Description

SEBI issues enquiry order prohibiting Gretex Corporate Services Limited from taking new assignments for one month due to violations of merchant banker regulations including net worth maintenance and inadequate due diligence.

Summary

SEBI has issued an enquiry order under Section 12(3) of the SEBI Act, 1992 against Gretex Corporate Services Limited (SEBI Registration No: INM000012177, PAN: AACCD9875F), prohibiting the merchant banker from taking up any new assignment or contract for a period of one month. The action follows an inspection covering April 1, 2021 to January 31, 2023, which revealed violations of Regulation 7 and Regulation 13 of SEBI (Merchant Bankers) Regulations, 1992. The Designated Authority issued a Show Cause Notice on December 23, 2024, and submitted an Enquiry Report on June 27, 2025 recommending the prohibition period.

Key Points

  • SEBI conducted inspection of Gretex Corporate Services Limited for period April 1, 2021 to January 31, 2023
  • Violations found under Regulation 7 and Regulation 13 read with Clauses 1, 3, 4, 7 and 20 of Schedule III of MB Regulations, 1992
  • Non-maintenance of minimum net worth requirement during FY 2019-20
  • Failure to exercise adequate due diligence in SME public issue of Jayant Infratech Limited
  • Specific issues identified: Payment of Security Deposit for renting of Office Space and discrepancies in Statement of Financial Indebtedness
  • Noticee filed suo motu settlement application which was rejected by SEBI under Regulation 15(1) of Settlement Proceedings Regulations, 2018
  • Show Cause Notice issued on December 23, 2024 under Regulation 25(1) of Intermediaries Regulations
  • Enquiry Report submitted on June 27, 2025

Regulatory Changes

No new regulatory changes introduced. This order reinforces existing requirements under:

  • SEBI (Merchant Bankers) Regulations, 1992 - Regulation 7 (net worth requirements) and Regulation 13 (due diligence obligations)
  • SEBI (Intermediaries) Regulations, 2008 - Regulation 23, 26 and 27 (enquiry and penalty provisions)
  • Schedule III of MB Regulations regarding due diligence standards (Clauses 1, 3, 4, 7 and 20)

Compliance Requirements

For Gretex Corporate Services Limited:

  • Prohibited from taking up any new assignment or contract as SEBI Registered Merchant Banker for one month
  • Cannot launch new schemes during prohibition period
  • Must maintain minimum net worth requirements as per Regulation 7 of MB Regulations
  • Must exercise adequate due diligence as per Regulation 13 of MB Regulations

For All Merchant Bankers:

  • Maintain minimum net worth requirements at all times
  • Exercise thorough due diligence on all public issues, particularly for SME IPOs
  • Verify accuracy of disclosures related to objects of the issue
  • Ensure accuracy of Statement of Financial Indebtedness
  • Comply with all clauses of Schedule III of MB Regulations

Important Dates

  • April 1, 2021 to January 31, 2023: Inspection period
  • FY 2019-20: Period of net worth violation
  • March 19, 2024: Designated Authority appointed for enquiry proceedings
  • December 23, 2024: Show Cause Notice issued
  • June 27, 2025: Enquiry Report submitted with recommendations
  • One month from order date: Duration of prohibition on new assignments

Impact Assessment

On Gretex Corporate Services Limited:

  • Cannot take new merchant banking assignments for one month
  • Reputational impact from regulatory action
  • May affect existing client relationships and business pipeline

On Market Participants:

  • Companies planning IPOs/public issues may need to engage alternative merchant bankers if considering Gretex
  • Signals heightened regulatory scrutiny on merchant banker due diligence

Broader Implications:

  • Reinforces SEBI’s strict monitoring of intermediary compliance with net worth and due diligence requirements
  • Emphasizes importance of thorough verification of issue objects and financial statements
  • Demonstrates SEBI’s willingness to reject settlement applications and proceed with enquiry proceedings
  • Serves as warning to other merchant bankers regarding consequences of inadequate due diligence, particularly in SME segment
  • One-month prohibition is relatively moderate penalty, suggesting violations were serious but not egregious

Impact Justification

Enforcement action against a specific merchant banker for regulatory violations. Medium impact as it affects one intermediary's operations for limited duration but signals SEBI's strict monitoring of due diligence standards.