Order in respect of M/s Altius Finserve Private Limited

WTM/SR/MIRSD/40/08/2016 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI CORAM: S. RAMAN, WHOLE TIME MEMBER ORDER UNDER SECTIONS 11 AND 11B OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH REGULATION 35 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (MERCHANT BANKERS) REGULATIONS, 1992. IN THE MATTER OF – 1. ALTIUS FINSERV PRIVATE LIMITED [REGISTRATION NO. INM000011732; PAN: AAACU3953D]. 2. ITS DIRECTOR AND KEY MANAGEMENT PERSON, SHRI PAWAN BANSAL [PAN: ACFPB2226A].

Background –

1.1 Securities and Exchange Board of India (“SEBI”) granted a Certificate of Registration as a Merchant Banker to Altius Finserv Private Limited (“Altius Finserv”) in accordance with the SEBI (Merchant Bankers) Regulations, 1992 (“Merchant Bankers Regulations”), for the period from June 10, 2010 to June 9, 2015.

1.2 Shri Pawan Bansal was appointed as the Managing Director of Altius Finserv with effect from November 2, 2009. Shri Pawan Bansal was also the Key Management Person of Altius Finserv with effect from March 12, 2010 i.e. prior to grant of Certificate of Registration as a Merchant Banker, by SEBI, to that entity. Subsequently, Shri Pawan Bansal continued in the aforementioned capacity during the validity period of the Certificate of Registration of Altius Finserv.

1.3 In August 2014, SEBI took on record several newspaper clippings reporting the Syndicate Bank bribery case involving M/s Bhushan Steel Limited (“Bhushan Steel”), which resulted in the arrest of Shri Pawan Bansal alongwith Shri S. K. Jain (then Chairman and Managing Director, Syndicate Bank) and 9 other individuals, by the Central Bureau of Investigation (“CBI”). Shri Pawan Bansal was arrested on alleged charges of taking a bribe of ₹50 Lakhs to enhance the credit limit of 2 companies i.e. Bhushan Steel and M/s Prakash Industries Limited (“Prakash Industries”), in violation inter alia of Banking Rules.

1.4 Vide an e–mail dated August 12, 2014, SEBI sought clarification on the aforementioned news reports from Altius Finserv. A reply dated August 13, 2014, was received from Altius Finserv.

1.5 Shri Pawan Bansal was arrested by the CBI on August 2, 2014 and was released on bail by the Competent Court on October 1, 2014. During the intervening period, Shri Pawan Bansal was appointed as the Compliance Officer and Principal Officer of Altius Finserv with effect from September 10, 2014.

1.6 Vide a letter dated October 14, 2014 (received at SEBI on November 26, 2014), Altius Finserv submitted an application to SEBI, for surrender of its Certificate of Registration as Merchant Banker.

1.7 Subsequent to an examination of the abovementioned reply dated August 13, 2014, submitted by Altius Finserv, SEBI issued a Show Cause Notice (“SCN”) dated June 4, 2015, under Sections 11 and 11B of the SEBI Act, 1992 (“SEBI Act”) read with Regulation 35 of the Merchant Bankers Regulations, to the registered Intermediary, Altius Finserv, and its Managing Director and Key Management Person, Shri Pawan Bansal.

1.8 The relevant provisions of the Merchant Bankers Regulations and the SEBI (Intermediaries Regulations), 2008 (“Intermediaries Regulations”), are reproduced as under:

“Regulation 6 of the Merchant Bankers Regulations – Consideration of Application The Board shall take into account for considering the grant of a certificate, all matters which are relevant to the activities relating to merchant banker and in particular the applicant complies with the following requirements, namely: – … (gg) the applicant is a fit and proper person.

Regulation 6A of the Merchant Bankers Regulations – Criteria for fit and proper person. For the purpose of determining whether an applicant or the merchant banker is a fit and proper person the Board may take into account the criteria specified in Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008.

Schedule II of the Intermediaries Regulations – Criteria for determining a ‘fit and proper person’ For the purpose of determining as to whether an applicant or the intermediary is a ‘fit and proper person’ the Board may take account of any consideration as it deems fit, including but not limited to the following criteria in relation to the applicant or the intermediary, the principal officer and the key management persons by whatever name called – a. Integrity, reputation and character; b. Absence of convictions and restraint orders; c. Competence including financial solvency and networth.”

Regulation 13 of the Merchant Bankers Regulations – Code of conduct. Every merchant banker shall abide by the Code of Conduct as specified in Schedule III.

Clause 28 of Schedule III of the Merchant Bankers Regulations – Code of Conduct for Merchant Bankers. 28. A merchant banker shall ensure that any person it employs or appoints to conduct business is fit and proper and otherwise qualified to act in the capacity so employed or appointed (including having relevant professional training or experience).”

1.9 As per the abovementioned SCN, i. In the Syndicate Bank bribery case involving Bhushan Steel, Shri Pawan Bansal was alleged to have facilitated defaulters from adverse action by that Bank. Further, on account of bribery charges in the case of Prakash Industries involving sanction of External Commercial Borrowings, Shri Pawan Bansal was alleged to have been sent to judicial custody. ii. Altius Finserv and Shri Pawan Bansal were alleged to have consequently failed to satisfy the criteria for ‘fit and proper person’ specified under Regulations 6(gg) and 6A of the Merchant Bankers Regulations read with Schedule II of the Intermediaries Regulations. iii. Further, in view of non–satisfaction of the aforementioned provisions of the Merchant Bankers Regulations read with the Intermediaries Regulations, in respect of the ‘fit and proper person’ criteria, Altius Finserv was also alleged to have violated the provisions of Clause 28 of the Code of Conduct for Merchant Bankers specified under Regulation 13 read with Schedule III of the Merchant Bankers Regulations. iv. Shri Pawan Bansal, who was inter alia the Managing Director, was in charge of and responsible for the conduct of business of the registered intermediary, Altius Finserv.

1.10 Altius Finserv and Shri Pawan Bansal submitted their replies to the abovementioned SCN vide letter dated June 29, 2015 and also made a request for an opportunity of personal hearing.

1.11 Pursuant to the abovementioned request and in conformity with the principles of natural justice, an opportunity of personal hearing was granted to Altius Finserv and Shri Pawan Bansal, on October

14, 2015. The aforementioned entities availed of the opportunity of personal hearing on the said date and also made further written submissions vide their letter dated October 28, 2015.

1.12 Subsequent to the aforementioned hearing, SEBI vide e–mail dated January 25, 2016, sought the following information from Altius Finserv, viz. – i. Relationship between Shri Pawan Bansal and Altius Finserv prior to the date of his appointment as Compliance Officer and Principal Officer of that entity in September 2014 including whether or not he was an employee of that entity, the nature of his employment, etc. ii. Shareholding of Shri Pawan Bansal in Altius Finserv as on July 31, 2014; August 31, 2014, September 30, 2014 and October 31, 2014.

1.13 Altius Finserv submitted the abovementioned information vide an e–mail dated January 28, 2016, inter alia informing SEBI of Shri Pawan Bansal’s shareholding in that registered intermediary prior to the registration of First Information Report (“FIR”) and subsequent arrest by the CBI and thereafter, which is reproduced below –

DATE NUMBER OF SHARES HELD % OF TOTAL SHARE CAPITAL 31.07.2014 1,30,56,600 99.12% 31.08.2014 1,30,56,600 99.12% 30.09.2014 1,30,56,600 99.12% 31.10.2014 1,30,56,600 99.12%

SEBI Order dated March 17, 2016 –

1.14 Upon a consideration of the SCN dated June 4, 2015, replies/submissions made by Altius Finserv and Shri Pawan Bansal vide letter dated June 29, 2015; during the hearing held on October 14, 2015 and vide letter dated October 28, 2015 alongwith information submitted by Altius Finserv vide e–mail dated January 28, 2016, and all other relevant material available on record, SEBI issued the following directions vide an Order dated March 17, 2016, –

11.1 “Having regard to the above discussion, I, in exercise of the powers conferred upon me in terms of Section 19 of the SEBI Act read with Sections 11 and 11B of the SEBI Act read with Regulation 35 of the Merchant Bankers Regulations, hereby direct as follows – i. Shri Pawan Bansal [PAN: ACFPB2226A], Managing Director and Key Management Person of Altius Finserv, is restrained from associating himself, either directly or indirectly, with any intermediary or holding any controlling shareholding in any intermediary till such time he is freed by the Competent Court, of the charges alleged in the FIR (FIR no. RC-AC1-2014-A0005) registered against him, by the CBI on August 1, 2014.

ii. SEBI shall not consider any application of Altius Finserv Private Limited [Registration No. INM000011732; PAN: AAACU3953D], for a Certificate of Registration to act as an intermediary in any capacity till such time a. Shri Pawan Bansal is freed by the Competent Court of the charges alleged in the aforementioned FIR and b. Holds office in Altius Finserv Private Limited as Managing Director or Key Management Person or holds controlling shareholding therein.”

Securities Appellate Tribunal Order dated May 9, 2016 –

2.1 Altius Finserv and Shri Pawan Bansal challenged the abovementioned SEBI Order dated March 17, 2016, before the Hon’ble Securities Appellate Tribunal (“SAT”) in Appeal no. 114 of 2016 and Appeal no. 115 of 2016. The Hon’ble SAT disposed of the aforesaid Appeals vide an Order dated May 9, 2016, with the following directions –

3. “In view of certain ambiguity in the impugned Order dated March 17, 2016, counsel for the appellants seek to withdraw these appeals and move an application before SEBI seeking certain modification/clarification of the said Order. 4. In these circumstances, with a view to enable the appellants to seek clarification/modification of the impugned Order, we permit the appellants to withdraw these two appeals. 5. Appellants are at liberty to make a representation to SEBI within one week from today and if such a representation is made within one week from today, SEBI shall consider the said representation and after hearing appellants, pass an order in accordance with law within a period of two weeks thereafter. 6. Both the appeals are disposed of in the above terms with no order as to costs.”

Proceedings pursuant to the SAT Order dated May 9, 2016 –

3.1 Vide letter dated May 11, 2016, Altius Finserv and Shri Pawan Bansal made the following representation – “On the subject matter, we humbly state that besides our grounds of Appeal on merits as mentioned therein, we request for your kind clarification/modification on the directions as issued against us. For ready reference, the operative part of the Order is reproduced below:

ii. SEBI shall not consider any application of Altius Finserv Private Limited [Registration No. INM000011732; PAN: AAACU3953D], for a Certificate of Registration to act as an intermediary in any capacity till such time a. Shri Pawan Bansal is freed by the Competent Court of the charges alleged in the aforementioned FIR and b. Holds office in Altius Finserv Private Limited as Managing Director or Key Management Person or holds controlling shareholding therein.

In our humble submission, the aforesaid Order has been passed against us mainly because of certain alleged acts and omissions of Mr. Pawan Bansal. Be that as it may, prima facie it appears that the word “and” between the two (Paras) a and b … ought to have been “or” instead of “and” and therefore, necessitates modification/clarification as it may deem fit and proper to your kind selves in the peculiar facts and circumstances of our case as presented in the Memo of Appeal. We therefore, humbly request for your need based clarification/modification of the Order so that our stakeholders including employees are not deprived of their source of livelihood. …”

3.2 In compliance with the abovementioned SAT Order dated May 9, 2016, an opportunity of personal hearing was granted to Altius Finserv and Shri Pawan Bansal, on July 22, 2016. The aforementioned entities availed of the opportunity of personal hearing.

3.3 During the aforementioned hearing, Altius Finserv and Shri Pawan Bansal were directed to submit the following information, viz. – i. Shareholding of Shri Pawan Bansal in Altius Finserv as on July 22, 2016; ii. Relationship between Shri Pawan Bansal and Altius Finserv as on July 22, 2016, including whether or not he continues to be the Managing Director and is also designated as the Key Management Person of that entity.

3.4 Vide an e–mail dated July 22, 2016, Shri Pawan Bansal submitted the following information on behalf of himself and Altius Finserv.

“With reference to (today’s) hearing, I confirm the (following): i. I (continue) to hold almost 100% equity (of) Altius Finserv. ii. I (continue) to (be the) MD of the company. iii. I have already surrendered the MB licence and (do) not intend (to) apply again for the same.”

3.5.1 Vide an e–mail dated August 3, 2016, SEBI further sought information from Shri Pawan Bansal regarding his designation as Key Management Person in Altius Finserv.

3.5.2 Shri Pawan Bansal replied vide an e–mail dated August 3, 2016, informing SEBI as under:

“I am (the) Managing Director of Altius and (considered) as KMP of the company”.

Consideration of Issue –

4.1 I have considered the representation dated May 9, 2016 and the submissions made by Altius Finserv and Shri Pawan Bansal during the hearing held on July 22, 2016 alongwith the information submitted by them vide e–mails dated July 22, 2016 and August 3, 2016. I have also considered all other relevant material available on record. In the light of the same, I shall now proceed to deal with the matter.

4.2 The issue for determination in the instant proceedings is whether the directions contained in paragraph 11.1(ii)(a) and (b) of the SEBI Order dated March 17, 2016 [reproduced at paragraph 1.14], requires modification/clarification.

