Smallcap Stock Alert: Brightcom Group Shares Locked At 5% Upper Circuit After Falling By 51% In 12 Days

Shares of Brightcom Group, an IT-enabled services provider, on Friday finally took some breather from a bandwagon of sharp selling. After falling for 12 days straight, Brightcom shares locked at 5% upper circuit on September 8. The reason behind the shares selloff was Sebi's interim order on the company and key individuals after complaints about its preferential shares allotments.

On BSE, Brightcom shares ended at Rs 13.76 apiece on Friday, which is the 5% upper circuit. Generally, upper circuits mean that there were several buyers but no sellers in a stock.

The company's market cap stood at Rs 2,776.66 crore.

Brightcom shares were in red from August 23rd to September 7th. The stock nosedived by 50.5% on BSE during these days.

Sebi investigated Brightcom and its preferential allotments after it received several complaints between October 6, 2022, to May 12, 2023. The complainants alleged that Brightcom had raised money through the preferential issue of shares to entities that were directly or indirectly connected to it and that the money raised in the preferential issue was given as loans and advances to its subsidiaries.

Also, it was alleged that Brightcom did not make proper disclosure in the annual report with respect to the utlisation of the proceeds of preferential shares.

After carrying out the investigation, Sebi on August August 22, 2023, issued an interim order on Brightcom and key members.

Under the interim order, Suresh Kumar Reddy the then Chairman and Managing Director, and Narayan Raju the then CFO were asked to cease their position a directors or key managerial personnel in any listed company or its subsidiaries until further orders. Further, Suresh Kumar Reddy was barred from buying, selling, or dealing in securities either directly or indirectly.

Also, Brightcom was directed to ensure that Murali & Co. and PCN & Associates including their past and present partners are not engaged with the company or its subsidiaries.

Moreover, the preferential allottees are directed to cooperate in the ongoing investigation by Sebi.

Upon receipt of the order, Brightcom said it immediately set up a dedicated internal team to thoroughly review the details and implications. On August 23, Brightcom said, "The company is evaluating potential action courses to address this situation effectively. We are in consultation with legal experts to ensure that all our responses are in the company's and its shareholders best interest."

However, the woes of Brightcom heightened when on August 27, the company approved resignation letters from Suresh Reddy, who was serving as the Chairman & Managing Director (CMD) of the company. Also, the resignation letter of Narayana Raju, who held the position of Chief Financial Officer (CFO) of the company, was approved.

On September 1, Brightcom revealed that the recently consists of three Independent Directors, one Non-Executive Director, and one Executive Director. Each member plays a distinct role in shaping the company's strategic direction and decision-making processes. However, recent meetings have highlighted a vulnerability in the board's structure. In instances where no Executive Director is present, the board encounters challenges in making prompt and informed decisions related to day-to-day operations.

Further, Brightcom said, "The board has taken a crucial step towards enhancing the company's audit practices by choosing to send intent letters to the country's leading auditors. The initial shortlisting process, which had been initiated through a peer review of auditors, regrettably encountered an unexpected delay due to reasons beyond our control. In light of the vital importance of this procedure, the board has thoughtfully considered the situation and has opted to reinstate the shortlisting process."

Also, Brightcom's board has directed former Chairman and Managing Director, M Suresh Kumar Reddy, in conjunction with the former CFO, SL Narayana Raju, to attend as invitee in the forthcoming Board Meeting. Their sudden departures took place by operation of law without proper handover and they were 2 key executives who were driving the Company and had in-depth knowledge of its working, it's imperative for them to do a proper & effective handover and Knowledge transfer about the Company.

Lastly, Brightcom's board issued instructions to the transition leadership team, requesting the presentation of budgets for the next 1 month, three months, and six months, within a week. This presentation will serve as the basis for further decision-making by the Board.