Order in respect of Religare Mutual Fund, Religare Asset Management Company Pvt. Ltd

For Religare Mutual Fund, Religare Asset Management Company Private Limited and its Chief Executive Officer: Mr. Saurabh Nanavati, Chief Executive Officer Mr. Suresh Jakhotiya, Head Complaince Mr. Haresh Sadani, Head Marketing

For the Securities and Exchange Board of India: Ms. Asha Shetty, Deputy General Manager Mr. S. Prabhakar, Assistant General Manager Ms. Chhavi Sinha, Legal Officer

1. The Securities and Exchange Board of India (hereinafter referred to as SEBI), on finding that the display and voice over of the standard warning “Mutual Fund Investments are subject to market risks, please read the scheme information document/statement of additional information carefully before investing” issued in the audio-visual media advertisements by Religare Mutual Fund (hereinafter referred to as RMF) in respect of its new fund “Religare PSU Equity Fund”, were not in conformity with the requirements of SEBI Circular dated February 26, 2008, issued a notice dated November 13, 2009, requiring RMF and Religare Asset Management Company Private Limited (hereinafter referred to as RAMCL) to show cause as to why necessary action should not be taken against them for the aforesaid violation. It was also alleged that the Chief Executive Officer of RAMCL had failed to ensure that RMF had complied with all the provisions of the guidelines, circulars issued in this regard from time to time, in violation of Regulation 25 (6A) of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996. (hereinafter referred to as the Mutual Funds Regulations).

In reply to the aforesaid show cause notice, RMF, vide letter dated November 23, 2009 inter alia stated that, it had taken several steps to ensure that the standard warning was conveyed to the investors in a proper and fair manner as laid down under the SEBI norms and that the standard warning as recited in the audio-visual advertisement was not unintelligible to the viewers/listeners. RMF also claimed that it had pulled off all the spots booked across the channels for October 27, 2009 and October 28, 2009 as soon as it received an alert from SEBI. Thereafter, an opportunity of personal hearing was granted to the aforesaid entities on January 6, 2010, wherein, Mr. Saurabh Nanavati, Chief Executive Officer of RAMCL made submissions before me. Mr. Suresh Jakhotiya, (Head Compliance) of RAMCL and Mr. Haresh Sadani, (Head Marketing) of RAMCL were also present in the hearing. Mr. Saurabh Nanavati reiterated the submissions made by RMF in its aforesaid reply. He also submitted that while recording the standard warning for Television Commercial of the scheme, RMF’s agency, ‘Ogilvy and Mather’, had hard coded the time in “SMOKE” software for display and voice over of standard warning in Television Commercial to five seconds.

During the course of hearing, RMF submitted a letter dated January 6, 2010 inter alia enclosing therewith a letter dated December 17, 2009 received from ‘Blink Pictures’ (producer of the Television Commercial) stating that the disclaimer of the Television Commercial was definitely five seconds as per the technical software “SMOKE”.

2. I have considered the oral as well as written submissions made on behalf RMF, RAMCL and its Chief Executive Officer and the other material available on record. One of the submissions of RMF was that as the word “Offer Document” in the standard warning was replaced by seven words (i.e. Scheme Information Document/Statement of Additional Information) and an additional word “please” to convey updated standard warning to the prospective investor. According to it, because of the additional words in the standard warning in the Television commercial, it sounded as being fast-read but was intelligible. I do not see any merit in this argument. SEBI, in respect of the standard warning in advertisements by mutual funds, vide Circular dated February 26, 2008 decided that the time for display and voice over of the standard warning shall be read in an easily understandable manner over a period of five seconds in audio visual advertisements. It was also decided that that in case of audio advertisements the standard warning shall be read in an easily understandable manner over a period of five seconds.

Thus, according to the aforesaid circular, the duration of the standard warning “Mutual Fund Investments are subject to market risks, read the offer document carefully before investing”, would be at least five seconds. The intention or the reason behind the same was to educate the investors that their investments in mutual funds are subject to market risks and to advise them to take an informed decision. When something is to be done statutorily in a particular manner, it can only be done that way. There is no discretion left with anyone to arbitrarily deviate from what has been prescribed. In other words, where any statutory provision provides a particular manner for doing a particular act, then such act must be done in accordance with the manner prescribed therein. In the present matter, the requirements (standard warning for five seconds) were specified by SEBI, vide the aforesaid circular which was framed in terms of the powers conferred upon Section 11(1) of the Securities and Exchange Board of India Act, 1992 (Act) read with Regulation 77 of the Mutual Funds Regulations. Thus, the stipulations imposed under the said circular are statutory and mandatory in nature.

Therefore, the contention that the words “offer document” were replaced with other words, is not acceptable, as the same was not in accordance with the said circular. RMF cannot replace the contents of the standard warning prescribed and replace the same with its own substitute, whatever be the reasons. It is statutorily mandated to comply with the circular mentioned above. It failed do so. In the facts and circumstances, I am unable to accept the contention that the inclusion of additional words sounded as being fast read. It should have given the standard warning as prescribed therein. I cannot accept the contention that the standard warning was modified, keeping in mind the provisions of SEBI circular dated May 23, 2008. The aforesaid circulars (May 23, 2008 and February 26, 2008) govern two different areas.

3. One of the other contentions is that while recording the standard warning, its agency had hardcoded the time in SMOKE software for display and voice over of standard warning to five seconds. It had also submitted the Compact Disc containing the videograb of the standard warning along with the timer (Annexure D to the letter dated January 6, 2010). I have gone through the said Compact Disc. I note that though, the total time shown in the bottom of the said disc was five seconds, the voice over of standard warning ran only for 4:24 seconds. The stipulated time of five seconds for the display and voice over reiteration is a mandatory requirement. Such measures have been introduced towards investor protection and the non-compliance cannot be ignored as a trivial failure. In the facts and circumstances of the case, I am unable to rely on various letters of production houses produced by RMF to establish that the standard warning was for 5 seconds. Thus, I do not have any hesitation to hold that RMF and RAMCL have contravened the SEBI Circular dated February 23, 2008 and therefore the Chief Executive Officer of RAMCL has violated Regulation 25(6A) of the Mutual Funds Regulations. RMF submitted that it had ‘pulled off’ all the spots booked across the channels as soon it received an alert from SEBI. In the facts and circumstances of the case, the show cause notice dated November 13, 2009 to the aforesaid parties is disposed of as ordered hereinbelow.

4. In view of the foregoing, in exercise of the powers conferred upon me under Sections 11and 11B of the Securities and Exchange Board of India Act, 1992 read with Section 19 thereof and Regulation 76 of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, I hereby dispose of the proceedings initiated vide the show cause notice dated November 13, 2009 with a direction to Religare Mutual Fund, Religare Asset Management Company Limited including its Chief Executive Officer, to ensure that they abide strictly by the stipulations on advertisements by mutual funds, issued by the Securities and Exchange Board of India, from time to time, both in letter and spirit.

DR.K.M.ABRAHAM WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA PLACE: MUMBAI DATE: FEBRUARY 9, 2010