The regulator has also restrained First Overseas Capital Ltd (FOCL) from accessing as well as dealing in the securities markets for a period of two years.
In a 43-page order, Sebi found that FOCL submitted false and misleading information, failed to intimate Sebi about securities acquired under underwriting commitments, delayed filing of half-yearly reports, did not ensure NISM certification of key managerial personnel, and omitted disclosure of track records on its website.
“The noticee (First Overseas Capital Ltd) has been non-compliant with the net worth requirements since the FY 2018-19 and it was only after the instructions of the SAT (Securities Appellate Tribunal) that the noticee became compliant,” Sebi’s whole-time member (WTM) Amarjeet Singh said in the order.
He noted that the net worth requirement is not a paper condition that has to be fulfilled by the applicants at the time of seeking registration from Sebi.
“Appropriate net worth requirement, in case of merchant bankers, ensures that the entities are financially sound to meet the underwriting obligations, if and when the need arises. Further, it also instils confidence among the investors/entities as regards the financial stability of merchant bankers.”As per the noticee’s own admission, it has also undertaken underwriting obligations more than 20x of its net worth, because it was confident that underwriting obligations will not arise and the IPOs (initial public offerings) managed by it were sound,” Sebi’s WTM Amarjeet Singh said.Singh added that such an approach not only violates the regulatory provisions but also exposes the clients of First Overseas Capital Ltd at risk, in cases where the merchant banker failed to meet its obligations.
Accordingly, Sebi restrained Mumbai-based FOCL from taking any new mandate, for a period of two years, in relation to the business of issue management or acting as manager, or rendering corporate advisory service.
The regulator has also slapped penalties totalling Rs 20 lakh on FOCL for contravening the MB regulations.
The Securities and Exchange Board of India (Sebi) conducted an inspection of FOCL from April 2021 to March 2022. During the inspection, Sebi observed that the noticee had failed to maintain a net worth of Rs 5 crore, and had therefore, violated MB (Merchant Bankers) rules.
Thereafter, the regulator initiated enquiry proceedings against the company and suspended the registration certificate of FOCL for two months for flouting norms.