Supreme Court Stays SAT Order Setting Aside SEBI Penalty On SBI, Bank Of Baroda, LIC In UTI AMC Case

A division Bench of Justice Nageswara Rao and Justice Ravindra Bhat have also issued notice to the three financial institutions, in an appeal filed by the Securities and Exchange Board of India against the SAT order.

The impugned SAT order was passed on 7th January this year after the State Bank of India (SBI), Bank of Baroda (BoB) and Life Insurance Corporation of India (LIC) moved the tribunal challenging SEBI's order imposing on them a fine of 10 lakh each. The Tribunal partly allowed all the three appeals and substituted the penalty of ₹10 lakh imposed with that of a warning.

Under the SEBI mutual fund Regulations, a mutual fund sponsor is not allowed to hold over 10 per cent of any other mutual fund or a trustee firm. However, LIC, SBI and BoB were each holding a stake of 18.24 percent in UTI Asset Management Company (AMC). The were therefore directed by SEBI to reduce their stake to 10 percent by March 2019 since they were not in compliance with the MF Regulations. SEBI then directed imposition of fine after the three financial institutions as the financial institutions failed to reduce their stakes.

The Securities Appellate Tribunal however was of the opinion that not every technical violation needed to be dealt with a monetary penalty, and warning can be sufficient in these matters.

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.

According to SAT, the financial institutions complied with SEBI mutual fund regulations from 12 October 2020 by reducing their stake in UTI below 10 per cent, and were serious in their endeavour to achieve the objective and in implementing SEBI's directions. The parties intended to comply with SEBI's directions as they followed all other norms and directions given by SEBI.

SEBI in its order dated December 6th, 2019 had observed that despite expiry of over 20 months from amendment of the Regulations, these financial institutions were yet to achieve compliance with the requirements. While they initiated some steps to dilute their stakes in UTI AMC the substantial compliance with Regulation 7B still remained pending. The regulator therefore directed LIC, SBI and BoB to ensure strict compliance with the requirements of Regulation 7B of the SEBI Mutual Fund Regulations.

Their shareholding and voting rights in UTI AMC and UTI Trustees was directed to be brought down below 10% on or before December 31st, 2020. The financial Institutions were directed to ensure compliance with Regulation 7B with regards to the Board composition.

SEBI in its order had also stated that in event of any non compliance the shareholding and voting rights of these three financial institutions in UTI AMC and UTI Trustee in excess of 9.99% and related corporate benefits fill be frozen till the directions are complied with.

SBI, LIC and BoB were asked to submit a compliance report to SEBI with respect to compliance with its directions within one month of the compliance.