Securities and Exchange Board of India (Sebi), in August 2020, fined three financial institutions for failing to reduce their holdings to less than 10% in UTI Asset Management Company

The Securities Appeals Tribunal (SAT) overturned an order by the Sebi imposing a fine of 10 lakh each on three public financial institutions – SBI, Bank of Baroda and LIC – in the case of dilution of the stake of UTI AMC.

Securities and Exchange Board of India (Sebi), in August 2020, fined three financial institutions for failing to reduce their stakes to less than 10% in UTI Asset Management Company (AMC) on time.

The three companies were required to reduce their stake in UTI AMC to 10% each by March 2019. They each held 18.24% of the fund.

The entities did not comply with the Sebi regulation on mutual funds (MF). Under the standard, no promoter of a mutual fund is allowed to own more than 10% of any other mutual fund or trust company.

LIC, SBI and BoB are the sponsors of LIC MF, SBI MF and Baroda MF and at the same time they held more than 18% of the capital of both UTI MF and UTI Trustee Company.

Following the Sebi’s order, the State Bank of India (SBI), Bank of Baroda (BoB) and Life Insurance Corporation of India (LIC) had moved the court.

In an order passed Jan. 7, the SAT said it had found no justifiable reason to impose a monetary penalty in the current cases, because not every technical violation should be punished with a monetary penalty. In these areas, a warning suffices.

“The three appeals are partially allowed by replacing the financial penalty of 10 lakh each imposed on the appellants (SBI, BoB and LIC) by that of a warning,” he added.

According to the SAT, three entities were facing atrocious factors in achieving dilution of their stake in UTI AMC. While it is true that DIPAM was only requested in January 2019, the entities were not free to apply directly to DIPAM but had to go through other services of the Ministry of Finance.

The court said it took note of correspondence since March 2018 (when Sebi released new mutual fund standards) made by entities on the need to comply with mutual fund standards and the need to do so. do it quickly. Therefore, a full reading of the appellants’ investment trajectory in UTI AMC as well as the steps they took to implement the instructions issued by Sebi clearly shows that the entities had been serious in their efforts to achieve the goal.

“They were clearly trapped in a protracted procedure imposed by their own promoters, although that should not be an excuse to comply with the Rules in letter and spirit,” he added.

The court noted that the entities fully comply with the standards of the Sebi mutual funds as of October 12, 2020 by reducing their stake in UTI AMC to less than 10%.

In addition, they complied with all other standards and instructions issued by the permanent member of Sebi to avoid conflicts of interest; which again underline the intention of the entities to comply with the instructions of the regulator, he added.

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