Description

SEBI order against First Overseas Capital Limited for violations including non-maintenance of net worth, accepting public deposits for underwriting, and submission of false information.

Summary

SEBI issued a final order under Sections 11(1), 11(4), 11B(1) and 11B(2) of the SEBI Act, 1992 against First Overseas Capital Limited (Registration No. INM000003671), a registered Merchant Banker. The order follows inspections conducted in August 2022 and February 2024, which revealed multiple violations of the SEBI (Merchant Bankers) Regulations, 1992. 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 entity bringing in additional capital of ₹3 Crores within 15 days.

Key Points

  • First Overseas Capital Limited failed to maintain the minimum net worth requirement of ₹5 Crore as mandated under regulation 7 read with regulation 9A(1)(d) of the MB Regulations
  • The entity was found indulging in business activities other than those of the securities market
  • Undertook underwriting obligations exceeding 20 times its net worth, violating regulatory limits
  • Accepted public deposits for fulfilling underwriting obligations, which is prohibited
  • Submitted false and misleading information to SEBI
  • Failed to intimate SEBI about acquisition of securities of companies whose issues were managed by the merchant banker
  • Failed to submit mandatory half-yearly reports
  • Key Managerial Personnel were not in compliance with certification requirements
  • Incomplete track record disclosure on the company website
  • Inspection periods covered: April 01, 2021 to March 31, 2022 and April 01, 2022 to October 31, 2023

Regulatory Changes

No new regulatory changes introduced. This order enforces existing provisions of the SEBI (Merchant Bankers) Regulations, 1992 and SEBI (Intermediaries) Regulations, 2008.

Compliance Requirements

  • First Overseas Capital Limited must bring in additional capital of ₹3 Crores within 15 days from December 11, 2024 to maintain net-worth capital adequacy of ₹5 Crores (as directed by SAT)
  • The entity must file its reply within four weeks from December 11, 2024 before SEBI
  • Must cease accepting public deposits for underwriting obligations
  • Must limit underwriting obligations to within 20 times of net worth
  • Must ensure Key Managerial Personnel meet certification requirements
  • Must submit half-yearly reports as mandated
  • Must intimate SEBI about acquisition of securities of companies whose issues are managed by the merchant banker
  • Must maintain complete and accurate track record disclosure on website
  • Must refrain from submitting false and misleading information to SEBI

Important Dates

  • August 24-25, 2022: First inspection conducted by SEBI
  • February 14-15, 2024: Second inspection conducted by SEBI
  • October 3, 2025: Order issued concluding enquiry proceedings from first inspection
  • October 23, 2024: Interim order cum show cause notice issued
  • December 11, 2024: Securities Appellate Tribunal order partially staying the interim order
  • Deadline for capital infusion: 15 days from December 11, 2024 (December 26, 2024)
  • Deadline for filing reply to SEBI: 4 weeks from December 11, 2024 (January 8, 2025)

Impact Assessment

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

Operational Impact: First Overseas Capital Limited was initially debarred from taking new mandates for issue management activities, which was partially stayed by SAT subject to capital infusion. The entity’s ability to continue merchant banking operations depends on meeting the capital adequacy requirement and addressing the violations.

Regulatory Significance: This order highlights SEBI’s focus on multiple critical areas:

  • Capital adequacy and net worth requirements for intermediaries
  • Prohibition on accepting public deposits for underwriting
  • Accuracy and truthfulness of information submitted to regulators
  • Limits on underwriting exposure relative to net worth
  • Ongoing compliance with reporting and disclosure obligations

The case demonstrates SEBI’s willingness to take strong enforcement action against registered intermediaries for systemic compliance failures, while also showing that entities willing to rectify capital adequacy issues may receive measured relief from appellate authorities.

Impact Justification

Enforcement action against registered merchant banker for multiple serious violations including capital adequacy breach and accepting public deposits for underwriting obligations.