The Ministry of Corporate Affairs has initiated an inquiry against L&T Finance Holdings, Tree House Education, DB Realty and at least a dozen other companies, to find if the companies have used the money raised through initial public offerings strictly for the purposes mentioned in their prospectuses, a source told Moneycontrol.
The move follows some investors complaining to regulators that the companies have used a portion of the funds for purposes other than those stated in the red herring prospectuses.
The Western Regional Director has sought the relevant documents from these companies to examine if the allegations have merit.
The Western Regional Director has already sent notices to some of the companies and rest will receive the notices in the coming days. A Mumbai suburban real estate also figures on this list of companies. In addition, some broking, pharma and textile companies are also under scanner of MCA.
In an e-mail response to Moneycontrol’s queries, L&T Finance Holdings said: “The company did its IPO in July 2011. In this regard, the company had been asked to submit certain information/clarification by Registrar of Companies and the same has been duly submitted by the company in time. The company has not received any further communication thereafter.”
In its response, Tree House said: “We had received a normal enquiry questionnaire from Ministry of Corporate Affairs (MCA), and we had already submitted our reply to MCA in the matter”
DB Realty’s Company Secretary declined to comment on the queries sent to it by Moneycontrol.
MCA has started sending notices under Section 206 of the Companies Act. This section relates to whether a company has fulfilled the promises made in its Draft Red Hearing Prospectus. The section deals with “the provisions relating to inspection, inquiry and investigation of the affairs of company. Investigation within the meaning of the relevant provisions of the Act is a form of probe; a deeper probe; into the affairs of a company”.
Said the source: “Any deviation in the use of IPO funds other than the purpose mentioned will attract prosecution charges against company. However, first we will complete the enquiry”.
MCA may share a part of this enquiry report with market regulator Securities and Exchange Board of India if the probe concludes that there were irregularities in the use of funds raised through the IPO.
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