SEBI finds AFCO Capital violated rules in 0.04% open offer

This order addresses regulatory violations by AFCO Capital India Private Limited, a registered Merchant Banker, regarding its conduct during the open offer for Standard Shoe Sole & Mould (India) Ltd. SEBI examined allegations of inadequate due diligence, misrepresentation of personnel, and outsourcing of core compliance functions.

Who it concerns: M/s AFCO Capital India Private Limited (SEBI Registration Number: INM000012555); Mr. SSRK Mohan Babu (referenced as an Advisor/Authorized Signatory); Standard Shoe Sole & Mould (India) Ltd. (the target company of the open offer).

What SEBI found or ordered

• SEBI found that the Noticee violated provisions of the Merchant Bankers Regulations, Intermediaries Regulations, PFUTP Regulations, and PIT Regulations.
• Specific findings include failure to exercise independent professional judgment in disclosures regarding the Acquirer's background.
• SEBI found that the Noticee misrepresented Mr. SSRK Mohan Babu as a Director in the Escrow Agreement.
• SEBI found that the Noticee outsourced core activities and crucial compliance functions to Mr. Mohan Babu, who was not an employee or Key Managerial Personnel.
• The Designated Authority recommended prohibiting the Noticee from taking up new merchant banker assignments for two months.
• The Noticee argued that the violations were technical, that no investor suffered monetary loss, and that the penalty was disproportionate.

Also in the document

• The open offer involved only 5 investors and 2,100 equity shares, representing 0.04% of the target company's total share capital.
• The Noticee received professional fees of Rs. 3,50,000 for the assignment.
• The proceedings were initiated based on an inspection conducted on October 25, 2024, covering the period from April 1, 2022, to August 31, 2024.
• The Noticee claimed that Mr. Mohan Babu was appointed as an interim measure to sign documents and operate the escrow account while a Compliance Officer was being appointed.