The company is wholly-owned subsidiary of Keynote Capital Ltd (KCL), the underwriter for Emmbi's initial share sale. Besides, KCL was the wholly-owned subsidiary of the issue's Book Running Lead Manager Keynote Corporate Services.

As per the Securities and Exchange Board of India (Sebi), Keynote Commodities had acted as a financier to certain connected/known entities by transferring funds for subscribing the issue.

In its order dated July 31, Sebi said that Keynote Commodities "had advanced money to connected entities and induced them to subscribe to the IPO of the company with the intention of securing the minimum subscription to the issue".

Viewing the matter as "serious", the market watchdog noted that such activities are detrimental to the interest of investors.

Sebi has thereby imposed "a penalty of Rs 25 lakh" on Keynote Commodities for the violation of norms on prohibition of fraudulent trading and unfair trade practices.

The case relates to a Sebi investigation into the charges of irregularities in the IPO of Emmbi Polyarns which had come out with a public issue of 95.74 lakh shares.

Emmbi's IPO opened on February 1, 2010 and closed on February 3, 2010. Trading in the shares commenced on National Stock Exchange (NSE) and BSE from February 24, 2010.

The regulator found that at the end of the first day when the issue opened for subscription, it got a very poor response and was thus at a risk of failure.

Sebi said that Keynote Commodities had transferred funds to certain known entities for subscribing to the issue.

These connected entities had made large applications to Emmbi's IPO and procured significant allotments using the transferred funds.

According to Sebi's probe "these large applications played a major role in the success of the issue".