SEBI
Legislation UpdatesRules & Regulations

The Securities and Exchange Board of India has made SEBI (Mutual Funds) (Second Amendment) Regulations, 2022 to further amend the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996. They shall come into force on the thirtieth day from the date of their publication in the Official Gazette.


In the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996,
after sub-clause (iii) of clause (c) of Regulation 2 providing definition of ‘Associate’, the following proviso has been inserted:

 

“Provided that the above definition of associate shall not be applicable to such sponsors, which invest in various companies on behalf of the beneficiaries of insurance policies or such other schemes as may be specified by the Board from time to time.”

 

Legislation UpdatesNotifications

The Securities & Exchange Board of India has revised the Risk Management Framework (RMF) for Mutual Funds vide circular dated September 27, 2021. The Circular provides a set of standards comprising the policies, procedures, risk management functions and roles and responsibilities of the management, the Board of Asset Management Companies (AMC) and the Board of Trustees. Key points of the Framework are:

  • The AMCs shall perform a self-assessment of their RMF and practices and submit a report to their Board along with the roadmap for implementation of the framework.
  • The elements of RMF have been segregated into ‘mandatory elements’ which should be implemented by the AMCs and ‘recommendatory elements’ which address other leading industry practices that can be considered for implementation by the AMCs.
  • The self-assessment must be completed and the necessary systems must be in place at the AMCs to enable compliance with the provisions of this circular with effect from 1st January, 2022. However, AMCs may choose to adopt the provisions of this circular before the effective date.
  • Compliance with the RMF should be reviewed annually by the AMC.
  • Reports of such reviews shall be placed before the Board of AMC and Trustees for their consideration and appropriate directions. Trustees may forward the findings and steps taken to mitigate the risk along with their comments to SEBI in the half-yearly trustee reports.
  • There shall be at least one CXO level officer identified to be responsible for the risk management of specific functions of the AMC/Mutual Fund.

The framework will be effective from January 01, 2022.

For details, refer to Risk Management Framework (RMF) for Mutual Funds.

 


*Tanvi Singh, Editorial Assistant has reported this brief.

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities Exchange Board of India (SEBI): G Mahalingam, Whole Time Member, considering the factual chain and evidences directed the Noticees to cease and desist from sponsoring and/ or carrying out activities of a mutual fund and as investment advisers, including the activity of representing through any media (physical or digital) schemes for collection of funds, directly or indirectly along with the liability to pay jointly or severally the due amount of Rs. 87,33,17,200 to the investors along with certain other restrictions.

In the pertinent matter it was alleged that the Shukul Wealth Advisory (SWA), a partnership firm, established by way of a Deed of Partnership, were soliciting investments from investors and offering them steady returns under their ‘Daily Get Unit Plan’ (“DGP Scheme” and to invest the same in shares by running a scheme akin to a Mutual Fund scheme, by offering daily NAVs (called Daily Net Value (“DNV”) in their scheme). Further, that they were acting as an advisory firm, guaranteeing profit to investors. Ironically, all the soliciting was done without any registration with the SEBI.

Here, few Directors took a defence while stating themselves to be ‘name’s sake’ directors, who were not involved in the alleged purported acts. Though, the Tribunal refuted the entire line of argument in its entirety later.

The Tribunal stated,

“From the contents of the deed of partnership, it seems that the powers vis-a-vis the operation of SWA were predominantly with Pradip Shukla. However, in view of the settled position in law that each partner in a firm is liable for the acts of the firm, jointly and severally, I conclude that Dhananjay Barad is also liable for the acts carried out by SWA”. 

Pradip Shukla and Dhananjay Barad were the partners, when the firm was established through a partnership deed.

The Tribunal while holding the Firm and the partners liable for the fraudulent acts held,

“…This activity was being carried out without any registration from SEBI. Thus, SWA/SWCL were sponsoring and/ or carrying out the activities of a mutual fund through the DGP scheme without necessary registration, and have thereby violated Section 12 (1B) of the SEBI Act. Similarly, SWA/SWCL were offering packages to investors, which involved giving advice on the trading on the stock exchanges and investing in the securities market. SWA/SWCL were offering these investment advisory services without being registered as an Investment Adviser with SEBI. Accordingly, SWA/SWCL have also violated Section 12(1) of SEBI Act read with Regulation 3(1) of the IA Regulations. Further, SWA and SWCL also fraudulently offered assured/ guaranteed returns to the investors on the basis of their published activities pertaining to the securities market. Accordingly, the Noticees have violated the provisions of Section 12A (a), (b), (c) of the SEBI Act and Regulations 3 (a), (b), (c), (d) and Regulations 4(1) and 4(2)(k) of PFUTP Regulations for making such misleading and deceptive representations”.

Further held,

“Since, the Noticees have collected large amounts from investors by fraudulently holding out as Investment Advisers as well as investment firms offering assured returns, they are legally liable to refund monies to the investors in a short time horizon. These liabilities cannot be predicated upon the fortunes of another business. I, therefore, do not find the proposal of repayment being linked to another business acceptable”.

However, the Noticee No. 6, Sandeepkumar Manubhai Patel, was absolved of the liability, since he joined as a designated partner in January 2021. But since he continues to be a partner of the firm, the Tribunal found it appropriate to pass directions against him to ensure compliance.[Shukul Wealth Advisory, In re, 2021 SCC OnLine SEBI 200, decided on 13-08-2021]


Agatha Shukla, Editorial Assistant has reported this brief.

Case BriefsSupreme Court

Supreme Court: In a sequel to its earlier order directing winding up of six mutual fund schemes of Franklin Templeton Mutual Fund, a Division Bench of S. Abdul Nazeer and Sanjiv Khanna, JJ. ruled that the trustees are required to seek consent by majority of the unit holders, when they by majority decide to wind up a  mutual fund scheme. Also, consent by majority of the unit holders should be sought post-publication of the notice and disclosure of the reasons for winding up.

In its earlier order dated 12-2-2021 [Franklin Templeton Trustee Services (P) Ltd. v. Amruta Garg, 2021 SCC OnLine SC 88], the Supreme Court has allowed the winding up of six mutual fund schemes by Franklin Templeton Mutual Funds, by holding that as per the poll results, the unit holders of the six schemes have given their consent by majority to wind up the six schemes. It had however not examined certain aspects then. The task before the Supreme Court now was two-fold. First, decide whether the decision of the trustees to wind up a scheme under Regulation 39(2)(a) of the SEBI (Mutual Funds) Scheme, 1996 must muster the consent of the majority of the unit holders as per Regulation 18(15)(c). And second, decide the challenge to the constitutional validity of certain provisions of the SEBI (Mutual Funds) Regulations, 1996 itself.

