CARE IPO: Sebi levies Rs 1 cr fine on 6 merchant banks

In a major clampdown for suppression of material facts in IPO documents, Sebi on Friday penalised merchant banking arms of SBI, ICICI, Kotak Mahindra, IDBI, DSP Merrill Lynch and Edelweiss groups for lapses during the public offer of rating agency CARE two years ago.

The six merchant banks have been asked to pay a fine of Rs 1 crore - the maximum penalty applicable for violation of disclosure related norms in IPO documents - within 45 days.

Taking a strong view about the violation of Sebi norms as also the Code of Conduct for merchant banks and book-running lead managers (BRLMs) for public issues, Sebi said in its 86-page order: While making disclosures in the Red Herring Prospectus, the BRLMs cannot pick and choose some material facts that they prefer to disclose and suppress some material facts. If material facts are suppressed or distorted as in the extant case, the very safety and integrity of the securities market would become a cause of concern for the regulators and the investors.

The IPO came in December 2012, prior to which these six bankers had filed a Red Herring Prospectus for the public issue involving sale of nearly 72 lakh shares.

In this case, the bankers had made disclosure of one of the conditions under the Foreign Direct Investment (FDI) route in the RHP, terming it as a material disclosure because CARE had specifically sought such approval from RBI.

At the same time, they omitted the disclosure of another condition applicable to the Offer under the FDI route (though the compliance of the same was specifically directed by RBI while granting exemption to non-resident investors participating in the Offer) by unilaterally assuming the non-applicability of the said condition.