Trafiksol Its Technologies Limited vs Sebi & Another

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) the impugned order is also premised on the

allegations, which are admittedly not part of the

show cause notice; and

c) there is no misstatement in the prospectus. 8

4.1. With regard to the first ground, the learned senior

advocate submitted that the impugned order ex-facie travels

beyond the action proposed under the show cause notice dated

November 14, 2024 as in the impugned order, directions to

the company for effective cancellation of IPO and for

refunding the money to the investors have been issued,

whereas in the show cause notice, while seeking explanation,

the appellant was asked as to why "suitable directions,

including the direction to provide the investors who have been

allotted shares in the issue an option to withdraw, should not

be issued."

4.2. Relying on the decision of the Hon'ble Supreme Court

of India in the case of Gorkha Security Services vs.

Government (NCT of Delhi) and Ors. [(2014) 9 SCC 105],

Mr. Sancheti submitted that there was violation of principles

of natural justice, as the show cause notice was silent about

the respondent likely to issue direction for cancellation of

IPO. In this regard, the learned senior advocate drew our

attention to Paragraph No. 27 of the said order, which reads as

under :-

9

"27. We are, therefore, of the opinion that it was incumbent on the part of the Department to state in the show cause notice that the competent authority intended to impose such a penalty of blacklisting, so as to provide adequate and meaningful opportunity to the appellant to show cause against the same. However, we may also add that even if it is not mentioned specifically but from the reading of the show cause notice, it can be clearly inferred that such an action was proposed, that would fulfill this requirement. In the present case, however, reading of the show cause notice does not suggest that noticee could find out that such an action could also be taken. We say so for the reasons that are recorded hereinafter."

Our attention was also drawn to the decision of the Hon'ble

Supreme Court in the case of UMC Technology Pvt. Ltd.

[(2021) 2 SCC 551], wherein the same principles were

reiterated.

4.3 It was submitted that the impugned order was

premised on certain allegations that were not part of the show

cause notice. The learned senior advocate submitted that

while in the para no. 6 of the show cause notice, 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 10

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 directed. He submitted that the 11

directions have been issued by the learned WTM only by

casting doubts on genuineness of the quotation received from

M/s OCPL disclosed in the prospectus, which was explicitly

mentioned to be for budgetary estimate purpose only and

there was clear disclosure that the appellant was not bound to

engage M/s OCPL for procuring software.

4.4.1 It was submitted that in Schedule VI of the SEBI

(Issue of Capital and Disclosure Requirement) Regulations,

2018, the provisions of sub-clause 7(b)(ii) of paragraph No. 9

('Particulars of the Issue') provide that if one of the objects of

the issue is to fund a project, in case machines are yet to be

delivered, the date of quotations relied upon for the cost

estimates given shall also be mentioned in the prospectus.

Learned senior advocate argued that the said quotation

received from M/s. OCPL was only a budgetary estimate in

respect of which due disclosure was made in the prospectus in

terms of the aforesaid ICDR Regulations.

4.4.2 Our attention was drawn to the Section-V of DRHP

filed by the appellant, titled 'Particulars of the Issue', the

'Objects of the Issue' segment of which reads as under:- 12

"2. Utilization of net proceeds

The Net Proceeds are proposed to be utilised in the manner set out in the following table:

Sr. Particulars Amount % of Gross % of Net No. (Rs. in Proceeds* Proceeds* Lakhs)

1. Purchase of Software 1,770.00 39.45% 42.26%

2. Repayment / prepayment, in part or 550.00 12.26% 13.13% full, of certain of our borrowing

3. To Meet Working Capital 1,040.00 23.18% 24.83% Requirements

4. General Corporate Purposes 828.00 18.45% 19.77%

5. To meet Issue Related Expenses 299.00 6.66% 7.14%

Total * 4,487.00

# The amount to be utilised for general corporate purposes will not exceed 25% of the Gross Proceeds.

"3. All quotations mentioned in this section are valid as on the date of this Prospectus. However, we have not entered into any definitive agreements with any of these vendors and there can be no assurance that the same vendor would be engaged to eventually supply the software at the same costs. We are yet to place orders for the software. The Proposed Objects may be subject to the risk of unanticipated 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 : 13

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 -

Quotation Sr. Quotation Particulars Type Units Amount No. Details (in Lakhs) 1. Computer Application Software Quotation Date with IPR. - May 16, 2024

ICCC Platform for Smart Projects Quotation from Including Configuration & :- Integration of ICCC With Various OASIS Smart City Applications Like CORPCARE Intelligent Traffic Management, PVT. LTD. City Surveillance, Digital Services, Software 1 1,770.00 E-Health Services E-Gov Applications, IOT Controls and Quotation Comprehensive AI Based Analytics Reference No.: and Dashboard, to Provide TITPL/PL/01 Integrated Workflow For Smart City Functions. Validity:- 4 months from the date of quotation Total * 1,770.00

*The above amount is inclusive of GST. Quotation is subject to additional costs including installation and commissioning costs, insurance, duties and other government levies, as applicable shall be paid out of Internal Accruals.

