To avoid fresh Sebi notice, HDFC AMC pays Rs 4 crore to settle Essel investments case

HDFC Mutual Fund has settled the matter pertaining to investments of Fixed Maturity Plans (FMPs) in debt instruments of Essel group companies with the markets regulator. The Securities and Exchange Board of India (Sebi) issued the settlement order in the matter of showcause notices issued to the asset management company.

In its order, Sebi said that HDFC MF had paid a little over over Rs 4.20 crore towards the settlement. Market regulator had sent two show cause notices to HDFC AMC on May 10, 2019, in relation to their investments of FMPs in debt instruments of Essel Group companies. Later, on June 1, the regulator had initiating adjudication proceedings against country’s top fund house HDFC Trustee Company Ltd, managing director and a few other officials of the company, in relation to their investments of FMPs in debt instruments of Essel Group companies.

According to Sebi, applicants which includes HDFC AMC, HDFC Trustees and other officials of the fund house had filed settlement applications in terms of the SEBI (Settlement Proceedings) Regulations, 2018, proposing to settle, without admitting or denying the findings of fact and conclusions of law, through a settlement order.

The HDFC AMC (the applicant no.1) had invested on behalf of the Mutual Fund in the debt instruments of Essel group of companies through various mutual fund schemes of HDFC Asset Management Company. It is alleged that the Mutual Fund had defaulted in complying with the various regulations, adhering to the requisite standards and failed to exercise proper due diligence and hence the captioned settlement applications were filed.

Sebi in its order said,“While forwarding the revised settlement terms the applicants also submitted that there are no subsisting complaints by the unit holders with regard to the said matter in respect of the various mutual fund schemes of HDFC AMC and that the HDFC AMC has already compensated the unit-holders of the affected mutual fund schemes for an amount of Rs 4,46,00,000 (rupees four crore and forty six lakh only).”

The order also states that it was further proposed that, the settlement amount would be paid out of the funds of HDFC AMC and that the liability would not be passed onto the unit holders. The High Powered Advisory Committee in its meeting held on March 2, 2020, considered the proposed settlement terms by the applicants and recommended the case for settlement upon payment of Rs 4.20 crore towards the settlement terms.

According to the settlement order passed by whole time member, SK Mohanty and Ananta Barua stated that Sebi would not initiate enforcement action against the applicants for the said defaults and the order disposed of the enforcement proceedings in respect of the applicants.