HDFC Capital pays Rs 36 lakh to Sebi to settle AIF rule breach case

HDFC Capital Advisors and HDFC Capital Affordable Real Estate Fund-I on Tuesday settled with Sebi a case pertaining to the alleged violation of AIF rules after paying Rs 36 lakh towards the settlement amount.

HDFC Capital Advisors -- the investment manager of HDFC Capital Affordable Real Estate Fund-I (HCARE-1), an Alternative Investment Fund (AIF) -- had filed suo motu settlement applications under Sebi's settlement rules.

HDFC Capital Advisors and HCARE-1 sought to resolve enforcement proceedings that may be initiated against them for the alleged violations of AIF norms by proposing to settle by neither "admitting nor denying the findings of fact and conclusions of law".

As per the settlement order, the markets watchdog will not initiate any further step against HDFC Capital and its managed fund for the violations.

However, the regulator could initiate action in case any misrepresentation comes to light or if there is a breach in the terms of the settlement.

"...it is hereby ordered that any proceedings that may be initiated for the violations are settled in respect of the applicants (HDFC Capital and HCARE-1)," Sebi's Whole-Time Members Amarjeet Singh and Kamlesh C Varshney said.

The case relates to the investments made in 2016 by HCARE-1 in non-convertible debentures of Acme Realties and Ascent Construction -- companies affiliated with Acme Housing India.

The Securities and Exchange Board of India (Sebi) observed that invested funds were used by the Acme entities not only for construction purposes but also to service interest and repay existing debt to HDFC Ltd (now known as HDFC Bank).

The regulator's findings pointed to serious concerns over conflict of interest.

Sebi also noted that the deal bypassed the conflict resolution committee, contrary to internal policy requirements, and HDFC Capital Advisors reported that no conflict of interest arose in its compliance test report (CTR) for 2016-17.

"Yet, there appears to be a conflict of interest in the decision making process by the HCARE-1 for investment in Acme Realties and Ascent Construction," Sebi said.

Therefore, HDFC Capital Advisors is alleged to have submitted inaccurate information in its CTR for the FY 2016-17.

"...applicants were alleged to have failed to exercise independent professional judgment and act in the interest of investors, having placed the interest of the sponsor of applicant no 2 (HCARE-1) above the interest of its investors," it added.

Pursuant to the receipt of the settlement application, HDFC Capital Advisors and HCARE-1 filed revised settlement terms which was approved by Sebi's High Powered Advisory Committee.

Subsequently, HDFC Capital Advisors informed about the remittance of the settlement amount on behalf of both the applicants, which was confirmed by the markets watchdog.