2020 (1) TMI 680 - AT - SEBI

Unregistered Collective Investment Scheme Penalties Upheld by Securities Appellate Tribunal

The Securities Appellate Tribunal upheld the penalty imposed by the Adjudicating Officer of SEBI on the appellants for operating a Collective Investment ... Penalty u/s 15HA of the SEBI - carrying out the scheme of collective investment scheme without obtaining registration under the SEBI Act - HELD THAT:- Collection so made by the appellants and the other entities was wholly illegal and the decision of the AO that the amount so collected under the collective investment scheme is the illegal profit earned by the appellants and other entities does not suffer from any manifest error of law. The total amount of realization made by the company and its directors amounts to illegal profits made by them. Factors contemplated under Section 15J of the SEBI Act was duly considered. AO found that the whole amount was illegally raised under the collective investment scheme without obtaining registration from SEBI after coming into force of Regulation 4(2)(t) of the PFUTP Regulations, 2003 during the period of 06.09.2013 to 15.06.2014 the AO found that the amount so realised was a profit for the purpose of Section 15HA. AO further found that the profit made by the appellants was at the cost of the investors. We are of the opinion that the factors contemplated under Section 15J of the SEBI Act was duly considered and we do not find any infirmative in the reasoning adopted by the AO. On the question whether the appellants have violated Regulation 4(2)(t) of the PFUTP Regulations and or on the question whether the appellants were required to get the scheme registered under SEBI Act, we are of the opinion that it is no longer open to the appellants to agitate the matter as the same has been decided by SEBI which order has been affirmed by this Tribunal. We also find that specific findings have been given by AO that the amount mobilized during the period from 01.09.2013 to 15.06.2014 has not been refunded to the investors. No ground contrary to the aforesaid finding has been urged by the learned counsel for the appellants. No manifest error in the order of the AO imposing penalty under Section 15HA of the SEBI Act. Issues:1. Imposition of penalty by the Adjudicating Officer of SEBI against the appellants for operating a Collective Investment Scheme without registration.2. Challenge to the penalty order before the Securities Appellate Tribunal.3. Consideration of legality of fund mobilization and penalty imposition under Section 15HA of the SEBI Act.4. Examination of factors under Section 15J of the SEBI Act in penalty calculation.Issue 1: Imposition of Penalty by the Adjudicating OfficerThe Adjudicating Officer of SEBI imposed a penalty of Rs. 24,23,16,56,765 on the appellants for operating a Collective Investment Scheme without registration. The scheme involved directors of a company mobilizing funds from the public without SEBI registration, leading to the penalty imposition based on violations of SEBI laws.Issue 2: Challenge to Penalty Order before the Securities Appellate TribunalAfter the Adjudicating Officer's penalty order, the appellants filed appeals before the Securities Appellate Tribunal. The Tribunal quashed the initial orders by SEBI, directing a reevaluation of the penalties in accordance with the law and computing any profits made from the scheme.Issue 3: Legality of Fund Mobilization and Penalty ImpositionThe Tribunal found that the funds mobilized by the appellants under the Collective Investment Scheme were illegal profits, justifying the penalty under Section 15HA of the SEBI Act. The Tribunal upheld the Adjudicating Officer's decision that the total amount collected was an unlawful gain, emphasizing the illegality of the scheme.Issue 4: Examination of Factors under Section 15J in Penalty CalculationThe Tribunal affirmed that the factors under Section 15J of the SEBI Act were duly considered by the Adjudicating Officer. It was noted that the profits made by the appellants were at the expense of investors, justifying the penalty imposition. Specific findings indicated that the mobilized funds were not refunded to investors during the specified period, further supporting the penalty decision.In conclusion, the Tribunal dismissed the appeals, finding no manifest error in the penalty imposition under Section 15HA of the SEBI Act. The appellants' arguments regarding the legality of the scheme and the penalty quantification were rejected, emphasizing the unlawful nature of the fund mobilization and the considerations made in the penalty calculation.