The Securities Appellate Tribunal (SAT) stayed an order issued by the Securities and Exchange Board of India (SEBI) to ban Vivek Kudva, head of Asia Pacific distribution, Franklin Templeton and his wife Roopa Kudva (managing director, Omidyar Network Ltd) from accessing the capital market for one year. Vivek Kudva challenged the SEBI order saying the market regulator had “overstepped” its powers in taking the decision.
While granting interim relief, SAT directed the Kudvas to retain the entire disgorgement amount in an escrow account and also deposit 50% of the penalty amount within three weeks.
In an appeal heard by SAT, Kudva argued that he acted only on public information. SEBI objected to his position, but the SAT judges decided to put the ban on hold while his appeal is heard. However, SAT said that Kudva would still need to deposit half of the penalty imposed on him.
Kudva contended that Indian law prohibits unfair trade practices, but mutual fund redemptions were not a “trade” and were akin to withdrawing one’s own money from a bank.
SEBI had “overstepped its authority and misused the discretion” while passing its order and there was no reasoning in the regulator’s decision “to justify the draconian directions and restrictions,” Kudva’s appeal asserted.
Last month, SEBI had imposed a one-year market ban on Kudva and his wife (Roopa Kudva) and imposed a total penalty of Rs 7 crore
on them. It said it was not “fair conduct” as Kudva was privy to non-public information.
On 19 March 2020, FT-AMC had shared the information on negative return of the six debt schemes with Mr Kudva. Subsequently, Mr Kudva and his mother started redeeming their investments from debt schemes from 20 March 2020.
On 23 March 2020, Mr Kudva's wife redeemed all her investments from FI-STIP and a portion of her investments from FI-IOF. Further, on 24 March 2020, Kudva's wife and mother redeemed all their remaining investments from FI-IOF.
SEBI had also alleged that Vivek Kudva passed on material non- public information to his wife, using which she also redeemed her mutual fund units in an unfair manner.
They had cumulatively redeemed units amounting to Rs30 crore in the six wound- up debt plans while in possession of material non- public information, which SEBI held as unfair trade practice.
The Kudvas were also asked to deposit an amount of Rs22.64 crore in an escrow account to the SEBI, which will be released to them along with the cash being disbursed to other investors. This is the amount they received on redemption before the six schemes of Franklin Templeton Mutual Fund were shut last year.
Last week SAT granted interim relief to Franklin Templeton with respect to the SEBI order restraining Frankin from launching any new debt scheme for the next two years. The tribunal also cut down the penalty amount of Rs512 crore to less than half (Rs250 crore) to be deposited within three weeks in an escrow.
SAT has now listed both the appeals of Franklin Templeton and the Kudvas against the SEBI orders for final hearing on 30th August.
In April 2020, Franklin Templeton India announced that it was closing six of its credit schemes due to liquidity issues amid the coronavirus crisis. The schemes which have been shut are Low Duration Fund, Ultra Short Bond Fund, Short Term Income Plan, Credit Risk Fund, Dynamic Accrual Fund, Income Opportunities Fund.