Three state-owned financial-sector entities — State Bank of India, Life Insurance Corporation of India and Bank of Baroda — on Friday moved the Supreme Court against the Securities Appellate Tribunal (SAT) order that partly upheld Sebi’s decision to penalise them for failing to reduce their stakes in UTI Asset Management Company (AMC).
SAT, in its January 7 judgment, did not find any justifiable reason to impose any monetary penalty in the matter, but substituted the monetary penalty of `10 lakh with that of a “warning”.
A Bench led by Justice LN Rao sought response from Sebi on the three appeals by the PSUs. It also tagged the three cross-appeals with that of the market regulator, which had challenged the SAT order that reversed the penalty imposed by it on the three public sector entities. The apex court had earlier issued notice to the three financial entities on Sebi’s appeal, which stated that SAT had no power to convert monetary penalty into a mere warning.
Sebi had in August last year fined SBI, LIC and BoB of Rs 10 lakh each for failing to reduce their stakes to below 10% in UTI AMC within the stipulated timeline. All the three entities were required to bring down their stake in UTI AMC to 10% each by March 2019 from the existing 18.24%, as per the Sebi’s cross-holding norms for mutual funds. LIC, SBI and BoB were the sponsors of LIC MF, SBI MF and Baroda MF, but were also holding over 18% stake in both UTI MF and UTI Trustee Company.
Under Section 7B of the Sebi (Mutual Funds) (Amendment) Regulation, 2018, the market regulator mandated all mutual funds to comply with the norms by March 2019.
The three entities in their respective appeals in the SC stated that the SAT while setting aside the penalty had substituted the same with a “warning” by upholding the Sebi’s finding about violation of Regulation 7B of the Sebi (Mutual Funds) Regulations. The PSUs argued that neither in law, nor in facts they are in violation of the regulation. BoB also said except for the alleged delay in compliance, there was no non-compliance as alleged by Sebi. “Moreover, the AO after finding that there is no material to quantify the amount of disproportionate gain or unfair advantage, went ahead and imposed an adhoc penalty, which has rightly been set aside by SAT,” BoB stated in its plea filed through counsel Sanjay Kapur..
The alleged delay of seven months in completing the divestment to below 10% and that too for which the Sebi whole-time member had given time till December 31, 2020, should not have resulted in any penal order or even warning against them, Kapur argued. The SAT in its order noted that the three entities had been serious in their endeavour to achieve the objective and had taken steps to implement the Sebi’s directions, thus were in full compliance with the Sebi’s mutual fund norms with effect from October 12, 2020, by reducing their stake in UTI AMC below 10%.
Further, they have complied with all other norms and the directions issued by Sebi’s whole-time member in avoiding conflict of interest; which again emphasise the intention of the entities in complying with the regulator’s directions, it added.