PG Electroplast Limited undertook its IPO in 2011. SEBI, pursuant to investigation, passed an order on March 11, 2014, where it held that PGEL had made material mis-statements in its red herring prospectus and its prospectus, diverted IPO proceeds through undisclosed Inter Corporate Deposits, purchase orders and agreements to acquire land, and used the diverted funds to fund certain subscribers to the IPO. In this light, SEBI found PGEL to be in violation of the provisions of SEBI (PFUTP) Regulations, 2003 and debarred it from raising any capital from the securities market and dealing in the securities market in any manner for ten years.

On appeal by PGEL, the Securities Appellate Tribunal observed that a violation of the PFUTP Regulations was a serious charge requiring a higher degree of proof. In its order dated August 30, 2016, SAT found that PGEL had failed to disclose certain ICDs, the board resolution to invest IPO proceeds in ICDs and the agreements/memoranda of understanding for the acquisition of land. Further, SAT concluded that by making repayment of ICDs, PGEL had utilised IPO proceeds to pay entities which either bought the PGEL shares themselves or transferred the money to other entities which then dealt in PGEL’s shares.

However, SAT found the disclosures made in relation to the purchase orders for plant and machinery and the names of certain suppliers in the offer documents, to be adequate, as they complied with principle of disclosure by disclosing the names of the vendors in the offer documents in one context or another. Further, SAT set aside the charges of diversion of IPO proceeds through the purchase orders and agreements for purchase of land, since these transactions were genuine or had been cancelled and the money was being recovered. SAT set aside several of the charges against PGEL, however, it only reduced the period of debarment from ten years as initially imposed to seven years. As PGEL has already suffered four and a half years of debarment, the reduction in the debarment period seems inadequate.