Under Section 12 of the Act, no person may operate as an intermediary (e.g., broker, merchant banker) without SEBI registration, and Section 12(3) of the Act enables suspension or cancellation after giving a reasonable opportunity of being heard. Complementing the Act, the SEBI (Intermediaries) Regulations, 2008, set a unified enforcement framework. Regulation 26 lists sanctions ranging from warnings to debarment, suspension, or cancellation, and restrictions on taking new assignments. SEBI can restrain activities, impose remedial conditions, and, through a Whole-Time Member (WTM) or an Adjudicating Officer (AO), impose monetary penalties, all directed at safeguarding investors and market integrity.

Inquiry and Adjudication Process

When regulatory breaches by a market intermediary are suspected, SEBI follows the inquiry and disciplinary procedure laid down in the SEBI (Intermediaries) Regulations, 2008. A WTM first reviews the findings and, if warranted, appoints a Designated Authority (DA), a senior officer, to conduct a quasi-judicial inquiry. The DA issues a show-cause notice (SCN) detailing the alleged violations and grants the intermediary (the noticee) a reasonable time to respond and, if required, a personal hearing.

After evaluating the reply and evidence, the DA submits a report with recommended action ranging from a warning to suspension, debarment, or cancellation of registration under Regulation 26. The matter then reverts to the WTM, who issues a final SCN enclosing the report, hears the noticee, and passes a reasoned order under Sections 11(4) or 11B of the SEBI Act. The order, generally issued within 120 days, is communicated to the intermediary and published for transparency.

Additionally, SEBI may initiate proceedings through an AO under Section 15-I to impose monetary penalties prescribed in Chapter VI-A, for instance, up to INR 1 crore under Section 15HB. In view of the 2018 amendment, SEBI’s WTMs may combine both processes, issuing directions and penalties in a single proceeding. The recent First Overseas Capital Ltd. (FOCL) order exemplifies this integrated approach, underscoring SEBI’s emphasis on due process and fair opportunity before any punitive action.

Order Summary: SEBI vs. First Overseas Capital Ltd

On October 23, 2025, SEBI’s WTM Amarjeet Singh issued a final order against FOCL, a registered merchant banker, citing repeated and serious regulatory breaches. FOCL was barred from accessing the securities market for two years and fined INR 20 lakh. During this period, it cannot undertake new IPO mandates or act as a manager, adviser, or consultant in any issue-management or corporate advisory activity. The firm must also close open derivative positions within three months and pay the fine within 45 days.

The order followed two inspections in 2022 and 2024, which revealed multiple violations:

• Net-worth deficiency below the INR 5-crore minimum since FY 2018-19.
• Excess underwriting commitments, allegedly more than 20 times its net worth, and acceptance of public deposits to meet obligations.
• False or misleading disclosures to SEBI, including incorrect compliance filings.
• Unapproved business activities, such as property development.
• Failure to disclose investments in client companies, raising conflict-of-interest concerns.
• Non-submission of half-yearly reports and lapses in maintaining valid NISM certifications.
• Incomplete website disclosures on its IPO track record.

Despite SEBI’s warning letters in 2022 and 2023, FOCL did not take corrective action and rectified its net-worth shortfall only after the Securities Appellate Tribunal’s (SAT) intervention. The WTM held that the violations were deliberate and persistent, observing that FOCL’s actions were “not in good faith” and “reek of mala fide intent.”

After SEBI’s interim order of October 23, 2024, which restrained FOCL from taking new issue-management mandates, the company appealed to SAT. On December 11, 2024, SAT partly stayed that restriction, permitting FOCL to resume fresh mandates subject to infusing INR 3 crore within 15 days to restore its INR 5 crore net-worth threshold, while allowing SEBI’s main inquiry to continue.

The October 2025 order confirmed and extended SEBI’s interim restraint of October 2024, adding a financial penalty and reinforcing FOCL’s two-year exclusion from the market.

Parallel Proceedings and Double Jeopardy

Section 11B proceedings under the SEBI Act, 1992, are inherently preventive and corrective, designed to safeguard investor interests and preserve market integrity through appropriate directions or restraints. Conversely, adjudication proceedings under Section 15-I culminate in punitive penalties under Chapter VI-A (such as Section 15A) for established violations. Although distinct in character and objective, these two mechanisms can be invoked concurrently, provided that SEBI’s preventive measures and penal actions target separate statutory purposes arising from the same or related facts.

