TaxTMI 
TaxTMI 
2025 (3) TMI 1071
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....st the order dated December, 3, 2024 passed under Section 11(1) & (4) and Section 11B of the SEBI Act SEBI Act - Securities & Exchange Board of India Act, 1992 passed by the Ld. WTM WTM - Whole Time Member of SEBI SEBI - Securities & Exchange Board of India, whereby the appellant company has been directed, inter-alia, to refund the subscription amounts to the successful investors and to cancel shares allotted to them pursuant to the Initial Public Offer (IPO) of the company on September, 16, 2024. 2. Brief facts of the case are as under:- The appellant is a public limited company engaged in providing Intelligent Transportation Systems (ITS) and automation solution for traffic management using latest technology including an Integrated Command Control Centre Software (ICCCS) for Highway segment. The company is one of the 4 companies eligible to bid for Government contracts for Intelligent Transport Systems (ITS) and its order book includes several projects of Government and PSU, including Advance Traffic management systems (ATMS) projects. Based on its experience and knowledge of ICCCS, the company planned to participate in the Government's flagship Smar....
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.... of disclosure made by the appellant company in its DRHP and directing BSE not to proceed with the listing further. Thereafter, SCN was issued on November 14, 2024 and after conducting inquiry and allowing the appellant an opportunity to cross-examine the witnesses, the final order was passed on December 3, 2024, which is impugned in this appeal. 3. Before us, Mr. Pradeep Sancheti, learned senior Advocate with Mr. Sumit Agrawal, Mr. Rushin Kapadia, Mr. Kavish Garach, Ms. Aditi Sahu, Mr. Akarsh Tripathi, Ms. Mahima Jayan, learned advocates for the appellant and Mr. Gaurav Joshi, learned senior advocate with Mr. Manish Chhangani, Mr. Atul Agrawal, Mr. Abhay Chauhan and Mr. Sumit Yadav, learned advocates for the SEBI and Mr. Tomu Francis, learned advocate with Ms. Zarnaab Aswad, Mr. Apoorva Upadhyay and Mr. Tarun Toprani, learned advocates for the respondent BSE made detailed submissions. 4. Before us, the learned Senior Advocate for the appellant Shri Pradeep Sancheti made the detailed submissions on the following principal grounds:- a) directions in the impugned order are beyond the action proposed in the show cause notice dated November 14, 2024; b)....
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....ce, findings of the investigations were presented under three heads, the para no. 7 of show cause notice limits the scope of proceedings covered under the show cause notice to "material misstatement in the prospectus concerning the object of the issue identified during the investigation." It was submitted that the same position has been reiterated in the impugned order in para no. 7 and 8 and the following other two aspects of the investigation have not been addressed: i. intent of diversion of funds through misleading object of the issue; and ii. concealment of the material facts in the prospectus. The learned senior advocate contended that these other aspects may have weighed with the learned WTM in justifying the impugned order, which is an error apparent on the face of the order since the issues which were expressly out of the scope of the show cause notice, found place in the reasoning given by learned WTM (even though not decided in the order). 4.4 With regard to merit of the issue, Mr. Sancheti pleaded that there is no misstatement in the prospectus as alleged in the impugned order, based on which refund of proceeds and cancellation of IPO has been....
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....ted delays in implementation, cost overruns and other risks and uncertainties. If we engage someone other than the vendors from whom we have obtained quotations or if the quotations obtained expire, such vendor's estimates and actual costs for the services may differ from the current estimates. ............. 4. Details of the objects of the issue : 1. Purchase of Software. The Company is in need of an Integrated Software Control Centre (ICCC) to function as the core operational hub for smart cities. This ICCC will act as the central nervous system, seamlessly integrating various subsystems to optimize urban operations. Offering capabilities such as real-time monitoring, data analytics, and coordinated responses, it aims to elevate governance standards and citizen services. ........ Below is the estimated cost towards purchase of software - Sr. No. Particulars Type Quotation Details Units Quotation Amount (in Lakhs) 1. Computer Application Software with IPR. ICCC Platform for Smart Projects Including Configuration & Integration of ICCC With Various Smart City Applications Like Intelligent Traffic Management, City S....
