Jhp Securities Private Limited vs Sebi

Date of Decision : 18.01.2019

Appeal No. 361 of 2017

JHP Securities Private Limited 201/B, Dev Neo Vikram, Sahakar Nagar CHS, New Link Road, Above Audi Show Room, Andheri (West), Mumbai - 400 053. ..... 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. Ranjeev Carvalho, Advocate with Mr. Pankaj Uttaradhi, Advocate i/b Visesha Law Services for the Appellant.

Mr. Karan Bhosale, Advocate with Mr. Mihir Gupte and Mr. Rajdeep Lahiri, Advocates i/b Singhania Legal Services for the Respondent.

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

Per : Dr. C.K.G. Nair, Member (Oral)

1.

This appeal has been filed against the order of the Adjudicating

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

October 23, 2017. By the said order a penalty of Rs. 3 lakh has been

imposed on the appellant under Section 15HB of SEBI Act for violation of

Section 12(1) of SEBI Act read with Regulations 3 and 9(1) of SEBI

(Portfolio Managers) Regulations, 1993 ('Portfolio Managers Regulations'

for short).

2

2. The appellant is a SEBI registered Portfolio Manager as well as a

Stock Broker. First registration as Portfolio Manager was granted in 2008.

In 2011 the appellant got renewal of the certificate of registration as

Portfolio Manager for another three years. This registration was upto April

16, 2014. As per the then existing provisions in the Regulations a Portfolio

Manager had to apply for renewal three months prior to the expiry of the

period of registration.

3. It is the contention of the appellant that they filed an online

application through the web portal of SEBI on January 13, 2014. However,

because of some glitch in the system they could not complete the process

and, therefore, personally interacted with the concerned officials of SEBI.

On October 21, 2014, after such interactions and after coming to know that

the online application was not properly registered, the appellant submitted

hard / physical copy of the application for renewal along with the required

fee. Subsequently, SEBI sought further details relating to the application

vide their communications dated November 17, 2014 and December 3, 2014

to which the appellant replied soon after receiving these communications

and provided required information.

4. On November 13, 2015 a Show Cause Notice (SCN) was issued by

SEBI asking to show cause as to why the appellant had conducted

operations of a Portfolio Manager after expiry of its registration and before

renewing the same. After receiving reply from the appellant and granting it

an opportunity of personal hearing the impugned order was passed by SEBI

on October 23, 2017.

5. Learned Counsel Shri Ranjeev Carvalho appearing on behalf of the

appellant submitted that the appellant had, in fact, applied for renewal more

than three months prior to the expiry of the registration. Accordingly, an 3

online application was filed on January 13, 2014 while the existing

registration was expiring on April 16, 2014. The Learned Counsel also

reiterated the position explained in the appeal memo that the online

application process could not be completed because of some deficiency in

the system of SEBI and not because of any fault of the appellant but on

coming to know that the registration process was not completed because of

the system deficiency, employees of the appellant had been in continuous

contact with SEBI officials and accordingly and as advised by them gave a

physical copy of the application along with the required fee on October 21,

2014. It was also submitted that even in an earlier occasion when the

certificate of registration was renewed in 2011 there was some delay which

was condoned by SEBI and the renewal was effected seamlessly. It was

further submitted that the Portfolio Managers Regulations was amended on

December 8, 2016 whereby, inter alia, Regulation 9, which, among other

things stipulated that an application for renewal has to be submitted three

months before expiry of the validity of the certificate, was deleted.

6. Learned Counsel for the respondent SEBI Shri Karan Bhosale took

us through the relevant Regulations and the factual matrix of the matter.

Accordingly, Regulation 3 prohibits any person from acting as a Portfolio

Manager unless he holds a certificate granted by SEBI under the Portfolio

Managers Regulations. Regulation 4 stipulates that any application which is

not complete in all respects and does not conform to the instructions

specified in the form shall be rejected. Regulation 12 states that every

applicant eligible for the grant of a certificate shall pay fees in such manner

and within the period specified. The Learned Counsel for the respondent

submits that the claim of the appellant that an online application for renewal

of registration was filed on January 13, 2014 has no merit since the filing

was incomplete and the required fee was not paid. In fact, the appellant did 4

not take any immediate steps to rectify these deficiencies and finally

completed the process through physical submission of application along

with the required fee only on October 21, 2014 which was more than 6

months after the certificate of registration has expired. Irrespective of the

fact whether the online system was effectively functioning or not, the

appellant was expected to submit a physical copy of the application along

with the required fee of Rs. 1 lakh to SEBI since at the relevant time there

was no facility for depositing fee online. Even the argument of the appellant

that on the earlier occasion the certificate of registration was renewed

seamlessly even when there was a delay in completing the process does not

deserve any consideration because in that case the delay was only one

month and no client was inducted during that time when a valid certificate

was not in possession. However, in the matter under consideration there was

a delay of more than 6 months and the appellant had inducted 2 clients

during this time thereby seriously violating the provisions of the Portfolio

Managers Regulations as held in the impugned order. Moreover, the

appellant taking shelter under condonation of an earlier violation by SEBI

goes against the appellant as it shows the repetitive nature of violations. The

appellant who has been functioning as a Portfolio Manager since 2008 and

who renewed its registration once in the past (2011) is fully aware of all the

Regulations and procedures and therefore the appellant's attempt to take

shelter under ignorance of procedural requirements etc. has no merit.

7. We have also perused the documents placed before us. We note that

in a circular dated May 11, 2007 issued to all registered Portfolio Managers

by SEBI it is stated as follows:-

"1. If the application for renewal is not received at SEBI by the expiry date of the certificate of registration, the portfolio manager shall:

5 a. cease to be a portfolio manager on the date of such expiry,

b. immediately stop carrying on the portfolio manager activities from the date of such expiry, and such portfolio managers may either transfer their business to another SEBI registered portfolio manager or allow the client to withdraw the securities and funds in its custody at the option of the client, and in either case, without any additional cost to the client. The option shall be granted to each client separately.

If the portfolio manager fails to comply with all of the above, it will be considered as a violation of Section 12 and may attract action under the relevant provision of SEBI Act, 1992.

No application for renewal can be made after the date of expiry of registration of the Portfolio Manager. If the erstwhile Portfolio Manager makes an application after the expiry of registration such application will be considered as a fresh application for registration under the Regulations.

2. If the application for renewal is received at SEBI less than 3 months before the expiry of registration and SEBI has not advised otherwise by the date of expiry of registration, the portfolio manager shall stop undertaking any fresh business / clients from the date of expiry of the registration.

3. If the application is received at SEBI within the prescribed time and SEBI has not advised otherwise, the portfolio manager may continue to act as such even after expiry of the certificate of registration. If renewal is granted, it will be deemed to be in continuation of the earlier registration.

5. It is clarified that in the above cases, the application for renewal shall mean the application complete in all respects. Incomplete application will be treated as no application."

8. Further, Regulation 9(1) of the Portfolio Managers Regulations is as

follows:

".....

A portfolio manager may, three months before the expiry of the validity of the certificate, make an application for renewal in Form A along with fees specified in clause 1 of Schedule II".

6 9. We also note that the process of online registration dated September

21, 2010 provided on the SEBI website clearly shows that once all the

details are filled up the applicant should click on "final submit" button and

we are told this is possible only when the registration fee details also are

entered in the system. Therefore, the appellant did not complete the online

process in January 2014 as being claimed. In any case, without the

accompanying fee as required under the Regulations the application is

incomplete, as is clearly stated in Regulation 9(1) of the Portfolio Managers

Regulations and in the SEBI circular dated May 11, 2007. Therefore an

application complete in all respects was submitted only on October 21, 2014

which is an admitted position. All other arguments of the appellant only

show that they made some efforts which also means that they were aware of

the procedural requirements.

10. The submissions of the appellant that on an earlier occasion such

delay was condoned by SEBI does not have any merit in the given

circumstances since the delay on both the occasions are not similar. Rather

the delay in the matter in this appeal is more than 6 months which in any

case cannot be condoned for a Portfolio Manager who is supposed to follow

the Regulations strictly. In addition, it also shows the repetitive nature of the

same violations. The fact that the appellant had inducted 2 clients during the

period when they had no certificate of registration is not even disputed.

11. The submission of the appellant that a penalty of Rs. 3 lakh is harsh

and disproportionate because the appellant is also a stock broker having a

large number of retail and institutional clients, including FIIs has no merit

because the penalty imposable under Section 15HB of the SEBI Act is upto

Rs. 1 crore while the penalty imposed is only Rs. 3 lakh. Further, the fact

that the appellant is a stock broker, and that too with substantial volume of 7

business cast the responsibility of proper due diligence in complying with

the provisions of SEBI Act and SEBI Regulations. In the instant case it is

clearly proved otherwise as a Portfolio Manager.

12. In the light of the above reasons, we do not find any merit in the

appeal and the same is hereby dismissed. No order on costs.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C.K.G. Nair Member

18.01.2019 Prepared and compared by:msb