Nearly seven years after the Reserve Bank of India cancelled Sahara India Investment Corporation’s (SIIC) registration to carry out the business of an NBFC, the Securities and Exchange Board of India on Tuesday declared that it was not ‘fit and proper’ to run the mutual fund business. Among the three big regulators, the Insurance Regulatory and Development Authority of India (IRDA) is yet to intervene to stop the Sahara Group from running their insurance business.
On Tuesday Sebi cancelled Sahara Asset Management Company’s (AMC) certificate of registration with immediate effect and granted five months to transfer the firm’s activities to a new sponsor and Sebi-approved AMC.
Sebi’s whole-time member, Prashant Saran stated that Sahara’s AMC did not fulfill the criteria of ‘fit and proper’ to carry out the business of a mutual fund.
Sebi has ordered the fund house to neither take any new subscription from the investors nor levy any penalties on the systematic investment plans (SIP) and systematic transfer plans (STP) to investors for not depositing the installments.
Irda is still to initiate any investigation into Sahara India Life Insurance’s eligibility to run an insurance firm. “The decision taken by one regulator does not have a bearing on the other. However, since a regulator has found them not fit and proper we will also keep a watch on their operations and if something is not proper we will take a decision. With Sebi, the Sahara case was going on for more than two years now and they found that Sahara had done something wrong which led them to take decision,” said an Irda official, who did not wish to be named.
A senior RBI officer, when contacted, reiterated that it was the first to take regulatory action. “When RBI issues a banking licence, it discusses with all regulators and concerned authorities to check if the promoters and sponsors meet the fit and proper criteria and there are no pending cases or investigations against them,” said a RBI official adding that the central bank cancelled Sahara India Investment Corporation NBFC registration in August 2008.
In the 22-page order issued by Saran said, “Sahara Mutual Fund shall make efforts to transfer the activities to a new sponsor and a Sebi approved AMC at the earliest.”
It further said, “In the event of failure of Sahara Mutual Fund to complete the process of transition as mentioned, within a period of five months from the date of this order, then Sahara Mutual Fund should compulsorily redeem the units allotted to its investors and credit the respective funds to its investors, without any additional cost, within a period of 30 days thereafter and wind up the operations of the Mutual Fund.”
Sebi has also ordered Sahara AMC to return the certificate of registration to Sebi on expiry of six months from the order. According to the data from Association of Mutual funds in India (AMFI), total assets under management of the fund house at the end of June quarter stood at Rs 134.29 crore.
In October 2014, a common report submitted by Sebi designated authority pointed that Sahara AMC & its trustees and Sahara Sponsor are no longer ‘fit and proper’ persons to carry out mutual fund business and recommended to cancel registration of Sahara MF.
Later on November 11, 2014, Sebi issued a common show cause notice to the noticees, asking them why the action of proposed cancellation should not be taken against them and why they should not be directed to transfer the activities to another person holding a valid ‘certificate of registration’ to carry on such activity
In February, the capital markets regulator had cited similar reason to reject Sahara AMC’s renewal application for registration as portfolio manager. Sebi has directed SAMCPL to transfer its business to another Sebi registered portfolio manager within 30 days or allow clients to withdraw the securities and funds in its custody at the option of the client.
(WIth inputs from Mumbai Bureau)