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HDFC Capital Advisors and HDFC Capital Affordable Real Estate Fund-I (HCARE-1), its managed Alternative Investment Fund (AIF), settled with the Securities and Exchange Board of India (SEBI) earlier this week over a purported breach of AIF rules. The settlement came after the payment of INR 36 lakh and was initiated through suo motu applications by the firm. The case originated from investments made in 2016 in Acme Realties and Ascent Construction, where funds were allegedly used to service existing debt to HDFC Ltd (now HDFC Bank), which raised concerns about conflicts of interest. SEBI's settlement order specifies that no further action will be taken unless misrepresentation or breach of the settlement terms occurs.
Earlier this week, HDFC Capital Advisors and its Alternative Investment Fund (AIF), HDFC Capital Affordable Real Estate Fund-I (HCARE-1), reached a settlement with the Securities and Exchange Board of India (SEBI) over an alleged violation of AIF regulations. The settlement involves a payment of INR 36 lakh and was initiated by the firm through suo motu applications under SEBI's settlement scheme. Advertisement
The case in question arose from investments made by HCARE-1 in 2016 in non-convertible debentures (NCDs) of Acme Realties and Ascent Construction, which are both affiliated with Acme Housing India. SEBI's investigation found that the funds raised by the AIF were used not just for the construction of the projects but also to service existing debt owed by Acme Housing India to HDFC Ltd (now HDFC Bank).
This raised significant concerns about potential conflicts of interest, as the funds were being used to pay off debt to a company associated with the investors. Furthermore, the investments bypassed the internal conflict resolution committee, which went against the firm's established policy. The compliance test report for the fiscal year 2016-17 also failed to disclose any potential conflict of interest, which prompted further scrutiny from the regulator.
SEBI's settlement order, issued by its Whole-Time Members Amarjeet Singh and Kamlesh C. Varshney, confirmed that the settlement resolved all proceedings related to the violations. However, SEBI made it clear that the settlement would not prevent future regulatory action should any misrepresentation be uncovered or if there is any breach of the terms laid out in the settlement. Essentially, this settlement ensures that no further penalties will be imposed as long as HDFC Capital Advisors adheres to the agreed conditions.
This settlement reflects SEBI's continued focus on ensuring compliance with regulatory norms in the Alternative Investment Fund (AIF) sector. The move underscores the importance of transparency, internal compliance procedures, and proper disclosure of conflicts of interest when managing investors' funds. By taking steps to settle the issue amicably, HDFC Capital Advisors aims to resolve the concerns raised by SEBI while reinforcing its commitment to regulatory adherence.
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