Order in the matter of Asian Corporate Consultancy Limited

WTM/PS/182/EFD/MAR/2016 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER ORDER Under Sections 11(1), 11(4), 11B and 11D of the Securities and Exchange Board of India Act, 1992 read with SEBI (Portfolio Managers) Regulations, 1993 and SEBI (Investment Advisers) Regulations, 2013 In the matter of Asian Corporate Consultancy In respect of Asian Corporate Consultancy and its proprietor namely, Mr. Dilip Anantrai Desai [PAN: AABPD3489M] 1. Securities and Exchange Board of India (hereinafter referred to as 'SEBI'), issued an ex-parte interim order dated April 24, 2015 (hereinafter referred to as 'the interim order') against one Asian Corporate Consultancy (hereinafter referred to as ‘Asian Corporate’) and its proprietor namely Mr. Dilip Anantrai Desai (hereinafter collectively referred to as 'noticees'), pursuant to a preliminary examination into its business activities. The interim order observed that Asian Corporate was providing the services of investment adviser as well as portfolio manager to its clients without obtaining the necessary registrations from SEBI, in contravention of Section 12(1) of the SEBI Act, 1992 (hereinafter referred to as ‘SEBI Act’) read with SEBI (Investment Advisers) Regulations, 2013 (hereinafter referred to as the ‘IA Regulations’) and SEBI (Portfolio Managers) Regulations, 1993 (hereinafter referred to as the ‘PMS Regulations’).

2. In order to protect the interests of investors in securities and to prevent Asian Corporate from soliciting and collecting further funds from the investors and carrying on portfolio management services without due registration from SEBI and to ensure that Mr. Dilip Anantrai Desai and Asian Corporate do not indulge in an unauthorized investment advisory, the interim order issued the following directions against, the noticees: “… a. to cease and desist from acting as an investment advisor and portfolio manager and not to solicit or undertake such activity or any other activities in the securities market, directly or indirectly, in any matter whatsoever; b. not to divert any funds raised from the investors.” 3. The aforesaid directions came into force with immediate effect and the noticees were advised to file their reply within a period of twenty one (21) days from the date of receipt of the interim order and also to indicate whether they wish to avail an opportunity of personal hearing in the matter. The interim order further advised that it shall be treated as a show cause notice and the noticees may show cause as to why appropriate directions under the SEBI Act and the relevant SEBI Rules/ Regulations including direction, prohibiting them from buying, selling or otherwise dealing in securities market, either directly or indirectly, in any manner whatsoever, should not be issued against them.

4. The interim order was forwarded to Mr. Dilip Anantrai Desai on July 01, 2015. Mr. Dilip Anantrai Desai vide his letter dated July 03, 2015, replied to the letter of SEBI. Before proceeding further with the matter, an opportunity of personal hearing was afforded to Mr. Dilip Anantrai Desai on September 07, 2015. The date of personal hearing was communicated vide letter dated August 11, 2015. Mr. Dilip Anantrai Desai, proprietor, Asian Corporate Consultancy vide his letter dated August 24, 2015 submitted a detailed reply and waived the opportunity of personal hearing in the matter.

5. The submissions of Mr. Dilip Anantrai Desai, in brief are as under:

a. He had not carried out any activity in the nature of an ‘investment adviser’. His advice was about coaching on operations of the stock markets, commodity markets, etc. and were generic in nature than specific. The services rendered by him, do not fit in the prescribed definitions of ‘investment adviser’. b. The IA Regulations came into effect from January 21, 2013. As per the proviso to Regulation 3(1) of the IA Regulations, the investment advisers were permitted to carry on their activities till six months from January 21, 2013, within which, if they desire to continue, shall apply for registration. Further, if a person who sought to continue with the ‘investment adviser’ activities after July 21, 2013, had to apply for the registration. He had stopped all the activities of advice, etc. well before the date of July 21, 2013 and had not carried on any such activity after April 01, 2013. He had also stopped accepting any further/ fresh mandates in any form from the said date. c. He had stopped collecting money on his own without any direction by any person including SEBI since almost two and an half years.

His activities had not caused any harm or concern to any person. The sole complaint by one person was promptly resolved. Further, there is no pending unresolved complaints against him, on any account. d. There has been a double/ multiple counting and on the basis of the same false conclusions have been drawn in the interim order. The figures for each year are the balance at the end of respective year. Thus, in case of Dilip Desai, the amount of ₹5,50,000 shown against the financial year 2010-11, is the balance as of March 31, 2011 and not the amount collected during that year. Similarly, the amount of ₹40,71,000 shown for Asian Corporate against the financial year 2010-11, represents the balance as on March 31, 2011. Further, the three amounts/ numbers for each name have been grouped together in the Order. As a result the total amount/ numbers have been shown to be almost three times the actual figure. The multiple counting has added to the gravity of the alleged charges. e. The details of the funds collected for the alleged portfolio management activities also have been counted double.

