SC slams Sebi move to hear MF’s SRO case afresh

The Supreme Court on Wednesday slammed Sebi over its move to hear afresh the Financial Planning Supervisory Foundation’s (FPSF) plea for grant of approval to act as a self-regulatory organisation (SRO) for distributors of mutual fund products.

A bench headed by Justice Ranjan Gogoi said since the apex court was hearing the matter, the market regulator could not have decided to initiate a parallel proceedings and hear the issue afresh.

The bench had earlier issued notice to Sebi on FPSF’s appeal against Sebi’s in-principle approval granted to Institution for Mutual Fund Intermediaries (IMFI), promoted by mutual fund industry body Association of Mutual Funds in India (AMFI ), to act as an SRO.

“This is highly improper. You should not have done so. We respected you/your wisdom (by not granting stay). Your client (Sebi) has taken us for granted… it is this sheer respect which we are losing. You are giving him (FPSF) hearing when we are looking into the issue…,” Justice Gogoi told senior counsel Arvind Dattar, who appeared for Sebi.

Dattar sought to defend Sebi’s position by arguing that there is a “vacuum as far as SRO” is concerned and the matter should be heard at the earliest.

Refusing to give early hearing, the bench further said that “this is no way to conduct proceedings. You (Sebi) have taken law in your own hands. Let it do it now… We direct the meeting scheduled for January 28 in terms of Sebi letter of January 14 shall remain suspended till further orders.”

FPSF, which was one of the applicants for setting up this SRO, had challenged the in-principle approval granted to IMFI on February 6, 2014 for setting up a regulatory body. FPSF is promoted by Financial Planning Standards Board of India.

FPSF had questioned the Sebi’s nod by stating that IMFI was not a registered company on July 31, 2013 when the applications were called for by Sebi and it got registered only on August 2, 2013 which was after the cut-off date for submission of applications. “IMFI was ineligible to apply as on July 31, 2013 and Sebi should have rejected its application in accordance with Sebi SRO Regulations,” the foundation stated.

It said that the date of incorporation of IMFI according to the records of the Ministry of Corporate Affairs was August 2, 2013, while the application to Sebi for becoming an SRO was filed on July 29, 2013, that is much before its registration. Sebi had called for applications for an SRO for mutual fund distributors until July 31, 2013.

Challenging the SAT’s September 30 judgement that rejected its plea, FPSF argued that the tribunal had erroneously held that Regulation 3 permits any group or association of intermediaries holding a license under Section 25(1) of the Act, as opposed to an incorporated company, to submit an application for being recognised as an SRO and therefore, IMFI was eligible to apply and Sebi was justified in entertaining its application.

FPSF had said as IMFI was not a legal person (entity) at the time of its application, the act was in violation of SEBI’s regulations for SROs. FPSF contended that IMFI was an ineligible applicant according to regulations.

FPSF had also written to the Department of Economic Affairs, the ministry of finance, seeking intervention in the matter.