Sebi imposes Rs 3 lakh fine on Cardinal Capital Partners

Markets regulator Sebi Wednesday imposed a fine of Rs 3 lakh on foreign investor Cardinal Capital Partners as its sub-account failed to satisfy the broad based fund criteria.

Cardinal Capital Partners has been the foreign institutional investor (FII) of India Focus Cardinal Fund (IFCF) -- the sub-account -- from June 2011.

The sub-account (IFCF) has "failed" to satisfy the criteria of broad based fund, the Securities and Exchange Board of India (Sebi) said in an order.

Under the FII regulations, a broad based fund is categorised as a fund, established or incorporated outside India, which has at least 20 investors, with no single individual investor holding more than 49 per cent of the shares or units of the fund.

However, if the broad based fund has institutional investor(s), it shall not be necessary for the fund to have 20 investors and if it has an institutional investor who holds more than 49 per cent of the shares in the fund, then the institutional investor must itself be a broad based fund.

The regulator noted that all the four share classes of IFCF had investors who held more than 49 per cent of shares.

"... I note that the investors holding more than 49 per cent in their respective classes did not on their own meet the criteria of being a broad based fund.

"Therefore, because of the failure of such investor having more than 49 per cent to qualify as a broad based fund, I conclude that the subaccount (IFCF) has in turn failed to satisfy the criteria of broad based fund," Sebi Adjudicating Officer B J Dilip said.

As per FII regulations, a foreign institutional investor is responsible and liable for all acts of commission and omission of all its sub-accounts and other deeds and things done by them.

Accordingly, the regulator said Cardinal Capital Partners has violated the FII regulations and imposed a fine of Rs 3 lakh on it.