TaxTMI 
TaxTMI 
2025 (7) TMI 160
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....(hereinafter referred to as "DA") was appointed to inquire into and to submit a report pertaining to the aforesaid allegations. The DA issued a Show Cause Notice dated April 24, 2024 to the Noticees under Regulation 25(1) of the SEBI (Intermediaries) Regulations, 2008 (hereinafter referred as "Intermediaries Regulations") to show cause as to why appropriate recommendation should not be made against them for the violations alleged to have been committed by them. The Noticees were advised to submit their replies, if any, within 21 days of receipt of the said Show Cause Notice. 4. Noticee No. 1, vide its email dated May 30, 2024 filed its detailed reply to the Show Cause Notice. Noticee No. 1 was also granted an opportunity of inspection of documents on July 03, 2024. Further, the DA granted him an opportunity of hearing on July 16, 2024 which was attended by him along with his Authorized Representative (AR), Mr. Abhishek Mishra. Noticee No. 2 filed its response vide email dated May 26, 2024. An opportunity of hearing was granted to Noticee No. 2 on June 11, 2024 which was attended by him. 5. After considering the allegations levelled in the Show Cause Notice, replies filed by t....
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....and reiterated the written submissions made by him vide letter dated October 20, 2024. Noticee No. 2 again failed to avail the opportunity of hearing neither did he make any submissions. Accordingly, hearing in the matter was concluded. Noticee No. 1 made post hearing submissions vide letter dated January 13, 2025. CONSIDERATION OF ISSUES 9. I have perused the Enquiry Report issued to the Noticees along with the SCN, the Show Cause Notice issued by the DA and the replies filed by the Noticees and other material available on record. In the instant proceedings, the DA has recommended that the Noticees be refrained from taking up any new assignment or contract for a period of 3 (Three) years. 10. Before determining the issues and adjudicating upon them, it would be prudent to summarize the allegations against the Noticees and the observations made by the DA. I note that during the inspection carried out by SEBI, it was observed that the Noticees themselves being registered Investment advisors were co- partners in six partnership firms, which were engaged in providing unregistered investment advisory services to investors and were collecting fees for the same. The relevant str....
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.... 2017) b) Promotional activities over digital, sms etc. c) Educational services to clients 6 M/s ML Tele Sales (ABHFM3142P) October 17, 2017 Rajesh Kallidumbil - 50% (Since Oct 17, 2017) a) Sale and service to clients through digital, telephonic etc. Yogesh Kukadia -50% (Since Oct 17, 2017) b) Promotional activities over digital, sms etc. c) Educational services to clients 11. Further, the DA has observed that the said six partnership firms were established before the Noticees applied for registration as IAs in their individual capacity(ies). Furthermore, the nature of the business of M/s. Signal2Noise Capital Partners and M/s Investo Investment Advisers was, inter alia, providing investment advisory services to their registered clients. On perusal of the archive data from the websites of these six partnership firms, the DA noted that these six partnership firms had held themselves out as investment advisers and were offering advice for dealing in securities for consideration. 12. Additionally,....
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....d hereunder: "IA REGULATIONS Conditions of certificate. 13. The certificate granted under regulation 9 shall, inter alia, be subject to the following conditions: ... (b)the investment adviser shall forthwith inform the Board in writing, if any information or particulars previously submitted to the Board are found to be false or misleading in any material particular or if there is any material change in the information already submitted. General responsibility. 15. ... (9) An investment adviser shall abide by Code of Conduct as specified in Third Schedule. THIRD SCHEDULE Code of Conduct for Investment Adviser 1.Honesty and fairness An investment adviser shall act honestly, fairly and in the best interests of its clients and in the integrity of the market." 16. As noted earlier, in response to the SCN, Noticee No. 1 has filed its response vide his letter dated October 20, 2024 and additional submissions vide letter dated January 13, 2025 and has, inter alia, submitted the following: a) The contents of his earlier reply filed on May 30, 2024 were sought to be repeated, reiter....
