SEBI censures Axis Capital over guarantee-like role in Sojo Infotel NCDs

The Enforcement Action

The Securities and Exchange Board of India (SEBI) has issued a regulatory censure against Axis Capital Limited, a SEBI-registered merchant banker (registration no. INM000012029), in a final order dated 28 October 2026. The order, reference QJA/BS/DDHS/DDHS-SEC-2/32791/2026-27, was passed by a SEBI quasi-judicial authority under section 12(3) and section 19 of the SEBI Act, 1992, read with regulation 27(5) of the SEBI (Intermediaries) Regulations, 2008. It came into force with immediate effect.

The matter concerns the role Axis Capital played in a Rs 260 crore issue of non-convertible debentures (NCDs) by Sojo Infotel Pvt. Ltd. in March 2021. SEBI held that Axis Capital's obligation in that issue, described in the transaction documents as an "underwriting commitment", was in substance a guarantee for repayment of the debt, which a merchant banker is not permitted to provide. The order holds that this violated regulation 13A read with regulations 2(1)(cb) and 2(1)(h) of the SEBI (Merchant Bankers) Regulations, 1992.

The order also records that "no allegations of harm to investors or default by fraudulent design" were brought on record, and that the authority was not empowered to impose a monetary penalty in these enquiry proceedings.

Axis Capital contested the findings throughout. According to the order, it argued that it acted only as a sale arranger fulfilling a permitted underwriting obligation and that it never undertook to service the issuer's debt. Its parent, Axis Bank, disclosed the order to the stock exchanges on 30 October, according to The Economic Times, and had earlier said it did not expect a material business impact from the matter.

How the Scheme Worked

The order describes a structured-finance arrangement rather than a scheme aimed at investors. According to the order, Axis Capital acted as arranger in transactions designed to provide bridge funding to issuers pending a later liquidity event, such as an IPO, an offer for sale, a merger or a business sale. The issuer raised money through debt securities and pledged shares of itself or a group company as security. If the expected liquidity event did not produce enough money to repay the debt, Axis Capital was to arrange a sale of the pledged shares. If it could not find a third-party buyer in time, it had to buy the shares itself for an amount equal to the dues on the debentures.

In the Sojo issue, the order records that the NCDs were subscribed by Aditya Birla Finance (Rs 150 crore), Sun TV Network (Rs 100 crore) and Shriram Foundry (Rs 10 crore), and were secured among other things by a 26% pledge over shares of Lava International Ltd. held by Sojo's promoters. Sojo redeemed Rs 60 crore in September 2022. When it exercised its call option in September 2023, the option was not fully honoured, leaving Rs 174 crore outstanding and triggering an "Event of Default" and "Asset Sale Event" on 25 September 2023.

Axis Capital then deposited Rs 166.84 crore into the NCD escrow account on 19 March 2024, and the money was used to repay the outstanding NCDs and interest, according to the order. It charged Sojo a fee of approximately Rs 33 crore for the entire transaction. The order says Axis Capital later sold its 24.05% holding in Lava.

SEBI's inspection began on 13 March 2024. The order notes that total fees earned from such structured transactions during the inspection period were approximately Rs 299 crore, and that similar arrangements appear to have been undertaken in 18 instances since 2013. In every case other than Sojo, the issuers redeemed the debentures themselves.

The procedural history, as the order sets it out, runs as follows. An interim order on 19 September 2024 barred Axis Capital from taking new debt-segment assignments as merchant banker, arranger or underwriter. A confirmatory order on 26 November 2024 narrowed that restraint to transactions involving credit risk cover, guarantees or indemnities linked to pledged shares, or structured secured credit. The order's chronology also records a summary settlement notice in mid-2024, which did not result in a settlement. A designated authority then issued a show-cause notice on 16 April 2025 and submitted an enquiry report on 15 October 2025 recommending censure. The post-enquiry show-cause notice followed on 17 December 2025, with a hearing on 7 May 2026.

The Law Invoked

The central provision is regulation 13A of the SEBI (Merchant Bankers) Regulations, 1992, which bars a registered merchant banker, other than a bank or public financial institution, from carrying on any business other than that in the securities market. SEBI read it with regulation 2(1)(cb), which defines a merchant banker as a person engaged in issue management, and regulation 2(1)(h), which defines underwriting as an agreement to subscribe to or procure subscription for securities "issued or offered for sale, remaining unsubscribed". SEBI held that the pledged shares were not offered for sale when the NCDs were issued, so the commitment could not be underwriting.

