TMI Blog2017 (3) TMI 337X X X X Extracts X X X X X X X X Extracts X X X X ..... not applicable to the investors to whom the offer was made in the RHP dated 24.11.2012. Fact that subsequent to the RHP dated 24.11.2012, RBI by its letter dated 06.12.2012 directed CARE to apply minimum capitalization norms to non-resident investors covered under Schedule 2 & 8 and CARE in the circumstances of the case complied with the said direction cannot be a ground to hold that information relating compliance of minimum capitalization norms were suppressed in the RHP dated 24.11.2012. Once it is held that there was no infirmity in the RHP of CARE, then it cannot be said that the appellants without exercising due diligence have issued certificate to the effect that the RHP of CARE contains true and adequate information. Consequently, appellants cannot be said to have violated the Merchant Bankers Regulations. In the result, decision of the AO that the appellants have violated the provisions contained in the ICDR Regulations and Merchant Bankers Regulations cannot be sustained. Consequently, penalty of ₹ 1 crore imposed on the appellants cannot be sustained. - Appeal No. 63 of 2015 - - - Dated:- 30-9-2016 - J.P. Devadhar, Jog Singh and Dr. C.K.G. Nair, JJ. For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with SEBI, multilateral and bilateral Development Financial Institutions, Qualified Foreign Investors (QFIs). c) Foreign Direct Investment ( FDI for short) in India is regulated through the Foreign Exchange Management Act, 1999 ( FEMA for short) and various regulations framed thereunder, including the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 ( FEMA Regulations for short). d) Reserve Bank of India ( RBI for short) is the nodal regulatory authority for all matters connected with foreign exchange transactions in India. Section 10(4) and Section 11(1) of FEMA empowers RBI to issue general or special directions or orders to Authorised Persons as RBI deems fit for the purpose of securing compliance of the provisions of FEMA and any rules, regulations, notifications or directions issued thereunder by RBI. The circulars issued by RBI are operational instructions issued to Banks etc. and these circulars are generally known as A.P. (DIR series) Circulars. On 1st July of every year, RBI issues a Master Circular which consolidates all the existing circulars at one place. e) The Department of Industrial P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5(7) Investment by NRIs in exchange traded derivative contracts approved by SEBI from time to time out of INR funds held in India on non-repatriable basis subject to limits prescribed by SEBI 5(7A) Investment by QFIs in shares of India Company Schedule 8 5(8) To purchase, hold or sell Indian Depository Receipts (IDRs) of eligible companies resident outside India and issued in Indian Capital Market by registered FIIs including sub-accounts of FIIs or NRIs Para 2 of Schedule 7 Under the FDI Policy, FIIs could invest in a particular issue of an Indian Company either under Schedule 1 or Schedule 2, however, FIIs could not avail both routes simultaneously for a particular issue. g) In exercise of powers conferred under FEMA Regulations RBI has granted general permission to following categories of non-residents to participate in a public offer and purchase shares of an Indian Company Viz (i) Non-residents or entities incorporated outside India under the Foreign Direct Investment Scheme ( FDI Scheme ) su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price to be discovered through the book building process prescribed under the ICDR Regulations, CARE wrote a letter to RBI on 19.10.2011 seeking its approval for sale of IPO shares at a price determined through the book building process instead of determining the offer price under the RBI Pricing Guidelines as stipulated under regulation 10A(c)(ii) of FEMA Regulations (in force until amendments were made with effect from 04.11.2011). k) On 04.11.2011 RBI issued A.P. (DIR Series) Circular No. 43 wherein it was stated that as a measure to further liberalize and rationalize the procedures and policies governing FDI in India, it has now been decided to allow, inter-alia, transfer of shares from resident to non-resident without the approval of RBI subject to the condition that where the investee company is in the financial sector, then:- i) NOCs are obtained from the respective financial sector regulators/ regulators of the investee company as well as transferor and transferee entities and such NOCs are filed along with the form FCTRS with the AD bank and; ii) The FDI policy and FEMA Regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5(1) read with Schedule 1 of FEMA Regulations, the offer of CARE is being restricted to the FIIs covered under Schedule 2, NRIs covered under Schedule 4 and QFIs covered under Schedule 8 of the FEMA Regulations, so that there is no question of complying with the minimum capitalization norms in the present case. r) After processing the DRHP filed by CARE on 30.09.2011, SEBI by its letter dated 24.09.2012 permitted CARE to proceed with the IPO subject to compliance of the observations made by SEBI in the said letter. Accordingly, on compliance of the said observations, CARE filed its Red Herring Prospectus ( RHP ) dated 24.11.2012 