SEBI bans Gretex Corp for taking new merchant banking assignments for 21 days

SEBI on Thursday, October 30, barred Gretex Corporate Services from taking up new merchant banking assignments for 21 days, citing lapses in maintaining regulatory net worth requirements and inadequate due diligence in a public issue.

The regulator said Gretex failed to maintain the prescribed minimum net worth of ₹5 crore during the financial year 2019–20, thereby violating merchant bankers’ rules.

SEBI also found that Gretex did not exercise adequate due diligence while managing the SME public issue of a company. Nearly 40% of the IPO proceeds were earmarked for leasing office space that was still under construction, which the regulator said was not properly verified or disclosed to investors.

”The inspection in the present matter revealed not merely minor clerical inconsistencies, but a substantive omission, i.e. the merchant banker’s failure to verify the completion status of a property forming nearly 40% of the IPO’s object of issue and the consequent absence of disclosure that the property was still under construction.

”Such an omission goes to the root of the merchant banker’s due diligence obligation and cannot be treated as a minor irregularity in the maintenance of records or internal processes,” SEBI’s Chief General Manager N Murugan said in the order.

The order, which came into force immediately, prohibited Gretex Corporate Services from taking up any new assignment or contract or launching a new scheme, insofar as it may be applicable to it as a SEBI-registered merchant banker, for 21 days, as per the order.

The Securities and Exchange Board of India (SEBI) conducted an inspection of Gretex Corporate Services Ltd for the period from April 1, 2021, to January 31, 2023.

In three separate orders on Thursday, SEBI imposed a penalty of ₹5 lakh each on Ritu Agarwal, Shyam Sunder Vyas HUF and Middleton Goods Pvt Ltd for indulging in non-genuine trades in the illiquid stock options segment on the BSE.

The orders came after the Securities and Exchange Board of India (SEBI) observed large-scale reversal of trades in the illiquid stock options segment of BSE, leading to the creation of artificial volume.

Thereafter, SEBI conducted an investigation into the trading activities of certain entities in illiquid stock options at BSE for the period April 2014 to September 2015.