Sebi said it received complaints from various entities regarding a purchase of a software from a third party vendor, which on prima facie appears to be a shell entity without any prior experience in developing a software platform.
The regulator said a thorough investigation will be conducted into the disclosures made by Trafiksol in its DRHP filed with BSE. The investigation will be completed within 30 days
The SME IPO, which opened in September, received robust investor response with an overall subscription of over 300 times at close. However, the listing did not take place.
The net proceeds from the public offer were proposed to be used for purchase of software, repayment of debt, working capital requirements and other general corporate purposes.
Following the initial complaints received on the purchase of software, Sebi has asked BSE to examine the allegations and take appropriate action. The BSE then advised the merchant banker and issuer to retain the entire issue proceeds in an escrow account and deferred the listing.After the listing was postponed, Sebi received several complaints from investors who had been allotted shares in the IPO. The investors primarily requested for cancellation of the IPO and refund of their investments.
Meanwhile, Sebi separately called Ekadrisht, the book running lead manager for the IPO, for a meeting to provide clarifications on the issues raised in the complaints. The banker, however, was unable to provide satisfactory responses.
Sebi noted that the Mumbai-based third party vendor, from which software worth Rs 17.7 crore proposed to be purchased, had not filed financial statements with Ministry of Corporate Affairs (MCA) for more than 3 years and had reported NIL revenue in the last year for which financials were filed.
Further, BSE conducted a site visit inspection for the third-party vendor found that the office was closed and there was no one available at the said address.
According to Sebi order, the vendor obtained GST registration certificate only on January 05, 2024. As per the GST Taxpayer details available on the GST website, the nature of the business of the said entity was Trade-Retailer/ Retail Business.
“It, therefore, prima facie appears that the Third Party Vendor is not a software developer,” the regulator said.
Further, the company had proposed to shelve the procurement of software as proposed in the DRHP and sought to call for fresh proposals from vendors and the contract would be awarded only after obtaining the consent of the shareholders.
However, given the past conduct of the company, Sebi said it does not inspire any confidence.
Sebi said investments made by the individuals and entities who have been allotted shares in the IPO are in limbo at risk. However, it also acknowledged that listing of these shares will could result in a erosion of capital in the event the disclosures that have been made turns out to be misleading or faulty.
“A balance has to be struck between these competing interests. If such IPOs are allowed to list, even in the wake of such serious concerns, it can shake the confidence of the investors in the listed SME ecosystem,” Sebi said.