order in the matter of bharatiya global infomedia ltd

8/12/2019 Order in the matter of Bharatiya Global Infomedia Ltd

1/49

______________________________________________________________________________Order in the matter of Bharatiya Global Infomedia Ltd. Page 1 of 49

WTM/RKA/IVD/ID6/97 /2014

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA

ORDER

Under sections 11(1), 11(4), 11A and 11B of the Securities and Exchange Board of India Act,

1992 read with regulation 11 of the Securities and Exchange Board of India (Prohibition of

Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003

and regulation 107 of the SEBI (Issuance of Capital and Disclosure Requirements)

Regulations, 2009 against:

Sl. No. Name /designation of Entity PAN1. Bharatiya Global Infomedia Ltd AABCB8175B2. Mr. Rakesh Bhatia (Chairman and Managing Director), AHYPB7406Q

3. Mr. Sanjeev Kumar Mittal (Executive Director) AIVVPM0122A4. Mr. Rajeev Kumar Agarwal (Manager, Finance) AGGPA0436L

In the mater of IPO of Bharatiya Global Infomedia Limited.________________________________________________________________________Appearances:

For the Noticees:

1. Mr. K. K. Singh

2. Ms. Aarti Jain

3. Mr. Sanjeev Kumar Mittal

4.

Mr. Kumar Pushkar

For SEBI:

1. Mr. B. Rajendran, General Manager

2. Mr. Sugadev C, Assistant General Manager

_________________________________________________________________________

1. Bharatiya Global Infomedia Limited (BGIL) came up with an Initial Public Offer ("IPO")

through the book building route in the price band of 75 to 82 for 67.2 lakh equity shares

of 10 each constituting 42.42% of its post issue paid-up capital. The issue price of BGIL's

share was 82 and the issue size was 55.104 crore. The Book Running Lead Manager for

the issue was Almondz Global Securities Limited ("Almondz / Merchant Banker"). The

allotment of shares in IPO was completed on July 21, 2011 and thereafter the shares of

BGIL were listed and admitted for dealings on National Stock Exchange of India Ltd.

(hereinafter referred to as "NSE") and Bombay Stock Exchange Ltd. (hereinafter referred

to as "BSE") on July 28, 2011.

2. It was noted that on the day of listing of shares of BGIL i.e. on July 28, 2011, on BSE, the

price of the scrip opened at 81.9, stayed between 60-70 for some time and then

Brought to you by http://StockViz.biz


2/49


plunged to 29.90 at close. On NSE, the price of the scrip opened at 84 (dayshigh),

stayed between 60-70 for some time and then plunged to 30.95 at close.

3. In this background, the Securities and Exchange Board of India ("SEBI") undertook

preliminary investigation in the IPO of BGIL and it prima facie observed, inter alia, that

BGIL had utilized the IPO proceeds in a substantially different manner than those

disclosed in the Red-Herring Prospectus dated June 28, 2011 ("RHP") and Prospectus

dated July 16, 2011("Prospectus"). In addition thereto, several instances of untrue, incorrect

and misleading disclosures in the RHP/Prospectus were also observed. While the

investigation in the matter were ongoing, SEBI vide an ad-interim ex-parte order dated

December 28, 2011, inter-alia,issued the following directions:

i.The company Bharatiya Global Infomedia Ltd., is prohibited from raising any further capital from

the securities market, in any manner whatsoever, till further directions.ii.The company BGIL (PAN: AABCB8175B), its directors Rakesh Bhatia, Chairman and

Managing Director, PAN: AHYPB7406Q, Arti Bhatia, Director, PAN: AFCPB5056J,

Sanjeev Kumar Mittal, PAN: AIVVPM0122A Anil Kapoor Passport No. P USA

448486811, Sanjay Kapoor, PAN: AIXPK2530Q, Harjeet Anand, PAN: AABPA2410K,

Jaya Mishra, PAN: AAJPM6407E and its Manager (Finance) Rajeev Kumar Agarwal (PAN:

AGGPA0436L) are prohibited from buying, selling or dealing in the securities market in any manner

whatsoever, till further directions.

iii.The Company shall call back the ICDs of 12.5 crore invested by it with Nihita Financials Ltd.,

Sanjukta Vanijya Pvt. Ltd and Darshan Tradelink Pvt. Ltd., and all amounts transferred / paid

out of IPO proceeds to its directors or relatives of its directors or HUFs belonging to any of its directors

or associate or subsidiaries or group companies. These amounts together with all of the IPO proceeds

that are still lying unutilized with the company across all its bank / deposit accounts or any investments

including in mutual funds, shall be deposited in an interest bearing escrow account with a scheduled

commercial bank, till further orders. A confirmation on compliance of this direction shall be sent by the

promoters of BGIL to the stock exchanges where it is listed, within 7 days from the date of this order.

4.

During the pendency of the investigation in the matter, the directions issued vide the interimorderwere confirmed vide SEBI's order dated October 5, 2012 ("confirmatory order"). After

completion of investigation in the matter, vide order dated May 07,2013, the interim

directions, issued against Ms. Arti Bhatia, Mr. Anil Kapoor, Mr. Sanjay Kapoor, Mr. Harjeet

Anand and Ms. Jaya Mishra vide the ad interim ex-parte Order dated December 28, 2011 and

confirmed vide order dated October 05, 2012, were revoked.

5. The facts revealed during investigation and that are the basis of allegation/charges in the

instant proceedings are, inter alia, the following:

1)

The IPO proceeds of 55.104 crore were transferred to BGILs bank account (Axis BankA/c no. 911020037696473) on July 27,2011. As on November 15, 2011, the available



3/49


balance in the said account was 54.49 lakh only as the rest of the money was already

transferred or paid to various entities, including the funds transferred to other accounts of

BGIL, payments to promoters and group companies, etc.

2) At the relevant time, BGIL had utilized 34.70 crore out of the IPO proceeds as

described in the following table:

Table 1 : Utilization of IPO proceeds vis--vis the objets of the IPO disclosed in

RHP/Prospectus ("Fund utilization table")

in crore

S.No.

Category To beutilized asperRHP/Prospectus

Utilizedassubmittedby BGIL

Utilized(investigationfindings)

Mis-utilization/diversion

1 Setting up its ownedcorporate office at Noida

3.960 0.410 0.410 0.000

2 Relocation of branchoffice

5.936 4.024 1.524 2.500

3 Up-gradation of Digitalpost production studio

13.655 9.389 0.000 9.389

4 Investment in IT division 8.392 3.910 0.400 3.5105 Expansion of R&D

Technology centre andadvance made to Avancetechnologies (paid before

IPO and recovered fromIPO fund)

6.567 4.321 0.035 4.286

6 Repayment of bankborrowing

2.697 2.931 2.931 0.000

7 Working capitalrequirement

5.050 4.9106 2.396 2.515

8 General Corporateexpenses

6.500 2.115 0.855 1.260

9 Meeting the issueexpenses

2.774 2.690 2.690 0.000

Total 55.53 34.70 11.24 23.46

3)

It was observed that out of the above utilization of 34.70 crore from the IPO proceeds,

only 11.24 were utilized for objects disclosed in the RHP/Prospectus and remaining

23.46 crore were mis-utilized/diverted for purposes other than those disclosed in the

RHP/Prospectus as following:

I. Mis-utilization / diversion relating to relocation of branch office.

i. BGIL had disclosed to the stock exchanges regarding utilization of IPO proceeds

that it had inter-alia spent 250 lakh for the purchase of office. The agreements

submitted by BGIL revealed that the payments of 100 lakh on July 02, 2011 and



4/49


150 lakh on July 05, 2011 were made to Dhanmangal Developers Private Limited

(:Dhanmangal") as advance payment out of the total consideration of 500 lakh for

the purchase of an office space at Kolkata. The advance was made within 3 days of

the RHP date and before the prospectus date. However, the said transaction was

neither disclosed in the Prospectus by BGIL nor did it issue any public notice asrequired by the SEBI (Issuance of Capital and Disclosure Requirements)

Regulations, 2009 ("ICDR Regulations"). Instead, BGIL had mentioned in the

RHP/Prospectus that "Except as stated in section titled 'Objects of the Issue' appearing on

page no.29 of this Prospectus, there is no property which our Company has purchased or acquired

or propose to purchase or acquire which is to be paid wholly, or in part, from the net proceeds of

the Issue or the purchase or acquisition of which has not been completed as on the date of filing of

this Prospectus with SEBI."

ii.

Investigation revealed that Dhanmangal was incorporated on January 08, 2010,with Mr. Rana Pratap Singh and Mr. Navin Kumar Sharma as directors and had

only cash and Bank balances of 3.43 lakh and loans and advances of 77.72 lakh.

Further, it did not have any fixed assets, capital work in progress, investments,

inventories or sundry debtors for both the financial years 2009-10 and 2010-11.

The agreement with Dhanmangal, submitted by BGIL, did not contain the

construction/plot address/location of the relevant property It was also revealed

that it was in the business of development of agriculture land levelling and did not

have any employees other than its directors. It was further revealed that

Dhanmangal did not undertake any real estate projects during the year 2010-11 and

2011-12 and did not have any project approval, etc. from the competent authority.

