INVESTMENT MANAGEMENT DEPARTMENT
Email :saiyedmh@sebi.gov.in
Fax :0091-22-26598514
IMD / MHS / 24334 /2004
October 26, 2004
The Chief Executive Officer
J.M.Capital Management Pvt. Ltd
112, Jolly Maker Chamber No.2
Nariman Point
Mumbai - 400021
Dear Sir,
Sub: Informal Guidance sought by you regarding composition of the Board of Trustee Company
Vide your letter dated July 30, 2004, you had made an application under the SEBI (Informal Guidance) Scheme, 2003 requesting an interpretive letter for concurrence on the matter of your continuing to maintain the same composition of the Board of Directors of your Trustee Company (JM Trustee Co. Pvt. Ltd, JMTC) after one of the independent directors of JMTC, Mr.Anant V.Setalvad has been appointed as an independent director on the Board of Directors of your co-sponsor, JM Shares and Stockbrokers Ltd. (JMSSB). The question essentially is whether Mr. Setalvad loses his status of independence in the Board of JMTC by virtue of his being appointed as director in the co-sponsor JMSSB.
You had suggested that Mr. Setalvad continues to be an independent director in JMTC for the following reasons:
(a) JMSSB is a listed company and Mr. Setalvad is an independent director therein, who fulfills the criteria laid down in clause 49 of the Listing Agreement.
(b) He was on the Board of JMTC almost since its inception in 1994 as an independent director and is a member of the audit committee and investment advisory committee of JMTC.
(c) He is not associated with either JMTC or JMSSB in any other capacity other than as an independent director of each company.
Our view
Regulation 16(5) of the SEBI (Mutual Funds) Regulations, 1996 says that two thirds of the trustees of a MF should be independent. It further says that such trustees shall not be associated with the sponsors or be associated with them in any manner whatsoever. SEBI Circular No.MFD/CIR/11/354/2001 dated 20.12.01 seeks to elaborate this requirement and says that the directors of the sponsor company shall be considered as associate directors.
In view of the above requirements and in view of the potential conflict of interest which may arise on account of the same person being director in the sponsor and the trustee company and which may impair his independence, we are unable to accept your suggestion. Mr. Setalvad cannot be continued to be regarded as an independent on the Board of JMTC for the purposes of regulation 16(5). The position is not changed by the fact of his being an independent director on the Board of the co-sponsor, JMSSB.
Accordingly, you are advised to classify the directors on the Board of JMTC as independent/associate and ensure compliance with regulation 16(5) of the SEBI (Mutual Fund) Regulations, 1996 by reconstituting the Board, if necessary, at the earliest and confirm the same to SEBI.
You request for confidentiality has been accepted and accordingly this letter will be kept confidential and not posted on the SEBI website for a period of ninety days from today.
This letter is based on the representation made to the Division of Funds in your letters. Different facts or conditions might require a different result. This letter expresses the Division’s position on enforcement action only. It does not express decision of the Board on the Questions presented.
Yours faithfully,
M.H.Saiyed
Asst. General Manager