On July 13, 2026, the Supreme Court of India upheld the penalty imposed by the Securities and Exchange Board of India (SEBI) and delivered a strongly adverse verdict against senior executives of Kotak Mahindra Asset Management Company (KAMC), KAMC itself and Kotak Mahindra Trustee (KMT). The ruling will put to rest the Kotak Mahindra group’s carefully cultivated image as a regulatory-compliant organisation and a model of corporate governance.Since both KAMC and KMT are wholly owned subsidiaries of Kotak Mahindra Bank (KMB), the verdict also points to weak governance practices at the parent bank. The case concerned Kotak Mutual Fund’s Rs 2.66 bn investment in zero-coupon non-convertible debentures issued by Konti Infrapower and Multiventures Private Ltd and Edison Utility Works Private Ltd, both Essel Group companies. The investments were secured by pledged shares of Zee Entertainment Enterprises Ltd.When the value of the pledged shares fell in early 2019, Kotak AMC, in it Fixed Maturity Plans (FMPs), chose to restructure the debenture redemption rather than enforce the security. As a result, when six close-ended FMP schemes matured between April and May 2019, part of the redemption proceeds due to investors was withheld.The judgment stated that about Rs 3.76 bn of the approximately Rs 21.16 bn payable under the schemes was paid after maturity. Investors received the balance by September 25, 2019. SEBI initiated proceedings against Kotak AMC, the trustee company, and certain senior executives, alleging inadequate due diligence in the investments, extension of the debt instruments beyond the schemes’ maturity dates and insufficient disclosures to investors and the regulator.India’s highest court did not mince words in assessing the conduct of the senior executives penalised by SEBI:Even otherwise, the manner in which the appellants have conducted themselves throughout, while keeping the unitholders, SEBI and us in the dark, meets our stern disapproval.To consider this aspect, the conduct of the Senior Executives becomes material. They are supposed to be individuals who are domain experts, being well-versed in the field of securities law. It is unimaginable that they were not aware of the consequences of infraction of the regulatory framework. Future of the unitholders was put to immense risk by them.In matters such as this, where the margin for error is virtually non-existent, the conduct of the Senior Executives treads beyond condonable limits and, consequently, disentitles them even to any interference with the penalty imposed.The conduct of the KAMC Board of Directors, the trustees of KMT and the Board of Directors of KMB has significant implications for the reputation and governance standards of the entire Kotak Mahindra Group. From the initial planning of investments in Zee Group companies to the serious violations identified by SEBI, KAMC’s senior management, led by Managing Director Nilesh Shah, appears to have demonstrated a deeply troubling lack of professional judgment and accountability. Their actions raise serious concerns about governance, oversight, and adherence to fiduciary responsibilities.In any professional organisation, particularly one entrusted with public funds in a fiduciary capacity, the executives responsible would have been dismissed if it emerged that investments had not only been made in highly indebted shell companies with no apparent income to service or redeem the debentures, but that the Debt Investment Committee – comprising Gaurang Shah, Nilesh Shah and Lakshmi Iyer – approved the investment without knowing the identity of the company in which KAMC was investing.It is difficult to comprehend how a committee charged with overseeing debt investments could authorise the deployment of public funds without adequate due diligence, or how such an investment could be permitted under its investment policy. These facts point to a serious and systemic governance failure within KAMC.The career trajectories of these senior executives after such a damning episode are telling. All remained in their roles, and some were even rewarded with promotions. Nilesh Shah, Gaurang Shah and Jolly Bhatt retained their positions, while Deepak Agarwal and Abhishek Bisen were elevated within KAMC. Apparently, the boards of KAMC and KTC regarded blind investments in shell companies and breaches of SEBI’s Mutual Fund Regulations not as failures of judgment and governance, but as conduct worthy of retention – and, in some cases, advancement.Designations of and penalties imposed on KMB executives. Source: KAMC and LinkedInLakshmi Iyer’s case is even more striking. Despite being publicly named and penalised by SEBI for unprofessional conduct as a member of the Debt Investment Committee, she was elevated in September 2022 as CEO of the Investment Advisory business at Kotak Investment Advisor. In August 2025, Bajaj Financial Services hired her as Group President – Investments and CEO, Bajaj Alternatives.Her official profile on the Bajaj Financial Services website even describes her as “a distinguished financial services leader with over 27 years of experience.” When major financial services firms recruit individuals under a regulatory cloud for mismanaging public funds, it speaks of a troubling indifference to accountability and reveals the standards they appear to value in their leadership.Uday Kotak’s role as the promoter of KMB and Chairman of KAMC warrants particular attention. During FY2017, he also served as Executive Vice Chairman and Managing Director of KMB. Given these leadership positions, shareholders may reasonably question the extent of his oversight