Order in the matter of ICL Multitrading India Limited

WTM/GM/CFD/21/2019–20 SECURITIES AND EXCHANGE BOARD OF INDIA INTERIM ORDER-CUM-SHOW CAUSE NOTICE UNDER SECTIONS 11(1), 11(4) AND 11B OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992, IN THE MATTER OF ICL MULTITRADING INDIA LIMITED – NOTICEE SEBI REG NO. / CIN PAN MERCHANT BANKER – 1. CORPORATE CAPITAL INM000012276 AAECR4815P VENTURES PRIVATE LIMITED U74140DL2009PTC194657 BACKGROUND:

1. ICL Multitrading India Ltd (ICL / the company), a company based out of Noida, had filed for an IPO with National Stock Exchange (NSE / the Exchange) at SME platform for 21,00,800 equity shares at Rs.85 per equity shares (i.e. total issue size of Rs.17.86 Crore). The said SME IPO opened on November 19, 2018 and was scheduled to close on November 22, 2018. However, the issue was extended till December 03, 2018, based on a request by ICL (the issuer). The issue was managed by the Lead Manager and Merchant Banker– Corporate Capital Ventures Private Limited (hereinafter also referred to as the MB or CCV). CCV is a New Delhi based Company, registered with Securities and Exchange Board of India (SEBI) as a Merchant Banker with registration number INM000012276. Its directors are Kulbhushan Parashar and Amit Kumar.

2. SEBI received a reference vide email dated December 06, 2018 from the NSE whereby it inter alia informed SEBI about contradictory stands taken by ICL and its lead manager, CCV, in respect of the said SME IPO of ICL. Vide the said email, NSE informed SEBI inter alia the following chronology of events:

(a) On November 29, 2018 at around 03:40 PM, an email was received by NSE from ‘groupceopkumar@gmail.com’ inter alia alleging that Kulbhushan Parashar, the director of CCV was creating problems in respect of the IPO of ICL by discouraging Order in the matter of ICL Multitrading India Limited the investors and blackmailing and threatening ICL to withdraw the issue on November 29, 2018 itself. The said email further stated that Kulbhushan Parashar had taken in advance a withdrawal letter, which was procured under duress before opening of the issue.

(b) Subsequently, on the same day, i.e. on November 29, 2018 at 06:54 PM, NSE received an email from CCV inter alia stating that the company had decided to withdraw the proposed public issue. A letter dated November 29, 2018 of ICL regarding withdrawal of the issue was also found attached with the said email.

(c) On November 30, 2018, NSE received email from ICL stating inter alia that the issue had not been withdrawn.

(d) On December 03, 2018 the issue closed with the subscription of 2,09,600 equity shares i.e. 0.10x subscription.

(e) On December 06, 2018 (T+3), the Exchange sent requests to the Issuer, MB and Registrar to the Issue for submission of T+2 and T+3 documents, pursuant to which the Registrar sent devolvement notice to MB. The MB, in response, stated inter-alia that it had already informed the Registrar and the Exchange about the withdrawal of the issue of ICL with effect from November 29, 2018 and that letter from company had been sent to the Exchange on the same date. The MB further stated that since the issue stood withdrawn, the question of devolvement does not arise.

3. Thereafter, SEBI vide email dated December 17, 2018 advised NSE to inform SEBI about the various steps taken by NSE pursuant to the receipt of abovementioned contradictory requests and also its comments in the matter. The NSE vide an email dated December 18, 2018 submitted the following to SEBI:

(a) Post the receipt of the withdrawal letter dated November 29, 2018 from MB of ICL, the Exchange had a joint con-call with the promoter of the company and the MB regarding the said matter and asked them to discuss the issue amongst themselves and inform the Exchange about their decision accordingly.

(b) Thereafter, on November 30, 2018, the Exchange received an email from the company, which was marked to the MB, stating that the company was in discussion with its MB and would be informing about the final decision of the said matter on December 03, 2018, and till then, the issue was open.

(c) The Exchange on receipt of the said email from the company, decided to keep the issue open till December 03, 2018. Further, as there was no communication received from the MB on or before the said date, the issue was kept open.

(d) In light of the aforesaid, the Exchange was of the view that as the issue had been undersubscribed and the IPO of ICL being 100% underwritten, the MB was obliged to underwrite the issue.

4. Thereafter, vide an email dated January 25, 2019, SEBI advised NSE to ensure compliance with all post issue formalities, including devolvement and underwriting obligations. Further, as a matter of preliminary enquiry, NSE was also advised to submit an examination report in respect of alleged wrongdoings/mis-representations corroborated by the facts in the matter.