Below is a comprehensive analysis of the entire discussion by the Supreme Court:

(A) Interpretation of Regulations 39 to 42, their interplay and harmonious construction with Regulation 18(15)(c) of the Mutual Funds Regulations, 1996

Regulations 39 to 42 and 18(5)(c)

Regulation 39 relates to ‘winding up’ of a scheme of a mutual fund. In terms of sub-regulation (2), a scheme of a mutual fund can be wound up: (a) on the happening of any event, which, in the opinion of the trustees[1], requires the scheme to be wound up; (b) if 75% of its unit holders[2] pass a resolution for winding up of the scheme; or (c) SEBI directs winding up of the scheme in the interest of the unit holders. When a scheme “is to be wound up” under sub-regulation (2), the trustees are required by sub-regulation (3) of Regulation 39 to issue a public notice in newspapers as specified.

Regulation 40, which is in the nature of statutory injunction, states that on and from the date of publication of notice under Regulation 39(3), the trustees and the Asset Management Company (“AMC”)[3] shall cease to: (a) carry on any business in respect of the scheme to be wound up; (b) create or cancel units of the scheme; and (c) issue or redeem units of the scheme. Regulation 41 relates to the procedure and manner of winding up. Regulation 42 states that after receipt of the report under Regulation 41(3), if SEBI is satisfied that all measures relating to winding up have been complied with, the scheme would cease to exist. Regulation 42-A stipulates that the units of the mutual funds scheme shall be delisted from the recognised stock exchange in accordance with the guidelines as may be specified by SEBI.

Regulation 18(15)(c), which relates to rights and obligations of the trustees, in simple words requires the trustees to take consent of the unit holders, when they, by majority, decide to wind up or prematurely redeem the units.

Decision of the High Court

The judgment of the Karnataka High Court which was under challenge, interpreted Regulation 18(15)(c) and Regulation 39(2)(a) to hold that the decision of the trustees to wind up a scheme under clause (a) to Regulation 39(2) must muster the consent of the majority of the unit holders as per Regulation 18(15)(c).

The Challenge

Contesting the finding of the High Court, the SEBI, the trustees and the AMC argued that the unit holders do not come into the picture when the trustees and the SEBI, under clauses (a) and (c) respectively of Regulation 39(2), decide to wind up a scheme. Their decision is final and binding on the unit holders. Only when the unit holders want to wind up a scheme, in terms of clause (b), a resolution by 75% of the unit holders is mandated. Thus, they contended that the findings of the High Court to the contrary should be reversed.

Analysis and Decision

(i) Interpretation of the term ‘consent’ in Regulation 18(15)(c)

In its order dated 12-2-2021 (2021 SCC OnLine SC 88), the Supreme Court interpreted Regulation 18(15)(c) and the word ‘consent’ therein. It held that the underlying thrust behind Regulation 18(15)(c) is to inform the unit holders of the reason and cause for the winding up of the scheme and to give them an opportunity to accept and give their consent or reject the proposal. It is not to frustrate and make winding up an impossibility.

The Court in the said earlier order had concluded that Regulation 18(15)(c) need not have affirmative consent of majority of all or entire pool of unit holders. The words ‘all’ or ‘entire’ are not incorporated and found in that Regulation.  It was held:

“Thus, consent of the unit holders for the purpose of Regulation 18(15)(c) would mean simple majority of the unit holders present and voting.”

(ii) Trustees are required to seek consent of unit holders

Discussing Regulation 18(15)(c) and Regulations 39 to 42 at length, the Court concluded that Regulation 18(15)(c) mirrored by use of the word ‘shall’ is couched as a command. Regulation 39(2) under clause (a) vests the power of winding up of a scheme with the trustees, and with the unit holders under clause (b) and with the SEBI under clause (c), but under Regulation 18(15)(c), the trustees are required to seek consent of the unit holders, when they by majority decide to wind up a scheme.

The Court was of the opinion that the expression ‘when the majority of the trustees decide to wind up’ in Regulation 18(15)(c) manifestly refers to clause (a) to Regulation 39(2) as this is the only Regulation which entitles the trustees to wind up the scheme. Regulation 18(15)(c), when it refers to trustees’ decision to wind up, it implies the trustees’ opinion to wind up the scheme. It was held:

“Principle of harmonious construction should be applied which, in the context of the Regulations in question, would mean that the opinion of the trustees would stand, but the consent of the unit holders is a pre-requisite for winding up.”

The Court said that such interpretation in no way dilutes or renders clause (b) to Regulation 39(2) meaningless or redundant. That clause applies where the winding up process is initiated at the instance of the unit holders, i.e. upon 75% of unit holders of the scheme passing a resolution for winding up. It was observed:

“Clause (b) does not in any manner reflect that clause (c) to Regulation 18(15) should not be read as it ordains in simple words.”

The Court rejected the argument that the unit holders are lay persons and not well versed with the market conditions. It was noted that investments by the unit holders constitute the corpus of the scheme. To deny the unit holders a say, when Regulation 18(15)(c) requires their consent, debilitates their role and right to participate. It is an in-contestable position that the unit holders exercise informed choice and discretion when they invest or redeem the units. Regulations envision the unit holders not as domain experts, albeit as discerning investors who are perceptive and prudent. The Court observed:

“The unit holders, when in doubt, as prudent investors may be advised to abstain, but they are not placid onlookers, impuissant and helpless when the trustees decide to wind up the scheme in which they have invested. The stature and rights of the unit holders can co-exist with the expertise of the trustees and should not be diluted because the trustees owe a fiduciary duty to them.

Thus, the contention that the trustees being specialists and experts in the field, their decision should be treated as binding and fait accompli has to be rejected not only in view of the specific language of Regulation 18(15)(c), but to be in concinnity with the objective and purpose of the Regulations.”

A hypothetical submission that the unit holders may reject a valid and well-considered opinion of the trustees for winding up, and therefore Regulation 18(15)(c) is directory, was again rejected by the Court. It said that:

“Assumptions cannot be a ground to wrongly interpret Regulation 18(15)(c).”

Completing the interpretation of Regulation 18(15), the Court recorded that clause (a) applies and requires the trustees to obtain consent of the unit holders whenever required by SEBI in the interest of the unit holders. Clause (b) states that the trustees would obtain consent of the unit holders whenever required to do so on the requisition made by three-fourths of the unit holders of any scheme. Accordingly, clause (a) would apply whenever SEBI mandates and clause (b) applies whenever three-fourths of the unit holders of the scheme make a requisition.

(iii) At what stage consent of unit holders is required

Harmoniously interpreting Regulations 39 to 42, the Court opined that the consent of the unit holders, as envisaged under 18(15)(c), is not required before publication of the notices under Regulation 39(3). It was held:

Consent of the unit holders should be sought post-publication of the notice and disclosure of the reasons for winding up under Regulation 39(3).

 (B) Constitutional validity of the Mutual Funds Regulations

One of the appellants raised a challenge to the constitutional validity of the SEBI (Mutual Funds) Regulations, 1996.

The Challenge

Regulation 39(2)(a) was assailed as suffering from the vice of excessive delegation. It gives unbridled power to the trustees to wind up a scheme. It was submitted that Regulation 39(2)(a) suffers from manifest arbitrariness in the absence of any prescription regulating the exercise of the power by the trustees.

It was also submitted that Regulation 39(3) equally suffers from the vice of manifest arbitrariness. Though the trustees are required to give notice disclosing circumstances leading to winding up of the scheme to SEBI, this requirement is meaningless and superficial as SEBI cannot go into the question and circumstances to be satisfied as to existence of an event warranting the extreme action of winding up.

It was further contended that Regulation 41 does not prescribe any mechanism or manner in which the authorised person or the AMC can ascertain the liabilities which are due and payable under the scheme. Lastly, it was contended that Regulation 42 is also manifestly arbitrary as SEBI is to perform only ministerial functions, much less than the functions of a regulator.

Analysis and Decision

(i) Power of SEBI to pass directions in interest of unit holders

After referring to the provisions of the SEBI Act, 1992 and elucidating the powers of SEBI, the Supreme Court expressed its reservations on the High Court’s observation regarding powers of SEBI under 11-B (Power to issue directions and levy penalty). The Supreme Court was of the opinion that if there is a violation of the regulations, i.e. Regulation 39(2)(a), 39(3), 40, 41 or 42 by the trustees or the AMC, it is open to SEBI to proceed in accordance with law and in terms of 11-B of the SEBI Act. The Court said that:

If the trustees have acted for extraneous and irrelevant reasons and considerations, the action would be in violation of clause (a) to Regulation 39(2) and therefore amenable to action under the SEBI Act, including directions under Section 11-B.

 (ii) Power of trustees not unbridled

The Court refused to accept that the trustees under Regulation 39(2)(a) have been given absolute and unbridled power to wind up a scheme. The Court noted that the language of clause (a) states that the trustees must form an opinion on the happening of any event which requires the scheme to be wound up. Further, as per Regulation 39(3), the trustees are bound to give notice disclosing the circumstances leading to the winding up of the scheme. These notices along with the reasons have to be communicated to SEBI and made known to the unit holders by publication in newspapers. The trustees are, therefore, required to come to a conclusion that due to specific circumstances articulated in writing, the scheme is required to be wound up. The Court concluded that:

This is not a case of excessive delegation wherein the legislative function has been abdicated and passed on to the trustees who can act as per their whims and fancies. … There are … sufficient guidance and safeguards in the Regulations itself on the power of the trustees to decide on winding up of the fund.

(iii) Unit holders not creditors

Culling out the distinction between unit holders and creditors drawn from the Mutual Fund Regulations, the Court noted that unit holders are investors who take the risk and, therefore, entitled to profits and gains. Having taken the calculated risk, they must also bear the losses, if any. Unit holders are not entitled to fixed return or even protection of the principal amount. Creditors, on the other hand, are entitled to fixed return as per mutually agreed contracts. Their rate of return is in the nature of interest and not profit or loss. Creditors are not risk takers as is the case with the unit holders. It was the Court’s opinion that:

In this sense, unit holders are somewhat at par with the shareholders of a company.

It was held that the argument that the unit holders should be treated pari passu with the creditors is farfetched. Similarly, the contention that unit holders are identically placed as home buyers under the Insolvency and Bankruptcy Code, was held to be equally frail and a weak argument.

(iv) Manifest arbitrariness and Scope of judicial review

The Court observed that the Mutual Fund Regulations being in the nature of economic regulations, the Court would exercise restrain while exercising power of judicial review unless clear grounds justify interference.

It was noted that the principle of manifest arbitrariness requires something to be done in exercise in the form of delegated legislation which is capricious, irrational or without adequate determining principle. Delegated legislations that are forbiddingly excessive or disproportionate can also be manifestly arbitrary. However, held the Court:

In view of the interpretation placed by us and the discussion above, the Regulations under challenge do not suffer from the vice of manifest arbitrariness.

(C) Grey Area ─ Regulation 53

Referring to issue related to the interpretation of Regulation 53 (Despatch of warrants and proceeds) of the Mutual Fund Regulations, the Court said that it is a grey area which the Court would not like to decide at this stage, till it has full facts and decision in the pending adjudication proceedings. Clause (b) to Regulation 53 requires that the AMC shall despatch the redemption or repurchase proceeds within 10 working days from the date of redemption or repurchase.

Issue in question would arise whether the AMC or the trustees are bound to honour and pay the redemption or repurchase proceeds for requests received before the date of publication of notice in terms of Regulation 39(3).

The High Court has held the expression ‘business’ in clause (a) of Regulation 40 refers to business activity and, therefore, would include payment of redemption proceeds to the unit holders, which would include the request for redemption received prior to the date of publication under Regulation 39(3). The case set up by some parties was at variance with the dictum pronounced by the High Court.

The Court said that before it can answer this aspect, it would like to have greater clarity on the factual matrix, which would be possible once the pending proceedings are concluded.

