2023 (9) TMI 1103 - AT - SEBI

Unregistered investment advisory activities - Investment advisory services with guaranteed assured returns causing monetary loss to the complainants - Challenging direction to Refund the monies received from the investors towards investment advisory services - HELD THAT - We find that in the instant case the direction to refund the amount has been issued under Section 11 of the SEBI Act we are of the opinion that SEBI has a power to direct refund of amount in the interest of the investors or to promote development of the securities market. In any case, such power is also derived under Regulation 35 of the Intermediaries Regulations. In our opinion the direction to refund the amount is squarely covered under Regulation 35. The contention that Regulation 35 is only with regard to collection of money under any scheme is patently erroneous. The word scheme is wide enough to include a device which the appellant have carried out in the form of giving advisory services without obtaining registration. In view of the aforesaid, the contention raised by the appellant does not survive. As contended that the appellant at best can only be entitled to refund the amount till the date when the appellant was a partner in the firm but after the dissolution of the partnership the appellant is not entitled for the action of the respondent in carrying out advisory services. In our opinion the submission cannot be accepted as there is no clear cut evidence to show that the partnership had validly dissolved. In the absence of any cogent proof the submission cannot be accepted. We of the view that since appellants were carrying out advisory services without registration the direction to refund the amount by the WTM does not suffer from any error of law.

Summary

Issues involved:
The appeal challenges an order by the Securities and Exchange Board of India (SEBI) directing refund of monies received from investors for investment advisory services, imposing a market access restriction, and penalty, based on complaints of offering services with guaranteed returns causing monetary loss.

Details of the Judgment:

Issue 1: Refund of Monies and Market Access Restriction
The appellant contested the SEBI's power to order refund under the SEBI Act or IA Regulations, arguing the money collected was for services rendered, not under any scheme. The Tribunal held that SEBI has the authority to direct refunds in the interest of investors or market development, citing Section 11 of the SEBI Act and Regulation 35 of the Intermediaries Regulations. The Tribunal found the direction to refund falls within Regulation 35, rejecting the appellant's argument that it only applies to money collected under a scheme. The Tribunal dismissed the appellant's contention, stating that the word "scheme" encompasses the advisory services provided without registration, supporting SEBI's decision.

Issue 2: Partnership Dissolution and Entitlement
The appellant claimed to have dissolved the partnership, limiting liability for actions post-dissolution. However, the Tribunal found insufficient evidence of a valid dissolution, rejecting the argument due to lack of clear proof. Consequently, the Tribunal held that the appellant, involved in advisory services without registration, was not exempt from the refund direction. The Tribunal dismissed the appeal, upholding the SEBI order without costs, emphasizing the illegality of conducting advisory services without proper registration.

Separate Judgment by Judges:
No separate judgment was delivered by the judges in this case.