with the Registrar of Companies ( ROC for short) on 26.11.2012 and forwarded a copy of the said RHP to SEBI on 27.11.2012. It was specifically disclosed in the RHP that non-residents other than FIIs (investing under Schedule 2) Eligible NRIs (applying under Schedule 4) and Eligible QFIs (covered under Schedule 8) would not be permitted to invest in the IPO. It was also disclosed in the RHP that RBI vide its letter dated 26.09.2012 had granted exemption from the NOC required to be obtained by non-resident investors to whom the offer was made and offered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the minimum capitalization norms in relation to investments by non-resident investors covered under Schedule 2 8, within the time stipulated by RBI. w) On 07.10.2013 SEBI issued a show cause notice alleging that appellants as BRLMs to the IPO of CARE failed to ensure that full and complete disclosures were made in the RHP of CARE which amounts to suppressing material facts in the RHP and attempt to mislead the investors into believing that RBI had unconditionally exempted non-residents from obtaining NOC from their respective regulators for participating in the offer of CARE. By the said show cause notice, appellants were called upon to show cause as to why an inquiry should not be initiated for violating Clause 1 of form C in Schedule VI referred to in regulation 8(2)(b), 57(1), 57(2)(a)(ii) and 64(1) of the ICDR Regulations and regulation 13 of the Code of Conduct of the SEBI Merchant Bankers Regulations, 1992. x) By their common Advocates letter dated 16.01.2014, appellants replied to the said show cause notice wherein all allegations made in the show cause notice were denied. Thereafter, personal hearing was offered to the appellants. Subsequent to the personal hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd an attempt to mislead the investors into believing that RBI had unconditionally exempted eligible non-resident investors from the requirement of obtaining NOC from their respective regulators for participating in the offer of CARE. d) Whether the AO is justified in holding that failure on part of appellants to disclose in the RHP of CARE, information relating to strict compliance of the minimum capitalization norms stipulated in the letter of RBI dated 26.09.2012 constitutes failure to exercise due diligence and therefore, the appellants are guilty of violating the provisions contained in the ICDR Regulations and Merchant Bankers Regulations. 5. Thus, it is evident that in the impugned order the appellants are held guilty of violating ICDR Regulations and Merchant Bankers Regulations primarily on the ground that in the RHP of CARE, the conditions imposed in the letter of RBI dated 26.09.2012 for exempting the non-resident investors participating in the offer of CARE from the requirement of obtaining NOC from their respective regulators has not been disclosed. The conditions imposed by RBI in its said letter dated 26.09.2012 were, firstly, minimum capitalization norms appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions minimum capitalization norms have to be complied by non-resident investors only when the investments are made under the route specified in Schedule 1 and the said norms are not applicable when investments are made under the routes specified in Schedule 2 to 8 of the FEMA Regulations. 9. It is not in dispute that CARE in its DRHP filed on 30.09.2011 had proposed to offer shares of CARE in the IPO, inter alia, to non-resident investors covered under Schedule 1 to whom alone, the minimum capitalization norms were applicable. However, in the light of RBI s letter dated 26.09.2012 CARE decided not to permit investment by nonresidents covered under Schedule 1 of the FEMA Regulations so that there was no question of complying with the minimum capitalization norms. Accordingly, in the RHP the offer was made only to those nonresident investors to whom the minimum capitalization norms were not applicable. In such a case, the condition imposed by RBI for strict compliance of minimum capitalization norms applicable to NBFCs was not a material information for the investors permitted to participate in the offer of CARE to take an informed investment decision. In other words, since the mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e offer from the requirement of obtaining NOC from their regulators. In such a case, it cannot be said that half truth has been disclosed in the RHP, because, in the RHP what was relevant for the investors permitted to participate in the offer alone was disclosed. Since compliance of minimum capitalization norms were not applicable to the investors permitted to participate in the offer, it was not disclosed in the RHP. In these circumstances, non-disclosure of the information relating to compliance of minimum capitalization norms cannot be said to be failure to disclose material information in the RHP. 11. It is not the case of SEBI that under the FEMA Regulations or under any Circular or Notification or Press release issued by RBI, the minimum capitalization norms have been made applicable to nonresident investors covered under Schedule 2 to 8 of FEMA Regulations. In fact, in response to a query raised by this Tribunal, counsel for SEBI fairly stated that there is no provision in the FEMA Regulations and there is no rule, regulation, circular, notification or press release issued by RBI purporting to apply the minimum capitalization norms to non-residents investing under the ro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he impugned order, as to how the condition imposed in the letter of RBI dated 26.09.2012 regarding compliance of the minimum capitalization norms applicable to NBFCs was a material information for the investors permitted to participate in the offer to take an informed investment decision, the AO could not have held that CARE has failed to disclose material information in the RHP. Admittedly, neither the provisions contained in the FEMA Regulations nor the circulars/notifications/press releases issued by RBI stipulate that minimum capitalization norms have to be complied with by non-resident investors covered under Schedule 2 8. There is no material on record to suggest that at any time in the past, minimum capitalization norms have been made applicable to non-resident investors covered under Schedule 2 8. In these circumstances, the AO is not justified in holding that the condition imposed in the letter of RBI dated 26.09.2012 regarding strict compliance of minimum capitalization norms applicable to NBFCs, ought to have been disclosed in the RHP, because, in the facts of present case, the said norms were not applicable to the investors who were permitted to participate in the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y non-residents covered under Schedule 2 8 of the FEMA Regulations could not be a ground for AO to infer that RBI in its earlier letter dated 26.09.2012 had required CARE to comply with the minimum capitalization norms in relation to investments by non-residents covered under Schedule 2 8. 17. As noted earlier, there is nothing on record to suggest that at any time in the past, minimum capitalization norms have been made applicable to non-resident investors covered under Schedule 2 8. Even in the letter of RBI dated 26.09.2012 it is not stated that minimum capitalization norms would be applicable to non-resident investors covered under Schedule 2 8. On the contrary, it is specifically stated in the said letter that minimum capitalization norms applicable to NBFCs be strictly followed. It obviously means that wherever the said norms are not applicable, the said norms need not be complied. Thus, it cannot be said that by letter dated 26.09.2012 RBI called upon CARE to apply the norms to non-resident investors covered under Schedule 2 8. It is only by a letter dated 06.12.2012, RBI for the first time called upon CARE to comply with the minimum capitalization norms in rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only to those two cases, because, the views expressed by RBI in the said two decisions were with reference to the provisions of law then prevailing and hence those views would apply to all cases till the law is amended. Admittedly, the law has not been amended till date. Therefore, when the consistent view of RBI was that minimum capitalization norms are applicable only to non-resident investors covered under Schedule 1 and even in the letter dated 26.09.2012 RBI had specifically directed CARE to comply with the minimum capitalization norms applicable to NBFCs, the AO committed an error in holding that the information contained in the letter dated 26.09.2012 relating to compliance of minimum capitalization norms was a material information, because, in the facts of present case, the said norms were not applicable to the non-resident investors permitted to participate in the offer to take an informed investment decision. 19. Fact that CARE agreed to comply with the directions contained in the letter of RBI dated 06.12.2016 and in its addendum dated 10.12.2012 published in the relevant newspapers on 11.12.2012 had referred to the information contained in the letters dated 26.09.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable. The said letter does not record that under the FEMA Regulation or under any circular, notification or press release issued by RBI perusal of the RBI, the minimum capitalization norms applicable to non-resident investors covered under Schedule 1 have been made applicable to non-resident investors covered under Schedule 2 8 of FEMA Regulations. In fact, perusal of the RBI Circular No. 53 dated 17.12.2003 clearly shows that by the said Circular RBI permitted SEBI registered FIIs to buy or sell equity shares/debentures to the Indian Companies not only through the Stock Exchanges in India but also otherwise than on Stock Exchange at a price approved by SEBI/RBI as per the terms and conditions prescribed in the annexure thereto. Neither in the said Circular No. 53 dated 17.12.2003 nor in the annexure to the said Circular it is stated that minimum capitalization norms applicable to non-resident investors covered under Schedule 1 have been made applicable to non-resident investors covered under Schedule 2 8. It is equally relevant to note that in the said letter it is clearly stated that only those communications which are issued by way of A.P. (DIR Series) Circulars or Not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclosure of the above information was in violation of ICDR Regulations and Merchant Bankers Regulations. It is equally