Description

SEBI imposes penalties on Gretex Corporate Services Limited (Merchant Banker) for inadequate due diligence in SME IPO of Sudarshan Pharma Industries Limited and IPO of Akme Fintrade (India) Limited, violating ICDR and MB Regulations.

Summary

SEBI has issued an adjudication order (Order/AK/GN/2025-26/31964) against Gretex Corporate Services Limited (PAN: AACCD9875F), a SEBI-registered Merchant Banker (Registration No. INM000012177), for multiple violations during IPO processes. The order follows an inspection covering the period from April 01, 2022 to July 31, 2024, conducted in December 2024. The violations relate to inadequate due diligence in two IPO matters: SME IPO of Sudarshan Pharma Industries Limited and IPO of Akme Fintrade (India) Limited. Proceedings were initiated under Section 15-I of SEBI Act, 1992 and adjudication is being conducted under Sections 15HB and 15A(b) of SEBI Act.

Key Points

  • Inspection of Gretex Corporate Services Limited conducted from December 19-20, 2024 for period April 01, 2022 to July 31, 2024
  • Show Cause Notice issued on September 02, 2025 under Rule 4(1) of Adjudication Rules
  • Violations in Sudarshan Pharma Industries Limited SME IPO: Failed to exercise adequate due diligence regarding previous IPO application and withdrawal reasons; deleted KPI peer comparison with alleged mala fide intent
  • Violations in Akme Fintrade (India) Limited IPO: Failed to incorporate SEBI observation letter changes dated January 18, 2024; failed to submit due diligence certificate at time of filing offer documents
  • Alleged violations of SEBI (ICDR) Regulations 2018 - specifically Regulations 245(2)(b), 245(3), and 25(5), 25(9)(b)
  • Alleged violations of SEBI (Merchant Bankers) Regulation 1992 - specifically Regulations 9A(1)(e) and 13 read with Clauses 4 and 21 of Schedule III
  • Adjudication proceedings appointed under Section 15-I of SEBI Act and Rule 3 of Adjudication Rules

Regulatory Changes

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

  • SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018
  • SEBI (Merchant Bankers) Regulation, 1992
  • SEBI (Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995

Compliance Requirements

Merchant Bankers must ensure:

  • Adequate due diligence at DRHP stage regarding issuer’s previous IPO applications and withdrawal reasons
  • Full disclosure compliance including KPI peer comparisons as required under Part A of Schedule VI of ICDR Regulations
  • Incorporation of all changes advised by SEBI in observation letters into offer documents
  • Timely submission of due diligence certificates at the time of filing offer documents as mandated under Regulation 25(9)(b)
  • Adherence to Clauses 4 and 21 of Schedule III of MB Regulations regarding due diligence standards
  • Compliance with Regulation 245(3) of ICDR for comprehensive due diligence obligations

Important Dates

  • Inspection Period: April 01, 2022 to July 31, 2024
  • Inspection Conducted: December 19-20, 2024
  • SEBI Communications: February 21, March 05, March 10, and June 09, 2025
  • Adjudicating Officer Appointment: July 21, 2025
  • Show Cause Notice Issued: September 02, 2025
  • SEBI Observation Letter (Akme Fintrade): January 18, 2024

Impact Assessment

Market Impact: Medium - This enforcement action affects a registered merchant banker and sets precedent for due diligence standards in IPO processes, particularly for SME IPOs. The violations occurred in specific transactions but highlight broader compliance expectations for all merchant bankers.

Operational Impact: High for Gretex Corporate Services Limited - The company faces potential penalties under Sections 15HB and 15A(b) of SEBI Act, which could affect its ability to conduct merchant banking activities and its reputation in the market.

Investor Protection: The violations relate to inadequate disclosure and due diligence failures that could have misled investors in the respective IPOs. The enforcement action reinforces SEBI’s commitment to ensuring intermediaries maintain high standards of due diligence to protect investor interests.

Industry Impact: This order serves as a reminder to all merchant bankers regarding the importance of thorough due diligence, proper incorporation of regulatory feedback, and complete disclosure requirements in IPO processes.

Impact Justification

Enforcement action against registered intermediary for regulatory violations in IPO processes, important for merchant banking compliance standards but limited direct market-wide impact