Securities and Exchange Board of India on Wednesday prohibited First Overseas Capital from accepting any new mandates as a lead manager for public debt securities issues until further notice, citing violations of merchant banking regulations .
The market regulator, in a notice, alleged that First Overseas Capital had violated the provision of Merchant Bankers (MB) regulations.
The order came after Sebi carried out an inspection of First Overseas Capital Ltd (FOCL), a Sebi-registered merchant banker in August 2022.
In an order, Sebi's whole time member Ashwani Bhatia stated, "I, hereby debar the noticee (FOCL) from taking any new mandate in relation to the business of issue management either by making arrangements regarding selling, buying or subscribing to securities or acting as manager, consultant, adviser or rendering corporate advisory service in relation to such issue management, until further order."
Sebi, in its 33-page interim order and show cause notice, accused FOCL of operating as a registered merchant banker even though it failed to fulfill the capital adequacy requirement of a minimum net worth of Rs 5 crore, as stipulated by the merchant banking regulations.
Moreover, the banking service provider accepted public deposits to fulfill its underwriting obligations, which violated the provisions of the Companies Act, 2013, as well as other SEBI regulations, it stated.
The regulator also observed that FOCL's total underwriting obligations at various times exceeded twenty times its net worth. Additionally, the merchant banker appears to have made false and misleading statements.
Any merchant banker is bound to comply with the mandatory statutory requirements without any exemption or relaxation laid down by Sebi.
The watchdog in its order revealed, the entity had failed to comply with the obligations laid down under MB regulations, and net worth requirements, along with various Sebi's circulars, which resulted in the regulatory framework to be compromised.
According to Sebi norms, an entity functioning as a merchant banker without having a prescribed minimum net-worth poses a systemic risk to the securities market.
The regulator indicated that, due to First Overseas Capital's non-compliance with net worth requirements, the continuation of its merchant banking operations could jeopardize the stability of the securities market and adversely affect investor interests.
During the inspection period of April 2021 to March 2022, it was found that FOCL had failed to maintain the required capital adequacy (net worth of Rs 5 crore) at all times, in terms of MB rules.
In another inspection by Sebi in February 2024, for the period from April 2022 to October 2023, it was found again that the FOCL had yet again failed to comply with capital adequacy requirements and allegedly flouted the MB rules.
The market regulator, in a notice, alleged that First Overseas Capital had violated the provision of Merchant Bankers (MB) regulations.
The order came after Sebi carried out an inspection of First Overseas Capital Ltd (FOCL), a Sebi-registered merchant banker in August 2022.
In an order, Sebi's whole time member Ashwani Bhatia stated, "I, hereby debar the noticee (FOCL) from taking any new mandate in relation to the business of issue management either by making arrangements regarding selling, buying or subscribing to securities or acting as manager, consultant, adviser or rendering corporate advisory service in relation to such issue management, until further order."
Sebi, in its 33-page interim order and show cause notice, accused FOCL of operating as a registered merchant banker even though it failed to fulfill the capital adequacy requirement of a minimum net worth of Rs 5 crore, as stipulated by the merchant banking regulations.
Moreover, the banking service provider accepted public deposits to fulfill its underwriting obligations, which violated the provisions of the Companies Act, 2013, as well as other SEBI regulations, it stated.
The regulator also observed that FOCL's total underwriting obligations at various times exceeded twenty times its net worth. Additionally, the merchant banker appears to have made false and misleading statements.
Any merchant banker is bound to comply with the mandatory statutory requirements without any exemption or relaxation laid down by Sebi.
The watchdog in its order revealed, the entity had failed to comply with the obligations laid down under MB regulations, and net worth requirements, along with various Sebi's circulars, which resulted in the regulatory framework to be compromised.
According to Sebi norms, an entity functioning as a merchant banker without having a prescribed minimum net-worth poses a systemic risk to the securities market.
The regulator indicated that, due to First Overseas Capital's non-compliance with net worth requirements, the continuation of its merchant banking operations could jeopardize the stability of the securities market and adversely affect investor interests.
During the inspection period of April 2021 to March 2022, it was found that FOCL had failed to maintain the required capital adequacy (net worth of Rs 5 crore) at all times, in terms of MB rules.
In another inspection by Sebi in February 2024, for the period from April 2022 to October 2023, it was found again that the FOCL had yet again failed to comply with capital adequacy requirements and allegedly flouted the MB rules.
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