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SAT Order – C. Paranitharan & Trend Market Advisory Services

BEFORE   THE    SECURITIES    APPELLATE   TRIBUNAL MUMBAI

Date of Decision : 21.09.2022

Misc. Application No. 1035 of 2022

And

Appeal No. 567 of 2022

 

1. Paranitharan  

71, Muthalamman, Koil Street, Tirumangalam, Madurai – 625 706.

2. M/s Capital Target Financials, 683, PTN Complex, 2nd Floor, Madurai Rd, Tirumangalam – 625 706.                                      

3. Muralitharan  

71, Muthalamman, Koil Street, Tirumangalam, Madurai – 625 706.

…..Appellants

     

Versus

 

Securities and Exchange Board of India

SEBI Bhavan, Plot No. C-4A, G-Block,  Bandra-Kurla Complex, Bandra (East), Mumbai – 400 051.

      

 

 

…Respondent

Mr. Malhar Zatakia, Advocate with Ms. Disha Parekh and  Ms. Sharayu Kate, Advocates i/b NDB Law for the Appellant. 

 

Mr. Manish Chhangani, Advocate with Ms. Samreen Fatima, Advocate i/b The Law Point for Respondent.

AND

Misc. Application No. 1036 of 2022

And

Appeal No. 568 of 2022

  

1. M/s Trend Market Advisory Services  

683, PTN Complex, 2nd Floor,  Madurai Rd, Tirumangalam – 625 706.                                     

2. Muralitharan  

71, Muthalamman, Koil Street, Tirumangalam, Madurai – 625 706.

 

3. Paranitharan  

71, Muthalamman, Koil Street, Tirumangalam, Madurai – 625 706.

                                               

4. NSK Chithanathan  

20/22, Muthalamman, Koil Street, Tirumangalam, Madurai   – 625 706.                       

…..Appellants

                          

Versus

Securities and Exchange Board of India                   

SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai – 400 051.                              

 

…Respondent

           

 

Mr. Malhar Zatakia, Advocate with Ms. Disha Parekh and  Ms. Sharayu Kate, Advocates i/b NDB Law for the Appellant. 

 

Mr. Manish Chhangani, Advocate with Ms. Samreen Fatima, Advocate i/b The Law Point for Respondent.

                                                      

 

CORAM :  Justice Tarun Agarwala, Presiding Officer Ms. Meera Swarup, Technical Member

 

           

 

Per : Justice Tarun Agarwala, Presiding Officer (Oral)

1. Both the appeals are against a common issue and are also interconnected and are being taken up together. Appeal no. 567 of 2022 has been filed by C. Paranitharan who is the proprietor of M/s. Capital Target Advisory Services and partner in M/s. Capital Target Financials. Appeal no. 568 of 2022 has been filed by M/s Trend Market Advisory Services is a partnership firm in which C. Paranitharan is one of the partners. Paranitharan has filed appeal against the order dated July 5, 2022 passed by the Whole Time Member (‘WTM’ for short) of the Securities and Exchange Board of India (‘SEBI’ for short) and M/s. Trend Market Advisory Services has filed the appeal against order dated July 7, 2022 passed by the WTM of SEBI. 

 

2. For facility, the facts enumerated in Appeal no. 567 of 2022 are being taken into consideration. The show cause notice alleged that the appellants were providing investment advisory services without registration. The WTM after considering the material evidence on record and after considering the replies found that the appellants were engaged in giving advice relating to investing in, purchasing, selling or otherwise dealing in securities or investment products through its website in lieu of consideration without getting themselves registered as an investment advisor under the SEBI (Investment Advisers) Regulations, 2013 (‘IA Regulations’ for short). The WTM found that the appellants violated Section 12(1) of the SEBI Act, 1992 which provides that the investment adviser shall not buy, sell or deal in securities except under, and in accordance with, the conditions of a certificate of registration obtained from the Board in accordance with the regulations made under the Act. The WTM further found that the appellant failed to obtain a certificate of registration as mandated under Regulation 3(1) of the IA Regulations which provides that no person shall act as an investment adviser unless he has obtained a certificate of registration from SEBI and conducts activities in accordance with the provisions of IA Regulations. The WTM accordingly issued the following directions:-

 

(a) The Noticees shall within a period of three months from the date coming into force of this direction, jointly and severally, refund the money received from any complainants/ investors, as fees or consideration or in any other form, in respect of their unregistered investment advisory activities;

 

(b) The Noticees  shall  issue  public  notice  in  all  editions  of  two  National  Dailies  (one English  and  one  Hindi)  and  in  one  local  daily  with  wide  circulation,  detailing  the modalities  for  refund,  including  the  details  of  contact  person  such  as  names, addresses and contact details, within 15 days of coming into force of this direction;

 

(c) The repayments  to  the  complainants/  investors  shall  be effected  only  through  Bank Demand Draft or Pay Order or  electronic fund transfer or through any other appropriate banking   channels,   which   ensures   audit   trails   to  identify   the   beneficiaries   of repayments;

