Action against JM Financial Products Limited under Section 45L(1)(b) of the Reserve Bank of India Act, 1934

Case Brief

RBI, exercising powers under section 45L(1)(b) of the RBI Act, 1934, directed JM Financial Products Limited to cease and desist immediately from any form of financing against shares and debentures. The prohibition specifically covers sanction and disbursal of loans against Initial Public Offering (IPO) of shares and against subscription to debentures. RBI said the move was prompted by serious deficiencies in the company's IPO financing and NCD subscription loans, as revealed in a limited review of the company's books based on information shared by SEBI. RBI observed that the company repeatedly assisted a group of customers in bidding for IPO and NCD offerings using loaned funds, used perfunctory credit underwriting, arranged financing against very small margins, and controlled application, demat, and bank accounts through a POA and Master Agreement without customer participation. RBI also flagged governance concerns and regulatory violations, and said the restrictions will be reviewed after a special audit and after deficiencies are rectified to RBI's satisfaction.