Order in the matter of Inter Corporate Financiers & Consultants Limited

WTM/GM/EFD/ 86 /2019–20 SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI FINAL ORDER UNDER SECTION 12(3) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH REGULATION 28(2) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (INTERMEDIARIES) REGULATIONS, 2008. IN THE MATTER OF – NOTICEE SEBI REGISTRATION NO. INTER CORPORATE FINANCIERS & CONSULTANTS LIMITED INM000003689

BACKGROUND:

1.1 Securities and Exchange Board of India (“SEBI”) had initiated enquiry proceedings in terms of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 (“Intermediaries Regulations”), against

Inter Corporate Financiers & Consultants Limited (“ICFCL/Noticee”), a SEBI registered Merchant Banker, for its failure to pay registration fees for the block of May 24, 2014 to May 23, 2017, which prima facie was in violation of the provisions of SEBI (Merchant Bankers) Regulations, 1992 (“Merchant Bankers

Regulations”).

1.2 SEBI vide an Order dated April 27, 2015 under Section 19 of the SEBI Act, 1992 (“SEBI Act”) read with Regulation 24 of the Intermediaries Regulations appointed a Designated Authority (“DA”) to enquire into the violations alleged against the Noticee and submit the report in accordance with the provisions of the Intermediaries Regulations. During the intervening period the Order in the matter of Inter Corporate Financiers & Consultants Limited aforementioned DA was transferred. Accordingly, SEBI vide an Order dated April 26, 2018, under the aforementioned provisions of the SEBI Act and Intermediaries Regulations, appointed another DA.

ENQUIRY BY THE DESIGNATED AUTHORITY:

1.3 A Show Cause Notice dated June 26, 2018 (“Enquiry SCN”), was issued to the Noticee under Regulation 25(1) of the Intermediaries Regulations. The Noticee was also advised to submit its reply along with documentary evidences, if any, within a specified period.

1.4 Thereafter, upon completion of the enquiry, an Enquiry Report dated December 21, 2018 (“Enquiry Report”) was submitted by the aforesaid DA to the Designated Member (“DM”). In the Enquiry Report, the DA had noted that the Noticee had failed to pay the requisite registration fees for the block of May 24, 2014 to May 23, 2017 and accordingly, had observed that the Noticee had violated Regulation 9A(1)(b) and Regulations 12(1) and 12(2) of the Merchant Bankers Regulations, which are reproduced below:

Conditions of registration. 9A. (1) Registration granted under Regulation 8 shall be subject to the following conditions, namely: (b) it shall pay the fees for registration, in the manner provided in these regulations;

Payment of fees and the consequences of failure to pay fee. 12. (1) Every applicant eligible for grant of a certificate shall pay such fees in such manner and within the period specified in Schedule II. 2) Where a merchant banker fails to pay the annual fees as provided in sub-regulation (1), read with Schedule II, the Board may suspend the registration certificate, whereupon the merchant banker shall cease to carry on any activity as a merchant banker for the period during which the suspension subsists.

1.5 In light of the above and in accordance with Regulation 27 of the Intermediaries Regulations, the DA recommended that the Certificate of Registration granted to the Noticee be cancelled.

POST–ENQUIRY PROCEEDINGS BY THE DESIGNATED MEMBER:

2.1 Thereafter, a post–enquiry Show Cause Notice dated January 8, 2019 (“SCN”), was issued to the Noticee enclosing a copy of the Enquiry Report submitted by the DA and calling upon it to show cause in terms of Regulation 28(1) and 28(2) of the Intermediaries Regulations as to why action as recommended by the DA or any other penalty should not be imposed, as deemed fit by the DM.

2.2 Subsequent to the issuance of SCN, an opportunity of personal hearing was granted to the Noticee on the following date and details of appearance/response(s) are listed out hereunder:

i. August 14, 2019 – The Noticee appeared for the hearing through its Director, Renuka Shah and had reiterated its submission of not having carried out any business as a Merchant Banker subsequent to the expiry of its Certificate of Registration. The Noticee was directed to submit the following information by August 21, 2019:

a. Whether it had made an application to SEBI for surrender of its Certificate of Registration? b. In its reply dated July 4, 2018, the Noticee had submitted: “We had not accepted any fresh business after the expiry of registration. Rather, we did not have any assignment even during the registration period too i.e. 2008– 2014.” In this context, the Noticee may provide the following information: i) Confirm whether it had carried out any activity as a merchant banker during the period from May 23, 2014 to June 18, 2015? If no, then the same shall be certified by an Auditor. ii) Board Resolution/other evidence reflecting the Company’s decision to discontinue its merchant banking activities. iii) Financials of the Company from the period from March 31, 2011 till the date the decision was taken to discontinue its merchant banking activities.

