Kotak Mahindra AMC gets relief from SAT; tribunal partly stays Sebi order

The Securities Appellate Tribunal (SAT) has partly stayed a Sebi order, which had directed Kotak Mahindra Asset Management Company to refund a part of the investment management and advisory fees collected by the fund house from the unit holders.

In addition, the tribunal has asked the Asset Management Company (AMC) to deposit a sum of ₹20 lakh within four weeks into an interest bearing account.

Sebi, in August, had asked the AMC to refund a part of the investment management and advisory fees collected from the unit holders of the six Fixed Maturity Plan (FMP) schemes with 15 per cent interest per annum.        

In addition, the Securities and Exchange Board of India (Sebi) imposed a penalty of ₹50 lakh on Kotak Mahindra AMC and barred the fund house from launching any new FMP scheme for six months for violating the regulatory norms.   

The company had approached SAT against Sebi's order.        

"The direction to refund a part of the investment management and advisory fees collected by the appellant (Kotak Mahindra AMC) from the unit holders shall remain stayed," SAT said in its order dated October 21.         

This is subject to the condition that Kotak Mahindra AMC will give an undertaking to Sebi that it would part with the investment management and advisory fees as per the regulator's order within two months from the date of disposal of the appeal in case the appeal is decided against the firm, it added.

Sebi has to file its reply in three weeks and then Kotak Mahindra AMC will have three weeks time to file a rejoinder. The matter would be listed for admission and for final disposal on January 7, 2022. However, the tribunal did not stay the penalty of ₹50 lakh and the six-month ban on the entity from launching any new FMP schemes.      

The case pertains to six FMP schemes that matured in April and May 2019, which held investments in Non-Convertible Debentures (NCDs) issued by Edisons Utility Works Pvt Ltd and Konti Infrapower & Multiventures Pvt Ltd, belonging to the Essel Group, and secured by pledge of equity shares of Zee Entertainment Enterprises Ltd.         

The regulator had found lapses on the part of Kotak Mahindra AMC in carrying out due diligence and laid back approach adopted by the fund house in risk assessment while taking investment decision vis-a-vis the Zero Coupon Non-Convertible Debentures (ZCNCDs) of Essel Group entities. 

In its order, Sebi had said that there was "utter neglect of due diligence, inordinate delay in communicating with the investors, violation of the statutory sanctity of the maturity dates of the FMP schemes, permitting extension of the maturity of the ZCNCDs of the issuers in contravention of extant regulations etc". "... there remains no doubt in mind that the noticee (Kotak Mahindra AMC) has acted in gross violation of provisions of the Sebi Act, 1992, MF Regulations, 1996 as well as various circulars issued by Sebi from time to time," Sebi had said.         

The order came after Sebi noticed that the investors of certain FMPs launched by the Kotak Mahindra Mutual Fund were not paid their full proceeds based on the declared Net Asset Value (NAV) of the said schemes as on their respective maturity dates.      

However, a spokesperson of Kotak Mahindra Group had said that all the investors have been fully repaid along with applicable interest in September 2019 and the fund house was committed to protecting investor interest at all times. 

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