ISSUES PRESENTED AND CONSIDERED

1. Whether the registered portfolio manager's failure to submit mandatory annual certificates/reports for FY 2021-22 and FY 2022-23, as required by Regulation 33 of the PMS Regulations and the Master Circular, constitutes a regulatory violation attracting action under the Intermediaries Regulations and SEBI Act.

2. Whether the entity continues to satisfy the statutory "fit and proper" criteria under Regulation 7(2)(j), Regulation 8 of the PMS Regulations and Schedule II of the Intermediaries Regulations in light of prior regulatory findings, cancellation of broker registration, restraint/debarment orders and pending recovery proceedings.

3. Whether the enquiry process (DA's show cause notice and enquiry report) and subsequent quasi-judicial proceedings before the Competent Authority complied with principles of natural justice and valid service requirements, such that the Enquiry Report and recommendations may be acted upon.

4. Whether, in view of admitted non-compliance, absence of clients and asserted financial/incarceration difficulties, the appropriate relief is acceptance of voluntary surrender of registration instead of cancellation and other regulatory consequences.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Failure to submit mandatory annual certificates/reports

Legal framework: Regulation 33 of the PMS Regulations empowers the Board to require disclosures including net-worth certificates, compliance certificates and firm-level performance/audit reporting. The Master Circular prescribes timelines and format: net-worth certificate within six months of year-end; certificate of compliance within 60 days; corporate governance report within 30 days; audited firm-level performance report within 60 days.

Precedent treatment: No binding precedent was cited or applied in the judgment; determination proceeded on the textual mandate of the Regulations and Master Circular.

Interpretation and reasoning: The obligation to file periodic reports is continuing and unconditional while registration remains in force. The Master Circular contains no carve-out for entities with no clients; filing of "nil" reports or net-worth certificates remains mandated to enable SEBI to monitor capital adequacy, compliance and market transparency. Multiple reminders and advisories were issued; the notices returned undelivered and subsequent public service was effected. The Noticee did not deny non-submission and did not establish any regulatory exemption or waiver.

Ratio vs. Obiter: Ratio - Failure to file the specified reports within prescribed timelines constitutes contravention of Regulation 33 read with the Master Circular and renders the intermediary liable to action under the Intermediaries Regulations and SEBI Act. (This forms part of the operative reasoning.)

Conclusion: The Court finds established violations of Regulation 33 of the PMS Regulations read with clauses 5.2.1.1, 5.2.1.2, 5.2.2.4 and 5.3.1 of the Master Circular for FY 2021-22 and FY 2022-23.

Issue 2 - Continuing "fit and proper" status

Legal framework: Regulation 7(2)(j) and Regulation 8 of the PMS Regulations require applicants/registrants to be "fit and proper"; Schedule II of the Intermediaries Regulations sets out factors and objective disqualifications (including orders of restraint/debarment and pending recovery proceedings) relevant to that determination.

Precedent treatment: The Court relied on the objective statutory criteria in Schedule II rather than external precedent; prior SEBI enforcement orders and factual findings were treated as relevant inputs for the fit and proper assessment.

Interpretation and reasoning: The "fit and proper" test is a continuing eligibility requirement. Objective disqualifications in Schedule II include (inter alia) orders of restraint/debarment by the Board and pending recovery proceedings. The Noticee had prior findings of misuse of client assets, falsification of records, non-segregation/misuse of client funds, failure to cooperate with summons, failure to redress investor grievances and related breaches that led to cancellation of its stock-broker registration and to restraint from market access. Recovery proceedings and an adjudication penalty were also pending. Those facts, together with recurrent non-compliance with reporting obligations and inaccessibility at the registered address, bear directly on integrity, reputation and character under Schedule II.

Ratio vs. Obiter: Ratio - The existence of regulatory orders (restraint/cancellation), prior findings of serious misconduct concerning client assets/records, and pending recovery proceedings amount to objective disqualifications under Schedule II and justify a finding that the registrant is not "fit and proper". (Operative and determinative.)

Conclusion: The Court finds that the registrant does not satisfy the "fit and proper" criteria under Schedule II of the Intermediaries Regulations and therefore fails the requirements of Regulation 7(2)(j) and Regulation 8 of the PMS Regulations.

Issue 3 - Validity of enquiry, service and compliance with natural justice (DA proceedings and Enquiry Report)

Legal framework: Intermediaries Regulations prescribe the role of the Designated Authority (DA) in conducting enquiries and making recommendations; Regulation 26 requires DA recommendations; Regulation 27(1) mandates post-enquiry show cause and opportunity to be heard before the Competent Authority issues any quasi-judicial order.

Precedent treatment: No specific authority was cited; the Court applied the statutory scheme and principles of natural justice to the sequence of events.

Interpretation and reasoning: The DA's show cause notice issued to the registered address returned undelivered; subsequent attempts at service through MIIs failed; public notices were published. The Enquiry Report is recommendatory-quasi-judicial power to pass final orders resides with the Competent Authority, which must provide copies of the Enquiry Report and an opportunity of hearing. The SCN with the Enquiry Report was provided to the registrant, the registrant's authorised representative acknowledged receipt and availed opportunities to make written submissions and attend hearings. Given that the Competent Authority furnished the Enquiry Report and provided full opportunity for written and oral submissions prior to passing the order, the Court concluded that principles of natural justice were satisfied and that no prejudice resulted from initial non-receipt of the DA notice.

Ratio vs. Obiter: Ratio - A DA's procedural defect in service does not invalidate the Enquiry Report where the Competent Authority independently affords the registrant the Enquiry Report, an opportunity of written reply and personal hearing before passing a quasi-judicial order; natural justice is assessed in relation to the proceedings before the adjudicating authority, not the DA's internal steps. (Operative.)

Conclusion: The Court finds no breach of natural justice or fatal defect in the enquiry process that would render the Enquiry Report/recommendations unsustainable; the registrant was afforded requisite opportunity before the Competent Authority.

Issue 4 - Appropriateness of surrender vs. cancellation and regulatory consequences

Legal framework: The regulatory scheme permits cancellation or other actions under the Intermediaries Regulations and SEBI Act for contraventions and for failure to meet continuing eligibility; regulatory policy considers investor protection, market integrity and deterrence.

Precedent treatment: No precedent dispensing with punitive or corrective measures in similar factual matrices was invoked; the decision was grounded on the gravity of established misconduct and statutory objectives.

Interpretation and reasoning: The registrant sought to surrender registration citing lack of clients, damaged reputation and adverse financial position. The Court observed that permitting voluntary exit without punitive/regulatory consequence where there are serious prior enforcement findings (including misuse of client assets, falsification and restraint/debarment orders) and continuing non-compliance would undermine regulatory objectives, investor protection and deterrence. The seriousness and multiplicity of breaches, together with objective disqualifications, rendered surrender inappropriate as an alternative to regulatory action.

Ratio vs. Obiter: Ratio - Where objective disqualifications and serious past misconduct exist, allowing a registrant to exit by surrender without adverse regulatory consequences would undermine the regulatory framework; cancellation is an appropriate regulatory remedy in such circumstances. (Operative.)

Conclusion: The Court declines the request for acceptance of surrender in lieu of action and finds cancellation of registration appropriate given the totality of violations and disqualifications.

Final Disposition (conclusion resulting from above issues)

Having found established violations of mandatory reporting obligations (Regulation 33 and Master Circular) and non-satisfaction of continuing "fit and proper" criteria (Regulations 7(2)(j), 8 and Schedule II), and having found the enquiry and adjudicatory process to have satisfied natural justice at the Competent Authority stage, the Court concludes that regulatory cancellation of the certificate of registration is warranted and directs cancellation with immediate effect.

ISSUES PRESENTED AND CONSIDERED

1. Whether the noticee was a partner of the partnership firm and, if so, the tenure of such partnership.

2. Whether the noticee, as a partner during the relevant period, is liable for the firm's unregistered investment advisory activities under section 12(1) of the SEBI Act read with regulation 3(1) of the IA Regulations and regulation 4(2)(k) of the PFUTP Regulations.

3. If liability is established, the extent/quantum of the noticee's refund obligation and whether that obligation is co-extensive with the firm's overall liability or limited to the period of partnership.

4. Whether debarment from the securities market should be imposed on the noticee in light of prior debarment period already undergone and principles of proportionality.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Existence and tenure of partnership

Legal framework: Determination of partnership status and tenure is governed by the partnership deed and applicable principles under the Indian Partnership Act insofar as relevant to facts of association of persons.

Precedent treatment: No binding precedent required to establish fact of partnership where documentary evidence exists; reliance placed on partnership deed, resignation letter and contemporaneous affidavits.

Interpretation and reasoning: The partnership deed (dated 15 January 2016) containing clauses (partnership at will; process of resignation), the resignation letter dated 15 March 2016 (acknowledged by a partner) and an affidavit by two partners confirming resignation within two months are contemporaneous and consistent materials establishing that the noticee was a partner from 15 January 2016 to 15 March 2016.

Ratio vs. Obiter: Ratio - where documentary evidence (deed, resignation, partner affidavits) is available and uncontradicted, a noticee's tenure as partner is determinable and binding for subsequent liability assessment. Obiter - none relevant.

Conclusion: The noticee was a partner of the firm only for the period 15 January 2016 to 15 March 2016.

Issue 2 - Liability of a partner for firm's unregistered investment advisory activities

Legal framework: Section 12(1) of the SEBI Act read with regulation 3(1) of the IA Regulations prohibits acting as an investment adviser without registration; regulation 4(2)(k) of the PFUTP Regulations prohibits knowingly holding out as an investment adviser without registration. SEBI's powers to issue directions and recovery arise under Sections 11, 11(4), 11B(1), and related provisions.

Precedent treatment: Criminal-law cases cited by the noticee (concerning criminal liability of partners) are distinguished as addressing mens rea and criminal responsibility; quasi-judicial/civil enforcement proceedings under SEBI invoke principles of civil liability where firm acts bind partners. Earlier SEBI / SAT orders limit refund liability to period of directorship/tenure in analogous corporate contexts.

Interpretation and reasoning: Partnership is not a separate legal entity; each partner is an agent of the firm and civilly liable for acts of the firm. The proceedings here are quasi-judicial/enforcement in nature; criminal-law standards relied upon by the noticee do not govern SEBI's civil/enforcement liability assessment. The partnership deed designates partners as working partners, reinforcing potential agency and civil liability. Therefore, a partner is civilly liable for acts of the firm committed during the period of partnership, irrespective of participation in day-to-day management or profit receipt.

Ratio vs. Obiter: Ratio - in civil/quasi-judicial enforcement proceedings, partners are jointly and severally liable for acts of the firm within their tenure; criminal-law authorities on mens rea are not apposite to negate civil enforcement liability. Obiter - detailed reference to working-partner clause as supporting evidence of potential agency.

Conclusion: The noticee is liable as a partner for the firm's unregistered investment advisory activities to the extent such activities occurred during her period of partnership.

Issue 3 - Quantum and temporal extent of refund liability

Legal framework: SEBI's refund and recovery directions are to restore monies collected in contravention of registration requirements; prior SEBI/SAT decisions have limited refund liability to amounts collected during a director's or officer's tenure where tenure can be demarcated.

Precedent treatment: Guided by SEBI/SAT orders which restrict refund obligations to amounts collected during the period of directorship/tenure (analogous authority and principle applied here).

Interpretation and reasoning: The Final Order established that the firm collected fees through identified bank accounts over a multi-year period. Given the established fact that the noticee was a partner only from 15 January 2016 to 15 March 2016, and given precedent and principle that refund liability should be co-terminous with tenure of office/association, the noticee's refund obligation is limited to amounts credited to the firm during her period of partnership. The Final Order's computation records total credits during that period as INR 2,23,404.10, which is the quantifiable amount linked to the noticee's tenure. The noticee admitted potential liability for transactions in the firm's bank account prior to resignation; therefore liability is confined to monies received by the firm during her partnership tenure, payable jointly and severally with other partners/firm.

Ratio vs. Obiter: Ratio - refund liability of a partner in enforcement proceedings is limited to monies collected by the firm during the partner's tenure; quantified liability must be based on actual receipts attributable to that tenure. Obiter - reference to specific bank accounts and earlier cases is illustrative of computation approach.

Conclusion: The noticee's refund liability is INR 2,23,404.10, being the amount collected by the firm during her partnership period, payable jointly and severally with the firm and other partners; deposit of that amount with the regulator discharges liability pending ongoing recovery proceedings.

Issue 4 - Appropriateness of debarment

Legal framework: SEBI may impose market access restrictions (debarment) as part of remedial/directional powers, subject to proportionality and reasonableness principles.

Precedent treatment: Proportionality and reasonableness guide imposition of debarment; prior debarment period already undergone by an aggrieved person is relevant to avoid cumulative disproportionate punishment.

Interpretation and reasoning: The Final Order had imposed a two-year debarment from the securities market commencing from completion of refund. The noticee has already served debarment for over 3.5 years in consequence of the Final Order until the SAT set aside the order qua her. Considering proportionality and reasonableness, additional debarment directions against the noticee are unnecessary and disproportionate in the circumstances.

Ratio vs. Obiter: Ratio - where an affected person has effectively undergone significant debarment consequent to an order later set aside and remanded, further debarment may be unwarranted to ensure proportionality. Obiter - none material beyond proportionality observation.

Conclusion: No further debarment directions are warranted against the noticee.

Final operational conclusions and directions (as to remedy)

1. The noticee is directed to refund, jointly and severally with the firm and its other partners, the amount of INR 2,23,404.10 representing monies received by the firm during the noticee's partnership tenure, or alternatively to deposit the said amount with the regulator (fixed deposit with lien) within the stipulated timeline, subject to verification and utilization in ongoing recovery and refund proceedings.

2. Repayments must be effected through banking channels with audit trail; public notice and reporting obligations and the contingency of further action under section 28A are prescribed for non-compliance.

Issues: (i) Whether the allegations against Himanshu Gupta regarding advance sharing of stock recommendations, non-public information, profit sharing, and violation of the securities law provisions were proved; (ii) Whether Partha Sarathi Dhar, SAAR Commodities Private Limited, Manan Sharecom Private Limited and Kanhya Trading Company engaged in fraudulent and unfair trade practices by trading on advance information of guest expert recommendations and were liable to debarment and penalty.

Issue (i): Whether the allegations against Himanshu Gupta regarding advance sharing of stock recommendations, non-public information, profit sharing, and violation of the securities law provisions were proved.

Analysis: The document inspection objection was rejected because the relied-upon material and documents relevant to the noticee had been supplied and the withheld material pertained to third parties or was otherwise not shown to have caused prejudice. On the merits, the material relied upon against Himanshu Gupta was held to be largely circumstantial and insufficient. The timing of communications did not establish a reliable flow of advance recommendation information from him to the profit makers, the trades in the relevant scrips did not match the alleged communication dates, and no direct evidence of profit sharing or receipt of kickbacks was produced. The alleged advance recommendation in relation to PNB 42 CE was also not supported by proof of communication to the relevant entities.

