🔥 MUKUL ROHATGI & SHYAM DIVAN’S POWER-PACKED DEFENCE TO OVERTURN ₹1.6 CRORE SEBI PENALTIES 💼⚖️

Added: 2026-05-07

[00:00:00]If you we are not here on the amount so much we we our reputation as so our people are not we could have had we been so much concerned about the amount you know we would have started by saying I know 50 lakhs you have come to the Supreme Court no 50 lakh is not the issue even one rupee if you are penalized it affects your reputation so therefore we have asked you to show us whether there was a circular in terms where of you could have so motor extended the time you say there is no such circular secondly for the purpose of mitigation we asked you whether before expiry of the maturity did you tell the semi look here this is the market position when they gave a notice I answered notice why wait for a notice you should have done it earlier your matter in April or May is the time when I got a notice and I answered Yes now that I think just one more thing just one more thing this also reflects on a person who is without fit and proper to be appointed under semi regulations this will affect that also I respectfully submit in view of this para 32 this the the penalties imposed are extremely disproportionate it should be something else but not in this fashion that you paid all of them black for an honest decision what is the decision not from May to September and I gave them everything but just see the quality of arguments that one before set you have not taken action against HDFC you have not taken action against somebody else if two persons are there both are accessible to income tax one doesn't pay the other will get the ground for not paying tax these arguments are raised why I'll tell you why this argument was raised kindly and they have shown and they have shown that they have taken action I'll tell you why the argument was raised argument was raised because there is one regulation which says if you do as your peers do then you will not be damned so in that argument it was shown that the peers namely other what about that particular clause which is number four 33 four says you end 33 four but here there's no discretion left and now see see me just above that see just above that 25 two the asset company will exercise due diligence and care in that investment decision and will be exercised by other persons against same business it is for this that you were so so if somebody violates the law 30 25 two has to be read in a manner licensing you to violate the law violation of law says it was exactly what yes Mr. Dewan exactly what you are saying exactly what you are saying 2006 whatever you are saying is covered by a judgment of this court directly on the second please I'm saying no unit holder has objected if people are going to be there who is semi to who is semi we will hold up semi forget about investors every investor is happy they will be at the receiving end being the regulator these are limited investors who are happy there is no investor who is unhappy but yes 31 yes so I'll just request you to take up 31.1 I have I've marked that paper >> [clears throat] >> 31 and then you make it 1.1 DG it's Kotak Mahindra Trustee no if you refer to the judgment no it's all right you will not don't worry about it I'll I'll you may not need to have a paper book I'll just address your Lordships on it I'll request you since Mr. Rodge has handed over this two tables just please I mean these two just keep those also with you and I'm just handing over I've just handed over what I consider because this is a appeal statutory appeal under 15Z so please just I've handed in a list just give it to the other side what I believe are substantial questions of law which arise here of course your appeal jurisdiction is only under on questions of law so may I just request the court master to hand it in yes I'll just articulate this and then I'll come to certain points so we believe each one of these is a question of law worthy of consideration first whether in the facts and circumstances there could be a breach or violation of the mutual fund regulations where one the actions complained about did not result in any loss or harm to the investing public two the actions of the appellants resulted in a gain to the investors three all three sets of appellants acted bona fide in the interest of investors and did not make any monetary benefit or gain four had the appellants taken steps as postulated by semi there would have been a substantial monetary loss and harm to investors in the range of rupees 376.05 crores this is just an estimate whether B whether the standard of due diligence and conduct under regulation 25 two are to be judged on the basis of the evaluations and assessments made by several other similarly placed mutual funds and investors who like the appellant had invested in debentures issued by the SL group now this is very important I just contextualize this this was a problem which was being faced across the market and I'm going to show you a list of what of who took a decision similar to us so there was a whole group of mutual funds which took the same decision it just so happened that in those cases their maturity dates were a little later after the restructuring took place and so this technical thing didn't arise see whether on a fair construction of regulation 33 four read with regulation 39 one and 41 two A of the mutual fund regulations the best interest of unit holders would include a short delay of less than six months past the maturity date where there is a substantial additional realization D whether the expression shall be fully redeemed in regulation 33 four is directory particularly when 100% of the principal amount is repaid at the end of the maturity period and only a balance amount is repaid later within six months E whether a trustee company can be visited with a penalty of rupees 40 lakhs in the present case when regulation 1820 sub clause 26 expressly exempts the trustee from liability for acts done in good faith and F whether employees of an asset management company can be visited with huge liabilities where a collective decision was taken there being no allegation of any rogue conduct on the part of any any of the individuals now some of them arise in my case some of them don't arise in the other one because I'm for the employees as you will see now just going to what Mr. Rodge handed over just have a look at that for a moment that table and then and your Lordships may also keep those regulations in mind now let me just elaborate on this because since this table is already before you just see the so if we stick to the first one FMP 127 amount collected was pointed out at 39.67 crores now then you have percentage of amount invested in other securities were 82.34% percentage of amount invested in the SL group so this is important of focus 17.66% percent of amount collected returned at the maturity date now just mark this figure please you see you have cases and cases there are cases where I think your Lordships had a very pertinent question what would have happened if the if it had gone down further I think I that's the pertinent but you have situations where parties bona fide refund and return all the money which they have with them and retain a small portion of their obligation or their outstanding obligation and don't give the full amount back now this fourth row percentage of amount collected and returned at the maturity date I think this is now just let's look at this across all the various columns which are there let's read across it was 109.3% 99.6% 103.4% 120.4% 108.2% 103.6% and 101 105.1% now this is not to suggest that we were giving 100 what is this percentage of this was not the full entitlement of what each person was entitled to we accept that this is a percentage of what the total aggregate investment had been made in terms of the principal amount so we are not suggesting that they were not entitled to more now the a call was taken and I'm going to take your Lordships to that for a moment at the board level this becomes very very important in the now once this 109.3% let's just go down amount paid post maturity is 85.53 crores total amount paid to investors 456.73 crores and as Mr. Rodge pointed out the total annualized return was 9.99% which would have been much much lower and you can go across the various rows heading towards the right and you will therefore find that across the board there was a substantial realization now look I I put two elements over here the first substantial question of law of course are on an interpretation of the provisions and the second question is as your Lordships correctly put put to us there is a certain element of regulatory discretion which applies now you because it's not as if for every breach and every technical breach if you find that the whole industry has responded in a particular manner that a certain fixed action should take place so just please keep that at the back of your mind now please just have a look at the two sets of regulations again I actually have a separate compilation of regulations but since Mr. Rodge has abstracted that we can look at those itself I've got those regulations just give it to the other side we had prepared a set of the regulations. You may look at it from the entire full set of regulations or separately, whichever whatever suits the call. Your Lordship looks at this. Now, please see first uh the second one, which is 25.2.

