Capitalvia Global Research Limited & ... vs Sebi

Date of Decision: 09.02.2023

Misc. Application No. 182 of 2023 And Appeal No. 184 of 2023

1.

CapitalVia Global Research Limited 903, B-1, 9th Floor, N.R.K. Business Park, Scheme No. 54, PU-4, Vijay Nagar, Indore- 452 010 Through authorized representative & Director, Mr. Rohit Gadia

2. Ms. Kiran Ravindra Kumar Choudhary 903, B-1, 9th Floor, N.R.K. Business Park, Scheme No. 54, PU-4, Vijay Nagar, Indore- 452 010

3. Rohit Gadia 903, B-1, 9th Floor, N.R.K. Business Park, Scheme No. 54, PU-4, Vijay Nagar, Indore- 452 010 ...Appellants

Versus

Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-7, 'G'-Block, Bandra-Kurla Complex, Bandra (East), Mumbai- 400 051 ...Respondent

Mr. Vedchetan Patil, Advocate with Ms. Sunayana Kashid, Advocate for the Appellants.

Mr. Manish Chhangani, Advocate for the Respondent.

CORAM: Justice Tarun Agarwala, Presiding Officer Ms. Meera Swarup, Technical Member 2

Per: Justice Tarun Agarwala, Presiding Officer (Oral)

1. The appellants have challenged the order dated November

22, 2022 passed by the Adjudicating Officer ("AO" for

convenience) of the Securities and Exchange Board of India

("SEBI" for convenience) imposing a penalty of Rs. 50 lakhs

for non-adherence of the directions contained in SEBI's orders

dated November 11, 2016 and January 20, 2017.

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

an inspection was conducted for the period of April 01, 2016 to

September 11, 2017 to verify whether the appellants and its

directors had complied with the regulatory requirements

prescribed under SEBI (Investment Advisers) Regulations, 2013

("IA Regulations" for convenience). Based on the inspection

SEBI passed an ad-interim order dated November 11, 2016,

namely;

"1. Not to solicit or undertake any fresh advisory business with immediate effect till further directions.

2. To redress the grievances received against CapitalVia and to comply with all provisions of IA regulations and submit a compliance report 3

to SEBI within three (3) months from the date of receipt of this order."

3. Subsequently, SEBI passed another order dated January

20, 2017 which is extracted hereunder:-

a. "Not to solicit or undertake any fresh advisory business for another period of four months from the date of order (i.e. till May 19, 2017) b. To discontinue the acceptance of funds from clients including by way of deactivation of online remittances, with immediate effect during the aforesaid four month period.

c. To disclose the contents of these directions prominently on its website(s) immediately."

4. It is alleged that the aforesaid directions were not

complied and accordingly a show cause notice dated September

21, 2021 and a supplementary show cause notice dated October

07, 2021 were issued to show cause why appropriate penalty

should not be imposed for violation of Regulations 15(3), 16(c)

and 17 of IA Regulations and Clause 6 of the Code of Conduct

under Schedule III of IA Regulations and for non-compliance of

the directions contained in the two orders of SEBI. The AO

after considering the replies held that the appellant-Company

had solicited fresh investment advisory assignment/business 4

from existing clients as well as new clients during the interim

restraint period and consequently imposed a penalty of Rs. 50

lakhs. The AO held that the intent of the directions contained in

two SEBI's orders was to allow the appellants to complete only

its ongoing mandates by providing the advisory services to the

clients from whom the advisory fees were collected prior to the

passing of the SEBI orders and were not allowed to undertake

fresh advisory business from its existing clients.

5. We have heard Shri Vedchetan Patil, the learned counsel

for the appellants and Shri Manish Chhangani, the learned

counsel for the respondent.

6. The contention of the appellants is, that they did not

undertake any fresh advisory business and had complied with

the SEBI orders. The appellants contended that they had

accepted funds only from the existing clients and there was no

embargo upon them to continue with the advisory services with

the existing clients under the restraint order.

7. The first SEBI order dated November 11, 2016 directed

"not to solicit or undertake any fresh advisory business". A

plain reading of these directions can lead to a conclusion that 5

the appellants were restraint from undertaking any fresh

advisory business i.e. with new clients. On the other hand, it

can also lead to a conclusion that the appellants were restrained

from undertaking any fresh advisory services not only from the

existing clients but also from new clients.

8. Thus, in our opinion, the direction dated November 11,

2016 was ambiguous and in the absence of clarity the appellants

in good faith only continued advisory services from the existing

clients.

9. It is a well-settled position of law that where two

interpretations are possible, then the Court must lean towards

that construction which exempts the subject from penalty rather

than the one which imposes penalty. The Supreme Court in

Tolaram Relumal and Anr. Vs. State of Bombay [AIR 1954 SC

496] held:-

"8 ...it is a well settled rule of construction of penal statutes that if two possible and reasonable constructions can be put upon a penal provision, the Court must lean towards that construction which exempts the subject from penalty rather than the one which imposes penalty. It is not 6

competent to the Court to stretch the meaning of an expression used by the legislature in order to carry out the intention of the legislature. As pointed out by Lord Macmillan in London and North Eastern Railway Co. v. Berriman(1), "where penalties for infringement are imposed it is not legitimate to stretch the language of a rule, however, beneficent its intention, beyond the fair and ordinary meaning of its language."

10. In view of the aforesaid, imposing a penalty for violation

of the directions of SEBI's order dated November 11, 2016

cannot be sustained. We accordingly set aside the impugned

order. The appeal is allowed. The matter is remitted to the AO

to redecide the matter after excluding the advisory services

given by the appellants to its existing clients under the first

SEBI's order dated November 11, 2016. If upon enquiry it is

found that the appellants have given advisory services to new

clients then appropriate orders would be passed accordingly.

The misc. application is disposed of accordingly.

11. 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 7

this order is also available from the Registry on payment of

usual charges.

Justice Tarun Agarwala Presiding Officer

Ms. Meera Swarup Technical Member

09.02.2023 PRERNA by PRERNA Digitally signed

PK MANISH MANISH KHARE Date: 2023.02.13 KHARE 10:27:47 +05'30'