Warning issued to Merchant Bankers in the issue of Balaji Telefilms

M/s Balaji Telefilms Ltd. (hereinafter referred to as "BTL") had come out with a public issue of 28 lac equity shares at a price of Rs. 130 per share through the 90% book building route. The book built portion of the issue opened on 6th October 2000 & closed on 12th October 2000. The fixed portion of the issue opened on 27th October 2000 & closed on 3rd November 2000. M/s JM Morgan Stanley Private Limited was the book running lead manager and M/s IL & FS Merchant Banking Services Ltd. and M/s Triumph International Finance Ltd. were the co-book running lead managers. In the offer document dated 20.10.2000 of BTL there was a disclosure in the notes to capital structure that the company presently does not have any intention or proposal to alter its capital structure within a period of six months from the date of opening of issue by way of split / consolidation of denominations of shares or further issue of shares, whether preferential or otherwise. However in the board meeting of BTL held on 21.11.2000, the board of BTL accorded an in-principle approval to a proposal of merger of BTL with Nine Network Entertainment India Pvt. Ltd. 

An inquiry was initiated by SEBI against the aforesaid three lead managers under the provisions of the SEBI (Merchant Bankers) Regulations, 1992 (hereinafter referred to as the "said Regulations") for failure to exercise due deligence. SEBI had found the three lead managers guilty of violation of clause 2 of the Code of Conduct laid down in Schedule III read with regulation 13 of the said regulations. It was found that when the lead managers came to know about the merger proposal ie. on 21st November, 2000, even then none of the lead managers had actually raised the issue or sought explanation from the company regarding the statement made in the prospectus. They had also not alerted the Regulatory Authority as soon as they came to know. 

After taking into consideration, facts and circumstances of the case and submission of the Merchant Bankers Orders have been passed on 14th May, 2002 warning the Merchant Bankers to be more careful.