NEW DELHI: Markets regulator Sebi on Friday decided to conduct a detailed investigation into the disclosures made by SME firm Trafiksol ITS Technologies Ltd in its draft IPO documents and instructed BSE not to proceed with the company's share listing.
In its interim order, Sebi has asked BSE to ensure that the IPO proceeds are kept in an interest-bearing escrow account, with no access allowed to Trafiksol or its affiliates until further notice.
The Sebi's investigation will be completed within 30 days.
The order came nearly a month after BSE postponed the listing of Trafiksol ITS Technologies on its SME platform after investor concerns.
The decision was taken after the Securities and Exchange Board of India (BSE) asked the exchange to investigate the complaints.
Trafiksol ITS Technologies' Rs 45-crore IPO was oversubscribed by over 345 times, attracting bids worth more than Rs 10,000 crore.
The issue, priced between Rs 66 and Rs 70 per share, was open for subscription from September 10 to 12.
The company raised the funds, with plans to use the funds for software purchases, repayment of borrowings, working capital and general corporate purposes.
Post the closure of the issue and allotment of shares, certain complaints were received by Sebi and BSE regarding discrepancies in Trafiksol's IPO, particularly about the use of funds for software procurement.
It was alleged that the third-party vendor chosen by Trafiksol was incapable of fulfilling the contract.
In response, Sebi and BSE took steps to investigate, including deferring the listing of the IPO.
The investigation found that the vendor had not filed financial statements in three years and had reported NIL revenue in the last year for which financials were filed.
It was prima facie that the vendor was a retail trader, not a software developer, according to the order.
Further investigations revealed irregularities, such as missing financial document identification numbers and a non-operational office of the vendor, it noted.
"Given the above facts, it cannot be ruled out at this stage that the attempt to award the software contract to a vendor, who prima facie appears to be a shell entity without any prior experience in developing a software platform of the nature disclosed by the company in its DRHP, was an attempt to deliberately mislead investors and divert the IPO proceeds," Sebi said in its order.
Therefore, in order to safeguard investor interest, Sebi is of the view that issues raised in this order require a detailed investigation.
Accordingly, "a detailed examination shall be made by Sebi into the disclosures made by Trafiksol ITS Technologies Ltd, in its DRHP (draft red herring prospectus) filed with BSE on May 30, 2024, including the issues identified in this order".
BSE has been "directed not to proceed with the listing of shares of the company".
However, the company proposed to get new quotes from at least three suppliers, seek shareholder approval before making any payments and allow BSE to appoint a monitoring agency to oversee the procurement process.