Conclusion: The allegations against Himanshu Gupta were not proved, and no direction or penalty was warranted against him.

Issue (ii): Whether Partha Sarathi Dhar, SAAR Commodities Private Limited, Manan Sharecom Private Limited and Kanhya Trading Company engaged in fraudulent and unfair trade practices by trading on advance information of guest expert recommendations and were liable to debarment and penalty.

Analysis: The order held that advance sharing of recommendations before public broadcast constituted non-public information in the context of market abuse, and that the evidence established a coordinated scheme involving advance information, trades placed before broadcast, price and volume impact after broadcast, and unlawful gains. Applying the inclusive definition of fraud and the preponderance-of-probabilities standard, the conduct was found to fall within the prohibition against fraudulent and unfair trade practices and within the provisions governing market manipulation and inducement. While the disgorged amount had already been dealt with in settlement proceedings, the remaining noticees were still liable to debarment and monetary penalty in view of the proved violations, though mitigation was considered in quantifying the penalties.

Conclusion: The violations were proved against these noticees, they were debarred from the securities market for two years, and monetary penalties were imposed.

Final Conclusion: The proceedings ended with complete exoneration of Himanshu Gupta, while the other concerned noticees were found liable for fraudulent and unfair trade practices and subjected to market restraint and penalties.

Ratio Decidendi: Advance sharing of stock recommendations before public broadcast, when used to trade ahead of the market and generate profits from the resulting price movement, constitutes non-public information and fraudulent and unfair trade practice under securities law, to be assessed on preponderance of probabilities.

Issues: (i) Whether the alleged lapses in stock reconciliation, stock mismatch alerts, running account settlement of funds, margin reporting, client registration and closure process, weekly holding statement verification, cyber security compliance, and cooperation during inspection were proved and justified adverse action. (ii) Whether the alleged discrepancies in net worth verification and UCC mapping were proved. (iii) Whether the noticee violated the prohibition against engaging in other business involving personal financial liability and dealing with unregistered constituents. (iv) Whether trading in minor accounts was in violation of the applicable code of conduct and SEBI guidelines.

Issue (i): Whether the alleged lapses in stock reconciliation, stock mismatch alerts, running account settlement of funds, margin reporting, client registration and closure process, weekly holding statement verification, cyber security compliance, and cooperation during inspection were proved and justified adverse action.

Analysis: The alleged deficiencies were examined issue-wise against the relevant circulars and regulations governing stock reconciliation, client fund settlement, margin reporting, client onboarding documentation, online closure facility, holdings verification, cyber security certification, and cooperation during inspection. The findings recorded that several lapses were admitted or established, but many of them were technical, of limited magnitude, subsequently corrected, and not accompanied by any allegation of client fund misutilisation or investor loss. The order also took note that penalties had already been imposed in adjudication for the same conduct, that remedial steps had been taken, and that the inspection process is meant to secure compliance rather than impose punitive consequences for every procedural lapse.

Conclusion: The alleged violations under this group were substantially found, but they were treated as minor or technical and did not warrant further adverse action.

Issue (ii): Whether the alleged discrepancies in net worth verification and UCC mapping were proved.

Analysis: The alleged net worth discrepancy was found to be insignificant and not material to the overall net worth position, which remained well above the prescribed minimum. On the UCC issue, the evidence showed that common mobile numbers and e-mail IDs were used for family members in accordance with the applicable exception, supported by documentary proof. The order therefore distinguished between a material compliance lapse and a negligible or properly explained variation.

Conclusion: No violation was held in respect of net worth verification and UCC mapping.

Issue (iii): Whether the noticee violated the prohibition against engaging in other business involving personal financial liability and dealing with unregistered constituents.

Analysis: The arrangements concerning investments, borrowing, and jobber or arbitrager deposits were examined in the context of the object of rule 8 and the stock exchange clarification. The materials showed that the investment was from surplus funds, the borrowing was from an NBFC for business purposes, and the arbitrage arrangements were connected with securities business and later discontinued. On the unregistered constituent allegation, the record did not establish that the trading was on behalf of unregistered clients in the manner alleged.

Conclusion: No violation was held under rule 8 or the provisions relating to unregistered constituents.

Issue (iv): Whether trading in minor accounts was in violation of the applicable code of conduct and SEBI guidelines.

Analysis: The governing SEBI guidance permits only limited sale-side operation in a minor's account for specified inherited or otherwise acquired securities, and the noticee admitted that trades had been executed because buying restrictions were not properly imposed. Although the accounts were frozen promptly after inspection, the breach of the restriction remained established on the record.

Conclusion: The minor-account trading allegation was established, though it was treated as a corrected compliance lapse.

Final Conclusion: The matter was ultimately treated as one involving mainly technical and procedural breaches that had been corrected, with no further enforcement consequence beyond the action already taken in adjudication, and the proceedings were closed without additional adverse direction.

Ratio Decidendi: Where procedural and reporting breaches by a registered intermediary are minor, promptly corrected, unsupported by misuse of client assets or investor harm, and already dealt with through adjudication, further action under the intermediary regulations need not be imposed if disproportionate to the gravity of the violation.

Issues: Whether the trading patterns adopted by the entities constituted a fraudulent and manipulative device under the securities law framework and whether interim directions for impounding unlawful gains and market restraint were warranted.

Analysis: The Order examined two recurring trading patterns on expiry days. First, in the intraday index manipulation pattern, the entities were found to have aggressively bought BANKNIFTY constituent stocks and futures in the morning, supported the index, and simultaneously built large bearish positions in index options at favourable levels, before reversing the underlying positions later the same day and pushing the index down. The analysis relied on concentration of traded value, last-traded-price impact, and the mismatch between large underlying losses and substantial options profits. Second, in the extended marking the close pattern, the entities were found to have concentrated aggressive buying or selling in the final part of the session so as to move the expiry settlement level in their favour, again supported by volume concentration, LTP impact, and contemporaneous options positioning. The Order held that such conduct created a false or misleading appearance of trading, manipulated benchmark prices, and lacked a standalone economic rationale other than to benefit the larger derivative positions.

Conclusion: The Order concluded that the entities had prima facie violated the cited provisions of the SEBI Act and the PFUTP Regulations, and that interim measures including impounding of unlawful gains, restraint from accessing the securities market, and continuing monitoring were justified.

Final Conclusion: Interim ex parte protective directions were issued to secure the alleged unlawful gains and prevent further market abuse pending detailed investigation.

Ratio Decidendi: Large and aggressive coordinated trades in underlying securities and derivatives that are designed to distort an index or its closing level, create a misleading market appearance, and profit from contemporaneous derivative positions constitute fraudulent and manipulative conduct within the securities law framework.

ISSUES PRESENTED AND CONSIDERED

1. Whether a statement on the research analyst's website claiming to be the "Best SEBI registered Research Analyst" constitutes a misleading representation in breach of regulation 24(2) of the Research Analyst Regulations read with Clauses 1, 2 and 8 of the Code of Conduct (Schedule III).

2. Whether the noticee failed to maintain records of duly signed and dated research reports in contravention of regulation 25(1)(i) of the Research Analyst Regulations, and whether text messages/SMS containing recommendations qualify as research reports under Regulation 2(w).

3. Whether the noticee was not operating from its registered/principal place of business and thereby violated regulation 24(2) read with Clauses 1, 2, 7 and 8 of the Code of Conduct, including the obligation under regulation 13 to intimate material changes to SEBI.

4. Whether recordings relied upon by the Designated Authority required authentication under section 65B of the Evidence Act for admissibility, and if the question was determinative in the present proceedings.

5. What remedial action is commensurate with the established violations (regulatory censure v. harsher measures).

ISSUE-WISE DETAILED ANALYSIS - Misrepresentation on the website

Legal framework: Regulation 24(2) of the Research Analyst Regulations and Clauses 1, 2 and 8 of Schedule III require research analysts to act with honesty, good faith, diligence and maintain standards of conduct; public statements must not mislead investors.

Precedent treatment: No binding precedent was adopted by the Court to alter the standard; the noticee relied on the SAT observation that not every minor irregularity warrants penalty, but the Tribunal authority was not treated as defeating a finding of misleading public claim here.

Interpretation and reasoning: The Court examined the exact FAQ wording and concluded the claim "Best SEBI registered Research Analyst" is self-proclaimed, unsupported by documentary evidence, and likely to create an impression of an awarded or endorsed title. As a SEBI-registered intermediary, the entity has heightened responsibility regarding public claims; caution is required when making superlative public assertions. The absence of investor complaints and subsequent removal of text were noted but did not negate the misleading nature of the original statement.

Ratio vs. Obiter: Ratio - the Court's finding that an unsubstantiated claim of being the "Best" is misleading and breaches the specified regulatory provisions; Obiter - the remark about investor behavior (that investors will read about intermediaries) is explanatory and not foundational to statutory interpretation.

Conclusion: The noticee breached regulation 24(2) read with Clauses 1, 2 and 8 of Schedule III by making misleading claims on its website; corrective removal of the text is a mitigating factor.

ISSUE-WISE DETAILED ANALYSIS - Maintenance of records of duly signed and dated research reports

Legal framework: Regulation 25(1)(i) requires research analysts to maintain records, including duly signed and dated research reports and recommendations; Regulation 2(w) defines "research report".

Precedent treatment: No precedent was followed or overruled; the Court interpreted the statutory text directly.

Interpretation and reasoning: The DA had treated SMS/texts containing recommendations as research reports and inferred a requirement to provide rationale to clients. The Court examined the text of regulation 25 and found it mandates maintenance of specified records but does not impose an obligation to send the full research report or rationale to clients with every recommendation. The noticee asserted maintenance of time-stamped records and produced evidence that records were maintained; the material on record did not establish non-compliance.

Ratio vs. Obiter: Ratio - regulation 25 requires maintenance of records but does not require contemporaneous transmission of signed/dated research reports or rationale to clients with every recommendation; the DA's contrary finding was set aside. Obiter - discussion on client discomfort if rationale were shared is illustrative and not relied upon for statutory interpretation.

Conclusion: No violation of regulation 25(1)(i) established; the noticee maintained requisite records.

ISSUE-WISE DETAILED ANALYSIS - Registered office, principal place of business and failure to intimate change

Legal framework: Regulation 24(2) and Clauses 1, 2, 7 and 8 (Schedule III) require conduct with diligence and compliance with regulatory requirements; regulation 13 requires intimation to the regulator of changes to material information such as principal place of business.

Precedent treatment: The Court relied on regulatory obligations in the Regulations rather than prior case law; the noticee's invocation of co-working space norms and work-from-home practice was considered factually.

Interpretation and reasoning: The DA's onsite inspection found the registered address closed, absence of noticee's signage, presence of other entities' details, and representations by the director that staff worked from home and majority operations were run from the Indore branch. The noticee explained co-working arrangements and asserted core activities in Mumbai. The Court found that closure of the stated unit, lack of visible presence at the registered address during inspection, and absence of intimation to SEBI amounted to failure to operate from the declared principal place and to notify material change as mandated by regulation 13. Clause 7 (comply with regulatory requirements) was engaged when intimation was not furnished.

Ratio vs. Obiter: Ratio - failure to operate from the registered/principal place of business and failure to notify material change violate regulation 24(2) read with Clauses 1, 2, 7 and 8 and regulation 13; Obiter - acceptability of co-working spaces and work-from-home models in general is noted but does not excuse lack of registration/updating of material information.

Conclusion: The noticee violated the cited provisions by not functioning from its declared principal place of business at the time of inspection and by failing to intimate SEBI of material change in information.

ISSUE-WISE DETAILED ANALYSIS - Admissibility of call recordings and applicability of section 65B of the Evidence Act

Legal framework: Section 65B of the Evidence Act concerns admissibility of electronic records with a certificate. SEBI exercises quasi-judicial powers under the SEBI Act akin to a civil court in certain respects.

Precedent treatment: The noticee contended that SEBI has treated such recordings as inadmissible without verification/authentication in prior matters; the DA had rejected the noticee's submission. The Court did not adjudicate the general question of section 65B's applicability to SEBI proceedings for this record.

Interpretation and reasoning: The DA had relied on call recordings in addressing the assured-returns allegation, but that particular charge was dropped for insufficiency of evidence. Since the recordings are not relied upon in the present Order, the Court deemed it unnecessary to determine the applicability or admissibility requirements under section 65B in this matter.

Ratio vs. Obiter: Obiter - the Court's non-decision on section 65B is not a precedent; the point is explicitly not decided because the recordings are immaterial to the charges adjudicated.

Conclusion: The question of admissibility under section 65B was not adjudicated as the relevant allegation was dropped and the recordings are not relied upon.

ISSUE-WISE DETAILED ANALYSIS - Appropriateness of regulatory censure

Legal framework: The Intermediaries Regulations empower imposition of disciplinary measures such as regulatory censure under the applicable scheme; proportionality and mitigating factors are relevant.

Precedent treatment: The noticee cited SAT observations that not every irregularity warrants penalty; the Court balanced that principle against regulatory obligations and facts.

Interpretation and reasoning: The Court found two established breaches: misleading public claim on the website and failure to intimate material change in principal place of business. Mitigating factors included removal of the misleading text and the absence of evidence of investor harm or complaints. Given the factual matrix and the nature of breaches, the Court concluded that regulatory censure is commensurate with the violations rather than more severe sanctions.

Ratio vs. Obiter: Ratio - regulatory censure imposed as proportionate remedy for the specific violations found; Obiter - general comments on remediation and absence of investor complaints are contextual but not foundational to sanctioning power.

Conclusion: A regulatory censure is issued with immediate effect as the appropriate disciplinary action for the proven breaches.

CROSS-REFERENCES

1. The Court's finding on misrepresentation (Issue 1) is cross-referenced to the proportionality analysis for sanctions (Issue 5) where removal of the text was treated as mitigation.

2. The non-adjudication of section 65B admissibility (Issue 4) is expressly cross-referenced to the dropped allegation about assured returns; recordings are not considered in the findings on other issues.

Issues: (i) Whether the Noticee had committed the alleged violations relating to segregation of client funds, monthly or quarterly settlement of funds and securities, margin reporting, and client registration compliance; (ii) Whether issuance of regulatory censure was the appropriate enforcement action.

Issue (i): Whether the Noticee had committed the alleged violations relating to segregation of client funds, monthly or quarterly settlement of funds and securities, margin reporting, and client registration compliance.

Analysis: The record showed transfers from client accounts to proprietary accounts without documentary support for a permitted legitimate purpose under the enhanced supervision circular. The Noticee also failed to make timely monthly or quarterly settlements, send retention statements, and correctly report margins, and the explanations of technical glitches or clerical errors did not excuse the contraventions. In respect of client registration, the Noticee admitted lapses in running account authorisations and related KYC processes, showing lack of due care and diligence. The alleged stock reconciliation and email or mobile verification lapses were not established.

Conclusion: The violations relating to segregation of client funds, settlement of funds and securities, margin reporting, and client registration compliance were established against the Noticee, while the stock reconciliation and email or mobile verification allegations were not established.