important to note, that in the letter dated 06.12.2012 it is not stated that RBI in its earlier letter dated 26.09.2012 had called upon CARE to apply the minimum capitalization norms to non-resident investors covered under Schedule 2 8 of the FEMA Regulations. Thus, it is clear, that RBI by its letter dated 06.12.2012, for the first time called upon CARE to comply minimum capitalization norms in relation to investments by non-resident investors covered under Schedule 2 8 and on CARE seeking time to comply, RBI readily granted six months time. It is not in dispute that CARE has complied with the directions contained in the letter of RBI dated 06.12.2012 within the stipulated time. In these circumstances, the AO is not justified in holding that the appellants have failed to disclose material information in the RHP and thereby violated the provisions contained in the ICDR Regulations and Merchant Bankers Regulations. Consequently, penalty imposed against the appellants cannot be sustained. 22. To sum up, we hold that:- a) Under the FEMA Regulations minimum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e investors permitted to participate into offer to take an informed investment decision would not amount to suppressing material information in the RHP. e) Object of disclosure provisions contained in the regulations framed by SEBI is to ensure that the investors permitted to participate in the offer get true and adequate information for taking an informed investment decision. In the present case, minimum capitalization norms were not applicable to the investors permitted to participate in the offer and therefore, no fault could be found with CARE for not disclosing in its RHP dated 24.11.2012 the information which was not applicable to the investors permitted to participate in the offer. f) Fact that RBI by its letter dated 06.12.2012 for the first time directed CARE to apply minimum capitalization norms to non-resident investors covered under Schedule 2 8, and fact that CARE agreed to implement the said direction cannot be a ground to hold that in the RHP dated 24.11.2012 CARE ought to have disclosed that the minimum capitalization norms were applicable to the investors permitted to participate in the offer. In the letter dated 26.09.2012 RBI had not directed that minimum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts of present case, no fault can be found with CARE for not disclosing the norms which were not applicable to the investors to whom the offer was made in the RHP dated 24.11.2012. Fact that subsequent to the RHP dated 24.11.2012, RBI by its letter dated 06.12.2012 directed CARE to apply minimum capitalization norms to non-resident investors covered under Schedule 2 8 and CARE in the circumstances of the case complied with the said direction cannot be a ground to hold that information relating compliance of minimum capitalization norms were suppressed in the RHP dated 24.11.2012. Once it is held that there was no infirmity in the RHP of CARE, then it cannot be said that the appellants without exercising due diligence have issued certificate to the effect that the RHP of CARE contains true and adequate information. Consequently, appellants cannot be said to have violated the Merchant Bankers Regulations. 24. In the result, decision of the AO that the appellants have violated the provisions contained in the ICDR Regulations and Merchant Bankers Regulations cannot be sustained. Consequently, penalty of ₹ 1 crore imposed on the appellants cannot be sustained. 25. Appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and satisfy himself about all the aspects of the issue including the veracity and adequacy of disclosure in the offer documents. Regulation 13 of the Merchant Bankers Regulations Code of conduct. Every merchant banker shall abide by the Code of Conduct as specified in Schedule III. Read with the following clauses: Clause 1 - A merchant banker shall make all efforts to protect the interests of investors. Clause 4 - A merchant banker shall at all times exercise due diligence, ensure proper care and exercise independent professional judgment. Clause 6 - A merchant banker shall ensure that adequate disclosures are made to the investors in a timely manner in accordance with the applicable regulations and guidelines so as to enable them to make a balanced and informed decision. Clause 7 - A merchant banker shall endeavour to ensure that the investors are provided with true and adequate information without making any misleading or exaggerated claims or any misrepresentation and are made aware of the attendant risks before taking any investment decision. Clause 20 - A merchant banker shall not make untrue statement or suppress a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one hand, and true and adequate information in an attempt to strike a balance between information on the other, which is important and complete. From an investor s standpoint, an RHP is the source of all information required in order to make an investment decision. Consequently, investors expect real facts to be mentioned in the RHP in order to assess the situation before putting their money in the market. Hence, disclosures in the RHP should be based on actual facts at the time of the issue and not on speculation or hypotheses. Having said that, a clear picture of facts as they stand on the date of the RHP, must be provided in the said offer document. Regulation 8 of the ICDR Regulations states that at the time of registering the offer document with the Registrar of Companies or filing the letter of offer with the designated stock exchange, the merchant banker submits a due diligence certificate to SEBI certifying inter alia that the comments of SEBI have been updated and that all material information has been disclosed. 