Multibagger Securities Research Nd ... vs Sebi

3. Shailesh Goyal C/o E-21, Moti Nagar, Near Acharya Bikshu Hospital, New Delhi - 110 015. ..... Appellants

(By Mr. Manish Goel, Director of the Appellant)

AND: Securities and Exchange Board of India SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051. ...Respondent 2

(By Mr. Sumit Rai, Advocate with Mr. Mihir Mody, Mr. Yash Sutaria and Mr. Tushar Bansode, Advocates i/b. M/s. K. Ashar & Co. for the Respondent)

THIS APPEAL IS FILED UNDER SECTION 15T(b) OF SEBI ACT, 1992 TO QUASH AND SET ASIDE ORDER DATED 18.11.2022 (EXHIBIT - A) PASSED BY THE EXECUTIVE DIRECTOR, SEBI.

THIS APPEAL HAVING BEEN HEARD AND RESERVED FOR ORDERS ON 01.08.2024, COMING ON FOR PRONOUNCEMENT OF ORDER THIS DAY, THE TRIBUNAL MADE THE FOLLOWING:

ORDER

Per: Ms. Meera Swarup, Technical Member

The present appeal has been filed by Multibagger

Securities Research & Advisory Pvt. Ltd. & Ors. (MSRAPL -

Appellants) against order dated November 18, 2022 passed by

Securities and Exchange Board of India (SEBI / Respondent)

in terms of which the application filed by MSRAPL for

registration as Portfolio Manager (PM) was rejected and

MSRAPL and its directors / promoters, namely, Sh. Manish

Kumar Goyal (MKG) and Sh. Shailesh Goyal (SG) were held

to be not „fit and proper‟ persons for grant of the registration

as Portfolio Manager. Further, MSRAPL was directed not to 3

apply for fresh registration as Portfolio Manager for a period

of five years from the date of the order.

2. Brief facts of the case are as under:-

MSRAPL had submitted to the Respondent, an

application for registration as Portfolio Manager on October

30, 2020. MKG is 80% shareholder and SG 20% shareholder

in MSRAPL. MKG had been proposed to be the Principal

Officer for the proposed PM activity. MSRAPL already held

registration with SEBI as an Investment Advisor (IA) since

May 29, 2017 and MKG was also registered with SEBI as

Research Analyst since May 16, 2017.

2.1 While scrutinizing the application of MSRAPL for

registration as PM, SEBI found out that MKG did not fulfill

the criteria under Regulation 7(2)(d)(ii) of SEBI (Portfolio

Managers) Regulations, 2020, which required the Principal

Officer to have at least five years‟ experience in "related

activities in the securities market including in a portfolio

manager, stock broker, investment advisor, research analyst

or as a fund manager". Accordingly, SEBI sought further

information and supporting documents from MSRAPL. 4

2.2 MSRAPL submitted on February 16, 2021, information

about MKG‟s employment with M/s. Maco Securities Pvt.

Ltd. („Maco‟ for short) for the period August 2004 to May

2006. In its application, MSRAPL had not mentioned about

this work experience and had given the experience details

from June 2006 onwards.

2.3 The Respondent found out that the veracity of

supporting documents along with Form 16 could not be

established and asked for further documents like bank

statements of MKG as proof of salary drawn from Maco. The

Respondent further called from M/s Sun Pharmaceutical Ltd.

(SPIL), (erstwhile Ranbaxy Laboratories Ltd.) where MKG

had worked from June, 2006 to January, 2010, documents

submitted by MKG to SPIL including relieving letter /

experience certificate, being his previous employer. SPIL

submitted documents / information, which indicated that

MKG had worked with two CA firms, Mitra Gupta &

Agarwal, Delhi and S.C. & Associates, Delhi - during the

period August 2005 to April 4, 2006 and April 5, 2006 to

June 18, 2006, respectively. Further, Respondent also asked

MSRAPL to submit an undertaking that the proposed

Principal Officer MKG will surrender his Research Analyst 5

registration with SEBI and relinquish his position as Principal

Officer in MSRAPL as Investment Advisor so that

independence of proposed activities and avoidance of conflict

of interest could be ensured while maintaining arms‟ length

distance between MSRAPL‟s present and proposed activities.

2.4 The Respondent concluded that MSRAPL‟s

submissions regarding experience with Maco was misleading

as he was actually working with CA firms based in Delhi and

not with Maco, which was based at Bangalore. Further, they

held the MSRAPL‟s reply dated August 18, 2021 on the

Undertaking requirement as not logical and counter-intuitive.

In view of the above, the Respondent concluded that

MSRAPL was not a „fit and proper‟ person to be registered as

a Portfolio Manager and issued notice dated March 31, 2022

to MSRAPL to show cause as to why the application for

registration as PM may not be rejected. MSRAPL made

written submission and got opportunity of inspection of

relevant documents and personal hearing. Based on the

material on record, the SCN and reply / submissions of

MSRAPL, the impugned order came to be passed on

November 18, 2022.

6

3. We have heard Shri Manish Goel, Appellant in person

and Shri Sumit Rai, learned counsel for the Respondent.

4. Before us, the Appellants‟ plea was that the rejection of

their application for registration as PM and declaration of the

Appellants and its directors as not „fit and proper‟ is an act of

vengeance on part of the Respondent. The Appellants had

complained to the Chairman, SEBI and Finance Ministry

regarding the delay in processing of their application and due

to these complaints, the Respondent started harassing them

which finally culminated in passing of the impugned order.

4.1 Further, claiming that while the SCN only sought reply

as to why the application for registration as PM should not be

rejected, the impugned order declared them as not „fit and

proper‟ and barred them from re-applying for further five

years, the appellant sought that the impugned order should be

struck down. Refuting the Respondent‟s finding about the

Appellant‟s principal officer (MKG) not having requisite

experience based on the evidence submitted by SPIL, Shri

Goel submitted that the Appellant had submitted three

concrete evidences in shape of experience certificate, Form

No. 16 and e-mail confirmation from Maco to indicate that

MKG had more than adequate work experience as mandated 7

under Regulation 7(2)(d)(ii) of SEBI (PM) Regulations, 2020.

It was submitted that the Respondent did not accept the direct

relevant experience of approximately four years as Research

Analyst and Investment Advisor, therefore, the Appellant had

to give Maco experience. SPIL was not able to give the

Maco‟s details as the Appellant had not submitted the same to

them as experience in Maco was not a relevant experience

with respect to the job profile there. The Respondent‟s

dependence on SPIL‟s confirmation of work experience at

two CA firms in Delhi is flawed as firstly it is possible for the

Respondent‟s to influence them being a listed Company and

secondly, the timing of second e-mail confirmation received

from SPIL is highly suspect. The Appellant also pleaded that

principles of natural justice were not complied by the

Respondent as the allegation and information based on which

the impugned order was passed, was provided much after the

personal hearing was given. Further, the Respondent ignored

the fact that at the time of passing the impugned order, the

experience of the Appellants as Registered Investment

Advisor with the Respondent itself was of more than five

years.

8

5. On the other hand, the Learned Counsel for the

Respondent argued that the Respondent has acted within the

realm of the legal framework laid out for grant of registration

as PM. The SEBI (PM) Regulation, 2020 lay down the

process of registration as PM. Regulation 6 thereof allows for

calling for further information, Regulation 7(1) lays down that

all matters relevant to activities of PM can be considered,

Regulation 7(2)(d)(ii) lays down the requirement of 5 years‟

experience in related activities in securities market for the

Principal Officer of the applicant. Regulation 7(2)(j) states

that the applicant must be a „fit and proper‟ person and

Regulation 8 states that the criteria for „fit and proper‟ person

to be considered would be as contained in Schedule - II of

SEBI (Intermediaries) Regulation, 2008.

5.2 Further, as per Schedule II of SEBI (Intermediaries)

Regulations, 2008, „integrity, reputation and character‟ of the

person is relevant to determine whether an applicant is „fit

and proper‟. While examining the application of the

Appellants, SEBI acted within the four walls of the provisions

of the regulations laid down, in observing that MKG did not

fulfill the criteria that require a Principal Officer of an

Applicant to have experience of at least 5 years in related 9

activities in the securities market. Accordingly, relevant

supporting documents were sought towards work experience

of the proposed Principal Officer, MKG. The details

submitted by MSRAPL included MKG‟s employment with

Maco from August 2004 to May, 2006, which were found

contradictory by the Respondent as information received from

SPIL indicated that MKG was working in two CA firms at

Delhi during August, 2005 to June, 2006. Thus, the

Respondent was correct to arrive at a conclusion that by

submitting false and misleading information to SEBI, the

Appellants failed to meet the criteria of „integrity, reputation

and character' and could not be held to be „fit and proper‟

persons so as to allow registration as PM.

5.3 Further, it was submitted that the Appellants have never

denied employment of MKG in the two CA firms at Delhi and

at Maco in Bangalore but have sought to suggest that MKG

had been employed in more than one firm at different

locations at the same time. This suggests that the Appellant

believes that the information submitted by SPIL is correct and

therefore the Appellant‟s stance is contradictory. Also, the

Respondent is required to take into account the „integrity,

reputation and character‟ while applying the eligibility 10

criteria of fit and proper on the director / promoter to the

Applicant MSRAPL. Therefore, in order to determine

whether MSARPL is a „fit and proper‟ person, the criteria

were extended to MKG and SG. Considering the veracity of

the documents submitted for work experience as inconclusive,

the Applicants were asked to submit bank statements, which

they failed to do.

5.4 The Learned Counsel for the Respondent further stated

that the principles of natural justice were duly followed by

Respondent by giving them adequate opportunities for

providing documents, granting opportunity to reply to SCN

and allowing inspection of documents and opportunity of

personal hearing. The Learned Counsel vehemently denied

that the registration application was rejected on account of

vengeance on part of the Respondent. The Appellant have

time and again wrongly attributed motives to the Respondent

and have failed to submit any proof in support of their stance.

He submitted that the rejection of application of the

Appellants for registration as PM is based on material

available on record and a well-reasoned order has been passed

by the Respondent. Pointing out to various criminal cases /

complaints filed by MKG against the officials of SEBI, the 11

Learned Counsel for Respondent submitted that the general

conduct of MKG confirms that SEBI‟s conclusion of the

Applicant and its directors / promoters being not „fit and

proper‟ for getting registration as PM was a correct decision.

6. Having heard the Appellant in person and Learned

Counsel for Respondent and having seen the relevant

provisions, we have no hesitation in agreeing with SEBI that

it has wide powers to call information documents etc. to

determine whether an Applicant seeking registration as PM or

any other intermediary is „fit and proper‟ person. We also

place reliance on this Tribunal‟s observations as quoted in

paragraph 28 of the impugned order in the matter of 63

Moons Technologies Ltd. vs. SEBI in Appeal No. 500 of

2020 decided on April 15, 2021.

6.1 In the instant case, the main area of contention between

the parties is in relation to the work experience of MKG, as

the proposed Principal Officer of the Appellant Company

who is also 80% equity shareholder in MSRAPL. In our view,

this is a crucial eligibility criteria and there should be no

ambiguity regarding the Principal Officer of the Applicant

meeting this criteria. We note that the Applicant did not

originally provide the information regarding the work 12

experience of MKG at Maco for consideration against work

experience criteria. The Appellants did not give any

satisfactory reason for this omission at the time of submitting

application. As this experience in a broking firm would

definitely fit in the desired criteria of „related authorities in

the securities market‟, its omission naturally raises the

question as to why the same was not given. In our view,

Respondent was correct in seeking verification of this work

experience by calling for further information from the

Applicant and later on not getting satisfactory responses, by

seeking confirmation from a previous employer (SPIL). Once

the discrepancy in work experience was noticed, the

Respondent had to conclude the disclosure as false and

misleading information with regard to work experience of

MKG. We note that the Appellant has not denied or disputed

the information supplied by SPIL. He went on to argue that he

worked at two firms at the same time though the firms were

located in different cities. The moot question here is as to why

the appellant did not disclose MKG‟s simultaneous work

experience in Maco at Bangalore. In our view, the explanation

offered by the Appellant is implausible, if not improbable. 13

6.2 As far as the plea taken by Appellant regarding denial of

natural justice is concerned, we are satisfied that more than

adequate opportunities were given to the Appellant to prove

their case. Enough time was given for filing reply and to

furnish further information to substantiate their claim.

Documents relied upon were furnished to the Appellant and

personal hearing were given. Regarding the plea taken up by

the Appellant that personal hearing should have been given

after supply of relevant documents, we note that the Appellant

wrote back to the Respondent about the documents and,

therefore, are satisfied that the Appellant could get sufficient

opportunity to put across their views / give explanation/

information to the Respondent.

6.3 Regarding the allegations made by the Appellant that

the impugned order was a result of vengeance on part of the

Respondent as the Appellant had made complaints to the

Chairman, SEBI and the Finance Ministry, we note that the

allegation remained totally unsubstantiated both in the oral

arguments made by the Appellant and in the written

submission. In our view, such bald allegations made against a

regulator and its officials points to irresponsible and immature 14

behavior on part of the Appellant and deserves no

consideration.

7. In view of the aforesaid, we do not find any infirmity in

the impugned order. The appeal fails and is dismissed with no

order as to costs.

8. Pending Interlocutory applications(s), if any, stand

disposed of.

Justice P.S. Dinesh Kumar Presiding Officer

Ms. Meera Swarup Technical Member

Dr. Dheeraj Bhatnagar Technical Member 24.01.2025 MADHUKAR Digitally signed by MADHUKAR BHALBAR

BHALBAR Date: 2025.01.24 16:16:23 +05'30' msb