Sebi suspends trading in Bharat Global Developers shares over financial misrepresentations

Besides, the regulator excluded the company, its managing director Ashok Kumar Sewada, its CEO Mohsin Shaikh and its directors – Dinesh Kumar Sharma and Nirali Prabhatbhai Karetha – along with several preferential allotments of shares among the 18 entities from the securities market .

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Further, Sebi, in its interim order, froze illegal profits to the tune of ₹271.6 crores made by preferential beneficiaries through 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 investigation was triggered by a 105-fold increase in BGDL’s share price from ₹16.14 in November 2023 at ₹1,702.95 in November 2024.

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

In its investigation, Sebi found that BGDL replaced its management, approved preferential allotments to certain individuals and published false information about its business expansion and partnerships. These actions were part of a scheme to manipulate stock prices and allow insiders to sell shares at artificially high prices.

The company presented itself as a successful company with big contracts and technological expertise, which was not true. This false statement attracted unsuspecting investors and inflated the stock price.

Additionally, the company’s financial statements also appeared to misrepresent the true status of the company and its operations.

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The financial statements revealed that until FY23, the company had negligible revenues, expenses, fixed assets and cash flow. But suddenly, financial results for the quarter ending March 2024 showed a sharp rise in revenue and expenses. Added to this were negligible fixed assets, negative cash flow from operating activities and huge amounts of trade receivables and payables.

Furthermore, the regulator noted that the number of shareholders increased from 10,129 in September 2024 to 44,976 in December 2024. However, more than 99.9 percent of shareholders held less than 1 percent of the capital, while a few privileged rights holders controlled most of the shares and made significant profits.

Additionally, a free issue of shares (8:10) and a stock split (10:1), scheduled for December 26, 2024, would have further diluted ownership and increased trading volumes.

“The inaccuracies regarding its business, finances and prospects as disseminated by BGDL show an attempt to drive up the company’s stock price.

“In light of the facts and findings…I find that, under the guise of a compliant business, BGDL has now created paper wealth with a market capitalization in excess of ₹12,000 crore, which is not based on any real economic activity or production of goods or services. In fact, such wealth has arisen out of misrepresentation of the company’s activities and finances to investors and shareholders at large,” Sebi whole-time member Ashwani Bhatia said in his 25 pages.

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Accordingly, Sebi in its order said, “trading in scrips of Bharat Global Developers Ltd is suspended until further notice.”

In addition, the regulator prohibited the company, its officers and preferred assigns from “purchasing, selling or dealing in securities, or accessing the capital market, directly or indirectly, in any manner whatsoever.” so be it, until further notice.”

Further, the Compliance Officer is prohibited from associating with any intermediaries registered with Sebi, any public listed company or any company intending to raise funds from the public, until new order.