The closing balance of two years have been counted together as if they are collections of each year. The amount as on March 31, 2014 was only ₹4,25,000 that also from 4 ‘clients’ only. f. Even assuming any violation by him, the amount involved was only ₹1 lakh per person. He had not gained from any of the alleged violations. He has repaid all amounts received from such persons and has satisfied all their claims and as of today, no amount or claim is due to any person on any account. In view of the same and the co-operation offered by him, no further proceedings or adverse action be taken against him.

g. The SEBI Act and Regulations requires that before taking any adverse action one should consider whether a person has made any undue gain or cause any undue loss to any person. h. The interim order has caused him serious distress (financial and personal) and professional harm of reputation. Such consequences by themselves are punishment enough for the alleged violations. i. As per the interim order, the total deposits standing against Mr. Dilip Desai and Asian Corporate as on March 31, 2013 was ₹55,83,300 (i.e. ₹6,49,500 + ₹49,33,800). He has repaid the substantial amount (more than 70%) since last two years and the balance of such amounts are ₹16,83,400 (i.e. ₹4,42,300 by Mr. Dilip Desai + ₹12,40,000) by Asian Corporate. This balance amount will be repaid by March 31, 2016 and the audited accounts for the same will be submitted.

6. I have considered the interim order, the submissions made by the noticee, the documents provided by them and other material available on record. The following are the important observations made in the interim order: “… i. Asian Corporate is a sole proprietorship concern of Mr. Desai, having registered office at Building No. 5, Room No.3, Swapna Purthy Jivlapada CHSL, Thakkur Village, Kandivali (East), Mumbai - 400101. (Earlier at 32, Gokul Nagari Building No. 2, Opp. Gokul Concorde, Thakkur Village, Kandivali (East), Mumbai -400101); ii. Mr. Desai is in the business of providing technical and fundamental research to clients since 1998 and charges professional fees for the services rendered.; iii. Mr. Desai and Asian Corporate had accepted 'Share Trading Deposits' for the advisory, education and service based activities of Asian Corporate and also given unsecured loans to multiple entities. The details of these share trading deposits and unsecured loans are summarized as under: Deposits taken Year Share Trading No. of clients from Loans and in the name of Deposits (in ₹) whom Share Trading advances (in ₹) Deposit collected 2010-11 5,50,000 9 3,29,670 Mr. Dilip 2011-12 7,56,500 8 7,29,495 Desai 2012-13 6,49,500 16 13,18,495 2010-11 40,71,000 42 33,68,846 Asian 2011-12 44,28,000 53 31,91,662 Corporate 2012-13 49,33,800 36 47,06,912 TOTAL 1,53,88,800 164 1,36,45,080 iv.

On examination of the MoUs entered with the clients, it is observed that Mr. Desai is handling the trading accounts of his clients on profit sharing basis. The MOU, signed by Mr. Desai, states, "This Memorandum of Understanding is between D D Desai & ............ as we have been entrusted by you to handle your trading account in Asian. We will trade with care and faith. Profit sharing will be 80/20 ratio & brokerage will be .03% for F&O & delivery base 0.20%............". v. The details of funds collected by Mr. Desai for managing their port-folios are summarized as under: S.No Year Amount collected (in ₹) No. of investors 1. 2013 2,50,000 2 2. 2014 4,25,000 4 TOTAL 6,75,000 6 …” 7. While proceeding further, I note the allegations as against the noticees are that they were providing services of investment adviser and portfolio manager without obtaining registration from SEBI in contravention of the provisions of Section 12 (1) of the SEBI Act read with Regulation 3 of IA Regulations and Regulation 3 of the PMS Regulations. The issue that now arises for my consideration is: Whether the services offered by the noticees were in the nature of investment adviser and portfolio management?

8. Whether the services offered by the noticees were in the nature of investment advisers and the portfolio management?

a. The interim order has observed that Mr. Dilip A. Desai had offered two options for availing the Stock and MCX consultancy services, i.e. fixed fees payable monthly/ quarterly and acceptance of interest free deposits from the clients. I note from the interim order that Dilip A. Desai had provided technical and fundamental research to his clients since the year 1998 and in lieu of the same he had charged professional fees. He had also accepted ‘share trading deposits’ from the investors and offered updates on stock market, MCX, currency, etc. to its clients upon payment of fees. He had also given unsecured loans.

