AFCO Capital Barred from New Merchant Banking Assignments for One Month over Compliance Lapses

Moneylife Digital Team 31 March 2026

Investor Interest

Market regulator Securities and Exchange Board of India (SEBI) has barred AFCO Capital India Pvt Ltd from taking up any new merchant banking assignments for a period of one month after finding multiple compliance failures, including lack of due diligence, outsourcing of core functions and lapses under insider trading norms.

The order follows an inspection conducted by SEBI covering the period from April 2022 to August 2024, which revealed violations across several regulatory frameworks governing merchant bankers. Based on the findings and subsequent proceedings, the designated authority recommended a temporary prohibition, which SEBI has now upheld.

At the heart of the case is AFCO Capital role in managing an open offer involving Standard Shoe Sole and Mould (India) Ltd. SEBI found that the merchant banker (MB) failed to exercise independent professional judgement and relied largely on declarations made by the acquirer without adequate verification. The regulator reiterated that merchant bankers are expected to actively verify disclosures rather than passively accept client-provided information.

The order also flags serious concerns over outsourcing of core activities. SEBI noted that AFCO Capital India had effectively delegated key responsibilities—including due diligence, regulatory filings and escrow operations to an external adviser who was neither an employee nor a key managerial personnel. This, according to the regulator, amounted to outsourcing of core functions, which is explicitly prohibited under applicable rules.

However, on the allegation that the adviser was misrepresented as a director in an escrow agreement, SEBI granted the benefit of doubt. It observed that there was insufficient evidence to establish fraudulent intent or misrepresentation, and termed the lapse as inadvertent.

Separately, SEBI found that AFCO Capital failed to comply with provisions under insider trading regulations. The firm had not established a code of conduct, appointed a compliance officer in time, or maintained a structured digital database for handling unpublished price-sensitive information during a live transaction. Although the company later rectified these deficiencies, SEBI held that the violations were significant, especially since they occurred while executing an open offer.

The order also records procedural lapses such as delay in obtaining mandatory certification for the compliance officer, failure to promptly update SEBI about key changes and inadequate display of investor grievance mechanisms at its office. While these were acknowledged and later corrected by the company, SEBI emphasised that such requirements are critical to maintaining market integrity and cannot be treated as mere formalities.

Taking an overall view, SEBI concluded that the violations warranted regulatory action but did not justify harsher penalties. The one month restriction on new assignments is intended as a corrective and deterrent measure, while allowing the firm to continue servicing existing mandates.

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