Trafiksol SME IPO cancelled: SEBI orders refund to investors

The Securities and Exchange Board of India (SEBI) has revoked the IPO of Trafiksol ITS Technologies and mandated the company to refund the funds collected through the offering. This decision follows an investigation into the company's third-party vendor (TPV), which SEBI suspects might be a shell company.

In a 16-page order issued on Tuesday, SEBI highlighted several concerns about the TPV's legitimacy. SEBI's Whole-time Member Ashwani Bhatia directed Trafiksol to refund the money paid by investors who were allotted shares in the IPO. BSE, in coordination with the Bankers to the issue, will oversee the refund process, which must be completed within one week from the date of the order. Additionally, the interest earned on the issue proceeds must be proportionately refunded to investors.

Key Directives from SEBI's Order:

Refund of Money: Trafiksol must refund the money paid by investors who were allotted shares in the IPO.

Oversight of Refund Process: BSE, in coordination with the Bankers to the issue, will oversee the refund process, ensuring completion within one week.

Proportionate Interest Refund: The interest earned on the issue proceeds will be proportionately refunded to investors.

Transfer and Cancellation of Shares: Once the money is credited to the applicants' bank accounts, the depositories will transfer the allotted shares to a separate demat account in the company's name. Trafiksol is then required to cancel these shares.

Background and Investigation Findings:

The listing of Trafiksol's IPO was initially delayed on September 17 due to complaints from the Small Investors’ Welfare Association, SIREN, which raised concerns about the vendor from whom Trafiksol intended to purchase software worth Rs 17.70 crore. The vendor had questionable financials and had failed to file annual financial statements with the Ministry of Corporate Affairs. This led BSE, in coordination with SEBI, to defer the listing of shares.

SEBI's interim order on October 11 called for an investigation, and a report was submitted on November 11. The investigation revealed that the TPV might be a shell entity, with its office found locked during a site inspection and financial statements submitted under dubious circumstances. The auditor signed these statements the same day they were submitted to BSE, one day after the listing was put on hold. Additionally, the TPV's client list and director credentials were fabricated, and a former director's statement indicated the company was sold for a nominal Rs 20,000, suggesting it lacked the capability to execute the complex ICCC software project.

Trafiksol's IPO Details:

DRHP Submission: May 31

Public Offering Subscription: September 10-12

Shares Issued: 64.10 lakh equity shares at Rs 66-70 per share

Funds Raised: Rs 44.87 crore with a subscription rate of 345.65 times

Allocation Finalization: September 13

Shares Credited to Accounts: September 16

Planned Listing: September 17 (postponed due to complaints)

SEBI's order allows Trafiksol to consider a new offering once the current proceedings are resolved. Meanwhile, the market regulator's action ensures that investors will receive a fair refund, including the interest earned on their investments.

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