(D) Closing and Clarification

The Court refrained from referring and commenting on facts and left several issues open at this stage. Nevertheless, it clarified that the observations in the instant Order and the earlier Order dated 12-2-2021 (2021 SCC OnLine SC 88) should not be read as binding factual findings or conclusions on any disputed facts. Of course, the legal interpretation of Regulation 18(15)(c) and Regulations 39 to 42 are conclusive and binding. It was also clarified that any finding given by the High Court on facts or even on legal issues not subject matter of the instant Order or the earlier Order dated 12-2-2021 (2021 SCC OnLine SC 88) would not be treated as conclusive and binding as the findings are sub-judice and pending before the Supreme Court on interpretation as well as merits. [Franklin Templeton Trustee Services (P) Ltd. v. Amruta Garg, 2021 SCC OnLine SC 464,   decided on 14-7-2021]


[1] ‘Trustees’ has been defined in Regulation 2(y) to mean the board of trustees or the trustee company who hold the property of the mutual fund in trust for the benefit of the unit holders.

[2] ‘Unit holder’ has been defined in Regulation 2(z)(i) to mean a person holding a unit in the scheme of a mutual fund. It may be understood as akin to shareholder in a company.

[3] The AMC is a company, approved by SEBI under Regulation 21(2), which undertakes business activities in the nature of management and advisory services provided to the pooled assets.


Tejaswi Pandit, Senior Editorial Assistant has reported this brief.

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities Exchange Board of India (SEBI): G. Mahalingam (Whole Time Member) held that while directors are not prohibited from trading in units of the schemes managed by the Asset Management Company, they should ensure that such trading conforms to ethical and moral standards and legal norms expected to be complied by a person entrusted with quasi-fiduciary responsibilities.

Unfair trade Practice or Fraudulent?

Whether the redemption of units in some schemes of a mutual fund by a director of the Asset Management Company of the Mutual Fund and his immediate family, at a time when the said schemes were facing significant redemption pressure (schemes were later wound up) and the director was allegedly in possession of material non-public information relating to the same, would fall within the scope of ‘fraudulent’ or ‘unfair trade practice’ as defined under SEBI(Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003.

Background

Franklin Templeton Mutual Fund (FT-MF) is s SEBI registered mutual fund. Franklin Templeton Asset Management Company Ltd. (“FT–AMC”) is the Asset Management Company and Franklin Templeton Trustee Services Pvt. Ltd. (“Trustees”) acts as the Trustee of FT–MF.

Vide notice dated 23-04-2020, Trustees informed the unit holders of certain schemes of FT-MF that it was winding up the schemes in conformity with the provisions of Regulation 39(2)(a) of the SEBI (Mutual Fund) Regulations, 1996.

SEBI ordered Forensic Audit/Inspection in terms of Regulation 66 of the Mutual Fund Regulations and found that Noticee’s 1, 2 and 3 had redeemed units in the Impugned Debt Schemes during the period. In view of the same, SEBI issued a Show Cause Notice.

Analysis, Law and Decision

Insider trading Regulations

 Insider Trading Regulations, when they were notified in 1992, primarily sought to prohibit ‘insiders’ connected to the issuer of the security from trading on the basis of superior information obtained during the course of their employment or association with the issuer; whereas the PFUTP Regulations covered other forms of trading done by exploiting information asymmetries by any person, even though he may not be an ‘insider’ or connected to an ‘insider’.

Board noted that Courts have recognized that certain types of trades executed on the basis of superior information would fall within the definition of ‘fraud’ under PFUTP Regulations 2003.

Laws dealing with information asymmetries (PIT Regulations and PFUTP Regulations) essentially seek to address the issues arising out of disparities in access to material information, that is otherwise not legally available to general investors, and to prevent those persons having access to such superior information from exploiting the informational advantage, in order to protect the integrity of the market and maintain investor confidence.

Bench noted that Noticee 1 could reasonably be expected to be privy to material non-public information and it was held that redemption of units was done while being in possession of material non-public information.

Board expressed that the timing of the trades is also crucial circumstantial, evidence in the present matter.

Trades by Noticee  2, who is the wife of Noticee 1, was undertaken on March 23, 2020, and March 24, 2020- i.e. the trades were done in close proximity to the dates when Noticee 1 started redeeming his investments as well as that of Noticee 3. It is further seen that on March 24, 2020, both Noticee 1, on behalf of Noticee 3, and Noticee 2 were redeeming units.

It needs to be borne in mind that Noticee  2 was also experienced finance professional in her own right. Given her experience, she was expected to be aware of the sensitivity of the transactions undertaken by Noticee 1, being a key functionary of the AMC with access to material non-public information and its implications.

Given the facts and circumstances under which Noticee 2 had redeemed the units, it leads the Bench to conclude that such redemptions were done on the basis of material non-public information Noticee  1 had in respect of the Impugned Debt Schemes.

Whether the redemptions can be considered as fraudulent trades?

SEBI held that it found it difficult to hold that redemption of units by the Noticees satisfies the parameters of ‘fraud’ as defined under regulation 2(1)(c) read with regulation 3(a) of the PFUTP Regulations 2003, also the conduct of the Noticees did not satisfy the requirements for sustaining the charge under regulation 4(2)(q) of PFUTP Regulations 2003. 

Whether the redemptions can be considered as an Unfair trade practice? 

‘Unfair trade practice’ is not defined under the PFUTP Regulations 2003.

Supreme Court in the decision of SEBI v. Kanaiyalal Baldevbhai Patel, (2017) 15 SCC 1 has observed that the scope of the term ‘unfair trade practise’ is wider than that of the term ‘fraud’ and activities which do not satisfy the parameters of ‘fraud’ could independently have proceeded under Regulation 4(1) if it can be considered as an ‘unfair trade practice’.

Bench expressed that the primary purpose for having laws prohibiting trading on the basis of asymmetric access to information is to foster confidence in the securities markets. Such trading by directors of a company is also a breach of the fiduciary duty as the insider effectively converted corporate information for private profits to the detriment of the other investors.

SEBI expressed that Regulations 18(25)(B)(vi) and 18(27)(vi), respectively, required the Trustees and the independent directors of the AMC/Trustee to put in place a ‘code of ethics’ which were designed to prevent fraudulent, deceptive or manipulative practices by insiders in connection with personal securities transactions. It was further noted that the AMC had formulated a Policy on Conflict of Interest.

Policy, which listed the obligations of the relevant persons, inter alia, requires employees and directors to “not [participate] in decision making in case person [is] having actual perceived or potential conflicts of interest in the transaction” and also requires them to “pro-actively report any actual perceived or potential conflicts of interest.”

Board added that Noticee 1 being a person having wide experience in securities market, it was expected that his conduct would be line with the quasi-fiduciary responsibility that a director of an AMC owed to the unitholders of the mutual fund.

