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Supreme Court has stayed the SAT order against HSBC MF

In May 2011 the Securities Appellate Tribunal (SAT) had ruled and directed HSBC Mutual Fund to compensate unit holders who had reported suffering losses when the fund house had changed the scheme attributes without informing.

The Chief Justice Altamas Kabir led three-judge bench has granted the stay on the SAT ruling. This will come into effect on the condition that the HSBC’s Trustee Board would give an undertaking within three weeks, that in the event that the fund house loses the case, it will pay the compensation as ruled by the SAT.

The Chief Justice led bench has given HSBC a month to submit a reply on the allegations reported with the SAT. The allegations made were

  • The short-run scheme which was earlier for only 5 to 7 years was changed to 15 years
  • This change was made without giving the investors of the scheme an option to exit as per the SEBI rules.
  • These investors also reported that the net asset value of the fund had eroded substantially as and when HSBC modified the duration of the scheme.
  • The short scheme in question is the HSBC Gilt Fund Short Term Plan.

The court also indicated to SEBI for quantifying the compensation along with the interest due to the investors. The plan’s initial offer document had said that the invested money would be re-invested in G-sec; the average maturity timeline would not exceed seven years and the modified duration would not exceed five years.

The investors said that had they learnt, in February 2009, that HSBC had made some changes in the scheme, which in turn had led to a steep erosion in their investment values.

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