The enquiry ran under Chapter V of the SEBI (Intermediaries) Regulations, 2008: a designated authority under regulations 25 and 26, which recommended censure under regulation 26(1)(vii), followed by the final order under regulation 27(5). The final order was passed under sections 12(3) and 19 of the SEBI Act; section 12(3) deals with action on a registered intermediary's certificate of registration. The earlier interim and confirmatory orders were passed under sections 11(1), 11(4) and 11B(1) of the SEBI Act.

What Happens Next

A censure is the mildest direction available in intermediary enquiry proceedings. It does not suspend or cancel Axis Capital's registration, carries no monetary penalty, and does not restrict its equity capital markets or advisory work. The confirmatory order of 26 November 2024, which bars guarantee-type structures in the debt segment "until further orders", is a separate direction; the final order does not state that it has been lifted.

Like other SEBI orders, this one can be challenged before the Securities Appellate Tribunal. No appeal had been reported at the time of writing. Axis Capital told SEBI that it stopped using the structure in April 2023 and would not resume it, and the order cites board minutes from 30 May 2024 recording that commitment.

In explaining why it chose censure, the order says a direction stalling the firm's business so many years after the violation "may be disproportionate", given the absence of investor harm on record.

What It Means

The order draws a clear line between underwriting and credit support. A merchant banker may promise to take up securities that remain unsubscribed when they are offered. It may not, in SEBI's reading, stand behind an issuer's debt and step in to repay it, whatever the contract calls that promise. SEBI looked at substance: the fee was tied to the gap between the issuer's total yield and the investor coupon, and in one fee letter the agreed total yield was 16.5% a year against a 9.65% coupon, according to the order.

For investors in privately placed or structured bonds, the practical lesson is to read what actually stands behind a credit rating. The order notes that rating agencies assigned credit-enhancement or structured-obligation ratings to some of these issues because of the arranger's support, and that investors, mainly mutual funds and NBFCs, relied on that comfort. Where a rating carries a "CE" or "SO" suffix, it is worth reading the rating rationale to see what the support is, who provides it and whether that party is permitted to provide it.

Retail investors can check any intermediary's registration on SEBI's website under "Recognised Intermediaries", and debt-fund holders can review their fund's monthly portfolio disclosures for structured paper.

FAQ

What exactly did SEBI order?

SEBI issued a regulatory censure against Axis Capital Limited under sections 12(3) and 19 of the SEBI Act read with regulation 27(5) of the Intermediaries Regulations. It held that the firm's commitment in the Sojo Infotel NCD issue amounted to a guarantee, in breach of regulation 13A of the Merchant Bankers Regulations. No monetary penalty, suspension or cancellation of registration was imposed.

Did any investors lose money?

According to the order, no allegation of harm to investors or default by fraudulent design was brought on record. When Sojo Infotel did not fully redeem its NCDs, Axis Capital deposited Rs 166.84 crore into the escrow account, which was used to repay the outstanding debentures and interest. In the other similar transactions, the issuers redeemed the debentures themselves.

Can the order be appealed?

Yes. Orders passed by SEBI can be challenged before the Securities Appellate Tribunal within the time allowed by law. The order is a finding by SEBI's quasi-judicial authority after an enquiry, show-cause notice and hearing. Axis Capital disputed the characterisation throughout the proceedings, and no appeal had been reported at the time of writing.

Does this affect Axis Bank customers or shareholders?

The order is against Axis Capital Limited, not Axis Bank, and contains no direction against the bank. Axis Bank had earlier said it did not expect a material business impact from the matter, according to The Economic Times. Bank deposits and accounts are not touched by the order.

How can I check whether an intermediary is registered with SEBI?

SEBI's website lists every registered merchant banker, broker, investment adviser and research analyst under "Recognised Intermediaries". Search by name or registration number. Axis Capital's merchant banker registration number, as stated in the order, is INM000012029.

Where can I read the official order?

The full 36-page order is published on SEBI's website under Enforcement, Orders, in the October 2026 listing titled "Order in the matter of role of Axis Capital Limited in providing guarantee to the NCDs of Sojo Infotel Pvt. Ltd.".

This report is based on the official SEBI order dated 28 October 2026 against Axis Capital Limited. It was surfaced via coverage in The Economic Times.