Markets regulator Sebi has barred Pacheli Industrial Finance, a non-banking financial company, and six other entities from the securities market till further orders for alleged financial irregularities and stock manipulation.

Apart from Pacheli Industrial Finance Ltd (PIFL), Abhijit Trading Company Ltd, Calyx Securities Pvt Ltd, Hibiscus Holdings, Avail Financial Services, Edoptica Retail India and Sulphur Securities, are the six entities which were also restrained from the markets.

In an interim order passed on Thursday, Sebi revealed that PIFL secured loans amounting to Rs 1,000 crore from six entities classified as non-promoters.

These loans were converted into equity through a preferential allotment, resulting in the issuance of over 51 crore shares to the lenders.

The regulator noted that an investigation into bank account records, however, uncovered that the loan transactions were a sham. Funds were round-tripped between PIFL and the lenders, with the company issuing shares without receiving any legitimate consideration.

"We have witnessed a company (Pacheli Industrial Finance) which was consistently reporting negligible revenues suddenly taking on a Rs 1,000 crore loan without making any disclosures on how the funds will be utilised or the loan serviced,” Sebi's Whole-Time Member Ashwani Bhatia said in the order.

“The loan, which appears to have been availed from connected entities, was converted into equity. The examination of the bank statements of the company and connected entities prima facie revealed that the funds that were advanced as loan was round tripped and the company ended up issuing shares without receiving any consideration,” Bhatia added.

Following the preferential allotment, the six entities collectively hold 99.28 per cent of PIFL's holding, leaving only a minuscule free float of 0.72 per cent.

Through this modus operandi, the company's market capitalisation skyrocketed from Rs 40 crore to over Rs 4,000 crore within eight months, bypassing natural market dynamics, the order said.

“With such a small float, natural market dynamics were effectively bypassed becoming a case of the tail wagging the dog,” Bhatia observed.

Sebi pointed out the preferential allotment was part of a well-orchestrated scheme to expand Pacheli Industrial Finance's share capital and allocate shares to connected entities without genuine consideration, disadvantaging existing public investors.

Further, the regulator flagged the situation as a potential "pump-and-dump" operation, wherein inflated stock prices attract retail investors before the major shareholders offload their holdings after the lock-in period expires.

Accordingly, Pacheli Industrial Finance and the six other entities were debarred from accessing as well as dealing in the securities markets till further orders and they have been given 21 days to respond to Sebi’s findings.

Further, the regulator said that a detailed investigation will be undertaken by Sebi into the issues identified in this order including trades executed in the scrip during the price rise period.

Meanwhile, the regulator has also frozen the shareholding of the six preferential allottees and barred PIFL from accessing the capital markets.

The Securities and Exchange Board of India (Sebi) observed that the urgency of the measures, comes from the lock-in period for the preferential shares expiring in March 2025, raising concerns over potential harm to retail investors.

The order came after Sebi initiated a detailed investigation into trades executed during the price surge period. The scrutiny began after internal alerts were triggered by the inconsistent share price movement of PIFL relative to its financials.

Between December 2, 2024, and January 16, 2025, the company’s share price soared by 372 per cent, jumping from Rs 21.02 to Rs 78.2. The stock was also under surveillance, consistently hitting the 5 per cent upper circuit daily since December 9, 2024. The regulator emphasised that the actions were necessary to safeguard retail investors and maintain market integrity.

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