BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI

              Appeal No. 135 of 2011   

                 Date of decision: 5.7.2012  

1. Tushar Jani HUF
2. Bhairavi T. Jani
3. Ashok K. Jani
4. Ashok K. Jani HUF
5. Kokila A. Jani
6. Hiral Jani
7. Nilay A. Jani
8. Charu Jani
9. Anjani Jani
10. Premila Bhatt
11. Rajiv Bhatt
12. Metrocall Pvt. Ltd.

201, Navratan Building,
69, Poad,
Carnac Bunder,
Mumbai – 400 009.

… Appellants

Versus

1. Securities and Exchange Board of India
   SEBI Bhavan, Plot No. C-4A, G Block,
   Bandra Kurla Complex, Bandra (East),
   Mumbai – 400 051.
2. Board of Trustees of HSBC Mutual Fund
   314, D.N. Road,
   Fort, Mumbai – 400 001.
3. HSBC Mutual Fund
   314, D.N. Road,
   Fort, Mumbai – 400 001.
4. HSBC Asset Management (India Private Limited
   314, D.N. Road,
   Fort, Mumbai – 400 001.
5. Chief Executive Officer of HSBC
   Asset Management (India Private Limited)

314, D.N. Road,
Fort, Mumbai – 400 001. …Respondents

Mr. Zal Andhyarujina, Advocate with Mr. Deepak Dhane, Advocate for Appellants.

Ms. Daya Gupta, Advocate with Ms. Harshada Nagare, Advocate for Respondent no. 1.
Mr. Dinyar Madon, Senior Advocate with Mr. Riyaz Chagla and Ms. Devika Deshmukh,
Advocates for Respondent nos. 2 to 5.

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CORAM : P. K. Malhotra, Member & Presiding Officer ( Offg.)
S.S.N. Moorthy, Member

Per : S.S.N. Moorthy

The appellants in this case are stated to be regularly investing in shares and mutual

fund schemes listed and recognized by the stock exchanges through intermediaries

registered with the Securities and Exchange Board of India (for short the Board). The

appellants belong to one family. Respondent no.1 is the Board. Respondent no.2 is the

Board of Trustees of HSBC Mutual Fund. Respondent no.3 is HSBC Mutual Fund set up in

the year 2002 with HSBC Securities and Capital Markets (India) Private Limited as its

sponsors. Respondent no.4 is a private limited company promoted by HSBC Limited and

appointed by respondent no.3 to manage the mutual funds and operate its schemes in

accordance with the provisions of the Securities and Exchange Board of India (Mutual

Funds) Regulations, 1996 (hereinafter referred to as the Regulations). Respondent no.5 is

the Chief Executive Officer of the fourth respondent.

2. The facts of the case, in brief, are that the appellants invested a large sum of money

in the HSBC Gilt Fund – Short Term Plan of respondent nos.2 to5 in October, 2008. It is

the case of the appellants that around third week of February 2009, they came to know from

their market sources that the respondents have made certain changes in the scheme and on

account of the said changes the investments made by the appellants have been exposed to

risk and the NAV/priceof appellinveents fallsubstall efor

making these changes the respondents were required to offer an exit option to the appellants

under regulation 18(15A) of the Regulations which requirement has not been complied with

by the respondent nos.2 to 5.

3. The issue that arises in this appeal is whether the changes made by respondents 2 to

5 in the Mutual Fund scheme HSBC Gilt Fund – Short Term Plan/Scheme had changed the

fundamental attributes thereof or modified the same affecting the interest of unit holders so

as to attract the provisions of regulation 18(15A) of the Regulations. The prayer of the

appellants contained in the grounds of appeal is that the changes made by respondent nos. 2

to 5 in the above plan/scheme on January 5, 2009 altered the fundamental attributes of the

scheme attracting the provisions of regulation 18(15A) of the Regulations and the appellants

be permitted to exit the aforesaid scheme/plan at the NAV/Price prevailing on January 5,

2009.

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4. We have heard Shri Zal Andhyarujina, learned counsel for the appellants

Ms. Daya Gupta, Advocate for Respondent no. 1, and Shri Dinyar Madon, learned senior

counsel, for respondent nos.2 to 5. On a consideration of the arguments advanced on both

sides we are of the view that the issue under consideration in this appeal is squarely covered

by the order of this Tribunal in the case of Subramanian R. Venkat and Anuradha

Venkatasubramanian vs. Securities and Exchange Board of India and others decided on

