SEBI fines three foreign funds Rs 30 lakh in Lerthai limit breach

The Enforcement Action

On 30 September 2026, the Securities and Exchange Board of India (SEBI) imposed a monetary penalty of Rs 30,00,000 (thirty lakh rupees), jointly and severally, on three foreign portfolio investors in the matter of BAO Ltd. Group. The three funds named in the order are BAO Value Fund, Sparrow Asia Diversified Opportunities Fund and Davos International Fund. The adjudicating officer passed the order under Adjudication Order No. Order/JS/YK/2026-27/32752-32754, in exercise of powers under Section 15-I of the SEBI Act, 1992 read with Rule 5 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995.

SEBI held that the funds had breached the 10% investment limit prescribed for a foreign portfolio investor group in a single listed company, Lerthai Finance Limited, and had furnished incorrect or incomplete disclosures about their beneficial ownership and investor grouping. Of the total amount, Rs 15 lakh was imposed under Section 15A(b) of the SEBI Act for disclosure defaults and a further Rs 15 lakh under Section 15HB for the remaining contraventions, with all three funds made jointly and severally liable.

The examination began after National Securities Depository Limited (NSDL) flagged to SEBI that the combined holdings of certain foreign portfolio investors had breached the 10% ceiling in Lerthai Finance Limited. According to the order, BAO Value Fund held 7.37% and Sparrow Asia Diversified Opportunities Fund held 8.73%, taking their clubbed group holding to 16.10% of the company's paid-up equity capital. The funds contested the proceedings and argued that no monetary penalty was warranted; SEBI considered and rejected those contentions. The order can be read in full on the SEBI enforcement portal.

How the Scheme Worked

The sequence SEBI describes began with routine, system-level monitoring rather than any investor complaint. ICICI Bank Limited, acting as the designated depository participant (DDP), observed a common ultimate beneficial owner across two of the funds after they were transitioned to it from a previous custodian in 2024, and instructed NSDL to club their holdings. Once the holdings were aggregated, the group's stake in Lerthai Finance Limited crossed the 10% ceiling that a single foreign portfolio investor or investor group may hold in one listed company.

Under SEBI's foreign portfolio investor framework, funds that share a common ultimate beneficial owner are treated as a single investor group, and their holdings are added together for the purpose of the 10% limit. The order records that several of the funds in the wider BAO group were ultimately owned through a common corporate structure, and that changes in this grouping were not always intimated to the depository participant within the prescribed timelines.

SEBI's adjudicating officer found that, over several years, the funds had submitted incorrect or incomplete beneficial-ownership declarations. In one instance noted in the order, an economic-interest holder that had held an interest since 2013 was not disclosed in earlier declarations, and at the time of registration renewal the fund declared that there had been no change in beneficial ownership when a correction was in fact due. The order further found that the funds delayed or failed to inform changes in investor grouping, submitted incorrect statements regarding material changes in grouping, failed to ensure that accurate grouping details were maintained with the depository participant at all times, and, having breached the 10% limit, failed to divest the excess holdings within the prescribed period.

Procedurally, the order follows a standard adjudication path. The adjudicating officer was appointed on 21 April 2026. A show-cause notice, reference DIS/17212-17214/2026, was issued on 29 June 2026, calling on the funds to explain why a penalty should not be imposed. After considering their written submissions and the material on record, SEBI passed the final order on 30 September 2026.

The Law Invoked

The penalties rest on two provisions of the SEBI Act, 1992 that the order cites. Section 15A(b) provides for a penalty where a person required to file a return or furnish information fails to do so within the specified time, or furnishes false, incorrect or incomplete information. SEBI applied this to the funds' beneficial-ownership and investor-grouping disclosure defaults. Section 15HB is a residual provision that allows a penalty of between one lakh and one crore rupees for any contravention for which no separate penalty has been provided; SEBI applied this to the failure to maintain accurate grouping details and the breach of the 10% limit.

The substantive obligations the order invokes come from the SEBI (Foreign Portfolio Investors) Regulations, 2019 (and the predecessor 2014 Regulations), including regulations 20(7), 22, 23 and 24 and the Code of Conduct in the Third Schedule, read with the relevant SEBI circulars on beneficial-ownership and investor-group reporting. On the quantum of penalty, the order refers to Section 15J, which lists factors such as any disproportionate gain and any investor loss, and cites the Supreme Court's ruling in SEBI v. Bhavesh Pabari that those factors are illustrative, not mandatory pre-conditions for a penalty.

