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TMI Blog2023 (3) TMI 1404X X X X Extracts X X X X X X X X Extracts X X X X ..... partners of Noticee 1. ORDER : In exercise of the powers conferred upon me in terms of Sections 11, 11B(1) and 11(4) along with Sections 11(4A) and 11B(2) read with of Sections 15HA, 15HB and 19 of the SEBI Act and Rule 5 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995, hereby issue the following directions: (a) Noticees 1, 3 and 4 i.e. M/s India investment Financial Services, Anant Rathore and Vijesh Joshi, shall jointly and severally, within a period of three months from the date of coming into force of this Order, refund the money received from any Complainants /investors /clients, as fees /consideration or in any other form, in respect of their unregistered investment advisory activities. (b) Noticees 1, 3 and 4 shall cause to effect a public notice in all editions of two National Dailies (one English and one Hindi) and in one local daily with wide circulation, inviting claims from Complainants /investors /clients within a period of fifteen (15) days from the date of this Order. The said public notice shall detail the modalities for refund, including the details of the contact persons such as names, addresses and contact details. A pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in paragraphs 29(a) and (e), whichever is later. (h) Upon submission of the report on the completion of refund to clients/investors to SEBI and deposit of the balance amount, if any, with SEBI, the direction at paragraph 29(f) shall cease to operate within 15 days thereafter. (i) The Noticees shall not undertake, either during or after the expiry of the period of debarment /restraint as mentioned in paragraph 29(g), either directly or indirectly, investment advisory services or any activity in the securities market without obtaining a Certificate of Registration from SEBI, as required under the securities laws. (j) Noticees 3 and 4 are also imposed with the penalty,. (k) Noticees 3 and 4 shall forward the said confirmation of e-payment made in the format as given. The above direction for refunds /repayment to clients /investors and depositing the balance amount with SEBI, as given in paragraphs 29(a) and (e) above, does not preclude such Complainants /investors /clients from pursuing other legal remedies available to them under any other law against the Noticees for refund of money or deficiency in service. This Order shall come into force with immediate effec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad with Section 15HA and 15HB of the SEBI Act should not be issued /imposed against the Noticees for the violations alleged in the SCN. The details concerning the service of SCN are provided as under: TABLE 1 SR. NO. NOTICEE ADDRESS SCN NO. AND DATE DELIVERY STATUS NEWSPAPER WHERE PUBLIC NOTICE WAS PUBLISHED 1. M/S INVESTMENT INDIA FINANCIAL SERVICES 1. 301, CLASSIC MOON PLAZA, 5 A/2, OLD PALASIA, INDORE, MADHYA PRADESH 452010. 2. 604 A, 604 B, 6TH FLOOR, AIREN HEIGHTS, PU_3, AB ROAD, INDORE, MADHYA PRADESH. 3. 101, TN TOWER 1ST FLOOR, VIJAY NAGAR, AB ROAD, INDORE, MADHYA PRADESH. 1. SEBI/WRO/P/18 7/1/2021 DATED 1.02.2021 2. SEBI/WRO/P/18 7/2/2021 DATED 1.02.2021 3. SEBI/WRO/P/18 7/3/2021 DATED 1.02.2021 NOT DELIVERED THROUGH POSTAL DEPT. ENGLISH TIMES OF INDIA (INDORE EDITION) 2. NYN INVESTMENT INDIA FINANCIAL SERVICES PVT. LTD. 156 B, VAISHALI NAGAR, INDORE, MADHYA PRA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk statements were furnished to the Noticee vide an e mail dated January 24, 2023. However, no reply in this regard was received from Noticee 3. 7. The summary of the oral and written submission made on behalf of Noticee 3 and 4 are captured below: - Submissions made by Noticee 3 a. The Noticee had formed a partnership firm with Noticee 4 in July 2017, with a view to carry out consultancy business in the financial sector. The firm subsequently obtained sub-brokership of Profitmart. Around this period, Noticee 4 had informed the Noticee that he had obtained NISM certification and they should, therefore, start the business of providing stock recommendations. b. He accepted the suggestion made by Noticee 4 as he was not aware of the regulatory provisions and was under the impression that a person with NISM certification was qualified to provide investment advisory services. c. Noticee 4 had represented to the Noticee that he was associated with a SEBI registered investment advisor and on the basis of the same they started representing on their website that they were registered with SEBI. d. Thereafter, Noticee 4 convinced the Noticee to also obtain NIS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -mentioned bank accounts be provided to him to enable him to identify the transactions which pertained to advisory services. l. The actual receipt of fees from the clients was around Rs. 1.5 Crore, and the rest of the amounts were from other sources. Further, as the profits were to be shared by the partners equally, his share of the liabilities should not exceed 75 Lakhs. m. The Cyber Crime authorities had frozen the bank accounts of the firm having balance to the tune of Rs. 38 Lakh. SEBI may consider transferring the said amount to the Investor Protection and Education Fund. n. The Noticee has already made refund to the tune of Rs. 50 Lakh to the clients. The Noticee s remaining liabilities of Rs. 25 Lakh (75 -50) may be adjusted from the funds which are lying in the frozen bank accounts. o. The Noticee was in regular touch with Indore Police authorities, and refunds have been made to clients based on their directions. Submissions made by Noticee 4 a. Noticee 3 was solely responsible and liable for all the business dealings and financial transactions of the firm. The Noticee was merely acting as an investment /sleeping partner in IIFS. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... along with all the material available on record. I note that Noticees 1 and 2 have not filed any reply to the SCN. I note from the records that Noticee 1 is a partnership firm, where Noticee 3 and 4 are the only partners, and Noticee 2 is a private company, where Noticee 1 and 2 are its directors. 9. As per the SCN, it is alleged that the Noticees held themselves out as 'Investment Advisers' without obtaining registration from SEBI in violation of the provisions of Section 12(1) of the SEBI Act read with Regulation 3(1) of the Investment Advisers Regulations. The aforementioned provisions of law read as under: Provisions of the SEBI Act: Section 12 of the SEBI Act Registration of stock brokers, sub-brokers, share transfer agents, etc. 12. (1) No stock broker, sub-broker, share transfer agent, banker to an issue, trustee of trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser and such other intermediary who may be associated with securities market shall buy, sell or deal in securities except under, and in accordance with, the conditions of a Certificate of Registration obtained from the Board in acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able below: - TABLE 2 BANK A/C HELD IN THE NAME OF PERIOD AMOUNT IN ₹ 1. STATE BANK OF INDIA A/C NO. 37464722651 KHAJRANA BRANCH, INDORE IIFS JANUARY 9, 2018 TO AUGUST 29, 2020 70,32,853 2. AXIS BANK A/C NO. 917020054767417 (LINKED TO PAYU MONEY ACCOUNT) BOMBAY HOSPITAL SQUARE BRANCH, INDORE IIFS AUGUST 3, 2017 TO SEPTEMBER 07, 2020 1,93,31,575 3. ICICI BANK A/C NO. 657305600700 SAKET NAGAR BRANCH, INDORE IIFS AUGUST 20, 2017 TO SEPTEMBER 14, 2018 33,19,715 TOTAL 2,96,84,143 4. BANK OF BARODA BANK A/C NO. 42710200000296 PADMINI CONCEPT TRADING INDORE PVT. LTD. MARCH 2, 2016 TO JUNE 25, 2020 58,18,494 M. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iabilities in relation to the activities undertaken by Noticee 1. Noticee 3, on the other hand, has repeatedly stated in his reply that the entire operations of Noticee 1 was being run by Noticee 4. Having considered the replies, I note that what is not in dispute is that Noticee 3 and 4 were the only partners of Noticee 1 during the period under examination. I, however, note that other than these claims, Noticees 3 and 4 have failed to submit any valid proof regarding dissolution of the partnership firm during this period and in the absence of the same, I note that they would be jointly and severally liable for the actions of Noticee 1. 14. In respect of Noticee 2, which, I note, is a company where Noticees 3 and 4 are directors, there are no specific allegations in the SCN that it was engaged in providing advisory services or had received any funds from clients. It is noted that Noticee 2 was made a Noticee in these proceedings only because Noticee 3 and 4 were its directors. In view of the same, I do not propose to issue any directions in respect of Noticee 2 in this Order. 15. Now I am moving on to consider the question of funds mobilised by Noticee 1 by offering unregist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd includes any person who holds out himself as an investment adviser, by whatever name called . Further, Regulation 2(l) of the Investment Advisers Regulations defines 'Investment Advice' as advice relating to investing in, purchasing, selling or otherwise dealing in securities or investment products, and advice on investment portfolio containing securities or investment products, whether written, oral or through any other means of communication for the benefit of the client and shall include financial planning. The aforementioned definitions, when viewed in light of the observations contained in the preceding paragraphs, lead me to conclude that the Noticees (excluding Noticee 2 see paragraph 14) indeed held themselves out as 'Investment Adviser' by offering to give 'Investment Advice' related to investing in, purchasing and selling of securities in lieu of consideration received from investors /clients. 