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....no allegation that the amounts of estimate of budgetary allocation made in the prospectus were incorrect and submitted that another quotation received later, from M/s. Logiciel Solutions Pvt. Ltd. dated August 29, 2024 was also in the same price range (it was submitted by appellant to the respondent no. 2 BSE). The quote from that company is of Rs. 15.50 crore plus GST. He submitted that while in the show cause notice, there was a charge of non-disclosure of this quotation but the same does not find place in the impugned order. The learned Senior Advocate submitted that the allegation made in the show cause notice that the disclosure made in the prospectus regarding "acquisition" of software from M/s. OCPL was misleading, is factually incorrect as in the prospectus, there was no disclosure regarding "acquisition" of software from M/s. OCPL. With regard to the allegation that the management of appellant company may have been aware of doubtful credentials of OCPL, it was submitted that the appellant had only forwarded the same as also the credentials of the promoters of OCPL, as received from OCPL. 4.6 Mr. Sancheti submitted that no doubts were ever raised against the credentia....
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.... intervention. 4.8 Learned senior advocate also submitted that the appellant had no connection or involvement in the operations of OCPL and the allegation of violation of PFUTP Regulations fails as respondent No. 1 failed to demonstrate the element of "fraud" and the entire finding is based on conjunctures and surmises, since the quotation was taken only for budgetary estimate purpose and that the appellant was not aware that the OCPL is allegedly a shell company. The learned senior advocate, in this regard, relied upon the decision of this Tribunal in the case of Arshad Warsi & Anr. vs. SEBI Appeal No. 254 of 2023 decided on March 27, 2023 and contended that action cannot be taken on the basis of mere conjunctures and surmises. Relying upon Order 30, Rule 5 of CPC 1908, it was submitted that it is well established that such a preventive measure cannot be undertaken in routine manner and has to be taken only in extreme circumstances. The learned senior advocate submitted that the impugned order will not be in the interest of the investors and will cause irreparable damage to the business of the appellant company. The learned Senior Advocate also pleaded that the order was ....
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....SEBI (2013) 1 SCC 1, 3. Devendra Kumar Sharma &Anr. v. SEBI [Order dated 05.07.2023 in Appeal No. 893 of 2022], 4. PratibandlaVenkatla v. SEBI [2023 SCC OnLine SAT 1058]. 5.1.2 The learned senior advocate also drew our attention to the decision of this Tribunal in the matter of Parsoli Corporation Limited v. Securities and Exchange Board of India [2011 SCC OnLine SAT 106], wherein it is held thus:- "14. The words "which may include" as mentioned in paragraph 25 leave no room for doubt that the proposed action of debarring the appellants from accessing the securities market was not exhaustive and that such other directions which the Board is competent to issue under these provisions could also be issued if the allegations enumerated in paragraphs 3 to 23 of the show cause notice were established. We have already observed that the Board is competent to issue such directions as may be necessary to protect the interests of the investors." 5.1.3 Learned senior advocate argued that disclosure is the rule without there being any exception and even a half-truth intended to deceive investors in a prospectus is no better than complete falsehood and submitted ....
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.... (ii) The said OCPL had not filed its financial statements with the Ministry of Corporate Affairs and when appellant was asked in this regard, the financial statements were generated on the same day while the enquiry was in progress. (iii) The avowed main Object of the IPO being procurement of an integral application software for supporting ICCC software, the appellant and its Managing Director ought to have made sincere efforts to identify a genuine software provider of repute and capability. However, strangely the promoters/Managing Director of the appellant-company reached out to OCPL, a company of doubtful credentials with no background in software and in fact met the owner of OCPL only after the respondent had initiated the action for deferring the listing. (iv) The profile of OCPL and its Directors in no way suggests that they are in the business of software making and during the course of inquiry, the entities to which OCPL claims to have supplied software, denied having known OCPL or having any business relation with it. 5.4 The learned counsel submitted that purchase of the software was the major object of the Issue, the importance of which may be ga....
