Description

SEBI suspends registration of First Overseas Capital Ltd. (Merchant Banker) for six months due to violation of minimum net worth requirement of INR 5 crores during FY 2019-2021.

Summary

SEBI has issued an order under Section 12(3) of SEBI Act, 1992 and Regulation 27 of SEBI (Intermediaries) Regulations, 2008 against First Overseas Capital Ltd. (SEBI Registration No.: INM000003671, PAN: AAACL4737A), a registered Merchant Banker. Following an inspection for the period April 01, 2021 to March 31, 2022, SEBI found that the company violated minimum net worth requirements under Regulation 7 of SEBI (Merchant Bankers) Regulations, 1992. The Designated Authority recommended suspension of registration for six months and issuance of regulatory censure.

Key Points

  • First Overseas Capital Ltd. failed to maintain mandatory net worth of INR 5 crores as required under Regulation 7 of MB Regulations
  • Net worth for FY 2019: INR 3.39 crores (deficit: INR 1.60 crores)
  • Net worth for FY 2020: INR 1.91 crores (deficit: INR 3.08 crores)
  • Net worth for FY 2021: INR 2.31 crores (deficit: INR 2.68 crores)
  • Violation admitted by the Noticee in replies dated May 17, 2023 and December 20, 2024
  • Inspection covered period: April 01, 2021 to March 31, 2022
  • Enquiry proceedings initiated under SEBI (Intermediaries) Regulations, 2008

Regulatory Changes

No new regulatory changes introduced. This order enforces existing capital adequacy requirements under Regulation 7 of SEBI (Merchant Bankers) Regulations, 1992, which mandates minimum net worth of INR 5 crores for merchant bankers.

Compliance Requirements

  • Merchant Bankers must maintain minimum net worth of INR 5 crores at all times
  • Net worth calculated as: Paid-up capital + Free reserves
  • Failure to maintain capital adequacy can result in suspension of registration and regulatory censure
  • Intermediaries must respond to inspection findings and show cause notices within specified timelines

Important Dates

  • Inspection Period: April 01, 2021 to March 31, 2022
  • Inspection findings communicated: September 28, 2022 and November 04, 2022
  • Noticee’s replies: October 21, 2022 and November 09, 2022
  • DA Show Cause Notice: May 03, 2023
  • Noticee’s reply to DA SCN: May 17, 2023
  • Personal hearing: December 19, 2024
  • DA Report submitted: February 27, 2025
  • Post Enquiry SCN issued: March 25, 2025
  • Order reference: WTM/AN/CFD/CFD-SEC-4/31702/2025-26

Impact Assessment

Entity-Specific Impact: High - First Overseas Capital Ltd. faces six-month suspension of merchant banking registration and regulatory censure, effectively preventing it from conducting merchant banking activities during the suspension period.

Market Impact: Low to Medium - Limited broader market impact as this is an enforcement action against a single intermediary. However, it reinforces SEBI’s strict enforcement of capital adequacy norms for intermediaries.

Regulatory Precedent: Demonstrates SEBI’s commitment to ensuring financial soundness of market intermediaries through strict enforcement of net worth requirements. Sets precedent for consequences of sustained capital adequacy violations across multiple financial years.

Impact Justification

Enforcement action against merchant banker for capital adequacy violations. High severity for the entity but limited broader market impact as action is entity-specific.