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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 ..... . 2. SEBI forwarded a copy of the aforementioned complaint of Pramod Kumar to the Special Task Force, Madhya Pradesh Police, vide letter dated October 15, 2018. Simultaneously, SEBI conducted an examination in the matter and thereafter, issued a Show Cause Notice dated February 1, 2021 ("SCN") against the Noticees, based on findings contained in the examination report, inter alia alleging that: (i) IIFS, Anant Rathore, Vijesh Joshi and Nyn Investment Financial Services Pvt. Ltd. (a company having as its Directors, Anant Rathore and Vijesh Joshi) ("NYN/Noticee no. 2") (hereinafter collectively referred to as "Noticees") carried out investment advisory activities and held themselves out as 'Investment Advisers' without obtaining a Certificate of Registration from SEBI in violation of the provisions of Section 12(1) of the SEBI Act, 1992 ("SEBI Act") read with Regulation 3(1) of SEBI (Investment Advisers) Regulations, 2013 ("Investment Advisers Regulations"). (ii) The Noticees, by providing advisory for investment in securities without obtaining a Certificate of Registration from SEBI, were in violation of Sections 12A(a)-(c) of the SEBI Act read with Regulations 3(a)-( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nay Puranik made oral submissions on behalf of Noticee 4. Subsequently, Noticee No. 4 filed additional written submissions vide letter dated July 4, 2022. 6. Subsequently, vide e-mail dated December 21, 2022, Noticee 3 informed SEBI that he had not received the SCN and the Hearing Notice sent by SEBI and requested that an opportunity of personal hearing be provided to him. Accordingly, an opportunity of personal hearing was provided to Noticee 3 on January 23, 2023. Prior to the hearing, Noticee 3 made written submissions dated January 20, 2023. Noticee 3 was represented by Abhishek Mishra, Company Secretary, for the hearing, and the authorized representative made submissions along the lines of his reply dated January 20, 2023. The authorized representative also submitted that the Noticee did not have access to the statements of the bank accounts mentioned in the SCN, and if the same were provided, he would be in a position to explain the nature of the transactions reflected therein. The copies of the bank 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 wri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In respect of the bank accounts which were mentioned in the SCN, the Noticee submitted as under: - * Payments were received from clients in the account (37464722651) maintained with SBI and account (917020054767417) maintained with Axis Bank. The PayUMoney account was only linked with these two bank accounts. * The bank accounts in the name of Padmini Concept Trading Pvt. Ltd., mentioned in the SCN, was used by Noticee 4 for his personal family business, and the Noticee was not aware of the transactions happening in this account. * The Kotak Mahindra Bank account mentioned in the SCN belonged to his mother, and payments related to advisory services were never received in the said bank account. Similarly, the Bank of Maharashtra account mentioned in the SCN was the personal account of the Noticee and client funds were never received in this account. k. He no longer has access to the said back accounts and requested that the statements of the above-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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d his complete payment of Rs.17,22,369 via RTGS on June 22, 2021, from the account of IIFS. A copy of the document evidencing payment was submitted. j. A declaration dated 16.01.2019 was executed in favour of IIFS by Ayan Raichaudhuri, declaring that he received the entire amount of Rs.2,30,000 and, further, that he did not have any grievance left against IIFS, was submitted by the Noticee. k. It was therefore submitted that out of the four complainants referred in the SCN, the claims of 3 complainants were settled. l. The Noticee also submitted that he has no objection if the claim of the remaining one complainant, Jackie Bhatia, for an amount of Rs.1,31,300 is settled or repaid through the funds from the account of IIFS (Axis Bank A/c No. 917020054767417, Bombay Hospital Square Branch, Indore.) which was frozen by Cyber Crime Police. FINDINGS: 8. I have considered the SCN 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investmentindia.co and www.investmentindia.net.in (this website is no longer active; however, archived pages of the website were downloaded from web.archive.org), had displayed IIFS as a SEBI registered investment adviser. I also note that the said websites offered advisory services in sixteen products, viz. Stock Future Power, Stock Option Power, Stock Cash Power, Blue Chip Tips, MCX Gold Option Tips, Nifty Option Tips, Stock Cash BTST Tips, Inventory Calls, Stock Cash, Stock Future, Stock Option, Energy Tips, Base Metals, NCDEX, Smart MCX and Bullion, against consideration. 11. As per the information available on the website, www.investmentindia.net.in, it is observed that seven bank accounts were mentioned for transferring funds for availing the services that were being offered. The details of said accounts and amounts received are given in the table below: - TABLE 2 BANK A/C HELD IN THE NAME OF PERIOD AMOUNT IN Rs. 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, 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him from all the liabilities 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 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f persons and 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, Reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, in connection with issue, purchase or sale of any security li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 other law enforcement agencies. Noticee 3 and 4 may take steps to activate such acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of investors. However, as stated in Table 2, I find that an amount of Rs.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 /investors /clients, as fees /consideration or in any other form, in respect of their unregistered investment advisory activities. (b) Noticees 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oticees, 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 activity in the securities market without obtaining a Certificate of Registration from SEBI, as required under the securities laws. (j) Noticees 3 a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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