Order in respect of complaint of Mr. Kanwal Jit Singh in the matter of UTI-Senior Citizens Plan 1993

WTM/SR/SEBI/IMD-DF3/52 /10/ 2016 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA S. RAMAN, WHOLE TIME MEMBER ORDER Under Section 11B of the Securities and Exchange Board of India Act, 1992 in respect of Complaint of Mr. Kanwal Jit Singh in the matter of UTI-Senior Citizen’s Unit Plan 1993 (UTI-SCUP).

1. Securities and Exchange Board of India (hereinafter referred to as "SEBI") received a complaint filed by Mr. Kanwal Jit Singh (hereinafter referred to as “Complainant”) on November 12, 2014 on SEBI’s online complaint redressal system viz., SCORES (SEBI Complaints Redress System). The Complainant inter alia stated the following: “I had invested in SCUP 93 Scheme of UTI in 1997. The scheme was terminated on Feb 18, 2008 by UTI without complying with the provisions of SEBI Mutual Funds Regulations 1996 as amended -specifically Regulations 39 and 40. UTI has rejected the claim vide their email of November 12, 2014 from Ms. Ashwini Sarkhot. In their response the issues raised in my complaint have not been addressed in terms of the non-compliance of the Regulations”. The Complainant had also attached a communication to UTI MF inter alia, raising the following issues: a) In terms of Regulation 39, a scheme may be wound up (terminated), after repaying the amount due to the unit holders. UTI wound up the scheme without repaying the amounts due to the unit holders. Hence the funds were due to the investors on the date of termination – February 18, 2008. b) Vide letter dated September 06, 2014 filed the redemption request for the units accrued (2250.133) under the scheme that was terminated on February 18, 2008 to UTI AMC along with the requisite documents for payment of the dues along with interest from February 18, 2008. UTI MF credited redemption proceeds i.e. Rs. 52,290.91 on September 13, 2014. c) It is against the spirit of Regulation 39(3) & Regulation 40(c). Therefore the complainant should be paid interest (@ 15% p.a.) from February 18, 2008 to August 28, 2014 i.e. Rs.73,768.38. d) UTI AMC did not furnish certain information sought vide e-mail dated September 21, 2014 such as statement of arriving at the NAV as on February 18, 2008, Income on redeemed funds with UTI MF from 2008 till date, etc.

2. The aforesaid complaint was forwarded to UTI MF for their comments. In response, UTI MF submitted the following on November 14, 2014 (on SCORES) as under: a) The scheme had been terminated on February 18, 2008 in accordance with the established business principles and in the interest of unit holders to avoid any capital erosion and after due consideration of all the facts and circumstances with the approval of respective Boards of UTI and New India Assurance Company Ltd (“NIAC”) as well as with approval of Government of India (“GOI”)/SEBI. b) Accordingly the members below 58 years of age as on February 18, 2008 were requested to redeem the outstanding units under the folio. c) Besides issuing public notice in this regard in various newspapers, individual letters were also sent to each member under the Scheme. Reminder letters were sent to the investor on July 21, 2009, January 06, 2010, February 19, 2011, October 17, 2011 and July 25, 2012. All the letters got returned undelivered with the reason ‘Addressee left’. d) On July 16, 2014, AMC forwarded a detailed e-mail providing redemption procedure and also advised investor to redeem balance units @ 23.2257(NAV as on February 18, 2008) at the earliest since there will not be any accruals/ addition to these units. e) On receiving redemption request, redemption amount was credited to the investor’s account on September 12, 2014. 3. Upon perusal of the aforesaid reply, on November 25, 2014 SEBI sought a copy of the public notice and the letters to the investors about the redemption from UTI MF.

The same was provided on SCORES on December 3, 2014 by UTI MF. The details of the public notice are as under: a) UTI-SCUP was launched by erstwhile UTI in year 1993 in association with NIAC to provide its members medical cover for hospitalization on completion of 58 years of age. b) UTI MF announced the offer of an alternate health insurance product of New India Assurance Company (NIAC) to the members (upto the age of 58 years) in lieu of UTI-SCUP, which has been terminated from the close of business of Feb 18, 2008. However for the members above the age of 58 years for whom insurance premia had been paid out of existing investment, there would be no change and NIAC would continue to honour its commitment on hospitalization cover. c) New membership under UTI-SCUP had been suspended since July 01, 2000, as the scheme in its present form was not capable of meeting the insurance premia requirements.

d) The interest rates had declined substantially and the premium charged by NIAC had also increased substantially due to which the investment portfolio of the scheme is not self-supporting the cost. Further, UTI-SCUP was not compliant with SEBI Mutual Fund regulations. e) Options were offered to UTI-SCUP investors falling under various age groups e.g switch to alternate product of NIAC or redeem outstanding units at the prevailing NAV of Feb 18, 2008.

4. Meanwhile, on January 07, 2015, the Complainant sent a reminder on SCORES as regards his claim for interest @ 15% p.a. SEBI (on SCORES) sought details of UTI-SCUP and confirmation from UTI MF regarding compliance of SEBI regulations with respect to the termination of UTI-SCUP.

5. Subsequently, on January 21, 2015 UTI MF uploaded the following clarification on SCORES: a) UTI-SCUP scheme was closed with the approval of respective Boards of UTI and NIAC and regulatory authorities. b) Final NAV was declared after taking into account all assets/liabilities. c) The investors were informed via the letter that there will not be any accruals and they were advised to redeem at the earliest. Since redemption request was submitted only in September 2014 the payment was made in September 2014. In view of this claim for interest cannot be accepted.

6. Considering the above reply of UTI MF, SEBI disposed of the complaint on January 22, 2015 on SCORES. Thereafter, SEBI received an e-mail dated January 22, 2015 from the Complainant regarding the following: a) He was unable to view the reply from UTI or the decision of the SEBI official determining the disposal of the complaint and requested the copies to be emailed to him. b) He requested the intervention of a higher authority in the matter to:  receive the replies filed by UTI  copy of the orders of the SEBI Dealing Official accepting the replies filed by UTI MF.  Review of the matter  Contact details including email ID of the appropriate SEBI Higher Authority who will be reviewing the matter.

7. Subsequently, SEBI received e-mails dated February 24, 2015, March 17, 2015 and April 22, 2015 from the Complainant inter alia alleging the following : a) Complaint 1: Against UTI MUTUAL FUND Scheme – Senior Citizen Unit Plan 93 (SCUP 93) The Complainant alleged the violation of regulations 39(2) and 40(c) in winding up of scheme and differential treatment given to investors by classifying them in 3 categories (age group). It was stated that regulation does not permit differential treatment given to the investors. The Complainant also sought interest for the delay in redemption of its units in the scheme. b) Complaint 2: Non provision of the basis of decision of disposal of complaint no. SEBIE/MH14/0009644/1- a violation of the fundamentals principles of justice system in India. The Complainant sought redressal of the issue with UTI MF and also sought details of SEBI’s decision with regard to his complaint and the replies received from UTI MF in response to his complaint.

8. Thereafter, the Complainant filed RTI Application dated April 29, 2015 and sought the following information with respect to UTI-SCUP and another scheme which is not subject matter of the present case : a) Copy of the Winding up order issued under Regulation 39(2)(c) of the SEBI (Mutual Funds)regulations, 1996, if any. b) Copy of Notice issued by the Trustees/Asset Management Company of UTI Mutual Fund to SEBI under Regulation 39(3)(a) for winding up/terminating the scheme. c) Copy of the minutes of the meeting called by the Trustees/AMC of UTI MF under Regulation 41(1). d) Copy of the winding report filed by Trustees/AMC of UTI MF with SEBI under Regulation 41(3). e) Copy of the orders issued by SEBI in respect of these two schemes for winding up/terminating under Regulation 42. f) Copy of Inspection/Audit Reports of inspection/Audit conducted between 2005 and 2010 of UTI MF. The same was replied by SEBI vide letter no. CPIO/AKS/AKJ/403-2015/14599 dated May 26, 2015.

9. SEBI vide letter dated August 12, 2015 also intimated the Complainant that in SEBI’s view the complaint stood resolved and that no further communication in this regard would be entertained.

