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SAT sets aside Sebi’s penalty on SBI, Bank of Baroda, LIC in UTI AMC case


Securities and Exchange Board of India (Sebi), in August 2020, levied the fine on three financial institutions for failing to reduce their stakes to below 10% in UTI Asset Management Company

The Securities Appellate Tribunal (SAT) has set aside a Sebi order to impose ₹10 lakh fine each on three State-owned financial institutions — SBI, Bank of Baroda and LIC — in UTI AMC’s stake dilution case.

Securities and Exchange Board of India (Sebi), in August 2020, levied the fine on three financial institutions for failing to reduce their stakes to below 10% in UTI Asset Management Company (AMC) within the stipulated timeline.

The three companies were required to bring down their stake in UTI AMC to 10% each by March 2019. They were holding an 18.24% stake each in the fund house.

The entities were non-compliant with the Sebi mutual fund (MF) Regulations. Under the norm, 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 were holding over 18% stake in both UTI MF and UTI Trustee Company.

Following the Sebi’s order, State Bank of India (SBI), Bank of Baroda (BoB) and Life Insurance Corporation of India (LIC) had moved the tribunal.

In an order passed on January 7, the SAT said it did not find any justifiable reason to impose any monetary penalty in the present matters, as every technical violation need not be visited with a monetary penalty. In these matters a warning is sufficient.

“All three appeals are partly allowed by substituting the monetary penalty of ₹10 lakh each imposed on the appellants (SBI, BoB and LIC) with that of a warning,” it added.

According to the SAT, three entities were facing excruciating factors in achieving their stake dilution in UTI AMC. Though it is a fact that DIPAM was approached only in January 2019, the entities were not free to approach DIPAM directly but had to go through other departments in the Finance Ministry.

The tribunal said it noted correspondence since March 2018 (when Sebi came out with new norms on mutual funds) made by the entities on the need for complying with the mutual fund norms and the need for expeditiously doing so. Therefore, a full reading of the trajectory of investment of the appellants in the UTI AMC as well as the steps taken by them in implementing the directions issued by Sebi clearly show that the entities had been serious in their endeavour to achieve the objective.

“They have been clearly prisoners of protracted procedure thrust upon them by their own promoters, though this need under 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 emphasise the intention of the entities in complying with the regulator’s directions, it added.

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