2.3 The Noticee vide written submissions dated August 26, 2019 read with the e– mail dated September 3, 2019 and also its earlier submissions dated July 4, 2018, had inter alia submitted as under:

i. The initial Registration was from the period May 24, 2005 to May 23, 2008 after which the renewal application was made for a period of three years from May 24, 2008 to May 23, 2011 but the Registration for this period was conveyed to us only on March 16, 2009. It means the next effective Registration period should have been from March 16, 2009 to March 15, 2012 instead of May 24, 2008 to May 23, 2011. The following table should clarify with respect to fees and relevant corresponding block of period: TABLE I – BLOCK OF 3 YEARS BLOCK OF 3 YEARS REGISTRATION SHOULD BE REGISTRATION REGISTRATION EFFECTIVE May 24, 2005 to May 23, 2008 May 24, 2005 May 24, 2005 to May 23, 2008 March 16, 2009 to March 15, May 24, 2008 to May 23, 2011 March 16, 2009 2012 May 24, 2011 to May 23, 2014 June 19, 2012 June 19, 2012 to June 18, 2015 May 24, 2014 to May 23, 2017 Not Applied June 19, 2015 to June 18, 2018 ii. We confirm that we have not accepted any fresh business after the expiry of registration. Rather we did not have any assignment even during the Registration period too i.e. 2008–2014. iii. There was no question of failure to pay the fees as we never applied for renewal of. Registration as it was beyond our means to continue the registration due to finance and manpower constraints. iv. As regard your letter dated June 19, 2012, we amply clarified our position vide our letter dated June 27, 2012 & July 17, 2012 and also regarding the first block and subsequent block of 3 years for payment of fees, as our Auditor had objected regarding the same.

v. We have not failed to pay the fees rather we were constrained to continue the. Registration as manpower & finance was a big issue and both your letter dated February 20, 2015 and March 12, 2015 were replied by our letter dated February 26, 2015 and March 20, 2015. vi. We confirm that we had contemplated some time during the period 2011–14 to surrender our merchant banking registration as we were not getting any assignment and the renewal time was approaching; thus, we did not make any request for renewal because of man power and liquidity constraint and it was not possible to pay the fees for the next block of three years. In the Board meeting on June 28, 2014, we took a formal decision and the same was mentioned in one of our letters to SEBI. Vide a letter dated July 13, 2015, it was stated that we would like to withdraw our registration. vii. We have submitted a Certificate from the Auditor that we had no merchant banking business during the period April 1, 2011 to March 31, 2016. The aforementioned Certificate also covers the specific period from May 24, 2014 – June 18, 2015. viii. Board Resolution – As we had no staff and financial strength to continue the business and the same had been discussed in our Board meeting held on June 28, 2014. ix. Copy of half yearly reports filed by the Noticee for the period from March 2011 upto September 2015, were also submitted.

CONSIDERATION OF ISSUES AND FINDINGS:

On a perusal of the material available on record including the Enquiry Report, SCN and reply/submissions received from the Noticee, the following is noted:

3.1 The initial registration of the Noticee as a Merchant Banker had expired on May 23, 2011. Prior to the aforesaid, the Noticee had submitted an application for permanent registration, which was received by SEBI on February 24, 2011 (which was not before three months prior to the expiry of validity of certificate of initial registration). The Certificate for permanent registration was granted to the Noticee on June 19, 2012 effective from May 24, 2011. The Noticee duly paid the fees for the relevant block period (May 24, 2011–May 23, 2014). Thereafter, the Noticee was required to make the payment of block fees for the subsequent block i.e. May 23, 2014–May 23, 2017) three months prior to the expiry of the previous fee block i.e. May 23, 2014. However, as the Noticee had failed to submit its application for permanent registration three months prior to the expiry of validity of certificate of initial registration, SEBI, in terms of Circular dated January 4, 2005, had advised the Noticee not to accept fresh business after the expiry of initial registration. Nonetheless, the registration of the Noticee as a merchant banker continued to be in force and it was allowed to carry on with its existing business. Thereafter, despite several reminders from SEBI vide letters dated February 20, 2015 and March 12, 2015, the Noticee failed to pay the fees for the block May 24, 2014 to May 23, 2017.

