Sebi disposes proceedings against Dish TV independent directors The Securities and Exchange Board of India (Sebi) has disposed of the proceedings initiated by a show cause notice against Dish TV independent directors Bhagwan Das Narang, Rashmi Aggarwal and Shankar Aggarwal without any further directions. In March, the regulator had asked Dish TV India to disclose the results of its shareholder’s meeting held in December 2021 within 24 hours. The company did not disclose the results of its annual general meeting citing a pending case in the Bombay High Court.On March 7, Sebi’s whole-time member S K Mohanty passed an ex-parte interim order against Dish TV, its key management employees and the three IDs. Show cause notices were issued to the IDs seeking an explanation for the delay in disclosing the results despite repeated reminders. Sebi’s order on Thursday observed that the regulator’s first advisory was not disclosed by Dish TV to the exchanges. As a result, the advisory was not in the public domain. “The material available on record does not suggest that the noticees were otherwise aware of the first advisory issued by Sebi,” the order said. The final advisory was disclosed by Dish TV to the exchanges subsequently. On February 14, before the commencement of the board meeting, the company informed the IDs that it had already replied to Sebi and was awaiting a final response. “The SCN and facts and circumstances of the case do not show whether the replies of the company dated January 18, 2022 and February 10, 2022, to Sebi and disclosure to the stock exchanges on February 10, 2022, was done after deliberation with independent directors. The facts do not indicate any complicity of the independent directors for the disclosures under Regulation 44(3) of the LODR Regulations and the Advisories issued by Sebi. Thus, no omission to exercise due diligence can be attributed to the independent directors in the facts and circumstances of the case,” the Sebi order observed on Thursday. The March interim order had directed that the demat accounts of the independent directors be frozen until the voting results of the AGM held on December 30, 2021, were disclosed on the stock exchanges. Dish TV had disclosed the results of the AGM to the Exchanges on March 8 and the freezing of the demat accounts was to be lifted as per the said order.
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In its consultation paper, Sebi has suggested that trustees of mutual funds should focus on market abuse by AMC, its employees and mis-selling by the AMC to increase the asset base.
Also, trustees should be responsible for fairness of fees and expenses charged by the AMC, compare its performance with peers and ensure that AMC’s sponsor is not getting any undue advantage.
In addition to the core areas, the trustees should be responsible for periodically reviewing the steps taken by AMCs for the folios which do not contain all KYC attributes with bank details.
Further, Sebi has suggested that trustees and their resource persons should independently evaluate the extent of compliance by AMC and not merely rely on AMC’s assurances.
To facilitate trustees’ supervision, AMCs should provide them with analytical information.
Presently, the trustees primarily rely on the AMCs for ensuring compliance with the applicable rules.
Under the rules, trustees hold the property of the mutual fund in trust for the benefit of the unitholders. The trustees appoint an AMC to float schemes for the mutual fund and manage the funds mobilised under various schemes, in accordance with the investment objectives.
“In view of the increasing scale and reach of the mutual fund industry, trustees’ role in respect of unitholders’ protection assumes even greater significance,” Sebi said on Friday.
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Over the past decade there has been a five-fold increase in the size of the mutual fund industry. The assets under management (AUM) has surged from Rs 7.93 lakh crore in November 2012 to Rs 39.89 lakh crore in December 2022.
To ensure that trustees devote time and attention to their core responsibilities, Sebi has suggested that for fulfilling other responsibilities, trustees may rely on professional firms such as audit firms, legal firms, merchant bankers for carrying out due diligence on their behalf.
The Sebi also listed some duties trustees can delegate to AMCs. This include ensuring that all systems are in place prior to the launch of any scheme by the AMC, and calculating any income in the mutual fund due to the fund and any income received in the mutual fund for unitholders.
The regulator has proposed to provide a one year time to existing trustees with board of trustee structure to convert into a trustee company, from governance point of view.
Presently, two structures for trustees are permitted — corporate and board of trustees structure. Moreover, there are a few mutual funds which have the board of trustees structure while the trustees of all other mutual funds have adopted the structure of a trustee company.
Considering the enhanced role of trustees over the period of time, Sebi has suggested to increase the minimum number of trustees to adequately perform their functions. Presently, the minimum number of trustees prescribed is four.
Also, it has been proposed that the chairperson of the trustee company should be an independent director.
Sebi has suggested that apart from the meeting of the audit committee of AMCs and trustees (which mostly comprises of independent directors), the board of AMCs and the board of trustees may be mandated to meet at least once a year to discuss the issues concerning the mutual funds.
The regulator proposed that the existing MF Regulations on AMC and its obligations may be amended to include additional clauses with respect to the obligations of the board of AMC.
The proposed amendment may include a clause which casts an obligation on the board of AMC to ensure that all the activities of the asset management company are in accordance with the provisions of these regulations.
The Securities and Exchange Board of India (Sebi) has sought comments from public till February 24 on these proposals.