Sebi orders BSE not to go ahead with Trafficsol listing amid concerns over misuse of IPO proceeds

Capital markets regulator Sebi has asked exchange BSE not to go ahead with the listing of Trafiksol ITS Technologies amid serious concerns over misappropriation of net proceeds from the IPO.

Sebi said it has received complaints from various entities regarding purchase of software from a third-party vendor, which prima facie appears to be a shell entity with no prior experience in developing software platforms.

The regulator said a thorough investigation will be conducted into the disclosures made by Trafiksol in its DRHP filed with the BSE. The investigation will be completed within 30 days

The SME IPO, which opened in September, received strong investor response with over 300 times subscription. However, the listing did not happen.

The net proceeds from the public offering were proposed to be used for the purchase of software, repayment of debt, working capital requirements and other general corporate purposes.

Following the initial complaints received on the purchase of the software, SEBI has asked the BSE to investigate the allegations and take appropriate action.

BSE then advised merchant bankers and issuers to keep the entire issue amount in an escrow account and postponed the listing.

After the listing was postponed, SEBI received several complaints from investors who had been allotted shares in the IPO. Investors mainly requested cancellation of the IPO and refund of their investment.

Meanwhile, Sebi has separately called Ekadrisha, book running lead manager for the IPO, for a meeting to clarify the issues raised in the complaints. The banker, however, was unable to give satisfactory answers.

SEBI noted that a third party vendor based in Mumbai, from whom Rs. 17.7 crore proposed to buy software, had not filed financial statements with the Ministry of Corporate Affairs (MCA) for over 3 years and reported NIL revenue last year. For which financials were filed.

Further, BSE conducted a site visit inspection for the third-party vendor and found that the office was closed and no one was available at the said address.

As per the SEBI order, the seller obtained the GST registration certificate on January 05, 2024 itself. As per GST taxpayer details available on the GST website, the form of business of the above entity was trade-retailer/retail business.

“Therefore, prima facie it appears that the third party vendor is not a software developer,” the regulator said.

Further, the company proposed to avoid the procurement of the software proposed in the DRHP and sought to invite fresh proposals from the vendors and the contract would be awarded only after getting the consent of the shareholders.

However, given the past behavior of the company, Sebi said it did not inspire any confidence.

SEBI said that investments made by individuals and institutions allotted shares in the IPO are at risk. However, it also admitted that the listing of these shares could lead to capital erosion if the disclosures made turn out to be misleading or flawed.

“A balance needs to be struck between these competing interests. If such an IPO is allowed to be listed even in the wake of such serious concerns, it may shake investor confidence in the listed SME ecosystem,” Sebi said.