7. Regulation 64 of the ICDR Regulations imposes on merchant bankers, in clear terms, the obligation of conducting proper due diligence. It states that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alization Norm (MCN). D. The RBI, while returning the first application dated October 19, 2011 without approving or disapproving the proposed investment structure, vide letter dated December 2, 2011 asked CARE to take a look at its application in light of the abovementioned Circular dated November 4, 2011. E. After consultations with the Appellants, CARE s Letter dated May 15, 2012 undertook to the RBI that the IPO would indeed adhere to the FDI Policy and the FEMA Regulations as required by law. In addition, exemption was sought from one of the two aforementioned conditions viz. the NOC requirement, emanating from the erstwhile Regulation 10(A)(b)(v)(a) of the FEMA Regulations, with respect to foreign investors, on the ground that the investors were a hitherto unidentifiable pool of entities. F. RBI rejected the request for exemption to foreign investors regarding NOCs required from their respective regulators vide letter dated June 22, 2012. In the said letter, RBI stated that NOCs from respective regulators of the resident investee company, resident transferors and non-resident investors should be filed with the RBI at the time of submission of Form FC-TRS with the Auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so listed letter dated September 26, 2012 under the head Material Contracts and Documents for Inspection . L. CARE s Letter dated October 5, 2012, unilaterally deciding that the MCN did not apply to its proposed IPO, was not disclosed anywhere in the RHP. M. But, the RBI vide letter dated December 6, 2012 instructed CARE once again to comply with the MCN of 0.5 million dollars upfront investment by FIIs and QFIs. The IPO opened for anchor investors on December 6, 2012 itself. N. On December 7, 2012, CARE wrote to RBI stating that on the very same day i.e. December 7, 2012, the IPO would open to the public and close on December 11, 2012. Vide the aforesaid letter, it was contended, once again, that the MCN was not applicable to the IPO in question. O. On December 10, 2012, CARE, on the advice of the Appellants and its legal advisors, wrote to the RBI finally conceding and accepting that MCN would be required to be complied with and sought nine months time to ensure compliance with the same. RBI responded on the same day, graciously granting time of six months for the MCN to be made good. After receiving RBI s response, CARE apprised SEBI of the correspondence that h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opment in itself as it was in favour of CARE was disclosed, and the MCN condition on which the exemption was based, also being a mandatory requirement which was sought to be circumvented vide letter dated October 5, 2012, was not specifically disclosed. I fail to understand how information regarding a certain exemption from a regulator is considered material enough for disclosure purposes, but the nonnegotiable condition on which that very exemption is based is not considered material enough to be disclosed. The Appellants argument that by listing RBI s letter dated September 26, 2012 under the Material Contracts and Documents for Inspection , the Appellants allowed investors the opportunity to peruse the said letter does not hold ground for the simple reason that if including the said letter in a list of material documents open to inspection was considered good enough for disclosure purposes, why was the need felt to specifically disclose the exemption granted on page 228 of the RHP under Government and Other Approvals . Furthermore, having then specifically disclosed the exemption, for the sake of good order, the Appellants ought to have ensured specific disclosure of even t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve regulators in relation to participating in the Offer was disclosed in the RHP dated November 24, 2012 under the para on Government and Other Approvals , the conditions based on which the said exemption was granted by RBI and the status of its compliance were not disclosed in the RHP. Further, the factual status of filing of reply dated October 5, 2012 by CARE with RBI, whereby CARE in consultation with the BRLMs and the legal Counsels and the applicable legal framework, believed that the minimum capitalization norms applicable to NBFCs engaged in non-fund based activities shall not be applicable to the company in respect of the offer since they had restricted the category of foreign investors who could participate in the Offer, was also not disclosed in the RHP. 1.2 It was, hence, inter alia alleged in the SCN that full and complete disclosure in the matter of grant of exemption to Non Resident Investors from the