Capvision Investment Advisor vs Sebi

Order Reserved on: 23.08.2019

Date of Decision : 25.09.2019

Appeal No. 40 of 2018

Capvision Investment Advisor 5th Floor, Commerce House Building - 7, Race Course Road, Indore. ..... 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. Vedchetan Patil, Advocate for the Appellant.

Mr. Vishal Kanade, Advocate with Mr. Chirag Bhavsar, Advocate i/b MDP & Partners for the Respondent.

CORAM : Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member

Per : Dr. C.K.G. Nair, Member

1.

The Adjudicating Officer ('AO' for short) of the

Securities and Exchange Board of India ('SEBI' for short)

vide order dated November 28, 2017 imposed a penalty of

Rs. 16 lakh on the appellant (Rs. 8 lakh each for violation of 2

Code of Conduct and for non redressal of client grievances)

under Section 15 HB of the SEBI Act, 1992. This appeal has

been filed aggrieved by the said order.

2. Appellant is an investment advisor registered with

SEBI. On January 3, 2015 SEBI received a complaint in its

SCORES platform from one Mr. Devashish Vimal alleging

that the appellant misappropriated some money from the

complainant paid towards commodity trading. Given the

prima facie violation of Regulation 15(9) and 21(1) of the

SEBI (Investment Advisor) Regulations, 2013 ('Investment

Advisor Regulations' for short) SEBI initiated an adjudication

proceeding and a show cause notice dated July 14, 2017 was

issued to the appellant. It was alleged in the show cause

notice that the employee / representative of the appellant

persuaded the complainant to trade in commodities and to

transfer money for the said purpose to open a trading account.

All these have been done through the messaging system of the

representative / employee of the appellant rather than through

the company's own general messaging system. It was also

alleged that when the complainant wanted to close the

account and withdraw the balance money available the

appellant did not respond to the same. Moreover, the 3

appellant induced the complainant through a fake trading

account in the guise of a MCX account and sent false trading

messages to the complainant and therefore did not act

honestly, fairly and in the best interests of the complainant.

By these acts of commission the appellant had violated

Regulation 15(9) and 21(1) of the Investment Advisor

Regulations which are reproduced for convenience:-

Investment Adviser Regulations

"General responsibility.

15(9) An investment adviser shall abide by Code of Conduct as specified in Third Schedule.

Third Schedule

CODE OF CONDUCT FOR INVESTMENT ADVISER

1. Honesty and Fairness

An investment adviser shall act honestly, fairly and in the best interests of the clients and in the integrity of the market.

2. Diligence

An investment adviser shall act with due skill, care and diligence in the best interests of its clients and shall ensure that its advice is offered after thorough analysis and taking into account available alternatives.

4 Redressal of client grievances

21(1) An investment adviser shall redress client grievances promptly."

3. The Learned counsel for the appellant Shri Vedchetan

Patil submitted that the appellant Company did not commit

any violations because it is an action / mistake made by an

employee without the knowledge of the Company. Therefore,

instead of system generated SMSs the employee sent

messages from his own cell phone. When the Company came

to know of this, action was taken against the employee by

dismissing him and out of the amount of Rs. 3,37,000/-

deposited by the complainant to open a trading account,

Rs. 2,50,000/- has been repaid to the complainant deducting

the balance amount against the services provided for

investment advice. Accordingly, since it is not a mistake on

the part of the appellant; the concerned employee has already

been terminated and money of the complainant has been

returned, the appellant has complied with the requirement.

Moreover, the complainant had become a member for

availing services of the appellant voluntarily and after

receiving complete disclosure relating to the terms and

conditions of such services.

5

4. Learned counsel for the respondent SEBI Shri Vishal

Kanade stated that the appellant was carrying out commodity

broking in the guise of providing investment advice. The

Account No. 'MCX 4661' etc. were clearly creations of such

unauthorized transactions and was not even registered with

the Multi Commodity Exchange of India. Rs. 2,50,000/- of

refund agreed to be returned to the complainant was not fully

paid initially as two cheques worth Rs. 1 lakh had bounced

and only after substantial follow up and after long time the

said amount was paid. In the light of this an investment

adviser who was expected to provide honest and sincere

advice to its clients itself was misguiding its client as well as

misusing client funds. Further, they were not responsive to the

complaints made by the clients and substantive follow up had

to be done by SEBI for even partially settling the matter.

Therefore, it was contended that there is no fault in the

findings in the impugned order that the appellant had violated

the Code of Conduct of an investment adviser and failed to

redress the grievances of its clients and therefore the penalty

imposed is just and fair.

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5. We have heard the learned counsel for the parties and

perused the documents produced before us. The records

before us confirmed that the appellant had violated the stated

provisions of the Investment Advisor Regulations and

conducted its business without proper care and diligence

thereby resulting in losses to its clients. It is also found from

the records that the complaint lodged in the SCORES

platform on January 3, 2015 was even partially settled only by

March 2016.

6. The learned counsel for the appellant sought to get some

relief in the amount of penalty of Rs. 16 lakh imposed by the

impugned order. Given the fact that appellant is only a small

investment adviser and the amount involved in the matter is

only Rs. 3,37,000/- penalty of Rs. 16 lakh imposed under

Section 15 HB of the SEBI Act where the maximum penalty

imposable is upto Rs. 1 crore appears disproportionate. We

are of the view that Rs. 16 lakh is disproportionate vis-à-vis

violations committed. At the same time we are not inclined to

reduce this amount substantially because we note that this is

not the first time the appellant has committed an offence.

Earlier, appellant was punished for carrying on investment

adviser business without obtaining SEBI registration which 7

was also upheld by this Tribunal vide its order dated

November 2, 2017 in Appeal No. 423 of 2016 (Capvision

Investment Advisors vs. SEBI). By taking all these factors

into account and by balancing them we are of the view that

some mitigation is in the interest of justice.

7. Accordingly, consolidated penalty of Rs. 16 lakh is

reduced to Rs. 8 lakh which shall be paid by the appellant to

SEBI within four weeks from the date of this order.

8. Appeal is partially allowed with no orders on costs.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C.K.G. Nair Member 25.09.2019 Prepared and compared by:msb