The Supreme Court on Monday upheld the findings and penalties against Kotak Mahindra Asset Management Company (Kotak AMC), its Managing Director Nilesh Shah and other senior officials in the Essel Group fixed maturity plan (FMP) case.
Dismissing appeals filed by Kotak AMC, Kotak Trustee and six senior executives, the apex court upheld SEBI’s findings that the fund house had failed to exercise due diligence, extended the maturity of debt securities beyond the tenure of the schemes without following regulations, and did not make timely disclosures to investors and the regulator.
The court also imposed litigation costs of ₹30 lakh on Kotak AMC and ₹20 lakh on Kotak Trustee, in addition to upholding the monetary penalties earlier imposed by SEBI.
“The 1996 Regulations make no distinction between a breach resulting in profit and a violation resulting in loss. Neither do we,” the court said. “Market integrity being the paramount consideration, profit or loss to investors is immaterial to determine whether a regulatory infraction has occurred.”
A Bench of Justices Dipankar Datta and Satish Chandra Sharma concluded with a warning to the industry: “Mandate first, gains later; SEBI compliance, never falter.”
“This judgment is likely to strengthen governance standards across the mutual fund industry. It provides clarity on the role of trustee companies and their senior executives, reinforcing that effective compliance and independent fiduciary oversight are integral to maintaining investor confidence and the integrity of the capital markets,” said K.C. Jacob, Partner at Economic Laws Practice.
The dispute arose from investments made by six closed-ended Kotak Mutual Fund FMPs in zero-coupon non-convertible debentures issued by Essel Group entities Konti Infrapower & Multiventures and Edison Utility Works. The ₹266-crore investments were backed by pledged shares of .
After the value of the pledged shares fell sharply in early 2019, Kotak AMC chose to restructure the debt instead of invoking the pledged shares. As a result, portions of the FMPs were redeemed after their scheduled maturity dates. SEBI held that the fund house had effectively altered the maturity of the schemes without obtaining unitholder consent or complying with the regulatory framework governing roll-overs.
“The manner in which the appellants have conducted themselves throughout, while keeping the unitholders, SEBI and us in the dark, meets our stern disapproval,” the order said.
The ruling upholds the Securities Appellate Tribunal’s March 2026 order, which had set aside SEBI’s direction requiring Kotak AMC to disgorge part of its investment management fees on the ground that investors had eventually received their dues with interest, but had sustained the regulator’s findings of regulatory violations and monetary penalties.
While Kotak AMC has not issued an official statement on the judgment, a person familiar with the matter said: “We respect the Supreme Court’s verdict. Our understanding has always been that we acted in the best interests of investors. While the judgment follows the letter of the law, we believe our actions were consistent with its spirit, as immediate enforcement of the underlying security could have led to substantial losses for investors.”