On Monday, the Securities and Exchange Board of India (Sebi) imposed a suspension on trading for Bharat Global Developers Ltd (BGDL) due to several serious issues, including financial misrepresentation, misleading disclosures, price manipulation, and the sale of shares at inflated prices. The action also entails a ban on BGDL’s managing director Ashok Kumar Sewada, CEO Mohsin Shaikh, directors Dinesh Kumar Sharma and Nirali Prabhatbhai Karetha, along with various preferential allottees from participating in the securities market.
In its interim order, Sebi has confiscated illicit profits amounting to Rs 271.6 crore, which were acquired by preferential allottees through the sale of shares. This action followed an investigation initiated by Sebi against Bharat Global Developers, prompted by social media activity and a complaint received on December 16, 2024. The inquiry was instigated by an alarming 105-fold increase in BGDL’s share price, which soared from Rs 16.14 in November 2023 to Rs 1,702.95 in November 2024.
Sebi’s investigation sought to ascertain whether BGDL had breached securities legislation, including the Sebi Act, Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations, and Listing Obligations and Disclosure Requirements (LODR) Regulations. During the investigation, it was discovered that BGDL had made changes to its management, authorised preferential allotments to specific individuals, and issued false reports regarding its business expansions and collaborations. These activities were aimed at manipulating share prices and enabling insiders to offload shares at inflated values.
The company falsely represented itself as a thriving entity with substantial contracts and technological capabilities, which turned out to be untrue. This misrepresentation misled potential investors and contributed to the inflation of share prices. Further analysis of BGDL’s financial statements indicated a failure to accurately portray the company’s true financial condition. Until FY23, the company reported minimal revenue, expenses, fixed assets, and cash flows. However, the financial results for the quarter ending March 2024 displayed a dramatic increase in revenues and expenses, accompanied by minimal fixed assets and negative cash flows from operational activities, alongside significant levels of trade receivables and payables.
Additionally, the regulator identified a significant rise in the number of shareholders from 10,129 in September 2024 to 44,976 in December 2024. Despite this increase, over 99.9% of shareholders possessed less than 1% equity, whereas a limited number of preferential allottees controlled the majority of shares, garnering substantial profits.
Moreover, a proposed bonus share issue (8:10) and share split (10:1) set for December 26, 2024, would have further diluted ownership and escalated trading volumes.
The Sebi Whole Time Member, Ashwani Bhatia, remarked, “Misstatements regarding its business, financials and prospects as disseminated by BGDL show an effort to drum up the company’s share price.” He also stated that BGDL, under the guise of compliance, has fabricated a market valuation surpassing Rs 12,000 crore, which is not based on any legitimate economic activities or production of goods or services. Bhatia concluded that this inflated valuation stemmed from the misrepresentation of the company’s business and finances to investors and shareholders.
Consequently, Sebi has declared, “Trading in the shares of Bharat Global Developers Ltd is suspended until further notice”. The regulator has also prohibited the company, its executives, and preferential allottees from engaging in activities related to buying, selling or dealing in securities and accessing the capital market, whether directly or indirectly, until further instructions are issued. Additionally, the compliance officer has been barred from any involvement with intermediaries registered with Sebi, any listed public company, or any company seeking to raise funds from the public until further notice.