Issue (ii): Whether issuance of regulatory censure was the appropriate enforcement action.

Analysis: The established lapses were procedural but not shown to have caused client loss or misuse of funds, and the Noticee had taken corrective steps. In these circumstances, and having regard to the separate adjudication penalty already imposed, a regulatory censure was considered proportionate and adequate.

Conclusion: Regulatory censure was upheld as the appropriate action against the Noticee.

Final Conclusion: The proceeding resulted in a formal regulatory censure against the stock broker, with the established compliance breaches accepted and the lesser enforcement measure found sufficient in the circumstances.

Ratio Decidendi: A stock broker must comply strictly with the express conditions of SEBI circulars and regulatory obligations on client fund segregation, settlement, margin reporting, and client registration, and unsubstantiated claims of technical or clerical error do not defeat a proven contravention; where the lapses are established but no client loss or misuse is shown, regulatory censure may be a proportionate response.

ISSUES PRESENTED AND CONSIDERED

1. Whether there is a prima facie case that the conduct of the Guest Expert (Noticee No.1) and connected entities constituted manipulative, fraudulent and unfair trade practices in contravention of Section 12A of the SEBI Act, Regulations 3 and 4 of the PFUTP Regulations, and provisions of the RA Regulations.

2. Whether non-public/price-sensitive information about impending public recommendations was communicated or misused to create pre-recommendation positions and post-recommendation opposite trades, thereby attracting prohibition under Section 12A(e) of the SEBI Act and related PFUTP provisions.

3. Whether the Research Analyst / person making public recommendations violated Regulation 16(2) and Regulation 21(2) of the RA Regulations by dealing in recommended securities and failing to make required disclosures.

4. Whether dealers, trading member, advisors and the identified profit-maker entities aided, abetted or participated in the alleged scheme and thus are jointly and severally liable.

5. Whether, on the material collected, interim ex-parte relief (including impounding of alleged unlawful gains, market access restraints and preservation directions) is warranted under Sections 11, 11B and Regulation 11 of the PFUTP Regulations.

6. If interim relief is warranted, the quantum and apportionment of the amount to be impounded prima facie and the persons against whom directions ought to be issued.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Prima facie manipulation / fraud (SEBI Act §12A; PFUTP Regs 3 & 4)

Legal framework: Sections 11, 11B and 12A SEBI Act; Regulations 3 and 4 PFUTP (prohibiting manipulative, deceptive, fraudulent and unfair trade practices); inclusive definition of "fraud" under PFUTP Regulation 2.

Precedent treatment: The Order relies upon and applies the guiding principles from Supreme Court and SAT jurisprudence recognizing market manipulation as interference with supply-demand, effecting artificial price/volume, and the need to protect market integrity (citing N. Narayanan, Rakhi Trading and SAT dictum on joint liability). The precedents are followed for purpose of assessing market-abuse and justifying interim measures.

Interpretation and reasoning: The Investigating Authority assembled corroborative contemporaneous evidence - call / WhatsApp transcripts, CTCL/order logs, trade/price-volume charts, KYC and entity-ownership data, email/Telegram dissemination timing, client-dealer mappings and seized device data. The consistent pattern: (i) pre-recommendation accumulation in identified trading accounts via dealers; (ii) public recommendation by Guest Expert on media/communication platforms producing immediate surge in price/volume; (iii) near-immediate sell/square-off instructions to same dealers to liquidate positions; and (iv) mirror trades in dealers'/related persons' personal/associated accounts. Multiple illustrative instances (LTTS, PARAGMILK, INDIGO, SAIL, GODREJCP) provide replicable factual sequences with direct matching of call instructions to order entry times and executed trades. The activity satisfies PFUTP concepts of employing a scheme to defraud, deceptive conduct, inducing trading to artificially affect price/volume, and misuse of non-public information.

Ratio vs. Obiter: Ratio - the facts establish prima facie manipulative and fraudulent conduct under Section 12A and Regulations 3 & 4 for purposes of interim action. Obiter - broader policy observations on investor trust and deterrence (though persuasive, not decisive for liability).

Conclusions: Prima facie violation of Section 12A SEBI Act and Regulations 3 & 4 PFUTP by the Guest Expert and participating entities, warranting regulatory intervention.

Issue 2 - Misuse/communication of non-public information (SEBI Act §12A(e))

Legal framework: Section 12A(e) (prohibits dealing while in possession of material/non-public information or communicating such information); call/CDR analysis; RA Regulations obligations for research analysts.

Precedent treatment: Consistent with SEBI's supervisory approach and SAT/Supreme Court recognition that insider/NPI misuse and pre-public positioning can constitute market abuse; applied here to aggregated evidential facts.

Interpretation and reasoning: Evidence shows advance clandestine placement of orders in accounts mapped to dealers and controlled/connected entities prior to public broadcast. Calls/WhatsApp demonstrate direct instruction to dealers before broadcast and direction to square-off immediately after broadcast; IIFL/Yobee/Telegram dissemination timestamps corroborate timing. Dealers and authorised signatories were privy to instructions and mirrored trades. This constitutes possession and transmission of material non-public information and its use to trade for profit, contrary to §12A(e).

Ratio vs. Obiter: Ratio - prima facie NPI misuse established by temporal and transactional linkage; Obiter - discussion on technical modalities of NPI dissemination.

Conclusions: Prima facie breach of §12A(e) by those who took positions on advance knowledge and those who received or acted on such information.

Issue 3 - Research analyst / public recommender obligations (RA Regulations 16(2), 21(2))

Legal framework: Definition of "research analyst" (Reg.2), limitation on trading by research analysts (Reg.16(2)), requirements for disclosures on public media (Reg.21(2)).

Precedent treatment: The Regulations are applied strictly to prevent conflicts where research/recommendations are used to profit by the recommender or associates; the Order treats the Guest Expert as falling within the regulatory scope despite being engaged as consultant/guest.

Interpretation and reasoning: The Guest Expert was associated with a registered Research Analyst entity and routinely gave buy/sell recommendations on media and IIFL platforms. Evidence shows he either instructed or placed trades through dealers before recommendations and sold after broadcast, without making required disclosures or observing blackout restrictions. Thus prima facie contravention of Reg.16(2) (dealing in recommended securities within prohibited window) and Reg.21(2) (failure to disclose status/financial interest when making public recommendations).

Ratio vs. Obiter: Ratio - prima facie contraventions of RA Regulations by the recommender; Obiter - policy comments about reputation and investor reliance.

Conclusions: Guest Expert prima facie violated RA Regulations; associated intermediaries and authorised persons who enabled the trades are implicated.

Issue 4 - Liability of dealers, trading member, advisors, profit-makers; joint & several liability

Legal framework: SEBI Act §11B (power to direct disgorgement), §27 (company officers' liability), PFUTP Regulation 4(2)(d) (inducing others to deal), and general principles of joint tortfeasor liability.

Precedent treatment: SAT authority recognizing joint and several liability where actors combine in a common manipulative scheme is applied (SRSR Holdings v. SEBI). The Order follows that approach for prima facie allocation.

Interpretation and reasoning: Ownership/control/shareholding analyses, client-dealer mapping, CTCL terminal assignments, call records, WhatsApp/chats, profit sheets, and evidence of fund transfers/meetings link advisors, promoters, dealers and profit-maker entities to coordinated conduct. Some directors/promoters acted as enablers by authorising trades in controlled entities and by permitting dealers to accept instructions from the Guest Expert. Dealers misused access to client trading information and mirrored trades for personal profit. The Accounts of profit-makers show concentrated trading through the trading member, consistent with facilitation. Given the common plan, joint and several liability is prima facie appropriate for impounding unjust gains.

Ratio vs. Obiter: Ratio - prima facie joint and several responsibility of actors in the scheme for disgorgement/impounding; Obiter - on degrees of culpability among nominal directors where no evidence of active participation exists.

Conclusions: Dealers, trading member and connected advisors/beneficiaries are prima facie joint tortfeasors and potentially liable for disgorgement/other regulatory directions.

Issue 5 - Necessity and scope of interim ex-parte relief (impounding, market access restraints, preservation)

Legal framework: SEBI Act §§11, 11B (interim directions/disgorgement), Regulation 11 PFUTP (interim measures), SEBI's power to protect investors and prevent dissipation of alleged unlawful gains pending inquiry.

Precedent treatment: Prior SAT decisions and judicial guidance (e.g., Amalendu Mukherjee v. SEBI) endorse interim impounding to preserve assets and prevent frustration of eventual relief - relied upon and followed.

Interpretation and reasoning: The Order finds urgency: (i) demonstrable, substantial alleged ill-gotten gains (aggregate ~Rs.11.37 Crore) traceable to matching trades; (ii) covert profit-sharing and cash/non-banking fund transfers between principal actors; (iii) risk of dissipation of proceeds if no interim restraint; (iv) strong public interest in market integrity and investor protection. Given the cogent prima facie evidence and difficulty in tracing funds across informal channels, an impounding direction by requiring fixed deposits with lien, market access restraints for identified persons, preservation of records and prohibition on debits/transfers (subject to permitted closings and settlement) is proportionate and necessary.

Ratio vs. Obiter: Ratio - interim ex-parte directions are justified to preserve amounts and prevent dissipation pending adjudication; Obiter - broader statements on deterrence and investor education.

Conclusions: Interim ex-parte measures (impounding of Rs.11,37,19,170 jointly and severally by named noticees; market access restraints; preservation and non-debit directions; limited exceptions for client funds and position square-offs) are warranted prima facie and proportionate.

Issue 6 - Quantum and apportionment of impoundment; calculation methodology

Legal framework: SEBI's disgorgement and disgorgement-adjacent powers under §11B (including the statutory explanation authorising disgorgement directions) and Regulation 11 PFUTP.

Precedent treatment: SAT jurisprudence on joint tortfeasor apportionment and the use of prima facie calculations to determine interim impoundment is applied; the Order follows accepted practice of computing gains from matching trades for interim relief.

Interpretation and reasoning: The Investigating Authority computed ill-gotten gains based on matching trades (pre-recommendation accumulation and post-recommendation square-off) across cash and derivatives, using exchange trade logs and executed prices. The aggregate amount of matching-trade gains identified is Rs.11,37,19,170. The Order apportions joint-and-several impounding based on role (mastermind, enablers, dealers, profit-makers) and the trading/ownership structure; the table sets out prima facie allocation for interim fixation (subject to final adjudication).

Ratio vs. Obiter: Ratio - the amount identified is a reasoned prima facie computation for interim impounding; Obiter - detailed apportionment is provisional and subject to audit/defence at inquiry.

Conclusions: The impounded quantum and the listed joint-and-several apportionment are justified on the evidence for interim preservation; final disgorgement and precise allocation remain subject to due process.

OVERALL CONCLUSION

On the preponderance of the collected factual and documentary material, the Court/Tribunal concluded there is a strong prima facie case that the Guest Expert and multiple connected persons: (i) created pre-public positions, (ii) induced market impact by public recommendations, (iii) directed opposite trades to monetise the induced movement, and (iv) shared and received proceeds - conduct amounting prima facie to manipulation, fraud and misuse of non-public information, and contravening RA Regulations. Interim ex-parte relief (impounding of identified unlawful gains, market access restraints and preservation directions) is warranted and proportional to protect investors and preserve assets pending adjudication; the findings and calculations are provisional and serve as the basis for issuance of show-cause directions and further proceedings.

Firstly, the Tribunal examined whether the Noticees, including the company, its promoter, and certain shareholders, were involved in manipulative and fraudulent trading practices in violation of the Securities and Exchange Board of India Act, 1992 (SEBI Act) and the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (PFUTP Regulations). The key statutory provisions invoked were Section 12A(a), (b), and (c) of the SEBI Act, read with Regulations 3(a), (b), (c), (d) and 4(1), 4(2)(a), (b), and (e) of the PFUTP Regulations.

Secondly, the Tribunal considered the appropriateness and legality of the interim directions issued by SEBI, including trading restrictions and impounding of alleged unlawful gains, on the basis of prima facie findings from a preliminary examination. This raised issues concerning the principles of natural justice, the requirement of urgency for ex parte orders, and the sufficiency of the material on record to justify such directions.

Thirdly, the Tribunal addressed the procedural aspects related to the Noticees' rights to inspection of documents, opportunity to be heard, and the extent of cooperation during the investigation, including compliance with summons and furnishing of asset inventories.

Issue-wise detailed analysis:

1. Existence of Manipulative and Fraudulent Trading Practices

The legal framework under consideration included the SEBI Act provisions prohibiting fraudulent and unfair trade practices in securities markets and the PFUTP Regulations that proscribe manipulative conduct such as price rigging, artificial trading, and misleading disclosures.

The Tribunal noted the peculiar financial profile of the Company, which reported negligible revenues, nil cost of materials, and consistent losses over multiple years, yet exhibited an extraordinary surge in share price following the resumption of trading after a decade-long suspension. The share price escalated more than tenfold within two months, reaching a market capitalization of approximately Rs. 22,700 Crore, despite no corresponding improvement in fundamentals or corporate announcements.

SEBI's trade data analysis revealed a pattern of coordinated trading by a limited set of entities who placed buy orders at the upper circuit limits at market open for consecutive days during the price rise phase, and similarly placed sell orders at the lower circuit limits during the price fall phase. This pattern was indicative of a pump-and-dump scheme. The Tribunal also noted the suspicious off-market transfer of a substantial shareholding (12.12%) at a nominal consideration from a public shareholder and ex-director to an NRI, who was found to be connected with the promoter group, thereby raising concerns about collusive arrangements.

The Tribunal acknowledged the complex web of relationships among the Noticees, including their connections to a company targeted for acquisition by the listed company, and the timing of share sales by relatives of directors of that company coinciding with price movements.

In applying the law to these facts, the Tribunal found that the prima facie evidence supported the inference of manipulative conduct in breach of the SEBI Act and PFUTP Regulations. The low free float of shares (0.34%) concentrated among four entities further facilitated potential price manipulation.

Competing arguments by the Noticees, including denials of collusion, assertions of legitimate trading based on long-held investments, and claims of no material impact on price due to their small shareholdings, were noted. However, the Tribunal emphasized that conclusive findings awaited detailed investigation, and the prima facie material sufficed for interim action.

2. Legality and Appropriateness of Interim Directions

The Tribunal examined the Noticees' contentions challenging the interim order on grounds of lack of urgency, procedural unfairness, and insufficiency of material. The Noticees cited judicial precedents emphasizing sparing use of ex parte powers and the necessity of ongoing investigation before interim directions.

The Tribunal observed that the Interim Order was based on a preliminary examination triggered by suspicious trading patterns and dubious share transfers, which presented sufficient grounds for urgent interim measures to protect investors and market integrity. The rapid and repeated price fluctuations in a fundamentally weak company's shares, coupled with concentrated shareholding and suspicious transactions, justified the restrictions.

