The Securities Appellate Tribunal (SAT) has quashed two directions of the market regulator on the Urban Infrastructure Venture Capital Fund, which barred certain directors and the Managing Director and CEO from accessing the securities market and that restrained the trustees and directors from associating with any registered intermediary.
In an order passed on November 22, the tribunal said that the directions issued by the Whole-time Member of the Securities and Exchange Board of India (Sebi) was “without jurisdiction and beyond the show cause notice”.
Seven appeals have been filed against the Sebi order dated October 31, 2022. The tribunal stated, “All the appeals are partly allowed.”
The Sebi order had directed the appellants to wind up the scheme of the fund and provide an exit to the investors; and had restrained some of the appellants from accessing the securities market and from associating themselves directly or indirectly with any registered intermediaries, for a year.
The regulator had passed the order after receiving three complaints through the SCORES platform against the fund’s scheme, alleging that the scheme has not been able to wind up and that a direction should be issued to refund the contribution. After examining the issue, the regulator issued a showcause notice in June 2021 asking why action should not be taken against the trustee, investment manager and directors for violating VCF Regulations and a Sebi circular dated December 18, 2014.
The noticees responded by saying that the fund was in the liquidation stage and that 83 percent (Rs 2,011 crore) of the corpus was already returned to the investors. Later, during the proceedings, the noticees updated the regulator that they have returned 87.5 percent (Rs 2,092 crore) to the investors and that the remaining could not be refunded as there were problems with exits from factors beyond their control and that the tenure was being extended in the interest of the investors.
The WTM directed that the fund be wound up within three months and issued the other directions.
The SAT order noted that, as per the regulator’s directions, the fund has been wound up and that leaves the appeal limited to only the restrictions placed on the directors, senior management and the trustees.
The tribunal said that the regulator had indicated penalty and action in the showcause notice citing one section (Section 11B) of the Sebi Act and certain sub-regulations (Regulations 29 (c) and (d)) of the VCF Regulations, but the regulator had proposed penalty and actions under other sections (Section 11(1) and 11(4) of the Sebi Act) and sub-regulations (Regulation 29 (e) of the VCF Regulations) of the same.
The tribunal’s order added, “Further, the contents of the show cause notice also did not meet the requirement for imposition of penalty under Section 11(1), 11(4) of the SEBI Act and Regulation 29(e) of the VFC Regulations.”
Therefore, the tribunal quashed the regulators directions.
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