10. The aforesaid letter was challenged by the Complainant before the Hon’ble Securities Appellate Tribunal (“SAT”) and Hon’ble SAT in its order dated April 26, 2016 held that “…..impugned communication dated August 12, 2015 is allowed to be withdrawn with liberty to the appellant to file comprehensive complaint within a period of 15 days from today and on receipt of such complaint, SEBI is granted liberty to pass an appropriate order within a period of 6 weeks thereafter by giving an opportunity of hearing to the appellant…” Subsequently, the Complainant sought review of SAT order dated April 26, 2016 vide his Review Application No. 7 in Appeal No. 6 of 2016. Hon’ble SAT vide order dated August 04, 2016 while dismissing the Review Application held “…In the result we hold that the review application is without any merit and accordingly dismiss the review application with no order as to costs.”

11. Thereafter, the Complainant filed a revised complaint dated August 16, 2016 with SEBI which was received on August 19, 2016. Vide the said complaint, the Complainant inter alia stated “…This complaint is being filed as per the directions of the Hon’ble Securities Appellate Tribunal (SAT) dated April 26, 2016 in Appeal No. 6 of 2016. The delay in filing this revised complaint is due to the fact that I had filed a review application – no. 07/2016 on May 05, 2016. The application was registered on June 22, 2016. The application was rejected by the Hon’ble SAT vide orders dated 04.08.2016 in Review Application no. 07/2016. I request SEBI to condone the delay in submission of this complaint in view of the circumstances explained above…”

12. The delay on the part of the Complainant was condoned by SEBI as requested. Further, an opportunity of personal hearing was granted to the Complainant on September 29, 2016. The Complainant appeared in person before me and made additional submissions and also filed a written synopsis of his submissions. 12.1 During the personal hearing on September 29, 2016, the Complainant inter-alia made the following submissions:

a) Due process prescribed by SEBI Mutual Fund Regulations 1996 has not been followed in the termination of UTI Senior Citizen Unit Plan 1993 by UTI AMC, UTI MF, UTI Trustee. b) SEBI granted a waiver to UTI-SCUP from requirement of compliance with the provisions of SEBI (MF) Regulations, 1996 without any authority. c) The Parliament of India had enacted the Unit Trust of India (Transfer of Undertaking Repeal) Act 2002 to bifurcate the business of the erstwhile Unit Trust of India to distinguish those that was based on NAV basis and others. The NAV based schemes were placed in Schedule II to the Repeal Act, while the others were placed in Schedule I. UTI has maintained all along that the UTI-SCUP was an Assured Return Scheme and that it should have been placed in Schedule I to the Repeal Act. This is a fiction created by UTI MF. The Complainant requested to review all the documents related this. d) UTI AMC/UTI MF/UTI Trustee had been claiming that the UTI-SCUP scheme is an Assured Return Scheme, whereas the returns given to the investors had no element of assurance embedded in them. e) The process adopted by UTI MF viz. changing the terms of the scheme, holding on to funds of the investor even after the termination of scheme, enjoying benefits of returns on the investment of investors fund without sharing with them etc. are arbitrary and unreasonable.

12.2 The Complainant vide e-mail dated October 01, 2016 received by SEBI on October 03, 2016 ( October 01 and October 02, 2016 being holidays) also submitted the following: a) “The manner in which the insurance premium paid and presumably refunded to investors in Group 1a (Age group 55 years or more but less than 58 years as on the effective date of termination of the scheme) can have NAV implications for the entire investor class – Group 1 (below 58 years). b) The exact impacts needs to be ascertained – for which I had sought audit to be conducted by me and my team in the appeal and revised complaint. c) The issue will arise from a possible situation where the insurance premium paid to New India on behalf of investors in the Group 1 a has not participated in the revenue generating exercise, therefore the total distributable revenue is being distributed over a larger no of units (after including the accretion of units to Group 1a – this is an assumption) return of the insurance premia (presumably) to these investors.” The factual details pertaining to the Complainant’s main allegation for the non-payment of interest for delay has been addressed in the preceding paragraphs.

