SEBI Disposes Of Adjudication Proceedings Against LIC

In a 12-page order, the SEBI said that the alleged violation by LIC was within the context of their efforts to complete the merger of IDBI Mutual Fund with LIC Mutual Fund

Following IDBI Bank acquisition, LIC held more than 10 per cent of the shareholding and possessed voting rights in both the AMC and the trustee company of IDBI Mutual Fund, which raised concerns of potential violation of Mutual Fund regulations.

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An alleged mutual fund norms violation case against state-run insurer LIC was disposed of by the Securities and Exchange Board of India (SEBI) on Thursday. The case pertained to the insurer's shareholding in IDBI Mutual Fund. In a 12-page order, the SEBI said that the alleged violations by the LIC was within the context of their efforts to complete the merger of IDBI Mutual Fund with LIC Mutual Fund. 

The SEBI order noted that IDBI Bank serves as the sponsor of IDBI Mutual Fund, holding a direct equity stake of 66.67 per cent and 33.33 per cent through IDBI Capital Markets & Securities in IDBI AMC, respectively. Furthermore, IDBI Bank maintains full ownership (100 per cent stake) in IDBI MF Trustee Company Ltd. Consequently, on May 31, 2023, SEBI issued a show-cause notice to LIC regarding the alleged violations.

Furthermore, it was noted that LIC had acquired a controlling stake of 51 per cent in IDBI Bank on January 21, 2019, through a preferential allotment of equity shares. Following this acquisition, LIC held more than 10 per cent of the shareholding and possessed voting rights in both the Asset Management Company (AMC) and the trustee company of IDBI Mutual Fund, which raised concerns of potential violation of Mutual Fund regulations.

According to SEBI, the regulations prohibits a sponsor of a mutual fund, its associates, or group companies, including the AMC of the fund, from holding 10 per cent or more of the shareholding or voting rights in an Asset Management Company (AMC) or the trustee company of any other mutual fund.

"I note that the noticee (LIC) with the intention to comply with the provisions had made an application to Sebi within the stipulated time, i.e. on December 5, 2019, but since necessary regulatory approvals could not be obtained, the noticee had to explore other available options wherein it had opted for the acquisition of schemes of IDBI Mutual Fund by LIC Mutual Fund. Further, I also note that there are various correspondence exchanged between Sebi and the noticee wherein the noticee had sought extension of time to complete the process of merger and file necessary compliance reports," SEBI's Adjudicating Officer Biju S said in the order.

The SEBI had initially granted a deadline of August 14, 2023 for compliance with the merger of IDBI Mutual Fund into LIC Mutual Fund.  Throughout the merger process of IDBI Mutual Fund into LIC Mutual Fund, LIC consistently kept SEBI updated on the developments at regular intervals, the order said. 

Moreover, the SEBI had granted its approval for the merger of schemes between IDBI MF and LIC MF and had directed LIC to furnish a compliance report within a three-month timeframe. Order noted that the LIC duly submitted the compliance report to SEBI within the stipulated time frame.

Hence, the alleged violation on the part of LIC is to be viewed in the context of the efforts taken by the noticee to complete the merger of IDBI Mutual Fund with LIC Mutual Fund, SEBI said. 

In view of the above observations, the adjudication proceedings initiated against the notice (LIC) vide show cause notice dated May 31, 2023 is disposed of without imposition of any monetary penalty, it added.