In addition to the monetary penalties, SEBI has ordered disgorgement of unlawful gains amounting to ₹59.30 crore, along with simple interest at 12%pa (per annum). The regulator has also barred the principal entities and individuals involved from accessing the securities market for periods ranging from two to seven years.
The other entities penalised were: Sunil Kalot, Priyanka Sharma, Nishu Goyal, Vandana Patidar, Avance Ventures Private Ltd, Impex Agrotech Ltd, Gaurav Jain, Naturo IndiaBull Ltd and Jyoti Choudhary
The proceedings follow SEBI's investigation into the affairs of Debock Industries. The regulator had earlier passed an interim order on 23 August 2024, after finding prima facie evidence that the company had allegedly used fictitious preferential allotments to meet the eligibility requirements for migration from NSE Emerge to the main board of the National Stock Exchange (NSE).
SEBI's investigation subsequently revealed a broader chain of transactions. According to the regulator, Debock Industries reported sales were inflated by around 72% in FY21-22 and 77% in FY22-23, while purchases were inflated by about 94% in both years. The transactions were allegedly routed through several entities in a circular manner, creating the appearance of genuine business activity and strengthening the company's financial position on paper.
Fictitious Preferential Allotments
One of the key findings relates to Debock Industries' preferential allotment of warrants. SEBI found that the company had shown receipt of application money even though the funds were not genuinely available with the purported allottees.
In one instance, Ms Sharma transferred ₹30 lakh to Debock Industries on 6 September 2021. The following day, Debock Industries transferred the money to Mr Kalot, who then transferred it to the purported allottees, including Mr Singh. The money was subsequently circulated back to Debock Industries. According to SEBI, this created the appearance that the consideration required for the preferential allotment had been received from the allottees.
The regulator found that ₹8.30 crore had been circuitously shown as application money. After the warrants were converted into shares, the shares were transferred to Mr Kalot, who subsequently sold them in the market.
SEBI, however, made an important distinction between Mr Singh and several other preferential allottees. The regulator said there was insufficient material to establish that most of the other allottees had knowingly participated in or benefited from the arrangement. Consequently, adverse findings and directions were not imposed against several of them.
SEBI also examined a second preferential allotment involving Avance Ventures. The regulator traced funds purportedly paid by Avance Ventures back to Debock Industries through Impex Agrotech and Avance Technologies. It found that bank statements submitted by Debock Industries to demonstrate receipt and utilisation of preferential issue proceeds were forged.
Bank statements obtained directly from the concerned banks showed that the purported application and conversion monies had not actually been received by Debock Industries. SEBI therefore concluded that the company had used fabricated documentation to support transactions that had not genuinely taken place.
The investigation also uncovered a series of transactions allegedly designed to inflate Debock Industries reported sales and purchases.
In one example relating to FY23-24, Debock Industries paid ₹16.87 crore to Sands Entertainment for purported purchases. The same amount was subsequently routed back to Debock through Debock Ventures Ltd and Impex and recorded as sales.
SEBI found that several other transactions followed similar circular routes involving connected entities. The regulator concluded that Debock Industries had presented non-existent purchases and sales as genuine business transactions and had created fictitious cash-flows and fraudulent ledger entries.
According to SEBI, the manipulation affected the company's financial statements for FY21-22, FY22-23 and FY23-24. The purported transactions also resulted in the creation of fictitious reserves, which were subsequently used for a bonus issue.
The regulator said the inflated financial position played an important role in enabling Debock Industries to migrate from NSE Emerge to the NSE main board. Once the company had migrated to the main board, it undertook further capital-raising and corporate actions, including preferential allotments, a bonus issue and a rights issue.
₹49 Crore Rights Issue Proceeds Diverted
Another major finding concerns Debock Industries' ₹49.50 crore rights issue in 2023. The stated objects of the issue included meeting incremental working capital requirements and general corporate purposes.
SEBI found that nearly the entire amount, ₹49 crore, was transferred to Impex Agrotech, a related party. The money was transferred within days of the rights issue and was subsequently routed to the promoter or persons connected with the promoters.
Of the amount, ₹25.07 crore was transferred to Naturo IndiaBull Ltd which further routed the money through several entities, including an overseas entity.
Debock Industries and Mr Singh contended that the amount transferred to Impex Agrotech represented a loan provided under a memorandum of understanding and that such utilisation was permissible under the general corporate purposes stated in the rights issue.
SEBI rejected the explanation. The regulator noted that the principal amount remained unrecovered and there was no evidence that the stipulated interest had been paid. It also pointed out that Impex Agrotech had no operating revenue in FY21-22, while its reported revenue of ₹11.67 crore in FY2022-23 largely involved transactions with Debock and related entities.
SEBI has separately directed Debock Agrotech to bring back the diverted ₹49 crore, along with interest at 12% per annum, within three months. This recovery is separate from the disgorgement and penalties imposed under the order.
SEBI found that the allegedly inflated financial statements and fictitious transactions enabled Debock Agrotech to complete its migration to the main board, after which the company undertook a series of capital-market transactions.
According to the regulator, around 4.21 crore shares valued at ₹59.30 crore, obtained through the fraudulent preferential and bonus issues, were subsequently sold in the market. SEBI quantified the unlawful gains from the transactions at ₹59.30 crore.
Mr Kalot has been held liable for ₹37.67 crore, while Mr Singh has been held liable for ₹4.24 crore individually. A further ₹17.40 crore is jointly and severally payable by Mr Singh and Mr Jain.
SEBI has directed the concerned noticees to disgorge these unlawful gains along with simple interest at 12% per annum, calculated from the dates on which the respective shares were sold until the date of deposit.
SEBI has barred Debock Industries and Mr Singh from accessing the securities market and from buying, selling or otherwise dealing in securities, directly or indirectly, for seven years.
Further, Mr Kalot has been barred from the securities market for five years, while Ms Sharma and Mr Jain have been restrained for three years. Ms Goyal, Ms Patidar, Avance Ventures, Impex Agrotech, Naturo IndiaBull and Ms Choudhary have each been barred for two years.
Apart from the disgorgement and market-access restrictions, SEBI has imposed monetary penalties totalling ₹29.57 crore on the 11 noticees.
Mr Singh faces the highest penalty of ₹20.10 crore, Debock Industries has been fined ₹1.10 crore, while Mr Kalot has been fined ₹5 crore and Sharma ₹1 crore.
Impex Agrotech has been fined ₹1 crore and Avance Ventures ₹20 lakh. Mr Jain and Naturo IndiaBull have each been fined ₹50 lakh. Ms Goyal and Ms Patidar have each been fined ₹6 lakh, while Ms Choudhary has been fined ₹5 lakh.
