The Securities Appellate Tribunal (SAT) has issued its decision overturning an order of SEBI’s adjudicating officer that had found Enam Securities to have violated securities laws in connection with the IPO of Yes Bank.
One of the key issues in contention was whether Rabobank ought to have been disclosed as a “promoter” of Yes Bank. On facts, while the application to the Reserve Bank of India (RBI) for a banking licence recognised Rabobank as a co-promoter of the issuing bank, the prospectus filed with SEBI pursuant to which securities where issued did not disclose Rabobank as a promoter. After analysing the provisions of the erstwhile SEBI (Disclosure and Investor Protection) Guidelines, 2000, SAT came to the conclusion that the disclosure was indeed appropriate. It noted:
The appellant has been successful in demonstrating as to why Rabobank was shown as a co-promoter in its application for banking license with the RBI. Simply because Rabobank was shown as a copromoter of Yes Bank for getting a banking license from the RBI will not ipso facto make it a promoter for the purposes of DIP guidelines or other regulations issue by the Board. To bring Rabobank within the promoter category, it must satisfy the definition of promoter as given in the DIP guidelines. There is no general definition of promoter in the DIP guidelines.
Although the SAT’s reasoning largely involves analysis of the erstwhile DIP Guidelines, they are likely to continue to have some impact under the SEBI (ICDR) Regulations that currently govern disclosures.
The fact that SEBI had not raised its concern while reviewing the draft red herring prospectus or other subsequent filings regarding the company seemed to weigh heavily on SAT:
If the Rabobank falls within the promoter category, we fail to understand how such a vital aspect escaped notice of the regulator while clearing the DRHP where Rabobank is not shown as a promoter. We also fail to understand as to why the regulator continued to accept financial statements, quarter after quarter, year after year, without Rabobank being shown in the promoters’ category and why no action was initiated against Yes bank for making incorrect disclosure in the financial statements. In this background, no fault can be found with the merchant banker of exercising due care and diligence when Rabobank was not shown in the promoter category.
Such an approach likely places a heavier burden on SEBI to scrutinize draft offer documents more carefully when filed with it.
SAT also did not find a failure on the part of Enam Securities on other aspects of the IPO process involving Yes Bank, including on discretionary allocation of shares in the qualified institutions category and other alleged irregularities in the allotment process.