SEBI takes stern action, halts Trafiksol ITS listing; SME IPO proceeds locked in escrow account

Capital market regulator Securities and Exchange Board of India (SEBI) on Friday restricted stock exchange BSE from listing shares in Noida-registered Trafiksol ITS Technologies on its SME platform. In an interim ex-parte order, SEBI said that the restrictions will continue until the completion of ongoing investigations in the next 30 days. At the time of the issuance of the order, Trafiksol ITS Technologies had already completed an IPO. The regulator also ordered that the proceeds from the issue will be kept in an escrow account until then. 

The market regulator directed BSE to take appropriate steps to ensure that the proceeds from the IPO of Trafiksol ITS Technologies are placed in “an interest-bearing escrow account” with no access to these funds granted to Trafiksol ITS Technologies or its affiliates until further orders.

SEBI ordered Trafiksol ITS Technologies and Mumbai-based Ekadrisht Capital Pvt Ltd, the sole book-running lead manager (BRLM) to the issue, to fully cooperate with the examination.

Zee Business had reported the issue on September 16.

Trafiksol ITS Technologies is engaged in providing intelligent transportation systems and automation solutions in areas such as traffic management and toll management.

In May, the company filed its DRHP with BSE to launch an IPO comprising fresh issuance of 64.1 lakh equity shares on the exchange’s SME platform.

The issue was offered in a price band of Rs 66-70 per share. The Trafiksol ITS Technologies IPO, which opened for subscription from September 10 to September 12, was subscribed 345.7 times, with a phenomenal response across investor categories.

A sum of Rs 44.9 crore was raised in the IPO.

As per the company’s DRHP, the proceeds from the issue were meant for the following:

• Purchase of software
• Repayment/prepayment of borrowings
• Working capital requirements
• General corporate purposes

The DRHP mentioned the need for an integrated software control centre (ICCC) to function as the core operational hub for smart cities. The company had obtained a third-party vendor’s quote of Rs 17.7 crore for this asset.

After the closure of the issue, SEBI and BSE received complaints alleging discrepancies in the proposed use of proceeds for procuring software. As per the complaints, the vendor appeared to be “incapable of executing the contract”.

“It is noted that the Company has now proposed to shelve the procurement of software as proposed in the DRHP. Instead,Trafiksol has submitted to BSE that it would 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, I am constrained to note that the said proposal does not inspire confidence,” wrote SEBI Whole-time Member Ashwani Bhatia.

“It cannot be ruled out at this stage that the attempt to award the software contract to a Vendor, who prima facie appears to be a shell entity without any prior experience in developing a software platform of the nature disclosed by the Company in its DRHP, was an attempt to deliberately mislead investors and divert the IPO proceeds. Therefore, in order to safeguard investor interest, I am of the considered view that issues raised in this Order require a detailed investigation,” Bhatia added.

“SME IPOs have served as an effective avenue for small enterprises, which are in many ways the backbone of the economy, to raise capital. Therefore, action taken in such cases needs to be done with utmost care,” the order added.

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