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𝐂𝐞𝐚𝐬𝐞 𝐚𝐧𝐝 𝐃𝐞𝐬𝐢𝐬𝐭 𝐝𝐢𝐫𝐞𝐜𝐭𝐢𝐨𝐧𝐬 𝐚𝐠𝐚𝐢𝐧𝐬𝐭 𝐉𝐌 𝐅𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥 𝐏𝐫𝐨𝐝𝐮𝐜𝐭𝐬 𝐋𝐢𝐦𝐢𝐭𝐞𝐝 𝐛𝐲 𝐑𝐁𝐈

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Reserve Bank of India (RBI) seems to have found significant deficiencies identified in loans sanctioned by JM FINANCIAL PRODUCTS LIMITED (JMFPL) for IPO financing and Non-Convertible Debenture (NCD) subscriptions. A limited review conducted by the RBI “based on information shared by the SEBI” seems to have revealed serious lapses in credit underwriting, financing against inadequate margins. As per RBI, JMFPL facilitated a group of customers in bidding for various IPOs and NCD offerings using loaned funds. Apparently, JMFPL operated the application for subscription, demat accounts, and bank accounts using a Power of Attorney (POA) and a Master Agreement obtained from customers, without their involvement in any subsequent operations, effectively acting as both lender and borrower.

Therefore, Reserve Bank of India (RBI) under section 45L(1)(b) of the Reserve Bank of India (RBI) Act, 1934 has passed an order against JMFPL to immediately cease all financing activities related to shares and debentures. This includes the sanction and disbursal of loans against Initial Public Offering (IPO) of shares and subscription to debentures.

Reserve Bank of India (RBI) also expressed serious concerns on governance issues in the company which were detrimental to customer interests. Further, business restrictions will be reviewed and remain in place until a special audit, initiated by RBI, addresses identified deficiencies to its satisfaction. 

Curiously, RBI Order / Press Release does not provide the stand of JMFPL. 

Section 45L(1)(b) of the RBI Act empowers to call for information from financial institutions and to issue directions relating to the conduct of business by them. RBI has issued directions under this provision very recently against IIFL Finance Limited as well directing them to cease and desist from sanctioning or disbursing gold loans or assigning/ securitising/ selling any of its gold loans. Similar direction was also issued against Bajaj Finance Ltd in November, 2023.

These developments share certain similarities with, yet also diverge from, the Cease and Desist Powers of SEBI as outlined in Section 11D of the SEBI Act, 1992. 

Those with a keen interest in regulatory laws might explore whether the RBI Order is, on the face of it, prima facie, and if so, whether conclusive directions can be established based solely on prima facie observations. While SEBI‘s powers have been tested in several judicial precedents, the extent and limits of the RBI’s authority under the statute remain largely unexamined by the judiciary. Readers are encouraged to share their perspectives with Regstreet Law Advisors at info@regstreetlaw.com

A copy of the press release of RBI is attached herewith.

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