New Delhi, April 21 -- Motilal Oswal Alternative Investment Trust, a Category-III alternative investment fund (AIF), along with its investment manager Motilal Oswal Asset Management Company Ltd, has paid Rs 38.76 lakh (around $41,434) and undertaken corrective measures to settle allegations of violations of AIF regulations and the associated code of conduct.

According to a settlement order issued on April 20, the Securities and Exchange Board of India (SEBI) had initiated enforcement proceedings against the two entities. They opted to settle the matter without admitting or denying the findings of the regulator.

SEBI found that 109 investors in the AIF had defaulted on their capital calls. The fund had retained Rs 8.69 crore as penalty, about 25% of the Rs 35.17 crore paid by these investors, against a total commitment of Rs 115 crore.

The order noted that the investment manager appropriated this penalty instead of crediting it to the scheme for the benefit of non-defaulting investors.

Other lapses included lack of coordination between teams, which led to an investor being incorrectly classified as a defaulter and her portfolio being wrongly liquidated, despite her account being reinstated after dues were cleared. SEBI also flagged the absence of a documented process for distributors, including a code of conduct and a framework to act against distributor-linked defaults, as well as failure to take action in cases of mis-selling.

Representatives of the fund and its manager met SEBI on May 27, 2025, after filing a settlement application. In June, they informed the regulator of corrective measures undertaken to prevent recurrence of such violations, and in October proposed paying a settlement amount of Rs 38.76 lakh.

SEBI's high-powered advisory committee and panel of whole-time members approved the terms between November 2025 and January 2026. The entities informed the regulator on February 27 that the settlement amount had been paid.

The final settlement order comes nearly two months after the payment.

Published by HT Digital Content Services with permission from VC Circle.