Order in the matter of Vijay Kumar Gaba[SAT Appeal No.:420/2015]

WTM/PS/20IMD/JULY/2015 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 In respect of Mr. Vijay Kumar Gaba (Permanent Account Number - AAIPG6905E) Date of personal hearing : March 27, 2015 Appearance: For noticee : 1. Mr. J.J. Bhatt, Advocate and 2. Mr. Vijay Kumar Gaba (noticee in-person) For SEBI : 1. Ms. Anitha Anoop, Deputy General Manager, 2. Mr. T. Vinay Rajneesh, Assistant General Manager and 3. Mr. Ankit Goel, Assistant Manager.

1. Securities and Exchange Board of India (hereinafter referred to as "SEBI"), vide an ex-parte interim Order dated January 14, 2015 (hereinafter referred to as "the interim order") alleged that Mr. Vijay Kumar Gaba (hereinafter referred to as "the noticee" or "VKG") was conducting himself as a portfolio manager and providing the services of portfolio management as defined in regulation 2(cb) of the SEBI (Portfolio Managers) Regulations, 1992 (hereinafter referred to "the PMS Regulations"), without obtaining registration from SEBI in accordance with section 12(1) of the SEBI Act, 1992 ("the SEBI Act") and regulation 3 of the PMS Regulations. The following observations and allegations were inter alia made in the interim order: ".......... 4.1 While the rival claims and counter claims put forward by Sharma and VKG will have to be settled at appropriate legal fora, the question before me in the instant matter is whether VKG is offering portfolio management services to his clients without obtaining registration from SEBI as a portfolio manager.

4.2 It is prima facie observed from the admissions of VKG that Sharma had paid `3,15,000/- to VKG vide cheque number 761401 dated October 9, 2006 towards the services provided by VKG to Sharma between July 2006 and mid September 2006 on trial basis. As per VKG's own admissions vide letter dated November 19, 2014, he used to charge fees on monthly retainer basis varying between `4,000/- to `10,000/- (per month) for providing market and investment related services to a few of his clients in Delhi.

Though VKG has contended that `3,15,000/- received from Sharma was on gratuitous basis, nevertheless, in the circumstances of the case there is indeed enough reason to believe that it was in consideration of some services rendered by VKG which, in the circumstances can be broadly described as portfolio management services.

4.3 Considering the abovementioned facts and circumstances and from the terms of the agreement, it is prima facie observed that VKG was providing securities market and investment related advisory services to his clients which tantamount to the services offered by a "portfolio manager", as defined in Regulation 2(cb) of the PMS Regulations.

4.4 Regulation 2(cb) of PMS Regulations reads as under: '"portfolio manager" means any person who pursuant to a contract or arrangement with a client, advises or directs or undertakes on behalf of the client (whether as a discretionary portfolio manager or otherwise) the management or administration of a portfolio of securities or the funds of the client, as the case may be'.

4.5 Section 12(1) of the SEBI Act, 1992 reads, " 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:" Similarly, Regulation 3 of PMS Regulations also provides "No person shall act as portfolio manager unless he holds a certificate granted by the Board under these regulations".

4.6 Furthermore, 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 PMS activities are carried out. 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. Regulation 14 (1) (a) of PMS Regulations states "The portfolio manager shall, before taking up an assignment of management of funds or portfolio of securities on behalf of a client, enter into an agreement in writing with such client clearly defining the inter se relationship, and setting out their mutual rights, liabilities and obligations relating to management of funds or portfolio of securities containing the details as specified in Schedule IV..."

4.7 In this context, it is noted that VKG is not registered with SEBI in any capacity, either as portfolio manager or as a broker or a sub-broker affiliated to any broker. The characteristics and features of the business activity carried out by VKG as discussed in the preceding paragraphs prima facie lead to the conclusion that VKG is conducting himself as a portfolio manager and providing the services of portfolio management as defined in Regulation 2(cb) of the PMS Regulations. This is being done by VKG without obtaining the registration from SEBI in accordance with the provisions of PMS Regulations as described in the preceding paragraphs.