On making an investment in the impugned debt schemes, Noticee 1 should have upfront declared his investments to AMC and should have sought to recuse himself from any decision related to the Impugned Debt Schemes and should have also refrained himself from accessing any non-public information relating to the schemes, material or non-material.

Therefore, the conduct of Noticee 1 in redeeming units in the Impugned Debt Schemes while in possession of material non-public information was not in line with the high ethical standards expected of a person vested with such quasi-fiduciary responsibilities and the same was also not in compliance with the ‘code of ethics’ and the ‘Conflict of Interest Policy’ of the AMC which clearly spelt out restrictions on dealing in securities while in possession of material non-public information.

Redemption of units by a director of the asset management company of a mutual fund while being privy to material non-public information cannot be considered as fair conduct.

Conclusion

Redemption of units by the Noticee 1 on his own behalf and on behalf of Noticee 3 while being privy to material non-public information was an ‘unfair trade practice’ and in contravention of Regulation 4(1) of PFUTP 2003.

Facts and circumstances and timing of the redemptions made by Noticee 2 lead to a distinct likelihood that the said redemptions were also based on material non-public information passed on by Noticee 1.

Since during the course of proceedings, Noticee 3 expired, proceedings against were abated.

However, since Noticee 1 had done the transactions on behalf of Noticee 3, the directions of disgorgement will be applicable to the corpus standing in the name of Noticee 3 also.

Directions

  1. Noticee 1 and Noticee 2 shall be restrained from accessing the securities market and further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner, whatsoever, for a period of one (1) year from the date of this order. During the period of restraint, Noticee 1 and Noticee 2 shall not liquidate their existing holding of securities including the units of mutual funds.
  2. Noticee 1 and Noticee 2 shall jointly and severally transfer the amounts mentioned within a period of forty-five (45) days, from the date of receipt of this order. In case of failure to do so, simple interest at the rate of 12% per annum shall be applicable from the expiry of the said 45 days till the date of actual transfer;
  3. Noticee 1 shall be liable to pay a monetary penalty of Rs 4 crores for the redemptions undertaken on his own behalf and on behalf of Noticee 3, and Noticee 2 shall be liable to pay a monetary penalty of Rs 3 crores for the redemptions from her account, under Section 15HA of the SEBI Act, 1992;
  4. Noticee 1 and Noticee 2 shall pay their respective penalties within a period of forty-five (45) days, from the date of receipt of this order. In case of failure to do so, simple interest at the rate of 12% per annum shall be applicable from the expiry of the said 45 days till the date of actual payment.

[Franklin Templeton Mutual Fund, In Re.,  2021 SCC OnLine SEBI 131, decided on 7-06-2021]

Case BriefsSupreme Court

Supreme Court: In the case relating to winding up of six schemes of the Franklin Templeton Mutual Fund, the bench of SA Nazeer and Sanjiv Khanna*, JJ has, rejecting the objections to poll results, held that the unitholders of the six schemes have given their consent by majority to windup the six schemes.

It held that for the purpose of clause (c) to Regulation 18(15) of the Mutual Fund Regulations, consent of the unitholders would mean consent by majority of the unitholders who have participated in the poll, and not consent of majority of all the unitholders of the scheme.


Key takeaways from the judgment


  • Clause (c) to sub-regulation (15) of Regulation 18 per se does not prescribe any quorum or specify the criterion for computing majority or ratio of unitholders required for valid consent for winding up. Clause (b) of Regulation 39(2), on the other hand, specifies that seventy-five per cent of the unitholders of a scheme can pass a resolution that the scheme be wound up.
  • When there is choice between two interpretations, we would avoid a ‘construction’ which would reduce the legislation to futility, and should rather accept the ‘construction’ based on the view that draftsmen would legislate only for the purpose of bringing about an effective result. We must strive as far as possible to give meaningful life to enactment or rule and avoid cadaveric consequences. We would neither hesitate in stating the obvious, that modern regulatory enactments bear heavily on commercial matters and, therefore, must be precisely and clearly legislated as to avoid inconvenience, friction and confusion, which may, in addition, have adverse economic consequences.
  • Reading prescription of a quorum as majority of the unitholders or ‘consent’ as implying ‘consent by the majority of all unitholders’ in Regulation 18(15)(c) of the Mutual Fund Regulations will not only lead to an absurdity but also an impossibility given the fact that mutual funds have thousands or lakhs of unitholders. Many unitholders due to lack of expertise, commercial understanding, relatively small holding etc. may not like to participate. Consent of majority of all unitholders of the scheme with further prescription that ‘fifty percent of all unitholders’ shall constitute a quorum is clearly a practical impossibility and therefore would be a futile and foreclosed exercise.
  • In the case of unitholders, the number is fluctuating and ever changing and, therefore, indefinite. Numbers of unitholders can increase, decrease and change with purchase or redemption. Therefore, in the context of clause (c) of Regulation 18(15), we would not, in the absence of any express stipulation, prescribe a minimum quorum and read the requirement of ‘consent by the majority of the unitholders’ as consent by majority of all the unitholders. On the other hand, it would mean majority of unitholders who exercise their right and vote in support or to reject the proposal to wind up the mutual fund scheme.
  • The unitholders who did not exercise their choice/option cannot be counted as either negative or positive votes as either denying or giving consent to the proposal for winding up.
  • Mutual funds managed by professional fund managers with advantages of pooling of funds and operational efficiency are the preferred mode of investment for ordinary and common persons. It would be wrong to expect that many amongst these unitholders would have definitive opinion required and necessary voting in a poll on winding up of a mutual fund scheme. Such unitholders, for varied reasons, like lack of understanding and expertise, small holding etc., would prefer to abstain, leaving it to others to decide. Such abstention or refusal to express opinion cannot be construed as either accepting or rejecting the proposals. Keeping in view the object and purpose of the Regulation with the language used therein, a ‘construction’ which would lead to commercial chaos and deadlock cannot be accepted. Therefore, silence on the part of absentee unitholders can neither be taken as an acceptance nor rejection of the proposal.
  • The underlying thrust behind Regulation 18(15)(c) is to inform the unitholders of the reason and cause for the winding up of the scheme and to give them an opportunity to accept and give their consent or reject the proposal. It is not to frustrate and make winding up an impossibility.
  • The words ‘all’ or ‘entire’ are not incorporated and found in the said Regulation. Thus, consent of the unitholders for the purpose of clause (c) to sub-regulation (15) of Regulation 18 would mean simple majority of the unitholders present and voting.
  • Regulation 18(15)(c) mandates and requires consent of the unitholders for winding up, but does not prescribe any mode or manner for taking consent. Therefore, by implication, the Regulation gives option of holding a physical meeting, postal poll or e-poll.
  • The objectors to the e-voting results are sixteen in number and, as per details, they hold 20,02,114.041 units in the six schemes of value of Rs. 8,69,28,507.62. In percentage terms, the share of objectors in the total units is merely 0.024% and their share in the total AUM is 0.033%.
  • The unitholders were given a chance and option to vote and about 38% of the unitholders in numerical terms and 54% in value terms had exercised their right to give or reject consent to the proposal for winding up. In the absence or need for minimum quorum, which is not provided or stipulated in the Regulations nor mandated under law, the e-voting result cannot be rejected on the ground that 38% of the unitholders in numerical terms and 54% in value terms, even if we do not account for the rejected votes, had participated. This cannot be a ground to reject and ignore the affirmative result consenting to the proposal for winding up of the six mutual fund schemes.
  • It is but obvious that the trustees had already taken a decision to wind up the six schemes. Regulation 39(3) requires the trustees to disclose the circumstances leading to winding up of the schemes. The trustees accordingly, in the notice for e-voting and meeting of the unitholders, had furnished their explanation and reason for winding up of the six schemes.
  • The unitholders were aware and conscious of the litigation against the winding up, including the procedure. At the same time, many in the general public may not be fully aware of the commercial considerations and niceties relating to mutual funds and debt securities market.
  • The notice had also informed the investors that there would be suspension of subscription and redemption post the cut-off time from 23rd April, 2020. All Systematic Investment Plans, Systematic Transfer Plans and Systematic Withdrawal Plans into and from the abovementioned funds stood cancelled post the cut off time from 23rd April, 2020.
  • The notice had also furnished information and clarification regarding distribution of monies from the Fund Assets, inter alia stating that following the decision to wind up the six schemes, the trustees would proceed for orderly realization and liquidation of the underlying assets with the objective of preserving value for unitholders. Their endeavour would be to liquidate the portfolio holdings at the earliest opportunity, to enable an equitable exit for all investors in the ‘unprecedented circumstances’. Hence, the notice for e-voting and the contents would not justify annulling the consent given by the unitholders for the winding up of the six schemes.

