TaxTMI 
TaxTMI 
2025 (11) TMI 1935
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.... intermediaries for a period of three months from the date of order for violation of SEBI (AIF) Regulations [Securities and Exchange Board of India (Alternate Investment Fund) Regulations, 2012.] and its Circular [SEBI Circular No. CIR/IMD/DF/7/2015 dated October 1, 2015]. 2. We have heard Shri Sharan Jagtiani, learned Senior Advocate for the appellant and Shri Sumit Rai, learned Advocate for the respondent. 3. Brief facts of the case are, Brick Eagle India Affordable Housing Trust ('Trust' for short) was created under a trust deed dated October 5, 2016. The settlor of the Trust appointed 'Milestone Trusteeship Services Private Limited' ('Milestone' for short) as the trustee. Brick Eagle Capital Advisory LLP ('Investment Manager' for short) was appointed as an Investment manager of Trust. The Trust had launched a scheme 'Brick Eagle India Affordable Housing Fund' ('Scheme' for short) with a target corpus of Rs.500 crores. According to the Private Placement Memorandum (PPM), the first closing of scheme was achieved on August 31, 2017, with a capital commitment of Rs.100 Crores. According to the PPM, the second closing with a commitment of Rs.200 Crores ought to have been made ....
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.... or before February 28, 2019. The scheme has been wound up in July, 2024, which is well within the extendable seven years period. Failure to achieve second and final closing are mere technical breaches which have not caused any prejudice to the investors. Such failure was not deliberate by Milestone before merger and after merger, the appellant has done the needful to secure the interest of the investors. d) The impugned order fails the test of proportionality. The appellant has been made to suffer the harsh and burdensome penalty in the form of impugned directions, which is almost the same penalty imposed on the Investment Manager who was charged with several other and much serious charges. e) The obligation of operating and managing the Alternative Investment Fund is upon the investment manager. The obligation of raising funds from investors is purely commercial activity and the Investment managers are responsible for meeting the deadlines. Thus, the charge against the appellant is erroneous. 6. In reply, Shri Sumit Rai, learned Advocate for SEBI submitted that: a) Trustee's liability does not extinguish on appointment of the manager. Under section 1....
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....of respective parties. e) The Appellant has sought to divert the issue suggesting that the fund was wound up eventually and investors were paid. But, no explanation has been provided with regards to the inaction since 2018 when the fund became non-compliant with PPM and AIF Regulations. The appellant got into action only after SEBI initiated action. Such conduct on part of the appellant is neither an exculpating factor nor a mitigating factor and therefore, this appeal is devoid of merits and is liable to be dismissed. 7. We have carefully considered the rival contentions and perused the records. 8. Undisputed facts are, during the inspection period (April 1, 2019 to March 31, 2020), Milestone was the trustee. It was amalgamated with the Catalyst Trusteeship Limited on May 23, 2022. 9. By the impugned order, SEBI has directed the appellant not to take up new assignment as a trustee of alternative investment fund for a period of one year and restrained from associating with SEBI registered intermediaries etc., for a period of three months. The said directions have been stayed by this Tribunal by the interim order dated March 13, 2024. 10. The principal grounds u....
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....ndent professional judgment. iii. Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx." 14. A careful perusal of the above clauses clearly shows that violation of clauses 2(C)(b)(i) and (ii) are attributable to the manager and violation of Clause 2(C)(c)(ii) is attributable to both the manager and trustee which mandates a trust to maintain high standards of integrity and fairness in its dealings. In the show cause notice, SEBI has alleged violation of Clause 2(C)(c)(ii) against the appellant. Upon adjudication, the learned WTM has held in the impugned order [In para No. 19.94] that all liabilities of Milestone stand transferred to the appellants and accordingly held the appellant liable for violation of clauses 2(C)(b)(i) and (ii) and 2(C)(c)(iii) (sic ii) of the Circular. 15. It is not in dispute that Milestone could not achieve the second and final closure. Though clause 2 (C)(c)(ii) is applicable, it is relevant to note that Catalyst is the successor Trustee. It was urged on behalf of the appellant that a successor trustee is not liable for acts and omissions of its predecessor. Appellant has pleaded in the memorandum of appeal that in view of Section 25 of the Indian Trust....