Regarding procedural fairness, the Tribunal found that the Noticees were afforded opportunities for inspection of documents, personal hearings, and to file replies. While some requests for documents relating to SEBI's internal deliberations were rightly declined, the essential material forming the basis of the Interim Order was shared. The Tribunal rejected claims that the Noticees were denied natural justice.

The Tribunal also considered the Noticees' argument that no preventive action was taken against entities responsible for price rise, but found that the Interim Order identified the key contributors to price movements and that the ongoing investigation would address all facets.

3. Procedural Compliance and Cooperation During Investigation

The Tribunal noted the Noticees' mixed cooperation with SEBI's investigation. While some Noticees availed inspection opportunities and filed detailed replies, others failed to provide specific document lists or attend inspections. Notably, the NRI shareholder declined to appear before the Investigating Authority despite repeated summons, citing the civil nature of proceedings, which the Tribunal viewed as an attempt to hinder investigation.

The Tribunal highlighted the non-compliance by certain Noticees with directions to furnish asset inventories and the resignations of key company officials post Interim Order as aggravating factors. These circumstances strengthened the case for continuing interim restrictions to prevent further market harm.

4. Connection Between Share Transfers, Corporate Announcements, and Price Movements

The Tribunal analyzed the linkages between the off-market transfer of shares at nominal consideration, the proposed acquisition of an unrelated company by the listed company, and the trading activities of relatives of directors of the target company. While the Noticees denied any inside information or collusion, the temporal proximity and trading patterns raised prima facie suspicion of coordinated manipulation.

The Tribunal underscored that such circumstantial evidence, combined with the concentration of shareholding and abnormal price behavior, warranted regulatory intervention pending detailed investigation.

Significant holdings include the following verbatim excerpts and principles:

"The apparent pump and dump scheme in the scrip of LSIL, a zero-revenue company, was also evident from the number of public shareholders in LSIL increasing from 3892 on June 30, 2024 to 6106 on December 31, 2024. It is pertinent to note that 99.66% of the shares of LSIL are held by only four shareholders..."

"The balance of convenience lies in favour of continuing with the interim directions, in order to protect the interest of investors."

"The sale of shares of LSIL by the parents of owners of Robochef (which was intended to be acquired by LSIL, a zero-revenue company) in close proximity to the announcement of the proposed acquisition by LSIL cannot be dismissed as mere coincidence."

"None of the abovementioned contentions and claims have been backed by any documentary evidence whatsoever... In absence of any documentary evidence adduced by the Noticee in support of his narrative, I am not inclined to accept the same."

"Considering the non-cooperation by the Noticees in the investigation process, I deem it appropriate to extend the timeline for completion of investigation to November 15, 2025."

In conclusion, the Tribunal confirmed the interim directions restraining the Noticees from trading or accessing the capital markets, impounding alleged unlawful gains, and directing cooperation with the ongoing investigation. The Tribunal found the prima facie material sufficient to justify these measures, rejected the Noticees' challenges to procedural fairness, and emphasized the need to protect investor interests in light of the suspicious trading patterns and shareholding structures.

The core legal questions considered by the Tribunal in the present proceedings are as follows:

• Whether the employees of the Noticee complied with the qualification and certification requirements mandated under the SEBI (Investment Advisers) Regulations, 2013 ("IA Regulations").
• Whether the Noticee failed to maintain requisite records and call recordings as required under IA Regulations and relevant SEBI Circulars.
• Whether the Noticee sold similar investment advisory products/services concurrently to clients, thereby violating fiduciary duties and regulatory provisions.
• Whether the Noticee received fees from clients into his personal bank account and failed to disclose complete information regarding fee collection.
• Whether the Noticee provided free trial services to clients in contravention of SEBI Circular prohibiting such practice.
• Whether the risk profiling questionnaire used by the Noticee contained vague and misleading questions in violation of IA Regulations.
• Whether the Noticee operated from an office address not registered with SEBI.
• Whether the Noticee failed to publish the Investor Charter and provide a link for complaints on the SCORES platform as mandated by SEBI Circulars.
• Whether the Noticee published fake client testimonials on his website, amounting to fraudulent and unfair trade practices under PFUTP Regulations and SEBI Act.

2. ISSUE-WISE DETAILED ANALYSIS

A. Compliance with Qualification and Certification Requirements

The relevant legal framework includes Regulation 15(13) read with Regulation 7 of the IA Regulations, and Clauses 1, 2, and 8 of the Code of Conduct for Investment Advisers under the Third Schedule. These provisions require that all persons associated with investment advice hold valid certifications from the National Institute of Securities Markets (NISM) at all times and act honestly, fairly, and with due skill and diligence in clients' best interests.

The Tribunal noted that six employees, including the Noticee, were involved in providing investment advice. The Noticee submitted evidence of certification for three individuals but failed to provide such evidence for four employees, two of whom lacked Level 1 certification and two lacked both Level 1 and Level 2 certifications. The Noticee did not dispute their employment status.

The Tribunal held that the absence of requisite NISM certifications for these employees constituted a clear violation of the regulatory provisions. The Noticee's failure to ensure compliance with certification requirements undermined the integrity and professionalism expected of an investment adviser.

Competing arguments by the Noticee, including partial submissions of certificates, were rejected due to incomplete compliance and lack of evidence. The Tribunal concluded that the Noticee violated the IA Regulations and Code of Conduct.

B. Failure to Maintain Records and Call Recordings

The relevant provisions include Regulations 19(1) and 19(2) of IA Regulations, Clauses 1, 2, 8, and 9 of the Code of Conduct, Clauses 2(ii) and 2(vi) of the 2020 SEBI Circular, and Regulations 16 and 17 of IA Regulations. These require maintenance of records such as agreements, KYC documents, invoices, risk profiling, email communications, and call recordings for a minimum period of five years.

Inspection revealed that the Noticee did not maintain agreements with clients, call recordings, or rationale documents for investment advice. The Noticee claimed data loss due to hard disk failure but failed to provide corroborative evidence. Additionally, client master data was incomplete, and records for 10 sample clients were entirely missing.

The Tribunal found that the Noticee's failure to maintain and produce records as mandated was a serious breach of regulatory obligations. The Noticee's explanation of data loss was not accepted due to lack of supporting evidence. The Noticee's conduct was inconsistent with the requirement to act honestly, fairly, and with due skill and diligence.

The Tribunal rejected the Noticee's submissions and upheld the findings of violation of the IA Regulations and SEBI Circulars.

C. Sale of Similar Products for Concurrent Periods

The IA Regulations and Code of Conduct require fiduciary duty towards clients, prohibiting practices that maximize fees at clients' expense. The Noticee was found to have sold identical advisory products/services to clients for overlapping periods, effectively charging multiple fees for the same service.

Evidence showed overlapping subscription periods and multiple invoices for the same products to two clients. The Noticee alleged typographical errors but failed to provide supporting evidence or corrected data.

The Tribunal held that such conduct amounted to a breach of fiduciary duty and regulatory obligations, aimed at unjust enrichment. The Noticee's competing argument was rejected due to lack of corroboration.

D. Receipt of Fees into Personal Bank Account and Non-Disclosure

Clause 1 and 2 of the Code of Conduct and Regulation 25(1) and (2) of IA Regulations require transparency and proper disclosure of fee collection mechanisms. The Noticee, acting as compliance officer, received fees into three bank accounts, including one (ICICI Bank) not disclosed on the website or to the inspecting authority initially.

The Noticee admitted receiving fees into the ICICI Bank account after inspection queries. The client master data submitted was incomplete, omitting fees collected through this account. The Tribunal found this to be a failure to provide complete and true information to the regulatory authority.

The Tribunal emphasized that as a registered entity, the Noticee was obliged to disclose all bank accounts used for fee collection publicly and to SEBI. The Noticee's contention that there was no bar on receiving fees in a personal account was insufficient to justify non-disclosure.

The Tribunal concluded that the Noticee violated the Code of Conduct and IA Regulations by receiving fees in a personal account without proper disclosure and by submitting incomplete information during inspection.

E. Provision of Free Trial to Clients

Paragraph 1(i) of the 2019 SEBI Circular and Clauses 8 and 9 of the Code of Conduct prohibit providing free trials for investment advisory products/services. The Noticee's onboarding emails offered a "2 days Free Trial and evaluation" to clients.

The Noticee denied providing free trials after the issuance of the Circular but failed to remove the standard email paragraph offering free trials or provide evidence of rectification.

The Tribunal found that the Noticee was indeed providing free trials in violation of the regulatory provisions and Code of Conduct. The Noticee's denial was not supported by evidence, and the failure to amend communications was viewed as non-compliance.

F. Vague and Misleading Risk Profiling Questionnaire

Regulation 16(d)(i) and (ii) of IA Regulations and Clauses 1, 2, and 8 of the Code of Conduct require that risk profiling questionnaires be clear, fair, and not misleading. The Noticee's questionnaire contained questions that were ambiguous and appeared designed to bias client responses towards riskier investments.

Examples included questions conflating risk and return in a manner that could mislead clients, and options that encouraged preference for high risk without adequate explanation.

The Noticee argued that SEBI had not issued standard guidelines for risk profiling questionnaires. The Tribunal rejected this, emphasizing that the IA Regulations themselves mandate clarity and fairness in such questionnaires.

The Tribunal held that the Noticee's questionnaire failed to meet regulatory standards and was misleading, undermining the foundation for appropriate investment advice.

G. Conducting Operations from Unregistered Office

Regulation 13(b) of IA Regulations and Clauses 1, 8, and 9 of the Code of Conduct require that investment advisers operate from registered office or branch addresses disclosed to SEBI.

Inspection revealed that the Noticee operated from a branch office in Udaipur not registered with SEBI. Documentary evidence such as salary sheets and attendance records confirmed this. The Noticee admitted the existence of the Udaipur branch.

The Tribunal found this to be a violation of the IA Regulations and Code of Conduct, as the Noticee failed to operate solely from registered locations.

H. Failure to Publish Investor Charter

Paragraphs 2 and 4 of the 2021 SEBI Circular and Clauses 8 and 9 of the Code of Conduct require investment advisers to publish an Investor Charter on their website and provide a link for lodging complaints on the SCORES platform.

The Noticee admitted to not displaying the Investor Charter on his website and the website was found to be non-traceable during inspection. No evidence was provided to counter this finding.

The Tribunal held that the Noticee violated the relevant Circular and Code of Conduct by failing to publish the Investor Charter and provide complaint mechanisms.

I. Publishing Fake Testimonials on Website

Regulations 3(d), 4(1), and 4(2)(k) of the PFUTP Regulations read with Section 12A(c) of the SEBI Act prohibit fraudulent and unfair trade practices, including dissemination of false or misleading information. Clauses 1 and 2 of the Code of Conduct also require honesty and integrity.

Inspection found that the Noticee's website contained positive testimonials from persons who were not clients, admitted by the Noticee as fake for advertisement purposes. The Noticee later retracted this admission but failed to provide evidence to prove genuineness of the testimonials.

The Tribunal held that publishing fake testimonials constituted fraudulent and unfair trade practices and violated the IA Regulations and SEBI Act. Such conduct was intended to induce investors deceptively.

3. SIGNIFICANT HOLDINGS

The Tribunal made the following crucial legal determinations:

"The absence of requisite NISM certifications for employees involved in investment advice is a clear violation of Regulation 15(13) read with Regulation 7 of the IA Regulations and the Code of Conduct."

"Failure to maintain records including agreements, call recordings, and rationale for advice, and submission of incomplete client data, violates Regulations 19(1), 19(2), 16, 17 of IA Regulations and corresponding SEBI Circulars."

"Selling identical advisory products with overlapping subscription periods to the same clients breaches fiduciary duties and regulatory obligations under IA Regulations."

"Receiving fees into a personal bank account without proper disclosure and submitting incomplete information to SEBI violates Clause 1 and 2 of the Code of Conduct and Regulation 25 of IA Regulations."

"Providing free trials to clients after issuance of SEBI Circular prohibiting such practice is a violation of Paragraph 1(i) of the 2019 Circular and the Code of Conduct."

"Risk profiling questionnaires must be clear and not misleading; the Noticee's questionnaire failed this standard, violating Regulation 16(d) of IA Regulations."

"Operating from an unregistered office address contravenes Regulation 13(b) of IA Regulations."

"Failure to publish the Investor Charter and complaint link on the website violates the 2021 Circular and Code of Conduct."

"Publishing fake testimonials constitutes fraudulent and unfair trade practices under PFUTP Regulations and SEBI Act."

Based on these findings, the Tribunal agreed with the Designated Authority's recommendation and, exercising powers under Section 19 of the SEBI Act read with Regulation 27(5) of the Intermediaries Regulations, prohibited the Noticee from onboarding new clients for six months.

1. Whether the Outsourcing Circular dated September 13, 2017, issued by SEBI, was applicable to MCX and MCXCCL, given the regulatory transition and the abolition of the separate category of Commodity Derivatives Exchanges (CDEs) w.e.f. October 1, 2018.

2. Whether MCX and MCXCCL failed to comply with the provisions of the Outsourcing Circular, including the formulation and implementation of an outsourcing policy and adherence to due diligence, monitoring, and contractual obligations with respect to outsourced IT services.

3. Whether the Noticees violated provisions of SECC Regulations, 2012 and 2018, SEBI Act, and SCRA based on the alleged non-implementation of the Outsourcing Circular and related lapses in governance and operational management.

4. Whether MCX and its management failed to exercise due diligence and care in managing the transition from the existing software provider (63 Moons Technologies Ltd.) to a new technology platform developed by Tata Consultancy Services (TCS), including timely negotiations, project monitoring, and risk mitigation.

5. Whether MCX violated disclosure requirements under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 ("LODR Regulations") by failing to make timely and adequate disclosures regarding the extension of services and payments to 63 Moons.

6. Whether the key managerial personnel of MCX and MCXCCL breached the code of conduct and ethics prescribed under SECC Regulations, 2018, in relation to the above issues.

Issue-wise Detailed Analysis

1. Applicability of the Outsourcing Circular to MCX and MCXCCL

The Outsourcing Circular mandated stock exchanges and clearing corporations to formulate and implement board-approved outsourcing policies to ensure control and continuity over outsourced functions, particularly core IT services. MCX and MCXCCL contended that the Circular was not applicable to them, as it was issued by SEBI's Market Regulation Department (MRD) primarily for stock exchanges and clearing corporations other than Commodity Derivatives Exchanges (CDEs), which were regulated by the Commodity Derivatives Market Regulation Department (CDMRD). They argued that prior to October 1, 2018, CDEs and their clearing corporations were distinct entities, and the Outsourcing Circular was not extended to them by any specific directive. Further, they pointed to the absence of the Outsourcing Circular in the Master Circulars issued by SEBI for Commodity Derivatives Markets, whereas it was included in Master Circulars for Stock Exchanges and Clearing Corporations, invoking the legal maxim expressio unius est exclusio alterius to support non-applicability.

