After asking TrafikSol ITS Technologies Ltd to keep all proceedings from its initial public offering (IPO) in an escrow account, the Bombay Stock Exchange (BSE) decided to halt the listing of the company shares, citing some unresolved queries. The Rs44.87 crore IPO of TrafikSol on the small and medium enterprise (SME) platform received nearly 350 times subscriptions or bids worth around Rs19,380 crore. This is the first time BSE has halted listing after an IPO.
In a release, BSE says, "...in view of certain queries that have been raised, the listing for trading of the (TrafikSol) scrip is postponed till queries are resolved by the issuer."
Noida, Uttar Pradesh-based TrafikSol was scheduled for a listing on 17 September 2024 on BSE in the list of 'MT' group of securities. However, several investors have raised concerns about the company's fundamentals, balance sheet, auditors' resignations and use of proceeds from the IPO.
On X, one Pratham (@Portfolio_Bull) has raised concerns about TrafikSol's purchase of software for Rs17.70 crore from Oasis Corpcare Pvt Ltd which has a paid-capital of just Rs1 lakh and which has not filed any reports since 2021.
According to a
report from Business Standard, "Some participants had raised questions on frequent resignations by auditors, using a significant portion of proceeds of the funds for purchasing software from a dubious company, a sudden exponential surge in the share capital in FY23 compared to the previous two financial years through bonus issues in a private placement, and exceptional rise in profits in FY24, just before the filing for IPO."
TrafikSol appointed chartered accountant (CA) Mukund Kumar Thakur from Goenka Mishra & Associates as its statutory auditor on 30 September 2019 for five financial years. However, CA Thakur set up his own firm, Thakur Mukund & Associates and, vide a resolution on 30 November 2021, TrafikSol appointed him from FY20-21 to FY24-25 without the resignation from Goenka Mishra and Associates.
"Although we have not received any objection either from Goenka Mishra & Associates or from the authority, we are not sure if we shall not be issued with any notice in respect of such non-compliance from the relevant authority and in such event, we may be subjected to penalty in terms of the provisions of the Companies Act, 2013 and amendments thereto," TrafikSol says in its draft red herring prospectus (DRHP).
Founded in 2018, TrafikSol provides intelligent transportation systems (ITS) and automation solutions. According to the company's DRHP, TrafikSol does not have a long-term contract with its customers and provides services on the basis of regular work orders.
On using proceeds from the IPO, TrafikSol says, "We intend to use net proceeds towards the purchase of software, repayment or prepayment, in part or full, of certain of our borrowings, to meet working capital requirements and general corporate purposes."
In the past, the company did not adhere to timelines for the deposit of professional tax and goods and services tax (GST) dues and has accordingly been subjected to interest penalties and delayed filing fees under the provisions of the relevant statute. "Although we have deposited all the dues along with late fees and penalties, we are not sure if we shall be able to adhere to statutory requirements in future and not adhere to penalties or any other statutory actions against us in which event our financials and cash flows along with our reputation with our employees shall be adversely affected."
Further, on several occasions, TrafikSol filed its returns and other documents with the concerned registrar of companies (RoCs) beyond the statutory timelines and has accordingly been subjected to late filing fees.
Just last month, amid certain concerns about SME companies and their promoters resorting to share price manipulation by projecting an unrealistic picture of their operations, market regulator Securities and Exchange Board of India
(SEBI) had cautioned investors against putting their money in the scrips of such companies. The SME platform of the stock exchanges was launched in 2012 and, during the past decade, more than Rs14,000 crore has been raised through the platform, including Rs6,000 crore in FY23-24.
In a statement, SEBI says, "It noticed that post-listing, some of the SME companies and/ or their promoters have been resorting to certain means that project an unrealistic picture of their operations. Such companies and promoters have been seen to make public announcements that create a positive picture of their operations. These announcements are typically followed up with various corporate actions such as bonus issues, stock splits and preferential allotments."
"The above actions create a positive sentiment amongst investors, which induces them into purchasing such securities. Simultaneously, this also presents an easy opportunity for promoters to off-load their holdings in such companies at elevated prices," it added.
In the recent past, SEBI has passed several orders against such entities. "It can be seen that the modus-operandi of these entities follows a pattern that is by and large similar to what has been mentioned above."
