Market regulator Securities and Exchange Board of India (SEBI) has restrained 11 entities, including Urban Infrastructure Venture Capital Ltd, its trustee and their respective directors, from associating themselves with any registered intermediaries, including mutual funds (MFs), alternative investment funds (AIFs) and portfolio management services (PMSs), which deal with investors' money for a period of one year, for flouting venture capital fund (VCF) rules. In addition, barring the trustee—Urban Infrastructure Trustees—the rest 10 entities have been prohibited from accessing the securities markets for one year. SEBI held them guilty of contravening various provisions of VCF Regulations and SEBI circular dated 18 December 2014.
The other entities named in the order are: Urban Infrastructure Trustees Ltd, PK Bansal, Sandeep Kedia, Jesal Sanghvi, RA Agarwal, Dharmesh Trivedi, Parag Parekh, Anand Jain, P Krishnamurthy, Rajeev Bhandari and SS Thakur.
Also, the 11 entities will have to ensure that the scheme (Urban Infrastructure Opportunities Fund) of the Fund—Urban Infrastructure Venture Capital Fund—is wound up by providing exit to its investors / unit-holders within a maximum period of three months (by 31 January 2023). The order has asked for two separate valuations of all the remaining assets of the scheme of the Fund (as on 31 October 2022) to be obtained from two independent reputed valuers).
Till date, the scheme has distributed Rs2,092 crore—about 87% of the fund corpus, as per the SEBI order. The market regulator had conducted an inspection of Urban Infrastructure Venture Capital Fund for the period April 2019 to March 2020, which was completed in February 2021.
Urban Infrastructure Venture Capital Fund was set up as a 'Trust' in January 2006 and registered with SEBI as a venture capital fund. The Fund has one scheme—the Urban Infrastructure Opportunities Fund. Its investment manager is the Urban Infrastructure Venture Capital Limited and the trustee is Urban Infrastructure Trustees Limited.
The SEBI order says that financial statements of the scheme (including extensions) reveal that it has not charged management fees from 1 July 2014.
It was noted that even though the term of the scheme (including extensions) had expired on 7 June 2015, investments amounting to Rs1,060.92 crore were not liquidated or repaid to investors.
Three complaints were received against the scheme in SCORES during the inspection period. Two out of the three complaints were made by Santosh Kumar Maheshwari as the scheme had not been wound up and his capital contribution invested in the scheme was not refunded. The third complaint was an anonymous one.
Based on the findings, a show-cause notice (SCN) was served asking the noticees to show cause why suitable directions under Section 11B of SEBI Act, 1992, read with regulations 29(c) and (d) of SEBI (Venture Capital Funds) Regulations, 1996 should not be passed against trustee, investment manager and their respective directors for the violation of provisions of regulation 23 (1) (a) of VCF Regulations and SEBI circular dated 18 December 2014.
In response to the show-cause notice, UIVCL and UITL, in their common reply dated 25 June 2021 submitted that due to several impediments such as global financial crisis, delay and slow moving regulatory approval, short funding from developers, high interest rates and construction cost as a result of which, by the end of the tenure of the scheme in June 2015 the scheme could return only Rs621 crore (25.5% of the fund corpus) to the investors.
“By not winding up the Scheme of the Fund within the prescribed time frame, UIVCL and UITL and their respective Directors have not only impaired the rights of its investors but the protracted and never ending time taken by UIVCL and UITL and their respective Directors to wind up the Scheme of the Fund by taking various pleas, completely oblivious to their obligation to do so quickly and promptly in compliance with the VCF Regulations, sends a wrong signal to the other market entities / intermediaries. As a regulator of the capital markets, SEBI has the duty to safeguard the interest of investors and protect the integrity of the securities market. Since the conduct of UIVCL and UITL and their respective Directors, is not in the interest of investors in the securities market, appropriate directions need to be issued against them, else it may lead to loss of investors’ trust in the securities market,” SEBI said in its order.
It may be recalled that in July 2022, Urban Infrastructure Venture Capital Fund (UIVCF), which counts Anand Jain's Jai Corp and Reliance Industries as core investors, had moved the Maharashtra Real Estate Regulatory Authority (MahaRERA) to cancel the registration of a joint venture project of the Lodha group in a bid to recover its dues worth over Rs900 crore from the project in south Mumbai's Mahalaxmi locality.
