No due diligence, Sebi slaps Rs 5 lakh on ICICI Pru Trust, ICICI Pru AMC

Markets regulator Sebi has imposed a total penalty of Rs 5 lakh on ICICI Prudential Trust and ICICI Prudential Asset Management Company for not exercising due diligence while making investment decisions.

The matter relates to ICICI MF's scheme -- ICICI Prudential FMCG Fund -- which was launched in March 1999 and as per the scheme information document (SID), the objective of the scheme was to generate long-term capital appreciation through investments made primarily in equities of select group of companies in the fast-moving consumer goods (FMCG) sector.

The regulator noted that investments were made in companies other than those in the FMCG industry which was against the mandate of the scheme and in violation of Sebi's rules and thereby ICICI Prudential AMC violated regulations.

Further, Sebi said ICICI Prudential Trust delegated the responsibility of the trustees to the asset management company (AMC) for declaring dividend and fixing the record date for distribution of dividend declaring dividend.

Sebi noted that trustees, being under such trust obligation ought to ensure that the timing and the quantum of distribution of dividend is in the best interest of investors and to prevent the AMC from giving benefit to select investors at the cost of maximum number of investors. "If the timing of declaration of dividend as well as quantum of dividend are decided by another entity i.e. the AMC, it will compromise the regulatory framework prescribed in this regard," it added.

"The noticees (ICICI Prudential Trust and ICICI Prudential AMC) have not exercised due diligence in the manner as expected from them while taking decision to make investments in companies not forming part of the FMCG industry and while delegating responsibility of the trustees to AMC for declaring dividend and fixing the record date for distribution of dividend declaring dividend," Sebi said in an order passed on Monday.

By such activities, the entities have not exercised proper due diligence and also have not exercised independent professional judgement while discharging their responsibilities at the relevant times, it added.

Accordingly, the Securities and Exchange Board of India (Sebi) has levied a total fine of Rs 5 lakh on them.