5. Subsequently, NSE submitted its report to SEBI wherein it concluded that since only 0.10x subscription was collected on the date of issue closure, the MB had an obligation to bring in the devolvement obligation, as the issue was underwritten as prescribed under Regulation 106(P)(1) of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (ICDR regulation, 2009). However, the MB has failed to comply with their obligation.

PRIMA FACIE FINDINGS –

6. Upon receipt of the aforesaid report from NSE, SEBI examined the abovementioned facts and circumstances along with all the relevant records. It was noted that the offer documents pertaining to the said SME IPO issue were filed under the provisions of erstwhile ICDR Regulations, 2009. The provisions of Regulation 106P(1), contained in Chapter XB of the ICDR Regulations, 2009 dealing with Issue of ‘Specified Securities by Small and Medium Enterprises’, provide that an SME issue shall be hundred per cent underwritten. The said provisions are reproduced hereunder: “Underwriting by merchant bankers and underwriters. 106P. (1) The issue made under this Chapter shall be hundred per cent underwritten.”

7. It was further noted from the copy of DRHP filed by the MB that CCV had undertaken to underwrite the said SME IPO of ICL to the extent of hundred per cent of the issue size. However, it was prima facie found that CCV, the lead manager for SME IPO of ICL, had failed to honor its underwriting obligations, thereby violating the provisions of Regulation 106P(1) of the ICDR Regulations, 2009 read with the provisions of Regulation 301(2) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations, 2018).

8. I note that the provisions of Regulation 106P(1) of the ICDR Regulations, 2009 mandating hundred per cent underwriting for an SME issue, have been incorporated with an objective to instill confidence in and provide assurance to interested investors in the company by providing a backstop arrangement for the issue to be fully subscribed. This measure was also expected to provide encouragement to the SME enterprises to seek a public listing and secure necessary equity funding. In such a scenario, any retraction by the underwriters of their obligation in the event of devolvement on such underwriters weakens the confidence of the investors and has serious ramifications upon the orderly development of the securities market. Considering the alleged violation of the abovementioned provisions of ICDR Regulations, 2009 read with the provisions of Regulation 301(2) of the ICDR Regulations, 2018 by CCV with regard to its underwriting obligations in the light of the complaints of ICL to NSE, it is likely that any new assignment undertaken by CCV as a merchant banker shall potentially erode the confidence reposed by investors on the very mechanism and credibility of underwriting. In view of the same, I find this to be a fit case to pass interim directions against CCV, pending further examination.

ORDER –

9. In view of the foregoing, I, in exercise of the powers conferred upon me under Sections 11, 11(4) and 11B of the SEBI Act, 1992 and in the interest of investors and the securities market, hereby issue, with immediate effect, the following directions:- (i) CCV shall not take up any new assignment relating to merchant banking activities in the securities market, till further orders from SEBI.

(ii) CCV shall, in cases of pending assignments where it is already engaged as a merchant banker prior to issuance of this order, disclose the direction specified at para 9(i) above, in the offer documents pertaining to the issues concerning such assignments. CCV shall provide to SEBI details of all such assignments, within 7 days of receipt of this order.

10. The preliminary findings contained in this order are made on the basis of the information obtained from NSE and other relevant material on record. CCV is hereby called upon to show cause as to why suitable directions/prohibitions under Sections 11, 11(4), and 11B of the SEBI Act should not be issued/imposed against it, which may include permanent prohibition/restraint from acting as a merchant banker, refund of fees/commission collected or other suitable directions, as deemed fit. The directions so proposed hereinabove, shall be without prejudice to SEBI’s right to initiate other proceedings against CCV, as deemed fit.

11. The Noticee (CCV) may, within 21 days from the date of receipt of this order, file its reply, along with all supporting documents and evidences, to rebut the abovementioned allegations against it. In the event the Noticee intends to avail an opportunity of personal hearing, it may do so by seeking a confirmation in writing from SEBI for the same within 21 days from the date of receipt of this Order. The Noticee is hereby advised to submit its reply within the timeline specified above, so as to enable SEBI to dispose of the instant proceedings as expeditiously as possible, preferably within 90 days of this Order. In the event of the failure of the Noticee to adhere to the given timeline, the proceedings are liable to be concluded by taking into account the material available on record, without any further notice.

12. Copy of this Order shall be forwarded to the recognized Stock Exchanges for information and necessary action.

Place: Mumbai G. MAHALINGAM Date: July 05, 2019 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA