The Securities and Exchange Board of India (Sebi) on Thursday imposed penalties on Kotak Mahindra Trustee Company; Nilesh Shah, managing director, Kotak Mutual Fund; Laxshmi Iyer, chief investment officer (debt); and four others over the fund house’s exposure to securities issued by the Essel group.
The total penalty imposed on the Kotak Trustee and six others (noticees) works out to Rs 1.6 crore.
In 2019, Kotak MF had extended the maturity period of six of its fixed maturity plans (FMPs), a close-ended MF scheme, which the Sebi order says “negatively affected” the interests of unitholders.
This was after the fund house entered into a ‘standstill’ agreement with the promoters of Essel group following a sharp fall in shares of Zee, which were pledged to raise money through so-called zero coupon non-convertible debentures (ZCNCD).
“Lapses and violations have been observed on the part of the noticees with regard to lack of due diligence and consequently negligence while investing in Essel Group Companies as well as with regard to maturity date of the security exceeding the maturity date of schemes, the six FMP schemes not being wound up at the end of their maturities and being partially redeemed at the end of their maturity dates, noncompliance with Principles of Fair Valuation while valuing the ZCNCDs of the issuers, and inadequate disclosures to investors of the six FMP schemes,” the Sebi order said.
The fund house had argued this was to protect the interest of investors and the entire episode didn’t cause any loss to investors.
Kotak MF’s spokesperson said the fund house plans to challenge the Sebi order “with appropriate authorities.” He said already an appeal is pending in the same matter before the Securities Appellate Tribunal.
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