The Court noted that after the merger of FMC with SEBI and the abolition of the separate category of CDEs w.e.f. October 1, 2018, MCX and MCXCCL became recognized stock exchange and clearing corporation respectively, with commodity derivatives segments. However, the regulatory framework and circulars issued prior to this date, including the Outsourcing Circular, did not explicitly clarify their applicability to such entities. The Court observed the legal ambiguity and accepted the bona fide view of MCX and MCXCCL regarding non-applicability of the Outsourcing Circular prior to formulation of their own outsourcing policies in 2023. Consequently, the Court held that the allegation of violation of the Outsourcing Circular against MCX and MCXCCL did not sustain.

2. Alleged Non-Compliance with Outsourcing Circular and Related Regulatory Provisions

Since the alleged violations of SECC Regulations, 2012 and 2018 were primarily linked to the purported non-implementation of the Outsourcing Circular, and given that the latter allegation was not established, the related allegations against the Noticees under SECC Regulations also failed. The Court thus exonerated the Noticees from charges of regulatory non-compliance in this regard.

3. Management Lapses Regarding Software Transition and Project Execution

The SCN alleged that MCX and its management failed to exercise due care and diligence in managing the transition from 63 Moons to TCS for the new Commodity Derivatives Platform (CDP). Specific allegations included:

• Failure to explore legal remedies or negotiate extension of service contract with 63 Moons in a timely manner, leading to payment of exorbitant fees for extended services.
• Delay in planning and placing alternatives before the MCX Board, resulting in late floating of the RFP and awarding contract to TCS.
• Unrealistic confidence expressed by MCX management regarding the feasibility of completing the CDP project within two years.
• Failure to monitor and report project delays adequately to the Board, and insufficient penalty provisions in the TCS contract.
• MCXCCL's lack of active engagement and delayed appointment of key personnel such as CTO.
• Frequent changes in CTO position at MCX during critical project phases.

MCX and MCXCCL responded with detailed submissions, explaining that:

• Negotiations with 63 Moons commenced promptly after the restrictive clause expired in September 2020, and deadlock was reached by early 2021. Legal opinions cautioned against pursuing interim relief due to uncertain outcomes and potential risks to continuity of services.
• Delay in floating the RFP was minimal (16 days) and attributable in part to vendor responses and contractual restrictions.
• Decisions regarding vendor selection and timelines were business judgments based on vendor capabilities and evaluations, including those of TCS, a reputed IT services provider.
• Delays in project completion were impacted by unforeseen factors such as the COVID-19 pandemic and related restrictions, which affected coordination and delivery.
• MCXCCL was involved throughout the CDP project lifecycle, including evaluation and progress monitoring, and appointed a CTO in July 2021, shortly after SEBI's circular mandated such appointment.
• Management decisions regarding CTO resignations and replacements were taken in the interest of project continuity and organizational harmony, with appropriate disclosures to the Board and committees.

The Court accepted these explanations as satisfactory and reasonable, noting the complexity of the situation and the business discretion involved. It held that the allegations of management lapses and failure to act with due diligence were not established on the evidence.

4. Disclosure Violations under LODR Regulations

The SCN alleged that MCX failed to make timely and adequate disclosures regarding the extension of support and managed services contracts with 63 Moons, particularly the substantial increase in quarterly payments (Rs. 60 crore to Rs. 125 crore per quarter) which materially impacted MCX's profitability. Although MCX disclosed the existence of purchase orders and contract extensions in press releases and quarterly financial results, the quantum of payments was not disclosed until January 11, 2023, after the payments had been made for several quarters.

The Court observed that the increased payments constituted material information under Regulation 30(12) read with Regulations 4(1)(d), 4(1)(e), and 4(1)(i) of the LODR Regulations, 2015, as they had a significant bearing on MCX's financials. MCX admitted the lapse as inadvertent. Consequently, the Court held that MCX violated the disclosure provisions and was liable for monetary penalty under Section 15HB of the SEBI Act, 1992.

However, the Court dropped the allegation that MCX made incorrect disclosures regarding the nature of the agreement extension, accepting MCX's submission that the disclosures were factually accurate.

5. Incorrect Disclosures to SEBI by Noticee 3 Regarding Project Timelines

The SCN alleged that the MD & CEO of MCX (Noticee 3) made incorrect disclosures to SEBI by providing timelines for the CDP project based on vendor (TCS) assurances rather than internal assessments. The Court held that since TCS was the contracted vendor responsible for project delivery, reliance on vendor-provided timelines was reasonable and did not constitute a lapse or misrepresentation by Noticee 3.

6. Alleged Violations of Code of Conduct and Ethics by Key Managerial Personnel

The SCN invoked various clauses of the Code of Conduct and Code of Ethics under SECC Regulations, 2018 against Noticees 3 to 7, alleging failure to act with due diligence, care, and in the best interest of the exchange and clearing corporation. The Court found that the allegations were intrinsically linked to the issues discussed above concerning project management, negotiations, and disclosures. Given the Court's findings that the Noticees acted within the scope of business judgment and did not violate regulatory provisions, the allegations of breach of code of conduct and ethics were not sustained.

Significant Holdings

"I note that the above observations show that there was legal ambiguity on the issue of whether the Outsourcing Circular was applicable to Commodity Derivative Segments in the first place. In view of such legal ambiguity, I am inclined to accept the explanation submitted by MCX and MCXCCL for delayed implementation of the provisions of the Outsourcing Circular."

"Exploring legal remedies like challenge in courts or going for arbitration are not easy decisions which can be taken in isolation. Such decisions are taken only after carefully considering all the factors and weighing pros and cons. The management cannot be faulted for not exercising that option, especially when the outcome of such decisions cannot be predicted with certainty."

"The fact that TCS had accepted the contract for development of CDP with an original go-live date of July 11, 2022 (which is much before the date of expiry of service contract with 63 Moons) itself signifies that the completion of CDP Project was achievable within two years' timeline."

"The increased quarterly payments can be said to have huge bearing on the profitability of MCX. Accordingly, such information has to be treated as material information which ought to have been disclosed by MCX to public... MCX has admitted that it failed to disclose the same to public. However, it has submitted that the same was an inadvertent mistake."

"Since TCS was the vendor which was given the contract for CDP, Noticee 3 cannot be found fault with for informing the timeline provided by TCS."

Final Determinations

- The allegation that the Outsourcing Circular was applicable to MCX and MCXCCL and that they failed to comply with its provisions was not established due to legal ambiguity and subsequent remedial steps taken.

- Related allegations of violation of SECC Regulations, 2012 and 2018 against the Noticees also did not stand.

- The management of MCX and MCXCCL was not found to have acted negligently or in breach of duty in relation to the software transition project and negotiations with 63 Moons.

- MCX violated the disclosure requirements under LODR Regulations by failing to timely disclose material information regarding enhanced payments to 63 Moons and was accordingly penalized.

- No fault was found with the disclosures made to SEBI by the MD & CEO regarding project timelines.

- No violations of the code of conduct and ethics by the key managerial personnel were established.

- Monetary penalty of Rs. 25 lakh was imposed on MCX under Section 15HB of the SEBI Act, 1992 for the disclosure violations, while proceedings against other Noticees were disposed of without directions.

The core legal questions considered by the Tribunal in this matter include:

• Whether the proposed direct and indirect acquisition of shares and voting rights in the Target Company by the Acquirer Trusts attracts the obligation to make a public announcement of an open offer under Regulation 3(2), Regulation 4, and Regulation 5(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 ("Takeover Regulations, 2011");
• Whether exemption from the obligation to make an open offer can be granted in respect of the proposed transactions involving transfer of shares by way of gift to family trusts;
• Whether the proposed transactions result in any change in control or management of the Target Company;
• Whether the proposed transactions comply with the conditions stipulated in the SEBI Master Circular dated February 16, 2023, particularly Chapter 8 concerning acquisitions by trusts;
• Whether the proposed acquisition would adversely affect the interests of public shareholders or compliance with minimum public shareholding norms;
• The conditions under which such exemption, if granted, should be subject to regulatory oversight and compliance;
• Whether the exemption from the open offer requirement affects other regulatory obligations such as disclosure requirements and insider trading regulations.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Applicability of Takeover Regulations and Obligation to Make an Open Offer

Relevant legal framework and precedents: Regulation 3(2) prohibits acquisition of control over a target company without making a public announcement of an open offer. Regulation 4 states that no acquirer shall acquire control without such an open offer. Regulation 5(1) extends this to indirect acquisitions through entities or persons acting in concert. The Court referred to these provisions verbatim to establish the legal threshold for triggering open offer obligations.

Court's interpretation and reasoning: The Tribunal observed that the proposed acquisition by the Acquirer Trusts constitutes both direct and indirect acquisition of shares and voting rights in the Target Company. Hence, prima facie, the provisions of Regulations 4 and 5(1) are attracted.

Key evidence and findings: The shareholding pattern before and after the proposed transactions showed that shares held by promoters Monica Davar and Jayant Davar in the Target Company and in promoter group companies (SIPL, YEPL, JFIL, SEPL) would be transferred by way of gift to the Acquirer Trusts. The total promoter and promoter group shareholding percentage remains unchanged at 70.38%. The Acquirer Trusts do not hold any shares prior to the transaction.

Application of law to facts: The Tribunal noted that while the acquisition technically attracts the open offer provisions, the nature of the transaction (transfer to family trusts) and the absence of change in control or management warranted consideration of exemption.

Treatment of competing arguments: The Tribunal considered the Applicants' submission that these are non-commercial transactions with no change in ownership or control, and that the public shareholders' interests remain unaffected. The Tribunal balanced the strict regulatory intent of the Takeover Regulations with the practical realities of intra-family transfers via trusts.

Conclusions: The Tribunal concluded that although the acquisition attracts the open offer provisions, exemption from these requirements could be considered subject to compliance with specified conditions.

Issue 2: Whether the Proposed Transactions Result in Change of Control or Management

Relevant legal framework: Regulation 4 prohibits acquisition of control without an open offer. Control is understood as the ability to direct the management or policy decisions of the company.

Court's interpretation and reasoning: The Tribunal found that the proposed transactions do not result in any change in control or management of the Target Company. The promoters continue to hold the same aggregate shareholding, and the Acquirer Trusts are essentially mirror images of the existing promoters' holdings.

Key evidence and findings: The trust deeds showed that the trustees and beneficiaries are promoters or their immediate relatives and lineal descendants. The shareholding pattern remains substantially the same pre- and post-transaction.

Application of law to facts: Since control is not changing hands and the promoter group continues to exercise the same level of control, the Tribunal held that the transactions do not violate the prohibition on acquisition of control without an open offer.

Treatment of competing arguments: The Tribunal considered the possibility of indirect control changes but found no evidence of dilution or transfer of control outside the promoter group.

Conclusions: No change in control or management arises from the proposed transactions.

Issue 3: Compliance with SEBI Master Circular Conditions for Trust Acquisitions

Relevant legal framework: Chapter 8 of the SEBI Master Circular dated February 16, 2023, sets out conditions for acquisitions by trusts, including restrictions on trustees, beneficiaries, transfer of beneficial interest, disclosure requirements, and compliance certifications.

Court's interpretation and reasoning: The Tribunal examined the trust deeds and the Applicants' compliance confirmations. It noted that:

• The trusts are irrevocable and discretionary private family trusts;
• Trustees and beneficiaries are promoters or their immediate family;
• Beneficial interests have not been and will not be transferred or encumbered;
• The trusts comply with disclosure and reporting requirements;
• The trust deeds do not contain any limitation of liability inconsistent with SEBI regulations;
• The trusts confirm annual compliance and auditor certification.

Key evidence and findings: The trust deeds, shareholding patterns, and declarations submitted by the Applicants demonstrated adherence to the Master Circular's conditions.

Application of law to facts: The Tribunal held that compliance with these conditions supports the grant of exemption from open offer requirements.

Treatment of competing arguments: The Tribunal ensured that the trusts do not act as vehicles for circumventing regulatory safeguards and that there is transparency and accountability.

Conclusions: The proposed acquisition by the trusts meets the conditions prescribed by the SEBI Master Circular, justifying exemption.

Issue 4: Impact on Public Shareholders and Minimum Public Shareholding Norms

Relevant legal framework: The Takeover Regulations and the Securities Contracts Regulation Rules, 1957, along with SEBI Listing Obligations, require maintenance of minimum public shareholding and protection of public shareholders' interests.

Court's interpretation and reasoning: The Tribunal noted that the public shareholding remains unchanged at 29.62% post-transaction. There is no dilution or prejudice to public shareholders.

Key evidence and findings: Shareholding tables before and after the transaction confirm no change in public shareholding percentage.

Application of law to facts: Since minimum public shareholding norms continue to be met and public shareholders' interests are not adversely affected, the Tribunal found no regulatory impediment.

Treatment of competing arguments: No competing arguments were raised against this point.

Conclusions: The transactions do not violate public shareholding requirements or prejudice public shareholders.

Issue 5: Conditions and Limitations on the Exemption

Relevant legal framework: Section 19 read with Sections 11(1) and 11(2)(h) of the SEBI Act, 1992 empower SEBI to grant exemptions subject to conditions. Regulation 11(5) of the Takeover Regulations allows exemption from open offer requirements.

Court's interpretation and reasoning: The Tribunal granted exemption subject to conditions including compliance with Companies Act, filing of reports within 21 days of acquisition, truthfulness of statements, adherence to SEBI Master Circular, and modification of trust deeds if inconsistent with conditions.

Key evidence and findings: The Tribunal emphasized that the exemption does not absolve the Acquirers from other regulatory obligations such as disclosure requirements under Chapter V of the Takeover Regulations, SEBI (Prohibition of Insider Trading) Regulations, and Listing Obligations.

Application of law to facts: The conditions imposed ensure regulatory oversight and prevent misuse of the exemption.

Treatment of competing arguments: The Tribunal balanced the need for regulatory flexibility in family trust transactions with protection of market integrity.

Conclusions: The exemption is granted with safeguards and a validity period of one year, after which it lapses if the acquisition is not completed.

3. SIGNIFICANT HOLDINGS

The Tribunal's crucial legal reasoning includes the following verbatim excerpts and principles:

"Irrespective of acquisition or holding of shares or voting rights in a target company, no acquirer shall acquire, directly or indirectly, control over such target company unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations."

"The Trust is in substance, only a mirror image of the promoters' holdings and consequently, there is no change of ownership or control of the shares or voting rights in the target company."

"The proposed acquisition as detailed above, which is to be undertaken by the Acquirers, shall attract the provisions of Regulations 4 and 5(1) of the Takeover Regulations, 2011."

"The proposed direct and indirect acquisition would not affect or prejudice the interests of the public shareholders of the Target Company in any manner."

"The exemption granted above is limited to the requirements of making open offer under the Takeover Regulations, 2011 and shall not be construed as exemption from the disclosure requirements under Chapter V of the aforesaid Regulations; compliance with the SEBI (Prohibition of Insider Trading) Regulations, 2015, Listing Agreement / SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 or any other applicable Acts, Rules and Regulations."

Core principles established include:

• Transfers of shares to family trusts that are mirror images of promoter holdings, with no change in control or management, may be exempted from open offer requirements subject to strict compliance with prescribed conditions;
• Compliance with the SEBI Master Circular's conditions for trusts is essential to maintain transparency and regulatory oversight;
• Such exemptions do not absolve parties from other disclosure and regulatory obligations;
• Exemptions are granted for a limited period and contingent on timely completion of transactions;
• Protection of public shareholders and adherence to minimum public shareholding norms remain paramount considerations.

Final determinations on each issue are as follows:

• The proposed acquisition attracts open offer provisions but exemption is granted due to the nature of the transaction;
• No change in control or management arises from the proposed acquisition;
• The Acquirer Trusts comply with the SEBI Master Circular conditions;
• The transactions do not adversely impact public shareholders or minimum public shareholding requirements;
• Exemption is granted subject to conditions including compliance with laws, disclosures, and reporting;
• The exemption is valid for one year and limited to open offer obligations only.

Issues: Whether exemption should be granted from the open offer requirements under Regulations 3(1) and 4 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 for the proposed intra-promoter trust transfers.

Analysis: The proposed acquisitions were part of an internal reorganization within the promoter family through irrevocable discretionary trusts. The trustees and beneficiaries were promoters or their immediate relatives and lineal descendants. The transactions did not alter the overall promoter and promoter group holding, did not change public shareholding, and were stated not to affect control of the target company in a manner inconsistent with the applicable SEBI circular conditions. The exemption framework under Regulation 11(5) of the Takeover Regulations, read with the governing powers under the SEBI Act, 1992, was satisfied on the facts placed before the Authority.

Conclusion: Exemption from the requirements of Regulations 3(1) and 4 was granted in favour of the applicants, subject to the stated conditions.

Final Conclusion: The proposed trust acquisitions were permitted without an open offer obligation, with continuing compliance obligations and time-bound implementation safeguards.

Ratio Decidendi: Exemption from open offer requirements may be granted where the transfer is an internal promoter-family rearrangement through trusts, there is no material change in control or public shareholding, and the transaction complies with the applicable SEBI conditions.

ISSUES:

Whether the trading activities involving placement of large buy/sell orders at prices significantly away from prevailing market prices, followed by execution of opposite side trades and subsequent cancellation of initial large orders, constitute order spoofing under securities laws.Whether such order spoofing activities violate provisions of the Securities and Exchange Board of India Act, 1992 and Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003.Whether the directors of the stock broker can be held liable for the alleged spoofing activities.The nature and characteristics of order spoofing as a manipulative trading practice and its impact on market integrity.The appropriateness and necessity of interim orders, including disgorgement and debarment, in response to identified spoofing activities.

RULINGS / HOLDINGS:

The Court held that placing multiple fully disclosed large buy/sell orders at prices significantly below/above the prevailing market price without intention of execution, followed by genuine trades on the opposite side and rapid cancellation of the large orders, is indicative of "order spoofing".Such spoofing activities violate the provisions of the SEBI Act and PFUTP Regulations by creating a false impression of demand/supply, misleading investors, and disrupting market integrity.The directors of the stock broker are liable for the spoofing activities as they were responsible for the modus operandi and overall trading pattern that constituted manipulative conduct.Order spoofing is characterized by placement of large artificial orders, market price manipulation through creation of false demand/supply, execution of genuine trades on the opposite side, rapid cancellation of spoofing orders, and profit generation through artificial price movements.Interim orders including disgorgement of wrongful gains and debarment are necessary and justified to prevent further market disruption and to uphold market integrity.

RATIONALE:

The Court applied the legal framework under the Securities and Exchange Board of India Act, 1992 and the PFUTP Regulations, which prohibit fraudulent and unfair trade practices including market manipulation.The Court relied on the established definition and characteristics of order spoofing as a manipulative trading strategy involving deceptive order placement and cancellation patterns.The Court examined detailed trading data showing large fully disclosed orders placed at prices substantially away from market prices, followed by execution of smaller, partially disclosed opposite side trades, and near-total cancellation of the large orders within short timeframes.The analysis included multiple instances across various scrips and trading days, demonstrating a consistent and identifiable pattern of spoofing behavior.The Court recognized the unique modus operandi of the stock broker and the role of its directors in facilitating and overseeing the manipulative scheme.The decision underscores the need for prompt regulatory intervention through interim orders to deter such market abuses and protect investor confidence.

The core legal questions considered in the judgment are:

a. Whether the Noticee is liable for the contraventions committed by the Company in relation to the issuance of Redeemable Preference Shares (RPS) to the public without complying with the provisions of the Companies Act, 1956 and the SEBI Act, 1992.

b. Whether the Noticee qualifies as an "officer who is in default" under Section 5 of the Companies Act, 1956, thereby attracting joint and several liability for refund of monies collected through the RPS issue under Section 73(2) of the Companies Act.

c. Whether the directions issued against the Noticee, including refund of money with interest, market access restrictions, and other penalties, are legally sustainable.

d. The validity of the proceedings against the Noticee in light of his claimed role in the Company and the absence of specific findings identifying him as an officer in default.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Liability of the Noticee for contraventions committed by the Company in issuance of RPS

Legal Framework and Precedents: The issuance of RPS was deemed a public issue under the first proviso to Section 67(3) of the Companies Act, 1956. Consequently, compliance with Sections 60 read with 2(36), 56, 73(1), 73(2), 73(3) and Section 27(2) of the SEBI Act was mandatory. Section 73(2) mandates repayment of monies collected without requisite permissions, jointly and severally by the company and every director who is an officer in default.

Court's Interpretation and Reasoning: The Tribunal noted that the Interim and Final Orders were passed against the Company and its directors/promoters for non-compliance. However, the Final Order did not specify the role or involvement of the Noticee in the issuance of RPS. The Noticee contested his liability, asserting he was neither a promoter nor a director, and only an employee performing clerical duties.

Key Evidence and Findings: The Ministry of Corporate Affairs records showed that the Company had a designated Managing Director, Mr. Mohammad Qamar, during the relevant period. The Noticee failed to demonstrate his involvement in the issuance of RPS or any role as a director or promoter. The Noticee also did not avail the hearing opportunity during the Final Order proceedings.

Application of Law to Facts: Since the issuance of RPS was a public issue, the liability to repay money with interest lies with the company and its officers in default. The absence of evidence showing the Noticee as an officer in default or any involvement in the issuance disentitles SEBI from holding him liable.

Treatment of Competing Arguments: The Noticee's claim of non-involvement and non-directorship was considered alongside the statutory definition of "officer who is in default." The Tribunal found the Noticee's submissions before the SAT and before SEBI inconsistent but ultimately focused on the statutory criteria rather than mere titles or claims.

Conclusion: The Noticee is not liable for the contraventions as he was not an officer in default and did not have involvement in the issuance of RPS.

Issue 2: Whether the Noticee qualifies as an "officer who is in default" under Section 5 of the Companies Act, 1956

Legal Framework and Precedents: Section 5 of the Companies Act, 1956 defines "officer who is in default" to include managing directors, whole-time directors, managers, secretaries, persons directing the Board, or those charged by the Board with compliance responsibilities. Clause (g) extends liability to all directors if the company lacks officers in clauses (a) to (c).

The Tribunal relied on the Hon'ble SAT decision in Pritha Bag vs SEBI, which held that without a finding that a person is an officer in default, Section 73(2) liability cannot be invoked against them.

Court's Interpretation and Reasoning: The Tribunal observed that the Company had a designated Managing Director during the relevant period and that the Final Order did not identify the Noticee as an officer in default. The material on record did not show the Noticee's involvement in the issuance of RPS or any responsibility assigned by the Board.

Key Evidence and Findings: Ministry of Corporate Affairs data confirmed the presence of a Managing Director. No evidence linked the Noticee to any official capacity qualifying him as an officer in default. The Noticee's own submissions acknowledged the presence of a Managing Director who managed the Company's affairs.

Application of Law to Facts: Since the Company had a Managing Director, liability under Section 73(2) is primarily on that officer. The absence of any finding or evidence that the Noticee was an officer in default precludes liability.

Treatment of Competing Arguments: The Noticee's argument that only the Managing Director or designated officers can be held liable was accepted. The Tribunal rejected the imposition of liability on all directors/promoters indiscriminately without specific findings.

Conclusion: The Noticee does not qualify as an officer in default under Section 5 and cannot be held liable under Section 73(2).

Issue 3: Validity of the directions issued against the Noticee including refund, interest, and market restrictions

Legal Framework and Precedents: SEBI's powers under Sections 11(1), 11(4), 11B read with Section 19 of the SEBI Act empower it to issue directions for refund, interest, and market restrictions in cases of securities law violations.

Court's Interpretation and Reasoning: The Tribunal noted that the Final Order directed the Noticee to refund amounts with 15% interest and imposed a four-year market ban. However, these directions were based on the presumption of the Noticee's role as promoter/director without substantiating evidence or specific findings of default.

Key Evidence and Findings: The Noticee had not gained monetary advantage or unfair benefit. The FIR registered against the Noticee was disposed of with no case made out. No unresolved grievances against the Noticee were shown. The Final Order did not specify any document or resolution signed by the Noticee authorizing the RPS issuance.

Application of Law to Facts: Since the Noticee is not an officer in default, the directions for refund and market restrictions lack legal basis. The Tribunal emphasized the requirement of specific findings before imposing such penalties.

Treatment of Competing Arguments: The Noticee's contention that debarment for violation of Section 73 is not supported by law was considered. The Tribunal did not delve into this submission further as the primary issue of liability was dispositive.

Conclusion: The directions against the Noticee are not sustainable and are set aside.

Issue 4: Validity of proceedings against the Noticee in light of his role and absence of specific findings

Legal Framework and Precedents: Principles of natural justice require that allegations be supported by evidence and specific findings before imposing penalties. The Hon'ble SAT's order remitting the matter for fresh consideration underscored this requirement.

Court's Interpretation and Reasoning: The Tribunal noted variance in the Noticee's submissions before SAT and SEBI but focused on the absence of any material or findings establishing his role as director or promoter. The Noticee was not afforded an opportunity to contest specific allegations at the Final Order stage.

Key Evidence and Findings: Lack of any document or resolution signed by the Noticee for issuance of RPS. The Noticee's role was limited to clerical work as per his submissions. The FIR against him was closed without charges.

Application of Law to Facts: The absence of specific findings and evidence against the Noticee renders the proceedings against him unsustainable.

Treatment of Competing Arguments: The Tribunal did not find it necessary to consider further submissions due to the dispositive nature of the liability issue.

Conclusion: The proceedings against the Noticee are liable to be disposed of without any directions.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"Unless and until a finding is given that the appellant is an officer in default, the mandate provided under Section 73(2) cannot be invoked against the appellant."

"In the absence of any finding that the Noticee was entrusted to discharge the application contained in Section 73 of the Companies Act, the direction to refund the amount alongwith interest from the Noticee is wholly illegal."

"The Final Order does not bring forth the involvement of the Noticee in the issuance of the RPS during the relevant period."

"Without any finding that the Noticee is an officer in default, the liability imposed under Section 73(2) cannot be invoked on him."

"Since the Noticee was not an officer who is in default, and is not liable for the alleged violations, the remaining submissions made by the Noticee do not require further consideration."

"I, in exercise of the powers conferred upon me under Sections 11(1), 11(4) and 11B read with Section 19 of the SEBI Act, hereby dispose of the present proceedings against the Noticee, without issuance of any direction."

Core principles established include the necessity of specific findings identifying an individual as an officer in default before imposing liability under Section 73(2) of the Companies Act, and that mere directorship or promoter status without evidence of default does not attract such liability. The judgment reinforces adherence to procedural fairness and the requirement of evidence-based findings before imposing penalties under securities laws.

The core legal questions examined by the Tribunal include:

• Whether the Company and its promoters engaged in mis-utilization and diversion of funds obtained through term loans from financial institutions, in violation of applicable securities laws and regulations.
• Whether the Company submitted forged or falsified documents (Conduct Letters and No Objection Certificates) to Credit Rating Agencies and SEBI, thereby misleading regulators and investors.
• Whether the promoters and related parties engaged in transactions that qualify as related party transactions under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, and if so, whether such transactions were properly disclosed.
• Whether the promoters and related entities violated provisions of the SEBI Act and SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 by manipulating share price and engaging in unfair trade practices.
• Whether the promoters' conduct and corporate governance failures warrant interim regulatory directions to protect investor interests and market integrity.
• Whether the preferential issue of shares was funded through routed transactions involving related parties, raising concerns on genuineness and compliance with disclosure norms.
• Whether the trading in the Company's shares by a related entity (Wellray) using funds routed from the Company and promoters violated Section 67 of the Companies Act, 2013, which restricts a company from providing financial assistance for purchase of its own shares.
• Whether the Company made misleading disclosures to stock exchanges regarding orders and strategic tie-ups, thereby violating disclosure obligations under securities laws.
• Whether the invocation of pledged shares by lenders could further dilute promoter shareholding, impacting control and investor interests.

Issue-wise Detailed Analysis

1. Mis-utilization and Diversion of Funds Obtained from Lenders

Legal Framework and Precedents: The SEBI Act, 1992, and SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003, impose duties on listed entities and their promoters to maintain transparency and prohibit fraudulent conduct including diversion of funds. Further, disclosure norms under SEBI Master Circular require timely reporting of defaults on loans.

Court's Interpretation and Reasoning: The Tribunal examined detailed bank statements and fund flow analyses which revealed that loans amounting to approximately Rs. 977.75 Crore were availed from IREDA and PFC primarily for procurement of 6,400 electric vehicles (EVs). However, only 4,704 EVs were procured, costing Rs. 567.73 Crore, leaving a substantial unaccounted amount of Rs. 262.13 Crore.

Further, the funds transferred to the EV supplier (Go-Auto) were routed back to the Company or to entities related to the promoters, including Capbridge Ventures LLP, Matrix Gas and Renewable Ltd., and others. These funds were used for personal expenses of promoters (including purchase of luxury real estate), benefit to promoter-related entities, and other unrelated purposes.

Key Evidence and Findings: The Tribunal relied on bank statements, lender confirmations denying issuance of Conduct Letters, statements of related entities, and admissions by Go-Auto's Managing Director regarding dues. It was found that the Company repeatedly submitted "No Default Statements" certifying timely loan servicing despite multiple defaults documented by lenders.

Application of Law to Facts: The diversion of funds and submission of false statements constituted violations of SEBI regulations prohibiting fraudulent and unfair trade practices. The failure to disclose defaults as required under SEBI Master Circular further compounded the violations.

Treatment of Competing Arguments: The Company denied involvement in falsification claims, but lender denials and documentary evidence disproved these assertions. The Tribunal found the Company's explanations insufficient and inconsistent with the evidence.

Conclusions: The Tribunal concluded that there was prima facie mis-utilization and diversion of funds by the promoters and the Company, with funds routed through related parties for non-business and personal use.

