Market regulator Securities and Exchange Board of India (SEBI) has imposed penalties totalling ₹52 lakh on Arcotech Ltd, its present and former directors, key managerial personnel (KMPs), promoter-linked entities and associated private companies for diversion of funds, sham transactions and serious disclosure violations spread over multiple financial years.
In addition, SEBI has directed Arcotech to recover ₹9.37 crore from Sidhant Distributors Pvt Ltd, along with interest at 12% per annum from 30 March 2019 until the date of the order. The regulator found that the funds were allegedly siphoned through connected entities and later reintroduced into the company in a manner that benefited the promoter's interests, while masking the true nature of the transactions.
The entities and individuals penalised include: Radhanath Pattanayak, Arvind Kumar Saraf, Rishabh Saraf, Nidhi Jain, Sidhant Distributors Pvt Ltd, Arcotech Info Ltd, Cloast Trade & Services Pvt Ltd, Siddhivinayak Stockist & Trades Pvt Ltd, Good Value Products Ltd and Nihon Sales Pvt Ltd.
The regulatory action follows investor complaints alleging that Arcotech was effectively winding down its operations without making mandatory disclosures to the stock exchanges. Acting on these complaints, SEBI conducted a detailed investigation covering the period from FY16-17 to FY20-21 to examine potential violations of the SEBI Act, the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations and the Listing Obligations and Disclosure Requirements (LODR) Regulations.
A key finding relates to the alleged diversion of ₹14.15 crore through a complex network of promoter-linked and third-party entities. SEBI observed that the funds were first routed out of the company and later brought back as promoter funding, which was subsequently converted into preferential share allotments to a promoter entity. These transactions were allegedly disguised as routine business purchases, resulting in distorted financial statements, particularly during FY18-19.
SEBI has also accused Arcotech of indulging in fictitious and sham sales and purchase transactions over several years to inflate revenues and create artificial turnover. According to the regulator, funds were circulated among connected entities to present a misleading picture of the company’s financial position and operational health.
The order highlights serious disclosure failures, including Arcotech’s failure to promptly inform stock exchanges about the seizure of its registered office and factory premises by IFCI Ltd due to non-payment of dues. SEBI held that the seizure was a material event that significantly disrupted operations and warranted immediate disclosure. It also flagged delays in reporting the invocation of pledged promoter shares which resulted in a reduction in promoter shareholding but was disclosed well beyond the prescribed timelines.
SEBI named 14 noticees in the matter, including directors, senior executives, promoter-group entities and private companies alleged to have aided or abetted the irregular transactions. Some individuals were accused of certifying financial statements despite being aware of irregularities, while others faced charges related to governance and compliance failures.
The noticees denied the allegations, claiming the transactions were genuine, conducted in the ordinary course of business and duly audited. They also argued that the proceedings were initiated after an undue delay and that denial of access to certain documents violated principles of natural justice.
SEBI rejected these arguments, noting that there is no statutory limitation period for investigations under the SEBI Act. It observed that investor complaints were received only in 2022 and that the probe involved complex fund flows requiring scrutiny of third-party records, including bank statements.
The following noticees are subject to the penalties provided below.
SEBI has also barred Arcotech, Radhanath Pattanayak, Arvind Kumar Saraf, Rishabh Saraf, Sidhant Distributors, Good Value Products and Nihon Sales from accessing the securities market for periods ranging from one to six months, depending on their respective roles.
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