TaxTMI 
TaxTMI 
TaxTMI 
2025 (8) TMI 1234
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...., 2020 ("PMS Regulations") and Section 12(3) of the SEBI Act, 1992 ("SEBI Act") were initiated against the Noticee and a Designated Authority (hereinafter referred to as "DA") was appointed on March 07, 2024 to enquire into the alleged violations by the Noticee. The DA issued a show cause notice dated March 15, 2024 to the Noticee under regulation 25 of Intermediaries Regulations to show cause as to why appropriate recommendation should not be made against it in terms of Regulation 26 of the Intermediaries Regulations for the alleged violations given in the table below. Table 1 S. No. Alleged violations Regulatory Provisions 1. Failure to submit improvement in Corporate Governance Report. Regulation 33 of PMS Regulations read with clauses 5.2.1.1, 5.2.1.2, 5.2.2.4, and 5.3.1 of Master Circular. 2. Failure to submit Certificate of compliance with PMS Regulations and circulars issued thereunder. 3. Failure to submit Report on audit of firm level performance data. 4. Failure to submit Certification of Net worth 5. Failure to fulfil 'fit and proper' person criteria Regulation 7(2)(j) and 8 of PMS Regulations. 4. Pursuant to the transfer of DA, another DA was appo....
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....al hearing was granted to the Noticee on April 29, 2025, the AR sought adjournment. Subsequently, another opportunity of personal hearing was granted to the Noticee on June 04, 2025. On the said date, the AR appeared before me and reiterated the submissions made vide letter dated June 02, 2025. 9. The contentions raised in the written submission dated June 02, 2025 are summarised below. 9.1. The DA SCN dated March 15, 2024 was not received by the Noticee nor was it informed about the enquiry proceedings. The Noticee had filed appeals before the Hon'ble SAT challenging SEBI 11B Order dated August 6, 2021 and Adjudication order dated April 28, 2022. These appeals were filed on March 31, 2022 and September 15, 2022 respectively; pleadings are complete in these appeals and this is known to SEBI, which is the Respondent in the appeals. 9.2. SEBI was well aware of the correspondence address of the Noticee and its MD when the DA SCN was issued. SEBI was also well aware from the pleadings in the appeals and through other means that the office address of the Noticee was no longer valid because banks had attached and sold the said property. SEBI was also aware that the MD of the Noticee....
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....d to their emails or notices sent on the "last known address", yet the Ld. DA failed to consider such extenuating circumstances while considering the alleged failure to submit certificates and report for FYs 2021-22 and 2022-23 and alleged non response to communication from SEBI and BSE. 9.6. Since the Noticee has no clients or business on the portfolio management side, compliance reports and audit reports on performance are not meaningful and at best it could have submitted "nil" reports. Therefore, no harm or prejudice has been caused to investors or to the regulatory function of SEBI by non- submission of reports by them. The Noticee has prayed that the recommendation of the DA may not be accepted and no penalty or adverse regulatory action may be imposed on it. 9.7. The Noticee has submitted that considering the Noticee's adverse financial position, its severely damaged reputation and the directions passed against it vide 11B order, it does not foresee any possibility of starting business as a Portfolio Manager and hence, wishes to surrender its registration as such and prays that it may be permitted to do so. The Noticee has prayed that the present proceedings may be dispo....
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.... each financial year. Further, details of non-compliance along with the corrective actions, if any, duly approved by Board of the Portfolio Manager. .......... 5.2.2 Submission of Corporate Governance Report: .......... 5.2.2.4 Portfolio Managers shall report to SEBI on compliance with the provisions of the above guidelines while submitting the annual reports. The report should reach SEBI within thirty days from the end of the financial year. 5.2.3 Firm-level performance reporting by Portfolio Managers 5.2.3.1 The firm-level performance data of Portfolio Managers shall be audited annually. Confirmation of compliance with paragraph 4.5.3 of this Master Circular shall be reported to SEBI within sixty days of end of each financial year. The said report to SEBI shall be certified by the Directors/ Partners of the Portfolio Manager or by person(s) authorized by the Board of Directors/Partners of the Portfolio Manager. 11. The Noticee has submitted that SEBI was aware that its office address was no longer valid, as the said property had been attached and sold by Banks. Further, the Noticee contended that SEBI was also aware that the MD of the Noticee company was imprisoned a....
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....djudicate the violations alleged in the SCN one by one. I. Failure to submit periodical reports and certificates to SEBI for FY 2021- 22 and FY 2022-23: 14. I note that Regulation 33 of PMS Regulations provides that SEBI may ask a Portfolio Manager to disclose any information as and when required. In this regard, vide Master Circular, SEBI inter alia mandated Portfolio Managers to submit the following certificates/ reports within the specified timelines: 14.1. 'Net worth certificate' as of March 31 of each financial year from a qualified Chartered Accountant, based on audited accounts, within six months from the financial year-end. 14.2. Certificate of 'compliance with PMS Regulations and circulars', within 60 days of the end of the financial year, including details of non-compliance and corrective actions. 14.3. 'Report on Improvement in Corporate Governance' within 30 days from the end of the financial year. 14.4. 'Report on Audit of Firm-level Performance Data' within 60 days of the end of the financial year, certified by the Directors/ Partners or their authorized representatives. 15. Regulation 9 of PMS Regulations stipulates the minimum net worth requirement for a....
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....ess', is unjustified and without merit. 19. Accordingly, I find that the failure of the Noticee to submit the reports/ certificates as detailed above for FY 2021-22 and 2022-23 constitutes a violation of Regulation 33 of PMS Regulations, read with clauses 5.2.1.1, 5.2.1.2, 5.2.2.4 and 5.3.1 of Master Circular. II. Failure to fulfil 'fit and proper' person criteria: 20. Regulation 7(2)(j) and 8 of PMS Regulations stipulate that every registered entity must meet the 'fit and proper' person criteria specified in Schedule II of Intermediaries Regulations. The DA has concluded that the Noticee is no longer a 'fit and proper person' for holding a certificate of registration as a Portfolio Manager, due to the following observations. 20.1. Noticee's repeated non-compliance with regulatory reporting and disclosure requirements reflects poorly on its operational integrity and governance practices. 20.2. Noticee is not available at the address provided to SEBI. 20.3. Noticee was previously registered as a stockbroker with SEBI and defaulted in its obligations leading to expulsion from NSE. 20.4. Further, the Noticee's stock broker registration certificate was cancelled vide SEBI Or....
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....ngs have been initiated by the Board against such person and are pending; ..... 23. I note that SEBI had passed 11B Order dated August 6, 2021, Enquiry Order dated November 14, 2022, and adjudication order dated April 28, 2022, against the Noticee for the same violations detailed at paragraph 20.4 above. The Noticee has argued that the findings of the Enquiry Order are under challenge before SAT on account of pending appeal against the SEBI 11B Order and the adjudication order. Therefore, the Noticee has contended that the basis for determining the Noticee as "fit and proper" is not final and the present proceeding to be in violation of the principle of res judicata. However, I note that as per SAT website, the Noticee has filed an appeal only against the adjudication order and not the SEBI 11B Order or the Enquiry Order, which resulted in cancellation of Noticee's certificate of registration as a stock broker. Therefore, the basis for the present proceedings remains valid and unchallenged. Consequently, I do not find any merit in this contention of the Noticee. 24. The actions and omissions including serious regulatory breaches, misuse of client assets and falsification of rec....