Order in respect of Ms. Ilaben Manojbhai Majevadiya in the matter of unregistered Investment Advisory Activities by the Khanda Group

Under Section 15-I(3) of the Securities and Exchange Board of India Act, 1992

In the matter of Unregistered Investment Advisory activities by Khanda group

In respect of:

S.No. Names of the Noticee PAN Ms. Ilaben Manojbhai 1. Not Available Majevadiya

1. Based on certain complaints received about the alleged Unregistered Investment Advisory activities run by one Khanda Group, Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’), initiated investigation proceedings into the said complaints. During the course of investigation, evidence was gathered to find out possible violation of provisions of Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act’), rules and regulations framed under SEBI Act. In the process, Investigating Authority (hereinafter referred to as ‘IA’) had issued summons to persons/entities asking them to provide various information as desired under the summons so issued. In course of investigation, summons were also issued to Ms. Ilaben Manojbhai Majevadiya (hereinafter referred to as ‘Noticee’) to provide the information sought under the summons. 2. The Noticee failed to respond to the summons or provide the information sought by the IA. In view of her non-compliance to the summons, she was alleged to have violated provisions

Order in respect of Ms. Ilaben Manojbhai Majevadiya in the matter of Unregistered Investment Advisory activities by Khanda group of Section 11C(3) of the SEBI Act. Hence, adjudication proceedings under Section 15A(a) of the SEBI Act were initiated against her. 3. The Adjudicating Officer (hereinafter referred to as ‘AO’) after having acknowledged on record the fact of non-compliance to summons by the Noticee, passed an order dated November 24, 2017 disposing of the proceeding without imposing any penalty on the Noticee. The AO has made the following observation in its order: “I also find from the records that the Noticee has been charged for violating the provision of Section 11 (C ) (3) of the SEBI Act, 1992. After going through the said provision, I note that the said provision empowers the IA to call for information, details, documents etc by issuing summons as needed for the purpose of investigation. Therefore, Section 11(C) (3) of the SEBI Act, 1992 cannot be termed to be a violative provision. I find that, appropriate violative provision is not invoked in a) the action approved, (b) communique of appointment of AO, and c) the SCN.

In view of this, I find that there can’t be violation of Section 11 (C) (3) of the SEBI Act, 1992 by the Noticee. Therefore, the present adjudication proceedings initiated against the Noticee vide SCN dated December 14, 2016 is disposed off without imposing any penalty and issued (b) and (c) do not require consideration.” 4. The observations of the AO in the instant matter that ‘Section 11 (C ) (3) cannot be termed to be a violative provision’ have been viewed by SEBI as “erroneous and not in the interest of securities market,” hence, the matter was called for examination in terms of the provisions of Section 15-I(3) of the SEBI Act and Show Cause Notice dated February 22, 2018( hereinafter referred to as ‘SCN’) was issued to the Noticee, advising her to show cause as to why appropriate penalty should not be imposed in terms of Section 15A (a) of the SEBI Act for the alleged violation. The SCN also advised the Noticee to submit reply within 21 days of the receipt of the notice. 5. Records produced before me show that SCN dated February 22, 2018 was issued by speed post but the same was returned undelivered.

Subsequently, the said notice was served upon the Noticee through hand delivery at the given address and the same has been received on behalf of the Noticee. However, no reply is available on record. I note that to ensure fair conduct of the proceedings to be in compliance with the principle of nature justice, a hearing notice dated August 24, 2018 was hand delivered, informing the Noticee that an opportunity for personal hearing has been scheduled on October 31, 2018, before the Whole Time

Order in respect of Ms. Ilaben Manojbhai Majevadiya in the matter of Unregistered Investment Advisory activities by Khanda group

Member, asking the Noticee to be present in person or through authorized representative. However, no reply has been received. I further note that no request for an adjournment on any ground has been made by the Noticee. I also note that the proceeding before the AO was also completed ex-parte as none appeared on behalf of the Noticee. Under the circumstances, keeping in view continuous non-compliance by the Noticee, I am of the view that the Noticee does not deserve any further hearing opportunity and matter may be proceeded based on the facts and documents available in the records. Issues and Consideration: 6. In this case the following issues require consideration for the purpose of adjudication; (a) Whether there is an error in finding by the AO that the Noticee is not liable for violation of Section 11C(3) of the SEBI Act as the same is not a violative provision despite finding that the Noticee had not complied with the summons issued by SEBI. Or, Whether non-compliance of summons issued under Section 11C (3) results in violations inviting imposition of penalty under Section 15A (a) of the SEBI Act?

(b) If yes, whether the Noticee has violated the provision and therefore is liable for imposition of penalty suitably? 7. Before proceeding to adjudicate on the above issues, it is worth mentioning here that the IA had issued summons dated January 25, 2016 and a reminder dated February 17, 2016 to the Noticee seeking, inter-alia, details pertaining to (i) investors availing services of the Noticee, (ii)copy of bank statements and other relevant documents evidencing the receipt of the amounts from investors, (iii) relationship of the Noticee with Mr. Firoz Rafiq Khanda and Mr. Mansoor Rafiq Khanda (iv) Details of financial transactions of the Noticee with the above Khandas and other information relevant to the investigation. The summons were duly delivered to the Noticee, however the Noticee did not respond to the same. 8. While adjudicating the issues framed under para 6 above, it is relevant here to refer to the provisions of relevant Section 11C of SEBI Act; 11C. (1) Where the Board has reasonable ground to believe that (a) the transactions in securities are being dealt with in a manner detrimental to the investors or the securities market; or (b) any intermediary or any person associated with the securities market has violated any of the provisions of this Act or the rules or the regulations made or directions issued by the Board thereunder, it may, at any time by order in writing, direct

Order in respect of Ms. Ilaben Manojbhai Majevadiya in the matter of Unregistered Investment Advisory activities by Khanda group any person (hereafter in this section referred to as the Investigating Authority) specified in the order to investigate the affairs of such intermediary or persons associated with the securities market and to report thereon to the Board. (2) Without prejudice to the provisions of sections 235 to 241 of the Companies Act, 1956 (1 of 1956), it shall be the duty of every manager, managing director, officer and other employee of the company and every intermediary referred to in section 12 or every person associated with the securities market to preserve and to produce to the Investigating Authority or any person authorised by it in this behalf, all the books, registers, other documents and record of, or relating to, the company or, as the case may be, of or relating to, the intermediary or such person, which are in their custody or power. (3) The Investigating Authority may require any intermediary or any person associated with securities market in any manner to furnish such information to, or produce such books, or registers, or other documents, or record before him or any person authorised by it in this behalf as it may consider necessary if the furnishing of such information or the production of such books, or registers, or other documents, or record is relevant or necessary for the purposes of its investigation.

(4) The Investigating Authority may keep in its custody any books, registers, other documents and record produced under sub-section (2) or sub-section (3) for six months and thereafter shall return the same to any intermediary or any person associated with securities market by whom or on whose behalf the books, registers, other documents and record are produced: Provided that the Investigating Authority may call for any book, register, other document and record if they are needed again : Provided further that if the person on whose behalf the books, registers, other documents and record are produced requires certified copies of the books, registers, other documents and record produced before the Investigating Authority, it shall give certified copies of such books, registers, other documents and record to such person or on whose behalf the books, registers, other documents and record were produced. (5) Any person, directed to make an investigation under sub-section (1), may examine on oath, any manager, managing director, officer and other employee of any intermediary or any person associated with securities market in any manner, in relation to the affairs of his business and may administer an oath accordingly and for that purpose may require any of those persons to appear before it personally.

(6) If any person fails without reasonable cause or refuses

Order in respect of Ms. Ilaben Manojbhai Majevadiya in the matter of Unregistered Investment Advisory activities by Khanda group (a) to produce to the Investigating Authority or any person authorised by it in this behalf any book, register, other document and record which is his duty under sub-section (2) or sub-section (3) to produce; or (b) to furnish any information which is his duty under sub-section (3) to furnish; or (c) to appear before the Investigating Authority personally when required to do so under sub-section (5) or to answer any question which is put to him by the Investigating Authority in pursuance of that sub-section; or (d) to sign the notes of any examination referred to in sub-section (7), he shall be punishable with imprisonment for a term which may extend to one year, or with fine, which may extend to one crore rupees, or with both, and also with a further fine which may extend to five lakh rupees for every day after the first during which the failure or refusal continues. (7) Notes of any examination under sub-section (5) shall be taken down in writing and shall be read over to, or by, and signed by, the person examined, and may thereafter be used in evidence against him.

9. From the above provisions of Section 11C one can very well appreciate that the power of SEBI to initiate investigation, particularly where the transactions in securities are reasonably believed to be dealt in a manner detrimental to the interest of investors or the securities market, is exercised to begin with, by directing any persons to act an Investigating Authority (IA). Sub-section (2) of Section 11 casts duty on the persons mentioned therein to preserve and to produce to the IA or any person authorized by it in this behalf, all the books, registers, other documents and record of, or relating to, the company or, the intermediary or such person, which are in their custody or power. Sub-section(3) authorizes the IA to call for the information, which in his views are relevant or necessary for the purposes of its investigation and furnishing of the information as desired by the IA obligatory. Sub-section (4) empowers the IA to keep in its custody any books, registers, other documents and record produced under sub-section (2) or sub-section (3) for six months and thereafter the IA shall return the same to the entity.

It further empowers the IA to provide certified copies of the documents to the entity, if required during the period of custody of six months. Sub-section (5) empowers the IA to direct any person to appear before him and examine him on oath. Sub-section (7) casts duty on the person/entity to sign the notes of examination under sub-section (5) to be used in evidence against him, whereas sub-section (6) provides for initiation of criminal prosecution against person/entity for failure to perform the duty cast under sub sections (2),

Order in respect of Ms. Ilaben Manojbhai Majevadiya in the matter of Unregistered Investment Advisory activities by Khanda group (3), (5) & (7). 10. On a careful examination of the provisions mentioned under various sub-sections of the Section 11C of SEBI Act, I note that the sub-sections (2), (3), (5) & (7) casts a sacrosanct duty upon the company/registered intermediary/as well as on any person associated with securities market not only to preserve, produce and furnish the information/documents to the IA but also to appear before the IA and to answer all or any question which is put to him by the Investigating Authority in the course of investigation. Failure to do the same makes them liable for criminal prosecution punishable with imprisonment for a term which may extend to one year, or with fine, which may extend to one crore rupees, or with both, and also with a further fine which may extend to five lakh rupees for every day after the first during which the failure or refusal continues. 11. It may be noted that under sub-section (2) of Section 11C, the persons/entity mentioned under the provision are mandated with a twin duty i.e. (a) to preserve all the books, registers, other documents and record of, or relating to, the company/ the intermediary and (b) to produce the same to the IA as and when demanded/called for by the IA.

Sub-section (3) of Section 11C on the one hand empowers the IA to call for records, books or other documents which he views or finds relevant or necessary for the purposes of investigation and on the other hand also imposes a duty on the person/entity concerned to furnish such books, records and/or information to the IA. The language used by the legislature in sub-section (2) imposes duty in clear and unambiguous terms to the concerned to preserve books, records etc., and to produce the same upon been asked by the IA. Similarly, under sub-section (3) of Section 11C of the SEBI Act, the Parliament in its wisdom has not restricted the meaning and import of the provision only to empower the IA to call for information and by using phrases as the “to furnish such information to, or produce such books, or registers, or other documents, or record before him or any person authorized by it in this behalf,” categorically imposes a duty on the persons to co-operate with the IA to enable the IA to perform its duties as assigned to it under the Act. To guard against violation of the provisions of Sections 11C(2) & (3) sub-section (6) of Section 11C spells out the penal consequences for non-compliance with sub-section (2), (3), (5) and (7) of Section 11C of the Act.

12. After analyzing the provisions of Section 11C of the SEBI Act as discussed above, it would be Order in respect of Ms. Ilaben Manojbhai Majevadiya in the matter of Unregistered Investment Advisory activities by Khanda group untenable to hold that sub-section (3) only empowers the IA to call for records and imposes no duty to furnish or provide the same. Such an interpretation would go against the very object and purpose of the provisions. The intentions of the legislature is further amplified from the wording used under sub-section (6), which not only encompasses provisions to deter the delinquent but also contains provision for effective enforcement/implementation of the said provisions by providing for initiation of proceeding punishable with imprisonment upto one year, or with fine or with both. Thus, it is evident that a statutory duty is cast under sub-section (3) to comply and to co-operate with the investigation process and to provide the information/records as may be required by the IA and any failure without a reasonable cause shall be visited by Prosecution Proceedings. 13. On a plain reading, it may be observed that the sub-sections (2) and (3) of Section 11C are complementary to each other in so far as one sub-section empowers IA to requisition information while the other sub-section creates a liability in the form of duty to preserve, produce and furnish information.

The principles of interpretations of statute warrants that attempt should be made to give a literal construction to the words used in a statute, however, the same needs to be avoided if it results in absurdity, injustice and unconstitutionality. In such a situation one should construe the real meaning having regard to the legislative object and purpose behind enacting the provision as well as the context or the setting in which it has been provided so as to arrest the mischief sought to be remedied by the Legislature. 14. Once information is called for by IA under Section 11C(3), it necessarily commands performance of duty by the persons/entity who has been called upon to furnish such information failing which it results in violation of both Sections 11C(2) as well as 11C(3) thereby inviting consequent prosecution actions under sub-section (6). Therefore, any attempt to give any other contrary meaning to the provisions would in effect render the provision under sub-section (4) and/or (6) meaningless, thereby vitiating the legislative intent enshrined in the provisions of these sections.

Under the circumstances there is no doubt in my mind that Section 11C (3) is a violative section, and non-compliance thereof shall invite penal consequences. 15. Having observed that the Section 11C(3) is a violative provision, I proceed to examine whether the Noticee has violated the said provision and deserves to be imposed a penalty under Section

Order in respect of Ms. Ilaben Manojbhai Majevadiya in the matter of Unregistered Investment Advisory activities by Khanda group

15A (a) of SEBI Act. I have carefully perused the charges against the Noticee stated in the SCN and the materials available on record. It has been alleged that the Noticee failed to comply with the summons dated January 25, 2016 and reminder letter dated February 17, 2016 issued by the Investigating Authority under sections 11 (2) and 11C (3) of SEBI Act and in view of the same the Noticee has been asked to respond as to why penalty prescribed under Section 15A(a) of the SEBI Act should not be imposed for not submitting the information sought by the IA/under the summons. The relevant provision of Section 15 A (a) is reproduced as under: “Penalty for failure to furnish information, return, etc. 15A.If any person, who is required under this Act or any rules or regulations made thereunder, (a) to furnish any document, return or report to the Board, fails to furnish the same, he shall be liable to a penalty which shall not be less than one lakh rupees but which may extend to one lakh rupees for each day during which such failure continues subject to a maximum of one crore rupees;………………” 16. I observe that the Noticee was required to submit the details sought by summons dated - January 25, 2016 by February 01, 2016 and vide reminder dated February 17, 2016 on or before February 24, 2016. No reply was received from the Noticee even after acknowledging the receipt of the summons and the reminder letter.

The Noticee was further informed of consequential proceedings of Adjudication and Prosecution under the SEBI Act, which may follow as a result of non-compliance with the said summonses. However, the Noticee neither furnished the details sought by the IA nor any reason for not being able to comply with the requisition. 17. I note that the issue pertaining to imposition of penalty under Section 15 A (a) of SEBI Act, for non-compliance of the summons issued by IA came up for consideration before the Hon’ble SAT in the matter of Bharat Shantilal Thakkar vs SEBI in which while re-iterating its earlier decision in the matter of DKG Buildcon the Hon’ble SAT has held as under:- “15We cannot accept the above contention of the appellant’s learned counsel. It is not necessary to discuss the nuances of section 11(C)(6) and section 15A(a) for considering the issue at hand. The issue has been considered by this Tribunal in the case of DKG Buildcon Pvt. Limited vs. Securities and Exchange Board of India, [Appeal no.106 of 2006 decided on January 7, 2009]. The adjudicating officer has highlighted the decision of this Tribunal in the above case and also the salient portions of the order.

Suffice it to say that the provisions of section 11(C)(3) empower the investigating authority to call for relevant information

Order in respect of Ms. Ilaben Manojbhai Majevadiya in the matter of Unregistered Investment Advisory activities by Khanda group for the purpose of investigation and the provisions of section 15A(a) deal with penalties for failure to furnish any document or return to the Board. In order to advance the objective of the enactment the provisions have to be given a wider meaning and viewed from this angle, provisions of section 15A(a) can be invoked for failure to furnish information/document/returns as called for by the investigating authority. The relevant portion of the observation of this Tribunal in the above case is extracted below.

“Section 11C of the Act was introduced with effect from 29.10.2002 and sub-section (3) thereof provides that the investigating authority may require any person associated with the securities market “to furnish such information, or produce such books, or registers, or other documents, or record before him…”. The power to require a person to furnish any information or record or documents includes the power to require such person to make a statement and give clarifications with regard to the information and documents produced by him. In the absence of such a power the purpose of the legislature in introducing section 11C would be frustrated and the Board will not be able to investigate properly the market irregularities and offences. In order to advance the object of Parliament the language used in sub-section (3) of section 11C has to be given a wider meaning. We are, therefore, of the considered opinion that section 11C (3) gives the power to the investigating authority to call upon any person to make a statement while furnishing any information, document or record.” In the above view the imposition of penalty under section 15A(a) by the adjudicating officer cannot be faulted”.

18. Thus, I find that the Noticee was given repeated opportunities by the IA to comply with the summons. I am also of the view that it is the duty, responsibility and obligation of every person from whom information is sought to fully co-operate with IA and promptly produce all documents, records, information, etc., to the IA. If the summons issued by the IA are allowed to be flouted and not taken seriously, SEBI, as the watchdog of the securities market, will not be able to discharge its statutory obligations in protecting the interests of the investors and safeguarding the integrity of the securities market. As the Noticee did not provide the requisite information nor did she respond to the summonses in any manner her defiant conduct has certainly thwarted the attempt by the IA to gather vital evidence for a timely conclusion of the investigation proceedings.

19. In the light of the above, I hold that the finding recorded by the AO in the impugned order dated November 24, 2017 is erroneous and detrimental to the interest of securities market and therefore, I set aside the said order dated November 24, 2017 in view of my finding that Order in respect of Ms. Ilaben Manojbhai Majevadiya in the matter of Unregistered Investment Advisory activities by Khanda group violation of the provisions of 11C (3) of SEBI Act by the Noticee stands established, which render the Noticee liable to be penalised under section 15A(a) of the SEBI Act.

20. The Hon’ble Supreme Court of India in the matter of SEBI Vs. Shri Ram Mutual Fund [2006] 68 SCL 216(SC) held that “In our considered opinion, penalty is attracted as soon as the contravention of the statutory obligation as contemplated by the Act and the Regulations is established and hence the intention of the parties committing such violation becomes wholly irrelevant…”. 21. While determining the quantum of penalty under section 15A (a), it is important to consider the factors stipulated under section 15J of SEBI Act. In this respect, it is noted that no quantifiable figures are available to assess the disproportionate gain or unfair advantage made as a result of the default. It is not possible to quantify the exact gains made by the Noticee or the loss caused to the investors as a result of the failure on its part to comply with the summons. The Hon’ble, SAT in Appeal No: 114 of 2005 Nokia Finance International Pvt. Ltd.Vs SEBI, while upholding the penalty imposed by AO held that the failure on the part of the Noticee to comply with the summons has to be viewed seriously. 22. I observe that the information sought by the IA was very significant and relevant, which would have enabled the IA to draw precise conclusions in the matter which also involved investigation into the affairs of other related entities/persons of the Khanda group.

Had the Noticee complied with the summonses and provided the factual information at the appropriate time, the IA would have been in a better position to examine the role of various related entities involved in the activities of acting as an unregistered investment advisory. The information sought from the Noticee are not otherwise available in public domain and remain exclusive to the Noticee. I note that the Noticee did not provide various crucial information called from it such as details of investors availing advisory services of the Noticee, copy of bank statement and other relevant documents evidencing the receipt of the amount, relationship of the Noticee with Mr. Firoz Rafiq Khanda and Mr. Mansoor Rafiq Khanda and further transaction with the above Khandas. It is therefore amply clear that the information sought by the IA were crucial and central to the investigation and failure on the part of the Noticee to comply with the summonses has indeed adversely affected the investigation. Lastly, with regard to the repetitive nature of the default, I find that the IA had issued summons dated January 25, 2016 and reminder dated February 17, 2016 to the Noticee, however, no information had come

Order in respect of Ms. Ilaben Manojbhai Majevadiya in the matter of Unregistered Investment Advisory activities by Khanda group forward from the Noticee.

ORDER 23. In view of the foregoing discussions and observations, I, in exercise of the powers under Sections 15 –I(3) of SEBI Act, 1992 read with Section 19 thereof, set aside the impugned order dated November 24, 2017 having found the same as erroneous and detrimental to the interest of securities market and further find the Noticee has violated the provisions of SEBI Act alleged in this order and hereby direct as under:

(A)Considering the facts and circumstances of the case and the violation committed by the Noticee, I find that imposing a penalty of Rs. 5,00,000/- (Rupees Five Lakhs only) on the Noticee would be commensurate with the violation of Section 11C(3) of the SEBI Act by the Noticee.

(B) The penalty shall be paid by way of demand draft drawn in favour of “SEBI – Penalties Remittable to Government of India” payable at Mumbai or by e-payment in the account of “SEBI -Penalties Remittable to Government of India”, A/c No. 31465271959, State Bank of India, Bandra Kurla Complex Branch, RTGS Code SBIN0004380 within 45 days of receipt of this order. The said demand draft or forwarding details and confirmations of e-payments made (in the format as given in table below) should be forwarded to “The Division Chief, Enforcement Department (EFD1-DRA III),Securities and Exchange Board of India, SEBI Bhavan, Plot No. C –4 A, “G” Block, Bandra Kurla Complex, Bandra (E), Mumbai –400 051” and also to email id:-tad@sebi.gov.in Case Name Name of payee: Date of payment: Amount paid:

Order in respect of Ms. Ilaben Manojbhai Majevadiya in the matter of Unregistered Investment Advisory activities by Khanda group

Transaction no.: Bank details in which payment is made: Payment is made for : (like penalties/ disgorgement/ recovery/settlement amount and legal charges along with order details)

-Sd-

Date: 30/11/2018 S. K. Mohanty Place: Mumbai Whole Time Member

Order in respect of Ms. Ilaben Manojbhai Majevadiya in the matter of Unregistered Investment Advisory activities by Khanda group