At, SEBI Securities amp Exchange Board of India Securities Appellate Tribunal
By, THE HONOURABLE MR. JUSTICE TARUN AGARWALA
By, PRESIDING OFFICER & THE HONOURABLE DR. C.K.G. NAIR
For the Appellant: Vedchetan Patil, Advocate. For the Respondent: Vishal Kanade, Chirag Bhavsar, Advocates i/b MDP & Partners.
Dr. C.K.G. Nair, Member
1. The Adjudicating Officer (‘AO’ for short) of the Securities and Exchange Board of India (‘SEBI’ for short) vide order dated November 28, 2017 imposed a penalty of Rs. 16 lakh on the appellant (Rs. 8 lakh each for violation of Code of Conduct and for non redressal of client grievances) under Section 15 HB of the SEBI Act, 1992. This appeal has been filed aggrieved by the said order.
2. Appellant is an investment advisor registered with SEBI. On January 3, 2015 SEBI received a complaint in its SCORES platform from one Mr. Devashish Vimal alleging that the appellant misappropriated some money from the complainant paid towards commodity trading. Given the prima facie violation of Regulation 15(9) and 21(1) of the SEBI (Investment Advisor) Regulations, 2013 (‘Investment Advisor Regulations’ for short) SEBI initiated an adjudication proceeding and a show cause notice dated July 14, 2017 was issued to the appellant. It was alleged in the show cause notice that the employee / representative of the appellant persuaded the complainant to trade in commodities and to transfer money for the said purpose to open a trading account. All these have been done through the messaging system of the representative / employee of the appellant rather than through the company’s own general messaging system. It was also alleged that when the complainant wanted to close the account and withdraw the balance money available the appellant did not respond to the same. Moreover, the appellant induced the complainant through a fake trading account in the guise of a MCX account and sent false trading messages to the complainant and therefore did not act honestly, fairly and in the best interests of the complainant. By these acts of commission the appellant had violated Regulation 15(9) and 21(1) of the Investment Advisor Regulations which are reproduced for convenience:-
Investment Adviser Regulations
15(9) An investment adviser shall abide by Code of Conduct as specified in 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 the clients and in the integrity of the market.
An investment adviser shall act with due skill, care and diligence in the best interests of its clients and shall ensure that its advice is offered after thorough analysis and taking into account available alternatives.
Redressal of client grievances
21(1) An investment adviser shall redress client grievances promptly.”
3. The Learned counsel for the appellant Shri Vedchetan Patil submitted that the appellant Company did not commit any violations because it is an action / mistake made by an employee without the knowledge of the Company. Therefore, instead of system generated SMSs the employee sent messages from his own cell phone. When the Company came to know of this, action was taken against the employee by dismissing him and out of the amount of Rs. 3,37,000/- deposited by the complainant to open a trading account, Rs. 2,50,000/- has been repaid to the complainant deducting the balance amount against the services provided for investment advice. Accordingly, since it is not a mistake on the part of the appellant; the concerned employee has already been terminated and money of the complainant has been returned, the appellant has complied with the requirement. Moreover, the complainant had become a member for availing services of the appellant voluntarily and after receiving complete disclosure relating to the terms and conditions of such services.
4. Learned counsel for the respondent SEBI Shri Vishal Kanade stated that the appellant was carrying out commodity broking in the guise of providing investment advice. The Account No. ‘MCX 4661’ etc. were clearly creations of such unauthorized transactions and was not even registered with the Multi Commodity Exchange of India. Rs. 2,50,000/- of refund agreed to be returned to the complainant was not fully paid initially as two cheques worth Rs. 1 lakh had bounced and only after substantial follow up and after long time the said amount was paid. In the light of this an investment adviser who was expected to provide honest and sincere advice to its clients itself was misguiding its client as well as misusing client funds. Further, they were not responsive to the complaints made by the clients and substantive follow up had to be done by SEBI for even partially settling the matter. Therefore, it was contended that there is no fault in the findings in the impugned order that the appellant had violated the Code of Conduct of an investment adviser and failed to redress the grievances of its clients and therefore the penalty imposed is just and fair.
5. We have heard the learned counsel for the parties and perused the documents produced before us. The records before us confirmed that the appellant had violated the stated provisions of the Investment Advisor Regulations and conducted its business without proper care and diligence thereby resulting in losses to its clients. It is also found from the records that the complaint lodged in the SCORES platform on January 3, 2015 was even partially settled only by March 2016.
6. The learned counsel for the appellant sought to get some relief in the amount of penalty of Rs. 16 lakh imposed by the impugned order. Given the fact that appellant is only a small investment adviser and the amount involved in the matter is only Rs. 3,37,000/- penalty of Rs. 16 lakh imposed under Section 15 HB of the SEBI Act where the maximum penalty imposable is upto Rs. 1 crore appears disproportionate. We are of the view that Rs. 16 lakh is disproportionate vis--vis violations committed. At the same time we are not inclined to reduce this amount substantially because we note that this is not the first time th
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e appellant has committed an offence. Earlier, appellant was punished for carrying on investment adviser business without obtaining SEBI registration which was also upheld by this Tribunal vide its order dated November 2, 2017 in Appeal No. 423 of 2016 (Capvision Investment Advisors vs. SEBI). By taking all these factors into account and by balancing them we are of the view that some mitigation is in the interest of justice. 7. Accordingly, consolidated penalty of Rs. 16 lakh is reduced to Rs. 8 lakh which shall be paid by the appellant to SEBI within four weeks from the date of this order. 8. Appeal is partially allowed with no orders on costs.