In Ethan Constructions Pvt. Ltd. v. SEBI, SAT affirmed that proceedings under Section 11B and Section 15-I may legitimately run in parallel, as the former seeks to prevent ongoing or future misconduct, while the latter punishes past violations. In the present case, the WTM adopted the same reasoning while dismissing FOCL’s plea of double jeopardy. FOCL had contended that two separate SCNs, one issued by DA under the Intermediaries Regulations and another by AO under Section 15-I, amounted to duplication of proceedings for the same alleged misconduct. The WTM rejected this contention, holding that preventive and punitive proceedings can coexist where warranted by the facts and statutory scheme, and that each serves an independent regulatory purpose.

Earlier Action under Section 12(3): The October 3, 2025 Order

FOCL’s registration was separately suspended for two months with effect from October 3, 2025, by order of WTM Ananth Narayan G, acting under Section 12(3) of the SEBI Act and Regulation 27 of the SEBI (Intermediaries) Regulations, 2008. This order addressed capital adequacy shortfalls for FYs ending 2019-2021, while the order dated October 23, 2025, issued by WTM Amarjeet Singh concerns violations during FYs ending 2022-24, primarily relating to net-worth deficiency, unapproved activities, and repeated non-compliance with disclosure norms. Accordingly, the two enforcement actions are factually and temporally distinct, dealing with separate sets of lapses and therefore do not overlap in their operative effect or sanctioning scope.

Analysis and Commentary: SEBI’s Action and FOCL’s Possible Recourse

The enforcement action by SEBI against FOCL stands as a robust example of regulatory oversight anchored in due process and statutory authority. Acting under Sections 11(1), 11(4), 11B(1) and 11B(2) of the SEBI Act, 1992, and the SEBI (Intermediaries) Regulations, 2008, SEBI’s proceedings reflect a methodical approach beginning with inspections in 2022 and 2024, followed by show-cause notices, an interim restraint in October 2024, and a final reasoned order in October 2025.

From a procedural standpoint, SEBI appears to have adhered to the principles of natural justice. The intermediary was inspected, given written and oral opportunities to respond, and was warned twice before punitive action was taken. The final order also makes reference to FOCL’s earlier engagement with SAT on net-worth compliance, showing that the regulator took into account the firm’s prior regulatory history before determining the outcome.

SEBI’s Legal Position and Proportionality

The two-year market ban and INR 20 lakh penalty imposed by WTM Amarjeet Singh were based on multiple findings: long-standing net-worth deficiency, underwriting in excess of prescribed limits, acceptance of public deposits, failure to make mandatory filings, and engagement in non-permitted business activities. These breaches are considered fundamental violations under the Merchant Bankers Regulations, as they compromise investor confidence and the orderly functioning of the primary market.

By law, SEBI has wide discretion under Section 11B to issue directions deemed necessary in investors’ interest and to impose monetary penalties under Section 11B(2) read with Chapter VI-A (Section 15HB). The 2018 amendment to Section 11B clarified SEBI’s power to combine a direction and penalty in one proceeding, avoiding procedural duplication. The FOCL case exemplifies this integrated approach as SEBI chose a composite penalty rather than separate adjudication and disciplinary tracks, a method increasingly preferred for efficiency and finality.

While the penalties are significant, they appear calibrated rather than excessive. SEBI did not resort to the extreme measure of cancelling FOCL’s registration, which would have permanently barred it from the market. Instead, the two-year restriction functions as a period of regulatory quarantine, allowing FOCL to rebuild its compliance systems while protecting investors. The INR 20 lakh fine, moderate in quantum, reinforces deterrence without being crippling. The order explicitly records that sanctions are “in proportion to the violations committed,” signalling SEBI’s effort to maintain proportionality within its enforcement discretion.

