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What is the story about?
The Securities and Exchange Board of India (SEBI) has barred Trafiksol ITS Technologies Ltd and its promoters, Jitendra Narayan Das and Poonam Das, from accessing the securities market for one year after finding misleading financial disclosures and other violations linked to the company's initial public offering (IPO).
The regulator also imposed penalties totalling ₹1.05 crore. Trafiksol was fined ₹30 lakh, Jitendra Das ₹50 lakh and Poonam Das ₹25 lakh.
The findings are significant given the investor interest Trafiksol's IPO had attracted. The ₹44.87-crore issue, comprising 64.10 lakh shares, was subscribed nearly 346 times.
SEBI's investigation centred on the company's financial statements for FY22 to FY24, disclosures in its draft red herring prospectus (DRHP) and red herring prospectus (RHP), and information provided to the regulator during its subsequent investigation.
SEBI says FY24 revenue was inflated by ₹22 crore
At the heart of the case are Trafiksol's FY24 financial statements.
SEBI held that the financial information didn't accurately represent the nature and scale of the company's operations and was materially misleading to prospective investors.
The regulator found that Trafiksol inflated its FY24 revenue by ₹22.01 crore through transactions involving Limco, Ishira, TP Central Odisha Distribution and TP Western Odisha Distribution.
It also identified what it described as fictitious purchases worth ₹8.95 crore from Limco and Ishira. These transactions inflated reported purchases and trade receivables in addition to revenue, according to the order.
SEBI separately identified ₹4.50 crore of journal entries made in March 2024 relating to purported sales to Limco and the two Tata Power distribution companies. The regulator said these entries were used to inflate turnover.
Customers and suppliers allegedly misrepresented
SEBI also found problems with how Trafiksol presented some of its biggest customers and suppliers to investors.
The company made false and misleading disclosures regarding its top customers and suppliers, according to the regulator, including by obscuring the extent of its transactions with Limco and Ishira.
That matters in an IPO because information about major customers and suppliers helps prospective investors assess how a company actually generates its revenue and how dependent it may be on particular counterparties.
₹17.7-crore software quotation under scrutiny
SEBI also examined a proposed ₹17.70-crore software purchase that formed part of Trafiksol's plans.
The regulator found that the promoters relied on a fabricated quotation from Oasis, which SEBI described as a shell entity without credible technical or operational capabilities.
The finding raised questions over the basis on which the proposed expenditure had been presented.
SEBI flags undisclosed financial links
The regulator also found shortcomings in disclosures surrounding expenses and financial relationships connected with the IPO.
A ₹45-lakh payment to Topfilings wasn't appropriately reflected in the RHP's disclosure of issue expenses, according to the order.
SEBI also found that a ₹67-lakh financial relationship with Prakash Gourishankar Jhunjhunwala wasn't disclosed in the DRHP. Jhunjhunwala is the father of a director and major shareholder of the IPO's sole merchant banker.
False information given during SEBI probe
The violations didn't end with the IPO disclosures.
SEBI held that Trafiksol and Jitendra Das furnished false and misleading information while responding to summons issued during its investigation, violating provisions of the SEBI Act.
The regulator, however, didn't sustain a separate allegation that Jitendra Das had destroyed evidence.
SEBI imposed a ₹30-lakh penalty on Trafiksol, comprising ₹5 lakh under Section 15A(a), ₹20 lakh under Section 15HA and ₹5 lakh under Section 15HB of the SEBI Act.
Jitendra Das was fined ₹50 lakh—₹5 lakh under Section 15A(a), ₹40 lakh under Section 15HA and ₹5 lakh under Section 15HB. Poonam Das was fined ₹25 lakh, comprising ₹20 lakh under Section 15HA and ₹5 lakh under Section 15HB.
The regulator also imposed penalties totalling ₹1.05 crore. Trafiksol was fined ₹30 lakh, Jitendra Das ₹50 lakh and Poonam Das ₹25 lakh.
The findings are significant given the investor interest Trafiksol's IPO had attracted. The ₹44.87-crore issue, comprising 64.10 lakh shares, was subscribed nearly 346 times.
SEBI's investigation centred on the company's financial statements for FY22 to FY24, disclosures in its draft red herring prospectus (DRHP) and red herring prospectus (RHP), and information provided to the regulator during its subsequent investigation.
SEBI says FY24 revenue was inflated by ₹22 crore
At the heart of the case are Trafiksol's FY24 financial statements.
SEBI held that the financial information didn't accurately represent the nature and scale of the company's operations and was materially misleading to prospective investors.
The regulator found that Trafiksol inflated its FY24 revenue by ₹22.01 crore through transactions involving Limco, Ishira, TP Central Odisha Distribution and TP Western Odisha Distribution.
It also identified what it described as fictitious purchases worth ₹8.95 crore from Limco and Ishira. These transactions inflated reported purchases and trade receivables in addition to revenue, according to the order.
SEBI separately identified ₹4.50 crore of journal entries made in March 2024 relating to purported sales to Limco and the two Tata Power distribution companies. The regulator said these entries were used to inflate turnover.
Customers and suppliers allegedly misrepresented
SEBI also found problems with how Trafiksol presented some of its biggest customers and suppliers to investors.
The company made false and misleading disclosures regarding its top customers and suppliers, according to the regulator, including by obscuring the extent of its transactions with Limco and Ishira.
That matters in an IPO because information about major customers and suppliers helps prospective investors assess how a company actually generates its revenue and how dependent it may be on particular counterparties.
₹17.7-crore software quotation under scrutiny
SEBI also examined a proposed ₹17.70-crore software purchase that formed part of Trafiksol's plans.
The regulator found that the promoters relied on a fabricated quotation from Oasis, which SEBI described as a shell entity without credible technical or operational capabilities.
The finding raised questions over the basis on which the proposed expenditure had been presented.
SEBI flags undisclosed financial links
The regulator also found shortcomings in disclosures surrounding expenses and financial relationships connected with the IPO.
A ₹45-lakh payment to Topfilings wasn't appropriately reflected in the RHP's disclosure of issue expenses, according to the order.
SEBI also found that a ₹67-lakh financial relationship with Prakash Gourishankar Jhunjhunwala wasn't disclosed in the DRHP. Jhunjhunwala is the father of a director and major shareholder of the IPO's sole merchant banker.
False information given during SEBI probe
The violations didn't end with the IPO disclosures.
SEBI held that Trafiksol and Jitendra Das furnished false and misleading information while responding to summons issued during its investigation, violating provisions of the SEBI Act.
The regulator, however, didn't sustain a separate allegation that Jitendra Das had destroyed evidence.
SEBI imposed a ₹30-lakh penalty on Trafiksol, comprising ₹5 lakh under Section 15A(a), ₹20 lakh under Section 15HA and ₹5 lakh under Section 15HB of the SEBI Act.
Jitendra Das was fined ₹50 lakh—₹5 lakh under Section 15A(a), ₹40 lakh under Section 15HA and ₹5 lakh under Section 15HB. Poonam Das was fined ₹25 lakh, comprising ₹20 lakh under Section 15HA and ₹5 lakh under Section 15HB.
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