{"id":245765,"date":"2021-03-19T12:30:22","date_gmt":"2021-03-19T07:00:22","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=245765"},"modified":"2021-04-23T13:36:39","modified_gmt":"2021-04-23T08:06:39","slug":"sebi-2","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2021\/03\/19\/sebi-2\/","title":{"rendered":"SEBI | \u2018Diligence is due diligence done diligently\u2019-Impliedly volumed | Recommendations revised attributing to the gravity of the lapses"},"content":{"rendered":"<p style=\"text-align: justify;\"><strong>Securities Exchange Board of India (SEBI):<\/strong> G Mahalingam, (Whole Time Member) while revising the recommendations made by the Designated Authority (DA) considering the serious lapses of the Noticee (Book Running Lead Manager) in regards with carrying out due diligence, were taken note of. Resultantly, Noticee is prohibited from accepting any new clients for a period of three months.<\/p>\n<p style=\"text-align: justify;\">The present matter was brought out from an investigation carried out by SEBI into the IPO of Sudar Industries Ltd. (SIL), for which Ashika Capital Limited (Noticee) was the Book Running Lead Manager (BRLM), in which certain lapses were found on account of BRLM. In the instant case the Delegated Authority had observed that the issuer company did not disclose the transactions of Addon Exports, A R Fabrics, Elim Traders, RJ Traders and Shalom Fashion, which were proprietorship firms of employees of SIL and persons connected to it, in the related party transaction. The Noticee contended that there was nothing on record that could have raised an iota of suspicion that the proprietorships in question were connected with the employees and there were no standard guidelines for the due diligence process.<\/p>\n<p style=\"text-align: justify;\"><strong>Issues raised were:<\/strong><\/p>\n<ol style=\"text-align: justify;\">\n<li>Non-disclosure of Independent director\u2019s involvement in key strategic and financial decisions<\/li>\n<li>Heavy dependence on few buyers\/suppliers and non-disclosure of the buyers and suppliers being related to the promoters and the promoter group<\/li>\n<li>Wrong disclosures made in the offer document regarding KMPs<\/li>\n<li>Non \u2013 Disclosure of Related Party Transactions<\/li>\n<\/ol>\n<p style=\"text-align: justify;\">The enquiry report indicated clearly that SIL was very much dependent on its clients for around 80% of its revenues and further established a cogent pecuniary relationship.<\/p>\n<p style=\"text-align: justify;\"><em>It was thus held, \u201c\u2026It was further noted that the Noticee had merely relied on an undertaking and information given by the issuer company instead of independently verifying the facts by examination of documents. Thus, the merchant banker in the present case has mechanically disclosed the information provided by the issuer without exercising reasonable diligence to ensure adequate, true and fair disclosures in the prospectus. The Noticee by not independtly exercising adequate diligence has deprived the investors of material information to enable them to make a balanced and well informed decision, which clearly breached the obligations imposed\u2026\u201d. <\/em><\/p>\n<p style=\"text-align: justify;\">While stressing on the need for diligence, a landmark judgment of the Supreme Court was referred to, <em>Chander Kanta Bansal V. Rajinder Singh Anand <\/em><a href=\"http:\/\/www.scconline.com\/DocumentLink\/1T6l7QJy\">(2008) 5 SCC 117<\/a><em> \u201c&#8230;According to Oxford Dictionary (Edn. 2006),the word \u201cdiligence\u201d means careful and persistent application or effort. \u201cDiligent\u201d means careful and steady in application to one\u2019s work and duties, showing care and effort. As per Black\u2019s law Dictionary (18thEdn), \u201cDue Diligence\u201d means the diligence reasonably expected from, and ordinarily exercised by, a person who seeks to satisfy a legal requirement or to discharge an obligation. According to Words and Pharses by Drain-Dyspnea (PermanentEdn.13-A)\u201cdue diligence\u201d, in law, means doing everything reasonable, not everything possible.\u201c Due Diligence\u201d means reasonable diligence. It means such diligence as a prudent man would exercise in the conduct of his own affairs\u2026\u201d.<\/em><\/p>\n<p style=\"text-align: justify;\">Further stated that, <em>\u201c\u2026I find that the recommendation is not commensurate with the gravity of the lapses\/acts of negligence attributable to the Noticee. Hence, I am inclined to appropriately revise the recommendation and pass suitable directions\u2026\u201d.<\/em><\/p>\n<p style=\"text-align: justify;\">[Sudar Industries Limited, In re, <a href=\"http:\/\/www.scconline.com\/DocumentLink\/6wu0G1FR\"><b>2021 SCC OnLine SEBI 62<\/b><\/a>, decided on 17-03-2021]<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Securities Exchange Board of India (SEBI): G Mahalingam, (Whole Time Member) while revising the recommendations made by the Designated Authority (DA) considering 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| Abysmal standards of service to investors, violation of maturity dates of FMP: Kotak Mahindra mulcted and trammelled from launching FMP","author":"Editor","date":"September 1, 2021","format":false,"excerpt":"Securities Exchange Board of India (SEBI): S.K. Mohanty, Whole Time Member while imposing penalty under Section 11B(2) read with Section 15D(b) and 15HB of SEBI Act, 1992 on Kotak Mahindra restrained it from launching any new FMP scheme for a period of six months. In the instant case, SEBI observed\u2026","rel":"","context":"In &quot;Case Briefs&quot;","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":200641,"url":"https:\/\/www.scconline.com\/blog\/post\/2018\/08\/26\/in-actions-seeking-relief-personal-to-the-deceased-right-to-sue-does-not-survive-against-his-representatives-inquiry-against-deceased-noticee-abated-sebi\/","url_meta":{"origin":245765,"position":1},"title":"In actions seeking relief personal to the deceased, right to sue does not survive against his representatives; inquiry against deceased noticee abated: SEBI","author":"Bhumika Indulia","date":"August 26, 2018","format":false,"excerpt":"Securities and Exchange Board of India (SEBI): A single member bench comprising of Satya Ranjan Prasad, Adjudicating Officer ordered to abate the adjudication proceedings initiated against the noticee, since deceased. The SEBI had initiated adjudication proceedings against the noticee - Prabir Chakravarti, Member of Board of Directors of Bhoruka Aluminum\u2026","rel":"","context":"In &quot;Case Briefs&quot;","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":253200,"url":"https:\/\/www.scconline.com\/blog\/post\/2021\/08\/25\/sebi-without-going-into-merits-adjudication-proceedings-abated-considering-the-death-of-the-noticee\/","url_meta":{"origin":245765,"position":2},"title":"SEBI | Without going into merits, adjudication proceedings abated considering the death of the Noticee","author":"Editor","date":"August 25, 2021","format":false,"excerpt":"Securities and Exchange Board of India (SEBI): Prasanta Mahapatra, Adjudicating Officer, was of the view that the adjudication proceedings against the Noticee were liable to be abated without going into the merits of the case qua him considering the death of the Noticee. 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Mahalingam (Whole Time Member), while exercising powers conferred under Section 12(3)\u00a0 read with Section 19 of the SEBI Act and Regulation 27(5) of the Intermediaries Regulations, cancelled the certificate of registration of the Alliance Intermediaries and Network Private Limited (Noticee), on account\u2026","rel":"","context":"In &quot;Case Briefs&quot;","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":222004,"url":"https:\/\/www.scconline.com\/blog\/post\/2019\/11\/13\/sebi-adjudication-proceedings-under-sebi-act-against-a-noticee-whose-commencement-of-liquidation-has-been-ordered-cannot-be-initiated-without-leave-of-nclt\/","url_meta":{"origin":245765,"position":4},"title":"SEBI | Adjudication proceedings under SEBI Act against a Noticee whose commencement of liquidation has been ordered, cannot be initiated without leave of NCLT\u00a0","author":"Bhumika Indulia","date":"November 13, 2019","format":false,"excerpt":"Securities and Exchange Board of India (SEBI): V.S. Sundaresan, Adjudicating Officer, quashed the adjudicating proceedings initiated against ABG Shipyard Limited, holding them to be infructuous.\u00a0 SEBI examined the status of compliance with the provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, by ABG Shipyard (\u201cNoticee\u201d), whose equity shares\u2026","rel":"","context":"In &quot;Case Briefs&quot;","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":249567,"url":"https:\/\/www.scconline.com\/blog\/post\/2021\/06\/10\/franklin-templeton\/","url_meta":{"origin":245765,"position":5},"title":"Decoded | SEBI bars Director of Franklin Templeton AMC,  wife from accessing securities markets for 1 yr: Can redemption of units by Director of a mutual fund AMC be titled as fair conduct?","author":"Bhumika Indulia","date":"June 10, 2021","format":false,"excerpt":"Securities Exchange Board of India (SEBI): G. 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