Findings –

4.3 In their submissions and during the hearing held before me, Altius Finserv and Shri Pawan Bansal inter alia reiterated their submission that “the word ‘and’ between the two (Paras) a and b … ought to have been ‘or’ instead of ‘and’ and therefore, necessitates modification/clarification.” The basis for the aforesaid contention was that the SEBI Order dated March 17, 2016, was passed against Altius Finserv mainly because of certain alleged acts and omissions of Shri Pawan Bansal.

4.4.1 In the SEBI Order dated March 17, 2016, the observations contained in the FIR registered by the CBI on August 1, 2014, against Shri Pawan Bansal in the matter of Prakash Industries, wherein it was recorded: “in lieu of hiring their (Altius’) services the company provides a composite fee to M/s Altius Finserv Pvt. Ltd. This fee comprises of the consultancy charges of M/s Altius Finserv Pvt. Ltd. and the illegal gratification which is to be paid to the concerned bank officials directly or through their middlemen/agents, for obtaining undue favours from them.” were considered. Shri Pawan Bansal is therefore, alleged to have carried out undesirable and illegal activities through Altius Finserv. Accordingly, it was held in the aforesaid Order that if persons who do not satisfy the 'fit and proper person' criteria were permitted to associate themselves with any registered intermediary functioning in the securities market, the very integrity of the securities market and the interests of investors therein would be put to great risk. It was therefore, found justified that Shri Pawan Bansal should not be permitted to be associated with any registered intermediary. Similarly, it was found that permitting Altius Finserv to function in the securities market as an intermediary in view of its association with Shri Pawan Bansal, may also cause prejudice to the safety and integrity of the securities market. In the light of these circumstances, directions were issued vide paragraph 11.1(i) and (ii)(a) and (b) of the aforesaid SEBI Order [reproduced at paragraph 1.14].

4.5.1 From the e–mails of Shri Pawan Bansal and Altius Finserv dated July 22, 2016 and August 3, 2016, the following facts are noted – i. Shri Pawan Bansal continues to hold almost 100% equity shares i.e. 99.12%, of Altius Finserv. ii. Shri Pawan Bansal continues to be the Managing Director and Key Management Person of Altius Finserv.

4.5.2 Upon a consideration of the aforementioned facts reproduced at paragraph 4.5.1, it is noted that the circumstances in which the SEBI Order dated March 17, 2016, was passed, continue to remain the same as no new facts have been submitted by Altius Finserv and Shri Pawan Bansal. In other words, Shri Pawan Bansal continues to remain the Managing Director and Key Management Person of Altius Finserv. Shri Pawan Bansal is also the substantial shareholder (almost 100%) in Altius Finserv and in that capacity, is in a position to exercise significant control and influence over that registered intermediary.

4.5.3 The role of the Merchant Banker as a market intermediary is extensive and entails an array of activities such as handling the business of issue management 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. Accordingly, any entity granted a Certificate of Registration by SEBI (under the Merchant Bankers Regulations) to act as such has to ensure that its business activities in the securities market are conducted with high standards of market practice and integrity. Further, it is also the mandate of SEBI to ensure that any Certificate of Registration granted to such entity is used in accordance with the provisions of the aforesaid Regulations.

4.5.4 In view of the aforementioned, I find that the Order dated March 17, 2016, requires no modification at this juncture in so far as the directions contained in paragraph 11.1(ii)(a) and (b) of the aforesaid SEBI Order [reproduced at paragraph 1.14] are concerned. The conditions contained therein are concomitant and not mutually exclusive and further, were stipulated inter alia upon a consideration of the equity shareholding and role of Shri Pawan Bansal in Altius Finserv.

Order –

5.1 Having regard to the reasoning given in paragraphs 4.5.1–4.5.4, I, in exercise of the powers conferred upon me in terms of Section 19 read with Sections 11 and 11B of the SEBI Act read with Regulation 35 of the Merchant Bankers Regulations, accordingly dispose of the representation dated May 11, 2016, made by Altius Finserv and Shri Pawan Bansal.

5.2 It is however, clarified that should there be any change in the factual circumstances concerning the conditions contained in paragraph 11.1(ii)(a) and (b) of the SEBI Order dated March 17, 2016, Altius Finserv may approach SEBI with an application for a Certificate of Registration to act as an intermediary and SEBI shall consider the same on merits.

5.3 This Order shall be read with the aforementioned SEBI Order dated March 17, 2016.

Place: Mumbai S. RAMAN Date: August 4, 2016 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA