Order against Credent Portfolio Management Private Limited and its directors, Mr. Amaranjay Kumar and Mr. Mrityunjay Kumar

1. The Securities and Exchange Board of India (hereinafter referred to as SEBI) had vide an ad-interim ex-parte Order dated October 11, 2010 (hereinafter referred to as the Order) restrained Credent Portfolio Management Private Limited (hereinafter referred to as the company) and its directors, Mr. Amaranjay kumar and Mr. Mritunjay Kumar from accessing the securities market and further prohibited them from buying, selling or otherwise dealing in securities or being associated with the securities market in any manner. The company and its directors were directed not to mobilise funds from the public or offer any portfolio management services and were also directed to resolve all pending complaints against them. Thereafter, the company, Mr. Mritunjay Kumar and Mr. Amaranjay kumar filed their replies vide separate letters dated November 25, 2010, November 26, 2010 and December 20, 2010. It was inter alia stated by Mr. Mritunjay Kumar and the company that the complaints had been made against the acts carried out by Mr. Amaranjay Kumar in his personal capacity and the same could not be attributed to the company or to Mr. Mritunjay Kumar. Mr. Amaranjay kumar contended that his transactions with the complainant were purely personal in nature and the company had no role in the same. He further submitted that the claims of the complainant stands completely settled as on date. Mr. Mritunjay Kumar and Mr. Amaranjay kumar further requested for a personal hearing. Thereafter, the company and its directors were afforded an opportunity of personal hearing on February 15, 2011. During the hearing, Ms. Deepika Vijay Sawhney, Advocate represented the company and its directors and reiterated the submissions made in their respective replies. Mr. Mritunjay Kumar was also present in the hearing.

2. I have considered the submissions made on behalf of the parties and other material on record. The limited issue for consideration in this Order would be to decide whether the ad-interim ex-parte directions issued vide the Order against the company and its directors need to be continued, modified or revoked in the light of their submissions and the facts and circumstances of the matter. As stated in the Order, pursuant to the receipt of complaint against Mr. Amaranjay Kumar in respect of the malpractices and misappropriation of funds, SEBI conducted a preliminary inquiry into the same. As mentioned in the Order, an official of SEBI was sent to the office of the company as a decoy customer, who had met Mr. Neeraj Kumar Sharma, Assistant Manger (Investment) of the said company. During the meeting, the official was lured to invest his money with them and was assured decent returns on the investment. On the preliminary findings of the aforesaid inquiry, SEBI gathered that the company has a website www.credentinvest.com to lure the general public to invest with them. The said website also mentions, “Credent Portfolio Manager offers discretionary portfolio management services.” However, no such entity is registered as a portfolio manager with SEBI.

Thus, the activities of the company and its directors were prima facie found to be in violation of Section 12(1) of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the SEBI Act) read with Regulation 3 of Securities and Exchange Board of India (Portfolio Managers) Regulations, 1993. In this regard, the company had submitted that the Mr. Neeraj Kumar Sharma, an ex-employee of the company and is a client of its group entity, M/s. Credent Securities which is having its office in the same premises as the company. It was further submitted that the information communicated by Mr. Neeraj Kumar Sharma had been wrong and misleading. The company also filed a copy of the resignation letter of Mr. Neeraj Kumar Sharma along with the relieving letter issued by the company. It was further submitted that the website of the company, www.credentinvest.com has been developed solely with the intent and object of offering its mutual fund distribution services to the investors and the expression “portfolio management services” contained in the said site is solely on the account of the website developer’s failure and mistake to understand the real requirements and activities of the company.

The company also contended that immediately after realizing the real gravity of the expression, the same was deleted from the website. It was the contention of the company that a discretionary portfolio manager is someone who is authorised not only to carry out any transaction on behalf of the investors but also to carry out such transaction on his personal discretion. In this regard, it is important to note that the company is only in the business of mutual fund distribution and does not have any demat account to accept any securities and have never accepted any deposit from any entity. It was further submitted that the group entity, M/s. Credent Securities is a registered sub-broker and duly carrying on business of sub-broking, which is only doing client based trading as instructed by the clients. Thus, according to the company, the observation that it may be carrying on business of discretionary portfolio was erroneous. It was also stated in the complaint that Mr. Amaranjay Kumar had transferred shares worth `3,10,271 from the demat account of one of the complainant’s to his demat account.

According to the company some of the shares of the complainant were transferred to the demat account of Mrs. Manju Deveshwar and Mr. Indra Mohan Deveshwar. Shares were also transferred from other demat accounts of the said complainant to various other demat accounts, as detailed in the order. SEBI had prima facie found such activities to be in violation of Section 12A(c) of the SEBI Act read with Regulations 3(a),(c),(d) an 4(1) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as the PFUTP Regulations). In this regard, Mr. Amaranjay contended that in October 2006, when Mrs. Manju Deveshwar and Mr. Indra Mohan Deveshwar were going abroad, they handed over some cheques to be invested in mutual funds and transfer forms for consolidation of their shares in one demat account. However, the cheques so issued to be invested into mutual funds erroneously got deposited into another as during the said period third party cheques were allowed for mutual funds. In support of the aforesaid argument, Mr. Amaranjay Kumar contended that on the cheques getting deposited in different accounts, he had to liquidate those investments immediately the next day to rectify the error and since Mrs. Manju Deveshwar and Mr. Indra Mohan Deveshwar had already left for abroad, the investment in their name was made in good faith through other cheques.

It was further submitted that in order to get better returns on the shares of Mrs. Manju Deveshwar and Mr. Indra Mohan Deveshwar, he took the liberty to transfer few of their shares in his account to sell shares giving lesser returns and to get higher return. However, he could not get adequate returns and incurred losses. In order to cover the losses, he borrowed the shares from the account of the complainant and transferred the same in account of Mrs. Manju Deveshwar and Mr. Indra Mohan Deveshwar. With the said transactions, he had transferred the same in the account of Mrs. Manju Deveshwar and Mr. Indra Mohan Deveshwar and thus owed nothing to them.

3. SEBI observed that the company had trading terminals installed at its office, without being registered as a stock broker or sub-broker. Enquiries with the National Stock Exchange of India Limited (NSE) revealed that the said terminals belonged to one of its members, Adroit Financial Services Limited, and the same were provided to its sub-broker M/s.Credent Securities. Mr. Mritunjay Kumar submitted that he is the authorised person of M/s Credent Securities. In this regard, Mr. Mritunjay Kumar contended that he is the proprietor of M/s. Credent Securities, which is a SEBI registered sub-broking firm. He further contended that the business of the said entity is different from the business distribution of mutual funds by the company. It was further submitted that both the businesses are independent of each other and have no inter-relation. The clients of the company are different who merely invest in various mutual funds through the company, whereas, in case of M/s. Credent Securities, the entity becomes a registered client of the said sub-broker. In case of the company, no funds move from clients to the company and in case of M/s. Credent Securities, whatsoever funds accepted had been only from its registered clients on whose instructions sale and purchase of securities are carried out and that there is no other utilization of clients funds. In case of the company, the company gets return on its services in terms of commission from the asset management companies and in case of Credent Securities, returns are in terms of brokerage.

4. I have examined the submissions of the company and its directors. As mentioned in the Order, SEBI initiated an investigation in the matter on the basis of the complaint filed by Mr. Rajendra S. Rathore about the misappropriation and mishandling of funds by Mr. Amaranjay Kumar. I note that Mr. Rajendra S. Rathore, vide letter dated October 29, 2010 submitted that he has entered into a settlement with the company in terms of which, the company and its directors have paid him a total sum of `10,50,000 in full and final settlement of all his claims. The settlement entered into with Mr. Rajendra S. Rathore, would not absolve the company and its directors from the alleged violation of Section 12A(c) of the SEBI Act read with Regulations 3(a),(c),(d) an 4(1) of the PFUTP Regulations, as mentioned in the Order. Further, it is observed from the preliminary findings that the funds of the complainant were used for making payment to Mrs. Manju Deveshvar and Mr. Indra Mohan Deveshvar and that their funds were in turn misused by Mr. Amarnjay Kumar. When Mrs. Manju Deveshvar and Mr. Indra Mohan Deveshvar had confronted Mr. Amarnjay Kumar regarding the said misappropriation, the funds of one Mehta were wrongly used for making investment in the name of Mrs. Manju Deveshvar and Mr. Indra Mohan Deveshvar.

It is the admission of Mr. Amaranjay Kumar that in order to get better returns on the shares of Mrs. Manju Deveshwar and Mr. Indra Mohan Deveshwar, he had taken the liberty to transfer few of their shares in his account to sell shares to get higher return. Though, he has stated that he could not get adequate returns and incurred losses, the fact remains that he had misappropriated the securities of the said persons. It was prima facie alleged that the records maintained by the company/Mr. Amaranjay Kumar appeared to be falsified and that the information provided to SEBI also appeared to be false. The company has submitted that the said documents pertain to Mr. Amaranjay Kumar and not of itself and that the records of the company are being maintained in accordance with law and accounting standards. As the investigation in the matter is in progress and also considering the fact that findings on such allegations could be arrived at only on such conclusive findings of the investigation, I am of the view that the investigation would consider the submissions and the documents furnished by the parties and arrive at their findings.

Further, in respect to the allegation against the company and its directors vis-à-vis its operation as a portfolio manager without a valid registration and operation of ponzi scheme, I note that though, it has been submitted that the contents of the website mentioning portfolio management was a mistake on the part of the website developer and that suitable corrections had been made, such a charge is serious in nature considering the interest of investors. The present case involves persons who allegedly misappropriated funds and securities of various persons and also of operating portfolio management without obtaining registration in accordance with law. Violations of such nature cannot be viewed leniently by SEBI. The investigation in respect of the charges levelled against the company/its directors is in progress. The investigation would consider all the submissions and documents produced by the parties and arrive at their finding. Therefore, at this stage, in the interest of justice, it would be reasonable to continue with the interim directions against the company and its directors.

Needless to say, their case would be reviewed on completion of the investigation and appropriate directions would be issued thereafter.

5. In view of the foregoing, I, in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 read with Sections 11(4), 11B and 11D thereof, hereby confirm the directions issued vide the ad-interim ex-parte Order dated October 11, 2010 against Credent Portfolio Management Private Limited (Permanent Account Number AABCC8971A) and its directors, Mr. Amaranjay Kumar (Permanent Account Number ALOPK4231E) and Mr. Mritunjay Kumar (Permanent Account Number AIQPK7501G).

6. Having regard to the facts of the case, it is directed that the investigation initiated in the matter be concluded as expeditiously as possible but not later than June 30, 2011.

DR. K. M. ABRAHAM WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

PLACE: MUMBAI DATE: JUNE 1, 2011