Was a non-existent company used to cook books of two listed entities, provide unfair exit for promoters of one?

Beximcorp Textiles' name is suspiciously similar to Beximco Textiles Ltd, which is part of one of the largest conglomerates of Bangladesh, which has a diverse portfolio ranging from textiles to pharmaceuticals.

A non-existent company seems to have been used to create a hype around two listed companies, and may have even given an unfair, profitable exit to one of the listed companies' promoters.

The findings of a Securities and Exchange Board of India (SEBI) probe suggest a brazen attempt to mislead investors by using the names of leading conglomerates in Bangladesh, much like how counterfeit goods makers tweak well-known brand names to mislead buyers.

In an interim-cum-showcause notice issued in the matter of Kalahridhaan Trendz Ltd (KTL), a company falling under the SME or small and medium enterprise category and was listed less than a year ago, SEBI noted how the company on August 12, 2024, claimed to have got a "significant order" worth Rs 115 crore from Beximcorp Textiles.

Except there seems to be no company named Beximcorp Textiles.

Also read: SEBI bans company that has been listed for barely a year and its directors from the market

In the order, SEBI's whole-time member Ashwani Bhatia noted that another listed entity, Akshar Spintex Ltd (ASL) had also claimed in November 2023 that it had received order an worth Rs 171 crore from Beximcorp Textiles, only to announce more than a year later (in August 2024) that the order had been cancelled.

During this period, ASL's promoters sold their stake and brought it down to 0.27 percent in October 2024. The regulator suspects that the announcement and several corporate actions such as rights issue and bonus issue were announced only to give promoters an exit.

In KTL's order, SEBI said that it wanted to make sure that such an approach was not adopted by ASL's promoters.

The order said, "The modus operandi followed in both the cases of KTL and ASL have striking similarities. The genuineness of corporate announcement made by ASL on August 17, 2024, is also under the cloud of suspicion."

It added that the case of ASL, "where promoters exited the Company after making promising corporate announcement followed by corporate actions, is being examined separately, there is a real risk that the promoters of KTL, may also exit the Company in a similar fashion."

Faux company
While investigating KTL, the regulator asked for the details of the order placed by Beximcorp Textiles, which was said to be a subsidiary of Akij Textile Mills, Bangladesh.

Beximcorp Textiles' name is suspiciously similar to Beximco Textiles Ltd, which is part of one of the largest conglomerates of Bangladesh, with a diverse portfolio ranging from textiles to pharmaceuticals.

SEBI found that there was no entity registered by the name of Beximcorp Textiles in Bangladesh's central database of companies. Seeing that the name of this company was akin to that of Bangladesh's leading conglomerate's, the regulator also checked with Bangladesh Securities Exchange Commission (BSEC) whether there were any contracts signed between KTL and Beximco. The BSEC informed SEBI that no such contract was signed between Beximco and KTL.

Since KTL had also named Beximcorp as a subsidiary of Akij Group, a large industrial group in Bangladesh, SEBI officials also searched the country's central database of companies to see if Beximcorp was listed as one of the 128 companies under Akij Group. Again, nothing showed up.

SEBI officials then came to the conclusion that "there is no company in existence with the name 'Beximcorp' in Bangladesh".

Given this, the regulator asked KTL to give details of the contract signed with Beximcorp. In response, KTL submitted details of a contract but the contact details given were that of an Aditya Agarwal, a whole-time director of KTL and son of KTL's director Niranjan Agarwal.

When the regulator persisted, the company gave the contact details of another person, which again turned out to be false. The website was non-functional, the numbers were registered to other users who were residents of the UAE, and the email ID which was just a Gmail ID that carried the name Beximcorp Textiles was found to have been opened by a user in India.

Further, the Gmail ID was last used on May 6, 2024, but the order from Beximcorp Textiles (which supposedly operates using this Gmail ID) was dated later, on August 11 and 12, 2024.

Therefore, the investigating officials concluded, "It appears that KTL has fabricated the purported email communication/ trails in the name of Beximcorp Textiles to misrepresent facts and mislead SEBI regarding the order purportedly received from Beximcorp Textiles, a Bangladesh-based entity."

In the order, the regulator banned the company and related entities from the market until further orders. SEBI acted with urgency to stop promoters from selling their stake after the lock-in ends on February 23 and benefit from making false claims, and to stop a rights issue that the company had approved. Both of these would have resulted in public shareholders suffering losses after having been "lured by the false and misleading corporate announcements" .