4.8 I find that these activities are in violation of various provisions of PMS Regulations and could put investors at great risk. Considering the facts and circumstances of the case, there is a likelihood that VKG may continue to carry out this business in contravention of PMS regulations, which may lead to his engaging with more investors in such a manner. Furthermore, in case of default by VKG in meeting his obligations to 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 fora such as arbitration, etc. would not be available."

2. In order to protect the interest of investors and restrain the noticee from soliciting and collecting funds from investors and carrying on portfolio management services without necessary registration from SEBI, the interim order had issued the following directions: ".......... 6. In view of the foregoing, I, in exercise of the powers conferred upon me under Sections 11(1), 11(4)(b), 11B and 11D read with Section 19 of the SEBI Act hereby direct Shri Vijay Kumar Gaba(PAN: AAIPG6905E): a. to cease and desist from acting as a portfolio manager and not to solicit or undertake such activity or any other activities in the securities market, directly or indirectly, in any manner whatsoever; b. not to divert any funds raised from any of its existing clients/investors.

7. The above directions shall take effect immediately and shall be in force until further orders. It is clarified that the prohibition on VKG shall not prevent him from making payments to the existing clients, if any, in accordance with the terms of the contracts already executed by him." [Emphasis supplied]

3. The interim order was issued without prejudice to the right of SEBI to take any other action that may be initiated against the noticee in accordance with law. The interim order stated that the observations contained therein were prima facie observations based on material available on record and advised the noticee that he may file his reply and also indicate whether he desired to avail an opportunity of personal hearing in the matter.

4. In response to the interim order, the noticee sought for an opportunity to inspect the case related documents. Such opportunity was afforded by SEBI on January 30, 2015 and the noticee had inspected the following documents: i. complaint letters of Mr. Madan Mohan Sharma ii. Copy of Order dated October 29, 2014 (in C. R. No. 54/14 in the Court of ASJ-05, West District, Tis Hazari Courts, Delhi) iii. SEBI letters dated October 31, 2014 and November 14, 2014 seeking information from the noticee iv. Information received from the noticee vide letter dated November 20, 2014 v. Original SEBI Order dated January 14, 2015 passed against the noticee in the matter. The noticee had also received copies of the documents mentioned at (i) above.

5. The noticee vide letter dated February 04, 2015 requested time till February 20, 2015 to submit his reply and also furnished his present address. Thereafter, vide letter dated February 13, 2015 the noticee filed his reply, wherein he inter alia made the following submissions: a) In the entire order, only one complaint of Mr. Madan Mohan Sharma is referred and the same is treated as a genesis/basis for alleging violation of PMS Regulations by the noticee. On a stray case that too of the year 2006, SEBI has chosen to invoke section 11 of the SEBI Act in the year 2015 and passed the 'cease and desist' order against him. b) The noticee's advisory services - research reports, investment advice, analysis of economic trends, patterns of markets, did not fall under any SEBI Regulations in the year 2006 and that no regulations of SEBI covered them. The SEBI (Investment Advisers) Regulations, 2013 came into effect from April 21, 2013. c) The noticee denied having carried out portfolio management services as alleged and denied having violated the PMS Regulations or any provision of the SEBI Act. d) No opportunity was provided to the noticee to explain his version and that the circumstance as stated in the order did not justify dispensation of pre-decisional hearing.

The directions issued against the noticee are neither preventive, remedial nor curative but penal. e) Not even a prima facie case has been made out to warrant the issuance of the ex-parte interim order. f) The power to issue directions under section 11 and 11B is a drastic power having serious civil consequences and ramifications on the repute and livelihood of those against whom it is directed. The said power is not available for routine and retrospective application. SEBI has to justify the need for invocation of the said power clearly after about 8 years from the alleged cause of action and in the backdrop of chronology, multiple proceedings between the parties and especially when Mr. Madam Mohan Sharma did not complain about purported non-compliance of PMS Regulations by the noticee. Nothing has been brought on record in justification of such a delayed action and that too when the noticee had already stopped advisory services (when he joined the services of DSP Merill Lynch from 26.06.2007) over seven and a half years back. g) Without prejudice to the above and in the alternative, it was submitted that in the facts and circumstances of the case, sections 11(1), 11(4), 11B and 11D of the SEBI Act have no relevance and these provisions are inapplicable. h) The interim order had, in paragraph 2.1, stated that SEBI wrote a letter dated October 31, 2014 which was returned undelivered.

Noticee requested for inspection and copy of the same for his comments as the same remains un-served on him. i) The noticee stated the following about himself : o He is a chartered accountant by qualification and was providing general market research report and investment advice to a few stockbrokers and corporate investors from 1994 - March 2007. o He does not have any website nor did he send SMSs. o Based on his study of macro-economic trends, technical and fundamental research, he used to provide guidance on investment strategy for medium to long term period through weekly reports and personal presentation. o His clients were free not to follow his advice or they could consider his guidance as one of the inputs in their overall strategy. o Each recipient of the report would consider the contents differently based on his profile, psyche, investment/trading preferences/objectives/fads/hedging /leveraging etc and other considerations so that they can devise a holistic approach to their financial planning and investment avenues. o None of his clients entrusted their existing portfolio of shares to manage or entrusted their funds to manage to the noticee.

The noticee did not manage any portfolio of securities and/or funds of anyone. No one had authorized the noticee, in their KYC documents (to brokers), to place buy/sell orders of shares on their behalf or for any other stock market - pre-trade, trade or post-trade activity. No one had any grievance against his services which were advisory in nature and with express and implied caution, market risks and disclaimers. o The noticee never advised his clients about intra-day trading, trading in futures and options or speculative trading of any kind. o The noticee is not a SEBI registered sub-broker. Since August 2012, he is an AMFI registered mutual fund distributor but did not undertake such activity till date. o The noticee joined DSP Merill Lynch Limited as Research Analyst on June 28, 2007 and worked there till May 18, 2012. Consequently, he could not advise anyone in his personal capacity after he joined this company in view of strict compliance norms and code of conduct prohibiting employees to interact with outsiders in the matter of their personal trading and investment. Post leaving the aforesaid job in May 2012, the noticee did not undertake any advisory activity for anyone and none is pointed out in the interim order. o The noticee also enclosed his affidavit for SEBI's consideration.

j) The alleged cause of action pertains to the year 2006-2007, the complaints were filed by Mr. Sharma in the year 2012, 2013 and 2014 and SEBI had considered and acted upon Mr. Sharma's old complaints for which Mr. Sharma has already taken several proceedings against his broker Master Capital Services Limited and the noticee. Mr. Sharma's complaint to SEBI has therefore previous background which needs to be looked into. k) SEBI's interim order considers very old 'cause of action' i.e., Mr. Sharma's old complaints and SEBI has not explained the reasons for taking cognizance of his grievances and acting against the noticee. The complaints are nothing but arm twisting tactics, showing muscle power and vendetta against the noticee. The genesis of the said order is the said complaint, which has a certain background and that has been suppressed by Mr. Sharma. l) Prior to the issue of the interim order, the noticee's statement was not recorded. m) The order is in violation of all norms of principles of natural justice. The noticee was not given an opportunity to cross-examine Mr. Sharma. The noticee has requested SEBI to furnish copies of all correspondence and statements made by Mr. Sharma to SEBI and grant him an opportunity to cross examine him.

n) According to the noticee, Mr. Sharma has not furnished full, complete and true details of the matter which need to be considered, analysed and examined critically before any final order is passed against him. o) On inspection of documents, SEBI has provided copy of letter dated November 03, 2014 of Mr. Sharma addressed to SEBI.