Notes:

a) We have considered the above quotations for the budgetary estimate purpose and have not placed orders for them.

14

The actual cost of procurement and actual supplier/dealer may vary.

b) Quotation received from the vendor mentioned above are valid as on the date of this Prospectus. However, company have not entered into any definitive agreements with the vendor and there can be no assurance that the same vendor would be engaged to eventually supply the machineries/equipment's or at the same costs.

c) The Software model as stated above to be purchased are based on the present estimates of our management. The Management shall have the flexibility to revise such estimates (including but not limited to change vendor or modification/addition/deletion of software) at the time of actual placement of the order."

[Emphasis supplied]

Learned senior advocate submitted that in the notes below

the table, it was clearly disclosed that the company has

considered the above quotation for budgetary estimate

purposes only and has not placed orders to them. Further, it

was reiterated in the said note that the company had not

entered any definitive agreement with the vendor and the

same vendor may not be engaged.

4.5 It was submitted that even the learned WTM in the

impugned order (para 40) admits that ICDR Regulations 15

permit company to rely on quotations for estimating the cost

of contracts that have not been awarded. However, he has

upheld the charges made in the show cause notice by holding

that the quotation was from a company which was allegedly a

Shell company. Mr. Sancheti submitted that there was 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 16

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 credentials of noticee company. Even in the

impugned order, it is observed that the company has sound

credentials, which is evident by the fact that it is already

providing Intelligent Traffic Solutions (ITS) for a number of

highway projects of the government and its order book is rich

with good number of projects from government/government

companies. Further, he submitted that the company's profits

have been growing at an impressive growth rate, which may

have seen a reason for success of IPO, which was subscribed

345 times by the investors. The learned Senior Advocate also

informed that the company has well known shareholders

including financial entities such as credit Axis Life Insurance

Pvt. Ltd., Bupa Securities Europe SA, Citi group Global

Market Mauritius Pvt. Ltd., Central Bank of India, RBL Bank,

ICICI Bank, Federal Bank, AU Small Finance Bank etc. Since 17

the appellant has significant knowledge, skill and experience

in the field of providing Independent Transport Solutions

(ITS), it is hopeful of getting opportunity in the Smart City

project of the Government of India, for which purpose the

IPO was floated for mobilization of funds.

Under the circumstances, there is no reason to doubt the

credentials of the appellant company based on inquiry of

OCPL, from whom quote was obtained for the limited

purpose of making budgetary estimate and no contract was

awarded to it till that date.

4.7 Mr. Sancheti submitted that there was no finding in

the impugned order as to how taking the quotation from

OCPL was part of a scheme of diversion of IPO funds,

however, the learned WTM has recorded a finding that the

appellant company had deliberately entered into arrangement

with a company of doubtful credentials such as OCPL,

whereas considering the knowledge and expertise of software

sector, the company management ought to have had

knowledge about the credentials of OCPL and its capability in

providing software solutions.

18

Learned senior advocate also submitted that quote from

another entity M/s. Logiciel Pvt. Ltd. was in similar range,

and hence the allegation of diversion of IPO further remains

unsubstantiated. Further, there is no finding on record to

suggest that the quotation from OCPL was part of a scheme to

divert IPO proceeds. Learned WTM has not given any finding

by stating that these questions remained unanswered due to

the complaint and subsequent regulatory 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 19

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 passed by the same WTM, who was the author of

ad-interim ex-parte order and, therefore, the impugned order

cannot be considered to be free of bias.

4.9 Keeping in view the above, he urged to consider

following alternative pleas as under:-

i. Allowing the investors to withdraw their bids as

was directed by the NSE in coordination with

SEBI, in case of the IPO of C2S Advance System

Ltd., where a complaint was filed.

20

ii. Alternatively, since the issue was oversubscribed,

the other investors, who could not be allotted

shares, may be allotted shares in lieu of such

successful allottees, who decide to avail the

proposed option to exist. Alternatively, promoters

may be allowed to fill in the gap in such case.

iii. A monitoring committee may be set up by the BSE

for monitoring the use of IPO proceeds.

