating the PFUTP Regulations," the order says.
SEBI's investigation into CITL was triggered by a report from the National Stock Exchange (NSE) that flagged concerns over the company's financial practices. These included inflated financial figures, misutilisation of funds, and failure to comply with related party transaction (RPT) approval requirements.
One of the primary violations was the failure of CITL to provide critical documents in response to SEBI's repeated summons. Despite numerous requests, key information, such as audit committee minutes and records of financial transactions, was either incomplete or entirely missing. This lack of cooperation led SEBI to issue a show-cause notice (SCN), signalling a potential breach of regulatory standards, including non-compliance with necessary disclosures and regulatory approvals.
In particular, CITL advanced Rs69.62 crore to its Dubai-based subsidiary, Cerebra FZCO, in FY19-20 without obtaining the required audit committee approval, a violation of SEBI's LODR Regulations.
Furthermore, the company failed to provide Rs100.28 crore in outstanding dues from the sale of its subsidiary, Cerebra Middle East FZCO, despite the statutory auditor raising concerns. SEBI's investigation revealed that the company misrepresented its financial standing by overstating receivables, failing to provide adequate documentation, and inflating figures related to its RFID project with Kuberaa Enterprises.
Additional violations included failure to disclose key details about the sale of the subsidiary and improper documentation of advances given to suppliers, leading to overstatements in the company's financials. CITL was also found guilty of manipulating trade receivables by inflating figures and engaging in circular transactions that inflated sales and purchases over multiple fiscal years.
SEBI investigation also revealed a pattern of mismanagement, with the directors and CFOs failing to fulfil their obligations, resulting in false financial certifications and the publication of misleading financial statements. Despite the company's defence that the violations were unintentional, SEBI determined that the actions were deliberate, leading to significant financial misstatements and a breach of investor trust.
In light of the seriousness of these violations, SEBI imposed a fine of Rs20 lakh on CITL, Rs15 lakh each on Mr Venkatraman and Mr Phalanetra, and Rs6 lakh each on Mr Rao and Mr Venkatesh. Additionally, the company has been banned from the market for five years, while Mr Venkatraman and Mr Phalanetra have been barred for three years. Mr Rao and Mr Venkatesh have been banned for one year.
