The Securities Board of Exchange has asked the legitimacy of the agreement between the two mutual funds and Essel Group that gave the company time till September to repay loans. This meant that the investors weren’t paid in full when the funds attained maturity.

Notices to HDFC Mutual Fund and Kotak Mutual Fund, the regulator, SEBI has sought out the details of the terms of their investments in Essel Group’s debt securities.

This is the first time that SEBI has questioned the idle pact between the two fund houses. Essel Group’s cash strapped founders failed to refill the collateral; who had earlier borrowed from lenders including MFs and non-banking finance companies (NBFCs) by pledging shares with them.

HDFC Mutual, in a revelation to stock exchanges, said it had received two show-cause notices in relation to the FMP investments in Essel Group companies.

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