Order in the matter of Capquest Research Private Limited

Under Sections 11(1), 11(4)(b) and 11B of the Securities and Exchange Board of India Act, 1992, in the matter of Capquest Research Pvt. Limited

Capquest Research Pvt. Limited (PAN: AAGCC0137R) Shri Gitesh Malik (PAN: BJVPM8516J; DIN: 07159286); Shri Shanshanka Sharma (PAN: EFHPS5052E; DIN: 07159273) and Shri Prashant Kumar (PAN: BTDPK3372G; DIN: 07159278) Background 1. Securities and Exchange Board of India ("SEBI") received complaints in 2015 wherein it was alleged that Capquest Research Private Limited and its promoters / directors namely Gitesh Malik, Shashanka Sharma and Prashant Kumar (hereinafter collectively referred to as "CRPL/the Company") were offering trading tips / investment advice and were soliciting clients through their website (www.capquestresearch.com) under various plans.

2. Pursuant to the same, SEBI conducted a preliminary examination of the activities of CRPL, with a view to ascertain possible violations of the Securities and Exchange Board of India Act, 1992 (“SEBI Act, 1992”) and the Securities and Exchange Board of India (Investment Advisers) Regulations, 2013 (“IA Regulations”).

3. Prima facie findings/allegations in brief: Pursuant to the examination, SEBI passed an interim order dated July 4, 2017, against CRPL and its promoter/directors Shri Gitesh Malik, Shri

Order in the matter of CRPL Advisory Services dated August 22, 2017

Shashanka Sharma and Shri Prashant Kumar (hereinafter referred to as “Noticees”), wherein, inter alia, the following prima facie findings/allegations were recorded:

a. CRPL (CIN:U74140DL2015PTC279589) was incorporated on April 28, 2015. Its registered address is A-30, FIFE Complex, Okhla Industrial Area, Phase -11, New Delhi – 20. Shri Gitesh Malik, Shri Shashanka Sharma and Shri Prashant Kumar are the promoter/directors of CRPL.

b. From the website of CRPL and from submissions of CRPL vide letter dated September 21, 2015, it is noted that CRPL offered the following types of services at the indicated prices:

Sr. Type of Service & related Nature Pricing no details 1 Cash Intraday On daily Plan Basic Standard Premium (Day trading, taking basis one Duration INR INR INR advantage of rising and call 1 month 9,000 12,000 15,000 falling market, short selling 3 month 20,000 25,000 30,000 taking advantage of falling 6 month 30,000 40,000 50,000 stock prices.) 12 month 45,000 55,000 65,000 2 Cash Positional 7-8 calls Plan Basic Standard Premium (Maximum holding period in a Duration INR INR INR will be 2-3 days, designed for month 1 month 15,000 20,000 25,000 traders who avoid taking risk 3 month 30,000 35,000 40,000 in futures, trade in stocks 6 month 45,000 50,000 60,000 which are technically strong) 12 month 60,000 75,000 90,000 3 Intraday Futures On daily Plan Basic Standard Premium (For traders taking basis one Duration INR INR INR advantage of intraday trading call 1 month 9,000 15,000 20,000 in huge volume and market 3 month 20,000 30,000 45,000 conditions, approx. 5-7% 6 month 30,000 45,000 60,000 profit per lot, all open 12 month 45,000 60,000 80,000 position squared off automatically ) 4 BTST/STBT PRO 10-15 Plan Basic Standard Premium (For traders who don’t have calls in Duration INR INR INR time to track the stocks in month 1 month 15,000 20,000 25,000

