Trafiksol SME IPO cancelled: Sebi asks company to refund money to investors

The Securities and Exchange Board of India (SEBI) has revoked the IPO of Trafiksol ITS Technologies and instructed the company to reimburse the funds collected through the offering. The SME IPO was earlier put on hold by BSE pending investigation.

In its 16-page order issued on Tuesday, the SEBI has indicated that Trafiksol could contemplate a new offering once the ongoing proceedings by SEBI are finalised.  The market regulator has mandated that the interest earned should be reasonably reimbursed to investors.

"Trafiksol is directed to refund the money paid by the investors, who have been allotted shares in the Initial Public Offering," the Sebi said.

Sebi’s Whole-time Member Ashwani Bhatia, in its order, stated:

a)Trafiksol is directed to refund the money paid by the investors,who have been allotted shares in the Initial Public Offering

b) BSE in coordination with the Bankers to the issue shall oversee the refund process which shall be completed within one week from the date of this Order in the matter of Trafiksol ITS Technologies Ltd. The interest earned on the issue proceeds pursuant to the directions in the Interim Order shall be proportionately refunded to the investors;

c) Once the money is credited to the bank account of the applicants, the depositories are directed to transfer the shares of the Company which have been allotted pursuant to the IPO, to a separate demat account opened in the name of the Company;

d) The Company is directed to take appropriate steps for cancelling the shares which have been so transferred to the account mentioned above by the depositories.”

Trafiksol IPO listing stayed

The listing of the issue was delayed on September 17 following complaints from the Small Investors’ Welfare Association, SIREN to SEBI and BSE. 

The complaints alleged that the objectives of the issue involved purchasing software worth Rs 17.70 crore from a vendor with questionable financials who had failed to file annual financial statements with the Ministry of Corporate Affairs. 

According to its DRHP, Trafiksol has indicated its intention to purchase an Integrated Software Control Centre (ICCC) from a third-party vendor to serve as the central operational hub for smart cities.

However, following concerns raised about the credibility of this vendor, SEBI requested BSE to conduct an investigation. Subsequently, BSE has raised several issues regarding the matter.

In response to the complaint, BSE, in coordination with SEBI, decided to defer the listing of the shares.

The SEBI issued an interim order on October 11, instructing an investigation into the matter. 

The Interim Order also directed BSE to hold the proceeds of the issue in an interest-bearing account until further instructions. Following the investigation, a report was submitted on November 11.

In its 16-page order issued on Tuesday, the SEBI indicated that, following an inspection, it appears that the third-party vendor (TPV) might be a shell company.

In the order, Sebi wrote: "It is reasonable to conclude that the TPV in question is a ‘shell entity’. The TPV's office was found locked during a site inspection, and its financial statements for FY22 to FY24, submitted in response to allegations, were obtained under questionable circumstances as it was signed by the auditor on same day it was submitted to BSE by the MB. And this was one day after BSE in consultation with SEBI put on hold the listing of the shares of the company and initiated an examination. Further, the client list and credentials of its directors, presented in its profile, were fabricated... the ex-director’s sworn statement that the company was sold for a nominal sum of Rs 20,000 reinforces the conclusion that the TPV lacked the technical expertise and operational capacity to execute a complex project such as ICCC software."

In the order, Bhatia said that the Trafiksol had offered multiple and conflicting explanations for its engagement with the TPV but the company "failed to provide is a single credible justification" for this.

Bhatia wrote, "The question of whether the quotation from the TPV was part of a scheme to divert IPO proceeds will remain moot due to the events triggered by the Complaint and subsequent regulatory intervention. This, however, does not take away the fact that the Company relied on a sham entity and participated in a cover-up when the credentials of the TPV were being examined." 

Trafiksol's IPO details

The company submitted its Draft Red Herring Prospectus (DRHP) to the Bombay Stock Exchange (BSE) on May 31, and the public offering was open for subscription from September 10-12. The initial public offering (IPO) entailed the issuance of 64.10 lakh equity shares at a price range of Rs 66-70 per share. 

The IPO received overwhelming response, with a subscription rate of 345.65 times, enabling the company to raise Rs 44.87 crore. The allocation process was finalised on September 13, and eligible applicants had their shares credited to their accounts on September 16. The listing of the company's shares was originally planned for September 17 but had to be postponed due to complaints received.