SAT rejects Sahara plea against Sebi order on mutual fund biz

28 Jul 2017

The Securities Appellate Tribunal Friday rejected Saharas plea against a Sebi order cancelling its mutual fund licence, but granted the company six weeks time to approach the Supreme Court.
Sebi had ordered cancellation of certificate of registration of Sahara Mutual Fund in July 2015, while barring the fund house from taking any further subscription from investors, after the regulator found the group was "no longer fit and proper to carry on the business of mutual fund".
Sebi also ordered transfer of the business to another asset management company, to be followed by re-constitution of its board of trustees, failing which Sahara Mutual Fund was asked to redeem units allotted to all investors and thereafter wind up the operations.
After hearing Saharas plea against these directions, the Securities Appellate Tribunal (SAT) today upheld Sebis order saying it found "no merit in the appeal".
After the order was pronounced by the SAT, the counsel for the appellants made an oral appeal for staying the operation of the order for a period of six weeks to enable the appellants to approach the Supreme Court.
"Accordingly, six weeks stay is granted," the SAT said in its 21-page order.
As per the latest data published by the mutual fund industry body AMFI (Association of Mutual Funds in India), Sahara Mutual Fund had average asset under management of about Rs 67 crore as on June-end 2017.
The Sebi order followed findings by the regulator that Sahara India Financial Corporation Ltd (sponsor for mutual fund) was not a fit and proper person because its Promoter- Director was not fit and proper and hence Sahara MF and Sahara Asset Management Company were no longer fit and proper to carry on the business of mutual fund.
"The present appeal before us is regarding the fit and proper status of a Promoter/Director of Sahara Sponsor who holds about 80 per cent of its capital and who controls all Sahara Group Companies and hence on the fit and proper status of Sahara Sponsor to continue as Sponsor of a mutual fund in the context of Sebi/Supreme Court orders against (Subrata Roy) Sahara and two Sahara Group Companies," the SAT observed.
It noted that the mutual fund regulations state that the sponsor company as well as its key managerial persons or key person who controls the company is to be fit and proper.
The Tribunal said the law empowers Sebi to take actions in the interest of protecting investors and hence lifting the corporate veil to the extent to identify who controls a regulated entity cannot be faulted.
"Without such a power, Sebi will be a mute spectator to many of the corporate misdeeds which may jeopardise the interests of investors. Given the mandate of Sebi to protect the interests of the investors in the securities market, Sebi is statutorily empowered to lift the corporate veil and find out the truth whenever interests of the investors are affected or likely to be affected," it said. (PTI)