Order in the matter of CRPL Advisory Services dated August 22, 2017 the live market, approx. 8-10 3 month 30,000 45,000 60,000 % profit per lot) 6 month 45,000 60,000 80,000 12 month 60,000 85,000 1,00,000 5 Futures jackpot 7-8 calls Plan Basic Standard Premium (Entry and exit on right time in a Duration INR INR INR and with daily market month 1 month 20,000 25,000 30,000 outlook update, approx. 6- 3 month 30,000 45,000 60,000 8% profit per lot, Monthly 1 6 month 40,000 60,000 90,000 Jackpot call) 12 month 50,000 85,000 1,20,000 6 Intraday options On daily Plan Basic Standard Premium (Earning on daily basis, basis one Duration INR INR INR guidance and better call 1 month 7,000 10,000 15,000 opportunities to make 3 month 15,000 20,000 25,000 money on daily basis with 6 month 20,000 25,000 30,000 trading discipline.) 12 month 25,000 30,000 40,000 7 Option BTST 10-15 Plan Basic Standard Premium (For making huge amount of calls in Duration INR INR INR money overnight with month 1 month 10,000 15,000 20,000 minimum risk, approx. 150- 3 month 20,000 25,000 30,000 200% profit per lot, entry in 6 month 30,000 40,000 50,000 the last hour and exit in the 12 month 40,000 50,000 60,000 first hour) 8 Option Payoff 7-8 calls Plan Basic Standard Premium (For traders with less capital in Duration INR INR INR and risk avoiders, buy month 1 month 15,000 20,000 25,000 option, limited risk and 3 month 30,000 45,000 60,000 unlimited profit, safe 6 month 45,000 60,000 80,000 strategy with required 12 month 60,000 85,000 1,00,000 knowledge) 9 Index Intraday On daily Plan Basic Standard Premium (Help overcome fluctuations basis one Duration INR INR INR in NIFTY because of the call 1 month 9,000 12,000 15,000 news that come at night. 3 month 20,000 25,000 30,000 Efficient profit 6 month 30,000 40,000 50,000 management) 12 month 45,000 55,000 65,000 10 Index Champion 7-8 calls Plan Basic Standard Premium (Index trading based on in Duration INR INR INR technical analysis tools, for month 1 month 15,000 20,000 25,000 traders looking for low risk 3 month 30,000 45,000 60,000 and high returns in a very 6 month 45,000 60,000 80,000 short period, holding period 12 month 60,000 85,000 1,00,000 1-2 days, 1 contract active at one time.)

Order in the matter of CRPL Advisory Services dated August 22, 2017 c. Under these plans of service, CRPL is offering stock tips in both segments i.e. cash and derivatives. Further, the frequency of calls/recommendation vary from segment to segment. For instance, an investor opting for intraday cash, the recommendation frequency is 1 call per day. Similarly, an investor opting for "Cash Positional", the recommendation frequency is 7 to 8 calls per month.

d. From the aforesaid details displayed in their website, the users/investors are advised by CRPL to undertake the transactions based on the updates/stock tips provided through Mail, SMS, web-login etc. Depending on the plan opted for by the investors, recommendation calls are made by CRPL for giving tips to them. Similarly on an analysis of information on the website www.capquest research.com, it is noted that the company is also assuring guaranteed return on execution of its stock tips and is providing assurance of 90% accuracy of its tips.

e. CRPL has stated that there is no executed copy of agreement with the client, but CRPL does send invoice to the customer along with copies of disclaimer, terms and conditions, cancellation and refund policy and privacy policy as per information provided to SEBI. The same are also appearing on its website indicating that CRPL is having a contractual arrangement with its clients with respect to the plans subscribed and services provided.

f. As per letter dated 21/09/2015 submitted by CRPL to SEBI, it has received Rs.24,19,716 from 233 investors. Further, as per letter dated 21/01/2016, CRPL has received Rs. 24,82,239 from 228 investors.

g. CRPL in all its letters to SEBI admitted that they are engaged in the business of providing stock tips to its clients and is in the process of applying to SEBI for seeking registration as an investment adviser. In its letter dated January 21, 2016 it stated that “The company is not at all involved in the trading on behalf of the customer or any

Order in the matter of CRPL Advisory Services dated August 22, 2017 other medium, the company is only involved in advising the clients to BUY/SELL the stocks based on the research and analysis.”

4. In view of the prima facie findings on the violations, the following directions were issued in the said interim order dated July 4, 2017 against CRPL and its promoters/directors Shri Gitesh Malik, Shri Shashanka Sharma and Shri Prashant Kumar with immediate effect:

i. “to cease and desist from acting as an investment advisor and cease to solicit or undertake such activity or any other activities in the securities market, including buy, sell or otherwise deal in securities market, either directly or indirectly with immediate effect;

ii. not to divert any funds raised from investors, kept in bank account(s) and/or in their custody until further orders, except for the purpose of refunds to the clients; and iii. withdraw and remove all advertisements, representations, literatures, brochures, materials, publications, documents, websites, etc. in relation to their investment advisory activity or any other unregistered activity in the securities market with immediate effect.”

5. In the interim order it was stated that CRPL and its promoters/directors Shri Gitesh Malik, Shri Shashanka Sharma and Shri Prashant Kumar,would be afforded 21 days, from the date of receipt of the interim order, to file his replies, if any and to seek an opportunity of personal hearing, if they so desired.