What Happens Next

An adjudication order of this kind is appealable. A party aggrieved by a SEBI adjudicating officer's order may appeal to the Securities Appellate Tribunal (SAT), and thereafter, on a question of law, to the Supreme Court. Until any such appeal is decided, the findings remain SEBI's findings, subject to the appeal process.

The order directs the funds to pay the penalty within 45 days through SEBI's online payment facility. Per the order, if the amount is not paid within that period, SEBI may initiate recovery proceedings under Section 28A of the SEBI Act, which allows recovery of the penalty together with interest, including by attachment and sale of the movable and immovable property of the parties. The order also notes, as a factor in deciding quantum, an earlier SEBI direction against one of the funds in the matter of the GDR issue by Winsome Textile Industries Limited, by an order dated 15 December 2021.

What It Means

The 10% limit at the heart of this order exists to keep the portfolio route distinct from direct investment. A single foreign investor group that wants a larger, controlling-style stake in an Indian company is expected to come through the foreign direct investment route, with its separate approvals and scrutiny, rather than accumulate the position quietly through several portfolio funds. The investor-grouping and beneficial-ownership rules are what make that limit enforceable: they let the regulator and the depositories see when ostensibly separate funds in fact answer to the same ultimate owner.

For ordinary investors, the practical signal is twofold. First, SEBI's depository-level monitoring, as this matter shows, can detect limit breaches from clubbed holdings without anyone filing a complaint, which supports the integrity of the shareholding data that retail investors rely on. Second, the case reflects SEBI's continuing emphasis on granular beneficial-ownership disclosure by foreign funds. Investors who want to verify who is registered can use the intermediary and FPI lookups on the SEBI website, and can check a listed company's shareholding pattern, filed each quarter with the stock exchanges, to see the disclosed foreign-investor holdings for themselves.

FAQ

What exactly did SEBI order?

SEBI imposed a penalty of Rs 30 lakh, jointly and severally, on BAO Value Fund, Sparrow Asia Diversified Opportunities Fund and Davos International Fund. It found that their clubbed holdings breached the 10% foreign-portfolio-investor limit in Lerthai Finance Limited and that they furnished incorrect or incomplete beneficial-ownership and investor-grouping disclosures, in breach of the FPI Regulations.

Can the order be appealed?

Yes. An order by a SEBI adjudicating officer can be appealed to the Securities Appellate Tribunal, and from there, on a question of law, to the Supreme Court. Until any appeal is decided, the findings are SEBI's findings under its own process. The funds have 45 days to pay, failing which SEBI may begin recovery under Section 28A.

What is the 10% FPI investment limit, and why does it exist?

SEBI's rules cap the holding of a single foreign portfolio investor, or a group of investors with a common beneficial owner, at below 10% of a listed company's paid-up equity. The limit keeps the portfolio route separate from foreign direct investment, which is the channel intended for larger, controlling stakes and carries its own approvals and scrutiny.

How are foreign funds grouped into one investor group?

Where two or more foreign portfolio investors share a common ultimate beneficial owner, SEBI's framework treats them as a single investor group and adds their holdings together for the limit. In this matter, the depository participant identified a common beneficial owner across the funds and instructed the depository to club the holdings accordingly.

How can I check if a fund or intermediary is registered with SEBI?

SEBI publishes registration details and enforcement orders on its website, sebi.gov.in, where you can look up registered intermediaries and foreign portfolio investors. For a listed company, the quarterly shareholding pattern filed with the stock exchanges shows the disclosed holdings of foreign portfolio investors, letting you cross-check concentration for yourself.

What does this mean for ordinary investors?

Directly, little changes for a retail shareholder in Lerthai Finance Limited; the order concerns disclosure and limit compliance by foreign funds, not the company's operations. More broadly, it shows that SEBI's monitoring can surface breaches from aggregated holdings and that the regulator continues to press for accurate beneficial-ownership reporting, which underpins the shareholding data all investors rely on.

This report is based on the official SEBI adjudication order dated 30 September 2026 in the matter of BAO Ltd. Group, passed by the adjudicating officer under the SEBI Act, 1992.