Background
Capital markets regulator SEBI slapped a fine of Rs 3 lakh on three entities Kotak SEAF India Fund, Investment Manager Kotak Alternate Asset Managers Ltd and Trustee of the fund Kotak Mahindra Trusteeship Services Ltd for failing to wind up India Growth Fund, a scheme of Kotak SEAF India Fund, upon completion of its tenure as disclosed in the original PPM (Private Placement Memorandum) which in turn violates Venture Capital Funds (VCF) Regulations.
Tenure and Extensions of the Scheme
The term of the Scheme was for nine years from the date of first closing, i.e. 30 March 2005, extendable by one year. The Fund’s tenure was supposed to end on 30 March 2014. However, it had taken four extensions which include one extension of one year (till 30 March 2015-first extension) as per the PPM of the scheme and then three extensions of seven years (till 30 March 2022).
What led SEBI to levy a Penalty on the Fund and the amount of penalty thereof
SEBI noted that the fund filed an online application in May 2022 stating that it wound up the scheme on March 31, 2022, and all unit holders are paid back.
However, as a registered entity, the fund, fund manager and the trustees should have complied with the provisions of Regulation 23 (1) (a) of the VCF (Venture Capital Fund) Regulations, which states that the scheme should be wound up when the period of the scheme, if any, mentioned in the Placement Memorandum is over and do not provide for making any amendment in the period thereof, which the three entities have failed and this calls for a penalty. SEBI imposed a penalty of Rs. 3 lakhs jointly and severally on the three entities as mentioned above for violation of the VCF Regulations.
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