A workers carries reinforcing steel at the excavation site of a launching shaft for Metro Line 3, operated by the Mumbai Metro Rail Corp. (MMRC), in the Dharavi area of Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

J.Kumar Infraprojects Says SEBI Order Won’t Impact Business

J.Kumar Infraprojects Ltd. on Monday sought to allay investors’ concerns saying that the forensic audit of its books ordered by the Securities and Exchange Board of India will not impact any of its existing project or future projects.

“The SEBI order is restricted to specific transactions which took place more than 8 years back,” the company’s management clarified in an analyst conference call. “The company has provided all the necessary documents to SEBI except for the ones not in its possession and is confident that there will not be any adverse impact on any of its ongoing or future projects.”

The market regulator on Monday directed the National Stock Exchange of India Ltd. to appoint an independent auditor for the forensic audit of J.Kumar, which figured among the 331 “suspected shell companies”. The stock hit the lower circuit falling 20 percent after the announcement.

The auditor will verify misrepresentation, including financials and business activities of the infrastructure firm. They will also probe misuse of book of accounts, including any “facilitation of accommodation entries” or compromise of minority shareholder interest with respect to its dealings with PACL Ltd. and its entities, according to the interim order on SEBI’s website.

J.Kumar Infraprojects Says SEBI Order Won’t Impact Business

The infrastructure firm, which is also executing parts of the Metro rail project in Mumbai and Pune, denied allegations of misappropriation of funds saying the transactions carried out were not material.

Here are the highlights from the analyst call:

  • Transactions between two private players do not require to be notarized
  • Never had any issue with SEBI conducting forensic audit.
  • The revenue from this transaction is very low and doesn’t account for more than 5 percent of company’s revenue.
  • There is no misappropriation of funds as the transaction is on cheque.
  • There several options at our disposal and we are discussing the future course of action with our lawyers.
  • Confident of resolving this issue at the soonest.
  • Margins were lower as the industry was going through a difficult phase during 2008-2011. However, on a blended basis the company enjoys favorable margins.
  • Company has sufficient financing and don’t feel the need to take on further debt.

The Investigation

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, SEBI’s interim order said. The market regulator has given 30 days to J Kumar to respond to this order or seek a personal hearing.

The company said that it is considering the various options at its disposal including appealing against the order in the Securities Appellate Tribunal

Also read: SEBI Directs Forensic Audit Of J.Kumar Infraprojects