The Securities and Exchange Board of India (Sebi) has directed Indian Bank and its mutual fund arm to pay investors the promised returns in Ind Prakash scheme.
The regulator has given the bank, the sponsor to the scheme, 30 days to revert to it with a funding plan for making the payment. The mutual fund and the bank could face action for violation of the Sebi Act if it fails to do this.
The mutual fund will have to pay within 10 days the redemption amount related to the net asset value (NAV) of Rs 40 crore. In addition, Sebi wants Indian Bank to pay investors another Rs 70 crore as per the indicative return promised by the mutual fund and its sponsor.
The mutual fund has also been asked to pay investors the returns promised for 1996-97 to investors in its Ind Jyoti scheme. The shortfall for the IndPrakash scheme is about Rs 70 crore and that for Ind Jyoti scheme, Rs 2.50 crore. Sebi sources said that the mutual fund has said it will meet the shortfall for Ind Jyoti but will not be able to do so for IndPrakash.
Sebi chairman DR Mehta issued the order on Tuesday evening under Section 11B of the Sebi Act which gives its powers to issue any directive in the interest of investors.
"We have directed them to redeem Plan A of the Ind Prakash scheme at the price assured in the offer document. In case of Plan B, the mutual fund will have to pay the cumulative returns as expressed in the offer document. If Ind Bank Mutual Fund is not in a position to assure returns, then the commitment will have to be borne by the sponsors of the scheme ie the Indian Bank," said Sebi executive director Ashok Kacker.
"They will have to submit the funding plan to the mutual fund and us within 30 days of the order. The redemption of the scheme at NAV would be concluded within 10 days. In case of Ind Jyoti too they would have to pay the dividend for 1996-97 to unitholders who stayed with the scheme," said Kacker.
"Failure to adhere to the order would render the mutual fund and the Bank to action under the provisions of the Sebi Act," said Kacker.
The Indian Bank officials had held that the returns promised in the offer document were only indicative in nature and must not be construed as assured returns. But Sebi has rejected this plea saying that since the bank had made a public assurance to investors in June this year, it must meet its commitment.
