M/S Star India Market Research [Prop. ... vs Sebi

Date of Decision : 24.12.2019

Appeal No. 529 of 2019

M/s Star India Market Research [Prop. Dharmendra Kumar] 307, B-Block, 3rd Floor, Corporate House, Besides DAVV University, Regal Square, Indore - 452 003. ...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. Pulkit Mehta, CA for the Appellant.

Ms. Anubha Rastogi, Advocate for the Respondent.

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

Per : Justice Tarun Agarwala, Presiding Officer (Oral)

1.

This appeal has been preferred to challenge the order of the

Adjudicating Officer ('AO' for short) of Securities and Exchange

Board of India ('SEBI' for short) dated August 7, 2019 whereby a

penalty of Rs. 40 lakh has been imposed under Section 15HB of

the SEBI Act, 1992. It is held in the impugned order that the 2

appellant has violated Regulation 15, 16 and 17 along with

Schedule III of the SEBI (Investment Advisors) Regulations,

2013.

2. Appellant is a SEBI registered Investment Advisor with

effect from October 12, 2015. SEBI officials conducted an

inspection for the period from April 1, 2016 to November 6, 2017

during 6 - 7 November, 2017. On the basis of the findings during

this inspection SEBI initiated adjudication proceedings and the

AO was appointed on January 15, 2019. Thereafter a show cause

notice was issued to the appellant on February 25, 2019 directing

to show cause as to why an enquiry should not be held against the

appellant and penalty imposed for various alleged violations stated

therein.

3. The main alleged violations against the appellant are:-

(i) Offering products without considering the risk profile

of the clients.

(ii) Offering high net-worth individual (HNIs) services to

unsuitable clients.

(iii) Receiving payments in advance for future services.

(iv) Charging high and unreasonable fee from clients. 3

4. After considering the reply of the appellant dated March 9,

2019 and after providing an opportunity for personal hearing etc.

the impugned order was passed on August 7, 2019. It is held in the

impugned order that the appellant has committed several

violations as alleged in the show cause notice. It is observed that

high risk products were offered to young investors in the age

bracket of 18 - 20 years and to various senior citizens above 80

years. Similarly, services which are meant for HNI have been

offered to young investors in the age group of 19 - 21 years.

Further, there are about 40 instances where the appellant had

charged the clients twice the charge allowed for such services. In

as many as 62 instances payments were collected for services to

be rendered in future.

5. In its reply the appellant submitted that it has offered high

risk services to only a few clients; the age bracket of 19 - 21 given

in the show cause notice was not correct; age alone is not a criteria

for assessing the risk bearing capacity of investors; HNI services

were given to young investors because of their capacity to finance

as well as to take risk and so on.

6. Shri Pulkit Mehta, Authorized Representative appearing for

the appellant fairly submits that though all the charges are not

correct some violations have happened from the side of the 4

appellant which were unintentional. Moreover, as stated in its

reply a completely watertight classification of risk capacity and

age etc cannot be justified. In any case for the minor, technical

violations that have occurred unintentionally the penalty of Rs. 40

lakh imposed under Section 15HB is too high and excessive

particularly in the context that the appellant had a net profit of

only about 31 lakh in 2015-16 and incurred a loss in the previous

year and has a net worth of about Rs. 21 lakh. Therefore, factors

under Section 15J of the SEBI Act are not considered by the AO

while imposing such a heavy penalty.

7. We have also heard the learned Counsel Ms. Anubha

Rastogi appearing for respondent SEBI who contended that the

violations committed by the appellant are many and serious and

hence the penalty imposed is just and fair.

8. We find merit in the submissions of the Authorized

Representative of the appellant that the penalty imposed is too

harsh and disproportionate. The appellant is a small investment

advisor with a profit of about Rs. 30 lakh in a year and with a

small amount of net worth. Though it is an admitted fact that the

appellant has committed certain violations there is also some merit

in the submissions that in every case the age profile and risk

taking capacity can be tightly compartmentalized. In any case the 5

penalty which can be imposed under Section 15HB of the SEBI

Act "shall not be less than Rs. 1 lakh but which may extend to Rs.

1 crore". Given this provision and taking into consideration the

nature, value and number of the violations committed by the

appellant as well as its financial capability penalty of Rs. 40 lakh

imposed is disproportionate and harsh.

9. In view of the aforesaid, the appeal is partly allowed. The

impugned order is affirmed insofar as violation of the provisions

of the Regulations are concerned and the Code of Conduct. The

penalty, however, is reduced from Rs. 40 lakh to Rs. 20 lakh.

Appellant is directed to pay the said amount of penalty within four

weeks from today. No orders on costs.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C.K.G. Nair Member

24.12.2019 Prepared and compared by:msb