24 Carat Financial Services vs Sebi

Date of Decision : 18.01.2023

Appeal No. 59 of 2023

24 Carat Financial Services Through its managing partner Sanjay Vaidya, having its office at 604/605, Shekhar Central, Palasia Square, Indore, M.P. - 452 001. .....Appellant

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. Hitesh A. Biherani, Advocate for the Appellant.

Mr. Manish Chhangani, Advocate with Ms. Samreen Fatima and Mr. Sumit Yadav, Advocates i/b The Law Point for Respondent (SEBI).

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

Per : Justice Tarun Agarwala, Presiding Officer (Oral)

1.

The present appeal has been filed against the order dated

October 18, 2022 whereby the Adjudicating Officer ('AO' for

short) of the Securities and Exchange Board of India ('SEBI' 2

for short) has imposed a penalty of Rs. 6 lakh for violation of

Regulation 25(1)(iii) and Regulation 24(2) of the SEBI

(Research Analyst) Regulations, 2014 ('RA Regulations' for

short) and Regulation 3 and 4 of the SEBI (Prohibition of

Fraudulent and Unfair Trade Practices relating to Securities

Market) Regulations, 2003 ('PFUTP Regulations' for short).

2. The facts leading to the filing of the present appeal is,

that the appellant is a registered Research Analyst under the

RA Regulations and an inspection was conducted between

November 13-15, 2019 pursuant to which a show cause notice

was issued as to why an inquiry should not be held and

penalty should not be imposed under Section 15EB and 15HA

of the SEBI Act, 1992.

3. The AO after considering the material evidence on

record found that the appellant has violated Regulation

25(1)(iii) of the RA Regulations as well as Regulation 3 and

4 of the PFUTP Regulations and accordingly imposed a

penalty of Rs. 6 lakhs.

4. We have heard Shri Hitesh Biherani, the learned counsel

for the appellant and Shri Manish Chhangani, the learned

counsel for the respondent.

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5. Regulation 25(1)(iii) of the RA Regulations provides as

under:-

"RA Regulations

"Maintenance of records.

25. (1) Research analyst or research entity shall maintain the following records:

(i) .....

(ii) ....

(iii) rationale for arriving at research recommendation;

(iv) ..."

6. The charge against the appellant was that he had not

maintained the rationale of all the recommendations. The

contention of the appellant is that he had only maintained the

rationale for the executed calls. We find from a reading of

Regulation 25 that a Research Analyst is required to maintain

the record of rationale for arriving at research

recommendation. There is no distinction made in the RA

Regulations between recommendations which were acted

upon or not acted upon and consequently a Research Analyst

is required to maintain rationale for all the recommendations

irrespective of whether it has been acted upon or not. Since

admittedly the appellant had not maintained the rationale for 4

arriving at the research recommendations, the penalty of Rs. 1

lakh was rightly imposed.

7. Insofar as the violation of Regulation 3 and 4 of the

PFUTP Regulations is concerned we find that on the basis of

analysis of the call records of the employees of the appellant

it was found that the employees of the appellant were

promising guaranteed returns to the prospective clients on

investment of certain amounts. Further guaranteed returns

were promised quoting profit percentage or certain amount

either monthly or on a daily basis. The action of promising

guaranteed returns is patently against the principles of the

securities market and not only manipulative but also

fraudulent and violative of Regulations 3 and 4 of the PFUTP

Regulations. There is no denial of the transcript of the

employees of the appellant and consequently we do not find

any error in the finding of the AO regarding violation of the

Regulation 3 and 4 of the PFUTP Regulations.

8. For the reasons stated aforesaid, we do not find any

error in the impugned order. The appeal fails and is dismissed

with no order as to costs.

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9. 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

18.01.2023 MADHUKAR SHAMRAO Digitally signed by MADHUKAR SHAMRAO BHALBAR Date: 2023.01.19 msb BHALBAR 11:06:54 +05'30'