2. Submission of Forged Documents and Misleading Disclosures

Legal Framework: Under SEBI Act and PFUTP Regulations, submission of forged or falsified documents to regulators or market intermediaries is prohibited and constitutes fraudulent conduct.

Reasoning and Findings: The Company submitted Conduct Letters and No Objection Certificates purportedly issued by IREDA and PFC to Credit Rating Agencies, which were later denied by these lenders. This act was a deliberate attempt to mislead CRAs, SEBI, lenders, and investors about the Company's debt servicing status.

Application: Such conduct violates Sections 12A(a), (b), (c) of the SEBI Act and Regulations 3(b), (c), (d), 4(1), and 4(2)(f), (k), (r) of the PFUTP Regulations.

Conclusion: The Tribunal found prima facie evidence of submission of forged documents and misleading disclosures.

3. Related Party Transactions and Non-Disclosure

Legal Framework: Regulation 2(zc), 4, and 48 of SEBI (LODR) Regulations, 2015, require disclosure of related party transactions and adherence to accounting standards.

Findings: The promoters and related entities received diverted funds through layered transactions. These transactions qualified as related party transactions but were not properly disclosed by the Company.

Conclusion: The Company violated disclosure norms under SEBI LODR Regulations.

4. Violation of Section 67 of Companies Act, 2013 - Funding Purchase of Own Shares

Legal Framework: Section 67 prohibits companies from providing financial assistance, directly or indirectly, for purchase of its own shares.

Findings: Wellray, a related party, traded extensively in the Company's shares using funds routed from Gensol and promoters. The funds used for trading were largely sourced from Gensol and related entities.

Conclusion: This conduct prima facie violated Section 67 by facilitating purchase of the Company's shares through indirect financial assistance.

5. Misleading Disclosures to Stock Exchanges

Legal Framework: SEBI Listing Regulations mandate timely, accurate, and non-misleading disclosures.

Findings: The Company's disclosures regarding pre-orders for EVs were based on MOUs lacking pricing and delivery schedules, thus misleading investors. Similarly, announcements about strategic tie-ups and sale of subsidiaries lacked substantive backing and were withdrawn subsequently.

Conclusion: The disclosures were prima facie misleading and violated SEBI disclosure obligations.

6. Corporate Governance Failures and Need for Interim Directions

Legal Framework: SEBI's regulatory powers under Sections 11, 11(4), 11B(1), and 19 of the SEBI Act enable it to issue interim directions to protect investors and market integrity.

Reasoning: The Tribunal noted a complete breakdown of internal controls and governance at the Company. Promoters treated the Company's funds as their own, diverting substantial amounts to personal and related party uses. The promoter shareholding had significantly diluted, with pledges invoked by lenders threatening further loss of control. The Company's stock split announcement risked attracting retail investors unaware of underlying risks.

Conclusion: Interim directions were warranted to restrain promoters from managerial positions, prohibit trading by the Company and promoters, hold the stock split, and appoint forensic auditors.

Significant Holdings

"The prima facie findings have shown mis-utilization and diversion of funds of the Company in a fraudulent manner by its promoter directors, who are also the direct beneficiaries of the diverted funds."

"The Company has attempted to mislead SEBI, the Credit Rating Agencies, the lenders and the investors by submitting forged Conduct Letters purportedly issued by its lenders."

"The promoters were running a listed public company as if it were a proprietary firm, routing Company funds to related parties and using them for unconnected expenses, ultimately resulting in losses to investors."

"The internal controls at the Company appear to be loose and through quick layering of transactions, funds have seamlessly flowed to multiple related entities and individuals."

"Allowing the promoters to remain at the helm of affairs is likely to do further damage to the interests of the Company and investors."

"The Company and promoters have violated provisions of Section 12A(a), (b), (c) of the SEBI Act and Regulations 3(b), (c), (d), 4(1), and 4(2)(f), (k), (r) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003."

"The promoters and related parties benefitted from the funds of the Company through layered transactions constituting related party transactions, which were not disclosed as required under SEBI LODR Regulations."

"The trading in the Company's shares by a related party using funds routed from the Company and promoters violates Section 67 of the Companies Act, 2013."

"The Company made misleading disclosures to the stock exchanges regarding orders and strategic tie-ups, thereby violating disclosure obligations."

"Pending detailed investigation, immediate interim directions are necessary to safeguard investor interests and preserve market integrity."

Final Determinations on Each Issue

• There is prima facie evidence of diversion and mis-utilization of funds obtained through loans from financial institutions, in violation of SEBI regulations.
• The Company submitted forged documents to Credit Rating Agencies and SEBI, misleading regulators and investors.
• The promoters and related parties engaged in undisclosed related party transactions violating SEBI LODR Regulations.
• Funds routed to a related entity for trading in the Company's shares violated Section 67 of the Companies Act, 2013.
• The Company made misleading disclosures to stock exchanges, violating disclosure norms.
• Corporate governance failures and promoter conduct warranted immediate interim regulatory intervention.
• Interim directions were issued restraining promoters from managerial roles, prohibiting trading by the Company and promoters, holding the stock split, and ordering forensic audit.

- Whether the Noticee, who was a director of the company during the period when the company issued Secured Non-Convertible Redeemable Debentures (NCDs) to the public, is liable for the contraventions committed by the company under the Companies Act, 1956 and SEBI regulations.

- Whether the Noticee qualifies as an "officer who is in default" under Section 5 of the Companies Act, 1956, thereby attracting joint and several liability for refund of monies collected through the NCDs along with interest under Section 73(2) of the Companies Act, 1956.

- Whether the Noticee's claim of being a non-executive director, having no involvement in management, operations, or financial stake in the company, and having been fraudulently roped in as director, absolves him of liability.

- Whether the earlier SEBI order imposing directions including refund of money and restraint from securities market activities against the Noticee is sustainable in law.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Liability of the Noticee for contraventions relating to issuance of NCDs

Relevant legal framework and precedents: The company was found to have contravened Sections 56, 60 read with Sections 2(36), 73, 117B and 117C of the Companies Act, 1956, and provisions of the SEBI (Issue and Listing of Debt Securities) Regulations, 2008, by raising money through public issuance of NCDs without complying with statutory requirements including registration and listing permissions. Section 73(2) mandates repayment of money collected without requisite permissions, with liability extending to the company and every "officer who is in default".

Court's interpretation and reasoning: The Court noted that the Noticee was a director of the company from March 6, 2012 to December 26, 2012, a period during which the company issued NCDs. The SEBI order held the Noticee liable on the basis of his directorship during this period. However, the Noticee contested this liability, asserting lack of involvement and knowledge.

Key evidence and findings: The directorship of the Noticee was undisputed as per MCA records. However, the Noticee submitted that he was a peon working on a no work-no pay basis, had no financial interest or control, did not attend board meetings, and was not involved in the company's operations or fund mobilization activities. No documentary evidence was furnished to substantiate these claims, but the Court accepted that the Noticee was not involved in management or operations.

Application of law to facts: The Court examined whether the Noticee fell within the definition of "officer who is in default" under Section 5 of the Companies Act, 1956, which includes managing directors, whole-time directors, managers, secretaries, persons directing the board's actions, or those charged with compliance responsibilities. The Court noted that the company had a designated Managing Director during the relevant period, who was responsible for statutory compliance and business operations.

Treatment of competing arguments: The Noticee argued that as a non-executive director without any managerial role or shareholding, he could not be held liable. The Court referred to precedents where liability could not be vicariously imposed on directors who were not officers in default or involved in day-to-day affairs, especially when a managing director was in place. The Court also considered the Noticee's submission that he was fraudulently inducted as director and had no control or benefit from the company's activities.

Conclusions: Since the Noticee was not a managing director, whole-time director, or charged with compliance responsibilities, he did not qualify as an "officer who is in default". Therefore, the liability under Section 73(2) for refund of monies and other contraventions could not be imposed on him.

Issue 2: Applicability of Section 73(2) of the Companies Act, 1956 and definition of "officer who is in default"

Relevant legal framework and precedents: Section 73(2) imposes liability for repayment of money collected through public offers without requisite permissions on the company and every director who is an officer in default. Section 5 defines "officer who is in default" to include managing directors, whole-time directors, managers, secretaries, persons directing the board, or those charged with compliance. If none of these officers exist, all directors may be deemed officers in default.

Precedents cited include decisions where the Securities Appellate Tribunal (SAT) held that vicarious liability cannot be automatically imposed on all directors, especially non-executive directors not involved in management, when a managing director is responsible for compliance.

Court's interpretation and reasoning: The Court noted that the company had a managing director during the relevant period, who was responsible for statutory compliance and operations. The Noticee was not found to be a managing or whole-time director, nor charged with compliance responsibilities. Therefore, the liability under Section 73(2) could not be extended to him.

Key evidence and findings: The Court relied on the company's Memorandum and Articles of Association, MCA records, and prior judicial pronouncements to conclude that the managing director was the officer in default. The Noticee's role was limited and non-executive.

Application of law to facts: The Court applied the statutory definition strictly and distinguished the Noticee's role from those officers liable under the Act. The presence of a managing director responsible for compliance negated the applicability of joint and several liability to the Noticee.

Treatment of competing arguments: The Noticee's argument that he was not an officer in default was accepted. The Court rejected the SEBI order's imposition of liability without a finding that the Noticee was an officer in default.

Conclusions: The Noticee was not an officer in default under Section 5 of the Companies Act, 1956, and thus not liable under Section 73(2) for refund of monies or other contraventions.

Issue 3: Validity of SEBI's directions against the Noticee

Relevant legal framework and precedents: SEBI's power to issue directions under Sections 11, 11A, 11B of the SEBI Act to restrain persons from securities market activities and to order refund of monies collected in contravention of securities laws.

Court's interpretation and reasoning: Since the Noticee was not liable under the Companies Act provisions and was not an officer in default, the basis for SEBI's directions including refund of monies, restraint from securities market access, and prohibition on association with listed or public companies was unsustainable.

Key evidence and findings: The Court noted the absence of any finding in the SEBI order that the Noticee was involved in management or was an officer in default. The Noticee's submissions and precedents were considered to conclude that SEBI erred in imposing directions against him.

Application of law to facts: Without establishing liability under the Companies Act or SEBI regulations, SEBI could not impose the directions. The Court found that the Noticee's role was limited and he was not responsible for the contraventions.

Treatment of competing arguments: The Noticee's submissions about lack of involvement, no financial stake, and being a non-executive director were accepted. The Court relied on SAT precedents where similar relief was granted to directors not involved in day-to-day management.

Conclusions: The SEBI directions against the Noticee were set aside and the proceedings disposed of without any directions.

3. SIGNIFICANT HOLDINGS

"Where the Company had a designated Managing Director who was responsible for statutory compliance and business operations, a non-executive director who was not involved in day-to-day management, had no financial stake, and was not charged with compliance responsibilities, cannot be held liable as an 'officer who is in default' under Section 5 of the Companies Act, 1956."

"Liability under Section 73(2) of the Companies Act, 1956 for refund of monies collected through public issuance of securities without requisite permissions extends only to the company and those directors who are officers in default. Vicarious liability cannot be imposed on all directors indiscriminately."

"SEBI's power to issue directions against persons involved in securities law contraventions must be exercised based on findings of liability under the relevant statutory provisions. Absent such findings, directions including restraint from securities market access and refund orders cannot be sustained."

"The impugned order imposing liability and directions against the Noticee, who was a non-executive director with no involvement in management or compliance, is quashed and the proceedings are disposed of without any directions."

(a) Whether the proposed acquisition of equity shares by the Government of India (GOI) in the Target Company, Vodafone Idea Limited (VIL), through conversion of outstanding spectrum auction dues into equity shares, triggers the obligation to make a public open offer under Regulation 3(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Regulations, 2011).

(b) Whether exemption from the open offer requirement under Regulation 3(1) can be granted to the GOI under Regulation 10(1)(i) of the Takeover Regulations, 2011, which exempts acquisition pursuant to conversion of debt as part of a debt restructuring plan implemented in accordance with Reserve Bank of India (RBI) guidelines.

(c) Whether the acquisition of shares by the GOI pursuant to conversion of dues would amount to acquisition of control in VIL, thereby affecting the intent and regulatory requirements applicable to such acquisition.

(d) Whether the public interest considerations and the financial distress faced by the Target Company justify exemption from the open offer obligation.

(e) What conditions, if any, should be imposed on the exemption granted to ensure compliance with applicable laws and protection of investor interests.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Applicability of Open Offer Obligation under Regulation 3(1) of Takeover Regulations, 2011

The relevant legal framework is Regulation 3(1) of the Takeover Regulations, 2011, which mandates that an acquirer who, together with persons acting in concert, acquires shares or voting rights entitling them to exercise 25% or more of the voting rights in a target company must make a public announcement of an open offer for acquiring shares of the target company.

The Court noted that the GOI's proposed acquisition of shares through conversion of spectrum auction dues would increase its shareholding from 22.60% pre-acquisition to approximately 48.99% post-acquisition, thereby crossing the 25% threshold and triggering the open offer obligation under Regulation 3(1).

The Court's reasoning highlighted that the acquisition is a direct acquisition of shares on a preferential basis under Section 62(4) of the Companies Act, 2013, and thus prima facie falls within the scope of Regulation 3(1).

Key evidence included the detailed shareholding structure before and after the proposed acquisition, showing the increase in GOI's shareholding and the nature of the transaction involving conversion of dues into equity shares.

The Court applied the law strictly to the facts, acknowledging the trigger of the open offer obligation due to the shareholding increase.

Issue (b): Exemption under Regulation 10(1)(i) for Debt Restructuring Conversions

Regulation 10(1)(i) of the Takeover Regulations, 2011, provides exemption from the open offer obligation for acquisition of shares by lenders pursuant to conversion of their debt as part of a debt restructuring plan implemented in accordance with RBI guidelines.

The Court interpreted the conversion of the Target Company's outstanding spectrum auction dues (including deferred dues) into equity shares by the GOI as akin to conversion of debt into equity between a debtor and a creditor. Although the dues are payable to the GOI, the Court treated the transaction as a debt restructuring measure.

The Court reasoned that the GOI, being a creditor, is converting dues into equity in line with the intent of Regulation 10(1)(i), which aims to facilitate debt restructuring without triggering open offer obligations that could hinder financial rehabilitation of companies.

The Court considered the absence of explicit RBI guidelines for this specific conversion but took a purposive approach, recognizing the public policy objective behind the Telecom Relief Package and the financial distress of the Target Company.

Competing arguments that the transaction is a preferential allotment and not a debt restructuring were considered but rejected based on the broader public interest and the nature of the dues as government receivables.

The conclusion was that the exemption under Regulation 10(1)(i) is applicable to the present transaction.

Issue (c): Intent and Impact on Control of the Target Company

The GOI submitted that it has no intent to participate in the management or board of the Target Company and that there would be no change in control post-acquisition. Further, the GOI's shareholding would be classified as public shareholding.

The Court accepted these submissions, noting that the acquisition is solely to provide financial relief and support the telecom sector in public interest, not to acquire control over the Target Company.