[00:10:09]The asset management company shall exercise due diligence and care in all its investment decisions as would be exercised by other persons engaged in the same business. Your Lordship will see this.

[00:10:22]Now, just please have a look at I'll read three of them together and then I'll just make my submissions. Now, regulation 33(4) is a close-ended scheme shall be fully redeemed at the end of the maturity period. This is the clause which is held against me. And please see the next regulation 41(2)(a).

[00:10:41]The trustee or person authorized under subregulation one shall dispose of the assets of the scheme concerned in the best interest of unit holders of that scheme.

[00:10:51]Now, please recall the general provisions as far as the trust act provisions are also concerned. How is a trustee to act? A trustee is acting constantly under the both common law as well as under the Indian Trust Act etc. Or we have some as your Lordships are familiar Bombay Public Trust Act for example Maharashtra Public Trust Act or Gujarat Public Trust Act in certain in certain states. Now, you are acting at all times for keeping in mind your eyes on the ball as far as your beneficiaries are concerned.

[00:11:21]Now, at that time you have to ensure that there is no waste which takes place. There's no depletion. There is no erosion which takes place. Now, if bona fide you have keep this SEBI situation aside. You have a trust obligation under a general trust that on a person attaining the age of 18 say, I'm just saying, you have to hand over charge etc. of X or Y or Z. But some overriding circumstance or some good judgment in the judgment and the bona fide conduct of that trustee, I'm not talking about a SEBI situation. The trustee feels that look, I am going to just defer the handing over of charge by two months or three months etc. I will give it with whatever some requisite gain during that three months. But this will be a situation which will be in the best interest because that person who has just attained the age of 18 and is now entitled to the funds is undergoing some sort of a disability, studies are going on, is overseas, whatever the circumstance. Now, that does not So, technically, it may amount to a breach of trust because on the date on which this X or Y or Z turned 18, you didn't hand over charge. But if a trustee comes forward and says, "Look, these are the justifications for these conducts."

[00:12:30]Then, one, I believe a court will will examine the issue and say that in the in a having regard to the bona fides, this is not actionable in law.

[00:12:39]And in so far as the regulatory response is concerned, there are two levels.

[00:12:44]Number one, this may not be actionable at all by the regulator. And secondly, in any case, this is not a case where a regulator ought to have exercised discretion in a manner to penalize people where people have made gain, particularly when it is ultimately for the investors. So, we make a suggestion to the court. Please going back to these regulations, please consider when you have an obligation, a close-ended scheme shall be fully redeemed at the end of the maturity period. Number one, means it's it's more or less mandatory. Maybe it's not directory. But it is to be counterbalanced with the obligation of the trustee to act in the best interest of unit holders of the scheme. So, there is a little play in the joints is what we are saying. There is this play in the joints also extend extends to a situation where acting bona fide, there is a realization which is to be made.

[00:13:33]This is one suggestion which we had. Uh we believe this is an issue.

[00:13:38]33(4) Yes, we can just have a look.

[00:13:41]Yes, yes, I'll just turn you to that.

[00:13:47]Well, there is a proviso. If your Lordship Just have a look. Take it up.

[00:13:52]I have the extract. Yes, your Lordship has the extract. Yeah. 33(4) may be allowed to be rolled over. If the purpose of period of the terms of the rollover and all other material details of the scheme including the likely composition of assets immediately before the rollover and the net assets and net asset value of the scheme are disclosed to the unit holders and a copy of the same has been filed with the board.

[00:14:14]Provided further that such rollover shall be permitted only in a case of whose of those discretion is left to the board whether to permit rollover or not. Yes, but this this is this is preconditioned with an obligation that must inform the board.

[00:14:30]Yes, no, so as if you set your own rules. No, we don't set our own rules. Well, let's just see there are two or three issues here.

[00:14:38]Sorry. No, but there are several other points. Let me just indicate. Now, just please take up the paper book. Yes. Yes, please take up the I'll go to a separate point. But I want to I wanted to just emphasize over here on this particular point. When a party has refunded, there's no rollover because I've refunded. I It's a rollover is a No, no, do not apply here. There is a specific obligation of the asset asset management company that whatever you do, that is what is due diligence. That is what they require. When you don't do it No, due diligence Now, I'm coming to the Due diligence is this. No, my Due diligence is this. No, so can I just Even for an open even for a close-ended scheme Yeah. the regulations provide that yes, if you want to take a decision which would ultimately benefit the investors Yeah.

[00:15:26]please inform the unit holders and please inform me and take my permission.

[00:15:30]No, so can I just tell you as far as the proviso is concerned, let me just indicate the answer. This is not a rollover situation because as your Lordship saw, I substantially repaid. I substantially repaid. A rollover would You should have informed the board. No, so that's one aspect of it. Now, please see the second aspect which I'm I'm coming to a new point. Just go to page 221, please.

[00:15:50]221 Now, this is a separate point which has not been placed before you.

[00:15:57]Your Lordships, in fact, that communication begins. Your Lordships will just see 31.1 33 31 Do you have annexure A10 at 216?

[00:16:07]Just a minute.

[00:16:10]Yes.

[00:16:12]Do you have annexure P A10 at page 216? Yes. Which is a communication dated 12th April 2019. And your Lordship will see it is to SEBI.

[00:16:22]Your Lordship has that?

[00:16:25]Correct.

[00:16:25]>> [clears throat] >> Now, I'm invite Now, I'm on a separate point. And my point today is with regard to the individual The point I'm presently making is that this is not a fit and proper case for individual liabilities on individual employees to be made. And we have two aspects to that. The first is there is no finding much less an allegation that any individual employee has added in some reckless manner. And the second limb of the argument is that when you have a collective decision-making at the board level of the company, here the AMC, you cannot you you may be at without prejudice to our submissions able to visit the AMC. But as far as teams of employees are concerned, the question I ask myself is how do you penalize someone individually? Now, go to 221. Please go directly to 221.

[00:17:13]Now, this is in response to some of those queries. Your Lordships have has an F over there? Yes. Yes.

[00:17:19]Whether the decision of AMC to wind up the FMPs and delay in the payment of maturity procedures referred to above The board of the AMC and trustee on Monday, 28th January 2019 were apprised of the entire situation. So, this is in January 2019.

[00:17:37]Apprised of the entire situation and their guidance was sought on the proposed action to be taken by the AMC.

[00:17:42]The options for action to be taken basis the facts were discussed as under.

[00:17:47]Invoke the pledge on Tuesday and Wednesday and sell the shares in accordance with the applicable terms of debenture. Thereafter, the downside there is the lower recovery of our dues as market won't be able to absorb the selling by all the lenders. This will also make make us stand out amongst the lenders.

[00:18:03]It's also possible that the promoters may get injunction for pledge for uh invo- uh invoking the selling before the fair value. Or two, go with the majority of the lenders on restructuring side. On the upside sharing, uh we will go by the majority of lenders and we are more keen getting our dues than upside.

[00:18:24]While this will delay the payment a little, we will recover all our dues with some upside. The board of AMC and trustees deliberated on the matter and in the interest of the unit holders had agreed to execute the option to go with the majority of the lenders on the restructuring side. The trustee board had also advised to take personal guarantee. This was the additional uh caution which was there. To take personal guarantee from the promoters of Zee for payment of dues. Basis of the broad framework approved by the board of AMC and trustee, we have entered into an agreement with the issuer capturing the uh broad terms of the draft lenders charter etc. And this will be enforced till the lenders charters gets executed by the company and other lenders etc. It goes on. So, what we are saying is this this submission is How does one I mean your your Lordship knows the discipline which has to be followed in a in a uh company? I mean, when there's a board level decision, the employees have to act consistent with the board. Maybe the board bona fide thought that there was something which was erroneous etc. But my Lord, my respectful submission is that the that the that the penalties which have been imposed on the individual employees are simply unsustainable. Now, I go to another point. Just take up the impugned order, please, over here.

[00:19:34]Just have a look at Go directly to page 16. I believe your Lordship will have para 24.

[00:19:50]Your Lordships have para 24. I I hope it's It's on impugned order. Foot of page 16.

[00:19:59]Issue number one.

[00:20:05]Yes. Yes. Now now this is there the first issue which is framed and which is considered. So I'll just read it first.

[00:20:11]Whether the appellants exercised due care and diligence and provided high standards of service. Now please see this of service while taking the decision to invest in SL group company. So this is the question. The question is whether at the time of investing in the SL group of companies this particular board was acting prudently, wisely, etc. Now just have a look at 20 their finding at 24.6 which you will find at page 19 19.

[00:20:43]May I place it? Yes. Having failed to carry due diligence, appellants have sought to allege discriminatory treatment by SEBI contending that no action was taken against similarly situated mutual funds. As rightly pointed out Mr. Rohatgi appeared for SEBI, appellants have not placed on record the names of any other defaulting mutual fund and thus the allegation is vague. Further, we were informed that investments by our other mutual funds were in open-ended schemes. Therefore, this contention is devoid of merit. Now this is incorrect because please see it is incorrect in a sense. Please first go to page 626.

[00:21:18]>> But but it doesn't cut any ice Mr. No, it does. I'll tell you why. No no if if if anybody done does something erroneously which is wrongful, which is unlawful, that will not afford you a follow him. Whatever is done by your peer has to be within the limits of law.

[00:21:34]>> So so they were within the limits. So please understand the point. What was the question? What's the issue? The issue you know your lordship recalls that para 24 I read it. The issue was not about default. I think what the court is putting to me is absolutely correct. You cannot have multiple people violating the law and then take refuge in some sort of a negative equality sense. That is fully accepted. Here the question in para 24 was original investment in the SL group entities.

[00:22:01]Your lordship has that. That was the question. The question is whether you were due whether you acted diligently and provided high standards of service service while taking a decision to invest. This has nothing to do this has nothing to do with the breach or non-paying out. It is it has to do with the original investment. Now go to page 625 626. I believe it's in volume two.

[00:22:24]Please just see this.

[00:22:25]Why this? Why not the original paper?

