Securities and Exchange Board of India (SEBI) has barred 12 entities, including Add-Shop E-Retail Ltd (ASERL) and White Organic Agro Ltd (WOAL), along with their promoters Dineshbhai Pandya and Darshak Rupani, for manipulating financial statements and operating a 'pump & dump' scheme by artificially boosting sales. It says 46% of the sales of ASERL for the past three financial years were fictitious. The market regulator also banned these entities from the markets and prohibited Dineshbhai Pandya, Dev Pandya (executive director and chief financial officer of ASERL), Jayshree Pandya, Deviben Pandya, Jigar Pandya (all promoters and non-executive directors of ASERL), Darshak Rupani (promoter and MD of WOAL), Prashantt Rupani (executive director and CFO of WOAL), Jitendra Mehta (executive director of WOAL), and Ronak Desai (CFO of WOAL) from serving as key managerial personnel in any public company.
In an interim order, Ashwani Bhatia, whole-time member (WTM) of SEBI, says, "What has clearly emerged through the investigation done by SEBI and other data available, including that relating to the change in shareholding pattern of ASERL, is the fact that the promoters of the company did everything to benefit themselves at the cost of small shareholders. New retail investors whose number increased to 46,884 as of 31 March 2023 from a mere 96 as of 31 March 2020 were led up the garden path."
"Promoters of ASERL, while busy making false and misleading announcements, artificially pumped up ASERL's sales to show healthy top-line and bottom-line. The promoters also did not participate in their own rights issue, showing that they had little confidence in the prospects of their own company. The company in reality, was not manufacturing or producing any agricultural product but simply passing fictitious sales transactions between its related parties. To put it simply, the promoters gave the impression of a healthy and well-run company and benefitted themselves through the falsehood. This appears to be a classic example of a pump and dump scheme and small investors need to be cautious of such fraudulent activities in their own interest," SEBI says.
SEBI investigated ASERL and WOAL following complaints about irregularities in related-party transactions and false supply order announcements. The investigation, spanning from 1 April 2020 to 31 March 2023, was aimed to uncover any violations of SEBI regulations.
ASERL, led by its promoter and managing director (MD), Dineshbhai Pandya, operated in various product categories, including Ayurveda, food supplements, agriculture, and personal care under the brand name Add-Shop. Initially listed on the Bombay Stock Exchange (BSE) SME platform in 2018, ASERL later migrated to the mainboard platform. WOAL, which specialises in organic food items, has been listed on the BSE since 1995, with Darshak Rupani as its MD.
During the investigation, the market regulator found significant sales and purchases between ASERL and WOAL. SEBI's investigation further uncovered circular transactions between ASERL, WOAL, Dada Organics (DO), and Dada Organics Ltd (DOL), where sales and purchases were made without actual stock movement. ASERL primarily sourced goods from DO and DOL and sold a significant portion of them to WOAL. Similarly, WOAL claimed transactions with ASERL, DO and DOL without supporting stock or sales records.
Responding to a summons issued by the investigating authority, Darshak Rupani, the MD of WOAL, admitted in a written statement that "We have passed stock journal entries to replace the stock of animal feeds with that of multigrain, there was no godown with WOAL. Further, there was no stock movement between ASERL and WOAL and between WOAL and DO or DOL."
Further, the SEBI WTM observed that WOAL paid a total of Rs257.68 crore to ASERL and received a total of Rs258.08 crore from DO and DOL during FY20-21, FY21-22 and FY22-23 in a circular fashion. "The funds were moved in such a way that all the legs of the circuitous transactions were generally completed on the same day. It was further observed that on 35 days, exact amounts were paid and received by WOAL on the same day (total amount paid and received by WOAL on said 35 days was Rs123.94 crore)."
The promoter's shareholding in ASERL notably decreased from 62.99% to 27.20%, while the individual shareholding of Dineshbhai Pandya decreased from 59.95% to 25.13%. However, there was no change in WOAL's promoter's shareholding which remained constant at 25.50%.
SEBI noted that Dineshbhai Pandya, promoter of ASERL, has offloaded shares of the company during the investigation period. He has also sold shares of the company in August 2023, i.e., after the investigation period. "Thus, there is an imminent risk that the promoters, directors and key managerial persons (KMPs) may off-load their shareholding and exit the respective company, ASERL and WOAL after this interim order is issued, unless they are prohibited from doing so."
During the investigation, SEBI revealed a pattern of false corporate announcements and fictitious transactions designed to inflate the companies' perceived value. WOAL, in particular, was accused of fabricating sales and purchase entries, with ASERL and WOAL's promoters and directors allegedly complicit in these actions. Additionally, discrepancies were found in the attendance records of audit committee members, raising further concerns about corporate governance practices.
There were huge related-party transactions (RPTs) in the books of ASERL without the audit committee's approval, as no audit committee meetings were actually conducted during the investigation period. Further, no audit committee meetings have been conducted in FY23-24, which indicates that RPTs continue to take place without the audit committee's approval, SEBI says.
Further, the market regulator says DOL was prima facie involved in fictitious transactions with ASERL and WOAL, thereby enabling ASERL and WOAL to book fictitious purchase and sale transactions in their books of account. "It has also booked fictitious sale and purchase transactions in its own book of accounts. It is observed that in May 2023, DOL had filled DHRP with the stock exchange to raise money. However, it was withdrawn later by the company. Hence, the possibility of ASERL, WOAL or DOL raising capital in the future cannot be ruled out unless stopped."
"I am of the view that there is an urgent need to take remedial action so as to secure the market from the manipulative acts of these noticees. The facts and circumstances of the case present a strong likelihood that the noticees, unless specifically prohibited, shall perpetuate their ill intent by indulging in such malpractices, which are prima facie injurious to the health of the securities market. Considering the same, I am satisfied that urgent directions need to be issued in this matter," Mr Bhatia says in the order.
SEBI also directed ASERL and WOAL to constitute new audit committees and place the copy of its order before them.
