Market regulator Securities and Exchange Board of India (SEBI) has cancelled the merchant banking registration of Basan Financial Services Ltd after finding multiple and persistent violations of regulatory norms. The order brings to a close a prolonged enforcement proceeding stemming from inspection findings and subsequent enquiry.
SEBI’s action follows an inspection conducted in September 2023, which revealed a wide range of non-compliances with the SEBI Merchant Bankers Regulations, 1992 and the SEBI Prohibition of Insider Trading Regulations, 2015. These findings were later confirmed during the enquiry proceedings, with the designated authority (DA) recommending cancellation of the company’s registration.
The regulator identified several critical lapses. Basan Financial Services failed to maintain a dedicated email ID for investor grievance redressal, did not submit mandatory half-yearly reports and did not ensure that its key managerial personnel (KMP) held the required National Institute of Securities Markets (NISM) certifications. It also failed to display essential investor-related information at its office and did not establish an internal code of conduct.
Further, the company was found to be in violation of insider trading norms for failing to maintain a structured digital database of unpublished price-sensitive information (UPSI). It also failed to publish an investor charter on its website, did not maintain the minimum net worth requirement and defaulted on payment of regulatory fees since July 2020. Additionally, it did not inform SEBI about changes in its registered address through the prescribed system.
In its defence, the company argued that it had effectively ceased merchant banking operations since 2014 due to lack of business and had repeatedly applied to surrender its licence since 2020. It contended that many of the compliance failures arose because it was no longer operational and that enforcing regulatory requirements on a non-functioning entity was unreasonable.
However, SEBI rejected this argument, noting that the company continued to hold a valid registration since its surrender applications had been declined earlier. As long as the registration remained in force, the entity was obligated to comply with all regulatory requirements. SEBI also noted that the firm had previously been suspended in 2021, indicating a pattern of non-compliance.
Taking into account the nature and extent of violations, particularly those relating to core requirements such as net worth, fee payment and regulatory reporting, SEBI concluded that the firm was no longer fit to continue as a registered intermediary. It also observed that cancellation would effectively align with the company’s stated intention to exit the business.
Accordingly, SEBI cancelled the certificate of registration of Basan Financial Services with immediate effect.
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