Sebi suspends trading in Bharat Global Developers over financial misrepresentation

New Delhi: Markets regulator Sebi on Monday suspended trading in Bharat Global Developers Ltd (BGDL) for financial misrepresentation, misleading disclosures, price manipulation, and offloading shares at inflated prices.

Additionally, the regulator has barred the company, its managing director Ashok Kumar Sewada, CEO Mohsin Shaikh and directors --Dinesh Kumar Sharma and Nirali Prabhatbhai Karetha -- and several preferential allottees of shares among the 18 entities from the securities market.

Also, Sebi, in its interim order, has frozen illegal profits to the tune of Rs 271.6 crore made by preferential allottees through the sale of shares.

This came after the Securities and Exchange Board of India (Sebi) initiated an investigation into Bharat Global Developers following social media posts and a complaint on December 16, 2024.

The inquiry was triggered by a dramatic 105-fold increase in BGDL's share price, which surged from Rs 16.14 in November 2023 to Rs 1,702.95 in November 2024.

The regulator examined the matter to determine whether the company violated securities laws, including the Sebi Act, Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations, and Listing Obligations and Disclosure Requirements (LODR) Regulations.

In its probe, Sebi found that BGDL replaced its management, approved preferential allotments to select individuals, and issued false disclosures about business expansion and partnerships. These actions were part of a scheme to manipulate share prices and allow insiders to sell shares at artificially high prices.

The company portrayed itself as a successful company with large contracts and technological expertise, none of which were true. This misrepresentation attracted unsuspecting investors and inflated the share price.

Moreover, the financial statements of the company also appeared to misrepresent the true state of affairs of the company and its business.

The financial statements revealed that till FY23, the company had negligible revenue, expenses, fixed assets and cash flows. Suddenly, however, the financial results from the quarter ended March 2024 showed a steep spike in revenues and expenses. This was accompanied by negligible fixed assets, negative cash flows from operating activities and huge amounts of trade receivables and payables.

Further, the regulator noted that the number of shareholders surged from 10,129 in September 2024 to 44,976 in December 2024. However, over 99.9 per cent of shareholders held less than 1 per cent equity, while a few preferential allottees controlled most shares and profited significantly.

Moreover, a bonus share issue (8:10) and a share split (10:1), scheduled for December 26, 2024, would have further diluted ownership and increased trading volumes.

"Misstatements regarding its business, financials and prospects as disseminated by BGDL show an effort to drum up the company's share price.

"In light of the facts and findings... I find that in the garb of a compliant company, BGDL has created paper wealth now with a market cap of above Rs 12,000 crore, which is not founded on any genuine economic activity or production of any goods or services. In fact, such wealth has arisen from misrepresentation of the company's business and financials to general investors and shareholders," Sebi Whole Time Member Ashwani Bhatia said in his 25-page order.

Accordingly, Sebi in its order said," trading in the scrip of Bharat Global Developers Ltd is suspended till further orders".

Also, the regulator has barred the company, its top management) and preferential allotees "from buying, selling or dealing in securities, or accessing capital market either directly or indirectly, in any manner whatsoever until further orders".

Further, the compliance officer has been restrained from associating with any intermediaries registered with Sebi, any listed public company or any company that intends to raise money from the public, until further orders.