SEBI fines Kotak AMC chief Nilesh Shah and others for violating MF rules
The penalty of Rs.1.6 crores is to be paid within 45 days
The Securities and Exchange Board of India (SEBI) has slapped a penalty on Nilesh Shah, the chief of Kotak Mahindra Asset Management Company and five others for flouting the mutual funds’ rules while investing in the Essel Group companies.
Others penalized by the capital markets regulator are – Kotak AMC’s fund managers Lakshmi Iyer, Deepak Agarwal, and Abhishek Bisen; Compliance Officer Jolly Bhatt, and Gaurang Shah, one of the members of the investment committee that approved the investment decisions related to certain Fixed Maturity Plan (FMP) schemes.
The case relates to six FMP schemes that matured in April and May 2019, which held investments in debt securities issued by Edisons Utility Works Pvt Ltd and Konti Infrapower & Multiventures Pvt Ltd, belonging to the Essel Group.
The debt securities were secured by a pledge of equity shares of Zee Entertainment Enterprises Ltd by its promoter Cyquator Media Services.
Kotak AMC had entered into an agreement with the promoters and other promoter entities of Essel Group to extend the maturity of securities of various Essel Group entities to September 2019. As a result, the investors of the schemes were not paid the full amount on maturity based on the Net Asset Value (NAV).
Meanwhile, SEBI found that Kotak Mahindra Trustee Company, being a trustee of Kotak AMC, failed to disclose the scheme-related information, particularly regarding the adverse situation of Essel Group companies, to its unit holders accurately and in a timely manner. This happened despite it being aware of the situation.
The 104-page SEBI order read, “Lapses and violations have been observed on the part of the noticees (seven entities) about lack of due diligence and consequently negligence while investing in Essel Group companies. Also, the maturity date of the security exceeding the maturity date schemes, the six FMP schemes and not being wound up at the end of their maturities and being partially redeemed at the end of their maturity dates.”
The market regulator further observed non-compliance with principles of fair valuation while valuing the debt securities or Zero Coupon Non-Convertible Debentures (ZCNCDs) of the issuers, and inadequate disclosures to investors of the six FMP schemes by the entities.
According to SEBI, the interests of the investors were affected negatively on account of the infractions on the part of the noticees.
It, therefore, imposed fines on Kotak Mahindra Trustee Company (Rs.40 lakh); Nilesh Shah (Rs.30 lakh); Lakshmi Iyer (Rs.25 lakh); Deepak Agarwal (Rs.20 lakh); Jolly Bhatt (Rs.10 lakh), Abhishek Bisen (Rs.15 lakh), and Gaurang Shah (Rs.20 lakh).
In August 2021, SEBI had asked Kotak AMC to refund a part of the investment management and advisory fees collected from the unit holders of the FMP schemes with 15 percent interest per annum.
Additionally, SEBI had restrained the company from launching any new fixed-maturity plans for six months and imposed a penalty of Rs.50 lakh on the fund house in the matter. In October, the Securities Appellate Tribunal (SAT) partly stayed the order of SEBI.
The SAT order said, “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.”