Broader Implications for Market Intermediaries

The order underscores SEBI’s consistent message that compliance is non-negotiable for all intermediaries, regardless of scale. FOCL’s case illustrates recurring lapses that regulators deem unacceptable: delayed reporting, financial weakness, and lack of internal control. The decision sends a wider warning to the merchant banking community that inspection findings and caution letters must be treated with seriousness. Once an intermediary is placed under regulatory scrutiny, remedial action must follow immediately, or the consequences may escalate to suspension or debarment.

The case also reflects SEBI’s evolving enforcement style, shifting from reactive to preventive supervision. The 2024 interim order restricting FOCL’s new mandates showed SEBI’s proactive stance to safeguard the market while inquiry was ongoing. Such interim actions, followed by final directions after detailed inquiry, help SEBI ensure continuity between investigation, adjudication, and final penalty.

At a systemic level, this order enhances investor confidence by showing that SEBI applies its rules uniformly and does not tolerate complacency or concealment by licensed intermediaries. It also highlights SEBI’s willingness to use both its directional powers (to restrain activity) and penal powers (to impose fines) together, creating a holistic enforcement mechanism post the 2018 amendment.

Possible Grounds for Appeal before SAT

An intermediary aggrieved by a SEBI order, such as FOCL, may appeal to SAT under Section 15T of the SEBI Act, 1992. The appeal must be filed within 45 days of receiving the order, though SAT may condone delay if justified. SAT has wide powers to uphold, modify, or set aside SEBI’s orders and can consider issues of proportionality and due process.

From an objective legal view, FOCL’s potential arguments before SAT could include:

• Counting the Interim Period: FOCL was under an interim restraint from October 2024 to October 2025. It may argue that this period should be included within the total two-year debarment.
• Absence of Investor Harm: FOCL can point out that there was no finding of loss, manipulation, or failure in IPO management. Its lapses were compliance-based rather than fraudulent, which may justify a shorter ban or substitution with a conditional compliance order.
• Rectification of Net Worth: FOCL had already brought its capital base to the prescribed INR 5 crore before the final order. SAT may view this as corrective behaviour deserving partial leniency.
• Proportionality and Overlapping Sanctions: FOCL might argue that both a market ban and a monetary fine on the same facts could amount to dual punishment. While the 2018 amendment permits combined sanctions, SAT may still examine whether the quantum collectively exceeds what is reasonably necessary to ensure deterrence.
• Extended Duration of Proceedings: The entire process spanned over three years. FOCL could contend that regulatory delay itself has caused sufficient reputational and operational damage, warranting a reduced residual penalty period.

However, such arguments are not without limitation. SAT typically upholds SEBI’s findings where evidence is clear and procedural fairness is observed. Given FOCL’s repeated non-compliance even after prior warnings and SAT’s earlier intervention, it is unlikely that SAT would disturb the core findings of violation. At most, the tribunal may consider reducing the ban duration from two years to one, considering the interim restraint already endured, or permit staggered payment of the penalty. Until the appellate forum intervenes, however, SEBI’s order continues to operate.

Appeals before the SAT are expected to be disposed of within six months, and interim relief or stay may be granted where a strong prima facie case exists. Further appeal lies to the Supreme Court of India under Section 15Z, limited to questions of law, to be filed within 60 days of the SAT order (extendable for sufficient cause).

Balanced Legal Perspective

In essence, SEBI’s order is legally sustainable and procedurally defensible. It demonstrates both firmness in enforcement and restraint in sanction. The outcome aligns with SEBI’s statutory duty to ensure investor protection and market integrity, while allowing the intermediary a pathway to eventual re-entry after demonstrating improved compliance. From an independent analytical standpoint, FOCL’s best course is not to contest the violations themselves but to seek moderation in penalty before SAT, possibly by arguing that the period of restraint already achieved the intended deterrent effect. The case serves as a reminder that regulatory enforcement is not meant to destroy businesses but to discipline them, and that constructive cooperation and compliance reforms may find a more sympathetic hearing at the appellate level. In conclusion, the FOCL order embodies SEBI’s balanced enforcement philosophy rooted in statutory authority, guided by fairness, and aimed at both deterrence and reform. While SEBI’s action appears justified in law and proportionate in intent, a limited scope for relief remains open before SAT on equitable grounds such as proportionality and recognition of remedial conduct.