The market regulator ordered Brightcom Group (BGL) to ensure that statutory auditors of the company P. Murali & Co. and PCN & Associates, including their past and present partners, are not engaged with BGL or its subsidiaries in any capacity or manner whatsoever, until further orders.
The interim order was passed on August 22, because the regulator believes that an “urgent intervention” is warranted, and the order noted that this is perhaps the first time the Securities and Exchange Board of India (Sebi) has issued a second interim order on the same entity. SEBI has already issued an Interim Order-cum-Show Cause Notice dated April 13, 2023, to BGL and other persons, including the company's Chairman and Managing Director (CMD) Suresh Kumar Reddy (who is a Noticee in this latest order) after investigations revealed several instances of accounting irregularities and mis-statements in the financials of the company.
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The latest interim order (of August 22) on the preferential allotment stated that findings “clearly” showed “manipulations carried out by BGL and other Noticees (24 of them), in respect of BGL’s preferential allotments, which inter alia involve fictitious receipts of share application money from allottees and siphoning of funds from BGL”.
The regulator has also stopped the Suresh Kumar Reddy and its CFO Narayan Raju from holding the position of a director or a Key Managerial Personnel in any listed company or its subsidiaries until further orders; and restrained Suresh Kumar Reddy from dealing in securities until further orders.
The regulator also stopped 23 entities from disposing of shares of BGL held by them, directly or indirectly.
The order stated, “BGL has brazenly attempted to cover up its misdeeds by submitting forged and fabricated bank statements to SEBI. The blatant acts of the Company and other Noticees raise serious concerns about the affairs of the Company and also raise doubts as to whether the financial statements prepared by the Company and various disclosures made on Stock Exchange platform or in Annual Reports in the past are correct or not.”
The investigation has been able to probe only allotment made to 22 entities in the preferential issue, the order stated, and added that the there is a possibility that the remaining 60 (of the total 82 allottees) may have received shared without any or partial payment. While there is a detail probe into this matter, "the Company and its KMPs during the relevant time have not co-operated in the investigation".
According to the order, summons issued by the investigating authority were not answered by the company or its directors, and the company and its CMD submitted forged and fabricated bank documents as late as July 2023 to mislead Sebi. For the submission of these compromised documents, the order found the CMD and CFO responsible and stated that there is a real apprehension that if the two are allowed to continue to be at the helm of affairs, they "may make every effort to derail SEBI’s investigation to unravel the truth in this matter by further forging and fabricating records and misleading SEBI".
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The order also made reference to another investigation by Sebi that found " inter alia several instances of accounting irregularities and mis-statements in the financial statements of the Company".
It added, "As per the findings of investigation, BGL attempted to camouflage accounting entries in excess of Rs.1280 Crore during FYs 2018-19 and 2019-20 to give a distorted picture of the Company’s financial position. SEBI has already issued an Interim Order-cum-Show Cause Notice dated April 13, 2023 to BGL and other persons, including Mr. M. Suresh Kumar Reddy, who is a Noticee in this Order also."
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