It made an application to SEBI to give necessary directions to the funds for redemption and got further puzzled when SEBI vehemently rejected the company’s proposal stating that the company cannot withdraw prematurely as there is a binding agreement for a lock in period.

Left with no options Company dragged SEBI and Mutual Funds to Delhi High Court.

Though section 54 EB(2) of Income Tax Act does allow a premature withdrawal from a scheme if the investor is willing to forego tax benefits. SEBI under the sham of protecting interest of large investors, turned down the proposal of Kwality. It stated in its ordinance that, when the offer document specifies lock-in, then this provision cannot be changed " Unilaterally". It made it clear that without taking the approval of the unit holders, the norms of offer document cannot be changed.

In this particular case one of the parties to the contract i.e. The Mutual Funds were not willing for huge redemption because post budget NAV were dipping day by day due to fall in the stock market and the Funds have come into tremendous redemption pressure. In this particular case SEBI, failed to see beyond corporate veil and failed to understand the real intentions of the funds. Instead it took the sham of protecting the investors interest at large. SEBI’s statement that the company would not be allowed to redeem the units at NAV, rate prevailing on the date when the application seeking exemption was made, is not tenable.

Let us think of a situation what would have been the reaction had the NAV gone up since the time the application was made by the company. It is sure that the funds would have been more than glad to redeem and the case would not have come up to this stage. In deciding this case, SEBI has not considered the principle of natural justice.