Description

SEBI settlement order against AK Capital Group entities for fraudulent practices in DHFL's NCD public issue involving providing guaranteed exit at profit to applicants.

Summary

SEBI issued a settlement order (SO/PSD/2025-26/8200-8204) against five entities of the AK Capital Group - A.K. Capital Finance Limited, A.K. Stockmart Private Limited, A.K. Capital Services Limited, E-Ally Securities (India) Private Limited, and Ridhi Sidhi Distributors Private Limited. The entities filed suo motu settlement applications under SEBI (Settlement Proceedings) Regulations, 2018 for alleged violations in connection with Dewan Housing Finance Limited’s (DHFL) public issue of non-convertible debentures (NCDs) worth Rs 10,944.79 crore through Shelf prospectus and Tranche 1 Prospectus dated May 14, 2018.

Key Points

  • AK Capital Group devised a scheme using Power of Attorney (PoA) to submit bid applications for 14,08,015 NCDs on behalf of 911 applicants in DHFL’s public issue
  • AKCFL (NBFC arm) provided loans at 11% and 10.5% interest rates to 911 applicants for subscribing to NCDs with coupon rates of 8.90% and 9.00%
  • Post-allotment, the group sold NCDs through off-market transactions to EASPL and RSDPL using PoA, with exit providers funded by AKSPL and AKCFL
  • The scheme allegedly provided guaranteed exit at profit to the 911 applicants
  • Five separate settlement applications filed (S.A. No. 8200/2024 to 8204/2024) by the entities

Regulatory Changes

This settlement order reinforces existing regulations but does not introduce new regulatory changes. It highlights enforcement of:

  • SEBI (Merchant Bankers) Regulations, 1992 (Schedule III - Clauses 2, 3, 9, 19, 27, 32)
  • SEBI (Stock Brokers) Regulations, 1992 (Schedule II - Clauses A(1), A(3), B(4))
  • SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003
  • SEBI Circular No. CIR/IMD/DF/22/2011 dated December 26, 2011

Compliance Requirements

  • Merchant bankers must comply with Schedule III provisions regarding due diligence and fair practices in public issues
  • Stock brokers must adhere to Schedule II requirements and avoid facilitating fraudulent schemes
  • NBFCs and related entities must not provide financing arrangements that enable unfair trade practices in securities markets
  • Entities must not use Power of Attorney mechanisms to manipulate public issue applications or provide guaranteed exit arrangements
  • All intermediaries must ensure their activities do not violate PFUTP Regulations 4(1) and 4(2)(o)

Important Dates

  • May 14, 2018: DHFL Shelf prospectus and Tranche 1 Prospectus date for NCD public issue
  • December 26, 2011: SEBI Circular No. CIR/IMD/DF/22/2011 (referenced regulatory circular)
  • 2024: Settlement applications filed (S.A. No. 8200/2024 to 8204/2024)
  • October 2025: Settlement order issued

Impact Assessment

Market Impact: High - The case involves a significant public issue of Rs 10,944.79 crore and highlights systemic risks in NCD public offerings where intermediaries can manipulate subscription patterns through coordinated schemes.

Regulatory Impact: High - Demonstrates SEBI’s enforcement focus on fraudulent practices involving multiple intermediaries acting in concert, and establishes precedent for settlement proceedings in complex schemes involving merchant bankers, stock brokers, and NBFCs.

Investor Protection: The order addresses a scheme that undermined the integrity of public issue process by creating artificial demand through financed applications with guaranteed exit arrangements, which could have distorted price discovery and disadvantaged genuine investors.

Intermediary Conduct: Sets important compliance expectations for merchant bankers, stock brokers, and NBFCs regarding their role in public issues and the prohibition against facilitating unfair trade practices or guaranteed return schemes.

Impact Justification

Major settlement order involving fraudulent scheme in Rs 10,944.79 crore NCD public issue, with violations of merchant banker, stock broker regulations and PFUTP provisions by multiple entities