SEBI Probing 3 Cases of IPO Malpractices Involving Merchant Bankers: Madhabi Puri Buch
Moneylife Digital Team 19 January 2024
While refusing to interfere in an order passed by the Securities and Exchange Board of India (SEBI), the Securities Appellate Tribunal (SAT) dismissed an appeal filed by Brightcom Group Ltd (BGL) against the SEBI order.
 
In an order, Meera Swarup (technical member) of SAT says, "...serious allegations have been made against direct involvement of M Suresh Kumar Reddy, chairman and managing director (CMD) and SL Narayan Raju, chief financial officer (CFO) especially with regard to submission of forged or fabricated bank statements to SEBI. Though investigations are ongoing, examination of transactions pertaining to 22 allottees out of 82 allottees of preferential allotments have pointed out to evidence of prima facie diversion of funds by Mr Reddy. In the absence of any evidence to the contrary being filed by the appellants before me, I do not find any lacunae in passing of the impugned order."
 
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.
 
SEBI's preliminary findings indicated prima facie irregularities in preferential allotments by the company including circulation of funds to create the impression of receipt of funds, allotment of warrants or shares without receipt or partial receipt of funds, submission of fabricated bank statements to SEBI and significant misstatements and misrepresentation in the financial statement of the company. 
 
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."
 
Considering the gravity of the prima facie findings, the whole-time member (WTM) arrived at the conclusion that urgent intervention by SEBI is warranted and accordingly issued a second interim order on 22 August 2023 in the matter. SEBI barred top executives of the company, as well as investor Shankar Sharma, from offloading or disposing of their shareholding in the company. 
 
It says, "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."
 
SEBI also barred Brightcom's CMD and CFO from holding the position of a director or a key managerial person in any listed company or its subsidiaries until further orders. Following the SEBI order, Mr Reddy and Mr Narayana Raju resigned from the Brightcom group.
 
Later, they challenged the SEBI order, barring them from holding any position of a director or key managerial personnel (KMP) in any listed company or its subsidiaries. 
 
SAT, however, says, "I note that the board of directors of the Company were aware of the impending resignation of the other promoter and executive director and his ceasing to participate in board meetings from July 2023. The board was also aware of the resignation of Mr Reddy on 22 August 2023 as a consequence of the directions issued in the impugned order. However, I note that no efforts were made to appoint any executive director in the board to manage the affairs of the Company though almost four months have passed since the impugned order was issued."
 
"It is made clear that any observation made by this Tribunal in this order is only prima facie and will not be utilised by either of the parties," Ms Swarup from SAT clarified.
 
You may also want to read...
 
 
Comments
C.George
6 months ago
Very true. Madam may take immediate steps to set right the IPO price discovery method. End utilisation of IPO funds must be got verified by financial experts and technically competent engineers with in an acceptable time frame.
Array
Free Helpline
Legal Credit
Feedback