[Franklin Templeton Trustee Services Private Limited v. Amruta Garg, 2021 SCC OnLine SC 88, decided on 12.02.2021]

Case BriefsHigh Courts

Bombay High Court: A Division Bench of R.D. Dhanuka and V.G. Bisht, JJ., held that the RBI Circulars dated 27th march, 2020 and 23rd may, 2020 with regard to moratorium on repayment of term loans will not apply to Mutual Funds and Debentures.

Petitioner had made a private placement of 650 unlisted redeemable non-convertible debentures of Rs 10,00,000 in the month of March, 2015 with 10.40% XIRR payable at the time of maturity and having redemption date of 8th July, 2020.

Petitioner had made various payments to respondent 1A under the stated agreement. Since March, 2020 in view of the pandemic petitioner committed default in making payment of certain installments to respondent 1A.

Respondent 1A raised demand for making payment of the amount defaulted under the agreement.

On not being able to make the above payment, petitioner filed the present petition impugning the letter by respondent 1 dated 4th June, 2020 along with extension of redemption dated to a date 3 months after the Government allows schools to reopen, subject to the balance/outstanding debenture amount continuing to bear/accrue interest at 10.40% per annum till such extended date.

Decision

Bench observed that the entire petition is based on the reliance placed on the moratoriums dated 27th March, 2020 and 23rd May, 2020 issued by Reserve bank of India.

What does the said circular indicates?

“..it applies to all Commercial Banks, all Primary (Urban) Co-operative Banks, States Co-operative Banks, District Central Co- operative Banks, All India Financial Institutions, All Non-Banking Financial Companies and also deals with terms loans and working capital facilities provided by those entities.”

Thus, in view of the above, it is very clear that the said Circulars will not apply to mutual funds and debentures.

Zee Entertainment Enterprises Limited is a profit making company and is liable to face the consequence of default committed by the petitioner. It is for the petitioner to make an arrangement for the balance amount on the due date which the petitioner has failed.

Hence, present petition is devoid of merits and accordingly disposed of. [Zee Learn Ltd. v. UTI Asset Management Co. Ltd., 2020 SCC OnLine Bom 806 , decided on 13-07-2020]

Business NewsNews

In order to bring about uniform processes across Asset Management Companies (AMCs) in respect of investments made in the name of a minor through a guardian and to enable the efficient transmission of units the following has been decided:

1. Process for Investments made in the name of a Minor through a Guardian

a. Payment for investment by means of Cheque, Demand Draft or any other mode shall be accepted from the bank account of the minor or from a joint account of the minor with the guardian only. For existing folios, the AMCs shall insist upon a Change of Pay-out Bank mandate before redemption is processed.

b. Upon the minor attaining the status of major, the minor in whose name the investment was made, shall be required to provide all the KYC details, updated bank account details including cancelled original cheque leaf of the new account. No further transactions shall be allowed till the status of the minor is changed to major.

c. AMCs shall build a system control at the account set up stage of Systematic Investment Plan (SIP), Systematic Transfer Plan (STP) and Systematic Withdrawal Plan (SWP) on the basis of which, the standing instruction is suspended when the minor attains majority, till the status is changed to major.

2. Process for transmission of Units

a. In order to improve the processing turnaround time for transmission requests, AMCs shall implement image-based processing wherever the claimant is a nominee or a joint holder in the investor folio.

b. AMCs shall have a dedicated, Central Help Desk and a webpage carrying relevant information and instructions in order to provide assistance on the transmission process.

c. AMCs shall adopt a common Transmission Request Form (common fields) and NOC form. All such forms and formats shall be made available on the website of the AMCs, RTAs and AMFI.

d. AMCs shall implement a common set of document requirements for transmission of units to the claimant who are nominees or joint holders in the investor account.

e. AMCs shall implement a uniform process for the treatment of unclaimed funds to be transferred to the claimant including the unclaimed dividends.

f. AMCs shall not accept requests for redemption from a claimant pending completion of the transmission of units in his / her favour.

g. The Stamp duty payable by the claimant with respect to the indemnity bond and affidavit, shall be in accordance with the stamp duty prescribed by law.

