SEBI Bars First Overseas Capital from New Debt Securities Mandates Over Rule Violations

SEBI on Wednesday barred First Overseas Capital from taking any new mandate as a lead manager for any public issue of debt securities until further orders for allegedly violating merchant banker's rules. The regulator also issued a show cause notice to First Overseas Capital for alleged violations of the provision of Merchant Bankers regulations.

"I, hereby debar the noticee from taking any new mandate in relation to the business of issue management either by making arrangements regarding selling, buying or subscribing to securities or acting as manager, consultant, adviser or rendering corporate advisory service in relation to such issue management, until further order," SEBI's whole-time member Ashwani Bhatia said in the order.

In its 33-page interim order cum show cause notice, SEBI said FOCL acted as a registered merchant banker without meeting the capital adequacy requirement (net worth of Rs 5 crore), as mandated under the provisions of the MB norms.

Further, the First Overseas Capital accepted public deposits to meet its underwriting obligations in violation of the provisions of the Companies Act, 2013 and other Sebi rules, it added.

The regulator also observed that the total underwriting obligations of FOCL at various points of time exceeded twenty times its net worth. Apart from that, the merchant banker is prima facie found to have made false and misleading submissions.

The statutory requirements laid down by SEBI, are mandatory in nature and a merchant banker is bound to comply with such requirements without any exemption or relaxation.

The non-compliance with the laid down obligations under the MB regulations and various SEBI's circulars, as observed in this case have compromised the regulatory framework, the regulator said in the order.

The markets watchdog also noted that the First Overseas Capital remains non-compliant with the net worth requirements.

According to SEBI norms, an entity functioning as a merchant banker without having a prescribed minimum net-worth poses a systemic risk to the securities market.

Since, First Overseas Capital is non-compliant with net-worth requirements, the continuation of merchant banking business by the merchant banker is likely to affect the stability of the securities market and is likely to prejudice the interests of investors in the securities market, it said.

The order came after the Securities and Exchange Board of India carried out an inspection of First Overseas Capital Ltd, a SEBI-registered merchant banker in August 2022.

The period of inspection was from April 2021 to March 2022. During the course of inspection, it was found that FOCL had failed to maintain the required capital adequacy (net worth of Rs 5 crore) at all times, in terms of MB rules.

Further, another inspection was conducted by SEBI in February 2024, for the period from April 2022 to October 2023.

During the inspection, it was found again that the FOCL had not complied with capital adequacy requirement and allegedly flouted the MB rules.