had granted Indiabulls permission to not pay its debenture holders, including MFs, as long as the Reserve Bank of India’s (RBI’s) moratorium was in place.
On March 27, the RBI allowed financial institutions and banks to offer a moratorium to their borrowers. However, the moratorium is not for non-convertible debentures
(NCDs) and bonds because they can’t be treated on a par with term loans.
The Indiabulls group moved court and argued that it was not in a position to meet its payment obligations because it was not receiving money from borrowers.
“The Division Bench was concerned about the MF industry
and the fact that any such moratorium could affect the public at large. If the interim order was not set aside, many more borrowers would have asked for similar concessions. This would have led to panic in the MF industry
and resulted in value erosion for investors,” said Shankh Sengupta, counsel representing the Amfi.
In the writ petition against Indiabulls, AMFI counsel argued the single-judge order had not levelled the playing field but had weakened the position of the debenture holders, including MFs and unit holders, who will seek redemption of funds upon maturity before May 19.
The judge committed an error by overriding the legislative and executive power of Sebi by exercising its own discretion and passing an order in favour of Respondent No. 1 (Indiabulls), it had observed.
It said the order was passed without considering that it will open the floodgates for the other borrowers of MFs and would seek a postponement of its payment obligations.
Judge has failed to consider the catastrophic impact that the order can have on the MF industry
in India. Irreparable harm will be caused to unit holders, the credit rating of mutual funds, legal liability and exposure to mutual funds
as well as the economy — when the mutual funds are unable to meet their redemption obligations because of lack of funds from Indiabulls, noted Amfi petition.
It further said that this will lead to a ripple effect that will spread chaos in the economy only on account of the impugned order, affecting millions of household savings and small investors as indeed large bodies corporate, too.
“Impugned order is erroneous on merit, it has been passed without jurisdiction. Single Judge has usurped the power vested in Sebi to conduct an enquiry in the matter, satisfy itself and thereafter pass appropriate directions if deemed necessary. The Single Judge ought to have deferred the decision to Sebi,” petition said.