PROCEDURE FOR INSPECTION OF MERCHANT BANKS

The merchant banking activity in India is governed by SEBI (Merchant Bankers) Regulations, 1992. Hence, it is no doubt that the Merchant Banking firms are subject to a host of control measures, regulations and rules framed and guided by SEBI. SEBI has the right to send inspecting authority to inspect books of accounts, records etc of merchant bankers. Inspections will be conducted by SEBI to ensure that provisions of SEBI (Merchant Bankers) Regulations are properly complied. SEBI has been vested with the power to suspend or cancel the authorisation in case of violation of the said regulations. SEBIS RIGHT TO INSPECT 1. The SEBI may appoint one or more persons as inspecting authority to undertake inspection of The books of account, Records and Documents of the merchant banker. [1] The purposes for inspection may be as follows: to ensure that the books of account are being maintained in the manner required; that the provisions of the Act, rules, regulations are being complied with; to investigate into the complaints received from investors, other merchant bankers or any other person on any matter having a bearing on the activities of the merchant banker; and to investigate suo-moto in the interest of securities business or investors interest into the affairs of the merchant banker. [2] 2. The SEBI may also appoint a qualified auditor to investigate into the books of account or the affairs of the merchant bankers provided that the auditor so appointed shall have the same powers of the inspecting authority as mentioned in regulation 29. [3]

NOTICE BEFORE INSPECTION Before undertaking an inspection the SEBI shall give a reasonable notice to the merchant banker for that purpose. [4] However, where the SEBI is satisfied that in the interest of the investors no such notice should be given, it may direct that the inspection of the affairs of the merchant banker be taken up without such notice. [5]

1 2

Regulation 29 (1) Regulation 29 (2) 3 Regulation 34 4 Regulation 30 (1) 5 Regulation 30 (2)

During the course of inspection, the merchant banker, against whom an inspection is being carried out, shall be bound to discharge his obligations. [6] The obligations of merchant banker on inspection by SEBI are as stated below: It shall be the duty of every director, proprietor, partner, officer and employee of the merchant banker: To produce to the inspecting authority such books, accounts and other documents in his custody or control and furnish him with the statements and information relating to his activities as a merchant banker within such time as the inspecting authority may require. [7] To give to the inspecting authority all assistance in connection with inspection which the merchant banker may reasonably be expected to give. [8] The merchant banker shall allow the inspecting authority to have reasonable access to the premises occupied by such merchant banker or by any other person on his behalf and also extend reasonable facility for examining any books, records, documents and computer data in the possession of the merchant banker or any such other person and also provide copies of documents or other materials which, in the opinion of the inspecting authority, are relevant for the purposes of the inspection. [9] The inspecting authority, in the course of inspection, shall be entitled to examine or record statement of any principal officer, director, partner, proprietor and employee of the merchant banker. [10]

SUBMISSION OF REPORT TO SEBI The inspecting authority shall, as soon as may be possible submit, an inspection report to the SEBI. [11] The SEBI or the Chairman shall after consideration of inspection or investigation report take such action as the SEBI or Chairman may deem fit and appropriate including action under chapter V of the SEBI (Intermediaries) Regulations, 2008. [12]

ACTION IN CASE OF DEFAULT A merchant banker who contravenes any of the provisions of the Act, Rules or Regulations framed there under shall be liable for one or more actions specified therein including the action under Chapter V of the SEBI (Intermediaries) Regulations, 2008. [13]

6 7

Regulation 30 (3) Regulation 31 (1) 8 Regulation 31 (4) 9 Regulation 31 (2) 10 Regulation 31 (3) 11 Regulation 32 12 Regulation 33 13 Regulation 35