TaxTMI Login
Just a moment...
Press 'Enter' to add multiple search terms. Rules for Better Search
When case Id is present, search is done only for this
of 
of 
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of of 
All Case Laws
of of All Case Laws
Note
Bookmark
Share
Don't have an account? Register Here
of <h1>Cancellation of portfolio manager registration for failing annual certificates and NIL reports; Regulation 33 and Schedule II invoked</h1> <h3>In Re. : Amrapali Aadya Trading and Investment Private Limited</h3> In Re. : Amrapali Aadya Trading and Investment Private Limited - TMI 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.
TaxTMI 
TaxTMI 
