Merchant bankers must maintain a clear “Lakshman Rekha” with their clients and ensure that professional advice, due diligence and guidance remain within the framework of law, Justice PS Dinesh Kumar, presiding officer of the Securities Appellate Tribunal (SAT), said on Wednesday.
“There is a Lakshman Rekha between you and the client. And if that is crossed, all the problems start,” Kumar said while addressing a conference by the Association of Investment Bankers of India (AIBI).
He said merchant bankers should evaluate the papers, strengths, fundamentals and financials of a company and guide clients appropriately, while maintaining the necessary professional distance.
He said merchant bankers are an important intermediary between companies seeking capital and investors, including retail investors, high-net-worth individuals and institutional investors. Sebi relies on them to provide comfort that all relevant aspects of a company seeking to raise funds have been examined, he added.
Kumar said the responsibility of investment bankers was to step back when a client approached them, study the documents, understand the company’s standing and assess whether its projections were realistic before deciding whether to proceed.
He also pointed to cases that had reached SAT, noting that the number was relatively small compared with cases before the regulator and the number of companies and institutions operating in the country. He said this reflected the ethical conduct of the investment banking community.
However, he called on merchant bankers to strive for a situation where not even one case reaches the regulator or SAT, noting that the money ultimately drained through such proceedings belongs to someone.
“The manner in which you evaluate a case, evaluate a project, and advise within the framework becomes the most essential,” he said.
He also stressed the need for the market to be built in a robust manner while ensuring that it remains in accordance with the law and the highest ethical standards.
