SEBI Slaps ₹1 Lakh Penalty On Asirvad Micro Finance Over NCD Issuance Violations

On 28 April, the Securities and Exchange Board of India (SEBI) imposed a penalty of Rs. 1 lakh on Asirvad Micro Finance Limited, a subsidiary of Manappuram Finance Limited, for violations relating to the issuance of Non-Convertible Debentures (NCDs).

Adjudicating Officer Sudeep Mishra held that although Asirvad structured the issuance as a private placement, it amounted to a deemed public issue and therefore attracted compliance with statutory requirements. He observed:

“…where the allotment of securities is made to less than 200 persons in case of private placement and the said securities are down sold to more than 200 persons within 6 months of original allotment, then the original allotment will be deemed to be a public issue.”

SEBI examined the Draft Red Herring Prospectus of Asirvad and identified irregularities in its issuance of NCDs to Karvy Capital Limited (KCL), which led it to initiate adjudication proceedings for alleged violations of the Companies Act, 2013 and the SEBI (Issue and Listing of Debt Securities) Regulations, 2008.

Asirvad issued the NCDs through private placement in two tranches, with KCL as the sole allottee. However, before listing, the number of NCD holders rose to 739, indicating that KCL had further distributed the securities to multiple investors.

SEBI also noted that KCL charged structuring fees and acted as a representative of debenture holders, rather than functioning as a mere investor.

Based on these facts, SEBI alleged that Asirvad structured the issuance as a private placement only in form, while it operated as a deemed public issue in substance, thereby triggering public issue compliance requirements.

Asirvad contended that it allotted the NCDs only to a single investor, KCL, and that it had no knowledge of any subsequent transfers undertaken by KCL.

SEBI rejected this contention. It held that Asirvad did not explain how the NCDs moved into KCL's portfolio demat account and therefore could not claim ignorance of downstream distribution. It further found that KCL's role as “Representative of the Debenture Holders”, along with the structuring fee arrangement, showed that Asirvad remained aware of the underlying structure of the transaction.

The Adjudicating Officer stated:

“…the said offer of NCDs by Noticee cannot be considered as private placement and Noticee was under statutory obligation to comply with public issue norms.”

Accordingly, SEBI concluded that it established violation and imposed a penalty of Rs. 1 lakh on Asirvad Micro Finance Limited.