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Motilal Oswal Alternative Investment Trust and Motilal Oswal Asset Management Company have settled a regulatory case with the Securities and Exchange Board of India (Sebi) by paying INR 38.76 lakh. The settlement relates to alleged violations of alternative investment fund (AIF) norms, including the handling of defaulting investors, distribution practices and investor servicing deficiencies. Sebi observed that the AIF retained INR 8.69 crore from defaulting investors and that penal exit loads were not credited to schemes for the benefit of other investors. The regulator also flagged gaps in distributor oversight and an instance of incorrect investor classification. The entities resolved the matter through a settlement mechanism without admitting or denying the findings.
Motilal Oswal Alternative Investment Trust and its investment manager, Motilal Oswal Asset Management Company, have settled a case with the Securities and Exchange Board of India (Sebi) by paying INR 38.76 lakh, following alleged violations of alternative investment fund (AIF) regulations. The settlement, confirmed through an order issued earlier this week, brings closure to proceedings that could have been initiated by the regulator. Advertisement
The entities had filed suo motu settlement applications, opting to resolve the matter without admitting or denying the findings of fact or conclusions of law. The case pertained to regulatory concerns around the treatment of defaulting investors, distribution practices and investor servicing standards within the AIF framework.
According to Sebi’s observations, the AIF retained INR 8.69 crore from 109 defaulting investors, out of INR 35.17 crore that had been paid against a total committed amount of INR 115 crore. The retained sum represented nearly 25% of the funds contributed by these investors and included applicable taxes remitted to the government.
The regulator also noted that Motilal Oswal AMC appropriated penal exit loads charged to defaulting investors, rather than crediting these amounts to the respective scheme for the benefit of non-defaulting investors. This was identified as a deviation from expected fund management practices under AIF norms.
In addition, Sebi highlighted deficiencies in investor servicing. In one instance, a lack of coordination between the distributor, customer service and operations teams led to an investor being incorrectly classified as a defaulter. This resulted in the liquidation of the investor’s portfolio. The account was subsequently reinstated after the outstanding amount was paid; however, the regulator observed that the incident indicated lapses in internal processes.
Further scrutiny revealed the absence of a documented framework governing distributor conduct. Sebi noted that the AIF did not maintain a formal code of conduct for distributors or a structured mechanism to address issues such as investor defaults or instances of alleged mis-selling reported through the SCORES platform. No corrective action had been taken against distributors in such cases, according to the findings.
Based on these observations, Sebi concluded that the entities had violated provisions under AIF regulations. Following review, the regulator’s settlement committee recommended a payment of INR 38.76 lakh to resolve the matter.
The entities subsequently remitted the settlement amount. Sebi stated in its order that any proceedings that may have been initiated for the alleged violations stand settled with respect to the applicants.
Source - PTI
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