Capital markets regulator Sebi has slapped a penalty of Rs 1.6 crore on seven entities, including Kotak Mahindra Trustee Company (Rs 40 lakh) and Managing Director of Kotak AMC Nilesh Shah (Rs 30 lakh), for flouting rules pertaining to mutual funds while investing in Essel Group companies. Others penalised by Sebi include Kotak AMC’s fund managers -- Lakshmi Iyer (Rs 25 lakh), Deepak Agarwal (Rs 20 lakh) and Abhishek Bisen (Rs 15 lakh) besides Compliance Officer Jolly Bhatt (Rs 10 lakh) and Director Gaurang Shah (Rs 20 lakh) was among the members of the investment committee that approved the investment decisions related to certain Fixed Maturity Plan schemes, as per the order. They have been directed to pay the penalties within 45 days.

Reacting to Sebi order, Kotak Mahindra Asset Management Company spokesperson said “we propose to file an appeal with the appropriate authorities. In the same matter, Kotak Mahindra Asset Management Co Limited’s appeal is pending with Securities Appellate Tribunal.

The case pertains to six Fixed Maturity Plan that matured in April and May 2019, which held investments in debt securities issued by Edisons Utility Works and Konti Infrapower & Multiventures, belonging to the Essel Group. The debt securities were secured by pledge of equity shares of Zee Entertainment Enterprises by its promoter Cyquator Media Services. Kotak Mahindra Asset Management Company entered into an agreement with promoters and other promoter entities of Essel Group to extend the maturity of securities of various Essel Group entities to September 30, 2019. Consequently, investors of all the six schemes were not paid full amount on maturity based on the Net Asset Value of the schemes.

Sebi in its order said, the Managing Director and CEO, Chief Investment officer, Compliance Officer and the Fund Managers are expected to act diligently in the best interest of the unitholders.

It is imperative for the Trustee and the persons at the helm of affairs to act diligently and faithfully in the best interest of the unitholders. Infirmities in their conduct and any non-compliance or deviation from the regulatory requirements, would derail the trust imposed by the unitholders in the Mutual Fund and threaten the very structure of this industry, justifying the penalty levied.