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TaxTMI 
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2025 (11) TMI 259
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....pection. Subsequently, correspondences between the Noticee and the SEBI inspecting team were held through e-mails. The inspection was conducted for the period from April 01, 2023, to May 31, 2024 (hereinafter referred to as "Inspection period/IP"). However, wherever necessary, reference to period outside the IP has been made. 2. Post the culmination of the aforesaid inspection, an inspection report (hereinafter referred to as 'IR') was prepared. The findings of the said inspection were communicated to the Noticee by SEBI vide letter dated October 03, 2024. In response to the findings in the Inspection Report, the Noticee submitted his reply vide e-mail dated October 17, 2024. After the receipt of the reply to the Inspection Report, a Post Inspection Analysis report (hereinafter referred to as 'PIA') was prepared. 3. Based on the findings of Inspection conducted by SEBI and the response dated October 17, 2024, submitted to SEBI, certain non-compliances of Securities and Exchange Board of India (Research Analysts) Regulations, 2014 (hereinafter referred to as "RA Regulations") were alleged. The extracts of the violations alleged to have been committed by the Noticee and corresp....
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.... Noticee vide email dated August 14, 2024, submitted the audit reports for FYs 2022- 23 and 2021-22. It was observed that the said reports were dated August 14, 2024. • In view of the above, it was alleged that the Noticee had failed to conduct annual audit in respect of compliance with RA Regulations for FYs 2023-24, 2022-23, and 2021- 22 till the information related to annual audit was sought by SEBI from the Noticee. Therefore, it is alleged that the Noticee had failed to act diligently and was non- compliant with respect to the requirements of conducting annual audit until the submission of information related to the annual audit was sought by SEBI and thereby, violated the provisions of Regulation 25(3) of RA Regulations and clauses 2 and 7 of Code of Conduct as specified in Third Schedule under Regulation 24 (2) of the RA Regulations. • It was observed that the aforesaid findings were communicated to the Noticee by SEBI vide letter dated October 03, 2024. The Noticee vide e-mail dated October 17, 2024had, inter alia, stated as under in respect of the aforesaid findings in the IR/PIA: "It is submitted that there was an inadvertent delay in conducting ....
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....nformation of the same was sought by SEBI. Further, when the Noticee provided the audit report for FY 2023-24 vide email dated July 15, 2024, he had not carried out annual audit for FYs 2022-23 and 2021-22 as the date on the said annual audit reports was August 14, 2024. The audits for the FYs 2022-23 and 2021-22 were carried out only when additional information with respect to annual audit for FYs 2022-23 and 2021-22 was sought by SEBI from the Noticee vide email dated July 26, 2024. • It was further observed from the PIA that with respect to the aforementioned findings in the IR, the Noticee had, inter alia, in his reply further submitted that he was preoccupied with his mother's health issues, which required frequent hospital visits and considerable attention. In this regard, it was observed from PIA that the Noticee was able to carry out the annual audit for all three financial years within a span of few days after the information was sought by SEBI. Hence, the reply of the Noticee in this regard cannot be accepted. • In view of the above, it is alleged that the Noticee had failed to conduct annual audit in respect of compliance with RA Regulations for....
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....sed the charges levelled against the Noticee in the SCN, his replies and the material/documents available on record. In the instant matter, the following issues arise for consideration and determination: - I. Whether Noticee has failed to conduct annual audit for FYs 2023-24, 2022- 23, and 2021-22 till the information related to annual audit was sought by SEBI from the Noticee and thereby, violated provisions of RA Regulations? II. Does the violation, if any, on the part of the Noticee attract monetary penalty under Section 15EB of SEBI Act? III. If so, what would be the quantum of monetary penalty that can be imposed on the Noticee after taking into consideration the factors stipulated in section 15J of the SEBI Act? 10. Before proceeding further, it is pertinent to refer the relevant provisions of law, allegedly violated by the Noticee. The same are reproduced hereunder: "RA Regulations General responsibility. 24. (2) Research analyst or research entity shall abide by Code of Conduct as specified in Third Schedule. Maintenance of records. 25. (3) Research analyst or research entity shall ....
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....ments. While I acknowledge the delay in conducting the Annual Audit, I would like to place on record that this delay was due to personal reasons. During the period in question, I was dealing with significant family health issues, particularly my mother's declining health, which required my full attention and frequent hospital visits. These personal responsibilities temporarily affected my ability to adhere to the usual timeline for the audit. Copy of the documents evidencing the hospital visits and copy of the death certificate is enclosed as Annexure A (Colly). It is a fact that during the relevant time, I was preoccupied with my mother's treatment, which led to an inadvertent delay in filing the annual audit. However, as soon as SEBI sought details from me, I immediately requested my accountant to finalize the audit. Taking swift corrective steps to address an unintentional oversight cannot be viewed adversely, as it was a bona fide effort on my part to ensure full compliance." 11.3. From the aforesaid, it is noted that the Noticee has admitted that there was a delay in conducting Annual Audit for FYs 2021-22, and 2022-23, and therefore, the Annual Au....
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....-23. 12. Issue II - Does the violation, if any, on the part of the Noticee attract monetary penalty under Section 15EB of the SEBI Act? 12.1. As discussed in the preceding paragraphs, it has been established that the Noticee had violated the provisions of the law as alleged in the SCN for FYs 2021-22, and 2022-23. Accordingly, the question that now arises for consideration is whether the Noticee is liable for payment of a monetary penalty in terms of Section 15EB of the SEBI Act. 12.2. The Noticee, in his replies has, inter alia, stated: "That the alleged violation is at the highest a technical procedural and venial breach...... the identification of such minor defaults should not lead to penal consequences. Only in cases where serious lapses or violations are identified which involve a clear breach of regulations or pose a substantial risk to the integrity of the securities market or detrimental to the investors, it would be appropriate for SEBI to consider initiating penal action. Therefore, SEBI should take punitive measures only in instances of significant and material non-compliance, not in response to minor issues that has no impact of the interest of invest....
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.... of the aforesaid discussions, it is established that the Noticee is liable for payment of a monetary penalty in terms of Section 15EB of the SEBI Act. 12.7. The text of the above said Section 15EB of the SEBI Act is reproduced below: "Penalty for default in case of investment adviser and research analyst. 15EB. Where an investment adviser or a research analyst fails to comply with the regulations made by the Board or directions issued by the Board, such investment adviser or research analyst shall be liable to penalty which shall not be less than one lakh rupees but which may extend to one lakh rupees for each day during which such failure continues subject to a maximum of one crore rupees." Issue III - If so, what would be the quantum of monetary penalty that can be imposed on the Noticee after taking into consideration the factors mentioned in section 15J of the SEBI Act? 13. While determining the quantum of penalty under section 15EB, it is important to consider the factors stipulated in section 15J of the SEBI Act, which reads as under: "Factors to be taken into account while adjudging quantum of penalty. 15J. While adjudging quantum o....