I have perused the ‘Memorandum of Understanding’ executed on the letter head of Asian Corporate and also referred in the interim order. The relevant portion of the same i.e. “we have been entrusted by you to handle your trading account in Asian. We will trade with care and faith. Profit sharing will be … Trading In case of Loss, we will try to recover in next Six months & if not recovers then in next 12 to 24 month amount will be refunded & our Tips service will be given Free….” gives an indication that the same is a document in the nature of letter of acceptance of deposit and assuring the management of funds.

I note that a 'portfolio manager' as defined under Regulation 2(cb) of the PMS Regulations is any person who pursuant to a contract or arrangement with a client, advises or directs or undertakes on behalf of the client, the management or administration of a portfolio of securities or the funds of the client. The activity as mentioned in the ‘Memorandum of Understanding’ is squarely covered in the definition of ‘portfolio manager’. Considering the same, I hereby, conclude that Mr. Dilip Anantrai Desai had acted as a ‘portfolio manager’ in the securities market in terms of the PMS Regulations without obtaining a certificate of registration from SEBI as mandated under Section 12(1) of the SEBI Act and Regulation 3 of the PMS Regulations.

b. Mr. Dilip Anantrai Desai in his submissions has stated that he had stopped accepting any further/ fresh mandates since April 01, 2013. In this regard, I have perused the copies of the ‘Memorandum of Understanding’ of his clients namely Mr. Kamlesh Patel, Mr. Ritesh Zariwala, Mr. Shivanand Aithel, Mr. Dhvani Ashok Sheth, Mr. Patesh Deshpande, Mr. Jovito dated January 04, 2014, February 04, 2014, May 02, 2013, May 09, 2013, May 16, 2014 and May 28, 2014, respectively. The last ‘Memorandum of Understanding’ available on record is dated May 28, 2014, i.e. much after the date of the claimed stopping of acceptance of any further/ fresh mandates in any form. The same raises serious doubt about the claim of Mr. Dilip Anantrai Desai that he stopped all activities since April 01, 2013.

c. Further, Mr. Dilip Anantrai Desai by his own admission as noted in the interim order had offered stock and MCX consultancy services on payment of fixed fees. The interim order also states that Mr. Desai and Asian Corporate had accepted ‘share trading deposits’ for the advisory, education and service based activities. An ‘investment adviser’ as defined under Regulation 2(m) of the IA Regulations is a person who for consideration, is engaged in the business of providing investment advice to the clients or group of persons and includes any person who holds out himself as an investment adviser. The consultancy services offered on payment of fees are clearly covered in the definition of ‘investment adviser’.

Mr. Dilip Anantrai Desai has submitted that he has stopped all his activities of advice since April 01, 2013. Mr. Dilip Anantrai Desai has further argued that the IA Regulations came into effect from January 21, 2013 and a person who sought to continue with the ‘investment adviser’ activities after July 21, 2013, had to apply for registration.

In this regard, I have perused the balance sheets of Mr. Dilip Anantrai Desai for the periods ending March 31, 2014 and September 30, 2014 and note that he had a balance of ₹8,30,000 and ₹8,10,000 under the head ‘share trading deposits’. A detailed analysis of the ‘share trading deposit’ in the balance sheet revealed that the number of customers as on March 31, 2014 were only 5 (namely Mr. Manoj Modi, Mr. Naresh Patel, Mr. Purvesh Patel, Mr. Ramesh Dattar and Mr. Rasik Gajani). As per the balance sheet as on September 30, 2014, under the same heading he had 6 customers (namely Mr. J.A. Jani, Mr. Jigna Jawalia, Mr. Manoj Modi, Mr. Naresh Patel, Mr. Ramesh Dattar and Mr. Rasik Gajani). These details hints that Mr. Dilip Anantrai Desai is continuing with the investment advisory services even after of the IA Regulations has become effective.

d. The interim order has observed that “... these activities are in violation of various provisions of IA and PMS Regulations and can put investors at great risk. Further, in case of default by Mr. Desai in meeting of obligations towards his clients/ investors, the normal remedies available to investors while dealing with a SEBI registered intermediary such as invoking the grievance redressal mechanisms, referring the matters to appropriate forums such as arbitration etc. are not available in this case.” I note that IA Regulations and PMS Regulations envisage provisions for the protection of investors who avail the services of a registered portfolio manager. It also provides the framework and manner in which IA Regulations and PMS activities are carried out. Further, Chapter III of the PMS Regulations enumerates the general obligations and responsibilities of a registered portfolio manager such as the portfolio manager shall abide by the Code of Conduct as specified in Schedule III.