3.2 The Noticee had submitted that it had never applied for renewal of registration as it was beyond its means to continue the registration due to finance and manpower constraints, hence fees were not paid. Further, the Noticee submitted that the block fee should have been calculated from the date on which registration was granted (June 19, 2012) and not from the effective date of registration i.e. May 24, 2011. As regards the aforementioned contention, I agree with the DA’s findings that there is no merit in the Noticee’s submissions since as SEBI registered intermediaries are permitted to continue their business during the pendency of their application for renewal of Certificate of registration, the requisite registration fees should be calculated from the effective renewal date of registration i.e. May 24, 2011. From the material available on record, it is noted that the Noticee had been clearly informed vide SEBI letter dated March 12, 2015 that (a) the fees paid by it on June 18, 2012, pertained to the first fee block of three years, which had begun on May 24, 2011 and ended on May 23, 2014 and (b) the subsequent block fee had commenced on May 24, 2014 and ended on May 23, 2017. Further, vide the aforesaid letter, SEBI had further informed the Noticee that in order to keep its registration in force, it was required to pay the fees as per Schedule II of the Merchant Bankers Regulations every three years, three months before the expiry of the previous fee block in terms of the SEBI (Payment of Fees) (Amendment) Regulations, 2014. In this context, it is noted that the Noticee admittedly failed to pay the block fees for the period from May 24, 2014 to May 23, 2017. As per Regulation 9A read with Regulation 12(1) of the Merchant

Bankers Regulations, any Registration granted under Regulation 8 therein, shall be subject to inter alia the condition that the Merchant Banker shall pay the fees for registration in the manner and within the period specified under Schedule II of the aforesaid Regulations. Accordingly, I agree with the DA’s findings that the Noticee had failed to ensure compliance with the aforementioned Regulations 9A and Regulation 12(1) of the Merchant Bankers Regulations on account of non– payment of registration fees for the block May 24, 2014 to May 23, 2017.

3.3 As regards the violation of Regulation 12(2) of the Merchant Bankers Regulations, I note that such provision provides that where a Merchant Banker fails to pay the annual fees, SEBI may suspend the registration certificate, whereupon the merchant banker shall cease to carry on any activity as a merchant banker for the period during which the suspension subsists. Accordingly, as per the aforementioned provisions, the consequence of failure to pay fees would be the suspension of the Certificate of Registration resulting in a cessation of business as a merchant banker for the Noticee. In this regard, I note that vide a Board resolution passed in the meeting of the Board of Directors of the Noticee on June 28, 2014, it was decided that the Noticee would not continue with the merchant banker registration. I also note that vide a letter dated July 13, 2015, the Noticee had informed SEBI that it would like to withdraw its registration as a merchant banker on account of not having any merchant banking business. Further, in reply to the query raised during the hearing i.e. “Confirm whether it had carried out any activity as a merchant banker during the period from May 23, 2014 to June 18, 2015?

If no, then the same shall be certified by an Auditor”, I note that the Noticee had submitted an Auditor’s Certificate dated August 20, 2019, wherein it was stated that the income received by the Noticee during the period from April 1, 2011– March 31, 2016, were only from non–merchant banking activities and assignments. Accordingly, upon a consideration of the aforementioned facts in light of the violation of Regulations 9A and Regulation 12(1) of the Merchant Bankers Regulations, I am inclined to accept the recommendation of the DA that the Certificate of Registration of the Noticee be cancelled.

ORDER –

4.1 I, in exercise of the powers conferred upon me under Section 19 read with Section 12(3) of the SEBI Act, 1992 read with Regulation 28(2) read with Regulation 27 of the Intermediaries Regulations, hereby cancel the certificate of registration of the Noticee, i.e. Inter Corporate Financiers & Consultants Limited (Merchant Banker having SEBI Registration No. – INM000003689, with immediate effect.

4.2 The above mentioned direction is without prejudice to the right of SEBI to initiate any other action against the Noticee in future including recovery proceedings.

4.3 A copy of this Order shall be served on the Noticee immediately. A copy of this Order shall also be served on the recognized Stock Exchanges and Depositories for ensuring compliance of this Order.

Place: Mumbai G. MAHALINGAM Date: March 31, 2020 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA