The Supreme Court on Monday affirmed the findings of the Securities and Exchange Board of India (Sebi) against Kotak Mahindra Asset Management Company (Kotak AMC), its Managing Director Nilesh Shah and other senior officials in the Essel Group fixed maturity plan (FMP) matter, holding them liable for regulatory lapses in the management of the schemes.
A Bench of Justices Dipankar Datta and Satish Chandra Sharma dismissed appeals filed by Kotak AMC, Kotak Trustee Company and six senior executives, upholding Sebi’s conclusion that the fund house had breached its regulatory obligations by extending the tenure of debt securities beyond the maturity of the schemes without complying with the prescribed framework, failing to exercise adequate due diligence, and delaying mandatory disclosures to investors and the market regulator.
The top court also directed Kotak AMC to pay litigation costs of ₹30 lakh and Kotak Trustee ₹20 lakh, while leaving undisturbed the monetary penalties imposed by Sebi.
“The 1996 Regulations make no distinction between a breach resulting in profit and a violation resulting in loss. Neither do we. Market integrity being the paramount consideration, profit or loss to investors is immaterial to determine whether a regulatory infraction has occurred,” the Bench observed.
Concluding the judgment with a broader message for the mutual fund industry, the court said: “Mandate first, gains later; Sebi compliance, never falter.”
The dispute relates to investments worth ₹266 crore made by six closed-ended Kotak Mutual Fund FMPs in zero-coupon non-convertible debentures issued by Essel Group companies Konti Infrapower & Multiventures and Edison Utility Works. The investments were secured through pledged shares of Zee Entertainment Enterprises.
Following a sharp decline in the value of the pledged shares in 2019, Kotak AMC opted to restructure the debt exposure instead of enforcing the pledged securities. That decision resulted in part of the investments being redeemed after the schemes had reached their scheduled maturity.
Sebi found that this amounted to an unauthorised extension of the schemes without obtaining investors’ consent or adhering to the regulatory requirements governing rollovers.
Expressing its disapproval of the conduct of the appellants, the Bench observed that the manner in which they handled the matter, while failing to keep investors, Sebi and the court adequately informed, met “their stern disapproval”.
The verdict effectively affirms the Securities Appellate Tribunal’s March 2026 ruling, which had upheld Sebi’s findings on regulatory violations and the penalties imposed on the fund house and its officials.
The tribunal had, however, set aside Sebi’s direction requiring Kotak AMC to disgorge a portion of the investment management fees after noting that investors had ultimately recovered their investments along with interest.
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