WTM/RKA/IVD/ID6/97 /2014 BEFORE THE SECURITIES AND ... · Order in the matter of Bharatiya Global...

______________________________________________________________________________ Order in the matter of Bharatiya Global Infomedia Ltd. of 49

WTM/RKA/IVD/ID6/97 /2014

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA

ORDER

Under sections 11(1), 11(4), 11A and 11B of the Securities and Exchange Board of India Act,

1992 read with regulation 11 of the Securities and Exchange Board of India (Prohibition of

Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003

and regulation 107 of the SEBI (Issuance of Capital and Disclosure Requirements)

Regulations, 2009 against:

Sl. No. Name /designation of Entity PAN

1. Bharatiya Global Infomedia Ltd AABCB8175B

2. Mr. Rakesh Bhatia (Chairman and Managing Director), AHYPB7406Q

3. Mr. Sanjeev Kumar Mittal (Executive Director) AIVVPM0122A

4. Mr. Rajeev Kumar Agarwal (Manager, Finance) AGGPA0436L

In the mater of IPO of Bharatiya Global Infomedia Limited. ________________________________________________________________________ Appearances:

For the Noticees:

1. Mr. K. K. Singh

2. Ms. Aarti Jain

3. Mr. Sanjeev Kumar Mittal

4. Mr. Kumar Pushkar

For SEBI:

1. Mr. B. Rajendran, General Manager

2. Mr. Sugadev C, Assistant General Manager

_________________________________________________________________________

1. Bharatiya Global Infomedia Limited („BGIL‟) came up with an Initial Public Offer ("IPO")

through the book building route in the price band of ₹75 to ₹82 for 67.2 lakh equity shares

of ₹10 each constituting 42.42% of its post issue paid-up capital. The issue price of BGIL's

share was ₹82 and the issue size was ₹55.104 crore. The Book Running Lead Manager for

the issue was Almondz Global Securities Limited ("Almondz / Merchant Banker"). The

allotment of shares in IPO was completed on July 21, 2011 and thereafter the shares of

BGIL were listed and admitted for dealings on National Stock Exchange of India Ltd.

(hereinafter referred to as "NSE") and Bombay Stock Exchange Ltd. (hereinafter referred

to as "BSE") on July 28, 2011.

2. It was noted that on the day of listing of shares of BGIL i.e. on July 28, 2011, on BSE, the

price of the scrip opened at ₹ 81.9, stayed between ₹ 60-70 for some time and then


plunged to ₹ 29.90 at close. On NSE, the price of the scrip opened at ₹ 84 (day‟s high),

stayed between ₹ 60-70 for some time and then plunged to ₹ 30.95 at close.

3. In this background, the Securities and Exchange Board of India ("SEBI") undertook

preliminary investigation in the IPO of BGIL and it prima facie observed, inter alia, that

BGIL had utilized the IPO proceeds in a substantially different manner than those

disclosed in the Red-Herring Prospectus dated June 28, 2011 ("RHP") and Prospectus

dated July 16, 2011("Prospectus"). In addition thereto, several instances of untrue, incorrect

and misleading disclosures in the RHP/Prospectus were also observed. While the

investigation in the matter were ongoing, SEBI vide an ad-interim ex-parte order dated

December 28, 2011, inter-alia, issued the following directions:

i. “The company Bharatiya Global Infomedia Ltd., is prohibited from raising any further capital from

the securities market, in any manner whatsoever, till further directions.

ii. The company BGIL (PAN: AABCB8175B), its directors Rakesh Bhatia, Chairman and

Managing Director, PAN: AHYPB7406Q, Arti Bhatia, Director, PAN: AFCPB5056J,

Sanjeev Kumar Mittal, PAN: AIVVPM0122A Anil Kapoor Passport No. P USA

448486811, Sanjay Kapoor, PAN: AIXPK2530Q, Harjeet Anand, PAN: AABPA2410K,

Jaya Mishra, PAN: AAJPM6407E and its Manager (Finance) Rajeev Kumar Agarwal (PAN:

AGGPA0436L) are prohibited from buying, selling or dealing in the securities market in any manner

whatsoever, till further directions.

iii. The Company shall call back the ICDs of ₹12.5 crore invested by it with Nihita Financials Ltd.,

Sanjukta Vanijya Pvt. Ltd and Darshan Tradelink Pvt. Ltd., and all amounts transferred / paid

out of IPO proceeds to its directors or relatives of its directors or HUFs belonging to any of its directors

or associate or subsidiaries or group companies. These amounts together with all of the IPO proceeds

that are still lying unutilized with the company across all its bank / deposit accounts or any investments

including in mutual funds, shall be deposited in an interest bearing escrow account with a scheduled

commercial bank, till further orders. A confirmation on compliance of this direction shall be sent by the

promoters of BGIL to the stock exchanges where it is listed, within 7 days from the date of this order.”

4. During the pendency of the investigation in the matter, the directions issued vide the interim

order were confirmed vide SEBI's order dated October 5, 2012 ("confirmatory order"). After

completion of investigation in the matter, vide order dated May 07,2013, the interim

directions, issued against Ms. Arti Bhatia, Mr. Anil Kapoor, Mr. Sanjay Kapoor, Mr. Harjeet

Anand and Ms. Jaya Mishra vide the ad interim ex-parte Order dated December 28, 2011 and

confirmed vide order dated October 05, 2012, were revoked.

5. The facts revealed during investigation and that are the basis of allegation/charges in the

instant proceedings are, inter alia, the following:

1) The IPO proceeds of ₹ 55.104 crore were transferred to BGIL‟s bank account (Axis Bank

A/c no. 911020037696473) on July 27,2011. As on November 15, 2011, the available


balance in the said account was ₹ 54.49 lakh only as the rest of the money was already

transferred or paid to various entities, including the funds transferred to other accounts of

BGIL, payments to promoters and group companies, etc.

2) At the relevant time, BGIL had utilized ₹ 34.70 crore out of the IPO proceeds as

described in the following table:

Table 1 : Utilization of IPO proceeds vis-à-vis the objets of the IPO disclosed in

RHP/Prospectus ("Fund utilization table")

₹ in crore

S. No.

Category To be utilized as per RHP/Prospectus

Utilized as submitted by BGIL

Utilized (investigation findings)

Mis-utilization/ diversion

1 Setting up its owned corporate office at Noida

3.960 0.410 0.410 0.000

2 Relocation of branch office

5.936 4.024 1.524 2.500

3 Up-gradation of Digital post production studio

13.655 9.389 0.000 9.389

4 Investment in IT division 8.392 3.910 0.400 3.510

5 Expansion of R&D Technology centre and advance made to Avance technologies (paid before IPO and recovered from IPO fund)

6.567 4.321 0.035 4.286

6 Repayment of bank borrowing

2.697 2.931 2.931 0.000

7 Working capital requirement

5.050 4.9106 2.396 2.515

8 General Corporate expenses

6.500 2.115 0.855 1.260

9 Meeting the issue expenses

2.774 2.690 2.690 0.000

Total 55.53 34.70 11.24 23.46

3) It was observed that out of the above utilization of ₹ 34.70 crore from the IPO proceeds,

only ₹ 11.24 were utilized for objects disclosed in the RHP/Prospectus and remaining

₹ 23.46 crore were mis-utilized/diverted for purposes other than those disclosed in the

RHP/Prospectus as following:

I. Mis-utilization / diversion relating to relocation of branch office.

i. BGIL had disclosed to the stock exchanges regarding utilization of IPO proceeds

that it had inter-alia spent ₹250 lakh for the purchase of office. The agreements

submitted by BGIL revealed that the payments of ₹100 lakh on July 02, 2011 and


₹150 lakh on July 05, 2011 were made to Dhanmangal Developers Private Limited

(:Dhanmangal") as advance payment out of the total consideration of ₹500 lakh for

the purchase of an office space at Kolkata. The advance was made within 3 days of

the RHP date and before the prospectus date. However, the said transaction was

neither disclosed in the Prospectus by BGIL nor did it issue any public notice as

required by the SEBI (Issuance of Capital and Disclosure Requirements)

Regulations, 2009 ("ICDR Regulations"). Instead, BGIL had mentioned in the

RHP/Prospectus that "Except as stated in section titled 'Objects of the Issue' appearing on

page no.29 of this Prospectus, there is no property which our Company has purchased or acquired

or propose to purchase or acquire which is to be paid wholly, or in part, from the net proceeds of

the Issue or the purchase or acquisition of which has not been completed as on the date of filing of

this Prospectus with SEBI."

ii. Investigation revealed that Dhanmangal was incorporated on January 08, 2010,

with Mr. Rana Pratap Singh and Mr. Navin Kumar Sharma as directors and had

only cash and Bank balances of ₹3.43 lakh and loans and advances of ₹77.72 lakh.

Further, it did not have any fixed assets, capital work in progress, investments,

inventories or sundry debtors for both the financial years 2009-10 and 2010-11.

The agreement with Dhanmangal, submitted by BGIL, did not contain the

construction/plot address/location of the relevant property It was also revealed

that it was in the business of development of agriculture land levelling and did not

have any employees other than its directors. It was further revealed that

Dhanmangal did not undertake any real estate projects during the year 2010-11 and

2011-12 and did not have any project approval, etc. from the competent authority.

From the above, it was observed that the transaction for the purchase of the said

property by BGIL is non genuine and the IPO proceeds have been diverted for the

purposes other than that mentioned in the RHP/Prospectus. It was also observed

that BGIL knowingly concealed the transaction with Dhanmangal and intentionally

provided wrong and misleading disclosure in the prospectus.

II. Mis-utilization / diversion relating to up-gradation of Digital post production

studio and Investment in IT division.

i. Investigation revealed that BGIL did not utilize the amount as specified in the

RHP / Prospectus except the payments of ₹0.40 crore made to one V Kumar &

Co. for furniture and fixtures. The payments made by BGIL to various vendors

were not found to be in accordance with the disclosures made in the RHP /

Prospectus since the actual vendors to whom the payments were made by BGIL

were different from the vendors whose names were disclosed in the RHP/


Prospectus. Thus, it was observed that the funds to the extent of ₹12.89 crore

were mis-utilized by BGIL.

III. Mis-utilization / diversion relating to expansion of R&D Technology centre.

i. Investigation revealed that out of the amount of ₹4.321 crore, claimed by BGIL to

have been incurred towards the expansion of R&D technology centre, only the

payment of ₹0.035 crore made to Westcon India Private Limited was in accordance

with the disclosures made in the RHP / Prospectus, and the remainder amount of

₹4.286 crore was mis-utilized. It was observed that advance payments of ₹0.14 crore,

legal expenses and travelling expenses were not as per the disclosures made in the

RHP / Prospectus. Further, it was observed that the payment of ₹2.65 crore made

to Avance Technologies Limited (Avance), claimed by BGIL as advance amount,

was a mere round trip transaction. As disclosed in the RHP and Prospectus, BGIL

had made an advance payment of ₹2.65 crore to Avance prior to IPO. In the fund

utilization table, the advance amount was not deducted and the entire cost i.e.,

₹6.57 crore was shown as payable to Avance from IPO Proceeds. Though BGIL

claimed that ₹2.65 crore was paid to Avance to expedite the timely delivery of BMS,

it was observed that BGIL paid only ₹50 lakh and remaining ₹2.15 crore was

returned back to BGIL through circuitous transfers of funds between Avance,

BGIL and Saptrishi Suppliers Private Limited ("Saptrishi"). The diagram below

draws out the fund flow in respect of the transactions of BGIL with Avance

Diagram 1 : Fund flow pertaining to the transactions of BGIL with Avance

ii. As observed from the above fund flow, except ₹50 lakh received by BGIL on June

08, 2011, all other funds were circuitously transferred to create artificial financial

obligation for ₹2.15 crore. The amount of ₹55 lakh received from Saptrishi by


BGIL on June 8, 2011 was returned to Saptrishi on the same day through Avance.

Similarly, ₹50 lakh and ₹60 lakh received on June 15, 2011 were also returned on

June 16, 2011 to Saptrishi through Avance and Priority Exports. Another ₹50 lakh

received from Saptrishi by BGIL on June 15, 2011 was returned on the same day to

Saptrishi through Avance and Satshri Multitrade Private Ltd. In view of the above,

it was found that BGIL‟s disclosure of ₹2.65 crore of advance payment made to

Avance is false and misleading and an obligation of ₹2.15 crore was created

artificially to siphon off of the said amount from the IPO proceeds.

IV. Mis-utilization/ diversion relating to working capital requirements.

i. BGIL had entered into an agreement with Jupiter Infraenergy Limited ("JIL") on

July 1, 2011 for various services for a consideration of ₹500 lakh and made the

payment of ₹251.50 lakh to JIL out of which ₹30 lakh was paid before the

prospectus date. The payment to JIL and availing services were neither disclosed in

the prospectus nor public notice was issued as required by the ICDR Regulations.

Further, it was also observed from the bank account statement of JIL that ₹180.75

lakh were transferred to BGIL and its group companies viz., BGIL (₹7.50 lakh) and

Number one Finvest Private Limited (₹173.25 lakh). It was also found that ₹32.45

lakh cash was withdrawn by JIL. The table below shows the extracts from JIL's

bank statement including the date and time of deposit and the withdrawal:

Table 2 : Extract of JIL's Bank Account

S. No Date/time of

transaction

Branch name Particulars Debit /

Credit

Amount

1 29/06/2011 1:28:48 pm

Electronic pay and settlement office Mumbai

Bharatiya global infomedia ltd-

180200194

C 15,00,000

2 29/06/2011 3:33:13 pm

Nehru place Delhi

Casa cheque withdrawal

D 9,50,000

3 01/07/2011 2:44:56 pm

Nehru place Delhi

By tr cuckoo realtechlt

90441010014465

C 2,60,000

4 01/07/2011 2:48:10 pm

Nehru place Delhi

Casa cheq withdrawal

D 8,05,000

5 04/07/2011 1:47:03 pm


Bharatiya global Infomedia ltd-

185200185

C 15,00,000

6 04/07/2011 3:05:13 pm

Nehru place Delhi

To tr bharatiya global i

90771010001070

D 7,50,000

7 05/07/2011 2:58:37 pm

Nehru place Delhi

Casa cheque withdrawal

D 7,50,000


8 01/08/2011 11:10:48 am


Bharatiya global Infomedia ltd-

213200056

C 45,00,000

9 03/08/2011 3:16:11 pm

Nehru place Delhi

Jk metal feeders-synbh112154567

10

D 45,00,000

10 04/08/2011 11:46:28 am

Nehru place Delhi

To clg (rej): j k metal

C 45,00,000

11 04/08/2011 11:46:28 am

Nehru place Delhi

To clg j k metal D 45,00,000

12 04/08/2011 11:54:18 am

Electronic pay and settlmnt

offce mumbai

Bharatiya global Infomedia

limited-66392

C 1,76,50,000

13 04/08/2011 12:04:47 pm

Nehru place Delhi

To tr number one finsec

90441010015230

D 23,25,000

14 04/08/2011 12:09:49 pm

Nehru place Delhi

To tr number one finvest

90441010013835

D 1,50,00,000

ii. In addition to the above, the following facts were also revealed during the

investigation:

JIL was originally incorporated as Jupiter Capital Services Private Limited (JCSL)

in the year 1994, and Mr. Rakesh Bhatia and Ms. Arti Bhatia holding 100 shares

each out of 700 shares were the shareholders of JCSL.

