The Securities and Exchange Board of India (SEBI) directed the BSE on October 11 to halt the listing of SME company Trafiksol ITS Technologies while it investigates the disclosures made in its Draft Red Herring Prospectus (DRHP).
Trafiksol was set to debut on the BSE SME platform on September 17, but the listing was postponed due to complaints that needed to be addressed. The company’s Rs 44.8-crore public offer, consisting of 64 lakh shares, was heavily oversubscribed at 345 times.
SEBI also instructed the BSE to keep the proceeds from Trafiksol’s IPO in an interest-bearing escrow account, restricting access to the company and its affiliates until further notice. The investigation must be completed within 30 days from the order date.
Trafiksol, based in Noida, launched its IPO on September 10 with a price range of Rs 66 to Rs 70 per share, managed by Ekadrisht Capital Private Limited. Concerns arose over Rs 17.70 crore intended for an “Integrated Software Control Centre (ICCC)” from a third-party vendor, after complaints were received post-IPO.
The SEBI order noted that the vendor’s financial statements were signed just a week before the IPO opened, and the vendor only got its GST registration in January 2024, primarily operating under the category of “Trade-Retailer” instead of software development.
The net proceeds from the public offer were intended for buying software, repaying debt, meeting working capital needs, and other general corporate purposes.
After the listing was delayed, Sebi received several complaints from investors who were allotted shares in the IPO. The investors mainly asked for the IPO to be canceled and their money refunded.
SEBI called Ekadrisht, the lead manager for the IPO, to a meeting to clarify the issues raised in the complaints. However, the banker could not give satisfactory answers.
SEBI found that the Mumbai-based vendor, from whom software worth Rs 17.7 crore was to be purchased, had not filed financial statements with the Ministry of Corporate Affairs for over 3 years and had reported zero revenue in the last year it filed financials.
In response to the allegations, the company told the regulator and BSE that it has decided to cancel the software procurement plan mentioned in its DRHP. Trafiksol also informed BSE that it will request new proposals from vendors and award the contract only after getting shareholder approval.
However, SEBI raised concerns about the company’s new plan based on its past actions. The order stated that while the company has now scrapped the software procurement plan, its previous conduct raises doubts about the reliability of this new proposal.
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