requirement of obtaining NoC from their respective regulators in relation to their participation was not made in the RHP. The SCN inter alia also pointed out that even the subsequent correspondence made by the company with RBI i.e. letter dated October 5, 2012 was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was achieved on September 26, 2012, i.e. when RBI issued a letter granting the requested exemption but only on the fulfillment of certain non-negotiable criteria, within ten days thereafter, CARE, after consultation with the Appellants, attempted to unilaterally alter its entire investment to circumvent the compliances under the FDI route, and the MCN in particular. The hurry with which the investment structure was purportedly altered and RHP issued without seeking RBI s opinion/clarification was clearly done with a view to circumvent regulatory norms. 19. It was obligatory on the Appellants to seek RBI s clarification, before filing the RHP, on whether or not the MCN had to be met especially since, on the Appellants own showing, the investment structure which had been planned for the IPO over a period of one year, was sought to be changed drastically within a period of ten days between September 26, 2012 and October 5, 2012. I, therefore, uphold the AO s finding that as prudent Merchant Bankers, the latter ought to have sought RBI s clarification on the MCN issue instead of unilaterally changing an investment structure with respect to which RBI and CARE had been engaged in dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct a clear disjunct between what the Appellants claimed the investment structure to be on the one and what they tried to achieve on the other by one, successfully getting prospective investors exempted from complying with the NOC requirement and two, trying to circumvent the MNC of USD 0.5 million. It is pertinent to mention here that both the abovesaid requirements which the Appellants tried to avoid complying with are requirements which flow from the FDI Policy, in particular Circular No. 43 dated November 4, 2011. The following paragraph of the Impugned Order being relevant is reproduced hereinafter: 1.19. In the matter, I note that the BRLMs / Noticees considered the exemption granted by RBI to non-resident investors participating in the Offer from the requirement of obtaining a NoC from their respective regulators, which is inter alia one of the conditions under the FDI Route where an investee company is in the financial sector, material enough to be disclosed in the RHP of CARE. On the other hand, I find that the BRLMs / Noticees did not consider the condition imposed by RBI regarding applicability of minimum capitalisation norm while granting such exemption, which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that RBI had unconditionally exempted the non-resident investors from obtaining an NOC from the respective regulators in relation with their participation in the offer. The fact that RBI had exempted the non-resident investors from obtaining a NoC from the respective regulators in relation to their participation in the Offer, subject to the company strictly adhering to the minimum capitalization norms as per the FDI Policy and FEMA Regulations, was concealed from the non-resident investors in the RHP. 24. Even if the BRLMs are ever in doubt as to the materiality of information, they should opt to include such information in the offer documents, unless cogent and strong reasons exist for the merchant bankers to not disclose the information concerned. The standard to be applied is what a prudent merchant banker under similar circumstances would have done and the same would largely be determined by the Code of Conduct as specified in Schedule III Regulation 13 of the Merchant Bankers . In the case of Almondz Global Securities Ltd ., vide judgment dated May 13, 2016, this Tribunal has categorically stated that even though analysing bank statements may not be absolutely nece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Appellants have deliberately not disclosed the conditional nature of the exemption granted by the RBI for the NOC, thereby failing to honour the Code of Conduct that governs the actions of merchant bankers/ book running lead managers. In the instant case, it is established from a plain reading of the law that RBI is the nodal authority for matters pertaining to the FEMA Regulations and that the Appellants, as advisors to the Issuer Company alongwith the Issuer Company itself, were in constant communication with RBI since October 19, 2011. In light of the aforementioned facts, the Appellants should have acted prudently and sought for a clarification from the RBI instead of proceeding with the filing of the RHP on 27th November 2011. It may be reiterated that in case of an IPO, the company in question hires a Merchant Banker(s) as a SEBI registered intermediary which advises the company throughout the process of the IPO from the beginning to the end. 26. From the foregoing analysis of the facts of the matter before this Tribunal, it becomes evident that the BRLMs had always been in possession of letters dated September 26, 2012 and October 5, 2012. Moreover, the exemption gr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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