SEBI Directs Forensic Audit Of J.Kumar Infraprojects

The market regulator has directed the National Stock Exchange of India Ltd. to appoint an independent auditor for the forensic audit of J.Kumar Infraprojects Ltd., which figured among the 331 “suspected shell companies”.

The auditor will verify misrepresentation, including financials and business activities of the company, as well as look into the role of key management personnel, directors and promoters, according to the Securities and Exchange Board of India’s interim order on its website. The audit will also look into the misuse of the books of accounts or funds, including any “facilitation of accommodation entries” or compromise of minority shareholder interest with respect to its dealings with PACL Ltd. and its entities.

A company official declined to comment on the issue when contacted by phone and email.

J.Kumar was one of the listed entities that SEBI had placed in a restricted trade category in August 2017 on the basis that they are shell companies as identified by the Ministry of Company Affairs and Serious Fraud Investigation Office. The company had appealed against the order in the Securities Appellate Tribunal, which stayed SEBI’s directions.

Based on the SAT order, SEBI began an investigation into the books of J.Kumar. The regulator sought details of all its contracts, sub-contractors since 2007, employees and nature of their roles. It also sought details of all contracts J.Kumar undertook for PACL, an entity under SEBI investigation. The regulator in its probe against PACL found that the company mobilised funds worth Rs 49,100 crore till June 15, 2014. It is now undertaking recovery and adjudication proceedings against PACL and its directors.

SEBI whole-time member Madhabi Puri-Buch suspects the authenticity and genuineness of the contracts between J.Kumar and PACL, according to the interim order.

There arises a prima facie suspicion that its books of accounts were misused to show revenues from contracts with entities when no such contracts were prima facie intended for execution at all, the interim order said. The market regulator has given 30 days to J Kumar to respond to this order or seek a personal hearing.

J.Kumar, in its submissions to SEBI earlier, had said it received Rs 147.17 crore worth contracts between FY09 and FY11 from PACL, which it sub-contracted for Rs 137.72 crore. The profit earned by the company in these three years was Rs 4.45 crore. The market regulator sought books of the company from 2010 onward on all contracts, including those it received from PACL and Parsvnath Developers Ltd., a sub-contractor for J.Kumar.

J.Kumar had argued that SEBI needs to undertake an independent investigation and it can’t rely on the opinion of the SFIO and that the probe on the books can’t be done by the regulator as it would be against the principles of natural justice. The company argued that the adverse order against PACL was recent and its dealing with the company dates to FY09-11 when there wasn’t any adverse order against PACL.

Shares of J.Kumar hit a lower circuit, slipping 20 percent to Rs 164.40 apiece in Monday morning trade.