Light Blue Arrow Right
Back to Publications & Events

SEBI holds BRLM liable for Improper Due Diligence

Finsec Law Advisors

0 mins read


WTM of SEBI, in an order dated July 5, 2016, held Atherstone Capital Markets Ltd. (ACML), the merchant banker to the IPO of Onelife Capital Advisors Ltd., liable for not undertaking proper due diligence as required under the SEBI (ICDR) Regulations, 2009 and the SEBI (Merchant Bankers) Regulations, 1993.

In its earlier interim and confirmatory orders, SEBI had found discrepancies in the issue of shares to the public and held the merchant banker to the issue liable, for not acting diligently. The Issuer had entered into contracts for utilization of the IPO proceeds, prior to the filing of the Red Herring Prospectus and listing of shares on the stock exchange. However, the same was neither disclosed in the prospectus nor were the shareholders informed.

SEBI, in its order dated July 5 held that a merchant banker is a professional expert appointed in a public issue to ensure that the required diligence is undertaken throughout the process of issue and listing of shares. SEBI further observed that a merchant banker can be held liable for any information that is expected to be known to the merchant banker by reasonable care and diligence. In the given case, had ACML asked for the minutes of the board meetings, such a mis-utilization or diversion of public money would not have happened.

While holding that the duty of a merchant banker is not limited to filing of the RHP, but continues even after that, SEBI upheld the restrictions imposed on ACML in its confirmatory order.

SEBI has in the past highlighted the pro-active and significant role of merchant bankers in a public issue. SEBI has maintained that merchant bankers are expected to observe higher standards of professionalism than a man with ordinary prudence, given the significant functions they undertake.