The Court emphasized that the absence of change in control and management participation is a relevant factor in considering exemption from open offer requirements.

This reasoning aligns with the regulatory objective to prevent hostile or control acquisitions without due process, while allowing government intervention for sectoral support.

Issue (d): Public Interest and Financial Distress Justifying Exemption

The Court acknowledged the significant financial challenges faced by the Target Company and the telecom sector at large, including liquidity constraints and deferred payments of spectrum auction dues and Adjusted Gross Revenue (AGR) dues.

The Telecom Relief Package, 2021, announced by the Government of India, aims to protect employment, promote competition, protect consumer interests, infuse liquidity, encourage investment, and reduce regulatory burden on telecom service providers.

The Court recognized that the conversion of outstanding dues into equity shares by the GOI is intended to safeguard the interests of investors and the securities market by stabilizing the financial health of the Target Company.

The Court also referenced a prior SEBI order dated May 25, 2022, granting a similar exemption to the GOI in respect of acquisition of shares pursuant to the Telecom Relief Package, reinforcing the consistency of the regulatory approach.

These public policy considerations weighed heavily in the Court's decision to grant exemption from the open offer obligation.

Issue (e): Conditions on the Exemption

The Court imposed conditions on the exemption to ensure compliance with applicable laws and investor protection:

• The acquisition must comply with relevant provisions of the Companies Act, 2013, and other applicable laws.
• The GOI must file a report with SEBI within 21 days of completion of the acquisition, as per the Takeover Regulations.
• The statements and facts presented by the GOI in the application must be true and correct.
• The exemption is limited to the open offer requirement and does not exempt the GOI from disclosure obligations under Chapter V of the Takeover Regulations, SEBI (Prohibition of Insider Trading) Regulations, Listing Agreement, or other applicable laws.

The Court's imposition of these conditions reflects a balanced approach to granting relief while maintaining regulatory oversight and transparency.

3. SIGNIFICANT HOLDINGS

"In terms of Regulation 10(1)(i) of the Takeover Regulations, 2011, acquisition of shares by lenders pursuant to conversion of their debt as part of a debt restructuring scheme implemented in accordance with the guidelines of Reserve Bank of India is exempt from the obligation to make an open offer. In my view, it shall be appropriate to treat the conversion of VIL's Outstanding Spectrum Auction Dues (including deferred dues) repayable after the expiry of the moratorium period, into equity shares to be issued to GOI, at par with a debt restructuring scheme as envisaged under Regulation 10(1)(i) of Takeover Regulations, 2011."

"Considering the fact that a substantial sum of money is due to be paid to the GOI by VIL, which may place a potential burden on the financials of VIL, and also that an open offer obligation on the part of GOI involves huge sums of cash outflow (from GOI), I find that it would be appropriate to grant exemption to the Acquirer from open offer requirements as laid down in Regulation 3(1) of the Takeover Regulations, 2011."

"The acquisition of shareholding by GOI in VIL is proposed with the sole intent of protecting the larger public interest. Moreover, at present, GOI has no intent to participate in the management or the Board of VIL and there shall be no change in control of VIL. Further, such holding of GOI shall be classified as Public Shareholding."

Core principles established include the recognition that conversion of government dues into equity shares by the GOI can be treated as debt restructuring for the purpose of exemption under Regulation 10(1)(i), that public interest and sectoral support are valid considerations for granting exemption from open offer obligations, and that absence of change in control or management participation is a material factor in such decisions.

Final determinations are that the GOI is exempted from the obligation to make an open offer under Regulation 3(1) of the Takeover Regulations, 2011, subject to specified conditions, in respect of the proposed acquisition of shares in Vodafone Idea Limited through conversion of outstanding dues into equity shares.

The core legal questions considered in the judgment are:

• Whether the Noticees, registered as individual Investment Advisers under SEBI (Investment Advisors) Regulations, 2013 ("IA Regulations"), violated Regulation 13(b) of the IA Regulations and Clause 1 of the Code of Conduct for Investment Advisers read with Regulation 15(9) of the IA Regulations by providing investment advisory services through unregistered partnership firms.
• Whether the Noticees failed to disclose material information regarding their involvement in unregistered partnership firms engaged in investment advisory activities at the time of their SEBI registration and subsequently, thereby violating their obligation to inform SEBI under Regulation 13(b) of the IA Regulations.
• Whether the Noticees acted honestly, fairly, and in the best interests of their clients, as mandated by the Code of Conduct under the IA Regulations.
• Whether the Designated Authority's (DA) recommendation to restrain the Noticees from taking any new assignment or contract for a period of three years is appropriate and proportionate in light of the violations and the facts of the case.
• Whether the Noticees are jointly and severally liable for the activities of the partnership firms under the Indian Partnership Act, 1932, despite their differing stakes and roles.

Issue-wise Detailed Analysis

Issue 1: Violation of IA Regulations by Providing Advisory Services through Unregistered Partnership Firms

Legal Framework and Precedents: The IA Regulations distinguish between categories of applicants for registration as Investment Advisers - individuals and non-individuals (including partnership firms). Registration is category-specific, and providing advisory services under a category for which registration is not obtained constitutes unregistered activity. Regulation 13(b) requires an investment adviser to inform SEBI if any previously submitted information is false or misleading or if there is any material change. Clause 1 of the Code of Conduct mandates honesty, fairness, and acting in clients' best interests.

Court's Interpretation and Reasoning: The Court observed that the Noticees, though individually registered, were co-partners in six partnership firms that provided investment advisory services without SEBI registration. The firms collected fees totaling approximately Rs. 8.10 crore from over 4,500 clients. The Court rejected Noticee No. 1's claim of bonafide belief that no separate registration was required for partnership firms, emphasizing that the IA Regulations clearly differentiate between categories and require separate registration. Ignorance or mistaken belief cannot excuse non-compliance.

Key Evidence and Findings: Inspection revealed that the partnership firms were operational before the Noticees' individual registrations and actively engaged in advisory activities, collecting substantial fees. Archive data and fee collection through payment gateways substantiated these activities. The Noticees had failed to declare these activities at the time of individual registration.

Application of Law to Facts: The Court applied Regulation 13(b) and the Code of Conduct to find that the Noticees violated their obligation to inform SEBI about their unregistered advisory activities through partnership firms. The provision of advisory services by unregistered entities constituted a breach of the IA Regulations.

Treatment of Competing Arguments: Noticee No. 1 argued that he held only a minor capital stake and did not control the firms, that he was following compliance norms like KYC and risk profiling, and that he voluntarily disclosed the firms' existence and refunded dissatisfied clients. The Court found these mitigating factors insufficient to absolve liability. The claim that advisory services were not provided without SEBI registration was rejected due to the clear evidence of unregistered activities.

Conclusion: The Court concluded that the Noticees violated Regulation 13(b) and Clause 1 of the Code of Conduct read with Regulation 15(9) by providing unregistered investment advisory services through partnership firms and failing to disclose material information.

Issue 2: Liability of Noticees as Partners under the Indian Partnership Act, 1932

Legal Framework and Precedents: Section 4 of the Indian Partnership Act defines partnership as a relation between persons sharing profits of a business carried on by all or any of them acting for all. Section 25 provides that every partner is jointly and severally liable for acts of the firm done while he is a partner. The Supreme Court has held that a firm is not a separate legal entity distinct from its partners.

Court's Interpretation and Reasoning: The Court noted the contrasting contentions of the Noticees attempting to shift blame. It clarified that irrespective of individual stakes or roles, both Noticees are jointly and severally liable for the partnership firms' acts. The capital contribution is distinct from profit-sharing and control; liability arises from partnership status.

Key Evidence and Findings: Partnership deeds and profit-sharing ratios were examined. Noticee No. 1's minor capital stake did not exempt him from liability. Noticee No. 2's submissions confirmed Noticee No. 1's involvement in overseeing firm operations.

Application of Law to Facts: The Court applied the Partnership Act provisions to hold both Noticees liable for the unregistered activities of the partnership firms.

Conclusion: Both Noticees are jointly and severally liable for the violations committed by the partnership firms.

Issue 3: Appropriateness of the DA's Recommendation for Restraint

Legal Framework: Regulation 27(iii) of the SEBI (Intermediaries) Regulations, 2008 empowers the authority to restrain intermediaries from taking up new assignments or contracts for a specified period. The Court must consider proportionality and facts of the case.

Court's Interpretation and Reasoning: The DA recommended a three-year restraint on the Noticees from taking new assignments. However, the Court noted that SEBI had already passed an earlier order dated November 28, 2023, debarred the Noticees from the securities market for two years, imposed penalties, and directed refunds. Considering these prior sanctions, the Court found the DA's recommendation disproportionate.

Key Evidence and Findings: The prior SEBI order and ongoing penalties were significant. Noticee No. 1 had challenged the order before the Securities Appellate Tribunal but without obtaining a stay. Noticee No. 2 had not challenged the order, which attained finality.

Application of Law to Facts: The Court balanced the need for deterrence with fairness, concluding that a six-month restraint would be adequate and just under the circumstances.

Treatment of Competing Arguments: Noticee No. 1's challenge of SEBI's prior order was noted but not sufficient to alter the Court's view on proportionality. Noticee No. 2's non-participation was considered in the final decision.

Conclusion: The Court modified the DA's recommendation, restraining the Noticees from taking any new assignment or contract for six months instead of three years.

Significant Holdings

"An applicant, who has been granted registration under a specific category, can provide its services under that category only, and in case, any such applicant provides the services under any other category for which it does not hold the registration, the same would be considered as unregistered activity and in contravention of the IA Regulations."

"It is a well-established principle that ignorance of law is not a valid defense. The Noticee, irrespective of any assumption, had the legal obligation to comply with the applicable statutory requirements with respect to registration."

"Every partner is liable, jointly with all the other partners and also severally, for all acts of the firm done while he is a partner."

"Considering that the Noticees have already been debarred from the securities market and penalized for their conduct, restraining the Noticees from taking up any new assignment or contract for a period of 3 (Three) years as recommended by the DA would be disproportionate, and instead, a restraint of six months would be commensurate and would meet the ends of justice."

Core Principles Established:

• Registration under IA Regulations is category-specific; providing services outside the registered category is unregistered activity.
• An investment adviser must disclose any false or misleading information or material changes to SEBI promptly.
• Partners in a partnership firm are jointly and severally liable for the firm's acts, regardless of individual capital contributions or control.
• Mitigating factors such as voluntary disclosure or refunds do not absolve liability but may be considered in determining sanctions.
• Sanctions imposed must be proportionate, taking into account prior penalties and the overall facts and circumstances.

Final Determinations on Each Issue:

• The Noticees violated Regulation 13(b) of the IA Regulations and Clause 1 of the Code of Conduct read with Regulation 15(9) by providing unregistered investment advisory services through partnership firms and failing to disclose material information.
• Both Noticees are jointly and severally liable for the violations committed by the partnership firms under the Indian Partnership Act, 1932.
• The DA's recommendation for a three-year restraint was modified to a six-month restraint, considering prior SEBI orders and proportionality.

ISSUES:

Whether failure to forthwith inform the Securities and Exchange Board of India (SEBI) of a material change, specifically change of address, by a registered Investment Adviser (IA) constitutes a violation of regulation 13(b) read with regulation 13(a) of SEBI (Investment Advisers) Regulations, 2013 (IA Regulations) and clauses 1 and 8 of the Code of Conduct under the Third Schedule to IA Regulations read with regulation 15(9) of IA Regulations.Whether providing investment advisory services through an unregistered entity (F3 Financials), without updating SEBI during pendency of registration application or after grant of registration, amounts to unregistered investment advisory activity in contravention of IA Regulations and related Code of Conduct.Whether providing investment advisory services through a partnership firm (Garuda Finance) without the firm itself being registered with SEBI, despite the individual IA's registration, constitutes unregistered investment advisory activity violating IA Regulations and related Code of Conduct.Whether the conduct of the IA in providing investment advisory services prior to obtaining SEBI registration and through unregistered entities justifies cancellation or suspension of registration under SEBI (Intermediaries) Regulations, 2008.Whether mitigating factors such as technical nature of violations, filing of police complaints, cessation of unregistered activities, refund of fees, and resolution of investor complaints justify leniency in imposing penalties.

RULINGS / HOLDINGS:

Failure to forthwith inform SEBI of a material change such as change of address is a violation of regulation 13(b) read with regulation 13(a) of IA Regulations and clauses 1 and 8 of the Code of Conduct, as the change of address is a "material change" that "goes to the root of the business" and must be informed "forthwith", meaning "immediately" or "without unnecessary delay."Providing investment advisory services through F3 Financials, an unregistered entity, without disclosure to SEBI during or after registration application, constitutes unregistered investment advisory activity in violation of regulation 13(b) read with regulation 13(a) of IA Regulations and clauses 1, 5 and 8 of the Code of Conduct.Providing investment advisory services through Garuda Finance, a partnership firm not registered with SEBI, despite the IA's individual registration, constitutes unregistered investment advisory activity violating regulation 13(b) read with regulation 13(a) of IA Regulations and clauses 1, 5 and 8 of the Code of Conduct; an individual IA cannot provide advisory services through an unregistered non-individual entity circumventing distinct eligibility criteria.The IA's engagement in investment advisory activities prior to obtaining SEBI registration and through unregistered entities demonstrates disregard for applicable regulations and aggravates the violations committed.Although some violations are "technical in nature" and mitigating factors exist, the overall violations are "grave enough to not be condoned lightly," warranting suspension of registration for six months rather than cancellation.

RATIONALE:

The Court applied the statutory framework comprising the SEBI Act, SEBI (Intermediaries) Regulations, 2008, and SEBI (Investment Advisers) Regulations, 2013. The IA Regulations impose a duty under regulation 13(b) to "forthwith inform the Board in writing" of any "material change" in information submitted, with "forthwith" interpreted in light of Supreme Court precedent as "immediately" or "without unnecessary delay."The distinction between individual and non-individual Investment Advisers under IA Regulations, including differing certification, net worth, and 'fit and proper' criteria, precludes an individual IA from providing advisory services through an unregistered partnership firm, as this would circumvent regulatory requirements and render the statutory scheme redundant.The Court rejected the IA's contention of being a victim of fraud regarding unregistered activities through F3 Financials, noting delayed police complaints and failure to respond timely to SEBI's inquiries, indicating afterthoughts to evade regulatory scrutiny.The Court considered mitigating factors such as the technical nature of the non-updation of address, cessation of unregistered activities, refund of fees, and resolution of complaints, but found the prior unregistered activities and failure to disclose to SEBI as aggravating circumstances requiring a proportionate disciplinary response.The Court adhered to principles of natural justice by granting multiple opportunities for hearing and considering all submissions, including those related to settlement proceedings, which were ultimately withdrawn, reviving the enforcement process.The decision marks no doctrinal shift but reinforces strict compliance with registration and disclosure requirements under IA Regulations, emphasizing the importance of prompt disclosure of material changes and prohibition of unregistered advisory activities through entities not registered with SEBI.