The Securities and Exchange Board of India (Sebi) has slapped a penalty of Rs.1.6 crore on six senior executives of Kotak Asset Management Company (AMC), including managing director Nilesh Shah, in connection with the default on the payment of the fixed maturity plan (FMP). The case relates to September 2019.
The other five are Deepak Agarwal, Lakshmi Iyer, Abhishek Bisen, and compliance officers Gaurang Shah and Jolly Bhat. These individuals were all part of the investment committee which approved the decisions pertaining to the investment in Essel Group paper.
Now, Sebi has in its adjudication order specified the breaking of rules in the case of six FMP series – 127, 183, 187, 189, 193, and 194. Such an order is usually filed against a person or entity who fails to repay the debt on or before the assigned date. In the case of Kotak AMC, rules pertaining to mutual funds were flouted.
Sebi said in its order “It is observed that Kotak AMC entered into an agreement with promoters and other promoter entities of Essel Group to extend the maturity of securities of various Essel Group entities to September 30, 2019. Consequently, investors of all the six schemes were not paid full amount on maturity based on the net asset value (NAV).”
In the 104-page adjudicating order, Sebi officer Maninder Cheema imposed the penalty on the six with respect to two aspects, namely improper extension of maturity of Essel group papers, and lack of proper diligence while investing in the company.
Sebi said that the investment decision was purely made on the basis of collateral analysis. The investment plan did not even refer or mention the financials and operations of the issuers.
Interestingly, this is not the first time that Sebi has passed an order in this case. Previously, an order was passed in this regard in August 2021.
Sebi further said that the trustees as well as the AMC employees should have shown utmost caution, care and due diligence with the FMP, as debt papers are on the riskier side of the secondary market due to them being illiquid in nature.