Merchant bankers play a critical role in India’s securities market. Before a public issue reaches investors, they are expected to verify material information, examine the issuer’s eligibility and satisfy themselves about the accuracy of disclosures in the offer document.
But how far must that responsibility extend? Is a merchant banker required to verify everything reasonably available, or approach every document as though it may be false?
A Securities and Exchange Board of India order dated August 28, 2026, provides important clarity on this question.
The matter involved Bonanza Portfolio Limited and its role as merchant banker for two public issues of non-convertible debentures by Shakti Finance Limited. SEBI’s inspection initially raised concerns about whether Bonanza had conducted independent due diligence and whether documents provided during the inspection contained mismatched timestamps.
After considering the complete record, SEBI concluded that the alleged due-diligence failure and document fabrication could not be established. The proceedings were therefore disposed of without adverse directions against Bonanza or the concerned directors.
The order is significant because it distinguishes between a genuine regulatory violation and a technical anomaly unsupported by sufficient evidence.
The Background of the Case
Bonanza Portfolio Limited has been registered with SEBI as a merchant banker since September 30, 2016. It is also registered as a stockbroker, depository participant, portfolio manager and research analyst, although the present proceedings related only to its merchant-banking activities.
SEBI conducted an inspection of Bonanza for the period from April 1, 2022, to April 30, 2024.
During this period, Bonanza acted as merchant banker for two public issues of non-convertible debentures issued by Shakti Finance Limited:
- NCD VII, which opened in April 2023
- NCD VIII, which opened in February 2024
Each issue had a base size of up to ₹100 crore, with an option to retain oversubscription of another ₹100 crore. This meant that each issue could raise an aggregate amount of up to ₹200 crore.
Following the inspection, proceedings were initiated against Bonanza and six of its directors under the SEBI Intermediaries Regulations.
What SEBI’s Inspection Initially Questioned
Under SEBI’s Non-Convertible Securities Regulations, an issuer cannot make a public issue of non-convertible securities if it has remained in default on the payment of interest or repayment of principal for more than six months as of the relevant filing date.
The lead manager must also exercise due diligence and satisfy itself regarding all aspects of the issue, including the truthfulness of disclosures made in the offer document.
The inspection initially alleged that Bonanza had not independently verified whether Shakti Finance had defaulted on its interest or principal obligations before the draft offer documents were filed.
It also raised a more serious concern: certain corporate-announcement documents submitted during the inspection contained differences between the timestamps appearing in their headers and the dates printed on their final pages.
Based on that discrepancy, the inspection questioned whether the documents had been manipulated or fabricated and whether untrue information had been furnished to SEBI.
If established, these findings could have resulted in regulatory action affecting Bonanza’s merchant-banking registration.
Bonanza’s Explanation of the Timestamp Difference
Bonanza denied that the documents had been fabricated.
It explained that its team had reviewed Shakti Finance’s corporate announcements on the BSE website during the original due-diligence exercise. However, instead of retaining every downloaded document, an employee had saved the relevant web links.
When SEBI later requested the documents during the inspection, the employee reopened the links and generated the PDFs. According to Bonanza, the header reflected when the announcement had originally been reviewed, while the date on the last page reflected when the link was subsequently opened or printed.
The merchant banker maintained that the document’s contents had not been changed. It also argued that the corporate announcements were only one part of a broader due-diligence process and were not the sole basis for determining the issuer’s eligibility.
SEBI noted that the timestamp anomaly might have required a deeper technical examination of the relevant file attributes. However, no evidence established that Bonanza had altered the substance of the corporate announcements.
Due Diligence Extended Beyond One Document
The final order examined the full range of checks performed by Bonanza.
The material showed that the merchant banker had:
- Conducted a physical visit to Shakti Finance’s office
- Examined documents relating to the proposed NCD issues
- Obtained written confirmations from the issuer regarding the absence of defaults
- Verified certificates concerning interest and principal payments
- Reviewed information available on the BSE website
- Checked regulatory and investor-information portals
- Verified NSE and NSDL records concerning debarred entities and defaulting issuers
- Relied on legal due-diligence reports from an external law firm
- Obtained an internal auditor’s examination report
The external legal reports stated that, as of their respective dates, Shakti Finance had not defaulted on the payment of principal or interest on its financing facilities, loans or previously issued debt securities.
