Market regulator Securities and Exchange Board of India (SEBI) has imposed a penalty of ₹6 lakh on Fast Track Finsec Pvt Ltd, a SEBI-registered merchant banker (MB) after an inspection uncovered several compliance failures. The inspection, conducted between 3rd January and 7 January 2022, reviewed the company’s adherence to the several rules and regulations including Merchant Bankers Regulations and relevant circulars issued by SEBI.
In an order, Amit Kapoor, adjudicating officer (AO) of SEBI, articulated that Fast Track Finsec, as a registered intermediary, was required to comply with SEBI’s regulations and directions but failed to do so during the inspection period.
SEBI found that Fast Track Finsec relied solely on self-declarations by the directors of Trekkingtoes.com Ltd regarding their industry experience and failed to independently verify these claims through documents or due diligence. This violated Regulation 245(3) of the ICDR Regulations and Clause 4 of Schedule III of the merchant bankers’ code of conduct. SEBI rejected the company’s defence that it was following industry practice, emphasising that merchant bankers must thoroughly verify disclosures.
In the open offer for KD Leisures Ltd, Fast Track Finsec placed shares of Goblin India Ltd in an escrow account despite the shares being listed only since October 2019, short of the mandatory two-year listing requirement under Regulation 9(2)(b) of the SAST Regulations. SEBI also noted that the draft letter of offer (LOF) was incomplete and not in the prescribed format.
Multiple violations were also recorded in the open offers of AKM Lace and Embrotex Ltd, Spaceage Products Ltd and Specular Marketing and Finance Ltd. In these cases, public announcements were made after executing escrow agreements, escrow amounts were released prematurely before the mandatory 30-day period post tendering, and draft LOFs omitted key disclosures such as details of the share purchase agreement (SPA) and share subscription agreement (SSA), escrowed shares and company financials. These breaches violated several SAST regulations, specifically Clauses 3, 4, 6, 7, and 21 of the Merchant Bankers’ Code of Conduct.
For the open offer of Oracle Credit Ltd, the escrow agreement was executed more than a month before the public announcement, violating Regulation 13(1) of the SAST Regulations. SEBI dismissed the company’s explanation that this was required for bank processing and held that additional violations of Regulations 27(2) and 27(5) had also occurred.
SEBI inspection of the merchant bankers' records further revealed discrepancies in its half-yearly reports, including missing board minutes and incomplete disclosure of investor complaints. The company also failed to display its track record on its website as required under SEBI circulars CIR/MIRSD/1/2012 and CIR/MIRSD/6/2012, leading to violations of Regulation 28(2) and multiple clauses of the Code of Conduct.
SEBI also noted that only one director of the merchant banker held a valid Series-IX merchant banking certification from National Institute of Securities Markets (NISM), breaching Regulation 3 of the CAPSM Regulations, SEBI’s 2013 notification and the Merchant Bankers’ Code of Conduct.
The code of conduct and ethics submitted by Fast Track Finsec during inspection was found to be generic and lacking essential elements, such as professional standards, conflict-of-interest guidelines, confidentiality protocols and employee conduct frameworks. SEBI held that this violated Clauses 19, 21, 26 and 27 of Schedule III of the Code of Conduct.
SEBI concluded that the merchant banker failed to verify disclosures, maintain accurate reporting, follow prescribed formats for letters of offer and implement strong internal governance mechanisms, amounting to serious regulatory lapses.
Accordingly, SEBI imposed a penalty of ₹6 lakh on Fast Track Finsec.
