The Securities and Exchange Board of India (SEBI) on 28 August restrained Trafiksol ITS Technologies Limited (TITL) and its promoters Jitendra Narayan Das and Poonam Das from accessing the securities market for one year over misleading disclosures in the company's Initial Public Offering (IPO) prospectus.

SEBI Whole Time Member Amarjeet Singh also imposed a penalty of Rs. 30 lakh on TITL, Rs. 50 lakh on Jitendra Das and Rs. 25 lakh on Poonam Das. He held:

“…..the conduct was not a mere accounting or disclosure lapse, but blatant misconduct aimed at placing a more favorable financial picture before prospective investors.”

SEBI initiated proceedings against TITL and its promoters following complaints concerning the company's IPO. The IPO comprised 64.10 lakh shares, was oversubscribed 345.65 times and raised Rs. 44.87 crore.

Following complaints concerning the proposed utilisation of Rs. 17.70 crore for procuring ICCC software from Oasis Corpcare Private Limited, the Bombay Stock Exchange deferred the company's listing. SEBI subsequently ordered an investigation and, in December 2024, directed the company to refund the IPO proceeds and cancel the shares. The Securities Appellate Tribunal dismissed TITL's appeal against the SEBI order in January 2025.

The present proceedings concerned the remaining allegations, including misleading financial disclosures, concealment of material facts and submission of false information concerning Oasis. The Show Cause Notice alleged revenue inflation of Rs. 22.01 crore. In its final order, however, SEBI established inflation of Rs. 13.4 crore, comprising Rs. 8.9 crore in circular transactions and Rs. 4.5 crore in unbilled revenue, along with inflated purchases of Rs. 8.95 crore. SEBI also found discrepancies in disclosures relating to TITL's customers and suppliers and incorrect classification of Rs. 45 lakh as a current asset instead of an IPO-related expense.

It also alleged that TITL concealed a payment of Rs. 67 lakh to the father of a director of the merchant banker, which indicated a conflict of interest. The promoters were further accused of being responsible for misleading disclosures and procuring a fabricated quotation from a paper company. Jitendra Das was also accused of furnishing false information and destroying evidence during the investigation. SEBI, however, ultimately did not sustain the allegation concerning destruction of evidence against him.

The noticees denied the allegations, contending that the transactions were genuine or involved accounting and disclosure issues and that there was no fraudulent intent.

Examining the material on record, SEBI observed that the financial information for FY 2023-24 did not present the true nature and scale of the company's operations and was materially misleading to prospective investors. It further rejected the company's contention that it could net sales and purchases, observing that separate disclosure of top customers and suppliers is necessary for investors to assess revenue concentration and dependence on key business partners. It found that the inconsistent netting practice understated the extent of the company's business dealings and gave investors an incomplete picture of its operations. It observed:

“The discrepancies discussed above were neither isolated nor insignificant. They included the netting of material purchase and sale transactions, the omission of material suppliers, the failure to aggregate sales made to the same customer, and the identification of an entity as a customer accounting for Rs. 4.50 crores of sales when, in fact, no sales had been made to it.”

It rejected the company's contention that no investor ultimately suffered any loss, holding that the subsequent refund of the IPO proceeds did not erase the fact that investors had already been induced to subscribe to the issue. It noted:

“The eventual refund was a consequence of regulatory intervention and does not efface the conduct at the time the securities were offered to the public. While the absence of investor loss may be relevant as a mitigating factor, it does not diminish the seriousness of the misconduct established above.”

The Board also held Jitendra Das and Poonam Das liable for the company's contraventions under Section 27(1) of the Securities and Exchange Board of India Act, 1992, which makes persons in charge of a company responsible for contraventions committed by the company in certain circumstances. However, the allegation concerning destruction of evidence was not sustained against Jitendra Das.

Accordingly, SEBI restrained TITL, Jitendra Das and Poonam Das from accessing the securities market and prohibited them from buying, selling or otherwise dealing in securities, directly or indirectly, for one year. It also imposed monetary penalties of Rs. 30 lakh on TITL, Rs. 50 lakh on Jitendra Das and Rs. 25 lakh on Poonam Das.

Tags:    
To Read the full text of the Order CLICK HERE