India Asset Growth Fund-II, Essel Finance Advisors and KMPs Fined Rs24 Lakh by SEBI over AIF Norm Breaches

Moneylife Digital Team 03 July 2025

Investor Interest

Market regulator Securities and Exchange Board of India (SEBI) has imposed a penalty of Rs12 lakh on India Asset Growth Fund-II and an additional Rs12 lakh, payable jointly and severally, on its manager, Essel Finance Advisors and Managers LLP, along with chief executive officer (CEO) Vishnu Prakash Rathore, assistant vice president for legal Arpan Sarkar and assistant manager Jaykishan Kikani, for widespread non-compliance with the SEBI Alternative Investment Funds (AIF) Regulations, 2012.

In an order, Amit Kapoor, adjudicating officer (AO) of SEBI, says that "Every AIF must strictly comply with all regulations set by the regulator to protect investors, prevent mis-selling, ensure fair asset valuation, and support orderly market growth. Adherence to these rules builds trust and confidence among domestic and international investors, which is crucial for the healthy development of the securities market.”

SEBI, following an inspection covering the period from 1 April 2021 to 31 March 2022, observed numerous violations by the Fund and its key management personnel (KMPs).

A major lapse was the failure to draw down the full committed capital from six investors, including the investment manager. Despite clear provisions in the private placement memorandum (PPM) for action against defaulting contributors, the Fund failed to enforce these clauses, undermining the interests of investors who had fully met their commitments

Further, SEBI says the Fund breached investment norms by allocating over 25% of its investible funds to a single investee company, Samruddhi Realty Ltd (SRL), far exceeding regulatory limits. While the Fund blamed macroeconomic factors such as demonetisation and the rollout of real estate regulatory authority (RERA) and goods and services tax (GST) for falling short of its Rs250 crore target corpus, the market regulator pointed out that no documentary evidence of such commitment was submitted.

Another key violation involved the improper valuation of fund units. Instead of valuing the non-convertible debentures (NCDs) held by the Fund, the valuation was based on the real estate assets held by investee companies, misrepresenting the true worth of the securities. SEBI emphasised that NCDs must be valued independently, considering risk factors like creditworthiness and repayment ability.

In addition, the Fund failed to register with the financial intelligence unit – India (FIU-IND) and did not disclose the required details of its principal officer and designated director. This non-registration persisted despite claims of technical issues and insufficient follow-up.

SEBI also flagged the Fund for not disclosing the investor charter to its investors during the inspection period. Although the updated PPM containing the charter was submitted to SEBI, it was never shared with investors, breaching disclosure norms effective from 1 January 2022.

There were further compliance failures, including a 10-day delay in submitting the PPM audit report, failure to include key terms in the PPM, and not circulating the revised version to investors. Additionally, the fund did not provide a clear distribution waterfall detailing how fees and charges apply to different investor classes and failed to appoint a benchmarking agency in a timely manner.

SEBI held that the fund manager, Essel Finance Advisors and Managers, was responsible for all operational and compliance failures under Regulation 20(5). The KMPs Mr Rathore, Mr Sarkar, and Mr Kikani were also found liable for failing to uphold their obligations under the AIF Regulations and the code of conduct.

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