Brightcom Group final order: SEBI suggests ED probe; Shankar Sharma free to sell BGL shares

Of the directions given to 25 noticees in the interim order, directions given to five stand changed in the confirmatory order.

Directions issued against veteran investor Shankar Sharma and the late Shivkrishna Harakchand Damani stand revoked. In the interim order, most noticees including Sharma had been asked not to dispose off shares of BGL held by them, directly or indirectly, in any manner whatsoever, until further order. With this confirmatory order, this restriction has been lifted.

Noticees had submitted a common reply dated February 16, 2024, to Sebi. On Sharma's transactions, the reply stated: "SEBI has alleged that while the total consideration payable by Shankar Sharma to BGL was Rs.56.66 Crore, he paid only Rs.39.98 Crore and there was a shortfall of Rs.16.67 Crore. However, the entire consideration of Rs.56.66 Crore had been received by BGL, which is demonstrated by the ledger statement maintained by BGL in respect of Shankar Sharma’ account, supported by the BGL's bank account statements. The entries in the ledger correspond with the bank account statements."

It added, "SEBI has not considered all the transactions of Shankar Sharma. SEBI has only considered the bank account entries from 11.07.2022 to 28.11.2022. It has failed to consider the five entries prior to 11.07.2022. The entries, which SEBI has failed to consider, are reflected in BGL's HDFC Bank Account No. 50200058179886."

The restraint on Narayan Raju, who was the company's chief financial office (CFO), regarding holding the position of a director or a Key managerial Person (KMP) in any listed company or its subsidiaries shall apply only in respect of BGL and its subsidiaries.

The directions issued against Kishan Prakash and Ishan Prakash stand revoked. However, shares of BGL, currently held by Kishan Prakash and Ishan Prakash in their demat accounts have been asked to transferred to the demat accounts of their father Varadarajan Prakash and, thereafter, a freeze will be marked on such shares in Varadarajan Prakash’s demat account till further order.

Among the directions that have been confirmed is the one the regulator issued to the company's promoter and CMD Suresh Kumar Reddy, restraining him from holding any key managerial position (KMP) in any listed company or its subsidiaries and from dealing in securities market until further orders.

The confirmatory order stated: "The prima facie findings that the Company had funded its own preferential allotments and had indulged in round tripping of funds continue to sustain. It has clearly emerged that in case of certain Noticees, personal loans advances by them abroad to Mr. Suresh Reddy and his private companies / entities were being repaid in India through the mechanism of allotment of shares of BGL, a listed company, in preferential issues for free or at partial consideration, at the cost of public shareholders of BGL."

Also read: Brightcom Group announces leadership changes following SEBI's crackdown

Run as private concern, "baffling"

In the order, the regulator has commented on the way the company was run. It stated: "It is apparent that the Company had loose internal financial controls and its CMD was running the Company as a private concern. The CMD treated BGL as his private enterprise, disregarding the large number of public shareholders and their interests. There were no checks and balances within BGL of the manner in which financial transactions were recorded.

The regulator has expressed bafflement at the way the CMD was allowed to profit from the company's shares without actually paying for them.

The order stated: "the manner in which LLPs were formed to benefit Mr. Reddy is truly baffling. By nominating himself as a limited partner in the LLPs at a later date, Mr. Reddy circumvented SEBI guidelines for promoter lock-in for shares allotted in a preferential issue. Further, it now emerges that these LLPs pledged shares to financial institutions and raised debt on the strength of the same. It is understood that the financial institutions have invoked their pledges and sold the securities. It thus appears that Mr Reddy was advanced money against unpaid shares and by pledging them, he made money without actually paying for them."

The WTM has suggested that the order be forwarded to ED for further investigation. The order read: "The settlement of loans advanced to Mr. Reddy and his companies abroad through allotment of shares in India also involved payments in forex through a web of transactions and may involve violation of laws pertaining to dealing in foreign exchanges. It would thus be proper to forward a copy of this order to the Enforcement Directorate for their examination and appropriate action, if any."