The matter relates to alleged violation of Merchant Bankers (MB) Regulations by Axis Capital Limited (ACL) in connection with Non-Convertible Debentures (NCDs) issued by Sojo Infotel Pvt. Ltd.
Violations mainly include ACLs that provide guarantee/indemnity for NCD redemption in case of default, an activity considered outside the scope of underwriting or issue management.
After reviewing the matter, Sebi Whole Time Member Ashwani Bhatia said, “I am prepared to modify the interim direction issued in the interim order so as to limit the prohibition to the alleged activities in violation of the provisions of the MB Regulations, 1992, as covered in the interim order.” .
By amending the interim order, SEBI prohibited ACL from engaging in any transactions in the debt segment including credit risk cover, guarantee, indemnification for purchase of pledged shares, or participation in structured secured credit transactions.
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“ACL shall not undertake any transaction, in which ACL provides any credit risk cover… guarantee or indemnity relating to the purchase of pledged shares… or which results in a structured secured credit transaction… segment in debt, further orders till,” Sebi said in its confirmatory order on Tuesday.
In its interim order, Sebi found that the arrangement is similar to a secured credit transaction, in which the ACL assumes credit risk rather than market risk.
This activity was considered more like a banking function rather than merchant banking.
ACL carried out similar transactions in five other cases between FY22 and FY23, Sebi said.
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