p) Mr. Sharma's complaints against the noticee and Master Capital Services Limited (MCSL) was of cheating for which the parties have taken proceedings against one another in different fora. q) Mr. Sharma has executed KYC documents with MCSL, BSE/NSE Trading Member and therefore had privity with MSCL. Mr. Sharma has filed arbitration case at NSE, Patna for his money claims against MCSL to which noticee was not made a party. Mr. Sharma has admitted that he used to place buy-sell orders of shares etc. directly on MCSL and pay-in/pay-out of funds /shares etc., pre-trading, trading and post-trading activities were between Mr. Sharma and MCSL to the exclusion of VKG. r) The noticee never admitted any liability to Mr. Sharma - the documents dated December 10, 2010 (purported agreement) and June 01, 2007 referred to by him have been disputed by the noticee long time back before different authorities/fora. s) The noticee had rendered some advisory services on a trial basis to Mr. Sharma (for which there was no agreement) during July 2006 to September 2006 for which Mr. Sharma had raised no grievance or dispute at the relevant time to anyone. t) Mr. Sharma had paid a sum of Rs.3,15,000/- by cheque in October 2006 to the noticee. As the said payment was on a gratuitous basis, he did not send the said cheque through a covering letter and without receiving any bill from the noticee. Mr. Sharma did not demand the money back from the noticee. u) Therefore, the complaints of Mr. Sharma to SEBI in the year 2014 are an afterthought, mischievous and malafide. Further, Mr. Sharma has suppressed several facts, approached SEBI with unclean hands to SEBI and hence guilty of suppressio veri and suggestio falsi. v) Erroneous statements: The noticee had stated in his letter dated November 19, 2014 to SEBI as under: Para 5 - "I usually charged fee on monthly retainer basis. It varied between Rs.4,000/- to Rs.10,000 per month." The statement was quoted as under in the interim order:

iv.h - "I usually charge fee on monthly retainer basis. It varied between Rs.4,000/- to Rs.10,000 per month."

The alphabet 'd' is omitted after charge in the statement. The fees charged were in the past before the noticee joined DSP Merill Lynch on June 28, 2007. After joining, DSP Merill Lynch, the noticee could not/did not offer any service to anyone and this is reflected in his bank statements submitted to SEBI. The noticee reconfirmed that he did not render any advisory, PMS or any such services to anyone after he joined DSP Merill Lynch i.e., from June 28, 2007 onwards. At no point of time, Mr. Sharma lodged any complaint against the noticee with DSP Merill Lynch.

w) Referring to the definitions of 'portfolio' and 'portfolio manger' as defined under regulation 2(ca) and regulation (cb) respectively under the PMS Regulations, the noticee stated the following: The noticee confirmed that he had not executed any contract or arrangement with Mr. Sharma -no terms and conditions existed and none is pointed out by Mr. Sharma. The noticee was not entrusted with the portfolio of securities by Mr. Sharma nor did he advise or direct or undertake on behalf of Mr. Sharma the management or administration of his portfolio of securities or his funds. The noticee had not exercised any control or was he was authorised to manage portfolio of securities and funds by Mr. Sharma. No authority of any kind or power of attorney was given to the noticee by Mr. Sharma. It is critical to note that the complaint of Mr. Sharma on the basis of which action has been initiated on the noticee, is primarily against the broker. SEBI had conducted an inspection of MCSL in pursuance of Mr. Sharma's complaint around August 2014 and had found no serious irregularity in the operation of Mr. Sharma's account and he himself operated his regular trading account. From SEBI's public record, it is clear that no action whatsoever has been taken against MCSL so far. x) The noticee denied having violated the provisions of regulation 2(cb), 14(1) or any provision of PMS Regulations and section 12(1) of the SEBI Act. y) The noticee contended that the interim order did not point out specific characteristics and features of the alleged business activity prior to June 28, 2007. It was not even Mr. Sharma's case that the noticee offered some advisory services after June 28, 2007.

z) The interim order was based on conjectures and surmises and imagination that 'VKG may continue to carry out this business', when he had specifically not carried out any activity of PMS. aa) Even assuming but without admitting that the noticee's advisory services prior to June 28, 2007 were of PMS nature, they were stopped from June 28, 2007 when he joined DSP Merill Lynch. The fear and apprehensions of SEBI are totally out of context and misplaced. When the noticee was not soliciting and collecting funds from investors (not a single case pointed out) and not carrying on portfolio management (not a single case pointed out), there was no need to pass any ad-interim exparte order against the noticee. bb) Mitigating factors as per noticee: o he has not violated any provision of law. o not guilty of conduct which is contumacious or dishonest or acted in conscious disregard of law. He has not acted in defiance of law. cc) In view of his submissions, the noticee requested that he may be discharged from the proceedings. The noticee sought for an opportunity of personal hearing and permission to file additional documents and submissions.

6. The noticee was afforded an opportunity of personal hearing on March 27, 2015 when he appeared along with Mr. J.J. Bhatt, Advocate and made submissions, which were on the lines of the reply filed by the noticee. As requested, liberty was granted to the noticee to file written submissions along with complete compilation of documents.

7. Thereafter, the noticee filed his written submissions vide letter dated April 01, 2015, reiterating his earlier submissions and inter alia submitted that - a) The noticee never provided any service to anyone in violation of any SEBI rules and regulations. b) Paragraph 4.1 of the interim order categorically stated that this Order does not relate to complaint of Mr. Sharma and the matter needs to be settled by the court only. c) The question under examination was whether the noticee was offering services as portfolio manager at present. As stated in the reply dated February 13, 2015, the noticee had joined DSP Merill Lynch as Research Analyst in June 2007 and worked till May 2012. Since 2012, he did not provide any service to anyone in the nature of portfolio management service requiring registration from SEBI. d) The proceeding against the noticee is prima facie based on erroneous reading of his reply dated November 19, 2014. In this letter, the noticee mentioned that he 'usually charged', whereas in the interim order, it was mentioned 'usually charge'. This manner of presentation suggested that the noticee continued to provide services even today. SEBI has not provided an iota of evidence to suggest any findings showing continuation of PMS services by the noticee in violation of SEBI regulations. e) The noticee in paras 3 and 4 of his reply dated November 19, 2014 had stated as follows : "3. As clarified earlier, I had no arrangement with Mr. Sharma whatsoever. I would like to categorically state that I did never provide any "Portfolio Management Services" or any fund based services in the nature of "Portfolio Management Services" to anyone. I had joined DSP Merill Lynch at Mumbai on June 28, 2007 as Research Analyst and was working with them till 18 May 2012.

4. Before joining DSP Merill Lynch in June 2007, I used to provide market and investment related services to some broker/sub-broker and couple of corporate investors in Delhi. The services provided were mostly in the nature of macro strategy, technical and fundamental research, training and investor education. I did conduct a number of training sessions for brokers under the aegis of Delhi Stock Exchange. I did never provide any service to any individual including Mr. Sharma regarding investment in equity shares".

However, paragraph 3(iv)(g) of the interim order has selectively quoted the reply as follows: g. "I had no arrangement with Mr. Sharma whatsoever, I would like to categorically state that I did never provide any "Portfolio Management Services" or any fund based services in the nature of "Portfolio Management Services" to anyone. ...I used to provide market and investment related services to some broker/sub-broker and couple of corporate investors in Delhi. The services provided were mostly in the nature of macro strategy, technical and fundamental research, training and investor education. I did conduct a number of training sessions for brokers under the aegis of Delhi Stock Exchange. I did never provide any service to any individual, including Mr. Sharma, regarding investment in equity shares." The underlined text above read with the sentence following immediately makes it clear that the service were not in the nature of PMS as contemplated by SEBI regulations. By erroneously highlighting a elected portion, the nature of services provided by the notice in the distant past are sought to be altered.

