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Govt looking into legal sanctity of US-64 freeze

Our Bureau

NEW DELHI, July 10

THE Government is ascertaining the legal sanctity of the decision of the board of trustees to freeze sales and repurchase of units of US-64 for six months, as it is tantamount to changing the basic structure of the scheme.

The Finance Ministry has started looking at this as the Government reckons that the trust's decision is almost certain to be legally challenged by investors.

The US-64 scheme is regarded as an open-ended scheme, with liquidity being one of its major selling points. In open-ended schemes, it is incumbent for the mutual fund to seek regulatory approval and also unitholders' approval for any such decision, which impacts on the interests of unitholders like restrictions on easy entry and exit.

Since US-64 does not come under the regulatory purview of the Securities and Exchange Board of India (SEBI), the onus is on the board of trustees. According to a report from Mumbai, the board had approved the insertion of a new provision, just a few days prior to the July 2 board meeting, empowering the management to suspend repurchase or sale of units under certain circumstances.

Finance Ministry officials had said that they had sought information from the trust on this circular resolution. One version obtained by the Government is that no such approval was granted by the trustees.

The other issue on which flak is being directed at the UTI and the Government is that of auditing. Although it was created under an Act of Parliament in 1964 and is accountable to Parliament, being a development financial institution (DFI), it is not sub ject to an external audit by for instance the Comptroller and Auditor General (CAG).

The UTI Act only says that the affairs of the trust should be audited by one or more auditors qualified to act as auditors.

It is also well-known now how the UTI management had stymied all efforts of the Central Vigilance Commission (CVC) to bring officers of the trust also under the ambit of the CVC Act. Several letters were exchanged between the Finance Ministry and the CVC chief, Mr. N. Vittal, on this.

This is in comparison to the scenario in the banking sector where officers of State-owned banks have the sword of the CVC constantly hanging over their heads. On paper atleast, they are more accountable, say officials. These issues are expected to be add ressed in the proposed amendments to the UTI Act.

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