Case: Desmond Anthony D'Souza Vs. Sbi Mutual Fund

management activities.10. As regards the decision to merge the One India Fund with the Magnum Equity Fund, it has been stated that this was intended to improve the performance of the scheme which was below expectation. The Magnum Equity Fund is a large cap diversified equity fund and considering the growth potential and the capacity of the fund to deliver consistent long term performance, it has been stated that the merger would be in the interests of investors. The allotment of units was to take place on the basis of the NAV on 10 August 2012 which is the date of merger. The units allotted in the Magnum Equity Fund were based on an amount equal to the value of the units in the SBI One India Fund, on the date of merger. Investors holding units in the growth option were allotted units in the growth option in the transferee fund. Similarly, investors holding units in the dividend option were allotted units of the dividend option in the transferee fund. The swap ratio has been computed as the proportion between the NAV of the SBI One India Fund Scheme and the NAV of the SBI Magnum Equity Fund as of 10 August 2012. The NAV of the SBI One India Fund on the date of merger was Rs.10.43. The NAV of the SBI Magnum Equity Fund (Growth Option) on the date of merger was Rs.42.97 resulting in a swap ratio of 0.243 units. The NAV of the dividend option in the SBI Magnum Equity Fund on the date of merger was Rs.28.87 resulting in a swap ratio of 0.361 units.11. We have carefully considered the disclosures which have been made on affidavit both by SEBI and by the First Respondent. We have made a reference to those disclosures in a considerable degree of detail since the Petitioner, who appears in person, has articulated his line of enquiry in these proceedings bona fide and with a considerable amount of painstaking research. The issue raised related to the well being of investors and accountability towards their needs and concerns. Regulatory mechanisms must provide for accountability, responsiveness and transparency. SEBI has put into place Regulations which regulate the activities of mutual funds. The Regulations contain specific provisions that are designed to ensure that trustees and AMCs conduct their activities in a manner which would not be detrimental to and would protect the interests of investors. In the present case, there is nothing on the record whatsoever that would lead to the inference that there was lapse on the part of SEBI in ensuring that its regulatory regime is duly complied with. In so far as the First Respondent is concerned, it is evident that the One India Fund Scheme was an open ended diversified scheme. By its very nature, a Mutual Fund scheme whose object is the investment of funds in the equity market is subject to market risks that are associated with equity investments. The highlights of the scheme as disclosed in the scheme information document in fact indicated that between 70 to 100% of the net assets would be in the form of equity and equity related investments including derivatives with a high risk profile. The table which has been extracted earlier would indicate that the NAV of the One India Fund Scheme varied between Rs.5.47 on 31 March 2009 and Rs.10.84 on 31 March 2011. The returns of an investor would, therefore, of necessity depend upon the timing of the investment. For instance, investors when the NAV had fallen to a level as low as Rs.5.47 on 31 March 2009would stand to sustain a fair rate of appreciation of the investment as compared to investors who invested at the relatively higher NAV of Rs.10.84 on 31 March 2011.12. On this state of the record, it would not be appropriate for this Court to issue directions of the nature that are sought in these proceedings. The scheme for the merger of the One India Fund with the Magnum Equity Fund has received the approval of SEBI. The approval which has been granted by SEBI is not demonstrated to be based on extraneous considerations or without due application of mind to the relevant statutory requirements. A meeting of all the investors of the One India Fund Scheme is not mandated. The decision has been explained to be in the interests of depositors. In any event, consistent with the regulations any investor who did not desire the conversion of his investment to the Magnum Equity Fund was at liberty to exit from the scheme on the prevailing NAV without an exit load. In these circumstances, we find no reason or justification to order an independent outside audit. The requirements of audit are already in place under the regulations which have been made by SEBI. Finally, it will not be permissible for the Court to direct that the investment made by the Petitioner in the amount of Rs.2 lakhs should be returned with interest as payable on a fixed deposit of a nationalized bank. Fixed deposits of nationalized banks do not bear the risks associated with an investment in an equity based mutual fund scheme. But that is the very reason why the returns on fixed deposits, though stable, offer a much lower return than what an equity based mutual fund investment may provide. An investor in an equity based mutual fund scheme is conscious of the fact that the returns are liable to vary and that in a given case where the market has underperformed, as during the period here, returns may not be forthcoming. We, therefore, do not consider that the prayer for relief would be maintainable.13. In the view which we have taken, it is not necessary to render a conclusive finding on whether the First Respondent is state for the purposes of Article 12.14. For these reasons and having considered the matter in all its perspectives, we do not find any case for interference under Article 226 of the Constitution.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]11. We have carefully considered the disclosures which have been made on affidavit both by SEBI and by the First Respondent. We have made a reference to those disclosures in a considerable degree of detail since the Petitioner, who appears in person, has articulated his line of enquiry in these proceedings bona fide and with a considerable amount of painstaking research. The issue raised related to the well being of investors and accountability towards their needs and concerns. Regulatory mechanisms must provide for accountability, responsiveness and transparency. SEBI has put into place Regulations which regulate the activities of mutual funds. The Regulations contain specific provisions that are designed to ensure that trustees and AMCs conduct their activities in a manner which would not be detrimental to and would protect the interests of investors. In the present case, there is nothing on the record whatsoever that would lead to the inference that there was lapse on the part of SEBI in ensuring that its regulatory regime is duly complied with. In so far as the First Respondent is concerned, it is evident that the One India Fund Scheme was an open ended diversified scheme. By its very nature, a Mutual Fund scheme whose object is the investment of funds in the equity market is subject to market risks that are associated with equity investments. The highlights of the scheme as disclosed in the scheme information document in fact indicated that between 70 to 100% of the net assets would be in the form of equity and equity related investments including derivatives with a high risk profile. The table which has been extracted earlier would indicate that the NAV of the One India Fund Scheme varied between Rs.5.47 on 31 March 2009 and Rs.10.84 on 31 March 2011. The returns of an investor would, therefore, of necessity depend upon the timing of the investment. For instance, investors when the NAV had fallen to a level as low as Rs.5.47 on 31 March 2009would stand to sustain a fair rate of appreciation of the investment as compared to investors who invested at the relatively higher NAV of Rs.10.84 on 31 March 2011.12. On this state of the record, it would not be appropriate for this Court to issue directions of the nature that are sought in these proceedings. The scheme for the merger of the One India Fund with the Magnum Equity Fund has received the approval of SEBI. The approval which has been granted by SEBI is not demonstrated to be based on extraneous considerations or without due application of mind to the relevant statutory requirements. A meeting of all the investors of the One India Fund Scheme is not mandated. The decision has been explained to be in the interests of depositors. In any event, consistent with the regulations any investor who did not desire the conversion of his investment to the Magnum Equity Fund was at liberty to exit from the scheme on the prevailing NAV without an exit load. In these circumstances, we find no reason or justification to order an independent outside audit. The requirements of audit are already in place under the regulations which have been made by SEBI. Finally, it will not be permissible for the Court to direct that the investment made by the Petitioner in the amount of Rs.2 lakhs should be returned with interest as payable on a fixed deposit of a nationalized bank. Fixed deposits of nationalized banks do not bear the risks associated with an investment in an equity based mutual fund scheme. But that is the very reason why the returns on fixed deposits, though stable, offer a much lower return than what an equity based mutual fund investment may provide. An investor in an equity based mutual fund scheme is conscious of the fact that the returns are liable to vary and that in a given case where the market has underperformed, as during the period here, returns may not be forthcoming. We, therefore, do not consider that the prayer for relief would be maintainable.13. In the view which we have taken, it is not necessary to render a conclusive finding on whether the First Respondent is state for the purposes of Article 12.14. For these reasons and having considered the matter in all its perspectives, we do not find any case for interference under Article 226 of the Constitution.