Piyush Kumar Sharma vs Securities And Exchange Board Of India

Tarun Agarwala, Presiding Officer

The present appeal has been filed against the order dated January 10, 2023 passed by the Adjudicating Officer (hereinafter referred to as ‘AO’) of Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) imposing a penalty of Rs. 15 lakh under Section 15A(a), 15C, 15EB and 15HA of the Securities and Exchange Board of India Act, 1922 (hereinafter referred to as ‘SEBI Act’) for violation of Regulations 13(b), 21, 25(1) of the Securities and Exchange Board of India (Investment Advisers) Regulations, 2013 (hereinafter referred to as ‘IA Regulations’) and Regulations 3(d) and 4(2)(s) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (hereinafter referred to as ‘PFUTP Regulations’).

The facts leading to the filing of the present appeal is, that D. S. Capital Venture Pvt. Ltd. was registered with SEBI as an investment adviser. The appellant was one of the directors appointed on January 25, 2017 and resigned on July 7, 2020. It was observed that there were 17 complaints on the SEBI Complaints Redressal System (hereinafter referred to as ‘SCORES’) platform which remained unaddressed for six months. These complaints related to false assurances, assured returns, advisory services, loss of funds, cheating, etc. Consequently, a show cause notice dated August 23, 2021 was issued to show cause as to why an inquiry should not be held and penalty should not be imposed under Section 15C, 15HA, 15EB and 15A(a) of the SEBI Act.

The show cause notice alleged that :-

The appellant alongwith the company and other directors were responsible for conduct of the business of the investment adviser and failed to redress investor grievances forwarded to them on the SCORES platform. As on December 9, 2020, there were 17 complaints which were pending on the SCORES platform for more than six months.

The appellant alongwith other noticees failed to produce the documents sought for the purpose of inspection.

The appellant and other noticees failed to inform change of its registered office address to SEBI.

The appellant and the other noticees failed to inform nor obtained approval for change of directors from SEBI.

The directors failed to ensure maintenance of the appropriate standards of conduct and adherence to proper procedures.

The AO after considering the material evidence on record and after considering the reply of the appellant and of noticee nos. 4 came to the conclusion that the appellant had violated the allegation made in the show cause notice and consequently imposed a penalty of Rs. 15 lakh.

We have heard Mr. Vedchetan Patil, the learned counsel for the appellant and Mr. Vyom Shah, the learned counsel with Mr. Bhushan Shah, Mr. Aditya Sarangarajan, Ms. Veena Hari, the learned counsel for the respondent.

Admittedly, the appellant was a director from January 25, 2017 to July 7, 2020. During this period, there were 17 complaints on the SCORES platform which had not been redressed. The appellant along with the company and other directors are responsible and, therefore, for non-redressal of complaints on the SCORES platform, the appellant has violated Regulation 21 of the IA Regulations.

The AO has also found that the appellant failed to produce the documents as sought during the inspection. In this regard, we find that an inspection notice was sent on November 12, 2020 which came back undelivered. We also find that the appellant had resigned on July 7, 2020 and consequently the question of the appellant complying with the inspection notice dated November 12, 2020 does not arise. Consequently, no penalty can be imposed upon the appellant for failure to produce the documents pursuant to the inspection notice.

Further charge is that the appellant failed to inform the change of its registered office address and change in the directors of the company. Admittedly, no such information was provided to SEBI with regard to change of address or change in the directors of the company. The appellant is consequently guilty of violating Regulation 13(b) of the IA Regulations.

The AO has found that the company had conducted its business in an unwarrantable and unjustifiable manner. Further, finding is that there was mis-selling of securities or services relating to the securities market, providing assured returns and making a false or misleading statement and, therefore, violated Regulations 3(d) and 4(2)(s) of the PFUTP Regulations. For facility, Regulations 3(d) and

4(2)(s) of the PFUTP Regulations is extracted hereunder :-

“3(d). No person shall directly or indirectly –

(d). engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognised stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under.”

“4(2)(s). mis-selling of securities or services relating to securities market;

Explanation - For the purpose of this clause, "mis-selling" means sale of securities or services relating to securities market by any person, directly or indirectly, by ─

(i) knowingly making a false or misleading statement, or

(ii) knowingly concealing or omitting material facts, or

(iii) knowingly concealing the associated risk, or

(iv) not taking reasonable care to ensure suitability of the securities or service to the buyer.”

Having perused the order, we find that the basis of the appellant and its company conducting its business fraudulently and being violative of Regulations 3(d) and 4(2)(s) as depicted in paragraph no. 22 of the impugned order is not based on any material evidence on record. There is nothing on record to indicate that the appellant was providing assured returns or making false or misleading statement except the complaints which have been received on the SCORES platform. In our opinion, allegations made in the complaints cannot be made the gospel truth. The AO is required to investigate the allegations made in the complaints and arrive at a finding. Such bald allegations made in the complaints cannot, in our opinion, lead to an assumption or presumption nor can it lead to a conclusion that the appellant and its company have played a fraud attracting Regulations 3(d) and 4(2)(s) of the PFUTP Regulations. Thus, this allegation is not proved and, in our opinion, there is no violation of Regulations 3(d) and 4(2)(s) of the PFUTP Regulations.

In view of the aforesaid, we are of the opinion that the appellant has violated Regulation 13(b) and Regulation 21 of the IA Regulations. The charge of violating Regulation 25(1) of the IA Regulations and Regulations 3(d) and 4(2)(s) of the PFUTP Regulations is not proved.

For violation of Regulation 13(b) of the IA Regulations, penalty under Section 15EB of the SEBI Act can be imposed wherein a minimum penalty is Rs. 1 lakh. Similarly, for failure to redress investor grievance and thereby violating Regulation 21 of the IA Regulations, penalty can be imposed under Section 15C of the SEBI Act which provides a minimum penalty of Rs. 1 lakh.

Considering the aforesaid, the imposition of Rs. 15 lakh in the given circumstances is harsh and excessive and in view of what we have held earlier in the given circumstances and considering the fact that according to the appellant the master mind and main person was Sanjay Dwivedi, noticee nos. 5, we are of the opinion that the penalty for the aforesaid violations should be Rs. 3 lakh which would commensurate with the alleged misconduct.

In view of the aforesaid, the appeal is partly allowed. The violation committed by the appellant under 13(b) and 21 of the IA Regulations are upheld and the penalty is reduced from Rs. 15 lakh to Rs. 3 lakh.

This order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Certified copy of this order is also available from the Registry on payment of usual charges.