Brightcom Group, CMD, CFO siphoned off proceeds of preferential allotments: SEBI order

SEBI has issued another order in the Brightcom Group Ltd case, and this time around it has passed an interim order against Shankar Sharma and 25 others. SEBI has said in its order that Brightcom Group Ltd, its promoter-cum CMD M. Suresh Kumar Reddy, and CFO Narayan Raju were involved in round-tripping of BGL's own funds in a circular fashion to falsely portray receipt of consideration from allottees of preferential allotments and siphoning off of proceeds of preferential allotments.

Until the next order, the promoters have been barred from operating in the share markets. The promoters have also been barred from holding any post in any listed company. 

In the order, SEBI's Wholetime Member Ashwani Bhatia said Brightcom's CMD and CFO shall cease to hold the position of a director or a key managerial person in any listed company or its subsidiaries until further orders. BGL shall place the order before its Board of Directors within seven days from the date of its receipt.

As per the complaint, the influx of funds into the company wasn't as per the preferential allotment. It has also been alleged that the funds were either not sent into the firm, or it was diverted elsewhere.

The SEBI order restrained M. Suresh Kumar Reddy from buying, selling or dealing in securities, either directly or indirectly, in any manner whatsoever until further orders.

"Noticees 3 to 25 in the order are hereby prohibited from disposing of shares of BGL held by them, directly or indirectly, in any manner whatsoever, until further order. BGL is hereby directed to ensure that P. Murali & Co. and PCN & Associates, including their past and present partners, are not engaged with BGL or its subsidiaries in any capacity or manner whatsoever, until further order," it said.

The preferential allottees have been directed to co-operate in the ongoing investigation by SEBI with respect to preferential allotments, the order read.

As per the information, shares worth Rs 25.76 crore had been allotted to 22 people — and according to the allotment rate the company was to receive funds worth approximately Rs 245.24 crore. However, only Rs 52.51 crores were received, marking a deficit of Rs 192.73 crore.

As per investors' complaints received by Sebi, the funds were either not received, or diverted elsewhere. This preferential allotment of shares was done in FY20-21. 

SEBI received complaints dated October 6, 2022 and May 12, 2023 in respect of the preferential allotments made by Brightcom Group Limited in the financial years 2019-20 and 2020-21, alleging inter alia that BGL had raised money through preferential issue of shares to entities that were directly or indirectly connected to it, and that the money raised in the preferential issues was given as loans and advances to its subsidiaries.

Recently, an investigation by SEBI found inter alia several instances of accounting irregularities and mis-statements in the financial statements of the company.

As per the findings of investigation, BGL attempted to camouflage accounting entries in excess of Rs 1280 crore during FYs 2018-19 and 2019-20 to give a distorted picture of the company's financial position. SEBI has already issued an interim order-cum-show cause notice dated April 13, 2023 to BGL and other persons, including M. Suresh Kumar Reddy, who is a noticee in this order as well.

(With Agency Inputs)