Market Regulator SEBI has dropped proceedings against Max Financial Services, Max Life Insurance Company and Axis Bank, along with Axis Capital, Axis Securities and seven former key managerial personnel and executives, in connection with a series of transactions involving shares of Max Life Insurance Company.
In its final order, SEBI’s Whole Time Member Amarjeet Singh held that the allegations of inadequate or delayed disclosures and the alleged fraudulent scheme could not be sustained on the material on record. The regulator concluded that no case had been made out against Noticees 1 to 12 and disposed of the proceedings without issuing any directions or imposing any penalty.
The proceedings arose from a show-cause notice dated October 24, 2024, following SEBI’s investigation into transactions between Max Financial Services/Max Life and Axis Bank during FY 2009-10 to FY 2021-22.
The investigation examined possible violations of the SEBI Act, SCRA, PFUTP Regulations, LODR Regulations and the erstwhile listing agreement.
At the centre of the matter were three arrangements involving Max Life shares.
Under the 2010 arrangement, Max Life issued 3.94% of its post-issue capital to Axis Bank at INR 10 per share, followed by subsequent acquisitions of the shares by Max entities at progressively higher prices.
Under the 2015 arrangement, Max Financial Services and Mitsui Sumitomo Insurance transferred a 4.99% stake to Axis Bank at INR 10 per share, which was subsequently bought back in tranches at prices ranging from INR 108.20 to INR 166 per share.
The 2020 arrangement involved the proposed sale of a 29.002% stake in Max Life to Axis Bank. Following regulatory discussions, the arrangement was revised, with Axis Bank, Axis Capital and Axis Securities ultimately acquiring 9.002%, 2% and 1%, respectively, in March-April 2021.
SEBI’s show-cause notice had alleged that the transactions formed part of a structured arrangement designed to provide Axis Bank benefits over and above permissible insurance commission limits. It alleged that shares were issued or transferred at lower values and subsequently bought back at higher prices, resulting in an alleged benefit of INR 3,911.95 crore to Axis Group entities and corresponding loss to Max Financial Services and its shareholders.
The regulator, however, found that the allegations did not meet the evidentiary threshold required to establish fraud.
SEBI noted that the show-cause notice had not established injury arising from the alleged conduct, inducement of investors to deal in securities, or circumstances demonstrating wrongful intent to defraud or manipulate the securities market. It also found no evidence of price or volume manipulation, creation of an artificial market or other interference with market integrity.
On the disclosure allegations, SEBI acknowledged that Max Financial Services’ disclosures could have been more comprehensive and that a more cautious and consistent approach might have been desirable. However, it held that the conduct had to be tested against the disclosure requirements applicable at the relevant time. In the absence of material establishing violation of the specific provisions invoked in the show-cause notice, the disclosure-related charges could not be sustained.
SEBI also specifically rejected an allegation concerning the non-disclosure of the April 6, 2021 transaction involving Axis Bank’s acquisition of 9.002% of Max Life. The order records that both Axis Bank and Max Financial Services had made disclosures on that date regarding the transaction and the aggregate 12.99% stake held by the Axis entities.
The regulator further held that the allegation of connivance was unsupported by evidence. It noted that the issuance and sale of shares had received sectoral regulatory approvals and that the relevant disclosures were made following definitive agreements and regulatory approvals. SEBI concluded that the essential ingredients required to sustain a fraud charge under Section 12A(b) and (c) of the SEBI Act read with the PFUTP Regulations had not been established.
The findings also benefited the individual directors and key managerial personnel who had been proceeded against in the matter. SEBI said the material did not demonstrate any specific act, omission, participation, knowledge or conduct attributable to them individually that could independently establish the alleged violations. It held that mere association with the company or designation could not, by itself, establish individual liability.
Accordingly, SEBI disposed of the proceedings against Noticees 1 to 12, including Max Financial Services, Max Life, Axis Bank, Axis Capital and Axis Securities, without issuance of any direction or imposition of any penalty.
