SEBI Informal Guidance: Scope of Prohibition

following post is contributed by Supreme
, partner at Sterling Associates, Mumbai]
Almondz Global Securities Limited (“AGSL”)
is a stock broker and merchant banker registered with SEBI. On March 21, 2014 SEBI
had prohibited AGSL from taking up any new assignment or involvement in any new
issue of capital including an IPO, follow on issue etc, from the securities
market in any manner whatsoever for a period of five years and in addition to
this, on April 11, 2014 SEBI had also suspended certificate of registration of
AGSL, as a merchant banker, for a period of 6 months (“Prohibition”). 
Further, AGSL through letters dated July
07, 2014 and subsequent clarifications thereto had requested SEBI for its informal
guidance in form of interpretative letter
(by virtue of interpretive letter, concerned department of SEBI gives an
interpretation of any of the provisions of the SEBI Act, rules, etc.,
thereunder or of any Act being administered by SEBI.
) on following
1.         Whether AGSL as a stock broker, can
handle any issue of debt securities offered on private placement basis;
2.         Whether regulation 4(3) of the SEBI
(Issue and Listing of Debt Securities) Regulations, 2008 also applies to issue
of debt securities on private placement basis: and    
3.         Whether any stock broker can handle
issue of debt securities offered on private placement basis.
Without necessarily agreeing, SEBI took a view
that firstly SCRR, 1957 prohibits a
stock broker from being engaged as principal or employee in any business other
than that of securities except as a broker or agent not involving any personal
financial liability. Secondly the
activities specified by AGSL i.e. handling
issue of debt securities offered on private placement are in nature of
activities carried out by a merchant banker and can be performed only by a
registered merchant banker, therefore AGSL (stock broker) cannot perform the
above activity. SEBI’s intention is clear from this interpretative letter that
“one cannot seek to achieve some purpose which it is otherwise not competent to
Informal guidance is advance guidance on the interpretation of the
provisions of SEBI Act, Rules, Regulations, and Circulars. It is a formal
scheme launched by SEBI in the name of providing informal guidance. As the name
suggests the guidance provided is ‘informal’ and is not to be construed as a
conclusive decision of any question of law or fact by SEBI.
informal guidance are views of SEBI, neither obligatory nor authority of law. Moreover, such letter giving informal
guidance cannot even be construed as an order of the Board under section 15T of
the SEBI Act and as such will not be appealable. However,
one may always
have a different view than SEBI’s view in its informal guidance.
The issue raised in this matter is whether the
prohibition restricts AGSL from handling of issue debt securities on private
placement basis in the context of SEBI (Issue and Listing of Debt Securities)
Regulations, 2008 which do not require appointment of merchant banker for
handling of issue debt securities on private placement basis, which is answered
negatively by SEBI.
– Supreme Waskar

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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