After a prolonged tussle for over a year, SAT has quashed SEBI's order granting an in-principle approval to the Institution for Mutual Fund Intermediaries (IMFI), a body promoted by the Association of Mutual Funds of India (AMFI) to act as a self regulatory organisation (SRO) for mutual fund distributors.

SEBI initiated the process of setting up an SRO for regulating distributors of mutual fund products by inviting applications from eligible entities in March, 2013. Along with IMFI, the Financial Planning Supervisory Foundation (FPSF) and the Organization of Financial Distributors (OFD) filed their applications with SEBI. SEBI, in February, 2014, issued an in-principle approval to IMFI for being recognised as an SRO. This in-principle approval was challenged before SAT, by FPSF, on grounds of non-compliance with the SEBI SRO Regulations, 2004 and SEBI's bias in favour of IMFI due to SEBI's historical association with AMFI.

SAT found that SEBI had failed in complying with the requirements of the SEBI SRO Regulations, 2004 while granting the in-principle approval to IMFI. Therefore, SAT, vide its order dated September 30, 2015, quashed and set aside the said in-principle approval.

The Hon'ble Tribunal did not get into the merits of the arguments on bias, however, directed SEBI to “select an applicant for grant of certificate of recognition in accordance with law after taking into consideration all relevant facts of each applicant without being influenced by any particular factor related to any particular applicant”.

SEBI has further been directed to consider the applicants afresh and pass a new order in compliance with the SEBI SRO Regulations, 2004, particularly, after granting an opportunity of hearing to unsuccessful applicants. [Disclaimer: Finsec Law Advisors represented the appellant, FPSF]