HDFC Capital Advisors, AIF-II Pays Rs36 Lakh To Settle AIF Rule Violation Case

Moneylife Digital Team 07 May 2025

Investor Interest

HDFC Capital Affordable Real Estate Fund - I, a category II alternative investment fund (AIF), and its investment manager, HDFC Capital Advisors Ltd, have paid Rs36 lakh to settle a case of AIF Rule violation with Securities and Exchange Board of India (SEBI).

The case centred on investments made by HDFC Capital Affordable Real Estate Fund – I, managed by HDFC Capital Advisors. Fund had invested Rs200 crore in non-convertible debentures (NCDs) issued by Acme Realties Pvt Ltd (ARPL) and an additional Rs99 crore through NCDs issued by Ascent Construction Pvt Ltd (ACPL) to ARPL. Both ARPL and ACPL are related entities and subsidiaries of Acme Housing (India) Pvt Ltd. At the time, HDFC Ltd, now HDFC Bank Ltd, which was the sponsor of the Fund, was also a senior lender to ARPL and ACPL.

SEBI alleged that the invested funds were routed back to repay loans and interest dues owed to HDFC, creating a situation where the sponsor benefited from the Fund’s investment decisions. Moreover, SEBI observed that the investment advisory board (IAB), which approved the investments, was composed entirely of senior executives from HDFC, raising concerns about independence in decision-making. The transaction was also not referred to the Fund’s conflict resolution committee, in apparent violation of internal policies.

Further, in its compliance test report for the FY16–17, HDFC Capital Advisors claimed that no conflict of interest had arisen. However, SEBI’s investigation found otherwise, alleging that the applicants had failed to implement adequate conflict mitigation measures and had placed the sponsor’s interests above those of the Fund’s investors.

Without admitting or denying the findings, both applicants submitted a suo motu settlement application under the SEBI Settlement Proceedings Regulations, 2018. SEBI internal committee(IC) and the high-powered advisory committee reviewed the case and recommended a settlement upon payment of Rs36 lakh by HDFC Capital Advisors on behalf of both entities. The settlement proposal was approved by SEBI panel of whole-time members (WTMs) on 18 March 2025, and the payment was confirmed by SEBI in April.

With the issuance of the final settlement order on 6 May 2025, SEBI has agreed not to pursue enforcement action in this matter. However, it retains the right to take further action if any misrepresentation is discovered or if the terms of the settlement are violated.

Comments