From the above, it was observed that the transaction for the purchase of the said

property by BGIL is non genuine and the IPO proceeds have been diverted for the

purposes other than that mentioned in the RHP/Prospectus. It was also observed

that BGIL knowingly concealed the transaction with Dhanmangal and intentionally

provided wrong and misleading disclosure in the prospectus.

II.

Mis-utilization / diversion relating to up-gradation of Digital post productionstudio and Investment in IT division.

i. Investigation revealed that BGIL did not utilize the amount as specified in the

RHP / Prospectus except the payments of 0.40 crore made to one V Kumar &

Co. for furniture and fixtures. The payments made by BGIL to various vendors

were not found to be in accordance with the disclosures made in the RHP /

Prospectus since the actual vendors to whom the payments were made by BGIL

were different from the vendors whose names were disclosed in the RHP/



5/49


Prospectus. Thus, it was observed that the funds to the extent of 12.89 crore

were mis-utilized by BGIL.

III. Mis-utilization / diversion relating to expansion of R&D Technology centre.

i.

Investigation revealed that out of the amount of 4.321 crore, claimed by BGIL tohave been incurred towards the expansion of R&D technology centre, only the

payment of 0.035 crore made to Westcon India Private Limited was in accordance

with the disclosures made in the RHP / Prospectus, and the remainder amount of

4.286 crore was mis-utilized. It was observed that advance payments of 0.14 crore,

legal expenses and travelling expenses were not as per the disclosures made in the

RHP / Prospectus. Further, it was observed that the payment of 2.65 crore made

to Avance Technologies Limited (Avance), claimed by BGIL as advance amount,

was a mere round trip transaction. As disclosed in the RHP and Prospectus, BGILhad made an advance payment of 2.65 crore to Avance prior to IPO. In the fund

utilization table, the advance amount was not deducted and the entire cost i.e.,

6.57 crore was shown as payable to Avance from IPO Proceeds. Though BGIL

claimed that 2.65 crore was paid to Avance to expedite the timely delivery of BMS,

it was observed that BGIL paid only 50 lakh and remaining 2.15 crore was

returned back to BGIL through circuitous transfers of funds between Avance,

BGIL and Saptrishi Suppliers Private Limited ("Saptrishi"). The diagram below

draws out the fund flow in respect of the transactions of BGIL with Avance

Diagram 1 : Fund flow pertaining to the transactions of BGIL with Avance

ii. As observed from the above fund flow, except 50 lakh received by BGIL on June

08, 2011, all other funds were circuitously transferred to create artificial financial

obligation for 2.15 crore. The amount of 55 lakh received from Saptrishi by



6/49


BGIL on June 8, 2011 was returned to Saptrishi on the same day through Avance.

Similarly, 50 lakh and 60 lakh received on June 15, 2011 were also returned on

June 16, 2011 to Saptrishi through Avance and Priority Exports. Another 50 lakh

received from Saptrishi by BGIL on June 15, 2011 was returned on the same day to

Saptrishi through Avance and Satshri Multitrade Private Ltd.In view of the above,it was found that BGILs disclosure of 2.65 crore of advance payment made to

Avance is false and misleading and an obligation of 2.15 crore was created

artificially to siphon off of the said amount from the IPO proceeds.

IV. Mis-utilization/ diversion relating to working capital requirements.

i. BGIL had entered into an agreement with Jupiter Infraenergy Limited ("JIL") on

July 1, 2011 for various services for a consideration of 500 lakh and made the

payment of

251.50 lakh to JIL out of which

30 lakh was paid before theprospectus date. The payment to JIL and availing services were neither disclosed in

the prospectus nor public notice was issued as required by the ICDR Regulations.

Further, it was also observed from the bank account statement of JIL that 180.75

lakh were transferred to BGIL and its group companies viz., BGIL (7.50 lakh) and

Number one Finvest Private Limited (173.25 lakh). It was also found that 32.45

lakh cash was withdrawn by JIL. The table below shows the extracts from JIL's

bank statement including the date and time of deposit and the withdrawal:

Table 2 : Extract of JIL's Bank Account

S. No Date/timeof

transaction

Branch name Particulars Debit/

Credit

Amount

1 29/06/20111:28:48 pm

Electronic payand settlementoffice Mumbai

Bharatiya globalinfomedia ltd-

180200194

C 15,00,000

2 29/06/20113:33:13 pm

Nehru placeDelhi

Casa chequewithdrawal

D 9,50,000

3 01/07/20112:44:56 pm

Nehru placeDelhi

By tr cuckoorealtechlt

90441010014465

C 2,60,000

4 01/07/20112:48:10 pm

Nehru placeDelhi

Casa cheqwithdrawal

D 8,05,000

5 04/07/20111:47:03 pm


Bharatiya globalInfomedia ltd-

185200185

C 15,00,000

6 04/07/20113:05:13 pm

Nehru placeDelhi

To tr bharatiyaglobal i

90771010001070

D 7,50,000

7 05/07/20112:58:37 pm Nehru placeDelhi Casa chequewithdrawal D 7,50,000



7/49


8 01/08/201111:10:48 am


Bharatiya globalInfomedia ltd-

213200056

C 45,00,000

9 03/08/20113:16:11 pm

Nehru placeDelhi

Jk metal feeders-synbh112154567

10

D 45,00,000

10 04/08/201111:46:28 am

Nehru placeDelhi

To clg (rej): j kmetal

C 45,00,000

11 04/08/201111:46:28 am

Nehru placeDelhi

To clg j k metal D 45,00,000

12 04/08/201111:54:18 am

Electronic payand settlmnt

offce mumbai

Bharatiya globalInfomedia

limited-66392

C 1,76,50,000

13 04/08/201112:04:47 pm

Nehru placeDelhi

To tr number onefinsec

90441010015230

D 23,25,000

14 04/08/201112:09:49 pm Nehru placeDelhi To tr number onefinvest90441010013835

D 1,50,00,000

ii. In addition to the above, the following facts were also revealed during the

investigation:

JIL was originally incorporated as Jupiter Capital Services Private Limited (JCSL)

in the year 1994, and Mr. Rakesh Bhatia and Ms. Arti Bhatia holding 100 shares

each out of 700 shares were the shareholders of JCSL.

During the year 2004, BGIL had become one of the major shareholder of JCSL

(24%) Mr. Rakesh Bhatia was a director till 2005. Subsequently, in the year 2008,

JCSL's name was changed to Jupiter Infraenergy Limited.

Mr. Rajeev Kumar Agarwal (Manager-Finance, BGIL) and Kartik Share Traders

(P) Ltd., a company in which Mr. Rajeev Kumar Agarwal is a director, were the

major shareholder of JIL as on September 2009 and 2010.

As on March 2012, JIL was holding more than 1.68% shares in BGIL i.e. 26,637

shares.

JIL had nil income for the years 2007-08 and 2008-09.

Mr. Narender Kumar Jena, Mr. Uma Shankar Behera and Mr. Latesh Kumar were

the directors of JIL since 2005. From BGIL's employees list, employee's

attendance details and salaries details paid for the month of October 2011, it was

observed that Mr. Narendra Jena and Mr. Uma Shanker Behera were working

with BGIL as office boy and hardware maintenance person drawing the monthly

salary of 8,450 and 17,550, respectively. Further, the website of Ministry of

Corporate Affairs showed that Mr. Narendra Jenas address as 601, Devika

Tower, Nehru Place, New Delhi, 110019, Delhi, INDIA which is the same as

BGIL's address.



8/49


Mr. Uma Shankar Behera and Mr. Narendra Jena were also holding 7,000 shares

and 1,500 shares of BGIL respectively, prior to its IPO. Further, Mr. Narendar

Jena is also the director of Cuckoo Realtech Limited (a group company of BGIL)

which is one of the shareholders of Kriti communication private Limited, and

Number one Finvest private limited (group companies of BGIL).

iii. From the analysis of above facts, it was observed that JIL was merely a front entity

of BGIL and the funds paid to JIL by BGIL were diverted from the IPO proceeds

and JIL was only used as a conduit for the said diversion of IPO proceeds.

V. Mis-utilization / diversion relating to General Corporate expenses.

i. BGIL made a disclosure at page 39 of RHP that No part of the issue proceeds, will be

paid by our company, as consideration to promoters, directors, promoter group entities and key

managerial personnel. However, investigation revealed that BGIL mis-utilized the IPO

proceeds by making payments to one of the promoters and Managing director of

BGIL, Mr. Rakesh Bhatia, his son Gaurav Bhatia, Rakesh Bhatia-HUF and the

group companies i.e. BGIL Films and Technologies Limited and Number one

Finsec Private Limited. Cash withdrawal of 60.45 lakh was also observed in the

bank statement of BGIL. The table below shows the payments made by BGIL to

the said entities:

Table 3: Payments made by BGIL to promoters and related entities

Name Relationship Amount (. in lakh)Rakesh Bhatia Promoter 44.06Gaurav Bhatia Son of Promoter 4.50Rakesh Bhatia (HUF) HUF of Promoter 10.50BGIL Films and

Technologies Ltd.Related entity of the promoter 30.15

Number one Finsec Pvt.Ltd.

Related entity of the promoter 36.75

Total 125.96

ii. It was found that though certain loan details were disclosed in the RHP/Prospectus,

it was not disclosed that these loans will be repaid from the IPO Proceeds. During

investigation, BGIL submitted that these payments were in respect of repayment of

the loan received from these entities. Further with respect to 2.60 lakh paid to Mr.

Gaurav Bhatia, BGIL had claimed that it was employees advance, which was

subsequently recovered. It was observed that the subsequent recovery from Mr.

Gaurav Bhatia by BGIL with interest was an afterthought after SEBI's interim order

pointing out the said amount as diversion of funds. It was also observed that BGIL



9/49


had made wrong disclosure in the RHP/Prospectus and diverted the part of IPO

proceeds to promoters and promoters related entities

Mis-utilization / diversion of IPO proceeds by repaying ICD loans raised prior to theRHP date / prospectus date without any disclosure.

4) Investigation also revealed that BGIL had taken ICD loans of 7 crore prior to RHP and

of 8 crore before the prospectus date The details of the ICD loans taken by BGIL are

given in following table:

Table 4 : ICD loans taken by BGIL

S.No

Party Name Received DateAmount in crore

Prior to the date of filing of RHP

1 Krishna trade & Commerce 21.6.2011 2.002 AachmanVanijya Pvt. Ltd. 22.6.2011 2.00

3 SajalImpex Pvt. Ltd. 22.6.2011 0.4754 Dinosour Tradelink Pvt. Ltd. 27.6.2011 1.005 Divyadrishti Traders Pvt. Ltd. 27.6.2011 0.5256 Subhshree Hirise Pvt. Ltd. 27.6.2011 1.00

After the date of filing of RHP but before the date of filing of Prospectus7 Skylight Distributors Pvt. Ltd. 29.6.2011 1.008 Times tradelink Pvt. Ltd. 30.6.2011 1.009 Makesworth Projects 04.7.2011 1.00

10 Affluent Dealcom Pvt. Ltd.04.7.2011 1.00

05.7.2011 0.511 Abhilasha Ex orts Pvt. Ltd. 06.7.2011 1.00

12ETL Infrastructure Finance

Ltd.

05.7.2011 1.50

07.7.2011 1.00

Total 15.00

5) The above mentioned ICD loans were repaid from the IPO proceeds on the date of

receipt of IPO proceeds in the account of BGIL or the next day as described in the

following table :

Table 5 : Repayment of ICD loans out of IPO Proceeds

S.No.

Date oftransaction

Paid to Amount in

crore1 27-07-2011 TIMES TRADE LINK PVT. LTD. 1.002 27-07-2011 KRISHNA TRADE AND COMRCE PVT

LTD.2.00

3 27-07-2011 DIVYADRISHTI TRADERS PVT. LTD. 0.5254 27-07-2011 MAKESHWORTH PROJECTS

DEVELOPERS P. LTD.1.00

5 27-07-2011 ETL INFRASTRUCTURE FINANCELTD. 2.50



10/49


6 27-07-2011 DINOSOUR TRADELINK PVT. LTD 1.007 27-07-2011 AFFLUENT DEALCOM PVT.LTD. 1.508 27-07-2011 AACHMAN VANIJYA PVT. LTD. 2.009 27-07-2011 SUBHSHREE HIRISE PVT LTD 1.0010 27-07-2011 SKYLIGHT DISTRIBUTORS PVT LTD 1.00

11 27-07-2011 ABHILASHA EXPORTS PVT LTD 1.0012 28-07-2011 SAJAL IMPEX PVT LTD 0.475

6) BGIL had not disclosed the above ICD loans of 7 crore in its RHP. Further, the ICD

loans of 8 crore were neither disclosed in the prospectus nor any public notice was

issued by BGIL as required in the ICDR Regulations rather it made a misstatement and

wrong disclosure in its RHP and Prospectus to the effect that our company has not raised any

bridge loan against the proceeds of the present issue.

7)

BGIL had not taken any ICD loan other than those mentioned above in the last two yearsprior to filing of RHP. It was observed that there were no agreements between BGIL and

various entities from whom the ICD loans were taken. Further, the letters claimed to have

been exchanged between them, in this regard, did not mention any rate of interest and

BGIL did not pay interest on the said ICD loans. On the basis of the above, it was

observed that the letters between BGIL and various entities were created as an

afterthought when SEBI sought the agreement details in respect of ICDs from BGIL.

8) Admittedly, out of the aforesaid ICD loans of 15 crore, 13.46 crore was paid to

various entities prior to the RHP of BGIL as described in the following table:

Table 6 : Use of ICD loan amount

Payment Details

Quotation Date

Reference to Objects ofIssue

Date Paid ToAmount( in Lac)

Purposeclaimed by

BGILItem Amount

02.07.2011DhanmangalDevelopers

100.00offices

- Offices989.60

05.07.2011 DhanmangalDevelopers

150.00

29.06.2011Jupiter

Infraenergy15.00

WorkingCapital

- - -

04.07.2011Jupiter

Infraenergy15.00

WorkingCapital

- - -

21.06.2011 Houston Tech 191.40 Machineries 20.06.2011 Studio Machines 1,075.0023.06.2011 Houston Tech 178.60 Machineries 20.06.2011 Studio Machines 1,075.00

23.06.2011Quantum Hi

Tech36.00 Machineries 20.06.2011

OfficeEquipments for

IT Div.131.15

24.06.2011 Houston Tech 69.00 Machineries 20.06.2011 Studio Machines 1,075.00

28.06.2011 Net 4Communicatio

130.00 Machineries 22.06.2011 Computers forIT & Studio

244.521075.00



11/49


ns Machines

02.07.2011Himalayan

Times60.00 Machineries 28.06.2011 Studio Machines 1,075.00

02.07.2011 Vivid IT 1.11 Machineries 02.07.2011Computers for

IT Div244.52

05.07.2011Himalayan

Times80.00 Machineries 28.06.2011 Studio Machines 1,075.00

05.07.2011Net 4

Communications

120.00 Machineries 22.06.2011Computers for

IT & StudioMachines

244.521075.00

06.07.2011Millenium

Automation50.00 Machineries 21.06.2011

HardwareEquipments forIT Div. , OfficeEquipments&

two StudioMachines

186.14 &1075.00

06.07.2011Millenium


08.07.2011Millenium


Total 1346.11

9)

The remaining amount was paid towards other expenses viz., rent, salary to employees,

IPO expenses, etc.

10)The above amount of 13.46 crore was paid to the above mentioned entities under three

categories of Objects of the issue:-

i. 2.50 crore to Dhanmangal for setting up of Office as mentioned above

ii. 0.30 crore to JIL for Working capital as mentioned above :

iii. 10.66 crore paid to various vendors towards purchase of machineries as shown in

the table below.

Table 7 - Details of quotations and payments in respect of vendors

.No

SupplierName

Quotation date

Paymentdate

Buyorderdate

Invoicedate

Amou

nt inlakh(as perinvoice)

Totalas perinvoice

inlakh

Amount paidinlakh (asperbankaccount)

Totalpaid asperbankaccoun

t inlakh

1 HoustonTechnologies Ltd.

0-Jun-11 21-Jun-11 20-Jun-11 07-Sep-11 175.94 430.07 191.4 43923-Jun-11 20-Jun-11 16-Sep-11 221.77 178.6

3 24-Jun-11 20-Jun-11 12-Sep-11 32.36 69

4 QuantumHi-TechMerchandising Pvt.Ltd.

0-Jun-11 23-Jun-11 - 28-Sep-11 35.14 35.14 36 36

5 Net 4Communications

Ltd.

2-Jun-11 28-Jun-11 - 12-Sep-11 134.87 245.38 130 250

6 05-Jul-11 09-Sep-11 65.89 120

7 14-Sep-11 44.62



12/49


8 Vivid ITSolutionsPvt. Ltd.

02-Jul-11 02-Jul-11 - 04-Jul-11 1.11 1.11 1.11 1.11

9 Himalayan TimesPvt. Ltd.

8-Jun-11 02-Jul-11 - 16-Sep-11 57.94 144.29 60 140

10 05-Jul-11 19-Sep-11 39.46 8011 21-Sep-11 46.89

12 MillenniumAutomation &SystemsLimited

1-Jun-10 06-Jul-11 02-Sep-11 02-Sep-11 17.13 233.82 50 20013 06-Jul-11 03-Sep-11 03-Sep-11 56.5 5014 08-Jul-11 06-Sep-11 06-Sep-11 160.19 100

Total 1089.81 1089.81 1066.11 1066.11

11)It was found that out of 14 quotations to actual vendors (to whom purchase orders were

placed and payments were made), in respect of 13 quotations, the date of quotation was

on or prior to RHP date and in respect of one entity (i.e. Vivid IT Solutions Pvt. Limited)

the quotation date was prior to the prospectus date. It was also found that 605 lakh was

paid to the vendors on or before the RHP date and 461 lakh was paid to the vendors

before the prospectus date.

12)In view of the above details, it was inferred that the vendors to whom the payments were

made by BGIL were pre-decided and the payments were made to them before the RHP

date/Prospectus date/date of allotment of securities. It was observed that BGIL had

made wrong disclosures in the RHP/Prospectus by providing names of

suppliers/vendors who were different from the actual vendors.

13)Investigation also revealed that BGIL in its RHP and Prospectus had disclosed under the

paragraph on 'Interim use of proceeds' that, Our Companys management, in accordance with

the policies established by the Board, will have flexibility in deploying the proceeds received from the Issue.

Pending utilization of the proceeds out of the Issue for the purposes described above, we intend to

temporarily invest the funds in high quality interest bearing liquid instruments including money market

mutual funds and deposits with banks. Such investments would be in accordance with the investment

policies approved by the Board from time to time.

Diversion of IPO proceeds in the garb of ICD investments.

14)In addition to above fraudulent mis-utilisation/diversion of 23.46 crore out of the IPO

proceeds, it is noted that BGIL claimed during investigation that it had temporally

invested 12.5 crore in ICDs as under:

Table 8: ICD Investments made by BGIL

S. No. Particulars Agreementdate

Transaction date Amount in crore

1 Darshan tradelink July 20, .2011 July 27, 2011 4.00



13/49


Pvt. Ltd.2 Sanjukta vanijya

Pvt. Ltd.July 21, .2011 July 27, 2011 3.50

3 Nihita FinancialServices Pvt. Ltd.

July 23, .2011 July 28, 2011 5.00

15)

As per the disclosures made by BGIL, pending utilization, the IPO proceeds should have

been invested in high quality interest bearing liquid instrumentsincluding money market mutual

funds and deposits with banks. However, BGIL, vide e-mail dated December 22, 2011

informed SEBI that we wish to confirm that there is no formal investment policy adopted in our

company.It was found during investigation that BGIL had made investments which were

not in line with the disclosures made in the Prospectus and gave loans to the above

named three entities whose reliability is not known.

16)

As per the agreements of BGIL with Sanjukta Vanijiya Private Limited and DarshanTrade link Private Ltd., the amounts paid to them were supposed to be repaid on January

26, 2012. In the case of Nihita Financial Services Private Ltd, it was supposed to be repaid

on July 19, 2012. Further, as per the agreements with these three entities, the ICDs could

be called back by BGIL at any time with a notice of 3 days. It was observed that in spite

of the direction of SEBI vide ad-interim ex-parte order dated December 28, 2011 directing

BGIL to call back the said ICD investments,BGIL did not recover the same from the

said three companies. Thus, it was observed that BGIL mis-utilized the issue proceeds by

investing the amount of 12.5 crore in the name of ICD investments in entities whose

credentials were not known.

Diversion of IPO proceeds to traders.

17)Investigation further revealed that 10.53 crore out of the IPO proceeds had reached the

following entities:

7.10 crore to five entities (hereafter referred to as "GRD Group") viz., Marutinandan

Infosolutions Private Limited (MIPL), Jalan cement works Limited (Jalan), Orbit

Financial Consultants Private Limited (Orbit), GRD securities private Limited (GRD

and Swift Tie Up Private Limited (Swift). As noted above, as a part of the purported

ICD investments, BGIL had transferred 7.5 crore to Sanjukta Vanijya Private Ltd and

Darshan Tradelink Private Limited which have common directors viz.,Mr. Goutam

Basotia and Mr. Santosh Kumar Sahal. Out of the said 7.5 crore, 7.10 crore reached

GRD,

3.43 crore to four entities (hereafter referred to as "Korp Group") viz., Korp

Securities Ltd (Korp), Wheelers Developers Private Limited (Wheelers), Divyadrishti

Merchants Private Ltd and Divyadrishti Traders Private Ltd. As noted above, BGIL

had made ICD loan repayments of 1 crore each to Abhilasha Exports Pvt. Ltd,Skylight Distributors Private Limited, and Subhshree Hirise Pvt. Limited. Out of this



14/49


3 crore, 2.9 crore had reached Divyadrishti Traders Private Limited. In addition to

the above, BGIL had also transferred 0.53 crore directly to Divyadrishti Traders

Private Limited. In total, 3.53 crore was received by Divyadrishti Traders Private

Limited out of which Divydrishti Traders Private Limited had transferred 0.89 crore

to Wheelers and 1.97 crore to Korp.

18)It was observed that the said two groups indulged in fraudulent and unfair trade practices

in the shares of BGIL on the listing day through various synchronized / structured trades

with one Mr. V. P. Patel ('VPP'). MIPL and VPP had executed synchronized trades for

the quantity of 3,56,791 shares through two trades with buy and sell order time difference

of 4 seconds and 2 seconds, respectively. In addition thereto, VPP also executed two

structured trades with Divyadrishti Merchants Private limited for 79,657 shares and Swift

Tie up private limited for 1,68,044 shares.

19)It was found that VPP, GRD and Korp Group had traded among themselves creating

artificial volume of 5,62,674 shares at NSE and 2,70,599 shares at BSE, without the

intention of change of ownership of BGIL shares and created false or misleading

appearance in the securities market. While carrying out the said transactions, the two

groups suffered heavy losses which were compensated by BGIL.

20)The following is the summary of GRD Group's and Korp Group's trade details and

trading loss incurred in BGIL shares on the listing day.

Table 9: GRD Group's and Korp Group's trade details

S.No

Client Name / Exchange BuyQuantity

SellQuantity

Loss

1. KORP SECURITIES LTD (Korp) 4,53,089 4,53,089 86,85,5142. WHEELERS DEVELOPERS PRIVATE

LTD (Wheelers)2,26,907 2,26,907 62,78,647

3. DIVYA DRISHTI MERCHANTSPRIVATE LTD

2,00,000 2,00,000 61,21,946

4.

DIVYA DRISHTI TRADERS PRIVATELTD 92,500 92,500 27,69,336

TOTAL 9,72,496 9,72,496 2,38,55,4435. MARUTINANDAN INFOSOLUTIONS

PRIVATE LIMITED (MIPL)5,00,000 5,00,000 3,17,50,000

6. JALAN CEMENT WORKS LTD. (Jalan) 4,00,000 4,00,000 2,54,20,2117. ORBIT FINANCIAL CONSULTANTS

PRIVATE LIMITED (Orbit)3,84,241 3,84,241 1,76,74,899

8. GRD SECURITIES PVT.LTD. (GRD) 1,22,769 1,10,169 77,56,4859. SWIFT TIE UP PRIVATE LIMITED

(Swift)5,00,500 5,00,500 99,11,767

TOTAL 19,07,510 18,94,910 9,25,16,160



15/49


21)Further, the aforesaid two groups and VPP had provided exit to the top four allottees

through structured trades for the quantity of 5,85,541 shares i.e. 86% of the shares

allotted to top four allottees.

22)GRD Group, Korp Group and VPP also executed structured trades with Shikha Somani

for 1,85,442 shares by which 38 allottees exited by tendering their allotted shares for the

pay-in obligations of Shika Somani for these trades. They also bought substantial shares

through structured trades from Shree Bahubali International Private Limited (2,57,324

shares) and PELF Securities Limited (71,408 shares) who in turn gave exit to their own

clients (allottees) through structured trades. Shree Bahubali International Private Limited

gave exit to 137 allottees for 1,96,322 shares and PELF Securities Ltd gave exit to 124

allottees for 2,02,812 shares through structured trades. In total, the aforesaid two groups

and VPP had executed structured trades for 11,00,800 shares to give exit to various

allotees.

23)It was observed that BGIL had a prior arrangement with GRD Group, Korp Group and

VPP and the allottees and therefore BGIL had diverted 10.53 crore (i.e. 7.10 crore to

GRD Group and 3.43 crore to Korp Group) from IPO proceeds to compensate their

loss incurred in manipulating the trading in the shares of BGIL on listing day.

24)In addition to the aforesaid, it was also observed that BGIL had made wrong disclosures

in the RHP/Prospectus and suppressed material information from the investors as

described hereunder:-.

A.Wrong disclosure about placement of purchase orders.

a) BGIL also disclosed in the RHP and Prospectus that we have not yet placed orders

for 81.48% of our plant and machinery, equipments, etc, for our proposed expansion as

specified in the objects of issue."However, it was found that as on Prospectus date,

purchase orders were placed for 30.64 crore i.e. 55% of the IPO proceeds as on

prospectus date and 29% (16.03 crore) as on RHP date. The table below shows

the details of the said transactions:

Table 10 : Purchase orders placed by BGIL

S.No.

Objects of the issue / IPOproceeds

Advance

Paid incrore onor beforeRHPdate

Advance

Paid incrore on orbeforeProspectusdate

Amount tobe utilized

in Crore

1. Purchase of office premises - Noida 2.00 - 3.96



16/49


2. Purchase of office space at Kolkatta(not mentioned in RHP)

- 0.30* 5.00

3. Up gradation of digital postproduction studio and investment inIT division

6.05 4.61 10.66

4. Expansion of R & D centre 2.65 - 6.025.

Various critical services - 2.51 5.00Total 10.70 9.62 30.64

*additional 2.21crore was paid on August 01 and 04, 2011

b) From the above facts, it was observed that BGIL concealed the information

regarding placement of purchase orders from the public and intentionally made

wrong and misleading disclosures in the RHP / Prospectus and also did not

inform the public through public notice about the material developments which

happened after filing of the RHP and before filing of Prospectus.

B.Non-disclosure of the transaction with Gadeo as a related party transaction.

a) It was also observed during investigation that it was disclosed in the RHP dated

June 28, 2011 and the Prospectus dated July 16, 2011, 3.96 crore were to be

paid to Gadeo Electronics ("Gadeo") out of the IPO proceeds. It was described

in the RHP and Prospectus that BGIL had entered into MoU with Gadeo to take

over the said firm having immovable property at Noida for total consideration of

5.96 crore. Out of the said sum, as part consideration of 2 crore BGIL had

allotted 2 lakh shares at a price of 100 per share to Mrs. Richa Mittal, partner

of Gadeo.

b) Gadeo is a partnership firm consisting of only two partners namely, Mrs. Richa

Mittal (95% share) and Mr. R. K. Mittal (5% share). Mrs. Richa Mittal is wife of

Mr. Rajeev Mittal (who is the brother of Mr. Sanjeev Kumar Mittal, director of

BGIL). Mr. R. K. Mittal is the father of Mr. Sanjeev Kumar Mittal.

c) While the draft offer document relating to the IPO was pending, SEBI had asked

a specific clarification from BGIL through its Merchant Banker (Almondz) as to

whether Gadeo is an entity related to BGIL/ its promoters /promoter group

companies. In response thereto, vide its letter dated February 07, 2011 BGIL

responded to Almondz that Mrs. Richa Mittal is not related to the BGIL, its promoters

/ Directors or promoter group companies..

d) In the RHP and Prospectus of BGIL, it was disclosed that:- Mrs. Richa Mittal is

wife of Mr. Rajeev Mittal and a resident of A-147-148, Sector 55, Noida, Uttar Pradesh,

and not related to our Company, our Promoters / Directors or Promoter Group Companies..



17/49


e) A scrutiny of the partnership deeds of Gadeo made the following facts apparent:

The original partners of Gadeo were Mr. Sanjeev Kumar Mittal, (son of Mr.

Ram Kishan Mittal) and Mrs. Richa Mittal.

At the time of processing of RHP and prospectus in IPO of BGIL, Mrs. Richa

Mittal (wife of. Mr. Rajeev Kumar Mittal) and Mr. Ram Kishan Mittal were thepartners of the Gadeo.

Mrs. Richa Mittal and Mr. Sanjeev Kumar Mittal are having the same address at

- D-51(B), Sector-26, Noida.

The partnership deed was witnessed by the Chairman and Managing Director of

BGIL, Mr. Rakesh Bhatia and Mr. Rajeev Agarwal, Manager (Finance) of

BGIL.

f) As per Schedule I(A) read with Section 6(c) of Companies Act, 1956, father,

brother and his wife are related to the other. Further, the relationship details for

the transactions entered by the company shall be disclosed under clause (IV) (H)

(18) of para. 2 and clause VIII (B) (5)(a) (iii) and (iv) and 6(a) of Part A of

Schedule VIII of the ICDR Regulations. It was observed that BGIL failed to

make these disclosures in its RHP and Prospectus.

g) It was also observed that though BGIL had disclosed the transactions with

Gadeo in the RHP/Prospectus, it suppressed the fact that the said transaction

was related party transaction and also provided wrong details in the list of

director's relatives.

h) During the investigation when SEBI had sought derails of relatives of BGIL's

directors, BGIL did not mention the name of Mrs. Richa Mittal in the relatives

list which contained around 25 names. Thus, it was observed that this was a

deliberate attempt on part of BGIL to conceal the information from SEBI. and

to provide a wrong impression to the investors and SEBI that the purchase of

office was from the third parties.

Submission of three different versions of details pertaining to ICDs during SEBI'sinvestigation.

25)It was also found that during investigation that BGIL submitted to SEBI three different

versions of details of ICD loans taken and given by it. Following are the three versions

submitted by BGIL:

Version 1: When information was sought from BGIL regarding the utilization of IPO

proceeds, it informed SEBI that it had taken 12.5 crore ICDs before the IPO which

were to be repaid from the IPO proceeds.



18/49


Version 2: When complete details of the ICDs were sought, BGIL submitted a table

which indicated that 5 crore ICD loan was given and 26.62 crore was paid towards

repayment of ICDs taken thereby indicating the modification of its previous response.

Version 3: When BGIL was asked to provide the copies of the ICD agreements and

highlight the inflow of these ICDs in the bank accounts, it submitted another set ofinformation, indicating ICDs repaid totalling 15 crore, ICDs loan given 12.5 crore,

repayment of business loan of 2.77 crore and normal business transaction of 1.35

crore.

26)It was observed that submission of three different versions regarding the ICDs was a

deliberate attempt on part of BGIL to mislead SEBI investigation.

Non-compliance with SEBI's orderdated December 28, 2011.

27)In addition to the aforesaid, it was also observed that BGIL had failed to comply with

the directions of SEBI. Vide its ad-interim ex-parte order dated December 28, 2011,

SEBI had directed that. The Company shall call back the ICDs of 12.5 crore invested by it with

Nihita Financials Ltd., Sanjukta Vanijya Pvt. Ltd and Darshan Tradelink Pvt. Ltd and all

amounts transferred / paid out of IPO proceeds to its directors or relatives of its directors or HUFs

belonging to any of its directors or associate or subsidiaries or group companies. These amounts together

with all of the IPO proceeds that are still lying unutilized with the company across all its bank /

deposit accounts or any investments including in mutual funds, shall be deposited in an interest bearing

escrow account with a scheduled commercial bank, till further orders. A confirmation on compliance of

this direction shall be sent by the promoters of BGIL to the stock exchanges where it is listed, within 7

days from the date of this order.Subsequently, these directions were confirmed vide order

dated October 05, 2012.

28)In this regard, BGIL vide its letter dated January 03, 2012 informed SEBI that it had

called back the invested amounts vide their letters dated December 29, 2011. Further,

BGIL informed vide its letter dated March 17, 2012 that it had opened an escrow

account and deposited 47.37 lakh in it. However, no confirmation was given by BGIL

on the rest of the amount to be deposited in the aforesaid escrow account. The same

status was reconfirmed by BGIL vide e-mail dated November 07, 2012. BGIL vide its

letter dated November 09, 2012 submitted that "During the quarter ended 30th September,

2012 the company has already received an amount of 4.45 crore out of the total ICD's of 11.15

crore which has been utilized by the company in meeting the working capital requirements as per the

mandate of share holders obtained through postal ballot." As per the agreements, the ICDs

given to Sanjukta Vanijiya Private Limited and Darshan Trade link Private Limited were

supposed to be returned on January 26, 2012 and the same in case of Nihita Financial

Services Private Ltd, were to be returned by July 19, 2012. Further, according to the

agreements, the ICDs from these three entities could also be called back at any time



19/49


with a notice of 3 days. As on the date of issuance of SCN, only 47.37 lakh was

deposited in the escrow account. From the analysis of the aforesaid facts and the

information submitted by BGIL, it was observed that SEBIs interim order dated

December 28, 2011 has not been compiled by BGIL in totality as the ICDs invested by

BGIL with Nihita Financials Ltd., Sanjukta Vanijya Private Ltd, Darshan TradelinkPrivate Limited and all amounts transferred / paid out of IPO proceeds to its directors

or relatives of its directors or HUFs belonging to any of its directors or associate or

subsidiaries or group companies together with all of the IPO proceeds that were still

lying unutilized with the company across all its bank / deposit accounts or any

investments including in mutual funds, have not been deposited in the escrow account.

Failure of Mr. Rakesh Bhatia and Mr. Sanjeev Kumar Mittal to perform their role inthe Audit Committee.

29)

A scrutiny of the audit committee minutes of the meetings revealed that the committee,

wherein, Mr. Rakesh Bhatia and Mr. Sanjeev Kumar Mittal were members, did not

notice the fund diversion and did also not make any recommendations to BGIL.

Role of Mr. Rakesh Bhatia, Mr. Sanjeev Kumar Mittal and Mr. Rajeev Kumar

Agarwal.

30)Mr. Rakesh Bhatia, Mr. Sanjeev Kumar Mittal and Mr. Rajeev Kumar Agarwal had

signed the certificate in the RHP / Prospectus stating that all disclosures made in the offer

document were true and correct.However, as mentioned in the above paragraphs, various

disclosures in the RHP/Prospectus were found to be false and misleading. Thus, it was

observed that they have given a wrong certificate in the RHP and Prospectus. It was

also observed that they were responsible for the acts and omissions of BGIL.

6. In view of the above, SEBI issued a combined show cause notice dated September 4, 2013

(hereinafter referred to as "the SCN") to BGIL, its Chairman and Managing Director -Mr.

Rakesh Bhatia, Executive Director- Mr. Sanjeev Kumar Mittal and Manager, Finance -Mr.

Rajeev Kumar Agarwal (hereinafter collectively referred to as 'the Noticees' and individuallyby their respective names) calling upon them to show cause as to why suitable directions

under sections 11(1), 11(4), 11A and 11B of the Securities and Exchange Board of India

Act, 1992 ("SEBI Act") including a direction to debar them from accessing the securities

market and prohibit them from buying, selling or dealing in securities for a particular

duration should not be issued against them. The SCN was issued to the Noticees for

allegedly contravening the provisions of section 12A (a),(b),(c) of SEBI Act read with

section 27 of SEBI Act and regulation 57 (1) and 57(2)(a)(ii) read with clauses 2 (VII)(G),

2(VIII) (B)(5)(a)(b), (6), 2(IV)(H)(18) and (XVI) (B) (2) of part A of schedule VIII,

regulation 60(4)(a) and (7)(a) of ICDR Regulations and regulations 3(a), (b), (c), (d), 4(1),



20/49


4(2)(a), (d), (e), (f) and (k) of SEBI (Prohibition of Fraudulent and Unfair Trades Practices

relating to Securities Market) Regulations, 2003 ("PFUTP Regulations").

7. The following was, inter alia, alleged in the SCN:

(a)

BGIL mis-utilized/diverted IPO proceeds in relation to 'Relocation of branch office',

'Up-gradation of Digital post production studio', 'Investment in IT division', 'Expansion

of R&D Technology centre', 'Working capital requirements' and 'General Corporate

expenses';

(b)BGIL mis-utilized/diverted IPO proceeds by repaying ICD loans which were raised by

it prior to the RHP date/Prospectus date without any disclosures in the

RHP/Prospectus or subsequently;

(c) BGIL mis-utilized/diverted IPO proceeds in the garb of ICD investments in companies

whose credentials were not known;(d) BGIL failed to comply with the SEBI order dated December 28, 2011 directing it, inter

alia, to recall the purported ICD investments and payments made to its promoters/

promoter related entities;

(e) BGIL mis-utilized/diverted IPO proceeds to traders who indulged in synchronized and

artificial trading on the day of listing of the shares of BGIL;

(f) BGIL made wrong disclosure relating to purchase orders placed by it;

(g) BGIL failed to disclose the transaction with Gadeo as a related party transaction;

(h)BGIL suppressed the fact of relationship of Mrs. Richa Mittal with the director of

BGIL;

(i) BGIL attempted to conceal the correct information pertaining to ICDs by submitting

three different versions of details in that regard during SEBI's investigation;

(j) Mr. Rakesh Bhatia, Mr. Sanjeev Kumar Mittal and Mr. Rajeev Kumar Agarwal gave a

wrong certificate in the RHP and Prospectus stating that all disclosures made in the offer

document were true and correct;

(k) BGIL, Mr. Rakesh Bhatia, Mr. Sanjeev Kumar Mittal and Mr. Rajeev Kumar Agarwal

perpetrated a fraud on the investors and the securities market and mis-utilized /

diverted the IPO proceeds to the tune of 23.46 crore.

8. BGIL submitted its reply to the SCN vide letter dated October 14, 2013 while the other

Noticees vide their letters dated October 23, 2013 adopted the reply of BGIL. An

opportunity of personal hearing was granted to all the Noticees on November 19, 2013

which was adjourned at their request to December 18, 2013. On December 18, 2013,

representatives on behalf of the Noticees appeared and made oral submissions in line with

their reply on record. Pursuant to the hearing, at the request of the Noticees, details of the

diversion of IPO proceeds to the traders (including the connection between the entities)

were provided to the Noticees vide e-mail dated December 19, 2013. The Noticees

submitted their additional written submissions vide letter dated January 9, 2014 along with



21/49


which they submitted the utilization of issue proceeds till January 7, 2014, details of ICDs

recovered and their utilization, details of advance received from Dhanmangal and its

utilization and their reply regarding circuitous trading as alleged in the SCN. The

submissions made by the Noticees in their reply/written submissions are summarized as

under:

a) As regards the allegation of utilization of funds in a manner different from that disclosed

in the RHP/Prospectus, BGIL submitted that merely because of change in the vendors

from whom the equipments have been purchased, it cannot be presumed that the

amount raised has not been utilized as per RHP/Prospectus. BGIL had disclosed in the

Prospectus and the RHP that We are also negotiating with several suppliers and the actual

supplier may vary from the one mentioned above.The decision for change of vendors was taken

because the final vendors offered better and cost effective terms. Moreover, had the

disclosures of these vendors been made in the Prospectus, it would not have had anyadverse impact on the informed investment decision of any investor as BGIL has merely

changed the vendors as good business judgment and in the interest of the investors. In

view of these facts, the requirements of regulation 60(4)(a) do not apply to the case of

BGIL.

b) As regards the payment made to Dhanmangal in respect of relocation of branch office of

BGIL, it submitted that the transaction with Dhanmangal was entered into keeping in

mind the objective of establishing pan-India presence for BGIL and get maximum

advantage and business opportunities for BGIL, and in turn for its shareholders. The

same was done in the best interest of BGIL and its shareholders at large. BGIL got the

same ratified by its shareholders through Postal Ballot in March 2012. As it was

mentioned in the agreement that Dhanmangal shall get the projects duly approved by the

Municipal Corporations of Bangalore and Kolkata, there is no contradiction in the

agreement. It was purely a business decision based on the representations made to BGIL

by Dhanmangal. BGIL should not be held responsible for any misrepresentations made

by Dhanmangal to BGIL before entering into the agreement, since it was a business

judgment. BGIL also submitted that since the said deployment of funds was objected inthe SEBI order, it has called back the amount and the concerned entity has already

repaid 50 lakh to BGIL and BGIL is striving hard to get the balance amount recovered

from Dhanmangal., which will be done soon. As submitted by BGIL in its reply dated

January 9, 2013, till that date it had recovered 1.05 crore from Dhanmangal.

c) As regards the allegation that a substantial part of the payment made by BGIL to

Avance was transferred back to BGIL through circuitous transactions, BGIL submitted

that BGIL, Avance and Saptrishi are independent legal entities and business

arrangements between these parties are legitimate and legal. It is implausible and in fact



22/49


unreasonable to expect that every single time any Company has to deal with any

commercial party, it would have to check the debtors/creditors of other commercial

party. The advance to Avance was given under a valid agreement for purchase of

technology, as disclosed in the prospectus (on page no. 34) and hence the circuitous

routing of funds as alleged by SEBI has no grounds at all. The payment made to Avance

was against our purchase of BMS (Building Management System). Further, the payment

from Saptrishi has come to BGIL against PO given by Saptrishi and the same is in no

way connected to the payments made to Avance. Both the above said transactions are

purely business transactions and should not be interpreted as any transaction created

artificially to siphon off the IPO proceeds. Therefore, the question of artificially

siphoning of IPO funds does not arise. BGIL conducted business with both the vendors

in good faith with bona fideintentions and in the bona fideinterest of BGIL as a Company.

d)

As regards the payment made to JIL and transfer of funds back to BGIL and its groupcompany, BGIL submitted that the payment to JIL was made as normal business

transaction. The agreement was entered into with a known company and disclosure

about that was already made in the prospectus. As BGIL is dealing in sensitive IT

Business based on secrecy of agreements, patents etc. the assignment for brand building

was entrusted to a company of repute in the area. The said company is not a related party

and the dealings were in good faith and in overall interest of the company and its

shareholders. These facts were disclosed to the merchant banker and the prospectus was

finalized under the directions of the merchant banker after its due diligence. There was

no transfer / diversion of funds as alleged as JIL was an independent company and the

transactions of BGIL with JIL was genuine and without any mala fide.

e) As regards the allegation of diversion of funds to the Promoter and Promoter group

entities, BGIL submitted that the payments made to Mr. Rakesh Bhatia was towards

repayment of unsecured loans taken from him and standing in books of accounts since

June 22, 2007. As the transaction is in the nature of repayment of dues and not for an

agreement to perform any services or provide any goods, it does not fall under the

definition of word Consideration. Thus, there was no wrong disclosure regarding thepayment of any part of the IPO proceeds to the promoters.

f) As regards the variance in the names of the vendors disclosed in the RHP/Prospectus

and the actual entities to whom payments were made, BGIL submitted that merely

change in vendors will not lead to any disclosure requiring notice or advertisement in the

newspaper. The transactions are routine business transactions and proper details of items

to be purchased and budget within which the purchases have been made were duly

disclosed in the prospectus.



23/49


g) As regards the allegation of non-disclosure of names of actual vendors and suppressing

of information in that regard, BGIL submitted that the details of the vendors were made

available to the Merchant Banker and it approved the said details. After scrutiny of the

quotations on the basis of financial, technical and after-sale services basis, the actual

vendors proved to be more cost effective for BGIL and its shareholders and therefore

they were given contracts in the overall interest of BGIL and its shareholders.

h) As regards the allegation pertaining to wrong disclosure of the percentage of placement

of orders by BGIL, it submitted that the disclosure regarding percentage of purchase

orders placed for equipments, etc. has been given under the heading Risk factors. The

risk factors were disclosed in the prospectus after consultation with the Merchant

Banker. BGIL had made all the documents available to the Merchant Banker as and

when sought by them during the process of due diligence. As BGIL had no role to play

in finalization of offer documents and was merely acting on the advice of the MerchantBanker, it cannot be held responsible for any misstatement/omission/non-disclosure in

prospectus. Moreover, as the percentage disclosed in the Prospectus does not portray a

rosy picture of BGIL, but has an adverse impact on it, it should not be presumed that

the disclosure was made intentionally with the purpose of misleading and

misrepresenting to the investors at large.

i) As regards the allegation pertaining to three different versions about the ICD loans taken

and ICD investments made by BGIL, it submitted that ICDs given by BGIL amounted

to 12.5 crore and ICD Loan taken by BGIL amounted to 15 crore. The same was

clarified in the subsequent communications by BGIL to SEBI. The error in reporting the

figures crept in due to pressure and time constraint.

j) As regards the allegation pertaining to non-disclosure of bridge loans raised by BGIL, it

submitted that bridge loans are nowhere defined in ICDR Regulations. Further, the need

for ICD loans arose due to the delay in approval by SEBI of DRHP because of which

BGIL's implementation schedule got delayed by six months. It was in urgent need of

funds for taking advantage of the competitive pricing offered to it by the vendors. As the

management owes a fiduciary responsibility towards the shareholders, the decision for

taking ICD loans was taken in the best interest of BGIL and its shareholders. As regards

its disclosure in the offer document BGIL submitted that it was the responsibility of the

Merchant Banker to inform the management about its impact and disclosure in the

Prospectus. As already appreciated by the Learned Member in his order dated September

21, 2012, the Merchant Banker has failed to exercise due diligence. It would be harsh on

the part of SEBI to hold BGIL or its management responsible for the acts / omissions

and commissions conducted on the part of Merchant Banker. Further, the ICD loan

amount were actually utilized for payments to vendors for purchases made towards the

fulfillment of the objects of the issue.



24/49


k) As regards the allegation pertaining to non-availability of written agreements, non-

payment of interest to lenders and non-compliance with the relevant provisions of the

ICDR Regulations, BGIL submitted that the Board of Directors had the power to

borrow ICDs within the limit of paid up share capital and free reserves under section

292 of the Companies Act, 1956 As the amount of ICD received is 15 crore which is

well within the limit of Share Capital plus Free reserves of the company i.e. 32.35

crore, as on the date of taking these ICD loans, the Board was not required to take any

specific approval or sanction for the same. Further as regards the non availability of

agreements, BGIL enjoyed such a reputation in the market that lenders were willing to

advance loans to it without entering into written agreements and thus, it should not be

taken as any contravention.

l)

As regards non-disclosure of material developments under the provisions of ICDRRegulations and wrong disclosures in the prospectus about bridge loans, BGIL reiterated

that the need for ICD loans arose due to the delay in approval by SEBI of DRHP and

the loans were taken in the interest of BGIL and is shareholders.

m)As regards compliance with the directions of SEBI to call back the ICDs, BGIL

submitted that BGIL had issued ICD recall letters to all the three parties i.e. Sanjukta

Vanijya Private Ltd, Darshan Trade Link Private Ltd and Nihita Financial Services

Private Ltd. BGIL further submitted that as on October 14, 2014 , it has recovered 5.5

Crore as a result of protracted correspondence through recall letters and legal notice and

6.00 Crore was pending recovery from Darshan Trade Link Private Ltd and Nihita

Financial Services Private Ltd. As regards the direction of SEBI to deposit the recovered

amount into an escrow account, BGIL submitted that subsequent to initiation of

investigation by SEBI and its interim order, BGIL found it difficult to raise working

capital loans from financial institutions on any terms and hence it had no option but to

utilize the funds recovered from the above stated parties towards meeting its working

capital requirements in order to ensure smooth business operations adding to its

goodwill, reputation and in overall interest of the shareholders at large.

n) As regards the non-disclosure of the transaction of BGIL with Gadeo as a related party

transaction and the relationship of Mrs. Richa Mittal with Mr. Sanjeev Kumar Mittal,

BGIL submitted that the fact that Mrs. Richa Mittal is related to Mr. Sanjeev Mittal was

disclosed to the Merchant Banker. BGIL also pointed out point No. 5 of the

Undertaking received from the Merchant Banker for signing by the Management, where

the Merchant Banker had written M/s Gadeo Electronics, a partnership formed on September 1,

2001 between Mrs. Richa Mittal, Mr. Sanjeev Mittal and Mr. R.K. Mittal. Mr. Sanjeev Mittal took

retirement w.e.f. March 31, 2008 and Mrs. Richa Mittal and Mr. R.K. Mittal entered into a freshpartnership deed on April 1, 2008.Further, the fact that Mrs. Richa Mittal is a relative of



25/49


Mr. Sanjeev Kumar Mittal was also disclosed in the Form 24AA for F.Y. 2010-11, which

was made available to the Merchant Banker during the process of due diligence. Thus,

BGIL submitted that non disclosure of her name in the list of relatives is a mistake on

the part of the Merchant Banker and cannot be attributed to BGIL and it did not have

any intention to hide the relevant information.

o) As regards the requirement of disclosing the relationship details under the provisions of

ICDR Regulations, BGIL submitted that the details have already been disclosed in

various parts of the prospectus i.e. Point no. 12 on page (viii) of internal risk factors,

para (a) under details of utilization proceeds on page no. 30, page no. 72 and 73 under

para Other Properties and Other agreements on page no. 85.

p) As regards the letter dated February 7, 2011 by BGIL to the Merchant Banker stating

that "Mrs. Richa Mittal is not related to the BGIL, is promoters/directors or promoter groupcompanies",BGIL submitted that the error was on the part of the Merchant Banker and

the letter was signed by its Chairman and Managing Director in routine having faith on

the professional expertise of the Merchant Banker.

q) As regards not providing the name of Mrs. Richa Mittal in the list of relatives of

directors (sought during the investigation by SEBI) , BGIL submitted SEBI sent a mail

to BGIL containing the list of relatives to be disclosed by it. In the said list the name of

brothers wife was not given. Instead disclosure was required to be made for Sister in law

not for brothers wife. In common parlance, Sister in law is used for Wifes sister andhence there was a confusion on the part of BGIL and as such there was no deliberate

attempt to conceal the information as the same was already made available to Almondz.

r) As regards the payment made by BGIL to Mr. Rakesh Bhatia, his son Mr. Gaurav Bhatia

and a group company named Films & Technologies Limited out of the issue proceeds in

absence of any disclosure in that regard in the RHP/Prospectus, BGIL submitted that in

case of Gaurav Bhatia, the payment was made towards arrears of salary. Though it had

mentioned in the prospectus that it will pay salary to promoters and promoter group, but

on receiving objection from SEBI, it had already taken the amount back from him in

December 2011 along with interest. In case of Mr. Rakesh Bhatia and Number One

Finsec Private Limited. payments made to him were towards repayment of loan

(disclosed in the prospectus) and do not fall within the meaning of "consideration". As

regards the payment to BGIL Films & Technologies Ltd., the same was made against its

specific specialized services under a valid business transaction.

s) As regards the non-deduction of the advance amount made to Avance. From the total

amount payable to it, BGIL submitted that as rightly observed by SEBI in point no. 1.3.5



26/49


of the Interim order, the lapse is on the part of the Merchant Banker and hence BGIL

should not be held liable for any default on the part of the Merchant Banker.

t) As regards the alleged diversion of 10.53 crore i.e. 7.10 crore to five entities (hereafter

referred as GRD Group) viz., Marutinandan Infosolutions Private Limited (MIPL), Jalan

cement works Limited (Jalan), Orbit Financial Consultants Private Limited (Orbit), GRD

securities private Limited (GRD), Swift Tie Up Private Limited (Swift) and 3.43 crore

to four entities (hereafter referred as KorpGroup) viz., Korp Securities Ltd (Korp),

Wheelers Developers Private Limited (Wheelers), Divyadrishti Merchants Private Ltd

and Divyadrishti Traders Private Ltd., BGIL submitted that it had never had any

relationships with the two groups referred to as GRD Group and Korp Group except an

ICD loan of 52.5 lakh taken from Divyadrishti Traders Pvt. Ltd which were repaid out

of the IPO proceeds. Further, its promoters, promoter group or KMPs were never

involved in or funded the trades of these entities. There was no prior arrangement ofBGIL with any of these groups. It further submitted that the mere fact that some of the

parties involved were having some business transaction- in the form of ICDs advanced

or taken from the company cannot and should not be used to allege BGILs involvement

in the circuitous trading. The ICDs given and advanced were not in any manner related

to the circuitous trading as referred and BGIL, its promoters, directors, key managerial

persons and their relatives were not in any manner involved or benefited from the

trading.

u)

BGIL also drew reference to the confirmatory order dated September 21, 2012 passed by

SEBI in the mater wherein whole time member, SEBI has given adverse findings against

the Merchant Banker, Almondz and held it responsible for failing to discharge the

various responsibilities associated with the due diligence which is to be exercised by a

Merchant Banker are to be discharged with care and caution.

v) As regards the non compliance with SEBI directions regarding depositing the amount

recovered from ICD in escrow account, BGIL submitted that vide its email dated

November 9, 2012 it had intimated SEBI that it is utilizing the amount recovered fromICDs towards objects of the issue. As it did not receive any objection from SEBI on the

same and there were pressing circumstances to keep the company running, it was forced

to utilize the amount recovered towards fulfillment of objects of the Issue.

