Sebi halts trading in Bharat Global Developers over suspected stock price manipulation
The suspension, effective immediately, follows a Sebi probe that found significant irregularities in Bharat Global Developers Ltd's financials and operations.
The market regulator has suspended trading in Bharat Global Developers Ltd’s (BGDL) shares until further notice over allegations of fraudulent activities and false disclosures in a rare such action.
The suspension, effective immediately, follows a probe that found significant irregularities in the company's financials and operations.
The Securities and Exchange Board of India (Sebi) had received a complaint on 16 December, alongside posts on social media, which raised concerns about BGDL's financial disclosures. BSE-listed BGDL saw its share price skyrocket 105 times over the past year, rising from ₹16.14 in November 2023 to ₹1,702.95 by November 2024, raising concerns of potential market manipulation.
"The shocking falsities presented by BGDL as legally required disclosures to the exchange expose a clear fraudulent scheme," said Sebi's order, authored by whole-time member Ashwani Bhatia.
Queries sent to BSE, Sebi and BGDL went unanswered.
Sudden surge in revenue and expenses
BGDL's growth was rapid and unexplained. The company, based in Ahmedabad, claims to be involved in a diverse range of sectors, including green energy, aerospace, agriculture, and computer hardware. However, its financial statements have long raised questions.
The investigation uncovered a series of concerning developments at BGDL, starting with a drastic overhaul of its management in December 2023. Key resignations, including of the company's statutory auditor, chief financial officer, and several directors, followed a preferential allotment of shares to 41 allottees. These allotments resulted in 99.5% of the company's shares being concentrated in the hands of a few individuals.
The allotments were carried out at significantly discounted prices, with shares issued at ₹10 per share, despite the company's stock price rising on a series of positive announcements, including deals with big names including Reliance Industries, Tata Agrico, and McCain India, which were later found to be fabricated.
The company's claims of establishing a wholly owned Dubai-based subsidiary were also never substantiated by official records. Meanwhile, between November 2024 and December 2024, several preferential allottees sold large portions of their shares at market prices, making profits more than ₹270 crore.
The Sebi probe found inconsistencies in BGDL’s financial statements. Before 2023-24, the company had negligible revenue, expenses, and assets. However, after the management overhaul and preferential allotments, the company reported a sharp revenue increase and a significantly expanded order book despite a lack of substantiated contracts and business activities.
Sebi’s findings suggest that BGDL used misleading disclosures to artificially inflate its stock price, thereby defrauding investors. The company's efforts to portray itself as a thriving business with lucrative contracts appear to have been part of a deliberate scheme to manipulate the market, the regulator said.
Sebi suspended trading in BGDL’s shares until further notice. The regulator also imposed restrictions on the preferential allottees, barring them from buying, selling, or dealing in any securities related to BGDL until further orders.
"The intent of the management appears to have been to mislead investors," said the order. "Under the glare of mandated disclosure requirements, corporate accountability and transparency is sought to be ensured. However, false disclosures that induce investors to trade on their basis constitute the worst kind of fraud-on-the-market and unfair trade practice."
Regulator's scrutiny
Citing Sebi's proactive in taking actions like freezing illegal profits and suspending trading in BGDL shares, Sanjay Israni, partner at Desai & Diwanji, said the present order was a rare event. "However, this order indicates that Sebi will require increased and comprehensive due diligence from merchant bankers in the listing process."
Another person aware of the development, who requested anonymity, said although BGDL appeared LODR-compliant initially, the revelations in Sebi's order pointed to fraudulent activity. Sebi acted swiftly, issuing an interim order to suspend trading, with the exchange complying with the same.
“Historically, fraudulent activities were identified after delays. Sebi’s swift action should serve as a deterrent to future fraudsters,” the analyst concluded.
Sangeeta Jhunjhunwala, partner at Khaitan Legal Associates, saw Monday’s order as an indication of intensified scrutiny of market irregularities. Sebi may implement stricter measures, including enhanced scrutiny of companies with unusual market behavior, tighter disclosure requirements, improved surveillance, and tougher penalties for fraud, she said.
What happens to the investors?
Jhunjhunwala was concerned that investors who bought BGDL shares during the price surge could face financial losses. She explained that the trading suspension leaves shareholders unable to sell, with the stock value now in question. "Allegations of fraudulent activities and false disclosures further jeopardize investor holdings," she said.
Israni estimated that 99.9% of BGDL's investors held less than 1% equity, so they may not face a chilling effect. However, Sebi could safeguard their interests by compensating them with the Investor Protection Fund (IPF).
Either way, if there was misrepresentation in the disclosures leading to defrauding investors, Sebi was obligated to act, said senior securities lawyer Chirag M Shah “It should, even if there is no immediate liquidity available to the investors. The absence of liquidity is not a valid reason to refrain from taking necessary action. Furthermore, this order is temporary, and further steps will be taken as the investigation progresses," he said.
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