 

(d) The Noticees are prevented from selling their assets, properties and holding of mutual funds/shares/securities held by them in demat and physical form except for the sole purpose of making the refunds as directed above. Further, the banks are directed to allow  debit  only  for  the  purpose  of  making  refunds  to  the  clients/  investors/ complainants who were availing the investment advisory services from the Noticees, as directed in this order, from the bank accounts of the Noticees;

 

(e) After completing the aforesaid repayments, within a period of 15 days, the Noticees shall file a report of such completion with SEBI addressed to the Division Chief, CIS Division, Investment Management Department, SEBI Bhavan, Plot No. C4 A, G Block, Bandra Kurla Complex, Bandra (East) Mumbai – 400051, duly certified by an independent Chartered Accountant and the direction at para 24(d) above shall cease to  operate  upon  filing  of  such  report  on  completion  of  refunds  to  complainants/ investors;

 

(f) The Noticees are debarred from accessing the securities market, directly or indirectly and are prohibited from buying, selling or otherwise dealing in the securities market, directly or indirectly in any manner whatsoever, for a period of 6 months from the date of this  order  or  till  the  expiry  of  6  months from  the  date  of  completion  of  refunds  to complainants/ investors as directed in para 24(a) above, whichever is later;

 

(g) The Noticees  shall  not  undertake,  either  during  or  after  the  expiry  of  the  period  of debarment/restraint  as mentioned  in  para 24(f)  above,  either  directly  or  indirectly, investment advisory services or any activity in the securities market without obtaining a certificate of registration from SEBI as required under the securities laws.

 

 

3. Similar directions were issued in the appeal of M/s. Trend Market Advisory Services.

 

4. We have heard Shri Malhar Zatakia, the learned counsel assisted by Ms. Disha Parekh and Ms. Sharayu Kate, the learned counsel for the appellants and Shri Manish Chhangani assisted by Ms. Samreen Fatima, the learned counsel for the respondent.

 

5. The learned counsel for the appellants conceded that they were carrying on an investment advisory services and were totally unaware that they are required to take a registration under the IA Regulations. It was contended that the appellants were providing services since 2008 much prior to the enforcement of the regulations which came in 2013. It was also stated that when show cause notice was issued the appellants realized that they were not registered under IA Regulations and accordingly stopped their services. It was, thus, contended that there was no intention to defraud the investors and that in the absence of any complaint from anyone seeking advice from them and in the absence of mens rea, the directions issued by WTM was harsh and disproportionate to the misconduct. 

 

6. The learned counsel for the appellants upon taking instructions from the appellants contended that in the given facts and circumstances of the case the appellant will comply with the directions of the WTM to refund the amount to the investors.

 

7. In the light of the aforesaid, we find that the appellants fairly conceded that they were carrying on advisory services since 2008 when there was no restriction under the SEBI Act and its regulations with regard to registration as an investment adviser. The stipulation of having a registration came only when the IA Regulations came into effect in 2013 and it is only thereafter the requirements of getting itself registered arose.

 

8. In view of the aforesaid, coupled with the fact that nothing has come on record to indicate that the appellants have defrauded its investors and, in the absence of any evidence of any fraud, we dispose of the appeal with the following directions:-

 

9. The appellant shall issue public notice in all editions of two National Dailies (one English and one Hindi) and in one local daily with wide circulation, detailing the modalities for refund, including the details of contact person such as names, addresses and contact details within 21 days from today;

 

(a) The repayments to the complainants/investors shall be effected only through Bank Demand Draft or Pay or electronic fund transfer or through any other appropriate banking channels, which ensures audit trails to identify the beneficiaries of repayments;

 

(b) The aforesaid exercise shall be carried out within 3 months from today.

 

(c) After the completion of the aforesaid period, the appellant shall file a report to SEBI detailing the amount refunded. The details shall indicate the amount, mode of payment by banking transaction, name of the parties, communication address, mobile numbers and telephone numbers etc;

 

(d) The remaining balance amount shall be deposited with SEBI who will keep it in an escrow account for a period of one year and distribute the proceeds if any claimant appears. Thereafter, remaining amount if any will be deposited in the Investors Protection & Education Fund;

 

 

(e) Till the aforesaid directions are complied the appellants are restrained from accessing the securities market directly or indirectly and further prevented from selling assets, properties and holding of mutual funds / shares / securities held by them in demat account and physical form except for the sole purpose of making the refunds as directed above;

 

(f)Upon submission of the aforesaid report to SEBI and deposit of the remaining money, if any, the debarment order and restraint order would be lifted within 15 days thereafter.

 

 

9. The appeal is partly allowed in terms of the aforesaid directions. Miscellaneous applications are disposed of.

 

10. 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.

     

Justice Tarun Agarwala

     Presiding Officer

    

    Ms. Meera Swarup

    Technical Member

 

21.09.2022