Ambarish Mukherjee

New Delhi, July 28 Efforts by two private sector asset management companies – HDFC AMC and Birla Sun Life AMC – to provide fund manager services gratis for the Employees Provident Fund Organisation (EPFO) and pay certain statutory expenses on behalf of it, have been rejected by EPFO’s finance and investment committee.

The EPFO has rejected the proposals made by the two companies based on the opinion of its external legal advisors. The private sector players suggested this strategy to garner a portion of the EPFO corpus (about Rs 1.4 lakh crore) under their management. There were a total of 10 qualified bidders in the fray for becoming EPFO fund managers.

The finance and investment committee, however, has recommended HSBC AMC and ICICI Prudential AMC as fund managers along with the present fund manager -- State Bank of India.

The Central Board of Trustees (CBT) of the EPFO will meet on Tuesday to take a final call on the matter.

One of the CBT members, who is also a member of the finance and investment committee, told Business Line that HDFC AMC and Birla Sun Life had made the gratis offer to derive “goodwill” as fund managers of the second largest financial institution in the country after Life Insurance Corporation. This, they felt, would enable them to generate enough business to make good the losses that would be incurred for providing free services to the EPFO.

“The two companies had said that though they would charge no fee as direct consideration for the services to EPFO, but hoped to get compensated in terms of enhanced reputation and brand value,” a CBT member said, adding that the companies had quoted zero rates despite knowing that charges related to custodial services, which are to be borne by the fund managers only, are to be included in their fees. “This is an offer unheard of,” he said.

EPFO’s legal advisors have recommended rejection of the zero rate proposals stating that they are not legally enforceable. The legal advisors state that creation of goodwill cannot be considered as a consideration as it is intangible and uncertain in nature.

“As an agreement without consideration is not a valid contract, hence the defect/infirmity in the contract cannot be cured by relying on the performance guarantee,” they explained while recommending rejection of the proposals.

(This article was published in the Business Line print edition dated July 29, 2008)
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