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Company mistakes Sebi order as ‘informatory mail’; delays material-event disclosure by 2 weeks

Sebi has ordered a forensic audit, concerned about the disclosure of the company's financial information

May 26, 2023 / 10:35 PM IST
Trading in the stock has temporarily been suspended in the stock exchanges.

Trading in the stock has temporarily been suspended in the stock exchanges.

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There’s been a delay in disclosures with regard to Arcotech, a manufacturing company, again. This time it was to do with a ‘material event’ that is covered under listing regulations, last time it had to do with insider trading regulations.

In 2015, the Securities and Exchange Board of India (Sebi) fined promoter Arvind Kumar Saraf Rs 4 lakh for acquiring 0.50 percent of equity shares in two tranches, but making the disclosure 1,394 days and 1,392 days later.

This time, through a BSE filing done on May 10, Arcotech informed shareholders that a forensic audit has been initiated into financial matters for the year ending March 31, 2017, to March 31, 2022.

Also read: Sebi cracks the whip on AIF-structures helping regulated lenders hide stressed assets

However, the market regulator’s order had been issued on April 24, which was two weeks prior to the exchange filing. Initiation of a forensic audit is considered a material event under Regulation 30 of Sebi (Listing Obligations and Disclosure Requirements) Regulations, 2015, and has to be disclosed as soon as possible and not later than 24 hours.

The company said in its filing that the delay was “caused inadvertently”.

“Company interpreted this Forensic Audit mail as informatory mail and missed the Regulation 30 compliance requiring disclosure on initiation of forensic audit,” the filing stated.

Trading in the stock has temporarily been suspended in the stock exchanges.

Beat the Street, a Twitter handle (@BeatTheStreet10) that tracks corporate-governance redflags, posted about this development. “Delay in disclosure of Forensic Audit is now becoming common in almost all cases,” the handle commented, in a post on May 25.

According to FAQs released by Sebi, forensic audits that need to be disclosed are those “which are initiated with the objective of detecting any mis-statement in financials, mis-appropriation/ siphoning or diversion of funds.” Therefore, the one initiated against Arcotech would fall under its purview.

The Sebi letter to the company stated, “Securities and Exchange Board of India (SEBI) has reasonable grounds to believe that the disclosure of financial information and the business transactions in the matter of Arcotech Limited ("AL" or "Company"), have been dealt with in a manner which may be detrimental to the interest of the investors or the securities markets; and/or an intermediary or a person associated with the securities market may have violated the provisions of Securities and Exchange Board of India Act, 1992 ('SEBI Act'), Securities Contracts (Regulation) Act, 1956 ('SCRA Act'), SEBI (PFUTP) Regulations, 2003 and the provisions as specified in Section 24 of the Companies Act, 2013 or any other Rules or the Regulations made or directions issued by SEBI there under.”

Asha Menon