The omission of the statement regarding the noticee joining DSP Merill Lynch in para 3 and the words " Before joining DSP Merill Lynch in June 2007" at the beginning of para 4 at page of the reply completely altered the timeline of the noticee's activities. f) The noticee had stated in his reply dated November 14, 2014 and affidavit dated February 12, 2015 that his services prior to June 2007 were purely in the nature of investment advisory, which did not require registration with SEBI till April 21, 2013. g) The noticee did not have any contract or arrangement with anyone including Mr. Sharma of the nature specified in the definition of 'portfolio manager' under the PMS Regulations. h) The photocopies of the purported mutual agreement dated December 10, 2010 and letter dated June 01, 2007 provided by Mr. Sharma are post facto forged, fabricated. The signatures of the noticee in the first page of mutual agreement dated December 10, 2010 were obtained under threat. These have been disputed and are subject to multiple judicial proceedings. The photocopies of the above documents cannot become the sole basis for inferring that the noticee had any agreement with anyone.

This is particularly when no evidence, factual, circumstantial or otherwise has been provided to show that the noticee had any arrangement or made any promise before starting the noticee's services. Relying upon these documents without establishing the authenticity or even verifying the originals is completely unjust. i) The proceedings, as per para 1 of the interim order, are based on the complaint of Mr. Sharma. The complaint dated June 22, 2014 of Mr. Sharma addressed to Hon'ble member of Rajya Sabha has prayed for action only against MCSL and the complainant did not seek any action against the noticee as there are already multiple criminal litigation pending in various courts. Mr. Sharma had already invoked arbitration proceedings against MCSL. j) It is ludicrous to believe that a seasoned politician (i.e., the noticee) would give cheques for Rs.5.85 crore to a stranger and then back this up with another Rs. 1 crore without any documentation, promise, complaint or action on his part for 5 years. k) The noticee requested that the proceedings be quashed and he may be discharged from the same.

8. The noticee, vide letter dated June 11, 2015, informed as follows : (a) The Hon'ble High Court at Patna has quashed the proceedings initiated by the complainant against the noticee in the Hon'ble District Court, Patna. While quashing the proceedings, the Hon'ble

Court has noted that the complainant denied in the Court that 'he made any payment' to noticee nor 'he entered into agreement' with noticee. Copy of the said Order dated April 20, 2015 was annexed with the letter. (b) The noticee also forwarded a copy of the Arbitration Award dated April 27, 2015, which inter alia observed that there was no evidence of the noticee's involvement in the case and the charges against the noticee are baseless.

The noticee requested SEBI to review the interim order in view of the above developments.

9. I have considered the interim order cum show cause notice, the replies/submissions made by the noticee and material available on record. Before proceeding with the merits of the case, I note that the noticee while referring to paragraph 2.1 of the interim order (which referred to SEBI letter dated October 31, 2014 seeking comments and information from noticee - this letter had returned undelivered) had requested for inspection of the said SEBI letter and also requested for a copy of the same. It is noted that the said letter was subsequently forwarded to the noticee on November 10, 2014 and delivered on the noticee at his address in Delhi. The noticee had also inspected the letter that had returned during his inspection of records.