The internal auditor’s report also found that Bonanza had verified the issuer’s eligibility for both NCD issues and had obtained the relevant declarations and supporting certificates.
BSE had additionally granted in-principle approvals for the issues. No investor complaints concerning NCD VII or NCD VIII were reported during the proceedings.
Based on this material, SEBI accepted that Bonanza’s assessment did not rest solely on the corporate announcements carrying the disputed timestamps.
What “Reasonable Due Diligence” Actually Means
The order contains an important discussion on the standard expected from a merchant banker.
A merchant banker cannot merely repeat whatever the issuer provides. It must play an active role, apply professional judgment and investigate information that may materially affect investors.
At the same time, due diligence does not mean approaching every representation with an automatic presumption of fraud.
Referring to judicial precedents, the order noted that due diligence means doing everything reasonable—not everything possible. Whether sufficient care was exercised must be determined from the facts and circumstances of each case.
A merchant banker is expected to use the skill and care of a reasonably competent professional. However, it is not required to begin every review with suspicion unless the available information contains warning signs that should reasonably prompt further investigation.
This balance is important. A weak due-diligence standard could expose investors to inaccurate disclosures. An undefined or unrealistic standard, on the other hand, could make intermediaries responsible for risks that no reasonable verification process could have identified.
Why the Allegations Were Not Sustained
SEBI found no allegation that Bonanza had altered the actual contents of Shakti Finance’s corporate announcements. The mismatch related to the timestamps, not to the underlying information concerning repayment or default.
The issuer had independently confirmed that there was no relevant default. The same conclusion was supported by payment certificates, exchange disclosures, regulatory database checks, legal reports and the internal auditor’s examination.
The inspection report also did not identify any additional document or verification step that a reasonably prudent merchant banker should have undertaken but Bonanza had failed to perform.
SEBI therefore concluded that the inspection observations were based primarily on suspicion and did not meet the evidentiary standard required to establish a penal violation.
The timestamp mismatch was treated as a technical issue that did not demonstrate an ulterior motive, document fabrication or a failure of reasonable due diligence.
What Happened to the Directors
The proceedings also included six directors of Bonanza Portfolio.
SEBI noted that the matter primarily concerned the merchant banker’s certificate of registration. The record did not establish the active involvement of five of the directors in the day-to-day operations of the merchant-banking division.
One director, Satya Prakash Goel, had died before the show-cause notice was issued. Applying the settled legal principle that personal proceedings do not continue against a deceased person when they were not initiated during their lifetime, SEBI held that the proceedings against him stood abated.
The proceedings against Bonanza and the remaining directors were disposed of without any adverse order or direction.
The Larger Compliance Lesson
The Bonanza order should not be read as reducing the responsibilities of merchant bankers. SEBI expressly reiterated that investors depend on intermediaries to confirm the adequacy and accuracy of disclosures.
The real lesson is that due diligence should be structured, independent and capable of being demonstrated through records.
Merchant bankers should retain dated copies of the documents reviewed, document each verification step, record the sources relied upon and preserve a clear audit trail. Even where the underlying due diligence is adequate, weak record retention can create unnecessary questions during an inspection.
At the same time, regulatory consequences must be supported by convincing evidence. A technical inconsistency may justify further examination, but it cannot automatically establish fraud, fabrication or professional negligence.
Shunyatax Global Insights
The Bonanza Portfolio order shows that compliance is not limited to completing checks—it also requires maintaining clear evidence of when, how and through which sources those checks were performed.
For merchant bankers, issuers and regulated businesses, strong documentation and a complete audit trail can be as important as the underlying due-diligence process.
If you or your business is facing challenges involving fundraising, regulatory inspections, financial documentation or securities compliance, Shunyatax Global can provide professional guidance to help you respond with clarity and confidence.
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Disclaimer: This article is based on SEBI’s order dated August 28, 2026. It is intended for general informational purposes and does not constitute legal, financial or investment advice.