Sebi had refused to renew the bank's licence on these charges. The matter was then referred to an adjudicating officer of Sebi under Section 15B of the Sebi Act. The adjudicating officer was of the view that the bank had violated the norms and a penalty of Rs 40,000 should be imposed on it.

Following which, the bank went in for an appeal against the order to the tribunal. State Bank of Indore's licence as banker to anissue was to lapse in December, 1997. When it sought a renewal of its licence, Sebi held that prima facie the bank had not complied with the condition subject to which the registration was granted. Moreover, according to the market regulator, the bank had not entered into an agreement in the prescribed manner with the corporates issuing securities on whose behalf it had acted as a banker to the issue.

The matter was referred to the adjudicating officer for inquiry and adjudication on March 31, 1998. A showcause was issued to the bank charging it with failure to comply with requirements of Regulation 14 of the Sebi (Bankers to an Issue) Regulations, 1994. In its order of November 9, 1998, the officer held that the bank was guilty of violating the norms and slapped a penalty on it.

In its argument, the State Bank associate held that even though it had not entered into a formal agreement as such with the issuer company, the covenants were settled by way of correspondence between the bank and the issuercompany or the lead managers to the issue, thereby in essence fulfilling the requirements of Regulation 14.

It had contended that non-execution of the formal agreement was only an inadvertent lapse of a technical nature and the investing public had not been put to any loss on as a result of this. The bank said the adjudicating officer should have taken into account the fact that the bank was from the public sector and that it had not committed any serious violation of the law to "suffer the penalty." The officer, however, held that any person who has been granted a certificate to act as a banker to an issue, is bound to comply with the requirements of the act and the rules and regulations arising out of it. He held that correspondence with other intermediaries is not sufficient compliance for the purpose of the regulation. In its order, SAT has said that it is clear that the agreement referred to in Regulation 14 is required to spell out the duties and responsibilities between the parties, that is, thebanker and issuer company.

"It is also clear that the agreement is required to be entered into between the banker to the issue and the issuer body corporate. I am, therefore, inclined to agree with the view that an agreement with a third party who is not authorised to enter into such an agreement on behalf of the issuer firm, is not the agreement in terms of Regulation 14," presiding officer of SAT, C Achuthan, said in his order.