The present relief sought by the Complainant i.e. seeking audit of UTI SCUP scheme by him and his team is not sustainable. 13. I have considered the material available on record such as, complaints filed by the Complainant, UTI MF’s correspondence with SEBI, GOI and the Complainant, etc. On an examination, I find as under: i. Unit Trust of India (UTI) was formed under Unit Trust of India Act, 1963. ii. The UTI- Senior Citizens Unit Plan (UTI-SCUP) was launched in 1993. iii. The Complainant invested in the scheme in the year 1997. iv. UTI was restructured pursuant to the provisions of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (‘Repeal Act’) with effect from December 18, 2002 which resulted into its bifurcation into two main entities viz., the Administrator of the Specified Undertaking of The Unit Trust of India (SUUTI) and UTI Mutual Fund (acting through UTI Trustee Company Private Limited – UTI MF). v. The schemes of UTI were transferred to SUUTI and UTI MF as per the Schedule I and II of the Repeal Act in the context of character of the scheme i.e. all assured returns schemes to SUUTI (Schedule I) and the rest to UTI MF (Schedule II). vi.

UTI-SCUP along with some other schemes mentioned at Schedule II of the Repeal Act was transferred to UTI MF. vii. As per the UTI MF’s letter dated July 16, 2003 addressed to GOI, UTI-SCUP scheme provides the following assurances irrespective of the income earned or the Net Asset Value:- A) To the investor:  The scheme provides an assurance to the investor that should the investor decide to exit the scheme after one year of investment, the investor would be paid his contribution after deducting 5% as administrative charges.  After three years of investment till the investor completes the age of 54 years, should the investor choose to exit the scheme, the capital invested compounded at the rate of 10% (revised every two years) per annum is repaid to the investor. The scheme would however adjust the premium paid to NIAC should a request for exit from the scheme be received between the age of 55 years and 61 years (period when the insurance premium is paid to the NIAC).

 On attaining the age of 61 years the investor is given an option of receiving a lump sum payment (residual units after payment of premium) or receiving an annuity till date of exit. The investor would however continue to enjoy the medical benefits upto limits specified and UTI would act as a guarantor for the same. B) To the New India Assurance Company (NIAC)  The scheme provides an assurance to NIAC that as long as the investor chooses to remain invested in the scheme, the medical insurance premium payable between the age of 55 years and 61 years will be paid by UTI at rates to be decided by NIAC. The medical insurance premium is subject to revision by the NIAC every two years based on an Incurred Claims ratio. viii. Pursuant to the restructuring of UTI, UTI MF made an application to SEBI for registration, which was granted on January 14, 2003. ix. UTI AMC vide letter dated February 12, 2003 explained to SEBI the detailed position with respect to certain schemes including UTI-SCUP having elements of assured returns and hence were not conformity with the MF Regulations. Considering the aforesaid character of the scheme, UTI MF vide its letter dated July 16, 2003 also requested GOI to consider transferring UTI-SCUP to SUUTI. x. Vide letter September 26, 2003, SEBI advised UTI MF to modify the UTI-SCUP scheme and bring it in line with the MF Regulations. xi.

UTI MF once again made a representation to GOI vide their letter dated April 01, 2004 for transferring the schemes to SUUTI. Vide the said letter, UTI MF also stated “the UTI-SCUP suspended its sales with effect from June 30, 2000 and the scheme is not compliant with MF Regulations due to implicit assurance”. xii. UTI AMC vide letter dated November 01, 2007 inter alia, communicated to SEBI that in view of the constraints and compelling circumstances in operating UTI- SCUP, it was decided to terminate UTI-SCUP. The issue of termination of UTI- SCUP was deliberated in the Government and a legal opinion dated June 29, 2007 was also obtained by UTI AMC from Justice Mrs Sujata Manohar, a former Judge of the Supreme Court of India, who opined that the UTI Trustee Company and UTI AMC had a legal right to terminate UTI-SCUP. xiii. GoI vide its communication dated July 23rd, 2007, to UTI AMC stated “it has been decided with the approval of the Competent Authority that the procedure adopted while terminating the Rajlakshmi Unit Scheme, 1992 in October 2000 may be followed in case of SCUP. The decision has to be taken by NIAC Board/ UTI AMC board/trustee.

