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SEBI has imposed a penalty of Rs. 1.60 crore on Kotak MF's trustee company and six officials for failing to wind up the AMC's fixed maturity plans (FMPs) on time and not performing due diligence while investing in Essel group companies.
The order requires Kotak Mahindra Trustee Company to pay a fine of Rs. 40 lakh, while MD & CEO Nilesh Shah has been asked to pay a penalty of Rs. 30 lakh. Fund managers, compliance officer and the director of the AMC have also been penalised.
What was the matter?
The matter relates to Kotak MF's six FMPs. These schemes, which were to mature in April and May 2019 did not pay the full maturity amount to investors on time due to investments in Essel group companies Konti Infrapower & Multiventures and Edisons Utility Works.
The six FMPs had bought the securities of the two loss making companies as they were backed by shares of ZEE Entertainment Enterprises. However, during the time of maturity the shares of ZEE Entertainment had nosedived (as a result the value of shares was not enough for the AMC to recover the investment amount). Considering the situation, the AMC entered into an agreement with promoters and other entities of Essel Group to extend the maturity of securities to September 30, 2019.
As a result, the AMC did not make timely payment to the investors of the six FMPs.
The regulator also observed that the AMC did not follow the right procedure while investing in the two companies. It said that the investment was based solely on the fact that the securities were backed by the shares of ZEE Entertainment.
"No reference was made to the financials and operations of the issuers in the investment plan. Investment decision was only based on analysis of collateral (Zee)," the order stated.
In August 2021, the regulator had imposed a fine of Rs. 50 lakh on the AMC and restrained it from launching any FMPs for six months in relation to the same case.