During the year 2004, BGIL had become one of the major shareholder of JCSL

(24%) Mr. Rakesh Bhatia was a director till 2005. Subsequently, in the year 2008,

JCSL's name was changed to Jupiter Infraenergy Limited.

Mr. Rajeev Kumar Agarwal (Manager-Finance, BGIL) and Kartik Share Traders

(P) Ltd., a company in which Mr. Rajeev Kumar Agarwal is a director, were the

major shareholder of JIL as on September 2009 and 2010.

As on March 2012, JIL was holding more than 1.68% shares in BGIL i.e. 26,637

shares.

JIL had nil income for the years 2007-08 and 2008-09.

Mr. Narender Kumar Jena, Mr. Uma Shankar Behera and Mr. Latesh Kumar were

the directors of JIL since 2005. From BGIL's employees list, employee's

attendance details and salaries details paid for the month of October 2011, it was

observed that Mr. Narendra Jena and Mr. Uma Shanker Behera were working

with BGIL as office boy and hardware maintenance person drawing the monthly

salary of ₹8,450 and ₹17,550, respectively. Further, the website of Ministry of

Corporate Affairs showed that Mr. Narendra Jena‟s address as 601, Devika

Tower, Nehru Place, New Delhi, 110019, Delhi, INDIA” which is the same as

BGIL's address.


Mr. Uma Shankar Behera and Mr. Narendra Jena were also holding 7,000 shares

and 1,500 shares of BGIL respectively, prior to its IPO. Further, Mr. Narendar

Jena is also the director of Cuckoo Realtech Limited (a group company of BGIL)

which is one of the shareholders of Kriti communication private Limited, and

Number one Finvest private limited (group companies of BGIL).

iii. From the analysis of above facts, it was observed that JIL was merely a front entity

of BGIL and the funds paid to JIL by BGIL were diverted from the IPO proceeds

and JIL was only used as a conduit for the said diversion of IPO proceeds.

V. Mis-utilization / diversion relating to General Corporate expenses.

i. BGIL made a disclosure at page 39 of RHP that “No part of the issue proceeds, will be

paid by our company, as consideration to promoters, directors, promoter group entities and key

managerial personnel”. However, investigation revealed that BGIL mis-utilized the IPO

proceeds by making payments to one of the promoters and Managing director of

BGIL, Mr. Rakesh Bhatia, his son Gaurav Bhatia, Rakesh Bhatia-HUF and the

group companies i.e. BGIL Films and Technologies Limited and Number one

Finsec Private Limited. Cash withdrawal of ₹ 60.45 lakh was also observed in the

bank statement of BGIL. The table below shows the payments made by BGIL to

the said entities:

Table 3: Payments made by BGIL to promoters and related entities

Name Relationship Amount (₹. in lakh)

Rakesh Bhatia Promoter 44.06

Gaurav Bhatia Son of Promoter 4.50

Rakesh Bhatia (HUF) HUF of Promoter 10.50

BGIL Films and Technologies Ltd.

Related entity of the promoter 30.15

Number one Finsec Pvt. Ltd.

Related entity of the promoter 36.75

Total 125.96

ii. It was found that though certain loan details were disclosed in the RHP/Prospectus,

it was not disclosed that these loans will be repaid from the IPO Proceeds. During

investigation, BGIL submitted that these payments were in respect of repayment of

the loan received from these entities. Further with respect to ₹2.60 lakh paid to Mr.

Gaurav Bhatia, BGIL had claimed that it was employee‟s advance, which was

subsequently recovered. It was observed that the subsequent recovery from Mr.

Gaurav Bhatia by BGIL with interest was an afterthought after SEBI's interim order

pointing out the said amount as diversion of funds. It was also observed that BGIL


had made wrong disclosure in the RHP/Prospectus and diverted the part of IPO

proceeds to promoters and promoters related entities

Mis-utilization / diversion of IPO proceeds by repaying ICD loans raised prior to the RHP date / prospectus date without any disclosure.

4) Investigation also revealed that BGIL had taken ICD loans of ₹7 crore prior to RHP and

of ₹8 crore before the prospectus date The details of the ICD loans taken by BGIL are

given in following table:

Table 4 : ICD loans taken by BGIL

S. No

Party Name Received Date Amount in ₹ crore

Prior to the date of filing of RHP

1 Krishna trade & Commerce Pvt. Ltd.

21.6.2011 2.00 2 AachmanVanijya Pvt. Ltd. 22.6.2011 2.00

3 SajalImpex Pvt. Ltd. 22.6.2011 0.475

4 Dinosour Tradelink Pvt. Ltd. 27.6.2011 1.00

5 Divyadrishti Traders Pvt. Ltd. 27.6.2011 0.525 6 Subhshree Hirise Pvt. Ltd. 27.6.2011 1.00

After the date of filing of RHP but before the date of filing of Prospectus

7 Skylight Distributors Pvt. Ltd. 29.6.2011 1.00

8 Times tradelink Pvt. Ltd. 30.6.2011 1.00

9 Makesworth Projects Developers Pvt. Ltd.

04.7.2011 1.00

10 Affluent Dealcom Pvt. Ltd. 04.7.2011 1.00

05.7.2011 0.5

11 Abhilasha Exports Pvt. Ltd. 06.7.2011 1.00

12 ETL Infrastructure Finance

Ltd.

05.7.2011 1.50

07.7.2011 1.00

Total

15.00

5) The above mentioned ICD loans were repaid from the IPO proceeds on the date of

receipt of IPO proceeds in the account of BGIL or the next day as described in the

following table :

Table 5 : Repayment of ICD loans out of IPO Proceeds

S. No.

Date of transaction

Paid to Amount in

₹ crore

1 27-07-2011 TIMES TRADE LINK PVT. LTD. 1.00

2 27-07-2011 KRISHNA TRADE AND COMRCE PVT LTD.

2.00

3 27-07-2011 DIVYADRISHTI TRADERS PVT. LTD. 0.525

4 27-07-2011 MAKESHWORTH PROJECTS DEVELOPERS P. LTD.

1.00

5 27-07-2011 ETL INFRASTRUCTURE FINANCE LTD.

2.50


6 27-07-2011 DINOSOUR TRADELINK PVT. LTD 1.00

7 27-07-2011 AFFLUENT DEALCOM PVT.LTD. 1.50

8 27-07-2011 AACHMAN VANIJYA PVT. LTD. 2.00

9 27-07-2011 SUBHSHREE HIRISE PVT LTD 1.00

10 27-07-2011 SKYLIGHT DISTRIBUTORS PVT LTD 1.00

11 27-07-2011 ABHILASHA EXPORTS PVT LTD 1.00

12 28-07-2011 SAJAL IMPEX PVT LTD 0.475

6) BGIL had not disclosed the above ICD loans of ₹7 crore in its RHP. Further, the ICD

loans of ₹8 crore were neither disclosed in the prospectus nor any public notice was

issued by BGIL as required in the ICDR Regulations rather it made a misstatement and

wrong disclosure in its RHP and Prospectus to the effect that “our company has not raised any

bridge loan against the proceeds of the present issue.”

7) BGIL had not taken any ICD loan other than those mentioned above in the last two years

prior to filing of RHP. It was observed that there were no agreements between BGIL and

various entities from whom the ICD loans were taken. Further, the letters claimed to have

been exchanged between them, in this regard, did not mention any rate of interest and

BGIL did not pay interest on the said ICD loans. On the basis of the above, it was

observed that the letters between BGIL and various entities were created as an

afterthought when SEBI sought the agreement details in respect of ICDs from BGIL.

8) Admittedly, out of the aforesaid ICD loans of ₹ 15 crore, ₹ 13.46 crore was paid to

various entities prior to the RHP of BGIL as described in the following table:

Table 6 : Use of ICD loan amount

Payment Details

Quotation Date

Reference to Objects of Issue

Date Paid To Amount ( in Lac)

Purpose claimed by

BGIL Item Amount

02.07.2011 Dhanmangal Developers

100.00 offices

-

Offices

989.60 05.07.2011

Dhanmangal Developers

150.00

29.06.2011 Jupiter

Infraenergy 15.00

Working Capital

- - -

04.07.2011 Jupiter

Infraenergy 15.00

Working Capital

- - -

21.06.2011 Houston Tech 191.40 Machineries 20.06.2011 Studio Machines 1,075.00


23.06.2011 Quantum Hi

Tech 36.00 Machineries 20.06.2011

Office Equipments for

IT Div. 131.15


28.06.2011 Net 4

Communicatio130.00 Machineries 22.06.2011

Computers for IT & Studio

244.52 1075.00


ns Machines

02.07.2011 Himalayan

Times 60.00 Machineries 28.06.2011 Studio Machines 1,075.00

02.07.2011 Vivid IT 1.11 Machineries 02.07.2011 Computers for

IT Div 244.52

05.07.2011 Himalayan

Times 80.00 Machineries 28.06.2011 Studio Machines 1,075.00

05.07.2011 Net 4

Communications

120.00 Machineries 22.06.2011 Computers for

IT & Studio Machines

244.52 1075.00

06.07.2011 Millenium

Automation 50.00 Machineries 21.06.2011

Hardware Equipments for IT Div. , Office Equipments&

two Studio Machines

186.14 & 1075.00





Total 1346.11

9) The remaining amount was paid towards other expenses viz., rent, salary to employees,

IPO expenses, etc.

10) The above amount of ₹ 13.46 crore was paid to the above mentioned entities under three

categories of Objects of the issue:-

i. ₹ 2.50 crore to Dhanmangal for setting up of Office as mentioned above

ii. ₹ 0.30 crore to JIL for Working capital as mentioned above :

iii. ₹ 10.66 crore paid to various vendors towards purchase of machineries as shown in

the table below.

Table 7 - Details of quotations and payments in respect of vendors

S. No

Supplier Name

Quotation date

Payment date

Buy order date

Invoice date

Amou

nt ₹ in lakh (as per invoice)

Total as per invoice

₹in lakh

Amount paid

₹in lakh (as per bank account)

Total paid as per bank accoun

t ₹ in lakh

1 Houston Technologies Ltd.

20-Jun-11 21-Jun-11 20-Jun-11 07-Sep-11 175.94 430.07 191.4 439

2 23-Jun-11 20-Jun-11 16-Sep-11 221.77 178.6

3 24-Jun-11 20-Jun-11 12-Sep-11 32.36 69

4 Quantum Hi-Tech Merchandising Pvt. Ltd.

20-Jun-11 23-Jun-11 - 28-Sep-11 35.14 35.14 36 36

5 Net 4 Communications Ltd.

22-Jun-11 28-Jun-11 - 12-Sep-11 134.87 245.38 130 250

6 05-Jul-11 09-Sep-11 65.89 120

7 14-Sep-11 44.62


8 Vivid IT Solutions Pvt. Ltd.

02-Jul-11 02-Jul-11 - 04-Jul-11 1.11 1.11 1.11 1.11

9 Himalayan Times Pvt. Ltd.

28-Jun-11 02-Jul-11 - 16-Sep-11 57.94 144.29 60 140

10 05-Jul-11 19-Sep-11 39.46 80

11 21-Sep-11 46.89

12 Millennium Automation & Systems Limited

21-Jun-10 06-Jul-11 02-Sep-11 02-Sep-11 17.13 233.82 50 200

13 06-Jul-11 03-Sep-11 03-Sep-11 56.5 50

14 08-Jul-11 06-Sep-11 06-Sep-11 160.19 100

Total 1089.81 1089.81 1066.11 1066.11

11) It was found that out of 14 quotations to actual vendors (to whom purchase orders were

placed and payments were made), in respect of 13 quotations, the date of quotation was

on or prior to RHP date and in respect of one entity (i.e. Vivid IT Solutions Pvt. Limited)

the quotation date was prior to the prospectus date. It was also found that ₹605 lakh was

paid to the vendors on or before the RHP date and ₹461 lakh was paid to the vendors

before the prospectus date.

12) In view of the above details, it was inferred that the vendors to whom the payments were

made by BGIL were pre-decided and the payments were made to them before the RHP

date/Prospectus date/date of allotment of securities. It was observed that BGIL had

made wrong disclosures in the RHP/Prospectus by providing names of

suppliers/vendors who were different from the actual vendors.

13) Investigation also revealed that BGIL in its RHP and Prospectus had disclosed under the

paragraph on 'Interim use of proceeds' that, “Our Company’s management, in accordance with

the policies established by the Board, will have flexibility in deploying the proceeds received from the Issue.

Pending utilization of the proceeds out of the Issue for the purposes described above, we intend to

temporarily invest the funds in high quality interest bearing liquid instruments including money market

mutual funds and deposits with banks. Such investments would be in accordance with the investment

policies approved by the Board from time to time”.

Diversion of IPO proceeds in the garb of ICD investments.

14) In addition to above fraudulent mis-utilisation/diversion of ₹23.46 crore out of the IPO

proceeds, it is noted that BGIL claimed during investigation that it had temporally

invested ₹12.5 crore in ICDs as under:

Table 8: ICD Investments made by BGIL

S. No. Particulars Agreement date

Transaction date Amount in ₹ crore

1 Darshan tradelink July 20, .2011 July 27, 2011 4.00


Pvt. Ltd.

2 Sanjukta vanijya Pvt. Ltd.

July 21, .2011 July 27, 2011 3.50

3 Nihita Financial Services Pvt. Ltd.

July 23, .2011 July 28, 2011 5.00

15) As per the disclosures made by BGIL, pending utilization, the IPO proceeds should have

been invested in high quality interest bearing liquid instruments including money market mutual

funds and deposits with banks. However, BGIL, vide e-mail dated December 22, 2011

informed SEBI that “we wish to confirm that there is no formal investment policy adopted in our

company”. It was found during investigation that BGIL had made investments which were

not in line with the disclosures made in the Prospectus and gave loans to the above

named three entities whose reliability is not known.

16) As per the agreements of BGIL with Sanjukta Vanijiya Private Limited and Darshan

Trade link Private Ltd., the amounts paid to them were supposed to be repaid on January

26, 2012. In the case of Nihita Financial Services Private Ltd, it was supposed to be repaid

on July 19, 2012. Further, as per the agreements with these three entities, the ICDs could

be called back by BGIL at any time with a notice of 3 days. It was observed that in spite

of the direction of SEBI vide ad-interim ex-parte order dated December 28, 2011 directing

BGIL to call back the said ICD investments, BGIL did not recover the same from the

said three companies. Thus, it was observed that BGIL mis-utilized the issue proceeds by

investing the amount of ₹12.5 crore in the name of ICD investments in entities whose

credentials were not known.

Diversion of IPO proceeds to traders.

