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SEBI’s decision to drop proceedings suggests that the regulator found insufficient evidence to substantiate allegations of disclosure lapses and fraud. The analysis highlights SEBI’s emphasis on evaluating conduct against the legal framework at the time of the transactions and the evolution of disclosure norms. Key factors influencing the decision appear to be the absence of proven active concealment, market manipulation, or intent to defraud.
India’s market regulator, the Securities and Exchange Board of India (SEBI), has closed proceedings against Max Financial Services, Max Life Insurance, Axis Bank, and associated entities, citing that allegations of disclosure lapses and fraud in the Max-Axis Life Insurance deal were not established.
The final order, issued by Whole-Time Member Amarjeet Singh, encompassed twelve individuals and entities, including Max Financial Services, Max Life Insurance, Axis Bank, Axis Capital, Axis Securities, Analjit Singh, Mohit Talwar, Rahul Khosla, Sujatha Ratnam, Rahul Ahuja, Jatin Khanna, and V Krishnan.
The investigation, spanning from fiscal year 2010 to 2022, examined transactions between Max Financial, Max Life, and Axis Bank. SEBI had scrutinized whether these entities contravened securities laws, listing norms, and fraud regulations concerning a series of share sale and buyback arrangements involving Max Life shares.
The proceedings were initiated following a show-cause notice in October 2024, where SEBI had alleged inadequate or delayed disclosures by Max Financial regarding its bancassurance arrangement with Axis Bank and related share transactions in 2010, 2015, and 2020. The regulator had also contended that Max Financial, Max Life, and Axis entities engaged in a fraudulent scheme to benefit Axis Bank at the expense of Max Financial and its shareholders.
The matter had also taken into account earlier findings by the Insurance Regulatory and Development Authority of India (IRDAI). IRDAI had previously imposed penalties of Rs 2 crore on Axis Bank and Rs 3 crore on Max Life for violating its directives, noting that the transactions circumvented limits on commissions and remuneration payable to insurance agents and intermediaries.
Specific transactions under scrutiny included the 2010 arrangement where Max Life issued shares to Axis Bank at Rs 10 per share, with subsequent buybacks at prices ranging from Rs 54 to Rs 111. In 2015, Max Financial and Mitsui Sumitomo sold a 4.99% stake in Max Life to Axis Bank at Rs 10 per share, followed by buybacks at higher prices. Under a 2020 arrangement, Max Financial transferred stakes in Max Life to Axis Bank, Axis Capital, and Axis Securities, with Max Life later becoming Axis Max Life Insurance.
The show-cause notice had alleged that these transactions resulted in a loss of Rs 3,912 crore to Max Financial and a corresponding benefit to Axis Group entities, with incomplete and misleading disclosures by Max Financial.
However, SEBI noted that the disclosure framework for listed entities had significantly evolved since 2010. The regulator stated that while Max Financial’s disclosures could have been more comprehensive, and a more cautious approach might have been desirable, the conduct had to be assessed against the prevailing laws at the time. SEBI found no material evidence to establish violations of the specific provisions invoked, stating that liability could not be sustained solely on the basis that some disclosures could have been fuller.
Regarding the fraud allegations, SEBI concluded that active concealment of material information by Max Financial was not proven. Furthermore, there was no evidence of price or volume manipulation, the creation of an artificial market, or any other interference with market integrity. The regulator also found no established injury from the alleged wrongful acts or evidence of intent to defraud or manipulate the securities market.
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