Description

SEBI imposes penalty on Pragnya Fund II (FPI) for violating debt investment norms by exceeding the 30% limit for short-term debt securities with residual maturity less than 1 year.

Summary

SEBI issued an adjudication order (Order/SM/BK/2025-26/32022) against Pragnya Fund II (PAN: AAHCP6164A, SEBI Registration: INMUFP056116), a Foreign Portfolio Investor (FPI), for violating debt investment regulations. The FPI exceeded the prescribed 30% limit for investments in short-term debt securities (residual maturity less than 1 year). The violation was identified after custodian Orbis Financial Corporation Limited (OFCL) informed SEBI on September 26, 2024, about non-compliance with permissible debt investment limits. Adjudication proceedings were initiated under Section 15-I of the SEBI Act, 1992.

Key Points

  • Pragnya Fund II violated Regulation 20(5) of SEBI (FPI) Regulations, 2019
  • Violation of Clause 9 of Part C of Master Circular for FPIs dated May 30, 2024
  • Breach of RBI Circular RBI/2017-18/199 dated June 15, 2018 regarding debt investment restrictions
  • FPI held investments in short-term debt securities exceeding the 30% prescribed limit
  • Custodian Orbis Financial Corporation Limited reported the non-compliance to SEBI
  • Show Cause Notice (SCN) issued on March 18, 2025 (Reference: SEBI/EAD5/P/OW/2025/8543/1)
  • Adjudicating Officer appointed: Shri Amar Navlani, General Manager, SEBI (later transferred)
  • Proceedings under Section 15HB of SEBI Act, 1992 read with Regulation 43 of SEBI (FPI) Regulations, 2019

Regulatory Changes

No new regulatory changes introduced. This order enforces existing regulations:

  • SEBI (Foreign Portfolio Investors) Regulations, 2019, specifically Regulation 20(5)
  • Master Circular for FPIs and DDPs dated May 30, 2024
  • RBI Circular on debt investment limits and residual maturity restrictions

Compliance Requirements

  • FPIs must comply with the 30% limit on investments in debt securities with residual maturity of less than 1 year
  • Custodians must monitor FPI investments and ensure compliance with debt investment norms
  • FPIs must maintain investments within prescribed limits as per Regulation 20(5) of FPI Regulations
  • Immediate reporting to SEBI by custodians when violations are detected
  • FPIs subject to penalties under Section 15HB of SEBI Act for non-compliance

Important Dates

  • September 26, 2024: Custodian OFCL informed SEBI about the violation
  • October 11, 2024: Holdings and transaction statement submitted by Orbis Custodian
  • March 06, 2025: Appointment of Adjudicating Officer (Shri Amar Navlani)
  • March 18, 2025: Show Cause Notice issued to Pragnya Fund II
  • September 19, 2025: Transfer of adjudicating officer, new AO appointed
  • February 04, 2026: Adjudication order issued

Impact Assessment

Market Impact: Limited direct market impact as this is an enforcement action against a specific FPI entity. However, it serves as a warning to other FPIs regarding strict compliance with debt investment limits.

Operational Impact:

  • FPIs must ensure robust internal controls to monitor debt investment limits, particularly residual maturity restrictions
  • Custodians need to enhance monitoring and reporting mechanisms for FPI compliance
  • May lead to increased scrutiny of FPI debt portfolios by custodians and SEBI

Compliance Impact: Reinforces SEBI’s vigilance on FPI debt investment violations and custodian reporting obligations. FPIs must maintain compliance with both quantitative limits (30% cap) and qualitative restrictions (residual maturity requirements) on debt securities.

Precedent Value: Demonstrates SEBI’s enforcement approach for FPI violations, with custodians playing a key role in detection and reporting of non-compliance.

Impact Justification

Enforcement action against FPI for violating debt investment norms. Impacts FPI compliance requirements and custodian oversight but specific to one entity.