New Delhi: Citing complete lack of regulations for mutual fund distributors and portfolio management products, the Sebi has sought the Supreme Court’s permission to start afresh its process to appoint Self-Regulatory Organisations (SROs).
A bench led by Justice Ranjan Gogoi has asked the Sebi to place all the latest developments in this regard in an application while seeking the Court’s nod to issue fresh notice inviting applications for appointment as SRO.
The move by the Securities and Exchange Board of India (Sebi) has come almost three years after selection of a SRO by the market regulator got entangled into legal wrangle, leading to a vacuum in this period.
An SRO is supposed to monitor all mutual fund distributors, apart from ensuring a cordial relationship between mutual fund houses and distributors.
On August 30, Solicitor General Ranjit Kumar had mentioned the matter before the Chief Justice of India, seeking an urgent hearing of this case. The law officer said that lack of regulation through professional bodies was in nobody’s interest and that concerns about mutual fund distributors not being regulated and complaints against them for mis-selling products remained unaddressed. The CJI had allowed his plea.
On Wednesday, senior advocate Arvind Datar, appearing for the Sebi, raised the same concerns and urged the Court to let them start the process afresh. Datar requested the bench that Sebi may be permitted to issue notice inviting applications afresh for appointment of SROs.
According to Datar, Sebi would like to proceed in the matter afresh in view of the fact that three years have elapsed during the pending case which pertained to selection of one SRO.
He pointed out that many other entities have become eligible in the meantime and therefore, the issue involved in this case might have become infructuous.
At this, the Court ordered: “The Sebi is permitted to bring the aforesaid developments on record and file an application with the aforesaid prayer(s), which would be considered once such an application is filed. Registry is directed to list the application immediately after such an application is filed.”
The Court is hearing an appeal filed by Financial Planning Supervisory Foundation (FPSF), challenging an in-principle approval given to the Institute of Mutual Fund Intermediaries (IMFI) to act as a SRO for mutual fund distributors.
The Securities Appellate Tribunal (SAT) had in September 2015 set aside the Sebi's decision to grant approval to IMFI, and ordered the regulator to hear all applicants for the position of the SRO again.
While FPSF moved the top court in 2015, seeking clarification on the definition of a company under the SRO Regulations, the Sebi tried to restart the process for selection of SROs. This, however, invited wrath of the Court, which reprimanded Sebi for pursuing a case already being heard by it.
The bench had then also said that it had to resolve an apparent contradiction with the SRO regulations and whether a charitable organization licence could be granted to a company under Section 25 of the Companies Act 1956 if it hadn’t been incorporated first.
IMFI is promoted by mutual fund industry body Association of Mutual Funds in India (Amfi) whereas FPSF is promoted by Financial Planning Standards Board India.
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