10. While dealing with the allegation against the noticee, the following paragraphs from the interim order are reproduced, at the cost of repetition, as they provide the basis for alleging that the noticee had conducted portfolio management services without obtaining registration from SEBI. ".............. 4.1 While the rival claims and counter claims put forward by Sharma and VKG will have to be settled at appropriate legal fora, the question before me in the instant matter is whether VKG is offering portfolio management services to his clients without obtaining registration from SEBI as a portfolio manager. 4.2 It is prima facie observed from the admissions of VKG that Sharma had paid `3,15,000/-to VKG vide cheque number 761401 dated October 9, 2006 towards the services provided by VKG to Sharma between July 2006 and mid September 2006 on trial basis. As per VKG's own admissions vide letter dated November 19, 2014, he used to charge fees on monthly retainer basis varying between `4,000/- to `10,000/- (per month) for providing market and investment related services to a few of his clients in Delhi. Though VKG has contended that `3,15,000/- received from Sharma was on gratuitous basis, nevertheless, in the circumstances of the case there is indeed enough reason to believe that it was in consideration of some services rendered by VKG which, in the circumstances can be broadly described as portfolio management services. 4.3 Considering the abovementioned facts and circumstances and from the terms of the agreement, it is prima facie observed that VKG was providing securities market and investment related advisory services to his clients which tantamount to the services offered by a "portfolio manager", as defined in Regulation 2(cb) of the PMS Regulations. "

11. The interim order has alleged that the noticee received Rs.3,15,000/- from the complainant towards the services provided by the noticee between July 2006 and mid-September 2006. The noticee, in his submissions, has admitted that he rendered advisory services to the complainant during July 2006 to September 2006 and that the complainant had paid a sum of Rs.3,15,000/- (though contended by noticee to be a gratuitous payment) by cheque in October 2006 to the noticee. The noticee also submitted that he is a chartered accountant and used to provide guidance on investment strategy for medium to long term period through weekly report/presentation based on his study of macro-economic trends, technical and fundamental research. The noticee was admittedly providing general market research report and investment advice to a few stockbrokers and corporate investors from the year till March 2007. The noticee has also stated that he usually charged fee on monthly retainer basis and the fees and the same varied between Rs.4000/- to Rs.10,000/- per month.

On a consideration of the above submissions, it could be inferred that the same are an admission by the noticee that he rendered advisory services in the nature of investment advice in securities market to the general public including the complainant during the relevant period. Therefore, even if the contention of the noticee that none of his clients entrusted their portfolio of shares or funds to the noticee to manage is considered, it is an admitted fact that he rendered advisory services. Further, in view of such admission, his contention that the interim order did not point out specific characteristics and features of the alleged business activity prior to June 28, 2007, becomes infructuous.

12. I also note that the noticee has not produced any material to substantiate his claim that he rendered investment advisory services for a monthly fee and that such fees were constantly coming in. Further, the aforesaid money received from the complainant is higher than the amount of fees (i.e. Rs.4000/- to Rs.10,000/-) charged by the noticee for providing investment advisory services. Therefore, it gives an impression that the amount received by the noticee from the complainant was not for a single investment advice. Therefore, in the facts and circumstances of the case, it becomes difficult to accept that such payment was a gratuitous one.

13. Therefore, it is to be determined whether the activities of the noticee, as admitted by him, in offering investment advice and research reports were in the nature of portfolio management services. In this regard, a 'portfolio manager', in terms of 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 (whether as a discretionary portfolio manager or otherwise) the management or administration of a portfolio of securities or the funds of the client, as the case may be'. Therefore, any person who advises the management or administration of a portfolio of securities or the funds of the client as the case may be, can be said to be a portfolio manager. The noticee is not a registered portfolio manager with SEBI during the relevant point in time when he offered such services. The noticee has contended that none of his clients entrusted their existing portfolio of shares or funds to noticee for managing the same. However, it needs to be noted that as per the definition of 'portfolio manager', even the advice to a client pursuant to an arrangement on the management or administration of a portfolio of securities or funds of the client, would be considered as portfolio activities.

14. The noticee has contended that the purported mutual agreement dated December 10, 2010 and letter dated June 01, 2007 provided by Mr. Sharma are post facto forged, fabricated and that the signatures of the noticee in the first page of mutual agreement dated December 10, 2010 were obtained under threat. The noticee has submitted that these have been disputed and are subject to multiple judicial proceedings and contended that reliance on those documents without establishing the authenticity or even verifying the originals is completely unjust. However, the case against the noticee is proved by the noticee's admission and submissions that he offered market and investment advisory services on payment of fees, without any need to refer to documents disputed by the noticee.

15. The noticee vide his letter dated June 11, 2015 forwarded copies of the Order dated April 20, 2015 of the Hon'ble High Court at Patna and the Arbitration Award dated April 27, 2015 of the Arbitrators of NSE. However, the above said Order and the Award pertain to the purported financial dealings between the noticee and the complainant and the complainant and his broker, MCSL respectively. This proceeding is only with respect to the allegation against the noticee, as made in the interim order, of functioning as an unregistered portfolio manager and accordingly the submissions made by the noticee with respect to claims and counter-claims between himself and complainant are extraneous to the issue at hand.

16. In terms of section 12(1) of the SEBI Act, "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, regulation 3 of the PMS Regulations mandates that "No person shall act as portfolio manager unless he holds a certificate granted by the Board under these regulations". Both the above quoted provisions mandate that the person should hold a certificate of registration from SEBI in order to be associated with the securities market as a portfolio manager. As the noticee was not registered with SEBI as a portfolio manager and has offered such services to the complainant, such conduct constitute a breach of section 12(1) of the SEBI Act and regulation 3 of the PMS Regulations, as alleged in the interim order.

In view of the foregoing, it can be concluded that the noticee acted as an unregistered portfolio manager in contravention of section 12(1) of the SEBI Act and regulation 3 of the PMS Regulations.

17. The noticee has contended that the interim order has mentioned "I usually charge fee on monthly retainer basis...", whereas according to the noticee, it was stated "I usually charged fee on monthly retainer basis ...". The noticee has submitted that the omission of the statement regarding his joining DSP Merill Lynch and the words "Before joining DSP Merill Lynch in June 2007" completely altered the timeline of the noticee's activities. I have considered such submissions and note that the same are fait accompli as this Order is a final order.

18. The noticee has contended that his services were offered and availed during the year 2006-2007 and that there was no urgency to pass an interim order by invoking powers under sections 11, 11B of the SEBI Act in the year 2015. The interim order had clearly mentioned the period of violation and has suspected that the noticee could be continuing with his 'services'. It needs to be noted that the alleged violation came to the notice of SEBI only through the complaint made on June 02, 2014. Pursuant to the same, SEBI conducted an examination and thereafter the interim order was issued on January 14, 2015. Thus, the contention that there was delay considering the time period of cause of action is misplaced as SEBI examined the issue when it came to its knowledge. It also needs to be appreciated that the interim order was issued in order to prevent the noticee from soliciting and collecting funds from investors and carrying on portfolio management services without due registration from SEBI.

19. The noticee has also submitted that even if it is assumed that his advisory services prior to June 28, 2007 were of PMS nature, they were stopped from June 28, 2007 when he joined DSP Merill Lynch. The noticee has submitted that he did not advise anyone after joining DSP Merill Lynch as a Research Analyst and did not undertake any advisory activity for anyone post his resignation in May 2012. In this regard, I note that as per the interim order, the noticee had indulged in offering unregistered portfolio management services in the year 2006. Further, there appears to be no material on record at this stage to suggest that the noticee had continued with such activities post June 2007.

20. In view of the above findings and observations, I, in exercise of the powers conferred upon me under section 19 of the Securities and Exchange Board of India Act, 1992 and sections 11(1), 11(4), 11B and 11D thereof read with the SEBI (Portfolio Managers) Regulations, 1992, hereby restrain the noticee, Mr. Vijay Kumar Gaba from making an application to SEBI for offering portfolio management services or investment advisory services or any activity in the securities market requiring registration for a period of one year.

21. Accordingly, the instant proceeding initiated against noticee, Mr. Vijay Kumar Gaba vide the interim order dated January 14, 2015 is hereby disposed of.

PRASHANT SARAN WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

Date : JULY 15, 2015 Place : Mumbai