[00:22:27]Your lordship [clears throat] may actually take up page 371. Since your lordship is on that volume, first let's go to 371. 371.

[00:22:38]Yes.

[00:22:38]>> Now in 371 paragraph 28 which is our which is reply to the show cause notice. Your lordship may just see.

[00:22:49]This is just on the point of investing in SL group.

[00:22:52]Now please because we had those debentures. So please see para 28. The noticee understands from market sources that there are various market participants which has lent to the SL group under various structures. As on January 2019, name of some of the lenders are as follows. And you will find my lords there is a whole list of very distinguished people mutual funds who at that point of time had invested in shares. The original decision. The question is whether this Now once this is placed on record and you may just note it is reiterated in the grounds of appeal at page 625 626.

[00:23:30]The question I ask myself is that the original investment but we are not on open-ended scheme. That's a completely irrelevant consideration. Question is originally if such distinguished and so many group companies so many independent market players felt that this is a good investment that we will take security of SL group shares.

[00:23:54]Surely my lord that's bona fide conduct.

[00:23:56]That's good judgment. That is judgment of the entire market. So my respectful submission is Now please please see this my lords now there's no consideration of this factor at all. There's no dispute that any of these people if all of them invested, then it was collectively perhaps a bad judgment which was made.

[00:24:13]But you can't say there's any lack of bona fides or lack of due diligence. Now there's one more further dimension.

[00:24:19]Please just have a look if your lordships would uh back to those statutory provisions.

[00:24:26]1826 Now here Your lordship has the first one of what Mr. Rohatgi handed over.

[00:24:40]>> Yes yes. Right? Notwithstanding so there's a non-obstante clause in sub rule sub regulations 1 to 25, the trustee shall not be held liable for acts done in good faith if they have exercised adequate due diligence honestly. Now my lords therefore appearing as I am for two sets first is the trustee company and there is this additional point in terms of 1826 that look as far as I gave it to the asset management company. Maybe the asset management companies because they are the ones my lords who have the employees, they are the ones who run.

[00:25:12]And the second set is I'm appearing for is individual individuals employees. I my lords I would respectfully submit that this is something which your lordship should consider. That look both as far as the trust company is concerned as well as the employees are concerned, there is an element. Now my lords I ask myself at the end of the day where everyone applauds a regulator etc. who's honest honest tools. But is this a case in this fact situation to visit any penalty? Because you may be able to I my lords within the within the discretion of the regulator you may say that look please be cautious moving forward. We note that no one has suffered a loss. In fact, there is a gain which is suffered here. And therefore we request you to exercise caution. I have two submissions three submissions to make my lord one by one.

[00:26:01]My lord as a regulator, may it be SEBI, may it be IBC, may it be IRDA.

[00:26:06]We have two sets of provisions to put into place all this.

[00:26:10]My lord one set is my lord imposing penalty for contravention and breach.

[00:26:16]Another set my lord is for any value loss then it becomes disgorgement.

[00:26:22]You know for for example my lord here 11B deals with disgorgement. 15B and D which we have in mode I'll show the provision is on contravention.

[00:26:31]Loss of money is not a ground to mitigate 15.

[00:26:36]What the WTM did is he disgorged also in addition to the penalty which the tribunal rightly set aside. And my lord we have accepted the decision we are not on appeal. So when there is no loss, no disgorgement. 11B But otherwise my lord for in we are a regulator. But this happens well I will show the provisions.

[00:26:55]Please show the provisions. I'll show you three provisions to your lordships.

[00:26:59]Identical.

[00:27:02]But they are different. The scheme is and I'll show a direct judgment of this court for a mutual fund for a mutual fund. I'm sorry.

[00:27:40]These are the two provisions sustained by the tribunal and sustained by this court 20 years back I'll show the judgment. 15D sub clause B sub clause B If any person who is registered with the board as a collective investment scheme including mutual funds for sponsoring or carrying on any investment scheme fails to comply with the terms and conditions of the certificate of registration, he shall not be liable to a penalty which shall not less than be 1 lakh rupees but which may extend to 1 lakh rupees for each day during which such failure continues subject to maximum of 1 crore. Now this is 15D B. The second provision my lords may see is 15H B.

[00:28:25]Capital H capital B.

