Market regulator Securities and Exchange Board of India (SEBI) has directed Trafiksol ITS Technologies Ltd (Trafiksol) to refund the money paid by the investors who have been allotted shares in the initial public offering (IPO) of the company. BSE, in coordination with the bankers of the Trafiksol IPO, is also directed to oversee the refund process which will be completed within one week. In October this year, while keeping the listing in abeyance, SEBI ordered a detailed and time-bound examination of the disclosures made by Trafiksol in its draft red herring prospectus (DRHP).
In an order, Ashwani Bhatia, whole-time member (WTM) of SEBI, says, "It is also pertinent to note that other findings of the investigation, including the allegation that Trafiksol falsified its financial statements, are yet to be adjudicated. Therefore, the submission made by the company that the IPO may be permitted to go ahead subject to the use of proceeds being monitored by an agency appointed by SEBI or BSE cannot be considered."
"Further, I cannot also lose sight of the fact that the funds of the investors who have been allotted shares in the IPO have remained locked in for close to three months now. Therefore, the issue cannot be put on hold till the other findings of the investigation are adjudicated. Balancing these considerations, the most prudent course of action is to direct Trafiksol to refund the money raised through the IPO. The company may approach the market afresh after the ongoing proceedings initiated by SEBI are concluded and subject to any directions issued therein," the WTM says.
Major findings of the SEBI investigation are about the intent of diversion of funds through misleading objects of the issue, misstatement of financial statements disclosed in the prospectus and concealment of material fact in the DRHP by Trafiksol.
Mr Bhatia starts his order by stating that "this order deals with an unusual and unprecedented situation where the listing of the shares of a company, pursuant to its IPO, was directed to be kept in abeyance. The direction was issued on account of a complaint that was received one day prior to the date of listing."
Trafiksol IPO was oversubscribed by 345.65 times. The issue was priced at the upper end of the price band at Rs70 per share and Rs44.87 crore was raised through the issue. The basis of allotment for the IPO was finalised on 13 September 2024, and the shares were credited to the demat accounts of eligible applicants on 16 September 2024. The listing of the shares of Trafiksol was scheduled for 17 September 2024.
After the issue's closure and allotment of shares, SEBI and BSE received a complaint from Small Investors' Welfare Association—SIREN—regarding Trafiksol's IPO. SIREN alleged that the objects of the Trafiksol IPO included purchasing software valued at Rs17.70 crore from a vendor with questionable financials and which had failed to file its annual financial statements with the Union ministry of corporate affairs (MCA). In view of the above complaint, BSE, in consultation with SEBI, deferred the listing of the shares of Trafiksol.
Several other investors also raised concerns about TrafikSol's purchase of software for Rs17.70 crore from Oasis Corpcare Pvt Ltd, which has a paid-up capital of just Rs1 lakh and has not filed any reports since 2021.
In its investigation, BSE found that the financial statements of Oasis Corpcare for the past three years were signed by Murmuria & Associates on 2 September 2024, a week before the opening of the IPO of TrafikSol. During its site inspection, BSE found that the office of Oasis Corpcare was closed and that no one was available at the company address.
Oasis Corpcare obtained registration for goods and services tax (GST) only on 5 January 2024 and mentioned its nature of business as a trade-retailer and retail business. "It, therefore, prima facie, appears that the third-party vendor is not a software developer," SEBI says.
While proposing to shelve the procurement of software from Oasis Corpcare as stated in the DRHP, TrafilSol informed BSE that it would call for fresh proposals from vendors and award the contract only after obtaining the consent of shareholders.
Subsequently, on 11 October 2024, SEBI passed an interim ex-parte order directing an investigation into the matter. The interim order also directed BSE to maintain the proceeds of the issue in an interest-bearing account till further directions.
In the 11th October order, Mr Bhatia, the WTM of SEBI, says, "...it cannot be ruled out at this stage that the attempt to award the software contract to a vendor, who prima facie appears to be a shell entity without any prior experience in developing a software platform of the nature disclosed by TrafikSol in its DRHP, was an attempt to deliberately mislead investors and divert the IPO proceeds."
He also noted that investments made by the individuals and entities who have been allotted shares in the IPO are in limbo or at risk and the listing of these shares will provide immediate liquidity to such investors.
However, the WTM says, "...if such IPOs are allowed to list, even in the wake of such serious concerns, it can shake the confidence of the investors in the listed SME ecosystem."
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