SEBI slaps ₹3-lakh fine on Kotak AIF

Market regulator SEBI has levied a penalty of ₹3 lakh on Kotak Alternate Investment Fund and its trustees for extending the tenure of its close-ended venture capital fund Kotak SEAF India beyond the prescribed tenure.

The corpus of VCF was ₹698 crore and had invested ₹577 crore in 18 portfolio companies.

Per the first closing of the fund in March 2005, the tenure of the fund was for nine years and extendable by one year. It was supposed to end on March 30, 2015 with a one year extension.

However, the fund took three extensions of seven years and it finally closed on March 30, 2022 with a super majority of 75 per cent from investors.

SEBI ruled that after the maturity of the fund, as per the Private Placement Memorandum, the trustees have no control over the fund.

Kotak AIF said it had to extend the tenure as the scheme was unable to divest some of its investments as they were under litigation.

However, SEBI said the litigation on investment cannot be a valid ground for extension of tenure as the venture capital regulation has no provision for it.

SEBI said unit holders had no say in deciding the term of the fund at the initial stage of launching of the Scheme and they only subscribed to the scheme as the terms of the scheme suited their investment objective.

“It cannot be considered that the unit holders are supreme authority to decide the tenure of the scheme of the fund, even beyond the further period of one year of extension permitted as per the terms of Private Placement Memorandum,” it said.

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