The securities appellate tribunal (SAT) has upheld an order passed by the Securities and Exchange Board of India (SEBI) halting listing and asking Trafiksol ITS Technologies Ltd to refund Rs45 crore to investors.
In
an order on 24 January 2025, the SAT bench of justice PS Dinesh Kumar (presiding officer), Meera Swarup and Dr Dheeraj Bhatnagar (technical members) said, "Trafiksol has submitted that instead of directing mandatory refund of the money and cancelling the shares, investors may be given an option to withdraw and those who want to continue with the Company may be allowed to hold the shares allotted to them, as was directed in the case of C2C Advance System Ltd. We may record that in that case, detailed enquiry was not carried out by SEBI to conclude that quotation was obtained from an entity with doubtful credentials. Moreover, we find that Trafiksol has scant regard to the disclosure norms of SEBI (Issue of Capital and Disclosure Requirement) Regulations and to the concerns of public shareholders, therefore, no useful public purpose will be served by allowing the IPO to proceed further, at this stage."
"Therefore, we do not find merit in the alternative plea that the IPO may be allowed to proceed further subject to monitoring of the deployment of proceeds by an agency to be appointed by SEBI or BSE," it added.
During the hearing, the Tribunal noted that Trafiksol mentioned in the prospectus and in its submissions about the rich experience, knowledge and skills in the intelligent transportation systems (ITS) sector of the company and in particular, its managing director (MD) Jitendra Das. "However, despite such a significant experience and success in the implementation of ITS projects involving the use of software, Trafiksol rather preferred to approach a middleman to access an entity such as Oasis Corpcare Pvt Ltd (OCPL) with no credentials in providing software solution, for obtaining the quotation for integrated command control centre (ICCC) application software, which statedly is integral to their expected smart city projects pipeline."
Senior counsel Gaurav Joshi, representing SEBI, also cited a statement of Kishan Lal, the erstwhile 100% shareholder of OCPL, which clearly shows that the entire process of reaching out to OCPL through Vijay Oswal to procure a quotation was a sham transaction.
SAT says, "If an established software player follows such a methodology to reach out to an entity with doubtful credentials, with an offer of commission of Rs50 lakh for procuring quote from a third party, in our considered view, it cannot be treated as 'genuine' quotation and therefore we are not persuaded to accept the argument that the company had made the disclaimer that such a quote was for budgetary estimate only. Therefore, we hold that the company's claim with regard to its adequacy and correctness of disclosure in the prospectus was not bonafide and satisfactory."
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.
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