6. Service of interim order and hearing notice: The interim order dated July 4, 2017 was sought to be served on CRPL and its promoters/directors Shri Gitesh Malik, Shri Shashanka Sharma and Shri Prashant Kumar, vide letters dated July 7, 2017 and August 3, 2017 which got delivered to the Company but returned undelivered from the promoters/directors. Vide

Order in the matter of CRPL Advisory Services dated August 22, 2017 affixture dated August 30, 2017, the Order was served on Shri Shashanka Sharma and Shri Gitesh Malik. Subsequently, vide notifications dated October 15, 2017, published in the newspapers The Times of India and Navbharat Times, the said interim order was served on Shri Prashant Sharma and the Noticees were granted an opportunity of personal hearing by SEBI on November 30, 2017 at the time and venue mentioned therein.

7. Hearing and submissions: The Noticees failed to appear for the personal hearing on November 30, 2011 and also failed to file any written submission pursuant to the aforesaid interim order.

8. I have considered the allegations. I have perused the information received by SEBI, correspondence exchanged between SEBI and the Noticees, along with the documents contained therein and other information/materials available from the website and those on record. On perusal of the materials on record, the following issues arise for consideration. Each question is dealt with separately under different headings:

i. Whether CRPL and the promoters/directors Shri Gitesh Malik, Shri Shashanka Sharma and Shri Prashant Kumar were providing unregistered Investment Advisory services. ii. If so, whether CRPL and the promoters/directors Shri Gitesh Malik, Shri Shashanka Sharma and Shri Prashant Kumar, have violated section 12(1) of the SEBI Act and regulation 3 of the IA Regulations. iii. If the findings on Issue No. 2 are found in the affirmative, who are liable for the violation committed?

Issue No. 1: Whether CRPL and the promoters/directors Shri Gitesh Malik, Shri Shashanka Sharma and Shri Prashant Kumar were providing unregistered Investment Advisory services.

9. I have perused the interim order dated July 4, 2017 for the allegation of unregistered Investment Advisory services.

Order in the matter of CRPL Advisory Services dated August 22, 2017

10. I note that vide letter dated August 21, 2015, it has been submitted that CRPL provided trading tips in equity and equity derivatives. I also note that vide letter dated September 21, 2015, it has been submitted by Shri Gitesh Malik that CRPL was involved in “advising the clients to BUY/SELL the stocks” based on research and analysis done by him.

11. I have perused the Memorandum of Association of the Company and observe that the main object of CRPL is “To carry on the work of research activities in the area of equity, investment, stock, securities and real estate and to act as portfolio managers, fund managers, investment consultant & advisors to corporate bodies, individuals and others, to give advice and suggest ways to maximize their capital, to support the clients for timely and well informed investment decisions, to provide both fundamental and technical analysis, to provide a cost effective way of doing research and analysis, to help investors in investment decisions, to make them understand whether to enter or exit a market position (emphasis supplied).”

12. I further note that as per the submissions made by the Noticees, there is no executed copy of agreement with the client. However, I find that CRPL sends invoice to the customer along with copies of disclaimer, terms and conditions, cancellation and refund policy and privacy policy as per information provided to SEBI. Further I note that the same also appeared on its website. Therefore, I find that CRPL had a contractual arrangement with its clients with respect to the plans subscribed and services, provided as observed in the interim order.

13. Further on an analysis of information on the website www.capquest research.com and from the submissions of the Noticees, I observe that the company has assured guaranteed return on execution of its stock tips and is providing assurance of 90% accuracy of its tips. This has also been observed in the interim order, as indicated in paragraph 3(d) of this Order.

Order in the matter of CRPL Advisory Services dated August 22, 2017

14. On perusal of the bank account statements I observe that there were regular flow of funds in the bank accounts through cash or online transfers. I note that as per letter dated September 21, 2015 submitted by CRPL to SEBI, it has received Rs.24,19,716 from 233 investors. Further, as per letter dated January 21, 2016, CRPL has received Rs. 24,82,239 from 228 investors as fees.

15. I have perused the definition of Investment Adviser as given in regulation 2(m) of the IA Regulations, which states that “investment adviser” means any person, who for consideration, is engaged in the business of providing investment advice to clients or other persons or group of persons and includes any person who holds out himself as an investment adviser, by whatever name called.” Further, I have perused regulation 2(l) of the IA Regulations which defines investment advice as “advice relating to investing in, purchasing, selling or otherwise dealing in securities or investment products, and advice on investment portfolio containing securities or investment products, whether written, oral or through any other means of communication for the benefit of the client and shall include financial planning.” The activities of CRPL, as brought out from the material available on record, seen in the backdrop of the provisions clearly show that the Noticees acted as investment advisers. The Noticees vide its submissions dated August 21, 2015, September 21, 2015 and January 21, 2016 has stated that CRPL was in the process of registration as an investment advisor. However, no material was available on record to indicate that the Noticees have applied for certificate of registration as investment adviser. Further, I find no merit in the said submission as the relevant legal provisions mandate the requirement of certificate of registration for even starting the investment advisory services, in cases where the investment advisory services were begun to be provided after the IA Regulations came into effect on April 21, 2013.

16. Therefore, I find that the activities of CRPL such as giving trading tips, stock specific recommendations, etc. to the investors on payment of fees clearly indicate that they were engaged in providing unregistered investment advisory services. Further, the Noticees have declared themselves as investment advisers. I also find that CRPL has received Rs. 24,82,239 from 228 investors as consideration for investment advisory services. Order in the matter of CRPL Advisory Services dated August 22, 2017

Issue No. 2: If so, whether CRPL and the promoters/directors Shri Gitesh Malik, Shri Shashanka Sharma and Shri Prashant Kumar, have violated section 12(1) of the SEBI Act and regulation 3 of the IA Regulations.

17. I note that as a measure of investor protection, it is imperative on any person carrying out investment advisory activities, to obtain registration and conduct its activities in accordance with the provisions of the SEBI Act and the IA Regulations. I have perused of Section 12(1) of the SEBI Act which states that “No stock broker, sub-broker, share transfer agent, banker to an issue, trustee of trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser and such other intermediary who may be associated with securities market shall buy, sell or deal in securities except under, and in accordance with, the conditions of a certificate of registration obtained from the Board in accordance with the regulations made under this Act.”

Further, I note that as per regulation 3(1) of the IA Regulations, 2013, “on and from the commencement of these regulations, no person shall act as an investment adviser or hold itself out as an investment adviser unless he has obtained a certificate of registration from the Board under these regulations.”

18. The Noticees admittedly do not have the registration as an investment adviser with SEBI. The proviso to regulation 3 of the IA Regulations states that “a person acting as an investment adviser immediately before the commencement of these regulations may continue to do so for a period of six months from such commencement or, if it has made an application for a certificate … within the said period of six months, till the disposal of such application.” The IA Regulations were notified on January 21, 2013. The IA Regulations came into effect on April 21, 2013. Therefore, any person who had been providing investment advisory service Order in the matter of CRPL Advisory Services dated August 22, 2017 before the IA Regulations came into effect can, by virtue of the proviso under regulation 3, continue to do so without a certificate of registration till October 20, 2013, beyond which the said person would have to obtain a certificate of registration or may continue to do so till the time his application for registration is disposed of. As per the material available on record, CRPL was incorporated on April 28, 2015, and is therefore, outside the scope of the above proviso. Therefore, CRPL ought to have provided Investment Advisory services only after obtaining the certificate of registration from SEBI. I also find that there is nothing on record, to show that CRPL falls in any of the categories of exemption as provided under regulation 4 of the IA Regulations. The Noticees have not submitted any representation contending the same, as well. Further, I find that there is no merit in the submission of the Noticees that it was in the process of registration as per the relevant legal provisions, as they had clearly violated the law by acting as investment advisory services without mandatory certificate of registration which is not mitigated by any intention of getting registered as claimed by the Noticees.

19. In view of the above, I find that CRPL and its promoter/directors Shri Gitesh Malik, Shri Shashanka Sharma and Shri Prashant Kumar have violated section 12(1) of the SEBI Act read with regulation 3(1) of the IA Regulations.

Issue No. 3: If the findings on question No.2 are found in the affirmative, who are liable for the violation committed?

20. In view of the foregoing, CRPL and its promoter/directors Shri Gitesh Malik, Shri Shashanka Sharma and Shri Prashant Kumar are liable for the aforesaid violations of section 12(1) of the SEBI Act read with regulation 3(1) of the IA Regulations. In order to safeguard the interest of the investors and their investments, and to further ensure orderly development of securities market it becomes necessary for SEBI to issue appropriate directions against CRPL and its promoter/directors Shri Gitesh Malik, Shri Shashanka Sharma and Shri Prashant Kumar.

