The action follows an examination initiated after National Securities Depository Ltd (NSDL) informed SEBI that the combined holdings of certain FPIs had breached the 10% investment limit in Lerthai Finance Ltd. SEBI subsequently examined the compliance of the three FPIs with the SEBI (Foreign Portfolio Investors) Regulations, 2014 and 2019 and related circulars.
SEBI found that the FPIs were required to be clubbed into an investor group from different dates. BAO Value Fund and Davos International Fund were considered part of the same group from 18 March 2016, while Sparrow Asia Diversified Opportunities Fund was grouped with BAO Value Fund from 26 July 2017. SEBI said the FPIs failed to provide complete information about their investor grouping within the prescribed timelines.
The regulator also found that the FPIs had delayed or failed to report changes in their investor grouping. They were also found to have submitted incorrect statements regarding material changes and failed to ensure that accurate investor-grouping information was maintained with their designated depository participants (DDPs).
SEBI further examined the combined holdings of the investor group and found breaches of the 10% investment limit in Alchemist Realty Ltd, Lerthai Finance Ltd and Sampann Utpadan India Ltd. The combined holding in Alchemist Realty was between 11.54% and 12.46% for 3,415 days, while the holding in Lerthai Finance ranged between 10.83% and 16.10% for 2,308 days. In Sampann Utpadan India, the combined holding was 12.20% for 1,344 days.
Under the FPI regulations, investments by FPIs belonging to the same investor group are required to be clubbed while determining compliance with the 10% investment limit. SEBI said the concerned FPIs also failed to divest their excess holdings within the prescribed five trading days after the breaches occurred.
The FPIs disputed the allegations during the proceedings. They argued that the existence of an economic interest did not automatically establish common ownership or control and that their investments could not simply be clubbed without establishing the applicable investor-group relationship. They also pointed to changes in the grouping information maintained by the DDPs and submitted that they had taken steps to liquidate the excess holdings after the issue was brought to their attention.
After considering the submissions and material on record, SEBI's adjudicating officer (AO), Jai Sebastian, held that the FPIs had violated the requirements relating to investor-group disclosures and maintenance of accurate grouping information. The officer also concluded that the 10% investment limit had been breached and that the excess holdings were not divested within the prescribed period.
While determining the penalty, SEBI noted that the material on record did not quantify any disproportionate gain or unfair advantage made by the noticees or any loss caused to investors. It also considered the repetitive nature of the defaults and noted a previous direction issued against BAO Value Fund in a GDR-related matter.
Accordingly, SEBI imposed a total penalty ₹30 lakh. The three noticees are jointly and severally liable to pay the penalty.
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