9. I have carefully considered the SCN, the replies/written submissions of the Noticees and

the relevant material available on record. Before proceeding with the consideration of facts

on merits, I deem it necessary to refer to the provisions of the SEBI Act and Regulations

made thereunder which are alleged to be violated/ contravened by the Noticees. The said

provisions read as under:



27/49


"SEBI Act, 1992

12A.No person shall directly or indirectly

(a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be

listed on a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention

of the provisions of this Act or the rules or the regulations made thereunder;

(b) employ any device, scheme or artifice to defraud in connection with issue or dealing in securities which

are listed or proposed to be listed on a recognised stock exchange;

(c) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon

any person, in connection with the issue, dealing in securities which are listed or proposed to be listed on a

recognised stock exchange, in contravention of the provisions of this Act or the rules or the regulations

made thereunder;

PFUTP Regulations3. Prohibition of certain dealings in securities

No person shall directly or indirectly-

(a) buy, sell or otherwise deal in securities in a fraudulent manner;

(b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed

in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the

provisions of the Act or the rules or the regulations made there under;

(c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities

which are listed or proposed to be listed on a recognized stock exchange;

(d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon

any person in connection with any dealing in or issue of securities which are listed or proposed to be listed

on a recognized stock exchange in contravention of the provisions of the Act or the rules and the

regulations made there under.

4. Prohibition of manipulative, fraudulent and unfair trade practices

(1)Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an

unfair trade practice in securities.

(2)Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud

and may include all or any of the following, namely:-

(a) indulging in an act which creates false or misleading appearance of trading in the securities market;

(f) publishing or causing to publish or reporting or causing to report by a person dealing in securities any

information which is not true or which he does not believe to be true prior to or in the course of dealing in

securities;

(k) an advertisement that is misleading or that contains information in a distorted manner and which

may influence the decision of the investors;



28/49


ICDR Regulations

Manner of disclosures in the offer document.

57.(1)The offer document shall contain all material disclosures which are true and adequate so as to

enable the applicants to take an informed investment decision.

(2) Without prejudice to the generality of sub-regulation (1):

(a) the red-herring prospectus, shelf prospectus and prospectus shall contain:

(i) the disclosures specified in Schedule II of the Companies Act, 1956; and

(ii) the disclosures specified in Part A of Schedule VIII, subject to the provisions of Parts B and C

thereof.

Public communications, publicity materials, advertisements and research reports.

60. (1)..

(2).

(3).

(4) The issuer shall make prompt, true and fair disclosure of all material developments which take place

during the following period mentioned in this sub-regulation, relating to its business and securities and

also relating to the business and securities of its subsidiaries, group companies, etc., which may have a

material effect on the issuer, by issuing public notices in all the newspapers in which the issuer had issued

pre-issue advertisement under regulation 47 or regulation 55, as the case may be:

(a) in case of public issue, between the date of registering final prospectus or the red herring prospectus, as

the case may be, with the Registrar of Companies, and the date of allotment of specified securities;

(5) (6)

(7) Any advertisement or research report issued or caused to be issued by an issuer, any intermediary

concerned with the issue or their associates shall comply with the following:

(a) it shall be truthful, fair and shall not be manipulative or deceptive or distorted and it shall not

contain any statement, promise or forecast which is untrue or misleading;"

10.In the present case, the charge against BGIL is that it had committed a fraud towards the

investors and the securities market as out of 34.70 crore (claimed to have been utilized by

BGIL), it had utilized only 11.24 crore in accordance with the disclosures made in the

RHP /Prospectus and had mis- utilised /diverted 23.46 crore out of the IPO proceeds . I

note that mis-utilization/ diversion of IPO proceeds has been alleged against the Noticees

in respect of the following six categories -

i. relocation of branch office;

ii. up-gradation of Digital post production studio;

iii. investment in IT division;

iv. expansion of R&D Technology centre;

v.

working capital requirement, and;vi. general corporate expenses.



29/49


11.I now proceed to deal with the alleged mis-utilization / diversion, which formed part of the

alleged fraudulent scheme devised by the Noticees.

Mis-utilization /diversion relating to relocation of branch office.

12.It is alleged in the SCN that BGIL entered into a doubtful and non-genuine transaction

with Dhanmangal and made payments of 1 crore on July 02, 2011 and 1.50 crore on July

05, 2011 to it as advance payment for the total consideration of 5 crore for the purchase of

an office space at Kolkata. The said transaction was neither disclosed in the Prospectus nor

any public notice as required by ICDR Regulations was issued by BGIL. In this regard,

BGIL submitted that the dealing with Dhanmangal was entered into keeping in mind the

objective of establishing pan-India presence for BGIL and get maximum advantage and

business opportunities for BGIL and in turn for its shareholders. BGIL got the said

transaction ratified by its shareholders through Postal Ballot in March 2012. It further

submitted that the name "Dhanmangal Developers Private Limited" reflects or gives an

impression that the Company deals with development and construction of land and

buildings, and BGIL did normal business transactions in good faith relying on the

representation made to BGIL by Dhanmangal and BGIL should not be held responsible

for any misrepresentations made by Dhanmangal before entering into the agreement, since

it was a business judgment.

13.

In this regard, I note from the records that Dhanmangal has no history of handling any realestate projects, has no approvals from the relevant authorities, has no employees and is in

the business of development of agriculture land levelling. I cannot accept the submission of

BGIL that it was misrepresented by Dhanmangal and BGIL entered into the agreement

without being aware of the basic details relating to Dhanmangal. I further note that

agreement between BGIL and Dhanmangal did not contain the construction/plot

address/location of the relevant property. I also note that the consideration payable to

Dhanmangal (i.e. 5 crore) was approximately 10% of the total issue proceeds. Even after

more than two years from the date of payments to Dhanmangal, it did not even identify any

office for BGIL. Considering the aforesaid facts, In my view any person of ordinary

prudence would not enter into any transaction of such substantial value with a company

having the profile of Dhanmangal. It is also pertinent to mention that pursuant to the order

of SEBI dated December 28, 2011, BGIL claimed to have recovered 1.05 crore from

Dhanmangal but did not submit any material to show how the balance amount of 3.95

crore was utilized by Dhanmangal towards 'purchase of office space'. At this point, I also

note that BGIL disclosed in the RHP/Prospectus that "As on the date of this Prospectus, we have

not entered into any commitment for any strategic initiatives." Also at page 73 of the Prospectus, it is

disclosed that "Except as stated in section titled Objects of the Issue appearing on page no. 29 of thisProspectus, there is no property which our Company has purchased or acquired or propose to purchase or



30/49


acquire which is to be paid wholly, or in part, from the net proceeds of the Issue or the purchase or

acquisition of which has not been completed as on the date of filing of this Prospectus with SEBI.". The

agreement of BGIL with Dhanmangal and advance payment made to it is also not in line

with the disclosures made in the RHP/Prospectus. Thus, in view of the aforesaid facts, I

find that BGIL was aware of the credentials of Dhanmangal and knowingly it entered into a

non-genuine transaction with Dhanmangal. Thus, the payments made by BGIL to

Dhanmangal in pursuance of the non-genuine transaction and in absence of any disclosure

in that regard in the RHP/Prospectus were clearly a part of the scheme or device of BGIL

to fraudulently mis-utilize/divert to the IPO proceeds for the purposes other than those

disclosed in the RHP/Prospectus.

Mis-utilization/diversion relating to up-gradation of Digital post production studio and Investment in ITdivision.

14.

With regard to the allegation of wrong disclosure of vendors' details and payments made to

various vendors, BGIL submitted that merely because of change in the vendors from whom

the equipments have been purchased, it cannot be presumed that the amount raised has not

been utilize

order in the matter of bharatiya global infomedia ltd

Documents