Axis Bank-Max Life deal: Delhi High Court asks Sebi, RBI to expedite probe

The Delhi High Court on Monday instructed the Securities and Exchange Board of India and the Reserve Bank of India to accelerate their investigation into alleged fraudulent practices by Axis Bank Ltd in the sale and purchase of shares in Max Life Insurance Co Ltd.

The court rejected a petition by former Rajya Sabha member Subramanian Swamy, who had sought the establishment of a committee to investigate these allegations.

Swamy had moved the Delhi High Court in February alleging a scam of nearly ₹5,100 crore in the way Axis Bank sold and purchased shares of Max Life Insurance.

Max Life is a joint venture between Max Financial Services Ltd and private lender Axis Bank.

Multiple transactions

On 6 February, the Insurance Regulatory and Development Authority of India (Irdai) approved Axis Bank’s proposal to purchase another 7% in Max Life for ₹1,612 crore. After this, Axis group entities will collectively own 19.02% of the insurer, up from less than 13% currently.

Swamy in his public interest litigation said Axis Bank had in March 2021 sold a 0.998% stake in Max Life to Max Financial Services and Mitsui Sumitomo International for ₹166 per share. 

Subsequently, between March and April 2021, Axis Bank and its affiliates bought back a 12.002% stake in Max Life from Max Financial Services for between ₹31.51 and ₹32.12 per share.

“Meaning, thereby, Axis Bank has gained substantially while selling shares as the selling price has been exponentially more than the purchasing price,” he alleged.

Swamy in his petition also said that Max Financial Services and Mitsui Sumitomo International had engaged in transfer of shares of Max Life to Axis Bank at a price lower than the fair market value and subsequently bought the shares from Axis Bank at a substantially higher price.

Sebi's preliminary investigation

Following the court’s order on Monday, Swamy announced on X (formerly Twitter) that he was considering approaching a criminal court and invoking the Prevention of Money Laundering Act, 2002.

“Today, the Delhi High Court directed RBI and Sebi to complete their investigation into the Axis-Max Life deal expeditiously and in accordance with the law. Additionally, I am exploring the possibility of moving to a criminal court and invoking the PMLA to address this scam, which exceeds ₹4,000 crore,” Swamy said.

During the court proceedings, Axis Bank argued that Swamy’s public interest litigation was not maintainable as it pertained to a commercial transaction between private entities, and did not specify the class or individuals it was meant to benefit. The bank contended that aggrieved shareholders, if any, could approach the high court themselves.

Irdai informed the court that it had already imposed penalties of ₹20 million on Axis Bank and ₹30 million on Max Life. These penalties were forwarded to RBI and Sebi for further examination and action.

Sebi clarified to the court that it had initiated a preliminary examination of the case. Sebi’s counsel said Swamy’s letter requesting a probe into the transactions had been forwarded to RBI.

RBI stated that it would review the letters sent by Irdai and Sebi if these had not already been examined.