Tribunal lets off SBI, LIC, BoB with a warning

PALAK SHAH | Updated on January 12, 2021

Converts SEBI’s ₹10-lakh penalty on each of them into a warning

A ₹10-lakh penalty each on two State-owned banks and an insurance company, imposed by market regulator SEBI, has been converted into a mere warning by the Securities Appellate Tribunal (SAT). The tribunal reasoned that it could not find any “justifiable reason” to impose the monetary penalty and just a ‘warning’ was sufficient.

The SEBI has imposed the fine on State Bank of India (SBI), Life Insurance Corporation (LIC) and Bank of Baroda (BoB) for violating shareholding norms for mutual funds (MFs). According to SEBI norms, a ‘sponsor’ of a mutual fund, its associates, or a group company, cannot have 10 per cent or more shareholding or voting rights in ‘another’ asset management company (UTI) or an MF trustee. All the three entities are sponsors of leading MFs but also held a large stake in UTI AMC for several years . The SEBI had given them time till March 2019 to bring down their stake in UTI AMC but they could not comply with the deadline, following which SEBI issued an order last year.

“Every technical violation need not be visited with a monetary penalty. In these matters a warning is sufficient,” the SAT said.

The three entities argued that disinvestment permission could be obtained only in the month of April 2019 after which the entire disinvestment process had to be completed and the IPO process for UTI AMC was floated on September 29, 2020. It is in this context that SEBI had granted them time till December 31, 2020 and the appellants have divested their excess holding to level of 9.9 per cent each as on October 12, 2020. These entities sold their stake three months before the extended time granted by SEBI. But still SEBI fined them.

SEBI counsel Shyam Mehta argued that the extended time was not an “exoneration of the appellants from their violation as violations were factual and admitted”.

SAT also lectured the entities that governmental entities, including public sector undertakings, need to develop protocols for coming out from being prisoners of protracted procedures for complying with applicable laws and regulations timely, because as legal entities accountability falls on them.

Published on January 12, 2021

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