[00:28:28]Last page last page. Capital H >> On the top my lord capital H capital B.

[00:28:33]Whoever fails to comply my lord Yes. Whoever fails to comply with the provision with any provisions of this act the rules of the regulations made or directions issued by the board therein there for which no separate penalty has been provided shall be liable to a penalty which shall not less than be 1 lakh rupees but which may extend to 1 crore.

[00:28:53]Please come to the last provision 11B which is disgorgement.

[00:28:57]They are going on saying they have made gains. No, it is relevant only for disgorgement not for this invocation.

[00:29:03]Please come to 11B.

[00:29:05]Powers to issue directions save as otherwise provided in section 11. If after 1 minute See he wants me to directly come to the explanation. I want to show the provision and come to the explanation.

[00:29:17]Save as otherwise provided in section 11. If after making or causing to be made any inquiry, the board is satisfied that it is necessary. Please come to the explanation.

[00:29:27]For removal of doubts it is hereby declared that the power to issue directions under this section shall include and always be deemed to have been included in the power to direct any person who made profit or averted loss by indulging any transaction or activity in contravention of the provisions of this act or the regulations made there under to disgorge an amount equivalent to the wrongful gain made or the loss averted by such contravention. This the WTM he speculated and put it. Tribunal has set aside it. And we have not appealed against it. We accept the ruling. It's final. So disgorgement my friend we could not have done it. It's wrongly done and corrected by the tribunal.

[00:30:10]As regards these two penalties I will now show you a direct judgment of this court.

[00:30:14]If your lordship sees similar under section 120 of the IBC Act subsection two when we when we terminate or suspend the resolution professional two says for contravention and breach you can suspend because it's all time bound. You can't say every time you can dismiss the resolution professional when he commits a loss. 133 says disgorgement. If the resolution provision also commits a loss then don't disgorge. Similar please come to this judgment para 29.

[00:30:45]It is on a mutual fund. It is a direct judgment uh dealing with a mutual fund case. Please come to paragraph 29.

[00:30:52]And and please come to next page.

[00:30:56]I just immediately below plastic A.

[00:31:01]In our opinion in our opinion the tribunal has miserably failed to appreciate that by setting aside the order of the adjudicating authority the tribunal was setting a serious wrong precedent whereby every offender would take shelter or alleged hardships to violate the provisions of the act.

[00:31:20]In our opinion mens rea is not an essential ingredient for the contraventions of provisions of a civil act. In our view the penalty is attracted as soon as contravention of the statutory obligations as contemplated by the act is established and therefore the intention of the parties committing such violation becomes immaterial. In other words the breach of a civil obligation which attracts penalty under the provisions of the act would immediately attract the levy of penalty irrespective of the fact whether the contravention was made by the defaulter with any guilty intention or not. This apart unless the language of the statute indicates a need to establish the element of mens rea it is generally sufficient to prove that the default in complying with the statute has occurred. Under a close scrutiny of 15D and 15E of the act there's nothing which requires that mens rea must be proved before penalty can be imposed under these provisions.

[00:32:16]Hence we are of the view that once the contravention is established then the penalty has to follow and only the quantum of penalty is discretionary.

[00:32:24]Discretion has been exercised by the adjudicating authority as is evident from the imposition of a lesser penalty than what could have been imposed under the provisions. The intention of the parties is wholly irrelevant since there has been a clear violation of the statutory regulations and provisions repeatedly covering the period of six quarters. Hence we hold that the respondents have willfully violated statutory provision with immunity and hence the imposition of penalty was justified. Now this is very important.

[00:32:49]The tribunal in this context failed to appreciate every mutual fund has to redeem the units as per terms and conditions of the scheme on the request of the unit holders and this cannot in any manner be considered as an extraordinary circumstances or something which was known to not known to the respondent.

[00:33:09]The facts and the present case in no way indicate the existence of special circumstances so as to waive the penalty imposed by the adjudicating officer. A portion of the order of adjudication it goes on. Then please come to paragraph 31.

[00:33:25]Two questions your lordship posed from the beginning not answered. 31 answers it.

[00:33:30]In the present case it has been established by the adjudicating officer as well as admitted by the respondent there has been a conscious disregard of the obligations in as much as the respondents were aware that they were acting in violation of the provisions of 34 34 proviso.

[00:33:45]In violation as much they were aware that they were acting in violation of the provisions of the regulation. The adjudicating officer have taken into consideration facts and etc. etc. So may I put it this way? So there is a mutual fund case under SEBI governing similar provisions which do it.

[00:34:00]Therefore the question of now trying to show discretion there is no financial loss or a financial gain may have relevance to 11B and not to section 15. The first point. Then second point I want you two more points to do. Please come to tribunal's ruling at page at paragraph 23.

[00:34:20]Mentioned in proviso whether it's only whether it's partial or whole but information they can't say I have paid principal and therefore it is not a rollover and therefore I need not. Is rollover defined anywhere?

[00:34:33]If it is not defined then we would have the normal balance that We'll just rollover beyond the period of maturity. That's all. That's all. To say that I paid principal and therefore it is not not I don't see see a construction or definition of that nature.

[00:34:47]Second second point.

[00:34:49]Please come to the tribunal ruling page 16 paragraph 23.

[00:34:54]It framed the three questions before sustaining these penalties.

[00:34:59]It says you have done three infractions.

[00:35:02]A whether the penalty exercised due care and diligence and provided high standards of service while taking the decision to invest in SL Group. The finding of fact is you have not done due care. It may be collective it may be be individualistic on individual penalty I'll deal with it separately.

[00:35:18]But the finding of fact is and they have not so on. Two whether the appellants violated the MF regulation while extending the maturity dates of the investment made in so and so so and so a partial redemption of any at the time of their maturity. But they did not come to us. They did not inform the unit holders. They did everything on their own. Three three whether the disclosures to the unit holders were made timely and adequately. They said it has not been made adequately. So three charges were framed and discussed and found to be against them. It's not a very very well reasoned order. Each of the allegations six seven sub paragraphs have been dealt. Paragraph 24 deals with the first 25 and 26 deals with the second and the third in in extenso. So there's a reasons given why this is sustained. The last point individual penalties. But my friend keeps on saying they are employees.

[00:36:10]Please see who these individuals are.

[00:36:13]Page 878 volume three is the WTM's order. Just one minute this you are referring to which paper 42 in 42 in 42 42 which 870 volume three of 42 A was order 877 which my friend is defending. 877 877 is the A was order.

[00:36:43]Now now he is defending separately for notices two to seven.

[00:36:49]No no one is the company. Yes. two to seven two to seven Yes. Please come to the next page 878. Who are these people?

[00:36:55]He kept on saying employees. He did not define who they are.

[00:36:58]Please see my lord.

[00:37:00]Notice two next page Notice two is the managing director.

[00:37:05]Where where do we three lines down yes 878 fourth line My lord is right. Notice two is the managing director.

[00:37:13]Notice three is the chief investment officer debt and head products.

[00:37:19]Notice four is the vice president and fund manager.

[00:37:23]Notice five is the compliance officer.

[00:37:26]And notice six is the fund manager of the scheme and notice seven is the director. They are not employees as commonly understood some manager some clerk some accountant is all slapped with all. They are all people who have and therefore there's a finding. Please come to page 978 in the same paper book paragraph 140 a detailed finding has been given why penalty has to be imposed on them.

[00:37:55]978 >> 970 paragraph 140 specifically dedicated to these notices only to the individual notices.

[00:38:08]It is noticed that in a multi-tier structure of mutual fund the trustees hold the fund on behalf of the investors and trust and the AMCs entrusted with the responsibility of managing the fund.

[00:38:19]The main role of the trustees to ensure that the interest of the unit holders is protected while making sure that the mutual fund complies with all the regulatory requirements of SEBI. The trustees are guardian of funds of investor and in order to protect the interest investor interest of all investors they are expected to exercise fiduciary duties of trust and ensure fairness to all investors.

[00:38:39]In order to enable AMCs to carry out its objectives MD CEO chief investment officer compliance officer fund management managers are expected to act diligently in the best interest of the unit holders by complying with the various regulatory provisions. It is pertinent to note that the individual who wants to invest in the stock market but do not have expertise and time to do so invest through mutual fund so as to benefit from professional management diversification of portfolio liquidity ease of investing and affordability.

