The list of malpractices by company promoters is ever-growing. Promoters of Rana Sugars and Debock Industries have now joined the infamous list of Manpasand Beverages and Add Shop-E Retail, among others.

The regulator’s findings against Debock Industries reveal how some promoters list their businesses for the sole purpose of milking public investors. According to SEBI findings, the intention of Debock Industries at the time of listing itself was to defraud investors. “It also appears that the very purpose behind listing this company was to defraud investors, and make huge gains for personal benefit,” the SEBI order said.

The company was initially listed on the Innovators Growth Platform on June 5, 2018, and migrated to the mainboard on the NSE on March 31, 2022. To enter the mainboard platform of NSE, the company came out with a preferential issue of 3 crore convertible warrants at ₹12.50 a share to promoters as well as non-promoters.

SEBI findings revealed that non-promoters too were related parties. Once the preferential shares were allotted, they were transferred off-market to the promoters, who subsequently sold them to the public. This has resulted in a drastic decrease in the promoter shareholding, from 64.79 per cent in September 2021 to 9.41 per cent March 31, 2024, while the public shareholding surged from 35.21 per cent to 90.56 per cent. The number of public shareholders also jumped from 171 to 53,389.

Fictitious sales

Once the company migrated to the main board of NSE, it came out with a rights issue where the promoters did not participate and the entire proceeds, which should have been used for legitimate business purposes, are alleged to have been siphoned off by the promoters and their associates. Further, the rights issue was followed by another preferential allotment. The company appears to have not received the proceeds of this issue as well. With back-to-back issuances, the company should have raised ₹162 crore.

To top it all, majority of the company’s reported sales and purchases were found to be fictitious. Many of these transactions were mere book entries, which had been conjured up to inflate the balance-sheet.

In his interim order, Whole-time Member of Securities and Exchange Board of India, Ashwani Bhatia, stated, “The actions of the company, prima facie, reveal a brazen and calculated effort to defraud investors and deceive regulatory authorities.”

SEBI barred Rajasthan-based Debock Industries Ltd and its promoter and CMD Mukesh Manveer Singh, from accessing securities market till further order. The regulator has also impounded total unlawful gains to the tune of ₹89.24 crore earned from alleged fraudulent activities carried out by these persons.

Diversion of funds

SEBI has imposed a penalty of ₹63 crore on Rana Sugar Limited (RSL) on the alleged charges of diversion of funds to its conduit and individual entities.

SEBI investigations found that the company, along with its promoter directors including its MD, Chairman and other family members, had devised a scheme to divert/siphon off the funds of the company by using certain private limited companies indirectly controlled by them.

These things reveal that as a first-line regulator, exchanges have been quite ineffective. The regulator should take strong action against the manipulators, and prepare a water-tight case so that the manipulators do not get any reprieve on appeal.

In the Debock order, the WTM said that retail investors need to exercise a certain level of due diligence while investing in such companies and not be swayed by seemingly attractive returns that may quickly come their way. “In other words, investors need to be realistic and responsible about their return expectations.” Advice to follow in letter and spirit.

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