Summary of this article
Sebi clears Max Financial and Axis Bank of fraud.
Regulator found no proof of intentional market price manipulation.
Key managerial executives were also cleared of all charges.
The Securities and Exchange Board of India (Sebi) has dropped proceedings against three entities, Max Financial Services, Max Life Insurance Company, Axis Bank, and other Axis group entities.
In a regulatory order issued on August 24, the market watchdog concluded that allegations of disclosure lapses and a fraudulent scheme, which were said to have caused a Rs 3,912 crore loss to Max Financial and its shareholders, could not be proved.
Alongside the corporate entities, Sebi also cleared individuals who held key management positions during the period of the investigation. These included former Chairman and Managing Director, Max Financial Services (MFSL) Analjit Singh, former Managing Directors, MFSL, Mohit Talwar and Rahul Khosla, former Chief Financial Officers, MFSL Sujatha Ratnam, Rahul Ahuja, and Jatin Khanna, as well as Company Secretary and Compliance Officer V Krishnan.
What Was Alleged About Max Financial, Max Life, and Axis Bank
The proceedings dropped by Sebi in its latest order are related to a show cause notice (SCN) issued in October 2024. The notice was issued by Sebi after undertaking a probe into share transactions between Max Financial, Max Life, and Axis Bank between the financial year 2009 to 2022. Sebi’s allegations suggested that the entities engaged in structured transactions across three major phases categorised as the 2010, 2015, and 2020 arrangements.
Sebi mentioned in the order that during these phases, Axis Bank bought shares of Max Life at par value and later sold them back at a premium linked to fair market valuations. The notice alleged that this arrangement was part of a fraudulent scheme which tried to bypass insurance commission limits and undue financial benefits to Axis Bank at the expense of Max Financial shareholders. Additionally, the notice also alleged that Max Financial failed to make adequate and timely disclosures about the key details of these buyback agreements to the stock exchanges, keeping investors in the dark.
Why Did Sebi Drop The Proceedings
In its latest order Sebi said that it has evaluated the allegations regarding the disclosure lapses and the fraudulent scheme. Regarding the issue of disclosures, Sebi found that the requirements under the older Listing Agreement left significant room for judgment.
The regulator said that it was not proven that the delayed or incomplete disclosures caused change in the business or were price sensitive at the time they occurred. Thus, the allegations of non compliance with transparency and disclosure regulations were found not to be formally established.
Regarding the accusations of fraud, the market watchdog noted that the legal definition of fraud under securities laws requires an element of inducement or blatant misconduct to manipulate the market.
Sebi observed in its latest order that there was no active concealment of material information, nor was there proof of an intent to deceive the market or manipulate share prices. The transactions were carried out with the approval of the insurance regulator, and the share price of Max Financial was not adversely impacted by the eventual market disclosures. The regulator also emphasised the absence of illicit trading behaviors.
"There is also no evidence of manipulation of price or volume, creation of an artificial market, or any other interference with market integrity," Sebi said.
Notably, as the primary charges against the corporate entities could not be sustained, Sebi ruled that liability could not be placed upon the key managerial personnel and directors.
"I, therefore, in exercise of the powers conferred upon me under Sections 11(1), 11(4), 11(4A), 11B (1) and 11B (2) read with Section 19 of the SEBI Act, dispose of the proceedings initiated against Noticee No. 1 to 12, without issuance of any direction or imposition of any penalty," Sebi said.
Ultimately the ruling brought a close to a complex regulatory matter for the financial institutions involved in the matter, allowing them to proceed.