[00:39:13]That it is imperative for the trustees and the persons at the helm of affairs MD CIO CEO and fund managers at all times to act diligently and faithfully in the best interest of the unit holders. Infirmities in their conduct and any non-compliance or deviations from regulatory requirements would derail the trust imposed by the unit holders in the mutual fund and threaten the very structure of this industry.

[00:39:37]Therefore I'm of the view the appropriate penalty should be imposed.

[00:39:40]And lastly my lord, my lord, between a regular debt a mutual fund and a speculative share, there's a lot of difference.

[00:39:48]Well, in a regular debt with a bank, you are given a regular interest. There is no speculation on the dot that day or even prior to that day, you can go and withdraw your FD and within interest.

[00:39:58]The next next extreme is my lord speculating on shares. There, my lord, you put your own risk. Risk and reward go together in life. Whereas, mutual fund, my lord, is a mixture of both.

[00:40:09]You actually argument you you don't know what to say.

[00:40:12]>> Mr. Solicitor.

[00:40:13]When you come to the penalty, is there any guidance provided by the regulations?

[00:40:18]For someone it is 30 lakh, someone it is 10 lakh.

[00:40:23]We can understand it depends on the office you hold.

[00:40:27]That's the only way. But but why 30,000?

[00:40:29]Why not 50? Why not 10?

[00:40:31]For the managing director.

[00:40:33]The the guide my lord that that >> Where is the guidance?

[00:40:35]>> It only says 1 lakh to 1 crore. 1 lakh to 1 crore. 1 lakh to 1 crore. So, why discussion that is given?

[00:40:42]So, for the penalty We have only >> amount of 30 Yes. Has there been any indication why Why it is 40 for one or why it's 30?

[00:40:50]That we have not done it.

[00:40:53]position That's all. That's the only reason So, my lord, uh three things, my lord.

[00:41:00]We consider. Yes. Yes.

[00:41:06]As you may wish.

[00:41:07]Judgment reserved. Deputy Solicitor, I just point out three things. Uh pages only pages. All right. Point one, just please take up page 223.

[00:41:18]Page 223. Of which volume? Volume one.

[00:41:22]Volume one of which? 31.1 Yeah.

[00:41:26]Volume one of 31. I'm just going to take you to four pages or five pages since your lordship is Why don't you give it in a note? I'll give it. Then then let me state the point. Let me state Just state the point.

[00:41:35]The first is it was suggested or at least my understanding was that the investors were not allowed were not informed. That is factually incorrect.

[00:41:44]There is a communication to all investors on the 12th of April 2019 putting them abreast about what we are doing exactly and that your lordship will is find is at 223 to 225 and explaining them and putting them for fully in the picture, which is why Mr. Rodki said there were no complaints which were made at at all. That's the first point.

[00:42:02]>> did not inform us.

[00:42:04]We know in Oh, we informed the board.

[00:42:06]So, now I'm coming to the second point.

[00:42:07]I just show us you have informed the So so yeah, so now what happened Okay, so should I just say it and then I will inform?

[00:42:12]What happened over here was that they issued a show cause notice to us saying, "We are asking you to redeem immediately." Okay? They knew about it.

[00:42:22]We knew about it. And so, they said, "Show cause why we should not issue a direction to you to immediately redeem."

[00:42:29]"And we are giving you 21 days time to reply to that." We replied to that. They realized as to what is in the best >> one, we are on a different point.

[00:42:37]>> No, I'm on that point.

[00:42:38]>> Before the show cause notice, did you inform the board?

[00:42:41]No, we were we they were kept in abreast. But just see this Put it in your note. No further We have heard enough. No, my lord, just 229, my lord, just have a look.

[00:42:50]Give it in your note. Uh could I just invite attention to two pages, my lords, 244 245?

[00:42:55]>> Please give it in your note. We'll consider. All right. I The point I wanted to also make was I wanted to give my learned friend did give a few people.

[00:43:02]I'll give give the designations of those individuals. No, that is there in the whole time No, true. But manager, my lords, compliance Mr. Are you disputing that?

[00:43:12]No, no. I'm saying that look The whole time members order Yeah. has said noticee number one is the MD. Yes, that's right.

[00:43:19]>> So, is it right or wrong?

[00:43:20]>> No, it is right. But I'm My point is that a managing director, once there is a board directive, etc.