17) Investigation further revealed that ₹10.53 crore out of the IPO proceeds had reached the

following entities:

₹7.10 crore to five entities (hereafter referred to as "GRD Group") viz., Marutinandan

Infosolutions Private Limited (MIPL), Jalan cement works Limited (Jalan), Orbit

Financial Consultants Private Limited (Orbit), GRD securities private Limited (GRD

and Swift Tie Up Private Limited (Swift). As noted above, as a part of the purported

ICD investments, BGIL had transferred ₹7.5 crore to Sanjukta Vanijya Private Ltd and

Darshan Tradelink Private Limited which have common directors viz., Mr. Goutam

Basotia and Mr. Santosh Kumar Sahal. Out of the said ₹7.5 crore, ₹7.10 crore reached

GRD,

₹3.43 crore to four entities (hereafter referred to as "Korp Group") viz., Korp

Securities Ltd (Korp), Wheelers Developers Private Limited (Wheelers), Divyadrishti

Merchants Private Ltd and Divyadrishti Traders Private Ltd. As noted above, BGIL

had made ICD loan repayments of ₹1 crore each to Abhilasha Exports Pvt. Ltd,

Skylight Distributors Private Limited, and Subhshree Hirise Pvt. Limited. Out of this


₹3 crore, ₹2.9 crore had reached Divyadrishti Traders Private Limited. In addition to

the above, BGIL had also transferred ₹0.53 crore directly to Divyadrishti Traders

Private Limited. In total, ₹3.53 crore was received by Divyadrishti Traders Private

Limited out of which Divydrishti Traders Private Limited had transferred ₹0.89 crore

to Wheelers and ₹1.97 crore to Korp.

18) It was observed that the said two groups indulged in fraudulent and unfair trade practices

in the shares of BGIL on the listing day through various synchronized / structured trades

with one Mr. V. P. Patel ('VPP'). MIPL and VPP had executed synchronized trades for

the quantity of 3,56,791 shares through two trades with buy and sell order time difference

of 4 seconds and 2 seconds, respectively. In addition thereto, VPP also executed two

structured trades with Divyadrishti Merchants Private limited for 79,657 shares and Swift

Tie up private limited for 1,68,044 shares.

19) It was found that VPP, GRD and Korp Group had traded among themselves creating

artificial volume of 5,62,674 shares at NSE and 2,70,599 shares at BSE, without the

intention of change of ownership of BGIL shares and created false or misleading

appearance in the securities market. While carrying out the said transactions, the two

groups suffered heavy losses which were compensated by BGIL.

20) The following is the summary of GRD Group's and Korp Group's trade details and

trading loss incurred in BGIL shares on the listing day.

Table 9: GRD Group's and Korp Group's trade details

S. No

Client Name / Exchange Buy Quantity

Sell Quantity

Loss

1. KORP SECURITIES LTD (Korp) 4,53,089 4,53,089 86,85,514

2. WHEELERS DEVELOPERS PRIVATE LTD (Wheelers)

2,26,907 2,26,907 62,78,647

3. DIVYA DRISHTI MERCHANTS PRIVATE LTD

2,00,000 2,00,000 61,21,946

4. DIVYA DRISHTI TRADERS PRIVATE LTD

92,500 92,500 27,69,336

TOTAL 9,72,496 9,72,496 2,38,55,443

5. MARUTINANDAN INFOSOLUTIONS PRIVATE LIMITED (MIPL)

5,00,000 5,00,000 3,17,50,000

6. JALAN CEMENT WORKS LTD. (Jalan) 4,00,000 4,00,000 2,54,20,211

7. ORBIT FINANCIAL CONSULTANTS PRIVATE LIMITED (Orbit)

3,84,241 3,84,241 1,76,74,899

8. GRD SECURITIES PVT.LTD. (GRD) 1,22,769 1,10,169 77,56,485

9. SWIFT TIE UP PRIVATE LIMITED (Swift)

5,00,500 5,00,500 99,11,767

TOTAL 19,07,510 18,94,910 9,25,16,160


21) Further, the aforesaid two groups and VPP had provided exit to the top four allottees

through structured trades for the quantity of 5,85,541 shares i.e. 86% of the shares

allotted to top four allottees.

22) GRD Group, Korp Group and VPP also executed structured trades with Shikha Somani

for 1,85,442 shares by which 38 allottees exited by tendering their allotted shares for the

pay-in obligations of Shika Somani for these trades. They also bought substantial shares

through structured trades from Shree Bahubali International Private Limited (2,57,324

shares) and PELF Securities Limited (71,408 shares) who in turn gave exit to their own

clients (allottees) through structured trades. Shree Bahubali International Private Limited

gave exit to 137 allottees for 1,96,322 shares and PELF Securities Ltd gave exit to 124

allottees for 2,02,812 shares through structured trades. In total, the aforesaid two groups

and VPP had executed structured trades for 11,00,800 shares to give exit to various

allotees.

23) It was observed that BGIL had a prior arrangement with GRD Group, Korp Group and

VPP and the allottees and therefore BGIL had diverted ₹10.53 crore (i.e. ₹7.10 crore to

GRD Group and ₹3.43 crore to Korp Group) from IPO proceeds to compensate their

loss incurred in manipulating the trading in the shares of BGIL on listing day.

24) In addition to the aforesaid, it was also observed that BGIL had made wrong disclosures

in the RHP/Prospectus and suppressed material information from the investors as

described hereunder:-.

A. Wrong disclosure about placement of purchase orders.

a) BGIL also disclosed in the RHP and Prospectus that “we have not yet placed orders

for 81.48% of our plant and machinery, equipments, etc, for our proposed expansion as

specified in the objects of issue." However, it was found that as on Prospectus date,

purchase orders were placed for ₹30.64 crore i.e. 55% of the IPO proceeds as on

prospectus date and 29% (₹16.03 crore) as on RHP date. The table below shows

the details of the said transactions:

Table 10 : Purchase orders placed by BGIL

S. No.

Objects of the issue / IPO proceeds

Advance

Paid ₹in crore on or before RHP date

Advance

Paid ₹in crore on or before Prospectus date

Amount to be utilized

₹in Crore

1.

Purchase of office premises - Noida 2.00 - 3.96


2. Purchase of office space at Kolkatta (not mentioned in RHP)

- 0.30* 5.00

3. Up gradation of digital post production studio and investment in IT division

6.05 4.61 10.66

4. Expansion of R & D centre 2.65 - 6.02

5. Various critical services - 2.51 5.00

Total 10.70 9.62 30.64

*additional ₹2.21crore was paid on August 01 and 04, 2011

b) From the above facts, it was observed that BGIL concealed the information

regarding placement of purchase orders from the public and intentionally made

wrong and misleading disclosures in the RHP / Prospectus and also did not

inform the public through public notice about the material developments which

happened after filing of the RHP and before filing of Prospectus.

B. Non-disclosure of the transaction with Gadeo as a related party transaction.

a) It was also observed during investigation that it was disclosed in the RHP dated

June 28, 2011 and the Prospectus dated July 16, 2011, ₹ 3.96 crore were to be

paid to Gadeo Electronics ("Gadeo") out of the IPO proceeds. It was described

in the RHP and Prospectus that BGIL had entered into MoU with Gadeo to take

over the said firm having immovable property at Noida for total consideration of

₹ 5.96 crore. Out of the said sum, as part consideration of ₹2 crore BGIL had

allotted 2 lakh shares at a price of ₹ 100 per share to Mrs. Richa Mittal, partner

of Gadeo.

b) Gadeo is a partnership firm consisting of only two partners namely, Mrs. Richa

Mittal (95% share) and Mr. R. K. Mittal (5% share). Mrs. Richa Mittal is wife of

Mr. Rajeev Mittal (who is the brother of Mr. Sanjeev Kumar Mittal, director of

BGIL). Mr. R. K. Mittal is the father of Mr. Sanjeev Kumar Mittal.

c) While the draft offer document relating to the IPO was pending, SEBI had asked

a specific clarification from BGIL through its Merchant Banker (Almondz) as to

whether Gadeo is an entity related to BGIL/ its promoters /promoter group

companies. In response thereto, vide its letter dated February 07, 2011 BGIL

responded to Almondz that “Mrs. Richa Mittal is not related to the BGIL, its promoters

/ Directors or promoter group companies.”.

d) In the RHP and Prospectus of BGIL, it was disclosed that:- “Mrs. Richa Mittal is

wife of Mr. Rajeev Mittal and a resident of A-147-148, Sector 55, Noida, Uttar Pradesh,

and not related to our Company, our Promoters / Directors or Promoter Group Companies.”.


e) A scrutiny of the partnership deeds of Gadeo made the following facts apparent:

The original partners of Gadeo were Mr. Sanjeev Kumar Mittal, (son of Mr.

Ram Kishan Mittal) and Mrs. Richa Mittal.

At the time of processing of RHP and prospectus in IPO of BGIL, Mrs. Richa

Mittal (wife of. Mr. Rajeev Kumar Mittal) and Mr. Ram Kishan Mittal were the

partners of the Gadeo.

Mrs. Richa Mittal and Mr. Sanjeev Kumar Mittal are having the same address at

- D-51(B), Sector-26, Noida.

The partnership deed was witnessed by the Chairman and Managing Director of

BGIL, Mr. Rakesh Bhatia and Mr. Rajeev Agarwal, Manager (Finance) of

BGIL.

f) As per Schedule I(A) read with Section 6(c) of Companies Act, 1956, father,

brother and his wife are related to the other. Further, the relationship details for

the transactions entered by the company shall be disclosed under clause (IV) (H)

(18) of para. 2 and clause VIII (B) (5)(a) (iii) and (iv) and 6(a) of Part A of

Schedule VIII of the ICDR Regulations. It was observed that BGIL failed to

make these disclosures in its RHP and Prospectus.

g) It was also observed that though BGIL had disclosed the transactions with

Gadeo in the RHP/Prospectus, it suppressed the fact that the said transaction

was related party transaction and also provided wrong details in the list of

director's relatives.

h) During the investigation when SEBI had sought derails of relatives of BGIL's

directors, BGIL did not mention the name of Mrs. Richa Mittal in the relatives

list which contained around 25 names. Thus, it was observed that this was a

deliberate attempt on part of BGIL to conceal the information from SEBI. and

to provide a wrong impression to the investors and SEBI that the purchase of

office was from the third parties.

Submission of three different versions of details pertaining to ICDs during SEBI's investigation.

25) It was also found that during investigation that BGIL submitted to SEBI three different

versions of details of ICD loans taken and given by it. Following are the three versions

submitted by BGIL:

Version 1: When information was sought from BGIL regarding the utilization of IPO

proceeds, it informed SEBI that it had taken ₹12.5 crore ICDs before the IPO which

were to be repaid from the IPO proceeds.


Version 2: When complete details of the ICDs were sought, BGIL submitted a table

which indicated that ₹5 crore ICD loan was given and ₹26.62 crore was paid towards

repayment of ICDs taken thereby indicating the modification of its previous response.

Version 3: When BGIL was asked to provide the copies of the ICD agreements and

highlight the inflow of these ICDs in the bank accounts, it submitted another set of

information, indicating ICDs repaid totalling ₹15 crore, ICDs loan given ₹12.5 crore,

repayment of business loan of ₹2.77 crore and normal business transaction of ₹1.35

crore.

26) It was observed that submission of three different versions regarding the ICDs was a

deliberate attempt on part of BGIL to mislead SEBI investigation.

Non-compliance with SEBI's order dated December 28, 2011.

27) In addition to the aforesaid, it was also observed that BGIL had failed to comply with

the directions of SEBI. Vide its ad-interim ex-parte order dated December 28, 2011,

SEBI had directed that. “The Company shall call back the ICDs of ₹12.5 crore invested by it with

Nihita Financials Ltd., Sanjukta Vanijya Pvt. Ltd and Darshan Tradelink Pvt. Ltd and all

amounts transferred / paid out of IPO proceeds to its directors or relatives of its directors or HUFs

belonging to any of its directors or associate or subsidiaries or group companies. These amounts together

with all of the IPO proceeds that are still lying unutilized with the company across all its bank /

deposit accounts or any investments including in mutual funds, shall be deposited in an interest bearing

escrow account with a scheduled commercial bank, till further orders. A confirmation on compliance of

this direction shall be sent by the promoters of BGIL to the stock exchanges where it is listed, within 7

days from the date of this order.” Subsequently, these directions were confirmed vide order

dated October 05, 2012.

28) In this regard, BGIL vide its letter dated January 03, 2012 informed SEBI that it had

called back the invested amounts vide their letters dated December 29, 2011. Further,

BGIL informed vide its letter dated March 17, 2012 that it had opened an escrow

account and deposited ₹47.37 lakh in it. However, no confirmation was given by BGIL

on the rest of the amount to be deposited in the aforesaid escrow account. The same

status was reconfirmed by BGIL vide e-mail dated November 07, 2012. BGIL vide its

letter dated November 09, 2012 submitted that "During the quarter ended 30th September,

2012 the company has already received an amount of ₹4.45 crore out of the total ICD's of ₹11.15

crore which has been utilized by the company in meeting the working capital requirements as per the

mandate of share holders obtained through postal ballot." As per the agreements, the ICDs

given to Sanjukta Vanijiya Private Limited and Darshan Trade link Private Limited were

supposed to be returned on January 26, 2012 and the same in case of Nihita Financial

Services Private Ltd, were to be returned by July 19, 2012. Further, according to the

agreements, the ICDs from these three entities could also be called back at any time


with a notice of 3 days. As on the date of issuance of SCN, only ₹47.37 lakh was

deposited in the escrow account. From the analysis of the aforesaid facts and the

information submitted by BGIL, it was observed that SEBI‟s interim order dated

December 28, 2011 has not been compiled by BGIL in totality as the ICDs invested by

BGIL with Nihita Financials Ltd., Sanjukta Vanijya Private Ltd, Darshan Tradelink

Private Limited and all amounts transferred / paid out of IPO proceeds to its directors

or relatives of its directors or HUFs belonging to any of its directors or associate or

subsidiaries or group companies together with all of the IPO proceeds that were still

lying unutilized with the company across all its bank / deposit accounts or any

investments including in mutual funds, have not been deposited in the escrow account.

Failure of Mr. Rakesh Bhatia and Mr. Sanjeev Kumar Mittal to perform their role in the Audit Committee.

29) A scrutiny of the audit committee minutes of the meetings revealed that the committee,

wherein, Mr. Rakesh Bhatia and Mr. Sanjeev Kumar Mittal were members, did not

notice the fund diversion and did also not make any recommendations to BGIL.

Role of Mr. Rakesh Bhatia, Mr. Sanjeev Kumar Mittal and Mr. Rajeev Kumar

Agarwal.

30) Mr. Rakesh Bhatia, Mr. Sanjeev Kumar Mittal and Mr. Rajeev Kumar Agarwal had

signed the certificate in the RHP / Prospectus stating that “all disclosures made in the offer

document were true and correct”. However, as mentioned in the above paragraphs, various

disclosures in the RHP/Prospectus were found to be false and misleading. Thus, it was

observed that they have given a wrong certificate in the RHP and Prospectus. It was

also observed that they were responsible for the acts and omissions of BGIL.

6. In view of the above, SEBI issued a combined show cause notice dated September 4, 2013

(hereinafter referred to as "the SCN") to BGIL, its Chairman and Managing Director -Mr.

Rakesh Bhatia, Executive Director- Mr. Sanjeev Kumar Mittal and Manager, Finance -Mr.