AMCs and AMFI shall promote the importance of nomination as a part of its investor education and awareness programmes.
  1. To ensure uniformity across the industry, AMFI is advised to prescribe the forms and formats referred in point 2 (c), common set of documents referred in point 2 (d) and uniform process for treatment of unclaimed funds referred in point 2 (e), within 30 days from date of issuance of this circular and shall mandatorily be followed by all Mutual Funds/AMCs.
  2. This circular is issued in exercise of the powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, read with Regulation 77 of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.


Securities Exchange Board of India

[Circular dt.24-12-2019]

Foreign LegislationLegislation Updates

In exercise of powers conferred by Section 30 r/w clause (c) of sub-section (2) of Section 11 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board has amended the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 by the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2018, w.e.f. 13-03-2018.

1. In the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 –

A) after Regulation 7A and before Regulation 8, the following regulation shall be inserted, namely, –

Norms for Shareholding and Governance in Mutual Funds

7B. (1) No sponsor of a mutual fund, its associate or group company including the asset management company of the fund, through the schemes of the mutual fund or otherwise, individually or collectively, directly or indirectly, have –

(a) 10% or more of the share-holding or voting rights in the asset management company or the trustee company of any other mutual fund; or

(b) representation on the board of the asset management company or the trustee company of any other mutual fund.

(2) Any shareholder holding 10% or more of the share-holding or voting rights in the asset management company or the trustee company of a mutual fund, shall not have, directly or indirectly, –

(a) 10% or more of the share-holding or voting rights in the asset management company or the trustee company of any other mutual fund; or

(b) representation on the board of the asset management company or the trustee company of any other mutual fund.

(3) Any person not in conformity with the sub-regulations (1) and (2) of this regulation, as on the date of the coming into force of this regulation shall comply with sub-regulations (1) and (2) within a period of one year from the date of the coming into force of this regulation.”

B) in the Seventh Schedule, to clause 2, the following proviso shall be inserted, namely,-

“Provided, investment in the asset management company or the trustee company of a mutual fund shall be governed by clause (a), of sub-regulation (1), of regulation 7B.”

[Notification No. SEBI/LAD-NRO/GN/2018/02]

Footnote:

1. The Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, the Principal Regulations, were published in the Gazette of India on December 9, 1996 vide S.O. No. 856 (E).

2. The Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 were subsequently amended–

(1) on 15-04-1997, vide S.O. No.327 (E).

(2) on 12-01-1998, vide S.O. No.32 (E).

(3) on 08-12-1999, vide S.O. No.1223 (E).

(4) on 14-03-2000, vide S.O. No.235 (E).

(5) on 28-03-2000, vide S.O. No.278 (E).

(6) on 22-05-2000, vide S.O. No.484 (E).

(7) on 23-01-2001, vide S.O. No.69 (E).

(8) on 29-05-2001, vide S.O. No.476 (E).

(9) on 23-07-2001, vide S.O. No.698 (E).

(10) on 20-02-2002, vide S.O. No.219 (E).

(11) on 11-06-2002, vide S.O. No.625 (E).

(12) on 30-07-2002, vide S.O. No.809 (E).

(13) on 09-09-2002, vide S.O. No.956 (E).

(14) on 27-09-2002, vide S.O. No.1045 (E).

(15) on 29-05-2003, vide S.O. No. 632 (E).

(16) on 12-01-2004, vide F.No. SEBI/LAD/DOP/4/2004.

(17) on 10-03-2004, vide S.O. No. 398 (E).

(18) on 12-01-2006, vide S.O. No. 38 (E).

(19) on 22-05-2006, vide S.O. No. 783 (E).

(20) on 03-08-2006, vide S.O. No. 1254 (E).

(21) on 27-12-2006, vide F. No. SEBI/LAD/DOP/82534/2006.

(22) on 27-12-2006, vide F. No. SEBI/LAD/DOP/83065/2006.

(23) on 28-05-2007, vide F. No. 11/LC/GN/2007/2518.

(24) on 31-10-2007, vide F. No. 11/LC/GN/2007/4646.

(25) on 31-03-2008, vide F. No. 11/LC/GN/2008/21669.

(26) on 16-04-2008, vide F. No. LADNRO/ GN/2008/03/123042.

(27) on 22-05-2008, vide No. LADNRO/GN/2008/09/126202.

(28) on 29-09-2008, vide No. LADNRO/ GN/2008/24/139426.

(29) on 08-04-2009, vide No. LAD-NRO/GN/2009-10/01/159601.

(30) on 05-06-2009, vide No. LAD- NRO/GN/2009-10/07/165404.

(31) on 29-07-2010, vide No. LAD-NRO/GN/2010-11/13/13945.

(32) on 30-08-2011, vide No. LAD-NRO/GN/2011-12/27668.

(33) on 21-02-2012, vide No. LAD-NRO/GN/2011-12/38/4290.

(34) on 26-09-2012, vide No. LAD-NRO/GN/2012-13/17/21502.

(35) on 16-04-2013, vide No. LAD-NRO/GN/2013-14/03/5652.

(36) on 19-06-2013, vide No. LAD-NRO/GN/2013-14/12/6108.

(37) on 19-08-2013, vide No. LAD-NRO/GN/2013-14/18/6384.

(38) on 06-05-2014, vide No. LAD-NRO/GN/2014-15/01/1039.

(39) on 23-05-2014, vide No. LAD-NRO/GN/2014-15/03/1089.

(40) on 30-12-2014, vide No. LAD-NRO/GN/2014-15/19/1973.

(41) on 15-05-2015, No. NROOIAE/GN/2015-16/005.

(42) on 12-02-2016, vide No. SEBI/LAD-NRO/GN/2015-16/034.

(43) on 15-02-2017, vide No. SEBI/LAD/NRO/GN/2016-17/031.

Legislation UpdatesNotifications

Circular on Mutual Funds

[SEBI/HO/IMD/DF2/CIR/P/2017/35  dated April 28, 2017]

1.Please  refer  to SEBI  Circular  No. SEBI/HO/IMD/DF2/CIR/P/2016/42 dated 18 March 2016.

