Market regulator Securities and Exchange Board of India (SEBI) has imposed a total penalty of Rs15 lakh on SBL Infratech Ltd (noticee 1) and its merchant banker Fast Track Finsec Pvt Ltd (noticee 2) for serious lapses and regulatory violations during the company’s initial public offer (IPO). SBL Infratech has been fined Rs5 lakh, while Fast Track Finsec faces a higher penalty of Rs10 lakh for failing to discharge its responsibilities as a lead manager.
In an order, Amit Kapoor, adjudicating officer of SEBI, says, "SBL Infratech and Fast Track Finsec was under a statutory obligation to abide by the provisions of the SEBI Act, 1992, Rules and Regulations and circulars or directions issued thereunder, which they failed to do. The very purpose of the said regulations is to deter wrong doing and promote ethical conduct in the securities market. Therefore, violations, as established, by the noticees deserves and attracts suitable penalty".
SEBI, during its investigation, found that SBL Infratech made false and misleading disclosures in the IPO prospectus. It was claimed that the company's project, Shubh Niwas, was completed in 2017. However, records showed that the project was never completed and was later disposed of in 2019 due to the absence of necessary approvals. The company also failed to substantiate claims of refunds issued to one of the project stakeholders.
Similarly, another project, Dayal Vihar, was presented as ongoing, yet RERA records revealed the project had lapsed in 2021 due to non-compliance. Despite this, the company submitted an undertaking in 2023 declaring its completion.
Fast Track Finsec, acting as the merchant banker for the IPO, failed to verify these claims independently and relied solely on the documentation and undertakings provided by the company. SEBI held that this conduct violated Regulation 245(3) of the ICDR Regulations, which mandates that lead managers must ensure the accuracy and integrity of disclosures made in public offer documents. SEBI concluded that the merchant banker failed in its due diligence obligation and contributed to the dissemination of misleading information to investors.
Further examination revealed discrepancies in the actual utilisation of IPO proceeds. As outlined in the prospectus, the company was to allocate Rs2.37 crore towards working capital, general corporate purposes and issue-related expenses. However, the utilisation certificate later submitted to SEBI reflected a completely different allocation, including unexplained advances and capital expenditures. SEBI found that Rs24 lakh had been paid to an advisor involved in the IPO, 20% of promoter shares were transferred to a broker and multiple transactions lacked clarity or justification.
During a meeting with SEBI officials, SBL Infratech promoter Ankit Sharma admitted that the company’s registered and corporate offices were non-functional. The company had only two employees, Mr Sharma and his wife, who served as chief financial officer (CFO) without formal financial expertise. The company had not conducted any board meetings since its listing, despite disclosing otherwise to the stock exchange. Additionally, the company had no executive directors, no compliance officer, and failed to attend a scheduled SEBI meeting on 13 August 2024.
SBL Infratech also failed to submit key documents such as bank statements, utilisation breakdowns and records verifying the stated use of IPO proceeds. The stock exchange reported that the company had not generated any revenue since the FY21–22 and had seen a rise in unsecured loans. Despite repeated notices, the company continued to evade regulatory scrutiny and did not cooperate with SEBI or the exchange.
SEBI ultimately concluded that SBL Infratech violated Regulation 245(1) of the ICDR Regulations and Regulation 32 of the LODR Regulations, while Fast Track Finsec breached Regulation 245(3) of the ICDR and the Code of Conduct for Merchant Bankers.
