Sebi fines 5Paisa Capital, directors Rs 3 lakh for violations in Online Bond Platform Operations case

Sebi fines 5Paisa Capital, directors Rs 3 Lakh for violations in Online Bond Platform Operations case

The Securities and Exchange Board of India (Sebi) has imposed a penalty of Rs 3 lakh on 5Paisa Capital Ltd, its director and CFO Gourav Munjal, and former MD & CEO Narayan Gangadhar for multiple violations related to its Online Bond Platform Provider (OBPP) operations.

The regulator identified key lapses, including the failure to execute agreements with third-party sellers, non-routing of orders through recognised platforms, incomplete deal sheets, non-issuance of quote receipts, and inadequate disclosures about listed securities. It also found that the company’s risk management policy did not cover OBPP operations and lacked safeguards against trading errors and conflicts of interest.

Sebi further observed that AT-1 and Tier-II bonds were mis-sold on the platform as “Ultra Safe Bonds” and “Bonds for Senior Citizens,” potentially misleading investors about their risks. During the inspection period, transactions worth Rs 5.16 crore were executed without proper agreements or adherence to prescribed settlement procedures.

Holding Munjal and Gangadhar accountable as officers in default, Sebi said they failed to exercise due diligence in supervising OBPP activities. However, independent directors were exonerated as there was no evidence of their involvement.

While the noticees argued that the lapses were technical and caused no investor harm, Sebi concluded that the violations were substantive and sustained, warranting penal action. The penalty was imposed jointly and severally under Section 15HB of the Sebi Act.

5Paisa Capital, registered as a stockbroker, was approved by the BSE on June 14, 2023, to operate as an OBPP. Following an inspection conducted on May 24, 2024, Sebi found that the firm failed to comply with several provisions under the Sebi (Stock Brokers) Regulations, 1992, and the Sebi (Issue and Listing of Non-Convertible Securities) Regulations, 2021.

Munjal submitted that he was whole time director (WTD) and Chief Financial Officer (CFO) and his role was confined and focused on accounts and treasury functions of the company. He further submitted that he was not involved in the day-to-day operations, internal functioning and management of the OBPP. He also argued that there is no material on record that shows his involvement in the operations of the OBPP in any manner.

Gangadhar submitted that he was Chief Executive Officer (CEO) and Managing Director (MD) of the company and his role was limited to overseeing the overall business strategy, profitability, growth and technological revamping within the company. He further submitted that he was not involved in any of the operational and procedural aspects relating to OBPP. He also argued that there is no material, information or even a specific allegation placed and or recorded in the show cause notice that would attribute his involvement or participation to the allegations in any manner. Sebi adjudication order was passed by adjudicating officer Jai Sebastian.

Both Munjal and Gangadhar argued that a person cannot be held liable for each and every act of a company, merely because he or he was a director of the company and should fall within the scope of “officer in default”. But Sebi did not agree though Sebi noted that material available on record has neither quantified the amount of disproportionate gain or unfair advantage, if any, made by the company, then MD&CEO or ex CFO.