Market regulator Securities and Exchange Board of India (SEBI) has imposed a penalty of ₹15 lakh on Gretex Corporate Services Ltd, a SEBI-registered merchant banker (MB), for multiple failures in due diligence, disclosure and regulatory compliance across several public issues, including small and medium enterprise initial public offering (SME IPOs).
SEBI conducted an inspection of Gretex Corporate Services from 19th December to 20 December 2024. Based on the inspection findings and the noticee responses, SEBI found violations of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, the SEBI (Merchant Bankers) Regulations, 1992, and relevant SEBI circulars.
A key violation related to Gretex Corporate Services’ failure to exercise adequate due diligence at the draft red herring prospectus (DRHP) stage. SEBI observed that the MB failed to disclose an issuer’s earlier initial public offering (IPO) attempt on the NSE Emerge platform in 2019 which had been withdrawn due to poor subscription. The DRHP filed in December 2022 incorrectly stated that no previous public issue had been made.
This omission came to light only after the Bombay Stock Exchange (BSE) flagged it during post-filing scrutiny. Although the disclosure was later corrected in the red herring prospectus, SEBI held that withdrawal of an IPO is a material fact requiring disclosure at the DRHP stage and that subsequent correction cannot cure a lapse in due diligence.
SEBI also found that the MB failed to disclose mandatory key performance indicator peer comparisons in the RHP and prospectus, despite such disclosures being included in the DRHP. The regulator noted that the key performance indicators (KPI) data were removed after it showed the issuer in an unfavourable light and held that the omission violated mandatory disclosure norms.
In relation to the IPO of Akme Fintrade (India) Ltd, SEBI observed that Gretex Corporate Services failed to comply with its observation letter. Although the MB had informed SEBI that the issue proceeds would be used for onward lending and debt repayment, the RHP and prospectus merely referred to ‘augmentation of capital base’, which SEBI held to be vague and misleading.
SEBI further held that Gretex Corporate Services failed to submit the mandatory due diligence certificate in form c of schedule v at the time of filing the RHP and prospectus. The claim of technical issues on the SEBI SI Portal was rejected, as no such certificate was submitted even through alternative means.
The regulator also identified serious deficiencies in Gretex Corporate Services due diligence for SME IPOs, including those of Owais Metal and Mineral Processing Ltd and Interiors & More Ltd. SEBI found that the due diligence conducted was largely procedural and relied heavily on issuer-provided documents without independent financial, technical or legal verification.
In the case of Owais Metal, SEBI additionally found that Gretex Corporate Services failed to establish the financial literacy of audit committee members, relying instead on internal declarations and unsubstantiated claims of experience, which did not meet regulatory expectations.
SEBI also observed that Gretex Corporate Services failed to promptly intimate changes in its registered office address, principal place of business and appointments or cessations of directors and key managerial personnel, despite regulatory requirements mandating immediate disclosure of such changes.
Furthermore, SEBI found that MB failed to report, on a quarterly basis, the acquisition of shares arising from devolvement under its underwriting obligations in the public issue of Sudarshan Pharma Industries Ltd, instead disclosing only aggregated information in its half-yearly reports.
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