9. Mr. Dilip Anantrai Desai in his submission has also argued that there has been a double/ multiple counting and wrong conclusions have been drawn in the interim order. It has been submitted by him that the figures for each year are the balance at the end of respective year and the three amounts/ numbers for each name have been grouped together in the Order. In this regard, let me refer to the details of the share trading deposits as provided in the interim order, the same is mentioned below for reference: Deposits taken in Year Share Trading No. of clients from whom Share Loans and the name of Deposits (₹) Trading Deposit collected advances (₹) Mr. Dilip Desai 2010-11 5,50,000 9 3,29,670 2011-12 7,56,500 8 7,29,495 2012-13 6,49,500 16 13,18,495 Asian Corporate 2010-11 40,71,000 42 33,68,846 2011-12 44,28,000 53 31,91,662 2012-13 49,33,800 36 47,06,912 TOTAL 1,53,88,800 164 1,36,45,080 It is observed that while calculating total ‘share trading deposit’ in the interim order, all the entries under the head ‘share trading deposit’ were added and the figure was noted as ₹1,53,88,800. However as per the submissions of Mr. Dilip, the figures for each year were the balance at the end of respective year. Having considered the same, I find merit in the submissions of Mr. Dilip Anantrai Desai and note that the figures of total ‘share trading deposit’ as in the financial year 2012-13 was ₹55,83,300 (i.e. ₹6,49,500 + ₹49,33,800) and not ₹1,53,88,800.

It has also been submitted by Mr. Dilip Anantrai Desai that the total deposits standing against his name and Asian Corporate as on March 31, 2013 was ₹55,83,300 (i.e. ₹6,49,500 + ₹49,33,800). Out of the same he has repaid the substantial amount (i.e. more than 70%) since the last two years and the remaining balance are ₹16,83,400 (i.e. ₹4,42,300 by Mr. Dilip Desai + ₹12,40,000 by Asian Corporate). I note that the noticees have not submitted any documentary proof in support of the claim of repayment of deposits. An independent examination of the bank statement of the noticees for the bank accounts wherein the share trading deposits were credited revealed that the amounts as claimed by the noticees have not been repaid to the customers. The same raises serious doubt on the claim of the noticees that 70% of the total deposits have been repaid.

10. The violation committed by the noticees, as found in the Order, does attract regulatory action by SEBI. The interim order has contemplated appropriate directions under SEBI Act and rules/ regulations including direction, prohibiting them from buying, selling or otherwise dealing in securities market, either directly or indirectly, in any manner whatsoever.

11. In view of the foregoing, I, in exercise of the powers conferred upon me under section 19 of the SEBI Act and section 11(1), 11(4), 11B and 11D thereof read with the SEBI (Portfolio Managers) Regulations, 1993, hereby issue the following directions:

a. Asian Corporate Consultancy and its proprietor namely Mr. Dilip Anantrai Desai [PAN: AABPD3489M] are hereby prohibited from buying, selling or otherwise dealing in the securities market, either directly or indirectly, in any manner whatsoever, for a period of three (3) years.

b. Asian Corporate Consultancy and its proprietor namely Mr. Dilip Anantrai Desai shall not undertake, either directly or indirectly, any activity in the securities market without obtaining registration from SEBI as required under the securities laws.

c. Asian Corporate Consultancy and its proprietor namely Mr. Dilip Anantrai Desai shall expeditiously return the monies received from its clients along with the promised returns, in respect of its unregistered portfolio manager and investment adviser activities as found in above and submit a certificate from a peer reviewed Chartered Accountant, within a period of 3 months from the date of this Order. [For the purpose of this Order, a peer reviewed Chartered Accountant shall mean a Chartered Accountant, who has been categorized so by the Institute of Chartered Accountants of India ('ICAI')]

d. If Asian Corporate Consultancy and its proprietor namely Mr. Dilip Anantrai Desai have repaid the investors as claimed, then they may include such repayment in the certificate to be submitted under para 11(c) above.

12. SEBI may also initiate Adjudication proceedings under Chapter VIA of the SEBI Act against Asian Corporate Consultancy and its proprietor namely Mr. Dilip Anantrai Desai for the violation of indulging in unregistered portfolio management services in the securities market in breach of Section 12(1) of the SEBI Act and Regulation 3 of the SEBI (Portfolio Managers) Regulations, 1993.

13. This Order shall come into force with immediate effect.

14. Copy of this Order shall be served on recognised stock exchanges and depositories for information and necessary action.

DATE : March 03, 2016 PRASHANT SARAN PLACE : Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA