The Securities and Exchange Board of India (SEBI) issued a final order regarding the Initial Public Offering (IPO) of Trafiksol ITS Technologies Limited (“Company” or “Trafiksol”). The order addresses the unusual situation where the listing of Trafiksol’s shares was put on hold due to a complaint received just before the scheduled listing date based on a complaint alleged that the IPO’s objectives included purchasing software from a vendor with questionable financials.
Key points from the order are as follows:
Business and Background of Trafiksol: The Company specializes in providing intelligent transportation systems and automation solutions for traffic and toll management projects. Trafiksol filed a Draft Red Herring Prospectus (DRHP) for its IPO with the Bombay Stock Exchange (BSE), which were proposed to be listed on the Small and Medium Enterprises (SME) Platform of the stock exchange and was oversubscribed 345.65 times, raising INR 44.87 crore.
Compliant: A day before the scheduled listing of shares, SEBI and BSE received a complaint from the Small Investors’ Welfare Association (SIREN). The complaint alleged that one of the major objects of the IPO, the purchase of software valued at Rs. 17.70 crore, involved a vendor with questionable financials and failed to file its annual financial statements with the Ministry of Corporate Affairs. In response, SEBI issued an interim order on October 11, 2024, halting the listing and initiating an investigation.
Investigation and Show Cause Notice: SEBI’s investigation revealed the following major findings:
Intent of diversion of funds through misleading objects of the issue;
Misstatement of financial statements, and concealment of material facts in the prospectus.
The investigation found that the third-party vendor (TPV) involved was a shell entity with fabricated credentials. Trafiksol was issued a Show Cause Notice (SCN) and given opportunities for hearing and inspection. The Company argued that it merely forwarded documents from the TPV without verifying their authenticity.
Findings: SEBI concluded that the TPV was a shell entity and that Trafiksol’s Managing Director was aware of the fraudulent profile of the TPV’s directors. The Company was found to have participated in a cover-up when the credentials of the TPV were examined.
Directions: SEBI issued the following directions to the Company:
Refund to Investors: Trafiksol is directed to refund the money paid by the investors who were allotted shares in the Initial Public Offering (IPO).
Oversight of Refund Process: BSE, in coordination with the Bankers to the issue, shall oversee the refund process, which must be completed within one week from the date of the order. The interest earned on the issue proceeds, as per the Interim Order, shall be proportionately refunded to the investors;
Transfer of Shares: Once the money is credited to the bank accounts of the applicants, the depositories are directed to transfer the shares of the company, which were allotted pursuant to the IPO, to a separate demat account opened in the name of the company;
Cancellation of Shares: The company is directed to take appropriate steps to cancel the shares that have been transferred to the account mentioned above by the depositories.
The above order comes into immediate effect.
