JUDGMENT :

DIPANKAR DATTA, J.

“MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME-RELATED DOCUMENTS CAREFULLY.”

1. An average Indian is more than familiar with this unmistakable phrase. Brandished at most noticeable places, it cautions potential investors of the likely risks of investment in mutual funds. The present appeals deal with one such risky scenario ostensibly created by the appellants.

THE APPEAL

2. The appeals, under Section 15Z of the Securities and Exchange Board of India Act, 1992¹[SEBI Act], are directed against a common judgment and order²[impugned order] of the Securities Appellate Tribunal³[TRIBUNAL] dated 6th March, 2026, disposing of two appeals⁴[Appeal No.654 of 2021 and Appeal No.527 of 2021]. Appeal No. 654 of 2021 was the instance of Kotak Mahindra Asset Management Company Limited⁵[KOTAK AMC], assailing an order dated 27th August 2021 of the Whole Time Member⁶[WTM or Member, used interchangeably] of the Securities and Exchange Board of India⁷[SEBI] whereas, the appellants in Appeal No. 527 of 2022 were Kotak Mahindra Trustee Company Limited⁸[KOTAK TRUSTEE] and its employees/officers/senior executives/fund managers⁹[Nilesh Shah; Lakshmi Iyer; Deepak Agarwal; Jolly Bhatt; Abhishek Bisen; Gaurang Shah (collectively, Senior Executives)], collectively, wherein they assailed an order dated 30th June, 2022 passed by the Adjudicating Officer¹⁰[AO], SEBI.

GENESIS OF THE LIS

3. The facts, shorn of unnecessary details, are:

a. A mutual fund by the name of Kotak Mahindra Mutual Fund¹¹[KOTAK MF or KOTAK MUTUAL FUND, used interchangeably] was sponsored by Kotak Mahindra Bank Limited¹²[KOTAK BANK]. The funds thereof were held by KOTAK TRUSTEE in a fiduciary capacity. KOTAK TRUSTEE appointed KOTAK AMC (a wholly owned subsidiary of KOTAK BANK) as the asset management company to manage the funds of KOTAK MF.

b. KOTAK MF launched 6 close ended schemes¹³[FMP series nos. 127, 183, 187, 189, 193 and 194; collectively referred as ‘Schemes’] (a scheme having a fixed maturity period) between 2013 and 2016 which were to mature in or around April/May 2019¹⁴[FMP Series 127 had maturity date of 8th April, 2019, FMP Series 183 had maturity date of 10th April, 2019; FMP Series 187 had maturity date of 15th April, 2019; FMP Series 189 had maturity date of 22nd April, 2019; FMP Series 193 had maturity date of 2nd May, 2019; FMP Series 194 had maturity date of 15th May, 2019.]. Accordingly, KOTAK AMC was to invest only in such securities which would mature on or before the date of the maturity of the scheme¹⁵[see: Circular SEBI/IMD/CIR No. 12/147132/08 dated 11th December, 2008]. The Schemes were regulated by the SEBI (Mutual Funds) Regulations, 1996¹⁶[1996 Regulations]. As per the 1996 Regulations, the scheme must be wound up at the end of the maturity period.

c. An amount of Rs. 266 crore (out of Rs. 1625 crore) collected under the said Schemes was invested in debt securities, i.e., Zero Coupon Non-Convertible Debentures¹⁷[ZCNCDs] issued by Konti Infrapower & Multiventures Private Limited¹⁸[KONTI] and Edison Utility Works Private Limited¹⁹[EDISON] (parts of the ESSEL group of companies²⁰[ESSEL]). These investments were backed by a pledge over 22.8% shares of Zee Entertainment Enterprises Limited²¹[ZEEL], which were owned by Cyquator Media Services Private Limited²²[CYQUATOR]. Amount of the shares pledged by CYQUATOR was to the extent of 1.5 times of the exposure amount, which was to be topped up by CYQUATOR by giving additional security (additional shares or otherwise) in case of drop in share cover below 1.5 times.

d. The ZCNCDs were to mature on 8th April, 2019, which was on the maturity date of one of the 6 Schemes and prior to maturity of the remaining 5.

e. On 13th November, 2018, ZEEL made a public disclosure expressing its intent to divest 50% of its shareholding. This, along with invocation of pledge by other lenders of ZEEL, caused a drop in the share value of ZEEL, resulting in the security cover to drop below 1.5 tim