of the investments made in Zee Group companies in March and May 2016, as well as the subsequent decision in April 2019 to extend the maturity of certain FMPs to September 2019 without obtaining the consent of FMP holders, as later cited by SEBI.The SEBI findings further raise concerns regarding investments in Zee promoter-linked entities that were approved without the Debt Investment Committee having identified the ultimate investee companies. Such circumstances call into question the adequacy of governance, due diligence and risk oversight processes within KAMC during the relevant period.These concerns assume greater significance in view of Uday Kotak’s prominent standing within India’s financial sector. In October 2017, SEBI appointed him as Chairman of its Committee on Corporate Governance. From FY 2019 to FY 2022 a Kotak entity purchased Rs 1.3 bn of the infamous electoral bonds, of which a minimum Rs 350 mn was given to the ruling Bharatiya Janata Party (BJP). He has also received significant public recognition for his contributions to the financial industry, including the conferment of the Padma Bhushan in January 2026.Despite these accolades, Uday Kotak and KMB have a record of breaching Reserve Bank of India (RBI) guidelines and receiving regulatory concessions not extended to other promoters. To protect the promoters’ personal interests, KMB took the RBI to court and ultimately secured a favourable out-of-court settlement with the regulator. Around the same period, a Kotak family entity made substantial contributions to the ruling BJP, raising questions over whether this may have influenced the RBI’s position. Uday Kotak and KMB are therefore politically sensitive entities.Against this backdrop, the issues identified by SEBI raise important questions regarding accountability, governance standards and regulatory compliance. Shareholders may legitimately seek a clear explanation of the roles, responsibilities and oversight exercised by Uday Kotak with regard to these events, as well as the measures taken to prevent similar lapses in the future.The SEBI penalty and the Supreme Court of India’s verdict clearly expose the poor judgement of the senior executives, board directors and trustees at KAMC and KTC. Companies managing public funds must operate under stringent board-approved processes, supported by regular audits and inspections to ensure compliance and timely reporting to the board.From the initial decision to invest in Zee promoter companies to the later decision to delay payments to FMP holders, every step should have complied fully with internal policies. Any deviation from policy should have been reported to the board immediately, particularly given the sizeable investment involved. It is unacceptable that the internal audit or inspection process apparently endorsed a blind investment decision by the Debt Investment Committee and subsequently allowed restructuring or delayed redemption without bondholder approval. The board evaluation commentary in KAMC’s annual reports for the relevant years demonstrates that the exercise amounted to little more than lip service.Since the Supreme Court of India has upheld SEBI’s penalty on KAMC and KM Trustee, the Kotak group has no credible basis to challenge the regulator’s decision, which has now been affirmed by both Securities Appellate Tribunal (SAT) and the country’s highest court. Because KAMC and KM Trustee have refused to take disciplinary action against their senior executives, SEBI must step in and direct the KAMC board to remove them; otherwise, the regulator’s authority will be weakened and its credibility damaged.SEBI’s penalties, its observations on the conduct of senior executives and the Supreme Court of India’s stern remarks raise serious questions about whether the individuals concerned remain “fit and proper” to manage public funds. In a professionally governed organisation, such regulatory findings would ordinarily have triggered immediate disciplinary action. The Kotak Mahindra group, however, appears to have applied a different standard to its senior leadership.KMB’s price to book value in the last 5 yearsTrendline: Price to Book Value. Median PBV = 3.2. Bars: Book Value at KMB. Source: ScreenerBecause KAMC and KTC are wholly owned subsidiaries of KMB, significant regulatory violations at these entities also reflect on the governance oversight exercised by KMB’s board. The absence of disciplinary action against the executives concerned – and, in some cases, their subsequent promotion – suggest that the board has not treated the regulator’s findings and the Supreme Court’s admonitions with the seriousness they warrant.Within a group headed by a bank, regulatory breaches appear to attract limited consequences when they have the backing, explicit or implicit, of promoters, boards or trustees. Such practices are difficult to reconcile with the fiduciary obligations of institutions that manage public funds.The last five years’ Price to Book Value chart of KMB reveals a consistent and sharp derating of the bank on the stock market – a consequence of its stagnant profitability but also growing governance concerns, amplified by the general disdain by the group for regulators – which this analyst has repeatedly highlighted (here and here). If the Kotak Mahindra group continues to avoid robust disciplinary action, insurance policyholders, mutual fund investors, and bank depositors may have reason to question whether it remains “fit and proper” to manage their money.Hemindra Hazari is a Securities and Exchange Board of India (SEBI)-registered independent research analyst. Views are personal.