Market regulator Securities and Exchange Board of India (SEBI) has imposed a penalty of Rs7 lakh on Gaurav Jain, director and compliance officer of Expert Global Consultants Pvt Ltd, for multiple violations of SEBI regulations and circulars. The penalty stems from a detailed examination conducted by SEBI of the merchant banker's due diligence processes, compliance measures and regulatory responsibilities.
In an order, Barnali Mukherjee, adjudicating officer (AO) of SEBI, says, "Mr Jain, who had designated himself as the compliance officer, was entrusted with the responsibilities of monitoring of the act, rules and regulations, notifications and circulars issued by SEBI. It is observed that Mr Jain did not monitor the compliance and also did not report to the Board independently of the non-compliances."
SEBI initiated the investigation to scrutinise Expert Global Consultants' handling of an open offer, explicitly focusing on compliance with SEBI's Merchant Banker Regulations, 1992 (MB Regulations) and associated circulars. The inquiry revealed that Mr Jain had allegedly failed to uphold the responsibilities mandated under Regulation 28A of the MB Regulations.
The responsibilities include monitoring compliance with relevant laws, rules and regulations and independently reporting any non-compliance to SEBI. Mr Jain's lapses were further substantiated through his contradictory submissions and failure to provide evidence of due diligence.
One of the major lapses identified by SEBI was the failure to conduct proper due diligence in the open offer of Diggi Multitrade Ltd. SEBI's regulations require a merchant banker to scrutinise the capital buildup of the promoter group, acquirer and persons acting in concert (PAC) while ensuring compliance with relevant disclosure requirements.
Mr Jain admitted in his submissions that proper due diligence had not been carried out and the disclosures were not in line with SEBI's standards. This, coupled with contradictory and unsubstantiated replies to SEBI's notices, highlighted significant shortcomings in Mr Jain compliance efforts.
Another significant violation involved failing to ensure that key managerial personnel (KMPs) at Expert Global Consultants obtained the mandatory National Institute of Securities Markets (NISM) certifications. Despite the merchant banker's commitment to SEBI in July 2021 to ensure certification compliance within a year, Mr Jain did not possess the required NISM Series III-A certificate until August 2023. Additionally, other KMPs, including Sanchit Agarwal and Harish Gupta, were found to be non-compliant with the NISM Series IX certification requirements.
SEBI's investigation further revealed repeated lapses in submitting periodic reports. Expert Global Consultants failed to file reports for the half-years ending March 2022, September 2022 and March 2023, in violation of SEBI's guidelines. Mr Jain's delayed efforts to address these deficiencies came only after SEBI's inquiries, underscoring a lack of proactive compliance.
Misleading information on the company's website was another significant concern. SEBI noted that Mr Jain's qualifications were incorrectly listed as CFA (chartered financial analyst) instead of FCA (fellow chartered accountant). The website also falsely stated that Expert Global Consultants was a SEBI-registered stockbroker, a claim Mr Jain attributed to an inadvertent error. Additionally, the website provided misleading details about a consultant's designation, further compromising transparency
Further, the lack of adherence to SEBI's Prohibition of Insider Trading (PIT) Regulations, 2015 compounded the violations. The merchant banker had not adopted a code of conduct, failed to maintain a structural digital database (SDD), and did not designate a compliance officer to oversee compliance under the PIT Regulations. These lapses persisted even after the firm provided assurances to SEBI regarding corrective actions.
SEBI's examination uncovered that the company's website lacked an investor charter, a mandatory requirement under SEBI's circulars. The charter was only uploaded in November 2023, following SEBI's intervention, further evidencing Mr Jain's failure to ensure timely compliance.