Rajeev Kumar Agarwal (hereinafter collectively referred to as 'the Noticees' and individually

by their respective names) calling upon them to show cause as to why suitable directions

under sections 11(1), 11(4), 11A and 11B of the Securities and Exchange Board of India

Act, 1992 ("SEBI Act") including a direction to debar them from accessing the securities

market and prohibit them from buying, selling or dealing in securities for a particular

duration should not be issued against them. The SCN was issued to the Noticees for

allegedly contravening the provisions of section 12A (a),(b),(c) of SEBI Act read with

section 27 of SEBI Act and regulation 57 (1) and 57(2)(a)(ii) read with clauses 2 (VII)(G),

2(VIII) (B)(5)(a)(b), (6), 2(IV)(H)(18) and (XVI) (B) (2) of part A of schedule VIII,

regulation 60(4)(a) and (7)(a) of ICDR Regulations and regulations 3(a), (b), (c), (d), 4(1),


4(2)(a), (d), (e), (f) and (k) of SEBI (Prohibition of Fraudulent and Unfair Trades Practices

relating to Securities Market) Regulations, 2003 ("PFUTP Regulations").

7. The following was, inter alia, alleged in the SCN:

(a) BGIL mis-utilized/diverted IPO proceeds in relation to 'Relocation of branch office',

'Up-gradation of Digital post production studio', 'Investment in IT division', 'Expansion

of R&D Technology centre', 'Working capital requirements' and 'General Corporate

expenses';

(b) BGIL mis-utilized/diverted IPO proceeds by repaying ICD loans which were raised by

it prior to the RHP date/Prospectus date without any disclosures in the

RHP/Prospectus or subsequently;

(c) BGIL mis-utilized/diverted IPO proceeds in the garb of ICD investments in companies

whose credentials were not known;

(d) BGIL failed to comply with the SEBI order dated December 28, 2011 directing it, inter

alia, to recall the purported ICD investments and payments made to its promoters/

promoter related entities;

(e) BGIL mis-utilized/diverted IPO proceeds to traders who indulged in synchronized and

artificial trading on the day of listing of the shares of BGIL;

(f) BGIL made wrong disclosure relating to purchase orders placed by it;

(g) BGIL failed to disclose the transaction with Gadeo as a related party transaction;

(h) BGIL suppressed the fact of relationship of Mrs. Richa Mittal with the director of

BGIL;

(i) BGIL attempted to conceal the correct information pertaining to ICDs by submitting

three different versions of details in that regard during SEBI's investigation;

(j) Mr. Rakesh Bhatia, Mr. Sanjeev Kumar Mittal and Mr. Rajeev Kumar Agarwal gave a

wrong certificate in the RHP and Prospectus stating that “all disclosures made in the offer

document were true and correct”;

(k) BGIL, Mr. Rakesh Bhatia, Mr. Sanjeev Kumar Mittal and Mr. Rajeev Kumar Agarwal

perpetrated a fraud on the investors and the securities market and mis-utilized /

diverted the IPO proceeds to the tune of ₹ 23.46 crore.

8. BGIL submitted its reply to the SCN vide letter dated October 14, 2013 while the other

Noticees vide their letters dated October 23, 2013 adopted the reply of BGIL. An

opportunity of personal hearing was granted to all the Noticees on November 19, 2013

which was adjourned at their request to December 18, 2013. On December 18, 2013,

representatives on behalf of the Noticees appeared and made oral submissions in line with

their reply on record. Pursuant to the hearing, at the request of the Noticees, details of the

diversion of IPO proceeds to the traders (including the connection between the entities)

were provided to the Noticees vide e-mail dated December 19, 2013. The Noticees

submitted their additional written submissions vide letter dated January 9, 2014 along with


which they submitted the utilization of issue proceeds till January 7, 2014, details of ICDs

recovered and their utilization, details of advance received from Dhanmangal and its

utilization and their reply regarding circuitous trading as alleged in the SCN. The

submissions made by the Noticees in their reply/written submissions are summarized as

under:

a) As regards the allegation of utilization of funds in a manner different from that disclosed

in the RHP/Prospectus, BGIL submitted that merely because of change in the vendors

from whom the equipments have been purchased, it cannot be presumed that the

amount raised has not been utilized as per RHP/Prospectus. BGIL had disclosed in the

Prospectus and the RHP that “We are also negotiating with several suppliers and the actual

supplier may vary from the one mentioned above”. The decision for change of vendors was taken

because the final vendors offered better and cost effective terms. Moreover, had the

disclosures of these vendors been made in the Prospectus, it would not have had any

adverse impact on the informed investment decision of any investor as BGIL has merely

changed the vendors as good business judgment and in the interest of the investors. In

view of these facts, the requirements of regulation 60(4)(a) do not apply to the case of

BGIL.

b) As regards the payment made to Dhanmangal in respect of relocation of branch office of

BGIL, it submitted that the transaction with Dhanmangal was entered into keeping in

mind the objective of establishing pan-India presence for BGIL and get maximum

advantage and business opportunities for BGIL, and in turn for its shareholders. The

same was done in the best interest of BGIL and its shareholders at large. BGIL got the

same ratified by its shareholders through Postal Ballot in March 2012. As it was

mentioned in the agreement that Dhanmangal shall get the projects duly approved by the

Municipal Corporations of Bangalore and Kolkata, there is no contradiction in the

agreement. It was purely a business decision based on the representations made to BGIL

by Dhanmangal. BGIL should not be held responsible for any misrepresentations made

by Dhanmangal to BGIL before entering into the agreement, since it was a business

judgment. BGIL also submitted that since the said deployment of funds was objected in

the SEBI order, it has called back the amount and the concerned entity has already

repaid ₹50 lakh to BGIL and BGIL is striving hard to get the balance amount recovered

from Dhanmangal., which will be done soon. As submitted by BGIL in its reply dated

January 9, 2013, till that date it had recovered ₹1.05 crore from Dhanmangal.

c) As regards the allegation that a substantial part of the payment made by BGIL to

Avance was transferred back to BGIL through circuitous transactions, BGIL submitted

that BGIL, Avance and Saptrishi are independent legal entities and business

arrangements between these parties are legitimate and legal. It is implausible and in fact


unreasonable to expect that every single time any Company has to deal with any

commercial party, it would have to check the debtors/creditors of other commercial

party. The advance to Avance was given under a valid agreement for purchase of

technology, as disclosed in the prospectus (on page no. 34) and hence the circuitous

routing of funds as alleged by SEBI has no grounds at all. The payment made to Avance

was against our purchase of BMS (Building Management System). Further, the payment

from Saptrishi has come to BGIL against PO given by Saptrishi and the same is in no

way connected to the payments made to Avance. Both the above said transactions are

purely business transactions and should not be interpreted as any transaction created

artificially to siphon off the IPO proceeds. Therefore, the question of artificially

siphoning of IPO funds does not arise. BGIL conducted business with both the vendors

in good faith with bona fide intentions and in the bona fide interest of BGIL as a Company.

d) As regards the payment made to JIL and transfer of funds back to BGIL and its group

company, BGIL submitted that the payment to JIL was made as normal business

transaction. The agreement was entered into with a known company and disclosure

about that was already made in the prospectus. As BGIL is dealing in sensitive IT

Business based on secrecy of agreements, patents etc. the assignment for brand building

was entrusted to a company of repute in the area. The said company is not a related party

and the dealings were in good faith and in overall interest of the company and its

shareholders. These facts were disclosed to the merchant banker and the prospectus was

finalized under the directions of the merchant banker after its due diligence. There was

no transfer / diversion of funds as alleged as JIL was an independent company and the

transactions of BGIL with JIL was genuine and without any mala fide.

e) As regards the allegation of diversion of funds to the Promoter and Promoter group

entities, BGIL submitted that the payments made to Mr. Rakesh Bhatia was towards

repayment of unsecured loans taken from him and standing in books of accounts since

June 22, 2007. As the transaction is in the nature of repayment of dues and not for an

agreement to perform any services or provide any goods, it does not fall under the

definition of word “Consideration”. Thus, there was no wrong disclosure regarding the

payment of any part of the IPO proceeds to the promoters.

f) As regards the variance in the names of the vendors disclosed in the RHP/Prospectus

and the actual entities to whom payments were made, BGIL submitted that merely

change in vendors will not lead to any disclosure requiring notice or advertisement in the

newspaper. The transactions are routine business transactions and proper details of items

to be purchased and budget within which the purchases have been made were duly

disclosed in the prospectus.


g) As regards the allegation of non-disclosure of names of actual vendors and suppressing

of information in that regard, BGIL submitted that the details of the vendors were made

available to the Merchant Banker and it approved the said details. After scrutiny of the

quotations on the basis of financial, technical and after-sale services basis, the actual

vendors proved to be more cost effective for BGIL and its shareholders and therefore

they were given contracts in the overall interest of BGIL and its shareholders.

h) As regards the allegation pertaining to wrong disclosure of the percentage of placement

of orders by BGIL, it submitted that the disclosure regarding percentage of purchase

orders placed for equipments, etc. has been given under the heading “Risk factors”. The

risk factors were disclosed in the prospectus after consultation with the Merchant

Banker. BGIL had made all the documents available to the Merchant Banker as and

when sought by them during the process of due diligence. As BGIL had no role to play

in finalization of offer documents and was merely acting on the advice of the Merchant

Banker, it cannot be held responsible for any misstatement/omission/non-disclosure in

prospectus. Moreover, as the percentage disclosed in the Prospectus does not portray a

rosy picture of BGIL, but has an adverse impact on it, it should not be presumed that

the disclosure was made intentionally with the purpose of misleading and

misrepresenting to the investors at large.

i) As regards the allegation pertaining to three different versions about the ICD loans taken

and ICD investments made by BGIL, it submitted that ICDs given by BGIL amounted

to ₹ 12.5 crore and ICD Loan taken by BGIL amounted to ₹ 15 crore. The same was

clarified in the subsequent communications by BGIL to SEBI. The error in reporting the

figures crept in due to pressure and time constraint.

j) As regards the allegation pertaining to non-disclosure of bridge loans raised by BGIL, it

submitted that bridge loans are nowhere defined in ICDR Regulations. Further, the need

for ICD loans arose due to the delay in approval by SEBI of DRHP because of which

BGIL's implementation schedule got delayed by six months. It was in urgent need of

funds for taking advantage of the competitive pricing offered to it by the vendors. As the

management owes a fiduciary responsibility towards the shareholders, the decision for

taking ICD loans was taken in the best interest of BGIL and its shareholders. As regards

its disclosure in the offer document BGIL submitted that it was the responsibility of the

Merchant Banker to inform the management about its impact and disclosure in the

Prospectus. As already appreciated by the Learned Member in his order dated September

21, 2012, the Merchant Banker has failed to exercise due diligence. It would be harsh on

the part of SEBI to hold BGIL or its management responsible for the acts / omissions

and commissions conducted on the part of Merchant Banker. Further, the ICD loan

amount were actually utilized for payments to vendors for purchases made towards the

fulfillment of the objects of the issue.


k) As regards the allegation pertaining to non-availability of written agreements, non-

payment of interest to lenders and non-compliance with the relevant provisions of the

ICDR Regulations, BGIL submitted that the Board of Directors had the power to

borrow ICDs within the limit of paid up share capital and free reserves under section

292 of the Companies Act, 1956 As the amount of ICD received is ₹ 15 crore which is

well within the limit of Share Capital plus Free reserves of the company i.e. ₹ 32.35

crore, as on the date of taking these ICD loans, the Board was not required to take any

specific approval or sanction for the same. Further as regards the non availability of

agreements, BGIL enjoyed such a reputation in the market that lenders were willing to

advance loans to it without entering into written agreements and thus, it should not be

taken as any contravention.

l) As regards non-disclosure of material developments under the provisions of ICDR

Regulations and wrong disclosures in the prospectus about bridge loans, BGIL reiterated

that the need for ICD loans arose due to the delay in approval by SEBI of DRHP and

the loans were taken in the interest of BGIL and is shareholders.

m) As regards compliance with the directions of SEBI to call back the ICDs, BGIL

submitted that BGIL had issued ICD recall letters to all the three parties i.e. Sanjukta

Vanijya Private Ltd, Darshan Trade Link Private Ltd and Nihita Financial Services

Private Ltd. BGIL further submitted that as on October 14, 2014 , it has recovered ₹ 5.5

Crore as a result of protracted correspondence through recall letters and legal notice and

₹ 6.00 Crore was pending recovery from Darshan Trade Link Private Ltd and Nihita

Financial Services Private Ltd. As regards the direction of SEBI to deposit the recovered

amount into an escrow account, BGIL submitted that subsequent to initiation of

investigation by SEBI and its interim order, BGIL found it difficult to raise working

capital loans from financial institutions on any terms and hence it had no option but to

utilize the funds recovered from the above stated parties towards meeting its working

capital requirements in order to ensure smooth business operations adding to its

goodwill, reputation and in overall interest of the shareholders at large.

n) As regards the non-disclosure of the transaction of BGIL with Gadeo as a related party

transaction and the relationship of Mrs. Richa Mittal with Mr. Sanjeev Kumar Mittal,

BGIL submitted that the fact that Mrs. Richa Mittal is related to Mr. Sanjeev Mittal was

disclosed to the Merchant Banker. BGIL also pointed out point No. 5 of the

Undertaking received from the Merchant Banker for signing by the Management, where

the Merchant Banker had written “M/s Gadeo Electronics, a partnership formed on September 1,

2001 between Mrs. Richa Mittal, Mr. Sanjeev Mittal and Mr. R.K. Mittal. Mr. Sanjeev Mittal took

retirement w.e.f. March 31, 2008 and Mrs. Richa Mittal and Mr. R.K. Mittal entered into a fresh

partnership deed on April 1, 2008”. Further, the fact that Mrs. Richa Mittal is a relative of


Mr. Sanjeev Kumar Mittal was also disclosed in the Form 24AA for F.Y. 2010-11, which

was made available to the Merchant Banker during the process of due diligence. Thus,

BGIL submitted that non disclosure of her name in the list of relatives is a mistake on

the part of the Merchant Banker and cannot be attributed to BGIL and it did not have

any intention to hide the relevant information.

o) As regards the requirement of disclosing the relationship details under the provisions of

ICDR Regulations, BGIL submitted that the details have already been disclosed in

various parts of the prospectus i.e. Point no. 12 on page (viii) of internal risk factors,

para (a) under details of utilization proceeds on page no. 30, page no. 72 and 73 under

para Other Properties and Other agreements on page no. 85.

p) As regards the letter dated February 7, 2011 by BGIL to the Merchant Banker stating

that "Mrs. Richa Mittal is not related to the BGIL, is promoters/directors or promoter group

companies", BGIL submitted that the error was on the part of the Merchant Banker and

the letter was signed by its Chairman and Managing Director in routine having faith on

the professional expertise of the Merchant Banker.

q) As regards not providing the name of Mrs. Richa Mittal in the list of relatives of

directors (sought during the investigation by SEBI) , BGIL submitted SEBI sent a mail

to BGIL containing the list of relatives to be disclosed by it. In the said list the name of

brother‟s wife was not given. Instead disclosure was required to be made for Sister in law

not for brother‟s wife. In common parlance, Sister in law is used for Wife‟s sister and

hence there was a confusion on the part of BGIL and as such there was no deliberate

attempt to conceal the information as the same was already made available to Almondz.

