SEBI Slaps Rs1 Lakh Penalty on Fortress Capital Management Services for Regulatory Violations

Moneylife Digital Team 30 September 2024

Investor Interest

Securities and Exchange Board of India (SEBI) has imposed a penalty of Rs1 lakh on Fortress Capital Management Services Pvt Ltd for failing to ensure accurate disclosures and comply with regulatory timelines.

In his 17-page adjudication order, Barnali Mukherjee, adjudicating officer (AO) of SEBI, says, "As Fortress Capital Management, being the manager to the open offer, was aware of the applicable deadlines in relation to the open offer and was expected to scrupulously ensure compliance with the same, it was observed that Fortress Capital Management had failed to demonstrate that it had acted in a prompt and careful manner to ensure compliance with Regulation 17(1) of SEBI SAST Regulations, 2011. Therefore, it was alleged that Fortress Capital Management has violated the provisions of Regulations 27(5) of the SEBI SAST Regulations, 2011."

SEBI's investigation focused on alleged violations by acquires, including Accord Distillers & Brewers Pvt Ltd, Teyro Labs Pvt Ltd, Jam Hotels and Resorts Pvt Ltd, and Sundeep Anand Jegath Rakshagan. These entities had entered into a special purpose agreement on 29 September 2023 to acquire a substantial 73.28% stake in Coromandel Engineering Company.

Under SEBI regulations, the acquirers were required to deposit 25% of the consideration amount into an escrow account by the deadline of 4 October 2023. However, they failed to meet this deadline, depositing the funds 12 days late on 16 October 2023, which constituted a violation of Regulation 17(1).

Additionally, Fortress Capital Management Services, responsible for managing the open offer, was found negligent in ensuring compliance with the deadlines and made misleading disclosures regarding freezing bank accounts. These disclosures were later clarified as incorrect. The acquirers were deemed negligent in fulfilling their obligations under SEBI regulations, leading to allegations of non-compliance with essential legal and procedural requirements.

While the acquirers provided various explanations for the delay, including freezing their bank accounts due to income tax investigations, SEBI concluded that these circumstances did not exempt them from their regulatory responsibilities. Furthermore, the acquirers had sufficient funds to meet their obligations, reinforcing SEBI's findings.

As a result, SEBI determined that the acquirers violated the provisions of the SEBI SAST Regulations. At the same time, Fortress Capital Management Services breached the Merchant Bankers Regulations by failing to ensure accurate disclosures and compliance with regulatory timelines.

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