Sebi has suspended the business of Bharat Global Developers for providing false financial statements

Markets regulator Sebi on Monday suspended trading of Bharat Global Developers Limited (BGDL) for alleged financial misstatements, misleading disclosures, price manipulation and offloading of shares at inflated prices.

Also, the regulator has blocked the allotment of various preference shares of the company’s managing director Ashok Kumar Sewada, chief executive officer Mohsin Shaikh and directors Dinesh Kumar Sharma and Nirali Prabhatbhai Karetha and 18 institutions from the stock market.

Also, SEBI, in its interim order, has frozen illegal profits of Rs 271.6 crore made by the preferential allottees through sale of shares.

This comes after the Securities and Exchange Board of India (SEBI) on December 16, 2024 launched an investigation into Bharat Global Developers following a social media post and complaint.

The inquiry was triggered by a dramatic 105-fold rise in BGDL’s share price, which rose from Rs 16.14 in November 2023 to Rs 1,702.95 in November 2024.

The regulator examined the case to determine whether the company violated securities laws, including the SEBI Act, Fraud and Unfair Trade Practices (PFUTP) rules, and Listing Obligations and Disclosure Requirements (LODR) rules.

In its investigation, SEBI found that BGDL had replaced its management, sanctioned preferential allotments to selected individuals, and issued false disclosures about business expansion and partnerships. These actions were part of a scheme to manipulate share prices and allow insiders to sell shares at artificially high prices.

The company portrayed itself as a successful company with great deals and technical expertise, none of which were true. This misrepresentation attracted skeptical investors and drove up share prices.

Moreover, the company’s financial statements appear to misrepresent the true state of the company and its business.

The financial statements showed that the company’s revenue, expenses, fixed assets and cash flow were negligible till FY23. Suddenly, however, the financial results for the quarter ending March 2024 showed a huge spike in revenue and expenses. This was accompanied by insignificant fixed assets, negative cash flow from operating activities and large amounts of trade receivables and payables.

Further, the regulator noted that the number of shareholders increased from 10,129 in September 2024 to 44,976 in December 2024. However, more than 99.9% of the shareholders held less than 1% of the equity, while some preferential allottees controlled many shares and made significant gains.

Further, bonus shares (8:10) and share split (10:1) scheduled for December 26, 2024 further diluted ownership and increased trading volume.

“False statements about its business, financials and prospects circulated by BGDL show an attempt to drum up the company’s share price.

“In the light of facts and findings… under the guise of a company I find, BGDL has now created paper assets with a market capitalization of over Rs 12,000 crore, which is not based on any real economic activity or production. None of the goods or services are actually owned by the company. Business and financials arise out of misrepresentation to common investors and shareholders,” Sebi Whole Time Member Ashwini. Bhatia said in his 25-page order.

Accordingly, SEBI has said in its order that ‘trading in the shares of Bharat Global Developers Limited has been suspended until further orders’.

Also, the regulator has banned the company, its top management) and preference allottees from “directly or indirectly buying, selling or dealing in securities or accessing the capital market in any manner until further orders”.

Also, the Compliance Officer is barred from being associated with any intermediary registered with SEBI, listed public company or any company seeking to collect money from the public until further orders.

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