1. This order will dispose of two Appeals no. 177 and 178 of 2012 which arise out of a common order passed by the Securities and Exchange Board of India (the Board).
2. M/s. Credent Capital Services Pvt. Ltd. (the company), appellant in Appeal no. 178 of 2012, is a private limited company incorporated under the provisions of Companies Act, 1956. It is said to be carrying on the business of distribution of mutual fund units to retail investors for which it is registered with the Association of Mutual Funds in India. Mr. Mritunjay Kumar, appellant in Appeal no. 177 of 2012 is a director of the company. He is also registered as sub broker with the Board. One Mr. Amaranjay Kumar, brother of Mr. Mritunjay Kumar, is also a director in the company. The Board received a complaint from one Mr. Rajendra S. Rathore in respect of malpractices and misappropriation of funds by Mr. Amaranjay Kumar, director of the company. During the pendency of investigation, the whole time member of the Board, in exercise of the powers under section 11(1) and 11(4) read with section 11B of the Securities and Exchange Board of India Act, 1992 (the Act), passed an ex parte ad-interim order dated October 11, 2010 to the following effect in order to prevent the affairs of the company being conducted in a manner detrimental to the interests of the investors and securities market and pending investigation:
'a. Credent Portfolio Management Private Limited (Permanent Account Number AABCC8971A) and its directors, Mr. Amaranjay Kumar (Permanent Account Number ALOPK4231E) and Mr. Mritunjay Kumar (Permanent Account Number AIQPK7501G) are restrained from accessing the securities market and further prohibited from buying, selling or otherwise dealing in securities or being associated with the securities in any manner.
b. Credent Portfolio Management Private Limited and its directors, Mr. Amaranjay Kumar and Mr. Mritunjay Kumar are directed not to mobilize funds from the public or offer any portfolio management services.
c. Credent Portfolio Management Private Limited and its directors, Mr. Amaranjay Kumar and Mr. Mritunjay Kumar are further directed to resolve all pending complaints against them.'
These entities were also given opportunity to file their objections, if any, to the said ex parte ad-interim order. After considering replies filed by them, the whole time member of the Board, by order dated June 1, 2011, confirmed the direction issued by the ad-interim ex parte order with a further direction that investigation initiated in the matter be concluded expeditiously.
3. A show cause notice dated December 14, 2011 was issued to the company and its two directors alleging that the company, which was being managed by Mr. Mritunjay Kumar and Mr. Amaranjay Kumar, was soliciting business of portfolio management services from the general public without being registered as a portfolio manager with the Board. It was observed from the website of the appellant company that it was offering discretionary ‘portfolio management services’ and claimed to have a team of experts who carefully take investment decisions based on the clients’ objectives. The representation so made indicated that the appellant had carried out portfolio management services without having registration from the Board as portfolio manager and contravened section 12(1) of the Act read with regulation 3 of the Securities and Exchange Board of India (Portfolio Managers) Regulations, 1993 (the regulations). The company and the two directors filed their reply denying the charges. After considering the replies submitted by them as well as their oral and written submissions, the whole time member of the Board gave benefit of doubt to Mr. Amaranjay Kumar on the charges as contained in the complaint of Mr. Rathore. The whole time member also observed that the complaints against the company have been resolved to the satisfaction of the complainants. These are the mitigating factors to be considered while taking a final view in the matter. With regard to the misrepresentation made on the website of the company relating to rendering of portfolio management services, the whole time member was of the view that the restraint and prohibition already undergone pursuant to the ex parte ad-interim order dated October 11, 2010 and continued under the interim order dated June 1, 2011 are commensurate with the contravention. He, therefore, observed that the further restraint need not be continued. However, with a view to protect the interests of the investors, the whole time member, by his impugned order dated March 30, 2012, issued the following further directions:
'(a) M/s. Credent Portfolio Management Private Limited and its directors viz. Mr. Mritunjay Kumar and Mr. Amaranjay Kumar shall not solicit or undertake any portfolio management activities, directly or indirectly, in any manner whatsoever without obtaining registration as such from SEBI;
(b) M/s. Credent Portfolio Management Private Limited and its directors viz. Mr. Mritunjay Kumar and Mr. Amaranjay Kumar shall immediately withdraw and remove advertisements, representations, literatures, brochures, materials, publications, documents, websites, etc. in relation to the portfolio management activities, if any; and
(c) M/s. Credent Portfolio Management Private Limited shall immediately remove the words 'Portfolio Management' from its name as undertaken by it.'
Mr. Amaranjay Kumar has not preferred any appeal against the said order. The company and Mr. Mritunjay Kumar, its other director, are in appeal before us on the ground that the order carrying conviction and penalty has caused irreparable loss to the business and reputation of the appellant. The award of restraint and prohibition for 18 months for display of a write up on the website for a few days without any business carried out by the company pricks one’s conscience and is punitive in nature. It is, therefore, prayed that the impugned order be set aside and finding in the impugned order that the appellant had violated the provisions of section 12(1) of the Act read with regulation 3 of the Securities and Exchange Board of India (Portfolio Managers) Regulations, 1993 be declared null and void.
4. We have heard Mr. Prakash K. Shah, Advocate for the appellants and Mr. Kumar Desai, Advocate for the respondent Board. Perusal of the impugned order shows that the Board was satisfied with the resolution of complaints by the appellants and has not taken any action on that count. The direction contained in the impugned order is only with regard to the finding that the appellants displayed on its website that the company was carrying on portfolio management services although it was not registered with the Board as portfolio manager. As per appellant’s own admission, it is an undisputed fact that its website carried a write up of 375 words which gave an impression that it offered portfolio management services. This write up was withdrawn at a later date.
5. It needs to be appreciated that the restraint order issued against the appellants was under the ex parte ad-interim order which was passed during the pendency of the investigation. After the investigation, the restraint order has been discontinued. Further, direction given by the whole time member in the impugned order is with regard to certain corrective measures to be taken by the appellant which, we are given to understand, has also been complied with. An order which, in fact, stands complied, in our view, does not call for any interference by this Tribunal. It is a settled legal position that the directions issued under section 11 and 11B of the Act are preventive and remedial in nature and not punitive. The penal provisions have been spelt out in section 12(3), Chapter VI A and section 24 of the Act. Directions issued under section 11 and 11B of the Act are remedial in nature intended to correct or remove a defect or fault. They are preventive to protect commission of violations in future. Therefore, we are not inclined to agree with learned counsel for the appellant that the impugned order carries conviction or penalty on the appellant. The remedial directions issued by the Board, which already stand complied with by the appellant, cannot be declared null and void as prayed for.
6. Learned counsel for the appellant has filed detailed written submissions dealing with a number of issues claiming that the display on the website of the company with regard to its offering of portfolio management services does not amount to soliciting portfolio management services or that the directors of the company cannot be held liable for such display on the website of the company. In support, he has relied on certain judgments / orders of the Supreme Court as well as of this Tribunal. We do not consider it necessary to go into all those details. Suffice it to say that the judgments cited by the appellants relate to criminal liability of a director in respect of offences / violations on the part of the company. Here we are dealing with an admitted fact of a representation on the website which is in violation of the regulatory framework under the Act. The company is a private limited company having only two directors. It is not their case that these directors were not involved in the day to day business of the company. Therefore these directors cannot absolve themselves of the liability due to violations of regulatory framework. The Hon’ble Supreme Court, while dealing with the provisions of the Act and the regulations made thereunder, in the case o
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f Chairman, SEBI v. Shriram Mutual Fund AIR 2006 SC 2287, has observed that once contravention of the regulatory framework is established then the penalty has to follow and only the quantum of penalty is discretionary. Following observations of the Supreme Court are relevant: 'In our view, the penalty is attracted as soon as contravention of the statutory obligations as contemplated by the Act is established and, therefore, the intention of the parties committing such violation becomes immaterial. In other words, the breach of a civil obligation which attracts penalty under the provisions of an Act would immediately attract the levy of penalty irrespective of the fact whether the contravention was made by the defaulter with any guilty intention or not.' The case under consideration is not even a case of imposition of penalty. For violation on the part of appellants, the Board has only issued a direction which is remedial and not punitive. Therefore, we are not inclined to interfere in the matter. The appeals are dismissed with no order as to costs.