When the matter is brought to the board, the legal opinion may be taken into account by the board...” xiv. SEBI vide letter dated December 26, 2007 advised UTI AMC that the procedure adopted while terminating the Rajlakshmi Unit Scheme, 1992 may be followed for the termination of UTI-SCUP. xv. The procedures adopted for termination of Rajlakshmi Unit Scheme, 1992 were as under  Unit holders were given an option to switch to other schemes;  Letters were sent to investors;  Notice issued in newspapers and  Redemption proceeds were despatched on receipt of completed redemption forms. xvi. I note that the said procedures adopted in Rajlakshmi Unit Scheme were upheld by High Court of Andhra Pradesh in the matter of Kolli Sai Pratheeka and Others Vs. Unit Trust Of India And Others (decided on 16 April, 2001 (2001 (3) ALD 297, 2001 (3) ALT 146). In this case, the Hon’ble High Court also took note that the procedures adopted in Rajlakshmi Unit Scheme were upheld by various High Courts viz., High Court of Bombay, Kerala, Patna and Punjab and Haryana. xvii. In compliance with the aforementioned procedures (paragraph 14{xv}), UTI MF came out with the press release dated January 08, 2008 for the termination of UTI – SCUP and advised the investors to exercise their choice to redeem or switch to other options.

The public notice clearly specified the manner in which the option has to be exercised by the investors. xviii. UTI MF, besides issuing the abovementioned public notice, also sent individual letters to members of the scheme including the Complainant. As the Complainant failed to submit the redemption form, reminder letters were issued to the Complainant on July 21, 2009, January 06, 2010, February 19, 2011, October 17, 2011 and July 25, 2012 by UTI MF. All the letters were returned undelivered with the remark ‘Addressee left’.

xix. The Complainant vide letter dated September 06, 2014, filed the redemption request for the units accrued (2250.133) under the scheme to UTI AMC. UTI MF credited redemption proceeds i.e. Rs.52,290.91 on September 13, 2014. xx. The Complainant also sought payment of interest i.e. from the date of termination of the scheme (February 18, 2008) till the date of payment (September 13, 2014). The claim for interest was rejected by UTI MF vide e-mail dated November 12, 2014 for the reason that there was no delay in processing the redemption request.

14. To summarise, UTI-SCUP was launched in 1993 and the Complainant made the investments in 1997 when UTI was not in the regulatory purview of SEBI. UTI MF came into being in 2002 (Repeal Act) and obtained SEBI registration on January 14, 2003. When SEBI found that UTI-SCUP was not in compliance with the MF Regulations, SEBI advised UTI MF to make it compliant with the said Regulations. Instead, UTI decided to windup the scheme in January 2008. Thus, UTI-SCUP, right from the launching of the scheme in 1993 till its termination in 2008, was never under the regulatory supervision of SEBI. All things considered, the crux of the matter is the Complainant’s claim for interest for the period between the date of termination of the UTI-SCUP scheme (February 18, 2008) till the date of actual payment (September 13, 2014). I find from the chronology of events stated in paragraphs 13 (xvii-xx) that: i. UTI MF issued a public notice dated January 08, 2008 (in newspapers) regarding the termination of the UTI SCUP and advised the investors to exercise their choice to redeem or switch to other options. ii. UTI MF also wrote individual letters to members of the scheme including the Complainant. All these letters got returned to UTI MF with the remark ‘Addressee left’. iii. UTI MF also issued several reminders dated July 21, 2009, January 06, 2010, February 19, 2011, October 17, 2011 and July 25, 2012 to the Complainant. iv. It appears that the letters could not be received by the Complainant as he had left the earlier address which was on the records of the UTI MF. The Complainant had also failed to inform the change of his address to UTI MF. v. The Complainant finally submitted redemption form on September 06, 2014. vi. UTI MF credited the redemption proceeds amounting to Rs.52,260.91 on September 13, 2014.

This shows that there was apparently no delay on the part of UTI MF in making the payments to the Complainant on receipt of the claim of redemption from him. Considering the facts and circumstances, I find that the Complainant’s claim for interest for the alleged delay on the part of UTI MF cannot be sustained.

15. In view of the foregoing, I do not find any merit in the issues raised by the Complainant and the complaint filed by Mr. Kanwal Jit Singh is accordingly disposed of.

October 03, 2016 S. RAMAN Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA