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The Securities Appellate Tribunal (SAT) has set aside SEBI’s decision to appoint the Institution for Mutual Fund Intermediaries (IMFI) as the Self Regulatory Organisation (SRO) for mutual fund distributors. SAT directed SEBI to select an applicant for an SRO afresh in accordance with law.
Restrains further stepSRO is an entity that grants certificate of recognition to mutual fund distributors. SAT directed the market regulator not to take any further steps in the matter till the mandate of the regulation was complied with. However, SAT observed that SEBI was justified in entertaining the application submitted by IMFI as it held a licence under Section 25(1) of the Companies Act, 1956, and was hence eligible to apply.
The Financial Planning Supervisory Foundation (FPSF), which was aggrieved by SEBI’s decision on SRO, had moved SAT against SEBI’s letter dated February 6, 2014.
SAT held that SEBI was not justified in granting in-principle approval to IMFI before granting opportunity of hearing to FPSF as contemplated under Regulation 10 of SRO Regulations.
Challenges on 3 countsThe FPSF challenged SEBI’s decision on three counts. First, it contended that IMFI was ineligible to become an SRO as it was not a company under Section 25 of the Companies Act, 1956, as on the cut-off date for submitting applications (July 31, 2013), and hence, SEBI should have rejected IMFI’s application.
The next ground of contention was that selection of IMFI automatically amounted to rejection of FPSF’s application. Under Regulation 10 of SRO Regulations, SEBI was mandatorily required to give an opportunity of hearing before rejecting the application submitted by FPSF. Since an opportunity was not given before rejecting the application, FPSF prayed that SEBI’s decision was liable to be set aside.
Finally, FPSF contended that SEBI was biased in favour of IMFI even before inviting applications for SRO and hence, its decision should be set aside.
SEBI had called for applications for an SRO on or before July 31, 2013.
IMFI, Organisation of Financial Distributors and FPSF were the three applicants and SEBI awarded in-principle approval for SRO to IMFI.
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