SAT rejects FPIs' appeals on warrants, upholds Sebi's disclosure mandate

The tribunal upheld Sebi's disclosure circular requiring FPIs to reveal ownership structures to the ultimate beneficiary level, rejecting appeals by Elara and Vespera Funds

The Securities Appellate Tribunal (SAT) has dismissed the appeals filed by two Mauritius-based foreign portfolio investors (FPIs), Elara India Opportunities Fund and Vespera Fund, challenging Sebi’s rejection of their applications seeking exemption from paying the remaining 75 per cent amount on convertible warrants allotted by certain domestic companies.

 

Tribunal backs Sebi’s granular disclosure circular

 

The SAT upheld Sebi’s August 2023 circular mandating granular disclosures by FPIs regarding ownership and control structures on a full look-through basis up to natural persons, without any threshold.

 

The circular required FPIs to realign their portfolios or make these disclosures by January 29, 2024. Failure to comply would render FPI registrations invalid, requiring exit from domestic securities markets within stipulated timelines.

 

 

Elara and Vespera had invested roughly Rs 7,650 crore and Rs 2,267 crore, respectively, in Indian securities and subscribed to warrants of several companies including SpiceJet, Felix Industries, Mishtann Foods and Rushil Décor after the issuance of the Sebi circular.

 

Despite attempts to claim exemption under the pooled investment vehicle (PIV) category, their applications were rejected and their registrations were deemed invalid after March 2024 due to non-compliance with disclosure norms.

 

SAT: failure was conscious, not technical

 

The appellants argued that the failure to pay the balance amount on warrants and convert them into shares was due to procedural and technical reasons beyond their control, and sought relief under Regulation 43B of the Sebi FPI Regulations, which allows relaxation for non-compliance caused by factors beyond the entity’s control.

 

However, the tribunal noted that both FPIs had full knowledge of Sebi’s disclosure requirements yet consciously chose not to make granular disclosures and still subscribed to the warrants, thereby violating Sebi’s circular.

 

The SAT highlighted that their failure was not technical but a deliberate business decision. Moreover, granting exemptions after such non-compliance would be unfair to other FPIs adhering to the regulations.

 

Sebi circular adequately informed FPIs of obligations

 

The tribunal observed that Sebi’s October 2023 circular and follow-up communications had adequately informed the appellants of their obligations and timelines. It further noted that the appellants delayed informing Sebi or their custodian about the warrant purchases until October 2024, nearly a year after the circular’s enforcement. 

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