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....mpany by submitting that the vendor identification and RFQ RFQ= Request For Quotation Clause of the purchase policy provide that a minimum of three offers shall be arranged against each indent for Tecno-Commercial evaluation, which was not followed in this case. 5.9 Regarding appellant's argument that it had obtained one more quotation from Logiciel Solution Pvt. Ltd. after filing DRHP on August 29, 2024, the learned senior advocate submitted that the same was never disclosed in the RHP filed on September 04, 2024 and there was no board resolution for this quotation. 5.10 The learned senior counsel also pointed out that there was inconsistency in the reply of appellant dated October 17, 2024 with the submission of the Merchant Banker M/s Ekadrisht (ECPL) and the Board Resolution dated May 18, 2024. It was brought to our notice that the Merchant Banker in the reply dated September 18, 2024 to BSE had submitted that the decision to 'purchase ICCC Platform Software' was made collaboratively by the management and the purchase department following their purchase policy and vendor selection process, which was relied upon by the Board of Director. Similarly, in the Resolution pas....
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....ransport solutions (ITS) to several Government departments and PSUs in transport sector and has an impressive order book of such transport sector projects. The company has been consistently making high profits and has credible financial institutions as shareholders, which is evident by the fact that its Initial Public Offer (IPO) for the avowed purpose of developing an ICCC application software for the Smart city projects, was welcomed with open hands by the investors, both retail and institutional, and was over-subscribed by 345%. We find that the Ld. WTM has also not expressed any doubts about that. Therefore, reliance on the credentials of the appellant company is of no assistance in the matter. On the other hand, company's experience and knowledge of transport related software puts greater onus on it in selecting the right software provider. (ii) As per the provisions of paragraph (9) of Schedule-VI of the ICDR Regulations, 2018, evidently disclosure of date of a quotation in the prospectus is needed, where contract has not been awarded and hence the claim by the appellant that such a quotation was for budgetary estimate purposes is not considered as unusual. Further, ....
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.... purpose of vendor selection for an important software, which in their scheme of things, was going to be integral object of the Issue. Despite being in the ITS sector, the company did not make desired professional efforts to evaluate whether the quotation by OCPL was genuine or not. We find that the quotation was received on May 16, 2024 and within two days on May 18, 2024, the Board of directors of the Company "noted and approved" procurement of ICCC software from the said vendor, even though in the DRHP dated May 30, 2024, in the notes to the 'Deployment of proceeds' segment, it has been qualified that no definitive agreement was signed with the said vendor and the Company may change vendor or quotation per se. 6.3 We also note that the decision of the Board of directors of the Company in 'approving' the purchase of software without due verification of credentials of the vendor and in utter disregard to its own purchase policy, which provides for taking at least three quotes for such an indent, did not the desired corporate governance norms. Surprisingly the purchase committee of the company, which ought to have examined the credentials of the vendor in details and assessed wh....
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....CC software from OCPL on May 18, 2024 and Logiceil quote did not have Board's approval nor was disclosed in DRHP/RHP. We, therefore, find no merit in the argument that the quotation from Oasis was only for budgetary purposes. In our view, the manner of obtaining quote from a such a doubtful entity cannot be countenanced. 6.6 In the disclaimer section of the prospectus, it is stated that the 'Company is responsible for adequacy, correctness and accuracy of the facts disclosed'. Considering the above, we of the view that the respondent is right in holding that the said disclosure in respect of quotation from an entity such as OCPL, was a mis-statement. A listed entity has additional responsibility to its shareholders and when it comes with an Issue for public at large, it is required to ensure that the disclosures made in the prospectus are not only adequate and correct but genuine. The appellant Company has failed to meet the said requirements. 6.7 With regard to the other arguments of the appellant Company that the impugned order has exceeded the scope of SCN, the learned Senior Advocate for the respondent is right in his submission that the language of show cause notice full....