SEBI takes drastic action, suspends listing of Trafiksol ITS; SME IPO funds are locked in an escrow account
Capital market regulator Securities and Exchange Board of India (SEBI) on Friday restricted stock exchange BSE from listing shares of Noida-registered Trafiksol ITS Technologies on its SME platform. In an earlier interim order, SEBI said the restrictions will continue till the completion of the ongoing investigation in the next 30 days. At the time of the order, Trafiksol ITS Technologies had already completed the IPO. The administrator also ordered that the proceeds from this matter will be kept in an escrow account until that time.
The market regulator directed the BSE to take appropriate steps to ensure that proceeds from the IPO of Trafiksol ITS Technologies are deposited in an “interest-bearing escrow account” without access to these funds provided by Trafiksol ITS Technologies or its subsidiaries until the exit other commands.
SEBI has directed Trafiksol ITS Technologies and Mumbai-based Ekadrisht Capital Pvt Ltd, the only lead book-keeping manager (BRLM) in the matter, to fully cooperate with the probe.
Zee Business reported this issue on September 16.
Trafiksol ITS Technologies is involved in providing intelligent transportation systems and innovative solutions in areas such as traffic management and toll management.
In May, the company filed its DRHP with BSE to launch an IPO involving a fresh issue of 64.1 lakh equity shares on the SME exchange’s platform.
The issue was offered at a price of Rs 66-70 per share. The Trafiksol ITS Technologies IPO, which was opened for registration from September 10 to September 12, was subscribed 345.7 times, with an amazing response from all categories of investors.
A total of Rs 44.9 crore was raised in the IPO.
According to the company’s DRHP, the proceeds from this issue were intended for the following:
- Purchase of software
- Repayment/prepayment of loan
- Working capital requirements
- General business purposes
The DRHP spoke about the need for an integrated software control center (ICCC) to serve as the central operational hub for smart cities. The company received a third-party vendor’s quotation of Rs 17.7 crore for the asset.
After the closure of the matter, SEBI and BSE received complaints alleging irregularities in the proposed use of software purchase proceeds. According to the complaint, the seller appeared to be “incapable of contracting”.
“It is noteworthy that the Company has now proposed to close the purchase of the software as proposed in the DRHP. Instead, Trafiksol submitted to BSE that it will call for new proposals from vendors and the contract will be awarded only after obtaining the approval of the shareholders. However, looking at the past conduct of the Company, I am compelled to note that this proposal does not inspire confidence,” wrote SEBI Whole Time Member Ashwani Bhatia.
“It cannot be ruled out yet that the attempt to award the software contract to the Seller, which appears to be a shell without previous experience in building a software platform of the type disclosed by the Company in its DRHP, was an attempt to deliberately mislead investors and divert the proceeds of the IPO. Therefore, in order to protect the interest of the investors, I am of the considered opinion that the issues raised in this order require a thorough investigation,” Bhatia added.
“SME IPOs have served as an effective way for small businesses, which are the backbone of the economy in many ways, to raise capital. Therefore, steps taken in such situations need to be done with utmost care,” the order added.
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