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.... to avail the opportunity of personal hearing which was offered to him twice. Thus, I am constrained to proceed in the matter w.r.t. Noticee No. 2 based on the material available on record. 18. It is an undisputed fact that both the Noticees were individually registered with SEBI as Investment Advisor. Noticee No. 1 was registered on March 20, 2018 and Noticee No. 2 on December 03, 2018. It is also undisputed that both these Noticees were co-partners in the six partnerships firms. In fact, Noticees had themselves provided all the information to SEBI related to these partnership firms. Noticee No. 1 in his submissions has stated that he was under the bonafide assumption that there was no requirement of any separate registration (for partnership firms) and he had not provided the advisory services without SEBI registration since he was validly holding the registration from SEBI as an individual. 19. In this regard, I note that in terms of the IA Regulations, an applicant seeking registration as an Investment Adviser can either be an Individual or a non- Individual. Non-Individual category is separately divided into a body corporate or a partnership firm or a limited liability p....
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....h details of all the partnership firms of which SEBI was not aware. He could have concealed his activities if he had any fraudulent intentions. He has also voluntarily refunded the amount to many of its clients/investors who were not satisfied with the service. In his context, I note that these arguments also do not hold ground in light of the clear violation of the regulatory requirement and would not absolve the Noticee from any liabilities which are incurred for the violation of law. At best, these circumstances can be considered as mitigating factors to be taken into account while issuing any directions. 22. Noticee No. 1 has also stated that he was just holding 1% of stake(capital contribution) in the partnership firms which does not illustrate how he had control over the affairs of the firm and that the entire operations (of the firms) were controlled and managed by Mr. Rajesh. 23. On the other hand, Noticee No. 2 in his submission (made before the DA) had also inter alia stated that the reason why Noticee No. 1 (Mr. Yogesh Kukadia) was a partner (with almost NIL capital contributed) was due to him having the necessary qualifications and experience for the same. Noticee....
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....ir individual stakes, roles and responsibilities. 25. In this backdrop, it is now to be seen whether the activities carried out by the Noticees through the six partnership firms were in violation of provisions of Regulation 13(b) of IA Regulations and Clause 1 of Code of Conduct for Investment Advisers read with Regulation 15(9) of IA Regulations. I note that Regulation 13(b) of the IA Regulations, inter alia, provides that any certificate granted under regulation 9 shall be subject to the investment adviser informing SEBI in writing, if any information or particulars previously submitted to SEBI are found to be false or misleading in any material particular or if there is any material change in the information already submitted. Further, the Code of Conduct for Investment Advisers, inter alia, provides that an investment adviser shall act honestly, fairly and in the best interests of its clients and in the integrity of the market. 26. With regard to the above, the DA has observed that the Noticees had not declared the investment advisory activities through unregistered partnership firms at the time of applying to SEBI for registration as IA in their individual capacity, whic....
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....ough their unregistered six partnership firms held themselves out as investment advisers and provided investment advice to clients for consideration without obtaining registration from SEBI as Investment Adviser. Although Noticees 1 and 2 are registered with SEBI, they have not conducted the IA activities in their individual capacities but rather carried out IA work through the six partnership firms who were not registered with SEBI". Accordingly, vide the said Order dated November 28, 2023, Noticees (amongst others) were debarred from accessing the securities market, directly or indirectly and were prohibited from buying, selling or otherwise dealing in the securities market, directly or indirectly in any manner whatsoever, for a period of two years from the date of the order or till the expiry of two years from the date of completion of refunds to complainants/ investors as directed whichever is later. The said direction effectively acts as a restraint from taking any new clients. Further, SEBI vide the same Order had also imposed a penalty of Rs. 18,00,000 on the Noticees along with 7 other entities to be paid jointly and severally, and also directed them to refund the amo....