SEBI found that the company’s offer documents contained misleading financial disclosures, failed to adequately disclose important customer and supplier relationships and omitted a material financial relationship involving the father of a key person associated with the IPO’s sole merchant banker.
Trafiksol ITS Technologies had proposed to raise ₹44.87 crore through its IPO. The issue, which was subscribed 345.65 times, was scheduled for listing in September 2024. However, the listing was deferred after concerns were raised over the proposed use of nearly ₹17.70 crore of the IPO proceeds for purchasing ICCC software from Oasis Corpcare Pvt Ltd. SEBI subsequently directed that the IPO proceeds be kept in an escrow account, and the issue was eventually unwound with investors receiving their money back with interest.
A major finding relates to Trafiksol ITS Technologies' FY23-24 financial disclosures. SEBI alleged that the Company had inflated revenue from operations by ₹22.01 crore, including sales of ₹13.59 crore to Limco Global Services, ₹5.92 crore to Ishira Global Service, ₹1 crore to TP Central Odisha Distribution and ₹1.50 crore to TP Western Odisha Distribution. Purchases from Limco Global Services and Ishira Global Service were also found to have been inflated by about ₹5.55 crore and ₹3.40 crore, respectively.
The regulator found that the Company had recorded ₹4.50 crore as unbilled revenue on 31 March 2024. While SEBI clarified that recognition of genuine unbilled revenue is not objectionable by itself, it found discrepancies in the underlying transactions and their disclosure.
SEBI also found that transactions with Limco Global Services and Ishira Global Services had been netted in a manner that obscured the extent of the company’s dealings with them. Purchases from the two entities accounted for more than 22% of total purchases, while their gross sales would have represented around 30% of total sales, compared with about 13% after netting. The regulator concluded that disclosures relating to top customers and suppliers were false and misleading.
SEBI further examined ₹45 lakh paid to Topfilings India towards IPO-related documentation and consultancy. Although it did not find sufficient evidence to conclude that the amount had resulted in an understatement of FY23-24 expenses, it held that the expenditure should have been disclosed in the RHP.
Another finding concerned ₹67 lakh transferred by Trafiksol ITS Technologies to the personal bank account of Prakash Gourishankar Jhunjhunwala, father of Abhishek Jhunjhunwala, who was a director and 99% shareholder of Ekadrisht Capital Pvt Ltd, the sole Book Running Lead Manager to the IPO.
SEBI did not find sufficient evidence to establish that the payment represented illegal gratification. However, it held that the financial relationship and potential conflict of interest should have been disclosed in the DRHP, as the amount remained outstanding when the document was filed.
The most serious issue concerned the proposed purchase of ICCC software from Oasis for ₹17.70 crore, which represented nearly 40% of the IPO proceeds.
An earlier SEBI order had found that Oasis Corpcare Pvt Ltd lacked the technical and operational capability to execute the project and that information in its company profile was fabricated. The securities appellate tribunal (SAT) subsequently upheld the finding that the Oasis quotation amounted to a misstatement in the prospectus. SAT noted that Oasis Corpcare had no demonstrated credentials to undertake the project and that the quotation had been procured through a middleman.
SEBI held Mr Das directly responsible, noting his involvement in discussions concerning Oasis Corpcare and his subsequent meeting with Vijay Oswal, from whom he received the quotation and company documents. The regulator also noted his extensive experience in the sector and said he could not shift responsibility for such a significant component of the IPO to an employee.
Ms Das argued that finance, vendor selection and the Oasis Corpcare matter were outside her functional responsibilities. SEBI rejected this defence, noting that she was a whole-time director, had signed the financial statements and had certified the board resolution approving procurement from Oasis. The regulator held that she was required to exercise reasonable diligence before certifying such documents.
SEBI therefore held that both promoters violated the provisions of the SEBI Act, the PFUTP Regulations, and the ICDR Regulations. It described the conduct as involving the distortion of material financial information, the concealment of significant commercial relationships, and reliance on a fabricated quotation for a substantial portion of the proposed IPO proceeds.
SEBI has restrained Trafiksol ITS Technologies, Jitendra Das and Poonam Das from accessing the securities market and from buying, selling or otherwise dealing in securities, directly or indirectly, for one year.
The regulator imposed a ₹30 lakh penalty on Trafiksol ITS Technologies, ₹50 lakh on Jitendra Das and ₹25 lakh on Poonam Das, taking the total penalty to ₹1.05 crore.
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