SEBI Imposes Penalty on AMFL Over NCDs Amid ‘Deemed Public Issue’ Compliance Breach

SEBI Imposes Penalty on AMFL Over NCDs Amid ‘Deemed Public Issue’ Compliance Breach​

The Securities and Exchange Board of India (SEBI) has issued a significant adjudication order against Asirvad Micro Finance Limited (AMFL). The regulator imposed a monetary penalty on AMFL for alleged violations regarding the issuance of Non-Convertible Debentures (NCDs) that were initially conducted as a private placement but were deemed to constitute a public issue.

The order, dated April 28, 2026, underscores SEBI’s stringent stance on market integrity, particularly concerning the classification of security offerings.

SEBI Flags Major Compliance Lapse in NCD Issuance​

The scrutiny focused on AMFL’s initial issuance of NCDs, bearing ISIN - INE516Q08281. The core issue arose because the NCDs were initially sold to Karvy Capital Limited (KCL) on a private placement basis.

SEBI observed that KCL subsequently downsold these securities. Crucially, records showed that these NCDs were transferred to 739 investors on June 3, 2019, which was one day prior to the NCD listing.

The regulator alleged that this secondary transfer meant the original private placement was automatically deemed a public issue, violating multiple statutory provisions.

Statutory Violations: From Private Deal to Public Violation​

AMFL was found to be in contravention of several key financial laws. The violations implicated sections of the Companies Act, 2013, and the SEBI (Issue and Listing of Debt Securities) Regulations, 2008.

Specifically, the Adjudicating Officer highlighted breaches of:

• Companies Act, 2013: Violations of Section 42 (Chapter-III of Prospectus and Allotment of Securities), Section 23(1), Section 33(1), Section 26(4) read with 2(70), and Section 26(6) read with 26(1).
• SEBI ILDS Regulations: Failures to comply with Regulations 4(3), 6, 7, 8, 9, and 16.

The Adjudicating Officer concluded that the statutory provisions mandating compliance with public issue norms were applicable because the primary allotment was ultimately sold to more than 200 persons.

Regulator Finds Issuer Lacked Control Over Secondary Market​

During the proceedings, AMFL argued that its transactions were solely with KCL, asserting that it had no control over KCL's subsequent transfers. The company also argued that it had complied with private placement procedures and acted in good faith.

However, the adjudicating authority disagreed with this defense. The finding panel stated that the transfer of NCDs to 739 investors demonstrated that AMFL was aware that KCL was acting as a de facto underwriter or distributor, rather than merely a single investor.

This finding rejected AMFL's contention that it could not have known about the secondary transfer of NCDs after the initial allotment to KCL.

Penalty Imposed: INR 1,00,000 Penalty Levied​

After considering the arguments, the Adjudicating Officer determined that the violations were established. While noting mitigating factors, including the company's quick prepayment of the NCDs, the authority concluded that AMFL was liable for the breaches.

Accordingly, SEBI imposed a monetary penalty of INR 1,00,000 (Rupees One lakh only) on Asirvad Micro Finance Limited under Section 15HB of the SEBI Act, 1992.

AMFL has been directed to remit the penalty amount within 45 days of receiving the order.

This order serves as a sharp reminder to listed and private issuers that the regulatory obligation for compliance with public issue norms remains with the issuer, irrespective of how the securities are subsequently marketed or sold in the secondary market.