Description

SEBI order against First Overseas Capital Limited (Merchant Banker) for violations including non-maintenance of net worth, unauthorized business activities, and submission of false information.

Summary

SEBI has issued an order against First Overseas Capital Limited (Registration No. INM000003671), a registered Merchant Banker, following inspections conducted in 2022 and 2024. The company was found in violation of multiple regulatory requirements including failure to maintain minimum net worth of ₹5 Crore, engaging in unauthorized business activities, undertaking excessive underwriting obligations, accepting public deposits, and submitting false information to SEBI. An interim order dated October 23, 2024 had debarred the entity from taking new mandates, which was partially stayed by the Securities Appellate Tribunal on December 11, 2024, subject to the company bringing in ₹3 Crores within 15 days to meet capital adequacy requirements.

Key Points

  • First Overseas Capital Limited violated SEBI (Merchant Bankers) Regulations, 1992
  • Failed to maintain mandatory net worth of ₹5 Crore during inspection periods (April 2021-March 2022 and April 2022-October 2023)
  • Engaged in business activities outside securities market operations
  • Undertook underwriting obligations exceeding 20 times its net worth
  • Accepted public deposits to fulfill underwriting obligations
  • Submitted false and misleading information to SEBI
  • Failed to intimate SEBI about acquisition of securities of companies whose issues were managed by the MB
  • Did not submit mandatory half-yearly reports
  • Key Managerial Personnel lacked required certifications
  • Incomplete track record disclosure on company website
  • SAT partially stayed debarment order, allowing business continuation subject to ₹3 Crore capital infusion within 15 days

Regulatory Changes

No new regulatory changes introduced. This order enforces existing provisions under:

  • Sections 11(1), 11(4), 11B(1) and 11B(2) of the SEBI Act, 1992
  • Regulation 7 and Regulation 9A(1)(d) of SEBI (Merchant Bankers) Regulations, 1992
  • Regulation 35 of MB Regulations read with Regulation 23 of SEBI (Intermediaries) Regulations, 2008

Compliance Requirements

For First Overseas Capital Limited:

  • Must bring in additional capital of ₹3 Crores within 15 days from December 11, 2024 to maintain net worth of ₹5 Crores (as per SAT order)
  • Must file reply within four weeks from SAT order date (December 11, 2024)
  • Must cease all violations identified in the interim order
  • Debarment from new mandates remains in effect until capital adequacy is achieved and SEBI proceedings conclude

For all Merchant Bankers (general reminder):

  • Maintain minimum net worth of ₹5 Crore at all times
  • Restrict business activities to securities market operations only
  • Limit underwriting obligations to 20 times net worth
  • Do not accept public deposits for underwriting obligations
  • Provide accurate information to SEBI
  • Intimate SEBI about acquisition of securities of managed companies
  • Submit half-yearly reports timely
  • Ensure Key Managerial Personnel meet certification requirements
  • Maintain complete and updated track record disclosure on website

Important Dates

  • August 24-25, 2022: First SEBI inspection (period: April 1, 2021 - March 31, 2022)
  • October 3, 2025: Order issued concluding first enquiry proceedings
  • February 14-15, 2024: Second SEBI inspection (period: April 1, 2022 - October 31, 2023)
  • October 23, 2024: Interim order cum show cause notice issued, debarring new mandates
  • December 11, 2024: SAT order partially staying debarment
  • December 26, 2024 (approx.): Deadline to bring in ₹3 Crores (15 days from SAT order)
  • January 8, 2025 (approx.): Deadline to file reply before SEBI (4 weeks from SAT order)

Impact Assessment

Market Impact: Limited direct market impact as this affects a single merchant banking entity. However, it reinforces SEBI’s strict enforcement stance on capital adequacy and compliance requirements for intermediaries.

Operational Impact:

  • First Overseas Capital Limited’s ability to take new issue management mandates was restricted by the interim order
  • Partial relief granted by SAT allows continued operations subject to capital infusion
  • Ongoing clients of the merchant banker may face uncertainty regarding service continuity

Regulatory Significance:

  • Demonstrates SEBI’s zero-tolerance approach to net worth violations and false reporting
  • Sends strong message to all registered intermediaries about importance of maintaining regulatory capital requirements
  • Highlights consequences of engaging in unauthorized business activities and accepting public deposits
  • Emphasizes need for accurate and timely disclosures to the regulator

Industry Implications:

  • Other merchant bankers should review their net worth compliance and business activities
  • Need for robust internal controls to ensure adherence to underwriting limits
  • Importance of KMP certifications and disclosure requirements

Impact Justification

SEBI enforcement action against a registered merchant banker for multiple regulatory violations. Direct impact limited to the specific intermediary and its clients, but signals regulatory strictness on capital adequacy and compliance requirements.