2.In partial modification of the above mentioned circular, para C of the circular pertaining to disclosure of executive remuneration shall read as under:

“With the  underlying objective to promote transparency in remuneration policies so that executive remuneration is aligned with the interest of investors, MFs/AMCs shall make the  following disclosures pertaining to a financial year on the MF/AMC website under a separate head–’Remuneration‘:

1. Name, designation and remuneration of Chief Executive Officer (CEO), Chief  Investment  Officer  (CIO) and Chief Operations Officer (COO) or their  corresponding equivalent by whatever name called.

2. Name, designation and remuneration received by top ten employees in terms of remuneration drawn for that financial year.

3. Name,  designation  and  remuneration of  every  employee of  MF/AMC whose :

a. Annual remuneration was equal to or above one crore and two lakh rupees for that financial year.

b. Monthly remuneration in the aggregate was not less than eight lakh and fifty thousand rupees per month, if the employee is employed for a part of that financial year.

4. The  ratio  of  CEO’s  remuneration  to  median  remuneration  of  MF/AMC employees.

5. MF’s total AAUM, debt AAUM and equity AAUM and rate of growth over last three years. For  this  purpose,  remuneration  shall  mean  remuneration  as  defined  in clause  (78)  of section  2 of the Companies Act, 2013.

The AMCs/MFs shall disclose this information within one month  from  the  end  of  the  respective financial year (effective from FY 2016-17).”

3. This   circular   is   issued   in   exercise   of   the   powers   conferred   under Section 11 (1) of the Securities and Exchange Board of India Act 1992, read with the provision of Regulation 77 of SEBI (Mutual Funds) Regulations, 1996 to  protect  the  interests  of  investors  in  securities  and  to  promote  the development of, and to regulate the securities market.

Securities and Exchange Board of India

Hot Off The PressNews

The Securities and Exchange Board of India (SEBI) is mandated to protect the interests of investors in securities, and to promote the development of and to regulate the securities market. In pursuance of the same, SEBI has framed Regulations for the securities market, inter alia, to ensure that the interest of the investors is protected by way of disclosures, transparency and fair treatment to investors.

In exercise of the powers conferred by Section 30, read with clause (c) of sub-section (2) of section 11 of the SEBI Act, 1992, SEBI has framed the SEBI (Mutual Funds) Regulations, 1996 and Circulars issued thereunder. In terms of these regulations, inter-alia, the following requirements have been laid down for mutual funds (MFs):

i. Segregation of accounts – Trustees of Mutual Funds and asset management companies (AMCs) are required to ensure scheme-wise segregation of bank accounts and securities accounts. An AMC needs to separately maintain proper and separate books of account, records and documents for each scheme so as to explain its transactions and to disclose, at any point of time, the financial position of each scheme and in particular, give a true and fair view of the state of affairs of the fund.

ii. Appointment of Custodian – The Mutual Fund is mandated to appoint a Custodian to keep custody of securities and other assets held by the Fund.

iii. Disclosures in Offer Document – The offer document is required to contain disclosures with respect to asset allocation, investment strategies, associated risks etc. to enable investors to make informed investment decisions.

iv. Due Diligence – The Board of the AMC is required to have in place a mechanism to verify that due diligence is being exercised while making investment decisions, particularly in cases of investment in unlisted and privately placed securities, unrated debt securities, Non-Performing Assets (NPAs), transactions in which associates are involved and instances in which the performance of the scheme/ schemes is poor. Further, AMCs are required to report compliance with these requirements in their periodical reports to the Trustees and the Trustees shall report the same to SEBI in the Half Yearly Trustee Reports. Trustees also check compliance with these guidelines through independent auditors or internal and/or statutory auditors or other systems developed by them.

v. Portfolio Disclosures – SEBI has mandated Mutual Funds/AMCs to disclose the portfolio of all schemes on a monthly basis on their website as well as publish the same in newspapers on a half yearly basis.

In addition, in order to curb irregularities in Mutual Funds, periodic inspections of Mutual Funds are undertaken by SEBI-appointed auditors. Besides, theme-based inspections are also undertaken to examine specific issues in the operations of Mutual Funds. Pursuant to these inspections, in case of any non-compliance with the Regulations, SEBI takes action as deemed fit and appropriate.

The work of collecting funds under mutual funds has not been entrusted to public sector banks. In terms of the SEBI (Mutual Funds) Regulations, 1996, any entity, including public sector banks (PSBs), private companies, etc. which satisfies the eligibility criteria can obtain registration from SEBI and set up a Mutual Fund. Accordingly, public sector banks fulfilling the criteria so prescribed by SEBI, may apply to SEBI for registration and thereby undertake such activities. Currently, the following seven public sector banks are sponsors of Mutual Funds:

Sl. No Name of the Mutual Funds Name of PSB who is sponsor to MF
1 Baroda Pioneer Mutual Fund Bank of Baroda
2 BOI Axa Mutual Fund Bank of India
3 Canara Robeco Mutual Fund Canara Bank
4 IDBI Mutual Fund IDBI Bank
5 Principal PNB Mutual Fund Punjab National Bank
6 SBI Mutual Fund State Bank of India
7 Union Mutual Fund Union Bank

Source: SEBI

Mutual Funds are mandated to provide regular plans (investments routed through Mutual Fund distributors) and direct plans (investments directly with Mutual Funds) for all their schemes. For selling mutual fund schemes and garnering funds, Mutual Funds can empanel distributors. Currently, Mutual Fund distributors are required to obtain an Association of Mutual Funds of India (AMFI) Registration Number (ARN) before selling any Mutual Fund product. Currently, the following twenty six public sector banks hold ARN and are empanelled as distributors:

Sl. No. Bank Name
1 IDBI Bank Ltd
2 State Bank of Hyderabad
3 State Bank of India
4 Vijaya Bank
5 State Bank of Travancore
6 Indian Bank
7 State Bank of Bikaner & Jaipur
8 Allahabad Bank
9 State Bank of Patiala
10 Corporation Bank
11 UCO Bank
12 Andhra Bank
13 Indian Overseas Bank
14 Punjab & Sind Bank
15 Dena Bank
16 United Bank of India
17 Oriental Bank of Commerce
18 Bank Of Baroda
19 Syndicate Bank
20 Central Bank of India
21 Bank of Maharashtra
22 Union Bank of India
23 Bank of India
24 Punjab National Bank
25 State Bank of Mysore
26 Canara Bank

Source: SEBI

Ministry of Finance