In an interim order, the securities appellate tribunal (SAT), while partially staying an order passed by the Securities and Exchange Board of India (SEBI), allowed Catalyst Trusteeship Ltd to resume accepting new assignments as a trustee for alternative investment funds (AIFs) from 19 March 2024.
In an order last week, the SAT bench of Meera Swarup (technical member) said, "In my view at this stage, the rigours of the directions at paragraph 28(D) and (F) of the impugned order would adversely affect the business of Catalyst Trusteeship as well as their clients. Accordingly, the effect and operation of the directions in paragraphs 28(D) and (F) of the order dated 28 February 2024 in the matter of Brick Eagle India Affordable Housing Trust are stayed insofar as they relate to Catalyst Trusteeship. Catalyst Trusteeship shall, however, ensure that the directions at paragraphs 28(A) and (B) are complied with."
Catalyst Trusteeship had challenged an order passed by SEBI barring the trusteeship from accepting new AIF assignments for one year and from associating with any SEBI-registered intermediaries for three months.
On 28 February 2024, SEBI passed an order imposing restrictions on Catalyst, stemming from an inspection of Brick Eagle India Affordable Housing Trust, an AIF for which Milestone Trusteeship Services Pvt Ltd (since merged with Catalyst Trusteeship) was the trustee during FY19-20.
During the hearing, the counsel for Catalyst Trusteeship submitted that the violations had been committed by an investment manager which is borne by the fact that SEBI called upon the investment manager to reply to all the charges regarding violations of the fund.
"The violations occurred before Catalyst Trusteeship's amalgamation with Milestone Trusteeship Services. Further, the SEBI order has gone beyond the show cause notice (SCN). The allegation in the SCN was limited to the failure of the fund to achieve the second and the final closing as per the private placement memorandum (PPM), while the SEBI order holds Catalyst Trusteeship liable for all the violations committed by the Trust (Brick Eagle India Affordable Housing Trust)," the counsel says.
The counsel for SEBI contended that Catalyst Trusteeship failed to act in the interest of the investors or unit holders as they could not ensure the scheme's second and final closing. "The trust deed and the PPM laid down the duties of the trustee which stipulate the important role to be played by the trustee. They clearly indicate that the investment manager cannot be solely held responsible for the violations of the scheme. Catalyst Trusteeship was aware of the role assigned to it; however, in its reply to the SCN no explanation was provided to indicate the steps taken by it to ensure the closing of the scheme. Catalyst Trusteeship took action only after the SCN was issued."
Vehemently denying that the SEBI order travelled beyond the SCN, the counsel argued that the allegation in the SCN was primarily that the fund failed to comply with the terms and conditions specified in the PPM. "The finding in the order vis-à-vis Catalyst Trusteeship is that they failed to maintain high standards of integrity in the conduct of the business and failed to register high standards of service and due diligence as they could not ensure that the trust (Catalyst Trusteeship) achieved second closing in accordance with the PPM."
After hearing both sides, SAT noted that Catalyst Trusteeship, registered as category II AIF with SEBI, failed to comply with the terms and conditions specified in the PPM by not achieving the second and final closing. "However, I also note that Catalyst Trusteeship is taking action to liquidate the Fund in the interest of the investors."
"...considering the assurance given by Catalyst Trusteeship to comply with the direction in the SEBI order at paragraph 28 (A) and (B), I am satisfied that Catalyst Trusteeship has made a case for stay," the bench says.
In a release, Catalyst Trusteeship says it is taking expeditious steps to wind up the Brick Eagle AIF as directed by SAT.
