Market regulator Securities and Exchange Board of India (SEBI) has suspended the certificate of registration (CoR) of Swaraj Shares and Securities Pvt Ltd, a SEBI-registered merchant banker (MB), for three months. The action follows an inquiry into multiple lapses by the MB, including failure of due diligence, non-compliance with investor grievance mechanisms, misreporting of regulatory submissions and even submission of fabricated records.
In an order, Ananth Narayan G, whole time member (WTM) of SEBI, observed that Swaraj Shares and Securities was non-compliant with ‘fit and proper’ criteria which is an essential pre-requisite for registration. “Considering this as well, I am of the view that suspension of CoR would be more commensurate with the violations committed by the MB.”
The case originated from a show-cause notice (SCN) dated 6 December 2024, issued under the SEBI (Intermediaries) Regulations, 2008. SEBI had earlier conducted an inspection of Swaraj Shares between 5th March and 6 March 2024. The inspection revealed significant violations of the SEBI (Merchant Bankers) Regulations, 1992, and several circulars.
SEBI found that the MB failed to exercise due diligence while preparing draft letters of offer (DLOFs) and letters of offer (LOFs) for Sheetal Diamonds Ltd and Richrich Inventures Ltd. The lapses included errors in promoter shareholding disclosures, reliance on self-certified documents without independent verification and non-disclosure of compliance details.
While the company argued that it had relied on publicly available information and verification from promoters due to a lack of formal engagement with the target companies, SEBI emphasised that MB must independently verify information to safeguard investor interests, a principle repeatedly underlined by both the Supreme Court and the securities appellate tribunal (SAT).
The merchant banker was also found non-compliant with investor grievance provisions. It failed to display the designated grievance redressal email ID on its website, did not report nine complaints, lacked records for four and delayed uploading complaint data for April and October 2023. SEBI concluded that these were violations of its 2007 and 2021 circulars and relevant provisions of the Merchant Bankers Regulations.
Further, the regulator noted discrepancies in the company’s periodic reports. Swaraj Shares submitted unaudited net worth figures as audited, misreported the date of its board’s review and failed to disclose an investor complaint. SEBI observed that such lapses demonstrated a casual approach and lack of due diligence.
In addition, the MB was found in breach of the Prohibition of Insider Trading (PIT) Regulations by failing to appoint a compliance officer for a certain period, not designating an IT staff member with access to the structured digital database (SDD), and delaying SDD entries for six open offers. SEBI pointed out that these lapses compromised the confidentiality of unpublished price-sensitive information (UPSI).
Another violation related to failure to report changes in directors, key managerial personnel and compliance officers between September 2022 and November 2023 through SEBI’s SI portal, as required. The company admitted this lapse but maintained that corrective measures had since been taken.
Perhaps the most serious charge was the submission of fabricated records. The regulator found that a certified board resolution and minutes of a board meeting supposedly held on 6 March 2024 could not have taken place as recorded. Evidence showed that directors listed as present were either engaged with SEBI’s inspection team at the same time or were in Kolkata while the meeting was documented as having been held in Mumbai. With no proof of video conferencing, the documents were deemed false.
In its order, Swaraj Shares, though newly-registered and operational for only two years, was found guilty of serious violations, including misleading the regulator and creating false records. Despite claims of corrective action, SEBI concluded that the company had shown serious disregard for professional standards and integrity. Accordingly, the regulator ordered the suspension of the company’s registration as a merchant banker for three months.
