SEBI Rejects Seacoast Shipping’s Bizarre Kidnapping Excuse for Fund Diversion

The promoters of logistics services company Seacoast Shipping Services Ltd. have been found guilty of diverting rights issue proceeds, with a bizarre excuse that has been rejected by the Securities and Exchange Board of India (SEBI).

Background of the Case

The investigation was initiated after the Bombay Stock Exchange (BSE) conducted an examination due to a considerable increase in Seacoast Shipping’s net sales and net profit in fiscal year 2021. The exchange examination raised doubts on the genuineness of transactions, noting that the company had booked revenue and purchases with sundry debtors and creditors during FY21 and FY22.

The Kidnapping Excuse

The company’s promoters, including Manish Shah, claimed that the rights issue proceeds were diverted as ‘ransom’ due to the kidnapping of Shah’s son. However, during subsequent questioning by SEBI, it was stated that the alleged kidnapping was not reported to law enforcement agencies.

SEBI’s Findings

SEBI has rejected the company’s excuse, stating that the rights-issue proceeds were not used for their intended business purpose, and that preferential share allotments were used by promoters and certain entities for unlawful gains. The market watchdog has also found that the company’s independent directors were not aware of any such rights issue brought by the company.

Penalties and Disgorgement Orders

SEBI has imposed sweeping penalties on Seacoast Shipping and its officials, including Shah, including barring them from accessing the securities market for a period of 1 to 5 years. Monetary penalties totaling Rs 1.97 crore have been imposed on the company, its promoters, and associated entities. Additionally, a disgorgement order has been issued against Shah for unlawful gains worth Rs 47.89 crore, along with 12% annual interest.

Implications for Investors

The SEBI order is a significant development for investors in the Indian stock market, highlighting the importance of regulatory oversight and enforcement. It also underscores the need for investors to be cautious and conduct thorough research before investing in any company.

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