In a thunderous crackdown, SEBI has prohibited SSSL and its senior officials from accessing the securities markets, imposed a fine of Rs. 1.97 crore, and directed the disgorgement of Rs. 47.9 crore in illegal gains.
Allegations & Findings
The final order of SEBI was passed by the Whole-Time Member, Kamlesh Chandra Varshney, drawing on investigations carried out over a period from April 2020 to December 2023.
The regulator found that financial misrepresentation, diversion of funds, and corporate governance failures were pervasive throughout the entire operation. Key observations include:
Over 85% of reported sales and more than 98% of declared assets during the period were found to be fictitious.
The company distributed 1.50 crore shares, valued at Rs. 22.73 crore, to promoter Manish Shah without sufficient consideration.
Proceeds of the rights issue (Rs. 43.42 crore) and bank borrowings (Rs. 10.83 crore) were allegedly siphoned to parties for which there was no bona fide business purpose.
Misleading information was presented over several years (FY21–FY24), with severe failures in audit committee supervision, board meetings, and annual report disclosures.
SEBI has imposed the following penalties:
A cumulative fine of Rs. 1.97 crore, including Rs. 50 lakh on SSSL and promoter Manish Shah.
An order to refund Rs. 47.89 crore, along with 12% interest per year, to the SEBI Investor Protection and Education Fund within 45 days.
Prohibitions on access to the securities market by SSSL and its major officials for a period of 1-5 years.
Restrictions on mobilizing funds from the public for a period of five years, and the disqualification of some directors and officers serving in board positions for a certain period.
Reacting to the findings of the regulators, the promoters sought to explain the diversion of money as a ‘ransom’ payment due to a suspected kidnapping of the promoter's son. SEBI rejected this explanation, pointing to no evidence and the absence of any police complaint.
According to SEBI, the steps were deemed to be stringent so as to assure investor protection and reinstate market integrity; these were needed to stop the company from further misreporting.
Retail investors are left wondering whether their investments, which were lured in by the company's fabricated story of growth, can be reinstated. The issue thus reiterates the importance of exercising due diligence on time, particularly in small-cap stocks.
Furthermore, the order makes it explicit that SEBI is becoming increasingly assertive in tracking corporate fraud and ensuring that promoters are held accountable. It also sends a message that vectoring excuses, even as bizarre as claims of kidnapping.