The Securities and Exchange Board of India (SEBI) has uncovered an elaborate alleged financial fraud involving Debock Industries Ltd., finding that promoters and connected entities manipulated the company’s financial statements, created fictitious transactions and diverted funds as part of a broader scheme to boost the stock and benefit from the resulting rise.
According to SEBI's final order, the alleged scheme involved fake sales and purchases, round-tripping of funds, fabricated capital infusion, bonus shares and diversion of rights-issue proceeds. The regulator said the activities were designed in part to facilitate Debock's migration from the NSE Emerge platform to the NSE Main Board and subsequently generate unlawful gains.
Debock Stock Surged Nearly 1,800%
One of the most striking aspects of the case was the company's share-price movement. Debock's stock rose from ₹7.85 in April 2021 to ₹146.90 by March 2022, representing a gain of more than 1,700%. SEBI subsequently examined how the promoters and connected parties monetised the inflated valuation.
The regulator found that promoter shareholding fell sharply from 64.79% in March 2021 to 9.41% by March 2024, while the number of retail shareholders increased from just 171 to 53,389.
Fake Sales and Round-Tripping
SEBI found that Debock's reported sales were artificially inflated by approximately 72% in FY22 and 77% in FY23, while purchases were inflated by around 94% in both years.
The transactions allegedly involved fictitious purchases and sales with related parties. The regulator also identified instances where transactions were recorded through a bank account that had already been closed.
SEBI further found that a purported capital infusion through a preferential issue involved rapid movement of funds between connected accounts. The regulator said this helped create the appearance of genuine capital and enabled Debock to meet the requirements for its Main Board migration.
Bonus Shares and Alleged Investor Losses
After the share-price surge, Debock issued 3.82 crore bonus shares in November 2022. SEBI found that ₹25.01 crore of the reserves used for the bonus issue had been fictitiously generated through the alleged preferential allotment and sham sales.
The bonus shares were subsequently transferred off-market to promoter Sunil Kalot and Gaurav Jain, after which they were systematically sold in the market, according to the regulator.
₹49 Crore Rights Issue Diversion
The alleged fraud continued with Debock's ₹49.50 crore rights issue in June 2023. SEBI found that ₹49 crore of the ₹49.09 crore received was transferred to related entity Impex Agrotech within three days.
The regulator said the money was subsequently routed through multiple entities, including transactions involving overseas entities. Debock's explanation that the transfer represented a legitimate business loan was rejected by SEBI.
SEBI Orders ₹59.3 Crore Disgorgement
SEBI has ordered more than ₹59.3 crore in disgorgement, along with 12% annual interest, and directed Debock to bring back ₹49 crore allegedly diverted from the rights issue.
The regulator also imposed ₹28.2 crore in monetary penalties. Debock Industries and managing director Mukesh Manveer Singh have each been barred from the securities market for seven years, while other individuals received bans ranging from three to five years.
SEBI described the conduct as an integrated fraudulent scheme aimed at misleading investors, manipulating market perception and generating wrongful gains at the expense of the investing public.