5. In response, the Ld. Senior advocate of Respondent No.1,

Mr. Gaurav Joshi made detailed submissions. Respondent

No. 2 filed a written submission stating that they would adopt

the stand taken by the respondent No. 1.

5.1 With regard to the first argument of the Ld. Sr Advocate

of the appellant that the directions in the impugned order

are beyond the action proposed in the show cause notice

dated November 14, 2024, Mr. Joshi submitted that the

reliance on the decision of Hon'ble Supreme Court in Gorkha

case (supra) is misplaced. It was submitted that in the show

cause notice (in para 49), it has been categorically been

proposed to issue 'suitable directions' under Section 11(1), 21 11(4) and 11B including an option to the allottee to withdraw

their subscription.

The learned senior advocate submitted that it is evident

from the language of the show cause notice that this was not

the only direction and the learned WTM was well within his

powers to issue any other suitable directions and he has

exercised an option by directing to refund the entire amount

of subscription to the successful allottees and to cancel shares

allotted to them. The learned senior advocate relied upon

various authorities, in which it has been held that the power of

SEBI under Section 11B are wide enough to issue a direction

for refund. In this regard, reliance was placed on the

following decisions:-

1. Bank of Baroda v. Securities and Exchange Board of India [2000 SCC OnLine SAT 2],

2. Sahara India Real Estate Corporation Limited and Others v. 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].

22 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 23

complete falsehood and submitted that a Regulatory Body like

SEBI is fully empowered to take both preventive and

corrective actions against such misstatements. In this regard,

reliance was placed on the following decisions:-

1. Pramatha Nath Sanyal v. Kali Kumar Dutt [1924 SCC OnLine Cal 115],

2. M.K. Srinivasan &Anr. v. Emperor [1943 SCC OnLine Mad 33];

3. Kismukh Krishna Sinha v. SEBI [2010 SCC OnLine Del 1448];

4. Electrosteel Steels Ltd. v SEBI [2019 SCC OnLine SAT 244];

5. Sandeep Baid v. SEBI [2016 SCC OnLine SAT 296];

6. Sahara India Real Estate Corporation Limited and Others v.

SEBI [2013 1 SCC 1];

7. Brooks Laboratories Ltd. v SEBI [2018 SCC OnLine SAT 86]; and

8. Tijaria Polypipes v. SEBI [2016 SCC OnLine SAT 266].

5.2 With regard to the second line of argument of the Ld.

Sr. Advocate for the appellant that the impugned order is also

premised on the allegations which are admittedly not part of

the show cause notice, Mr. Joshi submitted that the crux of

the allegations on which the impugned order is based is mis-

statement in the prospectus of taking a quotation from an 24

entity with doubtful credentials and since it was the

responsibility of the appellant company to verify correctness

of the disclosure made in the prospectus, directions were

issued in the impugned order based on inquiry conducted and

following the show cause notice.

5.3 Mr. Joshi contended that the core finding in the

impugned order is "material misstatement in the prospectus of

the appellant," which has not been rebutted by the appellant

in any form or manner. The learned senior advocate submitted

that it is undisputed that, -

(i) the erstwhile 100% shareholder/owner of OCPL, Mr.

Kishanlal Kumhar has deposed on oath that the

quotation of OCPL was obtained and provided to the

appellant in lieu of assurance of a commission of Rs. 50

lakh and the said statement has not been rebutted in any

manner and the appellant was also given an opportunity

to cross-examine but it did not avail the same. The

following excerpts from Kishanlal's statement were

relied upon in support of the above:

25

"Vijay uncle told me that an advance of 10% of

the quotation amount which will be received from

Mr. Jitendra Das, from which I will get 50 lacs

commission from the advance and if required, he

will get the software built from other vendors".

(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 26

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 gathered by the Board Resolution of the

appellant dated May 18, 2024, which states that the said

software "shall form an integral part of the object of the issue

proposed to be raised through the public issue of the

company", however the company's management reached out

to an entity with no credentials in software sector, despite

themselves being an established software application

company in transport sector.

5.5 Regarding the credibility of OCPL, the learned Sr.

Advocate drew our attention to the statement on oath of Mr. 27

Kishanlal Kumhar, the erstwhile 100% shareholder of OCPL,

who had clearly mentioned that the said entity was not doing

any business till October 2023 and with regard to the

procurement of the software for the appellant-company, he

was approached by a middleman, namely, Mr. Vijay Oswal

on whose advice he agreed to provide a quotation of the

OCPL to the appellant-company for a commission, on behalf

of Mr. Jitendra Das Director of the appellant company.

5.6 Further, the learned counsel submitted that even

though the Board of Directors of the Company had

'approved' procurement of software from OCPL, the Board of

Directors did not pay attention to the fact that this standalone

quote was in violation of their own purchase policy and that

neither the purchase committee, Board of Directors nor the

Merchant Banker had noted that there was no annual report,

balance sheet or profit and loss account of OCPL for the FY-

2022 to FY-2024. Eventually later, when inquired during

these proceedings, these were got prepared in a hurry during

inquiry and got audited through Whatsapp circulation on one

single day i.e. September 18, 2024.

28

5.7 Further, the learned Senior Advocate submitted that as

stated by Mr. Kishanlal in his statement, the Managing

Director of the appellant company Mr. Jitendra Das met the

middleman Mr. Vijay Oswal and Mr. Kishanlal for the first

time only after the IPO was put on hold following the inquiry

initiated by the respondent. Shri Joshi also submitted that the

financials of OCPL show that it did not have any business in

FY-2020 and FY-2021 and had total capital of Rs. 1 lakh with

no sales/ purchase or any expenditure recorded.

5.8 The learned senior advocate refuted the explanation of

the appellant that obtaining quotation from OCPL was only

for budgetary estimate purposes and was in accordance with

the purchase policy of Company by submitting that the

vendor identification and RFQ4 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.

4 RFQ= Request For Quotation 29

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 passed by the Board of

Directors dated May 18, 2024 the Board had 'taken note and

approved to purchase a highly specialized computer 30

application software ICCC platform for smart city projects

from the IPO proceeds'. However, in its reply dated October

17, 2024 the appellant had submitted that 'Trafiksol wanted to

outsource some modules of the development work and jointly

develop the ICCC software with a professional software

company". The learned senior advocate submitted that the

same was also not disclosed in the prospectus.

Regarding appellant's submission vide email dated

October 17, 2024 stating that 'comprehensive due diligence of

OCPL was not conducted at the time as management was in

the process of reaching out to additional vendors to obtain

more competitive quotes', it was submitted that this was

contradicted by the reply of the merchant banker dated

September 18, 2024, in which it was informed that the Board

of the appellant company had "approved" procurement of the

software after considering the documents of OCPL including

its brief profile, quotation received, software projects and

pipeline etc.

5.11 The learned senior advocate submitted that it is evident

that though the prospectus for the IPO for disclosing the 31

deployment of the proceeds of the issue quotations may be

relied upon, where an award has not been given. However,

this does not mean that such quotations can be obtained from

entities of doubtful credentials with no possibility of being

able to develop software, or provide or procure software from

third parties. The learned senior advocate submitted that the

fact that Mr. Kishan Lal, the erstwhile 100% owner of OCPL

has stated on oath that he was assured of commission of Rs.

50 lakhs for his role to provide a quote, and that the detailed

technical proposal was in fact provided by the appellant-

company itself through Mr. Vijay Oswal, clearly shows that

the quote was not genuine.

6. We have carefully considered the facts of the case in the

light of the rival submissions. Taking into consideration all

relevant facts gathered, we proceed to decide the core issue in

the matter, i.e. 'Mis-statement in the prospectus':-

(i) We note that it is not the case of the respondent that

the credentials of the appellant company were doubtful.

Evidently the company has significant experience,

knowledge and skill in providing intelligent transport 32

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 33

estimate purposes is not considered as unusual. Further,

the validity of such a quotation was for four months out

from the date of the quotation i.e. May 16, 2024 which

would have expired on September 15, 2024. The

appellant claims to have an alternative quotation from

M/s. Logicial dated August 29, 2024, though the same

was not disclosed in the DRHP or the final prospectus

filed. The appellant has vehemently argued that it is in

negotiations with the said company, whose quotation of

Rs. 15.50 crore (Ex-GST) was in similar vicinity to

quotation by M/s. OCPL.

(iii) It appears that BSE did not make any deeper scrutiny

other than ticking the boxes in respect of DRHP,

whereas a specific complaint filed by SIREN brought

out specific allegations against OCPL, which were later

got largely confirmed on inquiry by the respondents.

These allegations inter-alia were:

(a) Oasis is a shell company engaged in giving fake

invoices;

34

(b) Oasis as a company booked the first ever sale on

June 2, 2024 only;

(c) Company did not file Financials for last 2 Financial

years and not registered withGST/EPFO; and

(d) It did not generate a single invoice for software.

(iv) The investigation by the respondent confirmed that the

said Oasis did not do any business till October 2023;

had no credentials for procuring or developing

software; had zero income/expenses for previous two

financial years for which financials were available and

had a share capital of merely Rs. 1 lakh. Further, the

company's small office was found locked and without

any employees. The Company's erstwhile 100%

shareholder Mr. Kishanlal has stated on oath that this

quotation was got procured from them for a

consideration of Rs. 50 lakhs through a middleman.

This statement has remained uncontested as the

appellant admittedly did not avail the opportunity to

cross-examine.

35

6.2 In our considered view, safeguarding the interests of

the public shareholders particularly the retailers, is of

paramount importance for all stakeholders of the

capital market in a large country like India with

significant asymmetry in capital and financial

literacy. In view of this, adequacy and correctness of

disclosure in Public Offers cannot be compromised.

The appellant Company while going for Initial Public

Offer for inviting subscription from public at large,

was duty bound to obtain quotation from a genuine

software provider entity for the 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, 36

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 whether the vendor had deserved capability to

provide ICCC software in the given time-frame, cleared the

quote merely on the basis of GST returns filed for last two

months, which obviously are of no technical assistance for

deciding purchase of software. The committee also ignored

that there was no business of OCPL during the FY 2020

and FY 2021 for which financials were available and turned

blind eye on the absence of financials for the last 2 financial

years i.e. FY2022 and FY 2023. We find that even the 37

merchant banker has not done proper due diligence and has

merely gone by the decision of the Board of directors for

carrying out due diligence with regard to the Oasis.

6.4 The Company has mentioned in the prospectus and in

its submissions about the rich experience, knowledge and

skills in ITS sector of the Company and in particular, its

Managing Director Mr. Jitendra Das. However, despite

such a significant experience and success in implementation

of ITS projects involving use of software, the appellant

rather preferred to approach a middleman to access an

entity such as Oasis with no credentials in providing

software solution, for obtaining the quotation for ICCC

application software, which statedly is integral to their

expected Smart City Projects Pipeline.

6.3 The learned Senior Advocate for the respondent has

cited the statement of erstwhile 100% shareholder of OCPL

(Mr. Kishan Lal), which clearly shows that the entire

process of reaching out to Oasis through Vijay Oswal to

procure a quotation was a sham transaction. If an

established software player follows such a methodology to 38

reach out to an entity with doubtful credentials, with an

offer of commission of Rs. 50 lakhs for procuring quote

from a Third Party, in our considered view, it cannot be

treated as 'genuine' quotation and therefore we are not

persuaded to accept the argument that the Company had

made the disclaimer that such a quote was for budgetary

estimate only. Therefore, we hold that the company's claim

with regard to its adequacy and correctness of disclosure in

the prospectus was not bonafide and satisfactory.

6.5 The alternate explanation given by the appellant that

the quote from OCPL was comparable with another

quotation received by company from M/s Logiceil dated

August 29, 2024 has no merit since the Board of the

directors of the Company had already approved purchase of

ICCC 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. 39

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 fully covers any suitable directions which could also

include the directions to refund the subscription amount to

the successful allottees and hold that the reliance placed by

the learned Senior Advocate of the appellant on the Gorkha 40

(supra) and other decisions, is misplaced. We have also

taken note of the various decisions cited by Shri Joshi,

learned Senior Advocate with regard to powers of SEBI

under Section 11B to issue directions for refund and find

merit in relying upon them.

6.8 The appellant has submitted that instead of directing

mandatory refund of the money and cancelling the shares,

investors may be given an option to withdraw and those

who want to continue with the Company may be allowed to

hold the shares allotted to them, as was directed in the case

of C2C Advance System Ltd. We may record that in that

case, detailed enquiry was not carried out by SEBI to

conclude that quotation was obtained from an entity with

doubtful credentials. Moreover, we find that the appellant

has scant regard to the disclosure norms of ICDR

Regulations and to the concerns of public shareholders,

therefore, no useful public purpose will be served by

allowing the IPO to proceed further, at this stage.

6.9 Therefore, we do not find merit in the alternative plea

that the IPO may be allowed to proceed further subject to 41

monitoring of the deployment of proceeds by an agency to

be appointed by SEBI/ BSE.

7. In view of the above discussion, we find no merit in this

appeal. Hence, the following:-

ORDER

i. The appeal is dismissed;

ii. No costs.

Justice P. S. Dinesh Kumar Presiding Officer

Ms. Meera Swarup Technical Member

Dr. Dheeraj Bhatnagar Technical Member 24.01.2025 MRS Digitally signed by MRS PRAMILA

PRAMILA Date: 2025.01.28 10:53:06 +05'30'

PTM