19. Section 12(1) of the SEBI Act inter alia provides that no investment adviser shall buy, sell or deal in securities except under and in accordance with the conditions of a Certificate of Registration obtained from the Board. Further, Regulation 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her person may act to his detriment; (2) a suggestion as to a fact which is not true by one who does not believe it to be true; (3) an active concealment of a fact by a person having knowledge or belief of the fact; (4) a promise made without any intention of performing it; (5) a representation made in a reckless and careless manner whether it be true or false; (6) any such act or omission as any other law specifically declares to be fraudulent; (7) deceptive behaviour by a person depriving another of informed consent or full participation; (8) a false statement made without reasonable ground for believing it to be true; (9) the act of an issuer of securities giving out misinformation that affects the market price of the security, resulting in investors being effectively misled even though they did not rely on the statement itself or anything derived from it other than the market price. And fraudulent shall be construed accordingly; Regulation 3 of the PFUTP Regulations: No person shall directly or indirectly (a) buy, sell or otherwise deal in securities in a fraudulent manner; (b) use or employ, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artners would be jointly and severally liable for the actions of Noticee 1. This would extend to the refund obligations of Noticee 1 also. 23. Given the above, I am of the considered view that the Noticees 1, 3 and 4 are jointly and severally liable to refund the aforementioned amount collected in lieu of offering unregistered investment advisory services to its clients /investors. Directing Noticees 1, 3 and 4 to refund such amount will be in the interest of investors in the securities market. 24. In their replies, Noticees 3 and 4 have stated that they have made refunds to some of their clients. They have also submitted that certain credits in the bank accounts mentioned at Serial No. 1, 2 and 3 of Table 2 did not pertain to unregistered investment advisory activity carried out by Noticee 1. These facts may be considered by the Chartered Accountant who will be certifying the refunds, as is being directed in paragraph 29(d) of this Order, on production of reliable proof by the said Noticees. The refund liability to clients /investors shall be suitably adjusted. 25. I further note that certain bank accounts of Noticee 1, mentioned in Table 2 above, have been attached by ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of disproportionate gain or unfair advantage made as a result of the default or the amount of loss caused to an investor or group of investors. However, as stated in Table 2, I find that an amount of ₹2,96,84,143 was credited to the accounts held in the name of Noticee 1 in relation to offering investment advisory services. In view of the same, I am of the considered view that imposition of minimum penalty is warranted in the instant proceedings, which would be commensurate with the violation committed by Noticees 3 and 4, who were the partners of Noticee 1. ORDER : 29. In view of the foregoing, I, in exercise of the powers conferred upon me in terms of Sections 11, 11B(1) and 11(4) along with Sections 11(4A) and 11B(2) read with of Sections 15HA, 15HB and 19 of the SEBI Act and Rule 5 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995, hereby issue the following directions: (a) Noticees 1, 3 and 4 i.e. M/s India investment Financial Services, Anant Rathore and Vijesh Joshi, shall jointly and severally, within a period of three months from the date of coming into force of this Order, refund the money received from any Complainants /invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the purpose of making refunds to the Complainants /investors /clients who were availing the unregistered investment advisory services from the Noticees, as directed in this Order, from the bank accounts of the Noticees. (g) Noticees 1, 3 and 4 are debarred from accessing the securities market, directly or indirectly, and are prohibited from buying, selling or otherwise dealing in the securities market, directly or indirectly in any manner whatsoever, for a period of 3 (three) years from the date of this Order or till the expiry of 3 (three) years from the date of completion of refunds to Complainants /investors /clients along with depositing of balance amounts, if any, with SEBI, as directed in paragraphs 29(a) and (e), whichever is later. (h) Upon submission of the report on the completion of refund to clients/investors to SEBI and deposit of the balance amount, if any, with SEBI, the direction at paragraph 29(f) shall cease to operate within 15 days thereafter. (i) The Noticees shall not undertake, either during or after the expiry of the period of debarment /restraint as mentioned in paragraph 29(g), either directly or indirectly, investment advisory services or any a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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