May 3, 2011 (Appeal no.111 of 2010). This Tribunal allowed that appeal holding that the

changes brought about in the scheme altered the fundamental attributes thereof and also

modified the same affecting the interest of the unitholders. Following directions were issued

in the said order:-

“For rreeabove, allthe peal, aside findings
the whole time member on issue (a) as formulated in para 4 of the impugned
order and hold that the changes brought about in the scheme altered the
fundamental attributes thereof and also modified the same affecting the interest
of the unitholders. In view of these findings, we would have normally issued a
direction to respondents 2 to 5 to comply with Regulation 18(15A) of the
Regulations and give an exit route to all those who were unitholders on the date
of the change. We are refraining from issuing such a direction as we were
informed by the respondents during the course of the hearing that NAV of the
scheme has now substantially increased and that no unitholder shall like to exit
at the then prevailing NAV which was much lower. Moreover, no other
unitholder/investor has come up in appeal before us. This, however, does not
mean that the appellants who have been agitating the matter can be deprived of
their right to exit the scheme as on the date of the change at the then prevailing
NAV. A direction is, therefore, issued to respondents 2 to 5 to comply with
Regulation 18(15A) of the Regulations qua the appellants and provide them
with an exit route. The appellants are also directed to furnish adequate proof of
the price at which they exited the scheme. We are issuing this direction in
exercise of our powers under Rule 21 of the Securities Appellate Tribunal
(Procedure) Rules, 2000 in order to secure the ends of justice. Parties are left
to bear their own .”

5. Shri Dinyar Madon, learned senior counsel for respondent nos. 2 to 5 stated before

us that the order passed by this Tribunal in the case of Subramanian R. Venkat referred to

above is not implementable as the appellants before us has already exited the scheme. The

case of the appellants is also distinguishable from that of Subram anian . case

these appellants exited the scheme before March 12, 2009 when the change made in the

scheme came into force.

6. We are not inclined to accept the argument advanced by the learned senior counsel.

On a perusal of the order of this Tribunal in the case of Subramanian R. Venkat it is clear

that the above issues have been considered specifically in that order. For ease of reference,

the relevant portion of the order is extracted below.

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“ It was then argued by the learned senior counsel that since the appellants had
exited from the scheme in March, 2009 on their own volition, they have ceased
to be unit holders and any relief granted to them would be in the form of
compensation which is beyond the jurisdiction of this Tribunal and falls within
the scope of a Civil Court which alone can deal with such matters. Here again,
we are unable to agree with the learned senior counsel. If the grievance of the
appellants is justified, then a direction must issue to respondents 2 to 5 to
comply with Regulation 18(15A) of the Regulations as on the date of the
change. In that event we will have to hold that the Board erred in not issuing
such a direction and that such a direction would only mean compliance with
the provisions of the Regulations. If such a direction results in the appellants
being compensated, so it be. It is true that the appellants have exited the
scheme and that was because the NAV was steeply falling and it appears that
they did not have the capacity to take further risks and bear further losses.
Their conduct in exiting the scheme cannot, in the circumstances of the case,
be said to be unreasonable so as to disentitle them to come up in appeal. It was
pointed out by the learned counsel for the respondents that large number of unit
holders continued with the scheme and did not exit. That may be so as they
may be having a larger risk taking capacity. This fact also does not make the
appellants ineligible for claiming the relief which they may otherwise be
entitled to. In the result, we overrule the preliminary objection raised on behalf
of the respondents. ”

7. The above observations would clearly show that the issue regarding provision of exit

route and eligibility for claiming relief which the appellants otherwise would have obtained

has been clearly considered in the above decision. So we cannot accept the view canvassed

by respondent nos. 2 to 5 that the order of the Tribunal in the case of Subramanian R.

Venkat is not implementable.

8. With regard to the issue that the appellants have exited the scheme prior to the

change brought into force with effect from March 12, 2009, we find from the chart at

Exhibit B in the appeal memorandum that the appellants have exercised their redemption

option on 2nd March, 2009, 3rd March, 2009 and 4th March, 2009 except in respect of the

following transactions:

(1) Hiral Jani exercised redemption option on November 7, 2008.

(2) Rajiv Bhatt exercised redemption option on February 9, 2009 and

(3) Ashok K. Jani HUF exercised redemption option on February 13, 2009.

Regulation 18(15A) of the Regulations leaves no room for doubt that the trustees

cannot bring about a change in the fundamental attributes of any scheme or any other change

therein which will modify the scheme and affect the interest of unitholders unless a written

communication about the proposed change is sent to each unitholders and an advertisement

is given in the newspaper as is prescribed in the Regulations and the unitholders are given an

option to exit the scheme at the prevailing NAV without any exit route. Perusal of the

newspaper advertisement published in Financial Express on March 3, 2009 a copy of which

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is available on page 467 of the paper book makes it clear that the changes in the scheme

were effective from March 12, 2009 but there is nothing on record to show that exit route

was provided to the appellants as required under the aforesaid Regulations. Therefore, we

are of the view that the appellants are entitled to the same relief as was granted by this

Tribunal in the case of Subramanian R. Venkat. However, with regard to the redemptions

on November 7, 2008, February 9, 2009 and February 13, 2009 the learned counsel for the

appellants is justified to say that they are not entitled to the benefit of the order passed by

this Tribunal in the case of Subramanian R. Venkat because all these redemptions were prior

to the changes carried out in the scheme.

Subject to our above observations, we hold that the appellants are entitled to the

same relief as was given by this Tribunal to the appellant in Appeal no.111 of 2010 decided

on May 3, 2011.

The appeal stands disposed of as above with no order as to costs.

                       Sd/-  
              P.K. Malhotra  
                   Member &  
  Presiding Officer ( Off g.)  






                       Sd/-  

S.S.N. Moorthy
Member

5.7.2012
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