Sebi Slaps Rs 29 Lakh Fine On India Asset Growth Fund And Other Entities – Know Why

Sebi Orders Today: The capital market regulator, the Securities Exchange Board of India, has imposed a cumulative penalty of Rs 29 lakh on India Asset Growth Fund, Essel Finance Advisors and Managers LLP, Vishnu Prakash Rathore, Arpan Sarkar, Jaykishan Kikani and Vistra ITCL (India) Ltd. The market regulator has asked the fund and other entities to pay the fine within 45 days of the receipt of the order. Alternate Investment Funds (AIFs) were officially introduced by the market regulator in 2012. AIFs are a special type of investment vehicle which functions as a privately pooled fund. Typically institutions and HNIs invest in AIFs. AIFs are governed by Sebi AIF Regulations 2012.

Why Did Sebi Impose The Penalty On IAGF

The market regulator said in its order that the penalty was imposed due to nine violations of Alternate Investment Fund (AIF) norms. Notably these nine violations were made between April 01, 2021, and March 31, 2022. The capital market regulator alleged that the fund failed to disclose disciplinary history and made delayed disclosure of litigation history of the sponsor, manager, trustee and other entities, thereby not complying with AIF norms.

Further, the capital market regulator also alleged that the fund delayed the winding up of a scheme by 2 years and 5 months despite the completion of the extended tenure of the scheme. Additionally, the fund also delayed the redressal of a complaint related to the extension of the tenure. Notably, the fund did not address the complaint within the 30-day window the market regulator has prescribed for redressal of grievances.

The capital market watchdog also alleged that the fund had provided its valuation on the basis of the assets of the investee company instead of the valuation of the Non-Convertible Debentures (NCDs) of the investee companies.

Other violations of AIF norms included the fund’s non-disclosure of the Investor Charter to its investors and delay in filing the Private Placement Memorandum (PPM) audit report along with the usage of an incorrect format for filing the report.

The market regulator also cited violations such as non-disclosure of the distribution waterfall. As per Sebi’s order, the fund manager did not provide a complete distribution waterfall which shows how the fees and charges are applicable to various classes of investors in annuities in senior secured estates. The fund also delayed the appointment of the benchmarking agency and failed to provide it necessary information and delayed registration with the FIU-IND (Financial Intelligence Unit).

What Sebi Said In The Matter

The market regulator stated in its order that the disciplinary history section in a PPM is a crucial disclosure which helps investors in gauging the potential risks and in knowing the track record of the entities involved in managing their money. This knowledge in turn enables investors to make well-reasoned choices. Thus, the non-disclosure of such details can harm investor trust.

The market regulator also noted that complying with the timeline of AIF closure is crucial in order to maintain transparency, investor trust and market discipline. The regulator added that investors have some rights on account of being beneficiaries of a scheme. However, they do not have a right to alter the material document of the fund.

Commenting on the valuation being made on the basis of the investee company’s assets instead of the investee company’s NCDs, the market watchdog maintained that investors are interested in the value of the income-generating asset (NCD) and not the real estate itself, which is collateral for the NCD; therefore, such a valuation is not correct.