The Securities and Exchange Board of India (SEBI) has ordered the winding up of a homegrown venture capital fund focusing on the film and entertainment sector within three months after its fund managers failed to return the money to its limited partners even after ten years of the stipulated time frame.
In an order, which comes more than seven years after the fund’s limited partners first filed a complaint with SEBI, the capital markets regulator noted that Mumbai-based Cinema Capital Advisory Pvt Ltd failed to wind up the Cinema Capital Venture Fund and liquidate assets after its tenure expired.
The fund also invested in associate companies against regulations, extended interest-free loans and advances to related parties, charged excessive management fees, and engaged in unfair trade practices that benefited the fund managers and trustees rather than the investors, SEBI noted in its order.
The regulator also prohibited the fund managers and key executives including Samir Gupta, Shashanka Ghosh, Binay Mandal, Urmila Gupta, and Amrit Lal Suri from working with any SEBI-registered intermediaries including mutual funds, alternative investment funds and portfolio management service providers for three years.
All stakeholders are also jointly liable to pay Rs 1.1 crore in penalties for various violations. Additionally, directors Urmila Gupta and Amrit Lal Suri have been ordered to return the extra Rs 5 lakh they took as trustee fees in 2011-12 to the Investor Protection and Education Fund within 45 days.
Background
Cinema Capital Venture Capital Fund was launched in 2008 and managed to raise around Rs 175 crore by late 2009, falling short of its target of over Rs 500 crore. The fund's investment strategy focused on the media and entertainment sector, primarily because its managers were from the same sectors.
The fund invested a little over Rs 143 crore in four companies: Sunshine Films, Kinesis, Steller Films, and Waterfoot Films. The fund was initially tenured until November 2013 but was extended by two years to November 2015. During these seven years of non-winding-up until October 2023, SEBI received around 100 complaints against the fund from more than 1,200 investors who had invested in the fund in 2008-09.
The fund’s limited partners also alleged that the fund received Rs 44.13 crore from redemptions, interest, and dividends but only returned Rs 7.93 crore to investors. Moreover, it charged Rs 63.14 crore as fees and expenses.
In response to SEBI's directives, the fund claimed to have made efforts to liquidate assets and distribute proceeds to investors. They cited steps such as appointing third-party valuers and advisors like Ernst & Young and KPMG, and issuing expressions of interest. It highlighted complexities in liquidating media and entertainment investments, including intangible assets and ongoing litigation, which caused delays beyond control.
In its defence, the fund said its investments in related companies were legitimate and fit its goals. It argued that interest-free loans and advances were necessary for legal and third-party obligations and were disclosed in financial statements. It admitted to paying extra trustee fees due to confusion from auditors but fixed this later. It also acknowledged not submitting quarterly reports after the fund's tenure expired, arguing there was no active business to report and that it kept stakeholders informed in other ways.
