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The SEBI order highlights significant risks associated with the management’s integrity and disclosure practices. The findings of overstated financial performance through unbilled revenue and questionable vendor selection raise concerns about operational transparency and the reliability of financial reporting. The deliberate use of a fabricated quotation for a substantial portion of IPO proceeds indicates a severe lapse in corporate governance and fiduciary duty. Investors in such companies should exercise extreme caution and conduct thorough due diligence, as the regulatory actions suggest a high risk of misrepresentation and potential financial instability.
India’s market regulator, the Securities and Exchange Board of India (SEBI), has imposed a one-year ban on Trafiksol ITS Technologies Ltd and its promoter-directors Jitendra Das and Poonam Das from accessing the securities market. The regulator also levied a total penalty of Rs 1.05 crore on the entities for financial irregularities surrounding the company’s initial public offering (IPO).
Trafiksol was fined Rs 30 lakh, with Jitendra Das and Poonam Das receiving penalties of Rs 50 lakh and Rs 25 lakh, respectively. These penalties are to be paid within 45 days, according to SEBI’s final order.
The proceedings were initiated following complaints lodged with SEBI and the BSE after Trafiksol’s SME IPO, which opened in September 2024, was subscribed an overwhelming 345.65 times. The issue comprised 64.10 lakh shares offered in a price band of Rs 66-70, raising Rs 44.87 crore at the upper end. A significant portion of the proceeds, Rs 17.70 crore, was earmarked for software procurement.
Concerns were first raised about Oasis Corpcare, the proposed software vendor from whom Trafiksol had obtained a quotation, questioning its capability to fulfill the contract. This led the BSE, in consultation with SEBI, to defer the company’s listing, which was initially scheduled for September 17, 2024.
In an interim order in October 2024, SEBI directed that the IPO proceeds be held in an interest-bearing escrow account pending further directives and simultaneously ordered a comprehensive investigation.
SEBI’s 85-page order detailed multiple serious violations related to financial disclosures, issue expenses, and the planned deployment of IPO funds. The regulator found that financial disclosures overstated Trafiksol’s operational scale through unsupported year-end recognition of unbilled revenue and transactions with entities named Limco and Ishira. The presentation of these entities in customer and supplier disclosures also obscured the true concentration of the company’s dealings.
Furthermore, material issue-related expenditures were not adequately disclosed, and a potential conflict of interest with the merchant banker was omitted from the Draft Red Herring Prospectus (DRHP). SEBI highlighted the Oasis quotation as a particularly serious violation, noting that a substantial portion of the IPO funds was to be utilized based on what the regulator deemed a fabricated quotation from an entity lacking credible technical and operational capabilities.
The regulator stated that the conduct of the promoters, especially Jitendra Das, was “particularly egregious” in procuring this fabricated quotation, falling significantly short of the expected standards of diligence and integrity for those seeking public capital.
Jitendra Das was found to be directly involved in key misconduct, including obtaining the fabricated quotation. Poonam Das’s role was primarily attributed to her failure to exercise due diligence when signing relevant documents. Jitendra Das serves as the company’s chairman and managing director, while Poonam Das is a whole-time director, and both are identified as promoters.
Consequently, SEBI has barred all three from accessing the securities market for one year, prohibiting them from buying, selling, or dealing in securities, or being associated with the securities market in any capacity for the stipulated period.
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