Securities Appellate Tribunal (SAT) has quashed the SEBI order that imposed a Rs 10 lakh penalty each on SBI, Bank of Baroda (BoB) and LIC in UTI AMC's stake dilution case. SAT is a statutory body that reviews appeals against orders passed by the SEBI, PFRDA and IRDAI.
Reason for SEBI’s fine on SBI, BoB and LIC
In August 2020, SEBI had levied a fine of Rs 10 lakh each on SBI, BoB and LIC. This was because these 3 state-owned financial institutions failed to reduce their stake to below 10% in UTI AMC within the stipulated timeline given to them by the market regulator.
In March 2018, SEBI came up with a new regulation that said no sponsor of a mutual fund is allowed to hold over 10% of any other mutual fund or a trustee firm. LIC, SBI and BoB are the sponsors of LIC MF, SBI MF and Baroda MF and at the same time, they held over 18% stake in both UTI MF and UTI Trustee Company.
To comply with SEBI’s new regulation, these three companies were required to bring down their stake in UTI AMC to 10% each. And the market regulator gave them one year i.e. till March 2019 to comply with regulation.
However, these 3 entities could not reduce their stakes to below 10% in UTI AMC by March 2019. They completed the process by October 2020.
Why did the SAT set aside SEBI’s penalty?
In an order passed on January 7, the SAT said it did not find any justifiable reason to impose any monetary penalty on SBI, LIC and BoB. SAT termed it as a technical violation. According to the SAT, three entities were facing ‘excruciating factors in achieving’ their stake dilution in UTI AMC, even as they were ‘serious in their endeavour’ to achieve the objective.
“Every technical violation need not be visited with a monetary penalty. In these matters, a warning is sufficient,” SAT noted in the order.
"They (SBI, BoB and LIC) have been clearly prisoners of protracted procedure thrust upon them by their own promoters, though this need not be an excuse for complying with the regulations in its letter and spirit," it added.
The tribunal noted that entities are in full compliance with the Sebi's mutual fund norms with effect from 12 October 2020 by reducing their stake in UTI AMC below 10%.
Further, they have complied with all other norms and the directions issued by Sebi's whole-time member in avoiding conflict of interest; which again emphasises the intention of the entities in complying with the regulator's directions, it added.