Order in the matter of CRPL Advisory Services dated August 22, 2017

21. Since the Noticees have admittedly collected Rs. 24,82,239 from at least 228 clients for acting as unregistered investment adviser, it would be reasonable that such funds collected in any name are liable to be returned to the clients.

22. Section 11 of SEBI Act casts a duty on the Board to protect the interests of investors in securities and to promote the development of and to regulate the securities market. For achieving such object, it has been authorized to take such measures as it thinks fit. Thus, power to take all measures necessary to discharge its duty under the statute which is a reflection of the objective disclosed in the preamble has been conferred in widest amplitude.

23. Section 11B and Section 11(4) of SEBI Act are functional tools in the hands of the Board. In effect, Section 11B and Section 11(4) SEBI Act are some of the executive measures available to SEBI to enforce its prime duty of investor protection. SEBI is empowered to issue directions in the interests of investors of any person or class of persons referred to in Section 12 of the SEBI Act or associated with the securities market.

24. In view of the discussion above, appropriate action in accordance with law needs to be initiated against CRPL and its promoter/directors Shri Gitesh Malik, Shri Shashanka Sharma and Shri Prashant Kumar. In my view, CRPL has not been given an opportunity to controvert its liability to refund the money collected from the investors as fee. In view of this, the order will take effect against CRPL as stated below.

25. Therefore, I, in exercise of the powers conferred under section 19 of the SEBI Act read with sections 11(1), 11(4),and 11B of the SEBI Act, hereby issue the following directions:

a. CRPL shall forthwith refund the money received from the clients in respect of the unregistered investment advisory activities, and submit a certificate from a peer reviewed Chartered Accountant who is in the panel of any public authority or public institution, within a period of 3 months. For the purpose of this Order, a peer reviewed Chartered Accountant

Order in the matter of CRPL Advisory Services dated August 22, 2017 shall mean a Chartered Accountant, who has been categorized so by the Institute of Chartered Accountants of India ("ICAI").

b. CRPL is directed not to divert any funds raised from investors, kept in bank account(s) and/or in their custody, except for the purpose of refunds to the clients.

c. The repayments to the clients shall be effected only through Bank Demand Draft or Pay Order both of which should be crossed as “Non-Transferable” or through any other appropriate banking channels with clearly identified beneficiaries.

d. CRPL and its promoter/directors Shri Gitesh Malik, Shri Shashanka Sharma and Shri Prashant Kumar are directed not to, directly or indirectly, access the securities market, and are prohibited from buying, selling or otherwise dealing in the securities market, directly or indirectly in whatsoever manner, till the expiry of 4 years from the date of refund of the money as directed in paragraph 25(a) above and its promoter/directors Shri Gitesh Malik, Shri Shashanka Sharma and Shri Prashant Kumar are also restrained from associating with any listed public company and any public company which intends to raise money from the public, or any intermediary registered with SEBI till the expiry of 4 years from the date of refund of the money as directed in paragraph 25(a) above.

e. CRPL and its promoter/directors Shri Gitesh Malik, Shri Shashanka Sharma and Shri Prashant Kumar, shall not undertake, either directly or indirectly, investment advisory services or any activity in the securities market without obtaining a certificate of registration from SEBI as required under the securities laws after the expiry of period of debarment as mentioned in paragraph 25(d).

f. This order will take effect as final order against CRPL, on the expiry of 30 days from the date of service of this order against CRPL, unless CRPL, within such period of 30 days from the date of service of this order files its objections on its liability to refund, receivable by SEBI within the said 30 days period. If no objections are filed, the directions vide interim order dated July 4, 2017 shall continue against CRPL till the time of said 30 days Order in the matter of CRPL Advisory Services dated August 22, 2017 period, after which this order will come into effect. If objections are filed by CRPL, receivable by SEBI within the said 30 days period, the interim directions vide interim order dated July 4, 2017 shall continue qua CRPL till disposal of the said objections qua CRPL and the directions passed herein against CRPL shall be made applicable subject to the determination on the objections.

g. The above directions shall come into force with immediate effect in respect of other noticees.

26. Copy of this Order shall be forwarded to the recognized stock exchanges and depositories, registrar and transfer agents, for information and necessary action.

DATE: December 11, 2017 PLACE: Mumbai MADHABI PURI BUCH WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

Order in the matter of CRPL Advisory Services dated August 22, 2017