Mumbai: India’s capital markets regulator has found reason enough to launch adjudication proceedings against Yes Bank Ltd and its investment bankers over its abortive $1 billion fund-raising effort last month, according to two people with direct knowledge of the development.

Initial investigations by the Securities and Exchange Board of India (Sebi) found that Yes Bank had violated key norms of the listing obligations and disclosure rules (LODR) relating to misrepresentation of facts and adequate disclosure before it proceeded with the qualified institutional placement (QIP), the persons said on condition of anonymity. Investment bankers were also found wanting in due diligence, they said.

On 7 September, Yes Bank said it was launching a $1 billion QIP only to withdraw it a day later. Its shares had fallen 2.53% that day. The bank’s stock fell 5.32% on 8 September.

On 9 September, Sebi started its investigations by calling Yes Bank’s investment bankers to find out what had gone wrong with the QIP.

“The market, by way of the company’s disclosure in April, was kept under the impression that the bank is exploring all options for fund-raising while the specific board meeting which would consider the QIP was not disclosed to stock exchanges," said one of the two people cited above, both of whom spoke on condition of anonymity. This, the person said, amounts to misrepresentation of facts.

Failure to follow key regulatory requirements for a QIP may have misled the market, resulting in the stock of Yes Bank suffered a beating, causing significant losses to shareholders and disturbing the integrity of the markets, said the second of the two people.

Mint has seen a copy of Sebi’s initial findings and the documents meant for initiating the adjudication proceedings.

Sebi’s case is that the company’s disclosures about a board meeting which would consider fund-raising through the QIP route fell short of what the regulator requires under its listing norms.

Sections 29 (1) and 29 (2) of the LODR norms state that a company has to inform the stock exchanges at least two days in advance that it is holding a board meeting to consider fund-raising (including QIPs). It also has to give a two-day notice for a meeting that will decide the price of such fund-raising. Section 4(1) prohibits listed firms from misrepresenting facts; they have to ensure that information given to investors is not misleading.

On 16 September, Mint reported how Sebi was examining whether Yes Bank had fallen foul of this regulation. That’s because the bank clubbed the announcement that its board had approved $1 billion of capital raising with fiscal 2016 earnings in its 27 April notice to stock exchanges. That meant there had been no separate meeting to consider the QIP.

Similarly, Sebi will likely pull up the lead merchant bankers to the issue for not doing enough due diligence and not providing adequate advice.

In its 8 September notice to the stock exchanges announcing the withdrawal of the QIP, Yes Bank said: “Due to extreme volatility during today’s trading day because of misinterpretation of new QIP guidelines, Yes Bank has been advised by its appointed merchant bankers to defer its proposed QIP." Yes Bank did not say what these misinterpretations were.

Goldman Sachs (India) Securities Pvt. Ltd, CLSA India Pvt. Ltd and Motilal Oswal Investment Advisors Pvt. Ltd were the three main book running lead managers (BRLMs) to the QIP.

“As a matter of policy, YES BANK does not comment on such speculative stories," Yes Bank said in response to an email query from Mint. Emails sent on Monday to Sebi and the lead bankers in the QIP did not elicit any response.

“It was found during the interaction that the BRLMs and Yes Bank are presenting different facts about the QIP," said the first of the people cited earlier.

To be sure, these are initial findings. Now, the regulator will appoint an adjudicating officer who will review these findings and hold an inquiry. That means issuing a show cause notice to the entities, asking why an inquiry should not be held. Yes Bank and others will get a chance to present their side of the case following which an order and fine, if any, is issued.

The maximum monetary penalty for the breach of the norms is Rs1 crore. Entities can challenge Sebi orders at the Securities Appellate Tribunal.