Investor funds diverted, accounts faked: SEBI imposes 5-year ban on Seacoast Shipping

New Delhi, Sep 25 (IANS) The Securities and Exchange Board of India (SEBI) has barred Seacoast Shipping Services Limited (SSSL) and its key officials from raising funds from investors for five years, after finding the company guilty of diverting rights issue proceeds, fabricating accounts, and misleading shareholders with false disclosures.

The order also imposes penalties and directs disgorgement of unlawful gains, bringing the curtain down on one of the most unusual cases of market misconduct in recent years.

In a detailed order, SEBI said SSSL had diverted crores of rupees raised through a rights issue and created fictitious accounts to hide the misuse.

At one point, the company’s promoters even attempted to justify the diversion with a bizarre explanation -- that the funds were used to pay ransom following the alleged kidnapping of promoter Manish Shah’s son.

SEBI, however, found no merit in the claim, noting that no police complaint or supporting documents were ever provided.

Instead, contradictory statements from company officials deepened the inconsistencies.

In February 2024, Shah himself admitted under oath that the rights issue money had been used for fictitious purchases, not ransom.

Another director claimed the money was taken after a kidnapping but conceded the family never reported the matter to authorities.

Independent directors added further confusion by claiming ignorance of the rights issue altogether.

“The rights issue proceeds were not utilised by the company and were instead diverted,” SEBI’s order stated categorically, rejecting the kidnapping narrative outright.

The regulator’s probe revealed deeper fraud. SSSL fraudulently allotted 1.50 crore shares worth Rs 22.73 crore to promoter Manish Shah without valid consideration.

It also diverted Rs 43.42 crore from rights issue proceeds and another Rs 10.83 crore from bank credit.

Financial statements from FY21 to FY24 were grossly misrepresented, with over 85 per cent of reported sales and 98 per cent of assets found to be fictitious.

Despite negligible inventory and fixed assets, the company declared inflated revenues, luring unsuspecting retail investors and driving up trading volumes in its shares.

SEBI said such misleading financial results had a “significant impact” on both shareholder participation and the company’s stock price.

The case traces back to a Bombay Stock Exchange (BSE) report, which flagged suspicious related-party transactions between April 2020 and December 2023.

What began as routine scrutiny expanded into a full-fledged investigation that revealed how the mid-sized shipping firm weaved together inflated numbers, fraudulent allotments, and even a sensational kidnapping story to cover up its diversion of investor funds.

SEBI’s order, passed by Whole-Time Member Kamlesh Chandra Varshney, not only imposes a five-year fundraising ban on the company and its top executives but also directs disgorgement of gains made through these unlawful practices.

The ruling underscores the regulator’s increasing vigilance against corporate misconduct, especially cases where retail investors are misled by manipulated disclosures.

--IANS

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