r) As regards the payment made by BGIL to Mr. Rakesh Bhatia, his son Mr. Gaurav Bhatia

and a group company named Films & Technologies Limited out of the issue proceeds in

absence of any disclosure in that regard in the RHP/Prospectus, BGIL submitted that in

case of Gaurav Bhatia, the payment was made towards arrears of salary. Though it had

mentioned in the prospectus that it will pay salary to promoters and promoter group, but

on receiving objection from SEBI, it had already taken the amount back from him in

December 2011 along with interest. In case of Mr. Rakesh Bhatia and Number One

Finsec Private Limited. payments made to him were towards repayment of loan

(disclosed in the prospectus) and do not fall within the meaning of "consideration". As

regards the payment to BGIL Films & Technologies Ltd., the same was made against its

specific specialized services under a valid business transaction.

s) As regards the non-deduction of the advance amount made to Avance. From the total

amount payable to it, BGIL submitted that as rightly observed by SEBI in point no. 1.3.5


of the Interim order, the lapse is on the part of the Merchant Banker and hence BGIL

should not be held liable for any default on the part of the Merchant Banker.

t) As regards the alleged diversion of ₹10.53 crore i.e. ₹7.10 crore to five entities (hereafter

referred as GRD Group) viz., Marutinandan Infosolutions Private Limited (MIPL), Jalan

cement works Limited (Jalan), Orbit Financial Consultants Private Limited (Orbit), GRD

securities private Limited (GRD), Swift Tie Up Private Limited (Swift) and ₹3.43 crore

to four entities (hereafter referred as KorpGroup) viz., Korp Securities Ltd (Korp),

Wheelers Developers Private Limited (Wheelers), Divyadrishti Merchants Private Ltd

and Divyadrishti Traders Private Ltd., BGIL submitted that it had never had any

relationships with the two groups referred to as GRD Group and Korp Group except an

ICD loan of ₹52.5 lakh taken from Divyadrishti Traders Pvt. Ltd which were repaid out

of the IPO proceeds. Further, its promoters, promoter group or KMPs were never

involved in or funded the trades of these entities. There was no prior arrangement of

BGIL with any of these groups. It further submitted that the mere fact that some of the

parties involved were having some business transaction- in the form of ICDs advanced

or taken from the company cannot and should not be used to allege BGIL‟s involvement

in the circuitous trading. The ICDs given and advanced were not in any manner related

to the circuitous trading as referred and BGIL, its promoters, directors, key managerial

persons and their relatives were not in any manner involved or benefited from the

trading.

u) BGIL also drew reference to the confirmatory order dated September 21, 2012 passed by

SEBI in the mater wherein whole time member, SEBI has given adverse findings against

the Merchant Banker, Almondz and held it responsible for failing to discharge the

various responsibilities associated with the due diligence which is to be exercised by a

Merchant Banker are to be discharged with care and caution.

v) As regards the non compliance with SEBI directions regarding depositing the amount

recovered from ICD in escrow account, BGIL submitted that vide its email dated

November 9, 2012 it had intimated SEBI that it is utilizing the amount recovered from

ICDs towards objects of the issue. As it did not receive any objection from SEBI on the

same and there were pressing circumstances to keep the company running, it was forced

to utilize the amount recovered towards fulfillment of objects of the Issue.

9. I have carefully considered the SCN, the replies/written submissions of the Noticees and

the relevant material available on record. Before proceeding with the consideration of facts

on merits, I deem it necessary to refer to the provisions of the SEBI Act and Regulations

made thereunder which are alleged to be violated/ contravened by the Noticees. The said

provisions read as under:


"SEBI Act, 1992

12A. No person shall directly or indirectly—

(a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be

listed on a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention

of the provisions of this Act or the rules or the regulations made thereunder;

(b) employ any device, scheme or artifice to defraud in connection with issue or dealing in securities which

are listed or proposed to be listed on a recognised stock exchange;

(c) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon

any person, in connection with the issue, dealing in securities which are listed or proposed to be listed on a

recognised stock exchange, in contravention of the provisions of this Act or the rules or the regulations

made thereunder;

PFUTP Regulations

3. Prohibition of certain dealings in securities

No person shall directly or indirectly-

(a) buy, sell or otherwise deal in securities in a fraudulent manner;

(b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed

in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the

provisions of the Act or the rules or the regulations made there under;

(c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities

which are listed or proposed to be listed on a recognized stock exchange;

(d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon

any person in connection with any dealing in or issue of securities which are listed or proposed to be listed

on a recognized stock exchange in contravention of the provisions of the Act or the rules and the

regulations made there under.

4. Prohibition of manipulative, fraudulent and unfair trade practices

(1)Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an

unfair trade practice in securities.

(2)Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud

and may include all or any of the following, namely:-

(a) indulging in an act which creates false or misleading appearance of trading in the securities market;

…………………………………………………………………

(f) publishing or causing to publish or reporting or causing to report by a person dealing in securities any

information which is not true or which he does not believe to be true prior to or in the course of dealing in

securities;

…………………………………………………………………

(k) an advertisement that is misleading or that contains information in a distorted manner and which

may influence the decision of the investors;


ICDR Regulations

Manner of disclosures in the offer document.

57.(1)The offer document shall contain all material disclosures which are true and adequate so as to

enable the applicants to take an informed investment decision.

(2) Without prejudice to the generality of sub-regulation (1):

(a) the red-herring prospectus, shelf prospectus and prospectus shall contain:

(i) the disclosures specified in Schedule II of the Companies Act, 1956; and

(ii) the disclosures specified in Part A of Schedule VIII, subject to the provisions of Parts B and C

thereof.”

Public communications, publicity materials, advertisements and research reports.

60. (1)…………………………….………………………….

(2)……………………………………….……………………

(3)…………………………………………………………….

(4) The issuer shall make prompt, true and fair disclosure of all material developments which take place

during the following period mentioned in this sub-regulation, relating to its business and securities and

also relating to the business and securities of its subsidiaries, group companies, etc., which may have a

material effect on the issuer, by issuing public notices in all the newspapers in which the issuer had issued

pre-issue advertisement under regulation 47 or regulation 55, as the case may be:

(a) in case of public issue, between the date of registering final prospectus or the red herring prospectus, as

the case may be, with the Registrar of Companies, and the date of allotment of specified securities;

(5)…………………………………… ……………………

(6)…………………………………………………………

(7) Any advertisement or research report issued or caused to be issued by an issuer, any intermediary

concerned with the issue or their associates shall comply with the following:

(a) it shall be truthful, fair and shall not be manipulative or deceptive or distorted and it shall not

contain any statement, promise or forecast which is untrue or misleading;"

10. In the present case, the charge against BGIL is that it had committed a fraud towards the

investors and the securities market as out of ₹34.70 crore (claimed to have been utilized by

BGIL), it had utilized only ₹11.24 crore in accordance with the disclosures made in the

RHP /Prospectus and had mis- utilised /diverted ₹23.46 crore out of the IPO proceeds . I

note that mis-utilization/ diversion of IPO proceeds has been alleged against the Noticees

in respect of the following six categories -

i. relocation of branch office;

ii. up-gradation of Digital post production studio;

iii. investment in IT division;

iv. expansion of R&D Technology centre;

v. working capital requirement, and;

vi. general corporate expenses.


11. I now proceed to deal with the alleged mis-utilization / diversion, which formed part of the

alleged fraudulent scheme devised by the Noticees.

Mis-utilization /diversion relating to relocation of branch office.

12. It is alleged in the SCN that BGIL entered into a doubtful and non-genuine transaction

with Dhanmangal and made payments of ₹1 crore on July 02, 2011 and ₹1.50 crore on July

05, 2011 to it as advance payment for the total consideration of ₹5 crore for the purchase of

an office space at Kolkata. The said transaction was neither disclosed in the Prospectus nor

any public notice as required by ICDR Regulations was issued by BGIL. In this regard,

BGIL submitted that the dealing with Dhanmangal was entered into keeping in mind the

objective of establishing pan-India presence for BGIL and get maximum advantage and

business opportunities for BGIL and in turn for its shareholders. BGIL got the said

transaction ratified by its shareholders through Postal Ballot in March 2012. It further

submitted that the name "Dhanmangal Developers Private Limited" reflects or gives an

impression that the Company deals with development and construction of land and

buildings, and BGIL did normal business transactions in good faith relying on the

representation made to BGIL by Dhanmangal and BGIL should not be held responsible

for any misrepresentations made by Dhanmangal before entering into the agreement, since

it was a business judgment.

13. In this regard, I note from the records that Dhanmangal has no history of handling any real

estate projects, has no approvals from the relevant authorities, has no employees and is in

the business of development of agriculture land levelling. I cannot accept the submission of

BGIL that it was misrepresented by Dhanmangal and BGIL entered into the agreement

without being aware of the basic details relating to Dhanmangal. I further note that

agreement between BGIL and Dhanmangal did not contain the construction/plot

address/location of the relevant property. I also note that the consideration payable to

Dhanmangal (i.e. ₹5 crore) was approximately 10% of the total issue proceeds. Even after

more than two years from the date of payments to Dhanmangal, it did not even identify any

office for BGIL. Considering the aforesaid facts, In my view any person of ordinary

prudence would not enter into any transaction of such substantial value with a company

having the profile of Dhanmangal. It is also pertinent to mention that pursuant to the order

of SEBI dated December 28, 2011, BGIL claimed to have recovered ₹1.05 crore from

Dhanmangal but did not submit any material to show how the balance amount of ₹3.95

crore was utilized by Dhanmangal towards 'purchase of office space'. At this point, I also

note that BGIL disclosed in the RHP/Prospectus that "As on the date of this Prospectus, we have

not entered into any commitment for any strategic initiatives." Also at page 73 of the Prospectus, it is

disclosed that "Except as stated in section titled “Objects of the Issue” appearing on page no. 29 of this

Prospectus, there is no property which our Company has purchased or acquired or propose to purchase or


acquire which is to be paid wholly, or in part, from the net proceeds of the Issue or the purchase or

acquisition of which has not been completed as on the date of filing of this Prospectus with SEBI.". The

agreement of BGIL with Dhanmangal and advance payment made to it is also not in line

with the disclosures made in the RHP/Prospectus. Thus, in view of the aforesaid facts, I

find that BGIL was aware of the credentials of Dhanmangal and knowingly it entered into a

non-genuine transaction with Dhanmangal. Thus, the payments made by BGIL to

Dhanmangal in pursuance of the non-genuine transaction and in absence of any disclosure

in that regard in the RHP/Prospectus were clearly a part of the scheme or device of BGIL

to fraudulently mis-utilize/divert to the IPO proceeds for the purposes other than those

disclosed in the RHP/Prospectus.

Mis-utilization/diversion relating to up-gradation of Digital post production studio and Investment in IT division.

14. With regard to the allegation of wrong disclosure of vendors' details and payments made to

various vendors, BGIL submitted that merely because of change in the vendors from whom

the equipments have been purchased, it cannot be presumed that the amount raised has not

been utilized as per RHP/Prospectus. BGIL also submitted that the decision for change of

vendors was taken because the final vendors offered better and cost effective terms.

Moreover, had the disclosures of these vendors been made in the Prospectus, it would not

have had any adverse impact on the informed investment decision of any investor as BGIL

has merely changed the vendors as good business judgment and in the interest of the

investors. Further as regards the allegation that BGIL did not inform the public through a

public notice about these new material developments, BGIL submitted that keeping in

mind the due disclosure of possibility of change in vendors / suppliers in the RHP and

Prospectus and in absence of any possibility of adverse impact on good business judgment

and the interest of the investors, it felt that the requirements of regulation 60(4)(a) do not

apply to the case of BGIL.

15. In this regard, I note that BGIL has attempted to take recourse to the disclosure made in

the prospectus that “We are also negotiating with several suppliers and the actual supplier may vary

from the one mentioned above”. I find that in the present case, there has not been a mere change

in the vendors / suppliers details, but in fact there have been wrong disclosures and

suppression of facts on the part of BGIL. In fact, the actual vendors were pre-decided and

the payments were made to these vendors before the RHP date/Prospectus date/date of

allotment of securities, and the identity of the actual vendors was concealed by BGIL from

the investors by disclosing the names of different vendors. Table 7 above [at paragraph

5(10)] depicts the actual vendors and other pertinent details:

16. It is evident from Table 7 that out of 14 instances, the date of quotations on 13 instances

were on or prior to RHP date and the date of quotations for all the 14 instances was prior


to the prospectus date. One of the vendor‟s quotations dated a year back (i.e. June 21, 2010)

and it was not disclosed in the RHP and the Prospectus. I note that a total of ₹10.66 crore

was paid to the vendors before the prospectus date out of which ₹6.05 crore was paid

before the RHP date. Further, these vendors were paid from the ICD loans of ₹15 crore

raised by BGIL which were also not disclosed in the RHP/Prospectus. Furthermore, the

ICD loans were repaid from the IPO proceeds. In view of the above, I find that BGIL

knowingly made misstatements in the RHP/Prospectus by giving wrong vendors' details .

Further, BGIL was wrong in assuming, on its own, that not providing the information

regarding actual vendors would not have any adverse impact on the decision making of the

investors. It is pertinent to mention that BGIL's obligations under the ICDR Regulations

was to provide fair, adequate and correct disclosures, which it failed to do in the present

case. I also do not find any merit in the contention of BGIL that the requirements of

issuing a public notice under regulating 60(4) do not arise in the present case since, in my

view, the change in the vendors, which have been disclosed in the RHP/Prospectus and to

whom a substantial amount of IPO proceeds were to be transferred, has to be treated as a

material development which may have a material effect on the issuer i.e. BGIL. In view of

the above, I reject the aforesaid submissions of BGIL and find that the payments made by

BGIL to vendors (whose names were concealed by BGIL from the investors) were mi-

utilized by BGIL.

Mis-utilization / diversion relating to Expansion of R&D Technology centre.

17. I note that out of the amount of ₹4.321 crore, claimed by BGIL to have been incurred

towards the expansion of R&D technology centre, only the payment of ₹0.035 crore made

to Westcon India Private Limited was in accordance with the disclosures made in the RHP

/ Prospectus. Further, advance payments of ₹0.14 crore, legal expenses and travelling

expenses were not as per the disclosures made in the RHP / Prospectus. It is also alleged

that BGIL made a false and misleading disclosure regarding advance payment of ₹2.65

crore to Avance. It is further alleged that an obligation of ₹2.15 crore has been allegedly

created artificially to siphon off the said amount from the IPO proceeds. I note that RHP

and Prospectus contained a disclosure that BGIL had made an advance payment of ₹2.65

crore to Avance prior to IPO but in the fund utilization table, the advance amount was not

deducted and the entire cost i.e. ₹6.57 crore was shown as payable to Avance from IPO

Proceeds. It is also alleged that BGIL paid only ₹50 lakh to Avance and remaining ₹2.15

crore was returned back to BGIL through circuitous transfers of funds between Avance,

BGIL and another entity named Saptrishi. In this regard, BGIL has submitted that Avance

and Saptrishi are independent legal entities and business arrangements between these parties

are legitimate and legal and the payment from Saptrishi is in no way connected to the

payments made to Avance. Further, the advance to Avance was given under a valid


agreement for purchase of technology, as disclosed in the prospectus and hence the

circuitous routing of funds as alleged by SEBI has no grounds at all.

18. BGIL has claimed that it conducted business with both the vendors (i.e. Avance and

Saptrishi) in good faith with bona fide intentions and it is only the coincidence that Avance

had made payment to Saptrishi immediately on receipt of the amount from BGIL. In this

regard, I note from the above 'Diagram 1' (at paragraph 5(3)III) that on four instances

BGIL made payments to Avance and on the same day it received amounts from Saptrishi

for exactly the same amounts i.e. on June 8, 2011 (₹50 lakh) June 15, 2011 (₹55 lakh), June

15, 2011 (₹50 lakh) and June 15, 2011 (₹60 lakh). The amount of ₹55 lakh received from

Saptrishi by BGIL on June 8, 2011 was returned to Saptrishi on the same day through

Avance. Similarly, ₹50 lakh and ₹60 lakh received on June 15, 2011 were also returned on

June 16, 2011 to Saptrishi through Avance and Priority Exports. Another ₹50 lakh received

from Saptrishi by BGIL on June 15, 2011 was returned on the same day to Saptrishi

through Avance and Satshri Multitrade Private Ltd. I find that transfer of the exact amounts

on the same dates and the fact that the funds were received back by BGIL cannot be mere

coincidence. Further, BGIL has also not provided any satisfactory explanation in respect of

the aforesaid flow of funds. Thus, I reject the above contentions of BGIL.

19. In view of the aforesaid facts, I find that an obligation of ₹2.15 crore was created by BGIL

artificially to siphon off of the said amount from the IPO proceeds. Further, as regards the

alleged mis-utilization of other payments claimed to have been made by BGIL towards the

expansion of R&D technology centre, BGIL has failed to provide satisfactory explanation.

Thus, I find that the said payments not being in accordance with the disclosures made in

the RHP/Prospectus by BGIL were clearly a part of the mis-utilization of IPO proceeds by

BGIL. I also find that regardless of the responsibility of the Merchant Banker, the issuer

and its directors cannot escape the liability in respect of wrong and misleading disclosures in

the RHP/Prospectus as they certify in the RHP/Prospectus that the contents thereof are

true, fair and adequate.

Mis-utilization / diversion relating to working capital requirements.

20. It is further alleged in the SCN that BGIL entered into an agreement with JIL on July 1,

2011 for various services for a consideration of ₹5 crore and made the payment of ₹251.50

lakh to JIL out of which ₹30 lakh was paid before the prospectus date. It is alleged that the

payment to JIL and availing services were neither disclosed in the RHP/prospectus nor any

public notice was issued by BGIL as required by the ICDR Regulations. Further on the

basis of a scrutiny of the bank account statement of JIL, it is alleged that ₹180.75 lakh have

been transferred back to BGIL and its group companies viz., BGIL - ₹7.50 lakh and

Number one Finvest Private Ltd. - ₹173.25 lakh. Further, ₹32.45 lakh cash was also

withdrawn by JIL. Hence, it is alleged that JIL, which was a front entity of BGIL, merely


acted as conduit for the said fraudulent diversion of ₹251.50 lakh out of IPO proceeds for

the purposes other than those disclosed in the RHP/Prospectus.

21. According to BGIL this payment was made to JIL as normal business transaction. Further,

the agreement was entered into with JIL as a known company and disclosure about that was

already made in the prospectus. The said company was not a related party and the dealings

were in good faith and in overall interest of BGIL and its shareholders. BGIL further

submitted that these facts were disclosed to the Merchant Banker and the prospectus was

finalized under the directions of the Merchant Banker after its due diligence. In this regard,

I note that BGIL has not disputed the allegation of JIL being its front entity. In my view,

facts such as JIL holding shares in BGIL, employees of BGIL (i.e. office-boy/peon and

maintenance person) being the directors of JIL, Mr. Rakesh Bhatia and Ms Arti Bhatia

holding shares in JIL at the time of its incorporation, Mr. Rajeev Agarwal (Manager -

Finance) of BGIL holding shares in JIL, etc. clearly indicate that JIL was a front entity of

BGIL.

22. I further note that BGIL has not brought out any material before me to justify the transfer

of funds from BGIL's account to JIL and transfer of funds from JIL's account to BGIL and

its group company ( viz; Number One Finvest Private Limited). It remains unsubstantiated

as what services BGIL had availed/ had to avail for which such purported payment was

made by it to JIL from the IPO proceeds. Further, if such normal transactions, as sought to

be contended by the BGIL were in existence, they were to be disclosed in the

RHP/Prospectus. However, in the RHP/Prospectus disclosure of utilization of IPO

proceeds for such purported "normal transactions' was not made and fund utilization was

disclosed for identified purposes. In these facts and circumstances, suggestion of facts

which are not true is visible in the submissions of the BGIL. Even if it is assumed that the

transaction of BGIL with JIL was genuine and the payment to JIL was made in respect of

the services to be availed from it, the reverse transfer of funds from JIL's account to

BGIL's account and its group company's account remains unexplained. I, therefore, reject

the submissions of BGIL in this regard and find that the amount of ₹251.50 lakh was

fraudulently diverted by BGIL out of the IPO proceeds to JIL which was a front entity of

BGIL and was used merely as a conduit for fraudulent diversion of IPO proceeds.

Mis-utilization / diversion relating to general corporate expenses.

23. I note that it was disclosed in the RHP that “No part of the issue proceeds, will be paid by our

company, as consideration to promoters, directors, promoter group entities and key managerial personnel”.

Thus, BGIL was bound to ensure that it does not make any payment of any consideration

to its promoters, directors, promoter group entities and key managerial personnel. However, BGIL

made payments to its promoters and promoter related entities and thereby fraudulently

diverted the IPO proceeds. According to BGIL the payment to Mr. Gaurav Bhatia was


made towards arrears of salary, which was called back pursuant to SEBI's objection in

December 2011. In case of Mr. Rakesh Bhatia and Number One Finsec Private Limited

payments were made in respect of unsecured loans which were disclosed in the prospectus.

Also these payments do not fall within the meaning of "consideration". As regards the

payment to BGIL Films & Technologies Ltd. it has claimed that the same was made

against its specific specialized services under a valid business transaction.

24. In this regard, I note that in this case, BGIL made payments, out of IPO proceeds, to the

following five promoter/promoter group entities:

i. Mr. Mr. Gaurav Bhatia,

ii. Mr. Rakesh Bhatia,

iii. Mr. Rakesh Bhatia-HUF,

iv. Number One Finsec Private Limited and

v. BGIL Films & Technologies Ltd.

25. I find that the recall of payment from Mr. Gaurav Bhatia clearly appears to be an

afterthought pursuant to the interim order of SEBI dated December 28, 2011. I further,

note that the objects of the issue do not contain any object relating to repayment of loans

other than "repayment of bank borrowings". The unsecured loans of Mr. Rakesh Bhatia

and Number One Finsec Private Limited do not fall under this disclosed object at all. The

RHP/ Prospectus did not contemplate any repayment of such unsecured loans of the

promotes/ promoter group entities out of the IPO proceeds. BGIL has failed to offer any

explanation with regard to payment of` ₹10.5 lakh to Rakesh Bhatia-HUF. The payment to

BGIL Films & Technologies Ltd towards services rendered by BGIL Films & Technologies

Ltd as claimed by BGIL would definitely be covered within the meaning of 'consideration'.

Therefore, as disclosed in the RHP, BGIL was estopped from making any payment to this

promoter related entity. Even otherwise, the payments made by BGIL to the promoters/

promoter group entities was not in line with the disclosed objects in the RHP/Prospectus.

In view of these findings, I reject the submissions of BGIL in this regard and find that out

of IPO proceeds, the amount of ₹1.26 crore was fraudulently diverted by BGIL to its

promoters/ promoter group entities.

Mis-utilization / diversion of IPO proceeds by repaying ICD loans raised prior to the RHP date / prospectus date without any disclosure.

26. I note that before filing of the RHP (i.e. between June 21, 2011 to June 27, 2011) BGIL had

raised ICD loans to the tune of ₹ 7 crore. The RHP was filed on June 28, 2011 and after

filing of the RHP, BGIL raised further ICD loans of ₹8 crore between June 29, 2011 to July

7, 2011. The issue opened for subscription on July 11, 2011 and closed on July 14, 2011.

However, in the RHP / Prospectus it was disclosed that “our company has not raised any bridge


loan against the proceeds of the present issue”. The prospectus also did not disclose these ICD

loans nor did BGIL issue any public notice under regulation 60(4) of the ICDR Regulations

in that regard after the issuance of RHP. It is pertinent to highlight here that the

subscriptions in the IPO were invited on the basis of the RHP which did not have

disclosure of the ICD loans of ₹7 crore and BGIL had not issued any public notice about

the liabilities by way of purported interim financing. Thus, when the IPO was open for

subscription, the investors were not aware about these liabilities of BGIL and the fact that

the liabilities would be discharged out of the IPO proceeds. Further, these ICD loans of ₹

15 crore would have increased the total 'current liabilities' of BGIL as on March 31, 2011 by

100%. The understatement of liabilities of BGIL, by not adding the ICD loans in current

liabilities and not disclosing the same, in my view, had potential to influence the investment

decision of the investors in the IPO of BGIL. Being the liability of BGIL these ICD loans

also had the potential to materially affect BGIL and therefore, the disclosures about above

ICD loans ought to have been made in the RHP and Prospectus and also by issuing a

public notice under regulation 60(4)(a) of the ICDR Regulations.

27. BGIL has submitted that "bridge loans" are not defined in ICDR Regulations. Further,

BGIL submitted that the need for ICD loans arose due to the delay in approval of DRHP

by SEBI because of which BGIL's implementation schedule got delayed by six months. As

regards its disclosure in the offer document, BGIL submitted that it was the responsibility

of the Merchant Banker to inform the management about its impact and disclosure in the

Prospectus. In this regard, I note that the term "bridge loan" in common parlance is

understood as a short term loan and is widely used in commercial business transactions. I

note that BGIL was obligated to disclose the "sources of funds already deployed" under regulation

57(2)(a) read with (Part A) (VII) (G) of Schedule VIII of ICDR Regulations and even if the

dictionary meaning of the term "bridge loan" is taken (i.e. short term loan), the disclosure

made by BGIL turns out to be false in light of the ICD loans taken and not disclosed.

Further, BGIL cannot shift the responsibility for wrong disclosures on the Merchant

Banker since it is the primary responsibility of the issuer and the signatories to the

RHP/Prospectus to make true and correct disclosures. In the present case, BGIL raised

ICDs loans worth ₹15 crore and did not disclose the same at any point of time i.e. neither

at the time of filing of RHP nor at the time of filing of Prospectus and not even

subsequently by way of a public notice. Moreover, these ICDs were repaid by BGIL from

the IPO proceeds without there being any disclosure in the RHP/Prospectus regarding the

said repayment. Table 5 above [at paragraph 5(5)] shows the details of the ICDs repaid by

BGIL out of the IPO proceeds: I also note from the record that the ICD loans of ₹3 crore

repaid by BGIL to Abhilasha Exports Pvt. Ltd, Skylight Distributors Private Limited and

Subhshree Hirise Pvt. Limited were diverted to Korp Group which indulged in

manipulative trading on the day of listing of BGIL. In view of the above, I find that the

submissions of the Noticees in this regard are unfounded and therefore, I reject the same.


28. It is also alleged in the SCN that the aforesaid ICDs were created as a ploy to divert the

IPO Proceeds as it was found that there was no agreement of BGIL with various entities

for the ICD loans taken and only memorandums in the form of letters were available. In

this regard, BGIL submitted that BGIL enjoyed such a reputation in the market that lenders

were willing to advance loans to it without entering into any written agreements, it should

not be taken as any contravention. BGIL further submitted that the Board of Directors had

the power to borrow ICDs within the limit of paid up share capital and free reserves under

section 292 of the Companies Act, 1956 Also, as the amount of ICDs received is ₹ 15

crore which is well within the limit of Share Capital plus Free reserves of BGIL i.e. ₹ 32.35

crore, as on the date of taking these ICD loans, the Board was not required to take any

specific approval or sanction for the same. In this regard, such purported interim

borrowings were not disclosed in the Prospectus at all and required public notice as per

regulation 60(4) of the ICDR Regulations was also not issued. In fact, it was disclosed

otherwise in the Prospectus that BGIL had not raised any bridge loan. It is surprising that if

at all such interim financial arrangements by way of ICD loans were existing, there should

have been documents to evidence such borrowings of high amounts to the tune of ₹ 15

crore and the same ought to have been disclosed as an object for utilization of IPO

proceeds. These facts coupled with the fact of submission of purported memorandums in

the form of letters on inquiry being made by SEBI strongly indicate that such

memorandums were an afterthought. In any case, such utilization of IPO proceeds by

BGIL was not for the objects and/or n the manner disclosed in the RHP/Prospectus. In

the facts and circumstances of this case, I am of the view that out of the IPO proceeds, this

amount of ₹ 15 crore was diverted / mis-utilized for the purposes other than those

disclosed in the RHP/Prospectus.

Diversion of IPO proceeds in the garb of ICD investments.

29. Apart from the above discussed fraudulent mis-utilisation/ diversion of ₹23.46 crore out of

the IPO proceeds, it is also alleged in the SCN that BGIL had temporally transferred ₹12.5

crore out of the IPO proceeds in the garb of ICD investments to three entities and has not

recovered the same despite SEBI's order dated December 28,2011. I note that it was

categorically disclosed in the RHP/Prospectus by BGIL that :- “Our Company’s management,

in accordance with the policies established by the Board, will have flexibility in deploying the proceeds received

from the Issue. Pending utilization of the proceeds out of the Issue for the purposes described above, we intend

to temporarily invest the funds in high quality interest bearing liquid instruments including money market

mutual funds and deposits with banks. Such investments would be in accordance with the investment policies

approved by the Board from time to time”.

30. It has been alleged that such investments were not in conformity with this disclosure that

the IPO proceeds shall be invested in high quality interest bearing liquid instruments including money


market mutual funds and deposits with banks. In this regard, BGIL has submitted that it did not

have a formal investment policy and that the decision of investment was taken on the basis

of the recommendations of the Audit Committee ratified by the Board and subsequently by

the shareholders by way of Postal Ballot.

31. I note that BGIL has failed to substantiate as to how such investments, in the companies

like the one to which such huge amounts out of IPO proceeds were transferred, were high

quality liquid instruments. I do not find the submissions of BGIL cogent as it has only

indicated the procedure of its fund transfer rather than explaining as to how such

investment could be treated to have been made in terms of the RHP/Prospectus. I note

that as per the agreements of BGIL with these three companies namely, Nihita Financials

Ltd., Sanjukta Vanijya Pvt. Ltd and Darshan Tradelink Pvt. Ltd .the said amounts could be

called back with a notice of three days. However, in spite of the recall letters of BGIL, the

said funds have not yet been returned completely. Further BGIL has not recovered those

amounts from the said three entities as on the date of its reply dated October 14, 2013

despite direction from SEBI to recall the said funds and deposit them in an escrow account.

If at all, such purported ICDs were high quality liquid investments, BGIL could have

recovered them on demand. It is pertinent to mention here that an amount of ₹ 7.1 crore

out of the purported investment of ₹ 7.5 crore given to Sanjukta Vanijya Pvt. Ltd and

Darshan Tradelink Pvt. Ltd. was diverted by them to the GRD Group which indulged in

manipulative trading in the scrip of BGIL on the day of listing as discussed in later part of

this order. In such state of affairs and facts, I am of the view that these investments by

BGIL cannot in any manner be considered as investments in 'high quality interest bearing liquid

instruments' rather the facts and circumstances indicate strong preponderance of probability

that this amount of ₹12.5 crore was also dishonestly diverted / mis- utilized by BGIL for

the purposes other than those disclosed in the RHP/ Prospectus.

Non-compliance with SEBI's order darted December 28, 2011.

32. At this point, I find it relevant to refer to the allegation in the SCN that even after several

reminders, BGIL has failed to comply with the following direction of SEBI issued vide

order darted December 28, 2011:

“The Company shall call back the ICDs of ₹12.5 crore invested by it with Nihita Financials Ltd.,

SanjuktaVanijyaPvt. Ltd and DarshanTradelinkPvt. Ltd and all amounts transferred / paid out of

IPO proceeds to its directors or relatives of its directors or HUFs belonging to any of its directors or

associate or subsidiaries or group companies. These amounts together with all of the IPO proceeds that

are still lying unutilized with the company across all its bank / deposit accounts or any investments

including in mutual funds, shall be deposited in an interest bearing escrow account with a scheduled

commercial bank, till further orders. A confirmation on compliance of this direction shall be sent by the

promoters of BGIL to the stock exchanges where it is listed, within 7 days from the date of this order.”


33. I note that as regards the direction of SEBI to deposit the funds recalled from the above-

named entities along with the unutilized IPO proceeds, BGIL submitted that it had only

deposited an amount of ₹47.37 lakh (unutilized IPO proceeds) in the escrow account.

BGIL also submitted that ssubsequent to initiation of investigation by SEBI and its interim

order, BGIL found it difficult to raise working capital loans from financial institutions on

any terms and hence BGIL had no option but to utilize the funds (i.e. ₹4.45 crore as on

September 30, 2012) recovered from the above-named entities towards meeting the

working capital requirements of BGIL. At this point, it is important to note the

contradictory contention of BGIL where it has contended (in relation to the non-availability

of agreements for ICDs taken by BGIL) that BGIL enjoyed such a reputation in the market

that people were willing to provide loans without any agreements, and now BGIL has

contended that BGIL found it difficult to raise working capital loans from financial

institutions on any terms because of which it was forced to utilize the funds recovered from

the above-named entities towards meeting the working capital requirements. BGIL has also

submitted in its written submissions dated January 1, 2014 that in absence of any objection

of SEBI and in view of the pressing circumstances, the funds recovered were utilized

towards fulfillment of the objects of the issue.

34. In my view, the directions issued by SEBI vide order dated December 28, 2011 were

categorical on the point that BGIL had to recall the ICDs of ₹12.5 crore from the three

entities and all amounts transferred / paid out of IPO proceeds to its directors or relatives of its directors

or HUFs belonging to any of its directors or associate or subsidiaries or group companies and the

recovered amount had to be deposited in an escrow account. There was no scope for any

other interpretation of these directions and therefore BGIL cannot take the defence that

SEBI did not object to their letters whereby they had informed that they were utilizing the

funds so recovered. Under any circumstances, BGIL was not entitled to utilize the

recovered funds in a manner different from as directed by SEBI. Further, BGIL has not

even provided sufficient material to show the claimed utilization of the recovered funds. I,

therefore, reject the contention of BGIL and find that BGIL mis-utilized the recovered

funds in defiance of the directions issued by SEBI. I also note that even as on the day of

filing their latest written submissions (i.e. January 9, 2014) BGIL has not fully complied

with the aforesaid directions of SEBI. As revealed during investigation, only an amount of

₹1.35 crore was transferred back to BGIL by Sanjukta Vanijya Private Limited after the

period of a month from the date of making the said ICD investment. In view of the above,

I find that BGIL has not recovered the remainder amount of ₹11.15 crore and has also

failed to comply with the directions of SEBI issued vide order dated December 28, 2011 to

deposit the recalled amounts along with unutilized IPO proceeds in an interest bearing

escrow account.


Diversion of IPO proceeds to traders.

35. It is also alleged in the SCN that a part of the IPO proceeds i.e. ₹10.53 crore was

transferred by BGIL to two groups viz., GRD Group and Korp Group through direct and

layered bank transactions. These two groups i.e. GRD Group consisting of 5 entities and

Korp Group consisting of 4 entities allegedly received ₹7.10 crore and ₹3.43 crore,

respectively from BGIL and indulged in fraudulent and unfair trade practices in the shares

of BGIL on the listing day through various synchronized / structured trades with Mr. V. P.

Patel. BGIL has claimed that it never had any relationships with the two groups except for

an ICD loan of ₹52.5 lakh taken from Divyadrishti Traders Pvt. Ltd which was repaid out

of the IPO proceeds. Further, it had never made any payment of any sort to the entities

disclosed in the SCN. BGIL also submitted that the promoters, promoter group or KMPs

of BGIL were never involved in or funded the trades of these entities. Also, there was no

prior arrangement of BGIL with any of these groups. It further submitted that the mere

fact that some of the parties involved were having some business transactions, in the form

of ICDs advanced or taken from the company, cannot and should not be used to allege

BGIL‟s involvement in the circuitous trading. In this regard, I find the following facts to be

noteworthy:

i. The GRD Group consisted of 5 entities i.e. MIPL, Jalan, Orbit, GRD and Swift, and

they were inter-connected in the following manner:

Table 11: Connection amongst GRD Group entities.

S. No.

Name of the client

Connection & Annual Income details

1 JALAN Jalans' directors Mr. Dilip Kumar Piplwa and Mr. Parmanand Drolia are also the dealers of GRD

Directors of Jalan introduced MIPL and Orbit to GRD.

2 MIPL MIPL was introduced by Mr. Dilip Kumar Piplwa who is one of the director of Jalan and dealer of GRD.

Directors of MIPL and Orbit have a common telephone number (033-32929738)

3 SWIFT Swfit was introduced by Mr. Parmanand Drolia who is one of the director of Jalan and dealer of GRD

4 ORBIT Orbit was introduced by Mr. Parmanand Drolia who is one of the director of Jalan and dealer of GRD .

Directors of MIPL and Orbit have a common telephone number (033-32929738)

5 GRD Mr. Pramod Kumar Drolia and Mr. Bimal Kumar Drolia were the directors of GRD. Mr. Pramod Kumar Drolia placed the entire buy trades as well as sell trades of MIPL, Jalan and Orbit on NSE

ii. The Korp Group consisted of four entities i.e. Divya Drishti Merchants Private

Limited, Divya Drishti Traders Private Limited, Wheelers and Korp and they are group


companies. Mr. Rajesh Kumar Agarwal is the common director for Divya Drishti

Merchants Private Limited, Divya Drishti Traders Private Limited, and Wheelers. Mr.

Sushil Kumar Agarwal who is the director of Korp, is the brother of Mr. Rajesh Kumar

Agarwal.

iii. BGIL had transferred ₹7.5 crore to Sanjukta Vanijya Private Ltd and Darshan Tradelink

Private Limited which have common directors viz., Mr. Goutam Basotia and Mr.

Santosh Kumar Sahal. I note that this amount of ₹7.5 crore was a part of the so called

ICD investments made by BGIL. I also note that out of ₹7.5 crore, ₹7.10 crore reached

GRD, The diagram below shows the flow of funds from BGIL to GRD:

Diagram 2 : Fund Flow to GRD Group

iv. BGIL had also transferred ₹1 crore each to Abhilasha Exports Pvt. Ltd, Skylight

Distributors Private Limited, and Subhshree Hirise Pvt. Limited. as a part of repayment

of ICD loans taken by it. Out of ₹3 crore, ₹2.9 crore had reached to Divyadrishti

Traders Private Limited In addition to the above, BGIL had also transferred ₹0.53


crore directly to Divyadrishti Traders Private Limited In total, ₹3.53 crore was received

by Divyadrishti Traders Private Limited Out of this amount, Divydrishti Traders Private

Limited had transferred ₹0.89 crore to Wheelers and ₹1.97 crore to Korp. The said

fund flow is depicted in the diagram below:

Diagram 3: Fund flow to Korp Group

v. The GRD Group, the Korp Group and Mr. V. P. Patel traded among themselves on

the day of listing of BGIL's shares i.e. July 28, 2011 on both NSE and BSE. The details

of the trading among these entities on BSE and NSE are as below:

Table 12: Details of trading at NSE

BUYER_NAME SELLER_NAME Total

V P PATEL

MARUTINANDAN INFOSOLUTIONS PRIVATE LIMITED 356791

V P PATEL

ORBIT FINANCIAL CONSULTANTS PRIVATE LIMITED 36000

V P PATEL GRD SECURITIES PVT.LTD. 5100

V P PATEL KORP SECURITIES LTD 2856

V P PATEL DIVYA DRISHTI MERCHANTS PVT LTD 3

DIVYA DRISHTI MERCHANTS PVT LTD V P PATEL 79657

KORP SECURITIES LTD V P PATEL 34447


KORP SECURITIES LTD GRD SECURITIES PVT.LTD. 1000

GRD SECURITIES PVT.LTD. V P PATEL 14876

GRD SECURITIES PVT.LTD. KORP SECURITIES LTD 2406

GRD SECURITIES PVT.LTD.

DIVYA DRISHTI MERCHANTS PVT LTD 2050

GRD SECURITIES PVT.LTD. GRD SECURITIES PVT.LTD. 1634

GRD SECURITIES PVT.LTD. JALAN CEMENT WORKS LTD. 1200

GRD SECURITIES PVT.LTD.

WHEELERS DEVELOPERS PVT.LTD. 1174

DIVYADRISHTI TRADERS P LTD V P PATEL 16470

MARUTINANDAN INFOSOLUTIONS KORP SECURITIES LTD 5000

WHEELERS DEVELOPERS PVT.LTD.

DIVYA DRISHTI TRADERS PVT LTD 2000

WHEELERS DEVELOPERS PVT.LTD. GRD SECURITIES PVT.LTD. 10

Grand Total

562674

Table 13: Details of trading at BSE

BUYER NAME SELLER_NAME Total

V P PATEL SWIFT TIE UP PRIVATE LIMITED 168044

ORBIT FINANCIAL CONSULTANTS PRIVATE LIMITED V P PATEL 57153

DIVYADRISHTI TRADERS P LTD V P PATEL 35221

SWIFT TIE UP PRIVATE LIMITED V P PATEL 10181

Grand Total

270599

vi. Thus GRD Group, Korp Group and Mr. V P Patel created artificial volume of

8,33,273 shares (NSE:5,62,674 + BSE:2,70,599) on the listing day.

vii. Further, these groups and Mr. V P Patel also gave exit to various IPO allotees while

they traded with various brokers on the day of listing of BGIL's shares.

36. I note that in response to the allegations against BGIL leveled on the basis of the above

facts, BGIL has submitted that it had no connection with any of the entities belonging to

the GRD Group or the Korp Group (except Divyadrishti Traders Private Limited). BGIL

has also stated that it did not make any payment to any of the entities whose names are

stated in the SCN. I find that BGIL has not provided any satisfactory explanation to the

flow of funds from its accounts to the various entities as depicted in the fund flow diagrams

2 and 3 drawn above at para 35. Further, BGIL had made the so-called ICD investments

with Sanjukta Vanijya Private Ltd and Darshan Tradelink Private Limited to the tune of

₹7.5 crore out of which ₹7.1 crore was transferred by these entities to the GRD Group.


37. As noted above, despite the direction of SEBI, BGIL has failed to recover and deposit

these purported ICD investments and deposit them in an escrow account. I also note that

Divyadrishti Traders Private Limited (a part of the Korp Group), an entity from whom

BGIL had admittedly taken ICD loan, received ₹3.53 crore in total from BGIL and three

entities who had in turn received ₹ 1 crore each from BGIL as ICD loan repayment. It is

pertinent to note here that BGIL had not disclosed this ICD loan in the RHP/Prospectus

or through a public notice. It is also a matter of record that GRD Group and Korp Group

had traded heavily on the day of listing of BGIL's shares and that they suffered losses

because of their transactions as the price of the shares of BGIL fell sharply on the day of

listing. Further Mr. V P Patel was also connected with BGIL, GRD Group, Korp Group

and other entities with whom he traded in the scrip of BGIL on the day of listing since such

a huge number of structured /synchronized trades repeatedly (as described above) could

not have been possible without a prior understanding.

38. Thus, the above set of facts i.e. funds being transferred to GRD Group and Korp Group

from BGIL through entities with whom BGIL had dealt previously, these fund transfers

happening around the day of listing of BGIL (i.e. July 28, 2011), GRD Group and the Korp

Group entering into structured transactions and creating artificial volumes, large number of

allotees of the IPO being provided exit on the day of listing itself and the GRD Group and

the Korp Group suffering losses because of these transactions show that BGIL had a prior

arrangement with the aforesaid two groups for trading in the scrip of BGIL on the day of

its listing in order to create artificial volume and provide exit to the allotees of IPO on the

day of listing itself

Wrong disclosure relating to purchase orders placed by BGIL.

39. It was also alleged in the SCN that BGIL had made wrong disclosure with respect to the

percentage of purchase orders placed for plant and machinery, equipments, etc. I note that

BGIL had disclosed in the RHP / Prospectus that “we have not yet placed orders for 81.48% of

our plant and machinery, equipments, etc, for our proposed expansion as specified in the objects of issue",

whereas, investigation revealed that purchase orders were placed for ₹30.64 crore i.e. 55%

of the IPO proceeds as on Prospectus date as well as the date of allotment of securities.

Further orders were placed for 29% (₹16.03 crore) before the RHP date. In this regard,

BGIL submitted that the disclosure regarding percentage of purchase orders placed for

equipments, etc. has been given under the heading “Risk factors”. The risk factors were

disclosed in the prospectus after consultation with the Merchant Banker to whom BGIL

had made all the documents available as and when sought by it during the process of due

diligence. BGIL also submitted that it cannot be held responsible for any

misstatement/omission/non-disclosure in RHP/prospectus as BGIL had no role to play in

preparation of the same and it merely acted on the advice of the Merchant Banker.


40. I note that the Merchant Banker is an intermediary who advises the issuer regarding the

preparation of the draft prospectus. The contents of the offer documents are based on the

information provided by the issuer to the Merchant Banker The directors and the Chief

Executive Officer of the issuer company sign the declaration in the draft offer document /

draft prospectus certifying that the disclosures made therein are true and correct. Thus,

BGIL cannot escape its liability by shifting the burden in respect of preparation of the draft

offer document on the Merchant Banker. I also note that BGIL has not disputed the

discrepancy between the disclosed percentage of placed orders and the percentage which

was revealed in the investigation. Thus, I find that the disclosures made by BGIL in respect

of the placement of purchase orders were wrong and misleading.

Non-disclosure of transaction with Gadeo as a related party transaction.

41. It is alleged in the SCN that though BGIL disclosed the transactions with Gadeo in the

RHP/Prospectus, it suppressed the fact that the said transaction was a related party

transaction. This allegation has been leveled on the basis of the requirements of clause (IV)

(H) (18) of para. 2 and clause VIII (B) (5)(a) (iii), (iv) and 6(a) of Part A of Schedule VIII

of the ICDR Regulations in terms of which the RHP and prospectus should disclose-

(a) "relationship, if any, of the entities from whom the issuer has acquired land or proposes to acquire land,

with any of the promoters or directors of the issuer along with the relevant details." (clause (IV) (H)

(18) of para. 2)

(b) Clause VIII (B) (5)(a)

(iii) the nature of the title or interest in such property acquired or to be acquired by the issuer;

(iv) short particulars of every transaction relating to the property completed within the two preceding

years, in which any vendor of the property to the issuer or any person who is, or was at the time of the

transaction, a promoter, or a director or proposed director of the issuer had any interest, direct or

indirect, specifying the date of the transaction and the name of such promoter, director or proposed

director and stating the amount payable by or to such vendor, promoter, director or proposed director in

respect of the transaction.

(c) Section VIII (B) (6)(a)

(a) The names of the entities from whom the land has been acquired/ proposed to be acquired

alongwith the cost of acquisition, along with the relation, if any, of such entities to any promoter or

director of the issuer."

42. I note that the above provision of clause (IV) (H) (18) of para. 2 deals with the disclosure of

'risk factors' in the RHP and Prospectus. It requires the disclosure of relationship of the

entities from whom the issuer has acquired the land or proposes to acquire land with its

promoters or directors along with relevant details. The words 'relative' or 'relationship' have

not been defined in the ICDR Regulations. Therefore, for the purpose of this clause, in

terms of regulation 2(2) of the ICDR Regulations, definition of these words as given under


the Companies Act, 1956 shall apply. I note that in terms of section 6 read with Schedule

IA of the Companies Act, 1956, 'father', 'brother' and 'brother's wife' are included in the

definition of relatives and they are related to each other. I, therefore, am of the view that

such relationship of the entities from whom the issuer has acquired the land or proposes to

acquire the land, with promoters or directors of the issuer should be disclosed in the RHP

and Prospectus as risk factors in terms of the provisions of above mentioned clause (IV)

(H) (18) of para. 2 of Schedule VIII of the ICDR Regulations.

43. I further note that in addition to the disclosure of relationship of seller of the land with any

promoter or director of the issuer as risk factor in terms of clause (IV) (H) (18) of para. 2 of

Part A of Schedule VIII, the specific disclosures of the nature of title or interest of a

director in such property/land, details of such transactions where the director has interest

and his direct or indirect relation with the seller or vendor is also required to be made in the

RHP under the head "About the issuer", in terms of clause 5(a) (iii), (iv), and 6(a) of Part A

of Schedule VIII of the ICDR Regulations. In this case, however, these disclosures with

regard to the transaction between BGIL and Gadeo wherein Mrs. Richa Mittal, sister in-

law of Mr. Sanjeev Kumar Mittal and his father Mr. R.K. Mittal were the only partners,

were not made in the RHP and the Prospectus of BGIL. Instead, it was disclosed that: "our

Company has not purchased any property in which any Directors, have any direct or indirect interest in any

payment made thereof." In view of the above, I find that in the present case, BGIL failed to

make the disclosures under clauses 2 (IV) (H)18 and 2(VIII)(B) 5(a)(iii), (iv) and 6(a) of Part

A of Schedule VIII of the ICDR Regulations in respect of the purchase of land / property

from Gadeo.

44. Furthermore, in terms of clause IX(B)(12) of Part A of Schedule VIII of the ICDR

Regulations, the disclosures of details of related party transactions should be made in

accordance with AS -18. In this case, the partners in Gadeo at the relevant time were Mrs.

Richa Mittal and Mr. R. K. Mittal. Mrs. Richa Mittal is sister-in-law and Mr. R. K. Mittal is

father of Mr. Sanjeev Kumar Mittal, the director of BGIL. I note that in terms of clause

10.9 of AS-18, though sister-in-law is not included in the definition of "relative", father is

included. According to clause 3(d) and (e) of AS-18, the relationships of key management

personnel and their relatives, and an enterprise over which such key management personnel

or his/her relative is able to exercise significant influence, are covered for the purpose of

related party disclosure under AS-18. In the present case, admittedly, Gadeo is a firm having

only two partners and Mr. Ram Kishan Mittal, father (covered within the definition of

'relative' under clause 10.9 of AS-18) of Mr. Sanjeev Kumar Mittal, is one of them. The

other partner is Mrs. Richa Mittal who is also relative of Mr. Sanjeev Kumar Mittal as per

section 6 of the Companies Act. Therefore, in my view, in facts of this case, irrespective of

the individual share of the said two partners in Gadeo the transaction between BGIL and

Gadeo would be covered under AS-18 read with clause IX(B)(12) of Part A of Schedule


VIII of the ICDR Regulations and the same ought to have been disclosed as a related party

transaction in the RHP/Prospectus of BGIL.

45. In this regard, BGIL has contended that the Merchant Banker was solely responsible for

the said non-disclosures as it is an expert and BGIL merely relied on its judgment. At this

point, I find it necessary to reiterate that issuer and the signatories of the RHP/Prospectus

cannot escape their liability in respect of the disclosures made in the RHP/ Prospectus

because they are obligated under the ICDR Regulations to make true and correct

disclosures. The signatories to the prospectus cannot abdicate their responsibility by

pointing out the lack of due diligence by the Merchant Banker. I therefore, find that BGIL

was responsible for the non-disclosure of the transaction with Gadeo as a "related party

transaction".

Suppression of the fact of relationship of Mrs. Richa Mittal with the director of BGIL.

46. It is also alleged that BGIL suppressed the fact of relationship of Mrs. Richa Mittal with the

director of BGIL (i.e. Mr. Sanjeev Kumar Mittal) by not disclosing her name in the list of

relatives provided by it to SEBI. As noted above 'brother's wife' is covered under the

definition of 'relative' under section 6(c) of the Companies Act, 1956 and therefore BGIL

was obligated to disclose her name in the list of relatives to SEBI. In my view, BGIL cannot

attribute the said default on its part to the Merchant Banker as the information was directly

provided by BGIL itself during SEBI's investigation and not by the Merchant Banker.

Further, I note that vide letter dated February 7, 2011, BGIL informed the Merchant

Banker that:-“Mrs. Richa Mittal is wife of Mr. Rajeev Mittal and a resident of A-147-148, Sector 55,

Noida, Uttar Pradesh. She is not in any manner related to Bharatiya Global Infomedia Limited its

Promoters / Directors or Promoter Group Companies." I find that BGIL has not been able to

provide any satisfactory explanation for the misstatement and has merely stated that the

Chairman and Managing Director of the Company signed the said letter in routine I find

that BGIL was at all times aware of the relationship of Mrs. Richa Mittal with Mr. Sanjeev

Kumar Mittal and it intentionally concealed the fact of Mrs. Richa Mittal's relationship with

Mr. Sanjeev Kumar Mittal.

Submission of three different versions of details pertaining to ICDs during SEBI's investigation.

47. I note that during SEBI investigation, BGIL submitted three different versions of the

details pertaining to ICD loans taken and the so called ICD investments. It is alleged that

BGIL attempted to conceal the material information from SEBI investigation by providing

these three different versions of ICD loans and investments BGIL in response to these

allegations submitted that ICDs given by BGIL amounted to ₹12.5 crore and ICD loan

taken by BGIL amounted to ₹ 15 crore and the same was clarified by BGIL in its

subsequent communications to SEBI. The error in reporting the figures was clerical and


crept in due to pressure and time constraint. I find the said contention of BGIL to be

without any basis. I note that BGIL has given three versions of their ICDs at different

points of time and all these versions are substantially different from each other. Moreover,

no disclosures were made by BGIL in the RHP / Prospectus in respect of any of these

versions. The argument of BGIL that the error was merely clerical could have been more

justifiable had there been minor variations in the versions submitted by BGIL but in the

present case the three versions submitted by BGIL were substantially different from each

other. In my view, the shifting stands of BGIL in relation to the ICDs (which were not

disclosed in the RHP/Prospectus) indicate and corroborate the mala fide intent of BGIL. I,

therefore, find that the submission of different versions of ICDs by BGIL during the SEBI

investigation was clearly an attempt on part of BGIL to suppress the correct information

and mislead SEBI investigation.

48. In view of the foregoing, I conclude the following:

BGIL fraudulently mis-utilized/ diverted the IPO proceeds to the tune of ₹ 23.46 crore

for the proposes and/or in the manner other than those disclosed in the

RHP/Prospectus.

BGIL fraudulently mis-utilized/ diverted the IPO proceeds to the tune of ₹ 12.5 crore

in the garb of ICD investments in Sanjukta Vanijiya Private Ltd, Darshan Trade link

Private Ltd. and Nihita Financial Services Private Ltd out which ₹ 11.15 crore remains

to be recovered by BGIL from three companies as directed by the interim order dated

December 28,2011.

BGIL entered into transactions with vendors which were pre-decided and provided

false information in the RHP/Prospectus about the vendors.

BGIL mis-utilized IPO proceeds by making payments to promoter / promoter related

entities without there being any disclosure in the RHP/ Prospectus regarding such

payments.

BGIL intentionally concealed the information relating to the ICD loans taken by it prior

to filing of RHP and after filing of RHP but before the filing of prospectus, and also did

not disclose the same to the public by way of a public notice.

BGIL repaid the ICD loans out of the IPO proceeds without making any disclosure in

the RHP/Prospectus in that regard.

BGIL diverted the IPO proceeds by transferring funds to traders who indulged in

synchronized and artificial trading on the day of listing of the shares of BGIL.

BGIL made wrong disclosures regarding percentage of purchase order placed by it.

BGIL entered into a related party transaction with Gadeo but deliberately did not disclose

the same as a related party transaction in the RHP/ Prospectus. BGIL also concealed the

information regarding the relationship of Mrs. Richa Mittal with Mr. Sanjeev Kumar

Mittal.


BGIL mislead the SEBI investigation by providing three different versions of ICD

loans and investments.

BGIL failed to comply with the SEBI order dated December 28, 2011 directing it to call

back payments made to its promoters / promoter related entities ;

BGIL failed to call back ₹ 11.15 crore out of the purported ICD investments of ₹12.5

crore as directed vide SEBI order dated December 28, 2011.

BGIL also willfully disobeyed SEBI's order by not depositing the unutilized IPO

proceeds and ICD investments recovered by it in an interest bearing escrow account

and mis-utilized the amounts so recovered in the garb of working capital requirements.

49. In light of the above observations, I find that the acts / omissions described hereinabove,

in totality, show that BGIL actively concealed material information, suggested untrue facts,

made false and inadequate disclosures in the RHP/Prospectus and mis-utilized / diverted

the IPO proceeds. The said acts and omissions of BGIL, apart from being in violation of

the requirements of the ICDR Regulations, also show a fraudulent scheme or device on

part of BGIL to mis-utilize/ divert the IPO proceeds. Such scheme or device falls within

the ambit of regulation 2(1)(c) of the PFUTP Regulations and is therefore in violation of

the provisions of section 12A of the SEBI Act and regulations 3 and 4 of the PFUTP

Regulations alleged in the SCN.

50. I note that Mr. Rakesh Bhatia (Chairman and Managing Director of BGIL), Mr. Sanjeev

Kumar Mittal (Executive Director of BGIL) and Mr. Rajeev Kumar Agarwal (Manager,

Finance of BGIL) were in charge of the day to day affairs of BGIL at the relevant time and

also owed a fiduciary duty towards BGIL. Further, they signed the declaration in the

prospectus certifying that all the statements in the prospectus are true and correct.

However, as described above, various disclosures in the RHP/Prospectus have been found

to be false and misleading. I also note that the audit committee meetings wherein, Mr.

Rakesh Bhatia and Mr. Sanjeev Kumar Mittal were members, had failed to notice the fund

mis-utilization / diversion and did not make any recommendations to BGIL which showed

their complicity in the mis-utilization /diversion of IPO proceeds by BGIL. In view of the

above, I find that Mr. Rakesh Bhatia, Mr. Sanjeev Kumar Mittal and Mr. Rajeev Kumar

Agarwal gave a wrong certificate in the RHP / Prospectus and were also responsible for the

acts and omissions of BGIL as described above.

51. Considering the above findings, I find that the charges levelled against the Noticees in the

SCN dated September 4, 2012 regarding violation of the provisions of section 12A

(a),(b),(c) of SEBI Act read with section 27 of SEBI Act and regulation 57 (1) and

57(2)(a)(ii) read with clause 2 (VII)(G), 2(VIII) (B)(5)(a)(b), (6), 2(IV)(H)(18) and (XVI) (B)

(2) of part A of schedule VIII, regulation 60(4)(a) and (7)(a) of ICDR Regulations, and


regulations 3(a), (b), (c), (d), 4(1), 4(2)(a), (d), (e), (f) and (k) of PFUTP Regulations are

established.

52. I, therefore, in order to protect the interest of investors and the integrity of the securities

market, in exercise of the powers conferred upon me by virtue of section 19 read with

sections 11, 11A and 11B of SEBI Act read with regulation 11 of PFUTP Regulations and

regulation 107 of ICDR Regulations hereby issue the following directions:

(i) BGIL shall, within six months from the date of this order, call back-

(a) ₹23.46 crore which were mis-utilized/diverted as found in this order; and

(b) ₹11.15 crore (out of ₹12.5 crore which were mis-utilized/diverted in the garb of

ICD investments in three companies as found in this order) that remains to be

recovered by BGIL from Sanjukta Vanijiya Private Ltd, Darshan Trade link Private

Ltd. and Nihita Financial Services Private Ltd;

(ii) The Board of directors of BGIL shall ensure compliance of the above direction and submit

a monthly progress report in that regard to SEBI. Further, the Board of directors shall also

furnish to SEBI a Compliance Report duly certified by an independent SEBI registered

Merchant Banker, other than the one who managed the IPO of BGIL, within two weeks of

the date of compliance of above direction.

(iii) Subject to the applicable provisions of Companies Act, 1956 and Companies Act, 2013,

as the case may be, BGIL shall utilize the funds raised in the IPO for purposes

disclosed in the Prospectus dated July 16, 2011.

(iv) BGIL, Mr. Rakesh Bhatia, Mr. Sanjeev Kumar Mittal and Mr. Rajeev Kumar Agarwal

are debarred from accessing the securities market and are also prohibited from buying,

selling, and otherwise dealing in securities market, directly or indirectly, in any manner

whatsoever, for a period of five years from the date of this order.

53. The period of prohibition already undergone by BGIL, Mr. Rakesh Bhatia, Mr. Sanjeev

Kumar Mittal and Mr. Rajeev Kumar Agarwal, pursuant to the interim order dated

December 28, 2011, shall be taken into account for the purpose of computing the period of

prohibition imposed in para. 52(iv) of this Order.

54. This order shall come into force with immediate effect. A copy of this order shall be served

on the Noticees, all the recognized stock exchanges and depositories for ensuring due

compliance with the above directions.

Date: August 8th , 2014 RAJEEV KUMAR AGARWAL

Place: Mumbai WHOLE TIME MEMBER

SECURITIES AND EXCHANGE BOARD OF INDIA

WTM/RKA/IVD/ID6/97 /2014 BEFORE THE SECURITIES AND ... · Order in the matter of Bharatiya Global...

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